Re Crawford, J.L. Ex Parte Adcock, R.T. & Anor

Re: JOHN LESLIE CRAWFORD
Ex parte: ROBERT THOMAS ADCOCK
And: TANALAW PTY. LTD.
No. Q B592 of 1989
FED No. 1002
Number of pages - 15 Bankruptcy

COURT

IN THE FEDERAL COURT OF AUSTRALIA

BANKRUPTCY DISTRICT OF THE STATE OF QUEENSLAND
GENERAL DIVISION
Drummond J.(1) Bankruptcy - application by trustee for vesting order under s. 139D of Bankruptcy Act 1966 against company controlled by bankrupt - finding that company acquired real property as an indirect result of the supply of personal services by bankrupt - order that property vest in trustee on trust for trustee and the company as tenants in common in appropriate shares.
Bankruptcy - application by trustee for payment order under s. 139E of the Bankruptcy Act 1966 against company controlled by bankrupt - finding that company received funds as consideration for personal services supplied by bankrupt to third party - company ordered to pay amount to trustee.
Bankruptcy Act 1966 (Cth) - ss. 139D, 139E, 139F and 139G

HEARING

BRISBANE, 6 November 1992

#DATE 10:12:1992

Counsel for the applicant: D.C. Andrews

Solicitors for the applicant: Bayliss Rodgers

No appearance for the respondent.

ORDER

THE COURT ORDERS THAT:

1. The estate of Tanalaw Pty. Ltd. A.C.N. 010 877 353 ("the

company") in land described as Lot 4 on registered plan No. 192093 in the County of Ward Parish of Numinbah containing an area of 3.921 hectares and being described in Certificate of Title Volume 6556 Folio 225 and being situated at Lot 4 Lowry Court, Neranwood in the State of Queensland be vested in the applicant on trust for himself as trustee of the estate of the bankrupt, John Leslie Crawford, and on trust for the company, as tenants in common, for a 26,986/100,000 and a 73,014/100,000 share respectively.

2. (a) If the applicant and the company can agree on a

sum being the value as at 10 December, 1992 of a 26,986/100,000 share in the fee simple in the land less the amount secured by the mortgage as at 10 December, 1992, the company has liberty to purchase the estate's share by a payment to the applicant of that agreed sum by the fifteenth day of January, 1993.

(b) In the event that the company purchases the estate's share by 15 January, 1993, the applicant shall do all things necessary on his part to procure cancellation of the registration, if any, of this vesting order.

3. In default of such payment, the directors of the company, by

the eighteenth day of January, 1993:

(a) execute on behalf of the company all such documents as may be tendered to them by the applicant; and

(b) produce to the Registrar of Titles all such documents as are in the power or control of the company

which are necessary to give effect to this vesting order and to enable registration of the applicant as trustee in accordance with this vesting order.

4. The company pay to the applicant as trustee of the estate of

the bankrupt, John Leslie Crawford, TWENTY THREE THOUSAND TWO HUNDRED AND TWENTY DOLLARS ($23,220.00).

5. The company pay the applicant's costs of and incidental to

this application to be taxed.

6. The applicant and the company have liberty to apply.

NOTE: Settlement and entry of orders is dealt with in Rule 124 of the Bankruptcy Rules.

JUDGE1

EX TEMPORE REASONS FOR JUDGMENT - 6 NOVEMBER, 1992

DRUMMOND J. The trustee in bankruptcy of Crawford applies against Tanalaw Pty. Ltd. for an order under s. 139D(2) of the Bankruptcy Act 1966 (Cth) vesting in the trustee the whole of Tanalaw's estate in the land in certificate of title volume 6556 folio 225, a copy of which certificate of title is exhibit 1. Tanalaw was served with the papers in these proceedings but did not appear. Tanalaw's interest in this land is, in effect, an estate in fee simple subject to a registered mortgage in favour of the successor to the vendors of the land to Tanalaw. Alternatively, the trustee seeks an order under s. 139E(2) that Tanalaw pay to him the sum of $50,000.00.

