Jess (Trustee), in the matter of Lostitch (Bankrupt) v Lostitch
[2022] FedCFamC2G 342
•11 May 2022
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 2)
Jess (Trustee), in the matter of Lostitch (Bankrupt) v Lostitch [2022] FedCFamC2G 342
File number(s): MLG 3825 of 2020 Judgment of: JUDGE DAVIS Date of judgment: 11 May 2022 Catchwords: BANKRUPTCY – Claim for declaratory and monetary relief – property of bankrupts sold to bona fide purchaser – proceeds of sale transferred to daughter – Applicants appointed trustees of bankrupts estate – Bankruptcy Act 1966 (Cth) ss 120, and 121 – bankrupts transfer of the net proceeds of sale void – declaration made. Legislation: Bankruptcy Act 1966 (Cth), ss.5, 120(1), 121(1), 121(4), 139A, 139CA(1), 139D(2)(a), 139DA, 139F
Judiciary Act 1903 (Cth), s.79
Property Law Act 1958 (VIC), s.91
Cases cited: Anscor Pty Ltd v Clout (Trustee) (2004) 135 FCR 469
Griffin & Khatri v Milne & Anor [2009] FMCA 680
Lo Pilato (Trustee) v Kenny Saeedi Lawyers Pty Ltd (2017) 249 FCR 69
Prentice v Cummins (No 5) (2002) 124 FCR 67
Project Blue Sky Inc & Ors v Australian Broadcasting Authority (1998) 194 CLR 355
Re Jury; Ashton v Prentice (1999) 92 FCR 68
Trustees of the Property of Cummins (A Bankrupt) v Cummins (2006) 227 CLR 278
Division: Division 2 General Federal Law Number of paragraphs: 113 Date of last submission/s: 4 November 2021 Date of hearing: 18-19 October and 9 November 2021 Place: Melbourne Counsel for the Applicant: Mr Tennant First Respondent: In person ORDERS
MLG 3825 of 2020 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 2)
IN THE MATTER OF CHRISTOPHER LOSTITCH AND JENNIFER LEE LOSTITCH, BANKRUPT
BETWEEN: MATTHEW JAMES JESS AND PAUL ANDREW BURNESS (AS JOINT AND SEVERAL TRUSTEES OF THE PROPERTY OF CHRISTOPHER LOSTITCH AND JENNIFER LEE LOSTITCH)
Applicant
AND: REBECCA KATE LOSTITCH
First Respondent
VICTORIAN REGISTRAR OF TITLES
Second Respondent
SECURE FUNDING PTY LTD (ACN 081 982 872)
Third Respondent
ORDER MADE BY:
JUDGE DAVIS
DATE OF ORDER:
12 MAY 2022
THE COURT DECLARES THAT:
1.The transfer from Christopher Lostitch and Jennifer Lee Lostitch (Debtors) to the First Respondent in the sum of $29,700.00 on 5 March 2015 is void against the Applicants by virtue of section 120(1) of the Bankruptcy Act 1966 (Cth) (BankruptcyAct) and section 121(1) of the Bankruptcy Act.
2.The transfer from the Debtors to the First Respondent in the sum of $283,145.94 on or about 27 April 2015 is void against the Applicants by virtue of section 120(1) of the Bankruptcy Act and section 121(1) of the Bankruptcy Act.
3.The First Respondent acquired the estate in the property located at 8 Hanley Court, Pakenham in the State of Victoria, more particularly described in Certificate of Title Volume 9957 Folio 885 (Pakenham Property) as a direct or indirect result of financial contributions made to the First Respondent by the Debtors during the examinable period.
4.The First Respondent’s estate in fee simple in the Pakenham Property vests in the Applicants pursuant to sections and 139DA and 139D(2)(a) of the Bankruptcy Act.
AND THE COURT ORDERS THAT:
1.Within 30 days, the First Respondent is to execute all necessary instruments required to register the Applicants as the sole registered proprietors of the Pakenham Property and do any act or thing for the production or nomination of the Certificate of Title to the Applicants pursuant to section 139D(3) of the Bankruptcy Act.
2.Should the First Respondent fail or refuse to comply with order 1, a Registrar of the Court is directed to execute all necessary instruments to register the Applicants as the sole registered proprietors of the Pakenham Property pursuant to section 139G(2) of the Bankruptcy Act.
3.Further, the Second Respondent is directed to register the Applicants as the sole registered proprietors of the Pakenham Property.
4.Liberty to apply be granted to the Applicants and the Third Respondent with respect to the sale process for the Pakenham property.
5.The First Respondent and any other occupants of the Pakenham Property are to provide vacant possession of the Pakenham Property within 30 days of the date of these orders.
6.A writ of possession be issued forthwith in the event that the First Respondent and any other occupants fail to provide vacant possession of the Pakenham Property in accordance with order 5 above.
7.The First Respondent and any other occupants of the Pakenham Property must remove all personal property, being vehicles, rubbish and chattels from the Pakenham Property which are not vested in the Applicants within 30 days of the date of these orders.
8.Should the First Respondent and any other occupants of the Pakenham Property fail to comply with order 7 above, the Applicants may remove and dispose of any remaining vehicles, rubbish and chattels from the Pakenham Property as they see fit, without being required to account to the First Respondent, or any other occupants.
9.The First Respondent pay the Applicants the sum of $312,845.94 together with interest fixed in the sum of $19,791.54, being a total sum of $332,637.48.
10.Paragraph 9 of these orders be stayed until such time as the sale of the Pakenham Property has been settled and the Applicants have received such of the proceeds to which they are entitled pursuant to these orders.
11.The First Respondent to pay the Applicants’ costs of this proceeding to be taxed in default of agreement on a party/party basis.
Note: The form of the order is subject to the entry in the Court’s records.
Note: The Court may vary or set aside a judgment or order to remedy minor typographical or grammatical errors (r 17.05(2)(g) Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 17.05 Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth).
REASONS FOR JUDGMENT
JUDGE DAVIS
A. APPLICATION
This is the trial of an application filed on 28 October 2020, by Matthew James Jess and Paul Andrew Furness as joint and several trustees (Applicants), of the estate of Christopher Lostitch and Jennifer Lee Lostitch (Bankrupts).
The First Respondent is the Bankrupts’ daughter, Ms Rebecca Kate Lostitch, who prefers her married surname of Goodie (Ms Goodie).
The Second Respondent is the Victorian Registrar of Titles who was joined, effectively as a necessary party, having regard to the nature of relief sought in the Application. The Registrar has filed a submitting notice and accordingly has taken no active part of the litigation.
The trial commenced before me on 18 October 2021. Mr Tennant, of counsel, appeared for the Applicants. Ms Goodie appeared on her own behalf.
On 19 October 2021, I granted leave to the Applicants to file a Further Amended Application. On the same day, I made orders joining Secure Funding Pty Ltd, as the Third Respondent.
That entity took no active role in the litigation.
By their Further Amended Application, amongst other things, the Applicants seek an order that the property at 8 Hanley Court, Pakenham (Pakenham Property) vests in them. The Third Respondent is the mortgagee of the Pakenham Property.
Relief sought by Further Amended Application
Specifically, the Further Amended Application seeks relief in the following terms:
1.A declaration that the transfer from Christopher Lostitch and Jennifer Lee Lostitch (Debtors) to the First Respondent in the sum of $29,700.00 on 5 March 2015 is void against the Applicants by virtue of section 120(1) of the Bankruptcy Act 1966 (Cth) (Act), or alternatively section 121(1) of the Act.
2.A declaration that the transfer from the Debtors to the First Respondent in the sum of $283,145.94 on or about 27 April 2015 is void against the Applicants by virtue of section 120(1) of the Act, or alternatively section 121(1) of the Act.
3.A declaration pursuant to section 139DA of the Act that the First Respondent acquired the estate in the property located at 8 Hanley Court, Pakenham in the State of Victoria, more particularly described in Certificate of Title Volume 9957 Folio 885 (Pakenham Property) as a direct or indirect result of financial contributions made to the First Respondent by the Debtors during the examinable period.
4.A declaration that the First Respondent’s estate in fee simple of the Pakenham Property vest in the Applicants pursuant to sections 139D(2)(a) and 139DA of the Act.
5.Further or in the alternative, a declaration that so much of the sum of $29,700.00 transferred to the First Respondent on 5 March 2015 by the Debtors represents the sum traced into the Pakenham Property and constitutes an equitable charge on the First Respondent’s title to the Pakenham Property.
6.Further or in the alternative, a declaration that so much of the sum of $283,145.94 transferred to the First Respondent on or about 27 April 2015 by the Debtors represents the sum traced into the Pakenham Property and constitutes an equitable charge on the First Respondent’s title to the Pakenham Property.
7.Further or in the alternative, the First Respondent pay the Applicants the sum of $312,845.94
8.Within 30 days, the First Respondent is to execute all necessary instruments required to register the Applicants as the sole registered proprietors of the Pakenham Property and do any act or thing for the production or nomination of the Certificate of Title to the Applicants pursuant to section 139D(3) of the Act.
