Ambrose (Trustee) in the matter of Poumako (Bankrupt) v Poumako [2012] FCA 889 | Case summary

Federal Court of Australia|2012-08-21|Before: Mansfield J

DATE OF ORDER: 21 August 2012 WHERE MADE: ADELAIDE

The applicant do file and serve within 14 days such written submissions as he may be advised, and the form of orders he proposes, in the light of the reasons for judgment.
The respondents do file and serve within 14 days of service on them of the applicant's submissions, such written submissions as they are advised, and in the form of orders they propose, in the light of the reasons for judgment.

IN THE FEDERAL COURT OF AUSTRALIA SOUTH AUSTRALIA DISTRICT REGISTRY GENERAL DIVISION SAD 322 of 2011

BETWEEN: COLIN LOUIS AMBROSE AS TRUSTEE OF THE BANKRUPT ESTATE OF ROBIN BRIAN POUMAKO

JUDGE: MANSFIELD J DATE: 21 AUGUST 2012 PLACE: ADELAIDE

INTRODUCTION 1 This is an application by Colin Ambrose as trustee of the bankrupt estate of Robin Poumako against Mr Poumako, his daughter Jacqueline Poumako, his sister Tuhi Agnes Cassidy, and his wife Janice Heather Poumako. To readily distinguish between Mr Poumako's wife and daughter, I shall continue to refer to them as Janice Poumako and Jacqueline Poumako respectively in these reasons. Mr Ambrose claims that the transfer of two properties of Mr Poumako to members of his family prior to his bankruptcy are void against him under ss 120 and 121 of the Bankruptcy Act 1966 (Cth) (the Bankruptcy Act). 2 Mr Poumako is a self-described transport consultant, who has been involved for at least the last decade in property development. As a part of his business activities, he amassed significant personal liabilities and on 11 June 2008 was declared bankrupt. The date of the act of bankruptcy is 7 November 2007. The five year period referred to in s 120(1) of the Bankruptcy Act extends back to cover the transfers which are the subject of the claim. 3 During the hearing, particular focus was given to the failed business venture of International Finance Corporation Pty Ltd (IFC). It was the vehicle for the unsuccessful property development of Fernilee Lodge in Burnside. Mr Poumako was one of two directors and shareholders in IFC. He and the other director and shareholder, Anne-Marie Donaldson, were convicted of 22 offences of offering securities as part of IFC's business activities without lodging a disclosure document, and 22 counts of issuing securities without disclosure, contrary to the Corporations Act 2001 (Cth). Mr Poumako guaranteed many of the liabilities of IFC, and his exposure to its debts contributed to the disastrous state of his financial affairs. 4 Mr Ambrose has received proofs of debts from creditors claiming a total of just over $16.4 million from debts that Mr Poumako incurred between 2002 and 2008. Debts are owed to individuals, retirement funds, investment and superannuation trusts, banks and other businesses. The debts as claimed vary in size from several thousand dollars to over $7 million.

ISSUES 5 The current application concerns two residential properties. Mr Ambrose claims that these two properties should rightfully be held by him as property of Mr Poumako, to be used in the satisfaction of Mr Poumako's debts. 6 The two properties are: (1) The property at 41 Crittenden Road, Smithfield Plains, South Australia (Certificate of Title Register Book Volume 5583 Folio 557) (the Crittenden Road property); and (2) The property at 16 Crafter Street, Davoren Park, South Australia (Certificate of Title Register Book Volume 5482 Folio 697) (the Crafter Street property). 7 The Crittenden Road property was purchased for $74,000 on 13 May 2002. It was registered in the names of Mr Poumako and his wife Janice Poumako. Mr Ambrose claims that at the time of purchase the Crittenden Road property, the registered owners had no equity as it was mortgaged to a sum over the value of the property, and that the subsequent creation of equity in the property, by part-payment of the mortgage, up to the time of the challenged transfer was done by Mr Poumako alone. Accordingly, Mr Ambrose says that, at all times up to the sale of the property to this daughter Jacqueline Poumako, Mr Poumako alone was the beneficial owner in the equity of in Crittenden Road property. 8 On 9 August 2005, the Crittenden Road property was transferred to Jacqueline Poumako. The stated consideration for the purchase was $146,000. On the same day that the property transfer was registered, a mortgage was also registered on the property in favour of Assured Funding Pty Ltd for $94,900. Jacqueline Poumako is said to have paid nothing for the property, but incurred the liability for the mortgage. That mortgage funds were apparently applied to discharge the existing mortgages on the property, so that they were in effect paid as part of the purchase price. 9 Mr Ambrose submits that the amount payable to Mr Poumako and Janice Poumako at settlement, namely some $55,168 was not in fact paid but was a gift to Jacqueline Poumako, and represents the equity in the property at that time. That does not quite reconcile with the price less the deduction of the mortgage funds obtained by Jacqueline Poumako, because she also had to pay funds to secure the mortgage and the stamp duty and other expenses of the transfer. As such, the transfer is said to be a void transfer pursuant to ss 120 and 121. Mr Ambrose alternatively says that, if Mr Poumako and his wife Janice Poumako equally owned the equity in the property, the transfer of Mr Poumako's interest would be void against him in any event. 10 The Crafter Street property was purchased in the name of Mr Poumako on 8 November 2002 for a purchase price of $110,000. On 28 June 2005, Mr Poumako entered into a contract to sell the Crafter Street property to his sister Mrs Cassidy for $180,000, and on 22 July 2005 the Crafter Street property was duly transferred to her. Mrs Cassidy, at settlement, mortgaged the property to the value of $110,789. Again, it appears that the mortgage funds were applied to discharge existing mortgages on the property or were paid to Mr Poumako to pay other debts. It is accepted that the nominated purchase price represents a reasonable estimate of the market value of the property. Mr Ambrose submits that the remaining sum of about $69,000 of the purchase price was never paid, and was not intended to be paid, but was a gift to Mrs Cassidy so that it is also a void transfer as against him pursuant to ss 120 and 121.

THE LEGISLATION 11 The relevant sections of the Bankruptcy Act, as at July 2005 were as follows: 120 Undervalued transactions Transfers that are void against trustee (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. Exemptions (2) Subsection (1) does not apply to: (a) a payment of tax payable under a law of the Commonwealth or of a State or Territory; or (b) a transfer to meet all or part of a liability under a maintenance agreement or a maintenance order; or (c) a transfer of property under a debt agreement; or (d) a transfer of property if the transfer is of a kind described in the regulations. (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 (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. What is not consideration (5) For the purposes of subsections (1) and (4), the following have no value as consideration: (a) the fact that the transferee is related to the transferor; (b) if the transferee is the spouse or de facto spouse of the transferor - the transferee making a deed in favour of the transferor; (c) the transferee's promise to marry, or to become the de facto spouse of, the transferor; (d) the transferee's love or affection for the transferor. Protection of successors in title (6) This section does not affect the rights of a person who acquired property from the transferee in good faith and by giving consideration that was at least as valuable as the market value of the property. Meaning of transfer of property and market value (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. 121 Transfers to defeat creditors Transfers that are void (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 property would probably have become part of the transferor's estate or would probably have been available to creditors if the property had not been transferred; and (b) the transferor's main purpose in making the transfer was: (i) to prevent the transferred property from becoming divisible among the transferor's creditors; or
(ii) to hinder or delay the process of making property available for division among the transferor's creditors. Showing the transferor's main purpose in making a transfer (2) The transferor's main purpose in making the transfer is taken to be the purpose described in paragraph (1)(b) if it can reasonably be inferred from all the circumstances that, at the time of the transfer, the transferor was, or was about to become, insolvent. Other ways of showing the transferor's main purpose in making a transfer (3) Subsection (2) does not limit the ways of establishing the transferor's main purpose in making a transfer. Transfer not void if transferee acted in good faith (4) Despite subsection (1), a transfer of property is not void against the trustee if: (a) the consideration that the transferee gave for the transfer was at least as valuable as the market value of the property; and (b) the transferee did not know, and could not reasonably have inferred, that the transferor's main purpose in making the transfer was the purpose described in paragraph (1)(b); and (c) the transferee could not reasonably have inferred that, at the time of the transfer, the transferor was, or was about to become, insolvent. Refund of consideration (5) 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. What is not consideration (6) For the purposes of subsections (4) and (5), the following have no value as consideration: (a) the fact that the transferee is related to the transferor; (b) if the transferee is the spouse or de facto spouse of the transferor - the transferee making a deed in favour of the transferor; (c) the transferee's promise to marry, or to become the de facto spouse of, the transferor; (d) the transferee's love or affection for the transferor. Exemption of transfers of property under debt agreements (7) This section does not apply to a transfer of property under a debt agreement. Protection of successors in title (8) This section does not affect the rights of a person who acquired property from the transferee in good faith and for at least the market value of the property. Meaning of transfer of property and market value (9) 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.

