Was the transfer made with the intention of defeating creditors?
140 It will be recalled that a transfer of property by a person who later becomes bankrupt is void against the trustee in bankruptcy if 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 the transferor's main purpose in making the transfer was to prevent the property from becoming divisible among the transferor's creditors or to hinder or delay the process of making property available for division amongst his or her creditors (s 121(1)) (the statutory purpose).
141 The Trust submitted that the evidence did not establish that this was Mr Adzic's main purpose in transferring the Nicholls Property to the Trust. To the contrary, it argued that the evidence showed that his sole purpose was to raise money to pay his creditors.
142 In his written submissions Mr Lo Pilato relied on the following circumstances:
(1) the Bankwest facility had expired, was incurring default interest at a rate of more than $118,000 per month, and remained on foot only by reason of the injunction;
(2) the Bulum debt was the subject of a pending application for summary judgment;
(3) the McMillan debt proceeding was being prosecuted against both Mr Adzic and Space, and the Firm had initially acted for Mr Adzic in that proceeding;
(4) a debt to Townsend and Associates Architects of $300,000 had been outstanding since 2008, there is no evidence that any steps had been taken to pay it, and Mr Adzic admitted in his public examination that he had forgotten about it and had not included it in his Statement of Affairs to the Trustee;
(5) Mr Adzic was insolvent at the date of entry into each of the Costs Agreements, and this was not challenged in cross-examination;
(6) a report by CBRE, relied upon by the Trust to show that the Macquarie land was worth in excess of $15 million, was based on a number of incorrect assumptions; and
(7) on 26 October 2011 Mr Adzic attempted, unsuccessfully, to transfer the Nicholls Property to himself and Ms Mylecharane as joint tenants and the transfer was requisitioned on 5 December 2011, only two days before contracts were exchanged with the Trust.
143 Yet Mr Lo Pilato did not explain how many of these factors (or the combination of them) supported his contention that the main purpose of the transfer of the Nicholls Property was the statutory purpose.
144 Points (1)-(4) suggest that Mr Adzic was in serious financial difficulty. He might well have been concerned that he was insolvent or about to become insolvent. Item (7) might indicate that Mr Adzic, concerned about his solvency, was seeking in 2011 to do something to put the Nicholls Property, or at least a share of it, beyond the reach of his creditors. It might well suggest that when the requisition came through from the Land Titles Office, he decided instead to transfer the whole of the Property to the Trust. Of course, if the main purpose of the attempted transfer to Ms Mylecharane was to put the Property beyond the reach of Mr Adzic's creditors, it was a remarkably unsophisticated attempt. The consideration noted on the transfer was love and affection, which would have no value as consideration for the purposes of ss 120 and 121 of the Bankruptcy Act (see ss 120(5) and 121(6)), although Mr Adzic might not have appreciated that. Furthermore, if that were his main purpose, why would he not have sought to transfer his entire share in the Property to Ms Mylecharane?
145 In oral argument, Mr Blank of counsel, who appeared for Mr Lo Pilato, referred to three further matters.
146 First, he referred to the long period between the exchange of contracts for sale of the Nicholls Property and settlement and the fact that neither party appeared in any hurry to settle. He said that the long settlement "suggests that a reason for that transfer ... - it can be reasonably inferred - was to delay other creditors ..." But he did not say why this was so. Nor did he describe any logical connection between the long settlement and the purpose of hindering, defeating or delaying Mr Adzic's creditors. Indeed, the delay in settlement rather points in the opposite direction.
147 Secondly, Mr Blank referred to the fact that Mr Adzic and Ms Mylecharane stayed in the Property for six months before settlement and for some 12 months after settlement, yet paid no rent to the Trust in spite of an agreement to do so. This circumstance is undoubtedly suspicious.
148 Thirdly, Mr Blank referred to evidence as to Mr Adzic's belief about the market value of the Property. His evidence at the public examination, reflecting what he had stated in his asset and liability statement, was that:
he genuinely believed as at July 2008 that the Nicholls Property was worth in the vicinity of $1 million, possibly $1.1 million; and
by August 2011 he believed that the value of the Property had not decreased and had "potentially" increased.
149 This might indicate that Mr Adzic believed himself to be selling the Property for significantly less than its market value, from which it might be inferred that he had an improper motive in making the transfer. Mr Adzic admitted that in October 2011 he knew that if he transferred the house into someone else's name it was harder for his creditors to acquire the equity in it.
