Re Schofield, Anthony James & Anor; Ex Parte Rangott, William Balfour v P & B Barron Pty Ltd [1997] FCA 689

FEDERAL COURT OF AUSTRALIA BANKRUPTCY - avoidance of voidable settlement - fraudulent disposition/disposition of property to defraud creditors - mortgage - consideration not given - alleged forbearance to sue as valuable consideration - alleged lower interest rate for existing debt - alleged additional credit given - good faith - transaction a contrivance - Bankruptcy Act 1966 (Cth) ss120 and 121. Official Trustee in Bankruptcy v Mitchell (1992) FCR 364 (followed) Re Hyams; Official Receiver v Hyams (1970) 19 FLR 232 (distinguished) Sharrment Pty Ltd v Official Trustee in Bankruptcy (1988) 18 FCR 449 (considered) RE ANTHONY JAMES SCHOFIELD and CECILIA ANNE SCHOFIELD (Debtors) EX PARTE WILLIAM BALFOUR RANGOTT (Applicant) P&B BARRON PTY LTD ACN 000 607 143 (Respondent) No AX13 of 1992 FINN J CANBERRA 29 JULY 1997

IN THE FEDERAL COURT OF AUSTRALIA) ) BANKRUPTCY DISTRICT OF THE ) ) No AX13 of 1992 AUSTRALIAN CAPITAL TERRITORY ) ) GENERAL DIVISION ) RE: ANTHONY JAMES SCHOFIELD and CECILIA ANNE SCHOFIELD Debtors EX PARTE:WILLIAM BALFOUR RANGOTT Applicant P&B BARRON PTY LTD ACN 000 607 143 Respondent COURT: FINN J PLACE: CANBERRA DATE: 29 JULY 1997 MINUTES OF ORDERS THE COURT ORDERS THAT: 1. The parties file agreed minutes of orders; or 2. If the orders are not agreed, then: (i) the applicant to file and serve proposed minutes of orders with contentions supporting the orders; (ii)the respondent to file and serve its written objections to the prepared orders. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA) ) BANKRUPTCY DISTRICT OF THE ) ) No AX13 of 1992 AUSTRALIAN CAPITAL TERRITORY ) ) GENERAL DIVISION ) RE: ANTHONY JAMES SCHOFIELD and CECILIA ANNE SCHOFIELD Debtors EX PARTE:WILLIAM BALFOUR RANGOTT Applicant P&B BARRON PTY LTD ACN 000 607 143 Respondent COURT: FINN J PLACE: CANBERRA DATE: 29 JULY 1997 REASONS FOR JUDGMENT On 24 July 1992 Anthony James Schofield and Cecilia Anne Schofield entered in to a Deed of Assignment pursuant to Part X of the Bankruptcy Act 1966 (Cth) ("the Act"). In consequence of an order of this Court, the present applicant, William Balfour Rangott, was appointed to a vacancy in the office of trustee under that deed on 15 December 1992. The trustee's application under sections 120 and 121 of the Act is to have declared void as against him a mortgage given by the Schofields to the respondent company, P & B Barron Pty Ltd ("the company"), on 17 December 1991 over a parcel of land in Cooma, New South Wales, which for convenience I will refer to as the Polo Flat land. That mortgage acknowledged receipt by the Schofields from the company of $50,000. The principal was to be repaid by 17 June 1992 and bore an effective interest rate of 18 per cent per annum. The Schofields conducted (inter alia) a transportation business. For over twenty years they had purchased fuel from the company. It owned and operated a fuel depot with which they maintained a running account. They regularly were in arrears in payments on that account and, at the time of the mortgage, they were so in a sum in the order of $45,000. That sum was not uncharacteristic of their outstanding indebtedness to the company. Put shortly the trustee's claim is that (i) the company at no stage advanced $50,000 to the Schofields; (ii) the mortgage was a voluntary transaction; (iii) it nonetheless was intended by the parties to have legal effect between them to the extent that it would provide the company with the effective means to secure full payment of the fuel account in the event that the Schofields became incapable of paying their debts; (iv) given these circumstances, the mortgage was granted with intent to defraud creditors and the company was privy to this: cf the Act, s121; or (v) in the alternative, there was a voluntary settlement caught by s120(1) of the Act. Background Facts I should note at the outset that Mr Schofield died on 26 June 1995. Mrs Schofield has not given evidence in these proceedings. The Schofields, it would seem, came from a rural family of some substance and, at a time prior to the events of concern, appeared to have had significant assets represented both in rural properties and in businesses in Cooma. At the beginning of the presently relevant period (circa October 1990) their principal assets were (a) a country property "Bunyon" made up of two blocks which I will call the "house block" and the "woolshed block" respectively; (b) their interest in a partnership Monaro Ag Supplies, this partnership ending prior to the Part X deed; (c) the Polo Flat property on which Monaro Ag Supplies conducted its business and which on 6 April 1992 was leased by the Schofields to Monaro Ag Supplies Pty Ltd (a company in which by then they had no interest), though the lease was not registered until 26 June 1992; and (d) the transport business called "Cooma Bulk Haulage", the principal assets of which were three leased trucks. At that time both the Bunyon and Polo Flat properties were subject to mortgages to the ANZ bank. The evidence is also that the Schofield's arrears on their fuel account with the company were in excess of $35,000. I have already noted there was nothing uncharacteristic about this. It is the evidence of Mr Barron (who with his wife were directors of the company) that