(1) General 12 At first appearances, each of the impugned transfers of the Crittenden Road property on 9 August 2005 and of the Craft Street property on 22 July 2005 would appear to be caught by s 120(1). Each is a transfer by a bankrupt to another person; each took place in the period of 5 years prior to Mr Poumako's bankruptcy; and each apparently occurred in circumstances where the transferee gave consideration of less than the market value of the property. In relation to the Crittenden Road property, there is the additional issue as to whether, as joint owners, both Mr Poumako and his wife Janice Poumako jointly owned the equity in the property at the time of the transfer as that will affect the value of Mr Poumako's interest in that property. 13 At this point, therefore, it is not necessary to refer in any detail to s 121. 14 The defences of Mr Poumako and his family are somewhat inconsistent. They include the following in relation to each transaction: (1) the market value of the property was paid and the equity was not gifted by Mr Poumako at all; (2) the transfer operated within a family trust structure, so that in reality each of the properties was held on trust by the registered owner for the time being for the beneficiaries of the family trust and any equity at the time of the transfers was not available to meet Mr Poumako's unsecured creditors in any event; (3) Mr Poumako was solvent at the time of the transfer: s 120(3); (4) the consideration paid by the transferee (including that paid by funds secured by a mortgage) must be paid by Mr Ambrose as a condition of the transfer being avoided: s 120(4); (5) if the transfer is avoided by Mr Ambrose, he must in equity compensate the transferee for the funds expended on each property between the transfer and its avoidance; and (6) if s 121 might otherwise be enlivened, the transfer was for proper consideration and in good faith. 15 Having regard to those defences, it is necessary to consider the reliability of the evidence given by each of the members of the Poumako family on those general issues. 16 As is common in matter such as this, the evidence of Mr Ambrose was, with one significant qualification, unchallenged. It was largely based on primary documentary records, and on the documents provided to him by Mr Poumako, and (as against each of the four respondents separately) the transcript of their respective examinations under s 81 of the Bankruptcy Act. 17 The significant qualification is that, to different extents, each of the respondents disputed that the transcript of their respective examinations accurately reported the true facts. It was not said that the transcript was itself inaccurate, but that the content of what was said was inaccurate, through error on the part of the person being examined or through being overborne by the style and content of the questioning in circumstances where the person being examined had not had an opportunity to prepare properly for the examination. Each of the respondents gave evidence about the circumstances of their respective examinations, as well as generally about the particular circumstances of the transfer in which that person was involved. 18 It will be necessary, therefore, to refer to the evidence in some detail. 19 One thrust of the respondents' case in relation to both the Crittenden Road property and the Crafter Street property is that they were held on trust separately, as part of "the Crittenden Trust" and the "Crafter Trust". The beneficiaries of those trusts are said to be the "family unit", namely the four respondents and Joseph Te Itinga Cassidy, the husband of Mrs Cassidy. Alternatively, it is said that there was a form of resulting trust or inchoate trust existed, as each member of the family owned an equal interest in each of the properties, as the family unit was the collective owner. 20 It is necessary to describe the nature of the "family unit" as presented in evidence. The respondents living and, to some degree, financial arrangements are intermingled and have been so for many decades. Mrs Cassidy has lived with Mr Poumako and his wife Janice Poumako from 1974, and apart from two years between 1977 and 1979, after she married Mr Cassidy, both families resided together until 2005. This includes living together interstate and overseas. It is clear that the family unit have a strong emotional connection with each other, and in essence "share life" together. 21 The respondents said that their financial affairs are also intermingled. Mrs Cassidy and Mr Cassidy both gave evidence that Mr Poumako had access to their bank account. Mrs Cassidy also said that money was taken out and put into a "pool" for the family unit, from which payments would be withdrawn for family expenses, such as paying off the car of Jacqueline Poumako. 22 All members of the family unit described Mr Poumako as the head of the household, and the family member responsible for the families' collective financial arrangements. That accords with the evidence of Mr Poumako. He assumed primary responsibility for the financial affairs of the family, and the other members of the family trusted him to do this. Their trust and reliance clearly continued even after Mr Poumako was declared bankrupt and imprisoned, and then released. 23 I accept in general terms that that was the case. 24 That general finding, of course, does not show the existence of a trust over the Crittenden Road property or the Crafter Street property, either as a generic "family trust" or as the Crittenden Trust and the Crafter Trust respectively. 25 An express trust exists where a trustee holds the equitable ownership of a property for the benefit of a person or group of persons. It almost goes without saying that the valid creation of an express trust depends upon certainty of intention, certainty of subject matter and certainty of object. 26 It is difficult to identify the precise nature of the supposed trusts as put forward by the respondents. The respondents did not identify what comprised the declaration or declarations of trust, who the settler or settlers was or were, when this occurred, or what was the nature of the trust declared. A declaration of trust over land needs to be proved by some writing, which must set out the beneficiaries, the trust property and the nature of the trust: Law of Property Act 1936 (SA) s 29(1) as discussed in JS v GP [2006] 35 Fam LR 88 at [65]. The writing must show what the trust is. 27 I do not accept that the affidavit of Mr Poumako or his evidence nor that of any other of the respondents proves the existence of any trust for the purposes of s 29(1). It is not clear on the evidence who the asserted trustee or trustees is or are, and how the trustee or trustees was or were appointed. Mr Poumako identifies himself as trustee. Notwithstanding this, apparently at his direction, Jacqueline Poumako described herself as trustee at the time she entered into a residential tenancy agreement with her parents as lessees of the Crittenden Road property, after it was transferred to her. It is not clear how or when Jacqueline apparently became the trustee. Her evidence about that was very vague and unsatisfactory. If the property was held by her on trust, it is also not clear with what authority or purpose Crittenden Road property was transferred from Mr Poumako and Janice Poumako to her, or with what authority or purpose the Crafter Street property was transferred from Mr Poumako to Mrs Cassidy, nor the extent of Mr Poumako's discretion to deal with the properties after those transfers. If they were held on trust before the transfers, and in effect under the same trusts after the transfers, the transfers had no purpose. Moreover, the documentation which would routinely have existed to establish that trust or those trusts is not shown to exist or to have existed. If there were new trusts created at the time of the transfers, they were not properly or effectively created. The contemporaneous documentation which would routinely have been necessary was not shown to exist. 28 Finally, the existence of the general trust is inconsistent with the treatment of the properties within the family unit. The transfer of the properties between the respondents, as well as the charging of rent for the use of the properties by the registered owner for the time being, is consistent with the property being owned by the registered owners, and being dealt with accordingly. 29 The respondents claim that a trust deed is in existence in regards to each property separately, which evidences the existence of a trust over that property, and that those documents are in the possession of Mr Ambrose. On 8 August 2008, the Court authorised Mr Ambrose as trustee in bankruptcy to seize the financial records of Mr Poumako as the bankrupt. Six boxes of documents were seized from the premises, as well as a computer. These are stored at the office of Mr Ambrose. No trust deed has been located amongst these documents. I accept the evidence of Mr Ambrose to that effect. 30 Six written trust deeds have been located in the documents seized from Mr Poumako. They are: (1) the XXOX Trust No. 1 dated 15 January 2003, together with a deed of appointment of a new trustee dated 21 January 2004; (2) the IFC Investors Trust Deed dated 19 March 2004; (3) the Nightcliffe Trust dated 1 April 2003; (4) the Grenfell Trust dated 8 August 2007; (5) the Salisbury Trust dated 6 September 2002; and (6) the WE Trust dated 12 September 2003. 31 None of these documents refer to the Crittenden Road property, or to the Crafter Street property. None of them was said to be related to those properties, or to be a generic family trust. There is an unsigned document entitled 'the Crittenden Trust'. In the unsigned attestation page, the names of Mr Poumako and Janice Poumako are typed included as trustees, and Anne-Marie Donaldson is listed as the settlor. The first schedule includes Jacqueline Poumako as the only initial unit holder. The document does not refer to the Crittenden Road property, with the exception of the title of the document. There is also a much shorter, 3-page document, entitled 'Crafter Trust", also unsigned. In its unsigned attestation page, it includes the names of Mr and Mrs Cassidy as "Joint New Trustees" and Mr Poumako as "Old Trustee". It similarly does not refer to the Crafter Street property, with the exception of the title of the document. 32 In addition, Westpac Banking Corporation has produced documents which show that between 6 September 2004 and 27 October 2005, it held an account in the name of Mr Poumako as Trustee for the Crittenden Trust. The respondents claim that the trust deed was provided to that bank on the creation of that account, but no evidence was provided to support that assertion. The records of the bank were not subpoenaed to do so. 33 Further, given the respondents' claim that the Crittenden Road property was rented out in the name of the trust, I would expect that this would be reflected in the various lease agreements. No such lease agreement has been provided. There is no income tax number for either trust. No tax return is shown to have been lodged. No profit and loss statement, minutes of trust, or other financial statements have been produced. No other respondent, aside from Mr Poumako, made reference to the existence of a trust or trusts in respect of either property in their s 81 examinations. 34 For those reasons, I do not accept that either the Crittenden Road property or the Crafter Street property was held under an express trust by Mr Poumako, or by either Jacqueline Poumako or Mrs Cassidy respectively. I do not accept their evidence to the contrary. I make further comments below explaining why I have been cautious in accepting the evidence of any of them on this issue, and other particular issues. 35 In the alternative to an express trust, the respondents submit that the Court should infer the existence of a resulting trust, and/or constructive trust in respect of the two properties, in recognising the contributions of the family unit to the purchase and increase in equity in the two properties. I do not accept that the "family unit" made any significant contributions to the purchase of the two properties, nor the establishment of equity in the two properties prior to their transfer to Jacqueline Poumako, and to Mrs Cassidy respectively. More importantly, whilst I accept that Mr Poumako managed the families' collective resources in a general sense, I do not accept that it was the understanding of him or of the other respondents that there was some form of legally enforceable trust which arose by his actions in doing so. His was simply a general oversight of their collective affairs. In their s 81 examinations, none of Janice Poumako, Jacqueline Poumako, or Mrs Cassidy made any mention of a trust, or of the property being held in common. When describing who owned the property and who controlled the transactions on the property, the descriptions given by them simply matched the registered owners. Only Mr Poumako made any reference to a trust. As I hold below, I do not consider his evidence on that topic, nor the evidence of the other respondents on that topic in the face of the content of their respective s 81 examinations, reliable. If such a trust existed, the two challenged transfers were unnecessary, and in addition led to the incurring of significant stamp duty and other charges. That is true also if the specific trusts existed: the two transfers were unnecessary, and also no reason to change trustees was identified. On the particular evidence, those claims are inherently improbable. 36 The properties were not held on trust for the family unit. The transfer of the two properties in the name of Mr Poumako was a transfer by Mr Poumako of his own interest in the property for the purposes of s120(1). In the case of the Crittenden Road property, it was a transfer by Mr Poumako and Janice Poumako.

