FEDERAL COURT OF AUSTRALIA Jones v Arcuri [1999] FCA 46 MICHAEL GREGORY JONES, TRUSTEE OF THE BANKRUPT ESTATE OF SALVATORE ARCURI v NICODEME VINCENZO ARCURI AND MARIA TERESA ARCURI QG 7446 OF 1997 HELY J 5 FEBRUARY 1999 SYDNEY IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY QG 7446 OF 1997 BETWEEN: MICHAEL GREGORY JONES, TRUSTEE OF THE BANKRUPT ESTATE OF SALVATORE ARCURI Applicant AND: NICODEME VINCENZO ARCURI AND MARIA TERESA ARCURI Respondent JUDGE: HELY J DATE OF ORDER: 5 FEBRUARY 1999 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. The mortgage dated 30 June 1995 granted by the bankrupt in favour of the respondents over real property described as Lot 7 in Strata Plan 35785 being the land situated at Unit 7, 377-379 Mowbray Road, Chatswood, NSW, is void against the applicants by the operation of s 122 of the Bankruptcy Act 1966. 2. The respondents pay the applicant's costs of these 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 QG 7446 OF 1997 BETWEEN: MICHAEL GREGORY JONES, TRUSTEE OF THE BANKRUPT ESTATE OF SALVATORE ARCURI Applicant AND: NICODEME VINCENZO ARCURI AND MARIA TERESA ARCURI Respondent JUDGE: HELY J DATE: 5 FEBRUARY 1999 PLACE: SYDNEY REASONS FOR JUDGMENT 1 On 14 September 1994 the respondents paid the sum of $176,755.78 to Asset Backed Securities Pty Ltd to discharge a debt owing by the bankrupt. On 14 September 1994 an agreement for loan was entered into between the respondents as lenders, and the bankrupt as borrower, for the making of an advance of $178,000 to the borrower, repayable in 12 months time. 2 On 30 June 1995 a further agreement for loan was entered into between the respondents, as lenders, and the bankrupt as borrower, for the making of an advance of $190,000 to the borrower, repayable in 12 months time. There was no fresh advance of $190,000. Although the original loan agreement did not, or did not clearly, require the payment of interest except on default, the parties appear to have dealt with each other on the basis that interest was payable under that arrangement. The sum of $190,000 represented the original advance of $178,000 and capitalised interest. 3 On 30 June 1995 the bankrupt, as mortgagor, executed a form of mortgage over a home unit in Mowbray Road, Chatswood to secure repayment to the respondents, as mortgagee, of the sum of $190,000. The mortgage was not registered, but on 21 August 1995 a caveat was lodged by the respondents claiming an estate in interest in the home unit as equitable mortgagee pursuant to a mortgage dated 30 June 1995 for the sum of $190,000. 4 The application in the present proceedings seeks a declaration that the mortgage is void against the applicants by operation of s 122 of the Bankruptcy Act 1966. The Bankruptcy Proceedings 5 Tresal Constructions Pty Ltd ("Tresal") leased some motor vehicles from Master Lease and Rental Service Pty Ltd ("MLRS"). Trevor Coote, and the bankrupt, jointly and severally guaranteed Tresal's obligations under the lease agreement. As at 17 March 1995 Tresal was in arrears in making payments under the lease to the extent of $2,720.56. Apparently, that produced a situation of default, as a result of which the rent for the balance of the term of the lease became due and payable, subject to some adjustments. 6 On 6 April 1995 MLRS demanded payment of the sum of $20,395.49 from the bankrupt, being the shortfall payable under the lease. On 18 April 1995 MLRS advised the bankrupt that a without prejudice offer made on 9 April 1995 of $5,000 in satisfaction of any indebtedness of the bankrupt was not acceptable. 7 On 27 April 1995 MLRS instituted proceedings against Tresal and the bankrupt in the Brisbane Magistrates' Court claiming $20,395.49 and costs. Judgment was signed in those proceedings on 7 September 1995. At some stage thereafter a bankruptcy notice was issued. On 16 November 1995 an application was made to the Magistrates' Court for an order that the judgment debt be paid by instalments. 8 On 17 November 1995 a bankruptcy petition was lodged. On 8 May 1996 Messrs Jefferson and Stevenson were appointed joint trustees of the bankrupt's estate. On 17 September 1997 they were replaced as trustee by the present applicant. A voidable preference? 9 The mortgage of the home unit in Mowbray Road, Chatswood was made within six months before the presentation of the petition on which Salvatore Arcuri became bankrupt. The mortgage was in favour of the respondents as pre-existing, unsecured creditors of the bankrupt. There was at least one other unsecured creditor of the bankrupt as at 30 June 1995, whose debt remained unpaid at the point of bankruptcy, namely MLRS. Thus the mortgage had the effect of giving the respondent a preference, priority or advantage over other creditors who existed at the time of the transaction sought to be impugned. 