Nelson (Trustee) v Birch

[2019] FCCA 3622

FEDERAL CIRCUIT COURT OF AUSTRALIA

NELSON (TRUSTEE) v BIRCH & ORS [2019] FCCA 3622

Catchwords:
BANKRUPTCY – Bankrupt selling his one-third share of matrimonial home and discharging mortgage – whether the owners of the house are liable to account to the trustee in bankruptcy for the benefit of discharge from the mortgage  – where balance of funds after discharge of the mortgage paid to wife  – whether payment constituted a preference or was otherwise void against the trustee.

Legislation:

Bankruptcy Act 1966 (Cth), ss.58(1), 120, 122.

Federal Circuit Court of Australia Act1999, s.76.
Penalty Interests Rate Act 1982 (Vic), s.2

Applicant: SIMON PATRICK NELSON
(IN HIS CAPACITY AS TRUSTEE OF THE PROPERTY OF BRIAN LAWRENCE BIRCH, A BANKRUPT)

First Respondent: SUSAN BIRCH

Second Respondent: DONALD WILCOX

Third Respondent: BRIAN LAWRENCE BIRCH

File Number: MLG 3316 of 2018

Judgment of: Judge Burchardt

Hearing date: 7 & 8 November 2019

Date of Last Submission: 8 November 2019

Delivered at: Dandenong

Delivered on: 19 December 2019

REPRESENTATION

Counsel for the Applicant: Ms Kinda

Solicitors for the Applicant: Baker Jones Lawyers

Counsel for the First Respondent: Mr Douglas-Baker

Solicitors for the First Respondent: Sewell & Kettle Lawyers

Counsel for the Second Respondent: Ms Carruthers

Solicitors for the Second Respondent: Wood Marshall Williams with Parisi Lawyers

DRAFT ORDERS

THE COURT DECLARES THAT:

1. The Bankrupt’s claim for contribution against the First Respondent in respect of the payment made by the Bankrupt in the sum of $412,601 to Pepper Money on or about 5 July 2016 is property which vests in the Applicant pursuant to sub-section 58(1) of the Bankruptcy Act 1966 (Cth).

2. The payment from the Bankrupt to the First Respondent in the sum of $92,743 on or about 5 July 2016 is void as against the Applicant as an unfair preference pursuant to Section 122 of the Bankruptcy Act 1966 (Cth).

THE COURT ORDERS THAT:

1. The First Respondent pay to the Applicant:

   (a)the sum of $206,300, by way of contribution as co-debtor; and

   (b)the sum of $92,743.

FEDERAL CIRCUIT COURT
OF AUSTRALIA
AT MELBOURNE

No. MLG 3316 of 2018

SIMON PATRICK NELSON (IN HIS CAPACITY AS TRUSTEE OF THE PROPERTY OF BRIAN LAWRENCE BIRCH, A BANKRUPT

Applicant

And

SUSAN BIRCH

First Respondent

DONALD WILCOX

Second Respondent

BRIAN LAWRENCE BIRCH

Third Respondent

REASONS FOR JUDGMENT

Introductory

1. On 4 July 2016, Lisa and Mark Bayliss bought a one-third interest owned by the third respondent in a property known as 18 Bellevarde Parade, Mona Vale, for $516,000.  Of that amount, $412,601 was applied to discharge mortgages over the property and other debts owed over the property, and on 5 July 2016, the remaining $92,743 (some of these figures are slightly rounded off) was paid to the first respondent.  The applicant trustee says that the $412,000 extinguished debts of all three respondents, and the first and second respondent should account to him for their notional share of the discharge of the mortgages.  He says, further, that the first respondent, Mrs Birch, is liable to repay him the $92,743, this being void against the trustee as a preference. 

2. The first respondent denies that she is in any way liable to account to the trustee for various reasons it will be necessary to return to.  The second respondent denies being liable to the trustee in any way because he says he was never a co-debtor with the first and third respondents. 

3. For the reasons that follow, and not without sympathy for Mrs Birch, I have decided that the trustee should succeed in relation to both the one-half discharge of the mortgage to which, as I find, Mrs Birch should contribute and the $92,743. I further find that Mr Donald Wilcox, the second respondent, is not in any way liable to the trustee.

The history of the matter

1. What follows is taken from the various affidavits filed by the parties from time to time.  It is not in fact controversial. 

