JUDGMENT No. 92.37.38. Lez cArcHWORDS Bankruptcy — Application by trustee pursuant to ss.120 and 121 of Bankruptcy Act - transfer by bankrupt of interest in jointly owned matrimonial house property to spouse prior to bankruptcy —- payment of arrears and discharge of mortgage by spouse - consideration real and substantial not nominal, trivial or colourable ~ transfer in good faith for valuable consideration - transfer not fraudulent. Bankruptcy Act 1966 Barton v. Official Receiver (1986) 66 A.L.R. 355 (1984) 58 A.L.R. 325 Downs Distributing Co. Pty Ltd v. Associated Blue Star Stores Pty Ltd (in big.) (1948) 76 C.L-R. 463 No. 350 of 1983 Re: RAYMOND JOHN WYTKIN ex parte: BRENDA EVELYN WYTKIN FORSTER, J. ADELAIDE 2 OCTOBER, 1987 ~6.0CT 1987 FEDERAL Court or [12 AUSTRALIA PRINCIPAL REGISTRY a Rowe 8 mare ct vege ee ee IN THE FEDERAL COURT OF AUSTRALIA SOUTH AUSTRALIA DISTRICT REGISTRY eee Ss Se 350 of 1983 RAYMOND JOHN WYTKIN BRENDA EVELYN WYTKIN GENERAL DIVISION No. BANKRUPTCY DISTRICT OF THE STATE OF SOUTH AUSTRALIA Re: Ex parte: JUDGE MAKING ORDER 3 FORSTER J. WHERE MADE 3 ADELAIDE DATE OF ORDER : 2 OCTOBER, 1987 THE COURT ORDERS THAT: 1. The application be dismissed with costs. Note: Settlement and entry of order is Bankruptcy Rule 124. dealt with in ae wD ahh IN THE FEDERAL COURT OF AUSTRALIA SOUTH AUSTRALIA DISTRICT REGISTRY ) ) GENERAL DIVISION ) No. 350 of 1983 ) BANKRUPTCY DISTRICT OF THE STATE ) ) ) OF SOUTH AUSTRALIA Re: RAYMOND JOHN WYTKIN Ex parte : BRENDA EVELYN WYTKIN REASONS FOR JUDGMENT FORSTER J. 3; This is an application by the Official Receiver for and on behalf of the Official Trustee as trustee of the estate of Raymond John Wytkin ("the bankrupt") pursuant to ss. 120(1) and 121 of the Bankruptcy Act 1966. The disposition of property which it is sought to have declared void as against the trustee is the transfer on 31 March 1982 by the bankrupt of his share in a house property the matrimonial home ("the property") to his wife, Brenda Evelyn Wytkin ("Wytkin") with whom he jointly owned the property. The bankrupt and Wytkin were married in 1949. The bankrupt first encountered financial difficulty in one of a series of business ventures in 1950. At ameeting of her husband's creditors at that time, Wytkin agreed to return to work as a secretary and contribute to the scheme of arrangement accepted by the creditors. The claims of the creditors were eventually satisfied in full. He ae ' 2. In 1957 the bankrupt and Wytkin purchased as Joint tenants, a vacant block of land at Kilkenny. The matrimonial home was built on this block of land in 1959. The property was mortgaged in their joint names. Wytkin had signed the mortgage document but says she did not appreciate the significance of the document until 1972 at which time she paid $6,911-57 to the mortgagee to have the mortgage discharged. Wytkin had funds from personal savings and moneys received as a beneficiary of three deceased esates. In 1965 Wytkin was informed by the family doctor that the bankrupt was an alcoholic. In about 1970 the bankrupt was removed from a business enterprise by his partners with meagre compensation. From then on he received treatment for his alcoholism and was engaged only in occasional and infrequent employment. In 1971 Wytkin returned to the workforce as a secretary and remains so employed. In March 1982, Wytkin received a telephone call from a Mr Harper of the A.N.Z. Bank. She was informed that the bankrupt had granted a mortgage over the property in favour of the Bank of Adelaide in their joint names and that he had caused Wytkin's signature to be forged on the mortgage document. In the company of someone from her work, she visited the bank, spoke to Mr Harper and acquired copies of the relevant documents. She went home and discussed the matter with her husband. They agreed that Wytkin would finance the discharge of the mortgage and that the bankrupt would transfer his interest in "— - Sn ge te ce nrg ee oe ee . ay fe a . Boo, 7 a pee oe lage some 3. the property to Wytkin. On 15 March 1982 Wytkin paid $8,829-00 to the A.N.Z. Bank and the mortgage was discharged on 24 May 1982. The bankrupt's interest in the property was transferred to Wytkin on 31 March, 1982. At about this time, Wytkin also became aware that a car owned by her husband was subject toa lease with Citicorp Finance. She paid about $5,300 to the finance company to satisfy the lease and ownership of the car was transferred to her. The bankrupt presented his own petition on 13 May 1983. The present application was made on 2 December 1986. At the hearing of this application documents relevant to the transfer of the property were tendered. The transcript of the examination of the bankrupt under s.69 on 4 August 1983 and the examination of Wytkin under s.81 on 16 March 1981 were also tendered. Wytkin gave evidence and was cross-examined by counsel for the applicant. I turn now to the issues raised by s.120(1) which section reads as follows : "(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 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 wen re ree . ne ae oe od mae t er ae eee pope rr ore rey 4. has accrued to the settlor after marriage in right of the spouse of the settlor, is, if the settlor becomes a bankrupt and the settlement came into operation after, or within 2 years before, the commencement of the bankruptcy, void as against the trustee in the bankruptcy." It was conceded that the transfer by the bankrupt to Wytkin of his half interest in the property was a "settlement" for the purposes of this section. Submissions were made on the meaning and possible application of s.120(1)(b). However it seems to me to have no application to the present matter because the bankrupt's interest in the property did not accrue to him in right of his spouse. They held the property as joint tenants as is registered on the certificate of title. The bankrupt's interest in the property cannot be said to have accrued in right of Wytkin. It was conceded that the transfer of property is void as against the trustee pursuant to s.120(1)(a) unless it was in good faith and in favour of a purchaser for valuable consideration. The applicant argued that Wytkin had not accepted the transfer of the property in good faith. The transfer is not in good faith if the circumstances of the transaction "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 effect of the transaction would be to give the pn mre ee ep eres, . Pa) ' 1 - oat 5. creditor a preference over other creditors." (Downs Distributing Co. Pty Ltd v. Associated Blue Star Stores Pty Ltd (In Liq.) (1948) 76 C.L.R. 463 at p.475-476). I accept Wytkin''s evidence that while she was aware that her husband was often in financial difficulty, she did not know or suspect that he was unable to meet his debts as they became due. Her involvement in the financial affairs of the bankrupt's various business ventures was minimal. All mail was deposited in a private post office box which was in the control of her husband. She was aware of financial difficulties because of the regular visits of debt collection agents and the termination of the telephone service. She was unaware of the bankrupt's creditors in March 1982 and was surprised to learn subsequently that he had been extended credit. Wytkin was advised during counselling prior to these matters that her husband could not encumber the home without her knowledge and consent. When this belief proved wrong she acted to protect the home for her family from the ravages of her alcoholic husband, whom she continued to support. Her intention was to protect and maintain the family home and not to defeat the claims of creditors. I find in these circumstances that Wytkin accepted the transfer of the property in good faith. The issue of consideration in the context of s.120(1) has recently been considered by the High Court in Barton v. Official Receiver. The Court in a joint judgment (Gibbs C.J., Mason, Wilson and Dawson JJ.) said : en we ye wee ae ee a ne er 6. "It is true that the earlier decisions to which we have referred focus attention more on the word 'purchaser' than on the words 'valuable consideration' whilst in the more recent cases the reverse is true. As indicated in the early part of this judgment, we have considerable sympathy with the proposition that the words 'purchaser' and 'valuable consideration' should be held together as a single concept. One could then accept as of more general application Lord Wilberforce's statement that 'valuable consideration' is a term of art which precludes any inquiry as to adequacy but find room in which to give effect to the beneficent purpose of the bankruptcy legislation by construing 'purchaser' broadly in a commercial sense. A beneficiary under a settlement is not a purchaser within the meaning of the section unless he has given such valuable consideration as is sufficient in all the circumstances to make him a 'buyer' in a commercial sense of the interest passing to him under the settlement. Unless there is good reason to the contrary, we believe it to be important in legislation of this kind to maintain a construction of the Australian Act which accords with English authority. We would therefore accept Sir Robert Megarry's formulation and endorse the Full Court's ruling that a 'purchaser «.. for valuable consideration' within the meaning of s.120(1) of the Act is one who has given consideration for his purchase 'which has a real and substantial value, and not one which is merely nominal or trivial or colourable' (Re Abbott, at p.57)." ((1986) 66 A.L.R. 355, at p.361-362) The consideration moving from the purchaser need not equate with that which leaves the debtor's estate. (Re Densham [1975] 1 W.U.R. 1519, 1527; Re Windle [1975] 1 W.L.R. 1628; Re Abbott [1982] 3 W.L.R. 86). It is important to identify the relevant elements of the transaction. The consideration was expressed on the transfer agreement as "the desire so to do" but the Court can look beyond this (Re Dundas (1933) 6 A.B.C. 265). The value of the whole property for the purpose of stamp duty was declared to be reyes en pty cee oe teen ty oe, . : ' 3 . ' ar 7. $54,000 therefore the interest transferred was valued at $27,000. Wytkin paid the sum of $8,829 to discharge the mortgage. I do not find it necessary to consider the nature of the charge on the property pursuant to the forged mortgage document in order to evaluate the sufficiency of the consideration advanced by Wytkin. Evidence was led of other sums of money which Wytkin had paid in satisfaction of the bankrupt's debts. These do not form part of the consideration relevant to this transfer. Nor can I find any agreement express or implied by which Wytkin did forebear from suing the bankrupt for money he may have owed her (Re Dundas (supra) and Re Hyams (1970) 19 F.L.R. 232). In her examination under s.81 and in evidence in this matter Wytkin stated that the transaction was simply an exchange of the bankrupt's interest in the house in return for her discharging the mortgage and nothing else. However the transaction cannot be examined in isolation from all the other circumstances. This is clear from the judgments of the Full Court of the Federal Court in Barton v. Official Receiver (1984) 58 A.L.R. 328 (per Sweeney J. at p.334, per Fisher J. at p.336 and per Lockhart J. at p.345) and appears to have been accepted by the High Court ((1986) 66 A.L.R. 355 at p.362). This principle operated to the detriment of the transferee in Barton. In that case a deed of loan was executed by the bankrupt as lender and his uncle, the appellant, as borrower whereby the bankrupt lent the appellant $170,000. The money was then used to purchase a house property and shares from two of the Barton family companies. The High Court refused to disturb the concurrent finding of all four judges of the Federal ay ate eee eee . 8. Court who considered the matter and said at p.362 - "Having regard to the very substantial size of the loan, the fact that it was unsecured, that it was made for a term of 20 years, that no part of the principal was repayable until the appellant was 82 years of age, his modest means, the fact that no interest was payable until five years had elapsed and then at a low rate of 4.25 per cent per annum, and the effect of inflation, the finding of the Full Court that the appellant was not a /purchaser ».. for valuable consideration' within the meaning of s.i20(1) of the Act must be affirmed." (66 A.L.R. at p.362) As important as it is to examine what Wytkin gave, it is equally important to examine what she received. The bankrupt was in arrears in the repayments due under the mortgage and had been exposed as causing the forgery of Wytkin's name on the mortgage document. The possible consequences were extreme. The bankrupt was susceptible to criminal action. Foreclosure on the mortgage by the bank may have required the sale of the matrimonial home. Wytkin required that in return for her discharging the debt, the bankrupt transfer his share in the property to her. He was not in a position to bargain had he wanted to do so. The nature and circumstances of this transaction are quite distinct from those in Barton. The practical consequence of the transactions in Barton was that the estate of the bankrupt available to creditors was diminished to the extent of the amount of the settlement. This is not the situation in the case at bar. In the present circumstances the consideration has a_ real te rn a . 9. and substantial value and is not merely nominal, trivial or colourable. Wytkin was a purchaser in good faith and for valuable consideration within s.120(1)(a) and the application on this basis fails. I turn now to the issues raised in the application under s.121, which section reads as follows : (1) Subject to this section, a disposition of property, whether made before or after the commencement of this Act, with intent to defraud creditors, not being a disposition for valuable 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 in 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." Where there is present consideration in whole or in part, the transferee must be shown to concur in the intent of the debtor to defraud his creditors. There must be knowledge or passive acceptance of the fraudulent intent (Re Barnes (1961) 19 A.B.C. 126). I accept the evidence of Wytkin that she was unaware of the bankrupt's creditors and that her concern was for the security of the family home against the depredations of her alcoholic husband. She did not possess the requisite intent and the application on this basis fails. - ars rad = eneepe ns -re wege - ee apn ene cies 10. I have already discussed the issues of good faith and valuable consideration and repeat my finding that the transfer to Wytkin was a disposition for valuable consideration in favour of a person who acted in good faith. The application by the Official Trustee for a declaration that the transfer of the interest of the bankrupt in the property to Wytkin is void as against the trustee must fail. The application is dismissed with costs. I certify that this and the % preceding pages are a true copy of the Reasons for Judgment of Mr Justice Forster. Dated: 2 Octolar 1798F, Counsel for the applicant Mr R.J. Whitington Solicitors for the applicant Baker McEwin Counsel for the respondent Mr J.M. Wilkinson Solicitors for the respondent Ross McCarthy & Nosworthy Date of hearing 6th August, 1987 po eee ee ee ene oor z T. oa mee eee qe pewest wm me aoe FEDERAL COURT OF AUSTRALIA Sours, MeYeACIA | District Registry Baw ue GOST CY Bivisien TVS dICT OW i No. of Action aso, /ige3, = wy LS WwW TITLE OF action 22. SYNE os ets eR . GB wevsr (484 : Date(s} of hearing .7......+...... Date judgment a OvreseR , \96F delivered ene Ban eee pt eer Counsel and solicitors for Counsel and solicitors for ee ARON Me Row, We TINGyrou ee eee see terreno ren esos SeuceR WS Ewin Mea eeeeeece Ross rr Oe eo TM. WILKIN Sons Ce VeCaarmry aa Nosweeny Date 2 Celeler (984, i