10 If the bankrupt, at the time of granting the mortgage, was "unable to pay his debts as they became due from his own money", then the transaction will be void against the applicant as a preference in terms of s 122 of the Bankruptcy Act 1966. The assets and liabilities of the bankrupt at 30 June 1995 Assets Mowbray Road, Chatswood 11 It was common ground that the value of the home unit at 30 June 1995 was $250,000. There was a first mortgage in favour of I & L Securities Pty Ltd. At 30 June 1995 the principal sum secured by that mortgage was $223,000. 12 On 8 November 1994 I & L Securities Pty Ltd agreed to lend the sum of $410,000 to Trevor Coote. Repayment of that loan was guaranteed by the bankrupt. The security for the loan was land in Akoona Street, Wynnum (owned by Coote), and the Chatswood home unit (owned by the bankrupt). 13 Whilst the details are by no means clear, I infer that after 30 June 1995, and probably in November 1995, the Akoona Street property was sold by I & L Securities Pty Ltd as mortgagee, and that the proceeds of the sale were applied in reduction of the debt owed by Coote, thus reducing the sum charged on the Chatswood property by the third party mortgage. 14 The Chatswood unit was later sold for $263,000; the sum then owing to I & L Securities was about $115,000, and that sum was paid out. A balance of about $145,000 is held by the trustee pending the outcome of these proceedings. That suggests that I & L Securities Pty Ltd obtained a sum of about $108,000 from the sale of the Akoona Street property, which was applied so as to reduce the debt from $223,000 to $115,000. 15 The result is that, as at 30 June 1995, the bankrupt had an equity of about $27,000 in the home unit, as well as actual or contingent equitable rights of recoupment against the Akoona Street property of Coote, by reason of the bankrupt's home unit being applied in discharge of obligations owing to I & L Securities with respect to which Coote was the principal obligor. The value of those rights would not exceed $135,000. Akoona Street, Wynnum 16 In Exhibit 2 this is shown as an asset of the bankrupt, with a value of $150,000. It is not included amongst the assets of the bankrupt as shown in his statement of affairs of 2 July 1996. It is referred to in the affidavit of 16 November 1995 in support of an application to pay the judgment debt by instalments. This affidavit brings the property to account at $135,000, states that it is being sold by the financier with settlement to occur at the end of November 1995, but that the bankrupt would not receive any net proceeds. 17 The bankrupt, in his evidence before me, accepted that Coote was the registered owner of this property, but claimed to have succeeded to his interest on the basis of some "trade-off" arrangement. No documentary or other corroborative evidence was furnished in support of this contention. 18 For reasons which will later be given, the bankrupt did not impress me as a reliable witness. I do not accept the claim which he makes in this respect. I do, however, accept that the bankrupt had actual or contingent equitable rights in relation to that property, of the type described in the previous section. Blackwood Road, Woodbridge 19 This is shown in Exhibit 2 at $30,000. 20 The applicant brings it to account at $25,000. 21 A valuation of 8 July 1996 attributes a value of between $25,000 (forced sale) and $32,500 (market value) to the bankrupt's half interest. The difference between the two is unlikely to be determinative of this application. $30,000 is adopted. Mumbil Land 22 This is shown in Exhibit 2 at $10,000. 23 The applicant brings it to account at $10,000. 24 It was described by the bankrupt in his affidavit of 16 November 1995 as "basically unsaleable". 25 $10,000 is adopted. Furniture 26 This is shown at Exhibit 2 at $25,000. A statement of assets and liabilities prepared as at 23 January 1995 also records furniture at $25,000. The statement of affairs prepared as of 2 July 1996 refers to "household goods" said to be jointly owned with a market value of $10,000. 27 A valuation prepared as at 7 August 1997 values the furniture contained in the Chatswood home unit at $2,480. The Chatswood home unit was a furnished unit. It was in the nature of a serviced apartment. The furniture which it contained needed to remain there if rental was to continue to be derived from that apartment. 