Barton, Terence v Official Receivers [1984] FCA 368

Federal Court of Australia|1983-12-13|Before: Lockhart JJ

This is an appeal from the judgment of a single judge of this court declaring that a payment made on or about 14 April 1973 by Thomas Barton (the bankrupt) to his uncle Terence Barton (the appellant) in the sum of $170,000.00 was "a settlement of property" within the meaning of s.120(1) of the Bankruptcy Act 1966 (the Act) and was not "made -- for valuable consideration" within the meaning of paragraph

120(1)(a) of the Act. It was ordered that the said payment

The Official Receiver had brought an application pursuant to ss.120 and 121 of the Act to avoid the payment. These sections in their 1974 form, as they applied to the

"120. (1) A settlement of property, whether made before or after the commencement of this Act, not being -

(a) a settlement made before and in consideration of marriage, or made in favour of a purchaser

or encumbrancer in good faith and for valuable consideration; or

(bd) a settlement made on or for the spouse or children of the settlor of property that has accrued to the settlor after marriage in right of the spouse of the settlor,

is, if the settlor becomes a bankrupt within two years after the date of the settlement void as against the trustee in the bankruptcy.

(8) In this section, "settlement of property" includes any disposition of property."

property, whether made before or after the commencement of this Act, with intent to defraud creditors, not being a disposition for valuable consideration in favour of a person who acted in good faith, is, if the person making the disposition subsequently becomes a bankrupt, void as against the trustee in the bankruptcy.

(2) Nothing in this section shall be taken to affect or prejudice the title or interest of a person who has, in good faith and for valuable consideration, purchased or acquired the property the subject of the disposition or any interest in that property.

includes a mortgage of property or a charge on or in respect of property."

In relation to s.120, the learned trial judge held that there was "a settlement of property" in favour of "a purchaser" "in good faith" but not "for valuable consideration." In his notice of appeal, the appellant contended that his Honour erred in holding that the payment was "a settlement of property" and in holding that it was not "for valuable consideration." In its notice of contention the Official Receiver contended that his Honour erred in holding that the appellant was "a purchaser" and that the payment was "made - - in good faith." It can be seen,

therefore, that each of his Honour's conclusions referred to

In relation to s.121, the learned trial judge held that there was "a disposition of property" in favour of a person who acted "in good faith" but not "for valuable consideration" and not "with intent to defraud creditors". His Honour applied the reasoning stated in his consideration of s.120 to reach the conclusion that under s.121 the disposition was in favour of a person who acted "in good faith" but not "for valuable consideration." In its notice of cross appeal the Official Receiver contended that his Honour erred in holding that the disposition was not made "with intent to defraud creditors" and in holding that it was in favour of a person who acted "in good faith". Therefore,

each of his Honour's conclusions referred to in relation to

s.-121, other than that the payment was "a disposition of

In the course of his finding of fact his Honour said:-

"In April 1973, the Barton family included Mrs. Barton senior, her son Alexander Barton and his wife and her mother Mrs. Buchalter. The two older ladies were over 70 and Mrs. Buchalter was sick. Both died in 1975. These four lived at 187 Edinburgh Road, Castlecrag, near Sydney, the older ladies being cared for by Mrs. Alexander Barton with the assistance of an experienced nurse and some domestic help. Terence Barton, (now the appellant) brother of Alexander, lived with his wife in a unit at McMahon's Point. Thomas Barton, the bankrupt, son of Alexander Barton, and his wife (nee Bellamy) Lived in an apartment at 21 Thornton Street, Darling Point, owned by A.T. Investments Pty. Limited (A.T.I.). It is said Mrs. Alexander Barton had looked after the elderly ladies for some years. It was proposed that the appellant, then aged 61 or 62, and his wife, should undertake this. Since these ladies, referred to as the grandmothers, had lived for some time at 187 Edinburgh Road, Castlecrag, it was suggested that 1t be appropriate they remain there and the appellant and his wife should also go to live there, Alexander Barton and his wife moving to other premises. The house itself was owned by Cordec Corporation Pty. Limited (Cordec). The evidence including that of the bankrupt was to the effect that over a period from mid 1972 to April 1973, there were conversations between Alexander Barton, the appellant and the bankrupt, including reference to the appellant and his wife taking over care of the grandmothers; Alexander Barton told the appellant he would need to buy 187 Edinburgh Road, Castlecrag, that the appellant said he did not have sufficient funds to buy the property unassisted whereat Alexander Barton said, "We will lend you the money." It was said that the necessity to buy the house was on the advice of a Mr. Grusman, a practicising barrister and a Queen's Counsel, who advised the Bartons and their companies, that the appellant who was not connected or associated with Cordec could not have the use of the house for nothing. There was also discussion as to lending the appellant money to purchase shares in Hawkesbury Developments Pty. Limited (Hawkesbury)

As part of the background it should be mentioned that on 4 April 1973 Messrs B.S. Smith and M.W.

