Permfox Pty Ltd, in the Matter of Chase v Official Receiver for the Bankruptcy District of New South Wales

The Facts in More Detail 28 Central to the disposition of the case are the events of 1991 and the circumstances of Mr Chase at that time. 29 As I have said earlier, the basis on which the first part of the case was fought was that about $556,000 was transferred to Australia in about August 1991. That was agreed. It was agreed (though not by Mr Lonergan) that $256,000 was transferred to Helen and Mr Lonergan. The Terrigal unit was bought in the names of both Helen and Mr Lonergan. I will return to the question of the identity of the transferee of the $300,000 which, it was agreed, went, directly or indirectly, to Permfox. 30 The trustee says that Mr Chase's main purpose in making those transfers was to prevent the $556,000 becoming divisible amongst his creditors or to hinder or delay the process of making property available for division amongst his creditors. Also, it was said that it could be reasonably inferred from all the circumstances in August 1991 that Mr Chase was, or was about to become, insolvent. 31 A careful examination of the position Mr Chase found himself in at that time is thus called for. 32 In 1991, Mr Chase was fifty-five years of age. He can be described as a businessman of some experience. In 1991, his financial position was dominated by an investment he had in a company called States Properties Inc (SPI). SPI was formed in Nevada in January 1987. It was listed on the Australian Stock Exchange (the ASX). SPI, through subsidiaries, carried on the business of buying, developing and selling land in the United States, both on the mainland and in Hawaii. In particular, a subsidiary was engaged in the construction for sale of beach-side condominiums in Hawaii. A number of people were involved in SPI, including a Mr Baker, an American, as CEO, and a Mr Laurence O'Neil, an investor, from Sydney. Mr O'Neil and Mr Chase, I infer, were well known to each other as businessmen. 33 Mr Chase (himself and through an associated company) held 5,052,072 shares in SPI (representing almost 25% of the shareholding in SPI). The matter was conducted before me on the basis that all those shares were beneficially available to Mr Chase. By 1991, the property market in the United States, including in Hawaii, was in a depression. The Gulf War had contributed to this difficulty. The Preliminary Final Statement and Dividend Announcement of SPI (on a consolidated basis) to the ASX for the financial year ended 30 June 1990 identified the net tangible asset backing per share at USD O.35, down from USD O.608 the previous year. The main asset of SPI (I will refer to SPI, but I am referring at all times to its consolidated position) as at 30 June 1990, as recorded in the audited 1990 accounts, was "land and development costs" net at USD 19,743,903. The notes to the accounts disclose that USD 14,105,613 of this was attributable to land and developments at the "Makena Surf" project at Maui in Hawaii; and that USD 10,174,206 was attributable to the land and building of twenty-two condominiums there. 34 The notes to the accounts indicated that the land and development costs were stated: ... at the lower of cost or net realizable value, which is determined by comparing capitalized costs against forecasted project revenues. If such evaluation indicates impairment, a loss is recognized by providing an allowance. 35 Total liabilities of SPI at 30 June 1990 were USD 16,123,541, of which USD 12,129,441 represented promissory notes and construction loans. One of these loans, for USD 2,216,833, was on demand, there having been "violation of certain debt covenants" in respect of that loan (as recorded in the accounts). 36 As at 30 June 1990 there had been provision made for losses on some projects, but not the main developments. 37 The Proforma Half Yearly Report and Dividend Announcement to the ASX for the half-year ended 31 December 1990 revealed an operating loss of USD 1,113,000, before tax, and USD 675,000, after tax. 38 As far back as late 1989 the board of SPI had resolved to sell off the assets of the group and return capital to shareholders. This was not because of financial difficulty at that time, but because, in part, the share price on the ASX was languishing at a level significantly below net tangible assets and in part because of perceived disadvantageous changes to Australian taxation law. It was anticipated in November/December 1989 that the distribution would occur over the following twelve to eighteen months in amounts significantly above the then ASX price of AUD 0.43 per share. Mr Chase became a director of SPI in December 1989. These intentions were made known to the ASX. 39 On 28 September 1990 the managing director of SPI, Mr Maguire, informed the ASX, speaking, in part, of the 1990 accounts (at that stage unaudited), that: The Directors are of the view that at 30 June, 1990, the appreciation in value over acquisition and book cost of certain of the Company's assets is greater than the total losses incurred in the year. Under USA accounting rules, however, the Company is unable to revalue those properties. The Company is pursuing its previously stated intention of winding down its activities and making a capital repayment to shareholders. In recent days, however, the Company has received an expression of interest from a USA corporation indicating its interest in considering the acquisition of a controlling interest in States Properties, Inc. The Directors do not know if such an offer will be made, and shareholders will be advised in greater detail when discussions are further advanced. 40 The above letter did not disclose the identity of the "USA corporation" which had apparently "in recent days" expressed an interest in acquiring a controlling interest in SPI. I infer that the company was Real Property Services Inc (RPS). The importance of this will become apparent in due course. 41 In February 1991 SPI was able to renegotiate a promissory note in the principal sum of USD 300,000 which had fallen due, after having been in default of its obligations under the note. This renegotiation was effected substantially by Mr O'Neil advancing funds to SPI. A provision of the relevant agreement with the creditor (Sinclair Investments Pty Limited) was as follows: Sinclair hereby extends the date for payment of the principal and certain interest under the Note from January 31, 1991 until the earlier of (a) July 31, 1992 or (b) the date any default occurs under the Note except for the failure of SPI to generally pay its debts as they come due. 42 At or about the same time, Mr Chase agreed to subordinate repayment of a USD 100,000 loan made by him to SPI, which was not due until 31 July 1992, to the repayment of Sinclair and O'Neil by SPI. 43 In August 1990 Mr Chase had also guaranteed a loan by the Burlingame Bank and Trust Co to SPI in the amount of USD 250,000. 44 Before turning to Mr Chase's Australian circumstances, it can be seen that he had some millions of dollars tied up in SPI, depending on the ultimate worth of the shares. (If worth AUD 0.30 each, that amounted to over AUD 1,500,000: sufficient to meet all his debts.) He also had a not insubstantial liability as guarantor for SPI. 45 The condition of SPI in early 1991 was one of stringency in terms of liquidity. Mr Chase gave evidence, which I accept, that SPI was generally paying its debts as they fell due; but it is plain from the evidence that liquid funds were tight. In a "status report" of February 1991 an Executive Vice-President of SPI noted that it was hoped that advertising for one of the developments would resume "if funds became available". On 28 March 1991 Mr Bennett, the Executive Chairman of SPI, signed a report to the ASX which contained SPI's financial statements for the six months ended 31 December 1990. The state of the company was set out as follows: The net operating loss for this six-month period was US$675,000. During this period the Company continued marketing the completed residential units and development projects in accordance with decision [sic] of the Directors in November 1989. The 14 condominium units in the Makena Surf project on Maui, Hawaii were completed in late 1990 and sales of two units were closed in January 1991. The Pinnacles 25 completed homes, in Reno, Nevada had 6 sales close during the last half of 1990 and to date 16 sales have closed. Efforts are continuing to sell the 4.5 acres of oceanfront land at 100 Makena