28 In addition it seems likely that the bankrupt had some household furniture which may have had some minimal value but I am not satisfied, simply upon the basis of unsubstantiated assertions that its value should be taken as $10,000 or $25,000, that it was capable of producing realisations of those dimensions. I do not think that Exhibit 13 indicates or requires any contrary conclusion. Forza Partnership 29 Forza Investment Partnership carried on the business of property development in the form of construction of townhouses. The bankrupt was one of four partners, the others being Messrs Castelnuovo, Cotrona and Ferraro. The partnership traded at a loss of $240,577.52 for the year ended 30 June 1995. As at 30 June 1995 the partners' capital accounts were in debit in the total sum of $636,474.73. The capital account of the bankrupt was in debit to the tune of $68,601.79. 30 Exhibit 2 claims that the bankrupt's interest in this partnership as at 30 June 1995 should be brought to account at $101,000. In an affidavit sworn on 4 November 1998 it was claimed that the interest in the partnership should be brought to account at $91,000 on the basis that this sum would need to be allowed to the bankrupt by his partners if equality in their capital accounts is to be achieved. 31 In my opinion, the accounts of the partnership show that the bankrupt's interest in it was of no realisable value as at 30 June 1995. It is true that the capital accounts of the other partners were overdrawn to a greater extent than the capital account of the bankrupt. There were external liabilities of $636,671.75 and assets of only $197.02. But all this means is that the other partners would have to contribute more than the bankrupt if the creditors of the partnership are to be paid in full. It does not, of itself, produce any asset in the hands of the bankrupt, let alone one which has any realisable value. Harcod Pty Ltd 32 The bankrupt's interest in this company is shown in Exhibit 2 at $94,285. It was shown in his affidavit of 4 December 1998 at $90,000. When the bankrupt was sworn to give evidence that figure was altered to $97,000, without any explanation of the change. 33 The shareholders in Harcod Pty Ltd were the same as the members of the Forza Partnership. The bankrupt held 25 per cent of the issued capital of this company. The balance sheet of Harcod Pty Ltd as at 30 June 1995 (which may be a draft) shows net assets of $266,711.04. During the year ended 30 June 1995 the company traded at a loss of $82,182.78. A document signed by the bankrupt indicates that Harcod ceased trading on 30 June 1995. 34 Exhibit 10 is an income tax return for Harcod Pty Ltd as at 30 June 1996. It annexes a balance sheet as at 30 June 1996, which records the corresponding position as at 30 June 1995. According to that document the company continued to trade in the 1996 financial year. It records a profit of $71,881.00 for the year ended 30 June 1995 which reduced the accumulated loss from $184,538.26 to $112,657.26. Net assets at 30 June 1995 are shown as $112,647.26. The bankrupt is shown as a creditor of the company for $6,542.26. 35 On the basis of these figures, I would not be prepared to conclude that the bankrupt's shareholding in Harcod Pty Ltd had any value, or any realisable value, as at 30 June 1995. Nor has it been established that Harcod was indebted to the bankrupt in the sum of $94,285 as asserted in Exhibit 2, nor that the liability of $6,542.26 recorded in Exhibit 10 was realisable. Cash At Bank 36 This is shown in Exhibit 2 at $25,000. In the bankrupt's affidavit of 4 December 1998 it was shown at $10,000, but this sum was altered when the bankrupt was called to give evidence to $25,000. 37 In his statement of assets and liabilities signed on 2 July 1996, the bankrupt showed a total of $10,030.99 as standing to his credit in four specified accounts at the Commonwealth Savings Bank, Hornsby. 38 Exhibit 5 records credit balances standing to the credit of the bankrupt in three accounts, two with the Commonwealth Bank and one with Metway totalling about $13,800 as at 30 June 1995. I accept that the bankrupt had cash available as at 30 June 1995 to this extent. I am not prepared to assume that the additional $10,030.99 shown as being credited to various accounts as at 2 July 1996, also subsisted as at 30 June 1995 without some documentary indication to that effect. There is none. $27,500 from Insurance Payout 39 This amount is not claimed in Exhibit 2, but it was referred to in the bankrupt's affidavit of 4 December 1998 as liquidity which was available to him as at 30 June 1995. 