[1900] 2 QB 790. In re PLUMMER [IN THE COURT OF APPEAL.] [1900] 2 QB 790. HEARING-DATES: 30, April 15, 22 June June 1900

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1 Page 1 CATCHWORDS: In re PLUMMER [IN THE COURT OF APPEAL.] HEARING-DATES: 30, April 15, 22 June June 1900 Bankruptcy - Father and Son - Voluntary Settlement - Purchaser for Value - Gift of Money - Advancement - Business, Purchase of - Earmarking Gift - Alienation of Gift - "Settlement of Property" - Bankruptcy Act, 1883 (46 & 47 Vict. c. 52), ss. 47, 168. HEADNOTE: In May, 1896, a trader, then in good credit, sold his business to a limited company promoted by him for the purpose of purchasing it. He and his son took between them practically the whole of the shares issued by the company, and substantially the whole of the debenture issue was taken by the father himself. The company was unsuccessful, and, in May, 1898, went into voluntary liquidation; whereupon, with a view to preserving the father's credit, he and his son entered into an arrangement by deed with the company, by its liquidator, and the company's ascertained creditors, whereby the son purchased the company's business in consideration partly of a sum in cash and partly of payment by him of the debts due to the ascertained creditors secured by joint and several promissory notes of the father and son; and, by way of further consideration, the father surrendered his debentures and a private debt due to him from the company. The father and son also covenanted to pay off any then unascertained creditors of the company, and to indemnify the company and its assets against all claims in respect of the business, and the father covenanted with the son that all moneys paid by him, the father, under the arrangement, and all property thereby handed over by him to the son, should be treated "as an absolute and irrevocable gift" from him to the son. The son thereupon took over the business, and carried it on with such success that, by means partly of his earnings and partly by contributions from the father, the whole of the purchase-moneys and debts payable under the arrangement were discharged. Subsequently, in March, 1899, the father became bankrupt; whereupon the trustee in bankruptcy applied to have the transfer of the business to the son under the arrangement of 1898 declared void as a "settlement" within s. 47 of the Bankruptcy Act, 1883:- Held, by the Court of Appeal (affirming Wright J.), that the mere fact that the business had been acquired by the son partly by means of money obtained from or paid by the father was not sufficient to make the transfer a "settlement" within s. 47. "Settlement" in s. 47 of the Bankruptcy Act, 1883, means such a conveyance or transfer by the donor as contemplates the retention of the property by the donee, either in its original form or in such a form that it can be traced, and does not extend to a conveyance or transfer of property which cannot be traced, as, for instance, where there is a gift of money to be employed in a business or in the purchase of a business, and the money is so employed or spent, the business itself not being settled. In re Player, Ex parte Harvey, (1885) 15 Q. B. D. 682, approved of. The principles stated in In re Vansittart, [1893] 1 Q. B. 181; In re Tankard, [1899] 2 Q. B. 57, 60, 61, approved of. INTRODUCTION: THE bankrupt, William Plummer, formerly carried on drapery businesses in Lewisham and Brixton and elsewhere in London and the provinces, under the style of "Plummer & Company." In May, 1896, being then in good credit and reputed to be a man of wealth, he caused to be registered under the Companies Acts a company called "Plummer's Stores, Limited," for the purpose of acquiring and extending the

2 Page 2 Lewisham and Brixton businesses. The agreement under which the two businesses were sold to the company stated the consideration as 20,000l., payable in cash, shares, and debentures. Only a small number of the shares were applied for by the public, so that practically no cash was forthcoming, and William Plummer himself took the larger part of the purchase-money in fully-paid shares. He was the chairman of the company, and his son, Frederick George Plummer, was one of the directors. Out of a total issue of 16,534 1l. shares W. Plummer held 8364 fully paid shares, and F. G. Plummer also held 5051 fully paid shares. Debentures of 50l. each were issued by the company, the whole or the greater part of which were held by or belonged to W. Plummer himself. The debentures constituted a floating charge over the whole of the property of the company. From May, 1896, to May, 1898, the businesses were carried on by the company, though at a considerable loss, and on May 26, 1898, William Plummer, finding that the businesses could not be continued with advantage, commenced an action in the Chancery Division against the company, on behalf of himself and all other the debenture-holders, for a declaration that the debenture-holders were entitled to a first charge on the property and assets of the company, for an account, foreclosure, or sale, and the appointment of a receiver and manager. On May 27, 1898, an order was made in that action appointing William Nicholson receiver and manager on behalf of the debenture-holders, and on June 6, 1898, the company passed an extraordinary resolution for a voluntary winding-up, Nicholson being appointed liquidator. On July 2, 1898, judgment was pronounced in the action, making a declaration as asked, directing the usual accounts and inquiries, and giving liberty