2. Donald Wilcox has lived in the property all his life.  It was originally bought by his parents as long ago as 1926.  Mr Wilcox became the sole owner upon the death of his last surviving parent in 1977, and by 1990 the property was unencumbered.  In 1990, Mr Wilcox was approached by Mrs Birch (his niece), and her husband, the third respondent.  They suggested, in effect, that they knock down the existing one-storey property and rebuild on two storeys.  Mr Wilcox would be allowed to live effectively rent free in the ground floor property for the rest of his life and Mr and Mrs Birch would take out a mortgage in the sum of $110,000 to build the property.

3. This agreement was reflected in a deed of option and a deed of licence dated 12 September 1990.  The borrowing to build the property was foreshadowed in terms in the deed of auction (clause 1) and a first mortgage was entered into on 19 February 1991 in that amount.  It should be noted that Mr Wilcox has deposed that he was retired at the time of first mortgage.  Since he describes himself in his affidavit filed on 25 February 2019 as being 87 years old, I infer that he was born in 1932 and was therefore 59 by the time of the first mortgage.

4. The first mortgage had as mortgagors both Mr Wilcox and Mr and Mrs Birch. That mortgage was followed by what was as described as the first transfer on 23 November 2019, when, for an ostensible payment of one dollar, Mr Wilcox transferred two thirds of the interest in the property to Mr and Mrs Birch. Mr Wilcox remained a one-third owner.

5. Mrs Birch has deposed and it seems, to me, not the subject of controversy, that following these matters the original property was demolished and a new property built between 1991 and 1993.  It cost more than anticipated and, as a result, a second mortgage was taken out on 20 July 1994 in the sum of $130,000.  The first mortgage for $116,000 had been with Westpac, and the second mortgage was with the ANZ.  While the mortgagors on both mortgages were Mr Wilcox and Mr and Mrs Birch, on the first mortgage Mr and Mrs Birch were described as the debtor, and on the second mortgage Mr and Mrs Birch were described as the customer.  In neither case was there any reference to Mr Wilcox.

6. Thereafter, and on 17 June 2002, a third mortgage was taken out in the sum of $338,000 with RAMS.  The mortgagors were, again, Mr Wilcox and Mr and Mrs Birch, but there was no reference to borrowers, customer or debtor. 

7. On 23 August 2006, a further mortgage was taken out with an entity then described best as GEL, but which I am quite satisfied is part of, or has relevantly morphed into, a further lender referred to by the parties as Pepper Money.  That mortgage was in the sum of $387,033. 

8. The next relevant development is taken from the unchallenged evidence of Mrs Birch.  She has deposed in her first affidavit filed 3 April 2019 that she married Mr Birch on 9 December 1972.   Between 1995 and 31 December 2010, she worked for a company I would describe as Roche Products.  She then, at the start of 2011, commenced work for an RSL facility in Narrabeen, which she worked at until July 2018 when she retired to care full time for Mr Birch.  Mr Birch was then known to have a very serious illness.

9. In fact, Mr Birch tragically died just a few days before the start of the trial.  Mrs Birch, with commendable fortitude, indicated through counsel that she wished the trial to proceed and to give evidence, which she did.  No steps have been taken to formalise the status of the deceased as a respondent as yet. 

10. Mrs Birch deposed that the loan taken out in June 2002 (the third mortgage), had been exhausted by 2006.  In October 2006, when the fourth mortgage was taken out for $387,033, a line of credit of some $100,000 was also taken out which was applied to matrimonial expenses.

11. Mr Birch had commenced work, following lengthy service with Ampol as a mechanic, with Ultra Tune in Brookvale in 2004.  By December 2010, he was the manager, and the then owner, Mr Steel, wanted to sell for $227,000.  Mrs Birch was made redundant with effect from 31 December 2010 and received a redundancy payment of $145,711.  She has deposed to an agreement made orally and entered into on that date with her husband, to which it will be necessary to return in some detail.

12. With funds advanced by her ($215,000) and the husband from his superannuation of $75,000, the newly incorporated company, BL & S Birch Pty Ltd bought the franchise in September 2011.  Things did not go well.  By 9 December 2013, the business was allegedly borrowing $20,000 from a friend of the Birch’s, Mr Warburton. Mrs Birch has also deposed that Mr Birch used her Citibank credit card for business expenses in the sum of some $14,000.  The business is then said to have borrowed from Mrs Birch’s brother, Len Redman, in January 2016.  This must have been a rather desperate throw of the dice because on 12 February 2010 the company was placed into voluntary administration, and on 17 March 2016 was placed into liquidation.

