Vesting of trust property in a trustee in bankruptcy and reasonable belief: some guidance for trustees in bankruptcy

Introduction On 13 December 2019, in Boensch v Pascoe [2019] HCA 49, the High Court dismissed an appeal from the Full Federal Court[1] by a former bankrupt seeking to establish that a caveat lodged over real property by his prior trustee in bankruptcy was done without reasonable cause, entitling him to compensation pursuant to section 74P of the Real Property Act 1900 (NSW) (RPA). In coming to this decision, the High Court considered the operation of section 58(1) of the Bankruptcy Act 1966 (Cth) (BA), which, upon the making of a sequestration order, provides that property of a bankrupt vests in his or her trustee in bankruptcy, and the exclusions to the general principle that property is generally divisible amongst the bankrupt’s creditors, including section 116(2)(a) of the BA, which excludes trust property held by a bankrupt from vesting in a trustee in bankruptcy. Background The former bankrupt, Mr Boensch…