INSOLVENCY LECTURE 5WINTER 2010

LAW EXTENSION COMMITTEE

INSOLVENCY WINTER 2010

Lecture 5

TRANSACTIONS VOID AGAINST THE TRUSTEE

UNDERVALUED TRANSACTIONS - S 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]

• rebuttable presumption of insolvency - s 120(3A)

INSOLVENCY WINTER 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 WINTER 2010

JUDICIAL EXPLANATION OF S 120:

Anscor Pty Ltd v Clout (Trustee) [2004] FCAFC 71 per Lindgren J

[Nichol 326-328]

• “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 WINTER 2010

TRANSFERS TO DEFEAT CREDITORS - S 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)

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• Trustees of the Property of Cummins v Cummins (2006) 227 CLR 278 [Keays 110]

• 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 bankrupt

INSOLVENCY WINTER 2010PREFERENCES - S 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)

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• What is a preference? See Kirby J in Sheahan v Carrier Air Conditioning Pty Ltd (1997) 189 CLR 407

• 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 463

• Good faith - Queensland Bacon Pty Ltd v Rees (1966) 115 CLR 266 at 287

[Nichols 355]

• Running accounts - Keays 119

INSOLVENCY WINTER 2010

SUPERANNUATION CONTRIBUTIONS - S 128A, 128B, 128C

• 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 WINTER 2010

Next week: Lecture 6

Section 139ZQ

Termination of bankruptcyPersonal insolvency agreements

Debt agreements

Law reform

Revision of bankruptcy topics

Reading:• Keays, 171-183, 194-210, 225-232• Bankruptcy Act, ss 149, 153A-153B, 185C, 188A• Nichols 427-452, 486-495, 520-570