(2) Crittenden Road property 37 The Crittenden Road property at the time the property was transferred to Jacqueline Poumako, was registered in the name of Mr Poumako and Janice Poumako jointly. It is unclear whether any deposit was paid on this property. The registered mortgages on the Crittenden Road property prior to its transfer of 9 August 2005 were: (i) First mortgage registered on 9 May 2002 in favour of the National Australia Bank, for $214,000. (ii) Second mortgage registered on 20 December 2002 in favour of the National Australia Bank, for $167,800. (iii) On 4 February 2004 the two NAB mortgages were discharged, and a new mortgage registered in favour of Permanent Custodians Ltd, for $345,000 was granted. 38 The final mortgage is far in excess of the property value, and was obtained apparently as a result of cross-collateralisation between the Crittenden Road property and the marital home. It is not clear how so large a sum could be raised off the two properties, nor how at the time of the sale of the Crittenden Road property, the property would have any equity at all. However, it is common ground that, at 9 August 2005, the secured amount owing on the remaining mortgage and the fees to secure a clear title left an equity in the property. In addition to the existing mortgage, there was also a caveat on the property lodged by a person named Fitock to secure repayment of a loan of $10,000. 39 Mr Ambrose submits that any equity in the property at the time of sale was as a result of Mr Poumako's endeavours alone. The respondents reject this, and say that Janice Poumako did in fact have an independent income and did contribute to both the purchase of the property, as well as the subsequent mortgage payments. 40 The respondents' evidence about to the income of Janice Poumako is mixed. At issue is the inconsistency between their respective evidence in their s 81 examination (adduced by Mr Ambrose) and that presented in their later affidavit and oral evidence. This issue presents itself in respect of a number of factual disputes. The respondents did not question the admissibility of the respective s 81 examinations against the individual person being examined. 41 In the course of Janice Poumako's s 81 examination on 5 February 2009, she stated that she was unemployed between 1994 until February 2009, but provided unpaid assistance to Mr Poumako; and that prior to 1999, she worked as a cleaner, earning about $10,000 and no more than $20,000 in a short period over two years. 42 Janice Poumako claimed that her answers in the s 81 examination were not correct, and that at the time she was sick and stressed, and so was unable to answer correctly. In the course of her evidence, she stated that she did continue to work, both as a private contractor and also for a charity. In support of this claim, she stated that she had a tax liability with the Australian Taxation Office that was currently being assessed, and that she owes $,2800 in unpaid tax. She could not, however, indicate the period of time over which this debt had accrued; nor was any document or letter from the Australian Tax Office provided to substantiate her claim or to explain that assessment was made. 43 Jacqueline Poumako also gave evidence, albeit of a general nature only, that her mother was employed during significant parts of the 1990s as a cleaner. In her s 81 examination she had said that her mother had not been a "professional cleaner" since Jacqueline was in kindergarten. At the time of the hearing, Jacqueline Poumako was 27 years old, so that would refer to a period from about 1990. Jacqueline Poumako now says that she did not understand what was meant by "professional cleaner" and that what she meant was that her mother did not work a "9 to 5" job. She also stated in her affidavit, and affirmed in cross-examination, that she felt stressed and that in effect her answers in the s 81 examination were impacted by that stress. The inconsistency in that material means I place little or no weight on her evidence on this topic. 44 In Mr Poumako's s 81 examination, he stated that Janice Poumako had worked as a cleaner for the last 15 years, and that in the 2004/05 financial year, she earned between $50,000 and $100,000. In his cross-examination, Mr Poumako was unwilling to confirm this amount, or to put a figure at all to his wife's earnings. The respondents have not provided any tax records of Janice Poumako. Further, no employment contracts or pay slips or bank records have been provided to show that any funds from paid employment have been received by her. Nor did the respondents tender any bank statements that show the receipt of any paid income. Mr Poumako claims that Mr Ambrose has in his possession all of the relevant financial documents, which includes these documents. I do not accept, to the extent that this was suggested, that Mr Ambrose suppressed any of these documents. The records have been available for the inspection of the respondents. They have not produced any records to confirm their oral evidence. 45 The respondents have in effect asked the court to take them at their word. 46 I will address issues of credit more generally below. For the moment, it suffices to say that I do not accept that Janice Poumako was in receipt of any substantial paid income from the period of 1994 until 2009, with exception to a short period prior to 1999 in which she worked as a cleaner. I find that the reduction in the mortgage debt up to 9 August 2005 was effected by Mr Poumako making payments in reduction of the debt from time to time. 47 However, I do not accept that this means that the equity in the Crittenden Road property at 9 August 2005 was solely held by Mr Poumako or that his payment down of the mortgage debt forms the basis of a resulting trust of the equity in favour of Mr Poumako alone. A resulting trust may arise in circumstances where a person has legal or equitable title to a property, but has an obligation to hold that interest for another person. A resulting trust commonly arises where that other person transferred the property to the first person, but did not intend that person to receive the full beneficial ownership of that property. Where a husband transfers property to his wife, however, it is presumed that the equitable interest follows the legal title, namely, the husband makes the transfer intending to beneficially advance the transferor, thereby rebutting the presumption of a resulting trust: Nelson v Nelson (1995) 184 CLR 538, 547-8. The presumption of advancement can be rebutted. As Rares J stated in Draper v Official Trustee in Bankruptcy (2006) 156 FCR 53 at [79], "[t]he flexibility of equity is not to be gainsaid by placing the presumptions into the straight jacket of irrebutability." 48 In this case, Mr Ambrose submits that the presumption of advancement can be rebutted, and that Janice Poumako held her interest in trust for Mr Poumako. The property was registered in the names of Mr Poumako and Janice Poumako together as husband and wife. It was at the time of its acquisition heavily mortgaged. There is no reason to think that, at that time, they were not the joint registered owners (as the title records), and they were joint mortgagors, and jointly liable to repay the mortgage debt outstanding from time to time. The mortgagee would have been able to recover from Janice Poumako under the mortgage the debt outstanding secured by the mortgage at 9 August 2005. The respondents gave consistent evidence that Mr Poumako assumed primary financial responsibility for the family. During his marriage with Janice Poumako, he has been the sole or almost the sole wage earner and he consistently gave evidence that he considered it his responsibility that his family be well cared for. I see no reason to consider the purchase of the Crittenden Road property as anything but a reflection of those circumstances. I accept that the Crittenden Road property when purchased, registered in both names, was intended for the mutual benefit of both Mr Poumako and Janice Poumako as husband and wife, and for the future financial security of their family. Whilst Mr Poumako was the financial provider, Janice Poumako was contributing to the well-being of the family and providing the opportunity for Mr Poumako to be the main income earner. Her contribution is no less significant because it was of a different character: Mateo v Official Trustee in Bankruptcy (2002) 117 FCR 119. That position persisted in the period up to the transfer of the Crittenden Road property to Janice Poumako. 49 Accordingly, I do not accept that there was a resulting trust over the Crittenden Road property in favour of Mr Poumako prior to its transfer. At the time of the transfer of the Crittenden Road property, Mr Poumako was joint owner of the property with Janice Poumako and so only the transfer of his half interest in the property can be considered for the purposes of sections 120 and 121: Re Francis; Ex parte Official Trustee in Bankruptcy (1998) 19 FCR 149, 154 (Forster, Woodward and Spender JJ). 50 On 6 April 2005, the Crittenden Road property was placed on the market for sale through Ray White Real Estate, with an asking price of $135,000 - $145,000. On 19 June 2005, when apparently no purchaser could be found, Mr Poumako and Janice Poumako entered into a contract to sell the Crittenden Road property to Jacqueline for $146,000 and on 9 August 2005 the Crittenden Road property was transferred to Jacqueline Poumako. Given the asking price, I do not accept Mr Poumako's assertion, in the absence of any valuation evidence, that the nominated transfer price was at an overvalue. It is close enough to the asking price not to accept his unsupported assertion, and there is no apparent reason why the transfer price should have been artificially high. 51 Mr Ambrose contends that the full purchase price was not received by Mr Poumako and Janice Poumako, but in fact, a lesser amount of $92,278 was received. He claims that because the balance was not paid, the transfer of Mr Poumako's share of the property is voidable is pursuant to sections 120 and 121 of the Bankruptcy Act. The respondents submit that the property was sold at a commercial rate, and not to avoid creditors, but in response to the impending foreclosure by the mortgagee Permanent Custodians Ltd. They also therefore submit that the position of the creditors was not worsened by the transfer because the property would have been sold by the mortgagee with no surplus funds available to the creditors of Mr Poumako. 52 The settlement statement addressed to Jacqueline Poumako shows the payment to be made up of: Mortgage funds $92,278

