Re Campbell, D.R. v Ex parte Burns, R.J.F.
[1991] FCA 439
•12 JULY 1991
Re: DOUGLAS RONALD CAMPBELL
Ex Parte: ROBERT JOHN FRED BURNS
And: DIANA PIERCY DANIELSON
No. X81 of 1989
FED No. 439
Bankruptcy
COURT
IN THE FEDERAL COURT OF AUSTRALIA
BANKRUPTCY DISTRICT OF THE STATE OF QUEENSLAND
GENERAL DIVISION
Spender J.(1)
CATCHWORDS
Bankruptcy - s.122 Bankruptcy Act - Payment from a solicitor's trust account of moneys secured from debtor - whether payment by debtor personally or by company - whether debtor insolvent at time of payment - whether made in good faith and in the ordinary course of business - provision of bill of mortgage by debtor shortly after impugned payment.
Bankruptcy Act 1966, s.122
HEARING
BRISBANE
#DATE 12:7:1991
Counsel for the applicant: Mr A.J.H. Morris
Solicitors for the applicant: Blake Dawson Waldron
Counsel for the respondent: Mr N.E. Ulrick
Solicitors for the respondent: Steindls
ORDER
The payment made on behalf of the debtor on 17 January 1989 to or for the benefit of the respondent of the sum of $47,965 constituted a preference within the meaning of Section 122 of the Bankruptcy Act 1966 and as such is void as against the applicant.
The respondent pay to the applicant the sum of $47,965.
The respondent pay the applicant's costs of and incidental to the application, including reserved costs, to be taxed if not agreed.
NOTE: Settlement and entry of orders is dealt with in Rule 124 of the Bankruptcy Rules.
JUDGE1
This is an application by Robert John Fred Burns, who is the trustee of the property of Douglas Ronald Campbell. On 14 July 1989, the creditors of Mr Campbell resolved that he be required to enter into a deed of assignment pursuant to the provisions of the Bankruptcy Act 1966 and that Mr Burns be appointed trustee. On 2 August 1989, Mr Campbell assigned all of his divisible property to Mr Burns as trustee.
In this application, Mr Burns seeks a declaration that the payment made on behalf of the debtor on 17 January 1989 to or for the benefit of Diana Piercy Danielson in the sum of $47,965 constituted a preference within the meaning of section 122 of the Bankruptcy Act 1966 and as such is void as against the trustee.
Sub-section 122(1) provides:
"A conveyance or transfer of property, a charge on property, or a payment made, or an obligation incurred by a person who is unable to pay his debts as they become due from his own money (in this section referred to as 'the debtor'), in favour of a creditor, having the effect of giving that creditor a preference, priority or advantage over other creditors, being a conveyance, transfer, charge, payment or obligation executed, made or incurred -
(a) within 6 months before the presentation of a petitin on which, or by virtue of the presentation of which, the debtor becomes a bankrupt; or
(b) on or after the day on which the petition on which, or by virtue of presentation of which, the debtor becomes a bankrupt is presented and before the day on which the debtor becomes a bankrupt, is void as against the trustee in the bankruptcy."
The relevant "relation back" period for the purposes of section 122 of the Act commenced on 14 January 1989, that is to say, six months prior to the 14 July 1989 when a special resolution was passed at the meeting of Mr Campbell's creditors requiring that he enter into a deed of assignment: sub-section 231(2)(a) and sub-section 115(1).
Before execution of the deed of assignment on 2 August 1989, Mr Campbell was connected with a number of corporate entities and also carried on business under a number of business names. Until 10 December 1988, Mr Campbell was a director and holder of one of the two issued shares in Beachdrift Pty Ltd. The holder of the other issued share was, and still is, Michael Joseph Murphy. Messrs Worcester and Co. maintained a trust account styled "Doug Campbell and Partners P/L". There was a company, Doug Campbell and Partners Pty Ltd, of which Mr Campbell was director, principal executive officer and shareholder.
On 28 February 1989, under the letterhead "Doug Campbell and Partners", below which appears "Incorporating Gatebury Constructions Pty Limited", Mr Doug Campbell, who described himself in that letter as Principal Director, wrote to creditors of Mr Campbell and Gatebury Pty Ltd. In that letter, he referred to a creditors' meeting and said:
"At the meeting you were briefly advised of my financial situation. I list below all assets owned by myself or my companies and detail where applicable the estimated gross and net values thereof."