9.Should the First Respondent fail or refuse to comply with order 8, a Registrar of the Court is directed to execute all necessary instruments to register the Applicants as the sole registered proprietors of the Pakenham Property pursuant to section 139G(2) of the Act.
10.Further or in the alternative, the Second Respondent is directed to register the Applicants as the sole registered proprietors of the Pakenham Property.
11.Pursuant to section 79 of the Judiciary Act 1903 (Cth) and section 91 of the Property Law Act 1958 (Vic), the Applicants be appointed as joint and several trustees for sale of the Pakenham Property and the First Respondent’s interest in the Pakenham Property vests in the Applicants for that purpose, subject to valid encumbrances affecting the Property.
12.The Applicants are entitled to sell the Pakenham Property in such a way as they consider appropriate in the circumstances including but not limited to sale by auction or by private treaty.
13.The Applicants execute all documents to sell the Property and transfer the Pakenham Property to a purchaser/s.
14.The Applicants may engage agents and/or third parties to assist in the sale of the Pakenham Property, including but not limited to, real estate agents, solicitors and valuers.
15.The Applicants are to:
a.provide Secure Funding Pty Ltd (Secure) with a marketing plan for the Pakenham Property at least 7 days prior to agreeing on the marketing plan with the real estate agent appointed to conduct the sale; and
b.inform Secure of the proposed asking price and any auction reserve price prior to setting the proposed asking price and any auction reserve price.
16.The proceeds of the sale of the Pakenham Property, after adjustments with the purchaser/s for any statutory charges and outgoings in accordance with usual conveyancing practice, are to be distributed as follows:
a.to pay all expenses of and incidental to the sale of the Pakenham Property, including the estate agent’s commission, costs and necessary disbursements and the costs and disbursements of the solicitor performing the conveyance of the Pakenham Property;
b.in payment of the Applicants’ reasonable fees and disbursements incurred by them in performance of their obligations pursuant to these orders;
c.to pay an amount sufficient to discharge the mortgage registered on the title of the Property by Secure (dealing number AN325850D);
d.to pay the Applicants the amount owing to them and secured by the Pakenham Property pursuant to the orders sought at paragraphs 5 and 6 above and any interest accrued on those funds pursuant to the order sought at paragraph 22;
e.to pay the costs ordered pursuant to order 23; and
f.the net balance, if any, to the First Respondent.
17.The First Respondent and any other occupants of the Pakenham Property are to provide vacant possession of the Pakenham Property within 30 days of the date of these orders.
18.A writ of possession be issued forthwith in the event that the First Respondent and any other occupants fail to provide vacant possession of the Pakenham Property in accordance with order 17 above.
19.The First Respondent and any other occupants of the Pakenham Property must remove all personal property, being vehicles, rubbish and chattels from the Pakenham Property which are not vested in the Applicants within 30 days of the date of these orders.
20.Should the First Respondent and any other occupants of the Pakenham Property fail to comply with order 19 above, the Applicants may remove and dispose of any remaining vehicles, rubbish and chattels from the Pakenham Property as they see fit, without being required to account to the First Respondent, or any other occupants.
21.Alternatively, in respect of the loan allegedly made by Christopher Lostitch and/or Jennifer Lee Lostitch to the First Respondent referred to in paragraphs [18], [40]-[42] and [80] of the First Respondent’s affidavit affirmed 18 February 2021, the First Respondent pay the Applicants the sum of $311,488.53, or such other amount as the Court determines is outstanding.
22.Interest.
23.Costs.
24.There be no order as to costs between the Applicants and Secure.
25.Liberty be reserved to Secure and the Applicants to seek further orders and directions in relation to the sale of the Pakenham Property.
26.Such further orders as this Honourable Court deems appropriate.
B. OVERVIEW OF BACKGROUND FACTS
Sale of the Bankrupt’s Berwick property
The Bankrupts became the registered proprietors of the property at 80 Edgbaston Circuit, Berwick (Volume 10556, folio 817) (Berwick property) on 18 January 2001. This was their family home.
That property was sold by the Bankrupts to Zengyou Fang and Qingyan Qin pursuant to a contract of sale dated 28 December 2014. According to that contract, the sale price was $590,000, comprising a deposit of $59,000 with the balance of $531,000 to be paid at settlement.
On or about 4 March 2015, the Bankrupts received $44,250 as the early release of their deposit less fees and taxes. Settlement took place on 27 April 2015.
Purchase of the Pakenham property
The First Transfer was paid to a real estate agent and is for the precise amount of a 10% deposit for the purchase price for the Pakenham Property of $307,000.00 less a standard $1,000.00 holding deposit. The First Transfer was used to pay the deposit for Ms Goodie’s purchase of the Pakenham Property.
Ms Goodie entered a contract of sale to purchase the Pakenham property. There was no evidence as to the date upon which this occurred. In effect, the Applicants submitted that this was unknown to them.
The purchase price for the Pakenham property was $307,000, as is evidenced by the transfer of land which is dated 27 April 2015.
On 5 March 2015, the Bankrupts paid $29,700 from their Bendigo Bank account to Ray White real estate agent as a deposit for the purchase of that property in Ms Goodie’s name. The Applicants invite the inference that this amount was 10% of the purchase price less a standard holding deposit thousand dollars which was paid in cash. The Applicants refer to this payment as the first transfer (First Transfer).
Ms Elaine Broughton of de Jonge Read, a firm which provides pre-insolvency advice, represented the Bankrupts and Ms Goodie at relevant times. Upon enquiry by the Applicants, Ms Broughton confirmed that the First Transfer was “gifted” to Ms Goodie by the Bankrupts and that they had contributed all money required to purchase the Pakenham Property, including transaction costs.
On 27 April 2015, settlement for both the Pakenham property and the Berwick property occurred simultaneously. On that day, the Bankrupts drew cheques totalling $283,145.94 from the proceeds of sale from the Berwick property to pay the balance of the purchase price and associated costs for the purchase of the Pakenham property in Ms Goodie’s name. The applicants refer to this as the second transfer (Second Transfer).
On behalf of the Applicants, the First Applicant, Matthew James Jess has adduced affidavit evidence cheques comprising the Second Transfer were for payment of the following:
(a)ANZ Bank – outgoing mortgagee of the vendor of the Pakenham Property - $275,122.09;
(b)Hayes Conveyancing – conveyancing fees - $1,800.85;
(c)Stewart Title Limited – title insurance - $363.00; and
(d)State Revenue Office – stamp duty - $5,860.00.24.
On 1 May 2015, Ms Goodie became the sole registered proprietor of the Pakenham property. At that time the Pakenham property was unencumbered.
Ms Goodie deposed that at the time she became registered proprietor of the Pakenham property, she understood that the Bankrupts, her parents, were merely helping her obtain finance. She did not accept that her parents had, in effect, gifted her the purchase price and transaction costs for the Pakenham property from the proceeds of the sale of the Berwick property.
Despite this, Ms Goodie did not depose that she had made any contribution to the purchase of the Pakenham property at the time of purchase.
On Ms Goodie’s own affidavit evidence, the Bankrupts lived at the Pakenham property between August 2015 and August 2016. Mr Jess adduced affidavit evidence that they listed the Pakenham property as their residential address and the business address of their business partnership in their Statements of Affairs
The Pakenham property as security for BJC Paving Ltd’s loan with Equity-One
On 21 August 2015, BJC Paving Pty Ltd (BJC Paving) was registered as a company with Ms Goodie its sole director and shareholder. Ms Goodie deposed that “BJC Paving stood for “Bec, Jenny and Chris”, and that she was under the impression that, at the time of its incorporation, she would be running the company.
On or about 26 August 2015, BJC Paving received two letters of offer from Equity-One Mortgage Fund Limited (Equity-One) in relation to the following loans:
(a)a $195,000 interest only loan, with a term of 12 months and secured by, amongst other things, a first mortgage over the Pakenham Property and a guarantee given by Ms Goodie; and
(b)a $30,000 interest only loan, also with a term of 12 months and secured by, amongst other things, a second mortgage over the Pakenham Property and a guarantee given by Ms Goodie.
In both cases, the Equity-One loan purpose is described as “Working Capital”.
This is consistent with the loan application which described the loan purpose as “Working capital for business start-up”, before adding in the additional comments section:
New start up business – …
Rebecca will be starting a kirb (sic) and channel business and using the funds for working capital and purchasing various business related items for the start up.
Property is unencumbered
On 1 October 2015 settlement of BJC Paving loans from Equity-One took place and with fees and interest payments deducted, $24,991.75 and $184,506.83 was deposited into BJC Paving’s Westpac Bank account.
On 6 October 2015 Equity-One then lodged mortgages over the Pakenham property.
By his affidavit evidence, Mr Jess has demonstrated that the BJC Paving’s balance sheet as at 30 June 2016 records the Equity-One loans as current liabilities. Importantly, that balance sheet records a negative current liability for loans to related parties.
Bankruptcy and demands
On 21 October 2015 the Bankrupts’ individual income tax returns, for financial years 2007 to 2013, were processed by Australian Tax Office (ATO). As a result, at that time, Ms Goodie’s father (Mr Lostitch) owed the ATO $155,234.82 and her mother (Mrs Lostitch) owed it $153,698.61 for individual income tax and general interest charges.
