Labio, Re M.D. Courtney, Ex Parte K.F. S.R. Accardo & Sons Pty Ltd

Re: MARIO DI LABIO
Ex Parte: KEVIN F. COURTNEY (as Trustee of the property of Mario Di Labio, a
Bankrupt)
And: S.R. ACCARDO & SONS PTY LTD; ANTONIO D'ANNA; FONSEENA PTY LTD and
FIORALBA DI LABIO
No. 257 of 1985
Bankruptcy

COURT

IN THE FEDERAL COURT OF AUSTRALIA

GENERAL DIVISION
BANKRUPTCY DISTRICT OF THE STATE OF VICTORIA
Woodward J.

CATCHWORDS

Bankruptcy - application by trustee for declarations under ss.120 and 122 of the Bankruptcy Act 1966 - purported disposition of two motor vehicles by the bankrupt within two years before the commencement of the bankruptcy - whether payments advanced by lenders on behalf of the bankrupt - validity of alleged agreement for security for loan - absence of valuable consideration.

Bankruptcy Act 1966 ss.120 and 122.

HEARING

MELBOURNE

#DATE 21:4:1986

Counsel for the applicant: Mr D.M. Clarke

Counsel for the respondents : Mr A.D. Vassie

Solicitors for the applicant: Weigall & Crowther

Solicitors for the respondents: John Ravaneschi & Co.

ORDER

THE COURT DECLARES THAT:

1. The purported disposition of motor vehicles registered numbers IVC 493 and BNB 247 by the bankrupt, Mario Di Labio, to the third named respondent, Fonseena Pty Ltd, in or about February or May 1985 is void as against the applicant trustee.

THE COURT FURTHER ORDERS THAT:

2. Each of the respondents take whatever steps may be necessary to transfer title in the said vehicles to the applicant trustee.

3. The fourth named respondent, Fioralba Di Labio, forthwith deliver possession of motor vehicle registered number IVC 493 to the applicant trustee.

4. Paragraph 4 of the Orders of the Honourable Mr Justice Smithers made on 9 January 1986 be discharged.

5. The applicant's taxed costs, including reserved costs, be paid by the respondents.

(Note: Settlement and entry of orders is dealt with by Bankruptcy Rule 124 of the Bankruptcy Act, 1966.)

JUDGE1

This is an application by the trustee of a bankrupt's estate for a declaration that the disposition by the bankrupt of two motor vehicles to the respondents is void as against the trustee. The application, as amended by leave, is brought pursuant to ss.120 and 122 of the Bankruptcy Act 1966 ('the Act'). Those sections, so far as they are relevant for present purposes, read

"120(1) A settlement of property .... not being ...

(a) a settlement made .... in favour of a purchaser or encumbrancer in good faith and for valuable consideration .... is, if the settlor becomes a bankrupt and the settlement came into operation after, or within 2 years before, the commencement of the bankruptcy, void as against the trustee in the bankruptcy."

"122(1) A conveyance or transfer of property, (or) a

charge on property .... by a person who is unable to pay his debts as they become due from his own money .... in favour of a creditor, having the effect of giving that creditor a preference, priority or advantage over other creditors, being a conveyance, transfer, (or) charge .... executed, made or incurred -

(a) within 6 months before the presentation of a petition on which .... the debtor becomes a bankrupt .... is void as against the trustee in the bankruptcy."

Relief was sought in the original application under s.121 of the Act, which relates to fraudulent dispositions of property, but counsel for the applicant did not ultimately seek to rely on that section and the application was amended accordingly.
The undisputed facts in the case may be summarized as follows:

Mario Di Labio had an egg round in which, with the accreditation of the Victorian Egg Marketing Board ('the Egg Board') he purchased eggs from producers or other distributors and re-sold them to retailers. By early 1985 the bankrupt was in extreme financial difficulties and could not pay his debts as they became due from his own money.

On 19 February 1985 Di Labio was served with a bankruptcy notice requiring payment of a judgment debt of over $43,000. On the same day he signed a document, drawn up by his then solicitor, in the following terms

"AGREEMENT FOR SECURITIES OF LOAN 19.2.85

1) This agreement is hereby jointly made by the following:-

MARIO DI LABIO, 58 Barrow Street, East Coburg.

