a4 CATCHWORDS BANKRUPTCY - whether payment a preference priority or advantage in favour of a creditor - meaning of "in good faith" ~ meaning of "in the ordinary course of business" - Bankruptcy Act 1966, ss.122, 124. Bankruptcy Act 1966, ss.122, 124, 231. Re Bird (as Trustee of the Estate of Arcadiou); ex parte M. & G. Casabene & Sons (1979) 39 F.L.R. 281 Brittain; Ex parte Barnes (1984) 2 F.C.R. 35 Re K. & R. Fabrications (Q'ld.)Pty.Ltd. (In Liquidation) (1980) 32 A.L.R. 183 Re Lee Furniture Pty.Ltd. (In Liq.) 8 A.C.~L.R. 251 T.G. CUMMINS & NOR: 7 EK PARTE E.G, HARRIS & ANOR. and REFRIGERATION PARTS (OLD) PTY.LTD. Part X Nos. 4 & 5 of 1984 CORAM: Spender Jd. Brisbane 3 July 1985 "BANKRUPTCY ACT, 1966" IN THE FEDERAL COURT OF AUSTRALTA GENERAL DIVISION BANKRUPTCY DISTRICT OF THE SOUTHERN DISTRICT OF THE STATE OF QUEENSLAND Part X Nos.4 & 5 of 1984 - Re: THOMAS GEORGE CUMMINS and JILL IMELDA CUMMINS trading under the style or firm name of "NAM CONSTRUCTIONS" (Debtors) Ex parte: ERNEST GEORGE HARRIS and WILSON JOSEPH WILDE (Trustees/Applicants) AND: REFRIGERATION PARTS (QLD) PTY.LTD. (Respondent ) MINUTE OF ORDER JUDGE MAKING ORDER: DATE OF ORDER: WHERE MADRE: THE COURT ORDERS THAT: Note:- (1) the applicants; (2) the respondent pay to Spender J. 3 July 1985 Brisbane the payment made by the debtors to the respondent of $10,169.17 on 6 October 1983, is void as against the applicants the sum of $10,169.17 together with their costs of and incidental to the application, such costs to be taxed if not agreed; (3) liberty to apply to either party. Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. "BANKRUPTCY ACT, 1966" IN THE FEDERAL COURT OF AUSTRALIA = GENERAL DIVISION Part X Nos.4 & 5 of 1984 BANKRUPTCY DISTRICT OF THE Re: THOMAS GEORGE CUMMINS SOUTHERN DISTRICT OF THE an@ JILL IMELDA CUMMINS STATE OF QUEENSLAND trading under the style or firm name of "NAM CONSTRUCTIONS" (Debtors) Ex parte: ERNEST GEORGE HARRIS and WILSON JOSEPH WILDE (Trustees/Applicants) AND: REFRIGERATION PARTS (OLD) PTY.LTD. (Respondent) SPENDER J, 3 JULY 1985, REASONS FOR JUDGMENT This application is brought by Ernest George Harris and Wilson Joseph Wilde, the trustees of the property of Thomas George Cummins and Jill Imelda Cummins, appointed under deeds of assignment executed on 17 February 1984. The trustees claim that a payment of $10,169.17 made in October 1983 to Refrigeration Parts (Qld) Pty.Ltd. by Nam Constructions, which was the firm name under which Thomas George Cummins and Jili Imelda Cummins traded constituted a preference within the meaning of $.122 of the Bankruptcy Act 1966. They seek a declaration to that effect and an order requiring the respondent to pay to the trustees the money it has received. Refrigeration Parts (Q1id) Pty.Ltd., the respondent, opposes the making of such a declaration on the ground that the payment was received in good faith and for valuable consideration in the ordinary course of business. Section 122(1) of the Bankruptcy Act provides that a payment made by a person who is unable to pay his debts as they become due from his own money in favour of a creditor, having the effect of giving that creditor a preference, priority or advantage over other creditors, being a conveyance within six months before the presentation of which the debtor becomes a bankrupt, is void as against the trustee in bankruptcy. Section 231 of the Bankruptcy Act makes applicable to the administration of arrangements with creditors without sequestration, under Part X, many of the provisions of the Act which are applicable to the administration of bankrupt estates in relation to which sequestration orders have been made. These provisions include s.122 relating to preferences. In the application of this section, the date of the special resolution requiring the execution of a deed of assignment is to be treated as if it were the date upon which a creditor's petititon had been presented and the date of execution of the deed is to be treated as if it were the date of a sequestration order. The trustee of the deed is to be treated as if he were the trustee in the bankruptcy. 