Basharee Pty Ltd (in liq), Re [1991] QSC 62

0 I, IN THE SUPREME COURT OF QUEENSLAND MACKAY DISTRICT REGISTRY l Appl. No. 1 of 1991 Misc. No. 2 of 1991 IN THE MATTER of the Companies (Queensland) Code - and - IN THE MATTER of BASHAREE PTYLTD (IN LIQUIDATION) JUDGMENT - DEMACK J. DELIVERED the 15th day of March 1991 . 5 c...91/ob "c)J 0 CATCHWORDS: Bankruptcy - Void preference - transfer of real C property made by deed to creditor and guarantor - "creditor" includes guarantor or surety - Bankruptcy Act 1966, s 122. COUNSEL: Mr D. MCMEEKIN Mr. W. HODGES SOLICITORS: MACROSSAN & AMIET JAMES BYRNE & co~ HEARING DATES: 27th February, 1991. for Plaintiff for Defendant for Plaintiff for Defendant -- 1 of 9 -- 0 IN THE $UPREME COURT OF QUEENSLAND MACKAY DISTRICT REGISTRY Appl. No. 1 of 1991 Misc. No. 2 of 1991 IN THE MATTER of the Companies (Queensland) Code - and - IN THE MATTER of BASHAREE PTYLTD (IN LIQUIDATION) JUDGMENT - DEMACK J. DELIVERED the 15th day of March 1991. On 20th June 1990 Master White ordered that Basharee Pty Q Ltd ( 11 Basharee 11 ) be wound up. The application was made on C 24th May 1990 by Tubemakers of Australia Limited ("Tubemakers"), which had obtained a judgment against Basharee on 12th January 1989 in the District Court, Brisbane, for the sum of $24,571.80 together with interest in the sum of $2,733.19. Tubemakers had issued a notice under s. 364(2)(a) of the Companies (Queensland) Code on 21st February 1990. It is common ground that Basharee did not trade in the first five and a half months of 1990. Basharee had carried on business in Mackay from premises situated at 14 Stockbridge Street ( "the house") . The house consisted of a dwelling and land, with Basharee' s business being carried on from an office at the side of the dwelling. The house was purchased by Basharee in 1982 and the dwelling was occupied by Leonard Byers, Esther Byers and their children. bankrupt. In 1982, Leonard Byers was an undischarged In 1982, the shareholders in Basharee were Clement -- 2 of 9 -- 0 0 0 C 2 Byers, who was a brother of Leonard, Elsie Taylor, who was Leonard's mother and Esther Byers. They apparently were the directors, and Leonard Byers was employed as manager. In 1986 Leonard Byers was discharged from his bankruptcy, Elsie Taylor retired as a director, and Leonard became a director. Clement Byers died on 3rd May 1988. A unit that he owned at 6/14 Darley Street, Darlinghurst ("the unit") was devised to Elsie Taylor who agreed to give it to Leonard and Esther Byers on 13th May 1988. The transfer and ownership was not completed until 29th August 1989. On 18th April 1990 Basharee and Esther Byers executed a deed which needs to be set out in full:- "THIS DEED is made this Eighteenth day of April, 1990 BETWEEN BASHAREE PTY LTD a Company duly incorporatedaccording to law and having its registered office at C/- S. H. Tait & Co. , Chartered Accountants, 45 Wood Street, Mackay (hereinafter with its executors, administrators and assigns) called "the Vendor" of the One Part AND ESTHER PAULINE BYERS of 14 Stockbridge Street, Mackay (together with her executors, administrators and assigns) called "the Purchaser" of the Other Part W HER AS: (A) Esther Pauline Byers and Leonard Byers were the owners of a home unit and car parking space at 21/6- 14 Darley Street, Darlinghurst in the State of New South Wales. (B) The aforementioned property was mortgaged to theNational Australia Bank to secure monies owing by Basharee Pty Ltd to the National Australia Bank. (C) The unit and car parking space at 21 /6-14 Darley Street, Darlinghurst was sold by Agreement for Sale in the month of April of 1990 to Alison Kirwan of 17 William Street, Redfern for the sum of $99,500.00. (D) The balance of the purchase monies after payment of the Agent's commission and Solicitor's fees, namely$ has been paid in full to the National Australia Bank to reduce indebtedness by Basharee -- 3 of 9 -- 0 0 0 3 Pty Ltd to the National Australia Bank. (E) In consideration of the payment of the aforementioned monies to the National Australia Bank, Basharee Pty Ltd has agreed to transfer to Esther Pauline Byers, house and land at 14 Stockbridge Street, Mackay, which is more particularly described as Lot 23 on Registered Plan 715382, County of Carlisle, Parish of Howard, being the land contained in Certificate of Title Volume 548 Folio 79. NOW THIS DEED WITNESSETH AS FOLLOWS: 1 • In consideration of the sum of $80,000.00 paid by Leonard and Esther Pauline Byers to the National Australia Bank for and on behalf of Basharee Pty Ltd, the said Basharee Pty Ltd hereby transfers toEsther Pauline Byers all of its right, title and interest in the house and land at 14 Stockbridge Street, Mackay, which is more particularly described at Lot 23 on Registered Plan 715382, County of Carlisle, Parish of Howard, being the land contained in Certificate of Title Volume 548 Folio 79. 