Road, which has received final approval for subdivision into 6 single-family home lots, and the site for an additional 8 units in the Makena Surf project. The remaining 29 finished lots in The Pinnacles and unimproved lots are being offered to local and regional builders. The 29 acres of residential land in The Meadows II subdivision in Steamboat Springs, Colorado are also being marketed to builders. The economic recession in the U.S. real estate industry and the severe downturn in residential sales in the last half of 1990 have limited the ability to sell both completed homes and development projects. Despite Hawaii's relatively strong economy, the impact of the Persian Gulf conflict and the pullback of Japanese real estate investment have stalled the market for luxury residential properties. These factors have prevented the Company from moving forward with the disposition of remaining properties at acceptable prices. Continued reductions in overhead and staff in both the San Francisco and Hawaii offices have been implemented to lower operating costs while completing the delayed sales of the Company properties. It appears that conditions in the U.S. real estate market are improving and it is expected that the major properties will be sold during 1991, although sales of Makena Surf condominiums and remaining undeveloped parcels of The Pinnacles could extend into 1992. In February 1991 an additional one million (1,000,000) shares of stock were placed with a private investor for US$ 0.313 per share, with the obligation to repurchase on 5 February 1992 at a purchase price of US$ 0.3913 per share. These funds were used to provide additional working capital for the Company during the disposition program. 46 In early 1991, Mr Chase was asked if he would be prepared to go to the United States to take over the liquidation of SPI's assets. He agreed to do this. He was to be given the use of one of the Maui condominiums, which was owned by Mr O'Neil. He was to be paid USD 125,000 per annum. This salary was to be deferred as Mr Chase had no "green card" to work in the United States and also, in part, because of shortage of funds on the part of SPI. Mr Chase and his wife were to be paid USD 100 per day living expenses. 47 Though the request to move to Hawaii for the purposes of taking over the affairs of the company was for a limited purpose, and for a limited time, Mr Chase gave evidence that when he and his wife left Australia in the first half of 1991 he intended to thereafter live in the United Sates. I will deal with Mr Chase's evidence and his credit in due course. However, relevant to this particular question is what, in early 1991, Mr Chase thought as to the prospects of extracting value from the SPI shares over the next one to two years. 48 Mr Chase gave evidence, which I accept, that in 1989 the President of RPS expressed an interest in buying SPI. A proposal was put by RPS to the three major shareholders, Mr Chase, Mr O'Neil and another person. Thus, Mr O'Neil was aware of the interest of RPS in at least 1989. The offer in 1989 was for USD 0.60 per share. Mr Chase gave evidence, that was not contradicted by Mr O'Neil, that after the offer in 1989 Mr O'Neil said at a meeting of directors: I have considered the offer from Real Property Services and I have looked at the position of States Properties. In my opinion if States Properties were to be liquidated, the stockholders would get a return of between USD 1.10 and USD 1.20 following an orderly liquidation - nearly double the Real Property Services bid. I think that States Properties should be liquidated to give the best result to stockholders. 49 I admitted this conversation as evidence of the fact that it took place. As such, it is evidence of Mr O'Neil's then views (correct or not) about the worth of SPI shares: Ritz Hotel Ltd v Charles of the Ritz Ltd (1988) 15 NSWLR 158, 179; and PD v Australian Red Cross (New South Wales Division) (1993) 30 NSWLR 376, 379. The balance of the evidence allows me to conclude that both Mr Chase and Mr O'Neil were experienced businessman well able to make an informed judgment of this kind. 50 This conversation took place, no doubt, in the light, and context, of 1989 property prices. 51 Mr Chase also gave evidence in an affidavit that in early 1991 Mr O'Neil said to him, in a conversation with Mr Bennett, the then executive chairman of SPI: O'Neil: I have purchased all John Broadfoot's stockholding in States Properties for AUSD 0.60 per share. [John Broadfoot was a substantial stockholder in States Properties and was the brother-in-law [of] John Maguire] Bennett: Why did you do that? O'Neil: Dick, you can't go wrong buying for 60 cents stock worth more than $1.00." 52 I should add that Mr O'Neil was and is directly interested in this litigation. He is an indemnifying creditor and, with his wife, he stands to gain 80% of any property recovered by this action. Thus, wherever Mr O'Neil would have been capable of giving rebutting evidence, his absence as a witness is a matter to be weighed in assessing the evidence. 53 I will return shortly to the position of SPI in 1991 and 1992 and Mr Chase's position. It is necessary now to deal with Mr Chase's circumstances in Australia. 54 In 1988 Mr Chase obtained accommodation with Westpac under a Bill Acceptance Line in the sum of $310,000. With various increases, by 15 February 1990 he owed $1,070,000 to Westpac. In early 1990, Westpac appeared fully secured, with security over various properties, over about 75% of Mr Chases's SPI scrip (brought to account at AUD 0.30) and over his loan to SPI. This facility was intended to be cleared in full by 31 December 1990. In January 1991 Mr Chase negotiated an extension and rearrangement such that most of the $1,070,000 became repayable on 31 May 1991 and $50,000 by 31 March 1991. On 16 May 1991 an extension of these dates was agreed to by the Bank to 30 April 1992, as was an increase in the overdraft limit to cope with the accruing interest. 55 The bank records reveal that from 1991 Mr Chase was keeping the bank informed of the position in the United States and assets were being sold in reduction of debt. By 7 April 1992 all securities had been dealt with other than the SPI scrip and Mr Chase's loan to SPI, leaving an indebtedness of Mr Chase to Westpac of $365,000. 56 It must have been apparent to Mr Chase in 1991 that his ability to discharge his indebtedness to Westpac in full depended upon extracting value from the SPI shares. Westpac appreciated that, as did Mr Chase. 57 I should add, at this point, that Westpac was told at or about the time of its sale that the Terrigal unit was sold. However, it was not told that the sale was to family members, or that the purchase price was funded by a gift from Mr Chase to his daughter. Whether Mr Chase expressly misled Westpac, I am unable to say. But it appears clear that Mr Chase was not prepared to volunteer available funds to pay his creditors (in this case Westpac), in preference to providing for his family. 58 At this time, in mid 1991, a Mr Fry was suing Mr Chase in the Supreme Court of New South Wales. The claim included a complaint of fraud. He was claiming exemplary damages. On 20 September 1991 Mr Justice Kearney delivered judgment in favour of Mr Fry for $27,500 plus interest from 1982. Mr Chase said that he was surprised by this. He said that he had been told he would win the case. I have grave reservations about this evidence. It is unnecessary to canvas the issues in the case, but it would appear that Mr Fry and Mr Chase had been involved in business together and that the issues giving rise to the case had caused some bitterness between them. At his examination, Mr Chase described the episode as follows: Mr Chase: …I had no other debt until the end of 91 when Mr Fry here after 10 - he was an old mate of mine and we went into a business together and he sued me. In January 1981 I got a statement of claim. 10 years later on the fifth amended statement of claim he got a judgment against me at the end of the year and I paid him about of a third of it and I asked him to wait. … Mr Chase: …The litigation with Fry went for 10 years. It was acrimonious. If push had come to shove he would have been paid. I - I paid - I paid a third and I asked him to wait until the States Properties liquidation was completed and he complied. Mr Durston: Sorry, he? Mr Chase: Well, he didn't - he didn't pursue it, he didn't push it. He didn't - if he - if he wanted to bankrupt me it would have been paid. … Mr Chase: I said yesterday that the first statement of claim I got was in January 1981 and on the fifth amended statement of claim at the end of '91 I lost the case and he got judgment. I had to come back from the US for the case. It was a ridiculous case. It was two pig-headed old men battering at each other for 10 years, acrimonious and I wish I could turn the clock back. It wouldn't have happened. 