FEDERAL COURT OF AUSTRALIA BANKRUPTCY - creditors petition - application to set aside bankruptcy notice - whether disposition of property and money to applicant void pursuant to ss 120 and 121 of the Bankruptcy Act 1966 (Cth) Bankruptcy Act 1966 (Cth), ss 120, 121, 139ZQ DANIELA RUTH GAMBOTTO v HUGH CHARLES THOMAS, TRUSTEE OF THE PROPERTY OF LEANDRO CAMILLO GAMBOTTO (A BANKRUPT) NG 7634 of 1997 O'CONNOR J SYDNEY 25 JUNE 1998 IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY ng 7634 of 1997 BETWEEN: DANIELA RUTH GAMBOTTO Applicant AND: hugh charles thomas, trustee of the property of leandro camillo gambotto (bankrupt) Respondent between: hugh charles thomas, trustee of the property of leandro camillo gambotto (a bankrupt) CROSS CLAIMANT and: DANIELA RUTH GAMBOTTO FIRST CROSS Respondent LEANDRO CAMILLO GAMBOTTO SECOND CROSS Respondent JUDGE: O'CONNOR J DATE OF ORDER: 25 june 1998 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. The notice under s139ZQ of the Bankruptcy Act 1996 given by the respondent and dated 26 August 1996 be set aside. 2. In respect of this application and the cross claim the respondent (cross claimant) pay the costs of both proceedings. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY ng 7634 of 1997 BETWEEN: DANIELA RUTH GAMBOTTO Applicant AND: hugh charles thomas, trustee of the property of leandro camillo gambotto (a bankrupt) Respondent between: hugh charles thomas, trustee of the property of leandro camillo gambotto (a bankrupt) CROSS CLAIMANT and: DANIELA RUTH GAMBOTTO FIRST CROSS Respondent LEANDRO CAMILLO GAMBOTTO SECOND CROSS Respondent JUDGE(S): O'CONNOR J DATE: 25 june 1998 PLACE: SYDNEY REASONS FOR JUDGMENT This is an application to set aside a notice issued under Section 139ZQ of the Bankruptcy Act 1966 (Cth) ("the Bankruptcy Act") dated 26 August 1996. The applicant was regarded as a person who had received money or property as a result of a transaction that was void as against the respondent, as trustee for the bankrupt estate of the applicant's father and was therefore required by the notice to pay the respondent a sum of money being the value of the property received by the applicant from her father (the bankrupt). A cross claim was lodged by the respondent seeking a declaration that the disposition to the applicant/first cross-respondent of property and money in relation to this matter is void as against the respondent/cross claimant pursuant to ss 120(2) and 121(1) of the Bankruptcy Act. Legislation The relevant provisions of the Bankruptcy Act are: "120 Undervalued transactions Transfers that are void against trustee (1) A transfer of property by a person who later becomes a bankrupt (the transferor) to another person (thetransferee) is void against the trustee in the transferor's bankruptcy if: (a) the transfer took place in the period beginning 5 years before the commencement of the bankruptcy and ending on the date of the bankruptcy; and (b) the transferee gave no consideration for the transfer or gave consideration of less value than the market value of the property. Exemptions (2) Subsection (1) does not apply to: (a) a payment of tax payable under a law of the Commonwealth or of a State or Territory; or (b) a transfer to meet all or part of a liability under a maintenance agreement or a maintenance order; or (c) a transfer of property under a debt agreement; or (d) a transfer of property if the transfer is of a kind described in the regulations. ... Meaning of transfer of property and market value (7) (a) transfer of property includes a payment of money; and (b) a person who does something that results in another person becoming the owner of property that did not previously exist is taken to have transferred the property to the other person; and (c) the market value of property transferred is its market value at the time of the transfer. 121 Transfer to defeat creditors Transfers that are void (1) A transfer of property by a person who later becomes a bankrupt (the transferor) to another person (the transferee) is void against the trustee in the transferor's bankruptcy if: (a) the property would probably have become part of the transferor's estate or would probably have been available to creditors if the property had not been transferred; and (b) the transferor's main purpose in making the transfer was: (i) to prevent the transferred property from becoming divisible among the transferor's creditors; or (ii) to hinder or delay the process of making property available for division among the transferor's creditors. ... Meaning of transfer of property and market value (7) (a) transfer of property includes a payment of money; and (b) a person who does something that results in another person becoming the owner of property that did not previously exist is taken to have transferred the property to the other person; and (c) the market value of property transferred is its market value at the time of the transfer." Claims and Evidence On or about 29 March 1994 the applicant and her father ordered and then purchased a Toyota Landcruiser motor vehicle from Ryde Toyota. On 20 September 1995, the respondent became the trustee in the bankrupt estate of Mr Leandro Camillo Gambotto and his wife Ruth Gambotto, the parents of the applicant. The respondent claims that it was the bankrupt Leandro Camillo Gambotto who provided the applicant with the Suzuki and Toyota 4 Runner motor vehicles for trade-in. The respondent also claims it was this bankrupt who provided to the applicant, from an account maintained on the bankrupt's behalf, an amount of $26,500 in cash together with the monies which were realised in the trade-in of the two motor vehicles to purchase the Toyota Landcruiser