The letter then set out a number of properties. The letter stated:
"I know my debt to you is a longstanding one. I regret that. However, in the interest of seeing you recover 100 cents in the dollar, I request that you temporarily refrain from enforcing recovery action against me to enable me to effect an orderly sale of my assets so that we can both enjoy the end benefit."
The penultimate paragraph of that letter stated:
"As discussed at the meetings, it is my intention to pay the nett proceeds of the sale of my assets and recovered judgment (if any) to my solicitor's trust account for dispersal to you and your fellow creditors on a pro-rata basis calculated on the percentage that your debt constitutes in proportion to my total indebtedness. "
On 10 December 1988, Mr Campbell, by written agreement, transferred to Mrs Laurel Ann Murphy, the wife of Michael Joseph Murphy his share in Beachdrift Pty Limited for $129,562.60 and the same day executed a stamp duty declaration. Pursuant to that agreement, the purchase price was to be paid by Mrs Murphy to Mr Campbell by paying $50,000 on 11 January 1989, $50,000 on 31 January 1989 and $29,562.60 on 30 September 1989. The first instalment of that purchase price was paid into the trust account styled "Doug Campbell and Partners P/L" held by Messrs Worcester and Co.
On 17 January 1989, by a cheque drawn on that trust account, $47,965 was paid to the respondent, Ms Danielson. It is this payment which is the subject of this present application.
On 22 November 1989, Messrs Steindls on behalf of Ms Danielson forwarded a proof of debt in Form 15 to Mr Burns, which was accompanied by a copy of a bill of mortgage, dealing number J973982L. Messrs Steindls advised that the property the subject of the mortgage had been sold by the first mortgagee and that there had been insufficient funds to pay out the first mortgagee, let alone Ms Danielson who was the third mortgagee. In that proof of debt, four items are referred to as follows:
Date of
Transaction Consideration or Nature of Debt Amount Vouchers (If any)
31. 8.88 Interior Design Services 4,900 292 10.12.88 " 52,000 429 31.12.88 " 21,000 601
26. 1.89 " 74,600 605
The bill of mortgage is dated 26 January 1989, some nine days after the payment of the $47,965 with which this application is concerned. Consideration for the mortgage was said to be the sum of $152,500, which is the sum of the various items referred to in the statement of account in the proof of debt.
On 24 November 1989, Messrs Steindls, on behalf of Ms Danielson, wrote to the trustee in these terms:
"RE: DANIELSON and D R CAMPBELL (DEBTOR) As requested, we are enclosing copies of the invoices from Perspective Interior Design."
Under the letterhead "PERSPECTIVE interior design" and dated 31 August 1988 is an invoice numbered "292", directed to "Mr Doug Campbell T/as Gatebury Pty. Ltd. and Doug Campbell and Partners, Seabank Building, Level 5, Marine Parade, Southport 4215", and headed: "FEE FOR DESIGN SERVICES - SEABANK BUILDING OFFICES DOUG CAMPBELL and PARTNERS" and is in the amount of $4,900. On a similar letterhead is an invoice numbered "601", dated 10 December 1988, addressed as before, and headed "FEE FOR DESIGN SERVICES - RESIDENCE - JAMES STREET, CURRUMBIN HILL PERIOD: April 1988 to December 1988" and is in the amount of $15,000. There is a similar invoice numbered "605", dated 26 January 1989, similarly addressed and which is headed "FEE FOR HOURLY CONSULTATIONS COVERING OVERALL FOLLOW UP AND CO-ORDINATION OF PROJECTS: June 1988 to January 1989" in an amount of $74,600. The material forwarded also includes a statement dated 27 January 1989, addressed as the invoices were and headed "STATEMENT - JANUARY 1989". It then sets out each of the four items that are referred to in the statement of account in the proof of debt, but no other invoice. There is nothing shown in the credits column of that statement. In particular, there is no reference to receipt of $47,965 on or about 17 January 1989.
A copy of the invoice numbered 429 in the sum of $52,000 does not appear in the material forwarded to the trustee on 24 November 1989. The amount for invoice No. 601 shown on the January statement is $21,000, whereas the invoiced amount is $15,000. However, a copy of invoice 429 was later produced to the trustee by Messrs Worcester and Co., in circumstances referred to later.
The various invoices and statement of account are not such as to make it plain whether the debt was owed by Mr Campbell personally or to the company Gatebury Pty Ltd, or perhaps even to Doug Campbell and Partners Pty Ltd. It is clear that the debt was secured by a bill of mortgage granted by Mr Campbell personally. If the debt was not personally owed by Mr Campbell, but was paid out of his moneys, it would be voidable as a voluntary disposition.