to apply as to a sale. As soon as the creditors of the company became aware of the appointment of a receiver and manager on behalf of the debenture-holders, many of them communicated with William Plummer respecting their debts, stating that they looked to him personally for payment. Thereupon, being anxious to maintain his good credit, he, on June 2, 1898, sent out to all the creditors a circular dated from the Lewisham premises informing them that, as a debenture-holder, he had taken the necessary steps for the appointment of Nicholson as receiver and manager, and for placing the company in voluntary liquidation; that he was by far the largest debenture-holder, and had reluctantly come to the conclusion that the company could not, as then constituted, continue its business without risk to the interests of the creditors; that he had every reason to believe the assets of the company were of sufficient value to provide for the payment of the debentureholders and creditors in full, but that if, contrary to his expectation, they should prove insufficient, he should allow the trade creditors to be paid in priority to the debentures he himself held. The receiver and liquidator advertised the company's business for sale, but without success; and ultimately, on July 13, 1898, an agreement in writing was entered into between the company of the first part, Nicholson, the receiver and liquidator, of the second part, William Plummer of the third part, and his son, Frederick George Plummer, of the fourth part. The agreement was under the company's seal, and was signed by each of the other parties. After reciting (amongst other things) that W. Plummer was the holder of 5000l. worth of debentures, and was also the owner of a further 3000l. worth deposited with Barclay & Co. as security for advances made by them to the company to the extent of 3500l. and interest, and that W. Plummer, on the non-payment of that amount by the company to the bank, would become a creditor of the company in respect of the said 3500l. and interest in addition to the sum of 688l. due from the company to him in respect of other advances; and that W. Plummer was the holder of 8364 shares in the company; and that F. G. Plummer was also the holder of 5051 shares: it was agreed that the receiver should sell and F. G. Plummer should purchase all the company's property, goodwill, stock-in-trade, assets, and effects at Lewisham (not at Brixton or elsewhere) which were included in or charged by the said debentures. Then it was agreed that part of the consideration should be 13,000l. (that sum including 4000l. for the goodwill, the leases of the premises, and the fixtures), of which 500l. was to be paid on the signing of that agreement, 2000l. on the sanction by the judge of the agreement and possession being given to the purchaser, and 600l., or such further or other sum as might be necessary, on the like sanction and possession being given, to enable the receiver to pay and discharge certain preferential debts due for rent, &c., at the time of his appointment, and also such further or other sum constituting the balance of the purchase-money after an adjustment of accounts between the receiver and the purchaser. A further consideration for the purchase was also agreed to be the payment by the purchaser to the trade creditors of the company of a sum of 5700l., or such further sum as might be required to discharge the trade creditors; or, in the alternative, the purchaser was to obtain the consent of all such creditors to the withdrawal of their claims. Then, in further part consideration, W. Plummer thereby withdrew all claims in respect of 3000l. of the 5000l. worth of debentures held by him, and thereby released the company and the receiver and liquidator from the payment of that sum and all interest thereon. Then, in further part consideration, W. Plummer and F. G. Plummer thereby respectively undertook and agreed

3 Page 3 to pay and discharge the debts of the trade and other creditors due from the company which were or might be then unknown to the receiver; and W. Plummer also thereby withdrew his claims as a creditor against the company and the receiver and liquidator for the said sums of 3500l. and 688l., or any other claim he might have; and as further part of the consideration the purchaser, F. G. Plummer, gave up all claims (if any) which he then had against the company or the receiver or liquidator in respect of any sum due to him as a debt of the company, and released the company and receiver and liquidator therefrom. The purchase was to be completed on July 30, Then the purchaser was to indemnify the company and its assets against all actions, claims, &c., in respect of the Lewisham business. Then, after numerous other provisions, it was, in conclusion, stipulated that the agreement was conditional upon the same being approved by the judge. That agreement was duly confirmed by an order of the Court of August 6, which provided that the debt due to Barclay & Co. should be paid off out of the first cash coming in in respect of the purchase-money. The agreement was then followed by a deed (under seal) of covenant and indemnity dated August 15, 1898, and made between W. Plummer of the first part, F. G. Plummer (described as "a director of Plummer's Stores, Limited") of the second part, W. Nicholson of the third part, the several companies and firms (being creditors of Plummer's Stores, Limited) whose names and seals were set and affixed to the schedule thereto, or who might otherwise assent in writing to the present