Re Lees, Edwin David Ex Parte Young, Grant Charles

I N THE FEDERAL COURT OF AUSTRALIA )

GENERAL	D I V I S I O N	j
1

BANKRUPTCY DISTRICT OF THE STATE ) No. NSW 352X of 1984

)

OF NEW SOUTH WALES AND THE

) )

AUSTRALIAN CAPITAL

TERRITORY

)

Re :

EDWIN DAVID LEES

A debtor

Ex par te :

GRANT CHARLES YOUNG

A	c red i to r

O R D E R

JUDGE MAKING ORDER:

Neaves, J.

DATE OF ORDER:

31 August

1984

WHERE MADE:

Canberra

THE COURT ORDERS THAT:

The deed o f arrangement executed

by the

debtor on 6 A p r i l 1977 i s declared to	be
void.

A sequestrat ion order

i s made

against

t h e e s t a t e

the debtor .

3 .

It i s dec lared tha t

M r Robert Yeomans,

r eg i s t e red t rus t ee ,

i s the t ru s t ee

t h e e s t a t e

the debtor .

I N THE FEDERAL COURT OF AUSTRALIA )

)

GENERAL	DIVISION	1
)

BANKRUPTCY DISTRICT OF THE STATE	) No. NSW 352X of	1984
)
OF NEW SOUTH WALES A N D THE	)
)
AUSTRALIAN CAPITAL TERRITORY	)

Re :

E D W I N

D A V I D

LEES

A	d e b t o r

p a r t e :

GRANT CHARLES YOUNG

A	c r e d l t o r

CORAM:

Neaves

J .

DATE

31 August

1984

REASONS

FOR

JUDGMENT

T h l s

1 s

a n a p p l l c a t l o n b y G r a n t C h a r l e s

Young

( " t h e a p p l l c a n t " ) t h a t

d e e d o f a r r a n g e m e n t e x e c u t e d b y

Edwln

Davld

Lees

( " t h e deb to r " ) on

A p r l l

1 9 8 4

p u r s u a n t

t o

Pa r t

t h e B a n k r u p t c y

A c t

1 9 6 6

( " t h e

Act") be

d e c l a r e d v o l d u n d e r s u b - s e c t l o n

2 2 2 ( 4 )

o f t h e

Act

o r b e

t e r m l n a t e d

u n d e r

s u b - s e c t l o n

2 3 6 ( 1 )

t h e r e o f .

The

a p p l l c a n t

a l s o s e e k s

summary

s e q u e s t r a t l o n o r d e r a g a i n s t t h e

es ta te

o f

t h e d e b t o r p u r s u a n t

t o

s u b - s e c t l o n

2 2 2 ( 7 )

o r

2 3 6 ( 3 )

t h e case may be .

The grounds upon which the application is

based are that the debtor gave false

or misleading

information in answer to questions

put to him with

respect to his conduct, trade dealings, property or

affairs at the meeting of creditors at which the resolu-

tion requiring him to execute the

de d of arrangement was

passed (para. 2 2 2 ( 4 ) (a) of the Act) and that he omitted a

material particular from the statement of his affairs

under section 195 of the Act (para.

2 2 4 ( 4 ) ( b ) ) .

On 1 4 December 1983 the debtor, pursuant to

section 188 of the

Act, signed an authority authorising

Mr. Brian Henry Kahlefeldt, a registered trustee, to call

a meeting of his creditors for the purposes of Part

X of

the Act and to take over control of his property. Mr. conferred by the authority and called a meeting of the

debtor's creditors in accordance with Division	2 of Part	X
of the Act.

On the same day,

1 4 December 1983, the debtor

also made a statutory declaration in accordance with Form

35 in Schedule

1 to the Bankruptcy Rules verifying an

annexed statement of affairs in accordance with Form 11. The debtor declared that the annexed statement of affairs contained, to the best of his knowledge and belief, a true

and complete statement

of his affairs as at

1 4 December 1983.

The summary disclosed an amount of

$ 8 1 , 9 7 1 . 7 2

owing

1 9 unsecured creditors (including the applicant), assets

of $ 7 , 4 0 0

and a deficiency of

$ 7 4 , 5 7 1 . 7 2 .

The assets

disclosed consisted of cash in hand

( $ 4 0 0 ) and a half

share in household furniture and effects situated at

Unit 3 3 , "Seven Oaks South",

29 Campbell Street, Sorrento,

Queensland

( $ 7 , 0 0 0 ) .

The statement of affairs also disclosed

that the debtor had during the preceding five years carried

on business on his own account as a solicitor. The statement

of affairs was, in accordance with section

1 9 5 of the Act,

submitted to the meeting of creditors called by Mr. Kahlefeldt.

That meeting took place on

1 2 and 26 January 1 9 8 4

and 2 1 March 1 9 8 4 .

On the last mentioned date a special

resolution was passed in the following terms

"That the debtor be required to execute a deed of

arrangement under which the debtor agrees to:

(a)	Convey and assign to the Trustee all his interest in the Estate of Charles Benn Lees deceased.
(b)	Pay to the trustee the following monthly instalments:-

(i) April, 1 9 8 4 to

July, 1 9 8 4

$250 per month

(ii) August, 1 9 8 4 to July, 1 9 8 5

$300 per month

(iii) August. 1 9 8 5 to July, 1986

$400

per month

(iv) August, 1 9 8 6 to March, 1987

$500

per month

Instalments are to be paid by the end of each month.

The debtor shall have the right to accelerate the rate of such instalments."

The deed

of arrangement as executed complies with those

requirements.

3 .

