CATCHWORDS BANKRUPTCY - Payment of money by way of loan - intended for purchase of real property and shares to be retained by payee - disposition or settlement - sequestration of estate of disponor/settlor and within two years - whether payment made to defraud creditors - loan agreement for repayment after twenty years with interest five yearly on less than commercial rates - whether payment to "purchaser" - good faith - whether for valuable consideration - onus of proof. Bankruptcy Act 1966 s.120, s.121 RE ;: 'THOMAS BARTON; EX PARTE THE OFFICIAL RECEIVER, TERENCE BARTON (Respondent) No. 310 of 1974 McGREGOR J. Sydney 9 December 1983 way IN THE FEDERAL COURT OF AUSTRALIA GENERAL DIVISTON BANKRUPTCY DISTRICT OF THE STATE No. 310 of 1974 OF NEW SOUTH WALES AND THE AUSTRALIAN CAPITAL TERRITORY RE: THOMAS BARTON Bankrupt EX PARTE: THE OFFICIAL RECEIVER Applicant TERENCE BARTON ; Respondent _ REASONS FOR JUDGMENT McGregor J. Date: 9 December 1983 THE OFFICIAL RECEIVER ("Offticial Receiver") has made an application for certain declaratory orders pursuant to 55.120 and 121 of the Bankruptcy Act 1966 ("the Act") arising out of a transaction between THOMAS BARTON ("the bankrupt"). and TERENCE BARTON ("the resvondent""). Omitting formal parts it 1s in che following terms - "(a) That a payment made on or about 14th April 1973 by Thomas Barton (hereinafter called "the Bankrupt") to the Respondent, Terence Barton, now of 57 Oxford Street, Bondi Junction in the State of New South Wales, in the sum of 3170,000.00 is void as adainst the Applicant as trustee of the property of the Bankrupt as being a disposition of property with intent to (mB) (d) (e) (f) The following "C1) (2) 2. defraud creditors, not being a disposition for valuable consideration in favour of a person who acted in qood faith OR ALTERNATIVELY that the said payment 1s void as against the Applicant as being a settlement of property not being - (a) a settlament made before and in consideration of marriage, or made in favour of a purchaser or encumbrancer in good faith and for ~ valuable consideration; or (b) a settlement made on or for the spouse or children of the settlor of property that has accrued to the settlor after marriage in right of the spouse of the settlor; (Q)daccaa That the payment of the said sum of $170,000.00 by the Bankrupt to the Respondent on or about 14th April 1973 was not a payment in good faith and in the ordinary course of business or a settlement made before and in consideration of marriage, or made in favour of a purchaser or encumbrancer in good faitn and tor valuable consideration; or a settlement made on or for the spouse or children of the settlor of property that has accrued to the settlor-after' marriage in-—raght of the spouse of the settior: That the payment of $170,000.00 referred to un the last preceding paragraph is void as against the Applicant as trustee ef the estate of the bankrupt. That the said sum of $170,006.00 is property divisible amongst creditors of the Bankrupt." orders were sought - that tne respondent da pay ta the Applicant the sum of $170,000.00; that the Respondent do pay to the Applicant his taxed costs of and incidental to this Appliction." > The respondent in his Notice of Intention to Oppose this application relied upon the following grounds - "(a) That the payment made on or about 14 April, 1973 by the Bankrupt to the Respondent in the sum of $170,000.00 is not void as against the Applicant as trustee of the property of the Bankrupt in that it was not a disposition of property with intent to defraud creditors but was a disposition for valuable consideration in favour of a person who acted in good faith; (b) That in making the payment referred to in Paragraph (a) of this Notice of Intention to Oppose Motion the Bankrupt did not commit an act of bankruptcy as set out in s.40(1)(b)(1) or s.40(1)(b)(iii) of the Bankruptcy Act, 1966 (as amended); (c) That tne bankruptcy should not, by virtue of the provisions of s.115(1) of the Bankruptcy Act, be deemed to have relation back to and have commenced ona date not earlier than 14 April, 1973; (d) That the payment of the said sum of $170,000.00 by the Bankrupt to the Respondent om or about 14 April, 1973 was a payment in good faith .and j4n the ordinary course of business; (e) That the payment of $170,000.00 referred to in the last preceding paragraph is not void as against the Applicant as trustee of the estate of the Bankrupt; and (f) That the said sum of $170,000.00 is not property divisible amongst creditors of the Bankrupt." It has not been disputed that the payment of $170,000 was made to the respondent or that a Sequestration Order was made ef the bankrupt's estate on 23 August 1974. "Property" is defined unless a contrary intention appears in s.5 of the Act thus - """property" means real or personal property of every description, whether situate in Australia or elsewnere, and includes any estate, interest or profit, whether present or future, vested or contingent, arising out of or incident to any such real or personal property; Section 120 of the Act, upon which the Official Receiver relies, in its 1974 form, read - which does not anyway, "120. (1) A settlement of property, whether made before or after the commencement of this Act, not being -. (a) a settlement made before and in consideration of marriage, or made in favour of a purchaser er encumbrancer in good faith and for valuable consideration; or (b) a settlement made on or for the spouse or children of the settlor of property that has accrued to the settlor after marriage in right of the spouse of the settior, is, if the settlor becomes a bankrupt within two years after the date of the settlement void as against the trustee in the bankruptcy. (2) (3) (4) (5) (6) (7) 2... (8) In this section, "settlement of property" includes any disposition of property." It was amended by 5.56 of Act No. 12 of 1980 in a way s.56(2) reads - appear to me to alter materially its meaning; "(2) Nothwithstanding the amendments of section 120 of the Principal Act made by sub-section (1) of this section, the provisions of that section of the Principal Act continue to apply, aiter the commencement or this section, in relation to a settlor who became @ bankrupt before the commencement of this section as if those amendments had not been made." Section 56 of Act No. 12 of 1980 came into force on 8 Aprii 1980. Section 121 reads - "(1) Subject to this section, a disposition of property, whether made before or after the commencement of this Act, with intent to defraud creditors, mot being a disposition for vaiuable consideration in favour of a person who acted in good faith, is, if the person making the disposition subsequently becomes a bankrupt, void as against the trustee in the bankruptcy. {2) Nothing 1n this section shall be taken to affect or prejudice the title or interest of a person who has, in good faith and for valuable consideration, purchased or acquired the property the subject of the disposition or any interest in that property. ve (3) In this section, "disposition of property" includes a mortgage of property or a charge on or in respect of property." It will be convenient to refer to facts which are relevant to a consideration of this matter. In April 1973, the Barton family included Mrs. Barton senior, her son Alexander Barton and his wife and her mother Mrs. Buchalter. The two older ladies were over 70 and Mrs. Buchalter was sick. Both died in 1975. These four lived at 187 Edinburgh Road, Castlecrag, near Sydney, the older ladies being cared for by Mrs. Alexander Barton with the assistance of an experienced --+ - wee ee eee en et a ee we oe ee ee ee oe 6. nurse and some domestic help. Terence Barton, the respondent, brother of Alexander, lived with his wife in a unit at McMahons Point. Thomas Barton, the bankrupt, son of Alexander Barton, and his wife (nee Bellamy) lived in an apartment at Z1 Thornton Street, Darling Point, owned by A.T. Investments Pty. Limited (A.T.I.). It is said Mrs. Alexander Barton had looked after the elderly ladies for some years. 'It was proposed that the respondent, then aged 61 or 62, and his wife, should undertake this. Since these ladies, referred to as the grandmothers had lived for some time at 187 Edinburgh Road, Castlecrag, it was suggested that it be appropriate they remain there and the respondent and his wife. should also go to live there, Alexander Barton and his wife moving to other premises. The house itself was owned by Cordec Corporation Pty. Limited (Cordec). The evidence including that of the bankrupt was to the effect that over a period from mid 1972 to April 1973, there were conversations between Alexander Barton, the respondent and the bankrupt, including reference to the respondent and his wife taking over care of the grandmothers; Alexander Barton told the respondent he would need to buy 187 Edinburgh Road, Castlecrag, that the respondent said he did not have sufficient funds to buy the property unassisted whereat Alexander Barton said, "We will lend you the money." It was said that the necessity to buy the house was on the advice of a Mr. Gruzman, a practicising barrister anda Queen's Counsel, who advised the Bartons and their companies, that the respondent who was not connected or associated with Cordec could not have the use of the house for > nothing. There was also discussion as to lending the respondent money to purchase shares in Hawkesbury Developments Pty. Limited (Hawkesbury). As part of background it should be mentioned that on 4 April 1973 Messrs B.S. Smith and M.W. Burke were, pursuant to s.170(1) of the Companies Act 1961 (N.S.W.), appointed to investigate the affairs of thirty companies and later, a further thirty one companies referred to in annexures 1 'and 2 to the First Interim Report on the Special Investigation of the Barton Group of Companies (the First Interim Report) dated 28 August 1973. All companies referred to in these reasons, except what are apparently Swiss 'Corporations, were mentioned and included in those annexures. Other evidence is to the effect that Alexander Barton, and probably the bankrupt, were intending to make an overseas trip in1973 though the time for it had not been precisely fixed. The reasons for the trip, according to "+ ' —_ Alexander Barton, I summarise thus - 1. Alexander Barton-had received a threat from a Man, Armstrong, that he would be killed; to avoid this he proposed to leave Australia; 2. he had a heart condition, fibrillitis, for which he was advised to consult a Professor Pickard in Zurich; 3. the company, Intercontinental Holdings Lrtd., ef which he was a Director and shareholder, wished to sell non-income producing assets, in particular land in Pacific Highway, Artarmon for which a possible purchaser may have been found outside Australia, there being no market for such a sale in Australia. The potential purchaser or its representative was a person named Ronald Lyons in Wimbledon, London. Alexander Barton wished to undertake negotiations with Mr. Lyons; ee we est Se ee eee ~ 4. to raise finance for a company for the purchase of seven stores including supermarkets in South Australia; 5. Mr. Gruzman had advised him to leave a little Ssarlier to give the inspectors appointed on 4 April 1973, an opportunity to look at company books. The reasons given by the bankrupt for travelling overseas were his fear also of Armstrong, a wish to look arter his father; and because he had advice from Mr. Gruzman to depart Australia temporarily until inspectors could have a look at company books and records and see there was nothing wrong. Also arrangements were to be made to borrow money from Banque Populaire Suisse for a company, Mulkana Investments Pty. Ltd., to enable that company to purchase the stores in South Australia from G.J. Coles Limited and the Wynart family. The bankrupt said he hada detailed knowledge of the supermarkets whereas his father had not seen them... ; On Saturday 14 April 1973, meetings, apparently arranged with some urgency were held at 187 Edinburgh Road, Castlecrag, by two companies in which Alexander Barton and the bankrupt were directors and shareholders, one, Cordec, the other Inexco Pty. Limited ("Inexco"). It was said in the First Interim Report (supra) that the respondent was an alternate