On 17 February 2016 the Bankrupts each lodged a debtor’s petition. The Applicants were appointed as trustees of the Bankrupts’ estate on the same day.
Each of the Bankrupts disclosed that they had contributed $307,000 to the purchase of the Pakenham Property.
On 11 March 2016 the ATO lodged proofs of debt in Mrs Lostitch’s bankruptcy for $768,270.68.41 and in Mr Lostitch’s bankruptcy for $684,441.06.
On 17 March 2016, after the Applicants made enquiries of de Jong Read, Ms Broughton of that firm informed them that the approximately $307,000 was gifted to Ms Goodie as contributions to the purchase of the Pakenham property. In a follow up email on 29 March 2016, Ms Broughton clarified that approximately $307,000 was gifted to Ms Goodie, which included contributions from Mr and Mrs Lostitch’s personal funds.
Refinance of Equity-One Loan
On 2 November 2016, Ms Goodie received unconditional loan approval from Liberty Financial Pty Ltd (Liberty) and Secure Funding Pty Ltd (Secure Funding), a related entity of Liberty, for a loan in the amount of $217,250.
On 24 November 2016 settlement of Ms Goodie’s loan from Secure Funding occurred. Secure Funding advanced $174,842.20 and $31,796.44 to Equity-One to payout BJC Paving’s loans with Equity One.
On 30 November 2016, Equity-One’s discharged its mortgages over the Pakenham Property. On the same day, Secure Funding lodged mortgages over the Pakenham property.
BJC Paving’s balance sheet as at 31 December 2016 records that Equity-One loans have been paid out and that its current liabilities now include loans to related parties of $177,609.95.
Demands by Applicants
On 1 April 2016 the Applicants sent a letter of demand to Ms Goodie, care of Ms Broughton of de Jonge Read, in respect to the contributions made by the Bankrupts towards Ms Goodie’s purchase of the Pakenham Property. The substance of that letter was in the following terms:
I have been appointed as trustee of the above bankrupt estates on 17 February 2016. I have enclosed copies of the Certificates of Appointment for your reference. I have determined that shortly prior to their bankruptcy, the bankrupts directed amounts totalling $304,822.10 toward the purchase of a property at 8 Hanley Court, Pakenham VIC 3810 (“the Property”). Despite contributing what I understand was the full purchase price, I am aware that the Property was registered in your name.
I consider that the payments are either:
A disposition of property of the bankrupts for no consideration; and hence are voidable under section 120 of the Bankruptcy Act 1966;
Constitute a loan made to you that is repayable on demand; and/or
Provide the bankrupts (and hence their estates) an equitable interest in the Property by virtue of a constructive or resulting trust.
I invite you to contact me within 14 days with a proposal to resolve the estates’ claim against you (and/or the Property) stemming from the above transactions. I consider 14 days will provide you with sufficient time to seek legal advice on the matter should you wish to do so. If I have not heard from you within this timeframe I intend to instruct a solicitor to assist in the recovery of this claim.
On 18 July 2018, the Trustee’s solicitors sent a further letter of demand to Ms Goodie, care of Ashley Shield of de Jonge Read.
C. MS GOODIE’S GROUNDS OF OPPOSITION
Before setting out those findings in detail, it is useful to reproduce Ms Goodie’s Grounds of Opposition in full:
Grounds of opposition
Rebecca Kate Goodie, the First Respondent, intends to oppose the application filed by the applicants dated 28 October 2020 on the following grounds:
1.The First Respondent has provided consideration of at least market value for the sum of $29,700.00 transferred on or around 5 March 2015.
2.The First Respondent has provided consideration of at least market value for the sum of $283,145.94 transferred on or around 27 April 2015.
3.The First Respondent did not know, and could not reasonably have known, the purpose of Christopher Lostitch and/or Jennifer Lee Lostitch in making the transfers referred to in paragraphs 1 and 2 above.
4.The First Respondent did not know, and could not reasonably have known, that Christopher Lostitch and/or Jennifer Lee Lostitch were, or were about to become, insolvent.
5.In the alternative, the Applicants are required to pay to the First Respondent an amount equal to the value of the consideration given by the First Respondent.
6.The First Respondent's estate in 8 Hanley Court, Pakenham, was not acquired as a result of financial contributions made by Christopher Lostitch and/or Jennifer Lee Lostitch during the relevant period for the purposes of s 139DA.
7.Christopher Lostitch and/or Jennifer Lee Lostitch have not derived a sufficient benefit from 8 Hanley Court, Pakenham during the the[sic] relevant period for the purposes of s 139DA.
8.An order the transfer of 8 Hanley Court, Pakenham, would cause hardship to the First Respondent and/or Jack Goodie.
9.The First Respondent has changed her position in good faith; and/or is a good faith purchaser for value without notice.
D. THE TRIAL
The Applicants’ case
In addition to his written opening submissions, which were revised and filed 4 November, Mr Tennant gave an extensive oral opening on behalf of the Applicants.
Mr Jess gave oral evidence adopting his affidavits sworn 26 October 2020 and 9 September 2021. Much of the relevant thrust of those affidavits is reflected in the facts identified above.
Ms Goodie did not cross examine Mr Jess. During the course of the Applicants’ case, Mr Tennant tendered a number of documents, in addition to those contained in the Jess affidavits. I need not list those documents here.
Ms Goodie’s case
At the commencement of Ms Goodie’s case, I asked her if she wished to make opening remarks.
In this regard, the following exchange took place between Ms Goodie and the Court:
HIS HONOUR: So what do you want to say by way of opening, Ms Goodie?
MS GOODIE: Well, your Honour, I just wanted the court to know that even though my parents and I never had a strong relationship, when my mother came to me and offered help to buy a house, I was excited. I thought she had my best interests at heart. And we can clearly see by the evidence provided by the applicants that the purchase of the Pakenham property was to avoid creditors and this is criminal. And what they’ve done to me is violence, family violence. They’ve financially abused me, and I just want the court just to understand my personal perspective.
HIS HONOUR: All right. So you’re saying – as I understood you, what you’re saying is that when you look at the evidence, you can see that the transaction was done to defeat creditors.
MS GOODIE: Yes. I can, your Honour.
…
[Emphasis added]
Shortly afterwards, the following exchange took place between Ms Goodie and the Court:
HIS HONOUR: Yes. Ms Goodie, can I ask what is it that you say we should do? What is it that you want to achieve in this case?
MS GOODIE: Well, I believe that my parents’ money to purchase the property was a loan to me from them, and I repaid a large sum of that loan back. So I’m hoping that his Honour would order for me to potentially pay back the rest of the owing amount on – or something. I’m hoping to keep my house.
HIS HONOUR: Yes, very well. All right. Is there anything else you want to say by way of opening? Ms Goodie?
MS GOODIE: No, thank you, your Honour.
Ms Goodie’s oral evidence
Ms Goodie was affirmed and adopted her affidavit of 18 February 2021. I then, in effect, asked whether she wished to give any supplementary evidence:
Now, Ms Goodie, I’m going to invite you to tell me whether there’s any other evidence that you wish to give in addition to that in your affidavit. You don’t have to do that. It’s just if there’s anything else that you – other evidence you want to give now. You may wish to wait for cross-examination?---I’m just going to go with my affidavit for now. Thank you, your Honour.
Mr Tennant cross examined Ms Goodie.
In cross examination, Ms Goodie confirmed the concession which she had made in opening to the effect that her parents had intended to defeat creditors by their transfer of the proceeds of sale of the Berwick property for use in the purchase of the Pakenham property.
However, importantly, Ms Goodie went on to say: “[m]ay I add that I had no awareness of this at all; I did not know that they were going bankrupt”.
Ms Goodie went on to give evidence in cross examination, including that:
(a)Her relationship with her parents started to deteriorate in 2014.
(a)She acknowledged that in hindsight her parents were selling the family home, the Berwick property, because they were in financial trouble.
(b)She only became aware of her parents financial difficulties in late 2020 when she was “served with litigation papers”.
(c)In early 2015, when she moved out of the family home, her relationship with her parents deteriorated further.
(d)Regardless of the poor relationship, she did not question her Mother’s intentions when she said wanted to help Ms Goodie buy her first home;
(e)She could not remember where or in what words her mother’s offer was made.
(f)At the time of settlement for the Pakenham property, in April 2015, she did not know that the money had been gifted.
(g)She had first become aware of that gift “When the money from the Equity-One loan had settled into the bank account,” which she confirmed occurred in “October 2015”.
After Ms Goodie had given her evidence concerning when she first became aware of the “gift” the following exchange took place:
HIS HONOUR: Ms Goodie, can I ask a question … – but what I want to know is if you were told it was a gift why did you pay it back?---Sorry, I missed - - -
So as I understand your – after we stood the matter over for a bit, after the break that we had this morning and you came back and you said that your case was that it was a loan?---Yes.
That the characterisation of the money given to you by your – or provided to you by your parents was that it was a loan which you had wholly or substantially repaid?---Yes.
