Re Stephen Moor Ex Parte: Sonenco (No 77) Pty Ltd and Trustee In Bankruptcy, Brian Raymond Silvia [1989] FCA 59 (10 March 1989)

FEDERAL COURT OF AUSTRALIA

Re: STEPHEN MOOR
Ex parte: SONENCO (No. 77) PTY LTD AND TRUSTEE IN BANKRUPTCY, BRIAN RAYMOND
SILVIA
No. W 670 of 1987
FED No. 105
Bankruptcy Act

COURT

IN THE FEDERAL COURT OF AUSTRALIA
GENERAL DIVISION
BANKRUPTCY DISTRICT IN THE STATE OF NEW SOUTH WALES AND THE AUSTRALIAN CAPITAL TERRITORY
Einfeld J.(1)

CATCHWORDS

Bankruptcy Act - application seeking removal of caveat - family trust - validity of a maintenance agreement registered under s.86 Family Law Act - whether maintenance agreement entered to defraud creditors - effect of registration of maintenance agreement - whether unregistered transfer of property executed under section 123(6) of Bankruptcy Act.

Bankruptcy Act 1966 - ss 30, 43, 121, 123, 239

Family Law Act 1975 - ss 84, 86, 87

HEARING

SYDNEY
10:3:1989

Solicitors and counsel for A. Cramer-Roberts
the applicant instructed by

Walker and Raphael
Solicitors

Solicitors and counsel for S. Motbey

cross-applicant instructed by Ledlin Partners

Solicitors

DECISION

On 15 July 1987 the trustee of the bankrupt's estate lodged a caveat on the property at 59 Georges Road, Leppington NSW (the property) being the matrimonial home of the bankrupt and Mrs Moor (the wife). The bankruptcy commenced on 19 May 1987 upon the making of a sequestration order on a creditor's petition: section 43(2) of the Bankruptcy Act (the Act).

2. The matter before the Court is an application dated 14 July 1988 made on behalf of a company known as Sonenco (No.77) Pty Ltd (the applicant company) of which the wife is a director and the bankrupt was a director prior to the bankruptcy. The application seeks an order that the trustee remove the caveat on the property so as to permit the applicant company to register a transfer of the property from the bankrupt in its favour.

3. The bankrupt and his wife were married in August 1980. On 21 January 1985, a company known as DKLR Holding Co Pty Ltd settled $2.00 on the applicant company to establish the Moor Family Trust (the trust instrument). The schedule of the trust instrument provided:

DATE OF THE MAKING OF THIS DEED: 21st January, 1985
THE SETTLOR: D.K.L.R. Holding Co Pty
Limited
THE APPOINTOR: Stephen Moor
THE EXCLUDED PERSONS: Stephen Moor
THE TRUSTEES: Sonenco (No 77) Pty
Limited
THE BENEFICIARIES: Stephen Moor, Tessi Moor
and any children born of
the marriage of Stephen
Moor and Tessi Moor
THE SETTLED SUM: $2.00
THE NOMINAL TERM HEREOF: Eighty (80) years
NAME OF TRUST: Moor Family Trust
PROPER LAW OF THESE PRESENTS: New South Wales, Australia

4. The trust instrument (clause 4) provided that if the bankrupt was removed as or otherwise ceased to be a beneficiary, he could not again become a beneficiary. This did not apply to the wife. Clause 8 gave the trustees absolute powers of investment of the trust funds. By clause 25, the bankrupt could remove and appoint trustees at will unless he became a bankrupt when his right to appoint passed to the trustees. He could not appoint himself as trustee.

5. A cross application dated 30 August 1988 has also been filed in these proceedings by the trustee seeking a declaration that a deed entered into by the bankrupt, the applicant company and the wife on 24 October 1985 (the deed), the intended effect of which was to transfer the property to the wife via the applicant company, is void as against the trustee in bankruptcy. The deed purports to be a maintenance agreement under the Family Law Act 1975 (FLA). A notice of intention to oppose the cross-application was filed by the applicant company.

6. Paragraphs D to J of the recital state:

D. The Husband is the registered proprietor of the
matrimonial home.
E. The Wife is dependent upon the Husband for
accommodation and for financial support.
F. The Husband recognises and wishes to give substance
and effect to his obligations both moral and legal
to make adequate and proper provision for the
accommodation, welfare and maintenance of his Wife
and desires to preserve and protect his marriage.
G. The Wife seeks to have protected and preserved her
claims and the claims of the Husband pursuant to her
status as Wife and the Husband desires to make the
best provision for the accommodation, welfare and
maintenance of his Wife and desires to preserve and
protect his marriage.
H. It is the Husband's intention to provide for the
financial support of the Wife.
I. The Wife is an object of the Moor Family Trust
(hereinafter called "the Trust") which Trust was
settled by D.K.L.R. Holding Co Pty Limited on the
21st day of January, 1985.
J. The Trustees are the Trustees of the Trust.