deed, and who were thereinafter called "the creditors," of the fourth part, and Frederick Beecroft, trustee for the creditors and thereinafter called "the trustee," of the fifth part. After reciting the various facts already recited in and leading up to the agreement of July 13, 1898, and also reciting in detail the agreement itself, and further reciting that at a recent meeting of the creditors of the company, Plummer's Stores, Limited, it was agreed that the creditors should accept the amount of their respective debts in full to be secured by the joint and several promissory notes of the said W. Plummer and F. G. Plummer, payable by four instalments, and that accordingly the said W. Plummer and F. G. Plummer had that day delivered to the creditors, parties thereto of the fourth part, their joint and several promissory notes payable as aforesaid to the creditors: it was witnessed that in pursuance of the said agreement of July 13, 1898, and of the stipulations and conditions therein contained, the said W. Plummer and F. G. Plummer thereby covenanted with the said W. Nicholson, as receiver and also as liquidator of the company, that they jointly and severally indemnified the company and its assets, and also the said W. Nicholson as receiver and liquidator, against all actions, claims, &c., in respect of the Lewisham business, and also to pay all costs incurred in connection with the present arrangement. The deed then proceeded as follows: "And for the considerations aforesaid the said W. Plummer hereby covenants and agrees with the said F. Beecroft, and with each of the creditors, that all moneys which he the said W. Plummer has paid or will have to pay pursuant to the said agreement of July 13, 1898, or in respect of the said costs or of the covenants herein contained, and all goods, assets, property, and effects of whatsoever kind which he has handed over to his son the said F. G. Plummer, shall be treated as and the same is hereby given to the said F. G. Plummer as an absolute and irrevocable gift from him the said W. Plummer, not only for the considerations aforesaid, but also for natural love and affection; and the said W. Plummer hereby covenants and agrees that he will not at any time hereafter sue or cause to be sued, or take any proceedings of any nature or kind whatsoever, against the said F. G. Plummer with the view of recovering or seeking to recover any of the assets, estate, effects, or property by the said agreement of July 13, 1898, purported to be purchased by the said F. G. Plummer; and the said W. Plummer hereby agrees and declares that the said sum and sums and all assets and effects purchased shall belong to and become the absolute property of the said F. G. Plummer." Then the deed contained a covenant by W. Plummer and F. G. Plummer that, while the said promissory notes remained unpaid, neither of them would execute any charges on the property to be transferred to F. G. Plummer under the agreement of July 13, 1898, nor dispose of any of the goods of the said business except in the ordinary way of business without the consent of the trustee; also a covenant by F. G. Plummer that he would not, so long as the said promissory notes remained unpaid, enter into any partnership without the written consent of the trustee; and finally a covenant by W. Plummer and F. G. Plummer that in the event of any of the said promissory notes remaining unpaid, or of breach of any of their covenants therein contained, then the whole of the moneys secured to the creditors by the said promissory notes should immediately become due, and the creditors should be at liberty to resort to their respective rights under them, and to take proceedings accordingly against W. Plummer and F. G. Plummer either jointly or severally. From the date of that deed F. G. Plummer proceeded to carry on the business, and did so with considerable success. It appeared that the consideration agreed to be paid by F. G. Plummer for the purchase of the Lewisham business was

4 Page 4 not fixed by a reference to its value, but to meet his father's wish that, in order to preserve his own credit, the company's liabilities should be paid in full. From the evidence of the liquidator it appeared that he estimated the realization value of the Lewisham business at not more than from 7000l. to 8000l. Eventually, as appeared from the evidence of F. G. Plummer, all the moneys payable under the agreement and the deed were duly paid by instalments by the Plummers, father and son, the father contributing in all some 5500l., partly in cash and partly by the surrender of the whole of his debentures, and also releasing his debt of 688l., and the son contributing about 5000l. in cash out of the profits he made from time to time in carrying on the business. Subsequently to these transactions William Plummer incurred large losses over certain other undertakings in which he was interested, and on March 25, 1899, a receiving order was made against him. On March 29, 1899, he died, and in May following a trustee was appointed in the bankruptcy. On February 10, 1900, the trustee served F. G. Plummer with a notice of motion in the bankruptcy, asking that it might be declared that the transfer to F. G. Plummer of the Lewisham business, effected in pursuance of the agreement of July 13, 1898, and the deed of August 15, 1898, and the payments made and releases given by the bankrupt for the purpose of effecting the same, constituted a "settlement" by the bankrupt upon the respondent, F. G. Plummer, of the property comprised in the