Worrall v Kerr-Jones [2002] FMCA 21 (18 February 2002)

Last Updated: 30 April 2002

FEDERAL MAGISTRATES COURT OF AUSTRALIA

WORRALL v KERR-JONES

[2002] FMCA 21

BANKRUPTCY - alleged preference under s.122 - payment to spouse under Court order - whether payment had the effect of giving the creditor a preference - was the spouse a creditor under the order - was the debtor insolvent - was there a transfer of property - held payment from fund not otherwise available to creditors not a preference.

RAMSAY v NATIONAL AUSTRALIA BANK [1989] VicRp 7; (1988) 6 ACLC 625

BURNS v STAPLETON [1959] HCA 34; (1959) 102 CLR 97

NA KRATZMAN PTY LTD v TUCKER [1968] HCA 44; (1968) 42 ALJR 164

OFFICIAL TRUSTEE IN BANKRUPTCY v TREVOR NEWTON SMALL SUPERANNUATION FUND PTY LTD (2001) FCA 1267

SHEAHAN v CARRIER AIR CONDITIONING PTY LTD OF CAMPBELL (1997) 189 CLR 407

RE: PEARSON; Ex parte WANSLEY v PEARSON (1993) 46 FCR 55

IN THE MARRIAGE OF DEIN (1989) FLC 92-014

HABIB v HABIB (1988) FLC 91-931

RE: SABRI ex parte BRIEN (1997) FLC 92-732

Applicant:

IVOR WORRELL as trustee of the bankrupt estate of JOHN ANTHONY JONES

Respondent:

ALISON ROBIN KERR-JONES

File No:

BZ 7 of 2001

Delivered on:

18 February 2002

Delivered at:

Brisbane

Hearing Date:

13 June 2001

Judgment of:

Baumann FM

REPRESENTATION

Counsel for the Applicant:

G W O'Grady

Solicitors for the Applicant:

MacGillvrays

Counsel for the Respondent:

T Bradley

Solicitors for the Respondent:

Neil Wilkinson

ORDERS

(1) The Application be dismissed.

FEDERAL MAGISTRATES COURT OF AUSTRALIA AT BRISBANE

BZ 7 of 2001

APPLICANT'S NAME

IVOR WORRELL as trustee of the bankrupt estate of JOHN ANTHONY JONES

And

RESPONDENT'S NAME

ALISON ROBIN KERR-JONES

REASONS FOR JUDGMENT

Introduction

1. IVOR WORRELL ("the Trustee") is the Trustee of the Bankrupt Estate of JOHN ANTHONY JONES ("the Bankrupt"). By Application filed

1 May 2000, the Trustee applied for a declaration that the payment of $95,000 received by ALISON ROBIN KERR-JONES ("the Respondent") be declared a payment by or for or on behalf of the Bankrupt and is void against the Trustee pursuant to s.122 of Bankruptcy Act 1966. An alternate claim under s120 of the Act was not pursued at the hearing.

Issue

2. The issue is whether the payment of $95,000 ("the payment") is void against the Trustee and should be repaid by the Respondent to the Trustee. The Respondent contends that the funds received are not void against s.122, and even if it was, that the Trustee by his conduct is estopped from alleging it is void.

Background

3. The Respondent and the Bankrupt married on 26 August 1989, the parties having co-habitated since 1985.

4. The Respondent says the marriage broke down, and separation under the one roof occurred on 26 December 1994.

5. On 17 July 1996 the Respondent purchased a house at 29 Wharf Road, Bli Bli. At this time the Respondent and the Bankrupt were negotiating a property settlement, and on 18 July 1996 the Respondent says she accepted an offer by her Husband to pay her $95,000 from a MLC Superannuation entitlement.

6. On 18 July 1996, the Respondent and the Bankrupt signed Minutes of Consent orders, which were subsequently filed in the Maroochydore Magistrates Court.

7. On 23 July 1996, Mr Kileen SM made an order in terms of the Minutes of Consent, which relevantly provided that, by way of settlement of property and spouse maintenance, inter alia:-

"1. The Husband does acknowledge an indebtedness to the wife in the sum of $145,000 being 50% of a loans made by the husband to Mooloolaba Diary Log Project which loans were secured by mortgages over the former matrimonial home which is presently being sold to discharge these loans in part.

2. The Husband pay to the wife the sum of $95,000 by way of settlement of property within twenty days of the date of this order."

