1. Section 90K(1)(aa) of the Family Law Act 1975 (Cth) provides that a court may set aside a financial agreement if the court is satisfied that a party to the agreement entered into the agreement for purposes including the purpose of defrauding or defeating creditors, or with reckless disregard to the interests of the creditors.

2. In the case of Official Trustee in Bankruptcy v Galanis (2017) FLC 93-760; [2017] FamCAFC 20, the Full Court of the Family Court of Australia affirmed the decision of Rees J in the court below that a trustee in bankruptcy of a discharged bankrupt does not have standing under the Family Law Act to seek to set aside a financial agreement.

3. The Full Court of the Family Court noted that, while the trustee did not have standing under the Family Law Act to challenge the financial agreement that had been reached between husband and wife in relation to the ownership of a property, it remained open to the trustee of the discharged bankrupt to bring proceedings in a court with jurisdiction under the Bankruptcy Act 1966 (Cth), pursuant to section 121 which provides that transfers of property to defeat creditors are void against the trustee of a bankrupt estate, subject to the limitations as to time set out in section 127 of the Bankruptcy Act. However, current legislation before the Parliament will, if passed, provide the Family Court of Australia with bankruptcy jurisdiction when a trustee applies to set aside a financial agreement under the Family Law Act.

The case of Galanis

In the case of Official Trustee in Bankruptcy v Galanis (2017) FLC 93-760; [2017] FamCAFC 20, Mr Dukas and Ms Galanis had purchased a property together as tenants in common, with Ms Galanis owning 60 per cent, and Mr Dukas owning 40 per cent. The position of both parties was that Ms Galanis had provided 100% of the purchase price. Ms Galanis and Mr Dukas separated in 2011, and Mr Dukas was discharged from bankruptcy in 2011.

On 13 February 2013, Ms Galanis and Mr Dukas entered into a financial agreement pursuant to section 90D of the Family Law Act, which required that Mr Dukas would transfer all his right, title and interest in the matrimonial home to Ms Galanis. The Official Trustee as trustee of Mr Dukas’ estate sought an order that the agreement be set aside and 40 percent of the net profits of the sale of the property be paid to the Official Trustee to be distributed amongst the creditors of Mr Dukas.

In Official Trustee in Bankruptcy v Galanis (2017) FLC 93-760; [2017] FamCAFC 20, the Full Court of the Family Court of Australia affirmed the decision of Rees J in Official Trustee in Bankruptcy v Galanis [2014] FamCA 832 that a trustee in bankruptcy of a discharged bankrupt does not have standing under the Family Law Act to seek to set aside a financial agreement. However, if Mr Dukas was an undischarged bankrupt, the trustee would have had standing (pursuant to section 4(1)(cb) of the Family Law Act.

Trustee of a discharged bankrupt – Law Reform

Following the decision of the Full Court of the Family Court of Australia in Galanis, a trustee in bankruptcy in respect of a discharged bankrupt does not have standing to seek to set aside a financial agreement pursuant to section 90K(1)(aa).

However, the Civil Law and Justice Legislation Amendment Bill 2017, currently before the Parliament, includes a proposed amendment to the Bankruptcy Act 1966 (Cth) to clarify that the Family Court of Australia has bankruptcy jurisdiction when a trustee applies to have a financial agreement set aside under the Family Law Act, such that a trustee in bankruptcy would no longer be required to approach a different court to obtain relief in relation to setting aside a financial agreement. This will remove an area of uncertainty and streamline the process for bankruptcy trustees when dealing with estates which are impacted by Family Law matters.