Ruhe (Trustee) v Rodmarg Pty Ltd, in the matter of Bankrupt estates of Power

Federal Court of Australia|2024-06-14|Before: Neskovcin J

THE COURT DECLARES THAT: A. The transfer on 13 August 2014 of 10 units in The Coastal Accommodation Unit Trust (CA Unit Trust) from Roderic William Power and Margaret Christine Power (the Bankrupts) to the Power Secure Self-Managed Super Fund (Power Super Fund) for nil consideration is void against the Applicant in her capacity as Trustee of the Bankrupt Estates of Roderic William Power and Margaret Christine Power pursuant to s 128B of the Bankruptcy Act 1966 (Cth). B. From 13 August 2014 the CA Unit Trust held one equal and undivided half of any interest or assets on behalf of the Bankrupts and such interest vested in the Trustee upon sequestration of the Bankrupt Estates pursuant to s 58 of the Bankruptcy Act. C. The property at 44 Newhaven Avenue, Blacktown, New South Wales, was, prior to its sale in May 2015, a joint asset of the Bankrupts and any interest in the property or its proceeds vested in the Trustee upon sequestration of the Bankrupt Estates pursuant to s 58 of the Bankruptcy Act. D. The Second Respondent, RodMargy Pty Ltd, in its capacity as trustee of the CA Unit Trust held 90% of its interest in the property at 5 Summerside Street, Toukley, New South Wales (the Summerside Property), on trust for the Bankrupts and such interest in the property or its proceeds vested in the Trustee upon sequestration of the Bankrupt Estates pursuant to s 58 of the Bankruptcy Act. E. The transfer of $281,789.40 in May 2016 from RodMargy as trustee of the CA Unit Trust to the First Respondent, RodMarg Pty Ltd, as trustee of the Power Super Fund, from the proceeds of sale of the Summerside Property, being proceeds held on trust for the Bankrupts, for nil consideration is void against the Applicant pursuant to s 128C of the Bankruptcy Act.

THE COURT ORDERS THAT:

The Second Respondent as trustee of the CA Unit Trust or otherwise pay the Applicant $117,367.16.
Any and all costs of and incidental to any necessary transfer, payment, distribution or sale necessitated or permitted by these orders be costs properly incurred in the liquidation of the Respondents.
The Second Respondent pay the Applicant interest on the amount awarded in paragraph 1 of the orders pursuant to s 51A of the Federal Court of Australia Act 1976 (Cth) from the date the amount was paid into the bank account of the Second Respondent and up to judgment at the rate prescribed by s 2 of the Penalty Interest Rates Act 1983 (Vic).
The Respondents to do all such acts and things necessary to put into the effect the transfers referred to in the preceding declarations and orders.
The costs of and incidental to this proceeding (to be taxed in default of agreement) are costs in the liquidation of the Respondents. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

INTRODUCTION 1 On 30 November 2023, the Applicant commenced this proceeding in her capacity as the Trustee of the Bankrupt Estates of Mr Roderic William Power and Mrs Margaret Christine Power (the Bankrupts) seeking relief by way of declarations and orders under ss 58, 121, 128B and 128C of the Bankruptcy Act 1966 (Cth). 2 The Bankrupts were involved as directors, secretaries or shareholders of companies including the Respondents to this proceeding. The Applicant is also the liquidator of the Respondents. 3 The Applicant states that she has investigated the examinable affairs of the Bankrupts and the Respondents, including transactions involving the Respondents. The Applicant states that the purpose of the relief sought in this proceeding is to ensure the correct pool of creditors benefit from the assets and realisations recovered through the administration of the various insolvent persons and entities. 4 The Applicant relies on affidavits that she swore on 30 November 2023 and 21 March 2024 and an affidavit of Jessica Cole sworn on 23 May 2024.

