NA Kratzmann Pty Ltd v Tucker, Liquidator of Reid Murray Developments

NA Kratzmann Pty Ltd v Tucker, Liquidator of Reid Murray Developments - [1968] HCA 44 - HCA 1968 case summary — Zoe

[7]

Section 95 of the Bankruptcy Act, of course, dealt not only with payments of money having the effect of giving a preference to a creditor; it dealt also with conveyances and transfers of property, charges upon property and judicial proceedings taken or suffered by a person unable to pay his debts as they became due from his own money having such an effect. The consequences of avoiding transactions or dealings of such an assorted character may well differ from case to case but there can be no doubt that the Court may, in an appropriate case, make not only a declaration but also afford consequential relief by an appropriate order. It may, for instance, declare a conveyance of land or a transfer of specific chattels void and direct the delivery up of the relevant instrument or a reconveyance of the land to the trustee or a re-transfer of the chattels to him. And this it may do even if the grantee or transferee has been adjudged bankrupt before the declaration was made. In such a case the avoidance of the conveyance or transfer annihilates, as against the trustee, the title of the grantee or transferee and means that the trustee may assert his bankrupt's original title and deny that the land or chattels form part of the estate of the bankrupt grantee or transferee. But what is the position where A has made a payment in discharge of his indebtedness to B and both have been adjudged bankrupt before A's trustee has obtained a declaration that the payment is void as against him? In such a case the declaration in no way affects title to specific and identifiable property; it merely means that the money was not paid in discharge of A's indebtedness to B and, if it is to be repaid, it must be repaid out of the estate of B. In Re Ward; Thomas v. L. G. Abbott & Co. Ltd. [1] Paine J. expressed the view that in the case of a payment avoided as a preference the right of the bankrupt's trustee was equivalent to the right to maintain an action for money had and received and much the same was said as long ago as Marks v. Feldman [2] . Again in N. A. Kratzmann Pty. Ltd. (in Liquidation) v. Tucker [No. 1] [3] the Chief Justice said:

[10]

The right to recover a sum of money from a creditor who has been preferred is conferred for the purpose of benefiting the general body of creditors, and I think Mr. Montgomery White was right when he said that the sum of money, when recovered by the liquidators by virtue of s. 265 of the Companies Act, 1929, and s. 44 of the Bankruptcy Act, 1914, did not become part of the general assets of Yagerphone, Ltd., but was a sum of money received by the liquidators impressed in their hands with a trust for those creditors amongst whom they had to distribute the assets of the company. [3] In the course of his reasons the learned judge had pointed out that "a secured creditor has no right to enforce for his benefit the remedy which is given to a trustee in bankruptcy or the liquidator of the company of avoiding a payment or setting aside a transaction made or entered into with a view to preferring a creditor of the bankrupt or a company in liquidation" [4] . So much is clear and for this proposition Ex parte Cooper; In re Zucco [5] and Willmott v. London Celluloid Co. [6] were cited but, having regard to the form of the proceedings, this proposition was not in question. The ultimate decision in the case proceeded upon the view that the moneys which had been paid to the creditor had not at the time of payment become subject to the debenture and did not become so subject by virtue of their recovery as a preference after the commencement of the winding up. As Bennett J. said: On 17th January 1933, the creditor to whom the money was paid and from whom the money was recovered was a creditor of Yagerphone, Ltd. When Yagerphone, Ltd., paid to the creditor the £240 11s. 2d., that sum, in my judgment, ceased to be the property of Yagerphone, Ltd. The payment to that creditor could not have been attacked or impeached, unless within three months from the date of payment the liquidation of Yagerphone, Ltd., had begun, and, in my judgment, at the date when the security contained in the debenture crystallized, the sum of £240 11s. 2d. was not the property of Yagerphone, Ltd., nor property in respect of which it could, I think, be said Yagerphone, Ltd., had even a contingent interest. [1] 1. [1935] 1 Ch. 392. 2. [1935] 1 Ch., at p. 396. 3. [1935] 1 Ch., at p. 395. 4. (1875) 10 Ch. App. 510. 5. (1886) 31 Ch. D. 425; (1886) 34 Ch. D. 147. 6. [1935] 1 Ch., at pp. 395, 396.

[11]

We have no doubt that the decision was correct but it seems to us, with respect, that the fact that the charge had not crystallized before the payment was made to the creditor was not of any consequence in the case. It should be remembered that in addition to the provisions of s. 293 (Companies Act, 1929 Eng., s. 265), to which we have already referred, s. 291 (2) of The Companies Act provides that "Subject to section two hundred and ninety-two in the winding up of an insolvent company the same rules shall prevail and be observed with regard to the respective rights of secured and unsecured creditors and debts provable as are in force for the time being under the law of the Commonwealth relating to bankruptcy in relation to the estates of bankrupt persons, and all persons who in any such case would be entitled to prove for and receive dividends out of the assets of the company may come in under the winding up and make such claims against the company as they respectively are entitled to by virtue of this section" (Companies Act, 1929 Eng., s. 262) and that, so far as a problem of the nature which arose in the Yagerphone Case [2] is concerned, the bankruptcy law is that which is to be applied in solving it. Now in bankruptcy the property of a bankrupt vests in his trustee upon the making of the sequestration order. The property which so vests is, of course, subject, in the hands of the trustee, to any charges validly created in relation to it by the bankrupt prior to the bankruptcy. The position of a secured creditor who has a charge on specific property is, of course, not in question; such property in the hands of the trustee will still remain subject to the charge. But where security has been given by a bankrupt over all of his assets and a payment to a creditor is made by him out of moneys subject to the charge and the payment is, as against the trustee, subsequently declared void as a preference the moneys paid, when recovered, will not be subject to the charge. In such a case it may be said that although the moneys paid as a preference were at the time of payment subject to the charge, the moneys recovered by the trustee are not the same moneys and that they do not, by virtue of payment to the trustee, become moneys of the bankrupt or in any way subject to the charge; when recovered they become the moneys of the trustee and his title to them does not depend upon his succession to any title which the bankrupt had. It was, we think, in this sense that Bennett J. meant in the passage that we have first cited that, applying the bankruptcy rules in a winding up,

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