Trustee in Bankruptcy v Promnitz [1999] FCA 1453

FEDERAL COURT OF AUSTRALIA

Trustee in Bankruptcy v Promnitz [1999] FCA 1453

BANKRUPTCY - trustee's entitlement to share property transferred by debtor prior to bankruptcy - connexion between share value and company's alleged status as trustee for debtor's family trust - failure of transferee to establish transaction not void.

Bankruptcy Act 1966 s 120

TRUSTEE IN BANKRUPTCY v DARIAN ANTHONY PROMNITZ

Q 7289 of 1999

KIEFEL J

22 OCTOBER 1999

BRISBANE

IN THE FEDERAL COURT OF AUSTRALIA

QUEENSLAND DISTRICT REGISTRY Q 7289 OF 1999

BETWEEN: TRUSTEE IN BANKRUPTCY OF THE ESTATE OF ROSS JEFFREY PROMNITZ

Applicant

AND: DARIAN ANTHONY PROMNITZ

Respondent

JUDGE: KIEFEL J

DATE OF ORDER: 22 OCTOBER 1999

WHERE MADE: BRISBANE

THE COURT ORDERS THAT: 1. The disposition of 5 shares in Reefoc Pty Ltd (ACN 010 684 134) by Ross Jeffrey Promnitz to Darian Anthony Promnitz, be declared void pursuant to Section 120(1) of the Bankruptcy Act 1966. 2. The title and property in 5 shares in Reefoc Pty Ltd. (ACN 010 684 134) currently held by Darian Anthony Promnitz be transferred to the Trustee in Bankruptcy of the Estate of Ross Jeffrey Promnitz 3. The respondent pay the trustee's costs. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA

QUEENSLAND DISTRICT REGISTRY Q 7289 OF 1999

BETWEEN: TRUSTEE IN BANKRUPTCY OF THE ESTATE OF ROSS JEFFREY PROMNITZ

Applicant

AND: DARIAN ANTHONY PROMNITZ

Respondent

JUDGE: KIEFEL J

DATE: 22 OCTOBER 1999

PLACE: BRISBANE

REASONS FOR JUDGMENT 1 The Trustee in Bankruptcy of the Estate of Ross Jeffrey Promnitz seeks an order for the transfer of property, shares in the company Reefoc Pty Ltd ("Reefoc"), to him. He alleges that any transfer which took place in 1995 between the bankrupt and his son Darian Anthony Promnitz is void pursuant to s 120(1) Bankruptcy Act 1966. 2 On 6 February 1997, the order for sequestration was made. On 2 March 1997, an annual return for Reefoc for the year 1995, was lodged with the Australian Securities Commission (the "ASC") and it made reference to the transfer of five shares from the bankrupt to his son in that year. The exact date was not given. The annual returns for the years 1991, 1993, 1994, 1995 and 1996 (that for 1992 not being produced in these proceedings) are somewhat curious. Copies of them are annexed to the son's affidavit and all bare a facsimile heading indicating that they originated from the ASC; they bare the date 28 February 1997. The heading reveals to the ASC officer concerned that blank forms for annual company returns were requested and forwarded to some undisclosed person on that date. This touches upon the reliability of the documents and has relevance in two respects: in the first place it casts doubt upon whether the transaction took place at all. There is other evidence leading to a similar conclusion but that is not a matter I am concerned to decide. The trustee accepts, for the purpose of this application, that there has been a transfer as alleged. The second aspect concerns the claim in the returns that the principal activity of the company is as a trustee company, although nothing much may turn upon this in the end result. 3 Section 120(1) provides that a transfer by a person who becomes a bankrupt to another is void against the trustee in bankruptcy if it took place in the period five years before the commencement of the bankruptcy. That requirement is satisfied. The other requirement is that the transferee gave no consideration for the transfer or gave a consideration of less value than the property's market value. The last mentioned question does not arise here. There is no suggestion that any consideration was given. 4 The argument put for the son as transferee is that Reefoc was a bare trustee for a family trust and that the shares in it have no value. On a strict reading of the subsection, however, questions as to the worth of the shares may not arise for consideration, even if the shares in the family trust are limited to their value on allotment and to rights of management and control. A requirement that there was no consideration for the transfer would be satisfied. A question which might underlay the respondents contention is whether "property" was transferred. It is not necessary to deal with any such question. The factual basis for the submission that the company is a trustee of a family trust is not, in my view, based upon reliable evidence. 5 It is asserted that the company was trustee for the Ross Promnitz Family Trust at the relevant time. No document creating such a trust is produced. In July 1997, in its statement of claim filed in the Supreme Court of Queensland, Reefoc alleged that another company, Daintree Rain Forest Resort Pty Ltd, was appointed in 1987 as trustee of The Daintree Rain Forest Unit Trust and in that capacity purchased land, which the affidavit material discloses to be very valuable. There were two unit holders, Reefoc and another company, but Reefoc became the sole unit holder in 1989. On 8 May 1997, the day before a caveat was lodged by it, Reefoc alleges that it removed Daintree and appointed itself trustee of the unit trust, as it was entitled to do. It caveated on that basis, as trustee of the unit trust and it claimed a beneficial interest in the land. It did not refer to its holding the land as trustee of any other trust and there is no document produced to disclose that it holds the units to the unit trust in another capacity. All that is produced are the annual returns, carrying the general assertion that the company acts as a trustee. They are plainly unreliable. Two bank statements are also relied on. They refer to Reefoc as trustee of the Ross Promnitz Family Trust in some trading capacity, for the year 1988. Apart from their lack of currency, I would not be prepared to act upon this as concluding issues relevant to the capacity in which the particular property is held. Further, in the absence of documentation being produced, I give little weight to the son's assertions. He appears to have had little knowledge of transactions within the family. It may well be then that the shares represent an entitlement to share in the surplus of assets in the event that Reefoc was wound up. 6 The respondent also relies upon subs 3 of s 120. It provides that: "Transfers that are not void (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." 7 It is submitted that there is no evidence as to when the transfer took place and that the trustee did not establish that, at the time of transfer, the bankrupt was not solvent. The submissions may be dealt with shortly. 8 Although not expressed, it would seem to me necessary for a transferee to bring themselves within the exception created by subs (3). This would require them to show that the transfer took place at a time two years prior to the commencement of bankruptcy, and also to prove that the bankrupt was solvent. The submission, so far as it relates to both paragraphs reverses the onus of proof. It is also necessary that both paragraphs (a) and (b) be established before the transferee could take the benefit of subsection (3). 9 In these circumstances, I propose to order that the disposition of the five shares be declared void and that the shares be transferred to the trustee in bankruptcy. There does not appear to be any likelihood that dividends were received, necessitating any further order. The