13. The liquidator made a demand on Mr Birch for $95,560.90 by letter dated 22 August 2016, and in that letter asserted that this arose out of insolvent trading by Mr Birch since at least 1 July 2015.  That debt is listed in Mr Birch’s Statement of Affairs dated 16 October 2016 as a debt.

14. As earlier indicated, Mr and Mrs Bayliss bought the one-third interest on 4 July 2016.  On the same day (“SPN-11” to Mr Nelson’s first affidavit) a sum of $412,880.41 was paid out.  From “SPN-13”, it is apparent that a disbursement of some $93,095.12 took place, but from “SPN-15” (court book (“CB”) 80) it is apparent that the sum paid to Mrs Birch on 4 July 2016 was $92,743.56, which was deposited into her CBA bank account.

15. Mrs Birch has deposed, and it seems to be unchallenged, that Mrs Birch used that money to repay Mr Warburton, her Citibank credit card of $14,000 and Mr Redman.  Further amounts of $15,000 were applied to a journey in 2017 to the United Kingdom by Mr and Mrs Birch to visit Mr Birch’s brother, and the rest was deposed to having been spent on ongoing matrimonial expenses, something that appears to be borne out by Mrs Birch’s subsequently filed bank accounts.

16. On 21 October 2016, Mr Birch became bankrupt on his own Petition and the evidence suggests that there are in excess of $264,000 unsecured creditors. The official trustee in bankruptcy was initially having conduct of the matter, but, on 14 December 2016, Mr Nelson was appointed in his place.

The evidence given at court

1. What follows is taken from my notes.

The evidence of Mr Nelson the trustee

1. In evidence-in-chief, Mr Nelson’s evidence was essentially facultative.  He adopted his various affidavits as true and correct and detailed the process whereby documents had been obtained from Pepper Money.  He speculated, in my view, to an extent, as to when it might be put that Mr Birch became insolvent.

2. The primary area of disputation that arose in-chief was the admissibility or otherwise of exhibit “SPN-20” (CB 103-104). 

3. I indicated I would give my reasons for admitting the document in this judgment.

4. It is apparent from CB 283-007-283-008 that Mr Birch sent a statutory declaration to the official trustee on or about 4 November 2016.  Mr Nelson, who is an expert in his field, gave what I regarded as convincing evidence as to the likely course of events giving rise to that statutory declaration. While it may be correct, as counsel for Mr Wilcox submitted, that this document was not in fact properly declared because the person witnessing it might not be properly qualified to do so, it is on any view of the matter an admission against interest and/or an expression of contemporaneous opinion made by Mr Birch.  True it is that Mr Birch was not available for cross-examination and that of course affects the weight to be given to the document, but it did not operate in such a fashion in my view as to make it inadmissible, especially in circumstances when there was no dispute, as I understood the matter, that Mr Birch had indeed executed the document.

Mr Nelson under cross-examination by counsel for Mrs Birch

1. Mr Nelson confirmed that he had investigated the transfer of the property to Mr and Mrs Bayliss, but had not made any inquiries of Avalon Law.  He could not recall how he obtained “SPN-14”, being the letter from Avalon Law to Mr and Mrs Birch dated 5 July 2016. 

2. He was aware that Mr Wilcox was in his nineties and was aware that Mr and Mrs Birch were married.  He sought documents from Pepper Loans via subpoena and made a general request for documents.  This was his practice in every case.  He had not specifically asked for loan documents from Pepper Loan and had not asked Mrs Birch either.  He had made no further inquiries about the loan.  He said the records at CB 132 supported the proposition that it was a loan because it referred to borrowers being Mr and Mrs Birch and Mr Wilcox.

3. He had read Mrs Birch’s affidavit in April 2019 and was aware of the allegation about the original agreement with Mr Wilcox.  He had not subpoenaed Mr Birch until August 2019.  He went on to explain how the statutory declaration had been obtained by the official receiver.  He was unable to say why he had not made further inquiries with Mr Birch.  He was asked why he had not obtained the company’s records from the liquidator, and he said he was not entitled to. He had received some documents from the liquidator, including the administrator’s report.  He had spoken to Mr Birch, but had not put the statutory declaration to him. The statutory declaration explained what happened to the proceeds of sale and must have been asked for by the official receiver. He did not know if Mr Birch had had legal advice.  He was not aware of Mr Birch’s health in 2016 and agreed it was possible Mr Birch had made a mistake. It was his practice to interview every bankrupt and make file notes, but none were in evidence.

