Mateo v Official Trustee in Bankruptcy

Federal Court of Australia|2002-03-27|Before: Tamberlin J

REASONS FOR JUDGMENT 1 On 31 July 2001, the applicant filed an application to set aside a Notice from the Official Trustee ("the Notice") pursuant to s 139ZS(1) of the Bankruptcy Act 1966 (Cth) ("the Act"), which had been issued on behalf of the Official Trustee in Bankruptcy ("the Trustee") to the applicant on 18 June 2001. 2 Sections 139ZQ and 139ZS of the Act relevantly read: "139ZQ Official Receiver may require payment (1) If a person has received any money or property as a result of a transaction that is void against the trustee of a bankrupt under Division 3, the Official Receiver: (a) if the Official Trustee is the trustee - on the initiative of the Official Receiver; or (b) if a registered trustee is the trustee - on application by the trustee; may require the person, by written notice given to the person, to pay to the trustee an amount equal to the money or the value of the property received. (2) The notice must set out the facts and circumstances because of which the Official Receiver considers that the transaction is void against the trustee. (3) The notice may: (a) require the amount to be paid at a time or within a period set out in the notice; or (b) require the amount to be paid at such times, and in such instalments, as set out in the notice. … 139ZS Power of Court to set aside notice (1) If the Court, on application by a person to whom a notice has been given under section 139ZQ or by any other interested person, is satisfied that this Subdivision does not apply to the person on the basis of the alleged facts and circumstances set out in the notice, the Court may make an order setting aside the notice. (2) A notice that has been set aside is taken not to have been given." 3 On 18 October 2001, the respondent filed a cross-claim against the applicant seeking declarations that:

the s 139ZQ notice is valid;
the transfer by Arturo Mateo ("the bankrupt") of land at Merrylands to his wife (the applicant) pursuant to court orders signed on 18 April 2000 and made by the Family Court of Australia on 22 June 2000 ("the Consent Orders") is void as against the Trustee, pursuant to ss 120 and 121 of the Act;

Legislation 4 Sections 120 and 121 of the Act relevantly read as follows: "120 Undervalued transactions (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. … (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. (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. … (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) themarket value of property transferred is its market value at the time of the transfer. 121 Transfers to defeat creditors (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. (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. (3) Subsection (2) does not limit the ways of establishing the transferor's main purpose in making a transfer. (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 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." (Emphasis in original) 5 Orders are sought against the first cross-respondent to pay to the Trustee the value of the interests in the land at Merrylands, and the Honda Prelude motor vehicle, transferred to her pursuant to the Consent Orders and that the other respondents should pay to the Trustee any amount paid to them by the cross-respondent. The Trustee also seeks an order charging property at Toongabbie, purchased by Ms Mateo to the extent that the proceeds from the sale of the Merrylands property were used to purchase the property at Toongabbie. 6 On 6 December 2001, the cross-respondents filed a defence claiming that the transfer of the Merrylands property took place on or about 10 August 2000 when the Memorandum of Transfer of that land from the bankrupt to the applicant was registered. As from 22 June 2000, when the Family Court orders were made, the defence as pleaded is that the bankrupt's interest in the Merrylands property, which was subject to his wife's equitable interest under the Consent Orders, was of a legal interest only with the beneficial interest already vested in the applicant by reason of the signing and making of the Consent Orders. The submission made pursuant to this defence is that as at 10 August 2000, the bankrupt only had a nominal interest in the property, namely a bare legal interest because the equitable interest had already passed to Ms Mateo. Accordingly, it is said, there was no undervalued transfer within s 120 of the Act. A similar defence is raised in relation to the transfer of the interest in the motor vehicle. 7 As to the claim under s 121 the applicant contends that she acted in good faith and for valuable consideration and that any "transfer" did not occur for the main purpose of hindering or delaying creditors. 8 Additional defences raised by the applicant are that the husband at all time held his interest in the property on a constructive trust in favour of the applicant, estoppel by conduct and record and that it would have been unconscionable conduct on the part of the bankrupt husband not to transfer to her: see Ex parte James; In re Condon (1874) LR 9 Ch. App. 609.

