Exelerate Funding Pty Limited v Puels
[2004] FMCA 241
•27 April 2004
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| EXELERATE FUNDING PTY LIMITED v PUELS | [2004] FMCA 241 |
| BANKRUPTCY – Application for sequestration order – request by debtor to consider part of application separately – where alleged act of bankruptcy occurred when debtor transferred interest in property – where debtor did not become indebted to creditor until after the transfer – where creditor alleged at time of transfer debtor had cause to believe that he would owe creditor money in the future – whether this knowledge can constitute an existing debt at the time of the act of bankruptcy. |
Re Mendonca Ex parte Commissioner of Taxation (1969) 15 FLR 256
Ex parte Hayward; In re Hayward (1871) L.R 6 Ch.App.546
Re Tait; Ex parte Commissioner of Taxation (1996) 65 FCR 592
ANZ Banking Group Ltd v Coutts (2003) 201 ALR 728
Barton v Deputy Commissioner of Taxation (1974) 131 CLR 370
Re Bunny ; Ex parte Bunny (1857) 1 de G & J 309; 44 ER 743;
Inre Burrows (1944) Ch 49
Re Cook (1946) 13 ABC 245
| Applicant: | EXELERATE FUNDING PTY LIMITED |
| Respondent: | RUPERT EDGERTON PUELS |
| File No: | SZ 327 of 2004 |
| Delivered on: | 27 April 2004 |
| Delivered at: | Sydney |
| Hearing date: | 19 April 2004 |
| Judgment of: | Raphael FM |
REPRESENTATION
| Counsel for the Applicant: | Mr R Marshall |
| Solicitors for the Applicant: | Deacons |
| Counsel for the Respondent: | Mr A Martin |
| Solicitors for the Respondent: | Daniels Bengtsson |
ORDERS
Paragraph 4(a) of the application dated 10 February 2004 is struck out.
The applicant creditor pay the respondent debtor’s costs to be taxed if not agreed pursuant to the Federal Court Act and Rules
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SZ 327 of 2004
| EXELERATE FUNDING PTY LIMITED |
Applicant
And
| RUPERT EDGERTON PUELS |
Respondent
REASONS FOR JUDGMENT
I have before me an application for an order for a decision by this court of a question separately from another question in the proceeding which is an application for a sequestration order against the respondent Rupert Edgerton Fuels. I have determined to grant the application and hear as a separate issue in the proceedings the debtor’s response to paragraph 4(a) of the application. It is intended that if I should find in favour of the debtor, paragraph 4(a) will be deleted from the application.
Paragraph 4(a) is in the following form:
“The following act of bankruptcy was committed by the respondent debtor within six months before the presentation of this petition:
(a)in Australia made a conveyance that would, if he became a bankrupt, be void against his trustee
Particulars
Transfer on 7 January 2004 of a one half interest in the land described in NSW certificate of title folio identifier3/SP8509.”
Put shortly the factual matrix within which this application has been made is that the debtor was a director of a company involved in trading in cotton seed. The company entered into an a series of agreements with the petitioning creditor pursuant to which the petitioning creditor advanced monies to it so that the company could pay its debts promptly and receive the benefit of certain commissions that were available to people who gave their suppliers very short terms of trade. The debtor guaranteed the obligations of his company to the petitioning creditor. All the relevant documents are found in exhibit 1 to these proceedings. It is not necessary to go into any greater detail save to say that the creditor admits for the purposes of these proceedings that the debtor did not become indebted to it until 4 February 2004 a date which is subsequent to the transfer which is said to constitute the act of bankruptcy. It is not alleged by the creditor that there existed at that time a future debt payable at a certain date only that as at 7 January 2004 the debtor had reason to believe that he was likely to owe the creditor money upon the failure of his company.
