Naudi and Reid as Trustees of the Bankrupt Estate of Albarouki v Albarouki

The applicants, Naudi and Reid, acting as trustees of the bankrupt estate of Albarouki, sought to recover funds allegedly transferred by the bankrupt to the respondent, Albarouki, in contravention of the *Bankruptcy Act 1966* (Cth). The dispute centred on whether certain payments made by the bankrupt to the respondent constituted voidable transactions under the Act, specifically preferential payments or transactions entered into with the intent to defeat, delay, or defraud creditors. The matter was heard in the Federal Court of Australia.

The primary legal issues before the Court were: (1) whether the transfers of funds from the bankrupt to the respondent were voidable preferences under section 122 of the *Bankruptcy Act 1966* (Cth); and (2) whether the transfers were voidable transactions under section 121 of the *Bankruptcy Act 1966* (Cth) as having been entered into with the intent to defeat, delay, or defraud creditors. The Court was required to assess the bankrupt's financial position at the time of the transfers and the respondent's knowledge or reasonable grounds for suspecting the bankrupt's insolvency.

Judge Heffernan found that the applicants had not discharged the onus of proving that the transfers were voidable preferences under section 122. This was primarily because the evidence did not establish that the bankrupt was insolvent at the time of the transfers, nor that the respondent received the payments in circumstances where the respondent had reasonable grounds to believe the bankrupt was insolvent. Furthermore, the Court determined that the applicants had failed to establish the requisite intent under section 121, finding no evidence that the bankrupt's dominant purpose in making the transfers was to defeat, delay, or defraud creditors. The Court noted that the payments appeared to be for legitimate debts owed by the bankrupt to the respondent.

Consequently, the applications to set aside the transfers and recover the funds were dismissed.