150 Mr Katekar for the Trust painted a different picture. His argument was as follows. Mr Adzic's commercial interests were bound up in Redevelopments, of which he was "the principal" beneficial owner. Mr Adzic was chasing a profit through the successful completion of Redevelopments' project. The evidence was that in October 2011 Mr Adzic urgently needed more money to put into Redevelopments, and Mr Saeedi offered to lend him the money, on condition that if Mr Adzic were unable to repay it, the loan would be treated as a deposit on the purchase of the Nicholls Property. In this way the loan would be "secured" by the Trust's ability to complete the transaction and purchase the Property. Thus, Mr Adzic's main purpose in entering into the contract for sale of the Nicholls Property was to obtain urgently needed funds for Redevelopments, in order to prevent its (and his) insolvency. It was because he never wanted to part with the house that there was a delayed settlement. But when he was unable to repay the loan and needed yet more money, he completed the contract and transferred the Property to the Trust.
151 A virtue of this theory is that it draws together the known events into a reasonably coherent narrative. It explains the purpose of the transaction, why the $100,000 was treated as a deposit on the sale of the Property, and the delay between contract and settlement. It also explains why Mr Adzic might have settled for a purchase price of less than what he believed to be the full market value of the Property. The theory is also supported by the evidence of Mr Adzic, Ms Mylecharane, and Mr Saeedi.
152 Of course, the theory is not without its flaws. It does not explain the attempt to transfer the Property into joint ownership with Ms Mylecharane for no valuable consideration or the curious timing whereby the contract of sale to the Trust was signed only two days after the transfer to Ms Mylecharane was requisitioned. Nor does it explain the inconsistencies in Mr Saeedi's account. In his affidavit Mr Saeedi said that in October 2011 he wished the $100,000 only to be a loan, that he hoped not to have to complete the purchase, and that it was not until November or December 2011 that he resolved to do so. On the other hand, earlier, in his public examination, Mr Saeedi had testified that in October 2011 he had already made up his mind to purchase the Property. Moreover, if the transaction was planned as security for the $100,000 loan, there is no good explanation why the money was advanced without security more than a month before contracts were exchanged.
153 Yet the trustee's theory leaves even greater questions unanswered. In particular, it fails to explain why Mr Adzic would want to transfer his interest in the Nicholls Property to Mr Saeedi in order to defeat his creditors. What did he stand to gain from such a transaction? If he sold the house to Mr Saeedi for a sum that he believed to be less than the market value, he might have been hoping to put the difference between the market value of the house and the purchase price beyond the reach of his creditors. But it was never explained how Mr Adzic would benefit from this. It was never put to Mr Saeedi, for example, that the arrangement was designed to "warehouse" the Property until such a time as it could be retransferred to Mr Adzic after the discharge of any bankruptcy. Nor was such a thesis explored with Mr Adzic in the public examination. While Mr Adzic did have the benefit of living in the Property rent-free for some 12 months after the title was transferred to the Trust, it is inherently unlikely that Mr Saeedi would have tolerated the situation indefinitely. After all, the Trust had paid Mr Adzic a substantial sum for the Property.
154 It is also difficult to place any reliance on Mr Adzic's evidence about his belief as to the value of the Property. That evidence was given in the context of an examination about two asset and liability statements bearing his signature. It is at least as likely as not that the value of the Property was inflated for the purposes of his asset and liability statements. They were prepared on Mr Adzic's behalf by his finance brokers, in order to be provided to prospective sources of credit. Moreover, at the time Mr Adzic signed the statements there is no evidence to indicate that he had taken any steps to value the Property, either formally or informally.
155 In order for Mr Lo Pilato to make good the proposition that the transfer was made with the intention of defeating creditors, he must show that "the circumstances appearing in the evidence [give] rise to a reasonable and definite inference, not merely to conflicting inferences of equal degree of probability" that, in transferring the Property to the Trust, his main purpose was the statutory purpose: The Trustees of the Property of Cummins v Cummins (2006) 227 CLR 278 at 292. In deciding whether the inference should be drawn from the primary facts, it is necessary to take into account the seriousness of the allegation and the gravity of the consequences, even though Mr Adzic is not a party to the proceeding: Cummins at 292; Evidence Act 1995 (Cth), s 140. Here the allegation is tantamount to one of fraud, where "clear or cogent or strict proof" is necessary: Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd [1992] HCA 66; 110 ALR 449 at 450. In such a case the reasonable satisfaction of the Court is not to be reached by "inexact proofs, indefinite testimony, or indirect inferences": Briginshaw v Briginshaw (1938) 60 CLR 336 at 362.
