Brechin, Re S.R. Ex Parte B. Putnin & Stokes Australasia Ltd

[1986] FCA 146

Re: SIBRENA ROSE BRECHIN also known as SIBRENA ROSE KUBANK
Ex Parte: BERNARD PUTNIN the Trustee of the Property of SIBRENA ROSE BRECHIN
also known as SIBRENA ROSE KUBANK
And: STOKES (AUSTRALASIA) LTD
No. 77 of 1985X
Bankruptcy

COURT

IN THE FEDERAL COURT OF AUSTRALIA

GENERAL DIVISION
BANKRUPTCY DISTRICT OF THE STATE OF WESTERN AUSTRALIA
Toohey J.

CATCHWORDS

Bankruptcy - preference - payment to creditor - whether void under s.122 - whether debtor insolvent at time of payment - test to be applied - onus of proof - whether satisfied

Evidence - admissibility of statement by trustee as to insolvency of debtor

Bankruptcy Act 1966 ss.122(1), 231(2)

HEARING

PERTH

#DATE 27:3:1986

ORDER

The application is dismissed.

The applicant pay the respondent's costs.

Note: Settlement and entry of orders is dealt with in Rule 124 of the Bankruptcy Rules.

JUDGE1

On 4 July 1985 Sibrena Rose Brechin, also known as Sibrena Rose Kubank, executed a deed of assignment in accordance with Part X of the Bankruptcy Act 1966. Bernard Putnin, the applicant, is the trustee of that deed.

1. The debtor carried on business as Top Line Trophies in which capacity she contracted a debt of $4,149.77 to the respondent, Stokes (Australasia) Ltd. The debt was in respect of goods sold by the respondent to the debtor and was contracted some time in December 1984.

2. On several occasions in December 1984 and January 1985 the respondent, through Credit Management Services, wrote to Top Line Trophies demanding payment. By cheque dated 11 February 1985 the debtor paid to the respondent the sum of $3,000 in reduction of the debt, leaving a balance owing of $1,149.77.

3. The payment of $3,000 was made within six months of the execution of the deed of assignment and has been attacked by the applicant as a preference. See Bankruptcy Act sub-s.122(1), read with sub-s.231(2). There is only one issue between the parties - at the time when the debtor made the payment of $3,000, was she a person unable to pay her debts as they became due from her own money, within the terms of sub-s.122(1)? The applicant asserts and the respondent denies that the debtor was such a person. In particular the respondent's case is that the applicant has failed to prove that the debtor was such a person.

4. The onus lies upon the applicant to satisfy the Court that the ingredients resulting in the avoidance of a preference exist. Bank of Australasia v. Hall (1907) 4 CLR 1514 at p 1542. The applicant sought to do this by tracing the general decline of the debtor's financial position leading up to the execution of the deed of assignment.

5. The debtor's statement of affairs, verified by statutory declaration made 4 July 1985 (just under six months from the date of payment of the $3,000) showed liabilities of $27,217.72 against which were set assets of $17,053.67, leaving a deficiency of $10,164.05.

6. The liabilities of $27,217.72 comprised thirty-three debts, most of which were for goods sold and delivered. Moneys expressed to have been owing since 1984 or earlier, including a debt of $3,500 arising from a dissolution of partnership in 1983 or thereabouts, amounted to some $6,500. But many other debts were shown as having been contracted in 1984/85 so that moneys outstanding since 1984 would exceed the figure just mentioned.

7. The debtor's assets were made up in this way:
   
   

Cash at bank $ 270.32

Stock-in-trade $ 8,000.00

Machinery $ 5,000.00

Trade fixtures, fittings,

utensils etc. $ 3,000.00

Book debts $ 783.35 $17,053.67

1. The applicant produced bank statements from the Commonwealth Bank of Australia relating to the account of Top Line Trophies. Those statements showed that from 10 December 1984 until 12 February 1985 the account was in credit, though generally less than $1,000. On 12 February 1985 two substantial payments were made into the account, thereby taking it into credit in the sum of $12,603.42. Thereafter it was depleted by a number of payments including several made on 15 February 1985, the day on which the cheque for $3,000 was debited to the account. At the end of that day the account was in credit in the amount of $1,447.77. The account was still in credit on 18 February, the last date shown in the bank statements.

2. In Bank of Australasia v. Hall Griffith C.J. rejected the notion that the debtor's affairs should be regarded from the point of view of a balance sheet of assets and liabilities. At p.1528 he said:
   
   

"The question is not whether the debtor would be able, if time were given him, to pay his debts out of his assets, but whether he is presently able to do so with moneys actually available. The most favourable construction that can be put on the words 'his own moneys' is that they include any moneys of which the debtor can obtain immediate command by sale or pledge of his assets".

1. In Sandell v. Porter (1966) 115 CLR 666 at p 670 Barwick C.J. commented:
   
   

"The conclusion of insolvency ought to be clear from a consideration of the debtor's financial position in its entirety and generally speaking ought not to be drawn simply from evidence of a temporary lack of liquidity. It is the debtor's inability, utilizing such cash resources as he has or can command through the use of his assets, to meet his debts as they fall due which indicates insolvency".

1. In an affidavit sworn 10 March 1986, the applicant deposed as follows:
   
   

"2. At the time that the debtor made the payment of $3,000 referred to in paragraph 1(e) of my affidavit of 11 December, 1985 the debtor was insolvent in that she was unable to pay her debts as and when they became due from her own money and thereafter remained insolvent".

Counsel for the respondent objected to this paragraph and, in my view, rightly so. Certainly witnesses may speak as to the likelihood of a debtor realizing assets in sufficient time to meet debts as they fall due, but the question of insolvency is one for the Court. Sandell v. Porter at pp 670-671.

1. There was no evidence as to the debtor's capacity to realize stock-in-trade, machinery or trade fixtures and the like. Nor was there any evidence as to the recoverability of book debts. Furthermore there was no evidence from the debtor herself as to her ability to pay her debts as they became due from her own money. Indeed there was no evidence as to what the debtor's assets were in February 1985. Bearing in mind where the onus of proof lies, I cannot draw any inference adverse to the respondent from the absence of evidence from the debtor. There being no matters peculiarly within the knowledge of the respondent relating to the debtor's ability to pay her debts, I can draw no inferences adverse to the respondent from a paucity of evidence. Rather the question must be - has the applicant satisfied the onus of proof cast upon him by the Act?

2. In my view the applicant has not satisfied that onus. The payment of $3,000 appears in the bank statements against 15 February 1985. After payment of that amount, the bank account stood in credit to the extent of $1,581.67. Some two days earlier it was in credit in excess of $10,000 and indeed was in credit on all occasions shown in the bank statements. It is true that just under six months later the debtor executed a deed of assignment; but I do not think I am justified in concluding from that fact that, at the time of payment of the $3,000, the debtor was unable to pay her debts as they became due from her own money. To draw that inference I would need a better picture of the debtor's financial position between the middle of February and July 1985.

3. The application will be dismissed with costs.