Cannane v J Cannane Pty Ltd (In liq)

Link copied
Case Copied 85 min read

HIGH COURT OF AUSTRALIA

BRENNAN CJ,
GAUDRON, McHUGH, GUMMOW AND KIRBY JJ

DENISE MARY CANNANE & ANOR  APPELLANTS

J CANNANE PTY LIMITED
(In Liquidation) & ANOR  RESPONDENTS

Cannane v Cannane Pty Limited;
Cannane v Official Trustee in Bankruptcy as Trustee
of the Bankrupt Estate of Cannane
(S215-1996) [1998] HCA 26

7 April 1998

ORDER

  1. Appeal allowed with costs.

  1. Orders of the Full Court of the Federal Court set aside and in lieu thereof order that the appeals to that Court be allowed with costs, the Orders of Tamberlin J be set aside and in lieu thereof order that the present respondents' application for relief under s 565 of the Corporations Law be dismissed with costs.

On appeal from the Federal Court of Australia

Representation:

D M J Bennett QC with S J McMillan for the appellants (instructed by Ferrier & Associates)

P G Hely QC with J W J Stevenson for the respondents (instructed by Mallesons Stephen Jaques)

Notice:  This copy of the Court’s Reasons for Judgment is subject to formal revision prior to publication in the Commonwealth Law Reports.

HIGH COURT OF AUSTRALIA

BRENNAN CJ,
GAUDRON, McHUGH, GUMMOW AND KIRBY JJ

ANDREW VINCENT CANNANE & ANOR  APPELLANTS

OFFICIAL TRUSTEE IN BANKRUPTCY
AS TRUSTEE OF THE BANKRUPT ESTATE
OF JOHN VINCENT CANNANE  RESPONDENT

7 April 1998

S216/1996

ORDER

  1. Appeal allowed with costs.

  1. Orders of the Full Court of the Federal Court set aside and in lieu thereof order that the appeals to that Court be allowed with costs, the Orders of Tamberlin J be set aside and in lieu thereof order that the present respondent's application for relief under ss 120 and 121 of the Bankruptcy Act 1966 (Cth) be dismissed with costs.

On appeal from the Federal Court of Australia

Representation:

D M J Bennett QC with S J McMillan for the appellants (instructed by Ferrier & Associates)

P G Hely QC with J W J Stevenson for the respondent (instructed by Mallesons Stephen Jaques)

Notice:  This copy of the Court’s Reasons for Judgment is subject to formal revision prior to publication in the Commonwealth Law Reports.

CATCHWORDS

Cannane & Anor v J Cannane Pty Limited & Anor;

Cannane & Anor v Official Trustee in Bankruptcy as Trustee of the Bankrupt Estate of John Vincent Cannane

Bankruptcy - Disposition of Property - Intention of bankrupt to use corporate vehicle owned by bankrupt for purchase of business for the purpose of a "back door listing" - Transfer of share in corporate vehicle to family members for nominal but adequate consideration in expectation of increase in value - Subsequent purchase of business by corporate vehicle and commensurate increase in value of share - Whether disposition of property for undervalue - Whether creditors entitled to the increased value of share - Whether intent to defraud creditors.

Corporations - Winding up - Undue preference - Disposition of property - Intention to use subsidiary corporate vehicle for purchase of business for the purpose of a "back door listing" - Transfer and issue of shares…

CaseChat AU logo

Keep reading for free

Create a free CaseChat account to read Cannane v J Cannane Pty Ltd (In liq) and more:

  • Read every judgment in full
  • Ask AI and get answers linked to paragraphs
  • See how each paragraph was cited in later cases
  • Download judgments as PDF or Word
Continue with Google

One click creates your free account or signs you in.

By continuing you agree to the Terms and Privacy Policy.

Details
Case
[1998] HCA 26
Decision Date

CaseChat Overview and Summary

The appeals concerned the application of s 121 of the *Bankruptcy Act 1966* (Cth) to a series of share transfers. The parties were John Vincent Cannane and J Cannane Pty Ltd (in liquidation) (the applicants in the Federal Court proceedings, and respondents on appeal) and the Official Trustee in Bankruptcy as Trustee of the Bankrupt Estate of John Vincent Cannane, and Denise Mary Cannane (the appellants in the Federal Court proceedings, and respondents on appeal). The dispute arose from the transfer of shares in a company, Wisbeck Pty Ltd, by Mr Cannane and J Cannane Pty Ltd to Mr Cannane's wife and son, respectively, for nominal consideration, shortly before Wisbeck acquired shares in another company, Carbon Consulting International Pty Ltd ("CCI"), which subsequently became valuable due to a "backdoor listing". The High Court of Australia heard the appeals.