3. The date of the special resolution requiring the debtors to execute the respective deeds of assignment was 17 February 1984, It is not disputed before me that each of the elements required under s.122(1) is met in the circumstances of this case. For the respondent, it is claimed that the payment was made in good faith and for valuable consideration, and in the ordinary course of business and, therefore, is preserved by virtue of s.122(2). The burden of proof of establishing that the payment was made in good faith and for valuable consideration in the ordinary course of business lies on the respondent: s3.122(3) of the Act. Section 122(4)(c) provides:- "For the purposes of this section - (c) a creditor shall be deemed not to be a purchaser, payee or encumbrancer in good faith if the conveyance, transfer, charge, payment or obligation was executed, made or incurred under such circumstances as to lead to the inference that the creditor knew, or had reason to suspect - (i) that the debtor was unable to pay his debts as they became due from his own money; and (ii) that the effect of the conveyance, transfer, charge, payment or obligation would be to give him a preference, priority or advantage over other creditors." The two issues in this case are:- (1) whether the payment of the sum of $10,169.17 was made in good faith, and (2) whether such payment was made in the ordinary course of business. It is necessary to look to the circumstances in which this payment came to be made. On 17 February 1984, both Mr. & Mrs. Cummins executed an authority under s.198 of the Bankruptcy Act 1966 authorising the trustees to call a meeting of their respective creditors for the purpose of Part X of that Act and to take control of their respective property in accordance with that Part. The trustees called meetings of creditors of each of the debtors. At each meeting it was resolved that the debtor be required to execute a deed of assignment under Part II of the Bankruptcy Act and that the trustees be appointed trustees. Deeds of assignment in the usual form were executed by each of the debtors on that same day. The statement of affairs of each of Mr. & Mrs. Cummins shows a total deficiency, as at 15 February 1984, of $1,877,690.00 The debtors, under the firm name of Nam Constructions, carried on business on a large scale asa building contractor and had numerous contracts principally in central Queensland. The respondent supplied parts to Nam Constructions. The debtors commenced trading with the respondent in May 1982, and in that month received a number of items totalling $3,211.18. Further parts were supplied in June and no payments were made, and the amount outstanding as at the end of June was $4,971.80. In July, further items were supplied and credit was given in respect of one item but no payments were made and as at 31 duly 1982, the amount outstanding was $7,035.48. In August, further items were supplied, a credit note for a small amount was given in that month and, at the end of August, the amount outstanding was $5,319.15. On 6 September 1984, vayment was received in the sum of $3,211.18 which was the amount of the May~ account. Further items were received in September and, at the end of September, the amount outstanding was $5,775.71, na payments being made in that month. During October, further items were supplied and payments of $1,760.69, $2,029.23 and $33.88 were made and an amount credited. As at the end of October, the amount outstanding was $5,540.98. In November, further items were supplied and payment was received of $1,414.85, leaving the amount outstanding at $7,535.96. Further items were supplied in December and payment was received of $456.56. At the end of December, the balance due was $10,372.22. In January 1983, payment was made of $3,449.82, a small amount was credited by way of adjustment, further items were supplied and, at the end of January, the amount outstanding was $7,841.96. In respect of that history, David John Elkins, the manager of the respondent, swore an affidavit in which he said:- "... the debtors often being three or more months in arrears with payment. The debtors had a reputation in the trade for being slow payers but were not considered to be a bad risk as they were known to be involved in large scale contracts in the mining industry and to have substantial work in progress." Each of the monthly statements by the respondent to the debtors have printed at the foot thereof "Terms: Strictly net 30 days", In February, further goods had been supplied, credit given for one item and the amount due as at 28 February 1983, was $311,011.51. Typed on to that statement at the foot were thesé words:- "Please note. Our terms are 30 days net. Any amount in excess of this period is now due and payable" This typing also appears on all subsequent monthly statements. Impressed on the account is an OVERDUE highlighting sticker with the words:- "OVERDUE. In fairness to us andin dustice to yourself, you should no longer ignore this important matter. PLEASE REMIT!" In the statement for the period ending 31 March, payment of $3,489.83 is shown with a reminder sticker. For April, with further goods supplied and no payments made, the balance at that time was $12,368.83, again with the typed reinforcing of the 30 day terms and with an overdue sticker. In May, further goods were supplied, no payments were made and the amount as at the end of May was $13,559.03. In June, two payments, one of $3,248.65 and one of $1,059.31, were