Trustee under cross-examination by counsel for Mr Wilcox

1. Cross-examination revealed the fact that Mr Nelson is an extremely experienced insolvency practitioner, having been involved in the field since 1990. When it was put to him that Mr Birch’s bankruptcy had been discharged this year, Mr Nelson said this was not the case as there had been an objection. Mr Nelson was cross-examined about the mortgages which did not show who the borrowers were and conceded this was the case. He confirmed that the subpoena to Pepper Money produced only the bank records of Mr Birch. The loan agreement was not produced. There was no evidence that Mrs Birch was a borrower when the proceedings were issued.  Mr Nelson conceded that the only documents showing Mr Wilcox as a borrower were those on the loan from Pepper Money.  He had not sought the loan documents in relation to the fifth mortgage and had not got the application form. He conceded that Mr Wilcox is not a debtor under the current loan and the tenancy-in-common agreement between the Birches, Mr Wilcox and Mr and Mrs Bayliss (CB 454 and following), does not contemplate that each person on title was to be a mortgagor. He conceded that Mrs Birch is not a debtor under the current loan, nor Mr Wilcox.  He did not know how the fourth mortgage was paid out or how the proceeds were disbursed. He had obtained a valuation of the property at the commencement of the bankruptcy and this did not suggest that the purchase by Mr and Mrs Bayliss was at an under value.

2. Mr Nelson was not able to say how much of the first and second mortgages was carried through to the later ones.  He had not traced through. There was no evidence of any monies paid to Mr Wilcox.  The fourth mortgage lasted from 2006 to 2016.  It was then paid out.  He had not produced the creditor’s reports in this proceeding.

The evidence of Mrs Birch

1. Mrs Birch adopted her affidavits as true and correct.

2. Under cross-examination, Mrs Birch could not remember the loan agreement in respect of the fourth mortgage. She said the first and second mortgages were standard loan agreements, and the third was a standard loan as far as she was aware.  She did not remember any of the negotiations.  She would remember if there had been.  She had signed together with her husband. Money was already spent on renovations and there was also the $100,000 line of credit. Both she and her husband were liable.  The loans were secured by the mortgage. Mr Wilcox signed the mortgage, but was never a borrower.  She could not be sure he had not signed loan documentation.  She had not asked Brian (her husband) to swear an affidavit.  She could have asked him to. 

3. Mrs Birch was pressed about the application of the $93,000. When asked about the funds used to establish the business, Mrs Birch said the money was in the joint account and was transferred to the business.  She was taken to CB 452 which showed a loan from her and her husband to the business of $293,000.  She expected to be repaid the loan.  The money was provided to the business. 

4. When cross-examined about the earlier statutory declaration by Mr Birch, Mrs Birch disagreed.  The money was loaned to the business.  In his eyes, the business was him.  That is the way he thought of it.  The company was going to repay it.  He repaid $93,000 to her.  He borrowed money from his family.  It was a loan from her brother and a loan from a friend.  He had incurred debts in her name.  She denied being an equal shareholder and said she did not agree, notwithstanding the ASIC record at CB 444-545 showing the same. 

5. Mrs Birch was cross-examined about paragraph 36 of her first affidavit, CB 409.  She said that Mr Birch was making an investment.  It was for him.  She was working full time.  He believed the business would be profitable and she accepted this.  She commenced work with the RSL in about 2011 and had this in place before she finished with Roche.  They held the property as joint tenants.  Most of their finances went to a joint account.  She said:

   Both our salaries are paid into it and the mortgage was paid out of this.

6. When taken to CB 453, Mrs Birch confirmed that Ultra Tune income was her husband’s salary.  She confirmed that both their salaries went to the loan repayments.  She confirmed that her husband used her credit cards for the business.  She had not benefitted from the business. It was totally his. She had loaned him the credit card to use. The owner’s salary was $60,000.

7. By 2011, the line of credit was fully drawn down and there was $400,000 owed to Pepper Money as well.  She had not expected Mr Birch to pay all of it back before he retired.  There were other sources available to repay the loan, including her salary.  The business was not profitable, but at the end, Mr Birch was trying to sell it.  The way he was going to repay her was to make sure the mortgage was paid. The husband was to pay the house off and retire.  She paid the bills.  His priority was to pay back the loan. 