But as I understand your evidence in answer to Mr Tennant’s question of a moment ago, you say that in October 2015 you learned that it was a gift. If it was a gift, why did you repay it?---Sorry, if I may, could I retract my last answer to that question? I got confused and thought you were asking me if I found out it was a loan in October.
I think you had better – Mr Tennant, I think you had better proceed to clarify this. It’s not – are these matters clear to you?
MR TENNANT: Well, as I understand it, Ms Goodie wants to change her evidence.
HIS HONOUR: Well, let’s first understand - - -
MR TENNANT: And so - - -
HIS HONOUR: Let’s just get very clear what has happened, Ms Goodie, because I want to understand you, and Mr Tennant does too. So, as I understand it, Mr Tennant has really asked you when you first found out that you received a gift – that the money coming from your parents was a gift. And so, you remember Mr Tennant asking you that?---Yes, I do.
And you remember he asked you that question with respect to various different timeframes?---Yes.
Do you remember that also?---Yes.
And ultimately, he asked you the open question when do you say that you first learnt that your parents were gifting you moneys in connection with the purchase of the Pakenham property? You remember he asked you that?---Yes, I do.
Yes. And your answer to that question, as I understood it at the time, was that you learned – you first learned that the money was being gifted to you when the property had – the loan as you put, the loan had settled, so the purchase of the property had settled in October 2015. Is that the answer that you recall giving?---Yes, that’s the answer I recall giving, but that answer is incorrect. I wish to retract that answer.
Okay. So you say that that’s not the answer you intended to give. And so what’s the answer that you intended to give?---So I never was under the impression that the money was a gift. I found out that it was a loan in October.
[Emphasis added]
Later in cross examination, Ms Goodie gave further evidence on whether the money used for the Pakenham property bore the character “gift” or a “loan” from her parents to her. Relevantly, Ms Goodie gave evidence that:
(a)In the period between January and April 2015, she made no agreement with her parents to loan the money required for settlement of the Pakenham property.
(b)She did not pay anything for the property before settlement and that she did not apply for any bank loan in that period.
(c)Despite these circumstances, she denied that she understood her parents to be gifting her the Pakenham property.
(d)Her parents decided to purchase the Pakenham property and she became the sole registered proprietor.
(e)On or about 27 July 2015, her parents helped her obtain finance for a business loan from Equity-One Mortgage Fund Limited to BJC Paving which was secured against the Pakenham property.
(f)with respect to that loan:
--- Well, at the time of purchasing the Pakenham property, I have no idea of how to buy a property or any conveyancing or anything like that. And after purchasing the property, when my parents came to me to refinance the property as a business loan, I assumed that that was in order to pay for the property. And when I found out that the amount of the business loan was less than the cost of the property, I questioned my mum on this and she said that that money that I just refinanced, which was $209,498.58, was for her to use as my way of repaying them back for the property and that I was to repay them the rest when I was, in their words, “financially stable”.
(g)Accordingly, the first time she realised that she had to repay the purchase price of the Pakenham property was after settlement and during the setting of the BJC Paving loans.
(h)She was the sole director and shareholder of BJC Paving.
(i)Her mother told her about the purpose of the BJC business loans:
---She asked for the bank card connected to the BJC Paving bank account and said that that was her money and that was paying back in – from the house and the rest of the money, which I’m sure we can work that out, I could pay back in my own time when I’m financially stable. Her words.
Ms Goodie confirmed that her parents resided at the Pakenham property from August 2015 to August 2016. The following exchange occurred with respect to this:
MR TENNANT: And then your parents resided at the Pakenham property from August 2015 until August 2016; is that correct?---Yes, that’s correct.
So despite not being on friendly terms with you, they lived at the same house as you and Jack, Mr Goodie, for more than a year; that’s correct?---Yes, that’s correct.
And I suggest to you that the reason that you agreed for them to live with you was because they had gifted you the Pakenham property; that’s correct?---No, that’s not correct.
Well, why else would you agree to your parents living at the Pakenham property with you if you’re not on friendly terms with them?---Well, they didn’t actually ask if they could move in or store their belongings. They just started storing their belongings and they had nowhere else to live, so I felt like I had no choice but to just let them move in.
They were behaving as if they owned the Pakenham property, weren’t they?---Yes, they were.
And the reason for that is because they had paid for the Pakenham property; that’s correct, isn’t it?---I can’t quite answer that question.
I suggest to you that is the reason why they were behaving like they owned it is because they had paid for it completely. Do you dispute that?---I can’t say for what goes on in my parents’ head.
In response to Mr Tennant’s questions about refinancing the Equity One loans with the loan from Secure Funding which occurred in the financial year ending June 2017, Ms Goodie gave evidence that:
(a)she made the first repayment to Secure Funding on 9 December 2016;
(b)this was the first payment that she had made since the settlement of the Pakenham property; and
(c)she confirmed she had been living at the Pakenham property for “18 months after settlement” which was effectively “mortgage free”.
Mr Tennant also questioned Ms Goodie regarding her knowledge of her parents’ financial situation in or around 17 February 2016 which was the date they became bankrupt.
Those questions focused on email correspondence between the Applicants and Ms Elaine Broughton of de Jonge Read, of 17 March 2016 and 29 March 2016, which characterise the First Transfer and Second Transfers as gifts and not loans.
Ms Goodie gave evidence that she had no knowledge of her parents’ bankruptcy or any emails in March 2016 which had alleged that the Pakenham property was gifted to her rather than being the subject of a loan. In relation to those emails, Ms Goodie gave evidence that “I didn’t set this up at all. My mother had complete control of all of it.”
Ms Goodie accepted that she had been in contact with Ms Broughton of de Jonge Read but not until November 2020.
In response to questions by Mr Tennant about her current debt to Secure Funding, Ms Goodie gave evidence that she owed “[a]approximately $158,000”.
At the end of her evidence, I invited Ms Goodie to make any further remarks that she considered might assist her case. She added that:
I would like to add that in regards to the purchase of the business from my parents, I never received any equipment from them. My dad actually sold all the equipment to one man for cash. That’s all, your Honour.
E. LEGAL PRINCIPLES
E1 - Bankruptcy Act
The following provisions of the Bankruptcy Act1966 (Cth) (Bankruptcy Act) are relevant to this proceeding:
Section 120
(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.
…
(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;
…
(d) the transferee’s love and affection for the transferor;
…
(7) For the purposes of this section:
(a)transfer of property includes a payment of money; and
(b)a person who does something that results in another person becoming the owner of property that did not previously exist is taken to have transferred the property to the other person; and
(c)the market value of property transferred is its market value at the time of the transfer.
Section 121
(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 property would probably have become part of the transferor's estate or would probably have been available to creditors if the property had not been transferred; and
(b)the transferor's main purpose in making the transfer was:
(i)to prevent the transferred property from becoming divisible among the transferor's creditors; or
(ii)to hinder or delay the process of making property available for division among the transferor's creditors.
(2)The transferor's main purpose in making the transfer is taken to be the purpose described in paragraph (1)(b) if it can reasonably be inferred from all the circumstances that, at the time of the transfer, the transferor was, or was about to become, insolvent.
…
(4) Despite subsection (1), a transfer of property is not void against the trustee if:
(a)the consideration that the transferee gave for the transfer was at least as valuable as the market value of the property; and
(b)the transferee did not know, and could not reasonably have inferred, that the transferor's main purpose in making the transfer was the purpose described in paragraph (1)(b); and
(c)the transferee could not reasonably have inferred that, at the time of the transfer, the transferor was, or was about to become, insolvent.
…
(6)For the purposes of subsections (4) and (5), the following have no value as consideration:
(a) the fact that the transferee is related to the transferor;
…
(d) the transferee’s love and affection for the transferor;
…
(9) For the purposes of this section:
(a)transfer of property includes a payment of money; and
(b)a person who does something that results in another person becoming the owner of property that did not previously exist is taken to have transferred the property to the other person; and
(c)the market value of property transferred is its market value at the time of the transfer.
Section 139A
The trustee of a bankrupt's estate may, at any time within 6 years after the date of the bankruptcy, apply to the Court for an order under this Division in relation to an entity (in this Division called the respondent entity).
Section 139CA(1)
(1) For the purposes of this Division, the examinable period is:
(a)in the case of an application for an order in relation to a related entity of the bankrupt – the period beginning:
(i)if, at a time or times during the period of 1 year beginning 5 years before the commencement of the bankruptcy, the bankrupt became insolvent—at that time, or at the first of those times, as the case may be; or
(ii)in any other case--4 years before the commencement of the bankruptcy;
and ending on the day on which the application is made;
…
Section 139DA
If on an application under section 139A for an order in relation to a respondent entity that is a natural person, the Court is satisfied that:
(a)during the examinable period, the entity acquired an estate in particular property as a direct or indirect result of financial contributions made by the bankrupt during that period; and
(b)the bankrupt used, or derived (whether directly or indirectly) a benefit from, the property at a time or times during the examinable period; and
(c)the entity still has the estate in the property;
the Court may make an order of a kind referred to in subsections 139D(2) and (3), whether or not the bankrupt has ever had an estate in the property.