The central legal issue was whether the transfers of shares in Wisbeck Pty Ltd by Mr Cannane and J Cannane Pty Ltd to his wife and son constituted a disposition of property with intent to defraud creditors, rendering the transfers voidable under s 121 of the *Bankruptcy Act*. This required the court to determine the meaning and application of the phrase "with intent to defraud creditors" in the context of the statutory provision and the specific facts, particularly whether the transfers were made for valuable consideration and in good faith.

The High Court allowed the appeals, setting aside the orders of the Full Court of the Federal Court. The Court reasoned that s 121 of the *Bankruptcy Act*, as it stood at the time, required an actual intent to defraud creditors on the part of the transferor. While it was accepted that the purpose of the transfers was to ensure that Mr Cannane's family, rather than his and the company's creditors, would benefit from the potential success of the CCI venture, the Court found that there was no evidence of an intent to defraud. The transfers were made for nominal but adequate consideration in the context of the shares' value at the time of transfer, and the transferees, particularly Andrew Cannane, did not have knowledge of any fraudulent intent. The Court applied the principle that a disposition is only voidable under s 121 if there is an actual intent to defraud, and that bona fide purchasers for valuable consideration without notice are protected.

Consequently, the High Court ordered that the applications for relief under s 565 of the *Corporations Law* (which had been the basis of the proceedings in the Federal Court) be dismissed with costs.

Orders

Orders of the court

1.

Appeal allowed with costs.

2.

Orders of the Full Court of the Federal Court set aside and in lieu thereof order that the appeals to that Court be allowed with costs, the Orders of Tamberlin J be set aside and in lieu thereof order that the present respondents' application for relief under s 565 of the Corporations Law be dismissed with costs.

Background

Background to the litigation

These appeals, which involve the meaning and application of s 121 of the Bankruptcy Act 1966 (Cth) ("the Act") and which arise out of the same set of facts, were heard together.The facts In early 1991, there was a prospect that John Vincent Cannane could acquire shares in Carbon Consulting International Pty Ltd ("CCI") either for himself or for such person or company as he cared to nominate. There was also a prospect that he could obtain shares in an existing public company which would acquire CCI and thus effect its "backdoor listing" on the stock exchange. Mr Cannane's original plan was for the CCI shares to be acquired by J Cannane Pty Limited ("JCPL"), a company which he controlled. However, he and JCPL were in serious financial difficulties. When the extent of those difficulties became apparent, Mr Cannane decided that the CCI shares should be acquired by Wisbeck Pty Ltd ("Wisbeck"), a company with two issued $1.00 shares, one of which was owned by him and the other by JCPL. Wisbeck was, at that stage, indebted to JCPL in an amount considerably in excess of its assets. Prior to 15 May 1991, Mr Cannane took a number of steps to bring about the backdoor listing of CCI. He also applied to the Bank of Singapore and obtained approval for finance for Wisbeck to buy the CCI shares. In consequence, Wisbeck paid the Bank an establishment fee of $11,000 but, at that stage, took no other step in relation to the venture. Indeed, it was not then certain that the CCI shares would be sold to Mr Cannane or his nominee, although there was a clear expectation that that would occur. On 15 May 1991, in furtherance of the CCI venture, JCPL transferred its share in Wisbeck to Denise Mary Cannane, Mr Cannane's wife and the appellant in the first matter. On the same day, Mr Cannane transferred his share to Andrew Vincent Cannane, his son and the appellant in the second matter. In each case, the transfer was made in consideration of a promise to pay $1.00. As part of the overall arrangements effected that day, a third share in Wisbeck was issued to Mr and Mrs Cannane's other son, Richard Cannane. No question arises as to that third share. It is not in issue that, so far as concerns Mr Cannane and JCPL, the purpose of the share transactions on 15 May 1991 was to ensure that Mr Cannane's family, rather than his and the company's creditors, would obtain the benefit of the CCI venture if it could be brought to a successful conclusion. Nor is it in issue that Mrs Cannane knew that that was their purpose and participated in the transaction to enable it to be achieved. However, Andrew Cannane entered into the transaction simply because his father asked him to, without inquiry as to its purpose or any associated circumstance. On 20 August 1991, the CCI venture was brought to a successful conclusion with Wisbeck purchasing CCI shares with money lent by the Bank of Singapore and then selling them to a listed public company, CCI Holdings Ltd, in exchange for shares in the latter company. The venture proved profitable. However, Mr Cannane's and JCPL's financial difficulties remained. Mr Cannane was made bankrupt on 28 May 1993 and, on 8 June 1993, JCPL was wound up. In November of that year, the Liquidator of JCPL and the Trustee of Mr Cannane's bankrupt estate commenced proceedings in the Federal Court seeking to have the share transfers to Andrew and Mrs Cannane declared void.Relevant legislative provisions