2. The Vendor, Basharee Pty Ltd hereby acknowledges and agrees that it remains indebted to Leonard Byers and Esther Pauline Byers in the sum of $19,500.00 and that the aforementioned sum shall be repayable to Leonard Byers and Esther Pauline Byers upon demand. 3. Basharee Pty Ltd further acknowledges and agrees that interest shall be repayable on the sum of $19,500.00 at the rate of 14% per annum." The application before the court by Esther Byers is for a declaration that the transfer made by this deed is not void as C a preference. This raises for consideration the provisions of s. 122 of the Bankruptcy Act, the relevant part of which reads:- "A transfer of property . . made . . by a person who is unable to pay his debts as they become due from his own money ( in this section referred to as "the debtor"), infavour of a creditor, having the effect of giving that creditor a preference priority or advantage over other creditors .. is void .. " It was not disputed that the transfer was made within the relevant period. It was agreed that at the time Basharee -- 4 of 9 -- 0 4 could not pay its debts. For the applicant, reliance was placed on Robertson v. Grigg (1932) 47 C.L.R. 257 and Burns v. Stapleton (1959) 102 C.L.R. 97. Esther Byers said that she would not have agreed to the sale of the unit, unless Basharee agreed to transfer the house to her. On the basis of this it was submitted that this was a case where the advance and the transfer were given in similar circumstances to those in the two High Court decisions: the relationship of creditor and debtor being established in the same transaction as the transfer. Unhappily this submission depends upon a very selective Q approach to the evidence. The unit was not unencumbered. It was mortgaged to the National Australia Bank as security for Basharee' s debt to that bank, and the amount of the debt, $112,000, was well in excess of the sale price for the unit $99,500. Also Leonard and Esther Byers were not only the mortgagors of the unit, but they were guarantors of Basharee's debt to the National Australia Bank under a deed of guarantee. The house also was mortgaged to the Bank. In Re J.F. Aylmer (Manildra) Pty Ltd; Burgess v. Spooner (1968) 12 F.L.R. 337, Street J. considered the effect of s. 95 of the Bankruptcy Act, 1924 which was to the same effect ass. 122. At p. 342, he said:- "The terms of s. 95 do not need to be re-stated. Therewas at one stage in the history of the corresponding English provision some doubt as to the meaning of "creditors" in that section. I am of the view that"creditor" where is appears ins. 95(1) must be taken tobe wide enough to include a guarantor or surety ( cf. Commercial Bank of Australia v. Carruthers (1) (1964) 82 W.N. (Pt. 1) (N.S.W.) 76, and the cases discussed by -- 5 of 9 -- 0 0 5 Manning J. at pp. 80 and 81)." On appeal this opinion was held to be correct, (12 F.L.R. at p. 351). I am also of the opinion that it is correct. The earliest decision which most clearly says this is In re Blackpool Motor Car Company Limited, Hamil ton v. . Blackpool Motor Car Company Limited (1901) 1Ch. 77, a decision of Buckley J. His Lordship held that a surety, who has a right of proof under s. 37 of the Bankruptcy Act, 1883 (the equivalent of s. 82 in the present Act) in respect of his contingent liability as surety, is a creditor. It seems to me that the same reasoning ought to apply under s. 122. This was clearly recognised in the third edition of Halsbury's Laws of England, vol. 2, para. 929 note (d). Legislative changes in England in 1986 called for a change in the text in the fourth edition: vol 3 ( 2) , para. 494. The third edition reads:- "But since the surety has a contingent right of proof he is a creditor for the purposes of the fraudulent preference doctrine." In O'Donovan and Phillips' The Modern Contract of Guarantee, at p. 199, it is said, 'the guarantor was not considered to be "a creditor" within the meaning of (the English Bankruptcy Act 191 4) ' . The cases cited include the Blackpool Motor Car Case. The principal authority relied on is In re Warren Ex parte Trustee (1900) 2Q.B. 138. That was a decision to the effect that a payment made by a debtor to a creditor, which had the effect of releasing the contingent liability of two sureties, did not fall within the equivalent section, so that the trustee in bankruptcy of the debtor's -- 6 of 9 -- 0 () C 6 estate could not recover the amount paid from the sureties. It was a Divisional Court decision and the judges expressed some embarrassment about the decision in In re Paine, Ex parte Read (1897) 1Q.B. 122. In the Blackpool Motor Car Case, Buckley J. considered both In re Warren, Ex parte the Trustee and In re Paine, Ex parte Read, and reached the decision I have referred to. It does not seem to me that three cases support the proposition which I have quoted from O'Donovan & Phillips. Thus it is clear that as at 19th April 1990, Esther