Sutherland (Trustee) v Yip

FEDERAL CIRCUIT COURT OF AUSTRALIA

SUTHERLAND (TRUSTEE) v YIP

[2016] FCCA 1009

Catchwords:
BANKRUPTCY – Application pursuant to s.120(1) of the Bankruptcy Act 1966 (Cth) – notice provided to the Respondent in accordance with s.139ZQ of the Bankruptcy Act 1966 (Cth) – orders made as sought by the trustee.

Legislation:

Bankruptcy Act 1966 (Cth), ss.115(1B), 120, 120(1), 120(2), 120(3), 120(3A), 120(4), 120(5)(d), 134(4), 139ZQ, 139ZR, 139ZR(4)

Applicant:

KEITH LAURENCE SUTHERLAND (AS TRUSTEE OF THE BANKRUPT ESTATE OF EDUARD MORAVCIK)

Respondent:

JENNY CHO YING YIP

File Number:

MLG 128 of 2016

Judgment of:

Judge Hartnett

Hearing date:

11 April 2016

Delivered at:

Melbourne

Delivered on:

11 April 2016

REPRESENTATION

Counsel for the Applicant:

Mr Curran

Solicitors for the Applicant:

Thomson Geer

The Respondent:

No Appearance

ORDERS MADE ON 11 APRIL 2016

THE COURT DECLARES THAT:

The transfer of the land known as and situate at 306-308 Inkerman Street, St Kilda East in the State of Victoria, more particularly described in certificate of title Volume 08538 Folio 042, being Lot 17 on Plan of Subdivision 055007 (Property), from Eduard Moravcik as registered proprietor to the Respondent pursuant to a Transfer of Land dated 12 December 2012, was an undervalued transaction and is void against the Applicant pursuant to section 120(1) of Bankruptcy Act 1966 (Cth) (Act).

THE COURT ORDERS THAT:

The Applicant is authorised, pursuant to section 134(4) of the Act, to exercise a power of sale of the Property pursuant section 134(1)(a) and/or section 139ZR of the Act as follows:-
(a)the Respondent provide the Applicant with vacant possession of the Property;
(b)the Respondent surrender to the Applicant the duplicate Certificate of Title of the Property, if any, within 14 days of the making of these orders;
(c)the Applicant:
(i)have conduct of the sale of the Property; and
(ii)have authority to execute all documents required to effect the sale of the Property (including, without limitation, the contract of sale, vendor’s statement, transfer of land documents and appointment of selling agent);
(d)the Respondent execute all such documents and do all such things as are necessary to enable the Applicant to effect the sale of the Property; and
(e)the proceeds of sale of the Property be paid to the Applicant and applied:
(i)first in payment of the costs and expenses of and incidental to the sale of the Property; and
(ii)second in payment to the Applicant of the sum required by the Official Receiver to be paid pursuant to the notice given to the Respondent under section 139ZQ of the Act, relating to registered charge AM172832N noted on the certificate of title of the Property.
The Respondent pay the Applicant’s costs of this application.

FEDERAL CIRCUIT COURT
OF AUSTRALIA
AT MELBOURNE

MLG 128 of 2016

KEITH LAURENCE SUTHERLAND (AS TRUSTEE OF THE BANKRUPT ESTATE OF EDUARD MORAVCIK)

Applicant

And

JENNY CHO YING YIP

Respondent

REASONS FOR JUDGMENT

(Edited Ex Tempore Reasons)