The evidence shows that Crawford acquired a shelf company, incorporated under the name Tanalaw, for his use in December 1988. He arranged for an accountant, Doyle, who acquired the company for him and for Crawford's daughter, then 21 years old, to be the directors. When Crawford's son turned 18 in February 1989, Doyle resigned and Crawford's son replaced him as second director. On 5 July 1989, a sequestration order was made against Crawford. In late 1989, one Backshall, who wanted to market a property development on the Gold Coast, entered into an arrangement with Crawford to attend to the marketing of the development owned by Backshall's company, Austcorp Holdings Pty. Ltd. His arrangement with Crawford was that Crawford would receive for his efforts a share in the profits earned from the marketing of the development in the form of a 30% shareholding in Austcorp. But the shares were to be taken up by Tanalaw, not by Crawford.
Backshall at one stage became aware that the directors of Tanalaw were Crawford's children and that Crawford was an undischarged bankrupt, but it was Crawford alone with whom he dealt. He never had any business dealings with Crawford's children, although he did meet them on a number of occasions.
In the latter half of 1990, Backshall and Crawford agreed to terminate their business relationship on terms that included Backshall arranging to pay to Crawford $50,000.00 for his efforts to that time. The way this termination agreement was implemented was that Tanalaw transferred its shareholding in Austcorp back to Backshall in return for a payment from him of $50,000.00. The arrangement between Crawford and Backshall was thus that it would be only Tanalaw that would be remunerated for the supply of Crawford's services.
The trustee's application is based upon the payment of the $50,000.00 to Tanalaw and upon what Tanalaw did with this money.
I am satisfied so far that Crawford supplied personal services to Backshall's organisation on behalf of Tanalaw during the examinable period and that Crawford then controlled Tanalaw in relation to the supply of those services. The requirements of s. 139D(1)(a) are thus satisfied.
I am also satisfied that Crawford himself received for those services no remuneration in money or other property. The requirements of s. 139D(1)(b)(i) are thus also satisfied.
The next element in the trustee's claim to relief under s. 139D requires proof that during the examinable period Tanalaw acquired an interest in particular property - here the land described in exhibit 1 - as a direct or indirect result of, or of matters including, the supply by Crawford of those services to Austcorp on behalf of Tanalaw.
In about August 1990, that is, at the time Backshall paid the $50,000.00 to Tanalaw at Crawford's instigation, Crawford contacted a real estate agent, Norman, on the Gold Coast whom he knew, to ask if she had a block of land in the Gold Coast Hinterland for sale in the $50,000.00 to $60,000.00 price range. She ultimately showed him the land now the subject of this application which was then on the market for about $100,000.00. The owners, the Booths, ultimately accepted Crawford's offer and a contract was prepared, although Norman recalls little about the details of the contract. She does recall, however, that it was Crawford who paid the deposit of $5,000.00 on the purchase to her.
Chalmers, the solicitor for the Booths, says that settlement of this transaction whereunder Tanalaw agreed to buy the property for $100,000.00 took place on 28 August, 1990. On settlement, he says he received the following: firstly, a cheque for $54,848.14, being part payment of the purchase price; secondly, a cheque for $78.00 for mortgage release fees; thirdly, a cheque for $754.50 on account of costs and outlays in respect of the mortgage; and, fourthly, a cheque for $2,350.00 for stamp duty.
Chalmers also says that the balance of the purchase price, presumably after taking into account the $54,848.14 and the $5,000.00 deposit and adjustments on settlement which are not revealed in the evidence, was secured by a mortgage over the land referred to in exhibit 1 granted by Tanalaw to the Booths.
Morris, an officer of the ANZ Bank, says that on 10 August, 1990, $50,000.00 was withdrawn from an account in which Backshall was interested and was paid into an account in the name of Tanalaw on 15 August, 1990. He also says that on 27 August, 1990, the day before the settlement of the property purchased by Tanalaw from the Booths, the $50,000.00, together with accrued interest of $206.96, was withdrawn from this Tanalaw account and that a further sum of $30,523.62 was withdrawn from a second Tanalaw account. Morris says that on the same day bank cheques were purchased out of these funds of $50,206.96 and $30,523.62 in amounts of $2,353.50 and $55,163.96. The cheques are in evidence. They are, in fact, for $2,350.00 in favour of the Commissioner of Stamp Duties and for $55,160.46 in favour of the trust account of the solicitors acting for Tanalaw in connection with its purchase from the Booths. The $3.50 difference between the face value of each cheque and the amount ascribed to it by Morris is, no doubt, some form of bank charge. Morris also says that on 27 August, 1990 the balance of the $80,730.58 drawn that same day in the two amounts I have referred to from the two Tanalaw accounts, namely $23,213.12, was paid into a third Tanalaw account.
It is not clear, however, on the evidence before me how much of the $50,206.96 comprising the moneys received by Tanalaw from Backshall, for Crawford's services to Backshall, was used to procure the bank cheque of $2,350.00 and the bank cheque of $55,160.46 which was paid into the trust account of the solicitors for Tanalaw and which was the source of all, save a few hundred dollars, of the funds paid over by those solicitors to Chalmers on 28 August, 1990 on completion of the purchase of the land in question by Tanalaw from the Booths.
On the evidence before me, it would appear to be impossible to throw any further light on this particular matter.
However, of the $57,517.46 which was used by Tanalaw on 27 August to procure the two bank cheques making up the funds required to enable it to complete the purchase of the land, on the evidence, at the very least, $57,510.46 less $30,523.62, that is, $26,986.84 must have come from the $50,000.00 plus interest that was paid to Tanalaw by Backshall on account of Crawford's services. There is no basis for a finding that any greater part of the $50,000 plus accrued interest was used by Tanalaw in acquiring the land in question.
So far as s. 139D(1)(c) is concerned, Tanalaw did not acquire an estate in the Booths' land as a direct result of the supply by the bankrupt of his services to Backshall: Tanalaw did not acquire the Booths' property in return for the provision by Crawford of those services to Backshall.
However, Tanalaw did acquire the Booths' property as an indirect result of the supply by Crawford of those services to Backshall in that his supply of the services resulted in the acquisition of moneys by Tanalaw from Backshall of which moneys at least $26,986.84 was expended by Tanalaw in buying the Booths' property. The requirements of s. 139D(1)(c) are also satisfied.
