Holden in His Capacity as Trustee of the Bankrupt Estate of Pekar v Pekar

[2017] FCCA 22

FEDERAL CIRCUIT COURT OF AUSTRALIA

HOLDEN IN HIS CAPACITY AS TRUSTEE OF THE BANKRUPT ESTATE OF PEKAR v PEKAR [2017] FCCA 22

Catchwords:
BANKRUPTCY – Application by trustee to have transfer of property to bankrupt’s wife declared void pursuant to s 120 of the Bankruptcy Act 1966 – half interest in home transferred as a “gift” – no consideration advanced to support the transfer of property – transfer only two years before bankruptcy – transfer clearly void pursuant to s 120 – no necessity to determine alternative claim pursuant to s 121.

Legislation:

Bankruptcy Act 1966 (Cth), ss.5(1), 120, 121

Applicant: TIMOTHY MARK SHUTTLEWORTH HOLDEN, AS TRUSTEE OF THE BANKRUPT ESTATE OF FIMA PEKAR

Respondent: IDA PEKAR

File Number: MLG 932 of 2015

Judgment of: Judge Burchardt

Hearing date: 24 November 2016

Date of Last Submission: 24 November 2016

Delivered at: Melbourne

Delivered on: 20 January 2017

REPRESENTATION

Counsel for the Applicant: Ms Gobbo

Solicitors for the Applicant: Rothwell Lawyers

Counsel for the Respondent: Mr Pekar, in person

ORDERS

THE COURT DECLARES THAT:

1. The transfer from Fima Pekar (the Bankrupt) to Ida Pekar (the Respondent) of the property recorded in Certificate of Title Volume 9940 Folio 596, being the property known as and situate at Unit 1, 64 Alexandra Street, East St Kilda (“the Property”) dated 16 July 2012, is void against the Trustee.

2. The Trustee holds one half of the Property on trust for the benefit of the Applicant.

THE COURT ORDERS THAT:

1. The Respondent deliver vacant possession of the Property to the Applicants by 20 March 2017.

2. Upon delivering possession of the Property to the Applicants, the Respondent must remove all personal possessions which he wishes to retain and any personal possessions or personal property remaining at the Property will be deemed to have been abandoned and may be disposed of in any manner that the Applicants see fit.

3. The Applicants have the sole conduct of the sale of the Property and be authorised to instruct an agent and/or auctioneer for that purpose.

4. The Property be sold by public auction with a reserve recommended by the real estate agent conducting the sale.

5. In the event that the Property is passed in at auction, it shall be sold by private treaty at a price recommended by the real estate agent conducting the sale.

6. The Applicants be empowered to sign all documents and do all things on behalf of the Respondent as necessary to give effect to the sale.

THE COURT ALSO ORDERS THAT:

1. The Applicants file any written submissions as to costs on or before 10 February 2017.

2. The Respondent file any written submissions as to costs on or before 24 February 2017.

3. Any written submissions as to costs to be determined in Chambers.

FEDERAL CIRCUIT COURT
OF AUSTRALIA
AT MELBOURNE

MLG 932 of 2015

TIMOTHY MARK SHUTTLEWORTH HOLDEN, AS TRUSTEE OF THE BANKRUPT ESTATE OF FIMA PEKAR

Applicant

And

IDA PEKAR

Respondent

REASONS FOR JUDGMENT

Introductory

1. The applicant, who is the trustee of Fima Pekar, the husband of the respondent, has sought in the originating application filed 30 April 2015 orders essentially seeking a transfer to him as trustee of Mr Pekar of a half-interest of the respondent’s property at Unit 1/64 Alexandra Street, St Kilda East. The application is pressed on the basis that a transfer to Ms Pekar, dated 16 July 2012, by which her husband transferred to her all his right, title and interest in the said property (of which they were joint tenants) is void, pursuant to section 120, or alternatively section 121 of the Bankruptcy Act 1996 (“the Act”).  Ancillary orders for possession and sale are also sought.