director for Alexander Barton and the bankrupt in these two companies. The respondent in evidence did not agree that he was always such a director. At those meetings there were present Alexander Barton and the bankrupt, then aged 27, and a Mr. Ian Marshall Moore nr et ee ew a ras ne re ee ee re ee ee ee 9. (Moore), a Solicitor said to be then acting for tne bankrupt and the respondent and as Secretary of the companies mentioned. A resolution was passed at the meeting of Cordec that the premises 187 Edinburgh Road, Castlecraq, which it owned together with contents, should be sold to the respondent for the sum of $120,000.00. The resolution was in the following terms - "THAT the offer of one hundred and twenty thousand dollars from Mr. Terence Barton for the Company's property and inclusions at 187 Edinburgh Road Castlecrag be accepted and that the Common Seal be affixed to all necessary documents to etfect the sale." At the meeting of Inexco, it was resolved that the ' Shares owned by that company in Hawkesbury be sold to the respondent for the sum of $50,000. On the same day, a Deed of Loan said to have been drafted originally by Mr. Gruzman was executed, being an agreement between the bankrupt and the respondent whereby the former lent $170,000.00_to the respondent. The Deed was worded as follows - "l.: The lender shall lend to the borrower the sum of $170,000.00 the receipt whereot is hereby acknowledged upon the following conditions:- (a) Interest shall be payable at the rate of 1/2% in excess of the rate from time to time paid by the Commonwealth Savings Bank to depositors who have deposited sums not exceeding two thousand dollars in that bank. Such interest shall be payable as to the first five years of the loan on the fifth annual anniversary of the date of the making of the loan and thereafter at five yearly intervals. (b) The principal shall be repayable on the expiration of twenty years of the making of the loan." 10. Upon evidence which 1s not contradicted, the effective rate of interest of this loan was 4-1/4%, i.e. considerably below commercial rates. The evidence supports that the loan, as to $120,000, was made for the purpose of enabling the respondent to purchase the house property; and as to $50,000, was for the purpose of enabling him to purchase shares in Hawkesbury which might be expected in the future to rise in value so that the respondent might derive income from them or make & profit on a re-sale. Respondent would thus be put in funds to enable him to care for the grandmothers. The effect of the bankrupt's evidence is that on 14 April 1973 Inexco owed him $80,000 to $100,000; and Cordec owed him $170,000 to $180,000. On that day the bankrupt drew a cheque in favour of the respondent for $170,000. This is the sum referred to in the Application, The respondent made out two cheques on his Rural Bank account as to $120,000 in favour of Ceordec and, as to $50,000 in favour of Inexco; . there was executed a Contract for Sale which apparently had been prepared before that day; and a Memorandum of Transfer by Cordec of 187 Edinburgh Road. The contract and memorandum were dated 14 April 1973. Moore, earlier referred to, acted for the vendor. According to Moore's evidence at some stage on that day whilst at 187 Edinburgh Road, and in the presence of the Bartons, he said - Alexander Barton denied this was said in his presence. concern answers Moore by the respondent in more il. "If this transaction was intended to remove any particular assets from the property of either Alexander or Thomas Barton or any of their companies in anticipation of the possible loss of the Privy Council appeal in Barton v. Armstrong, that that transaction probably, if it succeeded, it would be a fraud against any creditors." TI do not recollect any more of the statement, although there may have been some discussion that followed from that, but I do remember that statement, or words to that effect." was also referred to in the following questions in his evidence thus - "At that stage the major matter that I was handling for Messrs Barton, Alexander and Thomas, was an appeal to the Privy Council in a matter called Barton and Armstrong and that was about to be heard at that stage and whether correctly or incorrectly, what I recollect is I had drawn a presumption in my mind that there was a possibility that the transaction was being carried out in the possibiity of losing those proceedings, which would have a verdict and massive order for costs. __. Iounderstand that. What I am wishing to discuss With you was if the transaction did not succeed - I am not talking about the Privy Council - then one would be at loss?----That is right. The person who would be at loss most likely would be who, in your mind?----I was thinking in terms of one particular potential creditor. Who was that?----Mr. Armstrong, who was the respondent in those proceedings." Moore's and The evidence established that an indemnity was given to appropriate conveyancing procedures Decause of expedition with which the transaction was completed. In respect of his inability to carry out tne that 12. indemnity respondent acknowledged that he was aware that Moore was acting for the vendor in both transactions. These matters are referred to or confirmed in the letter dated Monday 16 April 1373 written by Moore addressed to the respondent in which he acknowledged receipt of his instructions said to have been received only on the 14th adem, but confirming that the respondent wished the contract to be completed on the same date despite the fact that it was the weekend. On 16 April 1973 cheques were drawn in favour of the bankrupt by Cordec for $144,000 and by Inexco for $26,000 and on that day paid to the bankrupt's account with the Head Office of the Bank of New South Wales, George Street, Sydney. On the same day the respondent's two cheques dated 14 April 1973 drawn on the Rural Bank, were handed to Mr. Alexander Barton who tore them up. An arrangement was then made whereby the respondent, accompanied by. the bankrupt and a Mr. Basil Maloney (the Secretary of the Barton companies prior to and in 1973) went to the Bank of New South Wales, being the same branch at Which the accounts of Cordec, Inexco and the bankrupt were current. There was opened in respondent's name a Bank account into which he paid the cheque for $170,000.00 given to him by the bankrupt. He agreed that he opened the new account so that there could be immediate clearance of all cheques. He thereupon obtained a cheque book containing five cheques. There was written out for him two cheques, in favour of Cordec and Inexco for $120,000 and $50,000 respectively; both were signed by him on me i ee me ee an et ee ee ee rr oer = 16 April 1973. These were to replace those torn up. They were paid unto the accounts of Cordec and Inexco. The effect of the bankrupt's evidence is that unless there had been deposited to the accounts of Coraec and Inexco the respondent's cheques for $120,000 and $50,000 respectively, the companies could not have met their cheques in favour of the bankrupt; except, possibly in the case of Cordec, by obtaining moneys from Inexco "as it normally did"; and by the cheque by Inexco being drawn against a sum held at the Bank for it on an overnight basis in excess of $100,000 to the account (not the current account) of: Inexco "sarmarked" for repayment of money owed to Banque Populaire Suisse/Equity Securities. According to the bankrupt almost $500,000 was repaid to that entity on Monday 16 April 1973. In cross examination bankrupt then added that his father had told him he would foot "my account" from the private companies so that the bankrupt could pay 'the cheque to the respondent; so he did not look or worry what was going to take place. The end result of this exchange of cheques (the bankrupt would not agree it could be described as a round robin) was that:- (i) The indebtedness of Cordec and Inexco to the bankrupt was reduced by the debiting of the cheques for $144,000 and $26,000 respectively paid into the Bank account of the bankrupt. ms i rn a i ee at ee a Le er NT (i2) The available assets of the bankrupt were reduced by the payment out of his bank account of $170,000 lent to the reaspondent. (iti) Instead of his $170,000 the bankrupt had a loan agreement of a "unique" kind, repayabie after twenty years, i.e. when borrower was 81 or 82 years old, with no security, no acceleration of repayment if the real property and shares for which it was to provide the purchase price were sold; and Meanwhile yielding much less than commercial rates of interest, the first instalment thereof payable after five years. (iv) The respondent was advantaged by the payment to him by the bankrupt of $170,000 which sum, as intended, he used forthwith to provide the purchase price to Cordec for 187 Edinburgh Road, Castlecragq, and to Inexco for shares in Hawkesbury. (v) The accounts of Cordec and Inexco with the bank were respectively credited with the respondent's cheques for $120,000 and $50,000. Cordec no longer owned what was formerly its unencumbered real estate; and Inexco no longer owned shares in Hawkesbury also to tnat time unencumbered. i Lb . According to Alexander Barton, after what was said to have been preliminary enquiries a week earlier, on Monday 16 April 1973, arrangements were made through a travel agent for reservation and purchase of airways tickets to Hong Kong and from Heng Kong to Frankfurt. These were collected on Tuesday 17 April 1973 by the Bartons, the qroup including Alexander Harton, his wife and the bankrupt and his wife. That day they left for Hong Kong. The effect of the Barton's evidence is that they departed without having told anyone of their intention except, perhaps, Mrs. Barton senior. At the time of his departure bankrupt completed and signed an outgoing passenger card on which he stated that the purpose of his trip was for a temporary visit overseas mainly on business of a duration of only 14 days and that the country in which he next intended to stay for twelve months or more was New South Wales. It ts not necessary to accurately record their movements thereafter; suffice to say they want to Hong Kong, later to countries including Germany, Switzerland, France, Israel, Spain, Portugal, Brazil and Paraquay, though not necessarily in that order. Some other events during the period the Bartons were out of Australia may be mentioned. The bankrupt sa2d that whilst abroad in June or July 1973 in Israel, he spoke by telephone to the respondent; he said he wanted to make a deal by which respondent would pay a debt for him plus a sum of money as full payment of the interest on the loan respondent would owe hi i rr re Ee ee A tr ee i ee we ee 16. in the future. Thereafter it was arranged that Alexander Harton would advance this money to the bankrupt treating it as a loan by Alexander Barton to the respondent. Pursuant to this, Alexander Barton paid $50,000 to bankrupt. Respondent arranged to pay approximately $8000 off a debt for legal costs which bankrupt wished to discharge. The evidence as to the events which preceded the making of the sequestration order against the bankrupt should be mentioned. Before 17 April 1973 the bankrupt incurred a debt to A.T.I. for $1250 for the use of the unit at Darling Point and a yacht called "Lady Brins" both owned by A.T.I. Of this company the Inspector's Report states - "This company was incorporated in New South Wales on 7th July, 1958, and was acquired by Barton interests about November 1970. The issued capital of the company is $4 comprising two shares of $2 each, one share each being held by Cordec Corporation Pty. Limited and Thomas Barton. The directors of the company are Alexander and Thomas Barton who were appointed on 6th November, 1970, and 25th June, 1971 respectively. Terence Barton is alternate director for each." According to Mr. Maloney amounts for these debts used to be debited toa loan account of the bankrupt in the books of A.T.I. ona six monthly basis. In a conversation which took place in March or April 1973, the bankrupt advised Mr. Maloney of the amounts to be charged to the loan account. An entry of 30 March 1973 in the loan account of the bankrupt for such an amount —— oe 17. referred to this debt. The bankrupt