Shaw, Bryan George Ex Parte Andrew, William Edward ANZ Banking Group Ltd

[1977] FCA 83

Re SHAW; Ex parte ANDREW v. AUSTRALIA AND NEW ZEALAND BANKING GROUP LTD.
(1977) 31 FLR 118
*(Editor's Note. This report is published without the approval
of Mr Justice Riley who died on 4th August, 1978.)
Bankruptcy

COURT

FEDERAL COURT OF AUSTRALIA

Riley J.(1)

CATCHWORDS

Bankruptcy - Preference to creditor - Control of debtor's account by bank for purpose of clearing overdraft - Whether preference to creditor - Whether bank payee in good faith - Bankruptcy Act 1966-1973, ss. 122, 231.

HEADNOTE

The debtor executed a deed of assignment under Pt X of the Bankruptcy Act 1966-1973 on 23rd October, 1974, the resolution under s. 204 of the Act being passed on the same day. The debtor, and several companies under his control, banked with the respondent. In 1962, the debtor had entered into an agreement with the respondent by way of letter of set-off, whereby the bank was given full control of the debtor's accounts with it. By 8th July, 1974, the debtor's account was overdrawn by $53,080.64, the agreed limit being $50,000, and the respondent assumed control of the account by closing it and opening a new account, which was to remain in credit, with the ultimate aim of clearing the overdraft. On 12th September, 1974, a cheque for $61,871.32 was deposited in the new account. On 23rd September, 1974, the bank debited the sum of $57,600 to the new account and transferred it to a suspense account as a set-off against the debtor's liability to the bank. The debit balance in the old account was reduced by $1,264.98, from $53,080.64 to $51,855.66, by deposits on 27th September, 1974, and 20th November, 1974.

The trustee of the deed of assignment sought a declaration that the payment of $61,871.32 to the new account was a preferential payment (to the extent of the debtor's indebtedness) to the respondent bank, within s. 122 of the Act. Alternatively, the trustee sought a declaration that the debiting of $57,600 to the new account by the respondent as a set-off against the debtor's liabilities constituted a preferential payment, and further that the sum of $1,264.98 was payable to the trustee on the principle of Rees v. Bank of New South Wales (1964), 111 CLR 210.

Held: (1) A payment was made of either $61,871.32 or $57,600 and within s. 122 of the Act it was made within six months before 23rd October, 1974, it was in favour of a creditor and had the effect of giving that creditor a preference, priority or advantage over other creditors.

(2) Independently of any letter of set-off, the bank had a right to combine the two accounts and set off the debit in the old account against the credit in the new account, the old account being frozen when the new account was opened.

Halesowen Presswork and Assemblies Ltd. v. Westminster Bank Ltd., (1971) 1 QB 1; Re E.J. Morel (1934) Ltd., (1962) Ch 21, referred to.

(3) A payment of $61,871.32 within s. 122 (1) was made either on 12th September, 1974, when a cheque for that amount was both deposited in and credited to the debtor's new account, or on 13th September, 1974, when the cheque was presented for payment, and not on 23rd September, 1974, when the bank debited the new account with $57,600 and transferred it to a suspense account. On 12th September, 1974, and if not then, on 13th September, 1974, the debtor was no longer able to deal with the moneys deposited, and they were in the bank's control.

Garnett v. M'Kewan (1872), LR 8 Exch 10, referred to.

(4) On the facts on either 13th, 14th or 23rd September, 1974, the debtor was unable to pay his debts as they became due out of his own money.

(5) The bank must be deemed, in accordance with s. 122 (4) (c) of the Act, not to be a payee in good faith, and therefore not entitled to the protection of s. 122 (2) of the Act. On whatever date in September 1974 the payment was made, the bank had reason to suspect, if it did not know, that the creditor was unable to pay his debts as they became due, and that the effect of the payment in question would be to give it a preference over other creditors.

(6) The payment to the new account of $61,871.32 should be declared void to the extent of $58,864.98 as against the trustee, and the amount of $1,069.08 to the credit of the debtor's new account should be declared to be property of the debtor divisible amongst his creditors.

HEARING

Sydney, 1977, May 11; August 5, 19; November 14. #DATE 14:11:1977

APPLICATION.

The material facts appear from the judgment.

D. Bennett-Fletcher, for the applicant.

P. Young, for the respondent.

Cur. adv. vult.

Solicitors for the applicant: Lobban, McNally & Harney.

Solicitors for the respondent: Norton Smith & Co.

JUDGE1

November 14.

The following judgment was delivered.

RILEY J. Bryan George Shaw executed a deed of assignment under Pt X of the Bankruptcy Act 1966-1973 on 23rd October, 1974. The date when the relevant resolution under s. 204 (1) (b) was passed is not shown by evidence formally adduced before me on the hearing of this application, but it is shown by the certificate filed pursuant to s. 204 (7) to have also been 23rd October. Mr. W. E. Andrew is the trustee of the deed. His application to the court for certain declarations is primarily based on s. 122 of the Act, which by s. 231 (2) applies, in the events which have happened, in relation to the deed of assignment as if on 23rd October, 1974, a sequestration order had been made against Mr. Shaw on a creditor's petition presented that day, and which avoids as against the trustee certain transactions as having the effect of giving a creditor a preference, priority or advantage over other creditors. The creditor alleged to have been preferred is the Australia and New Zealand Banking Group Ltd., the banker for Mr. Shaw and for certain companies controlled by him. The companies concerned were called Talga Ltd., Australian Memorial Parks Pty. Ltd., Mekol Pty. Ltd. and Bidges Pty. Ltd. I shall call them respectively Talga, Parks, Mekol and Bidges. (at p120)

1. Mr. Shaw and the companies banked with the respondent's branch at Martin Place and George Street, Sydney where on behalf of the bank the assistant manager, Mr. Stapleton, had the effective conduct of their affairs. (at p120)

2. On 1st October, 1962, Mr. Shaw had given the bank a letter of set-off, which was still operative at all relevant times. So far as it is material, it reads as follows: "I hereby acknowledge the right of the bank at any time without notice to me to apply the whole or any part of any balance that now or at any future time may stand to my credit in any account to payment of any balance that may be to my debit in any other account, and to close all or any of such accounts, and whether any book entries shall or shall not have been made to treat such credit balance as having been so applied and to deal with my drawings thereon accordingly". (at p120)

3. On 8th July, 1974, Mr. Shaw's account (which I shall call his No. 1 account) was overdrawn by $53,080.64. That account and the accounts of the companies as a whole were in an unsatisfactory state having regard to the arrangements with the bank under which they were being operated. Mr. Stapleton therefore concluded that the accounts should be controlled. Accordingly a procedure was adopted which Mr. Stapleton described as follows in his affidavit of 29th July, 1977: "It is a practice of the respondent in the course of controlling its customers' accounts to control the customer's activity by closing a then current account and opening a new account often styled the No. 2 account which must then remain in credit. In such circumstances, it is normal practice to seek regular reductions to the debtor account or other arrangements for clearance of the borrowing". (at p120)

4. So Mr. Shaw's No. 1 account was closed and a No. 2 account was opened. Relevant movements on those accounts, as shown by the relevant bank statements, can be summarized as follows:
   
   No. 1 account Balance
   

$ $

8th July: 53,080.64 Dr

21st Aug: Overdraft service fee 40.00 Dr 53,120.64 Dr

23rd Sep: 53,120.64 Dr

27th Sep: Deposit 1,260.00 Cr 51,860.64 Dr

20th Nov: Deposit 4.98 Cr 51,855.66 Dr

22nd Nov: 51,855.66 Dr

No. 2 account

8th July: 0.00 Cr

12th Sep: Deposit 61,871.32 Cr 61,784.32 Cr

23rd Sep: Debit 57,600.00 Dr 3,981.97 Cr

24th Sep: 1,077.97 Cr

25th Oct: 1,068.72 Cr

8th Nov: 1,069.08 Cr

22nd Nov: 1,069.08 Cr (at p120)

1. The trustee's claims may be conveniently stated as follows. (at p121)

2. When the deposit of a cheque for $61,871.32, representing the proceeds of the sale of cattle, was made to the No. 2 account on 12th September, or at any rate on 13th September when the cheque was cleared, the bank was entitled by reason of the letter of set-off of 1st October, 1962, and the general law (see Halsbury, vol. 3, 4th ed., par. 87) to apply that amount or a sufficient part of it in discharge of Mr. Shaw's then existing liability to the bank. Therefore, it is said, the payment of the $61,871.32 was a preferential payment within the reach of s. 122 to the extent of that indebtedness, which is said to be $58,865.98 but was in fact $58,864.98. (at p121)