I t

w l l l b e n e c e s s a r y t o r e f e r I n

some

d e t a l l

t o

what

t o o k p l a c e

a t

t h e

m e e t i n g o f c r e d l t o r s b u t b e f o r e

d o l n g s o I

s h o u l d r e f e r t o c e r t a l n o t h e r

matters.

A p r l l

1 9 7 7

m o t o r v e h l c l e a c c l d e n t o c c u r r e d

o n

t h e F e d e r a l

Hlghway

n e a r S u t t o n ,

N e w

S o u t h

Wales

l n v o l v l n g

m o t o r v e h l c l e

owned

t h e

a p p l l c a n t a n d

m o t o r v e h l c l e

owned

a n d

d r l v e n

t h e

d e b t o r .

The

a c c l d e n t

caused

p e r s o n a l

i n ~ u r l e s t o t h e d e b t o r a n d r e s u l t e d I n s u b s t a n t l a l

damage

t o

b o t h v e h l c l e s

and

t o

goods and equ lpmen t be lng

t r anspor t ed

i n

t h e

applicant's v e h l c l e .

The d e b t o r

c a r r l e d

I n s u r a n c e

lndemnl fy lng

hlm

a g a l n s t l l a b l l l t y f o r

damage

t o t h e a p p l l -

c a n t ' s

v e h l c l e ,

g o o d s

a n d

e q u l p m e n t

a n d

t h e

c l r c u m s t a n c e s

o f t h e a c c l d e n t

were

s u c h t h a t t h e d e b t o r

must

h a v e r e a l l z e d

t h a t

claim

aga lns t h lm In neg l lgence wou ld have good

p r o s p e c t s

o f

success.

The

d e b t o r w a s ,

a t t h a t tlme,

s o l l c l t o r e m p l o y e d b y	a	f l r m o f s o l i c l t o r s p r a c t l s l n g I n
Canber ra .

A t

t h e

time

o f t h e a c c l d e n t t h e d e b t o r a n d

h l s

t h e n w l f e , E l i z a b e t h

Anne

Lees,

were

t h e r e g l s t e r e d

p r o p r l e t o r s f o r a n

estate

i n

fee

s l m p l e

l o l n t

t e n a n t s

o f

ce r t a ln

l a n d

s l t u a t e a t

R.M.B.

2 5 1 ,

Wyomlng

Road,

Gundaroo

Road,

Bungendore,

New

S o u t h Wales,

b e l n g

l o t

2 3

I n

D e p o s l t e d

P l a n

2 3 9 0 2 0

( " t h e

B u n g e n d o r e

p r o p e r t y " ) .

The

l and compr l sed

4 0

acres

r o o d s

perches on whlch

was

e r e c t e d

t i m b e r r e s l d e n c e o f

1 5 0 . 8 6

s q u a r e

metres

a p p r o x l m a t e l y w l t h

4 .

a metal clad roof. There is evidence before

m , which I

accept, that at the present time

a reasonable selling

price of the property would be between $120,000 and

$125,000.

In April 1977 the property was subject to

a mortgage dated

3 September 1476 In favour of Solex Nominees Pty. Limited

to secure the

sum of $20,000.

On 8 August 1977 a company known as Manettia Pty.

Limited ("the company") was incorporated in the Australian

Capital Territory with

a nominal capital of

$10,000 divided

memorandum of association were Mr. N.M. Macphillamy, Solicitor,

and Mr. B.J. Doyle, Solicitor who were also the only directors.

into 10,000 shares of $1 each. The subscribers to the subscribers.

On 28 September 1977 Mr. Macphillamy and Mr. Doyle

transferred their shares to the debtor and his then wife

respectively. The debtor and his wife also became directors

of the company on that date in place of Mr. Macphillamy and

Mr. Doyle who resigned.

The minutes

of a meeting of the directors

of the

company held on 29 September 1977 record that the debtor

informed the meeting that one Michael Christopher Green

wished to establish

a trust for the benefit of the debtor

and his wife and family.

A deed of settlement to establish

a trust to be known as "The Lees Family Settlement" was

tabled and it was resolved that the company accept office

as such trustee and that the deed of settlement be executed

by the company. The minutes also record the acceptance of

offers by the debtor and his wife that each would lend to

the company as trustee of the settlement the

sum of $22,500

repayable on demand free of interest.

It was also resolved

that the company as such trustee purchase the Bungendore

property for $75,000.

The reference to Mr. Green's wish to establish

a trust for

thebene€ltof the debtor and his family relates

to a letter dated 9 September

1977 addressed by Mr. Green,

a solicitor practising in Melbourne, to Messrs. Macphillamy,

Cunnnins and Gibson, Solicitors, Canberra enclosing a cheque for $25 payable to Manettia Pty. Limited "by way of settle- ment upon that Company, so that it may act as trustee of

the Lees Family Trust." It appears from the affidavit of

John Hilton Fielden sworn

7 May 1984 and filed herein on

behalf of the applicant that the cheque was

not presented

for payment and was in due course replaced by another cheque.

No further step was taken by the company to purchase

the Bungendore property until

2 January 1978 when, a t a meeting

of directors of the company held on that date, it was resolved

that the company execute a contract for the purchase of the

property and the relevant memorandum of transfer.

A copy of

6 .

the contract for the sale of the property is in evidence

before me but it bears neither evidence of execution nor

a date. The memorandum of transfer as executed by the

debtor and his wife as transferors and the company as

transfereebears date 2 January 1978 but it was not lodged

for registration at the office of the Registrar-General in

Sydney until 23 June 1978. It was registered on 28 July 1978.

A further meeting

of the directors of the company

was held on 3 January 1978. The minutes

of that meeting

record the following under the heading "Purchase of

property" -

"E.D. Lees tabled the contract for the purchase

of the property referred to in the minutes of

28th September, 1977 and 2nd January,

1978, to-

gether with the memorandum of transfer.

