INSOLVENCY SUMMER 2009/10

INSOLVENCY SUMMER 2009/2010 Lecture 5 TRANSACTIONS VOID AGAINST THE TRUSTEE UNDERVALUED TRANSACTIONS - S 120S 120 Transfers in the 5 years before the commencement of bankruptcy are void against the trustee if tranferee gave no consideration or less than market value - s 120(1) Exemptions - s 120(2) Exceptions - if transferee proves that the transferor was solvent at the time - s 120(3) “related entity” - s 5 [Nichols 62]s 5 rebuttable presumption of insolvency - s 120(3A)

INSOLVENCY SUMMER 2009/2010 refund of consideration - s 120(4) what is not consideration - s 120(5) protection of successors in title - s 120(6) “transfer of property” and “market value” - s 120(7)

INSOLVENCY SUMMER 2009/2010 JUDICIAL EXPLANATION OF S 120: Anscor Pty Ltd v Clout (Trustee)Anscor Pty Ltd v Clout (Trustee) [2004] FCAFC 71 per Lindgren J [Nichol ] “void” in s 120 means “voidable” transferee takes good title, but a title which may be defeated if the trustee elects to avoid the transfer by the debtor trustee is entitled to have the transfer ignored, as if the debtor still held the property owner holds property in trust for the trustee substitute property will vest in the trustee money can be “traced’ into other property

INSOLVENCY SUMMER 2009/2010 TRANSFERS TO DEFEAT CREDITORS - S 121S 121 transfer is void (read “voidable”) against the trustee if the main purpose of the transfer was to defeat creditors - s 121(1) trustee bears the onus of proof such purpose can be inferred if transferor insolvent at the time - s 121(2) a defence - transfer not void if: –market value was paid –transferee did not and could not know of transferor’s intention –transferee ignorant that transferor insolvent –s 121(4)

INSOLVENCY SUMMER 2009/2010 Trustees of the Property of Cummins v Cummins (2006) 227 CLR 278 [Keays 110]Trustees of the Property of Cummins v Cummins Similar provisions to s 120 : rebuttable presumption of insolvency; refund of consideration; what is not consideration; protection of successors in title; meaning of terms - s 121 (4A) - (9) s 121A catches transactions where consideration is paid to a third party not the bankrupts 121A

INSOLVENCY SUMMER 2009/2010 PREFERENCES - S 122S 122 A transfer by a insolvent in favour of a creditor is void (read “voidable”) against the trustee in bankruptcy if the transfer: –gives a preference to a creditor; and –was made in the period between 6 months before presentation of the petition and the making of a sequestration order –s 122 (1) “Defences” : –purchaser who acted in good faith and who paid market value - s 122(2)(a) –person who took through the creditor in good faith and who paid market value - s 122(2)(b) –transfer under a maintenance agreement or order - s 122(2)(c) –transfer under a debt agreement - s 122(2)(d) [lecture 6] The transferee bears the onus of proving a “defence” - s 122(3)

INSOLVENCY SUMMER 2009/2010 What is a preference? See Kirby J in Sheahan v Carrier Air Conditioning Pty Ltd (1997) 189 CLR 407Sheahan v Carrier Air Conditioning Pty Ltd The ordinary course of business - Robertson v Grigg (1932) 47 CLR 257 at 267; Downs Distributing Co PL v Associated Blue Star Stores PL (1948) 76 CLR 463Robertson v Grigg Downs Distributing Co PL v Associated Blue Star Stores PL Good faith - Queensland Bacon Pty Ltd v Rees (1966) 115 CLR 266 at 287 [Nichols 355]Queensland Bacon Pty Ltd v Rees Running accounts - Keays 119

INSOLVENCY SUMMER 2009/2010 SUPERANNUATION CONTRIBUTIONS - S 128A, 128B, 128C128A128B128C Simplified outline - s 128A Superannuation contributions made to defeat creditors - contributor is a person who later becomes a bankrupt - s 128B(1) Main purpose in making the contribution was to defeat creditors - s 128B(1)(c) Was the contributor insolvent or about to become insolvent? S 128A(2) and (5) Look at previous pattern of superannuation contributions - s 128B(3) Superannuation contributions made to defeat creditors - contributor is a third party - s 128C

INSOLVENCY SUMMER 2009/2010 NOTICES UNDER S 139ZQ Mechanism for recovery of dispositions of property void against the trustee Notice given by Official Receiver requiring payment of value of property to the trustee [Keays ] Vale v Sutherland [2009] HCA 26Vale v Sutherland

INSOLVENCY SUMMER 2009/2010 Next week: Lecture 6 Termination of bankruptcy Personal insolvency agreements Debt agreements Law reform Revision of bankruptcy topics Reading: Keays, , , Bankruptcy Act, ss 149, 153A-153B, 185C, 188A Nichols , ,