Burke were, pursuant to s.170(1) of the Companies Act 1961 (N.S.W.), appointed to investigate the affairs of thirty companies and later, a further thirty one companies referred to in annexures 1 and 2 to the First Interim Report on the Special Investigation of the Barton Group of Companies (the First Interim Report) dated 28 August 1973. All companies referred to in these reasons, except what are apparently Swiss Corporations, were mentioned and included in those annexures. Other evidence is to the effect that Alexander Barton, and probably the bankrupt, were intending to make an overseas

trip in 1973 though the time for it had not been precisely fixed."

bankrupt and his wife left Australia by air. Before their

departure, the bankrupt and the appellant entered into a loan

"THIS DEED IS MADE the 14th day of April One Thousand Nine Hundred and Seventy Three BETWEEN THOMAS BARTON of 23 Thornton Street Darling Point New South Wales (hereinafter referred to as "the lender") and TERENCE BARTON of 154 Bellevue Road Double Bay New South Wales (hereinafter referred to as "the borrower").

The lender shall lend to the borrower the sum of $170,000.00 the receipt whereof is hereby acknowledged upon the following conditions:-

(a) Interest shall be payable at the rate of 1/2% in excess of the rate from time to time paid by the Commonwealth Savings Bank to depositers who have deposited sums not exceeding two thousand dollars in that bank. Such interest shall be payable as to the first five years of the loan on the fifth annual anniversary of the date of the making of the loan and thereafter at five yearly intervals.

expiration of twenty years of the making of the loan."

purchased the Hawkesbury shares for $50,000 and the house at

187 Edinburgh Road and its contents for $120,000. The

appellant and his wife immediately moved into the house. It was expected that the appellant might derive income from

those shares, which he could later sell at a profit, and so

On 23 August 1974 an order of sequestration was made

against the estate of the bankrupt, of which the Official

The appellant's first submissions on appeal related to the learned trial judge's finding that the Official Receiver had established that the appellant was not a purchaser "for

His Honour began his consideration of this question by referring to a number of authorities dealing with the meaning of the words "for valuable consideration" in s.120 of the Act and in s.42 of the Bankruptcy Act 1914. (Eng), which is in terms almost identical with 8.120. Those authorities included In Re a Debtor, Ex Parte The Official Receiver

(Trustee of the Property of the Debtor) v Morrison (1965) 1 W.L.R. 1498 in which Stamp J. said at p.1505:

"In construing the section, I must have regard to the fact that it is clearly formed to prevent properties from being put into the hands of relatives to the disadvantage of creditors, and as was said, in effect, by Sir George Jessel M.R. in

Ex parte Hillman, the section falls to be construed in a commercial sense."

His Honour also referred to Re Windle (1975) 3 All E.R. 987 where at p.995 Goff J. cited this passage from Morrison's

In Re Windle a bankrupt had transferred to his wife the matrimonial home, subject to a mortgage but having a valuable equity of redemption. Goff J. held that the wife's covenant to indemnify the bankrupt against his liability under the mortgage could not be regarded as valuable consideration. He

- ~ for this purpose the expression 'purchaser for valuable consideration' does not import a purchase in the strict sense of a contract of purchase and sale, but it does postulate a person who in a commercial sense provides a quid pro quo:"

In the earlier decision of Re Densham [1975] 3 All E.R. 726 Goff J. had held that a wife's contribution to the original purchase of the matrimonial home was not valuable consideration in a commercial sense and accordingly the

interest conferred on her by her bankrupt husband constituted

a settlement voidable under the section. At p.735-736 Goff

"I cannot say, therefore, that there was not a valuable consideration, because it did not equal the share given up by the bankrupt or cannot be evaluated so as to show that it did. However pearing in mind the approach to the section of Stamp J. in Morrison [1965] 3 All E.R. 453 and the views expressed in the cases to which I have referred, that one must look at it in a commercial sense, I cannot think that the contribution by the wife in respect of which she is in any event entitled to an appropriate aliquot share in equity, and which ex hypothesi affords nothing in relation

to any larger share can, on these principles, be held to be valuable consideration within the

Re Windle was applied by Brightman J. in Trustee of C.R.