It was noted that this purchase was financed by

the borrowings from

E.D.

& E.A Lees referred to

in the minutes of 28th September, 1977 and by

the following:

i) $20,000 loan on first mortgage by Solex Nominees Pty. Limited originally advanced

to E . D .

Sr E . A . Lees with interest payable

at 14% p.a. of $2,800 p.a. and principal

repayable at conclusion

of term.

ii) $10,000 unsecured loan by the estate of

the late C.B. Lees at no interest, repay-

able on

demand.

It was noted

that Solex Nominees

Pty. Limited

had consented to the transfer of

the property

to the company and that both Solex Nominees

Pty. Limited and the estate of the late

C.B.

Lees had agreed to the above liabilities

E.D. & E . A . Lees to those lenders being taken

over by the company on the same terms and

conditions as previously existed.

It was resolved that the company as trustee for

The Lees Family Settlement should take over the

1 .

liabilities to Solex Nominees Pty. Limited

and estate late

C.B. Lees referred to above

on the same terms and conditions as previously

existed."

There appears to have been no further meeting of

the directors of the company until

29 June 1979.

On 13 April 1978 Mr. M.H. McMichael, Solicitor,

received instructions to act on behalf of the applicant's insurer in respect of the motor vehicle accident to which

reference has already been made. A letter dated

9 May 1978

was addressed by Mr. McMichael to Messrs. Snedden, Hall and of the l o s s suffered as a result thereof, the letter went on -

Gallop, Solicitors, who were then acting for the debtor.

"We note your previous advice that your client

was not comprehensively insured but our instruc-

tions are to proceed for the recovery of the above

amount and unless we receive appropriate conununi-

cation from you within twenty-one

(21) days of the

date of this letter our client will institute such proceedings as it may be advised for this purpose."

Proceedings to recover damages in respect of the

loss suffered by reason of the collision were not commenced

until 15 August 1979 when a statement of claim was filed in

the Supreme Court of New South Wales. The proceedings were

commenced in the name of G.C. Young Transport Pty. Limited

but the applicant was subsequently substituted as plaintiff

by order of the Supreme Court. The action was heard

on 6

and 7 September 1983 when judgment was given for the applicant

in the sum of $21,106.54 plus costs. The judgment debt

remains unpaid and there can be

no doubt that the applicant

is a creditor of the debtor	and, as such, entitled to bring
these proceedings.

Two events which took place between the date

the notice of intended action and the date of	comencement
of the proceedings should also be noted.

Gail Frances Hawkins in an affidavit sworn

29 May 1984 has deposed that in or about February 1979 she

was having lunch with the debtor at a restaurant in Canberra.

The road accident to which reference has been made became

a topic of conversation and it became apparent to Mrs. Hawkins

that the accident of which the debtor was speaking was

accident that involved her brother, the present applicant. Mrs. Hawkins so informed the debtor who then said words to

the following effect

"I feel sorry for your brother. There is no

way he will get anything out of me. Even when

I was in intensive care in the hospital he was

ringing me. Everything is in my wife's or

others' names.

I own nothing.

I feel sorry

for him but he is not going to get anything

out of me.

Mrs. Hawkins also gave evidence in the Supreme Court pro-

ceedings and a transcript of her evidence

is before me.

John Hilton Fielden, accountant, in an affidavit

sworn on

7 May 1984 has deposed that

on 7 March 1979 he

r e c e i v e d l n s t r u c t l o n s f r o m t h e d e b t o r t o p r o v l d e a c c o u n t -

l n g s e r v l c e s

a n d

t o a r r a n g e f o r t h e f l l l n g o f

company

documents

l n r e l a t l o n

t o M a n e t t l a P t y . L l m l t e d w h l c h

t h e

debtor

Informed h

"had been

set

u p p u r s u a n t

t o

t h e

c o n s t l t u t l o n

o f

f a m l l y

t r u s t

f o r

t h e d e b t o r " .

H e

f u r t h e r

d e p o s e d

t h a t o n

May

1 9 7 9 h e a t t e n d e d o n

t h e d e b t o r p e r -

s o n a l l y

when

t h e f o l l o w l n g c o n v e r s a t l o n t o o k p l a c e

M r .

Lees:

"My w l f e and I have

formed Manet

P t y L l m l t e d t o

act

T r u s t e e f o r

f a m l l y

T r u s t " .

M r .

F l e l d e n :

"Why has t h e

T r u s t

b e e n

set up?

know	y o u h a v e n o c h l l d r e n t o d l s t r l b -

u t e Income

t o ? "

M r .

Lees:

C e r t a l n assets of

myself

and my

w l f e

h a v e b e e n t r a n s f e r r e d t o M a n e t t l a P t y

L l m l t e d as

Trus tee .

was

l n v o l v e d

l n

m o t o r v e h l c l e a c c l d e n t a n d

be-

l leve

m l g h t b e s u e d

f o r

s u b s t a n t l a l

sum.

w a s u n l n s u r e d a t t h e tlme".

M r .

F l e l d e n :

"What

assets

were

t r a n s f e r r e d ? "

Mr. Lees:

"The

m a m asset

w a s a

b l o c k o f

l a n d

a t Bungendore".

Mr.

F l e l d e n :

"How

were

t h e f u n d s a c q u l r e d f o r t h e

company

t o p u r c h a s e

t ha t

l a n d ? "

M r .

Lees:

" T h e f u n d s f o r

t h e p u r c h a s e

t h e l a n d

were

l e n t by myself

and my

w i f e " .