8. The Bankrupt on 23 July signed a written direction to MLC Limited to pay $95,000 to the Respondent, which was received by MLC Limited on 29 July 1996. The evidence is that the payment of $95,000 was deposited to the Respondent's St George bank account on 7 August 1996.

9. The funds of $95,000, together with finance obtained by the Respondent from St George Bank, were used to complete the purchase of the Bli Bli home.

10. On 27 September 1996, the Bankrupt presented a Debtors Petition and the Trustee was appointed on 2 December 1996.

11. On 13 June 1997, the Trustee delivered a report to creditors ("the Trustees Report). Some of the statements made in the Trustees Report are relied upon by the Respondent to sustain an allegation that the Trustee is estopped from making this application.

12. On 18 December 1996 a decree nisi of dissolution of marriage was made in the Family Court of Australia.

13. On or about 27 July 1998, the Respondent signed a contract to purchase a property in North Buderim, such contract being completed on 14 August with the benefit of finance from St George Bank.

14. Shortly after 20 August 1998, the Respondent received a letter from the Trustee dated 20 August 1998, which raised concerns about the payment of $95,000 and requested further information.

15. This application was filed by the Trustee on 11 May 2000.

Applicable law

16. Although the Bankrupt was declared Bankrupt on 27 September 1996, by operation of Bankruptcy Legislation Amendment Act 1996, schedule 1, Item 458, the current s.122 applies.

17. Section 122 of the Act provides:-

"122 .(1) A transfer of property by a person who is insolvent (the "debtor") in favour of a creditor is void against the trustee in the debtor's bankruptcy if the transfer:

(a) had the effect of giving the creditor a preference, priority or advantage over other creditors; and

(b) was made in the period that relates to the debtor, as indicated in the following table.

(1A) Subsection (1) applies in relation to a transfer of property by the debtor in favour of a creditor:

(a) whether or not the liability of the debtor to the creditor is his or her separate liability or is a liability with another person or other persons jointly; and

(b) whether or not the property transferred is the debtor's own property or is the property of the debtor and one or more other persons.

(2) Nothing in this section affects:

(a) the rights of a purchaser, payee or encumbrancer in the ordinary course of business who acted in good faith and who gave consideration at least as valuable as the market value of the property; or

(b) the rights of a person who is making title through or under a creditor of the debtor in good faith and who gave consideration at least as valuable as the market value of the property; or

(c) a conveyance, transfer, charge, payment or obligation of the debtor executed, made or incurred under or in pursuance of a maintenance agreement or maintenance order; or

(d) a transfer of property under a debt agreement.

(3) The burden or proving the matters referred to in subsection (2) lies upon the person claiming to have the benefit of that subsection.

(4) For the purposes of this section:

(a) a transfer of property is taken to have been made in favour of a creditor if it is made in favour of a person in trust for the creditor; and

(b) a payment of tax, or of any other amount payable to the Commonwealth, or to the Commissioner of Taxation, under or because of an Act of which the Commissioner has the general administration, is taken to be made for consideration equal in value to the payment and in the ordinary course of business; and

(c) a creditor shall be deemed not to be a purchaser, payee or encumbrancer in good faith if the transfer of property was made under such circumstances as to lead to the inference that the creditor knew, or had reason to suspect:

(i) that the debtor was unable to pay his or her debts as they became due from his or her own money; and

(ii) that the effect of the transfer would be to give him or her a preference, priority or advantage over other creditors.

(4A) A reference in this section (other than subsection (5)) to a creditor of the debtor shall be read as including a reference to a person who would be a creditor of the debtor in relation to a contract, agreement, transaction or other dealing if the contract, agreement, transaction or other dealing were not, in whole or in part, void or unenforceable, or had not been voided in whole or in part, by or under a law or the Commonwealth or of a State or Territory of the Commonwealth.

(5) If a transfer of property is set aside by the trustee in a bankruptcy as a result of this section, the creditor to whom the property was transferred may prove in the bankruptcy as if the transfer had not been made.

(6) ...

(7) In this section:

"tax" means tax (however described) payable under a law of the Commonwealth or of a State or Territory, and includes, for example, a levy, a charge, and municipal or other rates.

(8) For the purposes of this section:

(a) "transfer of property" includes a payment of money; and

(b) a person who does something that results in another person becoming the owner of property that did not previously exist is taken to have transferred the property to the other person; and

(c) the "market value" of property transferred is its market value at the time of the transfer.