Spinks (in bankruptcy) v Dicker which is noted at 122 Sol Jo

"However, the creditors had to be 'purchasers for valuable consideration' within the section and there had to be a quid pro quo in a commercial sense for the surrendered asset: see Re Windle (a

bankrupt), ex parte Trustee of the Property of the Bankrupt v Bankrupt [1975] 1 WLR 1628. The only consideration moving from the creditors was the undertaking to give notice of proceedings. Any or all of the creditors could have given seven days' notice the moment the deed was signed and therefore the advantage to the debtor was a triviality. The quid pro quo was of no commercial value at all. There was no advantage in it to the debtor".

His Honour also referred to Re Abbott (1982) 3 All E.R. 181. In that case a wife compromised her bona fide claim to a property adjustment order under s.24(1) of the Matrimonial Causes Act 1973 (Eng) in return for the right to part of her bankrupt husband's share in the net proceeds of sale of the matrimonial home. The court held the wife to be a purchaser

Peter Gibson J. at p.184 summarised the effect of the earlier English cases as establishing three propositions: firstly, "The word 'purchaser' in s.42(1) means a buyer in the ordinary commercial sense, that is to say a person providing a quid pro quo:"; secondly, "The consideration

moving from the purchaser need not replace in the hands of

the debtor the consideration moving from the debtor:"; thirdly, "The consideration given by the purchaser need not be equal in value to the consideration given by the debtor,

though it must be valuable consideration in the commercial

Sir Robert Megarry V-C at p.187 when considering the meaning of "valuable consideration" in 3.42(1) of the English

"The question, then, is what that meaning is. Plainly 'good consideration', in the sense of the natural love and affection that a man has for his wife and children, is not enough. Nor is a merely nominal consideration, even though it would suffice to support a simple contract at common law. In the context of the avoidance of settlements by a trustee in bankruptcy, a 'purchaser . . . for valuable consideration' must be someone who can not only be described as being a 'purchaser' but can also be said to have given a consideration for his

and not one which is merely nominal or trivial or colourable.

It is in this sense that I understand the use of the phrase about providing a quid pro quo that is to be found in the authorities. In that phrase, I

do not think that the word 'quid' is confined to some material asset which can or will replace in

the hands of the debtor the asset of which he has disposed to the purchaser."

In my opinion, s.120(1)(a) requires the Official Receiver to show that the appellant had not provided consideration which had a real and substantial value, amounting to a quid pro quo in a commercial sense for the loan which was made to him. In a case such as the present it is helpful to see what the appellant obtained under the loan

What the appellant obtained under the loan was the immediate payment to him of $170,000.00, which he or his executor was required to repay in 1993 dollars, with no repayment of capital required before the expiration of 20

What the appellant agreed to give in return included interest at a rate which his Honour found to be effectively 4 1/28, upon evidence which he said was not contradicted. Before us there was some discussion as to the accuracy of that figure but it seems clear that the rate of interest from the date of the loan to the time of trial was of this order and for the balance of the term would have been likely to remain considerably lower than the normal interest rates

In considering the loan, it is permissible for the Court to apply its general knowledge of interest rates (see Wilson

v Moss (1909) 8 C.L.R. 146 per Isaacs J at p.167,) general

increases in the cost of living, but not of particular

statistics (see Re Richardson 1920 S.A.S.R. 25), and the

general inflationary trend in the economy (see National

Trustees Executors and Agency Co of Australasia Ltd 1973 V.R. 610).

So regarded, the interest payable was very low, when considered at its face, or nominal value. When one looks at

it in real terms, making allowance for likely future

inflation over the life of the loan, even taking a view of the future favourable to the case for the appellant, the real rate of interest shrinks greatly, if it does not altogether

In addition, interest was payable at 5 yearly intervals. If one contrasts this even with interest payable annually, which would ordinarily be regarded as a term favourable to a borrower, the appellant was in effect to receive an interest free loan of the amount of interest that would have been payable, say at the expiration of the first year, for four years and corresponding interest free loans in respect of later years. The effect of this discounting factor upon the real return to the lender serves to emphasise the striking disproportion between what the appellant obtained under the

loan agreement and what he agreed to give in return.