did not aaqree that he gave such authority. Further, he claimed that certain payments were made to the N.S.W. Building Society by the respondent at the request of the bankrupt, which should have been credited to the bankrupt's loan account, converting a debit balance in that account into a credit balance. On 20 dune 1973 a notice of assessment to income tax issued in respect of the assessable income of the bankrupt for the year ended June 1972 under which over $77,000 became payable on 23 July 1973. ' On 13 August 1973 an Order was made for the winding up of A.T.I. by the Supreme Court of New South Wales in its equity jurisdiction. On 28 August 1973 A.T.I., as a creditor in the sum of $1250 presented a petition to the Federal Court of Bankruptcy for the sequestration of the bankrupt's estate for money lent by it te the bankrupt between 5-17 April 1973. Each of the qrounds relied on an intent on the part of the bankrupt to defeat or delay his creditors. See s.40(1)(c) of the Bankruptcy Act 1966. On 4 September 1973 a further ground upon which the sequestration order ultimately was made was added; it read, so far as may be immediately relevant - "...with intent to defeat or delay his creditors the debtor remains out of Australia." se ee ee ee 18. On 23 October 1973 upon a hearing of an application for substituted service, on the instructions of the bankrupt, there was paid to the petitioning creditor, A.T.I., by the respondent the sum owed to it. On 10 December 1973 an order was made for the substitution of the Deputy Commissioner of Taxation for A.T.1. claiming the debt already mentioned. On 23 August 1974 on the petition of this substituted creditor, the order for sequestration of the bankrupt's estate was made. Reference to dates and events leading up to the sequestration order is to be found in Barton v. The Deputy Commissioner of Taxation of the Commonwealth of Australia (1974) 131 C.L.R. 370. The High Court heard and dismissed an appeal by the bankrupt against the making of the sequestration order. —M ae Fy ' mee = ee i a ie ee ee ee ee et ee 13. The bankrupt's statement of affairs in his own handwriting and dated 12 December 1974, in summary, showed - Liabilities Assets Amount owing to Property $150,300.00 unsecured creditors $77,392.17 Surplus 198,281,83 Book debts 125,374.00 275,874.00 275,674.00 The unsecured creditor was the Taxation Department. The "pfoperty" was stocks and shares held by the company secretary in Cordec in liquidation. The "book debts" specified as "Debts Due to Estare" included the $170,000 with the respondent named as debtor. Under the column headed "Amount likely to be recovered" this note appeared - "Long term loan - possible for total to be received but subject to future economic conditions of borrower." - 3 s — Other debts were - "Deam Ltd. (in liquidation) $20,000 unpaid salary Cordec Corporation Pty. Ltd. 19,994 " " Inexce Ltd. 47,146 " " Taxation Department 38,234 rebate of provisional tax. In the column headed "Amounts Likely to he received" corresponding to the entries for Cordec and Inexco the word "Nil" was written. Contangent assets not previously included are = stated asin "Money paid to Australian Government for Passport renewal. Proceeds for proposed court actions against Australian Government and media for defamation." — =e see ee se ee a ee et ee eet ee 20. It will be convenient at this stage to refer to submissions on s.120 of the Act. Senior counsel for the Official Receiver arqued that, on the facts here, there had been 2 settlement of property, being the payment of $170,000 but not in favour of a purchaser in good faith or for valuable consideration: that the settlor (bankrupt) became a bankrupt; and the ""settlement" came into operation on 16 April 1973 i.e. within two years before the date of sequestration, viz. 23 August 1974. Thus, he submitted the section was satisfied. He accepted, or finally. accepted, that the onus of proving the ingredients in 5.120 rested upon the applicant - Re Trautwein; Ricnardson v. Trautwein (1944) 14 A.B.C. 61; to which may be added Official Assignee of Estate of Cheah Soo Tuan v. Khoo Saw Cheow (1931) A.C. -67 cited in In re Windle (a bankrupt), Ex parte Trustee of the property of the bankrupt v. The Bankrupt (1975) 1 W.L.R. 1628 (Windle) at 1632, referred to by respondent's counsel. As to the commencement of the bankruptcy, he referred to s.115 of the Act. "Settlement", he noted, pursuant to s.120(8) included a disposition of property. He referred to the definition of property in s.5(1). He identified the "settlement" as the loan of money which put $170,000 beyond the reach of creditors for twenty years (at least). The loan was, and understood to be, for the specific purpose of 1ts use to acquire forthwith the realty, 187 Edinburgh Road, and Hawkesbury shares. al. The purchases were completed forthwith, thus, the respondent acquired by this investment, as intended, some permanency of interest in assets. He referred to In Re Vansittart. Ex Parte Brown (1893) 1 9.B. 181 (Vansittart), a decision on s.47, of the English Bankruptcy Act 1883, its terms corresponding to s.120 of the Act, supporting that this section did apply to the transfer, even of a sum of money, "when the intention was manifest, that the mone should be preserved either in its original form or in Y i =) tl 1D some other form of investment." The words of Cave J. from Plaver 15 9.B.D. 682 (Player) - ' "...a@ settlement - that is, a disposition of . property to be held for the enjoyment of some other _ person." were quoted at p.182. He referred also to Re Hair: Stapleton v. Flood (1957) Q.S.R. 12 (Hair) and authorities collected there; Re Cummins; Richardson wv Cummins (1951) 15 A.B.C. 185 (Cummins). He submitted the exceptions in s.120(1)(a) and (b) did not apply; there being e.g. no settlement on consideration of marriage or in favour of a purchaser or an encumbrancer in good faith and for valuable consideration. Referring to s.121, senior counsel for the Official Receiver added that the effect of the loan agreement was to defeat or delay the payment of the claims both present and future of the creditors of the bankrupt, that for the purposes of s.121 this satisfied the provision as to intent to defraud the me ee ee ee ee te es ee tee en ce i eee ee ee 22. creditors; that there was no valuable consideration given for the postponement of the debt and interest; and that since he signed the loan aqreement, respondent had knowledge of all its terms. The last proposition is, I consider, a fair inference from the evidence, nor was any submission made to the contrary. So, the arqument continued, he had knowledge of the intent to defeat or delay the creditors, and thus to defraud. Counsel for respondent, whilst conceding that the two year period referred to in s.120 was fulfilled, submitted that the essentials of a settlement were not made out; and that the' respondent was, within $.120(1) (a) a bona fide purchaser in good faith and for valuable consideration. He referred to Re Love; Ex parte The Trustee in Bankruptcy (1930) 3 A.B.C. 24: Re Pahoftt; Ex parte Ogilvie (1961) 20 A.B.C. 17 at pp.19-20. ~ He argued that' a loan of money could never be a settlement. He referred to Bishop v. Chung Brothers (1907) 4 C.L.R. 1262 per Barton J. at pp.1273-1274; Hocking v. Western Australian Bank (1909) 9 C.L.R. 738 per Griffith C.d. at p.746; Signorotto v. Nicholson (1982) V.R. 413 per Fullagar J. at p.417. He submitted the onus of proof of lack of good faith and of lack of consideration lay on Official Receiver. He submitted, in effect, that "purchaser" need not be one who entered into a sale contract or a commercial transaction to purchase, but a person who had given value; that in the circumstances here, respondent was a purchaser who had given a "quid pro quo"". He referred to 23. - Hance v. Harding (1888) 20 9.B.D. 732 (Hance) at pp.737-9; in re Pope; Ex varte Dicksee (1908) 2 K.B. 169 (Pope) at p.172-174; Windle; "The meansng of "purchaser" ain the Bankruptcy Acts"; Law Times Journal Vol. 209 165. As to s.121 he submitted that no intent to defraud by bankrupt had been made out and respondent had given valuable consideration; that no lack of good faith by respondent had been proven. I have not attempted to refer to all arquments of counsel but shall consider all elements in sections to which they have referred. The onus of proof of the elements of s.120 and s.121 lay, as conceded, and correctly so, onthe Official Receiver. First I shall consider the applicability of s.120 of the Act. 1. SECTION 120 - The Official Receiver is required to prove its elements which, for comvenirence, I shall state separately i.e. that the payment of $170,000 was - , Fy - (i) a settlement of property; (ii) not being a settlement in favour of - (a} a purchaser (b) ain good faith (c) for valuable consideration; and (iii) the settlor became a bankrupt within two years after the date of the settlement. Such settlement shall then be void as against che trustee in bankruptcy. ee ee ee a ee ee, (i) Sattiement: The (inclusive) definition of "settlement"™ in s.120(8) should be read with that of "property" as described in s.5(1). The payment of $170,000 for the purposes established by the evidence implemented by immediate translation into real property and shares, confirm that the bankrupt contemplated a "permanency" of the subject matter of transfer to remain tne property of the "transferee". There was "a disposition of property to be held for the enjoyment of some other person" - see Williams v. Liovd;: Re Williams _ (1933) 50 C.L.R. 341 (Williams) per Dixon dg. at p.375, i.e. the respondent - see Vansittart and the references in it to Player, also cited by Dixon J. in Williams. Vansittart was apparently accepted by the High Court in Trautwein v. Richardson 1946 A.L.R. 129 at p.131 per Latham C.J. The bankrupt, and indeed the respondent, envisaged the retention by the respondent of the money advanced in the assets which it purchased. [I accept that there was an exceeding if not axcessive disproportion between the value of the immediate availability of $170,000 and the covenant to repay after 20 years with low non-commercial interest payable; but adequacy of consideration is not a relevant factor in deciding whether there has been a "disposition". Cf. McGain v. Federal Commissioner of Taxation (1965) 112 C.L.R. 523 (McGain) at p.529 per Taylor J. I do not accept the submission of counsel for the respondent char a loan cannot per se be a settlement, though the preoccupatian with the word "loan" is, I suggest, a misconception; the payment 1s the disposition. Seo McGain at p.528; the same case on - ' we i ee en i ee ie a ns ee dt es et a oe | 25. appeal McGain v. Federal Commissioner of Taxation (1966) i116 C.L.R. 172 at p.174. I am satisfied, having regard also to the definitions mentioned and the authorities including Plummer, Vansittart, Harr and Cummins that the payment in the circumstances referred to was a "settlement". (ii) But was the settlement, in terms of s.120(1)(a) not one: (a) in favour of a purchaser? (b) in good faith? (c) for valuable consideration? If the Official Receiver negatived any one of the three elements he would succeed in proving that the settlement would be void as he contends. These elements may be considered separately. ae 2 1 — (a) Purchaser: Was the respondent a purchaser? Having regard to the words of Buckley L.J. in Pope and Sir Robert Megarry in Abbott, both cases referred to later, I am of the opinion the word may be considered initially separately from "valuable consideration"; but see per Buckley L.J. at p.175. It will be necessary to refer to decided cases. In Ex Parte Hillman, In re Pumtrey (1879) 10 Ch.D. 622 (Hillman) at pp.625,626, referring to the Bankruptcy Act 1869 5.91 which is in similar terms to ».120(1) of the Act, Jessel, M.R. said - "The only question is, what is the meaning of sect.91? Now, in the first place, the Bankruptcy 26. Act is a& special code of law relating to bankruptcy, as a general rule for commercial men, and we must therefore axpect to find words used in it in the sense in which commercial men use them. In the next place, that the words of sect.91 are used in that sense is, I think, clear from the words themselves, independently of any other