Proceeds from R and J Poumako $55,168 from sale of 41 Crittenden Road, Smithfield Plains

and $4356 due by her (apparently to cover stamp duty and other expenses). 53 The settlement statement addressed to Mr Poumako and Janice Poumako show the balance due to them at settlement as $55,168. That represents the transfer price of $146,000, less the amounts owing by them on the existing security and other related expenses to obtain a clear title to transfer. The net funds from the mortgage were reduced from the nominal amount of the loan of $94,900 due to fees to the mortgagee. In other words, Jacqueline Poumako received a clear title which she then mortgaged to secure the funds to pay part of the transfer value, leaving an unpaid balance of $55,168. 54 When first questioned about the purchase, during her s 81 examination, Jacqueline Poumako stated that Mr Poumako and Janice Poumako gave her "the deposit" of $55,168 as a gift; and that the gift was sourced from Mr Poumako's income. In effect, she was given the equity, and had to refinance (and assume liability for) an amount equal to the existing secured debt. 55 This was rejected by Mr Poumako, and also by Jacqueline Poumako herself in later evidence. 56 In Mr Poumako's s 81 examination on 12 February 2008, he said that his daughter sourced the net purchase funds for the Crittenden Road property from himself, Janice Poumako and Mrs Cassidy and Mr Cassidy. 57 Later, in affidavits of 22 March 2012, Mr Poumako and Jacqueline Poumako say that the balance paid to Mr Poumako and Janice Poumako was sourced from a $7,000 first home owner's grant, and a $45,000 loan from family friends, the Cassells. The fact of an advance of funds of $45,000 was confirmed by the evidence of Derek Cassells. 58 Mr Poumako provided evidence of two payments made by Jill Pamela Cassells into his account. The first payment, on 25 June 2004, was for $30,000. The second, on 14 July 2004, was for $10,000. The respondents and Mr Cassells also say that an additional $5,000 was loaned by the Cassells, bringing the total of the loan to $45,000. The applicant did not challenge the amount of the loan in cross-examination. 59 Mr Cassells gave evidence that the money was originally loaned to Mr and Mrs Poumako for "property renovations and acquisition" and that in about May/June 2005 he agreed with Mr and Mrs Poumako that the loaned moneys would be used to help Jacqueline Poumako purchase a property and that Jacqueline Poumako would be responsible for its repayment. Mr Cassells confirmed in evidence that neither the initial loan to Mr Poumako and Janice Poumako, nor the purported transfer of the loan to Jacqueline Poumako, were in writing, nor was there any agreement about when it should be repaid, or whether interest was payable. Mr Cassells confirmed that at the time the "transfer" of the loan occurred, he did not discuss the loan with Jacqueline Poumako, nor how she would repay it. He gave evidence that he presumed Jacqueline Poumako had been informed by her parents of the loan. In the seven years since the loan was allegedly transferred, no repayment of the loan has been made by Jacqueline Poumako (nor any other party) to Mr Cassells. Also, he has made no attempt to recover its amount at all, or to get Jacqueline Poumako to confirm the loan in writing. 60 I accept that the Cassells are unsecured creditors of Mr Poumako and Janice Poumako, but I do not accept that there was any loan agreement between Jacqueline Poumako and Mr Cassells, or his wife. I find that the loan of $45,000 was between Mr Poumako (or Mr Poumako and Janice Poumako) and the Cassells. Jacqueline Poumako was unaware of the loan. She did not accept any such loan or any transfer of the indebtedness under the loan to her. There was no discussion with her about assuming a loan for $45,000 to be repaid in addition to the mortgage she had already assumed. There was no written contract, nor any other supporting document to show the existence of a loan between Jacqueline Poumako and the Cassells. At the time of her s 81 examination, she did not mention the existence of a loan from the Cassells, when asked about the source of the purchase funds for the Crittenden Road property. Jacqueline Poumako's evidence was that she was not aware of any loan from the Cassells until 2009. Mr Cassells in his evidence said that he did not speak directly with Jacqueline Poumako about the loan. No repayments were ever made. Jacqueline was "surprised" to find out that she was apparently indebted to Mr Cassells for an amount, that she had previously thought was a gift from her parents. She described in her evidence simply 'finding out' that she was now required to pay back the $45,000. I also reject Mr Cassells' evidence about the "transfer" of the loan to Jacqueline Poumako. His affidavit resonates with the terminology Mr Poumako introduced also into the affidavits of Janice Poumako and Jacqueline Poumako; that is, the three affidavits reflect Mr Poumako's input (which the deponents were prepared to accept) but do not represent what was in fact the case. The use of the common terminology is one reason to suspect the reliability of the evidence in these matters. 61 As indicated, I accept that the Cassells lent $45,000 to Mr Poumako and Janice Poumako, and that he (or his bankrupt estate) is liable to repay them. I do not accept that the loan of those funds was transferred to Jacqueline Poumako, so that she is liable to repay them. More importantly, I find that there was no transfer of the indebtedness of that loan to Jacqueline Poumako on the basis that their repayment is or was to be secured by an equitable and unregistered mortgage over the Crittenden Road property. That was, on any view of the evidence, not part of the arrangement. Mr Poumako and Janice Poumako, by discharging the then existing mortgage, had a clear title over the Crittenden Road property to transfer to Jacqueline Poumako, and they did so. To the extent that they were not paid by her for the transfer, that was a gift to her. 62 In respect of the first home owner's grant, Jacqueline said that this was received and given to her parents in part payment for the property, but that later she was required to pay it back as she was not entitled to it. No evidence was provided of either the receipt of this grant, nor its transfer to Mr and Mrs Poumako. There is no other documentary confirmation of it. However, I accept the evidence of Jacqueline Poumako on this topic. I find that it was agreed that the home owner's grant when received should also be paid as part of the purchase price. I also find that Jacqueline Poumako received that grant of $7000 and then paid it to her parents as part of the purchase price. I also find that when she repaid that grant, she did so from her own resources. She did not recover it from her parents, so the payment to them of that sum remains as part payment of the purchase price. The unpaid balance of the transfer price therefore was $48,168. 63 I also reject the suggestion that the unpaid balance remains a liability of Jacqueline Poumako to Mr Poumako and Janice Poumako. That does not fit with the conduct of any of them. It does not fit with the evidence about the Cassells loan given by Mr Poumako, and is an unpersuasive fall back proposition. 64 I also note consideration for the transfer of property under s 120 must be in fact given and not simply consideration promised, agreed or intended to be given: Verge v Devere Holdings Pty Ltd (No 4) [2010] FCA 653. 65 Accordingly, I find that $48,165 was not paid at the time of the transfer by Jacqueline Poumako to Mr Poumako and Janice Poumako. The market value was not paid for the property.