Ms Danielson graduated from the New York School of Interior Design in 1967 and worked extensively as an interior designer from late 1987 until January 1989. She is the principal of Perspective Interior Design, a registered business name of which she is the proprietor. The business commenced trading in 1987. In an affidavit filed in court during these proceedings and sworn on 12 June 1991, she swears that:
" From about late 1987 until January, 1989 I did considerable work for the abovenamed Debtor Douglas Ronald Campbell particulars of which are set out in Invoices some of which are contained in exhibit 'RJFB-11' to Mr. Burns' Affidavit; the amounts therein are fair and reasonable."
She further swore:
" Prior to my carrying out any work for the Debtor I was aware that there were two other names associated with the Debtor and his business: Gatebury Pty. Ltd. and Doug Campbell and Partners, but I knew little about these entities other than I supplied staff through my employment agency to Gatebury Pty Ltd. Each time I did any of the work referred to in the said Invoices, the Debtor himself requested me to carry out such work, and all of the time I dealt directly with the Debtor himself."
As is not unusual, there was no clear and precise demarcation in the conduct by Mr Campbell between his own personal affairs and those of businesses of corporate entities connected with him. It seems that laxity is shared by Ms Danielson in her dealings with Mr Campbell. Having regard to Ms Danielson's own statements and the nature of the invoices, I think it right to proceed on the basis that amounts owing to Ms Danielson were personal debts of Mr Campbell.
My view is supported by the terms of a letter dated 2 January 1989 written by Ms Danielson to Mr Campbell. It was addressed to "Doug Campbell and Partners, P.O. Box 2870, Southport, 4215" for the attention of Mr Doug Campbell, and commenced:
"Dear Mr Campbell,
I refer to our account, invoice no. 429 dated 10 December
1988. I fully realise you are having certain financial difficulties, but my company is also in a similar position. As you are well aware a considerable amount of work has been completed for you and has extended up to six months. I have been advised by my solicitors that it is now imperative that some payments be made to allow my company to survive, otherwise they will have to take immediate action on my behalf to recover the outstanding debts. I would appreciate your answer by Wednesday. Yours faithfully,
PERSPECTIVE INTERIOR DESIGN
Diana Danielson
Consultant"
The letter was signed by the respondent. Enclosed with the letter was Invoice No. 429, addressed to "Mr Doug Campbell, T/as Gatebury Pty. Ltd., Doug Campbell and Partners, Level 5, Seabank Building, Marine Parade, Southport, 4215" and is headed: "FEE FOR DESIGN SERVICES PALM BEACH RESORT March-September 1988" and is in the sum of $52,000.
A copy of this important letter was forwarded to the trustee in response to a leter by him to Messrs Worcester and Co. dated 8 February 1990, wherein he asked:
"Further, from your Trust Account Ledger, there was a payment made on the 17th January 1989, for an amount of $47,965.00 payable to Diana Danielson and with the notation underneath of 'Settlement moneys'. Would you please advise me what this payment related to".
On 26 February, Messrs Worcester and Co. wrote to Messrs Brown Burns and Co., in the following terms:
"RE: DOUGLAS DONALD CAMPBELL
In response to your letter dated the 8th February 1990 we enclose the following:-
1. copy Matter Investment Card - file A1480;
2. copy Trust Creditor Ledger Card - file A1480;
3. copy letter Perspective Interior Design to Doug Campbell and Partners dated the 2nd January, 1990;
4. Copy Invoice Perspective Interior Design to Doug Campbell dated the 10th December, 1988 ."
The giving by Mr Campbell of a mortgage in the sum of $152,500 is also consistent with the recognition by both Mr Campbell and Ms Danielson that the work done by her was a debt personal to Mr Campbell.
I note, however, that on 5 April 1990, the trustee issued a notice of rejection of proof of debt in respect of the lodged proof in the sum of $152,500. The basis of Mr Burns' rejection was that:
"The documentation provided shows that you are dealing with the abovenamed in his capacity as a Director of Gatebury Pty Ltd and not personally."
Gatebury Pty Ltd was placed in provisional liquidation on 31 May 1989 and official liquidators were subsequently appointed on 17 July 1989. Mr Neil Summerson of Messrs Ernst and Young reported that the report as to affairs of that company showed a net deficiency in the order of $1.7 million, but he expressed the opinion that the deficiency would be materially greater than that shown.
