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Bankruptcy
    •  Property held on trust
        -  Availability for satisfaction of creditors



Availability for satisfaction of creditors 

This case concerned real property that was legally owned by a person who had become bankrupt, but where it was claimed that the real property was owned on trust for another person.

The Court had to consider whether the real property was held on trust, and whether it followed that the real property was not available to the creditors of the bankrupt, but should continue to be held for the benefit of the beneficiary of the trust.

Roya Sheikholeslami had moved to Sydney from Canada to take up employment as a university lecturer. She entered into an arrangement with her sister, Gita Sheikholeslami, who lived overseas, under which Gita would provide the funds to purchase the real property, and Roya would then lease the property from the other sister by paying at least the amount of rent sufficient to cover the mortgage repayments. It was understood between them that Gita would be the true owner of the real property.

The Court held that, in order for a trust to arise, there must have been an intention to create a trust. The Court then held that such an intention had been present and that the real property was held by Roya on trust for Gita.

The Trustee in Bankruptcy argued that the fact that the real property was held on trust should not prevent the bankrupt’s creditors getting access to that real property, because the sisters had acted improperly in putting in place a scheme to avoid what they understood to be Australian law regarding the purchase of real property by foreign nationals.

The Court noted that the sisters had misunderstood the law, that the most that could be said was that they had put in place a scheme to avoid what they had understood was a restriction imposed by Australian law on the ownership of real property by foreign nationals. Therefore, it could not be said that the sisters had a mutual intention to try and evade Australian law. The argument by the Trustee in Bankruptcy failed.

The Court noted however that, although it was lawful for the property to be owned by a foreign national resident overseas, it was still required that notice be given to the Treasurer under s.26A of the Foreign Acquisitions and Takeovers Act.

The Court held that the appropriate resolution of the case was that Gita should give such notice to the Treasurer as a condition of the Court ordering that Roya held the real property on trust for her benefit.

Sheikholeslami v Tolcher [2011] FCA1050