Jabbour v Official Receiver & Ors [2002] FMCA 28 (26 June 2002)

Last Updated: 1 July 2002

FEDERAL MAGISTRATES COURT OF AUSTRALIA

JABBOUR v OFFICIAL RECEIVER & ORS

[2002] FMCA 28

BANKRUPTCY - Whether s.139ZQ notice valid where there is failure to refer to s.120 of Bankruptcy Act 1966 - whether transfer of property void as against trustee - whether forgiveness of debt is transfer of property for purpose of ss.120 and 121 of Bankruptcy Act.

Cannane v J Cannane Pty Ltd [1998] HCA 26; (1998) 192 CLR 557

re Trautwein; Richardson v Trautwein (1944) 14 ABC 61

re Jury; Ashton v Prentice [1999] FCA 671; (1999) 92 FCR 68

Bankruptcy Act 1966 s.20, 121, 139ZQ

Applicant:

MARIE-VONE JABBOUR

Respondents:

THE OFFICIAL RECEIVER, CHARLES PHILLIPE LOUIS NILANT AND OREN ZOHAR

File No:

WZ 26 of 2001

Delivered on:

26 June 2002

Delivered at:

Melbourne (by videolink to Perth)

Hearing Date:

12, 13 and 22 November 2001

Judgment of:

McInnis FM

REPRESENTATION

Counsel for the Applicant:

Mr I Morison

Solicitors for the Applicant:

Kitto & Kitto

Counsel for the Respondents:

Mr A Aristei

Solicitors for the Respondents:

Lenhoff & Co

ORDERS

(1) The application filed 23 April 2001 be dismissed.

(2) It is declared that the transfer by the bankrupt Naji Matta Jabbour (the bankrupt) of interest in the property at 4 Fawk Corner Ballajura being the land comprised in Certificate of Title Volume 1885 Folio 96 (the land) to the applicant by transfer dated 24 July 1997 registered on

27 November 1997 is void as against the second respondents pursuant to s.120 and/or 121 of the Bankruptcy Act 1966 (the Bankruptcy Act).

(3) It is declared that the transaction whereby the bankrupt forgave in March 1998 a debt of $40,000 owing to him by the applicant is void as against the second respondents pursuant to s 120 and/or s.121 of the Bankruptcy Act.

(4) It is declared that the notice dated 28 March 2001 issued by the first respondent against the applicant pursuant to s.139ZQ of the Bankruptcy Act is valid insofar as it relates to a claimed breach of

s.121 of the Bankruptcy Act.

(5) The applicant shall pay the second respondents the sum of $87,900.

FEDERAL MAGISTRATES COURT OF AUSTRALIA AT PERTH

WZ 26 of 2001

MARIE-VONE JABBOUR

Applicant

And

OFFICIAL RECEIVER

Fist Respondent

And

CHARLES PHILLIPE LOUIS NILANT AND OREN ZOHAR

Second Respondents

REASONS FOR JUDGMENT

Background

1. MARIE VONE-JABBOUR (the applicant) applies to the court for orders that a notice dated 28 March 2001 (the notice) issued by John Sherwood, Official Receiver in Bankruptcy (the first respondent) pursuant to s 139ZQ of the Bankruptcy Act 1996 (the Bankruptcy Act) be set aside.

2. The notice had been issued on behalf of the trustees of the bankrupt estate of NAJI MATTA JABBOUR (the bankrupt) who is the husband of the applicant and who became bankrupt on his own petition lodged on 2 November 2000. The notice was addressed to the applicant at

4 Fawk Corner Ballajura (the property). It was produced in response to a transfer of the property from the bankrupt to the applicant on or about 27 November 1997 and a transfer of property being a debt forgiven in March 1998 which it is said in the notice are void under s 121 of the Bankruptcy Act against the trustees in bankruptcy Mr Nilant and Mr Zohar (the second respondents). In the notice the second respondents required the applicant to pay the sum of $87,900 being the total value of the property received by the applicant from the bankrupt at the time of the transfers.

3. The respondents relied upon the following facts and circumstances set out in the notice as follows:-

"1. Charles Philippe Louis Nilant and Oren Zohar were appointed as Joint and Several Trustees of the bankrupt on 10 November 2000. The bankrupt lodged his debtor's petition on 2 November 2000 and the Official Trustee was previously his trustee.

2. The bankrupt was the registered proprietor of a property located at 4 Fawk Corner, Ballajura being the whole of the land described in Certificate of Title Volume 1885 Folio 96 ("the property") from August 1991 until 27 November 1997.

3. By transfer of land document dated 24 July 1997, the property was transferred by the bankrupt to you as sole proprietor. The transfer was registered on 27 November 1997.

4. You did not give market consideration for the transfer of the property. A search of the transfer from the Land Titles Office shows consideration of $1.00.

5. At the time of transfer the market value of the property was $120,000 and $72,100 was owing under first mortgage to the Commonwealth Bank of Australia Limited ("bank"). The total equity in the property was $47,900.

6. The business known as the "Malaga pantry" ("the business") was owned by the bankrupt from 2 February 1998 until it was transferred to you on 20 February 1998. The purchase price was for an amount of $60,000 as per the agreement dated 20 February 1998.

7. Information supplied by the bankrupt indicates an amount of only $20,000 was received by him from you as consideration for the business and that an amount of $40,000 ("the Debt") was forgiven by him in March 1998."

4. The trustee in the notice having recited the facts to which I have referred then states that it is considered that the requirements of s 121 of the Act are met in that:

"(i) the Transfer of the Bankrupt's property to you and the forgiveness of the Debt ("the transfers") each amounted to the transfer of property within the definition of section 121 of the Act;

(ii) the Transfers were not made for consideration pursuant to section 121(6)(a)&(b);

(iii) 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;

(iv) the Bankrupt's main purpose in making the transfer was to prevent the transferred property from becoming divisible among the transferor's creditors or to hinder or delay the process of making property available for the division among the transferor's creditors;

(v) you are liable to pay Charles Philippe Louis Nilant and Oren Zohar the sum of $87,900 by virtue of section 121(5) of the Act."

5. The second respondents relied upon an Amended Cross Application which they were granted leave to file and serve by order of the court made on 25 September 2001. In the Amended Cross Application the second respondent claimed the following orders and declarations:-

1. An order, or alternatively a declaration that the transfer by the bankrupt Naji Matta Jabbour (the bankrupt) of his interest in the property at 4 Fawk Corner Ballajura being the land comprised in Certificate of Title Volume 1885 Folio 96 ("the land") to the applicant by transfer dated 24 July 1997 registered on 27 November 1997 is void as against the second respondent pursuant to section 120, alternatively section 121 of the Bankruptcy Act 1966 ("the Act").

2. An order or alternatively a declaration that the transaction whereby the bankrupt forgave in March 1998 the debt of $40,000 owing to him by the applicant is void as against the second respondents pursuant to section 120, alternatively section 121 of the Act.

3. An order or alternatively a declaration that the Notice dated 28 March 2001 issued by the First Respondent against the applicant pursuant to s 139ZQ of the Act is valid.