Mr Martin SC who appears on behalf of the debtor puts his points simply. He takes the Court to the oft quoted statement of Gibbs J in Re Mendonca Ex parte Commissioner of Taxation (1969) 15 FLR 256 at 257:
“The first question to which this application gives rise is whether there was owing to the Commissioner on 13 and 14 December 1968 the dates of the acts of bankruptcy alleged, a debt sufficient to entitle him to present this petition. The well settled rule that the debt of the petitioning creditor must be a debt which existed at the date of the act of bankruptcy (Moss v Smith (1808) 1 Camp.489; 170 E.R. 1031; Ex parte Hayward; In re Hayward (1871) L.R 6 Ch.App.546; Re Payten; Ex parte d’Arcy & Co (1890) 1B.C. (NSW) 53; In re Debtors (1927) 1 Ch 19; McNamara v Langford (1931) 45 CLR 267; In re a debtor; Ex parte the Debtor v Scott (1954) 1 WLR 1190), has survived many legislative changes and is not altered by the Bankruptcy Act 1966-1968. In the present case, for reasons that will appear, it becomes material to consider exactly what this rule requires. It is clear that, to support a petition, the petitioning creditor’s debt must amount to $500 and must be a liquidated sum payable either immediately or at a certain future time (s.44(1)(a) and (b)). In my opinion, the debt must also have answered this description at the date of the act of bankruptcy, or as Warrington LJ said in In re Debtors (1927) 1 Ch at p29, “the debt must at the date of bankruptcy be such a debt as could be relied upon by the petitioning creditor to support his bankruptcy petition.” …”
The reason given for this requirement was articulated by Sir George Mellish in Ex parte Hayward; In re Hayward (1871) L.R 6 Ch.App.546 at 549:
“The law was so settled, not on the grounds of any express words in any of the Bankruptcy Acts, but because it would be manifestly unjust that a person who commits an act of bankruptcy, and who happens to have no creditors, or pays all his creditors in full, should be liable to be made bankrupt on account of that act by some person to whom afterwards he becomes indebted.”
The dicta in Re Mendonca was followed by Lockhart J in Re Tait; Ex parte Commissioner of Taxation (1996) 65 FCR 592 and by Conti J in ANZ Banking Group Ltd v Coutts (2003) 201 ALR 728. Mr Martin argues that given the concession made by the petitioning creditor that the debt only came into existence approximately one month after the conveyance there are no grounds upon which the debtor can be made bankrupt arising out of this transaction.
Mr Marshall who appears for the creditor relies on a reading of Barton v Deputy Commissioner of Taxation (1974) 131 CLR 370, which appears at first sight to hold that the awareness of an impending liability is sufficient for the purposes of s.40(1)(c) Bankruptcy Act. That is not the section with which I am dealing in this case. It is a section concerned with a person absenting himself from the jurisdiction. But the purpose of that section is to prevent an intention to defeat or delay creditors which he argues is the same purpose as that contained in s.121 which is the section which the conveyance referred to in s.40(1)(b) is also concerned.
A careful analysis of Barton, in which none of the cases previously referred to were discussed notwithstanding that Gibbs J sat upon the Court, reveals that the only act of bankruptcy being considered was the following:
“with intent to defeat or delay his creditors the debtor remains out of Australia”
The word “remains” is important. Mr Barton left Australia on 17 April 1973 and had not returned at the date of the hearing. There was an original debt owed to an original petitioning creditor. However, on
23 October 1973 that debt was paid. On 20 June 1973 an income tax assessment was issued against the debtor under which $77,000 became payable on 23 July 1973. The bankruptcy petition was not filed until
28 August 1973. On 10 December 1973 an order was made to substitute the Deputy Commissioner for the original petitioning creditor. The sequestration order was made in August 1974. What is clear from the recital of this history is that at the time the debt upon which the substituted creditor relied was incurred the applicant had left Australia but he remained out of Australia when the debt was incurred and at all times up to the hearing of the petition. The act of remaining out of Australia is a continuing act and provided it existed at the time that the debt occurred then the dicta in Mendonca and the other cases cited has been complied with: Re Bunny ; Ex parte Bunny (1857) 1 de G & J 309; 44 ER 743; Inre Burrows (1944) Ch 49; Re Cook (1946) 13 ABC 245. The act of bankruptcy did not occur prior to the date that the debt was incurred.
To my mind Barton is entirely consistent with the earlier decisions and later ones previously cited. I am satisfied that the non-existence of the debt at the time of the alleged act of bankruptcy is fatal to this claim in the petition. I would therefore determine the separate question in favour of the debtor and strike out from the application paragraph 4(a). I am satisfied that the debtor was justified in making the application for a separate hearing on the grounds that if one was not granted he would have been required to provide considerable evidence concerning the nature of the conveyance in order to avoid the claims under s.120 or s.121 Bankruptcy Act that were being made against him. I order that the applicant creditor pay the respondent debtor’s costs to be taxed if not agreed pursuant to the Federal Court Act and Rules.
I certify that the preceding nine (9) paragraphs are a true copy of the reasons for judgment of Raphael FM
Associate:
Date:
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