consideration. It is said that this settlement, made for the benefit of the bankrupt's wife and children, comes within the exception from the section. It is argued that, because the leasehold houses are subject to the payment of the rent and the performance of the covenants of the lease, therefore the trustees of the settlement are purchasers of the houses in good faith and for valuable consideration. It appears to me that this argument is not well founded. I think that in this section the word "purchaser" means a "buyer" in the ordinary commercial sense, not a purchaser in the legal sense of the word. That this is so is made obvious by the use of the other word "incumbrancer," for every incumbrancer is a "purchaser" in the legal sense. The two words "purchaser" and ""incumbrancer" are contrasted with each other. It 1s impossible to say that in any sense of the word a trustee for the settlor's wife and children is a "buyer" of the settled property." With him, James and Bramwell, L.JJ. agreed. - ' — Hance was a judgment of the English Court of Appeal. It appeared that a father became worried for the possibility that no provision would be made by his son for the children of the son. Accordingly, he made an arrangement with the son pursuant to which the son made a settlement assiqning to the plaintiffs as trustees for the benefit of his children, two policies of insurance. By a deed of the same date, the father conveyed to those trustees certain leasehold properties upon trust during the bankrupt's ilifetime to apply the income to payment of the premiums on the policies; and as to any surplus upon trust for the benefit of the son and after his death for his children. The value of the leasehold property was to he inferred from the en nn te ee a eee 27. fact that it was sold later for some seven hundred oounds. [It was admitted the surrender value of the policies was about the same amount. The son was made bankrupt in July 1883, i.e. within two years from the date of the settlement. The issue was as to the title to the money payable under the policies. The trustees claimed it as being part of the settlement; and the defendant as official receiver in bankruptcy of the son contending, inter alia, that under s.91 of the Bankruptcy Act 1869 it was void. At p.737-738 Lord Esher, M.R. said:- "...the motives of both of the parties to this settlement had no reqard to the son's being pressed by his creditors or to -any tangible probability that the son would become insolvent or bankrupt, but had regard to another matter altogether, viz. to the fact that the son had become involved in an unfortunate connection, and had contracted intemperate habits, and that his conduct in these respects was likely to lead to family difficulties and misfortunes, and to injure his family: and I think that such jrobability of injury—to his family was the consideration which led both the father and the son to make this settlement and not any consideration having regard to the son's creditors or what was likely to happen to them.... I do not think it would be right to draw the inference that the settlement was executed in contemplation of his insolvency or bankruptcy, or with any intention of defrauding or of defeating or delaying his creditors. But the question remains whether the settlement is avoided by s.91 of the Bankruptcy Act, 1869, or is protected by any of the exceptions contained in that section, or, 1f not so protected, whether it is protected by s.94 of the Act. The question whether it is protected by s.91 appears to depend on whether the father can in this case be considered a bona fide purchaser for valuable consideration within the section. With reqard to nis bona fides, I have already sufficiently expressed my opinion. Then can he be called a purchaser? He has given something to get something for other persons, viz. the family of his 23. son. He has given up his interest in certain leaseholds to induce his son to give up his interest in these policies. That being so, I think he is a purchaser from the hankrupt within the Meaning of the section. It is said that there is a decision in the Court of Appeal by which of course we are bound, if in point, to the effect that he is not such a purchaser, and that the term "purchaser" in the section must be limited to a purchaser in the mercantile sense of the term, viz. a person who has bought something by contract of purchase and sale. Ido not think that the case of Ex parte Hillman, In re Pumfrey goes that length. In that case the trustees of the settlement, who were alleged to be purchasers, had not qiven something to procure something for other persons. Though they might in conveyancing law language be called "purchasers", they had not given anything at all. I think the case only goes the length of saying that such purchasers as those were not purchasers within the:section, and that in order to make a purchaser within the section there must be valuable consideration given, I think there was such consideration here, for the father gave something in order to induce the son to give something." Sir James Hannen, at p.739 said, referring to Ex Parte Hillman, (Supra) said - "* , s _ "...and with reference to that case his lanquage Must be interpreted as meaning that the word "purchaser" must not be treated as a conveyancing term, but must be considered as applying to cases where there is a quid pro quo. Here there was an ample quid pro quo." In Re Parrv, Ex parte Salaman (15904) 1 K.B. 129,"a debtor", by a post nuptial deed, had in 1899, settled property upon trust for himself for life and after death for his widow and children. He applied in 1902 to the trustees to consent toa partial revocation of the settlement so he could raise sixteen hundred pounds out of the settled funds to pay pressing liabilities. The trustees agreed upon the express condition that 29. the debtor brought into the settlement his life interest under a deed of 1899 and also a reversionary interest to which he had since become entitled. The trustees had a power to allow revocation of the deed. With the consent of the trustees and by deed dated 29 December 1902; the debtor revoked the trusts of the deed of 1899 so that he could raise and did raise the sum of sixteen hundred pounds. By a deed of even date, he assigned to the trustees the life interest and reversionary interests. Within two years therefrom, i.e. in September 1903, he was adjudicated bankrupt in respect of debts incurred by him since December 1902. At that stage the trustees were applying the income of the trust estate to the wife. The trustee in bankruptcy applied to them for their consent to its revocation. They declined: thereupon he applied to the court for a declaration that the deed of December 29 1902 which assigned to the trustees the interests was ' ' _ void as against nim being a voluntary settlement under s.47 of the Bankruptcy Act 1883. Section 47 is similar in its terms to s.91 of the Bankruptcy Act 1869 and to s.120(1) of the Act. Wright J. at p.133-134 said - "The view I take of this case is based entirely upon the fact that the trusts are revocable at the request of the settlor with the consent of the trustees; and, having regard to that fact, it seems to me that I ought not to hold that this transaction 1s a purchase for valuable consideration within the meaning of 5.47, as construed in Ex parte Hillman and further explained in Hance v. Harding. What took place in truth was this. The setctlor being anxious to obtain a present use of portions of the sattled assets, which were capable of being realized at the time, was willing to bring in other assets, which probably were not capable of being realized at the time, on the terms that the trustees, who had a ee er ert 30. discretionary power of consenting to revocation of the trusts, should exercise their discretionary power and consent to his taking out of the old assets the portion which he required. Now the only question is, whether the consent which they gave was aoconsent given by them as "purchasers for valuable consideration" within the meaning of the section. I do not think it was really a transaction of purchase at allin the sense in which the word "purchaser" is construed in the two cases to which I have referred. They did not, as it seems to me, purchase for any price whatever. The proper description of what they did is, that they only exercised a fiduciary power to consent to terms which satisfied them that the trusts would not suffer. In one sense it may be said that the consideration which was qiven for a sale of assets for 1600L. really came from the debtor himself; but the ground for the view which I take is that it was mot a bargain of purchase at all as between vendor and purchaser, but merely a partial substitution of ene trust asset for another in the ! discretion of the trustees. I think, having regard to the decisions in the cases to which I have referred, that that cannot properly be described as a purchase by the trustees for valuable consideration within the meaning of 5.47." Pope was concerned with'a post nuptial settlement of the bankrupt's own property, such settlement being executed by him within two-years of his bankruptcy in favour of his wife and children. The consideration for this was that she would refrain from taking proceedings against him in the Divorce Court. It was sought to avoid the settlement under s.47 of the Bankruptcy Act 1883. In his judgment, Cozens-Hardy M.R., said at p.172 - "That there was valuable consideration is plain, having regard to the finding of the judge as to the bargain. It is decided by authority, which binds us, that the word "purchaser" 1s equivalent to "buyer" in the sense in which that word is used in commercial transactions - Hance v. Harding - and, on the other hand, that it is something more than a conveyancing term and is not satisfied by a deed, such aS an assignment of leaseholds, which micht suffice to render the assignee a "purchaser" withan ce ee ee ee es a ee " 31, the statute of 27 Eliz. c.4: Ex parte Hillman, In re Pumtrey. I think it means a person who has given something in consideration of the settlement, or, to use the lanquage of Sir James Hannen, a quid pro quo." And later, at p. 173 - "In my opinion the release of a right or the compromise of a clain, not being a merely colourable right or clain, may sutiice to constitute a person a "purchaser" within the meaning of s.47. I am not pressed by the words "purchaser or encumbrancer", for I think they only mean that the exception is to apply whether the person taking under the settlement, which by s.3 includes any conveyance or transfer of property, takes the absolute interest or only a mortgage." Fletcher Moulton L.d. concurred. Buckley L.J., who dissented, said at pp.173-174 - - "It has been decided in this Court that a "purchaser" means a "buyer" in the ordinary commercial sense, not a purchaser in the legal sense of the word: Ex parte Hiliman, In re Pumfrevy. But the-words' "in the ordinary commercial sense" must not be pressed too far. From the decision, also in this Court, in Hance v. Harding it results, first, that the purchaser need not give the commercial or market value or the contractual value of the property - that it is sufficient that property be given - and, secondly, that the purchaser need not purchase for himself, but may purchase for others. It remains however to consider whether the surrender of ridhts not capable of being measured by pecuniary equivalent, can constitute the surrenderor a purchaser. The word "purchaser" is found in this connection for the first time in s.91 of the Bankruptcy Act, 1869, and is repeavted in s.47 of the Bankruptcy Act, 1883. The earlier statute of 1849, s.126, did mot, mor did the Acts 1 Jac.1, ¢.15, 5.5, and 6 Geo.4, ¢.16, 5.73, contain the word. In those Acts the lanquage was only "for some valuable consideration". Under the present Act the inquiry must be wnether the person was (1.) a purchaser and (2.) gave valuable consideration. The lanquage of the section is "purchaser or incumbrancer in good faith and for valuable consideration". The words 32. "in good faith" exclude colourable transactions. The inquiry, therefore, must be whether the transaction, being areal one, is for valuable consideration, and for such valuable consideration as constitutes the giver a purchaser, that is a buyer. The language requires that some persons who Give valuable consideration shall be excluded. For, if not, why add to the language of 1849 the word "purchaser", which was not inserted before? And, apart from that consideration, why say "surchaser for valuable consideration" when the words "for valuable consideration" import all that is intended? The person who comes within the section must satisfy two requisites - first, he must give valuable consideration, and, secondly, he must give it as a purchaser. Valuable consideration may consist in the giving of property or in the giving or surrender of something which is not property, something which is not measured by any pecuniary equivalent. The purchaser for valuable consideration within this section must be, I think, a person who- gives such a valuable consideration as justifies his being described as a purchaser or buyer. That is only satisfied when the valuable consideratiion is money, or property or something capable of being measured by money. It does not, I think. extend to the surrender of such a right as the right to relief for matrimonial offences." 