Anderson v Bou Francis
[2008] FMCA 1330
•22 September 2008
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| ANDERSON v BOU FRANCIS | [2008] FMCA 1330 |
| BANKRUPTCY – Transfer of property – transfer at undervalue – declaration primary relief – declaration that transfer void – order preventing disposition or dealing with property – execution and delivery up to trustee of transfer – requirement for trustee to pay to transferee payment made for property – whether alternative order for payment by transferee to trustee of half market value of property – whether court can direct state officer to rectify title register – accrued jurisdiction – cross-vesting. |
| Bankruptcy Act 1966 (Cth), ss.19, 32, 120(1), (3),& (4) Federal Magistrates (Bankruptcy) Rules 2006 (Cth), r.13.01(2) Federal Magistrates Court Rules 2001 (Cth), schedule 1 |
| Darvall & Fernon (eds) McDonald, Henry and Meek, Australian Bankruptcy Law and Practice, Volume 1 (5th Edn) (Thomson Lawbook Co. 1996.) Tyler v Thomas (2006) 3 ABC(NS) 773; [2006] FCAFC 6 |
| Applicant: | GARY JOHN ANDERSON AS TRUSTEE OF THE BANKRUPT ESTATE OF SARKIS BOUFRANCIS |
| Respondent: | FADIA BOU FRANCIS |
| File Number: | PEG 126 of 2008 |
| Judgment of: | Lucev FM |
| Hearing date: | 22 September 2008 |
| Date of Last Submission: | 22 September 2008 |
| Delivered at: | Perth |
| Delivered on: | 22 September 2008 |
REPRESENTATION
| Counsel for the Applicant: | Mr C. Ko |
| Solicitors for the Applicant: | Brickhills |
| Respondent: | No appearance |
ORDERS
The transfer of the bankrupt, Sarkis Antonio Bou Francis’ interest in the property at 8 Faye Avenue, Blakehurst, New South Wales, more particularly described as Lot 2 in Deposited Plan 213484 on Folio ID 2/213484 (“the Property”), to the Respondent on or about 6 November 2007 is void against the Applicant pursuant to s.120 of the Bankruptcy Act 1966 (Cth).
The Respondent or any person in possession or control of the Property be prohibited from disposing of or otherwise dealing with the Property without the consent of the Applicant.
The Respondent execute and deliver up to the Applicant a transfer of one undivided half share interest in the Property in registrable form together with (if applicable) the duplicate Certificate of Title pertaining to the interest in the Property by 4:00pm on 20 October 2008, provided that by 4:00pm on 6 October 2008 the Applicant is to pay the Respondent the sum of $1, in accordance with s.120(4) of the Bankruptcy Act1966 (Cth).
There be liberty to apply on 7 days notice to either party.
The Respondent pay the Applicant’s costs fixed in the sum of $4415 by 4:00pm on 31 October 2008.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT PERTH |
PEG 126 of 2008
| GARY JOHN ANDERSON AS TRUSTEE OF THE BANKRUPT ESTATE OF SARKIS BOUFRANCIS |
Applicant
And
| FADIA BOU FRANCIS |
Respondent
REASONS FOR JUDGMENT
(Ex tempore - edited and revised from the transcript)
Application and orders sought
This is an application made on 5 August 2008 for:
a)a declaration that the transfer of property by the bankrupt be void against the applicant (who is the trustee in bankruptcy of the bankrupt’s estate) under s.120 of the Bankruptcy Act 1966 (Cth);[1] and
b)consequential orders with respect to:
i)the transfer of the bankrupt’s share of property to the trustee in bankruptcy; and
ii)payment for sale of the property.
[1] “Bankruptcy Act”.
Facts
The facts are within a relatively short compass and are more or less all set out for relevant purposes in the affidavit of the trustee in bankruptcy sworn on 4 August 2008.
The affidavit of the trustee, Mr Anderson, says that on 21 April 2008 the bankrupt, Sarkis BouFrancis, became bankrupt upon the issuance of a sequestration order by a Registrar of this Court. That sequestration order is annexed as annexure GJA1 to Mr Anderson’s affidavit. The trustee was appointed on the same day and the trustee’s certificate of appointment, also appears in that annexure. Mr Anderson deposes to the fact that until 6 November 2007, the bankrupt and the respondent were the proprietors of property at 8 Faye Avenue, Blakehurst, in
New South Wales, more particularly described as Lot 2 in Deposited Plan 213484 on Folio ID 2/213484.[2] The title details and a copy of a title search is annexure GJA2 to Mr Anderson’s affidavit.
[2] “the Property”.
On or about 6 November 2007 it appears that the bankrupt transferred his interest in the Property to the respondent for a consideration of $1. The relevant transfer documents are appended to Mr Anderson’s affidavit as annexure GJA3 together with a copy of a title search subsequently obtained showing that the property was indeed transferred from the bankrupt to the respondent. The transfer was made approximately five and a half months prior to the bankrupt’s bankruptcy. Paragraph 8 and annexure GJA4 of the affidavit of Mr Anderson indicates that the property was mortgaged to Perpetual Trustees Australia on or about 26 August 2005, and that the value of the mortgage as stamped was to secure a sum of $784,000.