29 September 1979

the mor tgage over

the

Bun-

g e n d o r e p r o p e r t y

i n

f a v o u r

Solex

Nomlnees

Pty.

Llmlted

was

d l s c h a r g e d a n d o n

the

same

day

m o r t g a g e I n f a v o u r

C l t l c o r p A u s t r a l l a

L i m l t e d was

e x e c u t e d t o

secure

the

sum

$ 4 0 , 0 0 0 .

B o t h

t r a n s a c t l o n s

were

r e g l s t e r e d

o n

6 November 1979.

10.

1 2 O c t o b e r

1 9 8 2

t h e

d e b t o r ,

p u r s u a n t

t o

a g r e e m e n t u n d e r

s e c t l o n

t h e Famlly L a w Act

1975

t r a n s f e r r e d

t o

M r .

T . R .

Thompson,

Accountant

the

one

that he he ld I n t h e company.

Mr.

Thompson had

June

1982

executed

d e e d d e c l a r l n g

t h a t

would hold

the s h a r e

when

t r a n s f e r r e d t o

hlm

I n t r u s t

f o r t h c b e n e f l t o f

the

c h l l d r e n o f

t h e d e b t o r a n d

Elizabeth

Anne

Lees,

namely

Benn

Morgan Lees and

Dylan

Morgan

Lees.

t h e same

d a t e ,

1 2 O c t o b e r

1 9 8 2 ,

t h e

d e b t o r

r e s l g n e d

d l r e c t o r o f

t h e

company.

t h a t d a y a n

amended

d e f e n c e

was

f l l e d

o n b e h a l f o f

t h e d e b t o r

I n

t h e S u p r e m e C o u r t

p r o c e e d l n g s a r l s l n g o u t o f

the

motor

vehlcle

a c c l d e n t o n

A p r l l

1 9 7 7 .

A t

m e e t l n g o f d l r e c t o r s o f

t h e

company

1 4

M a r c h 1 9 8 3 t h e

t r a n s f e r o f

t h e d e b t o r ' s s h a r e

t o

M r .

Thompson

was

a p p r o v e d

a n d

t h e

d e b t o r ' s

r e s l g n a t l o n

d l r e c t o r w a s

a c c e p t e d .

On 2 1 March

1984

t h e applicant

p r e s e n t e d

credl tor ' s

p e t l t l o n a g a l n s t t h e d e b t o r

based

upon

the

ac t

o f bankrup tcy

commltted

by the d e b t o r

I n

s l g n l n g o n

1 4

December

1983 the

a u t h o r l t y

u n d e r

s e c t l o n

1 8 8

t h e A c t .

The

p e t l t l o n was

d u l y

s e r v e d a n d

came

b e f o r e

t h l s C o u r t o n

Apr l l

1984.

The h e a r l n g w a s a d ~ o u r n e d u n t l l 25

May

1984.

May

1984

t h e d e b t o r

f l l e d

n o t l c e o f l n t e n t l o n

t o

o p p o s e t h e p e t l t l o n

t h e g r o u n d

t h a t

t h e d e e d o f a r r a n g e m e n t p u r s u a n t

t o

P a r t X

o f

t h e

A c t

had

been

executed

A p r l l

1984

and

t h a t t h e c r e d l t o r ' s d e b t

w a s

p r o v a b l e

debt

I n

t h e

l n s o l v e n c y

a d m l n l s t r a t l o n

o f

t h e

d e b t o r .

The

p e t l t l o n

a t p r e s e n t

s t a n d s

a d ~ o u r n e d p e n d l n g t h e o u t c o m e o f t h e a p p l l c a t l o n	now	b e f o r e
t h e C o u r t .

r e t u r n t o w h a t

t o o k

p l a c e

a t

t h e

m e e t l n g

t h e

c r e d l t o r s o f

the

d e b t o r

h e l d

o n

1 2 and

2 6

January

1984

and

2 1 March

1984.

The

m m u t e s

o f

what

t o o k

p l a c e

o n

1 2

J a n u a r y

1984

show

t h a t

t h e d e b t o r

was

q u e s t l o n e d

a t

l e n g t h

c r e d l t o r s a n d

t ha t

p r o v l d e d

the

l n f o r m a t l o n r e c o r d e d I n

t h e

m l n u t e s .

I n

r e l a t l o n

t o

t h e p r o p e r t y

a t

Bungendore

the

m l n u t e s

r e c o r d

f o l l o w s

"Comprlses

4 0 acres p l u s

1 7 s q u a r e

t l m b e r

home.

P r o p e r t y

owned

b y M a n e t t l a P t y .

L l m l t e d

and

c u r r e n t l y

r e n t e d .

The

p r o p e r t y was

t r a n s f e r r e d / s o l d

t o t h e

company

t h e d e b t o r a n d h l s e x - w l f e o n 2 8 t h

J u l y ,

1 9 7 8 .

The

c o n s l d e r a t l o n

was

$75,000.

Payment

was

e f f e c t e d

b o o k e n t r y I n

the

company ' s

r e c o r d s .

a c t u a l c a s h

t r a n s a c t l o n

o c c u r r e d .

The

d e b t o r was

m a r r l e d

t o h l s e x - w l f e

a t

t h e d a t e

of	t h e t r a n s a c t l o n a n d a d v l s e d t h e m e e t l n g t h a t

he was

I n a

s o u n d f i n a n c i a l p o s l t l o n

a t t h a t tlme.

S u b s e q u e n t l y

t h e d e b t o r ' s

I n

the

company

were

t r a n s f e r r e d t o

t r u s t e e f o r

the

c h l l d r e n b y t h e

m a r r l a g e .