2. Ms Pekar, who in any view of the matter appears to suffer from significant ill health, has been represented to all effects and purposes throughout the proceeding by her husband.  He resists any suggestion that the transfer should be held void and has a number of strongly expressed criticisms of the conduct of the trustee, and indeed, from time to time, of others also.  It should be noted an application in a case filed by Ms Pekar (although clearly prepared by the bankrupt) on 21 July 2016, was in the ultimate dismissed by consent during the trial of the proceeding.  That application appeared to seek compensation for loss occasioned by the conduct of the trustee in some manner not clearly articulated pursuant to the Transfer of Land Act 1958 (Vic).

3. For the reasons that follow, I am of the clear view that the transfer should be held to be void, pursuant to s 120 of the Act. It is not necessary, given the clarity of the view that I have adopted, to deal with the alternative claim under s 121, although I note it would probably be made out also.

Matters that are not the Subject of Serious Dispute

1. It should be noted that this case has taken many a twist and turn.  It has been characterised by numerous interlocutory applications made by Mr Pekar from time to time on his wife’s behalf.  It has run in tandem with other proceedings, in respect of all of which Mr Pekar has been completely unsuccessful.  It is sufficient to say that following a number of adjournments and various hearings before different judges of this Court, the matter finally arrived at trial on the trustee’s originating application on 24 November 2016. Although Mr Pekar first indicated a desire to cross-examine the trustee, this was not in the ultimate pressed.  Likewise, as noted, the application on file 20 July 2016 was dismissed by consent.

2. The immediately following recitation is taken essentially from the written submissions of the first respondent, which in my view are not open to serious, or indeed any, challenge.

3. On 2 October 2014, Registrar Caporale made a sequestration order against the estate of Mr Pekar.  The date of the act of bankruptcy was 25 July 2014, and the trustee was appointed trustee of his estate upon the making of that order.  On 12 February 2015. I affirmed the order made by Registrar Caporale and dismissed Mr Pekar’s, application for review.

4. Mr Pekar lodged a statement of affairs (“SOA”) with the Australian Financial Services Authority, which is exhibit TMSH3 to the trustee’s first affidavit sworn 19 June 2015.  In that SOA, the bankrupt recorded that he transferred the property to Ms Pekar (question 33 SOA.)

5. From investigations undertaken by the trustee, it is apparent that:

   a)Mr and Mrs Pekar were registered as joint proprietors of the property on 27 October 1994.

   b)The property has been the subject of a number of mortgages from time to time, including most recently on 5 July 2007 a mortgage in the names of both Mr and Mrs Pekar to the ANZ Bank.

   c)By transfer registered 16 July 2012, Mr Pekar transferred all of his interest to the property to Ms Pekar, and the consideration stated was “desire to make a gift.”

   d)The bankrupt was involved in a number of court proceedings at around the time of the transfer; this being a matter that would otherwise be of relevance pursuant to s 121 of the Act.

The Trustee’s Case Under Section 120 of the Bankruptcy Act

1. This aspect of the case can be put quite shortly. The trustee submits that since Ms Pekar is the wife of Mr Pekar, by reason of s 5(1) of the Act she is a related entity of the bankrupt. As the date of the bankruptcy occurred on 25 July 2014 the relation backperiod is deemed to have commenced on that day, and constitutes the period between 25 July 2010 and 25 July 2014. On any view, the transfer occurred within that period, on 16 July 2012. Counsel for the trustee submitted that the terms of s 120 meant that the transfer in July 2012 was void against the trustee.

The Position of the Respondent

1. In both affidavits filed from time to time (all clearly prepared by Mr Pekar, apart from those at an earlier stage when the Pekars were legally represented) in truth very little was said that engaged with the terms of s 120 of the Act.  The primary contention advanced by Mr and Ms Pekar is that it was always intended between them that the property should be wholly owned by Ms Pekar.  Although this has been asserted more than once, nothing has been put to elucidate in any meaningful way what gave rise to the common intention in 1994 and thereafter, what the terms of any agreement between Mr and Ms Pekar were, and what steps until the transfer in 2012 were taken to put it into effect.  The Pekars’ affidavit material asserts that in 2012 Mr Pekar wished to return to Russia, his native country, for one last time for a period of months.  Each of Mr and Ms Pekar, albeit in slightly different terms from time to time, assert that the transfer took place so that in the event that Mr Pekar became ill or died while overseas, Ms Pekar would have somewhere to live.  It seems that the mortgage on the property is small (asserted $30,000), a sum within the capacities of Mr and Ms Pekar to pay. Mr Pekar has also deposed (affidavit sworn 19 June 2015) that the “gift” was effected to avoid stamp duty.

Consideration

1. Section 120 of the Act relevantly reads as follows:

Undervalued Transactions

Transfers that are void against trustee

(1)A transfer of property by a person who later becomes a bankrupt (the transferor) to another person (the transferee) is void against the trustee in the transferor’s bankruptcy if:

(a)The transfer took place in the period beginning 5 years before the commencement of the bankruptcy and ending on the date of the bankruptcy;  and

(b)The transferee gave no consideration for the transfer or gave consideration of less value than the market value of the property.

Exemptions

(2)Despite subsection (1), a transfer is not void against the trustee if:

(a)In the case of a transfer to a related entity of the transferor:

(i)The transfer took place more than 4 years before the commencement of the bankruptcy;  and

(ii)The transferee proves that, at the time of the transfer, the transferor was solvent.

1. The other parts of section 120 are not relevant for present purposes, save that pursuant to sub-section 5:

   (5)For the purposes of subsections (1) and (4), the following have no value as consideration:

   (a)The fact that the transferee is related to the transferor:

   (b)If the transferee is the spouse or de factor partner of the transferor—the transferee making a deed in favour of the transferor;

   (d)      The transferee’s love or affection for the transferor.

2. In this instance there is no question but that the transfer took place within the four-year period prescribed by s 120(3)(a)(i). Accordingly, although this was a matter to which both parties paid attention during the hearing, the solvency of Mr Pekar at the time of the transfer is for these purposes irrelevant.

3. The only issue required to be proved is that the transfer took place in the period beginning five years before the commencement of the bankruptcy (s 120(1)(a)), a matter not in issue, and that the transferee gave no consideration for the transfer or gave consideration of less value than the market value of the property (s 120(1)(b)).

4. Here the transfer was recorded as being provided with consideration of “desire to make a gift.”  There has been no assertion by Mr or Ms Pekar that any monetary consideration of any sort was advanced.  There has been no suggestion that any cash passed hands.  Furthermore, looked at in substance, it is clear that the consideration for the transfer was for love and affection.  On any view, and in any event, a gift involves no consideration.

Conclusion

1. Put shortly, Ms Pekar has no defence to the trustee’s application pursuant to s 120 of the Act.  It follows that the transfer is void against the trustee who necessarily becomes entitled to possession of his half-share of the property.  Nothing has been said in any detail about the practical consequences of an order for possession.  It is to be inferred that this may well impose hardship upon Mr and Ms Pekar who are of advanced years and likely, on the materials as best one can say, to be in ill health.  Although there has been a very extensive delay in the matter, to the detriment of the creditors, and more particularly, to the administration of the estate, I will grant the Pekars 60 days before the orders for possession take place.

Section 121 of the Act

1. As will be apparent, it seems to me that the case under s 120 is so overwhelming and so clear that it is inappropriate to expend substantial or indeed any resources addressing the claim under s 121. This was the aspect of the case that tended to absorb the parties’ energies and submissions. A further aspect of the case that lurked to an extent in the background was the question as to whether or not Mr and Ms Pekar were entitled to remedies against the trustee for the trustee’s alleged misconduct. It should be noted that Mr Pekar sought that the trustee’s affidavit sworn 10 March 2016 be referred for investigation as regards perjury.

2. A number of criticisms were advanced by Mr Pekar, but in my opinion, it is sufficient to say that they were misconceived. Mr Pekar referred to threats made to his wife and the blackmail of his children and other matters of that character, and said that he wished to receive compensation for the caveat lodged by the trustee over the property. It is sufficient for these purposes to say that these criticisms are utterly misconceived. The trustee clearly had a caveatable interest given the events described in this judgment. The submissions made by Mr Pekar concentrated on whether the transfer was effected to defer creditors or not. That, of course, would be a relevant consideration under s 121. It simply has no purchase under s 120.

Conclusion

1. The trustee’s application is clearly made out. The terms of s 120 of the Act operate on the circumstances of this case in a fashion all too obvious.  For the reasons stated, the trustee must succeed.

I certify that the preceding nineteen (19) paragraphs are a true copy of the reasons for judgment of Judge Burchardt

Date: 20 January 2017