Background 5 Mr Power was made bankrupt by a sequestration order made by the Court on 22 March 2016. Mrs Power was made bankrupt by a sequestration order made by the Court on 30 November 2017. 6 Mr Power died on 21 September 2022. Mrs Power is the sole executrix of Mr Power's deceased estate. 7 Mr Power was discharged from bankruptcy by law on 15 April 2024. 8 The current anticipated date for discharge from bankruptcy in relation to Mrs Power is 26 January 2026. 9 Mr Power was a retired accountant, registered tax agent and certified financial planner. Finserv Pty Ltd owned Mr Power's accounting practice. Mr and Mrs Power were the sole shareholders and directors of Finserv. Finserv was also, until approximately 26 October 2012, the trustee of The Coastal Accommodation Unit Trust (CA Unit Trust). 10 From 26 October 2012, the Second Respondent, Rodmargy Pty Ltd, was the trustee of the CA Unit Trust. Mr and Mrs Power were the sole shareholders of Rodmargy and were also the directors of Rodmargy until their respective bankruptcies. 11 Mr and Mrs Power were also the sole shareholders and directors of the First Respondent, Rodmarg Pty Ltd, which controlled the Power Secure Self-Managed Super Fund (Power Super Fund). 12 Upon their respective bankruptcies, the Bankrupts' shares and any other interests in the above entities vested in the Applicant pursuant to s 58 of the Bankruptcy Act and the Bankrupts ceased to be directors of the Respondents pursuant to ss 203B and 206B(3) of the Corporations Act (2001) (Cth). 13 Rodmarg and Rodmargy were deregistered on 2 April 2016 and 22 March 2019 respectively pursuant to s 601AB of the Corporations Act. By orders of the Court made on 15 April 2021, Rodmarg and Rodmargy were reinstated and wound up pursuant to s 461(1)(k) of the Corporations Act. Further, the Applicant was appointed liquidator of Rodmarg and Rodmargy and she was also appointed receiver of the Power Super Fund and the CA Unit Trust pursuant to s 57 of the Federal Court of Australia Act 1976 (Cth). 14 The Applicant states that the current status of the creditors is: (a) the Bankrupt Estate of Mr Power has creditors totalling $666,266; (b) the Bankrupt Estate of Mrs Power has creditors totalling $606,486; (c) Rodmargy has creditors totalling $38,386.85; and (d) RodMarg has creditors totalling $95. 15 The Applicant states she has thoroughly investigated the examinable affairs of the Bankrupts and the Companies, including transactions involving the Respondents, certain properties and the transfer of units in the CA Unit Trust. During her investigations, the Applicant identified assets and interests which she says ought to have been available to creditors in the Bankrupt Estates. The investigations included transactions involving Finserv, Rodmarg and Rodmargy (the Companies). The Applicant therefore seeks relief by way of declarations and orders under ss 58, 121, 128B and 128C of the Bankruptcy Act in relation to the Bankrupts' interest in various assets and proceeds from the sale of assets.

Section 58 of the Bankruptcy Act 16 Section 58(1) of the Bankruptcy Act provides that: (1) Subject to this Act, where a debtor becomes a bankrupt: (a) the property of the bankrupt, not being after‑acquired property, vests forthwith in the [Trustee]…; and (b) after-acquired property of the bankrupt vests, as soon as it is acquired by, or devolves on, the bankrupt, in the [Trustee]… 17 Section 5 of the Bankruptcy Act defines "property" as: real or personal property of every description, whether situate in Australia or elsewhere, and includes any estate, interest or profit, whether present or future, vested or contingent, arising out of or incident to any such real or personal property. 18 Section 5 of the Bankruptcy Act further defines "the property of the bankrupt" as including property divisible among the bankrupt's creditors and: any rights and powers in relation to that property that would have been exercisable by the bankrupt if he or she had not become a bankrupt 19 It is uncontroversial that the definition extends to causes of action, among other assets, interests and choses. 20 Divisible property, once vested in or acquired by the Trustee, does not revert to a bankrupt following their discharge from bankruptcy. Section 127(4) of the Bankruptcy Act provides: An action under section 121 with respect to a transfer of property may be commenced by the trustee of the estate of a bankrupt at any time.