made, goods were supplied and credit for some items was given. The balance at the end of that month was $10,169.17, which is the amount the subject of these proceedings. That account has an overdue sticker as well as the typed reminder as to 30 days terms. In the period ending 31st July, 1983, two small amounts for cash were received, one item was supplied, balance due was slightly in excess of $10,000.00, but on that account was a agifferent sticker:- - "Final Notice. We regret having to take this step, but your continued inattention to this overdue account will compel us to place the matter in outside hands unless payment is received ... AT ONCE!" On 12 July, Mr. Elkins, on behalf of 'the respondent, forwarded a telex to Mr. Close, the then manager of the debtors, in these terms:- "Pls advise when we can expect next payment. Matter now urgent." On 1 August, a "final notice" was given to the debtors by White Mercantile Agency Pty.Ltd. on behalf of the respondent for the amount of $10.169.17. That notice included - "PINAL NOTICE. Full payment of the above amount should be remitted DIRECT TO OUR CLIENT by return post, if you are to save yourself the added cost of legal proceedings. This notice, which goes to you on instructions received from our client, is final. The White Mercantile Agency Pty.Ltd." On 17 August, 1983, Mr. Elkins telexed the debtors in these terms:- "Re account and returns. we advise the following: Outstanding orders have been cancelled. Cheques referred to have not been recd by us. We in fact have instructed our debt collectors to proceed with collection from your company for all monies outstand. To avoid U further expense U may wish to forward chq by return. Total outstanding - $10,169.17 as at 30.6.83.. We have taken this action with regret but after a great number of requests to your office. David Elkins" Mr. Close, the then manager of Nam Constructions, says that in respect of this telex the bell insignias printed on the message denote urgency and indicate that the receiver would be obliged tdo attend to the telex machine immediately and to tear off the message received, otherwise the telex would ring continuously. Then, on 9 September, 1983, the respondent caused a writ to be issued directed to Nam Constructions (Qld) Pty.Ltd., trading as Nam Constructions. That writ claimed the sum of $10,169.17 for goods sold and delivered by the plaintiff to the defendant. The writ was specially endorsed. Notwithstanding that the writ was addressed to a company, the respondent to this application admits the correctness of paragraph 18 of an affidavit sworn by Mr. Harris in these terms:- "On the 6th October, 1983 by cheque number 812120 the firm paid the respondent the said amount claimed in such writ of summons in an amount of $10,169.17." The respondent requested a special clearance of that cheque. In answer to an interrogatory, the respondent says that prior to the 10 October 1983, it had never requested a special clearance by its bank of any cheque drawn by or on behalf of Nam Constructins and banked by the respondent. In answer to another interrogatory, the respondent admits that it instructed White Mercantile Agency Pty.Ltd. to issue the notice of demand and to take recovery action with respect to the sum of $10,169.17. Except with respect to that instance, the respondent had never engaged the services of a mercantile agency for the purpose of collecting or assisting in the collection of any sum owing by Nam Constructions to the respondent. Mr. Elkins says that he caused the cheque the subject of these proceedings to be specially cleared because the respondent was then in urgent need of funds in order to pay its own creditors and, as a result of the clearance of the debtor's cheque, he caused a large number of smallish payments to be made to creditors of the respondent. He says that he instructed the White Mercantile Agency Pty.Ltd. to collect the debt owing because of the desperate need for funds at that time by the respondent. He says that at no stage was any cheque of the debtors dishonoured and that, from January 1982 until the time the writ 'was issued on 9 September 1983, the White Mercantile Gazette showed that Raymor Industries had issued a Supreme Court writ against Nam Constructions (Qid.) Pty.Ltd. and against the debtors in 1982 and that, in August 1982, John Simpson Thiele had issued a Supreme Court writ claiming $58,187.00 against the debtors. The Gazette also shows that in July 1983, the male debtor granted a Bill of Sale securing $1,000,000 to City National, and in July 1983, the Department of ' Works accepted a tender of $63,422.00 from the debtors. 