Re Henbury, R.A

[1985] FCA 546

Re: RUSSELL ANTHONY HENBURY and ALICE ELEANOR GWENFYL HENBURY
Ex Parte: MAURICE HODGSON LYFORD TRUSTEE OF THE PROPERTY OF RUSSELL ANTHONY
HENBURY and ALICE ELEANOR GWENFYL HENBURY formerly trading as MIDLAND CHAFF
COMPANY
And: COLIN WILSON FINDLAY and JUDITH ANNE FINDLAY
No. 387 of 1983
Bankruptcy

COURT

IN THE FEDERAL COURT OF AUSTRALIA
GENERAL DIVISION
BANKRUPTCY DISTRICT OF THE STATE OF WESTERN AUSTRALIA
Toohey J.

CATCHWORDS

Bankruptcy - creditor of bankrupts collected stock feed instead of payment for grain earlier purchased by bankrupts from creditor - alleged preference - whether transaction in ordinary course of business - test to be applied - observations concerning power of court to make money order

Bankruptcy Act 1966 ss.30 and 122

HEARING

PERTH
#DATE 28:10:1985

ORDER

The respondents pay to the applicant the sum of $2,909.28 with costs to be taxed.

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

JUDGE1

Maurice Hodgson Lyford, the trustee of the bankrupt estates of Russell Anthony Henbury and Alice Eleanor Gwenfyl Henbury, seeks the avoidance of a transaction entered into by Mr. and Mrs. Henbury on the ground that the transaction constitutes a preference within s.122 of the Bankruptcy Act 1966.

Before identifying the transaction sought to be avoided, it may be helpful to say something of the circumstances giving rise to the trustee's application. Mr. and Mrs. Henbury were in business as Midland Chaff Company. They bought grain and resold it, sometimes in the form in which it was bought and sometimes mixed so as to make it suitable for stock feed. On or about 2 January 1983 the respondents, Mr. and Mrs. Findlay, sold to Mr. and Mrs. Henbury 48.57 tonnes of oats at $132 a tonne and delivery was effected on that day. The agreement was that Midland Chaff Company would pay the Findlays within 30 days of delivery. It did not do so; a cheque made payable to the Findlays for the amount of grain purchased bounced.

Mr. Findlay telephoned Mr. Henbury to express his concern that the cheque had bounced and was told that Midland Chaff Company was having trouble obtaining payment from buyers in the eastern states to whom it was supplying grain but it was hoped that these payments would be forthcoming. Some time later - the trustee's affidavit identified the date as 11 March 1983 and the respondents did not challenge that date - Mr. Findlay called at the premises of Midland Chaff Company. Mr. Henbury told him that there had still been no payment from eastern states buyers. Mr. Findlay said that he had seen grain on the premises, that he was shifting farms from Williams to Wannamal where he would be raising pigs and that he had seen grain which would be suitable for that purpose. The grain was described by Mr. Henbury as "a wheat mixture with lupins that we used to supply to the eastern states for milling". Mr. Henbury gave evidence, which I accept that "we made a deal that he would get that grain, or the equivalent grain to the amount of money in lieu of being paid". There is no reason to doubt Mr. Henbury's credibility on the matter and his evidence in that regard was not challenged on cross-examination. The arrangement was disputed by Mr. Findlay in an affidavit filed on his behalf; but neither Mr. nor Mrs. Findlay gave evidence.

Mr. Findlay did not take the precise equivalent, in money terms, of the grain he had sold to Midland Chaff Company. The reason given by Mr. Henbury, which I accept, was expressed in this way:

"Because he could not fit it all on his truck at the time and I believe he did not have the amount of storage on his new farm and he was going to return to collect the other".

Mr. Findlay took approximately 22 tonnes of grain which ordinarily would have cost him about $145 a tonne but Mr. Henbury agreed to sell it to him for $132 a tonne, the earlier price. No money changed hands in respect of the sale from Midland Chaff Company to the Findlays nor was it intended that any do so.

Mr. and Mrs. Henbury became bankrupt on their joint petition on 14 June 1983. The sale of grain by the Findlays to the Henburys and the delivery of grain to the Findlays each took place within 6 months of bankruptcy. In the application as originally filed the applicant sought an order that the respondents pay to him the sum of $2,909.28 as a preference received by them. Of course the respondents received no money from the bankrupts. Later the application was amended whereby the trustee sought a declaration that the "recovery" by the respondents of grain to the approximate value of $2,909.28 on 11 March 1983 "effected a transfer of the property in such goods or was in the alternative a payment in kind by RUSSELL ANTHONY HENBURY and ALICE ELEANOR GWENFYL HENBURY who are then unable to pay their debts as they became due from their own money" and had the effect of giving the Findlays a preference, priority or advantage over other creditors of the bankrupts. It was not made clear exactly how the figure of $2,909.28 was calculated but no objection was taken by the respondents on that ground.

The amended application includes a claim for an order that the respondents pay the sum of $2,909.28 or such other sum as the Court may determine as being the value of the goods or alternatively that the respondents transfer to the applicant the goods received by them.