Section 139D
…
(2) The Court may, by order, vest in the applicant:
(a)the entity's estate in the whole, or in a specified part, of the property; or
(b)a specified estate in the whole, or in a specified part, of the property, being an estate that could, by virtue of the entity's estate in the property, be so vested by or on behalf of the entity.
(3) The Court may make an order directing:
(a)the execution of an instrument;
(b)the production of documents of title; or
(c)the doing of any other act or thing;
in order to give effect to an order under this section made on the application.
Section 139F
(1)In considering whether or not to make under section 139D or 139DA a particular order relating to property in which the respondent entity has an estate, the Court shall take account of:
(a)the nature and extent of any estate that any other person or entity has in the property and any hardship that the order might cause that other person or entity; and
(b)the respondent entity’s current net worth and any hardship the order might cause the respondent entity’s creditors.
…
Pursuant to section 5 of the Bankruptcy Act, “related entity” is defined to include, amongst other things, a “relative” of the person. This, in turn, is defined to include a child of the person.
In addition, “Property” is broadly defined in section 5 to mean “real or personal property of every description, whether situate in Australia or elsewhere, and includes any estate, interest or profit, whether present or future, vested or contingent, arising out of or incident to any such real or personal property.”
E2 Case law
Section 120
In Anscor Pty Ltd v Clout (Trustee),[1] Lindgren J, with whom Wilcox and Moore JJ agreed, set out the following propositions, at [43], with respect to the operation of section 120:
[1] (2004) 135 FCR 469 at [43].
(a) ‘Void’ in the expression ‘void against the trustee’ in s 120 (as in ss 121 and 122) means ‘voidable’, so that where the debtor/later bankrupt (or a transferee from the debtor) transfers property for no consideration or a consideration less than market value, within the time specified in the section, the transferee (and an acquirer from the transferee) takes a good title, but one which may, depending on the circumstances, be defeated if the trustee elects to avoid the transfer by the debtor/bankrupt: among numerous authorities, see Re Vansittart; Ex parte Brown [1893] 2 QB 377 ; Re Brall; Ex parte Norton [1893] 2 QB 381 (‘Brall’); Re Carter and Kenderdine’s Contract [1897] 1 Ch 776 (‘Carter’); Harrods Ltd v Stanton [1923] 1 KB 516; Re Williams; Williams v Lloyd (1934) 50 CLR 341 at 374; Price v Parsons (1936) 54 CLR 332 at 347, 351–352; Re Cummins; Richardson v Cummins (1951) 15 ABC 185 at 188; Brady v Stapleton (1952) 88 CLR 322 at 333–335; Noakes v Harvy Holmes & Son (1979) 37 FLR 5; Barton v Official Receiver (1984) 4 FCR 380 at 393; Re Fitzgerald; Ex parte Burns (1986) 10 FCR 261 at 262–263; Fiorino at 18–21; Baker v Official Trustee in Bankruptcy [1995] FCA 565 (unreported, Burchett, Ryan and Carr JJ, 3 August 1995) (‘Baker’); Official Trustee in Bankruptcy v Alvaro (1996) 66 FCR 372 (‘Alvaro’) at 426; Issitch v Worrell (2000) 172 ALR 586 (‘Issitch’) at [36]; Trustee of the Property of O’Halloran, in the matter of O’Halloran v O’Halloran [2002] FCA 1305 (‘O’Halloran’) at [77]. (Some modern successors to the State of Elizabeth use ‘voidable’ rather than ‘void’; see s 89 of the Property Law Act 1969 (WA), s 37A of the Conveyancing Act 1919 (NSW) and s 172 of the Property Law Act 1958 (Vic).)
(b) Subject always to the various exceptions and protections in ss 120(2), (3), (4) and (6), where the trustee in bankruptcy elects to avoid, the trustee is entitled, for the purpose of identifying and realising the property of the bankrupt, to have the transfer of property by the debtor treated as not having occurred, and the debtor as having continued to own the property following the transfer until it vests in the trustee (if it does so vest — see below).
(c) This does not mean that s 120(1), activated by the trustee’s avoidance, re-vests title in the debtor/bankrupt retrospectively and ab initio, and thereby makes the act of transferring, whether by the debtor-transferor or subsequently by the transferee (or the act of taking a transfer, whether by the transferee or by the subsequent acquirer from the transferee), a wrongful act so as to give rise to a liability in personam in the transferee or acquirer, unless, of course, the transfer in fact occurs after title vests in the trustee (see below), in which case there will be a liability to the trustee on a common money account for money had and received: Halfey v Tait (1875) 1 VLR (Eq) 8 (‘Halfey’); Brady v Stapleton at 333, 334; Baker; Alvaro at 426; Valoutin v Furst (1998) 154 ALR 119 at 149; Fiorino at 21.
(d) By contrast, s 139ZQ of the Act (inserted by the Bankruptcy Amendment Act 1991 (Cth) with effect from 1 July 1992) provides for a personal liability, by stipulating that where a person has received money or property as a result of a transaction that is void under Div 3 of Pt VI of the Act (ss 120, 121 and 122 are in Div 3), the person may be required by a notice issued by the Official Receiver, on the application of, relevantly, the trustee in bankruptcy, to pay to the trustee an amount equal to the money or the value of the property received, and that the trustee may recover that amount as a debt in a court of competent jurisdiction.
(e) Section 120 does not vest property in the trustee in bankruptcy; it makes transfers of property void as against the trustee in bankruptcy. The vesting of property in the trustee in bankruptcy is provided for elsewhere in the Act, as noted below.
(f) Where a debtor becomes a bankrupt, there vests forthwith in the trustee in bankruptcy ‘the property of the bankrupt’, that is, relevantly, the property that belonged to, or was vested in, the bankrupt, at the commencement of the bankruptcy (ss 58, 115, 116, 5(1) (‘the property of the bankrupt’)). But, subject to, relevantly, s 120, s 123 will protect any transfers for full market value by the debtor between the commencement of the bankruptcy and the date of the bankruptcy, if the other conditions specified in that section are satisfied.
(g) The vesting in the trustee in bankruptcy does not take place upon the commencement of the bankruptcy; it takes place forthwith upon the debtor’s becoming a bankrupt. A debtor becomes a bankrupt on the making of a sequestration order upon a creditor’s petition (s 43(2) of the Act) or upon the endorsement by the Official Trustee of a debtor’s petition as ‘accepted’ (s 55(4A) of the Act). Until then, there is no trustee in bankruptcy in whom property can vest: cf Carter at 780—781 per Lindley LJ. The ‘commencement of the bankruptcy’, however, marks the time as at which the items of property constituting the ‘property of the bankrupt’ are to be identified. Those items of property constitute the property which vests in the trustee in bankruptcy forthwith upon the debtor’s becoming a bankrupt. Such an item of property will not vest in the trustee in bankruptcy if it no longer exists when the debtor becomes a bankrupt, or if it still exists then but has been transferred in the meanwhile for full value under a transaction protected by s 123 as mentioned in the preceding paragraph. Statements to the effect that avoidance by the trustee is effective as from ‘the date of the accruer of [the trustee’s] title, or, in other words … from the date of the act of bankruptcy to which the title of trustee relates back’ (Carter at 782 per AL Smith LJ — and see Fiorino at 18 and Alvaro at 426–427), do not signify that there is an actual vesting in the trustee at the commencement of the bankruptcy. They signify that, the transfer by the debtor/bankrupt being disregarded, if the property still exists at the commencement of the bankruptcy, it will form part of the property of the bankrupt which will vest in the trustee forthwith upon the debtor’s becoming a bankrupt, if the property also still exists then.
(h) If the property the subject of a transfer made void by s 120 as a result of the trustee’s election to avoid, still exists in specie as at the commencement of the bankruptcy, it will vest in the trustee in bankruptcy forthwith upon the debtor’s becoming a bankrupt if it also still exists then (by reason of ss 58, 115, 116 and 5(1) (‘the property of the bankrupt’), subject always to the exceptions and the protections given to third parties found in s 120. From the date of the bankruptcy, the owner will have had the property in trust for the trustee in bankruptcy, and, if the owner sells it after that date, will be accountable to the trustee for the proceeds of sale as for money had and received: cf Brall at 384; Brady v Stapleton at 334; Alvaro at 426; Fiorino at 21. (In Fiorino, the sale by the bankrupt’s mother, to whom the bankrupt had given the property, took place after the making of the sequestration order and before avoidance by the trustee. Gummow J held that she had held the property on trust for the trustee in bankruptcy and came under a personal liability to him ‘to account for, as money had and received, the proceeds of the sale of the property by her’.)
(i) If the property the subject of a transfer made void by s 120 as a result of the trustee’s election to avoid, no longer exists in specie as at the commencement of the bankruptcy, but can be seen to exist as at that date in an identifiable substitute form of property, such as a fund representing the proceeds of sale of the property, that substitute property will vest in the trustee in bankruptcy forthwith upon the debtor’s becoming a bankrupt, if that substitute property, or an identifiable substitute for it, still exists then, subject, as ever, to the exceptions and the protections given to third parties found in s 120: cf Alvaro at 426–427; Halfey; Re Mouat; Kingston Cotton Mills Co v Mouat [1899] 1 Ch 831 (‘Mouat’) at 834–835; Brady v Stapleton at 332–333; Lumsden v Snelson [2001] FCA 83 at [24]–[27].