motor vehicle. Three affidavits were tendered on behalf of the applicant in this matter and all were sworn by Daniela Ruth Gambotto. There was no appearance by the second cross respondent at the hearing or any evidence filed on his behalf. The first affidavit was dated 26 May 1997, the second dated 21 July 1997 and the third dated 16 March 1998. The first affidavit states in paragraph 4 that the Toyota Landcruiser with a purchase price of $61,000 was ordered from Ryde Toyota on 23 February 1994 in the joint names of Daniela Ruth Gambotto and Leandro Gambotto. In paragraph 5 the applicant says that when the order was made a deposit for the purchase of the vehicle was paid to Ryde Toyota and she did not make that payment. It was for the sum of $500 cash. She says in paragraph 6 that the purchase price of the vehicle agreed at $61,000 was made up of a trade-in to the value of $34,000 of two vehicles namely a Suzuki Swift motor vehicle and a Toyota 4 Runner. These vehicles were believed to be by the applicant in the proportion of $9,000 for the Suzuki and $25,000 for the Toyota 4 Runner. The balance of the purchase price came from a bank account in her name with the ANZ Account No. 9435-29719. The applicant states that the only signatories on that account in the relevant period were herself, her sister and her brother and that her father was not a signatory on that account. She says in paragraph 9 that the bankrupt at no stage had any interest in the monies that were in the account and that the monies that were used to purchase the Landcruiser were provided by her brother, Lawrence Gambotto, who had given her permission to use the account monies (which she held in trust for him) to buy the motor vehicle. She said that shortly before the purchase he had said that he didn't want to give the money to his mother and father because of their court case and they could lose it. Although the vehicle was initially registered in both names on the order form it was subsequently registered in the name of Daniela Gambotto. In relation to the trade-ins she states that to the best of her knowledge the Toyota 4 Runner was at all times registered in the names of the bankrupt and her mother and the Suzuki Swift motor vehicle was at all times her own vehicle. Even though the Suzuki Swift was registered in the joint names of herself and the bankrupt she explained that it was done that way to "lower the insurance premiums". She also swore at paragraph 20 that she has never been aware of the bankrupt's assets or details of any injunction made against him or the effect of any such injunction. In her second affidavit the applicant seeks to explain the transcript of the evidence she gave during her examination pursuant to s 81 of the Bankruptcy Act. During that examination the applicant said that the vehicle traded-in for $25,000 at the time of purchase of the Landcruiser was given to her just prior to the trade-in and that the balance of the purchase price was also given to her by her father. She also, during that examination, said that the car was always supposed to be in her name and that it was an "administrative mistake" that it had ever been registered in both her name and her father's name. Her explanation of this contradictory evidence is that she had always known that the monies in question had been provided by someone else but had not had the opportunity to refresh her memory from documents prior to giving the evidence at her examination. (The documents referred to were the bank passbook entries in relation to the ANZ account). It was not until later, following discussions with her brother Lawrence Gambotto, that she recalled clearly the events deposed to in her affidavit of 26 May 1997. In her third affidavit the applicant states that the motor vehicle the subject of the notice was sold at public auction on 24 February 1998 at her instruction and she received a sale price of $30,750 which after payment of commission, amounted to $27,000. This money is currently held by her solicitor in trust. The respondent tendered in evidence an affidavit of H C Thomas (Trustee of the Estate of Leandro Camillo Gambotto) and an affidavit of K Hutchinson dated 1 October 1997 together with a series of exhibits marked 1 to 12 being transcript of proceedings dated 25, 26 and 27 June 1996 of the examination under s 81 of the Bankruptcy Act of the applicant and the second cross respondent. Setting aside the s 139ZQ notice Counsel for the applicant submits that the s 139ZQ notice is defective because it is only given in relation to the bankrupt estate of Leandro Camillo Gambotto. The evidence shows that the registration of the Toyota 4 Runner motor vehicle passed from Leandro Camillo (the bankrupt) and Ruth Gambotto's possession (his wife also a bankrupt) on 30 March 1994 to Ryde Toyota. The applicant claims the notice was required to be given in relation to the two bankrupt estates in this case and was therefore defective and should be set aside. The respondent declined to put submissions in relation to this issue and preferred to rely on its submissions in relation to ss 120 and 121 of the Bankruptcy Act. Was there a disposition of property? Counsel for the applicant submitted in opposing the application for declarations under s 120 and s 121 of the Bankruptcy Act that the cross claim is misconceived because the trustee is not able to identify a disposition of property which would attract s 120 and s121. Rather than a disposition of property, he submits, that the intention was always that the bankrupt and his wife would retain their share in the vehicle purchased and there was no intention to dispose of property. In relation to the purchase of the motor