Jones v Official Receiver and Anor (No.4)
[2017] FCCA 1101
•16 June 2017
FEDERAL CIRCUIT COURT OF AUSTRALIA
| JONES v OFFICIAL RECEIVER & ANOR (No.4) | [2017] FCCA 1101 |
| Catchwords: BANKRUPTCY – Interlocutory application – cross-claim in substantive proceedings – application heard under r.13.03C of the Federal Circuit Court Rules 2001 (Cth) – declarations and relief sought with respect to properties the subject of s.139ZQ notices of the Bankruptcy Act 1966 (Cth) – whether property transactions between the applicant and third parties are permissible in accordance with ss.120, 121 and 128B of the Bankruptcy Act 1966 (Cth) – transactions found to be void – application allowed –orders and declarations made. |
| Legislation: Bankruptcy Act 1966 (Cth), ss.5, 30(1), 43(2), 115, 120, 121, 128B, 139ZQ, Div.3 of Pt.VI Federal Circuit Court Rules2001 (Cth), r.13.03C |
| Cases cited: Coshott v Prentice (2014) 221 FCR 450; [2014] FCAFC 88 |
| Applicant: | RICHARD JONES |
| First Respondent: | OFFICIAL RECEIVER |
| Second Respondents: | JASON PORTER PAUL GERARD WESTON |
| Cross Applicant: | PAUL GERARD WESTON |
| First Cross Respondent: | RICHARD JONES |
| Second Cross Respondent: | SUZANNE LEA HOMBSCH |
| Third Cross Respondent: | CREST AUSTRALIA PTY LTD ATF MY PREROGATIVE SUPER FUND |
| Fourth Cross Respondent: | REGISTRAR GENERAL OF NEW SOUTH WALES |
| File Number: | SYG 2492 of 2014 |
| Judgment of: | Judge Smith |
| Hearing date: | 9 May 2017 |
| Date of Last Submission: | 9 May 2017 |
| Delivered at: | Sydney |
| Delivered on: | 16 June 2017 |
REPRESENTATION
| No appearance by or for the applicant. |
| Counsel for the Respondent: | Mr A. Spencer |
| Solicitors for the Respondent: | Bamford Lawyers |
DECLARATIONS
The transfer dated 1 September 2010 by the first cross respondent to the second cross respondent of the property situated at 4303 Waterfall Way, Dorrigo, NSW 2453, being all the land comprised and described in Folio Identifier 1/390661, being Lot 1 in Deposited Plan (DP) 390661 and Auto Consol 6680 – 87 (Dorrigo Property) is void as against the cross applicant as trustee of the bankrupt estate of the first cross respondent.
The transfer dated 13 July 2010 by the first cross respondent to the third cross respondent of the land situated at 72 Markham Street, Armidale, NSW 2350, being all the land comprised and described in Folio Identifier 2/158265, being Lot 2 in DP 158265 (Armidale Property) is void as against the cross applicant as trustee of the bankrupt estate of the first cross respondent.
ORDERS
The first and second cross respondents yield and deliver up to the cross applicant vacant possession of the Dorrigo Property together with the improvements erected thereupon on or before 30 June 2017.
The first and third cross respondents yield and deliver up to the cross applicant vacant possession of the Armidale Property together with the improvements erected thereupon on or before 30 June 2017.
A writ of possession of the Dorrigo Property issue forthwith in favour of the cross applicant but direct that such writ lie in the Registry of the Court until the filing by the cross applicant, not before 30 June 2017, of an affidavit to the satisfaction of a Registrar of the Court:
(a)stating that the second cross respondent has not given vacant possession of the Dorrigo Property as ordered by Order 1 above; and
(b)that complies with the requirements of sub-rr.39.3(2)(a) and (b) of the Uniform Civil Procedure Rules 2005 (NSW).
A writ of possession of the Armidale Property issue forthwith in favour of the cross applicant but direct that such writ lie in the Registry of the Court until the filing by the cross applicant, not before 30 June 2017, of an affidavit to the satisfaction of a Registrar of the Court:
(a)stating that the third cross respondent has not given vacant possession of the Armidale Property as ordered by Order 2 above; and
(b)that complies with the requirements of sub-rr.39.3(2)(a) and (b) of the Uniform Civil Procedure Rules 2005 (NSW).
