Cannane v J Cannane Pty Ltd (In liq)

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.