The Trustees of the Property of Amanda Marie Glass (A Bankrupt) v Heifer Creek Investments Pty Ltd as Trustee for the Nicholas Investment Trust

REASONS FOR JUDGMENT 1 The application before the court this morning is an application by John Richard Park and Kelly‑Anne Lavina Trenfield, who are registered trustees in bankruptcy and became the trustees in bankruptcy of Amanda Marie Glass ('Amanda Glass') on 18 December 2006 consequent upon the presentation by Amanda Glass of a Debtor's Petition to the Official Receiver. 2 By this application, the trustees seek to set aside a transfer of land described as a fee simple of a residential property at 17 Collins Street, Mount Lofty, Toowoomba in the State of Queensland more correctly described as Lot 62 on RP41396 in the County of Aubigny, Parish of Drayton, bearing a Title Reference 11818164, otherwise described as 'the property'. 3 In the statement of claim accompanying the application, the applicants contend that at 21 November 2005 the market value of the property just described was approximately $300,000; and a debt was owed to National Australia Bank Limited secured by a first registered mortgage over the property in an amount of approximately $186,000, thus leaving a net interest in the property of $114,000 in Amanda Glass. At 21 November 2005, Amanda Glass was a defendant in proceedings commenced by the Australia and New Zealand Banking Group Limited by which the bank sought recovery of an amount of $115,000. 4 The statement of claim contends that on or about 21 November 2005, Amanda Glass and the respondent, an entity described as Heifer Creek Investments Pty Ltd as trustee for the Nicholas Investment Trust, entered into transactions by which Amanda Glass, as vendor, agreed to sell the property to the respondent as purchaser at a price of $290,000 and a loan agreement by which Amanda Glass, as vendor, would vendor finance $95,000 of that purchase. No deposit was payable under the contract of sale and the sale was subject to the respondent obtaining finance from National Australia Bank Limited within 14 days. Settlement was to take place within 30 days. 5 On 23 December 2005, Amanda Glass and the respondent effected a settlement of the transaction reflected by the documents previously described. As a result of that settlement, Amanda Glass transferred all of her right, title and interest in and to the property to the respondent; the respondent became the registered proprietor of the property; the existing registered mortgage over the property in favour of National Australia Bank Limited was released; National Australia Bank Limited registered a fresh mortgage over the property to secure a loan which it had made to the respondent to enable it to effect the settlement; the respondent became indebted to Amanda Glass in the amount of $95,000 pursuant to the terms of the vendor-financed loan arrangements; and no security for the advance in favour of Amanda Glass whether over the property or otherwise was prepared, signed or registered. 6 The applicant trustees contend that these transactions which are a composite transaction involving a transfer of the right, title and interest of Amanda Glass accompanied by the related, but essential, loan transaction are transfers which are void as against the trustees of the bankrupt, pursuant to ss 120 and 121 of the Bankruptcy Act 1966 (Cth). 7 Before turning to those provisions, I should briefly mention that the matter is listed this morning by way of directions as a result of an order made by the court on 12 July 2007. The matter initially came before the court on 12 July 2007 consequent upon the application, supported by the statement of claim together with affidavit material being served upon the respondent at the respondent's registered office. That service was effected consistent with s 109X of the Corporations Act 2001 (Cth). 8 The applicants relied upon that provision by posting the documents to the company's registered office. It became apparent that the operators of the premises constituting the registered office contended that they no longer provided that service to the respondent company. Nevertheless, the applicants properly relied upon the details as to the respondent's registered office listed with the Australian Securities and Investments Commission ('ASIC'). 9 Because the nature of orders under ss 120 and 121 of the Bankruptcy Act 1966 (Cth) effect or provide for a transfer of title to land, the court ordered that the papers and notice of this rescheduled directions hearing this morning be given to Mrs Judith Anne Glass at her registered address contained on the ASIC records of 3498 Gatton-Clifton Road, Greenmount, Queensland, 4359. Mrs Judith Glass ('Mrs Glass Snr') is the sole registered director of the respondent company and is the mother of the husband of Amanda Glass. The affidavit material filed by leave this morning deposes to service of the material upon Mrs Glass Snr and, moreover, Mr Betros deposes to a conversation in which the respondent takes the position that the respondent is content for the matter to be dealt with by the court this morning in any event. 