S.R.ACCARDO & SONS P/L. 10 Perrett Street, West Brunswick.

ANTONIO D'ANNA 12 Florence Street, Essendon.

2) Whereby S.R.Accardo & Sons Pty.Ltd. and Antonio D'Anna hereby jointly advance to Mario Di Labio the sum of five thousand dollars (5,000.) for necessary immediate requirements, Mario Di Labio signs an ownership transfer of two motor vehicles to S.R. Accardo & Sons and Antonio D'Anna as security for such advance.

3) S.R. Accardo & Sons Pty.Ltd. and Antonio D'Anna hereby undertake that such transfer stated in clause 2 will not be executed unless the advance stated in clause 2 is not repaid or otherwise secured within a period of fourteen days from the date of this agreement.

Should it be necessary that such transfer is executed the amount of the assessed value of the vehicles and the advance figure would be refunded to Mario Di Labio.

Signed this 19th. day of February 1985.

Mario Di Labio

S.R. Accardo & Sons Pty. Ltd

Antonio D'Anna"

It is agreed between the parties that the last sentence of the document was intended to read "Should it be necessary that such transfer is executed the amount of the assessed value of the vehicles less the advance figure would be paid to Mario Di Labio" (underlining supplied).
It is also agreed that the two vehicles referred to in the document were a 1982 Isuzu truck registered no. BNB 247 and a 1979 Isuzu truck registered number AMD 881, both used by Di Labio in his egg round. Only the first-mentioned truck, BNB 247, and a Ford Fairlane Sedan, registered number IVC 493, are the subjects of this action. The fate of the other truck is no longer in dispute.
The lenders under the "agreement", S.R. Accardo & Sons Pty Ltd and D'Anna, are the first and second respondents in this action. The former is the trustee of the family trust of Salvatore Accardo, and Mr Accardo is a director of the company.
Within two or three days of 19 February, 'roadworthy' certificates had been obtained for the two trucks and transfer papers signed by Di Labio. In May 1985 the trucks were registered in the name of the third named respondent ('Fonseena'), which by then was employing Di Labio and carrying on his egg round. The evidence did not make clear the precise history of this company. According to the respondent D'Anna it was a 'shelf' company which was not 'registered' until 19 February 1985. The evidence showed that it was in fact incorporated on that day. D'Anna and Accardo became directors of it on 27 February, on which date the company became the operator of the egg round. With the concurrence of the Egg Board it did so for a time in the name of Di Labio, because only a registered operator could obtain certain discounts. Later, Fonseena operated the round in its own name before, in November 1985, handing it back to the trustee, who eventually sold it.
The sum of $5000 referred to in the "Agreement for Securities of Loan" was in fact paid by another company, Hoyt Food Manufacturing Industries Pty Ltd ('Hoyt'), in which both Accardo and D'Anna had interests, and was paid not to Di Labio but to an egg distributor, T.J. Neylon & Sons Pty Ltd, to ensure the continuing supply of eggs.
D'Anna and Accardo first became involved in Di Labio's affairs when his son-in-law, Giuseppe Surace, who worked for him, approached Accardo, whom he knew, for assistance. By 19 February both Accardo and D'Anna knew that Di Labio was a heavy gambler and was badly in debt, although they did not then know the precise extent of his debts - which were shown by his statement of affairs to aggregate some $105,000. By 26 February 1985, at the latest, they had decided to take over Di Labio's egg round and his trucks, employ him at a wage of $200 per week, and deny liability to his creditors on the basis that they were taking the egg round, not the business, and that previous debts were no concern of theirs.
It is at this point that the true facts of the case become more obscure. The respondents say that all they were doing on 19 February, when they signed the document, and on 20 February when D'Anna, in the company of Di Labio, handed a Hoyt cheque for $5000 to an employee of T.J. Neylon and Sons Pty Ltd, was to make a loan to Di Labio to assist him in his difficulties. Their intention to take over the round from him only crystallized in the days that followed, and their decision to do so only took effect when the entity to operate the round, Fonseena, was formed.
Mr T.C. Neylon, on the other hand, said in evidence that he first heard from D'Anna by telephone early in February. At that time he had not supplied Di Labio with eggs for several months, because he knew of his financial difficulties and would not extend credit to him.
He said that D'Anna told him, in the course of several telephone conversations, that he and Accardo were taking over control of the egg round from Di Labio, but would have to continue to trade under Di Labio's name. Mr Neylon said he agreed to deal with them - at first on a cash basis and later on the basis of personal guarantees. He then opened a fresh ledger in Di Labio's name, with egg sales and cash receipts recorded as follows (headings supplied)

Date Debit Credit Balance 11.02.85 1911.75 1911.75 12.02.85 2599.65 4511.40 13.02.85 2831.40 7342.80 12.02.85 4511.40 2831.40 15.02.85 1171.80 4003.20 15.02.85 495.00 4498.20 15.02.85 4003.20 15.02.85 495.00 0.00 18.02.85 2674.95 2674.95 19.02.85 3031.50 5706.45 20.02.85 4869.75 10576.20 19.02.85 5400.00 5176.20 20.02.85 5000.00 176.20 26.02.85 6556.05 6732.25 Date Debit Credit Balance 26.02.85 1036.95 7769.20 28.02.85 544.50 8313.70 1237.50 9551.20 26.02.85 6170.00 3381.20 28.02.85 1599.20 1782.00

(The ledger continues)

Mr Neylon was, perhaps understandably, uncertain about particular dates, numbers of telephone conversations, the circumstances of his first meeting with D'Anna, when he first heard of Fonseena, and other points of detail. But he was adamant that this ledger was opened because, in effect, new persons in whom he felt he could have some confidence, were taking over Di Labio's round - while continuing to employ him and his son-in-law in the business.
D'Anna firmly denied that he had spoken to Neylon before 20 February, or that he had given money to Di Labio to buy eggs before then. Yet, if his version is to be believed, not only is Neylon incorrect in his evidence, but for some reason Neylon was prepared to provide $1911.75 worth of eggs on credit to Di Labio on 11 February 1985, when he knew that Di Labio was in financial difficulty and owed a considerable amount to his suppliers.
Bearing in mind that Neylon has no apparent motive for trying to harm the respondents - his company is not even a creditor of the bankrupt - I have no hesitation in preferring his account to that of Messrs D'Anna and Accardo. Their evidence would have them, on one day, advancing money to a comparative stranger whom they knew to be badly in debt, and then, suddenly, a few days later, forming themselves into a fresh company to go into a line of business completely new to them.
I believe the more probable explanation is that D'Anna and Accardo met with the bankrupt at some stage before 11 February, and agreed in principle to their funding the business with a view to taking it over as soon as that could be arranged. Neylon was informed of this, and agreed to supply Di Labio with eggs on 11 February on the basis that he was guaranteed payment the next day or shortly thereafter. Di Labio received another $2599.65 worth of eggs on 12 February, bringing the total credit to $4511.40, and paid that amount that same day.
On 13 February Di Labio received further eggs to the value of $2831.40 from Neylon, and two days later a further $1171.80 worth. On that same day he paid the sum of $4003.20, representing the exact balance outstanding. He also received a further $495.00 worth of eggs on the same day, 15 February, and paid that amount that day.
I am satisfied that the money to fund these purchases was provided either in part or in full by D'Anna and Accardo. The respondents produced the Hoyt bank statements for the relevant period, and it was pointed out that no debits corresponded with the payments to T.J. Neylon and Sons Pty Ltd. However I do not believe that is conclusive either way, as the statements show a high turnover, and the payments may well have been made by cash, or partly in cash, received from the sale of eggs.
The true nature of the relationship planned between the D'Anna and Accardo and the bankrupt is a matter for speculation. The possibility that the bankrupt was expecting to receive, in due course, something more than his $200 per week wages, is suggested, first, by the fact that the trustee later sold the business, even in its then somewhat uncertain condition, for over $40,000, and secondly, because the bankrupt's wife, in mid-1985, put $20,000 into the business of Fonseena. She apparently did so because the business was in some difficulties. This may have been due to her husband's continuing unreliability in handling money, but the evidence was unclear.
There is no doubt in my mind that the $5000 paid to T.J. Neylon & Sons Pty Ltd, on 20 February 1985, by Hoyt, acting apparently on behalf of D'Anna and Accardo, was intended to secure supplies for their business, which was in process of formation, and not for any business of Di Labio. I believe also that the "Agreement for Securities of Loan" was a sham, designed to give the first two respondents a colourable claim to the vehicles concerned. There was never any loan, to be repaid in two weeks; the reality of the arrangement was that those respondents would take, without any immediate payment to Di Labio or the business, the only realizable assets - Di Labio's trucks and his egg round; they would continue to make use of his expertise and contacts in the business, and his creditors would be left lamenting. I believe this was the arrangement which attracted D'Anna and Accardo to an involvement in the troubled business of an almost total stranger. I think it was worked out in the early weeks of February 1985 and, by 19 February, required only the completion of Fonseena formalities to have it in place. I have reached this conclusion based on the credibility I attach to Neylon's evidence, several hints in D'Anna's evidence that the intention to take over the egg round was reached at an early stage of discussions, the view I take of the reliance I can place on the evidence of D'Anna, Accardo and Di Labio, and the inherent probabilities of the case.