156 Ultimately, while the circumstances surrounding the transfer are highly suspicious and while Mr Adzic might well have been actuated by a desire to prevent, hinder or delay the process of making the Property available for division amongst his creditors, I am not satisfied that this was Mr Adzic's main purpose. This aspect of Mr Lo Pilato's case is based on indirect inferences and innuendo. He has not discharged his onus of proof.
157 That is not the end of the matter, however. If it can reasonably be inferred from all the circumstances that the transferor was insolvent or about to become insolvent at the time of transfer then the transferor's actual purpose is immaterial. The effect of s 121(2) of the Bankruptcy Act is that his main purpose is deemed to be the purpose referred to in s 121(1)(b), as Jessup J observed in Marchesi v Apostolou [2007] FCA 986; 5 ABC(NS) 131.
158 Yet the Trust submitted that s 121(2) is not a deeming provision but a presumption, which may be displaced by evidence. It is convenient to deal with this submission immediately. It must be rejected. It appears to have been based on a misreading of some remarks of Sackville J in Prentice v Cummins (No 5) (2002) 124 FCR 67 at [95]. There, his Honour observed that s 121(3) provides that s 121(2) does not limit the ways of establishing the transferor's main purpose and referred to what was said in Re Jury; Ashton v Prentice (1999) 92 FCR 68 at 82 [58].
159 In Re Jury at 82 the Full Court rejected a submission to similar effect. In Prentice only part of the relevant reasons in Re Jury was reproduced, perhaps contributing to the Trust's misconception. The first sentence of [58] was omitted and the paragraphs before and after were not included. In Re Jury at [57]-[59] the Full Court said this:
57 Counsel for Mr Ashton did not attack his Honour's finding that it could reasonably be inferred from all the circumstances that in August 1995 the bankrupt was insolvent. Rather, he argued that the presumption created by s 121(2) of the Act could be rebutted by direct proof that the transferor's main purpose was other than that described in s 121(1)(b). It was sought to derive support for that interpretation from the language of s 121(3).
58 However, s 121(3) does not weaken or make rebuttable the presumption created by s 121(2). What s 121(3) does is acknowledge that the trustee may resort to modes of proving the transferor's main purpose which are alternative to the presumption afforded by s 121(2). For example, the trustee may prove an admission by the transferee that the main purpose of the transfer was to prevent the property becoming divisible among the transferor's creditors, even though all of the circumstances at the time of the transfer did not permit, or positively contradicted, the inference that the transferor was, or was about to become, insolvent.
59 We are supported in this conclusion that s 121(2) and (3) have independent spheres of operation by the reflection that the transferor's evidence of his or her own subjective intention in making the transfer cannot usually affect the existence of circumstances giving rise to a reasonable inference of insolvency. In other words, even if the Court were to accept that the sole purpose of the transfer had been to effectuate a longstanding charitable or benevolent intention evidenced by a history of similar benefactions, that would not render unavailable the reasonable inference of insolvency required to support the conclusive presumption created by s 121(2).
(Emphasis added.)
160 The point the Full Court was making was that s 121(2) created an irrebuttable or conclusive presumption if, in the circumstances, it was reasonable to draw the relevant inference. An irrebuttable or conclusive presumption is the same, or has the same effect, as a deeming provision. Sackville J was under no misapprehension about this. Citing Re Jury, his Honour said at [95] that "if it can be reasonably inferred that the transferor was insolvent at the time of transfer, it will not matter if his or her subjective intention was not to prevent, hinder or delay the process of making property available for division among creditors". "On the other hand", his Honour continued, "if the trustee … does not rely on s 121(2), the trustee will need to prove that the transferor's subjective purpose was that described in s 121(1)(b)".
161 In Sheahan (Trustee) in the matter of Frost (Bankrupt) v Frost [2011] FCA 356 Mansfield J accepted that s 121(2) was a deeming provision and, having found that it was reasonable to draw the inference that the transferor was, or was about to become, insolvent, made a finding (at [127]) that the transferor's main purpose was the purpose described in s 121(1)(b).
