Re Bird, A.N. v Ex Parte Gregoriades, N.C

[1980] FCA 9

CATCHWORDS -

Bankruptcy A c t 1 9 6 6 , s.123 - payee havlng fa l led

t o p r o v e t h a t h e was a payee i n t he o rd ina ry

course of business, payment having been received

as a r e s u l t of a l e t t e r of demand from the

p a y e e ' s s o l l c i t o r s and f rom the i s sue ;.nd service

of a County Court summons, payee no t p ro tec ted

a g a i n s t t h e d o c t r i n e of r e l a t lon back . Accordmgly ,

payment declared void as a g a l n s t t h e t r u s t e e of

t h e es ta te of the bankrupt .

RE: ALEX NEVILLE B I R D ( a s T rus t ee o f t he Es t a t e

of YIANGOS ARCADIOU)

EX PARTE: N . C . GREGORIADES

SWEENEY J.

19 DECEMBER 1 9 7 9

I N THE FEDERAL COURT OF AUSTRALIA

GENERAL D I V I S I O N No. 6 8 of 1 9 7 7

BANKRUPTCY D I S T R I C T OF THE

STATE OF VICTORIA

RE: ALEX NEVILLE BIRD (as T r u s t e e

Y	-	IANCOS
ARCADIOU)

PARTE: EX N.C. GREGORIADES

- ORDER

JUDGE MAKING ORDER: SWEENEY J.

WHERE MADE: MELBOURNE

DATE OF ORDER: 1 9 DECEMBER 1 9 7 9

THE COURT DECLARES THAT:

T h e payment of $ 2 0 0 9 . 0 0 made by t h e bankrup t t o t h e

respondent on 7 D e c e m b e r 1 9 7 6 1s vold as aga lns t t h e

appl icant as t rus tee of t h e p rope r ty of the b a n k r u p t

and orders t h a t t h e respondent pay t o t h e a p p l i c a n t

t h e sum of $ 2 0 0 9 . 0 0 , together w l t h h l s costs of and

I n c l d e n t a l t o t h e a p p l i c a t i o n , l n c l u d i n g reserved

costs , such costs t o be taxed I f n o t agreed. L l b e r t y

i s reserved t o e i t h e r p a r t y t o apply.

IN THE FEDERAL COURT OF AUSTRALIA

GENERAL DIVISION

No. 68 of 1977

BANKRUPTCY DISTRICT OF THE

STATE OF VICTORIA

Re: Alex Nevllle Bird (as trustee

of the Estate of Ylangos Arcadiou

Applicant

N.C. Gregorlades

Respondent

REASONS FOR JUDGMENT

C.A. Sweeney J.

19 December, 1979

In this appllcatlon, as amended by leave, Alex

Nevllle Blrd as trustee of the estate of Ylangos Arcadlou, a bankrupt, seeks the followlng declaratlons and orders:

“(a) That payment made by the bankrupt to

the Respondent N.C. Gregorlades belng

one payment of $2,009.00 made on or

about the 7th day of December, 1976 is

void as against the applicant as trustee

of the property of the bankrupt as bclng

payment having the effect of glving the

respondent a preference prlorlty or

advantage over credltors of the bankrupt, or alternatively by virtue of the Bankruptcy of the Bankrupt havlng been deemed to have

relation back to the 20th September, 1976.

(b) An order that the respondent pay to the applicant the sum of $2,009.00.“

The respondent in hls notlcc of oppositlon, as

amended by leave, relied on the followlng grounds:

“1.

That the payment made by the bankrupt

to the Respondent on or about the

6th December, 1976, of the sum of $2,009

in respect of accountancy fees was

recelved by hln In good falth, for

valuable conslderation and In the ordinary

course of his business and the said

payment was recelved by the Respondent

as a creditor.

. . . / 2

2.

2. Tha t t he s a ld payment 1s p r o t e c t e d

by t h e p r o v i s i o n s of s .123 of t h e

Bankruptcy A c t 1 9 6 6 ,	a s amended,	I n
t h a t :

(a ) It was made b e f o r e t h e d a t e on

whlch the bankrupt	was	made
bankrupt;

(b) the person wi th whom It took

p l ace o the r t han t he bankrup t

d id no t have no t l ce o f t he

p r e s e n t a t i o n o f t h e p e t i t i o n

of the bankrupt ;

(c ) t h e t r a n s a c t l o n was i n good

f a i t h and	i n t h e o rd lna ry
course of	bus iness .

