S120 / Undervalued transactions/ Bankruptcy

BANKRUPTCY ACT 1966 - SECT 120

Undervalued transactions

Transfers that are void against trustee

             (1)  A transfer of property by a person who later becomes a bankrupt (the transferor ) 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 5 years before the commencement of the bankruptcy and ending on the date of the bankruptcy; and

                     (b)  the transferee gave no consideration for the transfer or gave consideration of less value than the market value of the property.

Note:          For the application of this section where consideration is given to a third party rather than the transferor, see section 121A.

Exemptions

             (2)  Subsection (1) does not apply to:

                     (a)  a payment of tax payable under a law of the Commonwealth or of a State or Territory; or

                     (b)  a transfer to meet all or part of a liability under a maintenance agreement or a maintenance order; or

                     (c)  a transfer of property under a debt agreement; or

                     (d)  a transfer of property if the transfer is of a kind described in the regulations.

             (3)  Despite subsection (1), a transfer is not void against the trustee if:

                     (a)  in the case of a transfer to a related entity of the transferor:

                              (i)  the transfer took place more than 4 years before the commencement of the bankruptcy; and

                             (ii)  the transferee proves that, at the time of the transfer, the transferor was solvent; or

                     (b)  in any other case:

                              (i)  the transfer took place more than 2 years before the commencement of the bankruptcy; and

                             (ii)  the transferee proves that, at the time of the transfer, the transferor was solvent.

Rebuttable presumption of insolvency

          (3A)  For the purposes of subsection (3), a rebuttable presumption arises that the transferor was insolvent at the time of the transfer if it is established that the transferor:

                     (a)  had not, in respect of that time, kept such books, accounts and records as are usual and proper in relation to the business carried on by the transferor and as sufficiently disclose the transferor's business transactions and financial position; or

                     (b)  having kept such books, accounts and records, has not preserved them.

Refund of consideration

             (4)  The trustee must pay to the transferee an amount equal to the value of any consideration that the transferee gave for a transfer that is void against the trustee.

What is not consideration

             (5)  For the purposes of subsections (1) and (4), the following have no value as consideration:

                     (a)  the fact that the transferee is related to the transferor;

                     (b)  if the transferee is the spouse or de facto partner of the transferor--the transferee making a deed in favour of the transferor;

                     (c)  the transferee's promise to marry, or to become the de facto partner of, the transferor;

                     (d)  the transferee's love or affection for the transferor;

                     (e)  if the transferee is the spouse, or a former spouse, of the transferor--the transferee granting the transferor a right to live at the transferred property, unless the grant relates to a transfer or settlement of property, or an agreement, under the Family Law Act 1975 ;

                      (f)  if the transferee is a former de facto partner of the transferor--the transferee granting the transferor a right to live at the transferred property, unless the grant relates to a transfer or settlement of property, or an agreement, under the Family Law Act 1975 .

Protection of successors in title

             (6)  This section does not affect the rights of a person who acquired property from the transferee in good faith and by giving consideration that was at least as valuable as the market value of the property.

Meaning of transfer of property and market value

             (7)  For the purposes of this section:

                     (a)  transfer of property includes a payment of money; and

                     (b)  a person who does something that results in another person becoming the owner of property that did not previously exist is taken to have transferred the property to the other person; and

                     (c)  the market value of property transferred is its market value at the time of the transfer.

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