As to the $5,000.00 deposit moneys paid by Crawford in connection with the acquisition by Tanalaw of this land, there is nothing in the evidence that shows that those moneys were acquired by Tanalaw as a result of Crawford's services to Backshall. There is no basis on the evidence for bringing the $5,000.00 into account in favour of the applicant in making an order under s. 139D(2).
Since it was a payment made by Crawford after he was adjudicated bankrupt, there may well be some other basis upon which the trustee could make a claim on Tanalaw in respect of this $5,000.00, but the evidence throws no light at all upon the source of these moneys and, in particular, whether they are Tanalaw's own moneys that came to it independently of any activities of Crawford or whether they are moneys acquired by Crawford in circumstances in which the title to those moneys would have vested in the trustee.
As to s. 139D(1)(d), I am satisfied, on the basis of paragraphs 2, 3, 10, and 13 of Stewart's first affidavit, that Crawford used or derived a benefit from the property referred to in exhibit 1 during the examinable period when he controlled Tanalaw, the owner of the property. I am satisfied that he used the property for the purpose of growing an illegal crop of cannabis.
The requirements of s. 139D(1)(e) are also satisfied: see exhibit 1.
Before making any order under s. 139D(2) I am required by s. 139F to take account of the nature and extent of any estate that any person other than Tanalaw has in the property and any hardship that the order might cause that other person.
On the evidence before me, the only person other than Tanalaw who has any interest in the property in question is Bischof, the current registered mortgagee. Assuming that Bischof's interest in the property is an "estate ... in the property" within the meaning of that expression in s. 139F(1)(a), I do not think any vesting order that I might make in favour of the trustee would cause any hardship to the mortgagee. A vesting order could only apply to Tanalaw's interest in the property, in effect, its interest in fee simple subject to the registered mortgage. There is no other evidence to suggest that a vesting order might operate in any way to cause hardship to the registered mortgagee.
Section 139F also requires me to take into account, in deciding whether or not to make an order under s. 139D, Tanalaw's current net worth and any hardship the order might cause Tanalaw's creditors. It is not possible, on the evidence, to make any assessment of Tanalaw's current net worth. Although it appears to have been set up at Crawford's request as a repository for moneys he earned from his activities with Backshall, the evidence indicates that in late August, Tanalaw had assets comprising a bank account with a balance of over $30,000.00 quite separate from the funds it derived from Crawford's activities with Backshall. There is no means of identifying how Tanalaw accumulated the fund of $30,000.00 or so, nor is there any evidence that Tanalaw has any creditors, other than the registered mortgagee.
Tanalaw has been served with the application but has not appeared. The inference, I think, is that it does not wish to put any material before the Court which it, rather than the trustee, is best able to do in relation to the matters referred to in s. 139F(1)(b) and which, in a proper case, could lead the Court to deny a trustee relief that he was otherwise entitled to under s. 139D.
I am therefore prepared to make a vesting order under s. 139D(2) in favour of the trustee. The order I propose is an order vesting in the trustee the whole of Tanalaw's interest in the land referred to in exhibit 1 on trust for himself as trustee of Crawford's estate and on trust for Tanalaw itself, as tenants in common, for a 26,986/100,000 share and a 73,014/100,000 share, respectively.
Although s. 139E provides a less attractive remedy to a trustee than a vesting order under s. 139D, the trustee also applies for an order under the first mentioned section. In the course of argument the trustee limited its claim to so much of the moneys received by Tanalaw in respect of Crawford's services to Backshall as are not taken into account by the Court in making an order under s. 139D.
For the reasons already given, I am satisfied that the requirements of s. 139E(1)(a) and (b)(i) are satisfied on the evidence before me.
The remaining matter is the requirement of s. 139E(1)(c), that is, that there be proof that Tanalaw's net worth at a particular time during the examinable period exceeded by a substantial amount what might reasonably be expected to have been Tanalaw's net worth at that same time if the services of the bankrupt had not been supplied.
The trustee accepts that, so far as tracing the moneys Tanalaw received in respect of Crawford's work for Backshall into the property I have referred to is concerned, it cannot discharge the burden of proving that more than $26,986.84 was used by Tanalaw in acquiring the land. However, as to the balance of that $50,000.00 (plus the interest of $206.96) that is, the $23,220.12 I have referred to, the trustee submits that, while it cannot establish that those balance moneys were used in the acquisition of the land, it can discharge the burden of proving that those moneys either comprised part of the funds paid over to the Booths on settlement of the land purchased on 28 August, 1990 or, alternatively, that those funds comprised the moneys which Morris says was paid into Tanalaw's cheque account on 27 August, 1990. (The difference between the $23,213.00 that Morris refers to here and the $23,220.00 that I have referred to comprises, I think, the $7.00 bank charges already mentioned.)
On the evidence before me, I am prepared to draw the inference proposed by the trustee. The conclusion from this is that, as at 28 August, 1990, Tanalaw's net worth exceeded by a substantial amount, $23,220.00, what might reasonably be expected to have been its net worth at that date if Crawford's services had not been supplied to Backshall and yielded to Tanalaw the $50,000.00 plus interest which I have already mentioned. Its net worth at that date was augmented by reason of the supply of Crawford's services to Backshall, either because the $23,220.00 went, in addition to the $26, 986.00 I have already mentioned, towards acquisition of the land and thus left Tanalaw free to use, as it chose, an equal amount from the funds totalling $30,523.00 which Morris says were withdrawn on 27 August, 1990 from one of its accounts or, if that sum of $23,220.00 was not applied towards the purchase of the land it was banked to Tanalaw's cheque account and remained after settlement available to Tanalaw to use as it chose.
Before I can make an order under section 139E, I am also required by s. 139F(2) to take into account Tanalaw's current net worth and any hardship the payment order might cause Tanalaw's creditors. For the reasons I have already given in dealing with s. 139F(1)(b), I do not think there is any reason, having regard to these matters, to refuse to make a payment order under s. 139E(2). I will therefore order that Tanalaw pay to the trustee the sum of $23,220.00.
I will give the applicant the opportunity to consider the form of order that should be made to reflect these reasons and to bring into Court minutes of the orders to be made, with liberty to make any submissions on the form of the final order as it may be so advised.