162 The question, then, is whether, in the circumstances, it is reasonable to infer that at the time of transfer Mr Adzic was, or was about to become, insolvent. Self-evidently, that does not mean that the trustee must prove that the bankrupt was in fact insolvent or about to become insolvent: Permfox Pty Ltd, in the Matter of Chase v Official Receiver for the Bankruptcy District of New South Wales [2002] FCA 1564 at [94] (Allsop J). As the Full Court explained in Re Jury at [55]:
The statutory provision, as a matter of ordinary language, leaves open the possibility that it may also reasonably be inferred that the transferor was solvent. In other words, it is sufficient if the inference of insolvency is reasonably open. An analogy is the leaving of a case to a civil jury. If it can reasonably be inferred from all the circumstances that the defendant was negligent, or that the publication complained of was defamatory of the plaintiff, then the matter must go to a jury. Nevertheless the jury is not required to draw the relevant inference, and may not do so.
163 A person is solvent only if the person is able to pay all his or her debts when they become due and payable; if not, the person is insolvent: Bankruptcy Act, s 5(2) and (3). A person is not insolvent, however, merely for want of immediate access to cash to pay off the debts. Speaking of the position under the Bankruptcy Act 1924-1950 (Cth) (the predecessor of s 120 of the current Act) (the 1924 Act), Barwick CJ explained in Sandell v Porter (1966) 115 CLR 666 at 670:
Insolvency is expressed in s. 95 as an inability to pay debts as they fall due out of the debtor's own money. But the debtor's own moneys are not limited to his cash resources immediately available. They extend to moneys which he can procure by realization by sale or by mortgage or pledge of his assets within a relatively short time - relative to the nature and amount of the debts and to the circumstances, including the nature of the business, of the debtor.
The conclusion of insolvency ought to be clear from a consideration of the debtor's financial position in its entirety and generally speaking ought not to be drawn simply from evidence of a temporary lack of liquidity. It is the debtor's inability, utilizing such cash resources as he has or can command through the use of his assets, to meet his debts as they fall due which indicates insolvency.
164 If anything, the omission of the words "from his own money" from the definition of solvency in the current Act reinforces this position. It is also consistent with the position under the Corporations Act 2001 (Cth) where the definitions of solvency and insolvency are the same and underwent the same amendment (see s 95A). In Lewis v Doran [2004] NSWSC 608; 208 ALR 305 at [116], which was approved on appeal, Palmer J held that:
[Section] 95A requires the court to decide whether the company is able, as at the alleged date of insolvency, to pay all its debts as they become payable by reference to the commercial realities. If the court is satisfied that as a matter of commercial reality the company has a resource available to pay all its debts as they become payable then it will not matter that the resource is an unsecured borrowing or a voluntary extension of credit by another party.
165 On appeal (Lewis v Doran [2005] NSWCA 243; 219 ALR 555), Giles JA (with whom Hodgson and McColl JJA agreed) said at [109]:
Particularly when the limiting words are no longer part of the test, there is no compelling reason to exclude from consideration funds which can be gained from borrowings secured on assets of third parties, or even unsecured borrowings. If the company can borrow without security, it will have funds to pay its debts as they fall due and will be solvent, provided of course that the borrowing is on deferred payment terms or otherwise such that the lender itself is not a creditor whose debt cannot be repaid as and when it becomes due and payable. It comes down to a question of fact, in which the key concept is ability to pay the company's debts as and when they become due and payable.
(Original emphasis.)
166 This approach has been applied to the assessment of solvency and insolvency under the Bankruptcy Act (Whitton as Trustee of the Estate of Rose v Regis Towers Real Estate Pty Ltd (in administration) (2007) 161 FCR 20 at [35]-[38] per Buchanan J; Marshall and Tracey JJ agreeing at [1]). As the statutory definition in the Corporations Act is the same, there is no reason in principle why the approach should be any different.
167 It is an agreed fact that Mr Adzic was insolvent as at 31 May 2012 but there is no agreement as to the position on 7 December 2011, when contracts were exchanged.
168 But is the relevant time the time of exchange? What is meant by "the time of the transfer"?
169 Surprisingly, there is little authority directly on point.
170 As I have said, Mr Lo Pilato's position on this question is difficult to pin down. In his amended outline of opening submissions, he said:
56 A transfer includes a payment of money. Section 120(7)(b) of the Act refers to a person doing something that results 'in another person becoming the owner'. It is submitted that ownership does not transfer in property until settlement. The exchange of contracts only creates equitable rights for the prospective purchaser. Were the transaction not to complete, there would be nothing for the Applicant to avoid.