Upon

d l v o r c e a

p r o p e r t y

settlement was

e n t e r e d I n

December

1 9 8 1 w h l c h p r o v l d e d f o r

main-

t e n a n c e a n d t h e a f o r e m e n t i o n e d t r a n s f e r o f s h a r e s . "

Under

the head ing

"Yar rawonga P rope r ty /F lo r lda Gardens

P r o p e r t y "

t h e m l n u t e s

r e c o r d

" T h e d e b t o r ,

h l s m o t h e r

a n d o n e

( 1 ) b r o t h e r

are

executors

h l s

f a t h e r ' s

estate.

The

b e n e f l c l a r l e s

are

t h e

d e b t o r

a n d

h l s

t w o

( 2 ) b r o t h e r s .

The

p rop-

e r t y h a s a n e s t l m a t e d v a l u e o f

$ 1 1 0 , 0 0 0

and

i s

t h e

s u b l e c t o f

mortgage

t o C l t i c o r p I n t h e

sum

$ 8 0 , 0 0 0 .

The mor tgage was

ralsed

t o pay

$80,000

t o t h e d e b t o r

a p p r o x l m a t e l y

two

( 2 ) y e a r s

ago .

1 2 .

The

d e b t o r a p p l l e d

t h e

f u n d s

I n r e d u c t l o n o f

his

c r e d l t o r s

a n d

$ 2 3 , 0 0 0

t o

p u r c h a s e p r o p e r t y

a t

F l o r l d a

G a r d e n s .

T h e

u n l t

was

pu rchased

I n

t h e

name

o f h l s p r e s e n t w l f e f o r $ 8 0 , 0 0 0 .

The

p r o p e r t y

was

u l t l m a t e l y s o l d b y t h e m o r t -

g a g e e

I n p o s s e s s l o n

a n d

t h e

d e b t o r h a d

g l v e n

g u a r a n t e e a n d

s h o r t f a l l e v e n t u a t e d

o n

t h e

sa le of

$ 5 6 , 0 0 0

t h e d e b t o r

1 s

now

l l a b l e .

W l t h r e g a r d t o t h e d e b t o r

b e n e f l c l a r y o f

h l s

f a t h e r ' s

es ta te

t h e

d e b t o r m a l n t a l n s h e

1s	n o t e n t l t l e d t o a n y t h l n g b y v l r t u e o f t h e

$ 8 0 , 0 0 0 a l r e a d y r e c e l v e d b y h l m . "

m o t l o n t h a t t h e d e b t o r e x e c u t e

deed under

Par t

o f t h e

Act	w a s	l o s t a n d	t h e r n e e t l n g	w a s	a d j o u r n e d u n t l l	2 6	J a n u a r y
1984.

F u r t h e r

de ta l l s

o f

t h e

q u e s t l o n s a d d r e s s e d t o

the

d e b t o r a n d

t h e a n s w e r s h e g a v e

are

d e p o s e d t o I n

the

a f f l d a v l t

Kel

thur

Bradley

sworn

2 2

May

1 9 8 4 .

I n

r e l a t l o n

t o

t h e

B u n g e n d o r e p r o p e r t y

t h e

following

e x c h a n g e t o o k p l a c e

M r .

B rad ley :

"What were

t h e

c n c u m s t a n c e s o f

the

t ransfer

o f

t h a t B u n g e n d o r e p r o p e r t y

I n	1 9 7 8 ? " .

M r .

Lees:

"It w a s p a r t

o f

a n

es ta te

p l a n n l n g

exerclse	whlch	I	had been adv i sed
t o make. "

M r .

B rad ley :

" A s

a t

J u l y ,

1 9 7 8 was

your marrlage

s t l l l

sound?"

M r .

Lees:

"The

marr lage

was

s t l l l q u l t e sound

and

w a s

n o t c o n t e m p l a t e d

a t

t h a t

s t a g e t h a t t h e t ransfer w a s p a r t o f a n y m a t r l m o n l a l p r o p e r t y s e t t l e m e n t p u r s u a n t t o a break-down I n my re-

l a t l o n s h i p w l t h

w l f e " .

M r .

B rad ley :

"Was

t h e

c o n s l d e r a t l o n

o f

t h e

t r a n s f e r

o f t h e p r o p e r t y t o M a n e t t l a P t y

Llmlted

$75,000

I n

fact

r ece lved by you and

y o u r w l f e ? "

13 .

M r .

Lees:

" I t was

mere ly a

b o o k

e n t r y .

was

d l v o r c e d f r o m

t h e n w l f e l n 1 9 8 1

and a p r o p e r t y sett lement was

reached

b y f l l l n g

S e c t l o n 86 Agreement

I n t h e

Faml ly

Cour t .

That

Agreement

provlded

t h a t

f o r g a v e

the

Company,

M a n e t t l a

P t y

L l m l t e d t h e

debt

w h l c h

t h e

Company

owed

p u r s u a n t t o t h e t r a n s f e r o f

I n t e r e s t

I n

t h e

Bungendore

p rope r ty

a n d t h a t

t r a n s f e r r e d my

s h a r e l n

Man-

e t t l a

P t y L l m l t e d t o a n A c c o u n t a n t

who

would hold

on t r u s t f o r my

c h l l d r e n

o f my

f l rs t marrlage.

Mr.

Brad ley :

"What

t h e p o s l t l o n w l t h

t h e

Bungen-

d o r e p r o p e r t y

now?"

M r .

Lees.

"The

b lock

be lng

4 0

acres w l t h a

1 7

s q

t l m b e r

h o u s e

o n

I t ,

now

r e n t e d

b y t h e

Company,

M a n e t t l a P t y

L l m l t e d

and

f o r m e r w l f e d o e s n o t

l l v e

I n

It .