agreement of July 13, 1898, within the meaning of s. 47 of the Bankruptcy Act, 1883, and that the same was therefore void as against the trustee in bankruptcy; or that, in the alternative, it might be declared that all gifts and payments made, and all claims released by the bankrupt to or on account or for the benefit of the respondent, F. G. Plummer, for the purpose of effectuating the said transfer, were void as against the trustee in bankruptcy; and that all such orders for transfer to the applicant of the said property, or for payment to him of the sums representing the value of the gifts and payments made and claims released as aforesaid, might be made, and all such accounts and inquiries directed, as the Court might think fit. The motion was heard by Wright J. on April 30, The trustee in bankruptcy appealed. COUNSEL: Younger, Q.C., and A. H. Dennis, for the applicant, the trustee in bankruptcy. Herbert Reed, Q.C., and Muir Mackenzie, for the respondent, F. G. Plummer. Younger, Q.C., and A. H. Dennis, for the appellant. The question is whether the transaction carried out by the father and son by means of the agreement of July 13, 1898, and the deed of August 15, 1898, is a "settlement" within the meaning of s. 47 of the Bankruptcy Act, n(1) The appellant submits that it is. The object of the section is to protect the n(1) Sect. 47 of the Bankruptcy Act, 1883, provides (sub-s. 1) that "Any settlement of property not being a settlement made before and in consideration of marriage, or made in favour of a purchaser or incumbrancer in good faith and for valuable consideration, or a settlement made on or for the wife or children of the settlor of property which has accrued to the settlor after marriage in right of his wife shall, if the settlor becomes bankrupt within two years after the date of the settlement, be void against the trustee in the bankruptcy, and shall, if the settlor becomes bankrupt at any subsequent time within ten years after the date of the settlement, be void against the trustee in the bankruptcy, unless the parties claiming under the settlement can prove that the settlor was at the time of making the settlement able to pay all his debts without the aid of the property comprised in the settlement, and that the interest of the settlor in such property had passed to the trustee of such settlement on the execution thereof." Sub-sect. 3 provides that "'settlement' shall for the purposes of this section include any conveyance or transfer of property." bankrupt's estate for the benefit of his creditors where he attempts to make a voluntary disposition of his property within two years of the bankruptcy. It does not matter what the person receiving the gift does with it when he gets it. [RIGBY L.J. Supposing a sum of money is given to a son, and he pays his debts with it honourably: why is he to be made to pay it back?] Sub-s. 3 of s. 47 says that "settlement" shall include "any conveyance or transfer of property"; and under s. 168 "property" includes "money." All that it is necessary to shew, therefore, is that there has been a transfer of money to the son, in which case he must pay it back.

5 Page 5 [RIGBY L.J. That is a very long step: he cannot pay "it" back.] Under the arrangement of 1898 the father has made and given various payments and releases for the benefit of the son, and in considering the meaning of the section the question arises is, "By what amount has the bankrupt's estate been diminished by those payments and releases?" The father's obvious intention in making the arrangement was to enable the son to get the business for himself, and the moneys paid or agreed to be paid by the father were intended as permanent gifts to the son, or for the son's benefit. These payments must, therefore, be regarded as void as against the trustee: In re Vansittart n(1) ; In re Tankard n(2) ; and being void as against the trustee, they are void altogether as from the date of the bankruptcy, the effect of which is that the property given by the donor reverts to him, and, as his property, vests in the trustee, for the section applies to a transfer of property of any sort: In re Farnham n(3) ; In re Carter and Kenderdine's Contract. n(4) On behalf of the respondent, the son, reliance will probably be placed on In re Player, Ex parte Harvey n(5), not to be confounded with another case of the same name n(6) ; but the former case has not met with unqualified approval in n(1) [1893] 1 Q. B n(2) [1899] 2 Q. B. 57. n(3) [1895] 2 Ch. 799, n(4) [1897] 1 Ch n(5) 15 Q. B. D n(6) (1885) 54 L. J. (Q.B.) 553; 2 Mor later cases, for there are observations in the judgment of Lindley M.R. in In re Farnham n(1), of Vaughan Williams L.J. in In re Vansittart n(2), and of Wright J. in In re Tankard n(3), that are inconsistent with it. The effect of the arrangement was to make a voluntary gift to the son of a business increased in value by the fact of the father undertaking to pay off the creditors and debenture-holders. Herbert Reed, Q.C., and Muir Mackenzie, for the respondent, the son. A sufficient answer to the appellant's case is that the money paid by the father to or for the benefit of the son was absolutely spent before the bankruptcy; it is no longer in the son's hands, and cannot now be traced; therefore, according to the authorities, the son cannot be required to restore the money, and the case does not fall within s. 47 at all, for the section applies only to property actually remaining in the hands of the donee: In re Player, Ex parte Harvey n(4) ; In re Vansittart n(2) ; In re