the Schofields' pattern of payment was to make irregular but nonetheless periodic payments in varying amounts on their fuel account. He indicated that, as was his occasional practice, he had around September 1990 asked Mr Schofield when the fuel bill might be paid. Sometime in this period Mr Barron deposed to two other conversations with Mr Schofield. It is convenient to set out (insofar as presently relevant) those parts of the paragraphs of his affidavit in which these are recounted. "17.Sometime between August to October 1990 I had a conversation to the following effect with Jim Schofield. Jim Schofield:"I am going to sell the Bunyon properties to clear all my debts and pay you out. It's on the market for $235,000.00, I am too busy to look after it with the trucks and the business. I will sell it and buy a house in town. I will sell you a block of land to help clear our debt to you." The debtors' Bunyon property consisted of two blocks. A house was located on one block and the other block had a woolshed. I understood that, Jim Schofield was proposing that the Respondent take the block of land with the wool shed on it, in satisfaction of some of the debt owed by the debtors to the Respondent. The conversation then continued: Jim Schofield:"I will take $35,000.00 for that block". Patrick Barron: "O.K., call it a deal". Jim Schofield:"I will arrange the contracts". Patrick Barron: "O.K.". 18. About 1 or 2 weeks after the above conversation, Jim Schofield and I had a further conversation to the following effect: Jim Schofield:"I can't sell you the property, as the ANZ Bank has a first mortgage over it. They want all the money from its sale". Patrick Barron: "Then there is no deal". Jim Schofield:"When I sell the house and property, I will be debt free, you can have a mortgage on the shed until I pay you". Patrick Barron: "O.K."" The evidence is that the reference to a "mortgage on the shed" is a reference to the Polo Flat property. In March 1991 Mr Schofield informed Mr Barron that the wool shed property at Bunyon had been sold. Mr Barron was told that the house property was sold in September. Completion of that sale occurred on 22 November 1991. After discharging their debt to the ANZ bank from the proceeds of sale, a Mr Agnew (then a partner in the Cooma firm of solicitors Blaxland, Mawson & Rose) received a balance of $36,890.72 for the Schofields. At their direction he paid various of their debts (not including any part of the company's) in the order of $21,000 and then gave a cheque for the balance of $15,872.29 to the Schofields. Though it did not find its way into his affidavit, Mr Barron has given oral evidence that sometime in October/November (though probably in November) 1991 the Schofields indicated they would give the company $15,000 in partial reduction of the fuel debt. He then recounted two further conversations - again not referred to in his affidavit despite their obvious importance. The first, with Mrs Schofield at her home after completion of the Bunyon house property sale, involved his being told by her that he was not going to get the $15,000: it was needed in the transport business. The second, which occurred with Mr Schofield shortly thereafter on the same day, was when he said he asked for the $50,000 mortgage. Mr Barron's recollection of his discussion with Mr Schofield on this occasion is, to say the least, imprecise. He did recollect the sum for which the mortgage was to be granted and its duration, but seemed unable to give any evidence as to the nature of the other terms discussed. It is his evidence, though, that Mr Schofield said he would give the solicitors instructions for the mortgage. The Schofields and the company used the same firm. Mr Dunstan, another principal in the firm of Blaxland, Mawson & Rose, gave evidence that the instructions were received from Mr Barron. He relied for this on what was said to be a note of his conversation with Mr Barron. I would indicate in passing that that note (which has been put in evidence) is on its face unrevealing of the identity of the party giving the instructions. Mr Barron has not resiled from his view that he did not instruct Mr Dunstan. Rather, he reaffirmed it in Answers to Interrogatories (Q9(a)). He has further deposed to having been told by Mr Dunstan that the mortgage itself was for $50,000 for a 6 month period; that he did not otherwise know its terms; and that: "24.I also left to my solicitors the collection of interest and other payments that were due pursuant to the mortgage." It will be necessary to return to this evidence. The mortgage over the Polo Flat property was executed on 17 December 1991. It stated that the "mortgagor" (the Schofields) (1): "...'hereby acknowledges receipt of the principal sum of $50,000': (emphasis added); and (2)covenanted with the mortgagee (inter alia): "Firstly - The mortgagor will pay to the mortgagee the principal sum, or so much thereof as shall remain unpaid, on the 17 day of June, 1992 Secondly - The mortgagor will pay interest on the principal sum or on so much thereof as for the time being shall remain unpaid, and upon any judgment or order in which this or the preceding covenant may become merged, at the rate of twenty (20.00%) per centum per annum as follows, namely - By equal monthly payments on the 17th day of each and every month in each and every