4. An order that the Applicant pay to the Second Respondents the sum of $87,900 as required by the notice.

5. An order that the Applicant pay to the Second Respondents interest on the sum of $87,900 from the date of bankruptcy being 2 November 2000 until payment or judgment at such rate as the court thinks fit pursuant to s 51A of the Federal Court of Australia Act."

6. The second respondent also claim costs and such further orders as the court thinks fit.

7. As indicated the bankrupt became bankrupt on 2 November 2000. On

10 November 2000 the second respondents were appointed as trustees in bankruptcy in place of the Official Trustee. At the time of the hearing of the application the bankruptcy was still current and the appointment of the second respondents as trustees had not been terminated.

8. There is no dispute that the property was registered in the applicant's name by transfer registered on 27 November 1997 and that payment of $1.00 for the transfer of the property did not represent market consideration.

9. It is common ground that at the time of the transfer of the property the applicant and the bankrupt had been involved in a business known as the Malaga Pantry located at the Malaga markets (the Malaga Pantry).

10. The applicant and the bankrupt were married on 29 January 1989 and have three children the first born 29 December 1989, the second born 15 January 1999 and a third child born 26 February 1999.

11. The Malaga pantry was transferred by the bankrupt to the applicant on 20 February 1998 and the purchase price by agreement dated

20 February 1998 was $60,000. It is agreed by the parties that only $20,000 was paid by the applicant to the bankrupt as consideration for the Malaga pantry and that an amount of $40,000 was forgiven by the bankrupt in March 1998.

12. Given that the notice has been the subject of challenge it is therefore not surprising that no payment has been made by the applicant pursuant to the notice.

13. A Bankruptcy Notice had been issued on 18 August 2000 by Fouad Antoun Khoury (Mr Khoury) and it is clear on the material before the court that Mr Khoury did not need to pursue an application for bankruptcy when the bankrupt petition for his own bankruptcy, as indicated, was lodged on 2 November 2000.

14. Mr Khoury had resided with the bankrupt and his wife since arriving in Australia in November 1990. He became involved in business dealings with the bankrupt after having worked as an employee in a business conducted by the bankrupt and his brother Elias Jabbour. According to the affidavit material of Mr Khoury he had received an amount of approximately $24,000 remitted to him from his bank in Monaco and had offered to use that money to enable the bankrupt to purchase a business in partnership with Mr Khoury.

15. It is clear that there has been an acrimonious dispute between the bankrupt and Mr Khoury arising out of their business ventures and this culminated in a Deed of Settlement concluded between Mr Khoury, the bankrupt and Rosemist Holdings Pty Ltd (the company). The company had been used by the parties as a corporate entity to conduct business. The company traded as `Jabkho Foods'. The name was a combination of the first three letters of the bankrupt's surname and the first three letter of Mr Khoury's surname. The company had conducted two businesses namely a wholesale food business and the Malaga Pantry.

16. The bankruptcy notice relied upon by Mr Khoury, though lodged, was ultimately not pursued. The notice was based upon a judgment he obtained in the District Court of Western Australia on 14 August 2000. In the District Court proceedings Mr Khoury was the Plaintiff and the bankrupt the First Defendant with the company being the Second Defendant. Orders were made that there be judgment for Mr Khoury against the bankrupt in the amount of $12,000 and that the bankrupt pay interest on the amount of $12,000 at the rate of 6% per annum from 12 March 1998 to 14 August 2000 and that the bankrupt pay Mr Khoury's costs of the action. Those costs included costs of an appeal heard on 11 November 1998. It is evident from that judgment that there had been significant disputation between the parties and it was clear at the hearing of this matter that considerable tension understandably still exists between the parties. It is sufficient to note that Mr Khoury had succeeded in his action against the bankrupt and it is understood that the reason why the action did not succeed against the company was simply because that company ceased when it was wound up pursuant to an order of the Federal Court on 15 April 1999.

17. The Judgment was based upon a debt found to arise from a deed of settlement (the Deed) between the bankrupt and Mr Khoury executed on 11 February 1998.

The evidence

18. The applicant gave evidence and adopted two affidavits sworn by her on 16 July 2001 and 7 August 2001.

19. In her affidavit evidence the applicant confirmed she was the wife of the bankrupt. She further confirmed that she received the notice in early April 2001. She admitted that on or about 27 November 1997 the property was registered in her name by transfer from the bankrupt as sole proprietor to the applicant for a consideration of $1.00. A transfer document, though registered on 27 November 1997, is dated 24 July 1997 and has two State Revenue (WA) stamps dated 7 August 1997 and 14 August 1997. In her affidavit the applicant claims that in or about July 1997 the bankrupt decided that the property should be transferred to the applicant's name and that the primary reason for transferring the property was because should anything happen to the bankrupt the property would already be in the applicant's name and it would also enable her to look after the children without any worries. The applicant claimed there was no other reason for the transfer of the property. It was asserted that Mr Khoury had witnessed the transfer of the property.

20. In her affidavit material the applicant stated that she and the bankrupt did not have any substantial debts at the time of the transfer apart from normal every day living expenses and a mortgage to the Commonwealth Bank for the property and it was claimed that the applicant and the bankrupt both paid approximately $1,000 per month mortgage payments. Prior to that time the applicant claimed to be receiving $884.60 social security payments per month. She produced copies of bank statements showing regular withdrawals of $500 fortnightly which she claimed supported the assertion that both she and the bankrupt had made payments of approximately $1,000 per month in relation to the mortgage.

21. By November 1997 the applicant claimed to be receiving social security payments of $572.20 per month.

22. The applicant indicated that at the time the property was transferred the bankrupt was involved in the Malaga pantry business earning approximately $2,000 per month from that business.

23. Otherwise the applicant disputed the notice and in particular disputed any intention by the bankrupt to defeat creditors by receiving $1.00 consideration for the property. She claimed that there was no suspicion on her behalf that the bankrupt was insolvent or about to become insolvent at the time.

24. The value of the property was disputed and it was claimed to be worth $110,000 rather than the amount of $120,000 claimed by the respondents.

25. The applicant suggested she had made contributions of approximately $15,000 to $20,000 towards the mortgage. She otherwise confirmed the background to which reference has already been made in this judgment.

26. In relation to the Malaga pantry, she indicated that this had been purchased by her from her husband on or about 20 February 1998 for the sum of $60,000 and that she had paid initially $15,000 on

23 February 1998 and a further $5,000 on 27 March 1998. The balance of $40,000 she claimed was forgiven by the bankrupt because "he wanted me to use this sum to provide for our children". She then claimed that at the request of the bankrupt she paid legal fees and provisional tax of approximately $40,084.40 from December 1998 to September 2000 and other amounts since that date bringing the total to $50,684.40. The Malaga pantry was otherwise transferred to her, it is asserted, at market value.

27. Under cross examination the applicant stated that until the transfer of the Malaga pantry her husband ran the business. After the transfer she claimed that she ran the business without assistance from her husband. Likewise she claimed that she did not assist her husband in the business but simply took over the business upon transfer. She claimed that she did not know what her husband did at the Malaga pantry and does not know what the bankrupt has done since transferring the Malaga pantry to her. Although acknowledging that she has a traditional role to play in relation to the care of the children, she indicated that since taking over the Malaga pantry she has sought assistance from her mother to look after the children and as I understood it does the housework during the evenings. She denied that she still stays home to look after the children and that the bankrupt looks after the Malaga pantry. She claimed that she does everything in relation to the Malaga pantry business. She could not remember the store number. She denied that there is any equipment in the business.