7 a 1 — As I read the dissenting judqment, the basis for it was not because the so called '"purchaser" was not a buyer in the commercial sense but because of what was found to be a lack of - " .,..such a valuable consideration as justifies his being described as a purchaser or buyer." Re Macdonald; Ex parte McCullum (1920) 1 K.B.205, was a decision om s5.42(1) of the Bankruntcy Act 1914 corresponding to s.120(1) of the Act. Horridge J. said at p.212 - "T think I must take the definition of "purchaser oer incumbrancer in good faith and for valuable consideration" from the lanquage of Cozens-Hardy, M.R. In re Pope. " 33. Thereafter he quoted portion of wnat is set out above. He decided there had been no consideration by the wife. He said:- "She did not even bargain that she would not take proceedings before a magistrate for maintenance. There was no consideration whatever for this settlement, and I therefore must make a ° declaration..." (in the terms of the notice of motion. ) - . 4 - - Again this was a case which concerned a settlement. His Honour said at p.212 (referring to the wife's affidavit) - ",..the true inference is that instead of a voluntary allowance to his wife for maintenance, the bankrupt gave her a voluntary settlement." iio Fy 1 + It will be seen again that the refusal to find the wife a "purchaser" was mot because she did not have the characteristic of a buyer in the "mercantile" sense. In Re Charters; Ex parte Trustee (1923) B.& C.R. 94, Astbury J. reviewed the authorities to which reference has been made above. The facts need not be stated; they dad not include reference to a commercial transaction of buying and selling in the ordinary sense. His Honour found that the wite was a "purchaser" within the meaning of the section. we a i a ee ee ae ee er eet ee ee ee ee a ee ae ae ne Oe 4. td Cummins was a decision of Clyne J. dealing with s.94 of the Bankruptcy Act 1924-1948 being a section also the equivalent to s.120. His Honour said at p.188 - "The word "purchaser" within s.94 is not used as a conveyancing term but in the commercial sense and must be considered as applying to cases where there is a quid pro quo." He referred to Hance. The facts in In Re Densham (a__ Bankrupt); Ex parte Trustee of the Property of the Bankrupt v. Vhe Bankrupt (1975) 1 W.L.R. 1519 (Densham) were that a husband and wife had purchased a house with joint contributions, but the amount she provided was much less than the husband paid or for which he accepted liability. The wife sought a declaration that the bankrupt held the house on trust for herself and the trustee in bankruptcy as ve ' ~_~ equitable joint tenants or tenants in common in equal shares. The trustee in bankruptcy sought a declaration including that if there was an agreement when the house was purchased that it should belong to the parties beneficially in shares other than proportionately to the amount of their respective contributions then the agreement constituted a settlement void against him as trustee pursuant to s.42 of the Bankruptcy Act 1914. Gof= J. summarised the issues arising under the section thus (p.1526) - "The trustee, therefore, has to show that there was a settlement, and the neqative that it was not or either of the excepted classes. IF he succeeds, the wife can escape only if she brings the case within the proviso at the end of the section and there the onus rests on her. 35. Now in my judgment 1t 15 clear on the facts that, apart from the agreement which I have found, her share on any footing must be less than half, and therefore the agreement to give her joint ownership Must be a settlement within the section." He said, at p.1527 - "Was this a settlement made in favour of a purchaser in good faith Tor valuable consideration? I accept that the wife was acting in good faith, but was there valuable consideration and was she a purchaser within the meaning of this section?" In referring thereafter to authorities, his Honour considered at the same time the question of "purchaser" and "valuable consideration". He decided the wife was a purchaser and for valuable consideration then addressed himself specifically to the latter expression. He said at p.1529:- "I. camnot say, therefore, that there was not a valuable consideration because it did not equal the share given up by the bankrupt or cannot be evaluated so as"+to show that it did. However, bearing in mind the approach to section 42 of Stamp ag. in In re A. Debtor, Ex parte The Official Receiver v. Morrison (1965) 1 W.L.R. 1498, and the views expressed in the case to which I have referred - that one must look at it in a commercial sense - I cannot think that the contribution by the wife ain respect of which she is in any event entitled to an appropriate aliquot share in equity, and which «x khypothesi affords nothing in relation to any larger share can, on these principles, be held to be valuable comsideration, within section 42. In my judament, therefore, the section applies." In Windle, an estranged wife persuaded her nusband that the matrimonial home should be transferred to her and that she should take over the future liabilities on a mortgage. Later she became aware that the bankrupt was insolvent and that she was taking over substantiall the whole of his assets without 36. providing anything in return to cover the value of the equity of redemption. In March 1972, with the consent of the mortgagees, the bankrupt executed a transfer of the house to the wife. Thereafter she kept up the payments under the mortgage. He committed an act of bankruptcy in November 1972, i.e. within two years of the execution of the transfer. The trustee in bankruptcy sought a declaration that the transfer was a voluntary settlement within s.42 of the Bankruptcy Act 1914, and therefore void against him as trustee. In considering the element of bona fides, Goff J. said at p.1632 - "....it must be remembered that one is concerned with the bona fides of the grantee only." and at p.1637 having referred to'some' of the decisions which have been cited above, viz., Charters, Hance, Pope, he said - "Tt is clear that the consideration does not have to replace anything in the debtor's estate for it may be something which he has barqained shall be provided for a third party, nor does it have to be equal to that which has been taken out." This was a reference to Stamp J's words in Morrison quoted later. He continued - "The three Court of Appeal cases taken as a whole appear to me to establish that for this purpose the expression "purchaser for valuable consideration" does not import a purchase in the strict sense of a contract of purchase and sale, put it does postulate a person who in a commercial sense provides a quid pro aquo:" From Pope he quoted Cozens-Hardy M.R. (set out earlier) - 37. "T think 1t means a person who has given something in consideration of the settlement, or, to use the lanquage of Sir James Hannen, a quid pro quo." Goff J. came ta the conclusion that the transfer should be found to be void as against the trustee. He appears to have decided that consideration may be inadequate but still valuable consideration; but that there comes atime when it is s0 inadequate as not to be fairly described as a "quid pro quo". He said at p.1639 - "....8 mere covenant of indemnity cannot....be yeqarded as a quid pro quo. Before the assignment, the debtor has the protection of the property against his'liability on the covenant: afterwards he has nothing but the -personal covenant of the grantee." In Re Abbott (a Bankrupt), Ex parte Trustee of the Property of the Bankrupt v. Abbott (P.M.) (1983) 1 Ch. 45 (Abbott) was concerned with the result of negotiations between parties in matrimonial dispute. 'This resulted in a compromise of the wife's claim which on 6 December 1978 was incorporated in a consent order made under which the matrimonial home, in the joint names of husband and wife, was to be sold. From the net proceeds the wife was to be paid eighteen thousand pounds, the balance of the proceeds being divided equally between them. The house, when sold, realised more than eighteen thousand pounds. The husband became a bankrupt on 19 May 1980. In June 1981 the Trustee in Bankruptcy asked the Court for a declaration tnat the consent order of 6 December 1978 and the carrying into effect of that order, Was a settlement of mine thousand pounds on the wife and void pursuant to s.42 of the Bankruptcy Act 1914. At first ee ae ee Ne cm a ee ee ce ee a a 38. instance, and on appeal, the application was dismissed and tne dismissal upheld upon the basis there had been a settlement under the consent order but that the wife was a purchaser for valuable consideration within the meaning of the section. Peter Gibson dq. who referred to authorities cited above said at p.54 - "The word "purchaser" in section 42(1) means a buyer in the ordinary commercial sense, that is to say a person providing a quid pro quo." He referred to Hillman and Hance. Ido not find those expressions as unequivocally clear as one might have hoped since the- authorities seem to establish that "purchaser" may be wider than buyer in the commercial sense. I take his Honour to envisage that "purchaser" includes more than one involved in a mercantile transaction who enters into a contract to acquire land or chattels for money~or its equivalent. The effect of his Honour's judqment was that the wife was, within the meaning of s.42, a "purchaser". Cf. the reference to the meaning of "purchase" in May on Fraudulent and Voluntary Dispositions of Property 3rd Ed. (May) at p.172. In my opinion, having regard to the authorities to which I have referred, the respondent was a "purchaser" within the meaning of s.120(1)(a). (b) Good Faith: The issue of "good faith" is common to both s.120 and s.121. i ee ee ¥ That che qood faith in question is that of the respondent i.e. in s.120(1) a settlement in favour "oft a purchaser in good faith" and in s.121(1) being the object of a disposition "in favour of a person who acted in good faith" is supported by authorities. See Butcher v. Stead (1875) L.R. 7 H.L. 839 (Butcher) a case concerned with 5.92 of the (English) Bankruptcy Act 1869 similar in relevant portions to s.120(1) and s.121(1) of the Act, the words being - "...this section shall not affect fhe rights of a purchaser, payee....in good faith..." See also Mackintosh v. Pogose (1895) 1 Ch.505 (Mackintosh) at p.510, Re Hyams; Official Receiver v. Hvams (1971) 19 F.L.R. 232 at 9.256; Windle at p.1632 quoted earlier. Existence of knowledge or suspicion of an inability to pay debts as they fall "due negatives gqood--faith - see Downs Associa Distributing Company Propristary Limited v. Stores Proprietary Limited (in Liquidation) 76 C.L.R. 463 at p.472 per Latham C.J. (affirming Roper C.J. in Eq.) I amof the view that the respondent was neither as astute as, nor in the confidence of, Alexander Barton or thre Dankrupt though, without doubt, impressed by and loyal to them. They had, I consider, a more sophisticated experiencs commercially than he and considerabls influence over him; though I do not imply that ne lacked shrewdness. If his evidence is to be believed, he did not know of the trip overseas of the Bartons until after they had left; he did not by 14 April 1973 know that inspectors had taken possession of the records of his employer company, Associated Gem Corporation Opal Skymine Ltd. and Alexander Barton had not told him this. No one told him who drafted the loan agresment; when he made his original purchase of a home unit when he first came to Australia he paid for it by monthly instalments of $120.00 but denied that he had borrowed the money. He said when asked whether he had borrowed the money :— "I did not". He was asked if a company referred to as Landmark paid s FY — for it on his behalf. He said - "I do not know. I did not speak a word of English and my brother arranged for me to buy this home unit. I do not know nothing else about it." He was asked this and made this answer - "Who lent you the money?