3. Alternatively it is said that, in the exercise of its right to combine the No. 1 and No. 2 accounts, or to set-off the debit in the No. 1 account against the credit in the No. 2 account, and thus be liable to the customer only for the balance, the bank did in fact on 23rd September debit $57,600 to the No. 2 account and transfer it to a suspense account to be used as a set-off against Mr. Shaw's liabilities to the bank (see annexures "D" and "E" to the trustee's affidavit of 29th March, 1977), and thus there was a preferential payment of $57,600. (at p121)

4. Next, the trustee says that on 21st August the debit balance in the No. 1 account was $53,120.64 and on 22nd November it was $51,855.66. The amount of the reduction (said to be $1,265.98 but in fact being $1,264.98), represented by the two amounts shown above as credited to the No. 1 account, he therefore claims on the principle of Rees v. Bank of New South Wales (1964) 111 CLR 210 . This claim is cumulative on the claim for $57,600. (at p121)

5. Last, there is the final balance of $1,069.08 which stood to the credit of the No. 2 account. The bank does not contest the trustee's claim that that amount was either a preferential payment within s. 122 or property of the debtor divisible amongst his creditors. (at p121)

6. In this case, the matters for decision under s. 122 (1) are: (1) whether there was a payment made; (2) by a person who was unable to pay his debts as they became due from his own money; (3) in favour of a creditor; (4) having the effect of giving that creditor a preference, priority or advantage over other creditors; (5) being a payment made within six months before 23rd October, 1974. If each of those matters is answered in the affirmative, the further question will arise whether the bank is, as it claims to be, nevertheless entitled to the protection of s. 122 (2). It would be so entitled if it could prove that it was a payee in good faith and for valuable consideration and in the ordinary course of business: s. 122 (2), (3); but the trustee contends that the bank cannot get that protection because the payment, whenever it was made, was made under such circumstances as to lead to the inference that the bank knew or had reason to suspect that Mr. Shaw was unable to pay his debts as they became due from his own money and that the effect of the payment would be to give the bank a preference, priority or advantage over other creditors. (at p122)

7. It was not disputed that a payment was made either of $61,871.32 or of $57,600, or that it was made within the relevant period of six months, or that it was made in favour of a creditor and had the effect of giving that creditor a preference, priority or advantage over other creditors. The remaining questions arising under s. 122 (1) are when the payment was made, and whether at that time the debtor was unable to pay his debts as they became due. (at p122)

8. Independently of the letter of 1st October, 1962, the bank had a right, there being no agreement with its customer to the contrary, which entitled it as soon as Mr. Shaw opened a second current account to combine the two accounts whenever it pleased and set-off the debit in one account against the credit in the other. (See Halesowen Presswork and Assemblies Ltd. v. Westminster Bank Ltd. (1971) 1 QB1, at p 34 per Lord Denning M.R., whose statement of principle remains unaffected by the reversal of the decision by the House of Lords (1972) AC 785 ). The letter of 1st October, 1962, confirmed the existence of that right. It also established that the right could be exercised without notice to Mr. Shaw and that, whether or not any book entries had been made, the bank could treat a credit balance as having been applied to payment of a debit balance and deal with any drawing accordingly. (at p122)

9. It was not suggested that the bank's right to combine accounts did not apply to the No. 1 and No. 2 accounts because when the latter was opened the former was frozen: see Re E. J. Morel (1934) Ltd. (1962) Ch 21, at pp 23, 30-32 ; and it appears from a letter from Mr. Shaw of 24th September, 1974, and the bank's reply of 1st October, 1974, that the arrangement was that the right should apply to those two accounts. (at p122)

10. Counsel for the trustee submitted however that set-off, and therefore payment for the purposes of s. 122 (1), did not occur until on 23rd September the bank actually debited the No. 2 account with $57,600 and transferred that amount to a suspense account. (That later date simplified his submission that Mr. Shaw was insolvent when the payment was made.) He proposed this test: if on say 20th September, when there was a credit balance of $61,581.97 in the No. 2 account, Mr. Shaw had drawn a cheque for $60,000 on that account, would the bank have been bound to honour it? Counsel suggested that it would. I do not think so. At that time there was a debit balance of some $53,000 in the No. 1 account, and, "The customer must be taken to know the state of each account, and if the balance on the whole is against him or does not equal the cheques he draws, he has no right to expect those cheques to be cashed": Garnett v. M'Kewan (1872) LR 8 Ex 10, at p 13 per Kelly C.B. (at p123)