7. The deed was signed by both the bankrupt and his wife and the common seal of the applicant company was affixed to the deed together with a signature of the wife as company secretary and the bankrupt as company Director. Paragraphs 3 to 5 of the deed state:

3. The Husband hereby covenants to transfer to the
Trustee forthwith all his right title and interest
in the matrimonial home.
4. The Husband and the Wife agree that the Deed herein
contained is a "Maintenance Agreement" intended to
be registered in the Family Court of Australia at
Parramatta pursuant to the provisions of Section 86
of the Family Law Act, 1975, as amended, and the
Husband and the Wife mutually covenant to join in
seeking the registration of this Agreement in the
Family Court of Australia at Parramatta.
5. The Trustee covenants that, subject to the terms of
the Trust, the Trust Fund therein referred to shall
be devoted and applied exclusively to the benefit of
the Wife and members of the family of the Husband
and Wife.

Stamp duty of $1600 was paid on this deed.

8. The intention of the deed was that the bankrupt transfer the property to the applicant company and that that company exercise the powers of the trust in favour of the wife.

9. In consequence of the deed, a memorandum of transfer dated 24 October 1985 was signed by the bankrupt purporting to transfer the property to the applicant company. It did not reveal any prior encumbrances and stated that the transfer was made "pursuant to an agreement under section 86 of the Family Law Act of Australia duly registered in the Family Court of Australia at Parramatta". Essentially the trustee claims that the deed is void and that the property is an asset of the bankrupt estate distributable amongst the creditors. The deed was not in fact registered until 11 November 1985.

10. This case raises issues under section 123(6) of the Act the purpose of which is to protect certain matrimonial transactions against the doctrine of relation-back, under which certain dispositions of property are void as against the trustee. Section 121 deals with fraudulent dispositions in that category, that is those not made for valuable consideration in favour of a person acting in good faith. Section 123(6) in its present state provides:

(6) Subject to s.121, nothing in this Act invalidates, in
any case where a debtor becomes a bankrupt, a conveyance,
transfer, charge, disposition, assignment, payment or
obligation executed, made or incurred by the debtor, before
the day on which the debtor became a bankrupt, under or in
pursuance of a maintenance agreement or maintenance order.

11. The opening words of this section, "Subject to s.121", were inserted by section 45 of Act No.119 of 1987 (the 1987 amendment) with effect from 13 January 1988. The purpose of the 1987 amendment was set out in the Explanatory Memorandum to Parliament on the Bankruptcy Amendment Bill 1987. At clause 45 paragraphs 274-279 the following statement is made:

274 It has been policy for a number of years to extend
to maintenance creditors special protection from the
operation of the bankruptcy laws. However, it has only ever
been intended that bona fide maintenance creditors should
benefit from this protection, and not that spouses should
enter into agreements in collusion in order to put assets
beyond the reach of creditors and still enjoy the benefits
of the property.
275 Under the Family Law Act 1975 maintenance
arrangements may take the form of a maintenance order, or a
maintenance agreement registered with the court under
section 86 of that Act, or a maintenance agreement approved
by the court under section 87 of that Act. It is not
required for any of these procedures that the marriage
should have broken down. A section 86 maintenance
agreement, for example, may be registered whilst the parties
to the marriage remain living together.
276 Maintenance agreements and maintenance orders
frequently involve the alteration of property interests by
one spouse in favour of the other by way of lump sum
maintenance.
277 There is a significant body of evidence which
indicates that maintenance agreements and maintenance orders
are being employed by debtor spouses to transfer property to
the other spouse. Then, when the debtor spouse becomes
bankrupt, the settled property will be safely beyond the
reach of the trustee due to subsection 123(6),
notwithstanding that it was the intention of the spouses to
defraud the creditors.
278 Clause 45 proposes to amend subsection 123(6). The
effect of the change is that section 86 agreements, section
87 agreements and maintenance orders will be protected from
all the relation back provisions of the Bankruptcy Act
except section 121 ('Fraudulent dispositions').
279 Subclause 45(2) is a transitional provision whereby
section 123 as amended will apply in relation to a
transaction entered into by a debtor after the commencement
of the amendments.