The second cross respondent deliver to the cross applicant the Certificate of Title to the Dorrigo Property by 30 June 2017.
The third cross respondent deliver to the cross applicant the Certificate of Title to the Armidale Property by 30 June 2017.
The first and third cross respondents pay the cross applicant’s costs of the application.
The cross applicant serve a copy of this Order on each of the cross respondents attaching a copy of the order to the front door of the Dorrigo Property and Armidale Property by 5pm on 3 July 2017.
Reserve liberty to the cross applicant to apply in respect of the form of the orders.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT SYDNEY |
SYG 2492 of 2014
| RICHARD JONES |
Applicant
And
| OFFICIAL RECEIVER |
First Respondent
| JASON PORTER AND PAUL GERARD WESTON |
Second Respondents
| PAUL GERARD WESTON |
Cross Applicant
| RICHARD JONES |
First Cross Respondent
| SUZANNE LEA HOMBSCH |
Second Cross Respondent
| CREST AUSTRALIA PTY LTD ATF MY PREROGATIVE SUPER FUND |
Third Cross Respondent
| REGISTRAR GENERAL OF NEW SOUTH WALES |
Fourth Cross Respondent
REASONS FOR JUDGMENT
(As corrected)
The applicant, Richard Jones bought a car in 2004. He claimed that there was a defect in the car and commenced proceedings against both the vendor and distributor of the car for damages. He settled his claim against the distributor but lost the proceedings against the vendor and was ordered to pay 80% of the vendor’s costs. He did not pay those costs and, by Court order made on 5 October 2012, Mr Jones was made a bankrupt. In the time that elapsed between the order for costs and the bankruptcy, Mr Jones transferred the ownership of two properties of which he had been the registered proprietor.
Jason Porter and Paul Weston were the trustees of Mr Jones’ bankrupt estate. On 6 June 2013, they caused a notice to be issued under s.139ZQ of the Bankruptcy Act1966 (Cth) (Bankruptcy Act) to each of the transferees of the two properties. One of those transferees, Ms Suzanne Hombsch, complied with the notice and provided the trustees with an executed transfer for the relevant property. The other transferee, Crest Australia Pty Ltd (Crest), has not complied with the notice.
Mr Jones, who has now been discharged from bankruptcy, commenced proceedings in this Court on 8 September 2014, seeking various orders against the trustees and others including relief concerning the s.139ZQ notice issued to Ms Hombsch. On 2 June 2016, the trustees brought a cross claim against Mr Jones and Crest effectively seeking orders as to the validity of the s.139ZQ notices.
For reasons that have been explained elsewhere, Mr Jones’ application has been dismissed. He failed to appear at the hearing of the cross claim on 9 May 2017 and the matter was heard in his absence pursuant to r.13.03C of the Federal Circuit Court Rules2001 (Cth) (Rules).
The evidence establishes that, as soon as Mr Jones was aware of the possible extent of the costs order made against him, he set about divesting himself of all of his substantial assets including the two properties. He received no consideration for the transfers of those properties which were made for the purpose of ensuring that they would not be available to his creditors. In the circumstances, the cross claim will succeed and there is no reason why the orders sought by Mr Weston, now the only remaining trustee[1], ought not be made.
[1] By order of this Court entered 21 October 2016, the name of the first respondent (Jason Porter and Paul Weston) was amended to “Official Receiver”.
The relevant facts
In 2004, Mr Jones purchased a Range Rover motor vehicle from Purnell Motors Pty Ltd (Purnell Motors). On about 9 February 2009, he commenced proceedings in the District Court of New South Wales against Purnell Motors and Jaguar Land Rover Australia Pty Ltd (Jaguar Land Rover), the local distributor of Range Rovers, making various claims in relation to that motor vehicle. Mr Jones was represented in those proceedings by Mr David Sigler of Curlington Legal & Consulting Pty Ltd. Mr Jones settled his claim against Jaguar Land Rover.
