Worrell v Pix
[2002] FMCA 93
•6 June 2002
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| WORRELL & ANOR v PIX & ORS | [2002] FMCA 93 |
| BANKRUPTCY – Antecedent transactions – whether transfers void as against the trustees of the bankrupt estate – whether the bankrupt solvent at time of the transfers – whether the transfers were intended to defeat creditors – whether the bankruptcy court is entitled to assess contributions by a spouse to matrimonial property. Bankruptcy Act 1966 (Cth), ss.120, 121, 123 |
Cannane v J Cannane Pty Ltd (1998) 192 CLR 557
Mateo v Official Trustee in Bankruptcy [2002] FCA 344
Re Sabri; ex parte O’Brien v Sabri (1997) 137 FLR 165
First Applicant: Second Applicant: | IVOR WORRELL MORGAN LANE |
| First Respondent: Second Respondent: | LYANNE JUNE PIX DAVID SYDNEY PIX |
| File No: | SZ462 of 2001 |
| Delivered on: | 6 June 2002 |
| Delivered at: | Sydney |
| Hearing Dates: | 13 & 15 May 2002 |
| Judgment of: | Driver FM |
REPRESENTATION
| Counsel for the Applicants: | Mr R Marshall |
| Solicitors for the Applicants: | Jones King Lawyers |
| Counsel for the Respondents: | Mr B Skinner |
| Solicitors for the Respondent: | Raymond W M Wong & Co |
THE COURT DECLARES THAT:
(1)The transfer by the second respondent of $341,271.40 to the benefit of the Pix Family Trust is void as against the applicants pursuant to the provisions of s.121 of the Bankruptcy Act 1966 (Cth).
(2)The applicants are entitled to an interest in the land known as units 2, 3 and 4, 100 Flinders Street, Yokine in the state of Western Australia being the land in Certificates of Title lot numbers 2, 3 and 4 in strata plan number 35189 in proportion to the amount of $341,271.40 compared to the purchase price of that land.
(3)The transfer by the second respondent to the first respondent of $169,914.48 as an amount owing by the Pix Family trust is void as against the applicants pursuant to the provisions of s.120 of the Bankruptcy Act.
THE COURT ORDERS THAT:
(1)The respondents are to do all acts and things necessary to transfer the title of the land referred to in declaration 2 above to the applicants.
(2)The second respondent and the third respondent are to account to the applicants for any profits derived from the land referred to in declaration 2 above.
(3)The third respondent, as trustee of the Pix Family Trust, is to pay to the applicants the amount of $169,914.48.
(4)The applicants are to account to the third respondent for any amount received in satisfaction or in consequence of these orders that exceeds $341,271.40 and are to repay to the third respondent any such amount.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SZ462 of 2001
| IVOR WORRELL |
First Applicant
MORGAN LANE
Second Applicant
And
| LYANNE JUNE PIX |
First Respondent
DAVID SYDNEY PIX
Second Respondent
LYANNE PIX PTY LTD
Third Respondent
REASONS FOR JUDGMENT
Introduction
The applicants are the trustees of the bankrupt estate of David Sydney Pix, the second respondent. The first respondent is Lyanne June Pix, his wife. The third respondent is a company which is trustee of the Pix Family Trust. The application is made pursuant to ss.120 and 121 of the Bankruptcy Act 1966 (Cth) (“the Bankruptcy Act”) to have declared void various transactions by the bankrupt by which property allegedly belonging to the bankrupt was transferred to Mrs Pix, either directly or through the family trust. The property at issue comprises a house property in Turramurra at which Mr and Mrs Pix live, three properties in Western Australia and the proceeds of the sale of a boat variously known as the “Oceania” and the “Lady Dee”.
The issues to be resolved in this case are who owned the vessel, the “Lady Dee”; if Mr Pix owned it whether he was solvent at the time he transferred the proceeds of the sale of it to the Pix Family Trust and ultimately to his wife; whether at the time of that transfer the intention of Mr Pix was to defeat claims by his creditors; whether Mrs Pix gave consideration for that transfer; whether the Western Australian properties were acquired with the proceeds of the boat sale; whether the transfer of those properties to the third respondent is void; whether Mr Pix was solvent at the time of the transfers of his interest in the Turramurra property to his wife or whether he had any intention to defeat his creditors at the time of those transfers and whether Mrs Pix gave any consideration for those transfers.