(j) If, at the commencement of the bankruptcy, property the subject of a transfer made void by s 120 exists neither in specie nor in an identifiable substitute form, equitable relief founded in equity’s auxiliary jurisdiction may nonetheless be available to the trustee in bankruptcy. This may occur where, for example, the property, such as money, can be ‘followed’ or ‘traced’ into, other property which is not, however, simply an identifiable substitute for it: cf Mouat at 834–835; Trautwein v Richardson [1946] Arg LR 129; Issitch at [36]; O’Halloran at [80] per Allsop J and works cited by his Honour. In such a case an equitable charge over that other property in favour of the trustee in bankruptcy for the amount of the value of the property, or the amount of money which the debtor/bankrupt transferred plus interest, will often be found to be an appropriate remedy: for a recent illustration, see Fodare Pty Ltd v Official Trustee in Bankruptcy [2000] FCA 1721.
(k) Where s 120 makes a transfer of property void, s 120(4) obliges the trustee in bankruptcy to pay to the transferee an amount equal to the value of any consideration the transferee gave for the transfer. There is no comparable provision relating to a transfer for less than full consideration by the transferee to an acquirer (cf s 120(6)). In the event of an effective avoidance by the trustee of a transfer from the debtortransferor to the transferee, general law principles would give an acquirer from the transferee who gave some, but less than full, consideration, a personal right of recovery from the transferee, because the acquirer would at the same time be deprived of title to that for which he or she provided the consideration. In the absence of s 120(4), general law principles would apparently have given the transferee a similar right of recovery from the bankrupt, and a right to prove as a creditor in the bankruptcy. But s 120(4) goes further by imposing a personal liability on the trustee in bankruptcy in favour of the transferee for the full amount of the value of the consideration.
A payment of money arising from the sale of property owned by a person who later became bankrupt constitutes a transfer of property for the purposes of section 120.[2]
[2] Woods and Lombe as Trustees of the Bankrupt Estate of Ulusoylu v Ulusoylu [2017] FCCA 935; 15 ABC(NS) 173 at [134].
Consideration for the transfer of property under section 120 must be in fact given and not simply consideration promised, agreed or intended to be given.[3]
[3] Ambrose v Poumako [2012] FCA 889 at [64]; Verge v Devere Holdings Pty Ltd (No 4) [2010] FCA 653.
Section 121
To succeed in an application under section 121 of the Bankruptcy Act a trustee must establish that the bankrupt’s “main purpose” in making the transfer was to either prevent the transferred property from becoming divisible among the bankrupt’s creditors or to hinder or delay the process of making property available for such division.
The “main purpose” is the “principal”, “leading” or “prevailing or most influential” purpose.[4]
[4] Prentice v Cummins [2002] FCA 1503 at [96].
The High Court in Trustees of the Property of Cummins (A Bankrupt) v Cummins[5] confirmed that in order to establish a bankrupt’s “main purpose”, a trustee requires evidence giving rise to “a reasonable and definite inference, not merely conflicting inferences of equal probability” that in making the relevant transfers the bankrupt had the “main purpose” required by the Bankruptcy Act.
[5] (2006) 227 CLR 278 at 292, [34]
In the same case, the High Court held that the trustees had established that the bankrupt had the required “main purpose” for divesting virtually all of his major assets at a time when the bankrupt knew that he had not lodged tax returns for many years, therefore had substantial liabilities to the ATO and could be pursued at any time.[6]
[6] Ibid at [34] – [51]
With respect to the deeming provision in section 121(2), in Prentice v Cummins (No 5)[7] Sackville J stated that:
…
If reliance is placed on s 121(2), the transferor’s subjective intention is likely to be irrelevant: in other words, if it can be reasonably inferred that the transferor was insolvent at the time of transfer, it will not matter if his or her subjective intention was not to prevent, hinder or delay the process of making property available for division among creditors: Re Jury, at 82. On the other hand, if the trustee attacking a transfer does not rely on s 121(2), the trustee will need to establish that the transferor’s subjective purpose was that described in s 121(1)(b).
[7] (2002) 124 FCR 67 at [95]. See, also, Lo Pilato (Trustee) v Kenny Saeedi Lawyers Pty Ltd (2017) 249 FCR 69 at [157]-[161].
Sections 139A, 139D, 139DA and 139F
There have been very few reported decisions dealing with the provisions of Part VI Division 4A of the Bankruptcy Act. Helpfully one of them bears some analogy to this proceeding.
In Griffin & Khatri v Milne & Anor,[8] the Court ordered that, pursuant to section 139DA, a property owned by the bankrupt in his capacity as trustee for his then infant daughter, be vested in the trustee in bankruptcy.
[8] [2009] FMCA 680.
In that case, as in this proceeding, the subject property was purchased using funds solely derived from the sale of another property owned by the bankrupt, with no contribution made by the bankrupt’s daughter to the purchase of the subject property.
After considering the hardship that would be caused to the bankrupt’s daughter and her sister, both of whom resided in the subject property, the Court held that the hardship must be balanced with “the rights of the bankrupt’s creditors to share in the property that should rightfully form part of his estate” and determined that “the type of transaction in this case seems to be that which is targeted by s139DA”.[9]
[9] Ibid at [7] and [9].
F. CONSIDERATION
F1 Section 120
To determine whether the First Transfer and/or Second Transfer are void against the Applicants pursuant to section 120 of the Bankruptcy Act, the Applicants must establish that:
(a)The First Transfer and/or the Second Transfer took place in the period 5 years before the commencement of the bankruptcy and ending on the date of the bankruptcy; and
(b)Ms Goodie gave no consideration for the First Transfer and/or the Second Transfer or gave consideration of less than the market value.
I accept the Applicants’ evidence that the First Transfer and Second transfer took place on 5 March 2015 and 27 April 2015 respectively. This is less than 12 months prior to when the Bankrupts lodged their debtor’s petitions on 17 February 2016. This is clearly within the relevant time period for the purposes of section 120.
I find that the First Transfer and the Second Transfer, and accordingly the purchase price and associated costs for the Pakenham property, were in the nature of a gift made by the Bankrupts to Ms Goodie, their daughter. That is, I find that Ms Goodie provided no consideration for those transfers when they were made. Such a finding entails my rejection of any contention made by Ms Goodie to the effect that such payments were in the nature of a loan by the Bankrupts to her.
As demonstrated by passages from her cross examination which I have extracted above, Ms Goodie’s evidence on whether her parents in fact gifted the impugned amounts to her was inconsistent. At times she conceded that the true nature of the relevant transfers was a gift; at times she sought to assert that those transfers constituted a loan.
By his written submissions, Mr Tennant has usefully summarised factual matters which yield the conclusion that, properly characterised, Ms Goodie gave no consideration for impugned transfers when they were made. I extract those submissions, which I accept, below:
67.There is some suggestion that Ms Goodie borrowed money from the Bankrupts to purchase the Pakenham Property, however this is inconsistent with the following contemporaneous records and other evidence:
(a)the Debtor’s Petitions lodged by the Bankrupts do not record a loan to Ms Goodie;
(b)Ms Broughton’s communications with the Applicants’ office describe the First Transfer and the Second Transfer as “gifts”;
(c)the absence of any written documentation or communication recording the “loan”, which can be contrasted with the written loan agreement between the Bankrupts and BJC Paving dated 20 October 2015;
(d)the absence of any payments from Ms Goodie to the Bankrupts in repayment of the “loan”. To the extent that it is alleged that the “loan” was repaid by Ms Goodie by providing [Mrs Lostitch] with access to the money in BJC Paving’s Westpac bank account:
(i)this was BJC Paving’s money, not Ms Goodie’s money;
(ii)the maximum loan balance of the Westpac bank account was $209,948.5869, $102,897.36 less than the amount of the First Transfer and the Second Transfer - $312,845.94;
(iii)the money is BJC Paving’s Westpac account was not described by either of the Bankrupts as their asset in their Debtor’s Petition;
(iv)when the Bankrupts’ lodged their Debtor’s Petitions and became bankrupt, their property vested in the Applicants pursuant to sections 58, 115 and 116 of the Act. This property would have included any “loan” to Ms Goodie and the right to receive repayment of that “loan”. As at 17 February 2015, the balance of BJC Paving’s Westpac account was $197,145.29 and any funds used by the Bankrupts after that date were not paid to the Applicants in repayment of the “loan”; and
(v) in any event, not all of the money in BJC Paving’s Westpac account was used by the Bankrupts. For example, $24,355.11 was paid to Equity-One in repayment of BJC Paving’s loan and BJC Paving paid the Bankrupts, and then the Applicants, $100,068.00 by regular monthly payments of $3,228.00 in accordance with the terms of BJC Paving’s loan with the Bankrupts.