12. The underlining is mine, to emphasise that this section 86 agreement did not need a breakdown of the Moor marriage. There is nothing to suggest that Mr and Mrs Moor are not living together in the property as husband and wife.

13. "Maintenance Agreement" is defined in section 5 of the Act as:

. . . . . . a maintenance agreement, within the meaning of the
Family Law Act 1975, that has been registered in or approved
by a court in Australia or an external Territory or any
other agreement with respect to the maintenance of a person
that has been so registered or approved;

14. The effect of section 123(6) on maintenance agreements entered into both before and after this amendment was discussed in The Marriage of Chemaisse (1988) 12 FLR 48 by a Full Court of the Family Court (Fogarty, Frederico and Nygh JJ) at 53:

At the time of the hearing the provisions of s 121(1) of the
Bankruptcy Act 1966 which renders fraudulent dispositions
void as against the trustee in a bankruptcy was not
applicable to a conveyance or transfer made pursuant to a
maintenance agreement which had been registered or approved
by virtue of s 123(6)(b).
The latter provision has since been amended by s 45(1) of
the Bankruptcy Amendment Act 1987 which commenced on 13
January 1988. The effect of that amendment is to apply the
provisions of s 121(1) to conveyances or transfers made
pursuant to maintenance agreements or orders. However, by
virtue of s 45(2) that amendment applies only to
transactions executed or made after the commencement of the
section.
It follows that it is not open to a court exercising
jurisdiction under the Bankruptcy Act 1966 to treat the
transaction as void or to set it aside: Melsom v Mullen
(1985) 10 Fam LR 481.
. . . . . . .
The Commissioner is seeking to assert a right to be heard on
the determination by the court under s 87(3) whether "the
provisions of the agreement with respect to financial
matters are proper". That determination involves
considerations other than the immediate interests of the
parties to the agreement: In the Marriage of Bailey (1981)
7 Fam LR 165 at 168 per Fogarty J; In the Marriage of
Morrissey (1986) 10 Fam LR 906.
Nor does the Commissioner have a right to prevent the
approval of the agreement. The court in the exercise of its
discretion may well come to the conclusion that
notwithstanding the fact that the agreement was entered into
with the intention to defeat the rights of creditors, it was
proper in the circumstances. Leaving aside the question of
the injunction, if the magistrate had been given the
opportunity through appropriate disclosure to consider that
issue and had still come to the conclusion in this case that
the agreement was a proper one for him to approve, it would
have been fully protected by s 123(6) of the Bankruptcy Act
as it then stood.

15. Speaking of the present form of section 123(6), a Full Court of this Court (Davies, Lockhart and Burchett JJ) in Deputy Commissioner of Taxation v Swain [1988] FCA 238; (1988) 81 ALR 12 said at 21-22:

This provision may, in a particular case, protect a
transaction which originated in an order of the Family
Court, or, indeed, in a maintenance agreement made between
parties; but its existence does not displace the need to
demonstrate circumstances sufficient to justify an exercise
of discretion in favour of the respondent. Nor of course
does such a provision in the Bankruptcy Act entitle this
Court to depart from the construction of the Family Law Act
stated by the High Court in the cases earlier referred to in
these reasons.

16. The thrust of section 123 as it was before the amendment was that a disposition under a maintenance agreement entered into with an intent to defraud creditors, not being a disposition for valuable consideration in favour of a person who acted in good faith, is not void as against the trustee in bankruptcy. Speaking of the provisions in sections 121 and 123(6), Brinsden J in Melsom v Mullen and Ors (above) said at 483:

In effect therefore by s 121 a disposition of property
caught by the section is void as against the trustee
representing all the creditors of the bankrupt estate. By
reason of the provisions of s 123(6) a disposition pursuant
to a maintenance agreement which would otherwise be a
disposition within the provisions of s 121 is not void as
against the trustee representing the creditors of the
estate. Action taken under either s 121 or s 89 is either
for or on behalf of all the creditors whether taken by the
trustee or by a creditor . . . . . . . . . . . . . . . . . . . A

disposition

pursuant to a registered maintenance agreement is exonerated
from the provisions of s 121 and that is by reason of the
law of bankruptcy currently in force.

17. (The reference to section 89 is a reference to the Property Law Act 1969 (W.A.) which provides for the avoidance of transactions designed to defraud creditors.)

18. The certificate of title of the property shows in the first schedule that the bankrupt is the registered proprietor of the property. The second schedule shows that the property is encumbered by a mortgage to Westpac Banking Corporation registered on 5 February 1985. There is also noted a 'request - order of Court' lodged by the Taxation Commissioner to prevent the Registrar-General from registering dealings affecting the land unless consented to by the Commissioner. The second schedule also evidences registration, on 17 August 1987, of the caveat which is the subject of these proceedings and was lodged on 15 August 1987. The certificate of title does not evidence that the purported transfer made on 24 October 1985 has ever been registered, or even that the applicant company lodged a caveat to protect its interest in the property pending an attempt to register the transfer.