The applicants’ case
There have been several amendments to the supporting statement of claim and the application was itself twice amended. The final orders sought by the applicants are set out in the further amended application filed in court on 13 May 2002. In substance, the applicants seek declarations voiding a transfer by Mr Pix of the sum of $341,271.40 to the Pix Family Trust, a declaration that the applicants are entitled to an interest in land in Western Australia purchased with that money and orders transferring title to the land to the applicants, a declaration that another transfer to Mrs Pix by Mr Pix of $339,228 as an amount owing by the Pix Family Trust is void as against the applicants and an order for payment of that amount to the applicants and, finally, a declaration that transfers on 10 December 1996 and 13 May 1997 by the second respondent to the first respondent of his interest in the property at Turramurra be declared void and an order for transfer by the first respondent of her interest in the property to the applicants.
In addition to the amended statement of claim the applicants rely on an affidavit by Mr Worrell. The applicants refer to the bankruptcy of Mr Pix and their appointment as trustees on 1 August 2000. They assert that on 1 July 1995 Mr Pix became the owner of the “Lady Dee” and that on or about 4 January 1997 he sold the vessel and deposited $350,000 from the proceeds of the sale into a personal cash management account with the ANZ Bank. They assert that on or about 16 January 1997, by deed, a discretionary trust known as the Pix Family Trust was established. It was alleged that at the establishment of the trust the trustee was the Pix Print company, although on 3 September 1999 that company was replaced as a trustee by the third respondent. The applicants assert that on 9 January 1997 Mr Pix withdrew $341,271.40 from his cash management account and paid that amount into another cash management account with the ANZ Bank held in the name of the Pix Print company as trustee of the Pix Family Trust. The money was allegedly then held for the benefit of the beneficiaries of the family trust which included Mr Pix and other members of his family, including Mrs Pix.
This is alleged to have been a transfer for the benefit of the beneficiaries of the Pix Family Trust and the applicants seek to have declared void the transfer of the funds withdrawn by Mr Pix from his own account and transferred into the account of the Pix Family Trust. The particulars alleged include that Mr Pix received no consideration for the transfer and that at the time of the transfer he was aware of impending litigation against him personally by several creditors, in particular including a Mr and Mrs Carlton and their company (“the Carltons”). It is alleged that Mr Pix sought advice on 13 September 1996 from Gadens Ridgeway Lawyers, about how to protect his assets from his creditors and that at the time of the transfer it could reasonably be inferred that he was insolvent or about to become insolvent.
The applicants further allege that on 12 February 1997 Mr Pix entered into contracts for the purchase of three properties in Western Australia at a total purchase price of $367,000. The applicants say that the purchase contracts provided for Mr Pix to hold the properties as trustee for the Pix Family Trust. The applicants assert that the funds for the purchase of these units came from the deposit made by Mr Pix into the Pix Family Trust cash management account. Title to the Western Australian properties was transferred to Mr Pix on 16 February 1997.
The applicants seek title to the Western Australian properties on the same basis as that supporting the claim to the sum deposited into the Pix Family Trust Account. Alternatively, the applicants claim that on or about 20 July 2000 Mr Pix transferred the Western Australia properties to the third respondent which holds the properties by a resulting trust for his benefit.
The applicants further assert that Pix Family Trust records for the years ending 30 June 1997 and 30 June 1998 record Mr and Mrs Pix as being creditors of the trust in the amount of $181,832 each which in total approximates the amount deposited into the trust account from Mr Pix’s personal account. The applicants allege that Mr Pix subsequently sought to transfer the benefit of the purported loan by himself to his wife. The applicants also seek to have declared void that transfer.
As to the Turramurra residential property, the applicants assert that on 10 December 1996 Mr Pix executed a transfer of half of his interest in the property to his wife as a joint tenant for $1. They say that on 30 May 1997 Mr and Mrs Pix executed a further transfer for the balance of Mr Pix’s interest to Mrs Pix for a further $1. The applicants make the unremarkable proposition that the Turramurra property, or Mr Pix’s interest in it, was worth more than $1 at the time of these transfers. The applicants seek to have declared void those transfers.
The respondents’ case
The respondents rely on their defence to the statement of claim and on affidavits in support by Mr and Mrs Pix and their accountant Mr Dugan. Mr Pix was not cross-examined on his affidavit and did not attend court. Mr Skinner, for the respondents, produced a medical certificate establishing that Mr Pix was not fit to attend court for cross‑examination. In the circumstances his affidavit was objected to but I received it into evidence with significant deletions. I made clear at trial that the weight that I could attach to Mr Pix’s affidavit was significantly reduced because it was not tested.