(e) there were no discussions between the Bankrupts and Ms Goodie, let alone any concluded agreement between them, regarding any “loan” at the time of the First Transfer and the Second Transfer. Ms Goodie deposed that in April 2015:
“I was not aware that my parents were loaning me money to pay for [the Pakenham Property]. Iunderstood that I was purchasing [the Pakenham Property], and that my parents would assist me to obtain finance for the property.”
68.The First Transfer and the Second Transfer comprised the entirety of the purchase price and transaction costs for the Pakenham Property and therefore those transaction can be traced to the Pakenham Property. In accordance with the principles set out in Anscor Pty Ltd v Clout (Trustee) above, the Applicants are entitled to an equitable charge over the Pakenham Property for the amount First Transfer and the Second Transfer plus interest.
For the reasons above, I find that each of the First Transfer and the Second Transfer is void against the Applicants pursuant to section 120(1).
F2 Section 121
To determine whether the First transfer and/or the Second transfer are void against the Applicants pursuant to section 121, in effect, the Applicants must establish that:
(a)the money comprising First Transfer and/or the Second Transfer would probably have become part of the Bankrupts’ estate, or made available to creditors, but for those transfers; and
(b)the Bankrupts’ main purpose in making the transfers was to prevent the money from becoming divisible among the Bankrupts’ creditors or to hinder or delay the process of making the money available for division among the Bankrupts’ creditors.
I have extracted s 121(2) above. In effect, that section deems the condition prescribed by 121(1)(b) to be made out if it can reasonably be inferred from all the circumstances that, at the time of the transfer, the transferor was, or was about to become, insolvent.
With respect to s 121(a), the Applicants submit that, had the impugned transfers not occurred, the amounts which were the subject of those transfers would have been deposited into the Bankrupts’ bank accounts and been available for creditors. Mr Jess gave affidavit evidence to this effect which was not challenged at trial. I accept that evidence.
Further, the Applicants submitted that, by making the First Transfer and/or the Second Transfer, the Bankrupts sought to prevent, hinder or delay their creditors from accessing the proceeds of the sale of the Berwick Property. I accept this submission. That is, I find that in making those transfers, the Bankrupts had that impugned purpose.
My reasons for doing so include the following:
(a)First, the Bankrupts made the impugned transfers for no consideration.
(b)Secondly, settlement for both the Pakenham property and the Berwick property occurred simultaneously. Again, on that day, the Bankrupts drew cheques totalling $283,145.94 from the proceeds of sale from the Berwick property to pay the balance of the purchase price and associated costs for the purchase of the Pakenham property in Ms Goodie’s name.
(c)Thirdly, a relatively short time after settlement, the Bankrupts began storing their belongings at the Pakenham property and living there. Likewise, they listed that property as their residential address and, in effect, their business address, on their Statements of Affairs provided to the Applicants. Tellingly, as the transcript extracted in [104] below demonstrates, Ms Goodie concedes that not only did the Bankrupts move in to the Pakenham property but they treated as if it were their own. Moreover, they did so despite the fact that relations between them and their daughter were not in a good state.
(d)Fourthly, at the time of the impugned transfers, the Bankrupts knew that they were each poised to have a very significant debt to the ATO which would be payable immediately. In this regard, at relevant times, they were consulting de Jonge Read, a firm which provides pre-insolvency advice. Moreover, a relatively short time after the ATO processed the Bankrupts’ tax returns which gave rise to those debts, the bankrupts each lodged their debtor’s petitions.
Put another way, the fact that the Bankrupts used the proceeds of the sale of their long-time family home to purchase another property in the name of their relatively young daughter, without consideration from her, in circumstances where they were poised to live in that property, requires explanation.
That is, such conduct poses the question of why they did not purchase that property in their own names. This is particularly so in circumstances in which each of the Bankrupts knew that they were poised to have a large and immediately payable debt to the ATO and that, a relatively short time after that debt was quantified, they each presented a debtor’s petition. Having regard to the circumstances above, and all of the evidence, I find that the answer to that question is that the Bankrupts made the impugned transfers to put the Pakenham property in their daughter’s name at least for the main purpose of avoiding their creditors. Indeed I find that this was likely their sole purpose.
In this regard, I accept the Applicants’ submissions that:
73.Approximately six and seven months after the First Transfer and the Second Transfer, on 21 October 2015 the ATO processed the Bankrupts’ individual income tax returns for the 2007 to 2013 financial years. As at 22 October 2015 Christopher owed the ATO $155,234.82 and Jennifer owed the ATO $153,698.61 for individual income tax and general interest charges for the 2007 to 2013 financial years.
74.Yet this was not the extent of the Bankrupts’ liability to the ATO. There were further outstanding lodgments for, amongst other things, individual tax returns for the 2014 and 2015 and, importantly, the Bankrupts’ business partnership.
75.On 11 March 2016 the ATO lodged proofs of debt in Christopher’s bankruptcy for $684,441.06 and in Jennifer’s bankruptcy for $768,270.68.76 The information in the respective Debtor’s Petitions confirms Bankrupts did not have sufficient assets to meet these debts at the time of the First Transfer and the Second Transfer, as the Bankrupts were insolvent.
My finding that such submissions should be accepted yields the conclusion that the Applicants have established that, when the impugned transfers were made, the terms of s 121(2) were satisfied. That is, at that time of both of those transfers, each of the Bankrupts was, or was about to become, insolvent.
Accordingly, each of the Bankrupt’s deemed main purpose in making the impugned transfers was the purpose prohibited by s 121(1)(b).
In these circumstances, the applicants have established the purposive requirement of s 121(1)(b) irrespective of my finding that they have proven that Bankrupts’ main purpose in making the impugned transfers was in fact the purpose prohibited by that section.
Ms Goodie sought to rely upon the defence in subsection 121(4). To that end, in effect she submitted that she had provided consideration for the impugned transfers which amounted to their market value. Further, in effect, Ms Goodie submitted that – at relevant times – she did not know, nor could she reasonably have known, either that the Bankrupts were, or were about to become, insolvent or that they made the First Transfer and/or the Second Transfer for the impugned purpose.
Relevantly to Ms Goodie’s endeavour to rely on s 121(4), amongst other things, Mr Tennant submitted:
4.The burden of establishing the elements of the defence in section 121(4) is on Ms Goodie – Re Jury; Ashton v Prentice (1999) 92 FCE 68 at [67]. In order to succeed in a defence pursuant to section 121(4), Ms Goodie would need to establish all three elements contained in section 121(4)(a) to (c).
5.The Applicants rely upon the following evidence in opposition to Ms Goodie allegation that she acted in good faith and therefore the transfer is not void pursuant to section 121(4) of the Bankruptcy Act:
(a)Ms Goodie did not give consideration for the First Transfer and/or the Second Transfer that was at least as valuable as the market value;
(i) See above evidence referred to in claim under section 120.
(b)Ms Goodie knew, or could reasonably have inferred, that the Bankrupts main purpose in making the First Transfer and/or the Second Transfer was to prevent the transferred money from becoming divisible among the Bankrupt’s creditors or to hinder or delay the process of making the money available for division among the Bankrupts’ creditors:
(ii)the Berwick Property was the Bankrupts and Ms Goodie’s family home – T85.5
(iii)Ms Goodie was residing at the Berwick Property in 2014 - T85.25, 85.40
(iv)Ms Goodie was aware that the Bankrupts sold the Berwick Property just after Christmas 2014 - T86.1, 138.25
(v)the Bankrupts were stressed in early 2015 - T138.30
(vi)Ms Goodie’s relationship with the Bankrupts deteriorated in 2014 and throughout 2014 and 2015 she was in irregular contact with them and not on friendly terms - Goodie Affidavit – [8]-[9], T87.40, 138.35
(vii)Despite the deteriorated relationship between Ms Goodie and the Bankrupts, out of the blue and without having ever discussed it before, in early 2015 Jennifer said to Ms Goodie that the Bankrupts were going to help her buy her first home - Goodie Affidavit – [10] and [12], T87.45-88.25, 138.35
(viii)The Bankrupts did not make the same offer to Ms Goodie’s brother, despite them having a great relationship with her brother - T88.30-89.5, 138.40
(ix)In early 2015 Ms Goodie had not saved up enough money to pay for the deposit for the purchase of a house - T90.15
(x)In early 2015 the Bankrupts placed pressure on Ms Goodie to find a house to purchase due to the upcoming settlement of their sale of the Berwick Property - Goodie Affidavit – [13], T90.30-35, 91.1-20, 138.35
(xi)the Bankrupts controlled the process of Ms Goodie purchasing the Pakenham Property by telling her she needed to find a house to purchase, taking her to look at properties, deciding the budget for the purchase of a house, selecting the Pakenham Property, taking her to Ray White real estate in Pakenham to sign documents for the purchase and handling the conveyancing - Goodie Affidavit – [13]-[16], T96.45-97.15, 98.10-30, 138.45
•Ms Goodie knew that to purchase a property would cost hundreds of thousands of dollars - T90.5-10, 139.5
•Ms Goodie did not pay for the purchase of the Pakenham Property nor apply for a loan to purchase the property prior to settlement -T96.10-15, 97.15, 99.15, 139.5
•The Bankrupts paid the entirety of the money to purchase the Pakenham Property – See paragraphs (2)(a)(iii) and (iv) above regarding First Transfer and Second Transfer, T98.35-99.15, 139.10
•The Bankrupts paid the entirety of the money to purchase the Pakenham Property from the proceeds of the sale of the Berwick Property with settlement taking simultaneously - See paragraphs (2)(a)(iii) and (iv) above regarding First Transfer and Second Transfer • there was no discussions or agreement between Ms Goodie and the Bankrupts about them lending money to Ms Goodie for the purchase of the Pakenham Property prior to settlement
•Goodie Affidavit – [18], T94.25-95.25, 99.15, 99.45-100.5, 102.10-30
(c)Ms Goodie could reasonably have inferred that at the time of the First Transfer and the Second Transfer the Bankrupts were, or were about to become, insolvent:
I accept these submissions.