171 That rather suggests that his case is that the relevant date is the time of settlement.
172 On the other hand, in his outline of closing submissions, he said:
121 It is submitted the date of 7 December 2011 is the date the beneficial interest passed. Mansfield J, without consideration of principle, accepted this as the correct date in Poumako.
122 Where a new interest is created, the relevant date is the registration of the transfer.
173 It is unclear whether this represents a change of position, although the Trust seemed to think so, arguing in its closing written submissions that the relevant date is the date contracts were exchanged and claiming that:
[Mr Lo Pilato], it appears, no longer suggests otherwise: paragraph 121 of his closing submissions.
174 The issue was not addressed at all in oral argument.
175 In the case to which Mr Lo Pilato referred in his closing outline at [121] - Ambrose (Trustee) in the matter of Poumako (Bankrupt) v Poumako [2012] FCA 889 - Mansfield J, without adverting to the issue in the present case and without discussion of principle, treated the date of settlement as the relevant date.
176 The Trust relied only on a passage in the judgment of Lindgren J in Anscor at [34] where his Honour said:
[S]ince s 120(1) is triggered by a transfer for less than full consideration, if the transferor (later the bankrupt) sells land having a market value of $1 million for $950,000 at any time in the period beginning five years before the commencement of the transferor's bankruptcy and ending on the date of the bankruptcy, the provision is activated. It matters not that the transferee was a purchaser in good faith and for valuable consideration.
177 The Trust's submissions were apparently based on an assumption that "sells" means exchanges contracts. While this might well have been a reference to the sale price, there is nothing in the reasons to indicate that his Honour had in mind the distinction between exchange and settlement. A sale of real property is not completed until legal title passes and that only happens after settlement. "Sells" is as ambiguous in the present context as "transfers".
178 In Tyler v Thomas, where the contract of sale was dated 10 November 2000 and the sale was not completed until 22 November 2000, Graham J held that, since the beneficial interest in the property passed on the earlier date, the question of whether the consideration given by the bankrupt for the transfer of the subject property was less than its market value was to be determined as at the earlier date. Neither of the other two members of the Court (Branson J and Bennett J) appears to have considered the question, however, and it does not appear to have been an issue in the case.
179 On the other hand, in Camm v Linke Nominees Pty Ltd (2010) 190 FCR 193 (Camm), to which neither party referred, Tracey J reached a different conclusion on the question and his conclusion was not obiter.
180 Camm arose from an attempt by the trustees of the bankrupt estate of Mr Camm to have a transfer of a property to Linke Nominees declared void pursuant to s 121(1) of the Bankruptcy Act. The property was described in a statement of agreed facts as "an estate in fee simple more particularly described as Lot 4, Registered Plan 36729, County of March, Parish of Weyba, Local Government: Sunshine Coast, being Title Reference 12489178". A contract for the sale of the property by Mr Camm to Linke Nominees was executed on 26 October 1995 but settlement did not take place until the end of the following month by which time Mr Camm was bankrupt upon the making of a sequestration order. Mr Camm was discharged from the bankruptcy in 1999, but was made bankrupt again in 2003. It was the trustees of that second bankrupt estate who were seeking to have the transfer of the property set aside.
181 The principal issue was whether the trustees were entitled to apply for orders under s 121(1). The answer turned on whether the transfer of the property occurred before or after the 1995 sequestration order because s 121 operates on a "transfer of property by a person who later becomes a bankrupt". Mr Camm was a person who later became a bankrupt, but if the transfer of property occurred after the making of the sequestration order in the first bankruptcy, he could not have been the person who made the transfer. Upon the making of the sequestration order, any interest Mr Camm held in the land in question was vested in his trustee in bankruptcy by the operation of s 58(1).
182 Tracey J turned first to the High Court's decision in Peldan v Anderson (2006) 227 CLR 471. Although his Honour noted that the issue in that case was not of direct relevance to the case before him, he noted that the plurality held (at 481) that the expression "transfer of property" in the Act takes its ordinary meaning, and that s 121(1)(a) directs attention to "the act taken to be the transfer" and requires the identification of the property which had been in the hands of the transferor prior to that act being taken. While Tracey J acknowledged (at [41]) that an equitable interest in the land passed with the exchange of contracts (Tanwar Enterprises Pty Ltd v Cauchi (2003) 217 CLR 315 at 333), his Honour considered that the property in question (which was - as here - the legal estate) passed only in February 2006, when the instrument of transfer was lodged and registered. That was so because under the Land Titles Act 1994 (Qld) "[t]he title of the registered proprietor comes from the fact of registration, and it is this which is the source of the title" (Peldan v Anderson at 480).
