Reeves, D.J. v Donnelly, M.C

[1990] FCA 264

IN THE FEDERAL COURT OF AUSTRALIA	) )
BANKRUPTCY DISTRICT OF THE	) No NB 1208 of 1985
STATE OF NEW SOUTH WALES AND	1
THE AUSTRALIAN CAPITAL TERRITORY	)

Re	:	DAVID JACK REEVES
( BANKRUPTCY)

Debtor

EX Parte : MAX CHRISTOPHER

DONNELLY

Applicant

BENEFICIAL FINANCE

CORPORATION LIMITED

Respondent

Einfeld J 7 Mav 199Q

This is an application by the trustee of the estate of the bankrupt, David Jack Reeves, for a declaration that an amount of $7500 received by Beneficial Finance Corporation Limited, the respondent, on or about 15 February 1985 and said to have originated from the proceeds of a property at 580 St Kilda Road, Melbourne, is void as against the trustee because of the operation of section 122(1), of the Bankruptcy Act.

The sum of $7500 was an amendment of the original application which sought $30,000. The evidence reveals that, in fact, a payment of $30,000 was made to Beneficial Finance at about this time, but it appears that the bankrupt's share of that $30,000 was only one quarter or $7500. It is a matter of allowed to occur because the respondent may well have taken a some concern that a discrepancy of this kind should have been

d i f f e ren t position i n relation t o the l i t iga t ion i f it had known, prior t o today, that the amount actually being sought was so much less than the amount being sought i n the application.

However, the question a t issue must nonetheless be resolved, and th i s requires an attention t o the various elements or criteria o f the sub-section under which the application i s brought.

Section 122 ( 1 ) states:

A conveyance or transfer o f property, a

charge on property, or a payment made, or an obligation incurred by a person who i s unable t o pay h i s debts a s they become due from h i s own money ( i n t h i s section

referred t o as "the debtorw), i n favour o f

a creditor, having the e f f e c t o f giving

that creditor a preference, priori ty or advantage over other creditors, being a conveyance, transfer, charge, payment or obligation executed, made or incurred-

(a)	within 6 months before the presentation o f a petition on which, or by virtue o f the presentation o f which, the debtor becomes a bankrupt; or
(b )	on or a f t e r the day on which the petit ion on which, or by virtue o f presentation o f which, the debtor becomes a bankrupt i s presented and before the day on which the debtor becomes a bankrupt,

i s void a s against the trustee i n the
bankrupt.

There is no doubt and no dispute that the payment of $7500 was made, in the sense that $30,000 was paid and that the bankrupt's share of that was one quarter. The first question is: was it made by the bankrupt?

The respondent argues that the payment must be by the debtor from his own property, and instances a document which seems to indicate that the property in St Kilda Road, Melbourne, the apparent origin of the $30,000 of which the $7500 was a part, was not in any way beneficially owned by the bankrupt. It is admitted that he was one of the legal owners of the property, but a document in evidence would seem to establish that he was not entitled to the proceeds from its sale.

It does not seem to me that the sub-section requires an identification of the source from which the payment was made. It will suffice, for the purposes of the section, if the

bankrupt or debtor - from moneys which he has. There is	payment is made by the person concerned - in this case, by the	certainly no evidence, or what there is is quite unsatisfactory, to establish that the debtor had an entitlement to any identifiable proceeds from the sale of the St Kilda Road property.
The evidence does show that, after the sale of this property, there was an accounting by the solicitor who had acted in the matter on behalf, apparently, of the debtor, his wife, and the other joint owners - people named Gearing - who also appear to have shared in the beneficial ownership. That accounting establishes that the Gearings received a sizeable sum of money from the sale of something over $350,000, but that nothing was received by Mr and Mrs Reeves, in particular by Mr Reeves, the debtor. The solicitor's settlement details also show that Beneficial Finance did receive the $30,000, but as I have said, that matter is not disputed and is, in any case, evidenced by other material before me.
The question that has to be considered here is whether the payment of the $30,000 included any amount which if it had not been paid to Beneficial Finance, or had been paid in other ordinary circumstances not involving bankruptcy and other problems, would have gone to the debtor personally.
The debtor was one of the vendors named in the contract of sale, and as I have said, has been identified as a legal owner
of the property without any entitlement to the proceeds. Thus what has first to be determined is not so much what were the entitlements of the people on the sale of the St Kilda Road property, but whether Mr Reeves was the person who paid, from whatever source, the $7500 share of the $30,000 payment.
A second question which arises in this matter, as required by the section, is whether it has been established that Mr Reeves was unable to pay his debts, as they became due, from his own money.
It is said on behalf of the applicant that this insolvency is established in substance by two pieces of evidence: one is a petition on 18 June 1984 lodged against Mr Reeves by the ANZ Bank for an amount of just under $4000 pursuant to a judgment obtained in the Court of Petty Sessions at 302 Castlereagh Street, Sydney; and secondly, his affidavit verifying his statement of affairs dated 30 April 1986 which set out his financial position as at 10 December 1985.
This statement of affairs showed a deficit of liabilities over assets of almost $1,000,000. Hence the applicant says that as at the date of the payment to Beneficial Finance on 15 February 1985, I should glean that the debtor could not pay his debts from his own money.
The respondent replies to that particular submission by drawing attention to the fact that virtually all the debts to
unsecured creditors shown by the statement of affairs were under guarantees and it is not clear whether these guarantees were being called upon and if so when the liability was to have or would have arisen.
~t is certainly not clear that he was under an immediate obligation to make the payments under these various guarantees. An analysis of those amounts reveals a series of questions rather than answers which may have to be resolved by relying upon the onus of proof that might arise in the various aspects of the matter. For example, the ANZ Banking Corporation had a guarantee for just under half of the total amount owing in the sum of $440,000, yet all it petitioned for in the bankruptcy petition of 18 June 1984 to which I have referred was $4000. Just what was the position in relation to the balance of the debt is not known to me.
A further $243,000 was a debt to Mr Donald R. Colville, one of the guarantors, who was responsible for the $30,000 payment to Beneficial Finance and yet whose share does not seem to have been used to reduce or identify the share of Mr Reeves in some other way, by reason, it is said, of the fact that he was not one of the vendors of the St Kilda Road property.
A further $250,000 of the guarantees identified by Mr Reeves in his statement of affairs was said to be owed to or
potentially payable to or on behalf of a company called Lenwild Pty Ltd which seems to have been, from the evidence in this case, one of the beneficial owners of the St Kilda Road property according to the evidence.
I must confess to not quite understanding this aspect of the
submission, but in the event it does not matter with the

result in this case. The fact is that Mr Reeves' indebtedness becomes a little incestuous and somewhat difficult to resolve. It will suffice to say that those three potential aspects of liability on the part of Mr Reeves total just over $930,000 against the $954,900 that represented his indebtedness.

There is no challenge to the proposition that the primary onus under section 122 lies on the trustee to establish the various elements that are required to be made out. The first two that I have mentioned, namely, whether the payment of the $7500 share of the $30,000 was made by M r Reeves himself, and whether he has been shown to be unable to pay his debts, fall under the spell of that onus. I find myself unable to be satisfied on the balance of probabilities that either of those aspects of this matter have been adequately established.

It seems to me that if I draw the conclusion that Mr Reeves is insolvent as at the date of the payment, it virtually follows that he could not have made the payment of the $7500 out of

produced, that $7500 showed up as having been borrowed from	his own funds unless when the statement of affairs was
someone else and that lender had shown up as a creditor at a later time. Again, the onus would be on the trustee and I cannot see that that onus has been discharged.
In fact, looking at the statement of affairs, although one can find $7500 by doing some mathematical gymnastics among the amounts which are set out there, there is absolutely no reason at all why I should perform such an exercise. Nor has the trustee argued that it would be appropriate that I do so and that I should draw the conclusion that the payment was obtained from some other source other than the sale of the St Kilda Road property.
There is no evidence that, for example, Mrs Reeves, who was also a vendor, received any money from the sale of the St Kilda Road property. Yet she was as much, or as little, entitled as her husband. As I have observed, the settlement statement and the accompanying documents which are in evidence do not establish that the Reeves obtained any money at all from that sale. It is possible that some payment to them is hidden somewhere among the figures that are contained in the settlement statement and the accompanying documents, but I do not think that it is appropriate that I should fossick around among the payments to try to identify matters when in a civil action the onus clearly lies on one party to establish to the satisfaction of the Court that the point
being advocated is established by that evidence.
Because of these conclusions it is not necessary for me to give attention to the other submissions that have been made which include that there was no preference or advantage given to Beneficial Finance over other creditors, because it seems to me that the applicant has not satisfactorily established its entitlement to the declaration which it seeks under the primary or more fundamental questions that the section
requires to be established. Nor is it necessary for me to deal with the submission made on behalf of the respondent that by the operation of section 122 ( 2 ) , it was entitled to maintain the payment because it was a payee in good faith for valuable consideration acting in the ordinary course of business, and perhaps in reliance upon other provisions of that subsection.
For those reasons it appears to me that the application must fail. It will therefore be dismissed. I order that the applicant pay the respondent's costs, including any reserved costs.

preceding psges are a true copy of the	I certify that this and the c 3 k t
Reasons for Judgment here~n of hls Honour

Justice E~nfeld I