The respondents dispute the assertions made by the applicants concerning the ownership of the “Lady Dee”. They concede that there is doubt about that ownership but assert that Mrs Pix is entitled to at least some interest in the proceeds of the sale of the boat and hence some interest in the properties purchased with those proceeds in Western Australia. Alternatively, the respondents assert that the relevant transfers from Mr Pix to Mrs Pix of the proceeds of the sale of the boat were made more than two years before the commencement of the bankruptcy and that at the time Mr Pix was solvent. They make the same assertions in relation to the transfer of Mr Pix’s interest in the Turramurra property. The respondents also deny that at any material time Mr Pix had an intention to put the properties beyond the reach of his creditors. The respondents assert that the purpose of those transfers was to resolve marital difficulties between Mr and Mrs Pix.
Consideration and findings
In order to succeed in their claim the applicants must prove, for the purposes of s.120 of the Bankruptcy Act, that within five years of the commencement of the bankruptcy the bankrupt transferred property to Mrs Pix and that she gave no consideration, or less than full consideration, for it. If that is proved then the transfers will be void as against the trustees unless the respondents can prove that the transfers took place more than two years before the commencement of the bankruptcy and at the time Mr Pix was solvent. In relation to s.121 the applicants must prove that the property transferred was likely to become part of the bankrupt’s estate and that Mr Pix’s main purpose in making the transfers was to prevent the property becoming divisible among his creditors, or to hinder or delay the process of making that property available for division among creditors. Section 121(2) provides that the transferor’s purpose can be established if it can be inferred from all the circumstances that at the time of the relevant transfer the transferor was, or was about to become, insolvent. The purpose can be proved in other ways but an element of subjectivity is involved in establishing what the intention of the bankrupt was at the material time. It is open to a transferee to resist a claim under s.121 if the transferee can establish that valuable consideration was given and that the transferee did not known of the illegitimate purpose of the transferor and did not know that the transferor was or was about to become insolvent.
I make the following preliminary findings of fact. Mr and Mrs Pix operated a franchising printing business through a company called Pix Print Pty Limited. The boat the “Lady Dee” was purchased on 13 April 1995 with funds provided by Westpac to the Pix Print company on
18 April 1995. The “Lady Dee” was sold for $380,000 between 29 November 1996 and 4 January 1997.
A family trust was established on 6 December 1996. The deed of settlement was executed on 10 December 1996. Virtually all of the proceeds of the sale of the “Lady Dee” were deposited into the Pix Family Trust. On 16 February 1997 Mr Pix, purportedly acting as trustee of the Pix Family Trust, completed the purchase of three properties in Western Australia with funds drawn from the family trust.
On 30 May 1997 Mr Pix transferred all his interest in the Turramurra property to Mrs Pix, two transfers having earlier been signed by Mr and Mrs Pix on separate occasions.
The third respondent was registered on 2 September 1999 and the following day became the trustee of the Pix Family Trust. On 14 July 2000 Mr Pix transferred the Western Australian properties to the third respondent.
The applicants were appointed trustees of the estate of Mr Pix on 1 August 2000. Mr Pix had been declared bankrupt as a result of his failure to pay a judgment debt obtained on 22 March 2000 in the Federal Court. The successful applicants in that case were the Carltons. The Carltons had purchased a Pix Print franchise for Queensland and the Northern Territory but successfully claimed that they had been misled by Mr Pix about the profitability of the business. The Carltons had commenced their proceedings in March 1997, having given notice of their intention to sue in November 1996.
Are any transfers void under s.120?
The state of Mr Pix’s knowledge of potential claims against him by disaffected franchisees is crucial for the purposes of s.121. It is, however, not directly material to the claims under s.120, which I will consider first.
I will first consider the transfer of the proceeds of the vessel, the “Lady Dee”. Mrs Pix has deposed that at all material times she thought she was the owner of the boat but it is clear that the “Lady Dee” was purchased on 13 April 1995 by the Pix Print company. At that time Mrs Pix was an office holder of that company and she may have thought her interest derived from that. She did not advance any money for the purchase, the full purchase price being advanced by Westpac. It is also clear that Mr Pix treated the boat as legally his from 1 July 1995 because he claimed personal tax deductions for it. He also made a statutory declaration claiming legal and beneficial ownership on 14 January 1997: exhibit A2. The respondents assert that the boat was sold by the company to Mrs Pix in June 1996 but there is no objective evidence to support that contention. The sale documents for the “Lady Dee” dated 29 November 1996 (exhibit A3) show the vendor as Mr Pix. What capacity he was acting in is not entirely clear but I am entitled to conclude that he was acting on his own behalf.
Two Pix Print Pty Limited company meeting records were put in evidence before me relating to a purported meeting held on 1 August 1996. In one document the company purportedly resolved to transfer the boat to Mr Pix: exhibit A4. In the other document the company purportedly resolved to transfer the boat to Mrs Pix. One of these documents, and possibly both, is likely to have been fabricated after the event. It is clear from a facsimile record on exhibit A4 that that document was created no later than 23 November 1996. There is nothing to indicate when the competing meeting record was created. I find that exhibit A4 is the more reliable of these two documents. I further find that Mr Pix commenced treating the boat as legally his at the beginning of 1995 and that exhibit A4 simply gave effect to what had already occurred. I find that on or about 4 January 1997 Mr Pix completed the sale of the “Lady Dee” and deposited the proceeds of the sale ($380,000) into a cash management account held in his name with the ANZ Bank. I further find that on 9 January 1997 Mr Pix withdrew $341,271.40 from the cash management account and on 13 January 1997 the same amount was paid into an ANZ account in the name of Pix Print Pty Limited as trustee of the Pix Family Trust. I conclude that the “Lady Dee” was wholly the property of Mr Pix at the time it was disposed of. It follows that he was legally entitled to all of the proceeds of the sale.
Mrs Pix has contended that she had an interest in the boat or the proceeds of its sale because she had used money due to her from the franchising business in reduction of the loan made by Westpac for the purchase of the boat by the Pix Print company. It is clear, however, that all Mrs Pix did was to pay company cheques into the loan accounts secured by mortgages over the Turramurra property and a unit at Atarmon. That money was the property of the company, not Mrs Pix.
The Pix Print Family Trust financial accounts for the year ended 30 June 1997 show two loan accounts with Mr and Mrs Pix being the beneficiaries of those accounts. These are in equal amounts of $181,832 with smaller amounts attributable to three children. The total amount is $364,912, which I find includes the deposit made by Mr Pix from the proceeds of the sale of the “Lady Dee”. It is apparent that when the Pix Family Trust was established and the moneys were deposited into the trust account by Mr Pix, there was a transfer of approximately half the proceeds of the sale of the boat from Mr Pix to Mrs Pix. By 30 June 1999 Mr and Mrs Pix’s loan accounts had declined to $169,914.48 each. In addition, on instructions from Mr Pix, Mr Dugan’s firm changed the accounts sometime after 30 June 2000 to eliminate Mr Pix’s loan account and consolidate that with Mrs Pix’s account. Mr Dugan was told by Mr Pix that the change was to correct a mistake. In a statutory declaration that is undated but made sometime after 8 January 2000 (exhibit A8) Mrs Pix claimed that she loaned $380,000 to the trust on 29 January 1997. However, all the other evidence supports the conclusion that the funds deposited in the Pix Family trust account came from the sale of the “Lady Dee”, in which Mrs Pix had no interest. The effect of the accounts drawn up by Mr Dugan’s firm in or about July 2000 was a transfer of the balance of the deposit from the proceeds of the sale to Mrs Pix as at 30 June 2000. That transfer was made less than two years before the commencement of the bankruptcy. I find that there was no consideration for it. It follows that that transfer is void against the trustees and the applicants are entitled to orders in respect of the sum of $169,914.48.
I find that the earlier transfer of $181,832 to Mrs Pix was made on 13 January 1997 when the proceeds of the sale of the “Lady Dee” were deposited into the Pix Family Trust account. That transfer was also made without consideration but it was made more than two years before the commencement of the bankruptcy. It is open, therefore, to the respondents to prove that at that time Mr Pix was solvent. The applicants have advanced no proof of the insolvency of Mr Pix prior to his bankruptcy. I also have very little evidence of Mr Pix’s solvency prior to the bankruptcy. It is clear from the judgment of the Federal Court in the Carlton proceedings that the franchising business was in decline from 1995 through 1996 and in serious decline through 1997, until it had effectively collapsed in late 1998. There is evidence that Mr Pix consulted Gaden’s Solicitors in September 1996 and at that time there was talk of dissatisfied franchisees, but the only litigated claim by a franchisee was that of the Carltons. If there were other claims by franchisees it appears that the Pix Print company or Mr Pix were able to deal with them. What little evidence I have concerning Mr Pix’s personal financial affairs creates an inference that he was solvent on 13 January 1997 at the time of the first transfer of $181,832 to Mrs Pix through the Pix Family Trust. The respondents have nothing to rebut that inference and accordingly I find that that first transfer is not void against the trustees under s.120. The possibility remains that that transfer was a transfer to defeat creditors for the purposes of s.121, which I will return to later.
As to the Turramurra property, the transfer to Mrs Pix was effected at the latest on 30 May 1997, more than two years before the bankruptcy commenced. The transfer was done in two stages, first in a half interest to Mrs Pix and then the balance of Mr Pix’s interest was transferred to her. The purpose of the two stage transfer was apparently to avoid stamp duty. The process was complete by May 1997. I have already found that as at 13 January 1997 Mr Pix was solvent. The position is no different as at May 1997. Accordingly, I find that the transfer of Mr Pix’s interest in the Turramurra property to Mrs Pix is not void as against the trustees under s.120.
While it is not strictly necessary for me to decide the point for the purposes of s.120, I also find that there was consideration for the transfer of Mr Pix’s interest. In late 1996 and early 1997 it is clear from the respondents’ affidavit evidence that Mr and Mrs Pix were encountering serious marital difficulties. Mrs Pix consulted solicitors. There were discussions between the parties and it was agreed between them that Mr Pix would keep the franchising business and that Mrs Pix would take the house property at Turramurra. There were no formal family law proceedings instituted between the parties and no property settlement was entered into under the Family Law Act 1975 (Cth) (“the Family Law Act”). The position of Mrs Pix would have been stronger if a property settlement had been entered into but I am nevertheless confident that her contribution to the marital assets would have been sufficient to support the transfer of at least 50 per cent of the Turramurra property to her. In my view, Mrs Pix’s contribution to the marital assets was also sufficient to support the transfer of the balance of Mr Pix’s interest to Mrs Pix when one takes into account that Mr Pix had taken the “Lady Dee” as his own property and kept the business, however dubious the prospects of the business may have been at that time. I am not satisfied that Mrs Pix’s contribution could have supported the transfer of the proceeds of the sale of the “Lady Dee” to her. There was no consideration for that transfer.
In reaching this conclusion I have taken into consideration the question of whether it is open to a court in bankruptcy to assess the contributions made by a spouse to matrimonial property. I am, of course, exercising jurisdiction under the Bankruptcy Act in this case and not under the Family Law Act, although this Court does have jurisdiction under the Family Law Act. The question of priorities between spouses and unsecured creditors is often a vexed one, both in bankruptcy and in family law proceedings. This Court is in the fortunate position of having jurisdiction under both Acts. In exercising jurisdiction under the Bankruptcy Act my function, relevantly, is to assess the value of consideration for a transfer, which is not the same thing as assessing competing claims of spouses to a division of property under s.79 of the Family Law Act. However, the bankruptcy court must give full faith and credit to orders already made under the Family Law Act. In addition s.123(6) of the Bankruptcy Act recognises and protects a maintenance agreement made under the Family Law Act. Section 4(1) of the Family Law Act makes clear that a maintenance agreement is not restricted to maintenance. It need only relate to financial matters, which would include a division of marital assets. Where the bankruptcy court does not have the benefit of orders of a court under the Family Law Act or a maintenance agreement, in my view, it is open to the bankruptcy court to assess the value of consideration by reference to what a spouse might reasonably anticipate by way of a division of matrimonial property. In some cases it may be necessary for this Court to hear proceedings under the Family Law Act to resolve that issue. There is no reason in principle why bankruptcy and family law proceedings could not be heard concurrently. In other cases the hearing of proceedings under the Family Law Act would not be necessary. This case falls into the latter category.