40 Apparently SunCorp settled a claim for fire damage to the dwelling in Blackwood Road, Woodbridge for the sum of $55,000. Half of that settlement was due to the bankrupt's sister who was the half owner of the property. The bankrupt's share of the payout was paid, on his instructions, to his parents, $20,000 being paid to the parents on 15 March 1995, and $7,500 paid to them over a period of time. In his evidence, the bankrupt conceded that $27,500 was not part of his liquidity as at 30 June 1995, because, two months earlier, he had caused that sum to be paid to his parents. $12,000 from sale of BMW 41 This car was sold by the bankrupt to his aunt for the sum of $12,000. $3,000 of that sum was applied in satisfaction of a pre-existing debt, leaving a balance of $9,000 payable. There is no evidence as to when this sum was paid, but there is no reason to assume that it was an asset of the bankrupt as at 30 June 1995 existing separately from the cash which he had on hand as at that date. I & L Securities $190,000 42 Again, this sum is not claimed in Exhibit 2, but it is referred to in the affidavit of the bankrupt of 4 December 1998 as being part of his liquidity as at 30 June 1995. As earlier indicated, I & L Securities Pty Ltd agreed to advance to Coote the sum of $410,000. As at 28 April 1995 $191,094.73 of that advance had not been drawn down by Coote. 43 I am prepared to infer that there was at least a possibility that if the Akoona Road property was transferred from Coote to the bankrupt, and if the bankrupt decided to proceed with the construction of the building upon that property, then I & L Securities might have been prepared to advance the sum of $191,000 undrawn by Coote, and perhaps further sums, to the bankrupt for that purpose. But this did not occur. In any event, on no view of the matter, was the $191,000 to become available to the bankrupt for his general purposes. If it was made available by I & L Securities to the bankrupt it would have been by way of construction finance for the purposes of developing the property. It is thus irrelevant to a determination of the bankrupt's liquidity position as at 30 June 1995. In his evidence, the bankrupt conceded as much. UNSECURED LIABILITIES AT 30 JUNE 1995 44 As indicated above, the bankrupt was indebted to MLRS in the sum of $20,395. He claimed that he refused to pay this debt, rather than it being the case that he was unable to do so. Brisbane City Council - $334.25 45 On 14 March 1996 Brisbane City Council wrote to the bankrupt demanding $334.25 on account of Bimap sales during February and March 1995. This debt was admitted by the bankrupt in his statement of affairs, and the "Date Incurred" shown as March 1995. In evidence, the bankrupt claimed that this debt was disputed, asserting initially (T p 108) that it was a "Tresal Debt" and then (T p 109) that it should have been invoiced "to Aerogain". I am not prepared to accept the bankrupt's uncorroborated evidence to that effect in the face of the demand from the Council, and the admission implicit in the Statement of Affairs. Peter Schuiringa - $17,013 46 On 26 May 1995 a summons was issued out of the Brisbane Magistrates' Court claiming the sum of $35,027.93. Both Peter Schuiringa and the bankrupt had guaranteed debts due by Aerogain Pty Ltd to MLRS pursuant to equipment leases. Amounts of $21,269.18 and $13,758.75 were due by Aerogain. MLRS demanded payment of those sums from Schuiringa. Schuiringa claimed to have "secured to the lender" the sum of $21,269.18 but did not assert in the summons payment of either sum. 47 On no view of the matter was Schuiringa entitled to recover the sum of $35,027.93 from the bankrupt. At most he had a contribution claim for payment in excess of his proportionate share, $17,013. 48 The bankrupt contended (T p 135) that the proceedings brought by Schuiringa were twice dismissed because "he can't prove that he'd made one cent payment". Notwithstanding my reservations as to the credibility of the bankrupt I am inclined to accept what he says in this respect, although not corroborated by independent evidence. The summons does not allege that Schuiringa had paid any part of the debt due to MLRS, let alone sums in excess of his proportionate share. 49 But even accepting the absence of a crystallised liability of $17,013, the same facts would indicate a joint and several liability in the bankrupt to MLRS in the sum of $35,027, perhaps subject to demand being made, and with a right of contribution from Schuiringa in the sum of $17,013, should the bankrupt pay the whole of the debt of $35,027. Builders Warehouse Group Ltd - $13,459 50 The sum of $13,459.13 was claimed to be due and owing at 26 April 1995 by Harcod Pty Ltd. The bankrupt, Castelnuovo and Ferraro guaranteed payment of that sum. There is no evidence as to when demand was made on the bankrupt for payment of this sum. It is not referred to in the Statement of Affairs. There is at least a contingent joint and several liability in the sum of $13,459. David James - $2,400 51 James was the lessor of premises to Aerogain Pty Ltd. The bankrupt and Peter Schuiringa were guarantors of the lease. $1,200 rent was due on 15 March 1995 and on 15 April 1995 but was not paid. Demands were made for payment of these sums of Mr Arcuri, including a written demand on 9 May 1995. 