Before the Court is an application dated and filed 22 January 2016 seeking a declaration pursuant to s.120(1) of the Bankruptcy Act 1966 (Cth) (‘the Act’) and consequential orders, including an order for costs. The Court is satisfied on the evidence before it that the declaration as sought should be made, together with the orders as sought by the Applicant.
In support of the application, the Applicant relies upon an affidavit sworn by Mr Keith Laurence Sutherland on 21 January 2016. Mr Sutherland is the trustee of the bankrupt estate of Mr Eduard Moravcik, who became bankrupt on 3 July 2014 pursuant to a sequestration order made by the Court. Mr Sutherland was appointed trustee of the bankrupt estate on 3 July 2014.
The bankrupt has not yet filed a statement of affairs.
Pursuant to s.115(1B) of the Act, the bankruptcy commenced on 17 April 2014 when Mr Moravcik committed an act of bankruptcy by failing to comply with a bankruptcy notice served on him by the petitioning creditors, Nicholas Giasoumi and Roger Darren Grant (as joint and several liquidators of IWB Services Proprietary Limited (in liquidation) ACN053635715 and IWB Services Proprietary Limited (in liquidation)).
Earlier in time and on 5 September 2011, the bankrupt became sole proprietor of a property known as and situated at Unit 17/306-308 Inkerman Street St Kilda East in the State of Victoria and being the land contained in Certificate of Title Volume 08538, Folio 042 (‘the real property’). The real property was not subject to any mortgage and otherwise unencumbered.
On 12 December 2012, the bankrupt transferred his interest in the real property to the Respondent, Ms Jenny Cho Ying Yip. The consideration stated in the transfer of land was “for love and effection (sic)”.
The retrospective valuations of the real property, as obtained by the trustee, indicate the real property would have been valued in the range of $375,000 to $380,000 in December 2012.
The trustee obtained further valuations of the real property. As at 3 July 2014, the real property was valued by U Sell Real Estate at $430,000. As at 12 August 2014, the real property was valued by Biggin & Scott at between $420,000 and $460,000. As at 14 August 2014 the real property was valued by Victorian Property Partners at between $450,000 and $460,000.
Save for a statutory charge over the title (in favour of the trustee) and pursuant to s.139ZR of the Act, lodged on 11 September 2015, the real property remains unencumbered.
The trustee regarded the transfer of the real property by the bankrupt to the Respondent to these proceedings as voidable pursuant to s.120 of the Act, and accordingly on or about 29 July 2014 requested the Official Receiver to issue to the Respondent a notice pursuant to s.139ZQ of the Act.
The Official Receiver agreed to the request of the trustee and issued a notice to the Respondent on 22 August 2014 (first s.139ZQ notice). The first s.139ZQ notice was addressed to the Respondent at the real property and required her to pay to the trustee the sum of $420,000, or alternatively to transfer the real property to the trustee on or before 28 days from the date of service of the first s.139ZQ notice on the Respondent.
The Official Receiver was unable to effect service of the first s.139ZQ notice on the Respondent. After it was issued it came to the attention of the trustee, that the Respondent was not residing at the real property but was in fact residing at 3/27 Dunblane Road Noble Park in the State of Victoria. At the Trustee’s request, on 17 November 2014, the Official Receiver issued a further notice to the Respondent pursuant to s.139ZQ of the Act (second s.139ZQ notice). The second s.139ZQ notice was addressed to the Respondent at 3/27 Dunblane Road Noble Park in the State of Victoria and also required the Respondent to pay to the trustee the sum of $420,000 or, alternatively, to transfer the real property to the trustee on or before 28 days from the date of service of the second s.139ZQ notice on the Respondent. The Official Receiver was, however, again unable to effect service of the second s.139ZQ notice upon the Respondent.
On or about 4 June 2015, the Official Receiver issued a further notice to the Respondent pursuant to s.139ZQ of the Act (third s.139ZQ notice). The third s.139ZQ notice required the Respondent to pay to the trustee the sum of $440,000, being the midpoint of a further valuation obtained by the Trustee from Biggin & Scott in May 2015, which valued the real property at between $420,000 and $460,000. This valuation was forwarded by the trustee to the Official Receiver. Alternatively the third s.139ZQ notice required transfer of the real property from the Respondent to the trustee on or before 28 days from the date of service of the third s.139ZQ notice on the Respondent. The third s.139ZQ notice was dated 4 June 2014, rather than 4 June 2015, in what appears to be a typographical error.
The evidence before the Court as contained in the affidavit of Ms Gloria Joan Drummond sworn on 20 January 2016 is that on 22 June 2015 Ms Drummond personally served the Respondent at her address at 3/27 Dunblane Road Noble Park with the third s.139ZQ notice, dated, erroneously, 4 June 2014.
In the period which has followed since the third s.139ZQ notice was served on the Respondent, the trustee has not received any funds or correspondence from the Respondent and nor has the real property been transferred to him. The trustee is also informed by Luz Maravillas of the Australian Financial Security Authority and believes that the Official Receiver has also not received any correspondence from the Respondent.
On or about the 28 of August 2015, the Official Receiver issued a certificate to the Registrar of Titles to the effect that the real property was charged pursuant to s.139ZR(4) of the Act, with the liability of the Respondent to make payment to the trustee as required by the third s.139ZQ notice.
The certificate issued by the Official Receiver states:-
“This charge is certified on the basis that a Notice pursuant to section 139ZQ of the Act, dated 4^th June 2014 has been given by the Official Receiver to Jenny Cho Ying Yip.”
On or about 29 October 2015, the trustee’s solicitors sent a letter to the Respondent, on behalf of the trustee, noting the Respondent’s failure to comply with the second s.139ZQ notice and the charge against the real property pursuant to s.139ZR of the Act and demanding payment of $420,000 within 14 days. The solicitors’ understanding at that time was that the second s.139ZQ notice had been served on the Respondent.
