Citation: Puglia v Basol & Ors [2005] NSWSC 1271
Court: Supreme Court of New South Wales, Equity Division
Date: 7 December 2005
Judge(s): Barrett J
Background
The plaintiff was a creditor who had lent money to the first defendant across various advances up to March 2001. She commenced debt recovery proceedings in the District Court in July 2001, and ultimately obtained a judgment against the first defendant for $138,706 in March 2005.
Between 2003 and 2005, while those District Court proceedings were on foot, the first defendant undertook three transactions that transferred significant value to his wife (the second defendant). These transactions included directing over $147,000 from property sale proceeds to his wife's benefit, transferring a company share to her for no consideration, and effectively handing over a florist business by registering it in her name.
The plaintiff sought relief in the Supreme Court under s 37A of the Conveyancing Act 1919, arguing that each of these transfers was an alienation of property made with intent to defraud creditors and should be declared voidable.
Legal Issues
- Whether each of the three transactions constituted an "alienation of property" within the meaning of s 37A(1) of the Conveyancing Act 1919
- Whether each alienation was made with intent to defraud creditors
- Whether the registered business name itself constituted "property" for the purposes of s 37A
- What form of relief was appropriate, including whether the plaintiff should receive a preferred or secured position in the restored assets
- Whether a Mareva order (a court order freezing assets to prevent dissipation) was warranted to protect the restored property
Decision
Barrett J was satisfied that all three transactions constituted alienations of property under s 37A. The payment of money from the first transaction fell within the definition of alienation, following the High Court's statement in Cardile v LED Builders Pty Ltd that money, as property, is clearly susceptible of transfer or alienation. The share transfer was unambiguously an alienation. As to the business name registration, the court held that a registered business name is not itself "property," but the goodwill and assets of the underlying business are, and their transfer was evidenced by the change in business name proprietorship.
On the question of intent to defraud creditors, none of the defendants gave evidence, and the first and third defendants did not appear. Barrett J held that fraudulent intent need not be proved by direct evidence of the debtor's actual state of mind. Drawing on Cannane v J Cannane Pty Ltd and the observations of Austin J in Langdon v Gruber, the court inferred intent from the surrounding circumstances: each transaction was gratuitous, the debt recovery proceedings were on foot throughout, and no explanation was offered by any defendant. The transactions' timing in relation to key procedural steps in those proceedings reinforced the inference.
On the form of relief, the court declined to give the plaintiff any preferred or secured position over the property to be restored to the first defendant. The purpose of s 37A is to restore alienated property to the debtor for the benefit of all creditors, not to confer a priority on the creditor who brings the action. Accordingly, the orders required restoration of the assets to the first defendant, rather than payment directly to the plaintiff.
Barrett J did, however, consider additional protection warranted. Given the first defendant's conduct and non-participation in the proceedings, the court found it reasonable to infer that the restored property would be at risk of dissipation. A time-limited Mareva order was made against the first defendant in respect of the property to be restored, with liberty to apply.
Orders Made
• Orders 1 to 6 in the amended summons are made
• Orders 7 to 12 in the initialled and dated document are made
• The plaintiff's costs of the proceedings will be paid by the defendants
(The judgment records that orders 1 to 12 in an amended summons were made and initialled by the judge, but the specific terms of those orders were not reproduced in the text provided.)
Key Takeaways
- Under s 37A(1) of the Conveyancing Act 1919, a payment of money from sale proceeds directed to a third party constitutes an "alienation of property," consistent with the High Court's statement in Cardile v LED Builders Pty Ltd that money is susceptible of transfer or alienation like any other property.
- A registered business name does not itself constitute "property" for the purposes of s 37A, but the goodwill and assets of the underlying business do, and a transfer of the business can be established by reference to the change in business name proprietorship.
- Fraudulent intent under s 37A does not require proof of the debtor's actual state of mind. Where transactions are gratuitous, are made while debt recovery proceedings are on foot, and the defendants offer no evidence in response, a court may infer the requisite intent from the surrounding circumstances.
- The purpose of s 37A relief is to restore alienated property to the debtor for the benefit of creditors generally. The section does not permit a court to give the applicant creditor a preferred or secured position over the restored assets.
- A Mareva order can be granted after judgment, in appropriate circumstances, to protect against the risk that restored property will be dissipated before the plaintiff's judgment can be satisfied.
Legislation and Cases Referenced
Legislation
- Conveyancing Act 1919 (NSW), s 37A
- Business Names Act 1962 (NSW)
Cases
- Babanaft International Company v Bassatne [1990] Ch 13
- Cannane v J Cannane Pty Ltd (1998) 192 CLR 557
- Cardile v LED Builders Pty Ltd (1999) 198 CLR 300
- Commissioner of State Taxation v Mechold Pty Ltd (1995) 95 ATR 69
- Electrical Enterprises Pty Ltd v Rogers (1988) 15 NSWLR 473
- Langdon v Gruber [2001] NSWSC 276