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

BRENNAN CJ HUGH J GAUDRON J (dissent) GUMMOW J (dissent) KIRBY J (dissent)
There being no intent to defraud on the part of either Mr Cannane or JCPL, no question arises as to the good faith of Andrew and Mrs Cannane.Conclusion The appeals should be allowed and, in each case, the orders of the Full Court set aside. In lieu of those orders, the appeals to the Full Court should be allowed and, in each case, the orders of Tamberlin J set aside. And in lieu of the orders of Tamberlin J, each of the applications to the Federal Court should be dismissed with costs. These two appeals were heard together, as they were in the Full Court of the Federal Court[25]. They give rise to a common question concerning the construction of the provision with respect to fraudulent dispositions made by s 121 of the Bankruptcy Act 1966 (Cth) ("the Bankruptcy Act") as it stood before the substitution of a fresh s 121 by the Bankruptcy Legislation Amendment Act 1996 (Cth). In particular, the appeals turn upon the application to the somewhat unusual facts of the phrase "with intent to defraud creditors", properly construed.[25]Cannane v Official Trustee in Bankruptcy (1996) 65 FCR 453; 136 ALR 406. The inclusion of s 121 in the Bankruptcy Act followed the recommendation in 1962 in par 173 of the Report of the Committee Appointed by the Attorney‑General of the Commonwealth to Review the Bankruptcy Law of the Commonwealth ("the Clyne Committee"). Paragraph 173 of the Clyne Committee's Report was as follows:"Fraudulent Dispositions173. Under the Statute 13 Eliz c 5, enacted in 1570 but now to be found in various Property Law Acts passed in England and in the several States, fraudulent dispositions were liable to be set aside at the instance of any person thereby prejudiced. The Committee considers that, where a fraudulent disposition has been made by a debtor who subsequently becomes bankrupt, the trustee of the estate should have the power, at any time, subject to exceptions in favour of persons who have dealt with the bankrupt in good faith, to have it set aside for the benefit of the estate of the bankrupt."The Elizabethan statute (13 Eliz I c 5) (Eng) provided that transfers of property for the purpose of delaying, hindering or defrauding creditors or others of their lawful debts were "to be clearly and utterly void, frustrate and of none effect" provided that the statute did not extend to transfers of property "upon good consideration and bona fide lawfully conveyed or assured to any person or persons ... not having at the time of such conveyance or assurance to them made, any manner of notice or knowledge of such covin, fraud, or collusion as is aforesaid". At the relevant time, s 121 of the Bankruptcy Act stated:"(1) Subject to this section, a disposition of property, whether made before or after the commencement of this Act, with intent to defraud creditors, not being a disposition for valuable consideration in favour of a person who acted in good faith, is, if the person making the disposition subsequently becomes a bankrupt, void as against the trustee in the bankruptcy.(2) Nothing in this section shall be taken to affect or prejudice the title or interest of a person who has, in good faith and for valuable consideration, purchased or acquired the property the subject of the disposition or any interest in that property.(3) In this section, 'disposition of property' includes a mortgage of property or a charge on or in respect of property."

Ratio Decidendi

Legal Principle Established

Established by: BRENNAN CJ, HUGH J,

Full text does not contain this section.