The covenant by the appellant to repay and the covenant

to pay interest must be valued in the light of his age at the time of the loan, 61 or 62 his comparatively modest means,

and the term of the loan. His Honour found that the evidence disclosed no great earning capacity by him "or prospects thereof or of his ownership of capital assets of such worth as to encourage one to form a favourable opinion

The appellant's agreement to care for the two grandmothers is to be considered in the context that he was

not accepting the sole financial responsibility for them. He

agreed to buy the house and move into it with his wife, in the place of Alexander Barton and his wife, but there was nothing to suggest that the financial support of other members of the Barton family for the ladies would not continue to be available. The appellant's financial position was seen as being much inferior to that of Alexander Barton and, indeed, of the bankrupt, who was, after all, making this

The family arrangement that the appellant would take care of the ladies is to be considered in this context and even taking it into account, together with the appellant's agreement to buy the house and shares at values which were not attacked as improper or inappropriate, there would, in my opinion, be no reason to disturb his Honour's finding that the appellant was not a purchaser "for valuable

consideration" within the meaning of s.120(1)(a) of the Act.

The appellant also challenged his Honour's finding that the deed amounted to a settlement of property within the meaning of that enactment. Under gs.120(8) "settlement of property" includes any disposition of property. "Property" means real or personal property of every description, whether situate in Australia or elsewhere, and includes any estate, interest or profit, whether present or future, vested or contingent, arising out of or incident to any such real or

The loan was not made to the appellant so that the money

should be immediately dissipated or consumed. He received the right to the use of the money for 20 years and it was contemplated that he would apply if for the purposes of the purchase of designated real and personal property. The real property in turn was to be retained by him as a residence not only for himself and his wife but also for the two grandmothers. There remained an obligation upon him to repay

In my opinion, the payment of the sum of $170,000 by the bankrupt to the appellant amounted to a settlement of property within the meaning of s.120 (sée Re Hyams 19 F.L.R. 232 at 252 per Gibbs J, as he then was, and the citations

In Re Ward (Sydney, 17 August 1984) Wilcox J. considered the English and Australian authorities on the meaning of "settlement" and drew attention to the fact that "settlement" is no longer defined as including a "conveyance or transfer of property" but as including "any disposition of property". His Honour expressed the view that it ought to be enough to constitute a settlement that the relevant transaction is a deliberate disposition of a capital fund, saying that "it ought to be immaterial whether the settlor contemplates that the capital fund will be held indefinitely in specie, converted to some other form of capital or spent by the settlee. However this may be, it is not necessary to determine this case by reference to any wider interpretation

of the word 'settlement' than that indicated in the

authorites to which I have referred". In the case before us, it is unnecessary to decide whether a wider interpretation is justified, but if the question were to arise, there is

clearly, if I may say so with respect, a great deal to be

By leave, the appellant also argued two grounds not included in his notice of appeal. The first was that his Honour erred in ordering the appellant to pay the sum of $170,000 to the Official Receiver in the absence of any

finding that payment of this amount was necessary to satisfy

the debts of the bankrupt and the costs of the bankruptcy.

In my opinion, this contention is well founded (see In re Macdonald ex parte McCullum 1920 1 KB 205 at 212). I would vary his Honour's order by deleting the order that the appellant pay the sum of $170,000 to the Official Receiver by reserving leave to the Official Receiver to apply to his

Honour, pursuant to the liberty which was reserved, for an

The second ground argued by leave was that "his Honour erred in ordering the appellant to pay the whole of the costs of a long hearing a great part of which was directed to issues upon which the appellant succeeded. "In the course of that hearing his Honour heard a great deal of evidence and he said of the appellant that he was not a witness whose testimony on disputed matters he would readily accept and

that he had formed "an unfavourable view of his credibility

and indeed of his motives." I would not disturb the order for costs.

I do not find it necessary to decide the other questions

Save for the variation of his Honour's order set out

I certify that this and the fourteen (14) preceding pages are a true copy of the Reasons for Judgment herein of the Honourable Mr_Justice Sweeney

ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN: TERENCE BARTON Appellant

and - THE OFFICIAL RECEIVER Respondent CORAM: Sweeney, Fisher & Lockhart JJ.