8. When the third share was sold to Mark and Lisa in July 2016, most of what was produced went to pay Pepper Money. 

9. Counsel took Mrs Birch to CB 246 which showed a new account with $300,000 on 21 November 2007. The money all went to Pepper, and Mr Wilcox did not also owe any money. She benefitted because she was no longer liable to Pepper. The loan was only between her and Brian. She was only aware of the statutory declaration signed by Brian after he did it.  He was not repaying his loan to her.  The loan was for the business.  Mr Warburton was a loan to be paid with interest, but she could not recall the terms. She repaid this out of the $92,000. The Warburton debt was owed by the company. There were no documents to support the indebtedness on the Citibank credit card of $14,000. Mrs Birch confirmed that Len Redman is her brother and $10,000 was paid into the joint account. This was discussed with Mr Birch.

10. The journey to the United Kingdom was paid out of her personal account.  She was holding the funds for Brian to pay his creditors.  She paid Mr Warburton and Mr Redman because they were friends and relatives. They borrowed money and put it into the business. She created her own account at about the time Brian went into liquidation.  She thought it might be better to have her wage paid into a separate account.  She confirmed that the bank account at page 14 of her second affidavit was her bank account.  It was her money.  She had to pay personal debts the company had run up.  These were personal friends and relations.  She had transferred $30,000 to a term deposit on 20 July 2016, but she had no other bank account.  The $30,000 came back in.  She had a net bank account as well.  She needed money to pay their living expenses.  She had paid Mr Warburton, the credit card and Mr Redman and they had had an overseas trip.  She conceded that the husband’s Statement of Affairs had not mentioned funds held by her. She conceded that the payments to Mr Warburton and Redman were, likewise, not mentioned in the Statement of Affairs.

1. Mrs Birch says that Mr Wilcox was not present when she signed the Pepper Loan documentation. She could not recall conversations with Mr Wilcox at that time, although she had said there must have been some.

2. In re-examination, Mrs Birch confirmed that Brian would not have been able to swear an affidavit in the last few years. The loans from Mr Warburton and Mr Redman were for the business. There were no other discussions.

Findings about the facts

1. It should be noted that this not a case in which it is necessary to make any detailed observations about the credit of the witnesses.  Mr Nelson struck me as being an expert in his field and his answers were generally straightforward and direct.  Mrs Birch, whose evidence was given under the most trying circumstances, likewise struck me as generally direct and straightforward in her responses.  She did seem to me to equivocate at some stages when documents that she might perceive to be antithetical to her case were being canvassed, but in a sense the overall picture in this case is so clear it is unnecessary to say more than that.

2. It is clear beyond doubt that in 1990 Mr Wilcox and Mr and Mrs Birch entered into an agreement that suited them all.  Mr Wilcox, who owned an unencumbered property at that time and in which he had always lived, got an increase in the value of his house and, one might infer, an increase in the quality of it.  One must reasonably infer, however, that, in part, he sought to assist his niece and her husband.  As he rightly said in his affidavit, at the start of this entire saga he owned an unencumbered property and was retired.  It is, therefore, not surprising that he was not listed as a borrower (however so described) in the first or the second mortgages.

3. I have absolutely no doubt that it was always understood that Mr and Mrs Birch would take out the mortgage, build the new property and pay the mortgage off.  Despite some quibbling from counsel for the applicant, the deed of option and deed of licence admit no other sensible construction. 

4. The construction of the property proceeded it would seem relatively unremarkably, and there is no reason to doubt Mrs Birch’s assertion that her husband had much to do with keeping the price down.  To build a two-storey property for $140,000 as recently as 1991 to 1993 strikes me as being a very successful outcome.  Most unfortunately, however, after that, things started to go wrong.  By no later than 2002, Mr and Mrs Birch had taken out the mortgage for $338,000.  I have no doubt that while Mr Wilcox was required to be a mortgagor, he was not a borrower on this loan.  I appreciate that the banking records from RAMS appear to show him as a borrower. 

5. The loan agreement is not, however, in evidence. Without worrying too much about why that is so, the fact is that I am not satisfied in the face of the history of the matter, and the evidence of Mrs Birch, that the documents provided by the trustee are sufficient to discharge the onus of proof in this regard.  It is transparently clear that the agreement was always one pursuant to which Mr and Mrs Birch would borrow the necessary funds and they would repay them.  I entirely accept, while Mr Wilcox got the benefit of a superior property, he had derived no material benefit from the funds advanced in any kind of sensible analysis.  He was never a co-debtor with Mr and Mrs Birch. That is what Mrs Birch says, and I accept that evidence in any event. 