The trustee deposes to making inquiries concerning property values in the vicinity of the Property. Those inquiries apparently reveal that properties in that vicinity sell for well in excess of one million dollars, and some sell for several million dollars, according to paragraph 9 of Mr Anderson’s affidavit. By reason of the apparent value of the Property, the trustee is of the view that recovery of the property would be of significant value to the creditors of the bankrupt’s estate. That is set out at paragraph 10 of Mr Anderson’s affidavit.
The respondent was put on notice of the trustee’s intention to take these proceedings by way of a letter from the applicant’s solicitors dated 14 July 2008, which is referred to at paragraph 11 of Mr Anderson’s affidavit and which appears at annexure GJA5. The respondent has been given the opportunity to avoid these proceedings by transferring a half share of the Property to the trustee. There has been no real response to that notice. The Court notes in passing that legal action has been threatened but it goes no further than an action for “[t]he transfer of half the share of the property”, plus costs. The Court is satisfied that a copy of this application was served on the respondent on 15 August 2008 and refers to the affidavit of Mr Koopstra sworn 18 August 2008, at paragraphs 1 to 3. It is also relevant to note that the matter has been before a Registrar of this Court on two occasions: on 25 August 2008, when the matter was listed for further directions on 2 September 2008, and then on 2 September 2008, when the matter was listed for hearing today before this Court. The Court is satisfied that the respondent is aware of the hearing today. The respondent has been served with a copy of the Orders made by a Registrar of this Court on 2 September 2008, listing the matter for hearing for today: see the affidavit of Ms Stankoski sworn 18 September 2008, paragraphs 1 and 2. The Court notes that the respondent does not appear today and there does not appear, from the Court file, to be any indication that the respondent has sought to appear by video link or telephone.
Legislation
The relevant legislation is s.120(1), (3)(a) and (4), of the Bankruptcy Act. The first two of those subsections are set out in the outline of submissions of the applicant at paragraphs 1 and 2. Section 120(4) provides that the trustee must pay to the transferee an amount equal to the value of any consideration that the transferee gave, for a transfer that is void against the trustee. In this particular case that was the sum of $1.
Consideration
The transfer of the bankrupt’s share in the Property was:
a)a related entity transfer;
b)made approximately five and a half months before the bankrupt’s bankruptcy, and falls well within the time limit prescribed under s.120(1) of the Bankruptcy Act; and
c)made either for no consideration, in the sense of any proper consideration, or for consideration of less than market value.
Therefore, under s.120(1) of the Bankruptcy Act the transfer is void against the applicant, the trustee in bankruptcy of the bankrupt’s estate, and the trustee is entitled, subject to payment to the respondent of $1, to appropriate relief.
Relief
The primary relief ordinarily obtained is a declaration that the transfer of the specified property, in this case the Property, is void against the trustee in bankruptcy. Ancillary relief may also be available to ensure an effective remedy.[3] There is also the overriding principle that a Court should grant the minimum relief possible.
[3] Darvall & Fernon (eds) McDonald, Henry and Meek, Australian Bankruptcy Law and Practice Volume 1 (5th Edn) (Thomson Lawbook Co. 1996) at para. 120.0.30 (“Australian Bankruptcy Law and Practice”).
The Court is therefore prepared to grant:
a)a declaration that the transfer of the Property to the respondent by the bankrupt is void against the applicant, in the terms contained in proposed order 1 in the Application; and
b)an order preventing the Property from being dealt with or disposed of, in the terms contained in proposed order 2 in the application, but for reasons which will become apparent the words “otherwise than in accordance with this order” should be deleted and the words “without the consent of the applicant” inserted.
In view of the declaration made, there will be an order in terms of order 3 of the proposed orders in the application (that is, that the respondent execute and deliver up to the applicant a transfer of one undivided half share interest in the Property in registrable form, together with (if applicable) the duplicate Certificate of Title) with the following addition: that that be done by 4:00pm on 20 October 2008, provided that by 4:00pm on 6 October 2008 the trustee is to pay to the respondent the sum of $1 in accordance with s.120(4) of the Bankruptcy Act.
Proposed order 4 seeks an order in the following terms:
If the respondent fails to execute and deliver up a transfer in registrable form as required by paragraph 3 above, the applicant be empowered to execute such transfer for and on behalf of the respondent, and the Registrar of Titles is directed to accept such transfer as having been duly executed by the respondent.
On the evidence before the Court, the only interaction between the applicant and the respondent, apart from service of this application, has been the letter from the applicant’s solicitor dated 14 July 2008. That letter is limited in the terms in which it indicates legal action is to be taken, and it would appear that, absent service of the application itself, there has been no prior consultation with respect to what orders might be ancillary to the declaration that the Court is prepared to make. There is no evidence that the order sought in order 4 will be necessary. That is, once the Court has made the order proposed in order 3, as amended, there is no evidence that the respondent will not comply with, or has any intention of failing to comply with, what will then be an order of this Court.