(3) Crafter Street property 66 The Crafter Street property was previously purchased by and registered in the name of Mr Poumako on 8 November 2002. On 28 June 2005 Mr Poumako entered into a contract for sale for the Crafter Street property to Mrs Cassidy for $180,000 and on 22 July 2005 the Crafter Street property was transferred to Ms Cassidy. 67 A mortgage was granted by Mrs Cassidy for $110,789 to Assured Funding Pty Ltd, and the funds it secured were applied to expenses of the transfer and the balance paid at the time of settlement to Mr Poumako. Mr Ambrose submits that the shortfall of $76,540 (the total property value less the mortgage funds minus stamp duty and other charges associated with the transfer) was not paid so that the transfer is void under sections 120 and 121 of the Bankruptcy Act. 68 The respondents submit that there is no shortfall, but that in fact the sum of $76,540 was paid by Mrs Cassidy to Mr Poumako. 69 Mrs Cassidy's evidence about the purchase is mixed. In the course of her s 81 examination on 5 February 2009, Mrs Cassidy stated: (a) that she was unsure whether she paid that money to Mr Poumako; (b) that at the time she did not have that money in a savings account; (c) that she may have borrowed that money from a bank; and (d) that that money may have been a loan from her brother; In the same examination, she conceded that she had not paid Mr Poumako that money. She stated that she did not ask questions to Mr Poumako about this money and she agreed with the suggestion of counsel for Mr Ambrose that she had been a "puppet" for Mr Poumako, and that she felt obligated to assist him because of the financial and family relationship that she had with him. 70 In her evidence, Mrs Cassidy says that the information she provided in that examination was incorrect and that at the time she was stressed, confused and being treated for anxiety. In her later affidavits and oral evidence, Mrs Cassidy says that the funds were paid from a mixture of sources, namely family funds, funds from the sale of what was called the Andrews Farm house, funds from a second mortgage over the Andrews Farm house, and the payment to L Fittock of an account owed by Mr Poumako. The figures that she provided roughly correspond to those given in Mr Poumako's later affidavit and oral evidence, namely that the funds were paid as follows: Funds from family trust account $13,000 Money from the sale of the Andrews Farm house $16,000 Money from a second mortgage over the Andrews Farm house obtained by Mrs Cassidy and her husband with Modern Industries $21,993 Loan from Hunter Premium Funding Pty Ltd obtained by Mrs Cassidy and her husband, and paid to L Fittock in fulfilment of a debt owed by Mr Poumako $36,300

71 Mr Ambrose says that the evidence of Mrs Cassidy in her s 81 examination is more reliable than her later evidence, in particular her s 81 examination statement that she did not pay anything to Mr Poumako for the transfer other than the net mortgage fund. He submits that the evidence of Mr Poumako, and as corroborated by Mrs Cassidy on this issue should be rejected. 72 For reasons which appear below, I find that Mrs Cassidy did not pay more than the net mortgage funds to Mr Poumako at the time of purchase. Nothing is recorded on the settlement statement suggesting any further payment. There is no written agreement or other documentation which might support a finding of any further payment or payments of the types referred to. I find that Mrs Cassidy, as she said at the time of her s 81 examination, did not pay further funds for the transfer of that property. I reject the evidence of Mr Poumako and Mrs Cassidy to the contrary. 73 I also reject the suggestion in the respondents' submissions that the unpaid balance of the transfer price was a debt owed by Mrs Cassidy to Mr Poumako. Their conduct in relation to the transfer, after it took place, does not support such a conclusion. It is more consistent with Mr Poumako in effect having waived payment of that part of the transfer price. That is also consistent with the view I have formed that he was endeavouring to put that asset beyond the reach of his creditors. Even if there was such a promise (which I do not accept), given Mrs Cassidy's evidence about her personal financial situation, it had little value in fact, so the consideration given for the transfer in substance was nevertheless the net funds secured by the mortgage after they were first used to pay the expenses of the transfer. 74 Consequently, I find that the transfer was for less value than the market value of the Crafter Street property, namely for $103,460 (the available mortgage funds paid to Mr Poumako) compared to $180,000 - a difference of $76,540.