I find that the transfer of the trucks to Fonseena, which began with the signing of the 'Agreement for Securities of Loan' on 19 February 1985 and the signing of transfer documents by the bankrupt a few days later, and was completed by Fonseena taking possession of them, and becoming registered as owner in May 1985, was a settlement of property, within two years before the commencement of the bankruptcy, not made in good faith or for valuable consideration, and so is void as against the trustee, pursuant to s.120 of the Act.
It follows that the disposition of the vehicles pursuant to the alleged "agreement" was not for valuable consideration, as the payment to the Neylon company was not made on behalf of the bankrupt at all. I accept that for all relevant purposes the purchases of eggs from 11 February 1985 were made for D'Anna and Accardo. From that date they controlled the finances for the purchases and, in effect, controlled the egg round, even though their company, Fonseena, was not operational until a later stage.
In any event, the fact that the payment made, allegedly on behalf of the bankrupt, and purportedly secured by the "agreement" was made by a company which was not privy to the "agreement" and is a stranger to these proceedings, is sufficient to establish the applicant's claim.
So far as the other vehicle the subject of these proceedings is concerned, the Ford Fairlane, different considerations apply. That vehicle was not the subject of the purported charge, but it was transferred to Fonseena at the same time and in the same way as the two trucks. The Ford Fairlane was at some later stage made available to the fourth-named respondent - the wife of the bankrupt - for her own use. It is not clear in whose name it is now registered.
In an attempt to settle this aspect of the trustee's claim, an oral agreement was reached with Mrs Di Labio's solicitor that she could keep the vehicle if she paid $1500 to the trustee, together with her share of the costs of the application. An amount of $1000 was received from her solicitor, but the balance of $500, due on 6 February 1986, has not been received. Mrs Di Labio did not appear at the hearing and was not represented.
I think it is clear that the trustee is entitled to a declaration that the purported disposition of the Fairlane by the bankrupt is void as against the trustee, and to an order that it be delivered up and transfer documents signed. The trustee will obviously have to account to Mrs Di Labio for the $1000 received under the abortive settlement, but I do not think I should make any order in these proceedings touching that matter.
In the circumstances, I find it unnecessary to decide whether the trustee is also entitled to an order under s.122 of the Act. It was argued for the first three respondents that Fonseena was not "a creditor" within the meaning of that section because it was owed no debt by Di Labio at the time Hoyt, allegedly acting for Fonseena, payed $5000 allegedly on Di Labio's behalf and took a charge on the trucks (see Robertson v Grigg (1932) 47 CLR 257, Burns v Stapleton (1959) 102 CLR 97, and Re Jaques McAskell Advertising Freeth Division Pty Ltd (In Liq) (1984) 1 NSWLR 249). I think there is force in this argument, but the issue becomes irrelevant once it is decided that no money was paid to, or on behalf of, the debtor and no genuine charge was given.
There will be orders declaring that the purported dispositions by the bankrupt to Fonseena in February or May 1985 of motor vehicles registered numbers IVC 493 and BNB 247 are void as against the applicant. There will be supplementary orders directing each of the respondents to take whatever steps may be necessary to transfer to the applicant title in the said vehicles, and directing the fourth named respondent forthwith to deliver up to the applicant Ford Fairlane registered number IVC 493. The respondents are further ordered to pay the applicant's taxed costs.

[1986] FCA 137

21 APRIL 1986