19. The trustee submitted that the deed was clearly entered into by the bankrupt with the intention of depriving creditors of assets to which they would otherwise be entitled. Thus the questions for determination in this case are:

(1) Does the deed constitute a maintenance agreement within section
123(6) of the Act?
(2) If so, is the trustee entitled to avoid the deed on the basis
that it was entered into with the intent to defraud creditors?

20. On the first question, the trustee put the view that the deed did not constitute a valid maintenance agreement for two main reasons. The first was that it was not entered between the bankrupt and his wife but rather was between the applicant company and the bankrupt. Secondly it was said that there was no consideration moving from the wife to the husband in exchange for the transfer of the property. It was said that "agreement" in section 123(6) should be read in the light of its legal meaning, viz. a promise supported by consideration: Re Symon (1944) SASR 102; Goldsack v Shore (1950) 1 KB 708.

21. The trustee said that the wife was only a signatory to the deed, not a party, so that even if the deed constituted an "agreement", it is not one between the parties to a marriage as required by the FLA. Thus it was argued that section 123(6) of the Act could not save the deed from being set aside as void on the ground of fraud.

22. In response to this submission, the applicant company argued that the maintenance agreement satisfied the requirements of section 4 of the FLA, viz:

An agreement in writing made, whether before or after the
commencement of this Act, between the parties to a marriage,
being an agreement which makes provision with respect to
financial matters, whether or not there are other parties to
the agreement and whether or not it also makes provision
with respect to other matters, and includes such an
agreement that varies an earlier maintenance agreement.

23. The applicant stated that a maintenance agreement may be between a husband and wife but may also include third persons. The phrase "between the parties to a marriage" should be interpreted broadly to include a company in which one of the parties had a major role. The applicant also stated that the wife was not excluded from the maintenance agreement because she executed the trust instrument as an officer of the applicant company.

24. Section 86 of the FLA provides for the registration of maintenance agreements of the kind entered into in this case. It provides:

(1) A maintenance agreement other than an agreement to
which section 87 applies may be registered, as prescribed by
the Rules of Court, in any court having jurisdiction under
this Act.
(2) Where a maintenance agreement is so registered in a
court, the court may, in relation to the agreement, exercise
any of the powers conferred on the court under section 83 as
if the agreement were an order of the court.
(3) The court in which a maintenance agreement is
registered under sub-section (1) may set aside the agreement
if, and only if, the court is satisfied that the concurrence
of a party was obtained by fraud or undue influence or that
the parties desire the agreement to be set aside.
(3A) Where a maintenance agreement has been registered
under sub-section (1), then -
(a) unless the agreement otherwise provides, the
agreement (other than a provision in the agreement
providing for the payment by way of maintenance of a
periodic sum) continues to operate notwithstanding
the death of a party to the agreement and operates
in favour of, and is binding on, the legal personal
representative of that party; and
(b) if the agreement so provides, a provision in the
agreement providing for the payment to a person by
way of maintenance of a periodic sum continues to
operate notwithstanding the death of any party to
the agreement who is liable to make payments
pursuant to that provision and is binding on the
legal personal representative of that party but,
notwithstanding any provision in the agreement, does
not continue to operate after the death of the
person who is entitled to receive those payments.
(4) Subject to section 89, this section does not apply to
overseas maintenance of agreements.

25. The effect of the registration of such an agreement is twofold. The court in which the agreement has been registered can:

(1) exercise powers of enforcement as if the agreement were an order
of the court, and
(2) it may set aside the agreement if satisfied that the concurrence
of a party was obtained by fraud or undue influence or that the
parties desire to have the agreement set aside.

26. It appears that registration of the agreement is not obligatory to bring it into operation, and that it has effect, at least inter parties, without registration. In the light of the fact that duty was paid on this deed, it is interesting to note that section 90 of the FLA provides that such agreements are exempt from the payment of stamp duty, whether registered or not.

27. In Perlman v Perlman [1984] HCA 4; (1983) 51 ALR 317, a case dealing with the jurisdiction of the Supreme Court to entertain proceedings for the enforcement of obligations under section 87 of the FLA, Wilson J at 329 stated that under that section

. . . . the subject matter of the agreement need not be limited
to financial matters and that there may be parties who are
not parties to the marriage.