(4) Reliability of Evidence 75 It is convenient at this point, to explain in more detail why I have placed little weight on the evidence of the respondents in certain respects. I have considered the whole of the evidence, and in relation separately to each of the respondents their evidence in the light of their respective evidence given at that person's examination under s 81. 76 I accept that Mr Poumako was the driving and guiding force in their individual and collective financial decisions. That is plain enough from the evidence of all of them. I also accept that, in a general way, he endeavoured to act in their collective financial interests. Clearly, his role was so relied upon that each of the other respondents, and Mr Cassidy, had great faith in him but relatively little detailed understanding of what he was doing. 77 However, that state of affairs did not result in the detailed trust structure which Mr Poumako deposed to, and the other members of his family with different degrees of understanding and emphasis also deposed to. His evidence about the detailed setting up and operations of the Crittenden Trust or the Crafter Trust (or indeed any other trust, to the extent evidence was given about them) was quite unpersuasive. It may well be that he had access to a template trust deed, and prepared some documents aimed at establishing trusts to hold the two properties in issue. I reject his evidence that those trusts were in fact established and held those properties. I reject his evidence, to the extent he suggested it, that he was the trustee of those trusts, or (as one would expect in relation to the Crittenden Road property as it was in joint names) he and his wife Janice Poumako were the trustee of the putative Crittenden Trust or that his daughter Jacqueline Poumako became the trustee of that trust when that property was transferred to her. 78 There is simply no documentary trace of any cogent nature to support his evidence. I accept Mr Ambrose's evidence that he has disclosed all the documentary material he seized touching on the issue. There are other potential sources of confirmatory documents, if they exist, which Mr Poumako on his behalf and on behalf of his family might have perceived, but did not pursue: accountants, tax agents, and those holding the records relating to the Fernilee Lodge proposed redevelopment. His Statement of Affairs did not disclose the trusts; his reasons for that are specious and unacceptable. The transfer of the Crittenden Road property to Jacqueline Poumako and of the Crafter Street property to Mrs Cassidy does not fit within any common sense analysis of an existing trust structure: there was no apparent need to change the trustee - at least on his evidence. 79 I place no weight on the evidence of the other respondents about the existence of those trusts. They had little detailed understanding of the family financial affairs. At the examinations under s 81, none of them referred to either of those properties being held in trust. Their later evidence, obviously after a briefing session with Mr Poumako, asserted the existence of the two trusts. Janice Poumako described how Mr Poumako, at a recent family meeting, had put all the family in the financial picture. I think their evidence is necessarily coloured by that process, necessarily because it is not consistent with their earlier s 81 examination transcripts and because they had such little understanding of the financial structures of the family at earlier stages. 80 In respect of Mr Poumako, there are a number of concerns I have about his evidence more generally. The first is that Mr Poumako was not forthright in respect of the information provided in his Statement of Affairs of 26 June 2008. In that document, he stated that he had not sold, transferred or given away any assets worth more than $1,000 in the last five years. This is inaccurate. The two properties subject to this application are two examples of significant financial transactions that had occurred in that five year period. There is also evidence that Mr Poumako is the registered part owner of two properties in New Zealand, which were also not included in Mr Poumako's statement of affairs. Mr Poumako has since claimed that the value of the property was too insignificant for it to be mentioned. I do not place much weight on his failure to disclose those properties, as the evidence about the nature and value of those interests is not clear. Mr Poumako also failed to disclose that he had previously been declared bankrupt on 22 November 1995, or that he had previously entered into an arrangement pursuant to Part X of the Bankruptcy Act. 81 Mr Poumako stated in the course of evidence that any omissions were due to time restraints and the complexity of the form. I do not accept this. Mr Poumako is an experienced business man and has served as a company director and/or secretary in at least a dozen companies. Further, prior to his completion of the statement, Mr Poumako was imprisoned for various breaches of the Corporations Act 2001 (Cth) for failing to make various disclosures to investors. Mr Poumako would have been aware of the importance of these forms. I consider that he did not complete the forms accurately as he intended that certain assets or transactions not be disclosed to the trustee. 82 More generally, in my view, Mr Poumako struck me as a person who may have had a broad scheme in mind, but that the detail was not implemented. He nevertheless adhered to a state of affairs which had not been brought into existence; what he may have planned and what was in fact the case were different. But his adherence to propositions which were inherently unlikely or were not supported by other potentially available evidence, in conjunction with the matters I have mentioned above, led me to doubt the reliability of his evidence generally. The evolution of his evidence from that which he said at the s 81 examination about the arrangement with the Cassells is not explained satisfactorily. Nor does his evidence about the independence of the affidavits of the other respondents and Mr Cassells fit with their structure and format and their manner of expression. Mr Poumako clearly played a very significant role in their preparation. 83 Janice Poumako gave vague and unpersuasive evidence about her work history. She had only a general overall understanding of the family financial position or structures. The records which should have been available to support certain of her claims were not produced. Her evidence about recollecting the trust structure independently, but after, the recent family briefing meeting was unpersuasive, especially as she professed no knowledge of it during her s 81 examination. Her understanding of why caveats were put on, and taken off, certain titles was minimal. As with Jacqueline Poumako and Mrs Cassidy, she sought to dismiss the significance of the s 81 examination for the reasons set out above. Her cross-examination demonstrated to me that there was no merit in, or foundation for, those criticisms. The s 81 examination demonstrates that she had no real understanding of the family financial structures and processes, and left those things to Mr Poumako. There is nothing wrong with doing that. But, unfortunately, it leaves me with the conclusion that her evidence is quite unreliable beyond what she said at that examination and simply reflects what she was told at the family briefing by Mr Poumako; I place no weight on her evidence, except where she has adopted as accurate what she said at her examination under s 81 of the Bankruptcy Act. Her evidence is perhaps best encapsulated by a comment she made at her s 81 examination that she was then asked questions she knew nothing about, and she had no access to Mr Poumako at the time to get the answers. 84 In the case of Jacqueline Poumako, perhaps not surprisingly given her age and her study commitments, she was less aware of the detailed financial issues confronting Mr Poumako and the family in the period leading up to the collapse of the Fernilee Lodge redevelopment plan. She said as much in the course of her evidence. However, there are two significant changes from her s 81 examination evidence and her evidence in this case which I think are significant, in considering the weight to be given to her evidence. 85 The first is that she said in her s 81 examination that she had been gifted by her parents the Crittenden Road property (apart from the mortgaged value and the first home owners grant) in 2005, but she said in her evidence that she also assumed at the time that property was transferred to her a second mortgage liability for an unregistered mortgage granted to the Cassells to secure the loan to her of $45,000. I do not accept her evidence that she is indebted to the Cassells as they claim, and she later accepted when in 2009 she was informed of that indebtedness arranged by Mr Poumako. In the way that loan has been explained, it is my view quite improbable that it is a debt owed by Jacqueline Poumako to the Cassells, for the reasons given when addressing Mr Cassells' evidence. 86 The second is her evidence about the earnings of her mother during the years Jacqueline Poumako was at kindergarten and at school. She was inevitably vague about that, but I sensed an element of reconstruction in her oral evidence about that topic. I do not think she was deliberately misleading the Court, but had reconstructed to some degree what she believed to have been the case based on more recent family discussions. As it happens, nothing turns on the actual extent of her mothers' earnings over that period. 87 Jacqueline Poumako also described the distress she felt, as well as the distress she observed on the part of her mother and her aunt Mrs Cassidy, during their respective examinations under s 81 of the Bankruptcy Act. As I have indicated, I accept that each of them was distressed by that experience. I do not accept that their distress was brought about by the manner or content of the questioning, or by the need to answer questions without resource to documents which they then were unaware of. They were not put under any pressure in any way which was unfair. In the case of each of them, I think the distress was caused by their real inability to answer questions relating to the families' financial circumstances or arrangements because they had left so much in the hands of Mr Poumako, the fact that he was unable at the time to inform them of what he understood to be the case, so that they could support what he said had occurred, and obviously by both his personal circumstances and the overall financial circumstances of the family. 88 In respect of the Mrs Cassidy, there is a clear difference between her evidence first presented in the s 81 examination, with that which was provided by affidavit, and that which was presented orally. In particular, the affidavit material contained references to concepts that Mrs Cassidy was not able to explain in the course of her cross-examination, such as beneficiaries, and constructive trusts. Mrs Cassidy, when questioned about this, stated that she knew what it meant at the time of writing, because Mr Poumako explained it to her. Her evidence was plainly unsatisfactory. In particular, I do not accept the evidence of Mrs Cassidy about how the payment for the Crafter Street property was made. It is clear that all information and detail recorded in her affidavits are not her own independent recollection, but that in fact, the content was entirely guided by Mr Poumako. Mrs Cassidy may have, at the time of swearing the affidavit, understood the contents having had it explained to her by Mr Poumako, but it was not her own independent recollection. She was prepared to present that material only because of her confidence in Mr Poumako. 89 Mr Cassidy frankly said he had little or no understanding of the family financial arrangements or structures.