FISHER J.: In this matter I have had the opportunity to peruse the draft reasons of Sweeney J. I agree with him that the appeal should be dismissed and generally with his reasons. There is no need for me to repeat the facts which he has set out and which I adopt. I will merely andicate briefly my findings on the

I agree with the trial judge and with Sweeney J. that the transaction in question was a "settlement of property" within

the meaning of s.120 and s.121 of the Bankruptcy Act 1966 ("the

Act"). That transaction was essentially a payment of money upon certain specified terms and conditions, in particular the condition that an equivalent sum was to he repaid at the expiration of 20 years. This latter condition amply complies with the requirement of Dixon J. in Williams v Lloyd (1933) 50 C.L.R. 341 at page 375 that "the retention of the property in some sense must be contemplated and not its immediate dissipation or consumption". At that time "settlement" was defined as including "any conveyance or transfer of property". There is lattle doubt that by subsequently defining 1t to include any "disposition of property" the legislature intended to expand the ambit of the term. As Meqgarry V.C. said in Re Abbott £1982] 3 All E.R. 181 at page 187

"But the 1914 Act has understandably cast its net wide.

Under s.42(4), the payment 1s a 'settlement' because that word includes 'any conveyance or transfer of property'; and under s.167 'property includes 'money'."

By its amendment to the definition of settlement the Australian legislature has clearly indicated that it intended to cast the

The respondent contended that the trial judge erred in holding that the appellant was a "purchaser". However, bearing in mind, in particular, the wide scope given to the meaning of "settlement", I have no doubt that the trial itudge was correct in his finding and there is little profit in the circumstances in

The principal question argued before us and upon which this appeal falls for determination 15 whether the consideration provided by the appellant for the payment to him of $170,000 was

"valuable consideration" as required by the Act. Megarry V.C. in

Re Abbott supra construed this requirement as consideration "which has areal and substantial value, and not one which is merely nominal or trivial or colourable". If one adds to this the requirement that the consideration must be viewed "ina commercial sense" (Re Densham £19751] 3 All E.R. 726 per Goff J. at 735-736). a critical assessment of the aggregate of the items of consideration here leaves little doubt as to the correct answer. It 15 of course accepted that the consideration is not required to be adequate or sufficient. But it 1s not proper in My view to comsider each term upon which the loan was made

separately and divorced from other terms. In other circumstances

the duration of this loan or the rate of interest might be commercially acceptable and of real and substantial value. However when the terms are considered together there 1s no doubt that the consideration in this matter was merely nominal and in fact illusory. An unsecured loan of a substantial sum for 20 years to a person 62 years of age with limited means is immediately suspect. This suspicion 1s compounded when it is apparent that the rate of interest was that normally applicable to a smail sum of money repayable on demand or short notice. It is thus a rate which in present circumstances takes no account and makes no provision for inevitable depreciation in the value

of money during the term of the loan. The fact that the lender

received no payments of interest until the expiration of the first and each subsequent five year period of the loan confirms that this consideration 1s both trivial and colourable. The consequence of the transaction was that the estate of the bankrupt available to creditors was effectively diminished, for all practical purposes, to the extent of $170,000. The fact that the transaction was alleged to be a family dealing, with the appellant ,agreeing to care for elderly relatives during an unspecified period, does little in my opinion, to establish that the consideration should be assessed as valuable. The fact that the consideration 1s capable of monetary quantification means that 1t 1s more able to be critically assessed than if it was consideration in the nature of a forbearance to sue or compromise of a dispute. The trial judge in my opinion correctly concluded

The respondent challenged the trial judge's finding that the settlement was made 1m good faith and his finding that, in relation to 5.121, 1t was not made with intent to defraud creditors. I would agree with the latter finding, as there was no evidence that at the date of the settlement the bankrupt, and indeed the appellant, could have reasonably heen aware that the bankrupt had any creditors. The trial judge also was of opinion that the requirement that the purchaser should be "a purchaser in

good faith" was established, or more correctly that the

respondent had failed to prove to the contrary. I agree with

this finding if the sole test of bona fides was that relied upon

by the trial judge, namely that "existence of knowledge or suspicion of an inability to pay debts as they fall due negatives