On 14 July 1989 Mr Campbell swore that the Statement of Affairs was to the best of his knowledge and belief a true and complete statement of his affairs as at 12 July 1989. That statement of affairs listed as one of his secured creditors, Perspective Interior Design in the sum of $152,500.
Although the payment was made from a trust account held by Messrs Worcester and Co. in the name "Doug Campbell and Partners P/L", I am satisfied that the money in that account was Mr Campbell's. The evidence establishes that the funds paid into that trust account represented the proceeds of sale of a share in Beachdrift Pty Ltd which was owned by the debtor personally and which was sold by him to Mrs Laurel Ann Murphy. The evidence also establishes that a further payment of $50,000 from that share sale was paid into that trust account on 1 February 1989 and was transferred from that trust account on account of anticipated costs and outlays by them in relation to an action by Mr Campbell personally against a company, Coastcosie Pty Ltd. The balance of the part-payments for the shares which had been paid into that account were paid out to Worcester and Co.'s general account on account of professional costs, which I infer were costs in respect of dealings by that firm on behalf of Mr Doug Campbell.
I am satisfied the payment to Ms Danielson was a payment by or on behalf of Mr Campbell. In my opinion, the moneys held in Messrs Worcester and Co.'s trust account styled "Doug Campbell and Partners P/L" were Mr Campbell's own moneys, and I infer that the moneys remained at Mr Campbell's disposal whilst they were in that account. In my view, Ramsay v National Bank Australia Ltd. 13 ACLR 732 does not, on the facts of this case, assist the respondent.
The evidence establishes that the payment was made within the relation back period. I am satisfied that at that time and at all times during that relation back period, Mr Campbell was insolvent. In my opinion, Ms Danielson received a "preference priority or advantage" over other creditors as a result of the payment. She says, however, that the payment was made in good faith and in the ordinary course of business.
I reject this claim. It is wholly inconsistent with her letter of 2 January 1989. It is inconsistent with the giving by Mr Campbell personally of a bill of mortgage over his personal residence in the sum of $152,500, the bill of mortgage being dated 26 January 1989.
The nature of the relationship between Mr Campbell and Ms Danielson is not irrelevant to the character of the payment made on 17 January 1989. Ms Danielson gave oral evidence in which she admitted a close relationship with Mr Campbell, and having lived in a unit with him from May till early September 1990. She said in her evidence that in January 1989, she "realised that Mr Campbell was unable to pay that account at that particular time". I am satisfied that she not only suspected that Mr Campbell was unable to pay his debts as they became due, but that she knew that was the case: c.f. Queensland Bacon Proprietary Limited v Rees 115 CLR 266.
In her evidence, Ms Danielson sought to advance that the $47,965 was payment in respect of work which was not the subject of the invoices earlier referred to, but of a separate invoice. She said that at least some entry pointing to the existence of this missing invoice could be found in a book that was in her possession, but the book was not produced nor was any adjournment sought so as to enable its production.
I have to say that her evidence in this respect and in respect of other contentious matters was quite unconvincing. The closeness of her relationship with Mr Campbell, the letter of 2 January 1989 and the circumstance of Mr Campbell's providing a bill of mortgage over his residence to Ms Danielson in January 1989, and her oral evidence all leave me quite unpersuaded that the payment of $47,965 made to Ms Danielson on 17 January 1989 was made in good faith and in the ordinary course of business.
I declare that the payment made on behalf of the debtor on 17 January 1989 to or for the benefit of the Respondent of the sum of $47,965 constituted a preference within the meaning of Section 122 of the Bankruptcy Act 1966 and as such is void as against the applicant. I order that the respondent pay to the applicant the sum of $47,965.
In an affidavit by Ms Danielson, sworn on 12 June 1991 and filed on 20 June 1991, she requests leave to extend the time within which to challenge the rejection of her proof of debt on 5 April 1990 by the trustee. In that affidavit, Ms Danielson says that she did not make an application on receipt of that rejection, or thereafter, because she did not believe that creditors of Mr Campbell would receive anything from his estate. She says that she became aware that creditors would receive about 17.5 cents in the dollar from a draft affidavit of Mr Burns in these proceedings. Because of the lateness of this application, and the lack of opportunity on the trustee's part to consider his portion in relation to it, I do not consider it appropriate to deal with that aspect of the matter on this material. It should be understood that the orders that I make on this application are made without in any way seeking to prevent the respondent from making such application on proper material as she may be advised.
The respondent should pay the applicant's costs of this application, including any reserved costs, to be taxed if not agreed.
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