CONCLUSIONS AND ORDERS 90 Accordingly, I find that the transfer of Mr Poumako's half interest in the Crittenden Road property to Jacqueline Poumako and his interest in the Crafter Street property to Mrs Cassidy, were undervalued under section 120 of the Bankruptcy Act 1966 (Cth). The transfers took place in 2005, which is less than five years previous to the date of bankruptcy and the consideration paid was less than the market value of the property: s 120(1) and (b). 91 The exemptions in s 120(2) do not apply. The respondents have not made out any defence of solvency under sub 120(3). At the time of the transfers, by his own statement of affairs, and the proofs of debt, Mr Poumako owed substantial amounts to various creditors. Just prior to 2005, Mr Poumako's liabilities exceeded $16.4 million. The net equity in his three residential properties, being the Crittenden Road property, the Crafter Street property and the residential home was just over $100,000. His interest in property in New Zealand, by his own evidence, was minimal. Another property previously owned by Mr Poumako in Elizabeth Vale was sold in July 2005, although the sale price was not disclosed. In Mr Poumako's statement of affairs, he estimated the value of 'Fernilee Lodge', the Burnside property which Mr Poumako intended to develop, to be $9.5 million. However, he was not the registered proprietor of that property from September 2004, when it was transferred to Fernilee Estate Pty Ltd. Even if his shareholding in Fernilee Estate Pty Ltd had some value, the deficiency in his assets at that time was still over $6 million. The respondents bear the burden of proving solvency under s 120(3) and they have not done so: see Ashton v Prentice; in the matter of Jury (1999) 92 FCR 68 per Ryan, Heerey and Katz JJ at [67]. 92 Section 120(4) provides that the trustee must pay to the transferee the amount equal to any consideration paid for a transfer that is void against the trustee. Mr Ambrose does not challenge the registered mortgages over each of the two properties and accepts that if the transfers are voided as against him, the mortgagees will have to be repaid and the mortgages discharged to enable him to deal with them. 93 The Crittenden Road property was transferred by Mr Poumako and Janice Poumako to Jacqueline Poumako but $48,168 less than the market value was paid (that is the claimed sum of $55,168 unpaid at settlement plus the $7000 her home owners grant) so the available funds from the mortgage and the $7000 actually paid total $97,832. 94 In my view, s 120(4) therefore requires Mr Ambrose to repay to Jacqueline Poumako that sum, or one half of that sum, as a refund for the consideration given. As I have found, Mr Poumako and Janice Poumako were joint holders of the Crittenden Road property. It appears to have been accepted by the parties that such a finding has the consequence that, from or as a result of his bankruptcy, s 120(1) would operate to avoid the transfer only to the extent of one half of the property. The precise form of the order, in that circumstance, was not addressed. If that is the case, Mr Ambrose would then be required to repay Jacqueline Poumako $48,916 under s 120(4), being one half of the consideration paid by her. 95 In addition, as noted, Mr Ambrose acknowledges that he will take that half interest subject to the existing mortgage, and will have to discharge it (or half of it) before he can deal with that property (unless he does so subject to the mortgage). There would seem to be some element of double benefit to Jacqueline Poumako, as she got the loan and its benefit secured by the mortgage and would also get the benefit of the loan being repaid by Mr Ambrose, because she paid the funds procured in part payment of the consideration. The submissions did not address that apparent double benefit to her. How those two matters intersect should be the subject of further submissions. 96 Mr Ambrose accepted that, because I have made that finding as to the shared holding of the property by Mr Poumako and Janice Poumako immediately prior to the transfer, the avoiding of the transfer can only benefit the bankrupt estate of Mr Poumako to the extent of one half of the undervalue, namely $24,084. But how the matters referred to above are to be reflected in this Court's orders to produce that outcome (if it is the correct outcome) is unclear. 97 Before making an order in terms of s 120(1) that the transfer of the half interest in the Crittenden Road property is void as against Mr Ambrose, I propose to invite further written submissions from the parties as to the orders I should make. 98 The above general comments reflect the approach of Lindgren J in Anscor Pty Ltd v Clout (Trustee) (2004) 135 FCR 469 (Anscor) at [43]. In accordance with that explanation, my findings would appear to lead to the following in relation to the Crittenden Road property. Upon the bankruptcy, the half interest of Mr Poumako which he transferred to Jacqueline Poumako became void, as she paid less than the market value of that property, but (a) Mr Ambrose must pay to Jacqueline Poumako an amount equal to the consideration given, namely one half of the net mortgage fund and the first home owners grant, namely $48,916: s 120(4); (b) Jacqueline Poumako retains her interest in the other half of the property; (c) The rights of the mortgagee, secured by a mortgage over the property granted by Jacqueline Poumako are preserved, as the property right granted by the mortgage was for the market value of that property right: s 120(6), so Mr Ambrose must hold his half interest in the property subject to the mortgage: s 120(6). It is clear enough that the granting of a mortgage includes the granting of a charge: Sutherland v Brien (1999) 149 FLR 321; Travaglini v Spender [2008] FCA 1618 at [15]; Sheahan v Frost [2011] FCA 356 at [110]. Under the previous expression of s 120, prior to its amendment by the Bankruptcy Legislation Amendment Act 1996 (Cth), the status of a bona fide mortgagee under a mortgage granted by the transferee whose transfer is void (avoided upon the bankruptcy: see Anscor at [43]) as against the trustee in bankruptcy of the transferor was similarly preserved; Re Hart; Ex parte Green [1912] 8 KB6; Re Fitzgerald; Ex Parte Burns (1986) 10 FCR 261. However, that case did not address the particular circumstances which have been found to exist. 99 There are a few additional issues upon which further submissions are sought. 100 It appears to have been assumed that any increase in the market value of the Crittenden Road property by the effluxion of time - if that has occurred - enure to the benefit of Mr Ambrose to the extent that the transfer of his half interest in the property has been avoided by operation of s 120. There has been no evidence to indicate whether there has been any such appreciation in the market value. That matter has been little ventilated in previous decisions, although it was adverted to by Allsop J in Trustee of the Property of O'Halloran; In the Matter of O'Halloran v O'Halloran [2002] FCA 1305 at [83]-[84]. Any focus should probably be on any increase in value to the date of the bankruptcy, when the statutory effect of s 120 operated. On the one hand, the voiding of the transfer does not operate retrospectively to invalidate any bona fide third party dealings between the impugned transfer and the bankruptcy. On the other hand, the transfer is "void" as against the transferor. That issue was discussed, to some extent, in Anscor. As there was some evidence of capital expenditure on the Crittenden Road property by Jacqueline Poumako, I think it is appropriate now to proceed on the basis that the parties have adduced such evidence as they considered appropriate as to value. I therefore conclude that there is no relevant capital appreciation, in the absence of evidence that such had occurred. Capital appreciation in the period after the bankruptcy may, in any event, be for the benefit of the trustee. 101 Jacqueline Poumako gave evidence that, since acquiring the property, she has made considerable improvements to it, costing around $20,000. She described those improvements. There is no evidence about how those improvements increased the value of the property, either at the time s 120 operated or to the present time. Mr Ambrose contended that, if the Court were to take an adverse view about the credit worthiness of the respondents, it should simply proceed on the existing evidence. On that basis, he submitted, the existing evidence did not make out the actual incurring of expenditure on improvements. It might also be necessary, if the Court accepted some such expenditure, to make allowance for or to take into account rental income received by Jacqueline Poumako (and, I assume by inference, other expenditure on the property for things such as rates and taxes). This topic, too, has been little ventilated in the authorities. 102 At this point, I indicate that in my view the parties, in particular Jacqueline Poumako, have had the opportunity to adduce evidence about both cost of the capital improvements, and the extent to which they have contributed to any increase in the present value of the Crittenden Road property. 103 Subject to any further written submissions, I indicate that I accept her general evidence that she spent money on improving the property. In the absence of any confirmatory evidence, I propose to adopt a conservative sum as to the amount of that expenditure; she could readily have produced any documentary evidence. The depreciation schedule she produced goes only part of the way, as it is a secondary document. I find that expenditure totalled some $15,000. I consider also, in the absence of any evidence to the contrary, that the capital value of the property increased only by the amount of that expenditure. Such evidence might have been given by either party, to show that the expenditure significantly increased the capital value of the property or, on the other hand, had no effect upon its capital value. It would follow that the orders I will make should reflect an obligation in equity on the part of Mr Ambrose to account for her one half of that amount. 104 It is not clear whether, or the extent to which, Jacqueline Poumako has paid the recurrent outgoings on the property, particularly since s 120 operated to revest Mr Poumako's half interest in Mr Ambrose, from the time of his bankruptcy. Jacqueline Poumako also said she made payments of interest, and to reduce the amount secured by the mortgage of the property, although evidence was not given as to how much has been paid off. The position of the parties in relation to those payments, particularly in relation to such payments after the bankruptcy of Mr Poumako is not entirely clear. Jacqueline Poumako said one half of them should be treated as paid on behalf of Mr Ambrose. I also accept, and arguably should take into account that Jacqueline Poumako had the benefit of receiving rent from the property during that time. 105 In relation to those matters, I do not consider that the evidence justifies any further adjustment between the parties. The reduction of the mortgage debt, if it has taken place, is a reduction of a personal liability of Jacqueline Poumako. The interest paid on the mortgage is also in discharge of her personal liability. She has had the benefit of full right of occupation of the property, and on the evidence she has received rental income. There is no reason to impose on Mr Ambrose any additional obligation to give her credit for the outgoings related to the right of occupation she has exercised to date in those circumstances; nor is there any reason to impose on Jacqueline Poumako any additional obligation to account to Mr Ambrose for the rent received or any part of it. The evidence leaves me with the view that the balancing of those matters would be about neutral. None of the parties have sought to prove otherwise. 