Section 121 of the Bankruptcy Act 21 Section 121 of the Bankruptcy Act, along with sections 128B and 128C, deal with transfers to defeat creditors. 22 Section 121(1) to (3) of the Bankruptcy Act provides: Transfers that are void (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 Note: For the application of this section where consideration is given to a third party rather than the transferor, see section 121A. Showing the transferor's main purpose in making a transfer (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. Other ways of showing the transferor's main purpose in making a transfer (3) Subsection (2) does not limit the ways of establishing the transferor's main purpose in making a transfer. 23 The principles in relation to the operation of s 121 were considered by the Full Court in McMillan v Warner (Trustee) [2022] FCAFC 20. The Court (at [12] to [17]) set out the following principles that emerge from the decision of Sackville J in Prentice v Cummins [2002] FCA 1503; 124 FCR 67: First, if a trustee does not rely on the presumption in s 121(2) it will be necessary for the trustee to establish that the transferor's subjective purpose fell within the purposes described in s 121(1)(b): Prentice at [95]. Second, the expression "main purpose" is not defined in the Act. As Sackville J explained in Prentice at [96]: The relevant dictionary definition of "main" is "chief; principal; leading"…A transfer of property will be within s 121(1)(b) if the transferor's principal or leading purpose was to prevent the transferred property from becoming divisible among his or her creditors, or to hinder or delay the process of making property available for division among the creditors. The transfer can be caught by s 121 even though the transferor had other purposes in mind. Third, a trustee, as the party seeking to impugn the transfer, bears the onus of establishing that the terms of s 121(1) have been satisfied: Prentice at [97]. Fourth, a Court can infer that in all the circumstances, independently of the solvency of the transferor, a transferor's main purpose was that described in s 121(1)(b): Prentice at [98]. Fifth, a transferor's main purpose may fall within s 121(1)(b) even if at the time of the transfer the transferor has no creditors or is able to satisfy all of his or her creditors: Prentice at [99]. Sixth, if a person makes a voluntary settlement immediately before entering into a "financially hazardous venture", this could establish an intention to defraud his or her creditors notwithstanding that there were no outstanding creditors at the time of the transfer: Prentice at [99].

Section 128B and 128C of the Bankruptcy Act 24 Sections 128B and 128C of the Bankruptcy Act relate specifically to certain pre-bankruptcy contributions made to superannuation funds. 25 Section 128B(1) provides: Transfers that are void (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 is made by way of a contribution to an eligible superannuation plan; and (b) 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 (c) 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; and (d) the transfer occurs on or after 28 July 2006. 26 Section 128C relates to contributions to eligible superannuation plans made by a third party for the benefit of the (later) bankrupt. 27 Section 128C(1) provides: Transfers that are void (1) if: (a) a person (the transferor) transfers property to another person, (the transferee); and (b) the transfer is by way of a contribution to an eligible superannuation plan for the benefit of a person who later becomes a bankrupt (the beneficiary); and (c) the transferor did so under a scheme to which the beneficiary was a party; and (d) the property would probably have become part of the beneficiary's estate or would probably have been available to creditors if the property had not been transferred; and (e) beneficiary's main purpose in entering into the scheme was: (i) to prevent the transferred property from becoming divisible among the beneficiary's creditors; or (ii) to hinder or delay the process of making property available for division among the beneficiary's creditors; and (f) the transfer occurred on or after 28 July 2006 the transfer is void against the trustee in the beneficiary's bankruptcy.

CONSIDERATION 28 The Bankrupts and the Companies were involved in numerous transactions in relation to certain properties and units in the CA Unit Trust. 29 The Applicant states that, during her investigations in relation to the affairs of the Bankrupt Estates, the Applicant identified assets and interests which ought to have been available to creditors in the Bankrupt Estates. 30 The Applicant submits that by tracing through the relevant transactions, the Court can be satisfied that the relief sought should be granted and the ultimate benefit of the assets and proceeds ought to be available for the benefit of the Bankrupt Estates. The Applicant therefore seeks orders declaring the Trustee's interest in certain assets and proceeds from the sale of assets, along with other ancillary orders. 31 For the reasons set out below, I am satisfied the Applicant has established an interest in the relevant assets and proceeds referred to below and that the relief sought by the Applicant is appropriate.

Units in the CA Unit Trust 32 Until 13 August 2014 the Bankrupts personally owned 10 Units in the CA Unit Trust, at which time they caused the Units to be transferred to the Power Super Fund (Unit Transfer). 33 The Unit Transfer was made for no consideration. In his examination, Mr Power stated the Unit Transfer was made for the specific purpose of "asset protection" so "the creditors couldn't get my units in our name", including due to concerns regarding the Bankrupts' exposure to Great Southern managed investment scheme loans. 34 In her examination, Mrs Power said there was no money exchanged in consideration for the Units and the Units were transferred so that they would be protected from creditors. 35 I am satisfied the Power Super Fund was an "eligible superannuation fund" for the purposes of ss 128B and 128C of the Bankruptcy Act, being a "regulated superannuation fund" under the definition in s 128N of the Bankruptcy Act and s 19 of the Superannuation Industry (Supervision) Act 1993 (Cth). 36 For the purpose of s 128B of the Bankruptcy Act, on the basis of the evidence, I am satisfied that: (a) the Units in the CA Unit Trust would probably have become part of the Bankrupt Estates or would have been available for distribution to creditors of the Bankrupt Estates if the Units had not been transferred to the Power Super Fund; (b) the Bankrupts' main purpose in making the Unit Transfer was to prevent the Units becoming divisible among the Bankrupts' creditors; (c) the Unit Transfer occurred on or after 28 July 2006. 37 Accordingly, I will make a declaration that the Unit Transfer is void against the Applicant pursuant to s 128B of the Bankruptcy Act. 38 I will also make a declaration that from the date of the Unit Transfer, the CA Unit Trust held one equal and undivided half of any interest or asset on behalf of the Bankrupts, and such interest vested in the Trustee upon sequestration of the Bankrupt Estates pursuant to s 58 of the Bankruptcy Act. 39 Although it is unnecessary to decide the issue in light of the relief to be granted under s 128B of the Bankruptcy Act, in deference to the submissions that were made at the hearing, I am also satisfied that the Unit Transfer is void against the Applicant pursuant to s 121 of the Bankruptcy Act. I infer from the overall circumstances that the Bankrupt's main purpose in making the Unit Transfer was to prevent the Units from becoming divisible among the Bankrupts' creditors. In addition, it can reasonably be inferred from all the circumstances that, at the time of the Unit Transfer, the Bankrupts were, or were about to become, insolvent. At the time of the Unit Transfer, the Bankrupts were exposed in relation to Great Southern managed investment scheme loans owed to Javelin and Bendigo and Adelaide Bank. On 20 January 2011, Javelin sent the Bankrupts a Notice of Demand for $146,762.53. By 10 July 2015, that loan had not been repaid and Javelin obtained judgment in the Supreme Court of Victoria for $224,127.31. On 9 October 2015, Bendigo and Adelaide Bank sent the Bankrupts a Notice of Demand for $230,935.18. Proofs of debt for these loans were lodged in the bankruptcies of Mr and Mrs Power. The indebtedness of the Bankrupt Estates is set out in paragraph 16 above.

Newhaven Avenue Property 40 From at least June 1991 Mr and Mrs Power owned a property at 44 Newhaven Avenue, Blacktown, New South Wales (Newhaven Avenue Property). The Newhaven Avenue Property was sold in mid May 2015 for $670,000. This becomes relevant later as the Applicant seeks to trace the proceeds from the sale of the Newhaven Avenue Property. 41 I will make a declaration that prior to the sale in May 2015, the Newhaven Avenue Property was a joint asset of the Bankrupts and any interest in that property or its proceeds vested in the Trustee upon sequestration of the Bankrupt Estates pursuant to s 58 of the Bankruptcy Act.

Summerside Property and Tracing Proceeds of Sale 42 On or about 18 May 2015 (after the transfer relating to the Newhaven Avenue Property was lodged with New South Wales Land Registry) RodMargy as trustee of the CA Unit Trust purchased a property at 5 Summerside Street, Toukley, New South Wales (Summerside Property) for $435,000. 43 In or about April or May 2016, following Mr Power's bankruptcy, the Summerside Property was transferred from Rodmargy to an unrelated third party for $450,000. As set out below, part of the proceeds of sale of the Bankrupts' property (the Newhaven Avenue Property) was used to purchase the Summerside Property and the Applicant seeks to trace the proceeds of sale of the Summerside Property. 44 The following background is relevant to the Bankrupts' position prior to the purchase and sale of the Summerside Property: (a) on 1 February 2006 Finserv as trustee for the CA Unit Trust purchased a property at 29 Lakeview Street, Toukley, New South Wales (the Lakeview Property), for $335,000 with a mortgage in favour of the National Australia Bank registered against the Lakeview Property; (b) the Lakeview Property was for many years the residential address of Mr and Mrs Power; (c) as at 2013 Finserv as trustee of the CA Unit Trust also owned a property at 53 Woolara Avenue, Budgewoi, New South Wales (the Budgewoi Property); (d) in June 2013 Finserv transferred the Lakeview Property and the Budgewoi Property to Rodmargy as the new trustee of the CA Unit Trust for no consideration; (e) Rodmargy sold the Budgewoi Property to an unrelated third party in January 2015, however, it remained the registered proprietor of the Lakeview Property at the time it was deregistered. 45 In May 2015 the majority of the settlement sum of $670,000 from the sale of the Newhaven Avenue Property was dispersed as follows: (a) $394,214.57 was used to purchase the Summerside Property; (b) $162,133.80 was used to pay the mortgage over the Newhaven Avenue Property; and (c) $74,427.82 was paid into an account held by the Bankrupts. 46 Accordingly, $394,214.57 of the $435,000 purchase price for the Summerside Property (or 90%) came from the proceeds of sale of the Newhaven Avenue Property. 47 I will make a declaration that RodMargy in its capacity as Trustee of the CA Unit Trust held 90% of its interest in the Summerside Property on trust for the Bankrupts and such interest in the property or its proceeds vested in the Applicant upon sequestration of the Bankrupt Estates pursuant to s 58 of the Bankruptcy Act. 48 In April 2016 RodMargy as trustee for the CA Unit Trust sold the Summerside Property for $450,000 and applied the majority of the settlement proceeds as follows: (a) $117,367.16 was paid into a bank account held by RodMargy as trustee of the CA Unit Trust and used to discharge a mortgage in favour of National Australia Bank registered over the Lakeview Property (NAB Lakeview Mortgage); and (b) $281,789.40 was paid into a bank account held by RodMarg as trustee of the Power Super Fund. 49 Following the discharge of the NAB Lakeview Mortgage, the Lakeview Property remained unencumbered. The Applicant took possession and sold the Lakeview Property on or around 5 June 2023 for $1,050,000. The Applicant holds the net proceeds as receiver of the CA Unit Trust. 50 I am satisfied that RodMargy acquired the funds to discharge the NAB Lakeview Mortgage over the Lakeview Property partially from the Bankrupts' personal assets and that the sum of $117,367.16 from the sale proceeds from the Summerside Property (Traceable Proceeds) was paid in discharge of the NAB Lakeview Mortgage. The Applicant as Trustee of the Bankrupt Estates has an interest in the Traceable Proceeds into the sale proceeds of the Lakeview Property. 51 I will make an order that RodMargy as trustee for the CA Unit Trust or otherwise pay the Applicant $117,367.16, being the Traceable Proceeds paid in relation to the discharge of the NAB Lakeview Mortgage. 52 Section 128C of the Bankruptcy Act applies to transfers by way of a contribution to an eligible superannuation plan for the benefit of a person who later becomes bankrupt (the "beneficiary") under a 'scheme' to which the beneficiary was a party. Section 128N of the Bankruptcy Act defines "scheme" as: (a) any agreement, arrangement, understanding, promise or undertaking, whether express or implied and whether or not enforceable, or intended to be enforceable, by legal proceedings; and (b) any scheme, plan, proposal, action, course of action or course of conduct, whether unilateral or otherwise. 53 I am satisfied that the payment by RodMargy as trustee for the CA Unit Trust of $281,789.40 from the Summerside Property to RodMarg as trustee of the Power Super Fund for nil consideration was a transfer under a scheme to which the Bankrupts, who controlled the Respondents, were a party. 54 I will make a declaration that the transfer for nil consideration of $281,789.40 from RodMargy as trustee for the CA Unit Trust to RodMarg as trustee for the Power Super Fund from the proceeds of sale of the Summerside Property, being proceeds held on trust for the Bankrupts, is void against the Applicant pursuant to s 128C of the Bankruptcy Act. 55 I will also make the ancillary orders sought by the Applicant. I certify that the preceding fifty-five (55) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Neskovcin.

Bankruptcy Act 1966(Cth)ss 5, 58, 121, 127(4), 128B , 128C, 128N

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