good faith". This test was taken from the judgment of Latham

C.J. an Downs Distributing Company Ltd. v Associated Blue Star Stores Pty. Ltd. (In liquidation) (1948) 76 C.L.R. 463 @ 472. In

that case however the High Court was considering "good faith" in

the context of the preferential payments provisions in 5.95 of the then Bankruptcy Act. It has been said that these words do not necessarily have the same meaning in other sections of the Act (See Williams on Bankruptcy 18th Edition p.375 McDonald, Henry and Meek, Australian Bankruptcy Law 5th Edition p.320) and that under the sections dealing with avoidance of settlements they mean "absence of dishonesty or of any conscious attempt to defraud any other person". If this be the case, there is much to be said for a wider review of the present transactions beyond merely considering their impact upon the anterests of the bankrupt's creditors. In this regard I note that Buckley L.J. in Re Pope (19087 2 K.B. 169 at 174 said that the "words 'in good faith' exclude colourable transactions" and also that the

expression normally means that dealings are made with honesty and

In this present matter the inference can fairly be drawn that the purpose of the transactions was to remove from two of the Barton family companies the only valuable or potentially valuable assets of the group, namely the Castlecrag dwellinghouse

and the shares in Hawkesbury Developments Pty. Ltd. Such

withdrawals took place very shortly after investigators had been appointed to these companies under the Companies Act 1961 (N.S.W.) By arranging the transactions the bankrupt and his father as directors mot only ensured that these assets were vested in friendly hands, but also that the bankrupt's loan accounts with the two companies became virtually worthless. The

trial judge found that the appellant's participation in the

transactions "was that of an acquiescent at the behest of the Dankrupt and Alexander Barton" and that he would not readily accept the appellant's evidence. In my opinion this inference as to the real purpose of the transactions can fairly be drawn and the evidence of the appellant would not persuade one to the contrary. However ain the circumstances of this matter i21t 15 meither necessary nor desirable to form any concluded view, Particularly as this as the purpose of the transactions does not appear to have been put to the participants. It 1s also proper to observe that to approach "good faith" in thas manner may well

not accord with the view of Gibbs J., as he then was, in Re

Hyams, Official Receiver v Hyams (1970) 19 F.L.R. 232 at page 256 where he said that "in good faith", in the context of the predecessor to 5.120, means "without notice that any fraud or preference contrary to the statute 1s intended". However it was

not necessary on the facts of that case to decide whether a wider

meaning can in appropriate circumstances be given to the words.

should not be ordered to pay the full amount of $170,000 to the

respondent, but only so much as is required to discharge the obligations of the bankrupt. But for this necessary variation in

the order of the trial judge, the appeal should be dismissed with

i curtify that this and the 6 preceding ¢ «gas are a true copy of the Reasons for Juagment of Mr Justice Fisher

ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN : TERENCE BARTON Appellant AND: THE OFFICIAL RECEIVER

Respondent CORAM: Sweeney, Fisher & Lockhart JJ. DATE: |2 November 1984

April 1973 was a busv and eventful month in the Barton household. Alexander Barton lived in a house. No. 187 Edinburah Road, Castlecrag ("the house") with his wife and their mothers - Mrs. Barton Snr. and Mrs. Buchalter. The two older women were over 70 vears of age and Mrs. Buchalter was sick; they both died in 1975. Mrs. Alexander Barton cared for the older women. The house was owned by a company, Cordec Corporation Pty. Limited ("Cordec"), of which Mr. Alexander Barton and his son, Thomas Barton, ("the bankrupt") were

Terence Barton, the appellant, is a brother of Mr. Alexander Barton. In April 1973 he was 62 years of age and lived with his wife in a flat at McMahons Point.

From about mid 1972 to April 1973 Mr. Alexander Barton, the appellant and the bankrupt discussed from time to time the possibility of the appellant and his wife living in the house and taking over the care of Mrs. Barton Snr. and Mrs. Buchalter. It was envisaged that the appellant would buy the house and, as he did not have sufficient funds, to do this. Mr. Alexander Barton would arrange a loan to the appellant to enable this to be done. It appears that senior counsel advised the Bartons and their companies that the appellant could not have the use of the house for nothing as he was not associated with Cordec. There was also discussion amonaq the Bartons about the possibility of the appellant being lent sufficient funds to purchase shares in a company, Hawkesbury Developments Pty. Limited ("Hawkesbury"), also apparently a company in which members of the Barton family had interests. The object of the loan was to enable the appellant to derive income from the shares to enable him to help look

Attornev-General of New South Wales, pursuant to gs. 170(1) of the Companies Act (N.S.W.) 1961. to investigate the affairs of a larae number of companies in which Mr. Alexander Barton and the bankrupt

Saturday, the 14th to Tuesday, the 17th April 1973 were very

busy days for the Bartons. On the Saturdav, two meetings were held at

the house; one being a meeting of Cordec and the other a meeting of Inexco Ptv. Limited ("Inexco"). Mr. Alexander Barton and the bankrupt were directors and shareholders of Inexco. The appellant was an alternate director for Mr. Alexander Barton and the for bankrupt in Cordec and Inexco. It is not entirely clear whether the meetinas were of directors or shareholders: but nothing turns on this. The meetings were apparently arranged with some urgency. Present at both meetings were Mr. Alexander Barton. the bankrupt and Mr. I.M. Moore, a solicitor who was then acting for the bankrupt and the appellant. Mr. Moore was also secretary of the two companies. A resolution was passed at the meeting of directors of Cordec that the house and its" contents should be sold to the appellant for the sum of $120,000. A resolution was passed at the meeting of directors of Inexco that the shares owned by it in Hawkesbury ("the shares") be sold to the

On the same day a deed of loan was executed by the bankrupt

as lender and the appellant as borrower whereby the bankrupt lent the appellant $170,000. The material provisions of the deed are as

"THIS DEED IS MADE the 14th day of April One Thousand Nine Hundred and Seventy Three BETWEEN THOMAS BARTON of 23 Thornton Street Darling Point New South Wales (hereinafter referred to as "the lender") and TERENCE BARTON of 154 Bellevue Road Double Bav New South Wales (hereinafter referred to as "the borrower").

The lender shall lend to the borrower the sum of $170,000.00 the receipt whereof is hereby acknowledqed upon the following conditions:-

(a) Interest shall be payable at the rate of 1/2% in excess of the rate from time to time paid by the Commonwealth Savings Bank to depositers who have deposited sums not exceeding two thousand dollars in that bank. Such interest shall be payable as to the first five years of the loan on the fifth annual anniversary of the date of the makina of the loan and thereafter at five yearly intervals.

(b) The principal shall be repayable on the expiration of twentv years of the making of the loan."

The effective rate of interest payable on the loan was 4.25%,

The loan of $170,000 was made to the appellant for the

purpose of enabling him to purchase the house ($120,000) and the shares ($50,000). It was thought apparently that the shares would rise in value in the future, thus enabling the appellant to derive income from them or to resell them at a profit. The appellant would then have a house in which he and his wife could live and care for the

The provision of the funds to enable the appellant to purchase the house and the shares required an exchandae of cheques to be made between the appellant, Cordec, Inexco and the bankrupt. On 14 April 1973 Inexco owed the bankrupt $80.000 - $100.000 and Cordec owed him $170,000 - $180,000. On the same day the bankrupt drew a cheque

in favour of the appellant for $170,000 which he handed to the

appellant. The appellant made out two cheques on his account with the Rural Bank, one as to $120,000 in favour of Cordec and the other as to $50,000 in favour of Inexco. On the same day a contract for the sale of the house was executed. It had apparently been prepared before then. A memorandum of transfer of the house was also executed bv Cordec that day. The contract and memorandum were each dated 14 April 1973. Mr. Moore acted for the vendor, Cordec. The appellant aqave an indemnity to Mr. Moore safequarding him against loss that miqht arise from his not having carried out full conveyancing procedures because

of the expedition with which the transaction was completed.

On Monday, 16 April 1973 Cordec drew a cheque in favour of the bankrupt for $144,000 and Inexco drew a cheque in his favour for $26,000, and those cheques were paid that day to the account of the bankrupt with the head office of the Bank of New South Wales. George Street, Svdney. On the same dav the appellant's two cheques dated 14 April 1973 and drawn on the Rural Bank were handed to Mr. Alexander Barton who tore them up. The appellant, the bankrupt anda Mr. Maloney (the secretary of the Barton companies) went to a branch of the Bank of New South Wales where Cordec, Inexco and the bankrupt had accounts. There was opened in the name of the appellant a bankina account into which he paid the cheque for $170,000 qiven to him bv the bankrupt. The appellant agreed that he opened the new account so that there could be an immediate clearance of all cheques. He obtained a cheque book containing five cheques. Two cheques were written out for him: one in favour of Cordec for $120,000 and the other in favour of

Inexco for $50,000. He signed both cheques on 16 April 1973. They

were to replace the two cheques which had been torn up by Mr.

