FEDERAL COURT OF AUSTRALIA

PRENTICE v CUMMINS

N 7481 of 2002

                                                 SUMMARY

In accordance with the practice of the Federal Court in cases of public interest, the Court has prepared this brief summary to accompany the reasons for judgment, delivered today. It must, of course, be emphasised that the only authoritative pronouncement of the Court's reasons is that contained in the published reasons for judgment. This summary is intended to assist in understanding the principal conclusions reached by the Court, but is necessarily incomplete.

In these proceedings, the trustees of the bankrupt estate of Mr J D Cummins seek to recover certain property or funds said to have been transferred by Mr Cummins to his wife and to the trustee of the Cummins Family Trust.

Mr Cummins became bankrupt on his own petition in December 2000.  At that time he was a Queen’s Counsel, in practice at the Sydney bar.

Between 1955 and early 2000, Mr Cummins failed to lodge any income tax returns.  In early 2000, he filed returns for the taxation years 1992 to 1999.  On the basis of those returns the Commissioner of Taxation issued assessments.  The Commissioner is the largest creditor of Mr Cummins’ estate, being owed $955,672.92.

This part of the case principally involves the trustees’ claim that two transfers of property made by Mr Cummins in 1987, thirteen years before his bankruptcy, are void as against them.  The two transactions were these:

• a transfer by Mr Cummins to his wife of his half interest in the matrimonial home at Hunters Hill, for an expressed price of $205,250; and
• a transfer of Mr Cummins’ shares in Counsel’s Chambers Ltd (entitling him to occupation of barrister’s chambers) to Aymcopic Pty Ltd, the trustee of the Cummins Family Trust, for an expressed price of $360,000.

Despite the fact that each transfer was expressed to be for monetary consideration, neither Mrs Cummins nor Aymcopic paid anything for the property transferred.

Under s 121 of the Bankruptcy Act 1966 (Cth) a transfer of property by a person who later becomes bankrupt is void against the trustee in bankruptcy if (among other things) the transferor’s “main purpose” in making the transfer was to prevent the transferred property from becoming divisible among his or her creditors.  The Trustees’ case is that Mr Cummins’ main purpose in making the transfers in 1987 was to prevent the transferred property being divided among his creditors, specifically the Commissioner of Taxation.

The case has some unusual procedural features, arising from the fact that the parties attempted to gain forensic advantages by tactical manoeuvring.  The respondents (Mrs Cummins and Aymcopic) made what is usually called a “no-case submission”.  That is, they argued that the evidence relied on by the trustees was insufficient to make out the case that Mr Cummins’ “main purpose” was to defeat his creditors.  The Court required the respondents, as the price for being permitted to put this submission, to “elect” to call no evidence themselves in relation to the two transfers.  So they have chosen, in effect, to stand or fall on the strength (or otherwise) of the trustees’ evidence.

The Court has concluded that, despite some gaps in the trustees’ evidence, they have established, to the required standard of proof, that Mr Cummins’ main purpose in making the transfers was to prevent the transferred property from becoming divisible among his creditors.  The Court has made specific findings that support this conclusion, as follows:

·        Mr Cummins  was well aware in August 1987 that he had incurred very substantial liabilities to the Commissioner, contingent only on the Commissioner issuing assessments in respect of past income years;

·        Mr Cummins was well aware at that time that the Commissioner would issue assessments once Mr Cummins’ longstanding tax delinquency became known, an event that could occur at any time;

·        Mr Cummins divested himself voluntarily of virtually all his substantial assets in August 1987;

·        the assets retained by Mr Cummins were not sufficient to meet his taxation liabilities, if the Commissioner decided to issue assessments; and

·        Mr Cummins saw the transfers as increasing the chances that his assets would be protected from any claims made by the Commissioner.

Accordingly, the Court has rejected the respondents’ “no case submission” in relation to the two transfers.  The proceedings will therefore continue, but the respondents will be bound by their election to call no evidence concerning those transfers.

The trustees also claim, in this part of the case, that certain payments made by Mr Cummins to his wife, totalling about $195,000, are void against them.

The Court has, however, upheld the respondents’ no case submission in relation to these payments.  It has done so on the basis of certain concessions made by the trustees and a finding that the evidence is consistent with certain of the payments being loans or for household expenses.  These claims must therefore fail.  A separate issue remains as to whether a loan of approximately $138,000 by Mr Cummins to Mrs Cummins has been repaid.  That issue will be addressed at the next hearing.