28. When asked questions about the source of funds which enabled her to make a part payment of $20,000 toward the purchase of the Malaga pantry, she was unable to remember the precise details save that money came from her father which contributed to payment of $15,000 but that she was unable to remember how she paid the remaining $5,000. When asked further questions she was unable to remember exactly the amount paid by her father though suggested it was in American dollars. She referred to this being paid in the context of hardship and went on to refer to what she described as a "catastrophe" in 1998. When asked what the "catastrophe" was in 1998 she responded, "When Mr Khoury got my husband to sign or let my husband sign and give him money. He gave it to him by force and he made a problem for us".

29. When asked questions concerning the purchase of the Malaga pantry the applicant was referred to the agreement dated 20 February 1998. In that agreement provision was made for payment of a deposit of $15,000 on or before 23 February 1998 with the balance of the purchase price to be paid on or before 23 February 1999. The applicant agreed she had paid $15,000 on 23 February 1998 and paid a further $4,000 or $5,000 on 27 March 1998. Although not legally obliged to pay the additional amount under the contract the applicant said that she had to pay for the shop eventually and that amount was part of the payment. In any event after paying the $20,000 the balance of $40,000 remained outstanding and according to the applicant the bankrupt "decided to give this as a gift to the children and as I was working very hard at the shop and I was working at the shop on my own". She agreed that this was similar to the reason given for the bankrupt transferring for $1.00 the residential property and when asked why didn't the applicant simply give the business to her in the same way as he had effectively given the residential property she stated the following:

"That was a business. The house, he sold it to me for $1.00 to take care of the children, but it's not - this is not the same as the house. It is not for the same reason. He said I paid, and then he said the rest is a gift for the children. But, no, it's not for the same reason".

30. When asked specifically how an amount of $27,250 was calculated in relation to `plant and equipment' referred to as part of the purchase price of the Malaga pantry the applicant was unable to explain that figure. She referred to establishing the value of the shop for $60,000 and said the following:

"What's happened is that they established the value of the shop for $60,000. Now, how they got to establish that value, its legal stuff. I don't know that. Its just in the markets that - how they established it, they established the value of the shop, and you are asking me about all those legal things. I don't know."

31. When asked how the price of $60,000 was arrived at for the business she stated,

"Between the stock, the rent paid, the return the business gets, and they established how the business works, all of that were used to establish what the shop value is, the $60,000."

32. The applicant had no part in determining the purchase price. The applicant was then referred to the Deed of Settlement between Mr Khoury and the bankrupt dated 11 February 1998 just nine days prior to the date of the sale of the Malaga pantry business. She was aware there was a dispute between the bankrupt and Mr Khoury at the time. The applicant was asked, "Was there any reason why you decided to purchase this business on 20 February 1998 and not at some earlier date?" She answered, "A reason. There's no reason."

33. In answer to questions from the court the witness agreed that it would be a fair interpretation of financial documents produced to conclude that in 1997 her income was low enough to receive a signficant family allowance payment but then by March 1998 the family income had increased to the extent that the family allowance decreased quite significantly.

34. In re-examination the witness told the court that she only took one month off work at the Malaga pantry after the birth of her third child. Upon further questioning the witness indicated that although her income was low enough to justify receiving the higher family allowance in 1997 that she was able to pay family debts because the children were little and did not have many requirements.

Samir Said

35. This witness had sworn an affidavit on 26 September 2001 which he adopted. That affidavit referred to a cheque for $US10,000 which had been forwarded for the bankrupt and was awaiting his collection in early 1994.

Naji Matta Jabbour (the bankrupt)

36. The bankrupt adopted three affidavits which had been filed and served. The affidavits were sworn on 16 July 2001, 7 August 2001 and

5 October 2001.

37. In his first affidavit the bankrupt endeavours to corroborate the substance of the evidence of the applicant. He referred to the applicant withdrawing amounts from her Commonwealth passbook and giving the monies to him to pay for the mortgage over the property. He claimed the only reason he transferred the property to the applicant was a belief that should anything happen to him then the applicant would own the property and be able to look after the children. He otherwise disputed the value of the property and that he had any intention to prevent the property from becoming divisible amongst creditors.

38. In his affidavit the bankrupt claimed that he forgave the remaining $40,000 purchase sum for the Malaga pantry to provide for his children and confirmed he subsequently sought assistance from the applicant to pay legal fees and taxation being a total amount of $48,684.40.

39. He confirmed the signing the Deed with Mr Khoury which was the subject of District Court proceedings. He claimed that having paid $20,000 under that Deed to Mr Khoury that this established he was solvent at that time.

40. In his second affidavit by way of reply to the affidavit of Mr Khoury, the witness denied that at the time of the transfer of the property Mr Khoury had any entitlement to a share in the property. He noted that Mr Khoury witnessed the signatures on the transfer document without protest. In his affidavit he claims he was forced to go into bankruptcy on 2 November 2000 as a result of proceedings determined in the District Court in Mr Khoury's favour.

41. In his third affidavit he otherwise asserts solvency and takes issue with other allegations made by another witness, Mr Ghobj. Essentially the bankrupt asserts that he was solvent and that he did not transfer the property to avoid business liabilities or difficulties with tax authorities. He does admit being prosecuted for non payment of company tax and that he is paying back small amounts each month for the fine he received in relation to that matter.

42. During his evidence the bankrupt asserted that he was solvent in 1997 and suggested that his financial position was even stronger in 1998. He referred to a schedule of payments which became an exhibit.

43. He agreed under cross-examination that he had been the sole proprietor of the property from August 1991 until it was registered in the applicant's sole name on 27 November 1997. When asked why the transfer had not occurred earlier given the reason for the transfer was to provide for his wife and look after his children, the witness gave a detailed explanation regarding his marriage and attitude towards property ownership. He suggested that he was 33 years old and set in his ways when married and was still in what he regarded as the `Middle Eastern belief' that everything belongs to the man or the husband. He claimed that because his wife's english was limited and that she wasn't learning the language properly that should anything happen to him then that would be a lot of work and a lot of involvement regarding the property and the house. The best way he thought to protect her and the children's interests was to give the house to his wife. He claimed there was no other reason whey it occurred in 1997 and not earlier. Apart from talking to his accountant about how to transfer the property into his wife's name, he did not seek advice on the possibility of a joint tenancy which would have resulted in the property divesting to his wife should anything happen to him. He agreed lawyers, who were acting for him at the time, prepared the transfer. However, he claimed he did not discuss with those lawyers the options in relation to the transfer but simply transferred the property to his wife as sole proprietor.

44. When asked questions about business dealings with Mr Khoury, he agreed that they had both been directors in the company but that from 1995 until February 1998, apart from company returns, there had not been any other documents signed in relation to the business by Mr Khoury.