3 . The r e s p o n d e n t d e n i e s t h a t t h e a c t o f

bankruptcy a l leged by t h e a p p l l c a n t I n

paragraph (a ) of t h e a p p l l c a t l o n a s

amended took place. 'I

Counse l for the respondent , Mr Radford, conceded

dur ing the course of t h e hearing t h a t t h e a c t o f b a n k r u p t c y

r e l i e d upon by t h e a p p l l c a n t had taken p lace .

The a p p l i c a n t was t h u s able t o e s t a b l l s h t h a t t h e

bankruptcy of t h e b a n k r u p t s h a l l be deemed t o h a v e r e l a t l o n

back t o , and t o have commenced a t , t h e tlme o f t h e c o m l s s i o n

of the admlt ted act of bankruptcy on 2 0 September 1 9 7 6 , which

was commit ted wlthin the per lod of s i x months immedlately

precedlng 17 March 1 9 7 7 , t h e d a t e on whlch h l s own 2 e t l t l o n

was presented (see Bankruptcy A c t 1 9 6 6 , S . 1 1 5 ( 2 ) (a)).

Under s . 1 2 3 ( 2 ) the burden rests upon the respondent

of p r o v i n g t h e f a c t s g i v i n g r lse t o t h e p r o t e c t l o n p r o v l d e d

by t h a t sect ion a g a l n s t t h e o p e r a t i o n of t h e d o c t r l n e o f

r e l a t i o n b a c k . One of t h o s e f a c t s was t h a t t h e t r a n s a c t l o n

was l n t h e o r d i n a r y c o u r s e of bus lness (see sub-sec. (1) ( g ) ) .

The respondent , I n h l s a f f l d a v l t , g a v e t h e f o l l o w i n g

account of h i s d e a l l n g s w l t h t h c bankrupt:

. . . / 3

3.

“ 2 . I first commenced to act as accountant

for the bankrupt, Mr. Arcadlou, In

March, 1975, at which tlme he consulted

me wlth a view to seeklng my assistance

in the preparation of Income Tax Returns

for the financial years 1969/70 to 1974/75.

3.Prlor to hls consultmg me I had known

Mr. Arcadiou both in Cyprus, from whlch

country we both orlginatc, and In Vlctorla, but only on a superficlal level and not as a personal friend. Although Mr. Arcadlou

had a reputation In the Cypriot communlty

as bemg a successful builder, I had no

knowledge of his financial affalrs.

4.After the inltial Interview with Mr. Arcadlou, save for the preparatlon of a Statement of

Assets and Llabillties, I was not myself

directly responsible for the preparatlon of the Income Tax Returns, thls task being

delegated to a member of my accountlng staff,

Mr. Dimos Dlmosthanous. The cash books were

prepared by some of my secondary staff. Although

I was not responslble for preparation of the

Income Tax Returns, I personally checked them

before they were given to Mr. Arcadlou for

slgnature.

5.From the tlme that I commenced to act for

Mr. Arcadlou until his payment of my account

in December, 1976, I belleved hlm to be In a

flnanclllly sound position. I was nelther

told nor heard by way of rumour that he was

unable to pay his debts. My belief that

Mr. Arcadiou was In a sound flnanclal posltion

was relnforced by two factors: flrstly, his

Income Tax Returns had consistently shown that

he was tradlng profltably -

Financlal year endlng June 1973

Net taxable proflt	$4,628.00
Net taxable Income	$4,236.00

June 1974

Net taxable profit	$6,129.00
Net taxable lncome	$5,569.00

. . /4

4.

June 1975

Net taxablc proflt $ 1 6 , 8 5 9 . 0 0

Net taxable income $19,364.00

and as at the 27th November, 1975, as a r e su l t

of lnformatlon supplled to me by Mr. Arcadlou,

I belleved that he was possessed of net assets

In the sum of $399,159.00. NOW produced and

shown to me at the time of swearlng thls my

affidavlt and marked wlth the letter "A" 1 s a

copy of the Statement of Assets and Llablllties.

