FEDERAL COURT OF AUSTRALIA BANKRUPTCY – property divisible amongst creditors – claim by son of bankrupts to ownership of motor vehicle - whether motor registration a record of title in Victoria – claim by alleged purchaser of assets of bankrupts' partnership business - WORDS AND PHRASES – "registered owner" Bankruptcy Act 1966 (Cth) ss 116, 120 Skywillow Pty Ltd v Chief Commissioner for Stamp Duties (NSW) (1993) 93 ATC 4202 followed Precision Plastics Pty Ltd v Demir (1975) 132 CLR 363 followed PAUL A PATTISON (AS TRUSTEE OF THE PROPERTY OF GABOR HORVATH AND AGOTA HORVATH, BANKRUPTS) v GABOR HORVATH AND OTHERS NO. VG 7812 of 1997 JUDGE: HEEREY J DATE: 6 AUGUST 1998 PLACE: MELBOURNE IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY V 7812 of 1997 BETWEEN: PAUL A PATTISON (AS TRUSTEE OF THE PROPERTY OF GABOR HORVATH AND AGOTA HORVATH, BANKRUPTS) Applicant AND: GABOR HORVATH first respondent AGOTA HORVATH second Respondent gabor horvath junior third respondent julijana iveges fourth respondent JUDGE: HEEREY J DATE OF ORDER: 6 august 1998 WHERE MADE: MELBOURNE THE COURT declares THAT: 1. Items 15, 56 and 62-67 in the applicant's inventory of seized items are the property of the third respondent. 2. The plant and equipment purportedly sold to the fourth respondent on 1 July 1994 is property of the first and second respondents divisible amongst their creditors within the meaning of s 116 of the Bankruptcy Act 1966 (Cth). 3. The applicant pay the third respondent any loss of wages or other expenses incurred in connection with the application. 4. The fourth respondent pay the costs of the applicant of the application. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY VG 7812 of 1997 BETWEEN: PAUL A PATTISON (AS TRUSTEE OF THE PROPERTY OF GABOR HORVATH AND AGOTA HORVATH, BANKRUPTS) Applicant AND: GABOR HORVATH first respondent AGOTA HORVATH second Respondent gabor horvath junior third respondent julijana iveges fourth respondent JUDGE: HEEREY J DATE: 6 august 1998 PLACE: MELBOURNE REASONS FOR JUDGMENT On 12 December 1997 this Court ordered that a sequestration order be made against Mr Gabor Horvath ("Mr Horvath Senior") and his wife Mrs Agota Horvath ("Mrs Horvath"). Mr Paul Pattison ("the Trustee") was appointed trustee of each of their estates. Pursuant to an order which I made on 17 December 1997, the Trustee seized various items of property held at the Dandenong premises of a tool making business run by a partnership ("the partnership") constituted by Mr Horvath Senior and Mrs Horvath. The seized items are listed in the Trustee's inventory. The bankrupts' son, Gabor Geza Lajos Horvath ("Mr Horvath Junior") and Mrs Horvath's mother, Mrs Julijana Iveges, claim ownership of certain items of property seized on that day. The Trustee seeks declarations that the seized items are property of Mr Horvath Senior and Mrs Horvath divisible amongst their creditors within the meaning of s 116 of the Bankruptcy Act 1966 (Cth) (the Act). Mr Horvath Junior's claims Mr Horvath Junior claims the following items: · Nissan Navara 4x4 Dual Cab Utility registration EOY 245 ("the Nissan") (item 15); · 4" x 16" 4WD rims and tyres (item 56); · computer equipment (items 62-65); and · pistol reloading tools (items 66-67). 1. The Nissan Mr Horvath Junior claims that the Nissan has belonged to him since it was purchased. He did not pay for it and it is registered in the name of Mr Horvath Senior and Mrs Horvath. Mr Horvath Senior deposed that he and Mrs Horvath opened a bank account for Mr Horvath Junior when he was born in 1972. In 1982 Mr Horvath Senior borrowed the money in the account ($4,700) from Mr Horvath Junior to alleviate business cash flow problems. In return, he promised to buy Mr Horvath Junior a car when he turned 18, which he did. That car (a Nissan Patrol) was traded in in 1991 to acquire the Nissan, the subject of dispute in this case. Mr Horvath Junior deposed that he has used the Nissan as his primary means of transport since it was acquired. His parents sometimes borrow it from him when they need to transport heavy items for their business. He has looked after and maintained the Nissan since its acquisition. He produced receipts of expenses relating to the Nissan amounting to approximately $3,000. He also claimed that he has spent a further $2,000 on the vehicle for which he does not have receipts. Early in 1997 Mr Horvath Junior