Byers was a creditor of Basharee because, as a guarantor, she had a contingent right to claim as a creditor on its winding up. Also Esther Byers was a creditor of Basharee for sums in excess of $58,000 as appears from the documents the liquidator has prepared. $27,000 of this sum seems to relate to money Esther Byers contributed to the purchase of the house. This means that as at 19th April 1990 the relationship of creditor and debtor existed between Esther Byers and Basharee. The sum of $80,000 said to have been paid by Leonard and Esther Byers to the National Bank was in no sense a payment by them to Basharee but wa~ a partial discharge of their obligation under the guarantee they had given to the Bank. In Burns v. Stapleton (1959) 102 C.L.R. 97, the bankrupt gave mortgages over his property to secure a debt of i.2, 732 10s. 0d. This was the aggregate of four amounts, i.232 10s. 0d being an antecedent debt, i.500 being a loan given on the understanding that security would be given, i.1900 being the price of 95 cows delivered on the understanding that security -- 7 of 9 -- 0 0 0 7 would be given and a100 being in the nature of interest. The High Court held that the mortgage was void as a preference in respect of the a232 10s. 10d, but not in respect of the other amounts. At p. 105, in the joint judgment of Dixon C. J., Kitto J. and Wideryer J. it is said:- 'But as regards the a2,400, the instruments made no change which improved the appellant's position vis-a-vis the other creditors. The oral agreement which he and Fallon made originally, for the loan of a500 and the saleof the ninety-five cows, included as one of its terms that the amount of the loan and the price of the cows should be secured by mortgage of the subject lands, identified by the use of the expression "the farms". The result was that when the loan was made and the cows delivered the appellant became instantly secured for the whole amount by an equitable mortgage of the lands. "The right of the appellant as equitable mortgagee" as Lord Cransworth said in Eyre v. McDowell (1861) 9 H.L.C. 619 [11 E.R. 871] "is too clear to need any argument or reasoning in its support" (1861) 9 H.L.C., at p. 639 [11 E.R., at p. 879]. See also Tebb v. Hodge. (1869) L.R. 5 C.P. 73. The securing of the a2,400 by this equitable mortgage was not a preference to the appellant, becausehe was not theretofore a creditor of Fallon for any part of that amount: see Robertson v. Grigg (1932) 47 C.L.R.257, at p. 271; and cf. Hunt v. Mortimer (1829) 10 B. & C. 44 [109 E.R. 367] and Muntz v. Smail (1909) 8 C.L.R.262, at pp. 276, 304, 305. Section 95 therefore does not invalidate the securing of that sum by the execution ofthe formal mortgages. As regards the a100 that was added "for the loan", apparently in lieu of interest, it seems the proper conclusion from the proved facts that what was agreed upon originally was a50 per month. On that basis,the equitable mortgage which came into existence when the a500 was advanced and the cattle were delivered extended to this amount. Considered as interest, it was at a high rate, but we are not concerned with that in theseproceedings. Its inclusion in the formal mortgages is here attacked as a preference. That presupposes that the amount was a debt antecedently owing. Assuming that it was such a debt, the answer to the trustee's claim isthat it was a debt secured at the time of its creation by an equitable mortgage of the farm lands, and thattherefore the appellant received no advantage over the other creditors by its inclusion in legal mortgages over the same lands.' The situation here is quite different. The payment of $80,000 to the National Australia Bank was not in respect of -- 8 of 9 -- .. . ~· C 8 money that Esther Byers was free to dispose of. It was the proceeds of the sale of land which was mortgaged to the National Australia Bank to secure a debt owed to the Bank by Basharee. It was part of the amount of $112,000 in respect of which Esther Byers was a creditor of Basharee by reason of the fact that she had guaranteed the payment of that debt. She was not in a position where she could demand anything. The Bank could have sold both the unit and the house. She gave nothing new to Basharee, but Basharee assigned its interest in the house to her. The transfer of the house was partial discharge of an C) antecedent debt and clearly gave Esther Byers an advantage over other creditors. It is void as against the liquidator. The appropriate order then is a declaration that the transfer by Basharee Pty Ltd to Esther Pauline Byers of all its right title and interest in the house and land at 14 Stockbridge Street Mackay which is more particularly described C as Lot 23 on Registered Plan 715382, County of Carlisle, Parish of Howard, being the land contained in Certificate of C Title Volume 548 Folio 79 is void as against the liquidator of Basharee Pty Ltd. -- 9 of 9 --