45. He could not give any reason why there was a four month delay between the signing of the transfer for the property in July 1997 and its registration in November 1997.

46. During cross examination he denied that Mr Khoury had no knowledge of the transfer of the property to the applicant prior to the witness and his family travelling to Lebanon on an overseas trip in September 1997. He claimed that Mr Khoury had never advanced any money to buy the property.

47. When asked questions about the charges arising out of underpayment of sales tax he agreed he had pleaded guilty to those charges and was convicted on 19 February 2001. It seemed evident from a copy of the complaint, though the witness was unable to recall the details, that there were approximately 50 complaints and all related to the period between July 1996 and 10 September 1997. By way of example to the charges to which the witness pleaded guilty reference was made to the phrase "With the intention of deceiving or misleading the Commissioner of Taxation". The witness stated that he pleaded guilty "because it was the cheapest way for me to do it and wouldn't have made a difference whether it was 1 or 50".

48. When asked further questions about the witness signature of Mr Khoury on the transfer of the property document the witness denied that this may well have been just another commercial document and not properly brought to the attention of Mr Khoury. He stated that Mr Khoury "knew exactly what I was doing".

49. The witness was then asked questions about the signing of the Deed between him and Mr Khoury. He continued to deny indebtedness despite clause 6 of the Deed which states, "Jabbour is indebted to Khoury in an amount of $32,000 in respect of money loaned from time to time from Khoury to Jabbour" monies loaned to him by Khoury. He seemed to suggest that that amount was put into the Deed so that Mr Khoury could avoid paying "capital gains tax on his $5.00 share in a $2.00 company becoming $80,000". Although he signed the Deed which had the clause to which I have referred, he said that he always denied it and had always denied ever owing Mr Khoury money. He then said he was "forced to sign the Deed because Mr Khoury stole my wife's jewellery and he would not return them". In any event he agreed the balance of $12,000 was not paid even though the Deed provided for the payment within 4 weeks of the settlement date which was 12 February 1998. He agreed that on 20 February 1998 he transferred the Malaga pantry business to the applicant.

50. In cross-examination the witness further denied any conversations with Mr Ghobj and in particular that he told Mr Ghobj that the money for the purchase of the property had come from Mr Khoury.

51. When asked questions about the decision on 20 February 1998 to sell the Malaga pantry to the applicant he referred to some negotiations with a relative to buy the business for $60,000. There was some difficulty in terms of payment of the purchase price as the prospective purchaser allegedly was not going to pay any amount in advance but simply pay out of the trading receipts of the business. It is at this point allegedly that the applicant said to the witness that she would give him the deposit and buy the business herself. The witness agreed that the property whilst being on the market some time in January was not advertised. No business broker was engaged to attempt to obtain the best price for the business and he did not believe that when sold to the applicant that they had set a final date for settlement. He said that rather than a cheque by way of deposit being paid pursuant to clause 5 of the sale of business agreement he in fact received cash from the applicant.

52. When asked for the reason why he gave $40,000 to his wife by way of forgiving the balance of the purchase price of the Malaga pantry, the witness referred to the improved state of his business which he was then running namely Jabkho Foods and that he was then in no need of money. He stated the following:

"The christmas money already started coming in into the wholesale business because some people would have paid two or three months late, and when Marie said she wanted to pay me the money I said, `Look, its for you and the kids in case something does happen to me' because at the time Mr Khoury was making various threats against me and I felt threatened, and that's why I gifted my wife the money in case something did happen to me."

53. He was unable to recall the service of the Writ issued in the District Court by Mr Khoury taking place on 18 March 1998.

54. The witness agreed in cross-examination that the date of service of the writ issued by Mr Khoury was very close to the time when the witness decided to sell the Malaga pantry to the applicant.

55. The witness in his affidavit had relied upon Mastercard statements to establish solvency. When cross examined about the Mastercard statements he agreed that his practice was to pay accounts on Mastercard and then ensure the monthly balance was paid so that it wouldn't incur interest. The payments made on the Mastercard account did not come from any other account. He agreed that he was being paid cash and that most probably payments made to Mastercard would have been cash.

56. The witness agreed when looking at the trading profit and loss statement of the Malaga pantry for the year ended 30 June 1997 showed a net loss of $16,124 for 1997 compared with $531 for 1996. He agreed that his gross income from employment for the year ending 30 June 1998 was $23,900 with a taxable income for that year being $20,351. He said that he had a document which indicated his income for the year was $30,028.

57. The witness was referred to a schedule of payments allegedly made by the applicant to the mortgage and agreed they were all cash amounts and further agreed that cash was drawn out by the witness.

John Douglas Gregory

58. The applicant was permitted to re-open her case and call a handwriting expert namely Mr Gregory to give evidence in relation to the signatures which appeared on the transfer of land document for the property. He was satisfied that the witness signature was that of Mr Khoury but could not be satisfied the signature and writing were applied on the same day as this was not possible on the examination he had undertaken and in any event he did not look at the handwriting of the date.

Respondents' evidence

Fouad Antoun Khoury

59. Mr Khoury adopted the affidavit sworn by him on 27 July 2001. In that affidavit he confirmed that he was a creditor of the bankrupt estate of the bankrupt and that he had issued a bankruptcy notice on

18 August 2000. He did not proceed with that notice when the bankrupt petitioned for his own bankruptcy on 2 November 2000. He referred to an affidavit sworn by him on 19 January 1998 in support of an application made for the appointment of a receiver to the company. The appointment of a receiver led to settlement negotiations with the bankrupt and a Deed of Settlement concluded on 11 February 1998. He confirmed that $20,000 was paid by the bankrupt pursuant to the Deed and that the balance of $12,000 due under the Deed was not paid and this became the subject of the District Court proceedings which ultimately led to a judgment on 14 August 2000 in favour of Mr Khoury against the bankrupt.

60. Mr Khoury claimed that shortly after the bankrupt repudiated the Deed he terminated Mr Khoury's employment with the company. This led to further proceedings with the Western Australian Industrial Relations Commission and on 7 October 1998 an order was made that the company pay Mr Khoury an award of $13,800. The company was wound up pursuant to an order made on 15 April 1999 based upon an application by Mr Khoury to the Federal Court being the consequence of the company failing to pay the award made in his favour by the West Australian Industrial Relations Commission.

61. Mr Khoury in his affidavit did not recollect witnessing the transfer in relation to the property though conceded he may have done so along with other documentation which the bankrupt had asked to him sign.

62. The affidavit relied upon by Mr Khoury in the Supreme Court of Western Australia in support of the application for appointment of a receiver for the company sworn 19 January 1998 sets out in detail complaints and concerns that Mr Khoury had in relation to proper accounting for the company and alleged discrepancies which ultimately were presented to the court for its consideration in that application.

63. Under cross examination Mr Khoury initially denied being a witness to the transfer of the property but when shown the transfer document agreed that the signature looked like his signature but added that he did not recall signing the document.

64. When the witness was taken to the signature on the transfer document in relation to the property he seemed to dispute that the signature on the right hand corner of that document was his signature but claimed that that the other signature on the left hand side appeared to be his signature. He recognised that the handwriting of the witness name, address and description appeared to be that of the bankrupt. In his evidence under cross-examination he seemed to indicate that he would sign many papers for the bankrupt and would sign as a witness to a signature even if he didn't see the signature that he was supposed to witness.