Tankard. n(3) Moreover, even if this could be called a "settlement," it is not a voluntary settlement: it is a settlement or a transfer made on a purchase for valuable consideration - a transaction, that is, outside the section. The two instruments clearly shew that the son, as well as the father, was to undertake heavy liabilities, including payment of the creditors in full; and under the arrangement the son himself found and paid large sums of money, none of which went into the father's pocket at all. The only benefit the son took was the father's indemnity to the creditors. An agreement or deed whereby money is covenanted to be paid voluntarily is not a "settlement of property" within s. 47: Ex parte Bishop, In re T nnies. n(5) Here the son got the property, not by the father's covenant, but by the general arrangements that had been made. Money paid by the father to the creditors is not "property" within the section. It would be carrying the section too far to say that money paid by the father to a third person, even though for the benefit of the son, casts an obligation on the son to restore the money so paid. The statute is merely intended to remove n(1) [1895] 2 Ch. 799, n(2) [1893] 1 Q. B n(3) [1899] 2 Q. B. 57. n(4) 15 Q. B. D n(5) (1873) 8 Ch impediments which would otherwise exist to the trustees getting back the debtor's property. [RIGBY L.J. What do you say is the net result of the agreement of July 13, 1898?] It is that the son agreed to buy the business for 13,000l., the father agreeing to give up his debentures and his debt of 688l. That purchase-money of 13,000l. was to be paid by the son, who was to pay the then known trade creditors for 5700l., the father and son agreeing to pay the then unknown creditors. Thus the "settlement" was not a voluntary one; it

6 Page 6 was clearly a purchase for valuable consideration, and was, therefore, not within the section: Hance v. Harding n(1), where it was decided that s. 47 may be read with s. 49 (d), which protects bona fide transactions without notice of any act of bankruptcy. Even under the bankruptcy legislation prior to the Act of 1883, a conveyance or transfer by a trader of property without valuable consideration was only void where the trader was insolvent at the time of executing the conveyance: Griffith and Holmes on Bankruptcy (1867), pp. 437, 438. Younger, Q.C., in reply. The true nature of the bargain was to secure for the son this business, which he might carry on for his own benefit. The evidence shews that there was no valuable consideration moving from the father. The father never was liable himself to the creditors; he only undertook to become so for the benefit of the son. There was nothing to constitute the son a "purchaser" from the father - that is, a "purchaser" in the commercial sense, which is the meaning of the word in s. 47, corresponding to s. 91 of the Bankruptcy Act, 1869: Ex parte Hillman, In re Pumfrey n(2), where it was held that the principle in Price v. Jenkins n(3) does not apply to cases under the Bankruptcy Act. It is clear that an inadequate consideration for an assignment by a debtor makes it fraudulent as against creditors: Mathews v. Feaver. n(4) A purchase, in the commercial sense, in the name of a son may be a "settlement": Christy v. Courtenay. n(5) Here the father contributed to the purchase in the name of his son, and, n(1) (1888) 20 Q. B. D n (2) (1879) 10 Ch. D. 622, 625. n(3) (1877) 5 Ch. D n(4) (1786) 1 Cox, 278; 1 R. R. 39. n(5) (1850) 13 Beav. 96. therefore, there is at any rate a resulting trust of a corresponding part of the property for the father, as in the case of a purchase of property in the name of one person by means of a joint advance: Wray v. Steele. n(1) Although the subject-matter of the transaction may have ceased to be in the form in which it stood at the date of the transaction, it may be traced into the hands of the son who is carrying it on: In re Mouat. n(2) An inquiry should, therefore, be directed as to what the property consisted of at the date of the act of bankruptcy, and in what proportion it had been contributed to by the father and son respectively. The proper relief would then follow from the answer to that inquiry, and the son would have the option either to pay the trustee for the father's share of the business, or to ask that the business might be realized for the benefit of the two contributors. The decision in In re Player, Ex parte Harvey n(3), apart from the doubts thrown upon it by later authorities, rested on the facts of the case, which were very special. [He also referred to Dowse v. Gorton. n(4) ] Herbert Reed, Q.C., on the fresh cases cited in reply. Ex parte Hillman, In re Pumfrey n(5), is dealt with in Hance v. Harding n(6), where Lord Esher M.R. said that the former case did not go the length of deciding that "purchaser" in s. 91 of the Bankruptcy Act, 1869, corresponding to s. 47 of the present Act, was confined to a purchaser in the commercial sense. Mathews v. Feaver n(7) has no application. That was a case under 13 Eliz. c. 5. There the assignment was at a gross undervalue, so as to amount to a clear breach of good faith within the statute. Christy v. Courtenay n(8) was also a case under the statute of Elizabeth. There a father had purchased chambers for himself, but transferred them into the name of the son. The evidence clearly shewed the ownership of the father. n(1) (1814) 2 V. & B. 388; 13 R. R n(2) [1899] 1 Ch n(3) 15 Q. B. D n(4) [1891] A. C n(5) 10 Ch. D n(6) 20 Q. B. D n(7) 1 Cox, 278; 1 R. R. 39. n(8) 13 Beav. 96.