10. I accept that, under s.122(3) of the Act, the burden of proof is on the respondent and that in considering whether a creditor had "reason to suspect" insolvency and preferential treatment under 5.122(4)(c) of the Act, an objective test must be used. It was submitted on behalf of the respondent that this payment was received in good faith. It was submitted on its behalf that the whole history of the dealings between the debtors and the respondent indicated that they were slow payers and that the unique circumstances of the use of a debt collection agency and specially clearing the cheque received were not because of any fear as to the solvency of the debtors but due to the urgent need for funds by the respondent. This state of mind, it was said, was reinforced by the fact that the respondent had never received from the debtors any cheque which was dishonoured. The manager of the respondent had never had any dealings either in person or by phone with either of the debtors personally and had never visited the debtors' principal place of business in Rockhampton or place of business at Blackwater in Queensland to which all goods ordered by the debtors from the respondent had been delivered; the evidence Clearly established that the creditor had no knowledge of the insolvency of the debtors at the time of payment. Ll. The material obtained from considering the White Mercantile Gazette was that the only court proceedings referred to therein was a Supreme Court writ some 21 months before the impugned payment and another Supreme Court writ some 14 months before the impugned payment. No other proceedings were noted affecting the question of the debtors' solvency. It was therefore submitted that the payment was received in good faith, the circumstances attending the payment being consistent with the debtors being slow payers but without amounting to a suspicion of insolvency. Further, it was submitted that the payment was received in the ordinary course of business. I accept that, when one is concerned with payment made after the threat of legal proceedings or after the issue of the initiating proceedings, little assistance can he gained from the cases where payments are made subsequent to a notice under s.364 of the Companies Code. In Re K. & R. Fabrications (Qld.)Pty.Ltd.(In Liquidation) (1980) 32 A.L.R. 183, Connolly J. said at 186:- "It may be conceded that there are areas of difficulty in this field where the creditor receives payment as a result of demands even coupled with a threat of litigation or the commencement of litigation: see, for example, the observations of Lord Mansfield cited by Taylor J. in Taylor v. White £(1964) 110 C.L.R.129] at 151. But of course a transaction that amounts to a preference in fact is not to be seen only from one aspect when the application of s.122 is under consideration. It must be seen in the light of all the circumstances: see per Wyndeyer J. in Taylor v. White at 161. What, however, is clear 12. to my mind at least, is that except in the most unusual circumstances, it will not be possible to describe a payment made in response to a notice under s.222 of the Companies Act as one which a man might make or receive without the insolvency of the debtor being in view." I respectfully agree with that observation. I accept that there is a clear distinction between payment made subsequent to such a notice and payment made after the threat or, indeed, the initiation of legal proceedings. ' Dealing with the question of "in the ordinary course of business" first, in Taylor v. White (1963-64) 110 C.L.R.129, in a well known passage, Dixon C.v. at 136 said:- "I do not doubt that 'in the ordinary course of business' refers to 'business' as a general conception and is not restricted to the conduct of any particular business such as the business carried on ina shop or merchant's office or the like, but is referring to the transaction of business as a known and recognised activity pursued by anybody engaged in an attempt to win or earn or 'make' money, or a living in a systematic or regular way ... The time-honoured phrase 'in the ordinary course of business' is meant to refer to transactions regularly taking place ina sustained course of activity or some usual process naturally passing without examination." And Menzies J. said at p.159:- "The authorities ... show that the payments here in question occurred in the ordinary course of business if there were nothing about them that was unusual according to ordinary business standards. In other words, the payments were in the ordinary course of business if (the creditor and the debtor) were, with regard to them, acting in accordance with the standards of honesty and fairness which are ordinarily accepted by the business community." 