In Mateo v Official Trustee in Bankruptcy [2002] FCA 344 his Honour Tamberlin J considered a claim under ss.120 and 121 in the context of orders made by the Family Court under s.79 of the Family Law Act. He said this:
The transfer in this case was carried out pursuant to orders of a superior Australian federal court, namely the Family Court, and full faith and credit must be given to those orders unless they are set aside. No basis has been established before me to warrant the setting aside of any of these orders and indeed, if any ground had been raised, it might have been more appropriate to transfer the matter to the Family Court for determination of all of those questions. No such application was made.
The orders made in this case under s.79 of the Family Law Act 1975 (Cth) were made in the exercise of statutory judicial discretion taking into account a broad range of matters, including financial contributions made by the parties to the marriage, together with other pertinent factors described by the Act. The Court is enjoined not to make an order under s.79 unless it is satisfied that in all the circumstances it is just and equitable to make the order…
On the evidence, I am not persuaded that, taking into the account the wife’s contribution and work in the joint enterprise, comprised by the marriage and bringing up of a family, that the consideration for the transfer of the husband’s interest in the property, was of less value than the market value of the interest transferred to her: cf Re Sabri; ex parte O’Brien v Sabri (1997) 137 FLR 165 at 181/182. If account is taken of duration of the marriage and the number of hours which she said she worked in caring for the children and in and around the home over 27 years of marriage or approximately 35 hours per week, I am not satisfied that the consideration given by her was of less value than the market value of the property. Indeed, even allowing a minimal amount per hour for the amount of work carried out by her, the value of the work would far exceed the fair net value of the interest she received after taking into account the outstanding debts and charges.
In this case the parties were married on 17 January 1987. Mrs Pix brought some money into the marriage and actively and substantially contributed to the acquisition of marital assets and to the maintenance of pre-existing property. Mrs Pix contributed both as a homemaker and mother and also as an office bearer of the Pix Print company. Mrs Pix did not claim familiarity with the financial affairs of the Pix Print business, or the personal financial affairs of Mr Pix, nor did she actively participate in the management of the Pix Print franchising business. However, she did operate other businesses, especially printing businesses, both by herself and with Mr Pix, and she also took paid employment for a time. Mrs Pix contributed money from the operation and sale of her businesses, and she was also responsible for the discharge of the mortgage over the Turramurra property. I am satisfied that the marital contribution and the business contribution of Mrs Pix provided good consideration for the transfer of the Turramurra property to her, as an equitable division of marital assets.
Were any of these transactions designed to defeat creditors?
There is no doubt that the Turramurra property would have become part of Mr Pix’s estate for the purposes of the administration of his bankruptcy if it had not been transferred to Mrs Pix. I am also satisfied that the proceeds of the sale of the “Lady Dee” and the Western Australian properties purchased with those proceeds would have also been available to creditors if they had not been transferred. The more substantial question is whether Mr Pix’s main purpose in making the transfers was to defeat his creditors. The applicants can advance no proof of Mr Pix’s insolvency prior to his bankruptcy. Mr Marshall submits that, absent proof of insolvency, the transferor’s illegitimate purpose in making a transfer can be inferred from other facts or circumstances. Mr Skinner submits that while that is so, it is necessary to establish the intention of the transferor as was the case with s.121 as it stood before 1996: Cannane v J Cannane Pty Ltd (1998) 192 CLR 557. I accept both submissions. I also find that the intention of the transferor can itself be inferred from the facts or circumstances surrounding the transfers. In my view, it can be reasonably inferred that a transaction was entered into with the intention of defeating creditors’ claims if the transfer was made at a time when the transferor knew of claims personally against him and it is apparent that the transferor was concerned to protect property against those claims. What then is the evidence bearing on that issue?
Mr Pix consulted Gadens Ridgeway on 13 September 1996. The solicitors’ file note of that consultation discloses that the number of Pix Print franchisees had declined from 17 to 8, that the Pix Print company was the franchisor and that there was “still some potential litigation around, one or two Victorian franchises and one in New South Wales”. Mr Pix instructed that he traded as a sole trader before 1985. There was then apparently some discussion about what Mr Pix’s assets were. On 3 October 1996 Gadens Ridgeway wrote to Mr Pix in his capacity as managing director of the Pix Print company. In the letter the solicitors provided advice apparently arising from the earlier consultation. The solicitors said that Mr Pix’s stated principal objective was to protect assets and to achieve the most efficient tax structure. The assets identified included the Turramurra property and the “Lady Dee”. The solicitors recommended the establishment of a family trust and the assignment of assets to the trust in order to protect them from creditors. The solicitors further recommended the transfer of the Turramurra property to Mrs Pix, although they were apparently under the misapprehension that Mrs Pix already owned half of the home. The applicants assert that these facts, when read in the light of the Federal Court judgment in the Carlton proceedings, establish that at the time of the relevant transfers Mr Pix was aware of impending litigation against him personally by “several creditors”, including the Carltons, and that Mr Pix sought legal advice and subsequently acted for the purpose of protecting his assets against those claims.