----I do not know. I told you my brother arranged the business. For how long was the money lent to you?----I do not know. Was it for twenty years or anything like that?----I do not know." Oo i- ater he said - From other evidence I am "T can tell you that I do not know for how much I paid for this unit. I do not know nothing about borrowing money and I donot know if 1t was the payments that somebody borrowed money for me and lent money for me." make that purchase. In respect of the substitution of the satisfied that he had borrowed money to Bank of New South Wales cheques for Rural Bank cheques, these questions and answers appear in the evidence - "Look, you are prepared to do anything that your brother and nephew said in this regard, were you not?----So far that they are honest people. I believe every word what they say, but I never do something which is improper." And later - asrxed - "So he had the Rural Bank cheaues and then you gave him the cheques drawn on the Bank of New South Wales did you?----Yas. Whose idea was it that you' should -substitute the Bank of New South Wales cheques for the Rural Bank cheques?----I wanted to have a cheque account in the New South Wales Bank and I did it this way. Whose idea was 1t that the Bank of New South Wales cheque should be used in place of the Rural Bank cheque?----It was my idea. And would you tell his Honour wny it was that you wanted to substitute the Rank of New South Wales for the Rural Bank?----I do not know." As to the purchase of the shares in Hawkesbury, he was "You were also to purchase, you were purchasing the shares in Hawkesbury Development?--~--VYes,. Did you know how long those shares had been owned by Inexco?--~-No. Did you 'ask why it was they were selling them?----No." He said that he did not ask his nephew where he was getting the sum of $170,000 rrom; that he did not enquire and has never enquired whether there was some urgent need for his nephew (the bankrupt) to go overseas. I do not accept that the substitution of the cheques was, as the respondent claimed, his idea. He is not a witness whose testimony on disputed matters I would readily accept. I consider that his participation in the loan transaction was that of an acquiescent ab the behest of the bankrupt and Alexander Barton. He gave no evidence "and was asked no questions specifically as to whether he had any knowledge of any fraudulent intention by the bankrupt in the payment to him of $170,000. Though I have formed an unfavourable view of his credibility and indeed of his motives, I am not persuaded that he acted with some suspicion, view or knowledge that bankrupt may have been insolvent or seeking to delay or defraud creditors by the payment of the $170,000; or that he had any suspicion of the bankruptcy or any impending indebtedness. Separately I later make a finding as to the bankrupt's intention in the loan transaction, but as this matter may be the subject of appeal it seems appropriate that I record this finding in respect of the respondent. (c) Valuable Consideration: Next it is necessary to discuss the expression "valuable consideration", an ingredient of both 5.120 and s.121, and to decide whether it is to be found in the loan transaction. In Mav, Part 111 Chapter 11 at pp.172-190 headed "What persons are entitled to relief as purchasers within 27 Eliz. c.4 the author wrote - "In order to acquire a right to the protection of the Statute the purchaser must be qualified ina certain way. Although, if there 1s any valuable consideration for a settlement the quantum of such a consideration is of no comsequence under the Statute so long as there is anything in the shape of consideration which can be called value; still, it does not follow because a man has paid a sum of money, however small, for an estate, or for the chance of being able to get it from the prior gyantee, that he is therefore a purchaser." "= ' ' _- In Part 1V Chapter I headed "Consideration generally", though not referring to sections equivalent to 5.120 and s.121, the author wrote,(p.192-3) - "As the question what will amount to a valuable consideration is, in general, much the same under either Statute, it will be convenient to take the cases on the subject under both Statutes together. In fact, any consideration entirely inadequate is of no avail. There must be yeal consideration paid, or a fai interchange ° aunterests; for though mer Ltnadequacy ot price is not, an general, circumstance which will, of itself, Make an assianment void, yet if the inadequacy is very Great - at least, if it 1s so palpable that it must a t a4, be taken to have been a fraudulent contrivance between the parties - the transaction will be void against creditors; especially aif what little comsideration was given consisted of an existing debt." Authority was cited. Other references and discussion of the expression may be found in - Corbin on Contracts Vol. 1 section 131 p.561 Halsbury's Laws of England 4th ed. Vol. 9, Contract para.309 Law of Contract, Cheshire and Fifoot, 4th Australian Ed. Ch. 2. Sutton and Shannon on Contracts 7th ed. pp.70, 71 which I need not set out. It is,-I suggest, of some materiality to mote that the passages were not specifically referring to bankruptcy leqislation. In In re a Dedtor, Ex Parte The-Official Receiver (Trustee of the Property of the Bebtor) v. Marrison (1965) 1 W.L.R. 1498 (Morrison), Stamp J. said, referring to s.42 of the English Bankruptcy Act 1914, at p.1505 - "In construing the section, I must have regard to the fact that it is clearly framed to prevent properties from being put into the hands of relatives to the disadvantage of creditors, and as was said, in effect, by Sir George Jessel M.R. in Ex parte Hillman, the section falls to be construed in a commercial sense." And later - "In my judqment, the consideration spoken of in section 42 is a4 consideration moving to the debtor which replaces the property extracted from his nt ne ee ee ee ee ee 45. creditors and here there was no such consideration." That there does not have to be an Ssquality between the benefit conferred and the consideration given for it is accepted by Gotf J. in Densham at pp.i527, 1529; though he held that the wife's contribution to a house purchase which was to be joint was not valuable considerarion wathin the meaning of s.42 of the English Bankruptcy Act 1914. He so held, as I understand hin, because the wife's contribution in cash was so incomparable in amount to the vaiue she received. The same judge in Windle (supra) considered that Stamp J.'s definition of valuable consideration was too narrow. He said also at p.1637 - ht > . mee "It is clear that the consideration does not have to replace anything in the debtor's estate for it may be something which he has bargained shall be provided for a third party, nor does it have to be equal to that which has been taken out." In Williams and Muir Hunter oon Bankruptev, 19th ed., citing the cases of Morrison, Densham and Windle, the authors, under the heading, "Voidability of interests conferred on other spouse by bankrupt without consideration or fraudulently", wrote (p.265) - "Any share or interest in the matrimonial home conferred by one spouse on the other, either by conveyance into the other's name or into joint Mames, whether as between married persons or common law spouses, may be impeached by the trustee of nn ns ee ee ee ee ee es ee a er ere me et tt ee rt et me 26. that party under section 42 of the Act as a voluntary disposition (if made within the statutory periods thereby prescribed), or under section 172 of the Law of Property Act 1925, as a fraudulent conveyance, unless the other spouse has provided a reasonable equivalent in actual value as the consideration for the conferment of that share or interest....." The same authors state at p.339 under the heading "Meaning of "purchaser in good faith"" - "The word "purchaser" is to be construed in the ordinary commercial sense; it means a person who has given value, not a purchaser in the legal sense of the word, and includes a person who has given value in order to obtain property for a third party. The''test would seem now to be, whether the "purchaser" gave an adequate "quid pro quo" for that portion of the debtor's assets which he received. A person is a purchaser in good faith within the meaning of this section if he himself acts in good faith, and it 1s not necessary that both parties should so act. A "purchaser" who knows that the whole object of the transaction is to remove the property being disposed of from the clutches of the debtor's creditors is not purchasing in good faith." The 19th edition of this work was published in 1979, i.e. before Abbott (to which I now refer) was decided: one has to evaluate the authority to be accorded the learned authors in the light of that later decision. Abbott was a decision of the Divisional Court. Peter Gibson J. said at p.54 - "The consideration moving from the purchaser need not replace in the hands of the debtor the consideration moving from the debtor: Hance v. Harding. The contrary suqgestion iniIn re A Debtor, Ex parte Official Receiver v. Morrison mn i a i ns ee we we ee eee | . 47. ' (1965) 1 W.L.R. 1498, 1505 by Stamp J., to whom Hance v. Harding, 20 9.B.D. 732 was not cited, is ' erroneous: In ve Windle (A Bankrupt) Ex parte : Trustee of the Property of the Bankrupt v. The Bankrupt (1975) 1 W.L.R. 1628, 1637. The ' consideration given by the purchaser need not be i equal in value to the consideration given by the ' debtor, though it must be valuable consideration in the commercial sense: In re Densham (A Bankrupt), Ex parte Trustee of the Property of the Bankrupt v. The Bankrupt (1975) 1 W.L.R. 1519; thus where the debtor conveys property subject to a mortgage but having a valuable equity of redemption, a mere covenant of indemnity given by the transferee in respect of the mortgage will not be such consideration: In re Windle (1975) 1 W.L.R. 1628. Sir Robert Megarry V.-C. said at p.57-58 - "TI do not think that section 39 of the Matrimonial Causes Act 1973 has altered the meaning of the phrase "purchaser...for valuable consideration" in section 42(1) of the Bankruptcy Act 1914 in any 'Way. Ti Parliament had intended to alter that meaning, the enactment of section 39 would have provided the spur and the occasion for making a specific amendment; and there has been none. The question then, is wnat that meaning is. Plainly "good consideration" in the sense of the natural love and affection that a man has for his wife and children, is not enough. Nor is a merely nominal consideration, even though it would suffice to support a simple contract at common law. In the context of the avoidance of settlements by a trustee in bankruptcy, a "purchaser...for valuable consideration" must be someone who can not only be described as being a "purchaser" but can aiso be said to have given a consideration for his purchase which has a real and substantial value, and not one which is merely nominal or trivial or colourable. It is in this sense that I understand the use of the phrase about providing a quid pro quo that is to be found in the authorities. In that phrase, I do not think that the word "quid" is confined to some material asset which can or will replace in the hands of the debtor the asset of which he has disposed to the purchaser. The doctrine of replacement which is suggested in In re A Debtor, Ex parte Official Receiver v. Morrison (1965) 1 48, W.L.R. 1498, 1505, may indeed be a doctrine which Parliament might have thought it ridht to enact; but I cannot see any ground on which it can be suggested that Parliament has done this. If Hance v. Harding, 20 9.B.D. 732, In re Pope (1908) 2 K.B. 169, In re Charters, Ex parte Trustee (1923) 8 B. & C.R. 94 and In re Cole (1931) 2 Ch. 174, or any combination of them, had been cited inIn reA Debtor, Ex parte Official Receiver v. Morrison (1965) 1W.L.R. 1498, I do not think that any doctrine of replacement would have been suggested. In the face of In re Windle (1975) 1W.L.R. 1628, 1637, that doctrine must now be regarded as being extinct." . From these authorities and text writers, I am satisfied that, objectively speaking, a promise or covenant to repay a loan, may be described as "valuable consideration"; though it may be of assistance to evaluate the terms of the actual promise, even to examine perhaps tne financial standing of the promisor, to which subject I refer later. The expression has to be looked at in the context of its use in the Act and in the particular sections with which this case is conterned. -~ Accepting as I do "valuable consideration" referred to in those sections need not be such as to be reasonably equivalent to what was paid by the bankrupt; or such as would fairly replace that sum, the enquiry is not thereby concluded. In my opinion one may not overlook the "yeality" of the transaction when evaluating the promise or covenant to repay. Jessel, M.R. in the passage cited from Hillman earlier, referred to the Bankruptcy Act 1869 as "a special code for commercial men". Peter Gibson J., in the passage from Abbott quoted above, thought the "valuabie consideration" must be so described in a commercial sense. Sir Robert Megarry V.-C (ibid pp.57 and 58) in the passage quoted, referred to it being - - te eer et ee a ee ee ae ae te a ee es ee ee ee ed es ee 49. ",..&@ comsideration for his purchase which has a real and substantial value, and mot one which is merely nominal or trivial or colourable." The terms of the agreement for the loan I have set out sarlier. They do not provide for security or acceleration of repayments either on the sale of the house or shares, oy upon respondent's death; no instalments of principal are required and no interest 1S payable before lapses or five year periods and then at less than a commercial rate; the capital sum is repayble only after twenty years and this by a man who will then, if alive, be over eighty years old. I add that the covenant or promise is not to be evaluated merely by accepting it tobe the sum which, when invested at an appropriate rate of interest, will provide for the interest payments at five yearly intervals and $170,000 in twenty years. Accepting that the present value of the respondent's covenant to repay can, objectively speaking, be (it was not, in this case) so calculated, that is not the end of the matter. He exchanged not that sum but a promise made then to repay in twenty years' time. The promise to pay is not the equivalent in money terms of $170,000. There has to be taken into account contingencies such as ability to repay which might prevent the respondent, assumed for this purpose to he acting with complete honesty, meeting his commitments including this commitment. The promise or covenant to repay could hardly, in my view, be said to have a "real and substantial value". Rather, it could be more fairly described as "colourable" only. 50. I am persuaded that the Official Receiver has proved that the covenant was not valuable consideration in the sense ct ea 1D that the section requires and that the settlement and cr fem Di) disposition were not for valuable consideration within Meaning that expression bears in sections 120 and 121. Quite apart from this finding and though I do not rely on it for the purpose of the finding, 'further support is, I suggest, available for it. The evidence disclosed no great earning capacity by the respondent or prospects thereof or of his ownership of capital assets of such worth as to encourage one to form a favourable opinion as to one's assessment of his ability to repay. I note respondent, now over 70 years, has retired; a Matter which could have some relevance on his ability to repay and could have been foreseen or envisaged in April 1973. 2. SECTION 121 - The elements of the section, again stated separately for convenience, which the Official Receiver must prove are that there was - (i) a disposition of property; (i2) with intent to defraud creditors; (iii) not being a disposition - (a) for valuable consideration (b) ain favour of one who acted in qood faith; and (iv) the disponor subsequently became a bankrupt. a a es ee a a we 51. These matters being established, including either (a) or {b) of (iii) or both, the disposition would then be void as contended. The onus of proof of these elements, as earlier remarked, lay on the Official Receiver. (i) Disposition: Already I have made brief reference to this word. It is defined, though not exclusively, in s.121(3) of the. Act. Ordinarily it has the meaning of a transfer, alienation or giving up. As I read the second paragraph of the judaqment of Taylor J. at p.528, in McGain he considered that payment of a loan was, generally speaking, able to be described as a disposition, i.e. quite apart from the definition in the Gift Duty Assessment Act 1944-1957 to which he later referred. Tt seems to me that Taylor I, at first instance (p.529) and the Court's Reasons for Judgment on the appeal in that matter (1966) 116 C.L.R. 172 at p.174, were not intending to refer only to the statutory definition of disposition of property. Comment on the origin of the word is to be found also in the observations of Street C.J. in Eq. (as he then was) in Re Mal Bower's Pty. Ltd. and The Companies Act (1974) 1 WN.S.W.L.R. 254 (Mal Bowers) at p.257. And "property", as defined in the Act, includes personal property which term is wide enough to include money. See The Dictionary of English Law (Jowitt) Ist Edition p.642, Blacks Law Dictionary Sth edition, p.423. I comsider 1 could, therefore, i te ee es ee rt ee ee wee 52. imclude the payment by way of loan of $170,000. But-the payment itself of $170,000 is the disposition not the fact that it is by way of loan. See McGain at 116 C.L.R. at p.i174. The Official Receiver, therefore, in my view, has discharged the onus of proving that the payment of $170,000 was a "disposition". (ii) With Intent to Defraud Creditors: An intent to defeat or delay creditors would satisfy the section; see s.6 of the Act; Williams & Muir Hunter on Bankruptcy at p.13. Perhaps "defraud" is not intended to be confined to the ordinary use of that word. See Lloyds Bank Lrd. vw. Marcan & Ors. (1973) 1 W.L.R. 1387 at p.1392 per Cairns L.d. Reference may first be made to the bankrupt' s financial position. In 1970, according to his uncontradicted evidence, he received between $500,000 and $1,000,000 for the sale of shares. He lent this sum to other private companies which became known as the Cordec Grourn including Cordec, Inexco and A.T.1I. It is consistent with this ' that he should have described himself in respect of the private companies as "always a lender"; and that his and other evidence refer to his loan accounts with companies showing in 1973 credit balances. Earlier I nave referred to - cheques baing drawn on Cordec and Inexco to make up the $170,000. Next it is appropriate to examine first bankrupt's position as at 16 April 1973 as to debts or ampending andebtedness. Debts or activity which mignt result in debts owed or possibly to be incurred by the bankrupt have been referred to in the evidence including those alleqed debts mentioned by Mr. Bluett, the Official Receiver, in his evidence. He produced the seven Proofs of Debt which had been lodged in respect of six entities claiming to be creditors. Of those he agreed that he had admitted only those two verified respectively on 21 February and 28 April 1977 which were claims for or on behalf of the Commissioner of Taxation totalling $51,624.99 of which there was judament only in respect of the sum of $416.13 pursuant to judgment and order dated 22 May 1974. This last sum was for costs incurred by the plaintiff in proceedings between the Deputy Commissioner of Taxation and the defendant in the Supreme Court of New South Wales in matter No. 3130 of 1974. Of the balance of the debt, as raferred to by the Deputy Commissioner of Taxation in his Proof of Debt, the major portion of this was for income tax assessed on income said to have been derived during the year ending 30 June 1972, viz. $37,271.17 and for the year ending 30 June 1973 1n the sum of $2888.70. The Return (prepared by D.M. Dickson & Co.) for the year ended 30 June 1972 disclosed an income of $3006.00. The adjustment sheet shows that to this was added by the Commissioner profit in the sum of $63,000 on sale of shares in Regent Nickel Corporation N.L. The bankrupt had subscribed for these shares and apparently made a profit on their sale which was disclosed in the return but claimed not to he assessable to tax. His evidence was that he had advice from his accountant, viz., Mr. Alan Jones, of D.M. Dickson & Co., that having regard to his intention of purchasing to get a tax deduction available in the Income Tax Assessment Act 1936-1973 such profits could not be taxed. This was corroborated, apparently, by written advice from Messrs Wiison Bishop Bowes & Craiaq. This letter was dated 13 March 1973 and not addressed to the bankrupt but to Mr. dones. The bankrupt further said in avidence that he obtained other advice relative to the question whether the profit would he taxable in the relevant income year, that he had received three other advices, two of which were qiven orally, viz. from Mr. Gruzgman and from a Mr. Peter Jay a solicitor; also he had seen a letter from Mr. W.FP. Deane of Queens Counsel, as he then was, written to Mr. Jay being dated 14 February 1973. Included in that letter was a statement as to certain shares which were acquired for the purpose of obtaining the benefit of tax deduction and not for a section 26(a) purpose. The opinion then was stated that "no question of bringing to tax any "profit" arises". Reference was made to Loxton v. Federal Commissioner of Taxation (1973) A.T.C. 4001 (Loxton). The remainder of the debts referred to in the Proof in relation to income tax were for lesser sums, e.g. for late lodgqment, late payment and additional tax for alleged ommitted income. I am satisfied that the bankrupt did receive advice which could have induced him to form the belief as he said that there was no tax payable whatsoever in relation to a profit of $63,000. He became aware of the assessment in August 1973. If this is so his expectation as to his liability to tax would be, as his income tax return indicates, for a modest indebtedness. For this advice reliance was placed, apparently, on e.g. s.77AA te es ee ee 55. or its equivalent in the Income Tax Assessment Act 1936 at the relevant time. The bankrupt's attitude in endeavouring to lodde an appeal against the assessment for the year ended June 1972 in respect of the profit on sale of shares is consistent with his assertion that his belief was there was no tax payable whatsoever in relation to that profit. A further Proof of Debt verified on 28 May 1975 was one lodged by Lend Lease Investments Pty. Limited for rent and other monies due pursuant to a Memorandum of Lease dated 1 March 1973 between that company as lessor and Associated Gem Corporation Upal Skymine Ltd. as lessee. The amount claimed was $4709.35 said to have been guaranteed by the bankrupt. The effect of his evidence was that prior to his departure overseas no claim had been made upon him by that company under the guarantee and that "Opal Skymine" had been paying its rent. He said that he first became aware that such a claim had been made against him when he was advised by the Official Receiver that the Proof of Debt had been lodged i.e. in 1977. I note that the date of verification of the Proof us 28 February 1975. Another Proof of Debt verified on 7 May 1975 was that lodged by Intercontinental Holdings Ltd. (In liquidation) for $356,000 being funds said to have been misappropriated by the bankrupt on 16 April 1973. He denied categorically thar he had misappropriated any such sum and asserted that it was a totally false ciaim. He agreed that he caused such a sum of money to bea paid by Intercontinental Holdings Ltd. to Inexco for a debt owad by the former to the latter, which amount was then used by Inexco to satisfy part of a loan which had been made to Inexco by Banque Populaire Suisse. Apart from the assertions in the Proot of Debt and the letter which accompanied it, there is no avidence whicn supports a finding that there was misappropriation. Such a very serious allegation in respect of this considerable amount of money would need strong evidence before one could be persuaded as to its truth. (cf. Briqinshaw v.. Briginshaw (1938) 60 C.L.R. 336 at p.347, Rejfek v. McElroy (1965) 112 C.L.R. 517 at p.521; See generally Cross on Evidence, 2nd Australian Edition at p.110. Proof of Debt was lodged by Madeira Investments Pty. Ltd. verified on 30 June 1975 claaming monies said to he due under a quarantee in connection with a lease of certain premises, the lease having originally been held by Brins General Insurance Company Limited which transferred it to another company. The amount claimed was $1,370.40. The bankrupt said that prior to his departure (overseas), no claim had been made upon him in relation to that guarantees; and that his anticipation was that everything was up to date. The Bank of New South Wales lodged a Proof for $8,174,360.40 verified on 28 July 1977. This was said to have been made up of four amounts arising out of a breach of trust or other fiducirary duty in respect of money, if any, for which she Bank might be held to be liable as trustes to Corporate Mining Investments of Australia Limited; a further sum for indemnity, or alternatively, contribution for might be held liable as trustee liquidation); a further sum of liable to pay as trustee to Liquidation) anda further sum similarly be liable to Limited (In Liquidation). of avidence - "IT have considered it to liability which before it the bankrupt, if I may use that have to go through a lot will be quate a number of court information 'available it would be for me even to consider it and that not been considered." Before he left Australia had been brought against him. The that he did not have in his mind brought. A.T.I. lodged a $45,260.00 for a payment made on Official Liquidator a Director the bankrupt when Official Liquidator to be s.293 of the Companies Act. Proof of Debt of A.T.I. was that it was of A.T.I. preferential under the monies similarly which the Bank to pay to Murumba 011 N.L. (in money which the Bank might be N.L. (In Mulkana Corporation of money which the Bank might pay to Intercontinental Properties Pty. this claim Mr. Bluett said in be a contingent type of can be sheeted home to expression, will ot filtering and there cases, and on the just impossible is why it has on 17 April 1973 no such claim effect of his evidence was that any such 1 — claim might be claiming the sum of 6 April 1973. The claim of the & payment made to which appeared to the provisions of The bankrupt's evidence in respect of this amount was that he did receive that payment on or abour 6 April 1973; that prior to asked him that receipt he spoke to Mr. to give him (the bankrupt) Maloney, the balance that was owing 58. on his loan account at that time. Thereupon Mr. Maloney said he would go and look at the books and notes he had made on cheques drawn earlier; that subsequently he returned saying that there was anamount of $45,000 odd being the figure which he was subsequently paid. He added that A.T.I., even after that payment, was able to pay its debts when they fell due. Mr. Maloney was asked these questions about this sum of money - "Am I correct, Mr. Maloney, in concluding that that represented a repayment to Mr. Thomas Barton of credit he had in the company's books in the loan account?----Yes. Would you agree before you made that payment he enquired of you whether he had that credit?----I would not rémember that." Further, in cross examination, Mr. Maloney was asked these questions and gave these answers - "I think you told us yesterday, but for the record, when the cash payment referred to as—dated 6 April of $45,260, that cash payment was a payment of moneys which were standing to the credit of Thomas Barton in the books of AT Investments?----Yes. In other words, AT Investments owed Thomas Barton that sum of money at that date?----Yes. I thank the position was that before that payment was made he asked you to tell him what amount of credit, if I can use that term loosely, he had with the company. Do you remember that?----No, I do not remember that. I think I may have asked you yesterday, did you recall when you made those two entries, that is the entry of rent for 30 March 1973 of $1250, and the entry for April 6, the cash payment of $45,4607----Wnat date I made them? Yes?----No, I could not teil you. a a ee ee a ws ee se ee ee Would you agree with me that you made those entries, certainly after the Bartons had left Austrailia, that is after 17 April?----I do not know." He agreed that the bankrupt would have told him, i.e. Maloney, to draw the cheque for the amount i.e. $45,26.00. I am not persuaded that this sum when paid was not properly due and payable to the bankrupt. The bankrupt was not cross examined in any detail as to his answers in respect of the various Proofs of Debt i.e. to suggest that he had not given a true account of such matters. He had, at least on paper, assets in the sense of credits in Barton companies, the value of which would have to be discounted by the ability of those companies to pay as at 16 April 1973; or in the immediate future. No doubt the financial standing and credit worthiness of these companies depended heavily on the management and attention of the bankrupt and his'father and the availability of credit which in turn would reflect the reputation of those persons in the commercial world. Theixy ability to provide finance or make profits would have to be qualified following the appointment of Messrs Smith and Burke on 4 April 1973 and their taking possession of records about 6 April 1973. Further the sum of $356,000.00 (or possibly, $352,000.00) was transferred from Inexco to Banque Populaire Suisse about 16 April 1973 without the knowledge of those inspectors and reducing thus the liquidity of the Barton group. I amnot satisfied that I have heard from Alexander Barton or the bankrupt or the respondent completeiy reliable evidence; in particular a frank explanation of why the $170,000 was paid or why the transaction it facilitated was entered into. There could be, at least theoretically, various explanations as to the real purpose prompting the loan of $170,000. There could Rave been the desire to make adequate arrangements within the Barton family for the provision of a home for the grandmothers where they had become accustomed to live and under the care or a close relation who would be put in funds to carry this out on terms advantageous to him. Yet one might have thought that the provision of finance to discharge this duty would have been primarily the responsibility of "Alexander Barton and not the bankrupt. The latter may have had more liquid funds immediately available. There may have been fear that if assets, real property, cash or shares, were allowed to remain in the companies being investigated, those assets, depending on the result of the investigations, would not thereafter he available to the bankrupt. The loan transaction was carried out, as was the Barton exodus, without advice to the inspectors. There might have been some apprehension that arising out of the investigations there could be an impending indebtedness by the bankrupt which would absorb or restrict availabilaty of his liguid funds including amounts standing to his credit in loan accounts. It is relevant to remember the loan transaction and Barton departure were within days. It is not necessary for me to decide why the bankrupt left Australia in April 1973 or why he A 41. cemained awar: except in so far as this could throw light upon rhe reason for the loan transaction, the bankrupt's state of indebtedness or impending indebtedness. It has heen accepted by sourts (see Barton v. Armstrong (1973) 2 N.S.W.L.R. 598) that Mr. Armstrong did threaten Mr. Alexander Barton and familv. It 1s hard to accept that such threats were still being uttered in 1973, I do not accept the bankrupt's evidence that he departed from Australia in April 1973 merely to enable inspectors to have a look at company books and records and see there was nothing wrong; ee if he was here it would only hinder the whole operation of (inspectors) 'looking through "evervthing", being the advice, he said, Mr. Gruzman gave him. A more likely explanation is that he was concerned that some considerable embarrassment including reduction of his funds with companies in which he was interested might arise from the investiaation so recentiv implemented and then proceeding. I note the reference tna neceassitv to infer an intent to deteat or delay creditors said to arise in the circumstances referred to in Freeman v. Pope (1870) 5 Ch. App. 4338 (Freeman) at R41. The relevant passage is cited with approval in a decision of the Full Court of this Court in Noakes wv. Haryvv Holmes & Son (1979) 26 ALR 297 (Noakes) at p.303 where there is reassurance that the relevant proposition does not "trespass upon the rule as to the enus of proort". That onus 1s referred to. not only in the passage in Noakes but also in Freeman at p.540 in terms more compatible with Australian authority. There is a distinetion on fed 62. the facts before me in that when the settlement was made here, the bankrupt could not be said to be then "owing or anticipating awina debts" other than the debt to A.T.I. for rent. I am not persuaded that I should infer that the reason for the bankrupt's departure from Australia was indicative of or associated with an intention to defeat or delav the payment of of the debt to A.T.I. or anv creditors. Further. I am not satisfied that as at the 16 April 1973, the bankrupt was not able to pay his debts or thought that he mignt not be able to do so in the future: or.that he had knowledge of any impending indebtedness. If the bankrupt had been a party to the Barton v. Armstrona litigation referred to in the evidence of Moore mentioned earlier, ome could infer that the history of that litigation might have caused an appellant some worrv. In the lengthy action before Street J. fas he then was) plaintiff had failed. Certain eosts were awarded against hin. In the Court of Appeal the plaintiff appellant again failed. The appeal had been dismissed with costs; (1973) 2 N.S.W.L.R. 598 at p.652. A further loss in the Privy Council would most probably have been accompanied by another costs order payable bv the appellant. Se Moore's advice was timely. But the Bankrupt was not a party to this litigation. There was, as IT have found, a disposition being the pavment of $170,000 for less than what might be valuable consideration. Tat Tam not satisfied bv the evidence before me that the bankrupt 1s Shown to have made that disposition with intent to defraud nreditors, is} 63. (iii) Ca) For the reasons stated earlier, the disposition was not for valuable consideration. (b) The good faith in question is that of the respondent. For the reasons stated earlier I am not persuaded that the respondent lacked good faith. 3. SECTION 123¢1): Respondent's counsel made submissions as to 5.1231). I do not repeat them: thev are in writing. Tt is submitted s.123(1) may apply to the loan transaction. Sub-paras. fa), (bd) and t¢) of 5.123 do not apply if onlv for the reason that the bankrupt was not a debtor: (d) does not apply for the further reason at least that there was no "existing creditor". Tt is not necessarv to consider the section further. The respondent is to pay the applicant's costs. I stand the matter over to enable the parties to bring in short minutes of the Order. ar, { certify that this and the ew preceding pages are a true copy of the Reasons for Judgment herein of his Honour Mr. Justice McGregor. sa OS — Se a Se Associate