Re Fenech

[1994] FCA 57

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JUDGMENT No. ........ ..,,,...., I ...,,,., ,.,

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IN THE FEDERAL COURT OF AUSTRALIA	1
GENERAL DIVISION	1
BANKRUPTCY DISTRICT OF THE	1 No. QB1286 of 1991
STATE OF OUEENSLAND	1

RE :  VICTOR FENECH

EX PARTE: LORRAINE ELSIE FENECH

Applicant

ARTHUR HENRY CARRICK

Respondent

MINUTES OF ORDER

JUDGE MAKING ORDER:	Spender J.
DATE OF ORDER:	8 February 1994

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WHERE MADE:	Brisbane	1..
THE COURT ORDERS THAT:	I-
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1.    the application filed 7 January 1994 to set aside

the notice under S. 13924 of the Bankru~tcv Act 1966 I'

relating to $97,500 is dismissed. i

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2.    the applicant pay the respondent's costs of this

application, including reserved costs, to be taxed !

if not agreed.

NOTE:	Settlement and entry of orders is dealt with in Rule
124 of the Bankru~tcv  Rules.
IN THE FEDERAL COURT OF AUSTRALIA	1
GENERAL DIVISION
BANKRUPTCY DISTRICT OF THE	No. QB1286 of 1991
STATE OF OUEENSLAND

RE:	VICTOR FENECH
EX PARTE:	LORRAINE ELSIE FENECH

Applicant

ARTHUR HENRY CARRICK

Respondent

CORAM:	Spender J.
PLACE :	Brisbane
m:	8 February 1994

REASONS FOR JUDGMENT

This is an application by Lorraine Elsie Fenech for orders that a notice under S. 139ZQ of the Bankru~tcv Act 1966

('the Act') dated 17 December 1993 directed to her requiring her to repay to the Trustee of the estate of Victor Mario Fenech ('the trustee') the sum of $97,500, be set aside, and for the trustee to pay the costs of her application.

Section 139ZQ of the Act provides: 

" (1) I f a person has received any money or
property as a resul t o f a transaction that i s

void against the trustee o f a bankrupt under

Division 3, the Of f ic ia l Receiver:

( a ) i f the Of f ic ia l Trustee i s the trustee -

on the i n i t i a t i v e o f the Of f ic ia l

Receiver; or

(b) if a registered trustee is the trustee - on application by the trustee;

may require the person, by written notice given t o the person, t o pay t o the trustee an amount equal t o the money or the value o f the property received.

( 2 ) The notice m u s t se t out the facts and

circumstances because o f which the Of f ic ia l Receiver considers that the transaction i s void against the trustee.

( 3 ) The notice may:

(a) require the amount to be paid at a time or

within a period set out i n the notice; or

(b) require the amount to be paid at such times, and i n such instalments, as are se t out i n the notice.

( 4 ) Af ter the Of f ic ia l Receiver has given a

notice t o a person under subsection ( l ) , the

Of f ic ia l Receiver may a t any time, b y a further notice given t o the person, revoke or amend the first-mentioned notice.

( 5 ) I f the Of f ic ia l Receiver gives a notice

under t h i s section, the Of f ic ia l Receiver must send a copy o f the notice t o the bankrupt and, i f a registered trustee i s the trustee, t o the trustee.

( 6 ) A notice t o be given under t h i s section t o the Commonwealth, a State or a Territory, or t o an authority o f the Commonwealth, o f a State or o f a Territory, i s taken t o be duly given i f it i s given t o a person who, by any law, regulation, appointment or authority, has the function o f paying, or i n fact pays, money on behalf o f a Department o f the Commonwealth, o f that State or o f that Territory, or on behalf

o f the authority, as the case may be.
( 7 ) I f a person	i s required b y a notice under
th i s section t o pay	t o the trustee the value o f

any property, the requirement i s taken t o be complied with i f the property i s transferred t o

the trustee.