Without limiting my acceptance of them, I observe, in particular, that the requirements of s 121(4) are conjunctive. Accordingly, the mere fact that I have found that Ms Goodie did not provide market consideration for the impugned transfers is a sufficient condition to foreclose on her ability to rely on the section.
Moreover, despite the fact that Ms Goodie was relatively young I consider that, in all of the circumstances, at relevant times she could reasonably have inferred that her parents were or were about to become insolvent. Indeed, it is hard to imagine why else her parents would have engaged in conduct referred to in [88(a), (b) and (c)] above.
F3 ss 139D(2)(a), 139DA and 139F
For the Applicants to obtain an order vesting the Pakenham property in them pursuant to 139D(2)(a), they must satisfy s 139DA.
In effect, to satisfy s 139DA the Applicants must first establish that:
(a)Ms Goodie acquired her interest in the Pakenham Property during the examinable period as a result of direct or indirect financial contributions made by the Bankrupts;
(b)The Bankrupts used or derived a direct or indirect benefit from the Pakenham Property during the examinable period; and
(c)Ms Goodie still has the estate in the Pakenham Property.
For reasons given above, each of these elements is satisfied.
It is not controversial that the First and Second transfers that paid for Ms Goodie’s acquisition of her interest in the Pakenham Property each occurred during the “examinable period”.
The following evidence given by Ms Goodie during her cross examination lends emphasis to the benefit which her parents derived from the Pakenham property:
MR TENNANT: And then your parents resided at the Pakenham property from August 2015 until August 2016; is that correct?---Yes, that’s correct.
So despite not being on friendly terms with you, they lived at the same house as you and Jack, Mr Goodie, for more than a year; that’s correct?---Yes, that’s correct.
And I suggest to you that the reason that you agreed for them to live with you was because they had gifted you the Pakenham property; that’s correct?---No, that’s not correct.
Well, why else would you agree to your parents living at the Pakenham property with you if you’re not on friendly terms with them?---Well, they didn’t actually ask if they could move in or store their belongings. They just started storing their belongings and they had nowhere else to live, so I felt like I had no choice but to just let them move in.
They were behaving as if they owned the Pakenham property, weren’t they?---Yes, they were.
And the reason for that is because they had paid for the Pakenham property; that’s correct, isn’t it?---I can’t quite answer that question.
I suggest to you that is the reason why they were behaving like they owned it is because they had paid for it completely. Do you dispute that?---I can’t say for what goes on in my parents’ head.
Ms Goodie’s Grounds of Opposition allege that an order transferring her interest in the Pakenham to the Applicants would cause hardship to herself and/or her husband, Jack Goodie.
Section 139F of the Bankruptcy Act requires me to take account of:
(a)the nature and extent of any estate that any other person or entity has in the Pakenham Property and any hardship the order may cause that other person or entity; and
(b)Ms Goodie’s current net worth and any hardship the order might cause to Ms Goodie’s creditors.
In relation to the hardship point generally, Mr Tennant submitted that:
Court’s Consideration of Third Party Interests
19.When considering whether or not to make a vesting order pursuant to sections 139D and 139DA, the Court is required by section 139F of the Bankruptcy Act to take account of certain matters. That section provides as follows:
Section 139F – Court to take account of interest of other persons
(1)In considering whether or not to make under section 139D or 139DA a particular order relating to property in which the respondent entity has an estate, the Court shall take account of:
(a) the nature and extent of any estate that any other person or entity has in the property and any hardship that the order might cause that other person or entity; and
(b) the respondent entity’s current net worth and any hardship the order might cause the respondent entity’s creditors.
20.In Project Blue Sky Inc & Ors v Australian Broadcasting Authority (1998) 194 CLR 355 McHugh, Gummow, Kirby and Hayne JJ set out the modern principles of statutory interpretation stating:
[69] The primary object of statutory construction is to construe the relevant provision so that it is consistent with the language and purpose of all the provisions of the statute. The meaning of the provision must be determined "by reference to the language of the instrument viewed as a whole". In Commissioner for Railways (NSW) v Agalianos, Dixon CJ pointed out that "the context, the general purpose and policy of a provision and its consistency and fairness are surer guides to its meaning than the logic with which it is constructed". Thus, the process of construction must always begin by examining the context of the provision that is being construed.
…
[78] However, the duty of a court is to give the words of a statutory provision the meaning that the legislature is taken to have intended them to have. Ordinarily, that meaning (the legal meaning) will correspond with the grammatical meaning of the provision. But not always. The context of the words, the consequences of a literal or grammatical construction, the purpose of the statute or the canons of construction may require the words of a legislative provision to be read in a way that does not correspond with the literal or grammatical meaning. (citations omitted).
21.The context of section 139F is that it appears within Division 4A of the Bankruptcy Act, which is headed “Orders in relation to property of entity controlled by bankrupt or from which bankrupt derived a benefit.”. The division seeks to prevent bankrupts from hiding assets or transferring wealth to other entities (including natural persons) and in particular entities controlled by the bankrupt. It provides bankruptcy trustees with the ability to seek orders to recover such property where the bankrupt has used or derived a benefit from the property.
22.In this context, section 139F recognizes that genuine third parties may be adversely affected if the Court makes an order vesting the respondent entity’s interest in the property to the trustee. The Court is required by that section to take account of any hardship suffered by the identified third parties in the process of considering whether to exercise its discretion to make a vesting order under section 139D or 139DA.
More specifically, Mr Tenant submitted Secure Funding’s debt is secured and accordingly it would not suffer any hardship by the vesting order which the Applicants. I accept that submission.
Again, Secure Funding is now the Third Respondent to this proceeding. Correspondence tendered on behalf of the Applicants demonstrates that it (including by its general counsel) is aware of the proceeding, including the orders sought thereby. Despite this, it has not taken any active role in the litigation.
The Applicants submitted that there is limited evidence of Ms Goodie’s current net worth. They submitted that such evidence is limited to Ms Goodie’s testimony that she earns approximately $45,000 per year as a Personal Care Attendant and that her only asset is the Pakenham Property, which is subject to the mortgage by Secure Funding. Ms Goodie gave evidence to the effect that she currently owes $158,000 on that mortgage. Ms Goodie did not give evidence that she had any other creditors.
The Applicants went on to submit that:
56.Jack Goodie has lived at the Pakenham Property with Ms Goodie since mid-201556 and Ms Goodie alleges that he has made some modest contributions towards utility bills and, since 29 September 2016 (17 months after Ms Goodie acquired the Pakenham Property) payment of Ms Goodie’s loan from Secure Funding. Ms Goodie also alleges since 2015 her and Jack have spent modest amounts for “improvements” to the Pakenham Property. Jack Goodie has not provided his own affidavit verifying Ms Goodie’s allegations.
57.It is not clear why payment of utility bills amounts to a hardship. Such bills would have been paid by Jack Goodie and/or Ms Goodie if they had been renting a property to live at during that same period.
59.In addition, it is important to highlight that until 9 December 2016 when the amount of $587.98 was paid from Ms Goodie’s Westpac bank account to Secure Funding, 19 months after settlement of Ms Goodie’s purchase of the Pakenham Property, Ms Goodie and Jack Goodie had been residing at the Pakenham Property rent free and without making any loan repayments to Equity-One or Secure Funding. All payments to Equity-One were made by BJC Paving. Since December 2016, although Ms Goodie has been making monthly loan payments to Secure Funding, Jack Goodie and her have had the benefit of residing at the Pakenham Property and avoided the need to pay rent at an alternative property.
60.That Ms Goodie and Jack Goodie will need to find an alternative place to live does not outweigh the rights of the Bankrupts’ creditors to share in the property that should rightfully form part of the Bankrupts’ estate.
61.As was found in Griffin and Khatri v Milne, this type of transaction where the Bankrupts have deliberately divested their assets and purchased a property in their daughter’s name, is precisely the type of transaction targeted by section 139DA.
I accept the submissions. I do not consider that the hardship for which Ms Goodie contends provides a basis for me to decline to make the vesting orders sought by the Applicants in this case.
ORDERS
For these reasons, I make the orders which I have set out above.
I certify that the preceding 113 numbered paragraphs are a true copy of the Reasons for Judgment of Judge Davis. Associate:
Dated: 11 May 2022
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