The District Court proceedings were heard by Hungerford ADCJ over a number of days in October, November and December 2009. His Honour delivered judgment on 24 February 2010. His Honour found that Mr Jones had suffered a loss of $100 which he had already received in a settlement from Jaguar Land Rover and, for that reason, ordered a verdict in favour of Purnell Motors. His Honour ordered that Mr Jones pay 80% of Purnell Motors’ costs.
As at the date of judgment, Mr Jones was the registered proprietor of three properties:
a)45 Rofe Street, Leichardt, being all the land comprised and described in Folio Identifier B/440857 (45 Rofe Street Property);
b)72 Markham Street, Armidale, being all the land comprised and described in Folio Identifier 2/158265 being Lot 2 in DP 158265 (Armidale Property); and
c)4303 Waterfall Way, Dorrigo being all the land comprised and described in Folio Identifier 1/390661 being Lot 1 in DP 390661 and Auto Consol 6680–87 (Dorrigo Property).
On 12 May 2010, Purnell Motors served on Mr Jones a Bill of Costs in assessable form. The total amount of the costs in that Bill was $510,817.50: 80% of that amount is $408,654.
Given the length of the hearing of the proceedings and the bill of costs served on him, there is no question that Mr Jones was aware by mid-May 2010 that he was liable to Purnell Motors for a significant amount of costs. His subsequent conduct is to be understood in light of that awareness.
On 23 June 2010, some four months after judgment was delivered in the proceedings, Mr Jones executed a deed of establishment of a superannuation fund entitled “My Prerogative Super Fund” as the director of Crest Australia Pty Ltd, the trustee of the fund.
By letter dated 10 June 2010, Mr Jones’ lawyer wrote to the lawyers acting for Purnell Motors offering to settle the issue of costs. The offer was said to have been put on a “take it, or leave it” basis. If the offer was not accepted, Mr Jones would instruct his solicitors and their professional billing consultant to respond thoroughly to every item in any assessable bill of costs served on them. The offer was not accepted.
On 30 June 2010, Mr Jones sent an email to Martin Smith of B & M Property Transfers thanking him for his “time and advice last week”. On 19 July 2010, Mr Jones sent unsigned transfers of the Armidale Property and Dorrigo Property to Mr Smith by email. In his email, Mr Jones asked for advice on the amount of stamp duty payable. This evidence shows that by late June 2010, Mr Jones had taken advice about the transfer of those two properties and was taking steps to effect those transfers. The 19 July 2010 email suggests that Mr Jones was proposing to pay the stamp duty on the transfers, although it is unnecessary to come to a firm view about that.
On 23 July 2010, Mr Jones sent an email to Felicity Smith at Westpac Banking Corporation (Westpac), with a copy to Martin Smith, requesting that she forward the title for the Dorrigo property and the valuation for the Armidale property to his conveyancer.
By letter dated 27 July 2010, Mr Jones’ solicitor wrote to the solicitors for Purnell Motors in the following terms (omitting formalities):
1)Our client is selling his home at 45 Rofe Street, Leichardt (“Rofe Street”) to raise money to pay your client’s costs and his other legal costs for the above proceedings. We have been transparent about this fact in our discussions with you and our client is not taking any steps to dissipate assets in order to avoid payment of your client’s legitimate legal costs. Indeed, our client is taking the exact opposite approach and realising assets in order to pay your client’s legal costs.
2)As we discussed with you yesterday, our client is prepared to provide your client with the undertaking that you have sought in paragraph 7 of your letter:
a)Our client will place the net proceeds of sale from Rofe Street into a controlled money account set up by our firm.
b)Our client may use funds from this account to pay his basic living expenses, which we estimate to be no more than $500 per week. As you know, our client has a serious medical condition and must pay for ongoing drug treatment related to his recovery from a heart attack that he suffered in 2007. He recently spent almost $1,000 for a medical emergency.
c)Our client may also use the funds to pay his legal expenses, including any expenses associated with the costs assessment of the above proceedings, when your client applies to have his costs assessed.
3)You have asked us this afternoon for additional information in relation to the mortgage over Rofe Street. We have spoken to our client, who is at present away from his home and does not have access to these documents. What he recalls is that the outstanding amount for the loan for Rofe Street is about $350,000. The security for that loan is a mortgage against Rofe Street in favour of St George Bank. The selling agent has advised our client that Rofe Street is likely to sell for between $850,000 and $860,000.
…
(Emphasis in original)
In reply to that letter, the solicitors for Purnell Motors wrote to Mr Jones’ lawyers on 30 July 2010 asking for further information including the following:
…
a)how the sale proceeds of 965 Tyringham Road, Dorrigo North, New South Wales were dissipated as requested in our letter to you of 14 July 2010;
b)a list of your client’s assets and liabilities and income and expenditure …;
c)the balance of the mortgage of 45 Rofe Street, Leichardt as at 31 July 2010;
d)confirmation that the mortgage is with St George Bank as the title search discloses a mortgage to Westpac Banking Corporation;
e)the balance of fees outstanding by Jones to your firm or to counsel or otherwise;
f)anticipated agent’s commission;
…
Mr Jones’ lawyers replied to this letter by letter dated 3 August 2010. In that letter, they stated that Mr Jones would not provide any details of his assets and liabilities, or the balance of fees outstanding by him to his lawyers. Critically, they continued:
…
Our client’s partner lives at the property in Armidale and our client lives on the properties in Bellingen. He has no intention of selling any of these properties. If there is a reasonable prospect at any time of him being unable to satisfy your client’s assessed costs, then he will provide a similar undertaking for these properties as he has for Rofe Street to cover any shortfall.
…
Bellingen is a town not far from Dorrigo in New South Wales. Dorrigo sits near the edge of the New England escarpment and Bellingen is located at the base of that escarpment. As there is no evidence of any property or properties in Bellingen, I infer that the reference in this letter to “the properties in Bellingen” is meant to refer to the Dorrigo Property.
In light of the fact that Mr Jones was, at that very moment, taking steps to divest himself of the properties at Dorrigo and Armidale this statement was, at best, misleading. In my view, it was calculated to provide false comfort to Mr Jones’ creditors to delay enforcement of the costs judgment to enable him to get his assets out of his estate and so defeat his creditors.
It is necessary at this point to set out the evidence concerning Mr Jones’ cash position.
Mr Jones had a number of bank accounts in his name. The first was described as a “Variable Rate Investment Property Loan” with Westpac, account number 23–1185. The statements in respect of this account reveal that as at 1 April 2010 the balance was in debit $302,469.11 with $2.00 of available funds. Throughout the period January 2010 to August 2011 there were regular credits recorded in the account and debits which have the appearance of mortgage repayments. The regular credits ceased on 31 August 2011 when a direct debit was returned and there appears to have been no further credits to the account. Regular interest and default interest were then charged to the account.
In 2012, debits were made in respect of the production of legal notices, agent’s sales and fees, cleaning and rubbish removal, valuation fees and other matters. Such debits suggest that enforcement action was taken by Westpac, and the property in respect of which the account operated was sold by Westpac. The balance owing for most of this period was in excess of $300,000 and the amount in arrears recorded as at 1 October 2012 was $330,752.86.
The second account in Mr Jones’ name held at Westpac was an “Equity Access Loan-Plan 2”, account number 68–3058. The limit of that account as at 3 March 2010 was disclosed in the statements of account as being $200,000 with funds available for redraw at that time being $59,739.91. In June and July 2010, there were significant withdrawals from this account and by May 2011 the account was almost fully drawn.
The third account in Mr Jones’ name was a savings account described as a “Classic Plus Account”, account number 51–6034. Until November 2010, this account was in credit in the amount of about $2,200. However, in November 2010 there was a withdrawal of $2,000 and from that time there remained less than $200 credited to that account.
The fourth account in Mr Jones’ name was a “Business Overdraft” account, account number 53–2037. The limit of the account as at 26 February 2010 was $50,000 with available funds of $4,468.83. On 18 March 2010 there was a deposit in the amount of $45,000 from an account with the Bank of Queensland in the name of DDH Graham account number 6879522. By September 2010, the funds available in the account were only $1,477.21.