The f l r m of

Macphlllamy

Cummlns L Glbson

had handled	t h e	t r a n s f e r o f t h e	Bungen-
d o r e p r o p e r t y .

I n r e l a t l o n t o t h e

es ta te

h l s

l a t e

f a t h e r

t h e

d e b t o r

s a l d

"Under t h e W111

of my

l a t e f a t h e r , my

mothe r has

l l f e es ta te

I n t h a t p r o p e r t y a n d

the p r o p e r t y

t h e n t o

d l v l d e d e q u a l l y b e t w e e n m y s e l f a n d

t w o b r o t h e r s

I n

e q u a l

s h a r e s

t e n a n t s

I n

common,

mother 1s aged 72 y e a r s .

I t h m k t h e

p r o p e r t y

w o r t h

a b o u t

$llO,OOO.OO.

I n

a p p r o x m a t e l y

1 9 8 1

o r 1982 t h e p r o p e r t y

was

mor tgaged

fo r $80 .000 .00

t o C l t l c o r p a n d t h o s e f u n d s

were

t h e n l e n t t o

m e

t o

pay my

c r e d l t o r s a n d t o

asslst

I n my

p u r c h a s e o f

Un l t

t he

Coas t .

The

r a l s l n g of

t h e

l o a n

$ 8 0 , 0 0 0 . 0 0

o n t h a t p r o p e r t y a n d

the

l e n d l n g

o f t h a t

sum

t o me

e x t l n g u l s h e s my

e n t l t l e m e n t u n d e r

t h e W 1 1 1

of my

la te f a t h e r .

I have

r eached

ag reemen t

w l th

t w o b r o t h e r s

tha t my

l n t e r e s t I n

t h a t Wlll

has

been

e x t l n g u l s h e d b y t h e l o a n r a l s l n g o n t h a t p r o p e r t y

t o m e . "

t h e

a d - J o u r n e d

d a t e

t h e

d e b t o r

was

f u r t h e r

q u e s t l o n e d .

The

m l n u t e s

read

" M r .

B r a d l e y ,

b e h a l f

G r a n t

Young

a n d h l s

I n s u r e r ,

S t r o n g h o l d

I n s u r a n c e ,

c o n t l n u e d

h l s

q u e s -

t l o n l n g

t o

d e t a l l s o f t h e t r a n s f e r

t h e l a n d

a t

B u n g e n d o r e a n d

t h e d e b t o r ' s

l n t e r e s t

l n h l s

l a t e

f a t h e r ' s

e s ta te .

14.

M r .

Lees

e x p l a l n e d ,

so f a r as

t h e

l a n d a t

Bungendore

w a s

conce rned ,

tha t

h e h a d d l s c u s s e d w l t h h l s

f o r m e r

employers ,

Macphl l lamy

Cummlns

G l b s o n ,

f o r

some

tune

the

a d v l s a b l l l t y o f

e s t a b l l s h l n g

F a m l l y

T r u s t

f o r

t a x

m l n l m l z a t l o n

p u r p o s e s .

M r .

Lees

t o l d

t h e

m e e t l n g

t h a t

t h e f a c t o f

the

m o t o r v e h l c l e

a c c l d e n t

I n 1 9 7 7 ,

h a d n o r e l e v a n c e t o h l s d e c l s l o n t o e s t a b l l s h

T r u s t ,

a l t h o u g h

t h e

h a p p e n l n g o f

t h e a c c l d e n t

d l d

a c t u a l l y

d c l a y

the

fo rma t lon

o f

the

T r u s t

a n d

the subsequen t

t r a n s -

fer

o f t h e p r o p e r t y

a t

Bungendore.

M r .

Lees

r e p e a t e d t h a t

had

In te res t

l n h l s

f a t h e r ' s

Es ta te ,

i t had

been

agreed

between

hlm

a n d

t h e o t h e r b e n e f l c l a r l e s u n d e r

t h c

W111

( h l s

bro thers ) ,

t h a t I n vlew of

large debt

t o C l t l c o r p

F l n a n c e s e c u r e d b y m o r t g a g e o v e r

t h e o n l y

asset

t h e E s t a t e ,

p r o p e r t y a t Yarrawonga,

t h a t he

would

n o t

r e c e l v e a n y

moneys

from

the Es ta te a t t h e tlme of

t h e r e a l l s a t l o n o f t h a t

asset .

The

meetlng

was

a d l o u r n e d f o r

1 5 m l n u t e s

t o e n a b l e

M r .

B r a d l e y

t o o b t a l n f u r t h e r

l n s t r u c t l o n s f r o m S y d n e y .

When

the

mee t lng

was

re -convened ,

M r .

B r a d l e y a n d

Mlss

Reld

l n d l c a t e d t h a t t h e l r l n s t r u c t l o n s

were

t o p u t

m o t l o n t o

t h e m e e t l n g t h a t

M r .

Lees

f l l e h l s

own

P e t l t l o n

I n

B a n k r u p t c y .

H o w e v e r ,

M r .