It is apparent that the relief originally sought by the trustee could not have been granted. There was no sum of $2,909.28 received by the Findlays from the Henburys; at no stage did the Findlays receive any money. What they did receive was a quantity of grain for which they did not pay and in circumstances where there was no intention that they should pay. In my view there was, by reason of those circumstances, a conveyance or transfer of property by Mr. and Mrs. Henbury at a time when they were unable to pay their debts as they became due from their own money. It was a transaction in favour of a creditor viz. the Findlays and it had the effect of giving those creditors a preference, priority or advantage over other creditors. The transaction was within 6 months before the presentation of the Henburys petition.

It is apparent from the evidence of Mr. Henbury and of Mr. Crowe, a chartered accountant in the employ of the trustee, that in March 1983 the Henburys were unable to pay their debts as they became due from their own money. According to Mr. Crowe, in the early part of 1983:

". . . the liquid assets would have been almost nil. There were massive amounts of creditors, mainly farmers, who had delivered hay or oats; I think, somewhere in the vicinity of $330,000. His machinery was broken down and he had no funds with which to repair the machines. There were many dishonoured cheques. It was really a hopeless situation".

The significance to be attached to the words in sub-s.122(1) of the Bankruptcy Act "a person who is unable to pay his debts as they become due from his own moneys" was explained by Griffith C.J. in Bank of Australasia v. Hall (1907) 4 C.L.R. 1514 at 1528 in the following terms:

"It was suggested, but the argument was not pressed, that the debtor's affairs should be regarded from the point of view of a balance sheet of assets and liabilities. This is not what the Statute says. . . . The question is not whether the debtor would be able, if time were given him, to pay his debts out of his assets, but whether he is presently able to do so with moneys actually available. The most favourable construction that can be put on the words 'his own moneys' is that they include any moneys of which the debtor can obtain immediate command by sale or pledge of his assets".

I am satisfied from the evidence, particularly that of Mr. Crowe, and from the statement of affairs filed by the trustee that Mr. and Mrs. Henbury were not in March 1983 able to pay their debts as they became due from their own money. The Henburys did have some land which the trustee eventually sold. According to Mr. Crowe the sale "took several months". After realization of all assets, there was still a substantial deficit.

It was submitted on behalf of the respondents that the transaction in March 1983 was a transaction in good faith and in the ordinary course of business, hence within the operation of sub-s.122(2). The burden of proving the matters mentioned in sub-s.(2) lies upon the person claiming to have the benefit of that subsection (sub-s.122(3)). There were some submissions relating to the question of good faith and valuable consideration. But argument focused on the question whether the transaction was in the ordinary course of business. In my view it was not. It was certainly not in the ordinary course of business of Mr. and Mrs. Henbury to supply grain without payment. It was not in the ordinary course of their business to deliver grain in satisfaction of a debt. They were not in the business of barter. Furthermore it is clear that the transaction in March 1983 was entered into for the express purpose of meeting the insistent demands of the respondents for payment. It was a transaction of a special and unusual nature and it gave the respondents an advantage over other creditors.

The expression "in the ordinary course of business" has been considered by the courts on a number of occasions. The cases are mentioned by Pincus J. in Re Cummins; Ex parte Harris and Wilde (unreported decision delivered 7 October 1985). Pincus J. preferred the test enunciated by Rich J. in Downs Distributing Co. Pty. Ltd. v. Associated Blue Star Stores Pty. Ltd. (In Liquidation) (1948) 76 C.L.R. 463 at 477:

"The provision does not require that the transaction shall be in the course of any particular trade, vocation or business. It speaks of the course of business in general. But it does suppose that according to the ordinary and common flow of transactions in affairs of business there is a course, an ordinary course. It means that the transaction must fall into place as part of the undistinguished common flow of business done, that it should form part of the ordinary course of businesses carried on, calling for no remark and arising out of no special or particular situation".

As I read the later decision of the High Court in Taylor v. White (1963-1964) 110 C.L.R. 129, the dictum of Rich J. was there approved. While his Honour spoke of the course of business in general rather than the course of a particular business, on any view the transaction between Mr. and Mrs. Findlay and Mr. and Mrs. Henbury was not in the ordinary course of business. Mr. Findlay did not arrive at Midland Chaff Company intending to purchase grain. He saw grain on the premises, it suited his purposes to have some and, the Henburys being unable to pay for the oats he had sold earlier, he took the grain in lieu.

The delivery of grain to the respondents is void as against the trustee. In consequence the grain delivered by the Henburys to the Findlays is the property of the trustee and the Henburys are obliged to return the grain or account for its value. I raised with counsel for the respondents the question whether it was appropriate to order that the respondents pay to the applicant a sum being the value of the grain or whether the power of the Court was limited, at least initially, to ordering a retransfer. Counsel for the respondents did not argue that there was no power in the Court to make a money order at this stage. Section 30 of the Act confers on the Court "full power . . . (to) make such orders . . . as the Court considers necessary for the purposes of carrying out or giving effect to this Act . . .". On the assumption that redelivery of the grain is no longer possible, I order that the respondents pay to the applicant the sum of $2,909.28.