There was one other account held in Mr Jones’ name at that time; however, it is convenient to consider the details of that account later in these reasons. For present purposes it may be noted that the evidence reveals that, by the middle of 2010, when Mr Jones was preparing to divest himself of the properties, he owed in excess of $500,000 to Westpac.
On or about 13 July 2010, Mr Jones signed a transfer of the Armidale property in favour of Crest. The transfer noted an acknowledgement by the transferor of receipt of the consideration of $120,000.
On or about 1 September 2010, Mr Jones signed a transfer of the Dorrigo property. The transfer states that the transferor acknowledges receipt of the consideration of $280,000 and that transferee was Suzanne Lea Hombsch.
As will be seen, there was in fact no consideration paid for either transfer. Certainly, there is no evidence of it in any of the financial records of Mr Jones that are before the Court.
On 29 September 2010, Purnell Motors lodged an application for an assessment of its costs. That application had been assigned to a Robert Fox, Costs Assessor on 21 October 2010. By that time, Mr Jones was well on his way to divesting himself of his properties. Judgment in the amount of $282,686.93 was finally entered in respect of costs on 20 September 2011.
Mr Jones did not satisfy that judgment.
On 15 December 2011, an asset freezing order was made by the District Court of New South Wales addressed to Ms Hombsch. That order was ultimately extended to 16 December 2013 and discharged in circumstances described later in these reasons.
On 30 March 2012, a bankruptcy notice was issued in respect of the judgment debt and Mr Jones committed an act of bankruptcy by failing to comply with that notice.
On 9 May 2012, Purnell Motors presented a creditor’s petition relying upon Mr Jones’ failure to comply with the bankruptcy notice.
On 24 September 2012, Ms Kim Guthrie was appointed as a director and secretary of Crest.
On 5 October 2012, a sequestration order was made against the estate of Mr Jones.
On 16 November 2012, Mr Jones signed a statement of affairs for the purposes of the Bankruptcy Act. Under “Part C – Your Assets” of his statement of affairs, Mr Jones purported to list his assets. He stated that he:
a)had no cash;
b)had accounts with Westpac and NAB[2] which were frozen; and
c)had a superannuation fund called “My Perogative” [sic] but was unaware of the balance of the fund.
Mr Jones disclosed that he had made a lump sum payment to his superannuation fund in the past five years and stated that he did not own any real estate or shares.
[2] National Australia Bank Limited.
In response to the question “Have you sold, transferred or given away any assets worth more than $1000 in the last 5 years?”, Mr Jones referred to the transfer of property to “SMSF” (which I take to be a reference to Crest as trustee for his self-managed superannuation fund) and to Ms Hombsch and stated that he received nothing from those transfers. Mr Jones also stated that Westpac had repossessed the property at Rofe Street.
In respect of his liabilities, Mr Jones did not list any of his overdrawn Westpac accounts but set out the following creditors:
a)Purnell Motors, costs order in the amount of $300,000;
b)David Sigler for an undisclosed amount of legal costs;
c)Kim Guthrie for $50,000 of personal loans; and
d)Dean Brooks for an undisclosed amount of personal loans.
At this point, it is convenient to return to the additional bank account referred to at [26] above. This was not disclosed in the statement of affairs signed by Mr Jones. The account was held with the Bank of Queensland and managed by a firm called DDH Graham Limited. It was described as a “Money Market Deposit Account”, the type of account typically held for the purposes of investments. The account number was 998710531.
As at the beginning of March 2010, there was a credit balance of $149,907.29 in the account. In that month, there were withdrawals totalling $50,000 as well as a credit for what was described as a Telstra dividend in the amount of $196.00. It may be noted that no Telstra shares were disclosed by Mr Jones in his statement of affairs.
On 19 July 2010, there was a transfer of $100,000 to account number 998726283. That is an account with the Bank of Queensland in the name of Kim Louise Guthrie. On 4 July 2011, there was another transfer to Ms Guthrie’s account in the amount of $18,000. These transfers were made at times when Mr Jones had considerable amounts owing to Westpac and was being pursued by Purnell Motors in respect of a judgment for costs. It may also be noted, that in spite of the fact that Mr Jones went into bankruptcy in October 2012, he maintained a credit balance in this account albeit of only about $2,000.