B r a d l e y

a g r e e d

t o a f u r t h e r a d j o u r n m e n t o f the m e c t l n g t o e n a b l e t h e d e b t o r t o p r o v l d e f u l l p a r t l c u l a r s o f t h e t r a n s f e r

a t Bungendore

and

h l s

I n t e r e s t

I n

t h e Y a r r a w o n g a

p r o p e r t y t o

the

C o n t r o l l l n g

Trus t ee . "

I t

was

r e s o l v e d

" T h a t

t h e d e b t o r p r o v l d e

t o

t h e C o n t r o l l l n g T r u s t e e

o n

o r

b e f o r e

t h e 2 9 t h F e b r u a r y ,

1 9 8 4 ,

a l l r e l e v a n t

detal ls

c o n c e r n l n g

t h e

t r a n s a c t l o n s

w h e r e b y

h i s

l n t e r e s t

the Bungendore and Yar rawonga p rope r t i e s

were

t r a n s f e r r e d o u t

h l s Estate;

T h a t

t h e C o n t r o l l l n g T r u s t e e

c l r c u l a t e

summary

t h e s e d e t a l l s t o

a l l c r e d l t o r s

r e a s o n a b l e

tlme

be-

f o r e

t h e

2 l s t March,

1984;

T h a t

t h e m e e t l n g o f c r e d l t o r s b e a d l o u r n e d t o

t h e

2 1 s t

March,

1984

a t

1 1 . 0 0

a.m.

a t the Canber ra

C lub ,

West

Row,

C a n b e r r a .

C l t y .

A .C .T . "

Mr.

B r a d l e y h a s

f u r t h e r d e p o s e d

t h a t

J a n u a r y

1 9 7 4

s a ld

t o t h e

d e b t o r w o r d s

t o t h e f o l l o w l n g e f f e c t

15.

"Was

t h e r e

any connec t lon be tween you

b e i n g

a p p r l s e d o f

y o u r l l a b l l l t y f o l l o w l n g

t h e

m o t o r v e h l c l e a c c l d e n t

I n

1977

and

the

a r r a n g e -

m e n t s

you

made

I n r e l a t l o n t o

t h e Bungen-

d o r e p r o p e r t y ? "

and

t h e

d e b t o r r e p l l e d

"Some

tlme

p r l o r

t o t h e a c c l d e n t

I n

1 9 7 7 when

I was worklng a t Macphlllamy Cummlns L Glbson,

S o l l c l t o r s ,

h a d

s p o k e n

t o o n e o f

t h e p a r t n e r s

t h e r e ,

M r Stephen

Walmsley

I t h l n k It w a s , a n d

Barr l s te r ,

J o h n

H a m l l t o n ,

I n

r e l a t l o n

t o

es ta te

p l a n n l n g

a r r a n g e m e n t s .

The

a c c l d e n t

d l d n o t I n f l u e n c e

d e c l s l o n t o u n d e r t a k e

t h o s e

es ta te

p l a n n l n g a r r a n g e m e n t s

a t

a l l . "

The

c o n t r o l l l n g

t r u s t e e ,

M r .

K a h l e f e l d t ,

s u b -

s e q u e n t l y

l n f o r m e d

t h e c r e d l t o r s ,

l n c l u d l n g

the

a p p l l c a n t ,

t h a t

l e t t e r

had been

r ece lved

f rom

Messrs. Macphlllamy,

Cummlns

a n d G l b s o n , S o l l c l t o r s ,

t o w h l c h

were

a t t a c h e d

the

le t ter

d a t e d 9

September

1977

from

M r . M.C.

Green t o Messrs.

Macphlllamy,

Cummlns

and Glbson and

the

uns

lgned

and

unda

ted

c o n t r a c t o f

sa le

I n

respect

the

B u n g e n d o r e p r o p e r t y

t o

bo th

wh lch

reference

h a s

a l r e a d y

b e e n

made.

A l s o

a t t a c h e d

t o t h e

l e t te r was

memorandum

o f t r a n s f e r I n

respect

o f

t h e

p r o p e r t y

b e a r l n g

d a t e

J u l y

1 9 7 8 .

The

s l g n l f l c a n c e ,

I f

a n y , o f

t h a t d o c u m e n t h a s n o t b e e n e x p l a l n e d .

A t

t h e a d - ~ o u r n e d m e e t l n g o n

March

1984

t h e

r e s o l u t l o n r e q u l r l n g t h e d e b t o r t o e x e c u t e

deed of

a r rangement

was

p a s s e d .

T h e

t e x t

o f

t ha t

r e s o l u t l o n

has

a l r e a d y b e e n

set

o u t .

16.

The debtor did not place any evidence before the

Court although affidavits had been sworn by him and filed in

the proceedings in support of a notice of intention to ppose

the making of the orders sought by the applicant. He was

represented at the hearing by counsel

who, no doubt on

instructions, did not challenge any of the factual material

put before the Court on behalf of the applicant. Counsel

for the debtor informed the Court that the debtor withdrew

his opposition to the application though he did not consent

to any particular order being made.

The applicant has established to my satisfaction that, at the meeting of creditors called by Mr. Kahlefeldt

in accordance with Division

2 of Part

X of the Act, the debtor

gave misleading information in answer to questions put to

him with respect to the Bungendore property and

I so find.

In the light of the circumstances surrounding the transfer

of that property to Manettia Pty. Limited and the conversations

with the debtor to which Mrs. Hawkins and Mr. Fielden deposed

the evidence as

to which, as I have said, was not challenged

in any way

- the answers which the debtor gave to the

questions put to him were not only less than frank	but were
misleading.

To say, as he did, that in July

1978, when the

transfer of the property to Manettia Pty. Limited was registered, he was in a sound financial position was misleading as at that time he was well aware that a claim for

17.

damages

arising out of the

motor

vehicle accident

6 A p r i l 1977 had

been made

against him

l e t t e r d a t e d

May

1978

and he must have

known

that the claim

was

l i k e l y t o

successful

and

to r e su l t i n h i s be ing l i ab le

f o r a

subs t an t i a l

sum.

A t

the

tune

he had no o ther

a s se t s

su f f i c i en t

t o meet

any

such

claim.

Yet

information concerning	any of these matters	was disclosed
to the c red i to r s .

