The administrative recovery process under section139ZQ Bankruptcy Act: an effective instrument in the hands of a trustee in bankruptcy

17 September 2013

In this issue:

  • The operation of notices issued under section 139ZQ Bankruptcy Act considered
  • Discussion of a recent decision highlighting the effective use of a section 139ZQ notice
  • Reviewing the position where the validity of a section 139ZQ notice is being contested by the recipient.


The effective use of section 139ZQ notices, which provide bankruptcy trustees with rights of recovery of property by administrative means, is well illustrated by the recent case Verge (Trustee), in the matter of Underdown (deceased) (a bankrupt) v Fazio1. The case is particularly relevant where the section 139ZQ notice has been ignored or is uncontested by the recipient of the notice.

Before reviewing the decision it will be useful to briefly provide a background account of section 139ZQ notices.


Section 139ZQ notices were introduced into the Bankruptcy Act 1966 (Cth) in 1992 with a view to providing an administrative aid to a trustee in bankruptcy seeking to recover property under Division 3 of Part VI of the Act.

Division 3 concerns the property available to the trustee for the payment of a bankrupt’s debts, and contains section 120, which deals with the avoidance of voluntary settlements, section 121, which deals with fraudulent dispositions, section 122, which deals with the avoidance of preferences, and sections 128B or 128C which deal with avoidance of superannuation contributions made to defeat creditors.

The objective of the section 139ZQ notice is to provide the trustee with an administrative shortcut thereby avoiding protracted proceedings instituted by the trustee under the above provisions. To achieve this end the section 139ZQ notice is issued and served on the relevant person requiring that person to pay to the trustee an amount equal to the money or the value of the property received under any of the above provisions.

Two other sections provide useful support for the section 139ZQ notice:

  • Section 139ZR provides that if a notice under section 139ZQ is given to a person in respect of any property, the property is to be charged with the liability of the person arising under the notice. Provision is also made for registration of such a charge.
  • Section 139ZT makes it an offence punishable by imprisonment for a period not exceeding six months for a person to refuse or fail to comply with a notice under section 139ZQ. In addition to imposing a penalty the court may order that the convicted person comply with the requirements of the section 139ZQ notice.

The person who has received a section 139ZQ notice may apply to the court to set aside the notice. Under section 139ZS the court may set aside a notice on being satisfied that the alleged facts and circumstances set out in the notice do not disclose a trustee’s right of recovery.

In contested matters of this nature the application to set aside a notice has been construed by the courts as initiating litigation appropriate to resolving a dispute between the trustee and the recipient of the notice, carrying the usual onus of proof that would arise in such litigation: Halse v Norton2.

The decision in Verge v Fazio

The recent case of Verge v Fazio provides useful insights into:

  • Dealings that justify the issue of a section 139ZQ notice
  • The procedures associated with the issue of a section 139ZQ notice
  • The manner in which the section 139ZQ notice allows efficient and cost-effective means of recovering money or property from a party to a transaction void against the trustee


On 28 April 2010 orders were made by the court that the estate of Samantha Underdown (deceased) be administered under the Bankruptcy Act. Following their appointment the trustees learned that the only substantial asset of the deceased was a residence that had been transferred to her spouse, Mr Fazio, prior to her death. As the transfer was for no consideration the trustees invoked section 120 Bankruptcy Act asserting that the transfer was void, it having taken place in the relevant period before the commencement of the administration.

The trustees requested the official receiver to issue a section 139ZQ notice to Mr Fazio requiring him within 28 days following service of the notice to either:

  • Pay to the trustees the sum of $788,338, being the value of the property, less any amount owing under the mortgage registered on the title; or
  • Transfer to the trustees the interest of the deceased in the property, subject to the rights of the registered mortgagee.

Mr Fazio failed to comply with the notice and also did not attend the present proceedings before the court.

Court orders

In view of Mr Fazio’s non-compliance with the notice the court found that the trustees were entitled to exercise their power of sale under section 139ZR(6) Bankruptcy Act, and in that regard further ordered:

  • The trustees to obtain vacant possession
  • The trustees to have conduct of the sale
  • The trustees to have authority to execute the transfer of land documents
  • The proceeds to be paid to the trustees to be dealt with in accordance with their obligations
  • Mr Fazio to execute all documents necessary to effect the sale
  • Mr Fazio to surrender any duplicate certificate of title for the residence

Finally, the court awarded costs in favour of the trustees.

In a subsequent proceeding Mr Fazio was unsuccessful in seeking to have the orders set aside on grounds that the orders were made in his absence3.

Concluding comments

The case is a useful reminder of the effectiveness of section 139ZQ notices. The failure of the recipient of the notice to respond to or contest the notice resulted in the making of comprehensive court orders giving effect to the trustees’ power of sale provided for under the section 139ZQ notice. The process was commenced by the trustees through administrative means thereby avoiding prolonged and expensive litigation processes and achieved the support of the Court in giving effect to the trustees’ entitlements.

The position is somewhat different should the recipient of a section 139ZQ notice elect to contest the notice. In that event the parties carry the onus of proving their respective positions as to the circumstances of the alleged voidable transaction on which the notice is based. Essentially the section 139ZQ notice has not changed the onus of the trustee and the recipient of the notice as they seek to assert their respective legal positions.

Even in the event of a contested notice, section 139ZQ serves a useful purpose by giving full force of the law to the notice unless the recipient approaches the court with sufficient evidence to challenge the basis on which the notice issued. In those circumstances the section 139ZQ notice remains a powerful option for the trustee to pursue, often generating an environment conducive to producing a negotiated outcome without incurring the delays and expenses associated with litigation.

1(2013) FCA 18, 17 January 2013
2(1997) FCA 673, 23 July 1997
3Verge (Trustee) in the matter of Underdown (deceased)(a bankrupt) v Fazio (No 2) (2013) FCA 728, 25 July 2013