The trustees of Mr Jones’ estate applied for the issue of notices under s.139ZQ of the Bankruptcy Act directed at Ms Hombsch and Crest. The notices were both issued by the Official Receiver on 6 June 2013.
Following negotiations between the trustees and Ms Hombsch, Ms Hombsch executed and delivered to the trustees, a signed transfer of the Dorrigo property. This transfer was to be held in escrow pending finalisation of the asset freezing orders that had been made by the District Court of New South Wales. Those orders were discharged by order made on 12 August 2013. The order of the court notes that the asset freezing order was discharged on the basis that the signed transfer had been provided to the trustees and that Ms Hombsch agreed that she would not advance any claim against the bankrupt estate of the plaintiff. It further noted that in consideration for the transfer of the Dorrigo property, the trustees had agreed to release and discharge Ms Hombsch “from all or any claims, proceedings or actions which they have or may have against her howsoever arising out of or in connection with the bankruptcy of the Plaintiff”.
There was no such resolution in respect of the notice addressed to Crest.
Consideration
The Official Receiver seeks declaratory orders concerning both the Dorrigo property and the Armidale property, as well as orders concerning the possession and sale of those properties. Each of the properties raises slightly different issues, so it is convenient to deal with them separately. Before doing so, it is necessary to set out the relevant provisions of the Bankruptcy Act.
Section 139ZQ relevantly provides:
Official Receiver may require payment
(1)If a person has received any money or property as a result of a transaction that is void against the trustee of a bankrupt under Division 3, the Official Receiver:
…
may require the person, by written notice given to the person, to pay to the trustee an amount equal to whichever of the following is applicable:
(c) if:
(i) the transaction is void against the trustee under section 128B or 128C; and
(ii) the transaction is by way of a contribution to an eligible superannuation plan for the benefit of a person (the beneficiary) who may or may not be the bankrupt; and
(iii) the beneficiary is a member of the eligible superannuation plan;
whichever is the lesser of the following:
(iv) the money or the value of the property received;
(v) the beneficiary’s withdrawal benefit in relation to the eligible superannuation plan;
(d) in any other case--the money or the value of the property received.
…
(7)If a person is required by a notice under this section to pay to the trustee the value of any property, the requirement is taken to be complied with if the property is transferred to the trustee.
…
(Emphasis in original)
The central requirement of this provision is that there be a transaction that is void against the trustee of a bankrupt under Div.3 of Pt.VI of the Bankruptcy Act. The relevant provisions of that Division are ss.120, 121 and 128B.
Section 120 relates to undervalued transactions and relevantly provides:
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)Subsection (1) does not apply to:
(a)a payment of tax payable under a law of the Commonwealth or of a State or Territory; or
(b)a transfer to meet all or part of a liability under a maintenance agreement or a maintenance order; or
(c)a transfer of property under a debt agreement; or
(d)a transfer of property if the transfer is of a kind described in the regulations.
(3)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; or
(b)in any other case:
(i) the transfer took place more than 2 years before the commencement of the bankruptcy; and
(ii) the transferee proves that, at the time of the transfer, the transferor was solvent.
…
(Emphasis in original)
Section 121 deals with transfers to defeat creditors. It provides:
Transfers to defeat creditors
Transfers that are void
(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.
…
Showing the transferor’s main purpose in making a transfer
(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.
…
Transfer not void if transferee acted in good faith
(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.
…
(Emphasis in original)
Section 128B relates to superannuation contributions made to defeat creditors where the contributor is a person who later becomes bankrupt. The section relevantly provides:
Superannuation contributions made to defeat Creditors – Contributor is a person who later becomes a bankrupt
Transfers that are void
(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 is made by way of a contribution to an eligible superannuation plan; and
(b)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
(c)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; and
(d)the transfer occurs on or after 28 July 2006.
Showing the transferor’s main purpose in making a transfer
(2)The transferor's main purpose in making the transfer is taken to be the purpose described in paragraph (1)(c) 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.
(3)In determining whether the transferor’s main purpose in making the transfer was the purpose described in paragraph (1)(c), regard must be had to:
(a)whether, during any period ending before the transfer, the transferor had established a pattern of making contributions to one or more eligible superannuation plans; and
(b)if so, whether the transfer, when considered in the light of that pattern, is out of character.
