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Benchmark - Real Estate Cases & Commentary
Transfer of property
    •  With intent to defraud creditors

With intent to defraud creditors 

Lym International Pty Limited was involved in two property developments in Mona Vale.Mrs Marcolongo owned and lived on property next to the first development. In the course of the first development, there was a removal of support to Mrs Marcolongo’s property.She sued Lym International, and obtained about $390,000 in damages.

All the units in the development next to Mrs Marcolongo’s property were sold.The property that was the subject of the second development was then the only substantial asset that Lym owned, and was therefore the only asset that would be available to satisfy Lym’s judgment debt to Mrs Marcolongo.

Lym also had other creditors who were threatening to enforce their debts.

Lym transferred the second development property to Mr Chen, who was one of the other creditors.

Section 37A of the Conveyancing Act 1919 (NSW) states that every transfer of property made with intent to defraud creditors, is voidable by any person prejudiced by the transfer. There is an exception for transfers to a purchaser in good faith who did not have notice of the intention to defraud the creditors.

The trial judge held that the transfer to Mr Chen should be set aside under section 37A. The New South Wales Court of Appeal overturned this decision. Mr Marcolongo then appealed to the High Court of Australia.

The High Court agreed with the trial judge that the transfer had been done with intent to defraud creditors. Defraud, in this context, includes merely hindering or delaying creditors. Further, the High Court held that Mr Chen had notice of the fraudulent intent.

The High Court therefore allowed the appeal, and held that the transfer to Mr Chen was void.

Marcolongo v Chen [2011] HCA 3