year until the principal sum shall be fully paid and satisfied, the first of such payments computed from the 17th day of December 1991, to be made on the 17th day of January next: Provided always, and it is hereby agreed and declared, that if the mortgagor shall on every day on which interest is herein before made payable under this security, or within fourteen days after each of such days respectively, pay to the mortgagee interest on the principal sum or on so much thereof as shall for the time being remain unpaid at the rate of (18.00%) per centum per annum, and shall also duly observe and perform all and every the covenants on the mortgagor's part herein contained or implied then the mortgagee shall accept interest on the said principal sum or on so much thereof as shall for the time being remain unpaid at the rate of (18.00%) per centum per annum in lieu of (20.00%) per centum per annum for every month for which such interest shall be paid to the mortgagee within such fourteen days as aforesaid." It is clear on the evidence that (a) no sum of $50,000 was advanced to, and received by, the Schofields from the company; (b) no payment ever was made under the mortgage; and (c) the Schofields were comprehensively in default under it by 17 June 1992 ( the date covenanted for repayment of the principal). According to Mr Agnew, he was informed by Mr Schofield that he and his wife were entering into a Part X deed; he (Mr Agnew) informed Mr Barron of this on 13 July and that Mr Barron instructed him to: "Serve a notice on the tenant of the premises at Polo Flat so that all further payments of rent should be made to you on behalf of my company." On 16 July the Schofields and Monaro Ag Supplies Ltd were notified that the company on that date was, as mortgagee, entering into possession of the rents payable by Monaro Ag Supplies Pty Ltd under its lease of the Polo Flat property. For his part Mr Barron's evidence is that he learned of the entry into possession of the rents only after it had occurred and that the decision to exercise powers under the mortgage was taken by his solicitors. The Schofields, having verified a Statement of Affairs on 23 June 1992, entered into a Part X deed of assignment on 24 July 1992. Their Statement of Affairs revealed that they had unsecured creditors of $314,263.08 and a total deficiency of assets over liabilities (secured and unsecured) of $149,370.08. It will be necessary below to make some reference to the deterioration in the Schofields' financial affairs. Before turning to that matter it is appropriate to comment briefly on some of the witnesses and on the manner in which some of the evidence was placed before the Court. Evidence and Witnesses It is regrettable, but necessary, that adverse comment must be passed upon the manner of preparation of documentary, and particularly affidavit, evidence relied upon by the respondent. It would seem that for some at least of the respondent's witnesses - and Mr Agnew conceded as much in his own case - affidavits were prepared by the respondent's solicitors with the deponent being required only to fill in designated blank spaces. I pass this practice by without further comment. More significantly, as I have already noted, evidence of Mr Barron which in the event has been advanced as central to the respondent's defence of this case did not find its way at all into his affidavit. Given that this related in the main to conversations with the Schofields at the time leading up to the grant of the mortgage - the importance of which was self-evident - this omission, if deliberate, borders on unacceptable contrivance. It is necessary to comment more generally on the evidence and on Mr Barron in particular. The events in question occurred in a country town in which the Schofields, apparently, had some standing. They and the Barrons were friends - indeed there was a marriage tie between their relatives. Both families used the same firm of solicitors. From the tenor of the evidence not only of Mr Barron and Mr Agnew, but also of Mr Milne (the Schofield's bank manager at the relevant time), there appears to have been a shared sense of understanding and support amongst the witnesses for those experiencing financial difficulties in the country. It probably is the case that the Schofields were a beneficiary of this sentiment. It may go some distance in explaining the view I have taken of the purpose of the mortgage itself and of Mr Barron as a witness. Mr Barron clearly was most accommodating to the Schofields. Insofar as he explained this, it was referable to his understanding of the Schofield's business (he also was in transportation), to his view of Mr Schofield as an "honourable man" and, above all, to personal friendship. His accommodation did not, though, go to the extent of bearing the loss of the fuel debt. While I have accepted some significant part of his evidence, I have been unable to accept his overall characterisation of the nature and purpose of the mortgage transaction. His recollection of events is, he accepts, often imperfect. And he has indicated that some matters he now recollects were only recently recalled. While I do not characterise his evidence as untruthful, it is unconvincing and, on occasion, unreliable. The evidence overall does not bear out his view of the events. Indeed the oral evidence he gave of