Neither the trustee nor the trustee’s solicitors have received any communication, or payment from, the Respondent.
The Respondent, I am satisfied, has notice of these proceedings. There is before the Court an affidavit, sworn 12 February 2016 by Ms Gloria Joan Drummond, attesting to personal service upon the Respondent of :-
a)letter from Thomson Geer to the Respondent dated 27 January 2016;
b)application dated 22 January 2016;
c)affidavit of Keith Sutherland sworn 21 January 2016;
d)affidavit of Gloria Drummond sworn 20 January 2016; and
e)Applicant’s genuine steps statement dated 22 January 2016.
The Respondent has failed to file any material in this proceeding and has failed to attend on the hearing of the proceedings. The matter has proceeded undefended.
Section 120 of the Act is as follows:-
“Undervalued transactions
Transfers that are void against trustee
(1) A transfer of property by a person who later becomes a bankrupt (the transferor ) to another person (the transferee) is void against the trustee in the transferor's bankruptcy if:
(a) the transfer took place in the period beginning 5 years before the commencement of the bankruptcy and ending on the date of the bankruptcy; and
(b) the transferee gave no consideration for the transfer or gave consideration of less value than the market value of the property.
Note: For the application of this section where consideration is given to a third party rather than the transferor, see section 121A.
Exemptions
(2) Subsection (1) does not apply to:
(a) a payment of tax payable under a law of the Commonwealth or of a State or Territory; or
(b) a transfer to meet all or part of a liability under a maintenance agreement or a maintenance order; or
(c) a transfer of property under a debt agreement; or
(d) a transfer of property if the transfer is of a kind described in the regulations.
(3) Despite subsection (1), a transfer is not void against the trustee if:
(a) in the case of a transfer to a related entity of the transferor:
(i) the transfer took place more than 4 years before the commencement of the bankruptcy; and
(ii) the transferee proves that, at the time of the transfer, the transferor was solvent; or
(b) in any other case:
(i) the transfer took place more than 2 years before the commencement of the bankruptcy; and
(ii) the transferee proves that, at the time of the transfer, the transferor was solvent.
Rebuttable presumption of insolvency
(3A) For the purposes of subsection (3), a rebuttable presumption arises that the transferor was insolvent at the time of the transfer if it is established that the transferor:
(a) had not, in respect of that time, kept such books, accounts and records as are usual and proper in relation to the business carried on by the transferor and as sufficiently disclose the transferor's business transactions and financial position; or
(b) having kept such books, accounts and records, has not preserved them.
Refund of consideration
(4) The trustee must pay to the transferee an amount equal to the value of any consideration that the transferee gave for a transfer that is void against the trustee.
What is not consideration
(5) For the purposes of subsections (1) and (4), the following have no value as consideration:
(a) the fact that the transferee is related to the transferor;
(b) if the transferee is the spouse or de facto partner of the transferor--the transferee making a deed in favour of the transferor;
(c) the transferee's promise to marry, or to become the de facto partner of, the transferor;
(d) the transferee's love or affection for the transferor;
(e) if the transferee is the spouse, or a former spouse, of the transferor--the transferee granting the transferor a right to live at the transferred property, unless the grant relates to a transfer or settlement of property, or an agreement, under the Family Law Act 1975 ;
(f) if the transferee is a former de facto partner of the transferor--the transferee granting the transferor a right to live at the transferred property, unless the grant relates to a transfer or settlement of property, or an agreement, under the Family Law Act 1975 .
Protection of successors in title
(6) This section does not affect the rights of a person who acquired property from the transferee in good faith and by giving consideration that was at least as valuable as the market value of the property.
Meaning of transfer of property and market value
(7) For the purposes of this section:
(a) transfer of property includes a payment of money; and
(b) a person who does something that results in another person becoming the owner of property that did not previously exist is taken to have transferred the property to the other person; and
(c) the market value of property transferred is its market value at the time of the transfer.”
Subparagraphs (2), (3), (3A) and (4) of s.120 of the Act are not relevant for the purposes of the application before the Court. Section 120(1) and s.120(5)(d) of the Act are applicable to the facts in this proceeding. The transfer from the bankrupt to the Respondent, Ms Yip, was made within two years before the commencement of the bankruptcy of the debtor. The Respondent gave consideration of less value than the market value of the real property, in the consideration being for “…the transferee’s love or affection for the transferor.”
The transfer of the real property by the bankrupt to the Respondent is not subject to any of the exemptions as set out at s.120(2) of the Act, and nor does s.120(3) of the Act apply.
The Applicant seeks to exercise a power of sale of the real property, with the proceeds to be applied, after payment of costs and expenses of and incidental to the sale, as required by the Official Receiver to be paid, pursuant to the notice given to the Respondent under s.139ZQ of the Act in relation to registered charge AM172832N noted on the Certificate of Title of the real property. The Court shall make the orders which are sought by the trustee.
The Applicant’s costs of this application are to be paid by the Respondent.

I certify that the preceding twenty-six (26) paragraphs are a true copy of the reasons for judgment of Judge Hartnett

Associate:

Date: 29 April 2016

[2016] FCCA 1009

11 April 2016

Key Legal Topics

Areas of Law

Insolvency

Equity & Trusts

Legal Concepts

Fiduciary Duty

Breach

Remedies

Injunction