7 Page 7 Wray v. Steele n(1) was the case of the purchase of an estate by two persons on a joint account, the conveyance being made in the name of one of them, and merely illustrated the well-known equity rule as to a resulting trust. In re Mouat n(2) simply decided that policies which had been voluntarily assigned by a testator remained his property and formed part of his estate which was insolvent, the fund being clearly ascertainable and under the control of the assignee. PANEL: LORD ALVERSTONE M.R., RIGBY and COLLINS L.JJ., WRIGHT J JUDGMENTBY-1: WRIGHT J JUDGMENT-1: WRIGHT J: This was certainly a proper case to investigate, especially in view of the admissions made by the respondent, F. G. Plummer. But, so far as I am able to form a conclusion in the matter, I think there is not sufficient ground for declaring the respondent liable for the sum claimed under the notice of motion, or any part of it. It is true that the respondent has got the business, and that the business has been paid for to the extent of some 5500l. by his father, the bankrupt, partly in cash and partly by the surrender of debentures, and that the respondent himself has only paid about 5000l. towards it. This results from the arrangement made by the two documents dated respectively July 13 and August 15, 1898, which seem to me to be parts of one transaction, the main object of which was that the business of the father should not be discredited by any failure to pay off any of the ordinary trade creditors, though no doubt it was also his intention to benefit his son, the respondent, in some way - perhaps to compensate him for the practical loss of the shares held by him in the company. At the time when this arrangement was made there was no idea of bankruptcy at all. The arrangement was perfectly proper and was made in good faith at the time. However, bankruptcy supervened within two years, and the question now is, What is the position of things? It is submitted, I understand, on behalf of the respondent, that the assignment to him by the company cannot be impeached because the bankrupt is not a party for that purpose. But it is argued, on the other hand, that the money paid by the bankrupt, the father, was not paid for valuable consideration, but was really a voluntary settlement for the benefit of his son, the respondent. It seems to me in point of fact that the money was paid on the footing of the deed of August 15, 1898, in consideration of the son having undertaken in part to discharge the liability of the ordinary creditors. In any case there was no great benefit to the son. The amount of the margin is not very material if the transaction is in good faith and for valuable consideration. It turns out now that the respondent actually paid some 5000l. out of his own pocket, and the mere fact that the father helped to buy off the ordinary creditors does not to my mind make the transaction a voluntary one, because there was a substantial consideration for the son's undertaking. The substantial consideration was the son coming under the liability to discharge the claims of the ordinary creditors under the deed of August 15, I am quite unable to say that the consideration received by the father in respect of which he made his contribution, namely, the son undertaking the liability of paying the ordinary creditors, was so fictitious or unreal as to make the transaction one that should be impeached on the ground that it was a voluntary settlement by the father. I think, therefore, that the application fails, and must be dismissed with costs. JUDGMENTBY-2: LORD ALVERSTONE M.R JUDGMENT-2: LORD ALVERSTONE M.R: This case is one not without difficulty, and we have been very much assisted by the arguments that have been addressed to us by counsel. The question is whether a certain transaction entered into between the bankrupt and his son can stand as against the trustee in bankruptcy - that is to say, whether it constituted a "settlement of property" within s. 47 of the Bankruptcy Act, Before I deal with the facts, it will be convenient to state my view of the law. There are two lines of cases bearing upon the subject, which I will indicate as follows. If there is a gift by a father to a son of money or proceeds of property which can be traced, and the money or proceeds is or are intended to be retained or preserved as the property of the donee, that money or those proceeds will be property in "settlement." On the other hand, if there is a gift of money or proceeds, but it is not intended that the money or the proceeds shall be retained by the donee in the form of money, but shall be expended at once, that will not be a "settlement." The latter case is illustrated by In re Player, Ex parte Harvey. n(3) There a sum of 650l. had been given by the bankrupt to his son to enable him to start a business, and that sum, with some money of his own, constituted the son's capital in the business. It was held that the gift of the money to the son was not a "settlement of property" within s. 47. But where there was a gift of money by a father to his son to be applied

8 Page 8 in buying shares in a ship, on which shares the son was to receive the dividends, that was held to be within the section: In re n(1) 2 V. & B. 388; 13 R. R n(2) (1899] 1 Ch n(3) 15 Q. B. D Player, Ex parte Harvey. n(1) It appears to me that Vaughan Williams L.J. in In re Vansittart n(2), and Wright J. in In re Tankard n(3), though in different language, express the same principle, and I myself would not wish to express it otherwise than as it is expressed in Wright J.'s judgment in the latter case, where he says n(4) : "I conceive, though there seems to be no authority on the point, that neither the original alienee, nor the transferee from him, could be required to restore money which he has spent or property which he has aliened before the bankruptcy, and without notice of any act of bankruptcy (or, perhaps, without knowledge of insolvency), though the alienee probably is liable to account