IN BANKRUPTCY.

Clutha Leader, Volume XL, Issue 66, 24 February 1914, Page 3

IN BANKRUPTCY.

In the matter of the Bankniptev Act, 1908, and in the matter of John Gillies Paterson, a bankrupt, his Honor Mr Justice Sim gave the following judgment: John Gillies Paterson, of Balclutha, was adjudged bankrupt on a creditor's petition on September 2:!, 1<)1;{. jfis debts at this time amounted to £:!75 17s lid. The only assets he disclosed to the Ollicial Assignee consisted of certain book debts, amounting to ft!. - : 17s (id, which the assignee had not,been able to collect and which he declares are all bad. Paterson had a contract with the Government for the carriage of certain mails. John Krnest Thomson, who carries on business in Balclutlm as a merchant under the style of "The Import Company," was one of Paterson's sureties for the due performance of this contract. Thomson had supplied Paterson with stores, and on July 7, 101:!, a sum of £4O was owing to Thomson'in respect of these. On that day Paterson borrowed a sum of £4O on the security of certain horses and buggies, and paid it j to Thomson in satisfaction of the debt

owing to him. The Official Assignee now moves for an onler directing Thomson to pay this sum to him on the ground that the payment was an act of bankruptcy under section 26 of the Act

and also a fraudulent preference under section 7!) of the Act. The horses and bu'ggies mortgaged by Paterson were substantially all his assets. They appear to have been worth about the. sum advanced to him. That sum was borrowed from ,'lohn McC'orley an accountant employed by Thomson! The evidence given before 'the Official Assignee as to the circumstances in which the advance was made suggests that the £4O advanced by McC'orley had been received from Thomson, and that the transaction was simply a device for giving Thomson security over all Paterson 's assets for an antecedent debt. It is unnecessary, however, to decide as to the validity of this security, for the reason that it has not been attacked by i the assignee. For the purposes of the present motion the security must bo treated as valid, and the £4O must be treated as having been actually advanced by McC'orley to Paterson.' The question to be determined is whether the payment of the £4O to Thomson was not an act of bankruptcy under subsection (b) of section 26 "of the Bankruptcy Act. This sum was practically the only asset which Paterson had for ■ satisfying debts amounting to £.'!7;j. The payment was, in effect, a delivery of substantially the whole of his property without a present equivalent. Such a transaction is fraudulent, for it has the necessary consequence of delaying and 'defrauding the creditors. I think, therefore, that the payment of the £4O to Thomson was an act of bankruptcy. The question then arises whether the transaction is protected under section 82 of the Bankruptcy Act. It may be protected under that section, although it amounts to an act of bankruptcy; but it is Hot protected if the creditor to whom the payment is made knew at the time what the debtor's position was. If he knew, or ought to have known, of the existence of other creditors then he is not protected. In the present case Thorn-' son swore that he did not make any inquiries as to Paterson's financial position at the time he gave a guarantee for the mail contract. He diil not say, however, that he was ignorant of his in- J debtedness to other creditors. He admitted that he was in touch with Paterson all the time, and received two payments from hi:n whilst he had the mail contract. He knew, he said, what Pater- | son was earning under the mail con- | tract, and what he was doing with the money. For some time before the payment of the £4O Thomson had been pressing Paterson for payment of his debt. Paterson said that he offered to give Thomson a security over his horses and traps. In these circumstances the only reasonable inference to be drawn from the evidence is that Thomson must have known a good deal about Paterson's position, and certainly must have known of the existence of other creditors. He g is not entitled, therefore, to the protee- I tion of section 82, and an order must bo i made for the payment of the £4.0 to the I Official Assignee, with £7 7s for the costs 1 of the motion, and disbursements to bo 1 flxod by the Registrar, §