13. In Downs Distributing Co.Pty.Ltd. v. Associated Blue Star Stores Pty.Ltd. (In Liquidation) (1948) 76 C.L.R. 463 at 477, Rich J. said:- It means that the transaction must fall into place as part of the undistinguished common flow of business done, that it should form part of the ordinary course of business as carried on, calling for no remark and arising out of no special or particular situation." Against the background of these general statements, reference may be made to several factual conclusions.In all of these cases, the payments were not held to be preferences. The factual circumstances in each case should not, of course, be elevated into propositions of law. In Queensland Bacon Pty.Ltd. v. Rees (1966) 115 C.L.R. 266, it was held that a payment made after a cheque had been Gdishonoured was not necessarily fatal to a claim that a later payment was made in the ordinary course of business. Similarly, in Re Bird (as Trustee of the Estate of Arcadiou); Ex parte M. & G. Casabene & Sons (1979) 39 F.L.R. 281, C.A. Sweeney J. was satisfied that a payment of $4,000.00 made by a bankrupt to the respondent in that case after a threat earlier expressed to him that no more work would be done for him "until such time as a substantial payment had been received" was held to be a payment made in good faith and in the ordinary course of business. In Brittain; Ex parte Barnes (1984) 2 F.C.R. 35, Woodward J. said at 39-40:- "The ordinary course of business does not mean the ideal course of business. Late payments, two weeks of cheques marked 'present again', the collection of cheques by hand to keep the debtor to its promises, anda reference to solicitors in the _ context of a telephoned demand for payment are not, in my view, either separately or taken together, outside the ordinary course of business when a trader 1s going through a difficult period and stocks are hard to move. The question is of course one of degree and of general impression." With respect to Woodward J., not everyone would share his conclusion. , In Re Lee Furniture Pty.Ltd. (In Lig.) 8 A.C.L.R. 251, Thomas J. held that the making of a payment quite promptly after legal proceedings had been issued was not necessarily to be regarded as outside the ordinary course of business. Having put to one side the decisions concerning payment made after a statutory demand, such as the then $.222(2)(a) notice, he said at 2543- "...it has been held in a number of cases that payments made after demands by a _ solicitor and after the commencement of ordinary civil litigation are not payments in the ordinary course of business. The list includes Re Bailey; Ex parte Law v. Austin (1952) 15 A.B.C. 80 (Clyne Jd.); Re Hoare; Commins v. I. & R. Spies Investments Pty.Ltd. £19721] A.L.R. 1134 (Sweeney d.); three of the five decisions delivered on the same day by C.A. Sweeney J. in 1979 in Re Bird (as trustee of the estate of Arcadiou) reported respectively in (1979) 39 F.L.R. at 277,295 and 307; and Re K & R Fabrications (Qid) Pty Ltd (in liq) (1980) 5 A.C.L.R. 115 (Matthews J)." 15. It is, of course, trite to say that whether a payment is in the ordinary course of business depends on the circumstances in which that particular payment is made. A reference to "payments made in the ordinary course of business" implies that some payments occurring ina business context are not in the ordinary course of business. Recourse is frequently made to collection agencies in an attempt to secure the payment of long outstanding debts, yet the commonness of that course in my opinion does not mean that the payment of a debt secured after recourse to such a procedure is in the ordinary course of business . As Thomas J. observed in Re Lee Furniture Pty.Ltd. (in lig.) (supra) at pp.256-257:- "The circumstances of the issue of a writ does not indicate any clear picture of the business situation between a plaintiff and a defendant. It is true that it is relatively uncommon if one looks at the whole field of debt collection. But that does not automatically place it outside the ordinary course of business. A writ or a plaint can become necessary because a defendant believes that he has a good defence, from ambiguity or misunderstanding as to the nature of the claim, from disinclination to pay (for relevant or irrelevant reasons), as well as for reasons of insolvency or financial stringency." It may be open to conclude that payment after the mere issue of a writ does not mean that that payment was outside the ordinary course of business. Nonetheless it is an indicia in my view requiring a careful consideration of the other attendant circumstances. 16. In the circumstances of this case, payment is made notwithstanding repeated reminders that the terms on which goods were supplied was a 30 day net basis; that payment of the June account was made in October in respect of goods, some of which were supplied in February and the balance of which were supplied in March-dJune inclusive; after the demand contained in the telex of 12 July 1983, claiming that the matter was now urgent; after the demand contained in the final notice issued on 1 August 1983 by the White Mercantile Agency Pty.Ltd.; and particularly, after the telex accompanied with the ringing reminder of the 17 August, 1983; and after the issue of the specially indorsed Supreme Court writ issued on 9 September. The payment on 6 October, 1983, was specially cleared. On that material, I am not satisfied that the payment was made in the ordinary course of business. If that payment were properly to be regarded as in the ordinary course of business, I find it difficuit to see what payments could properly be characterised as outside the ordinary course of business. As to the question of whether the payment was made in good faith, that requirement is additional to or cumulative upon the requirement that the payment be "in the ordinary course of business", although, in many cases, of which this is one, the relevant considerations will substantially overlap. I accept that the respondent has established that there was no knowledge that the debtors were unable to pay their debts as they became due and that the effect of the payment would be to give a preference, priority or advantage over othe: creditors. 17. It is necessary therefore to consider whether the creditor has established that the payment was not made in circumstances as to lead to the inference that it had reason to suspect the debtors were unable to pay their debts as they became due from their own monies and the effect of the payment would be to give a preference, priority or advantage over other creditors. In Re Bird (as Trustee of the Estate of Arcadiou); Ex parte M. & G. Casabene & Sons (supra), C.A. Sweeney J. made a detailed review of the authorities and concluded that, on a proper construction of 5.122 of the Act, sub-s.4(c) does not displace or qualify the application of the burden of proof on the creditor imposed by sub-s.(2). I respectfully agree with his conclusion at p.286 that:- "The burden of proof cast upon the payee remains upon him in all matters relevant to the issue of his being a payee in good faith, and, if he is to succeed, his proof must be such as to negative the inference set out in sub-s.(4)(c)." I similarly respectfully agree that the observation by Barwick C.J. in Queensland Bacon Pty: Ltd. v. Rees (supra) at 286 to the effect that there is no such onus is inconsistent with the authorities tc which C.A. Sweeney J. refers: cf. Barwick J. in Queensland Bacon Pty.Ltd. v. Rees (supra) at 287. 18, Concerning the phrase "the creditor has reason to suspect", in Downs Distributing Co.Pty.Ltd. v. Associated Blue Star Stores Pty.(In Ligq.), (1948) 76 C.L.R. 463, Latham C.J. at p.475-6 said:- "It was argued that the words 'the creditor had reason to suspect' meant that the creditor had in his mind some knowledge or belief which to him amounted to reason to suspect; in other words, that the test was a subjective test. In my opinion there is no reason for interpreting the words of the section in this way, and there is every reason for interpreting them as referring to an objective test. The sub-section refers to 'such circumstances as to lead to' one or other of two inferences; either first, that the creditor knew certain facts; or secondly, that the creditor had reason to suspect the existence of certain facts. The provision as to the creditor "knowing" adopts a subjective criterion ~ applied by inference made by the court. The other provision as to the circumstances leading to an inference that the creditor had ''reason to suspect' relates in my opinion to what may, by way of comparison, be described as an objective test. It is intended to deal with circumstances such that an inference can fairly be drawn by a court that there was reason to suspect, whether or not in fact the mind of the creditor consciously adverted to the significance with respect to the financial position of the debtor of the matters mentioned in the sub-section. In my opinion a transaction falls within sub-s.(4), so, that a creditor is excluded from the category of a creditor dealing in good faith under sub-s.(2)(b), if, whatever the creditor may think or believe with respect to the circumstances of a transaction, those circumstances are such as to lead to an inference by the court that there was reason to suspect according to the standards of an ordinary reasonable man that the debtor was unable to pay his debts as they became due, and that the erfect of the transaction would be to give the creditor a preference over other creditors." In Queensland Bacon Pty.Ltd. v. Rees, (supra), Kitto J. said at pp.303-304:- 13. ... the precise force of the word 'suspect' needs to be noticed. A suspicion that something exists is more than a mere idle wondering whether it exists or not; it is a positive feeling of actual apprehension or mistrust, amounting to 'a slight opinion, but without sufficient evidence', as Chambers's Dictionary expresses it. Consequently, - a reason to suspect that a fact exists is more than a reason to consider or look into the possibility of its existence. The notion which 'reason ta suspect' expresses in sub-~s.(4) is, I think, of something which in all the circumstances would create in the mind of a reasonable person in the position of the payee an actual apprehension or fear that the situation of the payer is in actual fact that which the sub-section describes - a mistrust of the payer's ability to pay iis debts as they become due and of the effect which acceptance of the payment would have 'as between the payee and the other creditors." The question thus posed by the sub-section is to be answered in the present cases as at the time when each of the relevant payments was about to be accepted. It is an objective question. What the payee or anyone else inferred at the time is not to be treated as decisive, though the Court may be assisted in reaching its own conclusion by secing how business men in fact reacted to the circumstances. The character of the circumstances is what has to be decided: were they such as to lead to the specified inference? The inference is that the payee had cause to suspect the existence of two states of fact. As to the first, the word 'unable' must be given its full force. The second goes further: it is that the payer's affairs are in such a state that acceptance of the payment (assuming that it would be allowed to stand) would put the payee ina better position vis-a-vis the other creditors than he would be in if the payer were bankrupt or, in the case of a company, were in liquidation. If the proper inference from the circumstances is that there was a sufficient reason for the payee to form an actual suspicion - a real apprehension though with insufficient warrant for a positive conclusion - that the situation had both these features, he is debarred by sub-s.(4) from being deemed a payee in good faith." This in my view is to be contrasted with the observations by Barwick C.J. in the same case, where he says at pp. 291-292:- 20. "In the first place ... the circumstances of the voided payment must be such as to lead to the inference that the creditor knew or had reason to suspect the fact of the debtor's insolvency. It is not enough that the circumstances are such as to lead to the inference that the creditor had reason to suspect that the debtor might he - insolvent. The words of the sub-section, to my mind, are quite clear that it is the fact of actual ansolvency which must be known or suspected. To be insolvent, the debtor must be unable, as distinct from being merely unwilling, to pay his debts as they fall due. It is one thing to suspect aman's solvency in the sense that one doubts whether he is solvent or insolvent. It is another thing to suspect that he is in fact insolvent." I, respectfully, have difficulty in accepting the correctness of the distinction in the last two sentences. Accepting, of course, that insolvency means being unable to pay one's debts as they fall due, if a person entertains a genuine doubt in the sense of being uncertain whether a person is insolvent or solvent (as opposed to being ignorant of his financial circumstances), in my opinion, that person has real apprehension as to his solvency and the suspicion referred to in the sub-section exists. In this case, in my opinion, the payment was made in such circumstances as to lead objectively to the inference that the respondent had reason to suspect that the debtors were unable to pay their debts as they became due and that the effect of the payment would be to give the respondent preference, priority or advantage over other creditors. More precisely; having regard to the burden of proof, the respondent has not established that the 21. payment was made in circumstances which were not such that the respondent had reason to suspect each of those matters. In this deemed sense, the payment is not made in good faith and, for this reason also, in my view, the respondent is not able to bring himself within the protective provisions of s.122(2). I therefore declare that the payment made by the debtors to the respondent of $10,169.17 on 6 October, 1983, is void as against the applicants. I order that the respondent pay to the applicants the sum of $10,169.17 together with their costs of and incidental to the application, such costs to be taxed if not agreed; liberty to apply to either party. | certify that this and the 2O preceding nAGeS are a true Copy of the reasons for judgment herein of ris Honour Mr. Justice Sacnd ar o iy Associate ate ue rt Dated 3 Tuly 19 CLO Fino —