Background
Scott Gregory Hookey became bankrupt, and David Jon Brushe was appointed trustee of his bankrupt estate. Approximately 18 months before the bankruptcy, on 2 September 2021, Hookey transferred $916,821.33 to Graham Stanton, his father-in-law. The trustee commenced proceedings in the Federal Court of Australia seeking a declaration that the transfer was void against the trustee under ss 120 and 121 of the Bankruptcy Act 1966 (Cth) — provisions that render certain undervalue and intention-to-defraud transactions void — and also sought an order that Stanton repay the full amount plus interest.
Before trial concluded on the merits, the parties reached a compromise. Stanton conceded that the transfer was void against the trustee under both ss 120 and 121, and both parties jointly sought a bare declaration to that effect. In exchange, the trustee agreed to abandon his claims for repayment of the $916,821.33 and interest. A contested hearing was nonetheless required to resolve two remaining questions: whether a bare declaration (unsupported by any payment order) had sufficient utility to be made, and what costs order was appropriate given the mixed outcome.
A complicating factor on costs was that Stanton had made two settlement offers during the litigation — $10,000 in full and final satisfaction in March 2025, and $50,000 (with no order as to costs) shortly before trial in May 2026 — neither of which the trustee accepted. Stanton also held a proof of debt in the bankruptcy for $530,059.18, which the trustee intended to reject using the set-off mechanism in s 86 of the Bankruptcy Act.
The Court’s Holding
Justice Rangiah granted the declaration that the $916,821.33 transfer was void against the trustee under ss 120 and 121 of the Bankruptcy Act 1966. On the utility question, the Court accepted that the declaration was not merely academic: the trustee intended to rely on it when rejecting Stanton’s $530,059.18 proof of debt under the s 86 set-off mechanism. This gave the declaration a real, practical consequence sufficient to justify its making under the principle in Aussie Airlines Pty Ltd v Australian Airlines Ltd (1996) 68 FCR 406.
On costs, the Court declined to award the trustee full costs and equally declined to penalise him with indemnity costs in favour of Stanton. Rule 25.14 of the Federal Court Rules 2011 (Cth) — which triggers indemnity costs where an applicant fails to beat a respondent’s offer — did not apply because the declaration obtained was not available under either of Stanton’s offers; the trustee therefore did not obtain a judgment “less favourable” than those offers. Applying the approach in Cadbury Schweppes Pty Ltd v Darrell Lea Chocolate Shops Pty Ltd (No 3) [2007] FCAFC 119 and Dodds Family Investments Pty Ltd v Lane Industries Pty Ltd (1993) 26 IPR 261, the Court treated each party as having achieved a measure of success.
Exercising its broad discretion under s 43 of the Federal Court of Australia Act 1976 (Cth), the Court ordered Stanton to pay 25% of the trustee’s costs on a party-and-party basis, reflecting that the trustee had a somewhat greater measure of success — having secured the declaration — but had wholly abandoned his primary monetary claim.
Key Takeaways
- A bare declaration that a pre-bankruptcy transfer is void under ss 120 and 121 of the Bankruptcy Act can have sufficient utility where the trustee intends to use it to resist a creditor’s proof of debt via the s 86 set-off mechanism.
- A respondent’s settlement offer will not trigger the indemnity costs consequence under r 25.14 of the Federal Court Rules 2011 unless the judgment actually obtained is less favourable than that offer; where the offer did not include the declaratory relief the applicant ultimately secured, the offer is not a valid comparator.
- Where a proceeding resolves by compromise and each party achieves partial success, the court will apportion costs on a broad-brush basis rather than applying the ordinary “costs follow the event” rule, with mathematical precision neither required nor achievable.
- A transfer from a bankrupt to a family member (here, his father-in-law) approximately 18 months before bankruptcy remains vulnerable to challenge under both the undervalue (s 120) and fraud on creditors (s 121) provisions of the Bankruptcy Act 1966.
Why It Matters
This decision offers practical guidance for insolvency practitioners navigating post-settlement declaratory relief. It confirms that a trustee need not pursue a full monetary recovery to justify a declaration of voidability — the declaration’s utility in resisting a creditor’s proof of debt is a sufficient practical consequence. For practitioners advising creditors who are also recipients of pre-bankruptcy transfers, the case underscores the risk that any proof of debt they lodge in the same bankruptcy may be extinguished or reduced by a set-off founded on the voided transaction.
The costs ruling also provides a useful illustration of how courts will apportion costs where settlement produces a mixed result. The decision reinforces that settlement offers must mirror the relief ultimately obtained to engage the indemnity costs machinery under r 25.14, and that a respondent who secures abandonment of the primary monetary claim but concedes a declaration will not automatically shift the costs burden to the applicant.