REASONS FOR JUDGMENT - 10 DECEMBER, 1992
34. Subsequent to delivering my reasons, I received submissions from the applicant as to the terms of the vesting order which I should make and draft minutes of orders were also put before me by the applicant.

It was submitted that I should make a rather different order from that which I proposed in the reasons I gave on 6 November, 1992 which would have the effect of entitling the trustee to an amount equal to a 26,986/100,000 share in the unencumbered fee simple in the land to the intent that if the land were sold, while the registered mortgagee would first be paid out from the proceeds of sale, the trustee would be entitled to that particular share of the entire contract price. On this basis, if the proceeds of sale after the payout of the mortgage did not extend so far, the trustee would be entitled to the whole of those balance proceeds.

It is true that it can be said that Tanalaw acquired an estate in fee simple in the land as a result of matters, including the supply by Crawford of his services on behalf of Tanalaw within s. 139D(1)(c). The evidence, however, is that what Tanalaw acquired as a result of the supply of the bankrupt's services was the fee simple in the land, but encumbered by the mortgage which the vendors took to secure repayment of that part of the purchase moneys which remained unpaid on settlement, i.e., Tanalaw acquired as a result of the bankrupt's services not an unencumbered fee simple interest, but what can be described accurately enough for present purposes as only an equity of redemption in the land. The evidence does not permit a finding that, as a result of the supply of services by Crawford, Tanalaw was able to increase the value of this equity of redemption by, for example, discharging in whole or in part its obligation to repay any of the principal moneys secured by the mortgage. While s. 139D(2) may confer on the Court discretionary power to make an order of the kind sought, in view of this evidence I think the proper order here is one which will vest in the trustee only so much of Tanalaw's interest in the land the acquisition of which can be seen to have been connected with the supply by Crawford of his services.
In view of the provisions of s. 139G(2), I do not think I can at this stage go beyond ordering, pursuant to s. 139D(3), that Tanalaw by its proper officers execute and produce all such documents as may be necessary to give effect to the vesting order. It seems to me that it is only if there is a refusal to do this that s. 139G(2) then applies to enable the Court to appoint the Registrar to take the action necessary to give effect to the vesting order. In view of the fact that there is a registered mortgage over the title, I also think it is premature to make orders for the sale of the property by way of giving full effect to the vesting order. The making of such orders may, in any event, require notice to be given to the mortgagee, who may well have possession of the duplicate certificate of title.
If such matters require consideration, they can be raised under the order which I will make giving the applicant and Tanalaw liberty to apply.

[1992] FCA 1002

10 DECEMBER 1992