The difficulty with that argument is that as at 13 September 1996 there is no evidence of any claims personally against Mr Pix. The Carltons did not give notice of their claim until November 1996. The solicitors’ file note of the discussions on 13 September 1996 does not state whether the “potential litigation” was by or against the Pix Print company or by or against Mr Pix personally. There was no litigation personally against Mr Pix until March 1997. Mr Skinner submitted that the reference to possible litigation in September 1996 was to possible litigation by the Pix Print company against defaulting franchisees.
I am prepared to accept from the Federal Court judgment in the Carlton proceedings that the Pix Print franchise business was in decline from 1995 onwards and that by 1996 the Pix Print company was experiencing difficulties with its franchisees. Mr Dugan in his evidence painted a more rosy picture, but I prefer the considered judgment of the Federal Court. Mr Pix had been a sole trader before 1995 but as the franchise business difficulties only arose from 1995 onwards it is difficult to draw any conclusion that Mr Pix anticipated claims against him personally in September 1996. Of course, Mr Pix was an officer of the Pix Print company, as was his wife at the time and no company office holder can ignore the potential for claims against them arising out of the performance of their office holder duties. Nevertheless, I am unable to conclude that Mr Pix had cause to anticipate claims against him personally in September 1996. He was aware of difficulties in the business. He was aware of problems between the Pix Print company and its franchisees. In September 1996 he probably had a vague or generalised concern about the potential for personal liability but that is not enough. In my view, two events are critical. The first is when the Carltons gave notice of their claim in November 1996. The second was in March 1997 when the Carltons commenced proceedings against the Pix Print company and Mr Pix personally. By November 1996 Mr Pix knew that the Pix Print business had a serious problem with the Carltons as potential creditors. By March 1997, Mr Pix was left in no doubt that he was at serious personal risk. The vague or generalised concern that Mr Pix would have had in September 1996 was progressively converted between then and March 1997 into an imperative for action to protect his assets from the Carltons or other potential claimants.
While at least the first transfer of the Turramurra property was signed earlier, the transfers were not lodged for registration until 22 April 1997 and the transfers were not in fact completed until 30 May 1997. At that time, Mr Pix was obviously aware of the need to protect his personal assets against creditors and those transfers are capable of being viewed as transfers to defeat Mr Pix’s creditors. It is likely that at the time Mr Pix had mixed motives. He was concerned about the claim against him by the Carltons but he was also concerned about a property claim by his wife. The question is, what was Mr Pix’s main purpose? This is a difficult issue to resolve but, on balance, I have concluded that the main purpose of Mr Pix was to meet his wife’s claim rather than to defeat the claims of creditors. There is no doubt that there were marital difficulties between Mr and Mrs Pix at the time. There is no doubt that Mrs Pix was making claims against Mr Pix for a division of marital assets. The issue of the home at Turramurra was at the heart of Mrs Pix’s concern. On 12 December 1996 Mrs Pix lodged a caveat on the property in an attempt to protect her interest. She also ensured that the mortgage over the property was discharged with the proceeds of the sale of the unit at Atarmon, in which she had a half share. In my view, the main purpose of the transfers of the Turramurra property was to satisfy Mrs Pix’s claim.
If I am wrong in that conclusion I also find that the transfer of the Turramurra property was protected under s.121(4) in that Mrs Pix acted in good faith. In particular, I have found that Mrs Pix gave valuable consideration for the transfer of the Turramurra property. Secondly, while Mrs Pix must have been aware of the deteriorating circumstances of the Pix Print business, there is no reason to believe that Mrs Pix understood the transfer of the Turramurra property to her was for anything other than the satisfaction of her claim to it. Thirdly, there is no basis for inferring that at the time of the transfer of the Turramurra property, Mrs Pix had any reason to believe that Mr Pix was, or was about to become, insolvent.