considered transferring the registration of the Nissan to himself. However in order to do that, he needed to obtain a roadworthy certificate. As he did not have the funds to do the necessary repairs to obtain such a certificate, he did not proceed with the transfer. Mr Horvath Junior tendered affidavits of two persons who deposed to the fact that they had seen him drive the Nissan and had seen him pay for modifications to it. Counsel for the Trustee did not cross-examine Mr Horvath Junior or the other persons who deposed as to Mr Horvath Junior's alleged ownership of the Nissan, and did not lead evidence to rebut the claim. Rather, counsel submitted that two reasons compelled a finding that the Nissan in fact belonged to the partnership. First, counsel submitted that the Nissan's registration in the name of Mr Horvath Senior and Mrs Horvath meant that it was property of the bankrupts. He referred to r 203(1) of the Road Safety (Vehicles) Regulations 1988 (Vic) which provides that an application for registration of a vehicle must be made by an owner of the vehicle. However motor vehicle registration in Victoria is not a record of title. By s 5 of the Road Safety Act 1986 (Vic) the purposes of registration are stated to be: "(a) to ensure that the design, construction and equipment of motor vehicles and trailers which are used on a highway meet safety and environmental standards; and (b) to enable the use of motor vehicles and trailers on highways to be regulated for reasons of safety, protection of the environment and law enforcement; and (c) to provide a method of establishing the identity of each motor vehicle or trailer which is used on a highway and of the person who is responsible for it." That registration is not concerned with title is demonstrated by s 8(2)(c) of that Act which prohibits registration in the name of more than one person – notwithstanding that motor vehicles, like most other forms of real and personal property, can be the subject of joint ownership by two or more persons. As James J said in Skywillow Pty Ltd v Chief Commissioner for Stamp Duties (NSW) (1993) 93 ATC 4202 at 4206: "A certificate of registration of a motor vehicle … is not an instrument whereby property in a motor vehicle is transferred to or vested in or accrues to any person." Secondly, counsel referred to depreciation schedules attached to the partnership's taxation returns for the years ending 30 June 1995 and 1996. Those returns claimed deductions for the depreciation of the Nissan. Section 54 of the Income Tax Assessment Act 1936 (Cth) provides that depreciation of plant or articles "owned by a taxpayer" is an allowable deduction. Counsel for the Trustee submitted that the Nissan's presence in the schedules indicated that the Nissan was owned by the partnership. I do not see how the inclusion of the Nissan in the depreciation schedules by Mr Horvath Senior and Mrs Horvath could constitute an admission against Horvath Junior as to his ownership of the Nissan. Even if its inclusion in the schedules constituted some fraud on the Commissioner of Taxation (and I make no comment in that respect), Mr Horvath Junior did not complete the returns and cannot be held responsible for their contents. Mr Horvath Junior's case is not inherently incredible and is corroborated to some extent. Given the lack of evidence to the contrary and the applicant's failure to cross-examine (see Precision Plastics Pty Ltd v Demir (1975) 132 CLR 363 at 371), I accept that Mr Horvath Junior is the true owner of the Nissan. 2. 4" x 16" 4WD rims and tyres Mr Horvath Junior deposed that these rims and tyres were originally on the Nissan, and were removed when he purchased new ones. Consistently with my finding that Mr Horvath Junior owns the Nissan, and in the absence of evidence to the contrary, I find that the rims and tyres also belong to Mr Horvath Junior. 3. Computer equipment Mr Horvath Junior deposed that certain computer equipment listed on the Trustee's inventory constituted a machine which he had loaned to his parents. He said that he works in the computer industry, and made the machine up of old spare parts. Mr Horvath Junior was not cross-examined. Again, his evidence is not inherently incredible. I accordingly find that the computer equipment belongs to Mr Horvath Junior. 