65. Mr Khoury did agree that he had accused the bankrupt of `stealing' the company and `stealing' his property which he referred to as "50% of the house, 50% of Malaga pantry and 50% of Jabkho Foods or Rosemist Holdings".

Mohamed Noor Ghobj

66. Mr Ghobj adopted an affidavit sworn by him on 22 October 2001. In that affidavit he referred to working for the bankrupt's brother in or about 1988 in Perth. He met Mr Khoury in 1990 and recalled that during about 1991 at a house shared by the bankrupt with Mr Khoury the bankrupt had said he was going to start a business with Mr Khoury and that Mr Khoury had given him an amount of some $24,000 to buy the business. In the affidavit he further refers to the bankrupt telling him that he had purchased the property (land only) and had done so with money which had come from Mr Khoury which had been money given to him by Mr Khoury to buy the business. The bankrupt had told him he also borrowed some money from the bank to buy the land and the land would be used for a loan to buy a business.

67. Under cross examination he was challenged about his recollection though continued to maintain the gist of what had been set out in the affidavit.

Submissions

68. It was agreed in this matter that the court should consider a number of issues which both parties addressed when considering both the application made by the applicant and the amended cross application of the respondents. The identification of the issues provides some framework within which submissions were made and provides at least guidance as to the topics considered by both parties to be relevant in this matter. The issues do not of course confine the court or limit its ability to otherwise decide the matter according to law. It is convenient however to set out those issues as follows:

Section 120 of the Bankruptcy Act

1. Has the Applicant proved the bankrupt was solvent in July 1997 when he signed the house transfer for an undervalue?

2. Was there a forgiveness of the $40,000 owing on the sale of the business?

3. Under s 120, is the forgiveness a transfer of property?

4. Was the $40,000 paid and satisfied?

5. If the $40,000 wasn't paid and satisfied has the Applicant proved the bankrupt was solvent in March 1998?

6. Does the Applicant have an equity in the house by contributions?

Section 121 of the Bankruptcy Act

1. Was the bankrupt's main purpose in transferring the house to prevent it becoming divisible among his creditors?

2. If the bankrupt forgave the $40,000 owing on the business, was his main purpose in doing so to prevent that money becoming divisible among his creditors?

3. Have the Trustees proved the bankrupt was solvent (or about to become insolvent) in March 1998?

69. A further issue was raised by the parties namely whether the trustee can rely upon s 120 of the Bankruptcy Act without a valid notice.

70. Although the applicant had filed her application to set aside the

s 139ZQ notice before the respondents filed a cross application it was deemed appropriate to permit counsel for the respondents to make submissions in relation to that cross application whilst at the same time referring to the application to set aside the notice.

Respondents' submissions

71. It was submitted on behalf of the respondents that on the evidence requirements of s 120(1) of the Bankruptcy Act have been made out and that the question which remains is whether the applicant is able to demonstrate that the bankrupt was solvent at the time of the transfer.

72. It should be added that there really does not appear to be any issue that the transfer of the property by the bankrupt to the applicant was clearly for consideration which was less than the market value of the property and that the transfer took place in a period beginning 5 years before the commencement of the bankruptcy and ending on the date of the bankruptcy. Hence the requirement for the applicant to show at the time of the transfer the bankrupt was solvent is relevant.

73. Counsel for the respondents referred to s 5(5) of the Bankruptcy Act which provides, "A person is solvent, if , and only if, the person is able to pay all the persons debts, as and when they become due and payable". It was submitted and I accept for the present purposes that when examining the question of solvency one considers whether the payments of debts can be made when they become due from the debtor's own money or resources. Further it is accepted that the onus of proof is upon the applicant in the present case to prove that the bankrupt at the time of making the settlement was able to pay his debts without the aid of the settled property (see re Trautwein; Richardson v Trautwein (1944) 14 ABC 61 affirmed on appeal by the High Court (1946) ALR 129).

74. It was submitted on behalf of the respondents that the bankrupt's taxable income was only $20,000 per annum and this was largely made up of employment income from the company. The financial accounts of the company do not prove that any loan asset was owed to the bankrupt and that even if it did the outstanding debt to Mr Khoury by the company which had been referred to in the Deed of 11 February 1998 is evidence of the company's inability to pay its debts. Criticism was made of the details given relating to the bankrupt's assets and liabilities. The income referred to of approximately $20,000 per annum was a gross income.

75. Reference was made to the Malaga Pantry and in particular it was noted that it had made a net loss of $16,124 for the year ending 30 June 1997 and a further small loss in the year prior to that of $531.00. The accounts reveal, it was submitted, that there were minimal sums by way of cash in hand and that there were in fact a number of claims made by the Australian Taxation Office as a future creditor with respect to completion of company returns. It was submitted that it is against the unclear asset position that there was a debt of $32,000 owed by the bankrupt as at the date of transfer of the property later admitted as a liability in the Deed executed on 1 February 1998. It was submitted that whilst there were other personal creditors the bankrupt's documentary evidence did not explain how those amounts were paid during the relevant period and in the circumstances the court cannot be satisfied there is sufficient proof by the applicant of the bankrupt's solvency at the relevant time. It was noted that there was the use of the MasterCard but little or no evidence to explain the source of the money used to put the MasterCard account in credit.

76. Reference was made to the issue of the relevant time being whether it is the time that the bankrupt holds the asset or whether the test of solvency is applied after transfer of the asset. It is clear that the section provides for proof of solvency at the time of the transfer and whilst during the course of submissions it was made clear that the solvency at the time of making the transfer must be absolutely established, there arose in the present case discussion about whether the time of the transfer means when the document was executed or when it was registered. It was at this point that counsel for the applicant submitted that the transfer document upon its signing transfers the beneficial interest and upon that occurring the transferee has a right to compel the transferor to do all things necessary to become registered as the legal and registered owner. That right is described by counsel for the applicant as a chose in action and is therefore property within the meaning of s 120 of the Act and a transfer of property had occurred at the time of execution of the transfer.

77. Counsel for the respondents then submitted that the registration of the transfer is the date upon which the transfer actually occurs which would be referred to in the Certificate of Title. It is said that it is the actual registration of the transfer which should be looked at for the purpose of determining the time of the transfer for the purpose of

s 120(3)(b) of the Act.

78. In any event it was submitted that I cannot be satisfied that there is sufficient proof provided by the applicant of the bankrupt's solvency.

79. It was submitted on behalf of the respondents that it is clear that the amount of $40,000 being the balance of the sale price of the Malaga Pantry from the bankrupt to the applicant had not been paid. The concept of "transfer" pursuant to s 120 includes, it was submitted, the forgiveness of the money payable by way of balance arising out of the sale of the Malaga Pantry. A claim by the bankrupt for that balance is made as a result of the bankrupt being a creditor against the applicant and that debt or personal claim for payment could be regarded as a shows in action which when applying s 5 of the Bankruptcy Act and in particular the definition of "property" the shows of action would be included in that definition and therefore the forgiveness of the debt could be regarded as a "transfer of property" for the purposes of s 120 of the Bankruptcy Act. Accordingly the issue of solvency at the date the debt was forgiven namely March 1998 at that time it was submitted that the bankrupt was unable to pay the amounts due to Mr Khoury under the Deed which had been executed on 11 February 1998 and had of course on his own petition been declared bankrupt in November 2000 on the basis of the debt under the Deed which had become the subject of a judgment against the bankrupt.