Alexander Barton. The cheques were paid into the accounts of Cordec

The result of these events on Friday 14 and Monday 16 April

(a) The appellant benefited by the loan to him from the bankrupt of $170,000 which he used immediately to pay the purchase price for the house and for the shares.

(b) The assets of the bankrupt were reduced by the pavment out of his bank account of the sum of s170,000 lent to the appellant.

(ec) The indebtedness of Cordec and Inexco to the bankrupt was. reduced by the sums of $144,000 and $26,000 respectively and in lieu thereof the bankrupt was entitled to be paid $170.000 bv the appellant upon the expiration of 20 years, when the appellant would be 82 vears old, assuming he survived until then. The loan to the appellant was unsecured and no provision was made for acceleration of repayment of the principal upon the happening of any future event. for example the death of the appellant or default in payment of interest or the sale of the house. In the meantime interest at a verv low rate was not payable until the end of five years and thereafter not until the end of each successive five year period.

(da) Cordec no longer owned the house and Inexco no longer owned

The appellant and his wife immediately moved into the

Also on Monday 16 April 1973 arrangements were made through a travel agent for the reservation and purchase of airline tickets to

Hong Kong and from Hong Kong to Frankfurt for Mr. Alexander Barton, his wife, the bankrupt and his wife. It appears that some preliminary inquiries were made about a week earlier relating to the proposed travel. The tickets were collected on Tuesday, 17 April 1973 by the Bartons and they all left that dav for Honqg Kong. They departed without having told anyone of their intention to depart except perhaps

Mrs. Barton Snr. They were absent from Australia for a lona time.

On 20 June 1973 a notice of assessment to income tax issued in respect of the taxable income of the bankrupt for the year ended 30

June 1972 under which over $77,000 tax became payable on 23 July 1973.

On 28 Auqust 1973 a petition was presented to the Federal

Court of Bankruptcy by a creditor of the bankrupt for an order

sequestrating the bankrupt's estate for money lent by the creditor to

the bankrupt between 5 and 17 April 1973. The acts of bankruptcy alleged in the petition each relied on an intent on the part of the

The petitioning creditor was paid the amount of its debt bv the appellant upon the instructions of the bankrupt and on 10 December

1973 an order was made by the Federal Court of Bankruptcy substituting

the Deputy Commissioner of Taxation as petitioning creditor. On 23 August 1974 an order of sequestration was made against the estate of the bankrupt and The Official Receiver (the respondent to this appeal)

The respondent applied to this Court to avoid, pursuant to ss. 120 and 121 of the Bankruptcy Act 1966 ("the Act"), the pavment of $170,000 made by the bankrupt to the appellant. The application was heard by a single judge of this Court (McGreqor J.) who declared that the payment made on or about 14 April 1973 by the bankrupt to the

respondent in the sum of $170,000 was "a settlement of propertv"

within the meaning of sub-s. 120(1) of the Act and was not "made ... for valuable consideration" within the meaning of paragraph (a) of sub-s. 120(1); and declared also that the said pavment was void as against the respondent. His Honour ordered the appellant to pav the

sum of $170,000 to the respondent and to pay the respondent's costs.

The appellant appealed to the Full Court of this Court from those

Sections 120 and 121 of the Act in their form at relevant

"120(1) A settlement of property, whether made before or after the commencement of this Act. not being -

(a) a settlement made before and in consideration of marriage, or made in favour of a purchaser or encumbrancer in good faith and for valuable consideration: or

(b) a settlement made on or for the spouse or children of the settlor of property that has accrued to the settlor after marriage in riqht of the spouse of the settlor,

is, if the settlor becomes a bankrupt within two years after the date of the settlement void as against the trustee in the bankruptcy.

(8) In this section, "settlement of property" includes any disposition of property."

"121 (1) Subiect to this section. a disposition of property, whether made before or after the commencement of this Act, with intent to defraud creditors, not being a disposition for valuable consideration in favour of a person who acted in

At a glance

Court

Decision date

Before

Catchwords

Source

Catchwords

Judgment (283 paragraphs)

Cited By (1)