Background
Maureen Jean Hartzer was the registered proprietor of land at 9 Lockyer Street, Goomalling, Western Australia. She was made bankrupt in July 2017 and the Official Trustee in Bankruptcy was appointed to administer her estate. Although her beneficial interest vested in the trustee under s 58(1)(a) of the Bankruptcy Act 1966 (Cth), the trustee never applied to become the registered proprietor. Instead, in October 2020, the trustee disclaimed its interest in the property under s 133(1) of the Act on the grounds that the dwelling was unsaleable — it had been declared unfit for human habitation due to the presence of asbestos and was subject to a demolition order. Upon disclaimer, Ms Hartzer’s interest passed to the State of Western Australia by the doctrine of escheat, and the Registrar of Titles lodged a caveat on the title.
The Shire of Goomalling held outstanding rates over the land of approximately $47,000, with arrears stretching back to 2015 (and some deferred arrears to 2007). Under the Local Government Act 1995 (WA), rates unpaid for at least three years give the local government a statutory charge over the land and a power of sale. Unable to exercise that power effectively while the disclaimed interest was caught between the bankrupt estate and the State, the Shire applied to the Federal Court under s 133(9) of the Bankruptcy Act for an order vesting the property in it so it could sell the land and recover the outstanding rates.
The Court’s Holding
Justice Banks-Smith granted the vesting order. Applying the three-part test settled in Australia and New Zealand Banking Group Limited v State of Queensland [2018] FCA 464, the Court found: (1) a valid disclaimer had occurred; (2) the Shire held a sufficient interest in the disclaimed property; and (3) vesting was just and equitable. On the second element, the Court followed Shire of Carnarvon v State of Western Australia [2024] FCA 1064, holding that a statutory charge coupled with a statutory power of sale placed the Shire in substantially the same position as a mortgagee, satisfying the “interest” requirement of s 133(9). The State appeared but did not oppose the orders.
The Court also waived certain procedural prerequisites under the Local Government Act — specifically the obligation to first attempt court-based rate recovery under s 6.56 and the notice requirements under s 6.64(2) — on the basis that s 133(9) is broadly expressed and the inquiry is framed in terms of what is just and equitable. The Shire had previously issued statutory notices to the registered proprietor, making further notice obligations unnecessarily repetitive. Proceeds of any sale are to be applied in a specified waterfall: sale costs, statutory charges, amounts owed to the Shire, other encumbrances, with any residue paid into Court and, if unclaimed after two years, to the Crown.
Key Takeaways
- A local government holding a statutory charge and power of sale for unpaid rates has a sufficient “interest in disclaimed property” under s 133(9) of the Bankruptcy Act 1966 (Cth) to seek a vesting order — it need not be a mortgagee.
- When a trustee disclaims property and it escheats to the Crown, a local council is not left without remedy; s 133(9) provides a practical pathway to recover outstanding rates through a court-supervised sale.
- The Federal Court may waive statutory prerequisites under state local government legislation (such as prior recovery attempts and formal notice requirements) where it is just and equitable to do so, provided prior notices have already been issued.
- Surplus sale proceeds should be paid into Court rather than directly to the Crown, with the Crown entitled to claim them after a two-year supervision period — an approach consistent with recent Western Australian authority.
Why It Matters
This decision confirms and extends the line of Federal Court authority recognising that local governments, like secured lenders, can obtain vesting orders over disclaimed bankrupt property to recover unpaid rates. Practitioners advising councils on rate-recovery strategy should note that the statutory charge under the Local Government Act 1995 (WA) is treated as equivalent in substance to a contractual security interest, opening the s 133(9) pathway even where the property has been abandoned by both the bankrupt and the trustee.
The case also illustrates the Court’s pragmatic approach to procedural obstacles: where a property is derelict and unsaleable in its current condition, strict insistence on state-law notice and recovery prerequisites serves no protective purpose and will be set aside in the interests of an efficient, supervised realisation. The two-year escrow mechanism for surplus proceeds offers a workable template balancing competing claims between local government, other encumbrancers, and the Crown.