for any proceeds which remain in his hands at the time of the bankruptcy - at any rate, if the acquisition by him of those proceeds was an object of the gift to him so that the proceeds can properly be said to represent the gift." There are these two lines of cases, and the difficulty is to see within which line the present case falls. [His Lordship then gave a brief summary of the facts above stated, and continued:-] Now there has been no attempt to impeach the transaction by which the Lewisham business was transferred to F. G. Plummer, the son. It is not suggested that the transfer was not bona fide, and the argument has proceeded on the basis that there was nothing fraudulent in the transaction, but that it was a perfectly legal arrangement for the father and son to make: the only question being whether, in consequence of the father having become bankrupt on March 25, 1899, the transaction can now be allowed to stand. First, with regard to the agreement of July 13, 1898, it is not suggested that under that instrument alone any money actually proceeded from the father to the son; but it is said that the result of the father withdrawing in favour of the son his claim to the debentures held by him, and also his claim to the 688l. for which he was a simple contract creditor, was to improve the position of the son so that he acquired the business n(1) 54 L. J. (Q.B.) 553; 2 Mor n(2) [1893] 1 Q. B n(3) [1899] 2 Q. B. 57. n(4) [1899] 2 Q. B. 60. on better terms. I do not say that was not the result of the transaction, but I cannot say that there was anything paid to the son which could be called a "settlement." Then with regard to the deed of August 15, 1898, the effect of that deed was that the father and son became jointly responsible to the creditors, and the son accordingly came under a direct obligation to the creditors to pay the amounts of the promissory notes there scheduled, and the considerations founded on the agreement of July 13 are referred to in the recitals in the deed. [His Lordship then read from the deed the clause above quoted, whereby the father covenanted and agreed that all the payments made or to be made by him under the two instruments, and all the property handed over by him to his son, were given to the son "as an absolute and irrevocable gift... not only for the considerations aforesaid, but also for natural love and affection." [His Lordship proceeded:-] It is to be noticed in passing that this clause refers to "the considerations aforesaid" as well as to the "natural love and affection." Mr. Younger says that clause amounts in effect to an absolute gift to the son of a very large part of the surplus value of the business. I do not myself feel pressed by the view that the transaction may have resulted in the son obtaining a business of a greater value than he would have done if the debenture-holders had been left to enforce their securities against the assets of the company. But I do not think the facts support Mr. Younger's view. Let us see what the son did. He carried on the business with activity and energy, and obtained by his own exertions a sum of about 5000l.; and he contributed or found by these means sufficient money, together with what he got from his father, to pay the creditors the sums due to them on the joint and several promissory notes. Therefore it is impossible to say he did not give valuable consideration for the transaction, and that the sums so paid were solely the product of the business given

9 Page 9 him by his father. The son took upon himself very responsible liabilities: he himself managed the business; he obtained by means of the business large receipts which were the result of his own management, and was thereby enabled to carry out, and did carry out, the transaction. The learned judge has said that the transaction cannot now be set aside, and that it is not one that is voidable under s. 47, and I have arrived at the same conclusion. We have been pressed by Mr. Younger to hold that the transaction is bad on two grounds. In the first place, he says that the business, or a substantial part of it, was acquired by the son from the father, and therefore must be treated, either in whole or in part, as a "settlement." I cannot adopt that view. In the first place, the business was not in fact sold by the father to the son. The acquisition of the business by the son would, no doubt, not have been possible without the father's assistance; but the mere fact that the business was acquired partly by means of money obtained from the father, the bankrupt, is not sufficient to make the transfer to the son a "settlement" of the business. In my opinion, the transaction is, neither in whole nor in part, a "settlement" within the section. Then it was urged that, at any rate, to the extent to which the payments by the father or the releases by the father brought this business into the hands of the son, the transfer ought to be set aside under s. 47. Mr. Younger says there ought to be an inquiry as to what the property of the bankrupt consisted of at the date of the act of bankruptcy, and that, if it were found that this business was the property of the bankrupt, the son must be ordered to pay the value of it. I do not agree with that view. There is no authority, nor is there any provision in the Bankruptcy Act, so far as I understand it, applying to property of this fluctuating character. All the authorities to which our attention has been called were cases where the money given could be traced or had to be accounted for, or where property had been purchased with it, as in In re Tankard. n(1) In my opinion, there is nothing here amounting to a settlement of the business by the father any more than if the business had been purchased by the son out of his own moneys. There is only one other point which I should notice, namely, n(1) [1899] 2 Q. B. 57. whether the son was a purchaser for value of that which he got. In my opinion he was. It appears to me that he did purchase from the