vehicle there were three discrete transactions: 1. a payment of $500 as a deposit (made by the second cross respondent); 2. a trade-in of two cars (one jointly owned by the second cross respondent and his wife and the other by the applicant/first cross respondent); 3. the payment of a cash sum (made by the applicant/first cross respondent). On the evidence before me I accept that the $500 deposit was not provided by the applicant. In relation to the two cars that were traded-in the applicant claims that she was the owner of the Suzuki Swift and that the other car belonged to her parents. There is no challenge to the evidence that the money in the ANZ bank account was transferred to it by Lawrence Gambotto (who did not give evidence) and that thereafter Daniela Gambotto provided money for the purchase of the car. The respondent submits that I should infer from this transaction and the evidence given at the bankruptcy examination that the money provided to the bank account was intended as a loan to the bankrupt and that the bankrupt thereafter made a disposition to the applicant at the time of purchase of the car of this money. The applicant says that the funds in the bank account which came from Lawrence Gambotto were held at all times in trust for her brother. She said that her brother gave her permission to use money from the account for the purchase of the vehicle and that the money was never given to her father. She also gave evidence that subsequent to its purchase the vehicle was used both by her mother and father and herself and her brother Lawrence when he was in Australia. It is not challenged by the applicant that the evidence given by the bankrupt and the applicant at the examination is inconsistent with the evidence given by the applicant in the proceedings before me. It is submitted on her behalf however (and she gave evidence to that effect) that what she said during the bankruptcy examination was flawed because she was not given access to the documentary material which established both the situation in relation to the bank account and the purchase process in relation to the cars. I accept that the evidence of the bankrupt given in the bankruptcy examination was vague and inconclusive on this issue. He appeared to have no firm recollection of the way in which the money was paid in respect of the purchase of the cars. To a lesser extent the same could be said of the evidence of Ms Gambotto. The respondent submits that her particularised recollection in these proceedings contrasts sharply with her lack of recollection of the same events at the bankruptcy proceedings and her explanation of this should be rejected. The difficulty faced by the respondent in these proceedings is a matter that was addressed to at great length by Counsel for the applicant. The respondent's case is that Lawrence Gambotto transferred money to an account in the name of his sister (and over which the bankrupt, their father, had no control) for the purpose of the applicant transferring the money, by way of loan, to the bankrupt so that he could give the money back to her. The difficulty with this reconstruction of the financial transactions is establishing a motive for doing this. The evidence of Ms Gambotto sworn after reference to the bank books and documents relating to the purchase of the car is, I consider, more likely as an explanation of the events. The money which the applicant held on trust for her brother was, at his direction, being used to purchase the car for the joint benefit of the family. The respondent bears the burden of proof that there was a disposition and the respondent submits that, on the balance of probabilities, this has been established based upon the evidence before me. I am not so satisfied. There are aspects of the evidence given both at the bankruptcy examination and under cross-examination in these proceedings which are unsatisfactory. It was put to me by the respondent that the fact that the bankrupt and Lawrence Gambotto did not appear in these proceedings should reflect adversely upon them. In my view that submission could go either way. The applicant has conceded that the vehicle was jointly owned in a proportion about equal to half between herself and her mother and father. The applicant has also conceded that should a claim be made by the trustee for that portion of the money relating to that asset which belongs to the bankrupt it would be "hard to resist". This case however is not that claim. I accept the submissions on behalf of the applicant that the notice upon which her claim is based is defective and should be set aside. The respondent made no submissions as to that matter. I do not propose to make a declaration on either the basis of s 120 or s121 as sought in the cross claim. On the evidence before me I find that there has been no settlement or disposition of property by the bankrupt Leandro Gambotto to the applicant. I therefore order that the notice under s139ZQ of the Bankruptcy Act 1996 given by the respondent and dated 26 August 1996 be set aside. I order that in respect of this application the respondent pay the costs of the proceedings. I decline to make either declaration 1 or 2 as specified in the cross claim and order the cross claimant to pay the costs of both the first and second cross respondents. I certify that this and the preceding seven (7) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice O'Connor Associate: Dated: 25 June 1998 Counsel for the Applicant: M R Aldridge Solicitor for the Applicant: Horowitz & Bilinsky Counsel for the Respondent: J Johnson Solicitor for the Respondent: Bush Burke & Company Date of Hearing: 17 March 1998 Date of Judgment: 25 June 1998