11. Mr. Stapleton gave evidence the effect of which was that in the normal course of events if a cheque is deposited to a customer's account, and credited to that account on 12th September (as was the cheque for $61,871.32, which was drawn on the Wales House branch of the Bank of New South Wales) the credit entry is treated as provisional until the time for dishonour has elapsed, the cheque would be presented for payment on 13th September, and the paying bank would have twenty-four hours after presentment in which to dishonour it. There is no evidence of departure in this case from the normal, and therefore the funds represented by the cheque for $61,871.32 became available to the respondent bank on 14th September, and on that date Mr. Shaw, by having paid the cheque for $61,871.32 into his No. 2 account on 12th September, accordingly put the bank in a position in which it could exercise its right to combine the accounts. In my opinion, on that date, and if not on that date then on 13th September, a payment of $61,871.32 was made within s. 122 (1). (at p123)

12. If I am wrong in that view, then I think the relevant payment was made on 23rd September when the bank appropriated $57,600 from the No. 2 account to set-off against Mr. Shaw's indebtedness. In doing so, in my opinion, it acted as his agent pursuant to the letter of 1st October, 1962. (at p123)

13. I turn now to consider whether Mr. Shaw was at either of the relevant dates in September unable to pay his debts as they became due from his own money. In my opinion he was in that state on both dates. (at p123)

14. At all relevant times Mr. Shaw was a solicitor with an interest in each of two practices. Through the companies, each of which seems to have had an attendant group of companies, he also had interests in various commercial, pastoral, construction and other enterprises. His affairs and those of the companies were inextricably interwoven and he was heavily engaged in their financial arrangements as guarantor. The bank's standard form of guarantee states the extent of the guarantor's liability in a single sentence. That is not to say, however, that the bank can be accused of being unduly laconic: the sentence runs for fifty-seven lines of print and contains probably some 1,200 words. Patient analysis reveals embedded in it a provision that the guarantor of a customer guarantees the payment by the customer to the bank of all sums owing by the customer to the bank in respect of any guarantee given by the customer to the bank. Mr. Shaw had guaranteed the accounts of Mekol and Bidges with the bank and as a result was also guarantor of Parks and Talga. He had also given guarantees to FNCB-Waltons Finance Ltd. and a company called Cadea (No. 7) Pty. Ltd. (at p124)

15. On 23rd July, 1974, Mr. Shaw's accountant submitted to the bank a statement (Ex. F) of Mr. Shaw's estimated assets and liabilities as at 9th July, 1974. It showed the following: Assets $ Interest in legal practices 46,662 Cattle 250,000 Shares in Legal Holdings Ltd. 69,706 Other 71,000 $437,368 Liabilities: $ ANZ Banking Group Ltd. 53,081 Owing to B.G. & E.J. Shaw Farm
    

Partnership 23,574 Owing to associated companies: Tisami Pty. Ltd. Group 14,320 Mekol Pty. Ltd. Group 153,310

Legal Holdings Pty. Ltd. 20,798 188,428 Other 18,800 $283,883 Net assets $153,485 (at p124)

21. The document also stated that no allowance had been made for contingent liabilities as at 8th July, 1974, in respect of the following guarantees: (a) To the ANZ Banking Group Ltd. in respect of advances to

$

the Mekol Group 324,000 the Talga Group 409,000 Bidges 148,000 (b) Guarantees in respect of advances to Talga Ltd. by M.B.C. International Ltd. and Cadea (No. 7) Pty. Ltd. 5,000,000 (c) Guarantees in respect of advances by FNCB- Waltons Finance Ltd. to:

(i) Nuninuna Pastoral Co. Pty. Ltd. 488,750 (ii) Cloontyclogher Pastoral Co. Pty. Ltd. 446,250 (d) Other guarantees 151,900 (at p124)

1. It was known by 14th August, 1974, that Mr. Shaw's cattle valued at $250,000 and cattle belonging to Mekol valued at $50,000 would together realize on sale only $110,000, and therfore that Mr. Shaw's cattle were worth only about five-sixths of that amount - i.e. less than $92,000 - so that that asset had decreased in value by $158,000. And on 12th September Cadea (No. 7) Pty. Ltd. served on Mr. Shaw a document requiring him to pay $5,000,000 pursuant to his guarantee of advances to Talga. At that stage Mr. Shaw had available to him nothing like sufficient resources to meet his liabilities. In cross-examination he was asked whether before receiving that notice he was paying his debts. He replied, "No, I was not. By the last few days of August I was in a very distressed condition, and I believed that there was no way out of my financial problem". It also appears from an affidavit sworn on 10th August, 1977, by the trustee that creditors have proved for debts amounting to at least about $23,000 which had been incurred before 9th July, 1974, and were not included in the liabilities shown in Ex. F as existing at that date. (at p125)