6. Indeed, it is noteworthy that, in final submissions, her counsel expressly disavowed any intention to seek, as it were, to lessen her own indebtedness, in the event that findings were made against her, and was fully prepared to accept liability for half the sum paid out rather than seeking to divide it by a third.  The holding of this position militates in irreversible terms against the position propounded by the trustee.

7. As I said earlier, however, things started to go wrong.  It is telling that in her first affidavit at paragraph 26, CB 408, the additional funds that were borrowed were to complete renovations which, on the face of it, do not look that significant.  I note that at paragraph 27 Mrs Birch deposed:

   The balance of funds that were available under Loan 3 were used to purchase a new Toyota Camry and put towards other joint matrimonial expenses for Brian and I. As of on or about 26 October 2006, the money advanced under Loan 3 had been exhausted by renovations and other expenses.

8. In October 2006, Mr and Mrs Birch not only refinanced the $387,000 that they had borrowed, but borrowed a further $100,000. This of course created a total indebtedness of some $487,000. Things proceeded in such a fashion that, by June 2016, the total indebtedness was $516,000.  Clearly, one way or the other, and very regrettably for all concerned, Mr and Mrs Birch had not kept on top of their finances at any stage.  A mortgage taken out even in 2002 for $338,000 should have been going down, rather than up to over $500,000 in the succeeding 14 years if it were otherwise.

9. In the meantime, unfortunately, Mr Birch had taken over the business for which he had formally worked.  This cost is almost $300,000, it would appear, all up.  This brings us to the critical question from the point of view of Mrs Birch of the agreement alleged in her first affidavit.  It is worth setting that out in full.  At paragraph 35-36 of her first affidavit, CB 409, she deposed:

   On 31 December 2010, I was made redundant from Roche Products Pty Ltd (Roche).  I was employed by Roche as an accounts clerk.  I received $145,711.86 as a redundancy payment by on or about 31 December 2010.  Exhibited at page 30 of SB-1 is a copy of a letter I received from Roche dated 20 December 2010. 

   After my last day of work, I came home at about 5 pm and had a conversation with Brian in words to the following effect:

   Me:  I’m receiving a payout of $145,000 – which is a lot.  Let’s talk more about you wanting to buy the business.

   Brian:  I’m talking to Steve and as we’ve discussed – I’ve also got approval from the franchisor to buy the business.  The price is still $227,000 plus GST.  I’ll put in $45,000 and I’ll need you to contribute the rest.

   Me:  Do you still think it would make you a salary plus a hundred grand a year?

   Brian:  Yes – I know the business well.  I’ve run it for a few years. 

   Me:  Okay but this money isn’t going on the home loan because it would then go into your business.  If it didn’t go into the business I could pay down my share of the home loan in full.  I want you to pay the balance of the loan from your salary because I’m paying for your business.

   Brian:  Yes but because of that I’ll take the responsibility to pay off the home loan because I’m taking your redundancy from my business. 

   Me:  Okay I feel better now and it would be great for us if you could increase your salary and also build the business.  You’ve got my support, darling.

10. At the time this conversation took place, the bank records exhibited to Mr Nelson’s affidavit show that loan 1 was indebted to the tune of $75,000, loan 2 was indebted to the tune of $100,000 and loan 3 was indebted to the tune of $291,000, a total in excess of $460,000.  It is possible that the $145,000 redundancy plus Mrs Birch’s superannuation (putting together paragraph 38 of her affidavit and the two letters at pages 36 and 37 of “SB-1”, it seems that her superannuation may have been worth $110,000, rather than $75,000) the amount she put in might have been approximately half the mortgage. 

11. In truth, of course, there is no possible doubt that Mr and Mrs Birch were jointly liable not for half of the mortgage each, but for all of it jointly. Thus, had the money been applied to the loan, the net result would have been that Mr and Mrs Birch would have been indebted by a substantially reduced sum.  There would have been no likelihood of the mortgagee releasing Mrs Birch from liability.

12. In the end, I think that Mrs Birch has, albeit unconsciously, reconstructed events in a fashion that now supports the agreement for which she contends. Her own evidence shows that even after this alleged agreement the parties continued to pool their funds, as was only natural given that they had by then been married for some 40 years.  In truth, what took place, as I find, was that Mr and Mrs Birch embarked upon a common endeavour only made possible by the unfortunate (as it turned out in the event) immediate availability of funds from Mrs Birch. 

13. Counsel for Mrs Birch was in my view correct in final submissions to say that this was a short case dependent upon the establishing by Mrs Birch of the agreement for which she contended.  I regret to say that she has comprehensively failed to do so. 

14. In the circumstances, it is not necessary to embark upon a detailed study of the numerous authorities to which I was taken.  It is quite plain that there was never an agreement by Mr and Mrs Birch which had the effect of readjusting their priorities as otherwise coordinate debtors.  Accordingly, the trustee must succeed on this aspect of the claim.

The claim for the preference

1. Mrs Birch’s investment into the business was plainly a joint venture with Mr Birch, rather than any kind of loan even of the most informal kind. There was of course, therefore, nothing to repay by Mr Birch to Mrs Birch.

2. Once it is apparent that that is not the repayment of a loan (and it would constitute a preference in any event if it were) the character of the payment of the $93,000 becomes clear.  This was money that was obtained by Mr Birch from the sale of his one-third interest in the property.  It was applied by Mrs Birch as his agent, indeed as she says, to repay his debtors in the form of Mr Warburton and Mr Redman, together with Mrs Birch’s credit cards. To the extent that they were creditors, and it seems clear that they were, these payments are plainly preferences.

3. Furthermore, the balance of the funds which was spent partly by Mr and Mrs Birch going to the UK and otherwise on their living expenses, must be an amount accountable to the trustee. That money was paid into Mrs Birch’s bank account, not the joint account. She directed the repayments.  This was not done as the agent of Mr Birch or, indeed, of the company, which had by then been liquidated. She chose, understandably in the circumstances, to discharge the debt to the family friend, Mr Warburton, and to her brother.  She also discharged her own credit card debt. 

4. She thereafter applied $15,000 of the funds to the trip to the United Kingdom, and the rest she spent on household expenses. Since the monies were all in her account, it follows inexorably that she directed the payments of these amounts. In the circumstances, as the applicant submits, the court can be satisfied, pursuant to section 122 of the Bankruptcy Act 1966 (Cth) (“Bankruptcy Act”), that Ms Birch was at least in part a creditor of Mr Birch.  It is clear that at the time the $93,000 was transferred to her, Mr Birch was insolvent.  This payment gave her a preference of a priority or advantage over the other creditors, and the payment on 4 July 2016 was made in the six months of the presentation of the debtor’s petition on 21 October 2016.

5. I further accept that, if this payment was not a preference, it was a voidable transfer of property without consideration under section 120 of the Bankruptcy Act. Mrs Birch gave no consideration for the transfer of the $93,000 to her. It is not put nor could it in any way be said to be any kind of repayment of the moneys she originally advanced. Rather, it was a convenient transfer of funds to be applied for the joint benefit of Mrs Birch and Mr Birch. Mrs Birch gave no consideration for it. Accordingly, since the payment was made within five years before the presentation of the Petition, the transaction would be void pursuant to section 120 in any event.

Legal principles

1. I received the benefit of very extensive and helpful submissions, both written and oral, in relation to the legal principles that might be said to bear upon the case.  I have of course had regard to those authorities.  In the end, however, it is my opinion that this case does not depend upon abstruse consideration of the detailed law into coordinate liabilities and the like.  It is, as I have endeavoured to explain, a case that falls wholly on its facts. 

Conclusion

1. The outcome of this case is a sorry one.  Mr Wilcox, who has lived in this house all his life, may find that, as a result of his kindness, as I would personally describe it, in assisting his niece and her husband may ultimately end up being dispossessed from the property in which he has always lived.  Although it is put that the outcome of the case may give rise to a payment to creditors, my own suspicion is that the main winner will in fact be the trustee.  It is not an outcome that I regard with any great happiness, but it is one which, in my view, the law imposes upon the circumstances.

2. It should be noted, and this is to her credit, that Mrs Birch expressly disavowed any liability on the part of Mr Wilcox, even though this would have reduced her own liability in any event.

3. I have drawn draft orders to reflect these reasons for judgment and will hear from the parties before making them final orders.

I certify that the preceding sixty-four (64) paragraphs are a true copy of the reasons for judgment of Judge Burchardt.

Associate: 

Date: 19 December 2019