Factual Backgound 9 The applicant and the bankrupt were married in 1972. They have three children, Jeremy born on 25 March 1974, Jennifer born on 26 April 1979 and Justeen born on 20 September 1982. On 18 November 1997 the bankrupt and the applicant signed a mortgage in favour of Citibank Limited over land at Merrylands, held in both names, securing an amount of $178,000. The applicant and the bankrupt were separated on 10 January 2000. On 18 April 2000, a document entitled 'Consent Orders' was signed by the applicant and the bankrupt. Those orders were subsequently made by the Family Court on 22 June 2000 and provide as follows: "BY CONSENT, THE COURT ORDERS THE FOLLOWING: 1. ORDER that within twenty-eight (28) days from the date of these orders the husband shall transfer to the wife all his rights, titles and interests in the matrimonial home known and situate [sic] at 3 Coolibah Street, Merrylands West, in the State of New South Wales, being the whole of the land comprised in Folio Identifier 14/806113. 2. ORDER that the husband shall not do any act matter or deed whereby a caveat charge or other encumbrance is or maybe registered on the said matrimonial home form the date hereof. 3. ORDER that upon the transfer to the wife of the husband's rights title and interests in the abovenamed matrimonial home the wife shall be responsible for all outgoings on the matrimonial home including mortgage repayments, council and water rates, insurance, and the wife shall indemnify and keep indemnified the husband in respect of any claims for loss damages or any other claims otherwise arising in respect of the said matrimonial home. 4. ORDER that upon the signing of this document, the wife shall pay the husband the sum of THREE THOUSAND ($3,000.00) DOLLARS. 5. ORDER that upon the husband signing of the Transfer document as indicated in paragraph '1' hereof, the wife shall pay the husband the sum of SEVEN THOUSAND ($7,000.00) DOLLARS. 6. ORDER that upon the sale of the matrimonial home at the end of this calendar year (i.e. 31 December 2000), the wife shall pay the husband an additional amount of $90,000.00 to be paid as follows:- $10,000.00 to the husband; and $80,000.00 to be paid to the three children of the marriage at the direction of the husband. 7. ORDER that SHOULD the matrimonial home not be sold by the end of this financial year, i.e. 31 December 2000, the the [sic] wife shall pay the husband the sum of TEN THOUSAND ($10,000.00) DOLLARS as referred to in paragraph '6' hereof, not later than 31 December 2000. In this regard the wife shall preserve the entitlements of the three children of the marriage pursuant to paragraph '6' above, and shall pay to the children equally such amount, being $80,000.00 or amount equal to one-third of the net value (being the sale price less any mortgage, commission, and legal costs and disbursements related to the sale) of the matrimonial home at the date of sale, whichever is the greater amount. 8. ORDER that within twenty-eight (28) days from the date of these Orders, the husband shall transfer to the wife his rights title and interests in the 1989 Honda Prelude motor vehicle with registration number AFE-38T. 9. ORDER that within twenty-eight (28) days from the date of these Orders, the wife shall take all steps to have the the [sic] husband's name removed from the joint Citibank account No. 4546 0511 1000, and the wife shall then assume full responsibility for repayment of all monies owing on this account. The wife shall indemnify and hold harmless the husband from and against any claims, actions or demands in relation to any liabilities arising in respect of this account prior to the date of the husband's name being removed from this account. 10. ORDER that within twenty-eight days from the date of these orders the wife shall take all necessary steps to have the husband relesed [sic] from the loan agreement and mortgage registered on the matrimonial home. 11. ORDER that within twenty-eight days from the date of these orders the husband shall take all necessary steps to have the wife's name removed from the joint Westpac gold Mastercard, account No. 5163 2300 8015 1504, and the husband shall then assume responsibility for the repayment of all monies owing to this account. The husband shall indemnify and hold harmless the wife and from against any claims, actions or demands in relation to any liabilities arising in respect of this account prior to the date of the wife's name being removed from this account. In consideration hereof, the wife shall pay to the husband monthly instalments of $230.00 for the next six (6) months from the date of these Orders, towards the repayment of the wife's share of liabilities with the said Westpac Mastercard account of $1,300.00 plus interests. 11.[sic]DECLARATION that the wife shall be the owner in equity and at law of all the chattels, items of personalty which are all located in the matrimonial home. 12. That unless specified in these Orders each party be solely entitled to the exclusion of the other to all other property and chattels of whatsoever nature and kind in the possession of such party as at the date of these Orders and for that purpose bank accounts are deemed to be in the possession of the person whose name appears on the banks' record thereof, insurance policies are deemed to be in the possession of the beneficiary thereof, superannuation entitlements are deemed to be in the possession of the party who is named as the worker whose age or working future provides the conditions for payment of such entitlements. 13. ORDER that the wife shall pay the husband's legal costs of these proceedings. 14. In the event that the husband or the wife refuses and/or neglects to execute any documents or do anything required of them in relation to these orders then pursuant to Section 84 of the Family Law Act: - The Registrar of the Family Court of Australia at Sydney is hereby appointed to execute all deeds and documents in the name of the party in default and do all acts and things necessary to give validity and operation to the said order and: 15. The Court notes that pursuant to Section 81 of the Family Law Act 1975 the parties intend that these Orders as far as practicable finally determine the financial relationship between them and avoid further proceedings between them. 16. That the parties be granted liberty to apply on seven (7) days' notice in relation to the implementation of any of the Orders contained herein. We consent to the making of Orders by the Court in the above terms." 10 The document is signed by both parties and is dated 18 April 2000. 11 On 26 April 2000, the applicant signed a cheque in favour of the bankrupt in an amount of $3,000 and on 29 May 2000, the bankrupt signed an acknowledgement receipt in an amount of $1,000. On 31 May 2000, an application was made for the making of the Consent Orders in the Family Court of Australia in terms of the orders set out above. In support of the application, Ms Mateo swore an affidavit. On 21 June 2000, the bankrupt signed an acknowledgement of receipt in respect of a cheque described as "part payment for the settlement of $10,000" from Ms Mateo. 12 The applicant signed a cheque in favour of the bankrupt in an amount of $3,000 on 10 July 2000. The transfer from the bankrupt to the applicant of the bankrupt's interest in the Merrylands property was stamped as an original document on 10 August 2000 and a registered number was assigned. I find that the transfer was registered on or about 10 August 2000. The net amount received by the applicant on the transfer of the husband's interest was approximately $107,000. 13 On 19 March 2001, a contract for the purchase of the property at Toongabbie was entered into by the applicant. 14 On 10 April 2001 the bankrupt presented a debtor's petition and this was accepted on that date. In his Statement of Affairs, the bankrupt stated that the primary cause of his insolvency was gambling speculation, domestic discord and relationship breakdown and sending money overseas to his brother who was very ill. 15 On 1 May 2001 the applicant sold the Merrylands property and invested some of those moneys in a property at Toongabbie. 16 On 18 June 2001 the Official Receiver issued a Notice under s 139ZQ addressed to the applicant and the present application was filed on 31 July 2001. 17 It is not disputed that at the time the Consent Orders were made and when the transfer of the husband's interests to the applicant occurred, the evidence is to the effect that the bankrupt was insolvent and I so find, having regard to the documentary evidence. 18 It has not been established that there was not a genuine breakdown of the marriage and I accept that the parties have mainly lived apart during the past two, to three years. I find that there was a genuine breakdown of marriage prior to April 2000.

Section 120 claim 19 The primary submission for Ms Mateo is that notwithstanding that the transfer took place in the period commencing five years before the commencement of the bankruptcy, the transferee gave consideration for the transfer which was at least equal to the market value of the property at the time of transfer. 20 This submission is based firstly on the premise that as a consequence of the signing of the Consent Orders on 18 April 2000, the making of the application to the Family Court and the making by the Family Court of the Consent Orders in the form originally agreed, the beneficial interest in the property was transferred at the latest by 22 June 2000, to Ms Mateo. 21 It is submitted that since the equitable interest passed on 22 June 2000, there only remained in the husband a legal interest of nominal value and that by the time the "transfer" took place, namely on or about 10 August 2000, the property had only a nominal market value and therefore there was no transfer for a consideration which was less than market value. 22 This submission depends on the selection of the Memorandum of Transfer as the only operative transfer within the meaning of s 120 in isolation from the other elements in the transaction, namely the signing of the Consent Orders and the making of the Consent Orders. 23 In my view, this is an artificial and unsupported approach to the interpretation of the meaning of the expression "transfer" in s 120. The authorities indicate that one must look at the overall transaction which has been implemented rather than to simply isolate one individual component of the transaction as in itself comprising the transfer: see Silvera v Savic (1999) 46 NSWLR 124 at 140. 24 In my view, the "transfer" in this matter consisted of the whole transaction ranging from the signing of the Consent Orders on 18 April 2000 through to the completion of the transfer of the interest on or about 10 August 2000. There is no basis on which to isolate the making of the Consent Orders from the "transfer" which took place and rely only on the formal instrument of transfer. Effectively, the transfer of the equitable interest to the applicant occurred when the orders were made on 22 June 2000. 25 I therefore reject the primary submission made for the applicant. 26 However, I am not satisfied in the present case that the transfer which was effected by the above transaction was for a consideration which was less than the market value of the interest received by the applicant at the time of the transfer. 27 The language used in s 120(1)(b) is that the transferee gave no consideration for the transfer or gave consideration of less value than the market value of the property at the time of the transfer. In this case I am satisfied that consideration was given for the transfer. Further, I am not persuaded that consideration for the transfer was for less than the market value of the property. The burden of proof is on the party seeking to set aside the transaction and this has not been made out: P T Garuda Indonesia Ltd v Grellman (1992) 35 FCR 515 at 527-528. 28 The transfer in this case was carried out pursuant to orders of a superior Australian Federal Court, namely the Family Court and full faith and credit must be given to those orders unless they are set aside. No basis has been established before me to warrant the setting aside of any of these orders and indeed, if any ground had been raised, it might have been more appropriate to transfer the matter to the Family Court for determination of all the questions. No such application was made. 29 The orders made in this case under s 79 of the Family Law Act 1975 (Cth)were made in the exercise of statutory judicial discretion taking into account a broad range of matters, including financial contributions made by the parties to the marriage, together with other pertinent factors prescribed by the Act. The Court is enjoined not to make an order under s 79 unless it is satisfied that in all the circumstances it is just and equitable to make the order. 30 Evidence has been given by Ms Mateo in relation to extensive unremunerated work carried out by her in the home for the material benefit of herself and her husband during the approximate twenty-seven years that she and her husband lived together and the raising of the children. She has also given evidence as to mortgage payments having been met by her and rates having been paid by her over a period of nineteen months, which together amount to $11,037. I accept that these payments were made by her. 31 The Consent Orders of 22 June 2000 require her to make payments of $20,000 to her husband, together with $80,000 to the three children of the marriage at the direction of the husband. Although the $80,000 has not been paid to date by the applicant, there is obligation under the Consent Orders to make the payment. As to the payment of the $20,000 I am not satisfied, on the evidence, that it has been paid, despite the obligation to do so in the Consent Orders. There are other steps required to be taken by the wife in the agreed Family Court orders. This is not a case where Ms Mateo seeks to rely on any of the matters excluded as consideration by s 120(5) of the Act. 32 On the evidence, I am not persuaded that, taking into account the wife's contribution and work in the joint enterprise, comprised by the marriage and bringing up of a family, that the consideration for the transfer of the husband's interest in the property, was of less value than the market value of the interest transferred to her: cf Re Sabri; Ex parte Brien v Sabri (1997) 137 FLR 165 at 181-182. If account is taken of the duration of the marriage and the number of hours which she said she worked in caring for the children and in and around the home over the twenty-seven years of marriage for approximately thirty-five hours per week, I am not satisfied that the consideration given by her was of less value than the market value of the property. Indeed, even allowing a minimal amount per hour for the amount of work carried out by her, the value of the work would far exceed the fair net market value of the interest she received after taking into account the outstanding debts and charges. 33 Accordingly, for the above reasons, I am not satisfied that the transaction resulting from the signing and making of the Consent Orders was a transfer for less than the market value of the property. 34 In relation to the transfer of the Honda Prelude motor vehicle, I am further satisfied on the evidence of Ms Mateo that the vehicle belonged to her. Although it was registered in joint names, I am satisfied that the husband had access to another motor vehicle in connection with his work and that the vehicle in question was treated as solely the property of Ms Mateo.

Section 121 35 I accept that the bankrupt was insolvent at the time when the Consent Orders were signed on 18 April 2000 and this continued to be the position during the period up to and including the transfer, but I am not satisfied that the husband's main purpose in making the transfer was to hinder or delay the process of making property available for division among creditors, or to prevent the transfer of property from becoming divisible among creditors. The evidence supports the conclusion that the main purpose of the orders was to resolve outstanding matrimonial issues as to property and I so find. 36 I am not satisfied that at the time during which the transfer was effected, that is to say, between 18 April and 10 August 2000, the consideration for the transfer was less than the market value of the property, nor that the transferee knew that the transferor's main purpose was to defeat or delay creditors (if such a purpose had existed), nor that Ms Mateo could reasonably have inferred that her husband was or was about to become insolvent. 37 I note that in the Statement of Affairs, the primary cause of the insolvency is stated by the bankrupt to have been gambling speculation and extravagance in living, together with the domestic discord and relationship breakdown. There is no evidence to the contrary of these assertions. 38 In circumstances where there was, in my view, a genuine breakdown of marriage pursuant to which obligations were entered into and a property arrangement was made by a final order by the Family Court including the resolution of mutual rights and obligations, I am not persuaded that a case has been made out under s 121. In particular, I am not persuaded that the consideration, being the final resolution of all claims between the parties in the Family Court proceedings, did not amount to valuable consideration at least equal to the market value of the interests transferred. 39 This is not a case where any attempt has been made to set aside the orders of the Family Court and they, as indicated earlier, were made pursuant to s 79 which requires the Family Court to take account a broad range of considerations. 40 Since I have found that there is no basis for granting the cross-claim the question of tracing moneys into the Toongabbie property and the claimed entitlement of the Official Trustee do not arise. 41 Accordingly, I am satisfied that the application to set aside the Notice pursuant to s 139ZS(1) of the Act and should be granted with costs. The cross-claim should be dismissed with costs. I certify that the preceding forty-one (41) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Tamberlin .

Associate: Dated: 27 March 2002 Counsel for the Applicant: Mr D Ash

Solicitor for the Applicant: Belen Oag Solicitors

Date of Hearing: 11 and 12 March 2002

Bankruptcy Act 1966(Cth)ss 120, 121, 139

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