Background
Mercedes McKay was made bankrupt on 25 November 2024 by sequestration order obtained by the Australian Taxation Office. The Official Trustee was appointed and promptly notified Ms McKay of her obligation under s 54(1) of the Bankruptcy Act 1966 (Cth) to file a statement of affairs. The estate was transferred to private trustees Matthew Vines and John Shanahan in January 2025, who again wrote to Ms McKay requiring the statement within 14 days. Receiving no response, Mr Vines attended her Bedford, Western Australia property in person in February 2025, only to be informed by a friend that Ms McKay had died on 11 February 2025 — before she had ever filed a statement of affairs.
With no will located, no family member seeking probate or letters of administration, and no legal personal representative in existence, the statutory mechanism that ordinarily compels a representative to file a statement of affairs (s 246, applying to deaths before or during creditor-petition proceedings) had no application here, since Ms McKay died after the sequestration order was already made. The trustees therefore had no means of obtaining a statement of affairs through ordinary channels.
The trustees proceeded to conduct a thorough investigation of the estate. They contacted 47 banking and financial institutions, reviewed a credit report, searched the deceased’s residence, liaised with the liquidator of a company of which Ms McKay had been a director, and placed creditor advertisements in The West Australian and The Australian. The ATO was identified as a creditor owed approximately $1,365,202. Two caveators over the Bedford property — the City of Bayswater (rates) and Delta Resource Management Pty Ltd (in liquidation) — had their claims resolved. The property was sold, leaving approximately $145,154 available for distribution.
The Court’s Holding
Justice Banks-Smith made orders under s 146 of the Bankruptcy Act 1966 (Cth) authorising the trustees to distribute dividends among creditors who had proved their debts as if a statement of affairs had been filed and those creditors had been named in it. The court was satisfied that there had been a failure to file a statement of affairs — not through wilful refusal but through the supervening circumstance of Ms McKay’s death — and that such a mere omission is sufficient to enliven the power under s 146, consistent with Re Sturt; Ex parte Official Trustee in Bankruptcy [2001] FCA 1649 and Vines (Trustee), in the matter of Taylor (Deceased) v Bosnyak [2025] FCA 436.
The court found it appropriate to grant relief having regard to the factors identified in Re Sturt: the trustees had taken comprehensive steps to identify creditors, had advertised publicly, and had notified the ATO and Ms McKay’s family of the application. None of those parties sought to be heard. The court also noted that no conceivable prejudice would flow to any potential beneficiaries of the deceased estate, given the estate’s liabilities far exceeded its assets, whereas the creditors would suffer real prejudice if distribution were blocked.
The costs of the application were ordered to be costs of the bankruptcy, payable from the bankrupt estate. The orders were framed to preserve the possibility that further creditors could come forward before any dividend was actually distributed, though the court regarded that prospect as highly unlikely.
Key Takeaways
- Section 146 of the Bankruptcy Act 1966 (Cth) empowers the Federal Court to authorise dividend distribution without a statement of affairs where the bankrupt has died before filing one; wilful refusal is not required — a mere omission, including one caused by death, suffices.
- Section 246, which requires a legal personal representative to file a statement of affairs, applies only where the debtor died before or during creditor-petition proceedings, not after a sequestration order has already been made.
- Trustees seeking relief under s 146 should demonstrate thorough efforts to identify creditors (credit searches, institutional inquiries, public advertisements) and give notice of the application to known creditors and interested parties.
- Where a deceased bankrupt’s liabilities clearly exceed assets, potential beneficiaries of the deceased estate suffer no prejudice from an order permitting distribution to proven creditors.
Why It Matters
This decision confirms the practical operation of s 146 in the increasingly common scenario where a bankrupt dies before complying with their statutory obligations, leaving trustees unable to finalise administration through ordinary means. It reinforces that the section’s purpose — preventing the absence of a statement of affairs from prejudicing creditors — is broad enough to encompass involuntary omissions such as death, and that courts will grant relief where trustees have acted diligently and transparently.
For insolvency practitioners, the case provides a clear procedural template: exhaust reasonable efforts to locate creditors, attempt to ascertain whether a legal personal representative exists or will be appointed, serve notice on all known interested parties, and bring the application promptly once assets are realised. The decision joins a small but growing line of Federal Court authorities dealing with deceased bankrupts, sitting alongside Taylor (Deceased) v Bosnyak [2025] FCA 436 and Dixon (Trustee) v Grant [2025] FCA 1440.