Transfer of property set aside by lwl70989

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									Transfer of property set aside
Regal Castings Ltd v GM and GN Lightbody and Ors SC 72/2007 [23 October 2008]


Where a debtor acts in bad faith and with the intent to hinder, delay or defeat the legitimate interests of a creditor by divesting themselves of an asset
that a creditor could rely on being available to satisfy their debt in the case of default, the court will set that transfer aside. In Regal Castings1, the
Supreme Court examined the particular nature and circumstances of a debtor-creditor relationship and made a determination that safeguarded the
creditor’s interests and ensured that the debtor did not profit from their dishonesty.



Background
Mr Lightbody had guaranteed his company’s (Capro) large debt to Regal Castings Ltd (Regal). Regal continued to supply Capro and Capro
managed to repay a substantial portion of its debt to Regal. However, Capro was always behind and found itself struggling. Mr Lightbody sought
advice and set up a family trust, and without informing Regal, transferred his only significant asset, his half interest in the family home to the trust
with the purchase price gifted away over time. Mr Lightbody continued to occupy the family home with his family after its transfer to the trust.

Mr Lightbody’s guarantee had been in place at the time of the transfer of the property to the trust. The purchase price had all been gifted away prior
to Capro’s voluntary liquidation and Mr Lightbody’s subsequent bankruptcy. The application brought by Regal with the Official Assignee in support
sought to have the transfer of the family home, of which Mr Lightbody had a half interest, set aside with Mr Lightbody’s share to be divided
amongst his bankruptcy creditors.



Court’s Decision
Capro had struggled financially for years and Mr Lightbody personally guaranteed Capro’s debt to ensure continued supply and forbearance of the
debt by Regal. The Court considered that the establishment of a family trust and the subsequent and secret transfer of Mr Lightbody’s half interest in
his family home in to it was carried out for the sole purpose of protecting the family home from his creditors. Despite Mr Lightbody’s insistence that
the property was transferred into the trust to protect it for his children, he could not offer the Court a rational explanation about whom or what he
was seeking to protect the family home from.

The Court considered that it beggared belief that Mr Lightbody had transferred his only significant asset to a family trust without appreciating that
by doing so he was exposing Regal to considerable risk of not being paid.

“It is not necessary to show that the debtor wanted creditors to suffer a loss; that it was his purpose to cause loss. It is however, necessary to show
the existence of an intention to hinder, delay or defeat them and that the debtor has accordingly acted dishonestly.” 2

 

If the circumstances are such that the insolvent must have known that his creditors would not be paid, or must have known that he was exposing
them to a significant risk they would not be paid, the Court will set aside the gift or transfer.

“The consequence for the creditors is so obvious that it is really beyond argument that the debtor must be taken to have intended it.” 3

The Supreme Court set aside the transfer of the property to the trust because it was taking the one asset that should have been available to pay Regal
and Mr Lightbody must have known that. Mr Lightbody’s evidence that he never considered that Regal was affected by the transfer was rightly
rejected by the Supreme Court.




      Related information
Copy of Supreme Court judgment [329 kB PDF]



 
1
  Regal Castings Ltd v GM and GN Lightbody and Ors SC 72/2007 [23 October 2008]
2
  See above n1, para 53 per Blanchard J.
3
  See above n3, para 55.
 

								
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