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INSOLVENCY LECTURE 5 WINTER 2010

INSOLVENCY LECTURE 5 WINTER 2010. LAW EXTENSION COMMITTEE. INSOLVENCY WINTER 2010. Lecture 5 TRANSACTIONS VOID AGAINST THE TRUSTEE UNDERVALUED TRANSACTIONS - S 120

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INSOLVENCY LECTURE 5 WINTER 2010

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  1. INSOLVENCY LECTURE5 WINTER 2010 LAW EXTENSION COMMITTEE

  2. INSOLVENCY WINTER 2010 Lecture 5 TRANSACTIONS VOID AGAINST THE TRUSTEE UNDERVALUED TRANSACTIONS - S 120 • Transfers in the 5 years before the commencement of bankruptcy are void against the trustee if tranferee gave no consideration or less than market value - s 120(1) • Exemptions - s 120(2) • Exceptions - if transferee proves that the transferor was solvent at the time - s 120(3) • “related entity” - s 5 [Nichols 62] • rebuttable presumption of insolvency - s 120(3A)

  3. INSOLVENCY WINTER 2010 • refund of consideration - s 120(4) • what is not consideration - s 120(5) • protection of successors in title - s 120(6) • “transfer of property” and “market value” - s 120(7)

  4. INSOLVENCY WINTER 2010 JUDICIAL EXPLANATION OF S 120: Anscor Pty Ltd v Clout (Trustee) [2004] FCAFC 71 per Lindgren J [Nichol 326-328] • “void” in s 120 means “voidable” • transferee takes good title, but a title which may be defeated if the trustee elects to avoid the transfer by the debtor • trustee is entitled to have the transfer ignored, as if the debtor still held the property • owner holds property in trust for the trustee • substitute property will vest in the trustee • money can be “traced’ into other property

  5. INSOLVENCY WINTER 2010 TRANSFERS TO DEFEAT CREDITORS - S 121 • transfer is void (read “voidable”) against the trustee if the main purpose of the transfer was to defeat creditors - s 121(1) • trustee bears the onus of proof • such purpose can be inferred if transferor insolvent at the time - s 121(2) • a defence - transfer not void if: • market value was paid • transferee did not and could not know of transferor’s intention • transferee ignorant that transferor insolvent • s 121(4)

  6. INSOLVENCY WINTER 2010 • Trustees of the Property of Cummins v Cummins (2006) 227 CLR 278 [Keays 110] • Similar provisions to s 120 : rebuttable presumption of insolvency; refund of consideration; what is not consideration; protection of successors in title; meaning of terms - s 121 (4A) - (9) • s 121A catches transactions where consideration is paid to a third party not the bankrupt

  7. INSOLVENCY WINTER 2010 PREFERENCES - S 122 • A transfer by a insolvent in favour of a creditor is void (read “voidable”) against the trustee in bankruptcy if the transfer: • gives a preference to a creditor; and • was made in the period between 6 months before presentation of the petition and the making of a sequestration order • s 122 (1) • “Defences” : • purchaser who acted in good faith and who paid market value - s 122(2)(a) • person who took through the creditor in good faith and who paid market value - s 122(2)(b) • transfer under a maintenance agreement or order - s 122(2)(c) • transfer under a debt agreement - s 122(2)(d) [lecture 6] • The transferee bears the onus of proving a “defence” - s 122(3)

  8. INSOLVENCY WINTER 2010 • What is a preference? See Kirby J in Sheahan v Carrier Air Conditioning Pty Ltd (1997) 189 CLR 407 • The ordinary course of business - Robertson v Grigg (1932) 47 CLR 257 at 267; Downs Distributing Co PL v Associated Blue Star Stores PL (1948) 76 CLR 463 • Good faith - Queensland Bacon Pty Ltd v Rees (1966) 115 CLR 266 at 287 [Nichols 355] • Running accounts - Keays 119

  9. INSOLVENCY WINTER 2010 SUPERANNUATION CONTRIBUTIONS - S 128A, 128B, 128C • Simplified outline - s 128A • Superannuation contributions made to defeat creditors - contributor is a person who later becomes a bankrupt - s 128B(1) • Main purpose in making the contribution was to defeat creditors - s 128B(1)(c) • Was the contributor insolvent or about to become insolvent? S 128A(2) and (5) • Look at previous pattern of superannuation contributions - s 128B(3) • Superannuation contributions made to defeat creditors - contributor is a third party - s 128C

  10. INSOLVENCY WINTER 2010 Next week: Lecture 6 Section 139ZQ Termination of bankruptcy Personal insolvency agreements Debt agreements Law reform Revision of bankruptcy topics Reading: • Keays,171-183, 194-210, 225-232 • Bankruptcy Act, ss 149, 153A-153B, 185C, 188A • Nichols 427-452, 486-495, 520-570

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