59 After the judgment in favour of Mr Fry, Mr Chase communicated with Mr Fry through his (Mr Chase's) solicitors, Mallesons Stephen Jaques (MSJ). On 2 December 1991, MSJ wrote to Mr Fry's solicitors on Mr Chase's instructions saying that Mr Chase was unable to meet the judgment (in the order of $75,000) "immediately". A proposal was made for the payment of two instalments of $25,000 in December 1991 and February 1992 and the balance to be paid before 30 June 1992. The letter concluded: As your client is no doubt aware our client is a director of States Properties Inc. He is responsible for an asset realization programme currently being undertaken by that company. Our client is confident that sufficient funds will be forthcoming from that asset realization programme to make payment in accordance with the schedule set out above. 60 A little over a week later on 10 December 1991, Mr Chase was told that the Burlingame Bank and Trust Co would be enforcing repayment of the $250,000 note on 31 December 1991, with recourse against the guarantors (including Mr Chase) if needs be. 61 Before returning to 1991, it is necessary to put the letter to Mr Fry's solicitors into context. Another letter was sent by MSJ to Mr Fry's solicitors on 18 March 1992. In it, on Mr Chase's instructions, the following was stated: Our client's financial position is entirely linked to the affairs of States Properties Inc. Our client holds 5.2 million shares in that company. Our client's holding amounts to 29% of that company's issued shares. All share scrip is held by Westpac as security for our client's indebtedness. … Our client is reluctant to provide further undertakings to your client regarding payment of the judgment debt for the simple reason that his ability to make payment of judgment debt is entirely dependent upon sale of the remaining condominiums. 62 The matters contained in these letters as to the illiquid circumstances of Mr Chase and his dependence on the successful realisation of SPI's assets are also reflected in what Mr Chase told Westpac. These letters and the communications with Mr Fry and Westpac were silent as to the availability of cash of over AUD 500,000. 63 By June 1991 the strain on SPI was revealed in a letter from the Executive Chairman of SPI to the ASX. After a review of the progress of the asset realisation, which were still anticipated to take another twelve months, the letter concluded: The increase in financing and operating costs which have resulted from holding our trading stock for a period well in excess of our expected sales program has put significant strains on the Company's cash resources. To assist in the solution of this problem, Directors and several major shareholders have provided substantial funds by way of personal loans and given guarantees of other Company borrwings [sic]. Every effort is being made to accomplish the disposition process in a manner which will secure the maximum available value for distribution to States Properties, Inc. shareholders, although it is now clear that our earlier expections [sic] will not be realised. 64 The reference in the last sentence appears to be a reference to the view expressed in November 1989 of an anticipated return "significantly in excess of" AUD 0.43c per share. 65 On 1 July 1991 the SPI shares were suspended from trading on the ASX. 66 On 29 August 1991 the Executive Chairman of SPI sent a letter to the ASX responding to an enquiry as to the latest position of the company. The letter was in the following terms: I am responding to your letter of 19th August, enquiring as to the latest position regarding the company's affairs. The company is continuing with it's [sic] efforts to sell it's [sic] remaining real estate assets in a market which has not yet shown any positive signs of recovery. Although the sale of the 4.5 acre oceanfront parcel of land at 100 Makena Road, Maui for U.S. $8,500,000 is not yet complete, a U.S. $500,000 non-refundable deposit has been paid by the purchaser. There is a provision in the contract that allows the purchaser some latitude in the date for completion, but, if he elects to defer settlement beyond the 16th September [sic] a further substantial non-refundable amount, plus interest, will become payable. We have not achieved any further sales of the completed units in our Makena Surf condominium development. However, the main selling season in the Hawaiian Islands for developments such as ours, is between Thanksgiving in November and Easter and we will be making every effort to complete the sales of all units in the period to June 1992. The Melissa Cain Trust, which has signed a purchase agreement for the development rights of Block A, Makena Surf, decided not to proceed and this project is not back on the market. Due to our inability to repay the loan debt, the Pinnacles homes and land subdivision in Reno was acquired by foreclosure, in August, by San Jacinto Savings and Loan Association. A provision will be made in the June 1991 accounts for the loss on this property. To summarise the position, the company is extremely short of the working capital necessary to meet operating expenses and any return to shareholders will be dependent mainly upon:- (a) the prices obtained for the remaining units in Block C, Makena Surf and the Block A development site and the timing of such sales. (b) the costs of completing the works the company is required to carry out in terms of the agreement with the Association of Apartment Owners' of Makena Surf. and (c) the administration and other costs incurred by the company in the period to the completion of the disposition process. [emphasis added] 67 Mr Chase said that the letter was somewhat pessimistic from where he was sitting in Hawaii, but he said in cross-examination that he "agreed with it", by which I take him to mean that it was substantially accurate. Thus, I conclude that, as at August 1991, as an experienced businessman, Mr Chase appreciated that a sober and realistic assessment of the facts and the circumstances facing a geared property development company in a depressed property market was as Mr Bennett said: any return to shareholders (not how much, but any) depended upon price and timing of sales, cost of building completion and holding costs. The letter made clear that there could be no certainty of a happy outcome. To a man such as Mr Chase, experienced in the property market, this was a realistic, if to him, pessimistic, outlook. He said as much. I find that this was the view of the future that Mr Chase in August 1991 appreciated was realistic; even if he did hope for, and expect, better. 68 The then (August 1991) parlous current position of SPI can be seen in a disclosure statement filed in 1993 in the United States Bankruptcy Court on behalf of a subsidiary of SPI (Hawaii States Properties Inc). That reveals that on 26 March 1991 a short term loan of USD 500,000 was made to SPI, repayable in late August 1991. The statement recorded that SPI "was not able to pay off the loan at that time". The loan was rescheduled. 69 All was not unremitting gloom as to Mr Chase's circumstances. There had been sales of assets in the United States under Mr Chase's guidance. Also, and more importantly, he gave evidence, which was challenged, but not contradicted, about the renewed interest of RPS in 1991. Mr Chase gave evidence before me as to the source of the funds transferred to Australia in 1991. He said that in 1991 he was paid USD 500,000 by RPS as non-refundable option fees, securing to RPS the right to buy all Mr Chase's shares in SPI at USD 0.40. He said that he had previously been in possession of a document embodying the arrangement, but that it was left in the Maui unit in which he resided until the end of 1993, when he was, he says, unceremoniously removed from his role at SPI and barred from re-entering the unit, at the instance of Mr O'Neil. (These events reflect the deterioration in relations between Mr O'Neil and Mr Chase at this time, and the ascendancy of Mr O'Neil in control of SPI, certainly by late 1993.) Mr Chase said that the option fell through in early 1992, when to his surprise, he was told by RPS that they had found serious faults in the construction of the Maui condominiums and that they would not be proceeding with the purchase. 70 Mr Chase's evidence as to his confidence in extracting value from SPI shares is revealed in the following exchanges in evidence: Mr Darke SC:Could you answer the question please? Mr Chase: When I sent that money to Australia, I had no reason to believe that I wouldn't be completing the winding up of Hawaii States - of the parents [sic], States Properties and finishing up with a considerable amount of money for myself. If I'd known what was going to happen to me I would have brought that money back in 1991, I'd have come back with it, I would have declared it as income, I'd have come back, I'd have fixed up all my creditors and today I'd be very, very comfortable instead of bankrupt. … Mr Darke: But you appreciated, didn't you, at that state [August 1991] that there was at least a question as to whether there would be any return to shareholders? Mr Chase: Never, ever in my mind was there any doubt that the shareholders would get a return from there at the end of the liquidation. Never in my - if I'd - in August 1991, if I'd been that pessimistic, I'd have come home. I wouldn't have stayed there until November 1993. Mr Darke: And at that stage you appreciated that any return to shareholders may well be at least another 12 months away? Mr Chase: In August '91? No, I don't agree with that; another 12 months away from then. Mr Darke: Well, how long did you think the asset realisation program may take from then, if everything went well? Mr Chase: Well, at August Dick Bennett mentions that we had a non-refundable deposit on the five acres for 8 and a half million, but actually it was 9 million, I don't know why he said 8 and a half. The "A" Block was - he mentions that Melissa Cane Trust Fund, I negotiated with a Melissa Cane Trust for the "A" Block. We hit a stumbling block with the Homeowner Association with that. But once that "A" Block was out of the way the only other asset we had then were the "C" building units. Mr Darke: And you anticipated that all going well it would still take perhaps another year before the process would be finalised? Mr Chase: That would be the outside. That would have been the outside. … Mr Darke: And I suggest to you by August 1991 you were concerned about your ability to repay Westpac by April the following year through the sale of the properties and shares that they held as security? Mr Chase: That would have been line balled from August to April. Mr Darke: Well there was very little prospect of being able to realise anything out of the asset realisation program before April 1992 was there? Mr Chase: Not necessarily, no that would be at that time August 1991 I would have seen that as a worst possible scenario would have been 12 months to complete it. Worst possible scenario. … Mr Darke: I want to suggest to you that at the time you transferred the money, from the United States to Australia with the intention of benefiting your children, you also had it [sic] mind that you yourself would benefit by enjoying the use of the assets they acquired? Mr Chase: No, sir. My intention was to stay in the United States, even after the liquidation, I was on the verge of getting a greencard when I came back in November 1993. It was my intention and my wife's intention to live in the United States. The circumstances of finishing up back in Australia are outlined in my affidavit. Mr Darke: I want to suggest to you that another intention you had at the time of the transfer of the money was to make sure that the money would not be available for your creditors? Mr Chase: No, sir. 71 Mr Chase gave his evidence before me in an apparently frank way. He conceded on a number of occasions that he misled people and that he previously gave false evidence, on oath. He volunteered that he had deliberately evaded taxation in the United States. On occasions, he gave his evidence with some emotion, reflecting I think, a degree of self perception of failure and humiliation as to his present circumstances. This, to a significant degree, was exacerbated by the bitterness he felt and feels at the pursuit of him and his family by his erstwhile business associate, Mr O'Neil. Without wishing to be unduly critical of Mr Chase, I accept the submission of the trustee that I should examine the sworn evidence of Mr Chase with care. 72 That said, Mr Chase's evidence that the moneys he remitted to Australia in 1991 were the product of non-refundable option fees had some corroboration in that RPS had been interested in SPI in 1989. The view that the shares in SPI were worth USD 0.40 each was corroborated by unrebutted conversations with Mr O'Neil. Also, I would infer that any approach of RPS in 1991 would not have been a secret. RPS had made its desires clear to all major shareholders in 1989. Thus, I would have thought that Mr O'Neil might be able to cast some light on this matter in 1991. He gave no evidence. Against this, at his examination, Mr Chase said that the money was in a bank account, being the residual product of some part of the sale of USD 9,000,000 worth of property from 1988 to 1992. He said at one point: I told you I sold $9 million worth of property between 1988 and 1992 and I gave them a hunk of it. 73 He also said in his examination that his shares in SPI were not for sale: Mr Durston: Was there anybody indicating that back before you left Australia that they wanted to take control? Mr Chase: Mr O'Neil desperately wanted them but at a huge discount and I wouldn't sell them to him but he finished up getting it for nothing anyway. Mr Durston So the only offer that you'd had prior to leaving was at a huge discount? Mr Chase: Correct. That's the only - it was an unsolicited offer. They weren't for sale. They were not for sale. 74 Whilst the first question in this last passage was directed to the time before Mr Chase left Australia, the last two sentences are fairly clear. When taxed with the inconsistency between the option fee for shares in a company owning real estate and the proceeds of sale of real property, Mr Chase accepted that he had not told the truth under oath at the examination. The following exchange took place: Mr Darke: I suggest to you that in the light of the concerns you had at the time in relation to you [sic] taxation affairs, you in making that statement of the examination you were not telling the truth? Mr Chase Yes. 75 Mr Chase advanced the evidence about the option fees in an affidavit filed one week prior to the hearing. No evidence was led to rebut it. No adjournment was sought. 76 There is no evidence that Mr Chase told Westpac of the existence of the possibility of the option when he spoke to them in July 1991. The bank officer later wrote about this communication on 17 July 1991: 17 July, 1991 Debtor called to advise position:- · wind down of State Properties Inc is proceeding; · stock on Australian market temporarily suspended; · Terrigal property sold for $235; · Victorian property on market; · Strathfield property to be auctioned September 1991; · legal action taken against stockbrokers re sale of TTL shares is proceeding; … 77 With some hesitation I am prepared to accept Mr Chase's evidence as to the source of the funds transferred. However, Mr Chase's record of untruthfulness in relation to this matter, his familial attachment, his desire to see his children provided for and his bitterness towards Mr O'Neil are all relevant factors in examining the balance of his evidence. 78 The existence of the option fees gave Mr Chase a real basis to believe that in a reasonable period of time he may well be able to liquidate his SPI shares. The non-refundable fee represented USD 0.10 per share, compared to a sale price of USD 0.40 per share. This must have given Mr Chase a significant basis to think that he would sell his shares. Absent that sale however, which he could not guarantee, the prospect of realisation of funds from the shares depended upon the matters outlined by Mr Bennett to the ASX in August (see [66] above). An experienced businessman such as Mr Chase must have recognised, as I find he did, that there was the risk, which was real, that the economic pressures on SPI could lead to failure to extract shareholder value. I do not believe Mr Chase to the extent that he sought to say otherwise. That is not to say that he did not have a significant degree of confidence in 1991 that RPS would buy his shares or that even if they did not, the sell off of assets would be financially successful even if taking about another twelve months. 79 In that context, Mr Chase chose to make provision for his children, rather than use the USD 500,000 to see his creditors paid. He was aware that leaving aside that USD 500,000, the prospects of Westpac receiving anything depended on the prices reached for the securities held and the exigencies of SPI's position. He chose to cast that risk on to Westpac. Also, he removed the USD 500,000 from the United States intending not to pay any tax on the receipt of the option fees. If he were certain that he would extract some millions of dollars from the SPI shares there was no reason not to pay his creditors with the USD 500,000. I think Mr Chase probably had a somewhat cavalier attitude to Westpac's position. It had a charge over his home, some other land and his shares and he probably thought that it would probably receive substantial value in due course. I do not accept that Mr Chase thought that there was no possibility of being found liable to Mr Fry. Litigation was forthcoming. I find that he saw this as a future contingency capable of falling in, notwithstanding some confidence that he would win. 80 Mr Chase said that he did not declare the USD 500,000 to the United States revenue authorities. The matter arose in the following exchange in cross-examination about Mr Chase's power to direct the disposition of moneys in 1992 which he had previously sent to Australia: Mr Darke: It was the position throughout 1992, was it not, that you could have directed that the $175,000 which was used to acquire Manly be used to acquire something else? Mr Chase: I'll have created a problem for myself. Mr Darke: Can you answer my question please? His Honour:Well I think that may have been a partial answer but perhaps not a complete answer. Is that your only answer to that question? Mr Chase: My answer is I could have with fairly serious consequences. Mr Darke: What consequences do you say would have flowed, had you done that? Mr Chase: Those funds were taxable in the US and I didn't declare them. Mr Darke: Nonetheless, accepting that serious consequences could flow, you accept, do you not, that you could have directed that those funds be applied elsewhere? Mr Chase: I said yes, with serious consequences. 81 The relationship between the motive or purpose for the transfers to Australia and the evasion of United States revenue obligations was not further explored in cross-examination or re-examination. Much is left unstated in these passages, but without needing to understand the details, Mr Chase was saying that if he used the funds for his own affairs there could be serious consequences. From that I can conclude that one of the purposes of giving the money to the children or to Permfox was to prevent the United States revenue authorities learning of its existence. 82 Mr Chase's attitude to Mr Fry's debt is also instructive. He transferred the $556,000 to Australia in August 1991. The matter was then being heard or was about to be heard before Mr Justice Kearney. Judgment was handed down in September 1991. Later in the year he caused MSJ to write the letters to Mr Fry's solicitors. Before me Mr Chase said that the proposition contained in the letter referred to at [61] above that "[h]is ability to make payment of the judgment debt is entirely dependent upon the sale of the remaining condominiums" was a falsehood that he told Mr Fry. He said that if Mr Fry had pushed to threaten him with bankruptcy he would have paid him. When asked the source of those funds, he said: Mr Chase: I would have had to ask my children to help me out. Mr Darke: You would have had to in effect take back what you had already provided? Mr Chase: Yes 83 He admitted that he was "stringing Mr Fry along" in relation to his judgment debt from the end of 1991. 84 Mr Chase gave money to parties in Australia, but he expected what might be termed "father's say" about its use if it turned out that he needed access to it. He denied that he treated the transferred assets as his own. However he accepted (see [82] above) that he could have directed the funds which he had previously transferred. Mr Chase also gave the following evidence: Mr Darke: It was the fact, was it not, that when you provided the money to Permfox in 1991 you made it clear to your daughter, Helen and your son, Peter, that you would retain control over where those funds would be spent? Mr Chase: No, no. I made recommendations to them a couple of times but I had no control over them. Mr Darke: Every recommendation you made to them from time to time was accepted? Mr Chase: I don't recall them not following my advice ever. Mr Darke: The position as at the very least, Mr Chase, that at the time of the transfer of the moneys into Permfox you anticipated that you would in an effective sense be able to control what happened to those moneys? Mr Chase: Yes, I suppose I could have, yes. Mr Darke: You anticipated that your children being the - I withdraw that. You anticipated that your children would follow your wishes? Mr Chase: Yes, if I'd asked them to do something - there's no guarantee but, yes. … Mr Darke: That is the case, is it not Mr Chase, that you anticipated at the time that you transferred the funds to Permfox that you could have requested at any subsequent time that moneys within Permfox be applied for example, to the payment of your creditors? Mr Chase: Yes. Mr Darke: You had no doubt in your mind at all, that your children would have gone along with that suggestion? Mr Chase: I am reasonably confident they would have. 85 I think the appropriate way to analyse what Mr Chase was intending to do was that it was to place all the money in the names of others free of any right in him to own it. He did intend to gift the money. He was, in that sense, intending to provide for his children. He intended the money no longer to form part of his assets. However, knowing his family, he was confident that they would make it available to him if he needed it. However, he did not intend in 1991 that his creditors would obtain any benefit from it. Only in extremis would he ask his children and then, as he recognised, "there's no guarantee". 86 Also, though, Mr Chase said that the transfer of the $556,000 in August 1991 virtually depleted his stock of cash in the United States. I do not accept that. For the reasons which will become apparent later I think Mr Chase had other moneys available to him in the United States which enabled him to transfer AUD 175,000 to Peter in about December 1992. 87 The payments in August 1991 are impugned under s 121 of the Act. I will come to subs 121(2) in a moment. There can really be no issue but that par 121(1)(a) is satisfied. The question is whether Mr Chase's main purpose was as set out in par 121(1)(b)(i) or (ii). 88 Even if I accept, as I do with some hesitation, his evidence as to the source of the USD 500,000, the purposes of Mr Chase included preventing the funds become available to the United States revenue authorities and providing for his children in circumstances where he appreciated that there was a real risk that these funds, together with whatever funds he otherwise had in the United States, would be the only substantial body of funds available to satisfy fully his creditors generally and also to provide for his children's inheritance. In those circumstances his purpose was to provide for them at that time, believing that they would probably assist him if he did in fact need help in the future, leaving his creditors to face the risks associated with the SPI shares, which risks he appreciated necessarily existed. He was putting these moneys out of the reach of his creditors. In that sense his main purpose was to prevent that property becoming divisible among his creditors, should the real contingency of the failure to realise value in the SPI shares occur. The creditors were to be left with the proceeds of the SPI shares, the future existence and extent of which proceeds he recognised to be subject to real contingencies. That purpose answers the description in par 121(1)(b)(i). 89 At this point I should say something of the significance of the avowed intention of Mr Chase to evade the United States revenue authorities. Paragraph 121(1)(b) of the Act is in the following terms: (1)(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. 90 This form of words replaced (in 1996) the previous well known expression "a disposition of property … made … with intent to defraud creditors". This expression had been widened by s 6 of the Act which was (and still is) in the following terms: A reference in this Act to an intent to defraud the creditors of a person or to defeat or delay the creditors of a person shall be read as including an intent to defraud, or to defeat or delay, any one or more of those creditors. 91 Section 6 of the Act overcame the authorities on the Statute of Elizabeth (the Fraudulent Conveyances Act, 13 Eliz. c. 5) that a disposition made with intent to defraud one creditor, but not all creditors, did not fall foul of the Statute of Elizabeth: P T Garuda Indonesia Ltd v Grellman (1992) 35 FCR 515, 525, citing May The Law of Fraudulent and Voluntary Conveyances (3rd Ed 1908) pp 76-8 and 139; and see also Re Kelly: Ex parte Young (1932) 4 ABC 258, 261-2; Middleton v Pollock: Ex parte Elliott (1876) 2 Ch D 104, 108; Alton v Harrison (1869) 4 Ch App 622; Coleman and Del Carlo v R [1988] WAR 196; Glegg v Bromley [1912] 3 KB 474, 492; Re Lloyd's Furniture Palace Ltd [1925] Ch 853, 860, 861-2; Re Sarflax Ltd [1979] Ch 592, 602; Re Hyams; Official Receiver v Hymans (1970) 19 FLR 232, 260-61; Re Nimbus Trawling Co Ltd (1986) 2 NZLR 308; and World Expo Park Pty Ltd v EFG Australia Ltd (1995) 129 ALR 685, 700. 92 However, s 6 has not been amended to keep up with the wording of s 121, which is directed to the purposes there set out which include the phrase "divisible among the transferor's creditors". The trustee does not rely on s 6 in support of his submission that Mr Chase's "main purpose" answers the description in par 121(1)(b). The trustee relies on the intent to evade (in effect defraud) the United States revenue of tax as evidence that enables the Court more readily to draw the inference that Mr Chase's main purpose was to prevent the moneys transferred from becoming divisible amongst his creditors generally. 93 If I be wrong about the main purpose of Mr Chase for par 121(1)(b), the question arises as to the application of subs 121(2), which is in the following terms: (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. 94 The Full Court in Re Jury; Ashton v Prentice (1999) 92 FCR 68 made clear that the subsection does not mean that it must be proved that the bankrupt was insolvent or about to become insolvent. Rather: …[I]t 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. 95 I think the phrase "at the time of the transfer" identifies the time to which the conclusion is directed. That is clear. However, I do not think that in making the judgment called for, in particular whether the transferor was about to become insolvent, one can ignore matters which occur after the time of transfer. As at August 1991, the liability of Mr Fry had not crystallised, but the suit in the Equity Division was near completion. The Westpac debt was payable in May 1992, unless rescheduled again. The real property security was inadequate to cover it in full, as was reasonably open to infer. The $75,000 due to Mr Fry fell due in September. In December there was a possibility notified of the Burlingame guarantee being called on. By the transfers, Mr Chase put it out of his legal power to pay any obligation he had, or could reasonably anticipate, other than from the SPI shares and any residual cash that he had in the United States. The amount of such residual cash is unclear. On the basis of later findings that I have made, it was at least $175,000. Though I find that Mr Chase had absolutely no intention of making this available to his creditors generally, it probably needs to be considered in any analysis about solvency: Re Sarina; Ex parte Wollondilly Shire Council (1980) 32 ALR 596. The sum of $175,000 was inadequate to cover Mr Fry's debt and the residue of the debt of Westpac left in April 1992. Mr Chase had an expectation of being able to recall assets from his children or borrow from them. It is difficult to rely, for the purpose of the assessment of his solvency, on Mr Chase's expectation that he would be able to obtain assets from his children when neither Helen nor Peter gave evidence as to what they would have done if Mr Chase had asked for money in that way. From Mr Chase's confidence in his children's co-operation, I am asked to infer that he would have had access to the funds he had given away. In circumstances where Helen and Peter did not give evidence about this I should not draw that inference: Commercial Union Assurance Company of Australia Ltd v Ferrcom Pty Ltd (1991) 22 NSWLR 389, 418E-419G. This is especially so when the Court is not told whether such assistance would have been by way of gift or loan. If the latter, it may help a pressing liquidity need, but ultimately it would not necessarily alleviate a solvency difficulty; though that might depend on the terms of the loan. Again I have not been assisted by evidence as to this hypothesis. Thus, the basis to conclude that one could not infer insolvency must rest on the SPI shares and the residue of money in the United States. The option to RPS contained no right in Mr Chase; it was an expectation confidently viewed. It was not property. It evaporated in early 1992. The fruit of the option was given away. Thus the illiquid SPI shares from which value might, if it were to be extracted, take twelve months from August 1991 could be reasonably seen as not available to meet the balance of the Westpac debt due in May 1992 and a debt of $75,000 to Mr Fry shortly to arise. Any money of his own left in the United States bank account from which he transferred the gifts of $300,000 and $256,000 was inadequate to meet those debts in full. As Mr Chase himself said in evidence, repaying Westpac by April 1992 "would have been line ball". On this evidence, I would conclude that in all the circumstances an inference was reasonably open that as at August 1991 Mr Chase was about to become insolvent. I will return to conclude my views on solvency after dealing with the transfer of money. 96 It is now necessary to ascertain in relation to the two sums totalling $556,000, and the sum of $175,000 used to buy the Manly unit, what moneys were sent, to whom they were sent, and when they were sent. As I have already said, the pleadings may not conform to the totality of the evidence. The extent to which a party has cast his or her case in a particular way and the extent to which the case has been structured in a particular way will, of necessity, govern the position should there be any disconformity with the evidence. 97 It is agreed on the pleadings that in 1991 $556,000 was sent by Mr Chase to Australia and that in December 1992 Peter received $175,000 to buy the Manly unit. Peter (and the Chase interests) say he received that $175,000 from Permfox by way of loan. The trustee says that it was another gift from Mr Chase. The journal and accounts of Permfox reveal that by 30 June 1995 Permfox had total assets of $622,756. Mr Chase said that apart from moneys accumulated from "share trading", he was the only source of money (whether directly or indirectly) for Permfox. The following exchange took place in cross-examination: Mr Darke: Well you don't suggest do you that any of the money made available to enable Permfox to acquire shares came from any source other than yourself do you? Mr Chase: No, no. 98 No suggestion was made by anyone that Permfox had a source of loan funds or gifted assets from any source other than Mr Chase. 99 The various accounts of Permfox reveal the following sums produced in gross and net income: Gross Net 1995 41,936 5,353* 1994 33,876 32,574 1993 9,500 8,309 1992 4,814 4,664 $90,126 $50,900

In this year there was an otherwise unidentified "consultancy fee" of $34,200. 100 In the 1995 balance sheet, Helen and Peter are said to have lent to Permfox $576,715. Peter is said to have borrowed $622,754 referable to the farm. The difference between the two sums approximates to the net income produced by Permfox over the years from August 1991 to 30 June 1995. 101 The conclusion to be drawn from the above (if otherwise accurate) is that Permfox received funds in excess of the $300,000 admitted to be transferred to it (directly or indirectly) in 1991. 102 As best as I am able to assess from the journal, Helen appears to have made loans in the year ended 30 June 1992 to Permfox in the order of $300,000, though this is not reflected in the signed accounts. In the year ended 30 June 1993, the journal indicates another loan from her of nearly $168,222.20 and a loan to Peter of $179,741.49. The loan from Helen (if it be a loan from her) appears to have been made in September or October 1992 given the dates identified in the journal as to the purchase of the shares on the second page of the journal amounting to the identical amount. 103 If Helen did lend $168,222.20 to Permfox in the year ending 30 June 1993, thereby increasing her lending to Permfox to $494,786 (see the 30 June 1993 balance sheet), no investigation took place as to the source of those funds. She says that $150,000 (one half of the $300,000) was a gift from her father. Peter says he received a gift of $150,000 from him, as well, and he lent it to Permfox. Neither the journal nor the accounts corroborate this. The journal and the accounts have all loans to Permfox until 1995 being from Helen; on 30 June 1995 Peter has lent $44,083 to Permfox (though that is not the balance of his account at that date). The journal and the accounts for the year ending 30 June 1993 reflect a loan to Peter to buy the Manly unit. 104 There was no reliable evidence as to the keeping of the journal. No witness recognised the hands in which it was kept. No one gave evidence of the instructions leading up to any entry. It came from the subpoenaed material from Houston & Co. Likewise the accounts, signed by Helen and Peter, were not reliably explained and were not the subject of any illumination in cross-examination. No accountant from Houston & Co gave evidence. No evidence was given of any conversation with anyone involved in the keeping and creating of the accounts. 105 In that context, I still must have regard to s 1305 of the Corporations Act 2001 (Cth) which is in the following terms: Admissibility of books in evidence (1) A book kept by a body corporate under a requirement of this Act is admissible in evidence in any proceeding and is prima facie evidence of any matter stated or recorded in the book. (2) A document purporting to be a book kept by a body corporate is, unless the contrary is proved, taken to be a book kept as mentioned in subsection (1). 106 Thus, the journal and accounts stand as prima facie evidence of what they state and record, subject to the relevance of those matters considering the pleadings and subject to contrary evidence. 107 There is agreement on the pleadings that AUD 556,000 was transferred in 1991. That agreement takes precedence over s 1305. There is some evidence that significantly more than AUD 600,000 was available to Helen, Peter and Permfox by at least 30 June 1993: $256,000 to Helen for Terrigal and her lending of $494,786 to Permfox according to the Permfox 30 June 1993 accounts. There is evidence from the journal that Helen lent moneys to Permfox during the 1993 year in the sum of $168,222.20. 108 In his examination, Mr Chase said the following about the payment of the $300,000: Mr Durstan: Was this by way of cheque or transfer of property or ---? Mr Chase: I paid for the unit that he had in Manly, Pittwater Road. Mr Durstan: And anything else? Mr Chase: Well, I bought him a Holden Commodore motor car. Mr Durstan: Yes? Mr Chase: Yes, that's --- Mr Durstan: Apart from buying him the car and the unit did you give him anything else? Mr Chase: Not personally, no. Mr Durstan: Why do you say not personally? Mr Chase: Well, I set up the company Permfox Pty Limited in July 91 and he owned half of that and I put the - I put the seed money in that for to [sic] start share trading and he owned 50 per cent of that. 109 This indicates that he, Mr Chase, "paid for" the Manly unit and he "put in" the seed money for Permfox to buy shares. 110 The following exchange then took place in relation to Permfox: Mr Durstan: And you gave some money to Permfox? Mr Chase: Yes, the seed money for its share trading. Mr Durstan: How much money did you give Permfox? Mr Chase: About $400,000, 3 to 400,000. Probably closer to 3. I'm going from memory. Certainly no less than 3. Mr Durstan: And where did that $300,000 come from - or 3 to 400,000 dollars come from? Mr Chase: It came from me. Mr Durstan: Did it come out of a bank account? Mr Chase: It came out of a bank account. Mr Durstan: Where was the bank account? Mr Chase: That bank account was in Hawaii. 111 Mr Chase said the following further about funding the purchase of the Manly unit by Peter: Mr Durstan: Now, it has been essentially the evidence that you have been kind enough to give property over the years to your daughter Ann-Marie and your daughter Helen and her husband. Did you give a property to your son at any stage? Mr Chase: I gave him the money to buy his property at Pittwater, Pittwater Road. … Mr Durstan: When did you make that gift of the money to your son for the Manly unit Mr Chase: 1992. Mr Durstan: And how much money was that? Mr Chase: The unit was about 175,000. To the best of my recollection 170, $175,000. Mr Durstan: I take it there would have been some legal fees and stamp duty on top of that. Did you pay those? Mr Chase: Yes there were all the add-ons would be in addition to that, yes. Mr Durstan: And did your provide the money for all the add-ons? Mr Chase: My son did provide some funds but I provided most of it. Mr Durstan: Are we talking about your son providing 10,000, 20,000, 5000, 100,000? Mr Chase: Around 10 probably. It was insignificant to the total. 112 In his evidence before me Mr Chase said that he recalled giving the $300,000 to his children, not to Permfox. He also said the following in evidence before me: Mr Darke: Your intention I suggest to you in giving that money away or transferring that money away was to benefit your daughter Helen and your son Peter equally? Mr Chase: Correct. Mr Darke: Through the vehicle of Permfox, the shares in which were to be held by them equally? Mr Chase: Correct. Mr Darke: It was certainly not your intention in giving that money to benefit Helen alone to the exclusion of your son Peter? Mr Chase: No. 113 Neither Helen nor Peter gave any evidence in chief of any loans they made to Permfox. Mr Chase's intention was to benefit them through Permfox. He put the seed funds into Permfox. The position is in all likelihood best reflected in the following exchange between Peter and the cross-examiner: Mr Darke: The position is that you didn't negotiate any loan with Permfox at all, did you? Peter: No, that was how it was structured with our accountant. Mr Darke: Yes, except it's a book entry, isn't it? Peter: Well, that's how - yes, I didn't do any of the book work or the accounting. If left that to Owen. Mr Darke: Whether the funds that were ultimately applied for the purchase, came out, of a Permfox account or went through a Permfox account, the fact remained that the money came from your father didn't it? 114 The exchange continued: Mr Darke: You say that you had a conversation with your father at some stage in which he agreed to provide money to benefit you by allowing you to purchase a home unit? Peter: I asked if I could buy a unit and he said yes, he would buy me a unit at the time, it was mid 1991. The time the unit came about was towards the end of '92 and he said, why don't you get a unit for yourself because my relationship didn't work there and the money came from Permfox to purchase that unit. 115 I reject Peter's evidence that he borrowed the $175,000 from Permfox. I think that Peter's own evidence that the accountant "structured" the arrangements best reflects reality. How the accountant structured things, probably later, does not determine the character of the transaction. If Mr Chase did something and had an intention at the time, that will determine the character of the transaction, unless from the evidence it can be concluded that that transaction was rescinded and a new "structure" put into place. No evidence of any such replacement or novation was led. 116 I do not think that a man of Mr Chase's experience would confuse or run together lending to his children and lending to Permfox. That the accountant structured the arrangement, I accept. In the absence of any evidence which could have been given by the accountant, Peter, Helen or Mr Chase, I am not prepared to infer that the intention of Mr Chase to give $300,000 to Permfox and $175,000 to Peter, which I find he had, was overtaken or replaced or novated by another commercial arrangement. That the accounts do not reflect, on all the evidence, what was intended by the transferor, Mr Chase, can be seen from the evidence. Helen was not intended to be the creditor of Permfox to the exclusion of Peter. What Mr Chase was giving Permfox was intended to be for their joint benefit. 117 In the absence of evidence as to what passed between the accountant and the parties, in particular Mr Chase, and as to the history of conducting the affairs of the family, I am not prepared to accept the accounts and the journal as reflective of Mr Chase's intentions, especially since they are, on any view, quite inaccurate as to the intended joint interests of Helen and Peter. 118 I find that in or about August 1991 Mr Chase transferred $300,00 to Permfox, and $256,000 to Helen for the purchase of the Terrigal unit and in or about December 1992 Mr Chase transferred $175,000 to Peter for the purchase of the Manly unit. 119 Peter gave evidence that he took no part in the preparation of the accounts or in keeping the books and records. I infer from Helen's evidence before me and at the examination that she similarly had no such role. 120 The intention of Mr Chase was to give the money to his son to buy the Manly unit. The trustee accepts that the $175,000 passed through a Permfox account. Mr Chase said he "sent the money to Permfox". He was referring to the $300,000 at that point. But I think it plain that another sum in the order of $175,000 was sent to Australia. If, as it appears, it went through a Permfox account to buy the Manly unit in Peter's name, was it a loan to Peter or was Permfox a mere conduit for a transfer to Peter? Mr Chase's intention was to buy Peter a unit. A unit had been bought for Helen (and her husband) with money given to her. Money was given to the company owned by both. I infer from the evidence of Mr Chase that he was intending to benefit Helen and Peter equally. At his examination Mr Chase said that he gave the $175,000 to Peter. Before me the following exchange took place: Mr Darke: In the course of your examinations you were also asked some questions about giving money to your son Peter and you stated in the examinations that you paid for the unit he had in Manly? Mr Chase: Yes. Mr Darke: You stated that you gave him the money to buy the unit in Pittwater Road, Manly? Mr Chase: Yes. Mr Darke: And again in making those statements at the examination you were telling the truth? Mr Chase: Yes Mr Darke: The amount of money that you so gave to your son was $175,000 was it not? Mr Chase: Yes Mr Darke: That is for the purchase price of the unit and there were some other amounts given to assist with other acquisition costs were there? Mr Chase: I didn't pay it as $175,000 I paid it - I sent the money to Permfox and it was about 300,000 and of that my son took the 175,000 out of it, borrowed it from Permfox. Mr Darke: Just pausing there for the moment, your intention in giving the money to your son to enable him to purchase the unit was to benefit him and him alone wasn't it? Mr Chase: Yes. Mr Darke: You had already in effect provided the money to enable your daughter Helen to purchase the Terrigal unit? Mr Chase: Yes. Mr Darke: A certain sum of money at least $300,000 had been provided to Permfox to enable it to start share trading, correct? Mr Chase: Of that 300,000, 175,000 went to the unit. Mr Darke: And the money that was provided to Permfox, that is the 300,000 was intended by you to benefit the children equally, correct? Mr Chase: Yes 121 The timing of the payment by Mr Chase of the sum additional to the $300,000 which funded the Manly unit is not clear. The journal seems to reflect somewhat over $300,000 being received in 1991-1992, but the balance sheet as at 30 June 1992 reflects about half that. The journal seems to reflect another loan from Helen in a sum exactly equal to the price for five parcels of shares. The journal would therefore support the conclusion that the loan to Peter from Permfox (if it was a loan from Permfox) was made from funds received the previous financial year. However, if the balance sheet as at 30 June 1992 is correct, another sum must have been received in the year ended 30 June 1993 to fund the loan to Peter (as well as the share purchases). Also, it is unclear why the journal would refer to the Manly unit as an asset of Permfox. 122 In the absence of evidence explaining these inconsistencies, in the light of Mr Chase's evidence at the examination that he intended to give Peter the money to buy the unit and his clear evidence before me that he was intending to benefit only Peter, and in the light of the gift to Helen of the money to buy the Terrigal unit, despite the inconsistent accounts and journal (which are otherwise, on the evidence, unreliable), I find that in or about December 1992 Mr Chase gave Peter $175,000 to buy the Manly unit. 123 As is plain from the above, I reject the evidence of Mr Chase that he only transferred $300,000 to Australia, in addition to the $256,000 to Helen for the Terrigal unit. He transferred $175,000 to Peter in late 1992. I also reject the evidence given by Mr Chase that the money used to buy the Manly unit came from profits of Permfox made trading shares prior to December 1992. The accounts of Permfox do not bear that out. Only modest profits were made in that period. 124 The above is relevant to the question of solvency of Mr Chase raised by subs 121(2), which I have dealt with as at August 1991 (see [93] to [118] above). 125 As is agreed, $556,000 was transferred to Australia in 1991. Another sum in the order of $175,000 was transferred in late 1992. Mr Chase must still have had control of sums in his account in the United States in August 1991 equivalent to AUD 175,000. If so that would mean that he had enough to cover the debt to Mr Fry under his control. However, the balance, $100,000, was still insufficient to cover the residue of the Westpac debt as eventuated after the sale of the balance of the securities which occurred by 7 April 1992 leaving a debt of $365,000. While the availability of these further funds perhaps weakens the inference, I am still of the view that it can be reasonably inferred from all the evidence that Mr Chase was, as at August 1991, about to become insolvent. Not only was Mr Fry's indebtedness about crystallise, but in January or February 1992 RPS gave notice of an intention not to buy the SPI shares. RPS had found defects in the construction of the Maui condominiums. As at January or February 1992, this could only delay further the sale of those assets and thereby make impossible the meeting of the obligations to Westpac in May 1992, to the extent that value was required from the SPI shares to do so, even with a sum in the order of $175,000 remaining under the control of Mr Chase. 126 In August 1991, before the sale of Terrigal, Mr Chase owed Westpac $1,120,000 ($1,070,000 approved on 15 February 1990 and a $50,000 overdraft increase on 16 May 1991: See Ex C1 p 158). The security held for this was: Terrigal (valued at $255,000), Strathfield, Mr Chase's home (valued at $480,000), land in Victoria (valued at $120,000) and the SPI scrip. 127 In August 1991, after the reduction of debt by $235,000, Mr Chase owed $885,000. It must have been plain to him that he could not be confident that the real property security would clear his Westpac debt. It did not. On 7 April 1992, after all security was liquidated other than that related to SPI, he owed Westpac $365,000. 128 By August 1992, Westpac was considering writing off its debt. Mr Fry had not been paid. In late 1992 Mr Chase transferred the $175,000 to Peter which I infer was the last of his liquid funds in the United States. He had transferred out of his control over $700,000 and given it to two of his children and Permfox. He owed Westpac over $300,000 and Mr Fry $75,000. He had guaranteed obligations in relation to SPI. He had no liquid assets to pay his creditors. 129 At the time he transferred the $175,000 to Peter in about December 1992, Mr Chase must have appreciated the serious financial position he was facing. RPS had withdrawn its offer. He had guaranteed part of SPI's debts. Westpac and Mr Fry were unpaid. Any successful liquidation of SPI's assets was still some way off, if it was to happen at all. I have no doubt that Mr Chase transferred this $175,000 intending that the funds should not go to his creditors generally but to his son. If find that Mr Chase's main purpose was as set out in par 121(1)(b)(i). I also find that it could be reasonably inferred from all the circumstances that at the time of the transfer of the $175,000 in December 1992 he was insolvent.

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Judgment (19 paragraphs)

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