McVEIGH v Long
[2002] FMCA 53
•3 May 2002
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| McVEIGH v LONG | [2002] FMCA 53 |
| BANKRUPTCY – Trustee Application pursuant to ss 120 and 121 of the Bankruptcy Act 1966 – Bankruptcy before 16 December 1996 – whether Trustee has standing to commence application after discharge of bankruptcy for property not vested in trustee or bankrupt. |
In Re Brall (1893) 2 QB 381
Official Trustee in Bankruptcy v Fodare (2000) FCA 300
Burke and Anor v Stapleton (1969) 120 CLR 664
Re Kastropil: Ex parte Official Trustee in Bankruptcy (1989) 33 FCR 135; 109 ALR 568
Re La Rosa; Ex parte Norgard v Rodcom Pty Ltd (1990) 21 FCR 270; 93 ALR 571
Mayne v The Public Trustee (1944) 70 CLR 395
Bankruptcy Act 1966 ss 5, 58(1), 116(1), 120, 121, 127
Transfer of Land Act (Vic) 1958 s89A
Bankruptcy Legislation Amendment Act 1996 Sch 1 Items 202 and 457
Bankruptcy Amendment Act 1980
| Applicant: | DEAN ROYSTON McVEIGH |
| Respondent: | DAWN DENISE LONG |
| File No: | MZ 634 of 2001 |
| Delivered on: | 3 May 2002 |
| Delivered at: | Melbourne |
| Hearing Date: | 24 September 2001 |
| Judgment of: | McInnis FM |
REPRESENTATION
| Solicitor for the Applicant: | Mr N Hannan |
| Solicitors for the Applicant: | Abbott Stillman & Wilson |
| Counsel for the Respondent: | Ms K Knights |
| Solicitors for the Respondent: | Best Hooper |
FEDERAL MAGISTRATES |
MZ 634 of 2001
| DEAN ROYSTON McVEIGH |
Applicant
And
| DAWN DENISE LONG |
Respondent
REASONS FOR JUDGMENT
DEAN ROYSTON McVEIGH (the Trustee) purportedly as Trustee of the property of NOEL FREDERICK LONG (the Bankrupt) in an application filed 15 August 2001 has sought certain orders pursuant to ss 120 and 121 of the Bankruptcy Act 1966 (the Act).
The Bankrupt became bankrupt on his own petition on 31 May 1996. He was discharged from bankruptcy on 1 June 1999.
DAWN DENISE LONG (the Respondent) is the wife of the Bankrupt. The claim by the Trustee against the Respondent seeks declarations in relation to property and shares and in particular a declaration that a transfer of a half interest in a property at 619 Canterbury Road Surrey Hills (Canterbury Road property) should be declared void and that the Respondent should transfer to the Trustee the half interest in that property. A further declaration is sought that the disposition of the proceeds of sale of 14 Edyvean Street Surrey Hills (Edyvean Street property) be declared void and that the Respondent pay to the Trustee the sum of $217,003.63 together with interest and costs. Orders are sought that the transfer of shares by the Bankrupt to the Respondent with respect to “Noel Long Pty Ltd” be declared void and that the Respondent pay the Trustee damages in respect of that transfer. The Trustee seeks a declaration that a transfer of shares in Tathra Properties Pty Ltd from the Bankrupt to the Respondent be also declared void and claims damages in respect of that transfer.
It is common ground that the Bankrupt became bankrupt on his own petition on 31 May 1996 and was discharged from bankruptcy on
1 June 1999.
The Court is required at this stage of the proceedings to consider a preliminary issue regarding the standing of the Trustee to bring this application. The Respondent has reserved her right to raise further grounds of opposition to the application pending the resolution of the preliminary issue. The preliminary issue is raised in the Respondent’s Notice of Intention to Oppose the Application filed 21 September 2001 where the Respondent claims the following:
“As the abovenamed former bankrupt was discharged on 1 June 1999, the applicant Trustee had no standing to commence this proceeding on 15 August 2001”.
The Respondent relied upon an affidavit sworn by her on 21 September 2001 and a further affidavit sworn by the Bankrupt on the same day. The Trustee has relied upon an affidavit sworn by him on 14 August 2001.