106 For the reasons given, I do not think it is appropriate to proceed to make orders for the sale of the Crittenden Road property until the orders about the amount payable under s 120(4) and about who is responsible for the ongoing liability under the mortgage over the Crittenden Road property, and how that responsibility might be fulfilled, is resolved. It may be that the parties, in addition to making further submissions on those topics, may reach some arrangement for their practical resolution by consent. 107 I am mindful of the relatively small amount involved, and the costs to the parties. I am also aware that in "exceptional circumstances" orders have been made for the shortfall of the consideration to be paid by the purchaser to avoid the selling of the property: Schmierer v Horan [2004] FMCA 16 and Thomas v Tyler (No 2) [2005] FMCA 342. There may be some basis upon which Mr Ambrose and the respondents, particularly Jacqueline Poumako, may reach an agreed position in relation to the Crittenden Road property. 108 I do not consider that the orders to be made should be any different because I have found in terms of s 121(1)(b) that Mr Poumako's main purpose in making the two transfers was to prevent the transferred property from becoming divisible amongst his creditors. The transfers are void as against Mr Ambrose, but s 121(5) and 121(8) operate in the same way as s 120(4) and s 120(6). 109 I do not accept that Jacqueline Poumako was aware of Mr Poumako having as part of his reasons for arranging the transfer to her that he wished to put the property beyond the reach of his creditors. As I have found, his was the mind behind the transfer - and all the family finances - but in my view Jacqueline Poumako was entitled to, and did, see the transfer as her parents providing for her. I do not accept that she also shared in, or understood, any intention on the part of Mr Poumako to put the property beyond the reach of his creditors, even though she appreciated in a general way that his interest in the Fernilee Lodge proposed development was putting him under financial pressure. She was still, then, only young and was quite financially unsophisticated. That conclusion accords with my reasons for rejecting Jacqueline Poumako's evidence in part, where it conflicts with what she said in her s 81 examination; her evidence in this matter on the "family financial arrangements" (to use a generic description) including in relation to the Cassell's loan was no more than the trusting product of Mr Poumako's briefing given at about the time her affidavits in this proceeding were filed. It is therefore unnecessary to consider whether the appropriate orders might have been different if Jacqueline Poumako had been complicit in the purpose of Mr Poumako for the transfer of the Crittenden Road property. 110 In the case of the Crafter Street property, similar considerations arise. 111 In respect of the Crafter Street property, the property was transferred nominally at a fair value but Mrs Cassidy did not pay the full value, but less than the market value. I accept Mrs Cassidy paid the funds received by the mortgage granted by her, leaving some $76,540 unpaid. I also find that, at the least, there was at the time no arrangement in place to pay that balance and no capacity on the part of Mrs Cassidy to do so. It was, in effect, a gift of the unpaid balance to Mrs Cassidy. That property is also subject to an existing mortgage. Although it secures a loan only to Mrs Cassidy, the interest of the mortgagee is and should remain over the property, although the transfer to Mrs Cassidy is void against Mr Ambrose. 112 Under s 120(4), Mrs Cassidy paid $103,460 to Mr Poumako towards the value of the Crafter Street property, that is the agreed transfer price less the unpaid part of the market value of $76,540, so that sum is owing to her by Mr Ambrose. But Mr Ambrose must take the property subject to the mortgage, securing her liability. The mortgage is apparently securing an amount greater than the sum paid by Mrs Cassidy to Mr Poumako. In this instance, the appropriate orders are not further complicated by the property being only half owned by Mr Poumako at the time of the impugned transfer. 113 Nevertheless, the precise form of the appropriate orders needs to be further considered. 114 The applicant accepts that the mortgages on the two properties need to be discharged. 115 In the case of the Crafter Street property, I do not think there is any need for any further adjustment. There is no suggestion that the debt owed by Mrs Cassidy under the mortgage has been reduced. Presumably she has paid, and continued to pay, the interest payable from time to time, but that is a personal liability for her borrowing and she used that loan to partly pay the consideration. 116 In her s 81 examination, Mrs Cassidy stated that the funds obtained on the refinancing of the property in January 2008 were applied to the construction of a pergola, change of carpets, painting and such things. In her subsequent evidence, Mrs Cassidy stated that those funds were applied as consideration for the property. As stated, I do not accept that the funds obtained from the refinancing of the Andrews Farm house were paid as consideration to Mr Poumako. In addition to my views on the reliability of her evidence, there is no evidence of such a payment even though it should readily have been obtainable. 117 However, I accept that Mrs Cassidy refinanced her loan in early 2008, paying out the existing mortgage $113,485 (slightly more than the initial loan) and increasing the mortgage to $140,000. She received net extra funds of $21,025. That was about five months before the bankruptcy of Mr Poumako. I reject her evidence that she paid that sum to Mr Poumako as part of the transfer price for the July 2005 transfer. 118 I accept that she spent some of that amount on improvements to the Crafter Street property, but I am not sufficiently convinced of her reliably recollecting events to find that that expenditure was more than about $12,000. On the basis that she has not repaid any of that debt, and there is no evidence to suggest that she has, any increase in value of the property by reason of the improvements will be offset by the increased charge over the property which Mr Ambrose accepts he will have to repay to secure a clear title. As with the Crittenden Road property, I regard the interests payments by Mrs Cassidy as personal liabilities only, and prospectively she will remain liable for them to the mortgagee, as the borrower, even though as against Mr Ambrose the transfer to her is void. As there is no evidence of any capital value increase by those improvements beyond the expenditure, and as Mr Ambrose as the real owner - subject to the mortgage - must receive the Crafter Street property subject to the mortgage securing that increased debt, I do not consider any adjustment in equity for the expenditure on those capital improvements is called for. 119 In addition, the evidence suggest there is a further charge over the Crafter Street property in respect of unpaid school fees, for about $9000. That is a personal liability of Mrs Cassidy and Mr Cassidy. If it is a valid and enforceable charge, which operates over the property, presumably Mr Ambrose is the real owner subject to the charge. If that is so, it may be appropriate for the orders to be made including under s 120(4) to reflect that situation. 120 Accordingly, before making an order in terms of s 120(1) that the transfer of the Crafter Street property is void against Mr Ambrose, I will give the parties the opportunity to make further written submissions as to the orders I should make. Again, I note s 121(5) and s 121(8) operate in the same way as s 120(4) and 120(6). 121 Finally, I find that, as in the case of Jacqueline Poumako, Mrs Cassidy was not in my view complicit with Mr Poumako in his intention by the transfer of the Crafter Street property to frustrate his creditors. She acted at Mr Poumako's direction. She was aware of Mr Poumako's financial difficulties, but I do not consider that she intended to defraud his creditors in accepting the transfer in the terms she did. I do not think she was sufficiently informed to have shared that intention. 122 As I have found the transfers were undervalued pursuant to s 120 I have not to this point needed to make a positive finding under s 121. It is clear that, had the two transfers not occurred, the equity in both the Crittenden Road property held by Mr Poumako and in the Crafter Street property in his name would have been available to Mr Poumako's creditors. I also find Mr Poumako had the intention referred to in s 121(1)(b). That purpose in making the transfers can be imputed from the reasonable inference that at the time of the transfer, Mr Poumako was insolvent, and from the circumstances in which the two transfers took place. See generally Prentice v Cummins (No 5) (2002) 124 FCR 67 at [98]-[99] and Ebner v Official Trustee in Bankruptcy (1999) 91 FCR 353. Mr Poumako was, by mid 2005, in deep financial trouble because of his involvement in the Fernilee Lodge proposed development, and his experience would have exposed to him the strong likelihood of there being no way to recover. Whilst I do not use my rejection of Mr Poumako's evidence as positive proof of that purpose, it makes my inference from the objective facts one with which I am more comfortable. 123 As I found regarding s 120, consideration was not paid at market rate, so the defence of good faith under sub (4) cannot be made out; the sub-requirements of which being cumulative. The issues as to consideration under sub (5) are the same as those discussed above at [65] and [74]. 124 I will give Mr Ambrose 14 days to make such written submissions as he may be advised on the appropriate orders to be made in the light of my findings, and the respondents a further 14 days after they receive the submissions of Mr Ambrose to make written submissions in response. Mr Ambrose will then have a further seven days to make any additional submissions, strictly in response. I have structured the sequence of submissions that way so the respondents who appeared through Mr Poumako as their agent may be aware of the orders sought in the light of my findings. If I consider it appropriate to do so, I will call the matter on for further oral submissions; otherwise I will consider the written submissions and make what I consider to be the appropriate orders. I certify that the preceding one hundred and twenty-four (124) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Mansfield.

Bankruptcy Legislation Amendment Act 1996(Cth)

Ambrose (Trustee) in the matter of Poumako (Bankrupt) v Poumako

At a glance

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Before

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Judgment (16 paragraphs)

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Legislation Cited (4)

Cases Cited (16)

Cited By (3)