4. Pistol reloading tools Finally, Mr Horvath Junior deposed that pistol reloading tools seized by the Trustee belong to him. It appears that both Mr Horvath Junior and Mr Horvath Senior engage in pistol shooting as a hobby. Again, in the absence of any evidence to the contrary, I find that the tools belong to Mr Horvath Junior. Mr Horvath Junior was not represented. I order that the Trustee reimburse him for any loss of wages or other expenses incurred in connection with this application. Mrs Iveges' claim Mrs Iveges swore in an affidavit: "I have purchased all machinery, equipment, tools, fixtures fittings, benches, cranes, office equipments, office furnitures faxmachine [sic] all as per 1994 depreciation schedules on the 1st of July 1994 from G & A Horvath Tool and Die Makers for the amount of twenty dollars. Also on the same day I have released these back to G & A Horvath for the amount of twenty dollars as it stated [sic] on the contract." Mrs Iveges exhibited to her affidavit a one page undated contract as follows: "CONTRACT OF SALE: AS OF 1St of July 1994 we G & A HORVATH TOOL AND DIE MAKERS of Fact 1/9 Superior Drive, Dandenong South Vic 3175 have sold all our , machinery , equipments, tools, fixtures, fittings, benches, cranes , office equipments, office furnitures faxmachine, all others as per 1994 depreciation schedules to Julijana Iverges, of 30 Brighton Street, Richmond. Vic. 3121 for the amount of twenty dollars only. G & A HORVATH (sgd) Julijana Iveges Gabor Horvath Agota Horvath Gabor Horvath Agota Horvath CONTRACT OF LEASE We G & A HORVATH of Fact 1/9 Superior Drive Dandenong South Vic 3121 are releasing all equipments, machinery, fixtures fittings, benches cranes office equipments , office furniture, faxmachine , from Julijana Iveges of 30 Brighton Street, Richmond Vic 3121 for the amount of twenty dollars a year, with the conditions that we shall maintain, all these goods in good order and conditon [sic]. (sgd) Julijana Iveges Gabor Horvath Agota Horvath" The expression "as of 1st of July 1994" tends to suggest that the contract was actually signed at some later date. There is no direct evidence as to when it was signed. No reason (commercial or otherwise) for the sale and leaseback arrangement was proffered. As with the Nissan, the plant and equipment is contained in depreciation schedules attached to the partnership's taxation return for the years ending 30 June 1995 and 1996. (The depreciation schedule for the year ending 30 June 1994 referred to in the contract was not produced.) The Trustee again submitted that the inclusion of the plant and equipment on the schedules proved their ownership by the partnership. For reasons already mentioned in relation to the claim by Mr Horvath Junior I do not see how schedules prepared on behalf of Mr Horvath Senior and Mrs Horvath can constitute an admission against Mrs Iveges. In the absence of evidence to the contrary, I will assume that there was a transfer of the plant and equipment. In the alternative, the Trustee submitted that if there was a transfer of plant and equipment the contract is void against the Trustee pursuant to s 120 of the Act. That section provides that a transfer of property by a person who later becomes a bankrupt to another person is void against the trustee of the bankrupt if: · the transfer took place within 5 years of the commencement of bankruptcy; and · the transferee gave no consideration, or less than market consideration, for the transfer. I am satisfied that s 120 applies in this case. The contract was purportedly made on 21 July 1994, which is less than five years before the bankruptcy. Mrs Iveges paid $20 for the plant and machinery. While there was some dispute over its value, it is clearly worth more than $20. Hence, the property was sold for a value less than its market value. In my view the contract was no more than a thinly veiled attempt to defeat actual or potential claims of the partnership's creditors. Accordingly I declare that the transfer of plant and machinery from the partnership to Mrs Iveges is void against the Trustee. I order that Mrs Iveges pay the costs of the Trustee. I certify that this and the preceding six (6) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Heerey Associate: Dated: 6 August 1998 Counsel for the Applicant: Mr S Glacken Solicitors for the Applicant: Coltmans Price Brent Counsel for the Respondents: In person Date of Hearing: 29 July 1998 Date of Judgment: 6 August 1998