It was

a l s o , i n

view, misleading

inform

the c red i tors tha t the

Bungendore

property had been

t ransferred to Manet t ia

P t y .

Limited as "part of an

estate planning exercise" (as

sa id on

12 and

26 January

1984)

or as "a

Family

Trust

for tax minimization purposes"

(as he sa id on 26 January 1984) .

i s ,

think, of great s ignif icance that

evidence

was

placed before the Court

o r

on behalf of

the debtor directed

t o

es tab l i sh ing the ex is tence , o r the

carrying out , of

any

such

purpose.

The

only

inference

from the evidence

i s tha t the proper ty

was

not t ransfer red

f o r

any

such purpose as that referred to

the debtor

a t the meet ing of credi tors .

There can be

doubt

t ha t t he

whole of

the

circumstances surrounding the transfer of the

Bungendore

property to Manettia

P t y .

Limited

would

have been very

18.

". ?

material to the considerat ion

the c red i to r s

of the

course which they

should

require

the

debtor

take.

The

property has

market value, according to the undisputed

evidence

before

the Court, of between

$ 1 2 0 , 0 0 0

and

$125,000.

It i s subjec t

a mortgage

to C i t i co rp

Australia Limited but there

i s no

evidence as

t o the

amount outstanding

thereunder.

But even i f

t h e

whole,

or substantially the whole, of the principal

sum

$ 4 0 , 0 0 0

i s

outs tanding, the credi tors

would

l i k e l y t o

bene f i t t o

subs t an t i a l ex t en t i f t he deb to r ' s sha re in

that property

is t o be

ava i l ab le to

meet

t he i r deb t s .

a lso sa t i s f ied tha t the debtor omi t ted

from

the statement of his affairs under section

195

the

Act

par t icu lars concern ing h is in te res t

i n

the es ta te of

his la te fa ther a l though his omission

was

corrected before

the credi tors voted

upon

the resolut ion that the debtor

execute

deed of arrangement under Part

of the Act.

incl ine to the view,

however,

that

this omission

was

not mater ia l in the re levant sense

t h e e s t a t e

of the debtor 's

l a t e f a t h e r

i s

c l ea r ly

c red i tor of the debtor in

subs t an t i a l sum.

In the view

I have taken

in re la t ion

to the

Bungendore

property i t i s unnecessary to pursue

this

aspect

the matter

fur

ther

For

the reasons se t ou t

above

s a t i s f i e d

tha t

would

i n t h e i n t e r e s t s o f t h e c r e d i t o r s

of the

debtor to declare the deed of arrangement executed by the

debtor on

6 April 1 9 7 7 to be void (paragraph 222(4)(a)

of the Act) and

I so declare.

In those circumstances the question arises

whether a summary sequestration order should be made against the estate of the debtor pursuant to sub-section

222(7)

of the Act. There is ample material before the

Court to justify the making

of such an order.

It is

clear that the debtor is insolvent and that it is in the

interests of the creditors that a sequestration order be

made.

No reasons have been advanced by the debtor

against the making

of such an order. I, therefore, make

a sequestration order against the estate

of the debtor.

Reference should be made,in passing, to sub-section

222(9) of the Act which provides

"(9)	The making of an application by the trustee or

a creditor for a sequestration order under this

section shall, for the purposes of this Act, be

deemed to be equivalent to the presentation

of a

creditor's petition against the debtor, but the

provisionsof sub-section

4 3 ( 1 ) , sections 44 and

4 7 , sub-sections 52(1) and (2) and Part XIA do not

apply in relation to such an application."

That sub-section does not expressly provide that the

provisions of sub-section 52(1A) do

not apply to an

application for a sequestration order under section 222.

However, as sub-section 52(1A) is expressed to limit the

Court's power to make a sequestration order under sub-

20.

section 52(1) and the provisions of that sub-section

do not apply to an application for

a sequestration

order under section

222, the better view would seem

to be that sub-section 52(1A) is equally inapplicable.

In any event in the present case

a registered trustee,

Mr. Robert Yeomans,

has, by instrument dated 20 March 1984

signed by him and filed with the Registrar pursuant to

sub-section 156A(1), consented to act as the trustee

of the estate

of the debtor in the event that he becomes

a bankrupt. That consent has not been revoked.

It is true

that the consent was filed not in the present proceedings

but in the proceedings instituted by the creditor's

petition which was presented against the debtor by the

applicant on 21 March

1984, the hearing of which stands

adjourned pending the determination

of the present

proceedings. That circumstance, however, seems	to me to
be not material.

The question was raised by counsel for the

debtor whether, in the event of

a sequestration order

being made, the Court should appoint Mr. Kahlefeldt,

the trustee under the deed of arrangement

now declared

void, to be the trustee under the bankruptcy administration

of the debtor's affairs.

Paragraph 156A(3)(a) provides that, where

the time when

a debtor becomes a bankrupt, a registered

trustee has, under sub-section 156A(1), consented to act

as the t ru s t ee o f t he e s t a t e

of the debtor and the

consent

has

not

been

revoked,

the

registered

trustee

becomes,

a t t h a t t i m e ,

force of

the

sub-section,

the

t ru s t ee

t h e e s t a t e

the

bankrupt.

Paragraph

156A(3)(a) is not excluded

from appl ica t ion by sub-section

2 2 2 ( 9 )

and,

my opinion, i t operates according

i t s tenor to

make

M r Yeomans

the trustee of the bankrupt

e s t a t e and

declare .

c e r t i f y t h a t t h i s

and

the preceding

twenty-one (21) pages

are

a t rue copy

of the Reasons for

Judgment

herein

the Honourable

M r .

J u s t i c e Neaves

Dated: 31 August 1984

[1984] FCA 261

31 Aug 1984