( 8 ) An amount payable by a person t o the

trustee under t h i s section i s recoverable b y the trustee a s a debt by action against the

person i n a court o f competent jurisdiction. "

That section is part of Subdivision J which provides
for a mechanism for the setting aside of transactions which

are void against the trustee. Section 1392s of the Act provides that if a Court is satisfied that sub-division J does not apply to the person on the basis of the alleged facts and circumstances set out in the notice, the Court may make an order setting aside the notice.

In these proceedings it is accepted that Mr Victor Mario Fenech, the husband of the applicant, made a settlement of property upon the applicant (his wife) which came into operation within 5 years prior to the commencement of his bankruptcy, which settlement was not made in favour of a purchaser or encumbrancer in good faith and for valuable consideration, nor made before and in consideration of marriage.

The value received by Mrs Fenech as a result of the transaction was an amount equivalent to half the consideration paid for the business, "The Bakers Bun", namely $97,500. The parties accept, and it is the case, that unless the court is

his debts, the settlement will be void as against the trustee	satisfied that as at 27 July 1987 Mr Fenech was able to pay
pursuant to S. 120 of the Act and the notice will be valid. Mrs Fenech bears the onus in this respect.
There are two aspects to the present application central to its disposition. The first concerns the status of what is said to be a debt owed to the petitioning creditor, Mr Nunn, by Mr Fenech in respect of the construction of units in

Innisfail for M r Fenech, and as to the existence of a debt owed by Mr Nunn to Mr Fenech arising out of the same project. That smaller question is part of a larger question, namely, whether as at 27 July 1987, Mrs Fenech has shown that Mr Fenech was able to pay his debts.

As to the first and smaller question, Mr Fenech in an affidavit says that when M r Nunn commenced proceedings against him for approximately $50,000 allegedly owing by 14r Fenech to Mr Nunn under a building contract in respect of the units in Innisfail, M r Fenech counter-claimed against him. And in an affidavit sworn on 4 February 1994 Mr Fenech says that Mr Nunn was not a creditor of his in August 1986 when Mr Nunn finished work on the building in Innisfail; he was merely a plaintiff suing Mr Fenech for moneys that he alleged

Mr Fenech owed him. Mr Fenech filed a counter-claim to the

claim by Mr Nunn and swears in the affidavit of 4 February that a week before the hearing date he had a conference with his solicitor and barrister. The barrister said to him words

to the effect that: 

' I must tell you that if the matter goes to

trial there is no certainty that you will win. Litigation like this is risky and a

trial could take a week.	I recommend you
offer Nunn $10,000. "

Mr Fenech says that the offer was made, but it was rejected and ultimately on the day of the hearing, based on the advice that he received, Mr Fenech decided not to take the risk of continuing with the litigation and pulled out of the

action. He says that his defence and counter-claim against Mr Nunn was made in good faith and he honestly believed that, based on legal advice, it had a sound legal basis. Paragraph 10 says:

" I didn't defend the action or make a counter-claim against Nunn merely to delay Nunn. I honestly believed and still believe that Nunn owed me more than I allegedly owed him. "

Those statements are difficult to reconcile with the circumstance, first, that the claim by filr Nunn against Mr Fenech was in an amount of $59,776.67 while the counter- claim on Mr Fenech's behalf was for the sum of $29,833.59. On any view of the matter, and particularly having regard to the absence of any assertion by Mr Fenech that the claim by Mr Nunn was not a valid claim, it seems clear that there must have at least been a debt of approximately $30,000 owed subsequent to August 1986 by Mr Fenech to Mr Nunn.

But the matter goes further than that. There is in evidence a consent judgment of 2 November 1989 by which	counsel on behalf of M r Nunn and solicitors for Mr Fenech
consented to judgment for Mr Nunn against Mr Fenech in the sum of $59,776.67 plus interest, and also consented to an order that the defendant's counter-claim be dismissed. Notwithstanding then the contents of Mr Fenech's two affidavits, it seems to me clear that there is established that there was in truth and reality a valid debt owing by Mr Fenech to M r Nunn, in particular as at 27 July 1987.

On any view of the matter, around $29,000 was owing at the time of the settlement upon Mrs Fenech. Having regard to the consent judgment, in my opinion, the amount the subject of the consent judgment was owing as at that time.

