+ Section 139ZQ Notice

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On the 29 July 2009, the High Court held that a s139ZQ notice is not liable to be set aside merely because the valuation to which it refers is incorrect. It also confirmed that the value of property to which a s139ZQ notice refers is the value as at the date the notice is issued, over-ruling a line of Federal Court authority dating back to 1996 which treats the “value” as that at the date of the transfer of the property to the transferee under the avoided transaction.

The facts

Mr and Mrs Vale were joint owners of land in NSW and in September 1998 obtained a valuation of the property which gave a range between $520,000 and $540,000, but stated that the figure was “an opinion of a reasonable asking price only and not be taken as a sworn valuation.”   

A lower valuation of the property at $416,000 was made on 31 March 1999 by a registered valuer for the assessment of stamp duty on Mrs Vale’s proposed subsequent transfer of her interest in the land to Mr Vale which in fact occurred the following month. The consideration for the transfer was stated on the transfer document as being two dollars.

Mrs Vale subsequently committed an act of bankruptcy upon her failure to comply with a bankruptcy notice on 26 February 2001. This date marked the commencement of her bankruptcy for the purpose of the Bankruptcy Act (the “Act”) - see s5 and s115.

On 27 May 2002, a notice was issued by the Official Receiver to Mr Vale and it was expressed to be pursuant to section 139ZQ of the Act. The notice recited the 1998 valuation of $540,000 dollars and Mrs Vale’s ownership as joint tenant with Mr Vale. It stated that payment by him of one half of that sum, being $270,000 dollars, was required 28 days after service upon him of the notice. 

The notice was not complied with.

The law

It was not disputed that the transfer of Mrs Vale’s interest in the properties in April 1999 was void by reason of section 120(1) of the Bankruptcy Act.

That sub-section is essentially to the effect that a transfer of property, by a person (the transferor) who later becomes a bankrupt, to another person (the transferee) is void against the trustee in the transferor’s bankruptcy if (a) the transfer took place in the period beginning five years before the commencement of the bankruptcy and ending on the date of the bankruptcy and (b) the transferee gave no consideration to the transferor or gave consideration of less value than the market value of the property.

The analysis is then assisted by turning to s139ZQ(1) of the Act which relevantly states:

1. If a person has received any money or property as a result of a transaction that is void against the trustee of a bankrupt under Division 3, the Official Receiver:

(a) If the Official Receiver is the trustee - on the initiative of the Official Receiver; or

(b) If a registered trustee is the trustee - on application by the trustee;

may require the person by written notice given to the person, to pay to the trustee an amount equal to the money or the value of the property received.

1. because of which the Official Receiver considers that the transaction is void against the trustee. (emphasis added)

The litigation

In 2006, the trustee sought in the Federal Magistrates Court to recover the $270,000 by an action in debt against Mr Vale for that amount together with interest. By his cross claim and defence, Mr Vale sought an order under s139ZS setting aside the notice. His argument was that the value of $270,000 inserted in the notice constituted a “significant error” which entitled him to apply for an order setting aside the notice under s 139ZS(1).

The matter was appealed to the Federal Court and then to the High Court. The High Court appeal focussed on the amount claimed by the notice.

The Court observed that s139ZS(1) stated that “[i]f the Court on application by a person to whom a notice has been given under s139ZQ or by any other interested person, is satisfied that this Subdivision does not apply to the person on the basis of the alleged facts and circumstances set out in the notice, the Court may make an order setting aside the notice.” (emphasis added)

In reply, the trustee submitted that firstly, where s120 is the grounds of avoidance of a transaction, the “facts and circumstances set out in the notice” do not include the specification of any particular sum of money or value of property received as a result of the transaction. The trustee stated that accordingly, a notice which does specify for payment to the trustee of an amount equal to the money or the value of the property received, but is in error as to that amount, is not for that reason alone, liable to be set aside under s139ZS(1). The trustee submitted that this is because s139ZS(1), by using the same wording  as s139ZQ(2),   is implicitly linked back to s139ZQ(2) and not s139ZQ(1).

The trustee then submitted that any dispute as to the accuracy of the amount to be paid to the trustee is to be resolved in proceedings under s139ZQ(8) to recover the debt if it is not paid.

The conclusion

The High Court agreed with these submissions and noted that s139ZQ does not provide the means for the determination of a dispute as to the amount payment of which is required by the notice. It noted that such a dispute should be resolved in proceedings to recover the debt under s139ZQ(8).

The Court noted that the 1999 valuation was the preferred valuation because it was undertaken less than one month prior to the date when the property was transferred by a registered valuer for the purposes of assessing stamp duty and it was not “an opinion of a reasonable asking price only”  as was the 1998 valuation.

The Court gave judgment in favour of the trustee for one half of the 1999 valuation- $208,350 dollars. The trustee then indicated that he sought to be in the same position as he would have been in if he had provided the Official Receiver with direct evidence of the value of the land in question at the date of the notice. Special leave to cross-appeal on this point was granted to the trustee.

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