Wily, Andrew Hugh Jenner as Trustee of the bankrupt estates of Mary Leondaris & Anor [1998] FCA 1540

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY NG 8262 of 1998

BETWEEN: ANDREW HUGH JENNER WILY

As Trustee of the bankrupt estates of

Mary Leondaris and Steven leondaris

Applicant

AND: JIM ANASTASIOU

First Respondent

ELIZABETH ANASTASIOU

Second Respondent

JUDGE: TAMBERLIN J

DATE OF ORDER: 2 DECEMBER 1998

WHERE MADE: SYDNEY

THE COURT ORDERS THAT: 1. Upon the usual undertaking of the applicant personally given and upon the undertaking by the judgment creditor, KGB Holdings Pty Limited, I will further order Mr and Mrs Anastasiou, by themselves their servants and agents, be restrained from taking any steps to enforce their security under the Traders' Bill of Sale, the subject of this proceeding until further order. 2. Costs be reserved. 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 8262 of 1998

BETWEEN: ANDREW HUGH JENNER WILY

As Trustee of the bankrupt estates of

mary leondaris and steven leondaris

Applicant

AND: JIM ANASTASIOU

First Respondent

ELIZABETH ANASTASIOU

Second Respondent

JUDGES: TAMBERLIN J

DATE: 2 DECEMBER 1998

PLACE: SYDNEY

REASONS FOR JUDGMENT On 9 November 1998, a Sequestration Order was made by a Registrar of the Court against the estate of Steven Leondaris. The present application is filed by the Trustee of the bankrupt estate, Andrew Hugh Jenner Wily ("the Trustee"). He is also the Trustee of the bankrupt estate of Mary Leondaris, the wife of Steven Leondaris and the daughter of the first and second respondents. The estate of Mary Leondaris was the subject of a Sequestration Order made on 6 October 1998 by Einfeld J. On 13 November 1998, the Trustee filed an application pursuant to ss 120 and 121 of the Bankruptcy Act 1966 (Cth) ("the Act") seeking declarations that a Bill of Sale given by Mr Leondaris on 15 May 1997 is null and void. The claim in respect of s 121 of the Act is not pressed. The question presently before me is whether interlocutory relief should be granted to restrain Mr and Mrs Anastasiou ("the respondents") from exercising any claimed rights as the Mortgagees under the Bill of Sale. The Trustee has proffered a personal undertaking as to damages in favour of the respondents. The judgment creditor, KGB Holdings Pty Limited ("KGB"), has also proffered its undertaking as to damages in the event that the interlocutory relief is granted. The financial position of KGB is not clear but, in my view, it is important that there is also the personal undertaking of the Trustee. Both undertakings are in favour of Mr and Mrs Anastasiou. The relevant provisions of the Act are as follows: "120 (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 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. … Transfers that are not void 120 (3) Despite subsection (1), a transfer is not void against the trustee if: (a) the transfer took place more than 2 years before the commencement of the bankruptcy; and (b) the transferee proves that, at the time of the transfer, the transferor was solvent. Refund of consideration 120 (4) The trustee must pay to the transferee an amount equal to the value of any consideration that the transferee gave for a transfer that is void against the trustee. … Meaning of 'transfer of property' and 'market value' 120 (7) For the purposes of this section: (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." On the material presently before me, I am of the view that on the basis of the undertakings proffered, interlocutory relief should be granted until further order. The evidence, of course, is incomplete and the conclusion which I have reached as to the grant of interlocutory relief is subject to further consideration after the filing of further evidence. The matter will be heard on a final basis on 11 December 1998. I am satisfied on the material that there has been a transfer of property by Mr Leondaris, who later became bankrupt, to his parents-in-law, Mr and Mrs Anastasiou. The transfer took place in a period beginning five years before commencement of the bankruptcy and ending on the date of the bankruptcy. It is therefore evident that the transfer of property took place within two years prior to commencement of the bankruptcy. The transfer of property is effected by the Bill of Sale of 15 May 1997, which transferred to the mortgagee absolutely (subject to a proviso for redemption) the property and effects subject to the Bill. This property includes enumerated items of personalty and fixtures and includes the goodwill of the business carried on under the business name "Leonardo's Sandwich Bar" at Haymarket in Sydney. Notwithstanding that the Bill is in the nature of a mortgage, it provides for the transfer of the property in respect of which it is given. The word "transfer" is one of the widest import. The acts of bankruptcy in each of the estates of Mr and Mrs Leondaris occurred in 1998 and accordingly, any defence otherwise available under s 120(3) of the Act cannot apply. In any event, on the limited material before me, there is sufficient evidence to support a submission that there is an arguable case that as at 15 May 1997 Mr and Mrs Leondaris were not able to pay their debts as they became due and payable: see s 5(2) and (3) of the Act. In particular, I have in mind the evidence relating to the dishonour of a cheque and the application by Mr and Mrs Leondaris to the Local Court for payment of the judgment by instalments. In addition, their statement of income, expenditure, assets and liabilities furnished in support of the Instalment Application tends to indicate a state of insolvency at that time. There was absence of any specific evidence furnished on behalf of Mr and Mrs Leondaris as to their financial position at the relevant time. One further matter for consideration is whether the transfer effected by the Bill was for less than the market value of the property within the meaning of s 120(1)(b). The evidence may lend some support for a conclusion that the property transferred by the Bill was substantially in excess of the $45,000, which was expressed to be the amount of loan said to have been advanced and secured by the Bill of Sale. The evidence at present indicates that the moneys were in fact advanced under the Bill. There is some support for the conclusion that the value of the property with goodwill is over $100,000. Accordingly, on one approach it can be said that the consideration for the transfer was less than the market value of the property. The other view is that when one has regard to the right of redemption provided for in the transfer, that the substance of the Bill of Sale transaction was simply to transfer an interest in the property to secure an amount of $45,000. For present purposes, it is not necessary to decide which approach is correct. The former approach is, in my view, reasonably tenable and arguable. Accordingly, I consider that the Trustee has made out an arguable case for interlocutory relief sought. In relation to the balance of convenience, I am satisfied that in view of the two undertakings given and the timing of the steps taken by the parents-in-law to enforce their Bill of Sale it is appropriate to preserve the status quo pending an early hearing. If Mr and Mrs Anastasiou are permitted to assume control of the business and assets and to deal with the assets in accordance with their asserted claim then the Trustee may be deprived of assets comprised in the business. In the circumstances, the Trustee has made out a sufficient case for interlocutory relief. Accordingly, on the usual undertaken as to damages being given by the Trustee personally and by KGB, I order as follows: 1. Until further order, Mr and Mrs Anastasiou, by themselves their servants and agents are restrained from taking any steps to enforce their security under the Bill of Sale dated 15 May 1997. 2. Costs are reserved. 3. I note that directions have been made, by consent, to enable the challenge by the Trustee in relation to the Bill of Sale to be heard on 11 December 1998. I certify that this and the preceding four (4) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Tamberlin