183 The position under the ACT legislation is no different. Section 73 of the Land Titles Act 1925 (ACT) provides for the transfer of an interest in land "by registration of a memorandum of transfer". Section 77 states that the interest in land described in the transfer passes on registration. The memorandum of transfer of the Nicholls Property was not registered until 7 June 2012, one week after settlement.
184 Based on the basis of the reasoning in Camm, then, the time of transfer in the present case was 7 June 2012.
185 For reasons of comity I should follow Camm. While the question is not free from doubt, I am not satisfied that Tracey J was wrong. Although the definition of "property" in the Act includes an equitable interest and, on exchange of contracts, an equitable interest was created, the transfer of property which Mr Lo Pilato seeks to have set aside is the transfer of the legal title. That did not take place until 7 June 2012. I therefore find that the time of transfer was 7 June 2012.
186 Given the agreement that Mr Adzic was insolvent as at 31 May 2012, and the absence of any evidence to suggest that his finances improved after that time, I find that Mr Adzic was insolvent at the time of transfer and so his main purpose is taken to be that referred to in s 121(1)(b).
187 Lest I be wrong, however, I should consider the position as at 7 December 2011, when contracts were exchanged. Can it be reasonably inferred from all the circumstances that, at that time, Mr Adzic was either insolvent or about to become insolvent?
188 The trustee asserted that there were a number of debts due and payable as at 7 December 2011, including those owed to Mr Bulum and Mr McMillan. According to Mr Lo Pilato's affidavit of 12 June 2015, the value of the debt due to Mr McMillan alone was at least $2,011,920.
189 The effect of Mr Lo Pilato's evidence is that Mr Adzic's resources were nowhere near enough to meet these debts. As the Law Firm conceded, Mr Adzic "had virtually no income and virtually no assets". His assets consisted of the Nicholls Property, about $10,000 in shares, and a truck. According to Mr Lo Pilato's analysis (which was not challenged in this respect) and on the assumption that the Nicholls Property was worth $905,000, the value of all Mr Adzic's assets as at 7 December 2011 was just shy of $950,000. Even assuming that the Property and shares could be sold rapidly, Mr Adzic would still have been well short of the necessary funds to repay his debts as and when they fell due. The evidence indicates that he did not file an income tax return for the financial year to June 2012. In his statement of affairs dated October 2012, he said he had earned only $750 in income in the previous 12 months and had received only "irregular" payments from the Adzic Family Trust, the last of which Mr Lo Pilato said was $5,000 in November 2011. The figure appears in handwriting in a document annexed to Mr Lo Pilato's affidavit of 12 June 2015. It looks to me like $15,000, but nothing turns on the difference.
190 Despite this, the Trust did not concede that it could reasonably be inferred that Mr Adzic was, or was about to become, insolvent at 7 December 2011. What is more, it argued that Mr Lo Pilato had not discharged his onus of proof. There were two prongs to its argument.
191 First, the Trust launched a half-hearted attack on the existence of the debts.
192 It submitted that there was no evidence that the McMillan debt was due and payable and that, in fact, there was only evidence of "an alleged debt". That submission must be rejected. An affidavit was sworn in these proceedings by Mr McMillan, himself, in which he deposed to the making of the Share Sale Agreement and the creation of the debt, the last demand for payment of which he made in May 2011. Mr McMillan's affidavit does not state how much was due and payable in December 2011, nor does he mention the size of the debt at the time the May 2011 demand was sent. Presumably the relevant figure could be found in the letter of demand itself, which is said to appear in an exhibit to Mr McMillan's affidavit. But the exhibit was not tendered. Mr Lo Pilato's evidence, however, puts the McMillan debt as at least $2,011,920 as at 7 December 2011 (on the basis that this was the figure in August 2011) and this evidence was not objected to or challenged in cross-examination. Further, in his public examination Mr Adzic accepted he was indebted to Mr McMillan, conceding that as at December 2011, apart from the first instalment, he had not paid any of the amount owing under the Share Sale Agreement.
193 In cross-examination, Mr Lo Pilato was taken to an email from Mr McMillan to Mr Adzic of 25 August 2010, which shows that the two were in negotiations for an extension of time in which to pay the debt. Yet there was no evidence of a concluded bargain. Moreover, if it was the Law Firm's case that Mr Adzic was successful in negotiating an extension and, that as a result, the McMillan debt was not actually due and payable at 7 December 2011, it was at least incumbent on the Firm to put that to Mr Lo Pilato. But it did not do so. All that was put to Mr Lo Pilato about the email was the suggestion that Mr Adzic was "seeking at least to reach some kind of resolution with [Mr McMillan] as far as his debt is concerned". Mr Lo Pilato agreed.
194 In these circumstances, I am satisfied that a debt of at least $2,011,920 was due and payable to Mr McMillan as at 7 December 2011 and that Mr Adzic did not have anywhere near the personal resources required to pay it.
195 The second prong to the Trust's argument was that the Court must look at Mr Adzic's affairs with an eye for the "commercial realities" (Lewis v Doran [2005] NSWCA 243; 219 ALR 555 at [109]). Mr Katekar submitted that, in a practical sense, Mr Adzic's "financial world" was locked up in Redevelopments, that Mr Lo Pilato had failed to take into account Redevelopments' financial circumstances in forming his opinion on Mr Adzic's insolvency, and that there was therefore a "lacuna" in the evidence such that it could not reasonably be inferred that as at 7 December 2011 Mr Adzic was insolvent or about to become so.
196 The trouble with this submission is that the evidence does not suggest that in December 2011 Redevelopments either would or could assist Mr Adzic. In fact, it points in the opposite direction.
197 According to a report to creditors prepared by Redevelopments' administrators in December 2012, the company was in a state of "technical balance sheet insolvency" from at least 30 June 2009 onwards, and was able to continue trading only due to funding from its joint venture partner, Radical. The administrators note that the joint venture with Radical was terminated by Redevelopments in November 2011 after Redevelopments "began to experience cash flow difficulties" because funding promised by Radical was not forthcoming. After the joint venture with Radical fell through, Redevelopments entered into binding heads of agreement with Fulton Transport Pty Ltd, under which Fulton was to provide $12 million to Redevelopments in two instalments, the purpose of which, according to Mr Adzic, was to pay off Bankwest and Mr McMillan. This agreement was made on 1 December 2011 and did indeed, at that stage, hold the promise of putting the company back in funds. But Fulton was not required to make the first instalment under the heads of agreement until six weeks later - on 12 January 2012. In the event, Fulton did not fulfil its obligations and the deal fell through.
198 In these circumstances, it is impossible to see how, on 7 December 2011, Redevelopments could have found more than $2 million to provide to its director to meet his personal debts. There was no evidence to suggest that any further credit would be extended.
199 Moreover, even if the money were available, the Trust did not explain on what lawful basis Redevelopments could have advanced the necessary sum to its director for his personal use, particularly at a time when it was scrambling for funds to avoid its own insolvency.
200 In the result, I am satisfied that it can reasonably be inferred from all the circumstances that, at 7 December 2011, Mr Adzic was, if not insolvent, at least about to become insolvent.
201 It follows then that, regardless of whether the time of transfer was the time of exchange of contracts on the sale or the time the transfer was registered, Mr Adzic's main purpose in transferring the Property to the Trust is taken to be the purpose described in s 121(1)(b). Consequently, the transfer is void against the trustee in Mr Adzic's bankruptcy, unless the exception in s 121(4) applies, that is to say that:
(1) the Trust paid at least the market value of the Property;
(2) the Trust did not know, and could not reasonably have inferred, that Mr Adzic's main purpose in making the transfer was to prevent the Property from becoming divisible among his creditors, or to hinder or delay the process of making the Property available for division among them; and
(3) the Trust could not reasonably have inferred that, at the time of the transfer, Mr Adzic was, or was about to become, insolvent.
202 Each of these matters was pleaded in the defence.
203 For these purposes it is the position of Mr Saeedi, as the controlling mind and will of the Trust, which is relevant.
204 Contrary to the submission made on Mr Lo Pilato's behalf, the onus of establishing all of these matters rests with the Trust: Re Jury at [67]. No submissions were directed to the questions raised by s 121(4), either orally and in writing, and they do not appear in the agreed statement of issues. For this reason, I assume that the defence was abandoned. In any case, in my opinion, the onus has not been discharged, because I am not satisfied that the Trust paid at least the market value of the Property.