18. The Trustee bears the onus of establishing the facts required by s.122(1), whilst the onus of establishing the defences under s.122(2)(c) rests with the respondent.

19. The Trustee must prove, on the balance of probabilities, that:-

a) At the relevant time

i) A transfer of property took place;

ii) The Respondent was a creditor;

iii) The person making the transfer was insolvent.

b) The transfer had the effect of giving the creditor a preference, priority or advantage over other creditors.

20. The Respondent is required, if the Trustee meets the evidentiary burdens of s.122(1), to satisfy me that the benefit she obtained, has the protection of s.122(2)(c), in that it was received pursuant to a "maintenance agreement or maintenance order."

21. The Trustee, MR IVOR WORRELL, was called for the purposes of cross-examination on his affidavits filed 13 September 2000 and 8 June 2001. He acknowledged that:-

(a) He knows nothing more now than he did at the time of the Trustees report, other than that a review of the material strengthen his view of the merits of the Trustees application; and

(b) He has the benefit of an agreement with Insolvency Funding Management, without which he indicated he would have been "less likely" to commence an action for recovery.

22. The Respondent, now known as Mrs Grosse, was the subject of cross-examination on her Affidavits filed 6 October 2000 and by leave at the hearing. As far as is relevant to the issues, her further oral testimony was that:-

a) she sold a property in approximately March 1998 (after the Date of Bankruptcy), that she had owned at 9 Douglas Street for 17 years (a former family home from a previous marriage), but she says she wouldn't have connected the two events.

b) she was involved in a further property transaction with a Mr Purvis in respect of a property at 16 Church Street Maroochydore, who had in approximately late 2000, purchased her interest in the property. This property had been acquired in September 1996, shortly prior to the Bankruptcy of Mr Jones.

Was there a transfer of property?

23. The evidence of STUART RAYMONT, Product Manager for Allocated Pensions, MLC Limited, contained in his Affidavit filed

13 September 2000, was not challenged, and confirms that:-

a) the Bankrupt executed a letter dated 23 July 1996:

i) requesting withdrawal of $95,000;

ii) directing it be deposited direct to the Respondent's Account;

iii) requesting discontinuance of regular income payments to him.

c) The letter was received by MLC Limited on or about 29 July 1996.

d) The sum of $95,000 was transferred from the income plan of the Bankrupt to the Respondent on 6 August 1996 and received by the Respondent on 7 August 1996.

24. I am satisfied the funds were available to the Bankrupt and his property and at his express direction were paid to the Respondent. This represents, in my view, "a transfer of property by a person" for the purposes of s.122. Mr O'Grady for the Applicant relied on Ramsay v National Australia Bank [1989] VicRp 7; (1988) 6 ACLC 625 to support his submission that they were the Bankrupt's funds, available to him. I agree.

Was the person insolvent

25. By definition (s.5), a person who is not solvent, is insolvent. A person is solvent if "the person is able to pay all the person's debts, as and when they become due and payable."

26. The evidence establishing insolvency relied upon by the Trustee, are his own Affidavit is filed 13 September 2001 and 8 June 2001. In particular at paragraph 14 of his Affidavit, Mr Worrell says:-

"I have consulted all the records of the bankrupt and proofs of debt and from those records and proofs of debt I am informed and verily believe that as at 23 July 1996, 29 July 1996 and 6 August 1996 there was insufficient funds to pay all the debts of the bankrupt following the payment of the $95,000.00 to the respondent out of the superannuation funds held with MLC, even if the additional amount of $28,524.00 remaining in that fund were made available to pay creditors."

27. Mr Worrell asserts that at the time of payment by the Bankrupt to the Respondent of the sum of $95,000 on or about the 29 July 1996 the Bankrupt had:

Secured Creditors of $410,000

Unsecured Creditors of $429,000

Total $839,000

Realisable Assets of $292,740

28. The Respondent says I cannot accept the evidence of Ivor Worrell as to the creditors, as it is inadmissible. The Trustee stands in the shoes of the Bankrupt. The source of the view he has expressed in his first Affidavit is set out at paragraph 14 of his second Affidavit, namely inspection of records of the Bankrupts and proofs of debt. Also it must be remembered that the Bankrupt presented his own petition on

27 September 1996. The Bankrupt's Statement of Affairs is not before me, but Mr Worrell's summary of those admissions by the Bankrupt is set out at paragraph 2.1 of his Report to Creditors (Annexure "IWI") The Bankrupt estimated his deficiency at $537,750.