…
(Emphasis in original)
Dorrigo Property
The Dorrigo Property was transferred by Mr Jones to Ms Hombsch on or about 1 September 2010. Mr Jones later became bankrupt. The commencement of the bankruptcy was the date on which Mr Jones failed to comply with the bankruptcy notice, namely 7 May 2012: see ss.5 and 115 of the Bankruptcy Act. The date of bankruptcy was the date upon which the order for sequestration was made, namely 5 October 2012: see ss.5 and 43(2) of the Bankruptcy Act. Thus, the transfer took place in the period beginning five years before the commencement of the bankruptcy and ending on the date of the bankruptcy. In that way, the transfer fell within sub-s.120(1)(a) of the Bankruptcy Act.
Ms Hombsch gave no consideration for the transfer of the Dorrigo Property. As already seen, even though the transfer itself indicated that the transferor acknowledged receipt of consideration, Mr Jones’ statement of affairs revealed that none had been received by him. Further, his bank records do not record any sum of money being received at or about the time of the transfer, nor do they indicate any amount totalling the sum of $250,000 (being the consideration shown on the transfer). Accordingly, the transfer fell within sub-s.120(1)(b) of the Bankruptcy Act and, subject to what follows, is void against the trustees in Mr Jones’ bankruptcy.
Sections 120(2) and (3) of the Bankruptcy Act provide exceptions to the effect of s.120(1). There is no suggestion in the evidence that any of the exceptions referred to in s.120(2) applies. The only other possible exception is in sub-s.120(3)(b) which is set out at paragraph [49] above. However, as the transfer took place on or about 1 September 2010 and the commencement of the bankruptcy was 7 May 2012, the transfer took place less than two years before the commencement of bankruptcy and so the exception in that sub-paragraph does not apply.
For those reasons, the transfer of the Dorrigo Property to Ms Hombsch was void against the trustees in Mr Jones’ bankruptcy.
That means in turn, that Ms Hombsch received the Dorrigo Property as a result of the transaction that is void against the trustee in bankruptcy under Div.3, and so the provisions in s.139ZQ of the Bankruptcy Act applied. For that reason, the Official Receiver was entitled to give Ms Hombsch a notice under that provision. When Ms Hombsch gave the trustees a signed transfer of the property in or around August 2013, she was taken by operation of s.139ZQ(7) of the Bankruptcy Act, to have complied with that notice.
I am satisfied, for those reasons, that the Official Receiver is entitled to a declaration concerning the transfer of the property by Mr Jones to Ms Hombsch. Even though Mr Jones’ application concerning that transfer has been dismissed, there remains an issue between the parties in light of the fact that he filed a notice of opposition to the cross application brought by the Official Receiver.
Armidale Property
It will be recalled that Mr Jones transferred the Armidale property to Crest in July 2010. The trustees claimed that that transfer was void against them pursuant to s.128B of the Bankruptcy Act. The issues that arise in respect of that claim, and the answers to those issues are as follows:
Was the transfer made by way of a contribution to an eligible superannuation plan (sub-s.128B(1)(a))?
The transfer was made as a contribution to Crest as the trustee of the “My Prerogative Superannuation Fund”. The question, then, is whether that fund was an “eligible superannuation plan”. An “eligible superannuation plan” includes a “regulated superannuation fund” which has the same meaning as in the Superannuation Industry (Supervision) Act 1993 (Cth) (SIS Act): s.10. There are two reasons for which I conclude that the “My Prerogative Superannuation Fund” was a “regulated superannuation fund”.
First, and most simply, Mr Jones said that it was in his statement of affairs. Secondly, by letter dated 1 March 2013 addressed to the fund’s trustee, the Deputy Commissioner of Taxation confirmed that the fund was a “complying superannuation fund for the income period ended 30 June 2011”. A “complying superannuation fund” is a “resident regulated superannuation fund” that complies with certain requirements: s.42 of the SIS Act. A “resident regulated superannuation fund” must be a “regulated superannuation fund”: s.10 of the SIS Act. Accordingly, as the fund was a complying superannuation fund, it was also a regulated superannuation fund and, as a consequence, an eligible superannuation plan within the meaning of s.128B of the Bankruptcy Act.
Would the property probably have become part of the transferor’s estate or would probably have been available to creditors if the property had not been transferred (sub-s.128B(1)(b))?
There is no evidence of any possibility that Mr Jones might have disposed of the Armidale Property other than in the way that he did. That, together with the nature of the property, being rural land, supports the conclusion that, had the property not been transferred to Crest, it probably would have either become part of the transferor’s estate upon Mr Jones becoming a bankrupt or had been available to creditors.
Was Mr Jones’ main purpose in making the transfer to prevent the transferred property from becoming divisible amongst his creditors or to hinder or delay the process of making property available for division amongst his creditors (sub-s.128B(1)(c))?
In determining whether Mr Jones’ main purpose in making the transfer was one of those just described, the Court must have regard to the following matters:
i)whether, during any period ending before the transfer, Mr Jones had established a pattern of making contributions to one or more eligible superannuation plans (sub-s.128B(3)(a)); and
ii)if so, whether the transfer when considered in the light of that pattern, is out of character (sub-s.128B(3)(b)).
The evidence establishes that the only contribution made by Mr Jones to the superannuation fund was the in specie transfer of the Armidale Property. For that reason, there was no pattern and the second consideration above does not arise. In light of that, and in regard to my earlier findings concerning Mr Jones’ awareness of the amount of the debt that he owed Purnell Motors in respect of its costs for the District Court proceedings, I conclude that his main purpose in making the transfer was to prevent the Armidale Property from becoming divisible amongst his creditors.
Did the transfer occur on or after 28 July 2006 (sub-s.128B(1)(d))?
Yes, the transfer took place in July 2010.
For those reasons, the transfer to Crest was void against the cross applicant. There is no reason why a declaration to that effect ought not to be made.
Conclusion
The cross-applicant also seeks a number of other orders in aid of his administration of the estate of Mr Jones, including orders for vacant possession and the issue of writs of possession. I am satisfied that there is power under s.30(1) of the Bankruptcy Act to make such orders (see, for example Coshott v Prentice (2014) 221 FCR 450; [2014] FCAFC 88) and that it is appropriate to make them in the circumstances of this case.
I certify that the preceding sixty-six (66) paragraphs are a true copy of the reasons for judgment of Judge Smith
Date: 16 June 2017
CORRECTIONS
Cover Sheet and Orders: Page 1:
i)Second Respondent: Replace the name “Fraser Thomson” with the names “Jason Porter” and “Paul Gerard Weston”
ii)Insert the words “Cross Applicant:” and the name “Paul Gerard Weston” after Second Respondents
iii)Insert the words “First Cross Respondent:” and the name “Richard Jones” after Cross Applicant
iv)Insert the words “Second Cross Respondent:” and the name “Suzanne Lea Hombsch” after First Cross Respondent
v)Insert the words “Third Cross Respondent:” and the name “Crest Australia Pty Ltd ATF My Prerogative Super Fund” after Second Cross Respondent
vi)Insert the words “Fourth Cross Respondent:” and the name “Registrar General of New South Wales” after Third Cross Respondent
Reasons for Judgment: Page 1:
i)Second Respondent: Replace the name “Fraser Thomson” with the names “Jason Porter” and “Paul Gerard Weston”
ii)Insert the name “Paul Gerard Weston” and the words “Cross Applicant” after Second Respondents
iii)Insert the name “Richard Jones” and the words “First Cross Respondent” after Cross Applicant
iv)Insert the name “Suzanne Lea Hombsch” and the words “Second Cross Respondent” after First Cross Respondent
v)Insert the name “Crest Australia Pty Ltd ATF My Prerogative Super Fund” and the words “Third Cross Respondent” after Second Cross Respondent
vi)Insert and the name “Registrar General of New South Wales” and the words “Fourth Cross Respondent” after Third Cross Respondent
Key Legal Topics
Areas of Law
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Insolvency
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Civil Procedure
Legal Concepts
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Abuse of Process
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Costs
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Res Judicata
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Stay of Proceedings
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