1. Furthermore, early in July 1974 there was submitted to the bank a cash flow budget (Ex. E), for the period from 24th June to 31st December, 1974, in respect of Mr. Shaw and the family company Tisami Pty. Ltd. which he controlled and which held most of its assets on discretionary trusts. That document showed estimated receipts and outgoings for every month from June to December, both inclusive and the total for the seven months. It may be summarized by the following table: $,000 Jun Jul Aug Sept Oct Nov Dec Total
   Receipts Repayments by Talga 8 26 42 76 Repayments by Mekol 250 250 Sale of cattle 40 309 349 Other 18 3 21 8 58 309 - 3 26 292 696
   Outgoings Repay FNCB-Walton 489 489 Other 8 34 62 6011 30 17 222 Total 8 34 62 6011 30 506 711 Surplus - 24 247 - - - - - Deficit - - - 60 8 4 214 15 (at p125)

2. As I have said, it was known by 14th August that by the end of August the sale of cattle would bring not $349,000 but only $110,000. It followed that the surplus accumulated at the end of August would be not $271,000 but only $32,000. According to the budget September and October would bring in only $3,000. But during those months outgoings would be respectively $60,000 and $11,000. On 12th September Cadea (No. 7) Pty. Ltd. appointed a receiver to Talga. Therefore, taking a longer view, it became improbable that the $76,000 due to be repaid by Talga in November and December would in fact be received. A letter from Mekol to the bank dated 3rd July, 1974, had made it clear that Mekol was heavily dependent on the prosperity of Talga and was "in a position to fund its requirements to 30th November at least, by calling upon Talga for progressive repayments of amounts owing by that company". So it was also improbable that the $250,000 due to be repaid to Mr. Shaw and the Tisami Group in December by Mekol would be received. And in that month $489,000 would be payable to FNCB-Waltons Finance Ltd., which had lent that amount on mortgage to a company called Nuninuna Pastoral Co. Pty. Ltd. That loan had been repayable on 17th May, 1974, and was jointly and severally guaranteed by Mr. Shaw, Tisami and Talga. The lender had granted an extension of time for six months. (at p126)

3. At no time were the moneys available to Mr. Shaw sufficient to enable him to meet his liabilities. In my opinion, whether one considers the position as at 13th or 14th September, 1974, or as at 23rd September, 1974, and whether one then takes a view of the future extending for one month or for three, Mr. Shaw was not able to pay his debts as they became due out of his own money. (at p126)

4. Finally, in my opinion, the bank must be deemed, in accordance with s. 122 (4) (c), not to be a payee in good faith, and therefore is not entitled to the protection of s. 122 (2). (at p126)

5. On 8th July, 1974, though the account of Mr. Shaw himself was overdrawn by only some $3,000 over his agreed limit of $50,000, the accounts of Talga, Parks, Mekol, Bidges and Mr. Shaw were in total overdrawn by $144,815 beyond their combined credit limits of $763,000. That state of affairs deepened the concern which it is apparent Mr. Stapleton had been feeling for more than a month and which he expressed thus in a diary note made on 28th June when recording an interview he had with Mr. Shaw and others connected with the companies: "It was explained . . . that we were very concerned about the present position of the Talga and Mekol group firstly, because of the present economic climate, secondly, because the balance sheet of Talga as at 30th April shows a very overweighted position and thirdly, we are unable to obtain from the company any worthwhile information as to what is proposed regarding clearance of all the accounts or details of a cash flow for each company to demonstrate what funds are liable to flow in. It was pointed out that we have sought this information for more than one month but to date are no better informed". (at p126)

6. There was a further interview on 3rd July when balance sheets and cash-flow projections were submitted for each of the accounts in the group. Mr. Stapleton's diary note of this interview is lengthy. It noted as to Talga that its position had deteriorated in as much as liabilities had increased by $2,000,000, and that it was being proposed in effect that the bank should forego a security valued at about $380,000 - a proposal which Mr. Stapleton described as "really ridiculous". As to Bidges and Mr. Shaw, Mr. Stapleton noted as follows: "Balance sheets presented here do not show a strong position and the accompanying cash flow shows that the debts in these two accounts will be cleared from sale of cattle by Mr. Shaw, which sale is expected to realize $349,000 by the end of August. The accompanying letter suggests that the overdraft be frozen and separate accounts be opened pending clearance of overdraft from sale of livestock. The cash flow also shows that this group is expecting to receive $250,000 loans repayable by Talga Group in December". As to Mekol, Mr. Stapleton noted that unaudited balance sheets as at 30th April showed an effective capital deficiency of $57,000, which he said, "could be very much higher depending on the realizable worth of investments and loans to shareholders. The company has accumulated losses of $1.4 million and is clearly in serious straits". Mr. Stapleton summarized by saying, "Repayment of the borrowings of Mekol and the continued activity of Talga are both clearly contingent upon the bank foregoing funds from sale of our security which would clearly be unacceptable". (at p127)