In relation to the proceeds of the sale of the “Lady Dee” the relevant transfers took place on 13 January 1997, when Mr Pix deposited the bulk of the proceeds of the sale into the family trust account, 16 February 1997 when Mr Pix purchased the Western Australian properties, 14 July 2000 when Mr Pix transferred the Western Australian properties to the third respondent, and sometime after 30 June 2000 when Mr Pix instructed Mr Dugan’s firm to alter the records of the Pix Family trust to transfer his loan account to Mrs Pix. It is, in my view, abundantly clear that the steps taken by Mr Pix in or about July 2000 were efforts by him to cover his tracks and to ensure that he had put assets beyond the reach of creditors.
While it is less clear, I have also come to the view that the main purpose of the initial deposit into the trust account by Mr Pix on 13 January 1997 was to put the proceeds of the sale of the “Lady Dee” beyond the reach of creditors. The general purpose of the establishment of the family trust is apparent from the Gadens advice. At the time the advice was given Mr Pix did not have a specific personal threat to his assets but I am on balance satisfied that the notice given by the Carltons in November 1996 was sufficient to galvanise Mr Pix into action. It is true that at that time Mr Pix was also dealing with his marital difficulties but it seems to me that the steps initially taken by Mr Pix were to ensure that he was the owner of the “Lady Dee” and was entitled to the proceeds of the sale. Having sought to establish sole claim to the boat and the proceeds of its sale, Mr Pix then moved to dispose of part of his interest by the establishment of the Pix Family Trust and the creation of loan accounts for the benefit of himself and his wife. The purchase of the Western Australian properties by Mr Pix as trustee of the Pix Family Trust was simply a conversion of the proceeds into an alternative asset. Following the judgment of the Federal Court in the Carlton proceedings Mr Pix moved belatedly to dispose of his remaining interest by transferring the Western Australian properties to the third respondent and by consolidating the loan accounts in the Pix Family Trust in Mrs Pix’s name. Both the initial transfer on 13 January 1997 and these subsequent transfers are colourable as transactions for the purpose of defeating creditors’ claims.
I do not think that s.121(4) protects these transactions. There was no consideration for the transfers. Mrs Pix gave evidence that she did not know that Mr Pix’s purpose in making the transfers was to defeat creditors and valiantly attempted to establish an interest in the proceeds of the sale of the “Lady Dee”. She did not succeed in that attempt. What she did succeed in doing was creating a strong impression that she understood little of the machinations of her husband concerning the “Lady Dee” and the disposition of the proceeds of the sale and cared less, although she was concerned to see the mortgages securing the Westpac loan for the boat discharged, and was happy to take the benefit of any profit. The apparent ignorance of Mrs Pix and the absence of evidence of insolvency of Mr Pix prior to the commencement of the bankruptcy is not, in my view, sufficient of itself to establish that Mrs Pix acted in good faith for the purposes of s.121(4). In my view Mrs Pix did not act contemporaneously at all. She was under cross-examination shown to be ignorant of key transactions by the Pix Print company, by Mr Pix, and by the Pix Family Trust. She was the unwitting beneficiary of transactions to defeat creditors that she did not know of until much later. When she did find out about them she was a party to an ineffectual attempt to re‑write history to give credence to those transactions: exhibit A8.
I have concluded that the applicants are entitled to orders 1 to 4 that they seek under s.121. The applicants are also entitled under s.120 to a declaration and order in relation to the creation of the loan accounts in the Pix Family Trust, limited to the amount of $169,914.48, being the then subsisting loan purportedly due to Mr Pix that was transferred to Mrs Pix. However, the applicants are not entitled to retain, as against the third respondent, any amount in excess of $341,271.40 received by them pursuant to these orders, or from the disposal of the Western Australian properties once transferred to them. The retention of anything received in excess of that amount would be double dipping, as I have found that both the loan accounts and the Western Australian properties were derived from the same source, namely the proceeds of the sale of the “Lady Dee”.
I also note that it is probable that the third respondent would be unable to meet the order for payment of $169,914.48, as that money has been invested into the Western Australian properties. Assuming the Western Australian properties are transferred to the applicants as required by the orders that I will make, and that at least $341,271.40 is realised by the applicants from those properties, it would be unnecessary, and probably inappropriate, for the applicants to seek to enforce the order for payment of cash against the third respondent. I will hear the parties as to costs.
I certify that the preceding thirty-nine (39) paragraphs are a true copy of the reasons for judgment of Driver FM
Associate:
Date: 6 June 2002
23
2
0