29. I am entitled to rely on the evidence of Mr Worrell. I find that the Bankrupt was insolvent at the time of the payment.

Was the respondent a creditor?

30. Only payments made by an insolvent person to a creditor are voidable. It is common ground that the payment was made within the period of

6 months prior to the presentation of the Debtor's petition.

31. The Trustee says that the Court order made 23 July 1996, created a relationship of debtor and creditor, between the bankrupt and the Respondent. The debt was not paid until the payment was received by the Respondent on 9 August 1996 and the Trustee says, the Respondent remained a creditor until the time of payment.

32. The Respondent says that the Bankrupt, by directing payment in the manner he did on the date of the order, amounts to a discharge of his obligation to the Respondent on the day it was created.

33. Whilst it has been held that the discharge or receiving of a debt at the time of its creation is not a preference (see Burns v Stapleton [1959] HCA 34; (1959) 102 CLR 97 at 105), this is not the position in this case. In my view the Respondent became a creditor of the Bankrupt on 23 July 1996 and didn't become a satisfied creditor until 7 August 1996.

34. As a result, the payment received on 7 August 1996 amounted to a payment to a creditor under s.122.

Void if the transfer had the effect of giving the creditor a preference

35. A transfer is voidable if, as I have found, the payment constitutes a payment to a creditor within the 6 month time limit, by a person who is insolvent.

36. However it is only then void against the Trustee (before consideration of any defences available under s.122(2)) if the transfer:-

"(a) had the effect of giving the creditor a preference, priority or advantage over other creditors."

37. This issue was not argued before me, in that the Trustee says only that the evidence of Mr Worrell establishes that the other unsecured creditors will receive nothing and therefore the payment of $95,000 to completely satisfy the debt created by the order, represents an advantage to the Respondent.

38. The Respondent made no direct submissions on this issue. For my own point, I considered whether the fact that the payment came from monies not otherwise available to creditors, (because of the operation of s.116(2)(d)(iii)), meant that no preference or advantage occurred. In this regard, the actual nature of the fund from which the payment of $95000 was directed, was not the subject of any extensive evidence before me. It seems all parties concede the MLC interest was exempt. The Trustees Report to Creditors also confirmed this view was held by the Trustee, based on investigations of how, the funds were established (see paragraph 3.3 of Trustees Report).

39. I directed the parties to make written submissions on the issue, which I described as:

"whether a transfer under s.122 is capable of having the effect of giving the Respondent "a preference, priority or advantage over other creditors" where the transfer comes from a fund which would not otherwise be available to creditors, because the fund is exempt pursuant to s.116(d)".

40. I have considered the detailed submissions, and those in reply, filed by the Applicant on 4 and 8 February 2002 and by the Respondent on

5 and 8 February 2002.

41. Section 161(1) of the Act defines the property divisible amongst creditors and s.161(2) excludes certain property from that definition. I agree with the Applicant's submission that no part of the $95,000.00 was an interest of the bankruptcy in a super fund at the commencement of the Bankruptcy as it had been removed from the fund. The Applicant says the protection for monies in superannuation funds provided by s.116 can only apply where there monies are in the fund at the commencement of the bankruptcy or are paid to the bankrupt by the fund after commencement of the Bankruptcy. The Applicant essentially submits that funds became available to creditors as soon as the funds were released by MLC Limited.

42. I do not regard the authority of NA Kratzman Pty Ltd v Tucker [1968] HCA 44; (1968) 42 ALJR 164 as of particular relevance in this matter. I accept as a proposition that if the payment is void then the funds will become the monies of the Trustee. Similarly, the authority of Official Trustee in Bankruptcy v Trevor Newton Small Superannuation Fund Pty Ltd (2001) FCA 1267, is not of great assistance. In that case Madgwick J was concerned with a payment made to a Superannuation Fund by a bankrupt prior to bankruptcy. The attempt of the bankrupt in that case to gain for the payment, some protection from attack, was simply defeated.

43. This case involves, in my view, a different issue, that is, whether a payment to a creditor from funds otherwise unavailable to unsecured creditors is a preference. Counsel for the Respondent says there is no binding authority on this question. He submits that two members of the High Court considered the issue in Sheahan v Carrier AirConditioning Pty Ltd and Campbell (1997) 189 CLR 407, in the context of whether payments made by a receiver to an unsecured creditor of a company out of funds held under a charge were a voidable preference as against the liquidation of the company.

