FEDERAL COURT OF AUSTRALIA Lane v Pappin [2000] FCA 1178 BANKRUPTCY – where, within five years before commencement of bankruptcy, bankrupt transferred property for consideration of "natural love and affection" – where trustees in bankruptcy seek declaration that transfer void as against them, and an order that the transferee pay to them the value of the interest received pursuant to the transfer – whether Court should make the declaration and order sought. Bankruptcy Act 1966, s 120 MORGAN GERARD JAMES LANE and IVOR WORRELL (Trustees in Bankruptcy) v EILEEN ANNE PAPPIN and PETER DOUGLAS PAPPIN Q 7134 OF 2000 SPENDER J 18 AUGUST 2000 BRISBANE IN THE FEDERAL COURT OF AUSTRALIA QUEENSLAND DISTRICT REGISTRY Q 7134 OF 2000 BETWEEN: MORGAN GERARD JAMES LANE and IVOR WORRELL APPLICANTS AND: EILEEN ANNE PAPPIN FIRST RESPONDENT PETER DOUGLAS PAPPIN SECOND RESPONDENT JUDGE: SPENDER J DATE OF ORDER: 18 AUGUST 2000 WHERE MADE: BRISBANE THE COURT DECLARES THAT: (1) As against Morgan Gerard James Lane and Ivor Worrell, the trustees in the bankruptcy of Eileen Anne Pappin, the transfer on 31 October 1996 (No. U485074W) of the interest of Eileen Anne Pappin in real property situated at 59 Hickey Street, Whittington in the State of Victoria, more particularly described as Lot 4 on Plan of Subdivision No. 113014, Certificate of Title Volume 9236, Folio 641, to Peter Douglas Pappin for natural love and affection, is void. THE COURT ORDERS THAT: (2) Peter Douglas Pappin pay to Morgan Gerard James Lane and Ivor Worrell, the trustees in the bankruptcy of Eileen Anne Pappin, the sum of $47,500. (3) The respondents, Eileen Anne Pappin and Peter Douglas Pappin, pay to the applicants, the trustees in the bankruptcy of Eileen Anne Pappin, the costs of and incidental to this application, to be taxed if not agreed. 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 7134 OF 2000 BETWEEN: MORGAN GERARD JAMES LANE and IVOR WORRELL APPLICANTS AND: EILEEN ANNE PAPPIN FIRST RESPONDENT PETER DOUGLAS PAPPIN SECOND RESPONDENT JUDGE: SPENDER J DATE: 18 AUGUST 2000 PLACE: BRISBANE REASONS FOR JUDGMENT 1 This is an application filed on 4 April 2000, seeking a declaration pursuant to s 120 of the Bankruptcy Act 1966 that a particular transaction is void as against the trustees in bankruptcy of Eileen Anne Pappin. 2 On 31 October 1996, the first respondent, Eileen Anne Pappin, transferred her half interest in real property in Victoria to Peter Douglas Pappin, the second respondent, the consideration being expressed as "natural love and affection". The property which was the subject of that transfer was then sold by Peter Pappin to third parties for $95,000, on 31 January 1997. The trustees in the bankruptcy of Eileen Anne Pappin seek a declaration that the transaction is void as against them, and also seek an order that the second respondent pay to them $47,500 as the value of the interest transferred to him. The trustees also seek the costs of and incidental to the application. 3 Relevant to that transfer and the subsequent sale is the history of the bankruptcy of the first respondent. On 3 October 1997, a bankruptcy notice was served on her in respect of her obligations as guarantor in the sale of a business by one Julie Stow to a company, Pete-E-Glen Pty Ltd. The creditors' petition was presented on 19 January 1998 and served on 24 January 1998. A hearing date for that petition was set for 18 February 1998, but on 16 February, two days before the creditors' petition was to be heard, the first respondent presented her own debtor's petition. A creditors meeting held on 7 August 1998 resolved that Ivor Worrell, together with Morgan Gerard James Lane, be appointed as trustees in the bankruptcy of Eileen Anne Pappin. 4 Section 120(1) provides that: "A transfer of property by a person who later becomes a bankrupt (the transferor) to another person (the transferee) is void as 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." 5 There are exemptions provided for in s 120 which, on the material before me, have no application; nor does s 120(3), which provides that a transfer is not void if it took place more than two years before the commencement of the bankruptcy and the transferee proves that, at the time of the transfer, the transferor was solvent. In this particular case, the impugned transaction occurred approximately 1 year, 3˝ months prior to the bankruptcy. 6 Section 120(5) provides that: "For the purposes of subsections (1) and (4), the following have no value as consideration: … d) the transferee's love or affection for the transferor." 7 Section 120(6) provides that the section does not affect the rights of a person who acquired property from the transferee in good faith and by giving consideration at least as valuable as the market value of the property. There is nothing to suggest in the material before me that the third parties who acquired the property at 59 Hickey Street, Whittington, Victoria on 31 January 1997 for $95,000 did not acquire it for at least its market value, and I infer that its value at the time of the impugned transfer, some three months before, was $95,000. 8 In the circumstances, it seems to me plain that the facts call for the making of the declaration contemplated by s 120(1) and for an order that the transferee, Peter Douglas Pappin, pay to the trustees in bankruptcy of the transferor, Eileen Anne Pappin, the value of the interest transferred. I am satisfied that both Eileen Anne Pappin and Peter Douglas Pappin are aware of the application made by the trustees in the bankruptcy of Eileen Anne Pappin. They have not entered an appearance or presented any material to the Court. 9 On the evidence before me, I make the following declaration and orders: (1) The Court declares that, as against Morgan Gerard James Lane and Ivor Worrell, the trustees in the bankruptcy of Eileen Anne Pappin, the transfer on 31 October 1996 (No. U485074W) of the interest of Eileen Anne Pappin in real property situated at 59 Hickey Street, Whittington in the State of Victoria, more particularly described as Lot 4 on Plan of Subdivision No. 113014, Certificate of Title Volume 9236, Folio 641, to Peter Douglas Pappin for natural love and affection, is void. (2) The Court orders that Peter Douglas Pappin pay to Morgan Gerard James Lane and Ivor Worrell, the trustees in the bankruptcy of Eileen Anne Pappin, the sum of $47,500. (3) The Court further orders that the respondents, Eileen Anne Pappin and Peter Douglas Pappin, pay to the applicants, the trustees in the bankruptcy of Eileen Anne Pappin, the costs of and incidental to this application, to be taxed if not agreed. I certify that the preceding nine (9) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Spender. Associate: Dated: 22 August 2000 Counsel for the Applicant: Mr M. Sayers Solicitor for the Applicant: Leith Sinclair & Co No appearance for the Respondents Date of Hearing: 18 August 2000 Date of Judgment: 18 August 2000