Re Bird, Alex Neville (as Trustee of the Estate of Yiangos Arcadiou, a bankrupt) Ex parte M.& G. Casabene & Sons

Alex Neville Bird, as trustee of the estate of Yiangos Arcadiou, a bankrupt, sought an order that certain payments made by the bankrupt to M. & G. Casabene & Sons were void as against the trustee, as they had the effect of giving the respondent a preference priority or advantage over other creditors of the bankrupt. The application was made under s.122 of the Bankruptcy Act 1966, which provides that certain antecedent transactions may be avoided if they have the effect of giving a creditor a preference priority or advantage over other creditors, but only if the creditor was not a "payee in good faith". The trustee also sought to avoid the payments under s.123, which protects certain transactions against the doctrine of relation back, provided they took place before the date on which the debtor became a bankrupt, the creditor did not have notice of a petition against the debtor at the time of the transaction, and the transaction was in good faith and in the ordinary course of business. The respondent contended that they were payees in good faith and for valuable consideration and in the ordinary course of business, and that the payments were protected against the doctrine of relation back.

The court considered the meaning of "payee in good faith" and whether the respondent had discharged the onus of proving that they were such a payee. The court held that the onus of proving that the payment was made in good faith and for valuable consideration and in the ordinary course of business lay upon the respondent, and that sub-section (4)(c) of s.122 did not impose an onus on the respondent to negative the existence of any circumstances from which the court could infer that the respondent knew or had reason to suspect the debtor's insolvency and the preference. The court held that the respondent had discharged the onus of proving that the October 1976 payment of $4,000 was made in good faith and for valuable consideration and in the ordinary course of business, and that it was a payee in good faith within the meaning of s.122. However, the court held that the respondent had not discharged the onus of proving that the February 1977 payment of $2,500 was made in good faith and for valuable consideration and in the ordinary course of business, and that the inference that the respondent knew or had reason to suspect the matters specified in s.122(4)(c) (i) and (ii) should be drawn.

The court declared that the February 1977 payment of $2,500 was void as against the trustee and ordered the respondent to pay that sum to the trustee. The court also ordered that the trustee pay one third of the costs of the respondent of and incidental to the application, such costs to be taxed if not agreed. The costs so paid to the respondent and the taxed costs of the trustee of and incidental to the application may be recovered by the trustee from the estate of the bankrupt. Liberty was reserved to either party to apply.