I am unable to produce co?les of Income Tax

Returns for the five years ended June, 1970, to

June, 1974, as the same were taken from me by

representatlves of the Applicant on the 1st

February, 1979. Now produced and shown to me

at the tlme of swearing this my affidavit and

marked wlth the letter "B" 1 s an acknowledgement

by one of the Applicant's representatlves of

having taken from me the documents thereln set

forth.

6.

Income Tax Returns for the flnanclal years ended about August, 1975, and an account was sent to

Mr. Arcadlou wherein I sought payment of $1,285.00.

Subsequently, the Income Tax Return for the year ended June, 1975, was lodged and the account together wlth the letter dated the 7th September,

1976, referred to In paragraph 4 of the Affldavit

of Ylangos Arcadiou sworn the 19th March, 1979,

was forwarded to hlm. As payment was not

immediately forthcomlng I telephoned Mr. Arcadlou

on a number of occasions and inqulred of hlm why

he had not pald. He told me that he was very

busy and had slmply not found the time to slt

down and write out a cheque. At no stage dld he

intimate that he was flnanclally insecure.

7. Notwlthstanding my telephone calls Mr. Arcadlou

did not pay me, and accordlngly I lnstructed my

solicitors to issue legal proceedings to enforce

payment. This was my normal practice in respect

of debts outstanding for thls length of tlme."

An account for work done by the respondent In 1975

for the bankrupt, claimlng the amount of $1285.00 was sent to

him ln January 1976. Further work was done for the appllcant

ln 1976 and on 7 September 1976 a letter	was written to hlm
in which the respondent sald:

. . . / 5

5

"Enclosed herewlth we forward our account

for fees showing a total amount owlng of

$2009. Part of this amount (eg. $1285)

was owing for OVER ONE YEAR now and,

although we provided prompt and efflcient service for your accountlng needs we haven't had the satisfaction of recelving any

payment from you.

Although an unpleasant step to take we must glve you notice that unless our account 1 s promptly pald in full our sollcltors will be instructed to take

legal proceedings for recovery."

The enclosed account, also dated 7 September 1976,

read as follows:

"-Writing up of Cash Analysls Book and

Bank Reconclliatlon.

-Preparation of final accounts and lodgement

of 1975 Income Tax Returns.

$ 7 2 4 .OO

-Balance outstanding as 1285.00

at 4/9/76

$2009.00"

Despite this letter and ear1lc.r wrltten and

telephoned remlnders, no payment was recelved by the res2ondent

until after the bankrupt had been served wlth a County Court

summons lssued by the respondent In respect of hls account.

The property dlvislblc amongst the bankrupt's

creditors by reason of the provlslons of s.116 lncluded the

amount of $2009 paid by hlm to the respondent on 7 December 1976,

unless the respondent discharges the burden placed upon him by

s.123(2) of proving, amongst other thlngs, that the transactlon

was In good faith and in the ordlnary course of busmess.

. . . /6

In my oplnlon, followlng such cases as Re Balley,

ex parte Law and Austin ( 1 9 5 2 ) 1 6 A.B.C. 80 ; Commlns v.

I. L R. Spies Investments Pty. Ltd., re Hoare (1972-1973

A.L.R. 11341, the respondent has clearly falled to show that the transaction was in the ordlnary course of buslness. Indeed,

I am satisfied on the evldence that It was not, as It clearly

resulted from the efforts of the respondent's sollcltors ln

wrlting a letter of demand and lssulng and servlng upon the	'
bankrupt a County Court summons.

It is not necessary to conslder the questlon whether

the respondent was a payee In good falth withln the meanlng of

s .123 , or the claim of the applicant based upon s.122.

The Court declares that the payment of $2009 .00 made

by the bankrupt to the respondent on 7 December 1 9 7 6 is vold

as against the applicant as trustee of the property of the

Lnkrupt and orders that the respondent pay to the appllcant

the sum of $2009.00 , together with his costs of and incldental

to the appllcation, lncludlng reserved costs, such costs to be

taxed If not agreed. Llberty 1 s reserved to elther party to

apply.