Mr Bonnell was the appointor and a beneficiary of a
discretionary family trust.
The trustee of the family trust was Windoval. Windoval was
controlled by Mr Bonnell.
Mr Bonnell was also the sole beneficiary of a non-complying
superannuation fund. The Commissioner of Taxation had issued a
private ruling that contributions made to the superannuation fund
were tax deductible. However, the Commissioner had issued a media
release several months thereafter that schemes such as Mr
Bonnell's non-complying superannuation fund were arrangements
intended to frustrate the tax legislation.
After the issue of the media release, Mr Bonnell made
contributions to his superannuation fund in the financial year
ended 30 June 1999 and claimed tax deductions for the contributions
totalling $5m. Mr Bonnell was aware of the media release before he
made the contributions.
On 1 July 1999, the superannuation fund was wound up by Mr
Bonnell and all the assets of the fund, being the contributions of
$5m, were distributed to Mr Bonnell. Immediately thereafter, Mr
Bonnell gifted the sum of $5m to Windoval in its capacity as
trustee of the discretionary family trust controlled by him.
Over nine years later, on 10 September 2008, Mr Bonnell became
bankrupt upon the application of the Commissioner of Taxation. Mr
Donnelly was appointed the trustee of the bankrupt estate of Mr
Bonnell. Mr Donnelly had the responsibility of administering Mr
Bonnell's financial affairs including to ensure that all of the
bankrupt's assets were available for distribution to his
Mr Donnelly alleged that:
the transfer of the $5m into the discretionary family trust was
done at a time when Mr Bonnell was or was about to become
the transfer was done to defeat that sum from being divisible
amongst Mr Bonnell's creditors or to hinder or delay the
process of making that sum available for distribution amongst his
In support of the argument that Mr Bonnell was or was about to
become insolvent, the trustee alleged that Mr Bonnell knew that
there was a real possibility that the Commissioner of Taxation
would disallow the contributions as tax deductions and Mr Bonnell
would be liable for income tax of not less than $2,425,000 as a
By gifting the $5m to Windoval, Mr Donnelly alleged that Mr
Bonnell deprived himself of the funds with which to meet the
additional tax liability that would be assessed if the
contributions were determined not to be deductible.
The Court found that the main purpose of the transfer of the $5m
into the discretionary family trust was to defeat or hinder Mr
Bonnell's creditors and that the transfer was void against Mr
Donnelly pursuant to section 121 of the Bankruptcy Act. The Court
also found that pursuant to section 37A of the Conveyancing Act, Mr
Bonnell intended to defraud the Commissioner of Taxation who was
seen as a likely creditor as at that time.
The outcome of this case is an important reminder that a trustee
in bankruptcy (or a liquidator in an insolvency) has wide ranging
powers to seek orders to claw back assets, including those that
might be seen as "safely" housed in a discretionary
family trust, if the Court is of the view that the assets were
received for the main purpose of placing those assets out of the
reach of the bankrupt's creditors - hindering the process of
making those assets divisible amongst creditors or with intent to
defraud creditors. Significantly, these powers enable transactions
that took place many years prior to be analysed for this
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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When determining if a DOCA is to be terminated, public interest can, and often will, outweigh any benefit to creditors.
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