44. In Sheahan, Brennan CJ (at 417) said:-

" The bank's secured debt exceeded the moneys in the hands of the receiver. There were no funds available to satisfy, even in part, the debts of the unsecured creditors. The question arises: is it sufficient to constitute a preference that an unsecured creditor is paid part of his debt and other unsecured creditors receive none when the other unsecured creditors' position is not adversely affected by the payment? The purpose of s122(1) is to recoup the moneys of a bankrupt that have been paid preferentially in order to replenish the pool of assets which the creditors - that is the general creditors - are entitled to share rateably. The language of s122(1) - "preference, priority or advantage" - shows that the section is concerned with the effect of payments made to a creditor payee who is in competition with other creditors for a share in the bankrupt's estate. The only preference with which s122(1) is concerned is a preference as between the payee and the other general creditors who would otherwise be entitled to share in the money paid.

If a fund in the hands of a debtor's agent is charged with the payment of a secured debt that would exhaust the fund, so that no part of the fund is available for distribution among the general creditors, and a payment to a general creditor is made out of the fund with the consent of the chargee, that creditor gains no preference at the expense of the other general creditors.

The effect of such a payment is not to prefer the payee among the general creditors but to prefer the payee to the secured creditor who would otherwise have been entitled to the money paid. And, as the secured creditor has consented to the payment, no recoupment of the money paid is possible. (189 CLR 407 at 417)"

45. The Chief Justice expressly adopted the following reasoning of Young J in James v Commonwealth Bank of Australia (1995) 13 ACLC 1604 at 1607-8:

"Although there appears to be a dearth of authority on the point, s122(1) is directed at a situation of the pool of assets being available to creditors generally, being detrimentally affected by a transaction in favour of one creditor. Accordingly, in my view, what one has to do is to consider the situation of the creditors generally before the transaction, and then look at the situation afterwards and see whether the other creditors, that is the general creditors, have been disadvantaged.

If one can see that the position of the general creditors after the transaction was no worse than it was before the transaction then the transaction does not have the effect of giving a preference to one creditor over the others."

46. Kirby J dissented from the view of the Chief Justice (and Young J), preferring the approach of the Supreme Court of South Australia in Matthews v Geraghty (1986) 43 SASR 576 at 578 (per King J):

" To say that a disposition of property confers a preference upon a creditor in a liquidation conveys no more than that the disposition of property has placed the creditor in a position of advantage with respect to the general body of creditors."

On this basis, Kirby J took the approach that a payment could be avoided under s.122(1) if it merely benefited a creditor, without necessarily disadvantaging the other creditors.

47. The other members of the High Court (Dawson, Gaudron and Gummow JJ) did not find it necessary to decide this point; finding (contrary to Brennan CJ and Kirby J) that the Supreme Court of South Australia was correct in deciding that the payment made by the receiver was not a preference because it was not a payment by the company.

48. The Applicant in reply says that certain relevant passages of the majority judgement support the Applicant's position that the payment made at the direction of the Bankrupt in this case - "is just the same as if be had received payment himself and had himself handed such payment to the creditor".

49. I do not agree, in the overall context of this case, that the payment by MLC from MLC Plan directly to the Respondent is analogous to the payment by the receiver (from the funds the subject of a charge) to the creditor in Sheahan's case. I am satisfied that the Payment was a payment by the Bankrupt, but I adopt the view of BRENNAN CJ (in preference to that of KIRBY J), and I find that the payment did not result in a voidable preference to the Respondent over the other creditors. I believe it is a proper test to apply to compare the position of other creditors, if the payment had not been made, to the position they were in after the payment had been made.

50. Whilst it is not necessary for me to deal with other issues, for the sake of completeness (and in the event that I am found to be in error in finding no preference has occurred), I shall make findings in respect of the other issues argued before me.

Has the defence under s.122 (2)(c) been established?

51. It was conceded by Counsel for the Respondent, that it could not be properly argued that the Consent Order, on the discussions preceding the order, amount to a maintenance agreement for the purposes of s.122 (2)(c). In this regard, I respectfully agree with the analysis and conclusions reached by WILCOX J in Re: Pearson; Ex parte Wansley v Pearson (1993) 46 FCR 55. In particular I note that Wilcox J (at page 63) says when considering the definition of "maintenance agreement" for the purpose of the previous relevant s.123(6), that:-

"I accept that the agreement signed by Mr and Mrs Pearson on 18 June 1990 was a "maintenance agreement" within the definition of that term in the Family Law Act.......... However, to fall within s126(3) of the Bankruptcy Act, a "maintenance agreement" must also fit the Bankruptcy Act definition."