80. It was further submitted that as the applicant had indicated during the course of her evidence that she did not regard herself as liable to the bankrupt for his legal or other fees it could not be said that there was any accord and satisfaction for the earlier forgiveness of the debt in March 1998. By March 1998 it was submitted that the financial affairs of the bankrupt had worsened as by that day he had no house asset and was obviously unable to pay any of the $32,000 due under the Deed with $20,000 of that amount being paid from the company in or about 11 February 1998 and the balance as indicated becoming the subject of a judgment and later bankruptcy.

81. In relation to any claim for a constructive trust between the bankrupt and the applicant in relation to the property, it was noted this had not been specifically pleaded and was not part of the original application nor part of the applicant's reply to the cross application. It was noted there was no claim by the applicant directly against the second respondents in respect to an order to declare the second respondents as holding the property for the benefit of the applicant in the event of the cross application succeeding. It was further submitted that in fact the applicant at present in any event holds the property as registered proprietor. It was submitted there was no sound basis upon which the court should make any finding of a constructive trust based on the applicant's alleged contributions to the property.

82. In relation to the s 121 claim the respondents submitted that the main purpose for the bankrupt transferring the property to the applicant was to prevent the property becoming divisible amongst creditors, the primary creditor being Mr Khoury. Although the chronology indicates that the transfer was signed in July 1997 it was submitted that there was an awareness of a dispute potentially between Mr Khoury and the bankrupt and that in any event the registration of the transfer occurred at a time after the bankrupt and Mr Khoury had clearly identified the dispute between them. It was submitted there was no other reasonable explanation given as to why the bankrupt suddenly transferred his sole interest in the property to the applicant for the sum of $1.00. It was submitted that if the only objective was to provide that the applicant have an interest in the property then this could have been undertaken by a join tenancy rather than transfer from the bankrupt to the applicant as sole proprietor.

83. It was likewise submitted that the forgiveness of the amount of $40,000 owing on the Malaga Pantry occurred within a short period of time from the provision in the Deed between the bankrupt, Mr Khoury and the company requiring payment of the $32,000 debt. The decision to transfer the entire interest of the bankrupt in the Malaga Pantry to the applicant occurred within a week or so of the execution of the Deed and it was submitted the main purpose of that transfer in the circumstances was to prevent the property becoming divisible amongst the bankrupt's creditors. Reference was made to the decision of re Jury; Ashton v Prentice [1999] FCA 671; (1999) 92 FCR 68 at paragraph 58 thereof where the court states:

"The trustees may prove ... that the main purpose of the transfer was to prevent the property becoming divisible among the transferor's creditors, even though all of the circumstances at the time of the transfer did not permit, or positively contradicted, the inference that the transferor was, or was about to become, insolvent."

84. It was further submitted on behalf of the respondents that the evidence concerning the transfer of the business to the applicant was unsatisfactory in the sense that the applicant did not have a clear knowledge of the basis upon which the purchase price was fixed and as I understood the submission the Court should have serious doubts about the genuineness of the transaction even if it were to accept that the applicant works full time in the business and has done since the time it was allegedly sold.

85. In referring to the decision in re Jury it was submitted by the respondents that even if the applicant were to prove that the bankrupt was solvent at the time of transfer of either the house or the Malaga Pantry that there is material upon which the court could rely in applying s 121 of the Bankruptcy Act to reasonably infer from all the circumstances at the time of the transfer the bankrupt's main purpose in making the transfers should be taken to be to prevent the transfer of property from becoming divisible among the bankrupt's creditors and this could be demonstrated by a reasonable inference from all the circumstances at the time of the transfer the bankrupt was or was about to become insolvent.

86. In relation to the discrete issue of failure of the respondents to specifically refer to s 121 in the notice served pursuant to s 139ZQ it was submitted that whilst the notice does not refer to s 121 that the facts and circumstances sufficient to warrant an inference that there has been a contravention of either s 120 or 121. In any event the cross application is able to succeed on merit without the need for notice, it was submitted.

87. Accordingly the applicant's claim should be dismissed and orders made in terms of the amended cross application.

Applicant's submissions

88. The applicant submitted that the court should be satisfied that the transfer of the house was a gift from the bankrupt to the applicant. It was conceded that the $1.00 consideration was clearly less than the market value of the property at the time of the transfer which it was asserted should be July 1997. The applicant had proved that the bankrupt was solvent. Hence it is said that s 120 of the Bankruptcy Act does not apply.

89. In relation to s 121 it was asserted that the court should not find that the bankrupt's main purpose in making a transfer was to prevent the transferred property from becoming divisible amongst the bankrupt's creditors. It was further submitted that it should not be inferred in the circumstances at the time of the transfer the bankrupt was or was about to become insolvent.

90. In relation to the issue of solvency it was submitted that in July 1997 there was evidence that the bankrupt was able to meet household and mortgage expenses.

91. The Malaga Pantry business, it was conceded, has been sold at an undervalue having regard to forgiveness of the balance due under the Sale of Business Agreement. It was further submitted however that there has not been a transfer of property as a consequence of the forgiveness of the balance due under the Sale of Business Agreement. It was submitted that even applying the meaning of transferred property set out in s 120(7)(b) of the Bankruptcy Act the forgiveness of the balance due under the Sale of Business Agreement could not be construed as a transfer of property.

92. It was further submitted in relation to the Malaga Pantry that the sale was not a `sham' but that it had been a genuine sale with a genuine forgiveness based on a valid reason.

93. The main thrust of submissions made for and on behalf of the applicant was that there was at all material times sufficient evidence of solvency of the bankrupt and that the gifting and/or forgiveness were for genuine reasons.

94. An attack was made on Mr Khoury and his knowledge of the transfer given that the evidence revealed he was a witness to the transfer document. It was submitted that there is simply a coincidence between the execution of the Deed between the bankrupt, the company and Mr Khoury and the forgiveness of the debt in relation to the Malaga Pantry.

95. Whilst it was submitted that the notice which is the subject of challenge is deficient because it does not refer to s 121 of the Bankruptcy Act, it was not suggested that the respondent in the cross application as amended could not rely upon both s 120 and s 121.

96. Reference was made to the decision of Cannane v J Cannane Pty Ltd (1992) 35 FCR 515 and it was submitted that that case is authority for a proposition that a transfer of property in order to protect one's wife or one's family against the hazard of loss generally is not something that amounts to an intention to defeat creditors and it was argued that that is all that has occurred in the present case. Reference was made to other decisions which refer to general principles regarding the intent to defeat creditors.

97. It had been further submitted by counsel for the applicant that although there was evidence to suggest forgiveness of the balance of $40,000 due for the sale of the Malaga Pantry, that subsequent payments by the applicant for and on behalf the bankrupt meant that effectively there had been complete payment.