28. Gibbs CJ at 325 stated:

There may be parties to a maintenance agreement besides the
parties to the marriage; the enforcement of the agreement
may involve the winding up of companies or the execution of
trusts, and the Act does not contemplate that the
regulations may confer on the Family Court powers of that
kind.
. . . . . . . . . .
. . . . it cannot be accepted that the Parliament intended to
deprive the parties to a maintenance agreement of the
armoury of remedies which the general law provides leaving
them only with the comparatively inefficacious remedies
available under the Act.

29. In the light of these pronouncements, I hold that such agreements can extend to include third parties such as the applicant company as trustee for the Moor Family Trust. Looking then at the apparent purpose of the deed to transfer ownership of the matrimonial home from the bankrupt to the wife in a matrimonial settlement, I am satisfied that the parties did in fact enter a maintenance agreement within the meaning of section 123(6) of the Act.

30. The trustee then argued that the transfer of the property was invalid because section 86 makes it mandatory that the agreement be registered before any valid transfer is made. Therefore, it was said that the transfer on 24 October 1985 was not effective. The trustee sought to rely upon section 84(1A) of the FLA which provides:

84(1A) Where -
(a) a provision of a maintenance agreement that has been registered
under section 86 or approved by a court under section 87 requires a
person to execute a deed or instrument; and
(b) that person has refused or neglected to comply with that
provision of the maintenance agreement or, for any other reason, the
court thinks it necessary to exercise the powers of the court under
this subsection, the court may appoint an officer of the court or
other person to execute the deed or instrument in the name of the
person required by that provision of the maintenance agreement to
execute the deed or instrument and to do all acts and things
necessary to give validity and operation to the deed or instrument.

31. Because this is not a case of the non-completion by a party of a deed embodying or giving effect to a maintenance agreement, I do not think that this section is relevant here.

32. Registration is an administrative procedure and cannot validate an agreement which has not been properly entered into or executed. Section 86(1) states that such an agreement 'may' be registered. It does not say 'shall'. Therefore the procedure cannot be interpreted as being essential to give effect to a transfer of property by means other than procedures under the FLA.

33. In any event, the trustee said that the applicant company was really an alter ego or pseudonym for the bankrupt because the trust instrument enabled the bankrupt to control the company and its assets. The trustee said that consequently the bankrupt could effectively obtain property contrary to the Bankruptcy Act. Reference was also made to the fact that the bankrupt was a beneficiary under the trust instrument despite the fact that he was an excluded person. The applicant company denied that the trust instrument was a pseudonym for the bankrupt because the trust instrument did not allow him to appoint new trustees after becoming bankrupt.

34. Commenting on the concept of forming trusts in the context of family law in The Marriage of Ashton [1986] FamCA 20; (1987) 11 FLR 457, Strauss J said at 462:

A trust is, of course, a very different entity from a
company. A company is a separate legal person. A trust, on
the other hand, is not a separate legal person. The legal
owner of the trust property is the trustee and the
beneficiaries are the equitable owners of the trust
property. The powers which the husband has in the Ashton
Family Settlement give him control of the trust either as
trustee or through a trustee which is his creature, and at
the same time he is able to apply all the income and
property of the trust for his own benefit. In my opinion,
in a family situation such as the one here, this court is
not bound by formalities designed to obtain advantages and
protection for the husband who stands in reality in the
position of the owner. He has de facto legal and beneficial
ownership.

35. In Ashton it was held by a Full Court of the Family Court (Ellis, Emery and Strauss JJ) that the family trust which had been established effectively gave the husband absolute control of the trust. Consequently the finding by the trial Judge that the whole of the property of the trust was in reality the property of the husband was upheld by the Court.

36. In the Marriage of Kelly No.2 (1981) 7 FLR 762 a Full Court of the Family Court (Evatt CJ, Emery SJ and Nygh J) considered that "financial resources of a party" within section 75(2) of the FLA included the assets of a family trust found to be in the control of one party. The reasoning of the Court at 769-770 is applicable here, where there is a family trust effectively under the control of the bankrupt.

37. I think that this bankrupt is in effective control of the trust and that the purported transfer of the property to the wife was dressed up to appear as a matrimonial agreement in favour of the trust to deprive his creditors of a valuable asset. This means that the deed, and possibly the trust instrument, may have amounted to one or more shams. This concept was relevantly considered by Gibbs J in Ascot Investments Pty Ltd v Harper and Anor (1981) 6 FLR 591 at 602:

The position is, I think, different if the alleged rights,
powers or privileges of the third party are only a sham and
have been brought into being, in appearance rather than
reality, as a device to assist one party to evade his or her
obligations under the Act. Sham transactions may always be
disregarded. Similarly, if a company is completely
controlled by one party to a marriage, so that in reality an
order against the company is an order against the party, the
fact that in form the order appears to affect the rights of
the company may not necessarily invalidate it.
Except in the case of shams, and companies that are mere
puppets of a party to the marriage, the Family Court must
take the property of a party to the marriage as it finds it.
The Family Court cannot ignore the interests of third
parties in the property, nor the existence of conditions or
covenants that limit the rights of the party who owns it.
To take two obvious examples, the Family Court could not
compel a husband to assign to his wife a lease without
obtaining the necessary consent of the lessor, and could not
order the transfer to a wife of land owned by a husband free
of mortgage, when in fact the land was mortgaged to a third
party. Thus, in the present case, the court must deal with
the husband's shares in Ascot Investments as they in fact
are, that is, as shares in a company whose Memorandum and
Articles contain a restriction on transfer.

38. In Sharrment Pty Ltd and Ors v Official Trustee In Bankruptcy, (1989) 82 ALR 530 a Full Court of this Court (Lockhart, Beaumont and Foster JJ) considered the meaning of 'sham'. At 536-537 Lockhart J said:

The meaning of the word "sham" has been considered in many
cases. In Scott v Federal Commissioner of Taxation (No.2)
(1966) 40 ALJR 265 Windeyer J. said at 279:
"On the other hand, if the scheme, including the deed, was
intended to be a mere facade behind which activities might
be carried on which were not to be really directed to the
stated purposes but to other ends, the words of the deed
should be disregarded . . .
A disguise is a real thing: it may be an elaborate and
carefully prepared thing; but it is nevertheless a
disguise. The difficult and debatable philosophic questions
of the meaning and relationship of reality, substance and
form are for the purposes of our law generally resolved by
asking did the parties who entered into the ostensible
transaction mean it to be, and in fact use it as, merely a
disguise, a facade, a sham, a false front - all these words
have been metaphorically used - concealing their real
transaction . . ."
I shall have occasion to refer again to this passage later
in this judgment.
Diplock L.J. described the "popular and perjorative word"
sham in Snook v London and West Riding Investments Limited
(1967) 2 QB 786 at 802 in these terms:
"I apprehend that, if it has any meaning in law, it means
acts done or documents executed by the parties to the 'sham'
which are intended by them to give to third parties or to
the court the appearance of creating between the parties
legal rights and obligations different from the actual legal
rights and obligations (if any) which the parties intend to
create. But one thing, I think, is clear in legal
principle, morality and the authorities . . . that for acts or
documents to be a 'sham' with whatever legal consequences
follow from this, all the parties thereto must have a common
intention that the acts or documents are not to create the
legal rights and obligations which they give the appearance
of creating."
A "sham" is therefore, for the purpose of Australian law,
something that is intended to be mistaken for something else
or that is not really what it purports to be. It is a
spurious imitation, a counterfeit, a disguise or a false
front. It is not genuine or true, but something made in
imitation of something else or made to appear to be
something which it is not. It is something which is false
or deceptive.

See also my observations in Re Ross Ex Parte Official Trustee in Bankruptcy unreported 21 January 1988.

39. The sham question was not argued before me and it is not necessary for me to resolve the matter here, but it appears that the purported transfer of the property may be able to be set aside on this basis. The question now is what can be done by the Bankruptcy Court about this situation.

40. In Chemaisse v Federal Commissioner of Taxation (1987) 11 FLR 392, the issue before the court was whether a creditor was competent to initiate proceedings in the Family Court for a revocation of an approval given to a maintenance agreement entered into by the husband and wife. It was alleged that the approval of the court was obtained by fraud with the intention of effectively divesting the husband of assets. On this issue generally Purvis J at 406 said:

It is put generally that it would be a peculiar "quirk" of
the law if a husband and wife could get together and, in
flagrant fraud of their creditors, mislead the court by not
advising it of the situation as to creditors, and obtain by
fraud, an approval from the court of an agreement and the
Family Court of Australia not be able to set aside the same
at the suit of a creditor, such remedy not being available
in any other court. Where there is fraud on the power of
the Family Court of Australia, it is said on behalf of the
Commissioner, there must be jurisdiction to revoke an
approval at the suit of a judgment creditor. In a case such
as the present one, neither husband nor wife would have an
interest in initiating proceedings.
The absence of a remedy in another jurisdiction does not, it
was said on behalf of the respondents, enable this court to
confer upon itself a required power. The Family Court of
Australia is a creature of statute, having only such powers
as are expressly conferred upon it. It is not a court of
law and equity, having a general jurisdiction. There is no
power to supplement powers given by the statute even if a
remedy is not available on account of a wrong having been
committed. Thus, in the present case, so the argument goes,
if the wrong has been committed then it is to the Federal
Court, not the Family Court of Australia, to which any
application relying on general principles of wrongs without
remedies should be made.
In resolving such a question, the existence or not of other
remedies is to me a relevant consideration. . . . .
. . . . . . . .
The provision of the Bankruptcy Act by excluding maintenance
agreements from the relation back provision recognises the
need for the Family Court of Australia to have all matters
before it, including the revocation of an approval of
maintenance agreement and a reconsideration of the
alteration of the property interests of a husband and wife.
The Bankruptcy Court cannot do it. It is, in addition,
unable to receive relevant evidence the like of that which
would be adduced in this court under ss 79 and 87(9) of the
Act: see generally In the Marriage of Prince (1984) 9 Fam
LR 481; (1984) FLC 91-501 at 79,078.
It is conceivable that even be it that the case of fraud is
made out, that the entitlement of the wife, all appropriate
matters being considered, is such that the subject approval
should not be revoked. This decision can only be made by
the Family Court. The need to resolve the question demands
jurisdiction. It may be a question of priority, it may be
not. It is certainly a matter of determining interests and
quantifying them and these matters being relevant to the
revocation of approval.

41. There seems no relevant difference for this case between agreements approved under section 87 and those registered under section 86.

42. Although agreeing that the Family Court could act in such circumstances Davies J by contrast, in Re Caruana and Fenech; Ex Parte Deputy Commissioner of Taxation (1988) FLC 91-903, believed that the Bankruptcy Court can also act. At 76,562 his Honour said:

Senior counsel for the debtors submitted that it would not
matter whether the maintenance agreements had been entered
into with a view to defrauding creditors. He pointed to the
fact that sec. 123(6) overrides all the avoidance provisions
in the Act, including sec. 121, the fraud section. However,
I do not see the matter in quite that light. It presently
appears to me that the Family Court of Australia would be
entitled to conclude that a maintenance agreement entered
into to defraud creditors or to evade the payment of tax was
an abuse of its process if registered under sec. 86 of the
Family Law Act, and should be struck off the register.
Senior counsel submitted that the register was not a part of
the process of the Family Court of Australia. However, my
present view is that it is a facility provided by that
Court, and, as such, within the ambit of the principles with
respect to abuse of process.
Moreover, I think it is beyond argument that, if this Court
were satisfied that the creditors were prejudiced by reason
of being confronted with a maintenance agreement which had
been entered into in fraud of them, the Court would be
entitled in its discretion to make an order under sec. 239
setting aside any composition arrived at. This Court will
be astute to protect creditors against fraud, whatever its
guise.

43. Caruana was a case where a section 86 agreement was entered into by the husband and wife and subsequently registered. Davies J held that the agreement was a maintenance agreement, and although suggested by counsel, held that there was no sham or fiscal nullity. As in the case before me, counsel for the bankrupt argued that section 123(6) overrode all avoidance provisions, including section 121, before the 1987 amendment.

44. I agree with Davies J that the Family Court has power to dispose of matrimonial agreements entered into for fraudulent reasons. However, as section 86 agreements require registration only to enable the Family Court to enforce or set them aside, not to make them effective inter partes, that would not avail the trustee here. I also agree with Davies J that the Bankruptcy Court will take all available steps to protect creditors against fraudulent transactions, while bearing in mind the remarks of the Full Court of this Court in Swain and of Purvis J in Chemaisse, the thrust of which require this Court to have regard to the spirit of the FLA.

45. This is a difficult matter to resolve. It is certainly highly desirable that cases such as these, for that matter all cases, should be able to be resolved in one place at one time. In my opinion, the deed was a valid maintenance agreement and the transfer of the property was not affected by the fact that the agreement had not been registered at the time of executing the transfer. On the other hand I am convinced that the deed, in the light of the operation of the trust instrument and the subsequent transfer, amounted to a fraudulent attempt to defeat creditors. It is obvious that section 123(6) was amended to remedy situations like the present case. However, as it was at the time the deed was entered and the transfer completed, this provision does not allow this court to set aside this disposition. Are there any other ways of doing so? I can think of only three.