conversations that were not adverted to in his affidavit tends itself to support rather than controvert the conclusion I have arrived at. The Schofields' Deteriorating Circumstances In the previous narrative of factual material I have indicated in a general way the course of the Schofield's decline from apparent prosperity to insolvency. Here I wish merely to add further detail of events leading up to, and around the time of, the mortgage. Though attempting to be as sympathetic as he could to the Schofields, Mr Milne, their ANZ bank manager at the relevant period, acknowledged that from as early as 1990 he was on occasion "bouncing" their cheques and stopping periodic payments to creditors (eg ESANDA in respect of lease payments). Mr Milne, further, was of the view that the transport business itself was not viable and he had advised them to sell it. I would note in passing that it was in late 1990 that the abortive proposal was made to transfer the Bunyon wool shed property to the company in partial satisfaction of the fuel debt. In June of 1991 one of the Schofield's trucks was involved in an accident; it was off the road for about three months; and to Mr Barron's knowledge involved the Schofields in $11,000 expenditure for repairs. While there was some controversy as to the extent of the impact on the transport business of the loss of one of its three trucks for this period, I merely express the view that to any observer including Mr Barron, the accident and its aftermath would in all probability be regarded at least as a misfortune for a business that was experiencing difficult times. I have already indicated that in November 1991 Mr Barron was denied the $15,000 he was led to believe he would get from the sale of the Bunyon house property and that on 17 December 1991 he was granted the mortgage. On 18 December 1991 the Schofields and their accountant, Mr Oliver, met with Mr Rangott (then acting in the capacity of an insolvency adviser) to consider (inter alia) their circumstances. While both the occurrence of this meeting and the accuracy/contemporaniety of Mr Rangott's notes were called into question, I do not consider there is any reason for doubting that the meeting took place as claimed; that the notes of the Schofields' assets and liabilities were both notes of that meeting and contained information then provided to Mr Rangott; and that Mr Rangott concluded on the basis of the information he then had, that the Schofields were insolvent. A facsimile sent by Mrs Schofield to Mr Oliver some weeks earlier, while not in terms indicating that their liabilities exceeded their assets, nonetheless bespoke parlous financial circumstances. Notably the Schofields were then in arrears on the truck leases in the sum of $68,756. Their only significant asset apart from debtors was the Polo Flat property. The Applicant's case and the Nature and Purpose of the Mortgage Transaction It is claimed that the mortgage was a voidable settlement under s 120 of the Act and a fraudulent disposition under s121 (as those sections stood at the relevant time), the provisions applying to Part x deeds of assignment by virtue of s231(2) of the Act. Section 120(1) provided that: "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 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." For its part s121(1) provided that: "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." The applicant's case is, first and foremost, that the mortgage was a contrivance having been executed for the purpose of defeating the rights of other creditors (and of preferring the respondent company) in the event of the Schofield's insolvency. The respondent through Mr Barron, being privy to that fraud, could not claim to have acted in good faith for the purposes of s121(1), or to be an encumbrancer in good faith for the purposes of s120(1) even if it be assumed that it gave valuable consideration for the mortgage. Secondly it is claimed that the mortgage was not for valuable consideration: there was no advance made despite what the document itself suggested, and the circumstances do not otherwise disclose that consideration was furnished by the company. It was a voluntary transaction. The respondent in contrast submits that, notwithstanding the consideration stated in the mortgage, the mortgage was entered into by the company in good faith and for valuable consideration, that consideration being, variously, (a) an implied forbearance (or an agreement to forebear) to sue for 6 months for the amount owed on the running account; and/or (b) the lower interest rate charged by the mortgage as opposed to that charged on the running account; or (c) the making available of additional credit to the Schofields up to a limit of $50,000. In supplementary written submissions the respondent enlarged on these suggesting various combinations and permutations of them. I did not consider it necessary to call on the applicant to respond to those submissions given my rejection of them. I should state at the outset that I am in general agreement with both of the applicant's principal submissions. It is clear that the mortgage on its face describes a transaction that never occurred - a consideration that never was given. The company did not give, or credit the Schofields in a mortgage account with, a principal sum of $50,000. Neither, as the mortgage