98. It was also argued that the applicant had an equity in the house as a consequence of contributions she made paying off the mortgage and her contributions to the family and that hence there is some equitable interest that the applicant had in any event to the property.

Reasoning

99. In my view there is very little doubt that the transfer of the property occurred for an amount which was less than the market value. It is clear to me that the transfer has occurred upon the signing of the document though it is significant in assessing the conduct of the applicant and the bankrupt that the registration of the transfer did not occur until some months later with the document having been signed in July 1997 and registered in November of that year. No satisfactory reason for the delay was given.

100. In my view there is sufficient evidence to regard the transfer of the property as a transfer which does come within the meaning of s 120 of the Bankruptcy Act. The real issue in relation to s 120 is whether at the time of the transfer the bankrupt was solvent.

101. For the purpose of applying s 120 I am prepared to accept that the time of the transfer is 24 July 1997 and I note the evidence that around that time the payment of $1.00 occurred and that stamp duty had been paid shortly after in the first half of August 1997. Whilst I note that the transfer document was not registered until 27 November 1997 I am satisfied that the transfer as a matter of law had occurred at the earlier time at least to the extent that it resulted in the applicant becoming the owner of the property with an enforceable right at that time. The registration whilst providing a mechanism to establish indefeasibility of title does not in my view detract from the enforceable rights either in equity or at law arising out of the duly executed transfer dated 24 July 1997.

102. Hence the time of the transfer in my view is July 1997 and it is that period of time which the court should consider when analysing evidence as to whether or not at the time of that transfer the bankrupt was solvent.

103. Applying the principles referred to in Trautwein's case and other decisions to which I have been referred, it is clear that there is an onus on the applicant to prove solvency of the bankrupt at the time of the transfer if the court is to find that the transfer is not void against the trustee. I find that the Malaga Pantry had made a net loss of $16,124 for the year ending 30 June 1997 and a net loss of $531.00 in the previous year. I accept that on the material before me that business was a significant part of the business conducted by the company in which the bankrupt had an interest. I further find that although a detailed analysis was made of payments by the bankrupt and the applicant out of a MasterCard account, there is a significant deficiency in the evidence which would enable me to make a finding in relation to the source of income which was applied to the MasterCard account to ensure that the monthly balance was paid when due. The mere evidence of payment of accounts does not of itself provide evidence of solvency unless it can be demonstrated that those payments have been made by the bankrupt along with other debts when it became due from the bankrupt's own money or resources. It is clear that by February 1998 upon entering the Deed with Mr Khoury that both the bankrupt and the company did not then have an ability to pay their debts. Although that post dates the date of the transfer of the property. it does provide me with a sufficient doubt about the financial circumstances of the bankrupt to find as a matter of fact that the applicant has not discharged the onus upon her to establish that in July 1997 the bankrupt was solvent. It is noted that the bankrupt's taxable gross income is $20,351 for the financial year ending 30 June 1998. A significant portion of that income was derived from the company which itself was the subject of an appointment of a Receiver in January 1998. The financial difficulties of the company coupled with the acknowledged indebtedness in the Deed by the company and the bankrupt to Mr Khoury in February 1998 provides further material to support the conclusion that the applicant has failed to establish to the satisfaction of the court that the bankrupt was solvent at the time of the transfer which occurred albeit some months earlier in July 1997. A lack of information concerning sources of income is a factor which in my view the court is entitled to take into account in determining whether it is satisfied that the bankrupt was able to pay his own debts when they became due from his own monies and resources in July 1997.

104. Hence I find that the cross application by the respondents relying upon s 120 of the Bankruptcy Act has been established.

105. In relation to the forgiveness of the debt being the balance due for the sale of the Malaga Pantry from the bankrupt to the applicant, it is clear that the original sale agreement could not be said to be a transfer for no consideration. It is not necessarily clear however that the consideration of $60,000 was the correct market value of the Malaga Pantry at the time of transfer.

106. The forgiveness of the balance in my view clearly involves the bankrupt foregoing a claim for payment of a debt which is a chose in action. Section 5 of the Bankruptcy Act in the definition of `property' includes personal property such as a chose in action and I find that by forgiving the debt of $40,000 the bankrupt as a creditor against the applicant has by way of forgiveness of that debt transferred in the ordinary meaning of the word that chose in action to the applicant. Hence that conduct falls within the concept of a transfer of property for the purposes of s 120 and 121 of the Act.

107. The forgiveness of that debt in my view cannot be said at the time to be for any valuable consideration at all save for the suggestion that as with the transferred property there was some desire on the part of the bankrupt to make provision for his wife and children which I shall deal with further in this judgment.

108. In relation to the issue of solvency at the date of the forgiveness of debt which occurred in February 1998 the applicant as already found has failed to discharge the onus to establish solvency as at July 1997 and on the material before me the evidence clearly indicates a deterioration of the financial circumstances of the bankrupt by 1998 so that logically it follows that if I was not satisfied about solvency in July 1997 it is clear that I cannot also be satisfied about solvency in February 1998.

109. Hence in my view the application of s 120 has been made out in relation to the forgiveness of the debt for the Malaga Pantry.

110. In the alternative it is claimed both in the notice pursuant to s 139ZQ of the Bankruptcy Act and in the cross application of the transfer of property and forgiveness of the debt for the Malaga Pantry both constitute transfers of property which would be subject to the operation of s 121 of the Bankruptcy Act.

111. The issue in the present case is the main purpose of making the transfer on each occasion.

112. Whilst I accept that there is some evidence that the bankrupt had a desire to make provision for his family, I do not accept that this was the real reason for the transfer in both instances. In my view whilst the July transfer of the property occurred prior to significant disputation with Mr Khoury I am satisfied that at that time there was at least a suggestion based on the evidence of Mr Ghobj and to a lesser extent Mr Khoury that a dispute was imminent. I am further satisfied that there is no other reasonable basis upon which the transfer occurred at that date and in the manner where the property was transferred in July from sole proprietorship of the bankrupt to sole proprietorship of the applicant. I am not satisfied that there has been any or any adequate explanation to the court which would demonstrate that the court should not infer from all the circumstances that the main purpose in making both transfers was anything other than to prevent the transferred property from becoming divisible among the creditors of the bankrupt, the main one in the present case being Mr Khoury.

113. I reject the evidence of the applicant and the bankrupt that there was a sudden desire on his part for reasons which are not clear to make provision for his wife and children in July 1997 and further in February 1998.

114. As indicated in July 1997 there was at least a threat of some disputation over the property with Mr Khoury and I am satisfied that it was this threat along with other business disputation including difficulties with the Australian Taxation Office from July 1996 to September 1997 which prompted the transfer at the time of July 1997.

115. It is noted that in their joint judgment Brennan CJ and McHugh J in Cannane's case at p 567 stated the following,

"The valued property at the time of disposition may reflect of course the prospect of its future increase or decrease in value. But disposition of property at an undervalue is only a fact from which dependent on the surrounding circumstances, an inference of fraudulent intent may be drawn. In Williams v Lloyd; in re Williams, a majority of the court declined to draw that inference when the disponor was in a financially sound position and transferred property to his wife and children because his wife sought to have the family property preserved against the hazard of loss by her husband.

