An undischarged Bankrupt’s right to sue for income earned during the course of bankruptcy

In the recent decision of Davey v Dessco Pty Ltd & Anor [2017] VSC 744, the Supreme Court of Victoria has clarified that a bankrupt is entitled to commence court proceedings for personal income earned during the bankruptcy period and that it does not vest in the bankruptcy trustee.

Mr Davey was a bankrupt from 27 February 2014 to 18 April 2017. During that time he continued to practise as a solicitor.

In May 2016, Davey commenced proceedings against Dessman and Dessco Pty Ltd ('the respondents') for payment for legal services which Davey alleged he had rendered to the respondents in 2015 . The respondents then sought to have the proceedings permanently stayed on the basis that Davey was an undischarged bankrupt.

Davey was unsuccessful in the Magistrates Court but appealed to the Supreme Court of Victoria, arguing that his entitlement to earn protected income meant that he had a right to sue for his services, regardless of the fact that he was a bankrupt.

Justice Forrest of the Supreme Court of Victoria held that Mr Davey was entitled to sue for the fees he allegedly earned during his bankruptcy. His Honour stated that, “the bankrupt’s trustee has no right to sue for income or wages of the bankrupt, as the right to this income has not vested in the trustee. The necessary corollary must be that the right to sue for income is retained by the bankrupt.

The decision is significant because it confirms that a bankrupt may still commence proceedings in his or her own name for actions that accrued while the person was still a bankrupt.

The decision highlights that there is nothing in the Bankruptcy Act 1966 (Cth) preventing a bankrupt plaintiff from commencing a proceeding seeking relief in relation to property that does not vest in the bankruptcy trustee.

If you have any questions about this decision or about the bankruptcy regime in Australia in general, please do not hesitate to contact our office.



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