company, with the assistance of his father, this business. He paid money and became subject to liabilities. I do not think we ought to say that any part of what he paid went into the pocket of his father. But that must not be forgotten, which is plain upon the facts, namely, that the father had a distinct interest in maintaining the credit of the business and in seeing that the business would not be injured by the transactions of the company, and that the arrangement was entered into perfectly bona fide with the object of maintaining his own credit. For these reasons, I am of opinion that the transaction cannot be upset, and that the judgment of Wright J. is correct. JUDGMENTBY-3: RIGBY L.J JUDGMENT-3: RIGBY L.J: I am of the same opinion. I do not think In re Player, Ex parte Harvey n(1), has been at all successfully impeached. It appears to me that in that case the Court went on the very intelligible principle that a gift of money which is not hedged about with conditions that it shall be invested and kept in a certain way cannot be called a "settlement" within the meaning of s. 47. I think that with regard to the judgment of Cave J., which was the judgment mainly referred to in the course of the argument, most of the criticisms were based upon a mistaken view of that judgment. What Cave J. said was that, although money was "property" within the meaning of the interpretation clause, s. 168, it did not follow that every gift of money was a "settlement." I do not think that that judgment has been impeached by any of the later authorities that have been referred to. The right view of the transaction in the present case seems to me to be this - that although the father did release to the company certain debentures and a certain debt, and made various payments to the creditors of the company, he did so, not with the view of making a settlement on his son, but of making his son purchaser of the business. If the father had insisted on his strict rights, n(1) 15 Q. B. D no doubt the sale would never have taken place at all. The transaction was not so much an advancement to the son by the father, as a means adopted by the father of holding the business together and getting rid of the claims of creditors, so that the son might be able to start the business himself. For that purpose the company was released from all claims by

10 Page 10 the father, and the debts due to the company's creditors were settled there and then. No claim can be made by the trustee in bankruptcy or by any one else in respect of the releases, or in respect of any sums paid by the father under the arrangement. That the son got the business is true, but that he got it on undue terms I am not convinced of. I am not sure that the transaction was in itself a profitable one at all. It is in evidence that the son was enabled to pay the creditors out of moneys he had raised by successful speculations, and it is by means of these speculations that the business has been preserved. Even if I came to the conclusion that there was a "settlement," there would be no reason to set it aside from the date of the bankruptcy as against the trustee. I altogether disagree with the view that you can treat moneys paid or claims released by the father to advance his son in a trading concern as if they were voluntary gifts to the son within the section, and that you can claim to have them back as being still in existence in the sense that they were in the business, and can therefore be followed: I do not think they were. Upon the evidence, I do not think that any of the sums paid by the father were in the business. Upon all the facts, I cannot say that at the date of the bankruptcy any part of the business was the property of the bankrupt. JUDGMENTBY-4: COLLINS L.J JUDGMENT-4: COLLINS L.J: I am of the same opinion. The question is one of fact. It appears to me that the real transaction was this - that the father, for reasons of his own, wished the business to be sold, and in assisting his son to acquire it an arrangement was made by which the debts due to the creditors of the company were to be discharged. The son then undertook certain liabilities as the consideration for the transfer of the business. I am not satisfied that there was any surplus in the value of the business, and, therefore, I do not think it possible to impeach the transaction within s. 47. There is really no voluntary gift on the part of the father at all. If there is a gift to any one, it is a gift to the father himself. He was desirous of paying off the creditors of the company, and making it appear that the debentures were satisfied, his object being rather to benefit his own reputation than to benefit his son. Therefore, on two grounds, first, that the business was not the property of the father at the date of the bankruptcy, and, secondly, that there was a valuable consideration moving from the son, the transaction can, in my opinion, stand. I do not think it is possible, under s. 47, to avoid a transaction between father and son where the son has purchased a business with money advanced to him by the father, if the business is of such a character that it is impossible afterwards to trace the money so advanced, as, for instance, in the case of a timber merchant's business, where the money actually employed and spent in carrying on the business cannot be afterwards drawn out: it is impossible, in my opinion, to treat such a transaction as the subject-matter of a "settlement" within the section. If the arrangement had been really a settlement of the business by the father on the son, I should be sorry to hold that such a transaction as could not be reached by the section; but in my opinion the present transaction does not come within the section at all. DISPOSITION: Appeal dismissed. SOLICITORS: Solicitors: Marshall & Pridham, for W. C. Cripps, Son & Daish, Tunbridge Wells; Phelps, Sidgwick & Biddle. G. I. F. C. H. L. F. G. I. F. C. (c)2001 The Incorporated Council of Law Reporting for England & Wales