52. The relevant definition for what the Respondent alleges, in this case, is a "maintenance order" so found in s.5, which provides:-

"maintenance order" means:

(a) an order relating to the maintenance of a person, including an order relating to the payment of arrears of maintenance, that is made or registered under a law of the Commonwealth or of a State or Territory of the Commonwealth; or

(b) an assessment under the Child Support (Assessment) Act 1989."

53. Spouse maintenance orders are made by Courts of competent jurisdiction pursuant to s.74 of Family Law Act 1975 where a threshold finding that a spouse is unable to support herself or himself adequately, has been made under s.72. Property orders are made by Courts of competent jurisdiction pursuant to s79(1) of the Family Law Act and s.79(4) sets out the factors to be considered by a Court to establish an order is just and equitable.

54. The philosophy of litigants in Family law matters, encourages compromises and settlements. For parties to gain the protections, capacity to enforce, and other taxation roll over and stamp duty exemption benefits, of an agreed property settlement, it is necessary to have an order of a competent Court (or registration under s.86 or approval under s.87 of Agreements).

55. The State Magistrates Court at Maroochydore, being a Court vested with powers under the Family Law Act, is a competent Court.

56. It is not an unusual practice to incorporate orders for property settlement and spouse maintenance in the one document or set of orders. The full text of the order made 23 July 1996 is as follow:-

"By way of settlement of property and spousal maintenance:

(1) The husband does acknowledge an indebtedness to the wife in the sum of $145,000.00 being 50% of a loans made by the husband to Mooloolaba Diary Log Project which loans were secured by mortgages over the former matrimonial home which is presently being sold to discharge those loans in part.

(2) The husband pay to the wife the sum of $95,000.00 by way of settlement of property within twenty days of the date of this Order.

(3) The husband pay to the wife the amount of $200.00 per week by way of periodic spousal maintenance.

(4) Each party shall retain as their own property all assets including chattels and policies of insurance and superannuation and income plans presently in their respective names.

(5) The husband shall make all payments necessary to maintain the wife's present level of membership in MBF.

(6) The husband shall pay for all the wife's pharmaceutical expenses related to medical treatment.

(7) The husband shall pay all veterinarian expenses incurred with respect to all pets of the wife."

57. Paragraphs 3, 5, 6 and 7 of the said order clearly relate to the needs of the respondent (as wife) and are, in my view clearly maintenance orders under the Family Law Act. This action does not seek to attack any payments (if any) received by the Respondent under those orders. Paragraphs 1 and 4 clearly are property orders, and as such are not capable of sustaining the defence under s.122(2). In any event, no transfers or payments have been made under these provisions.

58. Paragraph 2 is the provision in the order which the Respondent says the payment of $95,000.00 was "made or incurred under". It is in my view not a "maintenance order" under the provisions of the Family Law Act for these reasons:-

(a) The orders already provide a periodic maintenance order in paragraphs 3, 5, 6 and 7, to maintain the Respondent.

(b) If paragraph 2 included a component for the maintenance of the Respondent, as alleged by the Respondent, then the order should have been expressed to be an order to which s.77A of the Family Law Act applies. Section 77A of the Family Law Act provides that:-

"77A. Specification in orders of payments etc. for spouse maintenance purposes

(1) Where:

(a) a court makes an order under this Act (whether or not the order is made in proceedings in relation to the maintenance of a party to a marriage, is made by consent or varies an earlier order), and the order has the effect of requiring:

(i) payment of a lump sum, whether in one amount or by instalments: or

(ii) the transfer or settlement of property; and

(b) the purpose, or one of the purposes, of the payment, transfer or settlement is to make provision for the maintenance of a party to a marriage;

the court shall:

(c) express the order to be an order to which this section applies; and

(d) specify the portion of the payment, or the value of the portion of the property, attributable to the provision of maintenance for the party.

(2) Where:

(a) a court makes an order of a kind referred to in paragraph (1)(a); and

(b) the order:

(i) is not expressed to be an order to which this section applies; or

(ii) is expressed to be an order to which this section applies, but does not comply with paragraph (1)(d);

any payment, transfer or settlement of a kind referred to in paragraph (1)(a), that the order has the effect of requiring, shall be taken not to make provision for the maintenance of a party to the relevant marriage."