52 So far as I can see there is no dispute as to this liability, which appears to be reflected in the statement of affairs. Perpetual Trustee (also known as FLM Services Pty Ltd) 53 The affidavit of 16 November 1995 shows a liability of $90,000 to Perpetual Trustees said to be secured by a bill of mortgage over the residence of the parents of the bankrupt at 6 Katrina Court, Normanhurst. A proof of that debt lodged by the sister indicates that $150,000 was advanced by FLM Services Pty Ltd, apportioned as to $85,000 on account of the bankrupt and $65,000 on account of Francesca Arcuri. The loan was to be serviced in accordance with the respective proportions of 57 per cent and 43 per cent. A statement issued by FLM Services Pty Ltd shows Dr $148,592.59 payable by N. V., M. T., F. and S. Arcuri at 30 June 1995. 57 per cent of that sum is $84,697.44. At T p 84 the bankrupt said that the mortgage to Perpetual Trustee has been refinanced; it is now FLM; and "your liability was $90,000? – thereabouts". 54 The respondents submit that this loan did not exist at 30 June 1995. The evidence summarised above indicates that it did. The respondents submit that the amount of the loan debt would have to be off-set by the value of the property forming the security. This is not so because the security was provided by the parents. Francesca Arcuri - $23,429 * 55 A proof of debt for $23,429 was lodged (there have been other proofs as well). The former trustee has admitted this proof to the extent of $8,028. There is included in that sum amounts which apparently became due past 30 June 1995. 56 In Mr Tanna's affidavit of 11 November 1998, he states a belief that Francesca Arcuri is owed $142,673 according to her first proof, $33,993 according to her second proof. The submissions lodged on his behalf refer to a claim of $23,429 as contended for by the applicant and $8,028 as same contention on the part of the respondent. The present trustee has not formed a view as to the correctness of Mrs Arcuri's proof "because of the variances of the proofs of debt which have been forwarded to me". 57 It may be possible to deduce what part of the $8,028 was due to Mrs Francesca Arcuri at 30 June 1995, but this is not a calculation which the applicant has undertaken. I do not think it appropriate that I should essay upon this task for myself. 58 Accordingly, the applicant has not satisfied me whether the bankrupt was indebted to Francesca Arcuri on 30 June 1995, and if so, in what amount. N. V. Arcuri - $33,864 * 59 A proof of debt has been lodged claiming $33,864. This is said to be a loan of $67,727 made on 4 December 1992 to the bankrupt and his sister to purchase the Blackwood Road property. The bankrupt's share is $33,864. 60 The present trustee has not determined the validity of this proof and it may be disputed by the bankrupt. But it is a claim put forward by one of the respondents in these proceedings, hence I do not see why I should not accept it at face value. N. V. Arcuri and M. T. Arcuri - $190,000 * 61 There is or may be an issue as to whether Francesca Arcuri is a participant in this loan. Subject to this question, it is clear that this debt was owing at 30 June 1995. It is referred to in the affidavit by the bankrupt of 16 November 1995 in support of the application for time to pay by instalments. In the affidavit it is stated: "My family members are not enforcing payment of the interest payments at this stage as I am not in a position to pay the same. Instead these interest payments are being capitalised." 62 The respondent, N. V. Arcuri, when examined under s 77C of the Bankruptcy Act 1966 on 14 May 1997 said (T p 69 and T p 75) that the bankrupt promised to repay the $190,000 in three or four months because N. V. Arcuri wanted the money to go and stay in Italy for six months: "Q: What did you say to him when he had not repaid it within a couple of months? A: That I need the money to go to stay six months in Italy. I want to see my sister, my brother-in-law and the family. Q: What did Salvatore say to that? A: He kept on saying tomorrow, next month, next month, next month, next month." F. N. and M. Arcuri - $75,000 * 63 This sum is not referred to, or at least expressly referred to, in the affidavits of Mr Tanna filed in support of the application. 64 Amongst the documents in evidence (JTA p 241) is an agreement of 1 May 1995 between the bankrupt as borrower, and F., M. and N. Arcuri as lenders. The lenders agreed to advance $75,000 to the borrower for the purpose of refinancing his existing financial obligations. The "mortgaged property" for the purpose of this agreement was the land at 27 Blackwood Road, Woodridge jointly owned by the bankrupt and his sister. 65 There are suggestions in the documents (eg JTA p 228) that this advance is a "loan: refinancing Hutchinson" but documents (eg JTA p 170) show this as having occurred on 1 May 1996. 66 There is also (JTA p 282) a proof of debt in which N. V., M. T. and F. Arcuri claim $23,148 in relation to the Hutchinson loan refinancing. 67 That results from a refinancing to Hutchinson of $68,771 on 15 May 1995, the addition of interest for the following 12 months and the allowance of credits which may or may not have fallen due prior to 30 June 1995. The document at JTA p 314 tends to confirm that $68,777 was paid to Hutchinson on settlement. 68 I have looked at the materials itemised by the applicant in his submissions in support of this item. They do not establish to my satisfaction that $75,000 was due to F., N. and M. Arcuri at 30 June 1995. The position is simply unclear. The Trustee has not admitted this debt. I think that the documents to which I have referred indicate that, on the balance of probabilities, at least $23,148 was due on 30 June 1995. I am not prepared to make any positive finding with respect to a greater liability on the basis of the material put before me. Arcuri family members - $273,000 69 The sums marked * were claimed in the original submissions. A later version of this submission omitted the above individual claims marked * and substituted a composite claim on the part of Arcuri family members of $273,000. No breakdown of that sum was provided by the applicant. Presumably it is based on oral evidence of the bankrupt which he was not asked to explain. See paragraph 77 below. Harcod Pty Ltd - $588,304 70 On 20 October 1998 Harcod Pty Ltd lodged a proof of debt claiming to be owed $588,348.02 by the Forza Investment Partnership. The attached balance sheet of the partnership showed that sum as being a liability of the partnership at 30 June 1996. The corresponding figure at 30 June 1995 was $456,903.89. Exhibit 10, the balance sheet of Harcod Pty Ltd, records amongst current assets, a liability of the partnership of $456,903.89 at 30 June 1995. 71 Prima facie, there is a liability in the partnership of $456,903.89 to Harcod Pty Ltd for which the four partners in the Forza Investment Partnership were jointly and severally liable. There is no evidence of any demand for payment of that sum, and, of course, at least whilst Harcod Pty Ltd remained under the control of its board, the partners controlled Harcod Pty Ltd. 72 Apart from pointing to the absence of a demand, the respondents solicitor did not make any sensible submissions as to why this debt, at least to the extent of $456,903.00, or the bankrupt's proportion thereof ($114,225), should be left out of account. Forza Partnership - $129,000 73 The applicant's original written submissions in support of this claim, were as follows: Item Liabilities Applicant Respondents Evidence 27 Forza Partnership $129,000 ? ? 74 It might be thought that this is less than an entirely helpful exposition of the basis of the applicant's claim in relation to this item. 75 The affidavit of J. Tanna of 11 November 1998 refers to claims advanced by various parties to be paid shortfall due on capital accounts of $129,503 in the period 1991-1996. This appears to be based on some assumption that the partnership and Harcod Pty Ltd are to be combined, but why this should be so is not explained. 76 Without some exposition more illuminating than that contained in the above submission, I am not prepared to accept that the bankrupt was exposed to a liability in the sum claimed to his former partners or some of them. In any event, a later version of the written submissions omits any reference to this claim, which presumably means that it is no longer pressed. CONCLUSION ON ASSETS AND LIABILITIES AS AT 30 JUNE 1995 77 The above consideration produces the following financial position of the bankrupt as at 30 June 1995 in terms of his assets and liabilities: Assets Mowbray Road, Chatswood ) Equity $135,000 Akoona Street, Wynnum ) Blackwood Road, Woodbridge 30,000 Mumbil Land 10,000 Cash at Bank 13,800 $188,800 Unsecured liabilities MLRS $ 20,395 Brisbane City Council 334 Peter Schuiringa 17,013 Builders Warehouse Group Ltd 13,459 David James 2,400 FLM Services Pty Ltd 90,000 $143,601 N. V. Arcuri 33,864 F. N. and M. Arcuri 23,000 (1) N. V. and M. F. Arcuri 190,000 246,864 $390,465 Harcod Pty Ltd 114,225 $504,690 (1) In the affidavit of the bankrupt of 4 December 1998 he swore that his liabilities to N. V. and M. T. and F. Arcuri were $310,000. In evidence (T p 62) he altered that to $273,000, but did not give (nor was he asked for) any explanation for the change, nor was he asked to explain how either sum was arrived at. CREDIT OF SALVATORE ARCURI 78 The bankrupt did not impress me as a reliable witness. He swore an affidavit as to his financial position on 4 December 1998. When giving evidence on 14 December 1998 he made a number of material changes without explanation as to why it was that the figures sworn to only ten days earlier required revision. When asked whether, subject to the corrections made, he adhered to the facts as stated in the affidavit his response was: (T p 63) "More or less, yes". In his affidavit he made claims as to available liquidity, all of which he was forced to abandon either wholly, or in part, upon closer examination. 79 When giving evidence he was reluctant to respond directly to questions if the response was adverse to him, and he generally gave me the impression that his primary interest lay in advocating his own cause. CASH FLOW 80 Apart from: · the petitioning creditors debt, · the protestations by N. V. Arcuri referred to above in relation to his desire to obtain payment of the $190,000 in order to spend time in Italy, there is no specific evidence of demands by creditors around 30 June 1995 for payment of their debts. 81 Ventures in which the bankrupt was involved either as a shareholder (Tresal Pty Ltd, Aerogain Pty Ltd, Harcod Pty Ltd) or as a partner (Forza Investment Partnership) had either failed, or at least, not been successful. The only relevance of this is that these enterprises were not a source of income to the bankrupt at 30 June 1995, and their inability to perform their obligations triggered liability in the bankrupt under certain guarantees. The liability of the bankrupt as a member of Forza Investment Partnership to Harcod Pty Ltd has already been referred to. 82 Apparently (T p 92) Harcod Pty Ltd ceased paying "wages" to the bankrupt from 1 July 1995. According to the affidavit which he swore on 16 November 1995 in support of the application of the time to pay the judgment debt by instalments of $120 per month, the bankrupt's "present income from all sources" was $5,100 per month, consisting of rental from the Chatswood home unit of $1,100 per month and $4,000 per month as an accountant employed on a contract basis from time to time. The bankrupt assessed his monthly financial commitments at $7,308 of which $1,940 were of a personal nature, and $5,368 were loan repayments. 83 In an examination under s 77C held on 14 November 1996 the bankrupt said that during February-June 1995 "We didn't have any funds, it was a difficult period" (T p 106). 84 The following statements were made by the bankrupt to the people indicated at the time specified: "James, March 1995: 'I cannot make any contributions because I do not have any money. I wake up every morning with a very tight gut. I can't afford to pay my bills and I am going through a financial nightmare.' James, May 1995: 'I still don't have any money to pay you any contributions. If anything, my financial position is worse than when I spoke to you in March 1995. My wife is pregnant and I'm having difficulty in keeping my family in food. I can't make ends meet and there is no way how I can pay you anything.' Castelnuovo, March 1995: 'I'm the one who is struggling to make ends meet' and 'things are very tough for me personally. I'm trying to keep out of bankruptcy. However, it may be best that I go into voluntary bankruptcy. I've gone into business with a couple of blokes which has failed'. Ferraro, March 1995: The same statements as were made to Castelnuovo, they being made on an occasion when each was present. 85 The bankrupt denied the making of these statements. Each of the persons was cross-examined. None of them were shown to have any motive for manufacturing the evidence which was given, and I prefer their evidence to the denial of the bankrupt in this respect. Their evidence is consistent with the picture painted by the bankrupt himself in his affidavit of 16 November 1995; given the failure of enterprises with which the bankrupt was associated, and his financial position generally, the statements attributed to the bankrupt are statements of a type which he could well have made. For the reasons earlier given, I would not accept evidence of the bankrupt in preference to that of Messrs Castelnuovo, Ferraro, and James. 86 The evidence as to these conversations was given without objection. I think that, in any event, they would be admissible under s 64 of the Evidence Act 1995. 