Legal Tip 2: Asset Protection

When doing any transaction, especially related party transactions, consider the claw back provisions under the Bankruptcy Act, the 2 main ones being:

120. Undervalued transactions see
http://www.austlii.edu.au/au/legis/cth/consol_act/ba1966142/s120.html

121. Transfers to defeat creditors
see http://www.austlii.edu.au/au/legis/cth/consol_act/ba1966142/s121.html

Most people forget about the state legislation as well:
e.g. Conveyancing Act 1919 (NSW)
37A. Voluntary alienation to defraud creditors voidable
see http://www.austlii.edu.au/au/legis/nsw/consol_act/ca1919141/s37a.html

Each State has its own legislation similar to the s37A

What the above sections mean is that a transaction entered into with the intent of defeating creditors or putting property out of reach of the trustee in bankruptcy (if you were to go bankrupt) could be attacked. This can even apply to future creditors.

So take care in how you do things, especially related party transfers such as changing title on property.

I should post one legal tip per day - only on the areas of law that interest me.

 

A new case on s121

McMillan v Warner (Trustee) [2022] FCAFC 20

McMillan v Warner (Trustee) [2022] FCAFC 20 - BarNet Jade


Appeal from:

Warner (Trustee), in the matter of McMillan (Bankrupt) v McMillan [2020] FCA 1759

Warner (Trustee), in the matter of McMillan (Bankrupt) v McMillan [2020] FCA 1759 - BarNet Jade


BANKRUPTCY – appeal – where property was transferred to the appellant for $1 and the transferor subsequently became bankrupt – where 16 years had elapsed between the transfer and bankruptcy – where there was no temporal nexus between the creditors at the time of the transfer and the subsequent bankruptcy –where the primary judge rejected the transferor’s evidence as to his purpose in making the transfer – whether the transferor’s main purpose was to prevent the property becoming divisible among creditors or to hinder or delay the process of making that property available for division among creditors in contravention of s 121(1)(b) of the Bankruptcy Act 1966 (Cth) – whether the primary judge erred in concluding that a reasonable and definite inference was available that the transferor’s main purpose was to defeat creditors – whether the primary judge made findings that went outside the pleaded case – whether the primary judge erred in making an adverse credibility finding against the transferor – whether the transferor had embarked upon a risky venture –– appeal allowed


Husband transferred his share of the main residence to his wife for $1 in around 2002. 16 years later be became bankrupt and the trustee in bankruptcy tried to attack the transfer as it was an undermarket value transfer and/or was done to defeat creditors.

 

Interesting case. Despite some issues of complexity it seems a interesting judgement for the actions through use of the $1 consideration. Good example that seeking asset protection advice isnt always certain. The s120 undervalued transaction arguement wasnt met by the trustee which has a 5 year time period but s121 otherwise fails for the poor consideration used in the transfer. I cant help but wonder if haste and a lack of access to finance in 2002 was the trigger for that choice.