From the affidavit material and solely for the purpose of setting out the chronology to assist in determination of the preliminary issue, it is relevant to note that the Canterbury Road property had been the subject of a contract to purchase entered into by the Bankrupt and the Respondent on 24 August 1995 for the consideration of $300,000. By Transfer of Land dated 22 November 1995 the Canterbury Road property was transferred to the Bankrupt and the Respondent as joint tenants. The Respondent in December 1995 arranged for the Canterbury Road property to be registered in her name as sole proprietor and a Transfer of Land document was prepared transferring the property from the Bankrupt and the Respondent to the Respondent and it was also dated 22 November 1995. It is evident from correspondence that the transfer from the vendors of the Canterbury Road property to the Bankrupt and the Respondent as joint tenants had not been lodged by the solicitors and accordingly the subsequent transfer was lodged at the same time on the recommendation of the solicitors for the Respondent. A statutory declaration declared on
3 January 1996 was apparently lodged with the second transfer indicating that the consideration for that transfer was the marriage by the Bankrupt to the Respondent which occurred on 5 April 1958.
In relation to the Edyvean Street property it appears that this property was purchased by the Bankrupt and the Respondent on 9 August 1989 and they entered into a contract to sell that property on 24 March 1995. Settlement occurred on 24 July 1995 and after allowing for adjustments the Bankrupt and the Respondent were to receive $434,007.26.
The company Noel Long Pty Ltd had been incorporated on 14 June 1967. The Bankrupt and the Respondent were directors. The company as at 30 June 1990 had 2,000 shares of which 1,000 were held by the Bankrupt and the other 1,000 by the Respondent. On 27 March 1996 at a general meeting of the company it was agreed to replace its Articles of Association and the Bankrupt resigned as a director and transferred his shares to the Respondent. It is asserted by the Trustee that as at
30 June 1995 the company had net assets worth $181,915.00.
In relation to the transfer of shares in Tathra Properties Pty Ltd it is noted that that company was incorporated on 20 April 1979. The Bankrupt and the Respondent were directors and held two and one shares in that company respectively. The Bankrupt resigned as a director of that company on 27 March 1996 and transferred his share to the Respondent. It is claimed by the Trustee that as at 30 June 1996 that company had assets which exceeded its liabilities by $28,714.00.
It is not necessary to consider in any further detail the circumstances relating to the properties and companies to which I have referred save that after examinations conducted on 23 February 1999 the Trustee had formed a view that the transactions were void dispositions within the meaning of s 120 of the Act or alternatively fraudulent dispositions within the meaning of s 120 of the Act. That issue remains in dispute and is the not the subject of this judgment.
The Respondent in her affidavit sworn 21 September 2001 asserts that she became registered as proprietor of the Canterbury Road property on 26 March 1996 and notes that on 19 November 1996 the Trustee lodged a caveat in relation to that property. No proceedings were commenced in support of the caveat by the Trustee and accordingly in circumstances where an application to remove the caveat had been lodged pursuant to s 89A of the Transfer of Land Act 1958 the caveat lapsed on 29 August 2000. It was asserted by the Respondent that the Trustee would have been aware since 1 March 1999 of all matters alleged against the Respondent and that this was three months prior to when the Bankrupt was discharged. Other matters are relied upon by the Respondent which are not relevant to the present application save that a request is made for the court to dismiss the proceeding on the ground that the Trustee has no standing.
It is useful to set out a chronology arising from the facts to which I have just referred as follows:
14 June 1967 Noel Long Pty Ltd incorporated
20 April 1979 Tathra Properties Pty Ltd incorporated9 August 1989 Edyvean Street property purchased by bankrupt and Respondent
24 March 1995 Edyvean Street property sold by Bankrupt and Respondent
24 July 1995 Settlement of Edyvean Street property net proceeds of sale $434,007.26
24 August 1995 Canterbury Road property purchased by Bankrupt and Respondent
22 November 1995 Transfer of land transferring Canterbury Road property to Bankrupt and the Respondent as joint tenants - date of transfer of property from Bankrupt and Respondent to Respondent as sole proprietor
December 1995 Arrangement made for Canterbury Road property to be registered in Respondent’s name as sole proprietor
3 January 1996 Statutory Declaration referring to consideration for transfer of Canterbury Road property to Respondent as being for “marriage by Bankrupt to the Respondent on 5 April 1958”.