7. There was a further discussion on 5th July. Mr. Shaw noted that the company representatives were very disappointed that the bank was unwilling to assist them further. It was agreed that all the accounts in the group should be ruled off and that the bank would meet certain outstanding cheques because of covering funds placed in the account. When those outstanding cheques were received the accounts of the Talga group, Bidges, Mr. Shaw and Mekol would be in debit to a total of $933,600, or $25,785 more than they were on 8th July. Mr. Stapleton noted also that the directors would now have discussion with their major creditors with a view to deferring repayment of almost every loan, but that on the information the bank then had he doubted very much that the Talga group could continue for very long unless they received substantial funds from other sources to enable completion of existing projects and payment of overhead expenses. He also noted that, "The position regarding Shaw and Bidges would seem able to be covered from sale of cattle however our position in regard to Mekol is uncertain, but we will be relying heavily on Shaw as guarantor . . ." (at p127)

8. By 11th July Mr. Stapleton's diary shows his view that the bank would need to give serious consideration to the appointment of a receiver to control the flow of funds of Mekol and to ensure that unsecured creditors were not benefited to the disadvantage of the bank. He had requested that in the meantime no payments be made to creditors. (at p127)

9. On 22nd July Mr. Shaw noted that it had been arranged that most of Talga's creditors would defer payments during July, and that Talga had cut back developments. (at p127)

10. Mr. Stapleton continued to watch the position. On 7th August he noted that Mr. Shaw and others had advised that the cattle sale was very disappointing. On 14th August he noted that the cattle sale would now realize only $110,000 "which is very substantially short of the expectation". (at p127)

11. On 13th September Mr. Stapleton noted: "At 9 a.m. this morning we were informed . . . that Cadea (No. 7) Pty. Ltd. had appointed a receiver under their securities to Talga Ltd. . . . At this stage we have stopped the Talga account here and at Blacktown. We have also submitted brief advices to State administration indicating that we could take losses in Bidges and Mekol. It does seem that we will now need to rely on our securities to recover the bank's funds . . ." (at p128)

12. Finally, on 19th September Mr. Stapleton noted that, "On information now available Mr. Shaw would not be in a position to meet his liabilities and after realizing on our securities we would face a loss of say $15,000 to $20,000." (at p128)

13. It is in my opinion clear that, on whatever date in September the payment was made, the bank then had reason to suspect, if it did not know, that Mr. Shaw was unable to pay his debts as they became due. Mr. Stapleton plainly recorded on 19th September that he had then actually so concluded, but I think his assistant Mr. Pritchard, who also was conversant with Mr. Shaw's affairs, was nearer the mark in saying that it was apparent at the beginning of July 1974 that Mr. Shaw "could not meet his commitments as they became due". I think reason for the suspicion to which s. 122 (4) (c) (i) refers certainly existed on 14th August. And there can be no doubt that the bank knew that the effect of the payment in question would be to give it a preference over other creditors. Accordingly the bank is not protected by s. 122 (2). (at p128)

14. It is necessary only to add that on 22nd November, 1974, the bank wrote to Mr. Andrew saying, as to the balance of the No. 2 account (which then stood at $1,069.08), that it had exercised its right of set-off and had applied those funds against liabilities owing to it by Mr. Shaw. (at p128)

15. I declare (1) that the payment to the debtor's No. 2 account of $61,871.32 was by reason of s. 122 of the Bankruptcy Act 1966 void to the extent of $58,864.98 as against the trustee of the deed of assignment executed under Pt X of the Act on 23rd October, 1974; (2) that the amount of $1,069.08 standing to the credit of the debtor's No. 2 account on and after 8th November, 1974, was property of the debtor divisible amongst his creditors; and I order that the respondent bank pay to the trustee of that deed a sum equal to the total, namely $59,934.06, of the two said amounts of $58,864.98 and $1,069.08, and his costs of and incidental to the application. The trustee has abandoned his application for an order for payment of interest. (at p128)

ORDER

Order accordingly.