The Court also notes that there may be some difficulty with this Court giving directions to a State Registrar of Titles, or whatever the relevant statutory office is in New South Wales, and that issues may arise in that regard as to the extent of this Court’s accrued jurisdiction, absent a valid cross-vesting scheme. It is unnecessary to deal with that at the present stage, especially if order 3 is complied with by the respondent, and the Court takes that matter no further, but simply notes the relevant passage in Australian Bankruptcy Law and Practice.[4]
[4] Under the heading “Cross-vesting/accrued jurisdiction” at para. 120.0.30.
Proposed order 5 seeks an order that, further or alternatively, the respondent pay to the applicant a sum of money representing 50 per cent of the market value of the property at 6 November 2007 to be determined by an independent valuer appointed by the applicant. The Court notes that that was a course which does not appear to have recommended itself to the Full Federal Court in Tyler v Thomas.[5] Bennett J saw no error in the approach of Raphael FM in not making an order in the following circumstances:
Mr Marshall submits that, by reason of the discretion given to the Court in s 30(1)(b) of the Act, the Court may override the express effect of s 120. Section 120(1) of the Act provides that a transfer of property at a value less than market value is void. An order for reconveyance of the properties would naturally follow. Raphael FM dealt with an application made to him not to order a reconveyance of the properties if the transfers were found to be void. It was submitted that the alternative was to order Mr Michael Tyler to pay to the trustee the difference between the amount that he did pay and the amount that the property would have sold for at market value. Mr Marshall was unable to point to any authority directly in support of this submission, other than a decision of Driver FM in Schmierer v Horan (2004) 1 ABC(NS) 536 where such an order was made. Raphael FM declined to follow Schmierer.[6]
[5] (2006) 3 ABC (NS) 773; [2006] FCAFC 6 (“Tyler”).
[6] Tyler at para. 77 per Bennett J, see also para. 78.
The position as set out by Bennett J was concurred in by Branson J[7] and Graham J.[8] Therefore, insofar as order 5 seeks in the alternative to the orders sought in 1 and 3 an order that the respondent pay to the applicant a sum of money representing 50 per cent of the market value of the property, the impact of such order might be to alter the effect of s.120(1) of the Bankruptcy Act. In any event, given the limited interaction between the applicant and the respondent as set out in the letter of 14 July 2008, it seems to be more appropriate to allow the parties to see if they can achieve their own resolution of the matter. In regard to that, the trustee will, of course, have regard to the nature of the trustee’s duties and the particular interests of the creditors, and the Court notes paragraphs (b), (e) and (f), and especially paragraphs (j) and (k) - relating to effective and commercial administration of a bankrupt’s estate – of s.19(1) of the Bankruptcy Act. Likewise, with respect to the proposed orders 6 and 7.
[7] Tyler at para. 13.
[8] Tyler at para. 208.
The Court further notes that in relation to proposed order 6(b), the comments made above in relation to proposed order 4 also apply.
Therefore, in short, in relation to the future disposition of the Property, it might be best dealt with, in the Court’s view, by the parties once the trustee’s position is clarified, and protected, by the issuance of a declaration and orders that the Court has indicated that it is prepared to and does make. There will also be orders for liberty to apply on seven days notice to either party.
Costs
Having regard to r.13.01(2) of the Federal Magistrates (Bankruptcy) Rules 2006 (Cth)[9], which allows the Court to fix costs, the Court proposes to fix costs broadly by reference to Schedule 1 of the Federal Magistrates Court Rules 2001 (Cth),[10] noting that there is discretion in s.32 of the Bankruptcy Act as to how the Court fixes costs in any event, and that is a wide discretion. Stage 1 of Schedule 1 of the FMC Rules provides for a lump sum for initiating an application of $2005, and the Court proposes to award that sum. There have been two short mentions by way of directions hearings before a Registrar and there will be $205 for each of those, so a total sum of $410 for those two short mentions.
[9] “FMC Bankruptcy Rules”.
[10] “FMC Rules”.
Ordinarily, at a final hearing of this type, particularly an opposed final hearing, an applicant would receive a stage 5 sum for preparation for final hearing, and a stage 6 sum for a one day matter and attendance at hearing and taking of the judgment, which would amount to more than $6000.
It is clear that this is a less than half a day matter. There has been an outline of submissions filed. There were no significant evidentiary requirements, other than the affidavit of the trustee in bankruptcy, which has been in since early August 2008. The application is unopposed. In those circumstances it is appropriate to order a sum for today of approximately one third of what would otherwise have been ordered, and therefore the costs of today are fixed at $2000. That will give a total costs order for the respondent to pay the applicant’s costs in the sum of $4415.
I certify that the preceding twenty-one (21) paragraphs are a true copy of the reasons for judgment of Lucev FM
Deputy Associate: Michele Lord
Date: 26 September 2008
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