Independently of that conclusion, it seems to me that on the evidence, the only position permitted is that as at 27 July 1987 M r Fenech was insolvent.

In that respect, Mr Fenech's affidavit of 4 February

1994 says in paragraph 11:

" A s t o the p r o p o s i t i o n t h a t I was unab l e to

p a y m y d e b t s a s and when they fe l l due from 1985 onwards, I concede I was n o t i n t h a t pe r iod f l u s h w i t h money, b u t I go t by. Nun

( s ic ) was	the	only person	t h a t was	c h a s i n g
me,	b u t a s I	s a y I	d i d n o t believe	t h a t I

owed Nunn a n y money. In f a c t , I b e l i e v e d

t h a t Nunn owed me money. I pa id a l l m y

o t h e r c r e d i t o r s . "

These sworn statements are quite inconsistent with earlier sworn statements by M r Fenech.	Without going in
detail to his statements made on a public examination	conducted on 15 March 1993, I refer to admissions made by
Mr Fenech in that public examination particularly at page 17, line 20; page 18, line 27; page 18, line 10; and the admission that appears at page 19, line 12 where he said, in answer to the questions:

" W e r e you a b l e t o p a y the $50,000 t o I& Nunn

be tween J u l y 1987 and the d a t e t h a t you

became bankrupt?---No.

Would y o u h a v e been a b l e t o p a y t h a t $50,000

t o M r Nunn from a n y t i m e a f t e r the first

s t a g e was completed?---No. W e d i d h a v e a

counter c l a i m a t t h a t time. "

At page 26, line 8, in respect of the $97,500 the subject of the transference to his wife, he was asked:

" T h a t would h a v e e a s i l y p a i d o f f Mr Nunn -

$90,000? "

And Mr Fenech said:

" I c o u l d n ' t g i v e h i m the money. I had no

money. "

I note also what appears at page 29, line 10.

There is a letter handwritten by Mr Fenech which has the ring on candour and truth to it. The first two full paragraphs of the letter of 29 July 1991, indicate to me that Mr Fenech was insolvent as at 27 July 1987.

Notwithstanding the statements in the two affidavits

of Mr Fenech read in these proceedings, it seems to me plain

that he was not able to pay his debts as they became due. He says in that letter:

' I had t o sell m y .4 s h a r e i n the N i t e C l u b , t o

p a y b a c k some o f m y d e b t s . A p p r o x i m a t e l y 3

m o n t h s l a t e r a g a i n , m y d e f a c t o w i f e s o l d her

coffee s h o p t o p a y m y interest t o the f i n a n c e

company a s they were r e a d y t o t a k e over the

u n i t s . Time wen t on. I t r i e d every r e a l

e s t a t e i n C a i r n s and I n n i s f a i l t o sell these

u n i t s , b u t w i t h o u t s u c c e s s .

F i n a l l y , we s a w a n ad i n the p a p e r t h a t someone wanted t o swap a shop w i t h some r e a l e s t a t e . S o I went for i t a s we needed a c a s h -

f l o w b u s i n e s s t o p a y m y interest. I exchanged

t h r e e u n i t s w i t h the shop. No money changed

hands. The shop was $195,000. "

It is that transaction which is the foundation for the 13924 notice. In the circumstances the evidence shows that at the relevant time M r Fenech was unable to pay his debts as they fell due.

The application of Mrs Fenech of 7 January that the notice under S. 139ZQ of the Bankru~tcv Act be set aside is dismissed with costs, including reserved costs, if any, to be taxed if not agreed.

I	c e r t i f y t h a t	t h i s and	t h e p reced ing
seven	( 7 ) pages	a r e a	t r u e c o p y o f the

r e a s o n s f o r judgment h e r e i n o f the

Honourable M r J u s t i c e Spender.

A s s o c i a t e N d

Date: 8 February 1994

S o l i c i t o r s	f o r	t h e a p p l i c a n t :	Mr Covacevich o f
HacDonnel l s

Counsel f o r the re sponden t : J . Sweeney

i n s t r u c t e d by:	Tobin & Co.
Date o f Hearing:	8 February 1994