59. The parties had legal advice (evidenced by the signatures of their respective solicitors on the Consent orders), and I infer the failure to incorporate an express provision that some part of the payment of $95,000.00 relates to maintenance of the Respondent, was done advisably and in recognition of the effect such omission would create. The effect is clearly seen by the operation of s.77A(2), namely that order 2 shall be taken not to make provision for the maintenance of the Respondent. Mr Bradley referred me to the Full Court decision In The Marriage of Dein (1989) FLC 92-014 and the remarks of the Court that s.77A was inserted, as the Second Reading Speech of the Attorney-General at the time of its introduction remarked:-

"to enable the income testing for Social Security of maintenance received other than by way of periodic sum."

60. The view expressed by Counsel is that it would not be appropriate to use a section inserted for a Social Security purpose in another Act to interpret what a maintenance order means in the Bankruptcy Act. The comments of KAY J in Habib v Habib (1988) FLC 91-931 at page 76, 735 are also instructive, where he refers to the Full Court decision in Lee Steere, and said:-

"An order for maintenance, be it periodic or lump sum, which is intended to be caught by the provisions of s.66L, 77A and 87A is something that is looked at generally after the s.79 matters have been attended to."

61. My view is that paragraphs 3, 5, 6 and 7 constitute the maintenance considerations, whereas paragraph 1, 2 and 4 constitute property orders.

62. I have formed the view that the order which effected the payment is not a "maintenance order" for the purposes of the Family Law Act, however, is it a "maintenance order" for the purposes of the Bankruptcy Act?

63. The subject order (paragraph 2), is an order made under a law of the Commonwealth, however, is it an order - "relating to the maintenance of a person."?

64. The fact that the Respondent benefits from the payment might suggest her future maintenance will be enhanced, however, I do not accept, on the evidence that paragraph 2 of the order was an order relating to the maintenance of the Respondent. It was an order relating to property distribution. Specific orders relating to maintenance were made as I have indicated above. Whilst a Court has the power under the Family Law Act when dealing with an application for spousal maintenance to

"order that a specified transfer or settlement of property may be made by way of maintenance for a party to a marriage" [See s80(1)(ba)]

nothing on the face of the order or on the evidence satisfies me that paragraph 2 was an exercise of the Court's power under s.80(1)(ba). It is clear that orders for property settlement were not afforded the specific protections and exemptions intended by s.122(2), and a payment under a property order is void against the trustee under s.121.

65. Mr Bradley sought to also argue that the payment could constitute a payment "in the ordinary course of business", because the Respondent was involved in buying and selling property. I reject the argument. The payment was made under an order relating to a marital relationship - not a business relationship. (see Re: SABRI; ex parte BRIEN (1997) FLC 92-732)

66. For these reasons I would have found that the payment of $95,000.00 under paragraph 2 of the Consent orders would not gain the protection of s.122(2)(c) of the Act.

Does the Trustee's conduct create an estoppel?

67. Simply stated the essence of the Respondent's argument under this head is that:

a) The Respondent relied upon the statements in the Report to Creditors as well as a failure by the Trustee to take any action between appointment on 2 December 1996 and the first letter of query dated 20 August 1998, as a clear indication that no action under the matrimonial order was to be taken by the Trustee;

c) Although the report to Creditors indicates that further investigations may be undertaken, there is no evidence that any material fact was discovered by or as a result of any future investigations;

d) The Respondent alleges she conducted her affairs in all aspects of her life on the basis of and in reliance on the Trustees representations.

68. The Applicant says that the Trustee set out in the report the extent of his investigations and his preliminary views and that further investigations into the circumstances surrounding "the bankrupt's divorce settlement" were to be made. Mr O'Grady for the Applicant drew my attention to the invitation for creditors with concerns, to ring his office and discuss issues with a Mr Leech. There is no evidence that the Respondent did so.

69. In fact her direct oral testimonial suggests she only read some parts of the report.

70. I do not propose to say more about the estoppel question than if I had been required to make a finding, (which I say now is unnecessary), then the arguments of the Respondent found little favour with me.

Conclusions

71. For the reasons set out above, I propose to dismiss the application. I am prepared to list the matter at an earlier date to consider any arguments or applications for costs.

I certify that the preceding seventy-one (71) paragraphs are a true copy of the reasons for judgment of Baumann FM

Associate:

Date: