Palmer as trustee of the Bankrupt Estates of Frank Capocchiano, Italia Capocchiano v Capocchiano

The applicants, Palmer as trustee of the bankrupt estates of Frank Capocchiano and Italia Capocchiano, sought to recover a sum of money from the respondent, Capocchiano. The dispute concerned the proper characterisation of a payment made by the bankrupts to the respondent, and whether that payment constituted a preference that could be clawed back under the provisions of the *Bankruptcy Act 1966* (Cth). The matter was heard in the Federal Court of Australia.

The primary legal issue before the Court was whether the payment made by the bankrupts to the respondent was an unfair preference within the meaning of section 122 of the *Bankruptcy Act 1966* (Cth). This required the Court to determine if the payment had the effect of placing the respondent in a position that would have been better than if the payment had not been made and the respondent had proved for the debt in the bankruptcy. The Court also had to consider whether the respondent received the payment in good faith and without notice of the bankrupts' insolvency.

Judge Manousaridis reasoned that the critical question was the "better position" test. The Court examined the circumstances surrounding the payment, including the timing and the financial position of the bankrupts at the relevant time. His Honour found that the payment did indeed place the respondent in a better position than if they had lodged a proof of debt in the bankruptcy. The Court applied the principles established in cases concerning unfair preferences, focusing on the effect of the transaction on the creditor's position relative to other unsecured creditors.

The Court ordered that the payment made by the bankrupts to the respondent was an unfair preference and that the respondent was liable to repay the sum to the trustee.