87 Some caution needs to be exercised in dealing with admissions such as these which are in the nature of admissions as to a legal standard. Had the evidence otherwise established that the bankrupt was able to pay his debts as they became due from his own money, then statements by the bankrupt as to financial difficulties which he was experiencing would simply lead nowhere. But where there is some uncertainty or imprecision as to precisely what the position was as at 30 June 1995, in my opinion statements of the type to which I have referred can be called in aid as part of the overall factual matrix from which a conclusion of solvency or otherwise can be drawn. CONCLUSION ON SOLVENCY 88 Whether a person is or is not solvent at a particular date involves an amount of forward looking: Expo International Pty Ltd v Chant (1979) 2 NSWLR 820 at 839. What is involved is an assessment of the debtor's overall position in order to ascertain whether debts to which he is subject can be met. Contingent and prospective liabilities are taken into account. 89 In Sandell v Porter (1966) 115 CLR 666 at 670, Barwick CJ said: "The conclusion of insolvency ought to be clear from a consideration of the debtor's financial position in its entirety and generally speaking ought not to be drawn simply from evidence of a temporary lack of liquidity. It is the debtor's inability, utilising such cash resources as he has or can command through the use of his assets, to meet his debts as they fall due which indicates insolvency. Whether that state of affairs has arrived is a question for the Court and not one as to which expert evidence may be given ..." 90 The business ventures in which the bankrupt was involved in the period leading up to 30 June 1995 had either failed, or at least had not succeeded. The probabilities are that his monthly cash flow, at that time, was negative, or at least not positive. So much is implicit in the admissions which he made, and the figures which he gave in his affidavit of 16 November 1995. 91 Apart from $13,000 in cash, he had no readily realisable assets. Even if the full amount of his potentially realisable equity in the three properties is taken into account, "his own moneys" consisted of the $13,800 cash at bank and $175,000. 92 The cash at bank is not sufficient to pay the debt due to the petitioning creditor. Unless the debts due to FLM Services, the family, and by the Forza Partnership to Harcod Pty Ltd are to be left out of account, the inevitable conclusion is that on 30 June 1995, even if the bankrupt could realise to maximum advantage every asset which he then owned, the sum derived from that process would not be sufficient to enable the discharge of obligations to which he was then actually or contingently subject. Whilst the family may not have been pressing for payment of moneys which were then due to it, there is no evidence of any forgiveness of obligations owed to them, or of any binding arrangement to allow time for their performance. It is true that Harcod Pty Ltd, the creditor of the Forza Partnership, was under the control of the partners. But that is not, of itself, a sufficient reason for leaving out of account at least the bankrupt's proportionate share of the partnership liability to Harcod Pty Ltd, when making an assessment of his overall financial position. 93 This is not a case of mere temporary lack of liquidity. It is, however, a case in which the debtor's assets and income were not such as would allow for the payment of existing obligations, albeit on 30 June 1995 only one of the persons to whom those obligations were owed, namely the petitioning creditor, (and, perhaps, N. V. Arcuri) was actively complaining of a failure to discharge it. 94 Accordingly, in my opinion, the bankrupt was insolvent at the date on which the mortgage of the home unit in Mowbray Road, Chatswood was granted in favour of the respondents. 95 In view of the conclusion which I have reached, there is no need for me to consider the alternative claim introduced in the amended application for an order that "the repayment of $178,000 to the respondents on 30 June 1995" is a voidable preference. There was no repayment on that date. The mortgage granted on 30 June 1995 secured a pre-existing, and theretofore unsecured debt. 96 I make the following orders: 1. I declare that the mortgage dated 30 June 1995 granted by the bankrupt in favour of the respondents over real property described as Lot 7 in Strata Plan 35785 being the land situated at Unit 7, 377-379 Mowbray Road, Chatswood, NSW, is void against the applicants by the operation of s 122 of the Bankruptcy Act 1966. 2. I order that the respondents pay the applicant's costs of these proceedings. I certify that the preceding ninety six (96) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Hely. Associate: Dated: Counsel for the Applicant: D Durston Solicitor for the Applicant: S Gallant Robinson Creais Solicitors Solicitor for the Respondent: D Oliveri Oliveri Attorneys Date of Hearing: 14 & 15 December 1998 Date of Judgment: 5 February 1999