The recent decision of the Victorian Supreme Court in the matter Re Kevin McNamara & Son Pty Ltd [2014] VSC 337 has confirmed that, where creditors are joint tenants to a debt, the bankruptcy of one of the joint creditors does not sever the entitlement of the non-bankrupt creditor to recover the whole debt. 

Facts

A dispute arose concerning a pool that the plaintiff, McNamara, built for the defendant, Mrs Vlahos and her husband, Mr Vlahos. The dispute went to arbitration, where the arbitrator made an award in favour of the defendant.

After the arbitration, the builder conceded that he owed the amount awarded to Mr and Mrs Vlahos. However, before the builder had paid the amount Mr Vlahos became an undischarged bankrupt. Following Mr Vlahos’ bankruptcy, Mrs Vlahos issued a statutory demand to the builder for the whole amount that the builder owed. The builder then sought to set aside or amend statutory demand on basis that Mrs Vlahos was only entitled to half of the amount and that Mr Vlahos was separately entitled to the other half.

Therefore, the primary issue was whether Mr Vlahos’ bankruptcy severed the joint tenancy of Mr and Mrs Vlahos to the award amount.

Decision

Justice Robson held that before bankruptcy, Mr and Mrs Vlahos held the arbitral award amount as joint creditors. Upon bankruptcy, the joint tenancy severed at equity. As a result, the trustee in bankruptcy and the defendant held the debt at equity as tenants in common in equal shares. However, at law, Mr and Mrs Vlahos continued to hold the debt as joint tenants. Accordingly, Mrs Vlahos was entitled to claim the entire arbitral award amount in the statutory demand. There was no occasion to amend the statutory demand to claim only half the arbitral award amount.

Take away message

It is important to be aware of the impact that the distinction between joint tenancy and tenancy in common may have if a party becomes bankrupt. Knowing your legal rights as a bankrupt or as a creditor to a bankrupt is significant to your ability to successfully recover your entitlements. Without qualified legal advice, creditors are likely to miss opportunities to recover what is rightfully theirs.

 

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