asserts, was such a sum received by the Schofields. The conclusion in my view is irresistible that the mortgage was a contrivance. But it was not intended to be a "sham": on which see Sharrment Pty Ltd v Official Trustee in Bankruptcy (1988) 18 FCR 449. It was intended to create legal rights and obligations as I will indicate. I do not have the benefit of any evidence revealing Mr Schofield's understanding of the circumstances leading to the transaction or of the ends to be served by it. However, I am prepared to accept that, having been offered by Mr Schofield around October 1990, the mortgage was asked for by Mr Barron in November 1991 after he had failed to get the $15,000 he understood he was to receive from the sale of the Bunyon house property. I am further prepared to accept that, in discussions with Mr Schofield it was agreed that the mortgage was, in terms, to secure a "debt" of $50,000. I also accept Mr Dunstan's evidence that Mr Barron gave the instructions for the preparation of the mortgage and that his instructions were to put into effect "the arrangement [that] had been made between the parties". Necessarily I reject Mr Barron's evidence that it was Mr Schofield who gave the instructions and that he, Mr Barron, was unfamiliar with the terms of the mortgage beyond the amount secured and its duration. It seems more probable than not that the agreed six month period reflected the parties then expectation of the time over which the fuel account would be paid (or else significantly reduced) and that the monthly mortgage payments were to simulate a staged reduction of the fuel account. Put crudely the payment schedule had a symbolic purpose - and, given the view I take of the mortgage, no more than a symbolic purpose. It likewise is clear that, whatever his past disappointments in receiving timely payment from Mr Schofield, Mr Barron had been given cause for concern for his debt in the period prior to the mortgage. In circumstances where he knew properties of the Schofield's were being realised to satisfy debts (primarily to the ANZ bank) and that one of their trucks required significant expenditure for repairs, he was twice denied the benefit of offers previously made (of the purchase of the woolshed property and of $15,000) that would have partially extinguished the fuel debt. Notwithstanding both his, in my view implausible, evidence that in taking the security he was simply doing what others in the industry did with large accounts and his evidence that he was not fully aware of Mr Schofield's "position", I do not accept that there was at the time no "degree of alarm on his part" as to the prospects of payment his debt. I reject his evidence to the contrary. The Schofield's assets were an evaporating pool. As Mr Barron said, Polo Flat was the only "bricks and mortar asset" available to pay the debt. It was his evidence that his need for the security was "probably" to put pressure on the Schofields "to pay me quicker". Nonetheless he accepted that the only purpose in having the mortgage was if they became unable to pay their debts. While he denied discussing with the Schofields the prospect of his so obtaining priority for his debt in the event of their bankruptcy, the proper inference to draw in the circumstances is that it was such a contingency that the parties had in mind in the giving and taking of the mortgage and that, for practical purposes, the mortgage was itself to be activated on the happening of that contingency. The circumstances which lead me to this conclusion are as follows. (1) The mortgage on its face referred to a consideration never given or received. I will return to this matter below. (2) Notwithstanding systematic defaults over the six month term of the mortgage, no steps were taken to exercise any of the mortgagee's powers until the Schofield's were known to be entering into their Part x deed. Those steps were taken, on Mr Agnew's evidence (which I accept in preference to Mr Barron's), on the instructions of Mr Barron. (3) While clearly wishing the Schofield's to reduce their debt, Mr Barron never raised with them in the period before the execution of the mortgage the possibility of suing them for the debt. Indeed, he denied such a possibility in his answers to an interrogatory raising this question. And it is, in my view, improbable that he would have taken such a step in any event given the relationship of the parties and the history of their dealings. (4) There is no acceptable basis for concluding that the arrangements relating to the running account for the fuel debt (including its 24% compound interest rate charged monthly on the balance of account) were, or were intended to be, superseded by the mortgage. On the contrary. Of the relationship of the two, Mr Barron had this to say in cross-examination: "Mr Skinner: ... Mr Barron, do you have any recollection of a conversation with Mr Schofield, or Mrs Schofield, prior to the execution of a mortgage in which there was agreement that he and his wife would make regular payments to you under the mortgage? - I don't believe under the mortgage, but off the fuel account. And that was the agreement which you had with Mr and Mrs Schofield, was not it? That they would continue to pay off the fuel bill? - That is correct. There was no agreement that they would make payments to you under the mortgage? - No, not the mortgage, off the fuel account. And it was only when Mr Agnew telephoned you and told you about matters in July 1992, that you relied upon the mortgage document, is not that correct? - That is correct." In the absence of Mr Schofield's version of events, but given my unpreparedness to accept the reliability of Mr Barron's evidence, there must necessarily be some caution exercised in attributing a precise and particular character to the mortgage transaction. But noting this, I am prepared to infer that the mortgage was, and was intended to be, a separate and free-standing transaction under which no loan funds were paid to the debtor. Nonetheless, in the event of there being a need to have an "effective security" for a sum in the approximate amount of the fuel debt if it could no longer be repaid, the mortgage was to serve this purpose. That need arose when the Schofield's entered into the Part x arrangement. This inference contradicts the complexion the respondent invites me to place on the transaction. Notwithstanding the clear falsity of its stated consideration, it is submitted to be a transaction for value entered into in good faith. I am unable, though, to accept any of the suggested forms of consideration for it propounded by the respondent. (1) Despite the alleged ease with which it is said an inference will be drawn of forbearance to sue for an antecedent debt where security is taken - and considerable reliance in this was placed upon the decision of Gibbs J in Re Hyams; Official Receiver v Hyams (1970) 19 FLR 232 - this case is not one, as I have already noted, in which such an inference should be drawn. Not only does the evidence (and answers to interrogatories) either suggest or imply the contrary, the mortgage was not on my findings conceived of, or executed, in a setting where litigation was a possible contingency at all. Rather the transaction was directed at providing a security and no more should the need for it arise in the future. (2) I have already found that the mortgage ran parallel to and did not supersede the running account. The consequence of this is that it cannot be relied upon as providing a new consideration to the extent that it imposes a different interest obligation to that borne by the running fuel account. (3) At the hearing it was claimed that the consideration given was further credit up to $50,000, the fuel debt at the time being in the order of $46,000. If such had been the real intention of the parties then the respondent's submission on this at least would have been made out. I simply am unable to accept that such was their intention. The mortgage was not concerned with providing an extended line of credit. Its object, I infer, was to provide a security set at level actually unrelated to, but likely to be near the anticipated level of, indebtedness in the running account. Put crudely it was the figure agreed to 'look after' the company in the event that security was needed. If it bespoke anything, this was the anticipation that the actual fuel debt would not be significantly different from it if and when the need arose to call on the security. I have already indicated my view that the mortgage transaction stood separate and apart from the running account. It was a stand-alone, voluntary transaction, not supported by any consideration. And it was a contrivance in that it was brought into existence against a particular contingency which, if it occurred, was to activate what otherwise would be left dormant. That purpose was known to, and intended by Mr Schofield and Mr Barron. It was, in the language of s121 of the Act, "to defraud creditors". The respondent company was thus "privy to the fraud": cf Official Trustee in Bankruptcy v Mitchell (1992) 38 FCR 364 at 371 ff. Indeed it was a positive participant in it. This doubtless is an unfortunate case and made the more so by Mr Barron's obviously genuine appreciation of Mr Schofield's plight and by his preparedness to provide assistance somewhat selflessly. Nonetheless it is a clear case of a course of dealing which led seemingly ineluctably to a transaction caught both by s120 and s121 of the Act: s120, because the mortgage was relevantly a settlement caught by sub-section (1), not being one made in favour of a purchaser or encumbrancer (a) in good faith or (b) for valuable consideration; and s121, because it involved a disposition of property with intent to defraud creditors, that disposition not being (a) one for valuable consideration or (b) in favour of the company acting in good faith. Accordingly, I will declare the mortgage to be void as against the applicant. Because this declaration will necessitate consequential orders I will direct the parties to bring in agreed minutes of orders and if these cannot be agreed: (i) the applicant to file and serve proposed minutes of orders with written contentions supporting the orders; and (ii) the respondent to file and serve its written objections thereto. I certify that this and the preceding 26 pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Finn. Associate Dated: 28 July 1997 Counsel for the applicant : B Skinner Solicitors for the applicant: Scott Shiels and Glover Counsel for the respondent : S Burchett Solicitors for the respondent : Eakin McCaffery Cox Date of hearing : 20, 21, 22 March 1997 Date of judgment : 29 July 1997