Can a bankrupt intend to defeat 'impending' as well as known creditors?

Focus: Donnelly (Trustee) v Windovel Pty Limited [2014] FCA 80 Services: Dispute Resolution & Litigation, Financial Services Industry Focus: Financial Services Issuing proceedings to recover assets of a bankrupt estate on the basis that a transfer prior to bankruptcy was made with the intention to defeat creditors, is often fraught with difficulty.

The most obvious hurdle is establishing the requisite intention of the bankrupt, sometimes years prior to a sequestration order. Another common issue is whether the intention to defeat also applies to impending creditors as well as actual creditors. The recent case of Donnelly (Trustee) v Windovel Pty Limited1 looks at the law in this area and is a helpful reminder that perseverance sometimes pays dividends.

Background

In September 2008, Mr Bonnell became bankrupt by a sequestration order, following the issue of a creditor's petition by the Commissioner of Taxation.

Ten years earlier, the Bankrupt had obtained a private ruling from the then Assistant Commissioner of Taxation so that contributions to his personal non-complying superannuation fund were tax deductible (private ruling).

Following the private ruling, the Bankrupt set up a personal non-complying super fund for the purpose of making contributions and claiming tax deductions. He also set up his own taxation advice business and marketed these schemes to clients. Over the next eight months, he earned several million dollars from assisting clients with structuring their taxation affairs in accordance with the private ruling.

Between March and May 1999, the Commissioner of Taxation issued media releases stating that the tax office would withdraw a range of private rulings, and that schemes of the kind marketed by the Bankrupt were considered contrived arrangements intended to frustrate the clear policy of tax legislation and, therefore, were unlawful.

Following the media releases, the Bankrupt made...