46. One not suggested by the trustee may be an order under section 30(1) of the Act. This provides:

30(1) The Court -
(a) has full power to decide all questions, whether of
law or of fact, in any case of bankruptcy or any
matter under Part X or Part XI coming within the
cognizance of the Court; and
(b) may make such orders (including declaratory orders
and orders granting injunctions or other equitable
remedies) as the Court considers necessary for the
purpose of carrying out or giving effect to this Act
in any such case or matter.

47. The second is the suggestion made by Davies J in Caruana of an order under section 239 of the Act to set aside the maintenance agreement viewed as a composition. This section provides:

239(1) A creditor may, within 21 days from the date on
which the special resolution accepting a composition under
this Part was passed, apply to the Court for an order
setting aside the composition and may also apply for the
making of a sequestration order against the estate of the
debtor.
(2) If the Court, on such an application, considers that
the terms of the composition are unreasonable or are not
calculated to benefit the creditors generally or that for
any other reason the composition ought to be set aside, it
may make an order setting it aside and, if it thinks fit,
may forthwith make the sequestration order sought.
(3) The Court may, if it thinks fit, dispense with service
on the debtor of notice of an application under this
section, either unconditionally or subject to conditions.
(4) The making of an application for a sequestration order
against the estate of a debtor under this section shall, for
the purposes of this Act, be deemed to be equivalent to the
presentation of a creditor's petition against the debtor,
but the provisions of sub-section 43(1), sections 44 and 47,
sub-sections 52(1) and (2) and Part XIA do not apply in
relation to such an application.

48. Although section 239 does not at first glance appear to be applicable here, I express no view about the appropriateness of either of these two possibilities. No argument was addressed to them and I have not examined them.

49. The third requires a close interpretation of section 123(6) itself. As has been seen, this provision has seven actions under its protective umbrella - conveyances, transfers, charges, dispositions, assignments, payments, and obligations. To qualify for protection, it is said that before the debtor became bankrupt, they must have been either executed, made, or incurred by him pursuant to the maintenance agreement.

50. It is not clear which of the 3 verbs goes with which of the 7 nouns. Some naturally do not fit together. Others fit with more than one. Hence, no obvious construction presents itself. In my opinion, the intent of the subsection is clearly to protect the final or binding act in relation to each of the transactions. Conveyances, transfers and charges are executed, as are assignments; dispositions and payments are usually made; obligations are incurred.

51. The property's title was under the Real Property Act. By section 41 of that Act a transfer must be registered before any estate or interest passes to the transferee. The act of registration confers on the dealing a quality of indefeasibility and protection of a bona fide party acquiring an interest in the land. Because the transfer has never been registered, the question is whether it has therefore been executed within the meaning of section 123(6).

52. In Cope v Keene [1968] HCA 53; (1968) 118 CLR 1, a memorandum of transfer of real property in favour of a testator's two daughters to take effect on his death was signed by him and the two daughters but not registered before his death. It was held that until registration and despite completion, it was a piece of paper which remained the property of the testator, his intention being not to deliver a memorandum of transfer, but to cause the instrument to be registered on his behalf. Likewise, the certificate of title was not delivered or made available to the daughters, because the father intended only a gift by registration of the transfer.

53. Kitto J, with whom McTiernan J agreed, Taylor J expressing no opinion, was of opinion that on the testator's death, the memorandum of transfer ceased to be registrable because it was no longer the instrument of a living registered proprietor. He held that the daughters could not deal with the land otherwise than by first obtaining transmission under the Act.

54. However, Kitto J believed (at 7-8) that the more fundamental matter was

. . . . . that on the grant of probate the land, and the
instruments . . . . . became vested in (the executors) as assets
for the payment of all duties and fees and of the testator's
debts in the ordinary course of administration . . . . . and
subject to that . . . . . for the purposes of the will.

55. I think that these principles apply here by analogy. The intention of the deed was to transfer the property, not to deliver a completed memorandum of transfer. The transfer could not be achieved other than by registration. When section 123(6) talks of the "execution" of a transfer, it is not talking about the completion of a document which will one day operate as a transfer; it is speaking of the effective legal transfer. It is not documents which are protected, or as the section now is, not protected, from avoidance. The relation back scheme is concerned with actual binding transactions creating rights and obligations. There would be no point in protecting documents which do not by themselves create rights and obligations. This transfer is in that category.

56. I therefore dismiss the application. The cross application must also be dismissed but in lieu thereof, I declare:

1. that the property has not passed under the deed
2. that the memorandum of transfer thereof is not effective to
divest the bankrupt of the property
3. that the property is, subject to the Act, available to the
trustee for distribution amongst creditors.

57. I reserve liberty to the parties to apply for other orders deemed necessary by these reasons for judgment. I order that the applicant company pay the trustee's costs.