26 March 1996 Respondent registered as sole proprietor of Canterbury Road property
27 March 1996 Bankrupt resigns as director of Tathra Properties Pty Ltd
31 May 1996 Date of Bankruptcy of Bankrupt
19 November 1996 Trustees lodges caveat on Canterbury Road property
February 1999 Trustee conducts examination of Bankrupt
29 August 2000 Trustee’s caveat over Canterbury Road property lapses
15 August 2001 Trustee’s application to Federal Magistrates Court pursuant to ss 120 and 121 of the Bankruptcy Act
Respondent’s submissions
During the course of submissions the Respondent referred me to
ss 58(1) and 116(1) of the Act.
Pursuant to s 58(1) of the Act upon becoming bankrupt the Bankrupt’s property had vested forthwith in the Official Trustee in Bankruptcy. The Act provides in s 5 that the “property of the bankrupt” means, with the exception of sub s s 58(3) and (4), which are not relevant to the present case, the following:
(i)the property divisible among the bankrupt’s creditors; and
(ii)any rights and powers in relation to that property that would have been exercisable by the bankrupt if he or she had not become a bankrupt.
Section 116(1) of the Act defines “the property divisible” amongst the bankrupt creditors as follows:
“116.(1) Subject to this Act:
(a)all property that belonged to, or was vested in, a bankrupt at the commencement of the bankruptcy, or has been acquired or is acquired by him or her, or has devolved or devolves on him or her, after the commencement of the bankruptcy and before his or her discharge;
(b)the capacity to exercise, and to take proceedings for exercising all such powers in, over or in respect of property as might have been exercised by the bankrupt for his or her own benefit at the commencement of the bankruptcy or at any time after the commencement of the bankruptcy and before his or her discharge;
(c)property that is vested in the trustee of the bankrupt’s estate by or under an order under section 139D; and
(d) money that is paid to the trustee of the bankrupt’s estate under an order under section 139E;
is property divisible amongst the creditors of the bankrupt.”
The Respondent submitted that the Trustee does not have standing to commence proceedings pursuant to ss 120 and 121 of the Act after the Bankrupt has been discharged from bankruptcy.
In support of the application that the Trustee has no standing it was submitted on behalf of the Respondent that the words “void” in ss 120 and 121 of the Act have been understood by the courts to mean “voidable” rather than “void” and that whilst the cause of action to avoid the transaction fell to the Trustee at the date of bankruptcy, the transaction was not affected until the Trustee took action to avoid it at which time the Trustee’s title accrued.
Counsel for the Respondent relied upon an extract from the text “Avoidance Provisions in Insolvency Law” A R Keay at pages 311 and 312. In particular I was referred to the following passage at page 311:
“The word `void’ has never been interpreted strictly in avoidance provisions to mean void. In fact, the word has been understood by the courts to mean `voidable’. Transactions have never been regarded as absolutely void. While the cause of action to avoid a transaction fell to a trustee at the date of bankruptcy, the transaction was not affected in any way until the trustee took action to avoid it, at which time the trustee’s title accrued. This is to be contrasted with the situation applying under s 468 of the Corporations Law (the Law), which provides that dispositions entered into after the commencement of winding up are void. Pursuant to that section `void’ means void for all purposes related to or incidental to the administration of the winding up, and the disposition rendered void is void at the time when it took place.”
In that passage the Learned Author refers to the decision of In Re Brall (1893) 2 QB 381. At page 384 Vaughan Williams J stated,
“On the whole, I have come to the conclusion that the word `void’ in s.47 of the Bankruptcy Act, 1883, means `voidable,’ and that, consequently, any one who claims, under a settlement affected by this section, as a purchaser for valuable consideration without notice, has a good title as against the trustee in bankruptcy. It is quite plain that the word `void’ may mean `voidable,’ and there are several reasons why it should receive that construction in this Act. The test, to my mind, is whether the object of this public policy in view in this section requires the strict construction. Now, it is to be observed that the object of this section is one for which the legislature has made provision in a long series of bankruptcy statutes, and that in all the bankruptcy statutes prior to 1869 the wording of the section was such as to make the settlement voidable, and not void, because under these statutes the avoidance of a voluntary settlement was effected by an order in bankruptcy for the sale, by the trustee, of the subject-matter of the settlement, and neither the word `void’ nor the word `voidable’ was used.”
Counsel for the Respondent after referring to the text and case above submitted that the property that is the subject of ss 120 and 121 of the Act is not vested in the Trustee until the Trustee takes action to avoid the transactions. It was submitted that if the Trustee does not take action to recover property that is the subject of ss 120 and 121 of the Act during the term of the bankruptcy that property is not “property of the bankrupt” as defined by the Act. Accordingly the Trustee does not have standing to pursue it.
I was referred to s 152 of the Act which provides that a discharged Bankrupt must even though discharged give such assistance as the Trustee reasonably requires in the realisation and distribution of such property as is vested in the Trustee. A limitation period under the Act pursuant to s 127 is imposed providing a time when the Trustee may commence action under ss 120 and 121 of the Act. It was submitted that that section does not give the Trustee standing to commence such actions in respect of property that did not vest in the Trustee before the Bankrupt’s discharge.
In making submissions for and on behalf of the Respondent Counsel confined the submissions and affidavit evidence to the issue of standing.
Trustee’s submissions
It was submitted on behalf of the Trustee that reliance could be placed upon the relevant limitation period set out in s 127 of the Act which provides the following:
“(3) An action under section 120 with respect to a transfer shall not be commenced by the trustee of the estate of a bankrupt after the expiration of six years from the date on which the bankrupt became a bankrupt.
…
(4)An action under section 121 with respect to a transfer of property may be commenced by the Trustee of the estate of the bankrupt at any time.”
It was noted by counsel for the Trustee that the limitation periods to which I have just referred were incorporated into the Act by way of an amendment pursuant to the Bankruptcy Amendment Act 1980. I was referred to the explanatory memorandum relating to that Act and in particular the following extract:
“A trustee will not be able to take any action to avoid an antecedent transaction (under s 120 – voluntary or marriage settlements, or under s 121 – preferences) after 6 years from the date on which the bankrupt becomes bankrupt. (Bill Cl. 61- proposed s 127 (2) and 127 (4) ). This will ensure that the time within which the substantive rights can be exercised does not vary in different parts of Australia (see re Lahrain (1975) 24 FLR 407 at 412 and Judiciary Act 1903 s 79). However there will be no time limitation on the right of a trustee to take action to set aside a fraudulent disposition of property (under s 121) (Bill Cl. 61 – proposed s 127(3) …..”
I was referred to the decision of Official Trustee in Bankruptcy v Fodare (2000) FCA 300 where the court in considering s 127 of the Act stated at paragraph 38 the following:
“38.Section 127(3) of the Act provides a 6 year limitation period for actions of this type. As the trustee commenced its proceedings less than 6 years from the date on which the bankrupt became a bankrupt, the requirements of the Act in this regard have been met. I reject the submission that the trustee’s proceedings are statute barred.”
It should be noted in that case however that the Bankrupt had been made bankrupt on 23 March 1993 and a s 139ZU notice was issued by the Trustee on 26 May 1997 in relation to a transaction which had occurred on 2nd March 1989. The Bankrupt had not been discharged at the time when the notice was issued.
The Trustee’s counsel drew my attention to the decision of Burke and Anor v Stapleton (1969) 120 CLR 664 where at 668 the court held that s 127(1) of the Act amounts to a statute of limitations. On that basis it was submitted that in the present application proceedings were issued within that period of time given that the Bankrupt had become bankrupt on 31 May 1996 and the application was filed on 15 August 2001.
It was submitted by the Trustee that it is false of the Respondent to argue that the Bankrupt once having been discharged that the Trustee no longer has standing to issue proceedings under ss 120 and 121 of the Act. It was submitted that it is wrong to suggest that the Trustee loses rights upon the discharge of the Bankrupt. Counsel for the Trustee submitted that there are a number of reasons why the argument of the Respondent that the Trustee loses rights upon discharge of the Bankrupt should be rejected namely,
(a)The High Court has previously allowed a Trustee in bankruptcy to issue proceedings and recover assets once a Bankrupt is discharged (see Mayne v The Public Trustee (1944) 70 CLR 395;
(b)Section 152 of the Act provides that a bankrupt even though discharged must give assistance to the Trustee as the Trustee reasonably requires in the realisation and distribution of such property as is vested in the Trustee. This envisages that the Trustee will carry on performing his duties and functions after discharge;
(c)The Trustee’s duties continue until it is released pursuant to s 184 of the Act or otherwise in accordance with Division 5 of Part VIII of the Act;
(d)The provisions of s 127 would be a nonsense if such an interpretation was given especially when regard is had to the early discharge provisions and would result in a number of actions for antecedent transactions being discontinued where they were not tried prior to such discharge. In addition a number would not be issued as they are not discovered within 12 months of the Bankrupt becoming bankrupt;
(e)It would against public policy to allow a Bankrupt to avoid giving information to the Trustee prior to discharge and thereby protecting antecedent transactions;
(f)The purpose of s 127 was to give a uniform statutory period in which recovery proceedings could be issued.
The key issue therefore between the parties is whether the Trustee only has the opportunity to pursue claims under ss 120 and 121 of the Act during the currency of the bankruptcy. Once the Bankrupt is discharged then the Respondent argues that the opportunity of the Trustee to bring such claims has been terminated. As indicated it is argued that the property being sought by the Trustee pursuant to ss 120 and 121 is not property that was vested in the Bankrupt and/or Trustee before his discharge.
In response to the submissions on behalf of the Respondent whereby it was claimed it is necessary for property to vest during the period of bankruptcy counsel for the Trustee agreed that there is authority for the proposition that transfer are `voidable’ rather than `void’. Therefore it was submitted it is impossible for them to vest until such time as a determination is made.
Reasoning
Both counsel agreed that there is no authority for or against the proposition that the Trustee has standing to pursue what are described as “clawback actions” under ss 120 or 121 of the Act commenced after a Bankrupt has been discharged.
It is noted that in this matter the date of bankruptcy is 31 May 1996. Hence the current form of ss 120 and 121 do not apply as those sections were introduced in 1996 and specifically they were both substituted by Item 208 of Schedule 1 of the Bankruptcy Legislation Amendment Act 1996. In accordance with Item 457 of the Schedule the amendments apply to bankruptcies for which the date of bankruptcy is on or after 16 December 1996. It is therefore relevant to consider the wording of both ss 120 and 121 prior to the amendment, which as I have indicated, applies to bankruptcies prior to 16 December 1996.
In relation to s 120 it is noted that the old section provides as follows:
“120 (1) A settlement of property, whether made before or after the
commencement of this Act, not being-
(a)a settlement made before and in consideration of marriage, or made in favour of a purchaser or encumbrancer in good faith and for valuable consideration; or
(b)a settlement made on or for the spouse or children of the settlor of property that has accrued to the settlor after marriage in right of the spouse of the settlor, is, if the settlor becomes a bankrupt within two years after the date of the settlement, void as against the trustee in the bankruptcy.
(2)A settlement of property, whether made before or after the commencement of this Act, not being a settlement referred to in paragraph (a) or (b) of the last preceding sub-section or a settlement that is void as against the trustee by reason of the operation of that sub-section, is, if the settlor becomes a bankrupt within five years after the date of the settlement, void as against the trustee in the bankruptcy, unless the parties claiming under the settlement prove-
(a)that the settlor was, at the time of making the settlement, able to pay all his debts without the aid of the property comprised in the settlement; and
(b)that the settlor's interest in the property passed to the trustee of the settlement or to the donee under the settlement on its execution.
(3)A covenant or contract made, whether before or after the commencement of this Act, in consideration of marriage either-
(a)for the future payment of money to the settlor's spouse or children; or
(b)for the future settlement of property on or for the settlor's spouse or children, being money or property in which the settlor did not, at the date of the marriage, have any estate or interest, whether vested or contingent, in possession or remainder, and not being money or property of, or in right of, the settlor's spouse, is, if the settlor becomes a bankrupt before the covenant or contract has been executed, void as against the trustee in the bankruptcy.
(4)The persons entitled under the covenant or contract may claim for dividend in the settlor's bankruptcy under the covenant or contract, but such a claim shall be postponed until all claims of the other creditors for valuable consideration in money or money's worth (including claims under section 111 of this Act and claims for interest on interest-bearing debts in respect of a period after the date of the bankruptcy) have been satisfied.
(5)A payment of money or transfer of property made by the settlor in pursuance of such a covenant or contract, whether before or after the commencement of this Act, is void as against the trustee in the settlor's bankruptcy, unless the persons to whom the payment or transfer was made prove-
(a)that the payment or transfer was made more than two years before the commencement of the bankruptcy;
(b)that at the date of the payment or transfer the settlor was able to pay all his debts without the aid of the money so paid or the property so transferred; or
(c)that the payment or transfer was made in pursuance of a covenant or contract to pay or transfer money or property expected to come to the settlor from, or on the death of, a particular person named in the covenant or contract and was made within three months after the money or property came into the possession or under the control of the settlor.
(6)Where any such payment of money or transfer of property is void as against the trustee in the settlor's bankruptcy by virtue of the last preceding sub-section, the persons to whom the payment was made or the property was transferred are entitled to claim for dividend under the covenant or contract as if it had not been executed at the commencement of the bankruptcy.
(7)Nothing in this section shall be taken to affect or prejudice the title or interest of a person who has, in good faith and for valuable consideration, purchased or acquired from the persons entitled to the benefit of the settlement, covenant or contract or from the trustee of the settlement the money or property the subject of the settlement, covenant or contract or an interest in that money or property.
(8)In this section, ''settlement of property'' includes any disposition of property.”
Under the old s 120 there are number of cases which discuss the history of the section as it was prior to 16 December 1996 and usually the issue involved the meaning of “settlement of property”. (See Re Kastropil: Ex parte Official Trustee in Bankruptcy (1989) 33 FCR 135; 109 ALR 568 and Re La Rosa; Ex parte Norgard v Rodcom Pty Ltd (1990) 21 FCR 270; 93 ALR 571).
The new section 120 provides as follows:
“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.
(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)the transfer took place more than 2 years before the commencement of the bankruptcy; and
(b)the transferee proves that, at the time of the transfer, the transferor was solvent.
(4)The trustee must pay to the transferee an amount equal to the value of any consideration that the transferee gave for a transfer that is void against the trustee.
(5) For the purposes of subsections (1) and (4), the following have no value as consideration:
(a)the fact that the transferee is related to the transferor;
(b)if the transferee is the spouse or de facto spouse of the transferor – the transferee making a deed in favour of the transferor;
(c)the transferee’s promise to marry, or to become the de facto spouse of, the transferor;
(d)the transferee’s love or affection for the transferor.
(6)This section does not affect the rights of a person who acquired property from the transferee in good faith and by giving consideration that was at least as valuable at the market value of the property.
(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.”
The old section 121 provides:
“121.(1) Subject to this section, a disposition of property, whether made before or after the commencement of this Act, with intent to defraud creditors, not being a disposition for valuable consideration in favour of a person who acted in good faith, is, if the person making the disposition subsequently becomes a bankrupt, void as against the trustee in the bankruptcy.
(2)Nothing in this section shall be taken to affect or prejudice the title or interest of a person who has, in good faith and for valuable consideration, purchased or acquired the property the subject of the disposition or any interest in that property.
(3)In this section, ''disposition of property'' includes a mortgage of property or a charge on or in respect of property.”
The new section 121 provides:
“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.
(3)Subsection (2) does not limit the ways of establishing the transferor’s main purpose in making a transfer.
(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 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.
(5)The trustee must pay to the transferee an amount equal to the value of any consideration that the transferee gave for a transfer that is void against the trustee.
(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;
(b)if the transferee is the spouse or de facto spouse of the transferor – the transferee making a deed in favour of the transferor;
(c)the transferee’s promise to marry, or to become the de facto spouse of, the transferor;
(d)the transferee’s love or affection for the transferor.
(7)This section does not apply to a transfer of property under a debt agreement.
(8)This section does not affect the rights of a person who acquired property from the transferee in good faith and for at least the market value of the property.
(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.”
In the case of Ashton v Prentice (Unreported Federal Court of Australia delivered 23 October 1998) Hill J stated in relation to s 121 the following:
“Section 121 in its present form was substituted for the previous section by the Bankruptcy Legislation Amendment Act 1996. It covers more or less the same area as the section it replaced, although, if anything, it is now framed in such a way as to make it rather easier for a trustee to succeed than was earlier the case.”
It should also be noted that in the Bankruptcy Legislation Amendment Act 1996 s 127 of that Act was amended and for the present purposes the relevant sub-sections were sub-ss 3 and 5 which deal with actions under ss 120 and 121 respectively. In relation to sub-s 127(3) the words “settlement, covenant, contract, payment or” were omitted and in the case of s 127(5) the words “covenants. transfer, charge, payment or obligation” were to be substituted by “transfer of property”. This reflects the different wording in the old versions of ss 120 and 121 from those introduced to bankruptcies which had occurred after
16 December 1996.
Although it is appropriate to set out the different versions of ss 120 and 121 of the Act it is clear on a proper analysis of those two sections that the old version of s 120 is significantly different to the new version whereas both versions of s 121 do not appear to be significantly different. In any event the core issue before me is the question of the Trustee’s standing to bring an application in circumstances where it is said that the Trustee does not have standing to bring applications under either ss 120 or 121 of the Act where the property has not vested in the Bankrupt and/or Trustee and has not taken any action to recover property which may be the subject of those sections. If that has not occurred during the term of the bankruptcy then any property is not “property of the bankrupt as defined” in the Act.
In my view it is appropriate to consider both ss 120 and 121 and in looking at either the version which applied prior to bankruptcies which had occurred on 16 December 1996 or later versions, it is clear that both sections are designed to give the Trustee power to recover property or its value under those sections subject to the protective provisions that applied at the relevant time.
I accept that the reference to transfers being void against the Trustee has been interpreted correctly as being “voidable” at the Trustee’s option from the commencement of the bankruptcy (see Re Brall (1893) 2 QB 381).
Under the old s 120 the term “a settlement of property” appears whereas under the new s 120 the phrase “a transfer of property” has been used. Under the old section “settlement of property” includes any disposition of property (see s 120(8). Under the new s 120 a transfer of property “includes a payment of money; and 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. (See ss 120(7)(a) and (b)).
Regardless of which version of ss 120 or 121 of the Act apply to the present case it is my view that those sections should be read separately and apart from other provisions in the Act and in particular s 58.
It is clear in my view that s 58 simply provides the starting point for the vesting of property of the Bankrupt in the Trustee.
It is equally clear that the legislation provides that the Trustee must enquire into the financial circumstances of the Bankrupt which may include an examination. After due enquiry the Trustee is able to consider and if deemed appropriate make application pursuant to
ss 120 or 121 of the Act.
While s 152 of the Act provides some support for the proposition that there is an ongoing obligation of the Bankrupt after discharge to assist the Trustee it is clear that that section only relates to assistance required in the realisation and distribution of such of the Bankrupt’s property as is vested in the Trustee. (This section was not amended in 1996).
Of greater significance in my view is the effect of s 127 (as amended) upon the capacity of the Trustee to commence proceedings under either ss 120 or 121 of the Act. The limitation period as mentioned earlier starts from the date on which the Bankrupt becomes a Bankrupt in relation to s 120 (See s 127(3)) and “at any time” in relation to s 121 applications (See s 127(4)). There is no reference to the rights to commence an action by the Trustee being restricted and/or removed in relation to application pursuant to either s 120 or 121 by virtue of the Bankrupt becoming discharged.
The trustee has obligations to continue to act until released by the Court pursuant to s 183 of the Act or pursuant to s 184 of the Act at the end of seven years from the date on which the Official Receiver entered the National Personal Insolvency Index the fact that the administration of the estate has been finalised. Neither section has been invoked in the present case.
The Trustee in my view in the absence of any prohibition has power to commence an application pursuant to ss 120 and/or 121 within the time limits set by s 127 of the Act.
The capacity to commence the applications may well depend upon which version of the sections, and in particular s 120 of the Act, applies. If the old section applies then the application will need to be available in relation to “a settlement of property” not being a settlement made before and in consideration of marriage, or made in favour of a purchaser or encumbrancer in good faith and for valuable consideration or a settlement made on or for the spouse or children of the settlor of property that has accrued to the settlor after marriage in right of the spouse of the settlor. The “settlement of property” under the old s 120 includes “any disposition of property”. The definition of “property” was not altered by amendments in 1996 and provides:
“`property’ means 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”.
In the present case where the bankruptcy has occurred on 31 May 1996 it would appear that an application relying upon the old s 120 is at least arguably available both in relation to the subject matter of the settlement of the Edyvean and Canterbury Road properties as both occurred within two years of the commencement of the bankruptcy. Likewise the transfer of the Bankrupt’s shares in the companies to which I have referred which may also be arguably caught by the old s 120.
Under the new s 120 the period of time within which transfers may be challenged extends to five years before the commencement of bankruptcy and ending on the date of the bankruptcy and likewise the transactions to which I have referred may be the subject of challenge pursuant to that new section.
The application of either the old or new sections 121 may also apply to the transactions subject to appropriate evidence in relation to those dealings and the requisite proof required for each to satisfy the section.
I do not believe that a reference to s 58 of the Act is particularly relevant in the present case because that section vests property in the Trustee where the debtor becomes a bankrupt. I note that the “property of the Bankrupt” is defined in s 5 of the Act to mean “the property divisible among the Bankrupt’s creditors”. I further note the definition of the phrase “property divisible amongst the Bankrupt’s creditors provided in s 116(1) to mean all property that belonged to, or was vested in, a Bankrupt at the commencement of the bankruptcy, or has been acquired by him or has devolved or devolved on him, after the commencement of bankruptcy and before his discharge.
In my view applications pursuant to ss 120 and/or 121 go beyond consideration of property vesting in the Trustee pursuant to s 58 of the Act and therefore are not limited by the definition of property divisible amongst creditors as provided by s 116 of the Act. It is clear that both ss 120 and 121 also consider other property which could not be described as “after acquired property by the Bankrupt”. Both ss 120 and 121 provide a mechanism by which a properly appointed Trustee can seek to challenge transfers or dispositions subject to the different criteria set out respectively in ss 120 and 121.
I agree with the submission made for and on behalf of the Trustee that to suggest that the power to commence an application under ss 120 or 121 ceases upon discharge of bankruptcy would be inconsistent with the limitation period imposed by s 127 of the Act.
The capacity to commence an application under either s 120 or 121 is not limited to applications being made during the term of bankruptcy and nor in my view does property have to be vested in the Trustee or the Bankrupt to enable either provision to apply.
It is clear to me therefore that an action taken by a Trustee pursuant to ss 120 or 121 can survive after the date upon which a Bankrupt is discharged. In the present case where the bankruptcy occurred on 31 May 1996 with discharge occurring on 1 June 1999 the actions commenced under ss 120 and 121 of the Act should be possible subject to any limitation period imposed by s 127 of the Act. As indicated there may be argument as to which provision applies given the bankruptcy occurred prior to 16 December 1996.
Accordingly for the reasons given I am satisfied that the Trustee does have standing to commence the applications in the present case. I will make further directions regarding the conduct of the application upon hearing submissions from both parties.
I certify that the preceding sixty-one (61) paragraphs are a true copy of the reasons for judgment of McInnis FM
Associate:
Date: 3 May 2002
5
2
0