Section 121 is not enlivened merely by showing that the disposition has reduced the assets available to the creditors when the disponor is adjudicated bankrupt. It is the disponor's intent to deprive creditors of assets against which (or against the proceeds of which) they would otherwise be entitled to prove their debts that enlivens the operation of s 121. As Dixon CJ said in Hardie v Hanson

`the phrase `intent to defraud creditors of the company' suggests that present or future creditors of the company will, if the intent is effectuated, be cheated of their rights'"

116. In the present case it cannot be suggested that the bankrupt was in a sound financial state at the time of either transfer. I find as a matter of fact that he was aware of potential claims both in July 1997 and February 1998. It was clear in February 1998 having executed the Deed with Mr Khoury and the company that there was an acknowledged indebtedness and an amount which needed to be paid. I am satisfied and find that it was not a mere coincidence that the bankrupt forgave the debt of $40,000 due in relation to the Malaga Pantry sale to the applicant at that time but did so rather in the context of transferring the property in that instance in order that it should not become divisible among the bankrupt's creditors who at that time clearly included Mr Khoury.

117. I am further satisfied and find that the applicant from July 1996 was aware of disputation between the bankrupt and Mr Khoury. I am further satisfied that the reference by the applicant to what she describes as "the catastrophe" was a significant disputation which she was aware of between the bankrupt and Mr Khoury. The significance of that dispute was in my view sufficient to encourage the applicant in collaboration with the bankrupt to make arrangements for the transfer of the property and to agree to the forgiveness of the debt in relation to the Malaga Pantry.

118. I am likewise satisfied as indicated earlier that the transfer of the property in July 1997 also had as its main purpose the prevention of the transferred property becoming divisible amongst the present or future creditors of the bankrupt then known to the bankrupt and that this was his intention.

119. I find that Mr Khoury witnessed the signatures of the transferor and transferee on the transfer of land document in relation to the property and did so in July 1997. However in making that finding I do not accept that Mr Khoury then understood the contents of that document and/or fully appreciated what was occurring. To sign a document as a witness to a signature does not lead necessarily to an inference that the witness has thereby read and/or understood the contents of that document. I accept the evidence of Mr Khoury that from time to time he witnessed documents in relation to the business he was then conducting with the bankrupt and the company and that he does not have an independent recollection of this particular document. Whilst finding that his signature appears as a witness to both the transferee and transferor I am mindful of the fact that to some extent that is contrary to the assertion by Mr Khoury that he did not witness both signatures, it is my view that the explanation for that evidence was simply the letter "F" which had been inserted at a point prior to Mr Khoury's signature which led him to have some doubt about the veracity of the second signature. However, notwithstanding the fact that he has, as found by me, witnessed both signatures on the transfer document I am not prepared to find that the mere witnessing of the signatures on this occasion is sufficient to allow me to draw an inference that he understood and appreciated the nature of the document then signed. Even the document itself does not refer to the address of the property and for a lay man it is not at all surprising that the full impact and nature of the document would not be readily apparent.

120. In general terms I was not satisfied with the evidence given by the applicant and the bankrupt in relation to the circumstances surrounding the transfer of the Malaga Pantry and/or the transfer of the property. In relation to the Malaga Pantry whilst there was evidence relied upon by the applicant that she conducts that business it seemed to me that apart from the bankrupt the conduct of the business if in truth and fact it had been undertaken by the applicant could have been the subject of further corroborative evidence. That evidence was not forthcoming though in the circumstances I do not need to find as a matter of fact that the transfer of the Malaga Pantry was a `sham' despite my reservations. I have found and am satisfied that in the present case there was a Sale of Business Agreement but that the forgiveness of the balance of the amount due under that agreement on the facts as I have found does bring it within the operation of s 120 and/or 121 of the Bankruptcy Act.

121. I am satisfied on the evidence before me that the appropriate value of the property is $120,000 and not $110,000 as asserted by the applicant. I accept the evidence of the respondents and in particular the valuation by Mr Colin Lawrence in his valuation report dated 15 February 2001 which did not appear to be seriously challenged in the course of the proceedings.

122. Accordingly the only other matter remaining to be considered is the issue of whether it is necessary for the s 139ZQ notice dated 28 March 2001 to include reference to s 120 as well as s 121 of the Bankruptcy Act. To the extent that it does not include reference to s 120 of the Bankruptcy Act in my view it is defective as it would normally be expected that in exercising the power to issue the notice under that provision the Official Receiver ought to be aware that the notice effectively is equivalent to an order that a trustee may seek to obtain from a court on determination of an application. In those circumstances it is my view that such a notice should properly refer to all relevant sections to be relied upon by the Official Receiver. The absence of any reference to s 120 to the extent that s 120 is relied upon in the notice would therefore constitute a deficiency and on its own may provide a basis upon which the application in this case to set aside the notice could succeed.

123. However the notice clearly refers to s 121 and in the circumstances I have found that the facts and circumstances set out in reliance upon that section have been established.

124. In my view therefore the only issue which may arise in relation to the claimed defect in the s 139ZQ notice would be the issue of the date when interest would commence. As I have found that there is some merit in the challenge to the notice as a result of its failure to refer to s 120 of the Bankruptcy Act and notwithstanding the fact that I have found that both s 120 and 121 apply to the transfers under challenge, as a matter of discretion it is my view that it would be appropriate that I should make orders sought in the cross application. Subject to hearing submissions it is my view that interest, if any, should commence on and from the date of the cross application as amended being the date on which leave was granted to amend the cross application. I shall hear submissions from counsel in relation to interest and costs.

125. As I have made a finding in favour of the second respondents concerning the application of s 121 which is referred to in the s 139ZQ notice it is not appropriate that I uphold the applicant's application or otherwise make any order which may be said to be in favour of the applicant arising out of the s 139ZQ notice.

126. Accordingly I propose making the following orders:

(1) The application filed 23 April 2001 be dismissed.

(2) It is declared that the transfer by the bankrupt Naji Matta Jabbour (the bankrupt) of interest in the property at 4 Fawk Corner Ballajura being the land comprised in Certificate of Title Volume 1885 Folio 96 (the land) to the applicant by transfer dated 24 July 1997 registered on 27 November 1997 is void as against the second respondents pursuant to s 120 and/or 121 of the Bankruptcy Act 1966 (the Bankruptcy Act).

(3) It is declared that the transaction whereby the bankrupt forgave in March 1998 a debt of $40,000 owing to him by the applicant is void as against the second respondents pursuant to s 120 and/or s 121 of the Bankruptcy Act.

(4) It is declared that the notice dated 28 March 2001 issued by the first respondent against the applicant pursuant to s 139ZQ of the Bankruptcy Act is valid insofar as it relates to a claimed breach of s 121 of the Bankruptcy Act.

(5) The applicant shall pay the second respondents the sum of $87,900.

I certify that the preceding one hundred and twenty-six (126) paragraphs are a true copy of the reasons for judgment of McInnis FM

Associate:

Date: 26 June 2002