10 In relation to s 120 of the Bankruptcy Act , the applicants contend that, having regard to the facts pleaded in the statement of claim, the trustees are entitled to judgment for relief sought to set aside both transactions and effect a re‑transfer of the land at the cost of the respondent, to the trustee. The specific relief sought is a declaration that both transactions are void by operation of s 120, or, further, alternatively, pursuant to s 121 of the Bankruptcy Act, and an order that the respondent forthwith transfer to the applicants all right, title and interest in and to the fee simple of the property as previously described (subject to the existing registered mortgage in favour of the National Australia Bank Limited). 11 The failure of the respondent to appear at the directions hearing, of course, reflected in the express consent or express recognition by the respondent that the respondent is content for the court to deal with the application this morning, raises the question of the basis upon which the court can proceed to enter judgment for the applicants for the relief claimed. Order 35A, rule 3(2) of the Federal Court Rules, provides that: If a respondent is in default, the Court may (c), if the proceeding was commenced by an application supported by a statement of claim, give judgment against the respondent for the relief that (i) the applicant appears entitled to on the statement of claim; and (ii) the Court is satisfied it has power to grant; or (d) give judgment or make any other order against the respondent; … 12 The applicants contend that they are entitled to judgment for the orders sought in the statement of claim, being orders 1 and 2 of the claim for relief arising out of the facts pleaded by the statement of claim. As to the first ground, of course, s 120(1) of the Bankruptcy Act provides that: A transfer of property by a person who later becomes a bankrupt (the transferor) to another person (the transferee) is void against the trustee in the transferor's bankruptcy if: (a) the transfer took place in the period beginning five years before the commencement of the bankruptcy and ending on the date of the bankruptcy; and (b) the transferee gave no consideration of the transfer or gave consideration of less value than the market value of the property. 13 As to the elements reflected by s 120, clearly there has been a transfer of property by a person who has subsequently become a bankrupt and the transfer took place in the period beginning five years before the commencement of the bankruptcy. As to the second limb, the applicants contend that the transferee gave consideration of less value than the market value of the property. 14 In the statement of claim at paragraph 4, the applicants contend that the market value of the property was approximately $300,000 and, by paragraph 6, the applicants contend that the transfer on 21 November 2005 by Amanda Glass to the respondent occurred pursuant to a written contract between Amanda Glass and the respondent for a purchase price of $290,000. 15 It seems to me a little difficult to conclude on the face of those facts that there has been, for the purpose of s 120, a transfer of property for consideration of less value than the market value, if the market value was 'approximately $300,000' as pleaded and the contract price as pleaded is $290,000. The anomalous factors in relation to the transaction, of course, are that there was a vendor financing arrangement of $95,000 as part of that consideration with the balance supported by a first registered mortgage in favour of the National Australia Bank. 16 However, it seems to me that although the vendor financing transaction is, in itself, a little unusual and unsupported by a security, the transfer of the property to the respondent is not one which, prima facie, has occurred for a consideration of less value than the market value of the property, since it is only $10,000 less than the approximate market value pleaded. Accordingly, it seems to me that there may be real difficulty in granting relief pursuant to s 120 of the Bankruptcy Act. 17 However, the position is different for the purposes of s 121 of the Bankruptcy Act. Section 121 of the Bankruptcy Act provides that: 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. 18 As to the first element of s 121, it is clear, again, that there has been a transfer of property by a person who later became a bankrupt. I am satisfied, on the basis of the pleading, that there is an allegation of fact that the property would probably have become part of the transferor's estate or would probably have been available to the creditors if the property had not been transferred. I am also satisfied that there is an allegation of fact that the main purpose for the transfer was one or either of the purposes reflected in subparagraphs (i) and (ii) of subparagraph (b) of s 121(1) of the Bankruptcy Act. 19 I am satisfied about those matters because the pleading alleges as a fact that the transfer occurred in circumstances where the transferor was doing so for that main purpose. Intention or purpose is a question of fact, and that fact is pleaded in the statement of claim. I am satisfied that, on the factual allegation, the applicants are, on the face of the statement of claim, entitled to relief pursuant to s 121 of the Bankruptcy Act. 20 Accordingly, I propose to make orders pursuant to s 121 of the Bankruptcy Act. The court notes, for the purposes of s 121, as is the position, of course, under s 120, that, by s 121(5): The trustee must pay to the transferee an amount equal to the value of any consideration that the transferee gave for a transfer that is void against the trustee. 21 The orders I propose to make are these: