Insolvent transactions in company law 9780409331707, 0409331708, 9780409331714, 0409331716

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Voidable Transactions in Company Insolvency Farid Assaf Principal Author and Concept Originator BA(Hons) LLB (UNSW) Barrister of the Supreme Court of New South Wales Banco Chambers, Sydney

Brett Shields LLB LLM (Commercial Law) (UTS) Barrister of the Supreme Court of New South Wales

Hilary Kincaid BA LLB (Macquarie) Solicitor of the Supreme Court of New South Wales

LexisNexis Butterworths Australia 2015

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Assaf, Farid. Voidable transactions in company insolvency. 9780409331707 (pbk). 9780409331714 (ebk). Includes index. Corporate debt — Law and legislation. Corporation law. Shields, Brett. Kincaid, Hilary. 346.078.

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Foreword This is a work about voidable transactions, but in a limited context. In most cases, the transactions addressed by the authors are voidable in the special statutory sense established by provisions now found primarily in Part 5.7B of the Corporations Act 2001 (Cth). As the title of the work indicates, the transactions under consideration are transactions involving a company formed under the Australian general incorporation statute, and are related in some way to the company’s present or future insolvency. Importantly, though this is not a treatise on the Personal Property Securities Act 2009 (Cth), that legislation and the amendments made to the Corporations Act to give effect to it have created some new categories of corporate voidable transactions to which this work extends. As one would expect, the present work deals comprehensively with the most well-known corporate voidable transaction, namely the transaction by which a company confers an unfair preference on a creditor of the company (Corporations Act, s 588FA). Over the years, Australian companies legislation has not only brought that provision across from bankruptcy law, but has also added other varieties of voidable transactions, namely uncommercial transactions (s 588FB), unfair loans (s 588FD) and unreasonable director-related transactions (s 588FDA). With a somewhat different pedigree, the Corporations Act strikes at what it now calls a circulating security interest (previously a floating charge) created shortly before the insolvency of the company that created it (s 588FJ). Additionally, the PPSA has led to the introduction of provisions, based to a degree on the earlier law of company charges, by which certain kinds of security interest created by a company that moves into a form of external insolvent administration (such as voluntary administration or winding up) will vest in the company, to the detriment of the secured party, if it has not been perfected (typically because of failure to register) at the ‘critical time’ (PPSA ss 267, 267A), or has not been perfected by registration within the time specified by Corporations Act (s 588FL). Further, a security interest granted by a company in favour of an officer of the company may be void if the officer purports to take a step to enforce it within six months (s 588FP). These apparently miscellaneous provisions are bound together, and hence they demand exposition concurrently and in combination, because they are all

circumstances in which the insolvency or anticipated insolvency of a company can lead to the invalidity and unwinding of transactions between the company and a third party. And the techniques used by statutory law to achieve these consequences adopt and employ standard building block concepts such as the concepts of transaction, insolvency, statutory voidability, the critical time and the proximity of external administration, and defences relating to good faith and lack of knowledge. The publication of such an exposition of the Australian statutory law is accordingly much-needed and very timely. There is no other publication anywhere with quite the same focus. In Australia there are general texts on company law which encompass corporate insolvency, such as Ford’s Principles of Corporations Law, and Australian Corporation Law: Principles and Practice. There are works of statutory annotation, such as Austin & Black’s Annotations to the Corporations Act. Then there are specialist works on corporate insolvency which encompass voidable transactions, such as McPherson’s Law of Company Liquidation and O’Donovan on Company Receivers and Administrators. But there is no other Australian work exclusively focusing on that part of corporate insolvency law dealing with voidable transactions. Perhaps the best overseas analogy is the UK publication, Transaction Avoidance in Insolvencies.1 Comparing the two works is instructive. First, the UK publication extends to personal insolvency, reflecting the scope of the Insolvency Act 1986 (UK), and so we find there discussions of how the principles about voidable transactions affect family relationships and pensions, as well as consideration of extortionate credit transactions. Helpfully, both works pay attention to cross-border issues and problems about procedure and evidence gathering. But above all else, the comparison shows how focused and practical the Australian work is, for it is, primarily, an exposition of certain specific provisions in a particular statutory setting. The UK work devotes more pages to placing current statutory provisions in their policy and historical setting. Not surprisingly, the emphasis of the Australian work on close and detailed exposition of the current statutory provisions has required the authors to pay considerable attention to questions of statutory interpretation. The judicial approach to the construction of texts, including statutes and commercial documents, has changed fundamentally over the last 30 years, and importantly for comparative purposes, there are now discernible differences in approach between UK and Australian courts. The differences are most palpable in the interpretation of contracts.2 But there are also differences of approach to the

interpretation of statutes, driven partly by interpretation legislation and partly by the High Court of Australia’s strong emphasis on historical analysis. Marcolongo v Chen,3 a case pertinent to voidable transactions although outside the context of corporate insolvency, is a very good example of the current approach of Australian courts to statutory interpretation. The case was about s 37A of the Conveyancing Act of New South Wales, according to which an alienation of property ‘with intent to defraud creditors’ is voidable at the instance of any person thereby prejudiced. The question was whether a conveyance of real property had been made with the requisite intent. Section 37A is a modern version of the famous Elizabethan Statute, 13 Eliz I c 5. The Elizabethan Statute spoke of dispositions made ‘to the end, purpose and intent, to delay, hinder or defraud creditors and others of their just and lawful actions, suits, debts, accounts, damages …’. As a matter of literal construction, the scope of the Elizabethan Statute is narrowed by the modern enactment, so that under s 37A, it is necessary to establish an intent to defraud creditors, and an intent to hinder or delay them would not seem sufficient to render the transaction voidable. And yet, after citing conflicting authorities, the Court of Appeal of New South Wales held that the shorter statutory re-enactment of the Elizabethan Statute should not be taken to have altered the pre-existing law4 and the High Court agreed.5 No contrary contention was made in submissions. The High Court overruled the Court of Appeal on a different point, disagreeing with the lower court’s view that proving an intent to defraud requires showing a level of dishonesty involving a desire to cheat or swindle those prejudiced. In the High Court’s view, the section only requires proof of the existence of an intention to hinder, delay or defeat creditors and in that sense to show that accordingly the debtor has acted dishonestly.6 The High Court’s reasoning on the proper construction of the modern section contains two elements that are pertinent to all of the provisions considered by the authors. First, legislative history really matters, and in particular, it is necessary to distinguish between enactments made in order to alter the pre-existing statute law, and those made to re-express it.7 Section 37A was based upon the Law of Property Act 1925 (UK) s 172, which was a consolidation of a provision of the Law of Property (Amendment) Act 1924 (UK). The amendment introduced by the 1924 Act was in a Part of the Act, the heading of which indicated that it contained provisions for ‘facilitating consolidation of the law of property’, in contrast with another Part of the 1924 Act which was simply headed ‘Amendments’. That distinction was devised by the committee which

recommended the amendments, and was reinforced in the parliamentary debate on the Bill for the 1924 Act. This is a distinction to be borne in mind when tracing the fate of the older provisions of Australian statutory law concerning voidable transactions. The authors are careful to identify cases where an intention to amend the law is exhibited, most commonly by identifying appropriate commentary in the Harmer Committee Report.8 If an intention to amend the law is established, care must be taken in dealing with the case law, to decide whether the earlier cases contain a principle that was intended to be changed, or a principle that remains applicable. On the other hand, as the High Court recognised, the old case law remains pertinent where the new statute is intended to re-express or consolidate its predecessor — and woe betide any counsel who overlook the earlier cases! Second, according to the High Court, a provision such as s 37A should receive liberal construction in effecting its purpose of suppressing fraud.9 To what extent does that proposition apply to the corporate voidable transaction provisions under consideration in this work? The voidable transactions provisions that are analysed by the authors encompass, but are not limited to, transactions entered into for the perpetration of actual fraud, in the common law sense. They identify transactional elements that, in the context of winding up, confer an unfair advantage upon one creditor to the disadvantage of others. The element of unfair advantage might arise because the transaction confers an unfair preference, or because it is an uncommercial transaction, or an unfair loan, or an unreasonable director-related transaction. Although the concepts are statutory, in each case the term ‘fraud’ in the equitable sense might arguably be applied to the proscribed conduct. According to Professor Hanbury,10 the equitable concept applies ‘indifferently to all failures in relations wherein equity set a certain standard of conduct’: for example, the exercise of powers of appointment or other powers, such as those of company directors, in a fashion of which equity disapproved.11 By analogy, the statutory language under consideration in this work identifies conduct by which a creditor takes advantage of their position and power so as to the detriment of the creditors as a whole. Arguably there is sufficient similarity to warrant the suggestion that a modern court should give the voidable transaction provisions a liberal construction to effect their purpose. Case law on the voidable transactions provisions has not always done so, but I suggest the trend is in favour of adopting a liberal construction that will effectuate the statutory purpose.

The authors have provided us with the ammunition necessary to construe and apply some of the most important provisions in modern corporate insolvency law, provisions which amply deserve the special attention that this book gives them. They are to be congratulated. The Hon RP Austin, BA, LLM (Syd), D Phil (Oxon) November 2014

1.

Rebecca Parry, James Ayliffe QC and Sharif Shivji, Transaction Avoidance in Insolvencies, OUP, 2nd ed, 2011.

2.

Compare Shane Doyle SC, ‘Formation of Contracts and Interpretation’, AMPLA Yearbook 2012, 157 (for the Australian approach) with Neil H Andrews, ‘Interpretation of Written Contracts in England’, University of Cambridge Faculty of Law Research Paper No 36/2013 (for the English approach).

3.

Marcolongo v Chen (2011) 242 CLR 546; [2011] HCA 3 (9 March 2011).

4.

Chen v Marcolongo; Chan v Lym International Pty Ltd (2009) 260 ALR 353; [2009] NSWCA 326 at [7] per Allsop P.

5.

Marcolongo v Chen (2011) 242 CLR 546; [2011] HCA 3 at [19] per French CJ, Gummow, Crennan and Bell JJ.

6.

Marcolongo v Chen (2011) 242 CLR 546; [2011] HCA 3 at [28], [32] per French CJ, Gummow, Crennan and Bell JJ.

7.

Marcolongo v Chen (2011) 242 CLR 546; [2011] HCA 3 at [14] per French CJ, Gummow, Crennan and Bell JJ.

8.

Australian Law Reform Commission, General Insolvency Inquiry, Report No 45 (1988).

9.

Marcolongo v Chen (2011) 242 CLR 546; [2011] HCA 3 at [20] per French CJ, Gummow, Crennan and Bell JJ.

10. Modern Equity (8th edn, 1962) at 643–4, cited by the High Court in Marcolongo v Chen (2011) 242 CLR 546; [2011] HCA 3 at [10]. 11. SZFDE v Minister for Immigration and Citizenship (2007) 232 CLR 189; [2007] HCA 35 at [8]– [10].

Preface This book can in many ways be seen as the natural successor to the text Statutory Demands and Winding Up in Insolvency.1 While the latter text is concerned largely with matters that antedate a winding up, the current text is concerned with the winding up itself and the liquidator’s attempts to recover property for the benefit of the company’s creditors. The concept of this book, like the text on statutory demands, was inspired by a desire to provide practitioners with a clear, thorough yet concise work on one of the most important aspects of company insolvency law. The text follows the structure of Part 5.7B of the Corporations Act 2001 and seeks to delineate and discuss the various statutory provisions and concepts in a manner readily accessible to the busy practitioner. The completion of this work is a culmination of the toil and industry of all authors however, in preparing this text: Farid Assaf (principal author and concept originator) has written Chapters 1, 2, 4, 8, 10, 11 and 12; co-wrote Chapters 3 and 7 as well as contributed to and edited Chapters 5, 6 and 9; Brett Shields has written Chapters 3, 5 and 7 as well as contributing to Chapters 1 and 10; Hilary Kincaid has written Chapters 6 and 9 and provided research for Chapters 1 and 10. Special thanks are in order to Dr Robert Austin for his erudite Foreword and Robert Newlinds SC of Banco Chambers for comments on Chapter 11 and the book more generally. The authors also wish to thank Eleanor O’Connor of LexisNexis Butterworths for her assistance and Philippa Findlay for her expert editing. The authors are grateful to Nicholas Mirzai for his comments on, and contribution of material to, Chapter 9. The law is stated as at 1 September 2014 although references to some cases beyond that date have been included. Farid Assaf Chambers, Sydney

October 2014

1.

Farid Assaf, Statutory Demands and Winding Up in Insolvency, 2nd ed, LexisNexis Butterworths, 2012.

Table of Cases References are to paragraphs 3M Australia Pty Ltd v Kemish (1986) 10 ACLR 371; 4 ACLC 185 .… 2.31, 10.46, 10.75 —v Watt (1984) 9 ACLR 203 .… 10.4, 10.140 21st Century Sign Co Pty Ltd, Re [1994] 1 Qd R 93; 9 ACSR 77 .… 9.101, 9.168, 11.69 123 Sweden AB v Appleyard Capital Pty Limited [2014] NSWSC 782 .… 9.80 400 Lonsdale Nominees Pty Ltd v Southern Cross Airlines Ltd (in liq) (1993) 10 ACSR 739; 11 ACLC 744 .… 9.98, 9.157, 9.158, 9.164, 9.165

A AAMAC Warehousing and Transport Pty Ltd (in liq), Re [2014] NSWSC 834 . … 11.15, 11.35 Aaron’s Reefs v Twiss [1896] AC 273 .… 8.20 Abalcheck Pty Ltd v Pullen (1990) 3 ACSR 246; 8 ACLC 1078 .… 9.101, 9.171 Abrahams v Federal Commissioner of Taxation (1944) 70 CLR 23 .… 9.47 Abram Steamship Co v Westville Shipping Co [1923] AC 773 .… 8.20 Accom Finance Pty Ltd v Mars Pty Ltd (2007) 13 BPR 24,729; [2007] NSWSC 726 .… 6.22 Ace Contractors & Staff Pty Ltd v Westgarth Development Pty Ltd [1999] FCA 728 .… 2.17 ACE Funding Ltd, Re (2003) 44 ACSR 363; [2003] FCA 59 .… 9.143 ACN 002 408 040 Pty Ltd (in liq), Re (2013) 94 ACSR 485 .… 10.102 ACN 007 537 000 Pty Ltd (in liq), Re; Ex p Parker (1997) 25 ACSR 560 .… 4.53, 10.135, 10.136 ACN 076 673 875 Ltd, Re (2002) 42 ACSR 296; [2002] NSWSC 578 .… 11.76 Action Waste Collections Pty Ltd (in liq), Re; Crawford v O’Brien [1981] VR

691 .… 2.48 Acton Engineering Pty Ltd v Campbell (1991) 31 FCR 1; 103 ALR 437 .… 11.24 Addstone Pty Ltd (in liq), In the Matter of; Macks (1998) 83 FCR 583 .… 11.76 Adler v Australian Securities and Investments Commission (2003) 179 FLR 1 . … 2.55 Adsteam Building Industries Pty Ltd v Queensland Cement and Lime Company Ltd (No 4) [1985] 1 Qd R 127; 14 ACLR 456 .… 9.163 A E Ledger, the official liquidator of Wright’s Hardware Pty Ltd (in liq) v EuroNational Investment Corporation (WASC, Full Court, Wallace, Brinsden and Seamen JJ, 29 May 1989, unreported) .… 9.37, 9.44 AFG Insurances Ltd, Re (2002) 43 ACSR 60; [2002] NSWSC 844 .… 12.13 Agar v Hyde (2000) 201 CLR 552; 173 ALR 665 .… 12.33 Agnew v Commissioner of Inland Revenue [2001] 2 AC 710; [2001] UKPC 28 . … 9.127 Air Link Pty Ltd v Paterson (No 2) (2003) 58 NSWLR 388; [2003] NSWCA 251 .… 11.48 Airport West Pty Ltd, Re (2005) 54 ACSR 8; [2005] FCA 686 .… 9.138, 9.143 Airservices Australia v Ferrier (1996) 185 CLR 483; 21 ACSR 1 .… 1.42, 4.1, 4.16, 4.35, 4.38, 4.42, 4.44, 4.46, 4.55, 4.57, 4.60, 4.61, 4.63 Akai Pty Ltd v Ho [2006] FCA 511 .… 10.111 Akers (as joint foreign pepresentative) v Saad Investments Co Ltd (in official liquidation) (a company registered in the Cayman Islands) (2010) 190 FCR 285; 276 ALR 508; [2010] FCA 1221 .… 12.15, 12.17, 12.18, 12.21, 12.24, 12.25 — v Saad Investments Co Ltd (in official liquidation) [2013] FCA 738 .… 12.21, 12.22, 12.23, 12.24 Akers as joint foreign representative of Saad Investments Co Ltd (in official Liquidation) v Deputy Commissioner of Taxation (2014) 100 ACSR 287; [2014] FCAFC 57 .… 1.6, 12.5, 12.24 — v— [2014] HCATrans 231 (17 Octoer 2014) .… 1.7,12.2, 12.24

Al-Sabah v Grupo Torras SA [2005] 2 AC 333; [2005] UKPC 1 .… 12.10 Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue (2009) 239 CLR 27 .… 4.23 Alderson v Temple (1768) 4 Burr 2235; 98 ER 165 .… 1.28, 4.4, 8.4 Alec Lobb (Garages) Ltd v Total Oil GB [1983] 1 All ER 944; [1985] 1 All ER 303; [1985] 1 WLR 173 .… 6.17 Allens Services Ltd (in liq) v Commissioner of Taxation (2010) 79 ACSR 101 . … 10.119 Aluminium Industrie Vaassen BV v Romalpa Aluminium Ltd [1976] 1 WLR 676; [1976] 2 All ER 552 .… 9.71 Andrews v ANZ Banking Group Ltd (2011) 86 ACSR 292 .… 4.31 Androvin Pty Ltd v Figliomeni (1996) 17 WAR 177; 14 ACLC 1461 .… 10.90 Anscor Pty Ltd v Clout (Trustee) (2004) 135 FCR 469; [2004] FCAFC 71 .… 8.4, 8.5 Ansell Ltd v Davies (2008) 67 ACSR 356; [2008] SASC 203 .… 8.43, 11.28, 11.34, 11.40, 11.47 Anton Fabrications (NSW) Pty Ltd, Re; Bentley Smythe Pty Ltd v Anton Fabrications (NSW) Pty Ltd (2011) 248 FLR 384; [2011] NSWSC 186 .… 2.18 ANZ Grindlays Bank Plc v Fattah (1991) 4 WAR 296 .… 12.33 Apex Gold Pty Ltd, Re [2013] NSWSC 881 .… 9.80, 9.89, 9.90 Appleyard, Re; Crawford Farms Ltd [2012] FCA 1373 .… 12.18 Arena Management Pty Ltd (admin apptd) (rec and mgrs app) v Campbell Street Theatre Pty Ltd [2010] NSWSC 957 .… 2.4, 2.26, 2.38, 2.52, 2.59, 3.14, 8.36, 9.129, 11.26, 11.64 Ariss v Express Interiors Pty Ltd (in liq) [1996] 2 VR 507 .… 11.169 Arnautovic v Nichola [2009] NSWSC 831 .… 11.35, 11.44 Arnold v Maynard 1 F Cas 1181 CCD Mass 1842 .… 1.31 Arthur Andersen Corporate Finance Pty Ltd v Buzzle Operations Pty Ltd [2009] NSWCA 104 .… 11.37, 11.38

Ashington Bayswater Pty Ltd (in liq), Re [2013] NSWSC 1008 .… 2.41, 2.44, 2.66, 4.24, 4.55, 5.24 Associated Alloys v ACN 001 452 106 Pty Ltd (in liq) (2000) 202 CLR 588; 171 ALR 568 .… 9.71, 9.122 Atlas Truck Services Pty Ltd, Re (1974) 24 FLR 220 .… 8.77 Attorney-General (Quebec) v Attorney-General (Canada) [1921] 1 AC 401 .… 9.50 Attorney-General (UK) v Heinemann Publishers Australia Pty Ltd (1988) 165 CLR 30; 78 ALR 449 .… 12.5, 12.22 Ausdrill Ltd v Coleman (1997) 25 ACSR 462 .… 10.102 Austin Australia Pty Ltd (in liq) v A & G Scaffolding and Rigging Service Pty Ltd (2007) 25 ACLC 1363; [2007] NSWSC 1077 .… 11.50 Australia and New Zealand Banking Group Ltd, Re; Harsit Holdings Pty Ltd [2008] NSWSC 1379 .… 9.143 Australia & New Zealand Banking Group Ltd v Foyster [2000] FCA 400 .… 2.39 —v Larcos (1987) 13 NSWLR 286 .… 11.48 —v Westpac Banking Corporation (1988) 164 CLR 662; 78 ALR 157 .… 9.41 Australian Combined Financial Services Pty Ltd v Fusion Realty Pty Ltd [2008] NSWSC 1258 .… 11.61 Australian Continental Resources Ltd, Re (1975) 10 ACTR 19; 1 ACLR 405 .… 10.19 Australian Derivatives Exchange Ltd v Doubell [2008] NSWSC 1174 .… 11.68 Australian Federal Life and General Assurance Co Ltd, Re [1931] VLR 317; 37 ALR 291 .… 12.5, 12.6 Australian Innovation Ltd v Dean-Willcocks (as joint administrators of Powerline GES Pty Ltd) (2001) 40 ACSR 521; [2001] NSWSC 1204 .… 9.98, 9.164, 9.166, 9.168 Australian Kitchen Industries Pty Ltd v Albarran (2004) 51 ACSR 604; [2004] NSWSC 1047 .… 3.11, 3.12, 3.64, 3.66, 3.71, 3.77, 11.18 Australian Securities and Investments Commission, Re; Richstar Enterprises v

Carey (No 9) (2006) 58 ACSR 721; [2006] FCA 1242 .… 9.125 Australian Securities and Investments Commission v Australian Investors Forum Pty Ltd (No 2) (2005) 53 ACSR 305; [2005] NSWSC 267 .… 10.117 —v Edwards (2005) 22 ALR 148; 54 ACSR 583 .… 2.37, 10.32, 10.46, 10.47, 10.49, 10.82, 10.95, 10.96 —v Edwards (No 3) (2006) 57 ACSR 209 .… 10.95, 10.97 —v Forestview Nominees Pty Ltd (2007) 164 FCR 327; 243 ALR 532; [2007] FCA 1985 .… 11.76 —v Karl Suleman Enterprizes Pty Ltd (in liq) (2004) 52 ACSR 103; [2004] NSWSC 1244 .… 11.40, 11.41, 11.42 —v Lanepoint Enterprises Pty Ltd (recs and mgrs apptd) (2011) 244 CLR 1; 83 ACSR 126; [2011] HCA 18 .… 5.24 —v Lanepoint Enterprises Pty Ltd (recs and mgrs apptd) (No 2) (2009) 72 ACSR 52; [2009] FCA 493 .… 5.24 —v Macdonald (No 11) (2009) 71 ACSR 368; [2009] NSWSC 287 .… 2.49 —v Macdonald (No 12) (2009) 259 ALR 116 .… 10.95 —v PFS Business Development Group Pty Ltd (2006) 57 ACSR 553; [2006] VSC 192 .… 2.46, 2.48 —v Plymin (No 1) (2003) 46 ACSR 126 .… 2.4, 2.12, 2.34, 2.40, 10.33, 10.34, 10.46, 10.47, 10.49, 10.50, 10.51, 10.52, 10.53, 10.55, 10.56, 10.57, 10.82, 10.91, 10.99 —v Radisson Maine Property Group (Aust) Pty Ltd (2004) 51 ACSR 420; [2004] NSWSC 949 .… 2.16 —v Rich [2005] NSWSC 417 .… 2.46, 2.48, 2.53, 10.70 —v Sydney Investment House Pty Ltd (2008) 69 ACSR 1 .… 2.34, 2.38 —v Vines (2005) 56 ACSR 528 .… 10.95 Australian Securities Commission v AS Nominees Ltd (1995) 62 FCR 504; 133 ALR 1 .… 10.16, 10.17 —v Forem Freeway Enterprises Pty Limited (1999) 30 ACSR 339 .… 2.66, 9.165 —v Marlborough Gold Mines Ltd (1993) 112 ALR 627 29 .… 7.29, 8.49

Australian Softwood Forests Pty Ltd v Attorney-General (NSW); Ex rel CAC (1981) 148 CLR 121; 36 ALR 257 .… 3.18 Avco Financial Services Ltd v White [1977] VR 561 .… 9.127 AWA Ltd v Daniels t/as Deloitte Haskins & Sells (1992) 7 ACSR 759 .… 10.86 Ayres v Evans (1981) 39 ALR 129; 56 FLR 235 .… 12.11, 12.12

B B & B Budget Forklifts Pty Ltd v CBFC Ltd (2008) 216 FLR 294; [2008] NSWSC 271 .… 9.125 Baden Delvaux & Lecuit v Société Géneralé pour Favoriser le Développement du Commerce et de l’Industrie en France SA [1992] 4 All ER 161; [1993] 1 WLR 509 .… 9.56 Baloglow v Kalls Enterprises Pty Ltd (in liq) [2008] HCATrans 132 .… 5.5 Banco de Portugal v Waddell (1880) 5 App Cas 161 .… 12.24 Bank of Australasia v Hall (1907) 4 CLR 1514; 14 ALR 51 .… 2.5, 2.13, 2.16, 2.18, 2.21, 2.23, 2.28 —v Harris (1861) 15 Moo PCC 97; 15 ER 429 .… 4.6 Bank of Credit & Commerce International (Overseas) Ltd v Akindele [2001] Ch 437; [2000] 4 All ER 221 .… 9.56 Bank of Credit and Commerce International SA, Re [1996] 4 All ER 796; [1997] Ch 213 .… 12.5, 12.8 Bank of Credit and Commerce International SA, Re [1998] AC 214; [1997] 4 All ER 568 .… 1.7 Bank of New Zealand v Essington Developments Pty Ltd (1991) 5 ACSR 86 .… 8.26, 8.27 Bank of Queensland Ltd, Re [1997] 2 Qd R 129 .… 3.52 Bank of Western Australia v Ocean Trawlers Pty Ltd (1995) 13 WAR 407; 16 ACSR 501 .… 9.163 Banning v Wright [1972] 1 WLR 972 .… 3.60 Banque des Marchands de Moscou (Koupetschesky), Re [1958] Ch 182 .… 12.29

Banque Internationale de Commerce de Petrograd v Goukassow [1923] 2 KB 682 .… 12.5 Bans Pty Ltd v Ling (1995) 16 ACSR 404; 13 ACLC 524 .… 10.34, 10.43 Barclays Bank Ltd v TOSG Trust Fund Ltd [1984] 1 All ER 628 .… 1.7 Barclays Bank plc, Re [2012] NSWSC 1095 .… 9.77, 9.78, 9.84, 9.85, 9.86, 9.88 Barclays Bank plc v Homan [1992] BCC 757 .… 12.32 —v — [1993] BCLC 680 .… 12.9 Barnes v Addy (1874) LR 9 Ch App 244; 43 LJ Ch 513 .… 9.56 Bartercard Ltd v Wily (2001) 39 ACSR 94; [2001] NSWCA 262 .… 3.11, 8.34 Bartex Fabrics Pty Ltd v Phillips Fox (1994) 13 ACSR 667; 12 ACLC 462 .… 2.5, 10.30 Barton v Official Receiver (1986) 161 CLR 75; 66 ALR 355 .… 8.66, 8.68 Bateman v Newhaven Park Stud Ltd (2004) 207 ALR 406; [2004] NSWSC 566 .… 9.163 Bayly v Schofield (1813) 1 M & S 338; 105 ER 127 .… 2.15 BCBC Singapore Pte Ltd v PT Bayan Resources TBK [2012] WASC 170 .… 12.33 Beach Petroleum NL v Cortaus Ltd (1995) 19 ACSR 24; 14 ACLC 236 .… 12.13 Bell Group Ltd (in liq) v Westpac Banking Corp (No 9) (2008) 39 WAR 1; 70 ACSR 1 .… 2.12, 2.19, 2.34, 2.38, 2.43 Bellach v Chamberlain [2011] NSWSC 528 .… 8.35 Bellpac Pty Ltd (Receivers and Managers Appointed) (in liq) (No 2) (2011) 297 ALR 56; [2011] FCA 1123 .… 3.64 Bendir v Anson [1936] 3 All ER 326 .… 3.8 Beni-Felkai Mining Co, Re [1934] Ch 406 .… 11.62 Benjamin’s Furniture Pty Ltd (in liq), Re; Levi v Guerlini (1996) 21 ACSR 543 .… 2.34 Benson v Cook (2001) 114 FCR 542; [2001] FCA 1684 .… 3.36

Bentley Smythe Pty Ltd v Anton Fabrications (NSW) Pty Ltd (2011) 248 FLR 384; [2011] NSWSC 186 .… 2.26, 2.38 Benwerrin Developments Pty Ltd v Federal Commissioner of Taxation (1981) 53 FLR 329; 39 ALR 225 .… 9.47 Bessey v Windham (1844) 6 QB 172 .… 8.5 Beveridge v Whitton [2001] NSWCA 6 .… 4.37, 4.45 Bevillesta Pty Ltd v Imagine UN Ltd (2009) 69 ACSR 574; [2009] VSC 50 .… 9.82, 9.87, 9.88, 9.136, 9.143, 9.147, 9.150 Bhattacharya v Freedman [2001] NSWSC 498 .… 11.67 BHP Billiton v Schultz (2004) 221 CLR 400; 211 ALR 523; [2004] HCA 61 .… 11.23 Bibra Lake Holdings (in liq) v Firmadoor Australia Pty Ltd (1992) 7 WAR 1; 7 ACSR 380 .… 8.26, 8.27, 11.26 Billingham v Whyte [2011] NSWCA 463 .… 8.17 Bills v Smith (1865) 6 B & S 314; 122 ER 1211 .… 4.4 Bishop v Bridgelands Securities (1990) 25 FCR 311 .… 11.57 Black Opal IP Pty Ltd (subject to deed of company arrangement), Re [2013] NSWSC 1225 .… 9.51, 9.61, 9.85 Blackpool Motorcar Co Ltd; Hamilton v Blackpool Motorcar Co Ltd, Re [1901] 1 Ch 77 .… 4.34 Blaiberg, Ex p; Re Toomer (1883) 23 Ch D 588 .… 8.5 Bloodstock Air Services of Australia Pty Ltd (in liq) v Roadrunner Equipment Pty Ltd (1985) 10 ACLR 36; 3 ACLC 735 .… 9.150 Bluechip Development Corporation (Cairns) Pty Ltd, Re [2011] QSC 368 .… 2.38 Bluestone Property Services Pty Ltd (in liq) v First Equilibrium Pty Ltd [2013] FCA 876 .… 2.12 Blundell v Macrocom [2004] NSWSC 848 .… 8.28 BNY Corporate Trustee Services Ltd v Neuberger Berman Europe Ltd [2013] UKSC 28 .… 2.4

Boland v Yates Property Corp Pty Ltd (1999) 167 ALR 575; [1999] HCA 64 .… 9.47 Bonang Gold Mining Co Ltd, Re (1893) 14 LR (NSW) (Eq) 262 .… 11.62 Bootle Cold Storage Company, Re [1901] WN 54 .… 9.143 Bovis Lend Lease Pty Ltd v Wily (2003) 45 ACSR 612; [2003] NSWSC 467 . … 8.43 Bowcher (liquidator), Re; Meares Nominees Pty Ltd (in liq) (2013) 98 ACSR 1; [2013] FCA 631 .… 11.34 Box Valley Pty Ltd v Kidd (2006) 24 ACLR 471; [2006] NSWCA 26 .… 2.4, 2.21, 2.24, 10.36, 10.45 BP Australia Ltd v Brown (2003) 58 NSWLR 322; 46 ACSR 677; [2003] NSWCA 216 .… 1.14, 1.15, 1.16, 4.1, 8.21, 8.43, 11.32, 11.33, 11.34, 11.36, 11.40, 11.49 BPTC Ltd (in liq) (No 2), Re (1992) 29 NSWLR 713; 8 ACSR 533 .… 11.16 BPTC Ltd (in liq) (No 5), Re (1993) 10 ACSR 756 .… 11.16, 11.17 Bradford Corporation v Myers [1916] 1 AC 242 .… 3.26 Bradnam’s Windows & Doors Pty Ltd v Offermans [2011] 2 Qd R 408; 83 ACSR 428 .… 4.56 Brady v Stapleton (1952) 88 CLR 322; [1952] ALR 989 .… 8.5 Braemar Investments Ltd, Re [1988] BCC 366 .… 1.9 Brall, Re; Ex p Norton [1893] 2 QB 381 .… 8.5 Brett v Barr-Smith (1919) 26 CLR 87 .… 3.58 Brick and Pipe Industries v Occidental Life Nominees Pty Ltd (1990) 3 ACSR 649 .… 3.62, 3.63, 6.15, 9.56 Briggs v James Hardie & Co Pty Ltd (1989) 16 NSWLR 549 .… 10.1 Briginshaw v Briginshaw (1938) 60 CLR 336 .… 10.56 Brisbane South Regional Health Authority v Taylor (1996) 186 CLR 541; 139 ALR 1 .… 11.36, 11.39 Brisbane Water County Council v Cmr of Stamp Duties [1979] 1 NSWLR 320; 9 ATR 576 .… 9.47

British Eagle International Airlines Ltd v CIE Nationale Air France [1975] 2 All ER 390 .… 1.7, 1.12 British Gold Fields of West Africa, Re [1899] 2 Ch 7 .… 4.23 Britton, Re; Ex p Barnes (1984) 2 FCR 35 .… 8.61 Brodhan Pty Ltd (in administration), Re [2011] VSC 265 .… 9.28 Brookfield Multiplex Ltd v International Litigation Funding Partners Pte Ltd (2009) 180 FCR 11; 260 ALR 643 .… 3.18 Brooks v Heritage Hotel Adelaide Pty Ltd (1996) 20 ACSR 61 .… 2.15, 2.32 Browne v Commissioner of Taxation (1998) 26 ACSR 750 .… 10.118, 10.119, 10.124, 10.131 Bryan E Fincott Pty Ltd v Eretta Pty Ltd (1987) 16 FCR 497 .… 11.66 BSC Footwear Ltd v Ridgway (Insp of Taxes) [1972] AC 544 .… 9.47 Buchanan Enterprises Pty Ltd, Re (1982) 7 ACLR 407 .… 4.52 Buchler v Talbot [2004] 1 All ER 1289; [2004] 2 AC 298 .… 9.1, 9.124, 9.126, 9.131 Buena Vista Motors Pty Ltd (in liq), Re [1971] 1 NSWLR 72 .… 11.62 Bufalo Corporation Pty Ltd (recs and mgrs appt) (in liq) v Lendlease Primelife Ltd (No 3) [2010] VSC 263 .… 11.68 Burke v LFOT Pty Ltd (2002) 209 CLR 282 .… 10.104 Burness, Re; Denward Lane Pty Ltd (in liq) (2009) 74 ACSR 1 .… 2.38, 3.11, 3.76, 4.30, 8.62 Burness v Supaproducts Pty Ltd (2009) 259 ALR 339; 74 ACSR 1; 27 ACLC 1381 .… 2.38, 3.11, 3.76, 4.30, 4.34, 8.53, 8.62 Burns v Stapleton (1959) 102 CLR 97 .… 4.1, 4.55, 8.20, 8.22, 12.30 Burrows v Knightley & Nationwide News Pty Ltd (1987) 10 NSWLR 651 .… 3.67 Butcher v Stead (1875) LR 7 HL 839; LR 7 AGL 839 .… 4.2, 8.54 Butler Rains Menzies & Co v Devine [1994] 1 Qd R 1; 8 ACSR 579 .… 4.39, 5.6, 6.13, 7.7 Buzzle Operations Pty Ltd (in liq) v Apple Computer Australia Pty Ltd (2010)

77 ACSR 410; 238 FLR 384; [2010] NSWSC 233 .… 2.38, 2.40, 5.15, 5.19, 5.20, 5.21, 9.163, 9.165, 10.65 —v— Apple Computer Australia Pty Ltd (2011) 277 ALR 189; [2011] NSWCA 109; 82 ACSR 703 .… 4.53, 5.13, 5.18, 8.52, 8.69, 10.14, 10.16, 10.17, 10.21, 10.23, 10.25, 10.26, 10.27, 10.28, 10.29, 10.138 Byrne v Australian Airlines Ltd (1995) 185 CLR 410; 131 ALR 422 .… 2.24 —v Baker [1964] VR 443 .… 10.5 Byrnes v John Fairfax Publications Pty Ltd [2006] NSWSC 251 .… 11.67

C Cadbury Schweppes Pty Ltd v Darrell Lea Chocolate Shops Pty Ltd [2006] FCA 363 .… 2.55 Caddy v McInnes (1995) 131 ALR 277 .… 8.17 Cadima Express v Deputy Commissioner of Taxation (1999) 157 FLR 424; 33 ACSR 527 .… 2.61 Cain v Aero Marine Consulting Pty Ltd (2003) 133 FCR 1; [2003] FCA 1016 . … 9.98, 9.165 Calzaturificio Zenith Pty Ltd (in liq) v NSW Leather & Trading Co Pty Ltd [1970] VR 605 .… 2.31, 4.46, 4.52 Cambridge Gas Transport Corp v Official Committee of Unsecured Creditors of Navigator Holdings [2007] 1 AC 508; [2006] 3 All ER 829; [2006] UKPC 26 .… 12.2, 12.38 Cameron v Cole (1944) 68 CLR 571; [1944] ALR 130 .… 11.43 Camm v Linke Nominees Pty Ltd (2010) 190 FCR 193; [2010] FCA 1148 .… 3.34 Campbell, Re Application of; Gebo Investments (Labuan) Ltd v Signatory Investments Pty Ltd (2005) 54 ACSR 111; [2005] NSWSC 544 .… 3.27 Campbell v Michael Mount PPB (1995) 65 SASR 334; (1996) 14 ACLC 218 . … 9.126 Campbell Finance Pty Ltd v Vivstan Packaging (Aust) Pty Ltd (in liq) [1998] 2 VR 340; (1996) 22 ACSR 109 .… 9.143, 9.148, 9.150

Campbell Street Theatre Pty Ltd (rec and mgr apptd) (in liq) v Commercial Mortgage Trade Pty Ltd [2012] NSWSC 669 .… 2.26, 3.12, 3.14, 3.71, 5.10, 5.14, 5.24, 8.11, 8.36 Campbells Cash and Carry Pty Ltd v Fostif Pty Ltd (2006) 229 CLR 386; 229 ALR 58; [2006] HCA 41 .… 11.68 Cannane v J Cannane Pty Ltd (in liq) (1998) 192 CLR 557 .… 8.4 Capital Finance Australia Ltd v Tolcher (2007) 164 FCR 83; 64 ACSR 705; 245 ALR 258; [2007] FCAFC 185 .… 1.15, 2.8, 3.71, 3.72, 4.34, 5.5, 5.8, 5.10, 5.11, 5.14, 8.33, 8.34, 8.45, 8.46 Capricorn Society Ltd v Linke (1996) 14 ACLC 431 .… 10.54 Caratti v R (2000) 22 WAR 527; [2000] WASCA 279 .… 2.46 Cardinia Nominees Pty Ltd, Re [2013] NSWSC 32 .… 9.77, 9.79, 9.81, 9.82, 9.83, 9.84, 9.88, 9.89 Carl Hirth, Re; Ex p the Trustee [1899] 1 QB 612 .… 9.72 Carreras Rothman Ltd v Freeman Mathews Treasure Ltd [1985] Ch 207 .… 1.12 Carrier Air Conditioning Pty Ltd v Kurda (1993) 11 ACSR 247 .… 10.75 Carter v Commissioner of Taxation (2001) 109 FCR 215; [2001] FCA 575 .… 11.57 Carter (as liquidator of New Tel Ltd (in liq)), Re (2003) 44 ACSR 661; [2003] NSWSC 128 .… 9.28 Carter & Kenderdine’s Contract, Re [1897] 1 Ch 776 .… 8.5 Carter, Re Spec FS NSW Pty Ltd (in liq) [2013] FCA 1027 .… 10.121, 10.122, 11.48 Cashflow Finance Pty Ltd (in liq) v Westpac Banking Corp [1999] NSWSC 671 .… 3.28, 3.29, 3.30, 3.44, 4.57, 8.43 Castles v Freidman (1910) 11 CLR 580 .… 6.10 Castrisios v McManus (1990) 4 ACSR 1 .… 10.37 CBA Corporate Services (NSW) Pty Ltd v Walker and Moloney (in their capacity as the liquidators of ZYX Learning Centres Ltd) (recs and mgrs apptd) (in liq) (2013) 212 FCR 444; 95 ACSR 135 .… 1.39, 2.72, 9.30, 9.33 CBFC Ltd v Corporate Consulting (Aust) Pty Ltd (in liq) [2010] QSC 395 .…

9.150 CBS Productions Pty Ltd v O’Neill (1985) 1 NSWLR 601 .… 10.49 Centaur Mining & Exploration Ltd, Re (2008) 68 ACSR 249 .… 4.24 Central Piggery Company Ltd v McNicoll & Hurst (1949) 78 CLR 594 .… 7.12 CGI Information Systems and Management Consultants Pty Ltd v APRA Consulting Pty Ltd (2003) 47 ACSR 100; [2003] NSWSC 728 .… 2.24 Chameleon Mining NL v Murchison Metals Ltd [2010] FCA 1129 .… 10.15 Chandra, Re; Ex p United Overseas Bank Ltd (unreported, HCB 3453/2000, High Court of Hong Kong) .… 6.18 Chapel House Colliery Co, Re (1883) 24 Ch D 259 .… 1.2 Chartspike Pty Ltd v Chahoud [2001] NSWSC 585 .… 11.76 Chicago Boot Co Pty Ltd v Davies (as joint & several liquidators of Harris Scarfe Ltd) (2011) 282 ALR 378; 85 ACSR 309; [2011] SASCFC 92 .… 8.53, 8.63, 8.64, 8.71 Chief Commissioner of Stamp Duties v WF Securities Pty Ltd (1995) 95 ATC 4284 .… 3.32 Chief Commissioner of State Revenue v Rafferty’s Resort Management Pty Ltd (in liq) (2008) 217 FLR 230; 66 ACSR 199; [2008] NSWSC 452 .… 8.12 —v Reliance Financial Services Pty Ltd [2006] NSWSC 1017 .… 2.24 China and South Sea Bank Ltd v Tan Soon Gin [1990] 1 AC 536; [1989] 3 All ER 839 .… 6.18 Chircan Holdings, Re (2003) 21 ACLC 29; [2002] NSWSC 988 .… 11.16, 11.29 Chisum Services Pty Ltd, Re (1982) 7 ACLR 641 .… 8.54 Chow Cho Poon (Private) Ltd, Re (2011) 80 NSWLR 507; 249 FLR 315; [2011] NSWSC 300 .… 12.10, 12.11 Chow Yoong Hong v Choong Fah Rubber Manufactory [1962] AC 209 .… 3.63 Chung v R [2007] NSWCCA 231 .… 10.66 CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384 .… 1.18, 3.18, 4.23

Cinema Art Films, Re [1930] NZLR 500 .… 9.153 Citibank Ltd v Linput Pty Ltd (in liq) (1991) 104 FLR 239; 5 ACSR 361 .… 9.148, 9.150 City Life Assurance Co, In re [1926] Ch 191 .… 10.137 Clapham v National Assistance Board [1961] 2 QB 77 .… 10.48 Clarecastle Pty Ltd (in liq), Re (2011) 85 ACSR 260; [2011] NSWSC 857 .… 11.35, 11.37, 11.38, 11.40, 11.41, 11.70 Cleaver v Delta American Reinsurance Co (in liq) [2001] 2 AC 328; [2001] UKPC 6 .… 12.24 Clements, Re (1931) 7 ABC 255 .… 4.52 Clifton v CSR Building Products Pty Ltd (2011) 275 LSJS 456; [2011] SASC 103 .… 4.57, 4.65, 8.71 Clough v London and North Western Rly Co (1871) LR 7 Exch 26 .… 8.20 Clout v Andi-Co Australia Pty Ltd (2013) 96 ACSR 512 .… 4.66 Clutha Ltd (in liq), Re (2003) 44 ACSR 734; [2003] NSWSC 235 .… 11.29 Clyne v Deputy Commissioner of Taxation (1981) 150 CLR 1; 55 ALJR 552 .… 2.9 Coates Hire Operations Pty Ltd v D-Link Homes Pty Ltd [2011] NSWSC 1279 . … 2.34, 2.44 Coldham-Fussell v Commissioner of Taxation (2011) 82 ACSR 439 .… 10.126 Colonial Trusts Corp, Re; Ex p Bradshaw (1879) 15 Ch D 465 .… 9.124 Columbian Fireproofing Co Ltd, Re [1910] 2 Ch 120; [1910] 1 Ch 758 .… 9.39 Combis v Lightway Australia Pty Ltd [2012] QSC 323 .… 2.26 Commercial Bank of South Australia, Re (1886) 33 Ch D 174 .… 12.5 Commercial Banking Co of Sydney Ltd v George Hudson Pty Ltd (in liq) (1973) 131 CLR 605; 2 ALR 1 .… 9.148 Commissioner of State Taxation (WA) v Pollock (1992) 9 ACSR 295 .… 10.37 —v Pollock (1993) 11 WAR 64; 12 ACSR 217; 12 ACLC 28 .… 10.32, 10.34 Commissioner of Taxation v Consolidated Media Holdings Ltd (2012) 293 ALR 257; [2012] HCA 55 .… 4.23

—v Kassem and Secatore (2012) 205 FCR 156; [2012] FCAFC 124 .… 4.31, 4.45 —v Linter Textiles Australia Ltd (in liq) (2005) 220 CLR 592; 215 ALR 1; [2005] HCA 20 .… 11.63 —v Moodie (2014) 308 ALR 571; 98 ACSR 274; [2014] NSWCA 59 .… 8.50, 10.118, 10.120, 10.121, 10.122, 10.133, 10.134, 10.171 —v Paditham [2010] FCA 334 .… 10.124, 10.132 —v Sims (2008) 72 NSWLR 716; [2008] NSWCA 298 .… 10.119, 10.120, 10.123 —v Unit Trend Services Pty Ltd (2013) 297 ALR 190; [2013] HCA 16 .… 4.23 Commissioner of Taxation (NSW) v Sims (2008) 68 ACSR 568 .… 8.33 Commonwealth Bank of Australia v Butterell (1994) 35 NSWLR 64; 14 ACSR 343 .… 2.5, 10.35 —v Cluness (1997) 8 BPR 15,467 .… 3.59 —v Friedrich (1991) 5 ACSR 115 .… 10.46, 10.54, 10.55, 10.75, 10.85, 10.95, 10.115 Commonwealth Homes and Investment Co Ltd v Smith (1937) 59 CLR 443 .… 8.20 Commonwealth v Verwayen (Verwayen’s/ Voyager Case) (1990) 170 CLR 394; 95 ALR 321 .… 3.60, 3.61 Community Development Pty Ltd v Engwirda Construction Co (1969) 120 CLR 455; [1970] ALR 173 .… 2.20 Condon v Commissioner of Taxation (2004) 207 ALR 676; 49 ACSR 681; [2004] NSWSC 481 .… 11.171, 12.34 Constantinidis v JGL Trading Pty Ltd (1995) 17 ACSR 625 .… 2.32 Cook, Re; Italiano Family Fruit Co Pty Ltd (in liq) (2010) 190 FCR 474; 80 ACSR 680; [2010] FCA 1355 .… 8.20, 8.28, 11.63 Cook v Benson (2003) 214 CLR 370; 198 ALR 218; [2003] HCA 36 .… 3.36 —v Rogers (1831) 7 Bing 438; 131 ER 169 .… 4.4 Cook’s Constructions Pty Ltd v Brown (2004) 49 ACSR 62; [2004] NSWCA

105 .… 8.53, 8.56, 8.60 Cooper as liquidator of Wanted World Wide (Australia) Ltd (in liq) v Commissioner of Taxation (2004) 139 FCR 205; 210 ALR 635; [2004] FCA 1063 .… 2.61, 2.62, 8.48, 8.49, 8.50, 10.121, 11.54 Cooper v Commissioner of Taxation (2004) 139 FCR 205; 210 ALR 635; [2004] FCA 1063 .… 8.48 — v Commissioner of Taxation [2009] NSWSC 880 .… 10.124, 10.127 Corporate Affairs Commission v Drysdale (1978) 22 ALR 161 .… 10.15, 10.21 Coundrelis v Roads and Traffic Authority of New South Wales [2008] NSWLEC 72 .… 9.47 Cradock v Scottish Provident Institution (1893) 69 LT 380 .… 9.127 Craig Mostyn & Co Pty Ltd v Old Valley Pty Ltd (in liq) (2004) 50 ACSR 282; [2004] FCA 1083 .… 9.138, 9.143, 9.145, 9.150 Craven and Marshall, Re; Ex p Tempest (1870) LR 6 Ch App 70 .… 8.68 Credit Corp Australia Pty Ltd v Atkins (1999) 30 ACSR 727 .… 2.32, 10.39, 10.54, 10.56 Credland v Potter (1874) LR 10 Ch App 8 .… 3.32 Crema (Vic) Pty Ltd v Land Mark Property Developments (Vic) Pty Ltd (2006) 58 ACSR 631; [2006] VSC 338 .… 2.4, 2.15, 2.17, 2.38 Crigglestone Coal Company Ltd, Re [1906] 2 Ch 327 .… 1.2 Crosbie v Commissioner of Taxation (2003) 130 FCR 275; 21 ACLC 1659; [2003] FCA 922 .… 2.61, 2.62, 8.49, 10.122, 11.72 Crossroads Fashions Pty Ltd (in liq) v Gavin [2002] QSC 179 .… 2.40, 2.66 Cunard Steamship Company, Re [1908] WN 160 .… 9.143 Curtis v Price (1805) 12 Ves J 89 .… 8.5 Cussen v Commissioner of Taxation (2003) 47 ACSR 107; [2003] NSWSC 841 .… 8.62, 8.64 —v Sultan (2009) 74 ACSR 496; [2009] NSWSC 1114 .… 3.11, 3.64, 3.71, 5.9, 8.53, 8.54, 8.56, 8.57 Custom Card (NSW) Pty Ltd, Re [1979] 1 NSWLR 241 .… 9.130

Cuthbertson & Richards Sawmills Pty Ltd v Thomas (1998) 28 ACSR 310; [1998] ACTSC 252 .… 2.31, 2.32, 9.29, 9.42, 9.44 —v Thomas (1999) 93 FCR 141; 30 ACSR 504 .… 9.42, 9.43, 9.44, 9.48

D D’Aloia v Commissioner of Taxation (2003) 203 ALR 609; 48 ACSR 204; [2003] FCA 1336 .… 5.23, 5.24, 8.53, 8.62 Daisytek Australia Pty Ltd, Re (2003) 46 ACSR 424; [2003] FCA 768 .… 9.138 Dallhold Estates (UK) Pty Ltd, Re (1991) 6 ACSR 378; 10 ACLC 1374 .… 12.13 Daniels v Anderson (1995) 37 NSWLR 438 .… 10.94 Darbishire v Warran [1963] 3 All ER 310; [1963] 1 WLR 607 .… 9.47 Dasreef Pty Ltd v Hawchar (2011) 277 ALR 611 .… 2.53 David Grant & Co Pty Ltd v Westpac Banking Corporation (1995) 184 CLR 265 .… 10.106 David Lloyd & Co, Re (1877) 6 Ch D 339 .… 9.1 David Securities Pty Ltd v Commonwealth Bank of Australia (Swiss Franc case) (1992) 175 CLR 353; 109 ALR 57 .… 3.58 Davie v Lord Provost, Magistrates and Councillors of the City of Edinburgh 1953 SC 34 .… 2.53 Davies v Chicago Boot Co Ltd (2006) 58 ACSR 505; [2006] SASC 241 .… 11.46 —v Directloans Ltd [1986] 1 WLR 823 .… 6.7 —v Elsby Bros Ltd [1960] 3 All ER 672 .… 11.49 Day & Dent Constructions Pty Ltd (in liq) v North Australian Properties Pty Ltd (prov liq apptd) (1982) 150 CLR 85 .… 1.9, 10.137 Dean-Willcocks Pty Ltd v Air Transit International Pty Ltd (2002) 55 NSWLR 64; 42 ACSR 328; [2002] NSWSC 525 .… 11.56, 11.57 —v Commissioner of Taxation (2003) 45 ACSR 298; [2003] NSWSC 355 .… 11.59 —v Commissioner of Taxation (No 2) (2004) 49 ACSR 325; [2004] NSWSC

286 .… 2.61, 2.62, 8.48, 8.50, 10.121, 10.122, 11.54 —v Commissioner of Taxation (2004) 51 ACSR 353; [2004] NSWSC 1058 .… 2.4, 8.53, 8.72 —v Commissioner of Taxation (2008) 73 ATR 801; [2008] NSWSC 1113 .… 8.56, 8.58, 8.59 Dean-Willcocks v Commonwealth Bank of Australia (2003) 45 ACSR 564; [2003] NSWSC 466 .… 8.62 Debtor, In Re a [1937] Ch 156 .… 10.123 —, Re [1927] 1 Ch 410 .… 4.52 —, Re a [1980] 3 All ER 665; [1980] 3 WLR 758 .… 12.11 Demondrille Nominees Pty Ltd v Kevin R Shirlaw & Cornelis Holdings Pty Ltd (in liq) (1997) 25 ACSR 535; 15 ACLC 1716 .… 3.19, 3.68, 5.10, 5.14, 5.17, 8.9, 11.61 Dempsey Resources Pty Ltd v Continental Coal Ltd [2009] FCA 1157 .… 9.78, 9.85, 9.86, 9.149, 9.152 Deputy Commissioner of Taxation v ACN 001 330 203 Pty Limited (in liq) (formerly Bertram & Son Pty Limited) (unreported, Supreme Court of New South Wales, Santow J, 6 August 1999) .… 1.48, 2.75 —v Austin (1998) 28 ACSR 565 .… 10.21, 10.22, 10.23 —v Clark (2003) 57 NSWLR 113; 45 ACSR 332; [2003] NSWCA 91 .… 10.48, 10.83, 10.84, 10.85, 10.86, 10.87, 10.88, 10.102, 10.109, 10.118, 10.124, 10.127 —v Dick (2007) 64 ACSR 61 .… 10.12, 10.48 —v Solomon (2003) 199 ALR 325 .… 10.18 —v TMPL Pty Ltd (2010) 80 ACSR 528 .… 1.48, 2.75 —v TMPL Pty Ltd (subject to a deed of company arrangement) (No 3) (2011) 289 ALR 69; [2011] FCA 1403 .… 9.45 Dering v Earl of Winchelsea (1787) 1 Cox Eq Cas 318; 29 ER 1184 .… 10.104 Destone Fabrics Ltd, Re [1941] Ch 319 .… 9.37 Devaynes v Noble (1816) 1 Mer 572; 35 ER 781 .… 9.41

Dillon v Gange (1941) 64 CLR 253 .… 2.45 Dimond v Lovell [2000] QB 216; [1999] 3 All ER 1 .… 6.15 Diploma Construction Pty Ltd v Precast Prestressed Buildings Perth Pty Ltd (2004) 51 ACSR 482; [2004] FCA 1505 .… 9.142, 9.143 Director of Public Prosecutions (Vic) v Le (2007) 232 CLR 562 .… 8.4 Discovery Books, Re (1972) 20 FLR 470 .… 4.16, 4.42, 4.44, 4.46 Dittmer Gold Mines Ltd (No 3), Re [1954] St R Qd 275 .… 3.37 DJG Equities Pty Ltd, Re [2014] NSWSC 36 .… 5.24 Dodlot Ltd v Hartogen Energy Ltd (1991) 25 NSWLR 278; 6 ACSR 397 .… 1.9, 3.56 Dominion of Canada Plumbago Co, Re (1884) 27 Ch D 33 .… 11.62 Donnelly (as liquidator), Re; Advance Finances Pty Ltd (in liq) [2013] .… 12.13 Dorajay Pty Ltd v Aristocrat Leisure Ltd [2005] FCA 1483 .… 2.55 Douglas-Brown (official liquidator of Woomera Holdings Pty Ltd) v Furzer (1994) 13 ACSR 184 .… 11.15 Douglas-Brown v Standard Chartered Finance Ltd (1990) 2 ACSR 737; 8 ACLC 993 .… 9.150 Downey v AIRA Pty Ltd (1996) 14 ACLC 1068 .… 2.27, 8.54, 8.56, 8.63 Drax Holdings Ltd, Re; Re InPower Ltd [2004] 1 All ER 903; [2004] 1 WLR 1049 .… 10.5 Dudley Engineering Pty Ltd, Re (1968) 1 NSWR 483; 87 WN (Pt 1) (NSW) 326 .… 9.143, 9.150, 9.151, 9.153 Duke Group Ltd (in liq) v Pilmer (1994) 63 SASR 364; 15 ACSR 255 .… 2.46 Duncan v Commissioner of Taxation; Re Trader Systems International Pty Ltd (in liq) (2006) 58 ACSR 555; [2006] FCA 885 .… 2.4, 2.15, 2.38, 2.43, 5.24, 8.48, 10.118, 10.119, 10.122, 10.126, 11.72 Dunlop Pneumatic Tyre Co Ltd v Aktien-Gesellschaft Fur Motor Und Motorfahrzeugbau Vorm Cudell & Co [1902] 1 KB 342 .… 3.27 Dunn v Shapowloff [1978] 2 NSWLR 235; 3 ACLR 775 .… 2.26, 10.75 Dwyer (as joint and several liquidators of Harris Scarfe Ltd (recs and mgrs

apptd) (in liq)) v Chicago Boot Co Pty Ltd (2011) 82 ACSR 193 .… 2.17, 2.28, 2.38 Dwyer and Maxted v Canning Vale [2005] SASC 80 .… 11.65 Dwyer v Hindal Corporate Pty Ltd (2005) 52 ACSR 335; [2005] SASC 24 .… 11.24 —v La Gender Pty Ltd (2005) 240 LSJS 308; [2005] SASC 213 .… 11.26, 11.28, 11.61 —v R-Jay Pty Ltd (2007) 62 ACSR 287; 247 LSJS 466; [2007] SASC 115 .… 2.62, 8.48

E Earl of Aylesford v Morris (1873) LR 8 Ch App 484; [1861–73] All ER Rep 300 .… 6.17 Earl of Ellesmere v Inland Revenue Commissioners (1918) 119 LT 568 .… 9.47 Eddy v Mac Audio & Acoustic Consultants Pty Ltd [2000] SASC 145 .… 11.65, 11.67 Edenden v Bignell [2007] NSWSC 1122 .… 3.3, 8.1, 10.102, 10.108, 10.109 — v Bignell [2008] NSWSC 666 .… 11.74 Edginton v Clark [1964] 1 QB 367; [1963] 3 All ER 468 .… 10.134 Edwards v Attorney-General (2004) 60 NSWLR 667; 50 ACSR 122; [2004] NSWCA 272 .… 2.20, 2.22, 2.24, 10.36 —v Australian Securities and Investments Commission (2009) 76 ACSR 369 . … 10.29, 10.32 Ehrmann Brothers Ltd, Re [1906] 2 Ch 697 .… 9.153 Elfic v Macks [2003] 2 Qd R 125; 181 ALR 1; [2001] QCA 219 .… 11.63 Elgar Heights Pty Ltd (No 1), Re [1985] VR 657; 9 ACLR 846 .… 2.5, 2.7, 2.8, 2.9 Elliott v Australian Securities and Investments Commission (2004) 10 VR 369; 48 ACSR 621; [2004] VSCA 54 .… 10.4, 10.11, 10.49, 10.50, 10.54, 10.72, 10.98, 10.100 Elna Australia Pty Ltd v International Computer (Aust) Pty Ltd (1987) 14 FCR

461 .… 12.13 Emanuel Management Pty Ltd v Foster’s Brewing Group Ltd (2003) 178 FLR 1; [2003] QSC 205 .… 2.28, 2.34, 6.19, 8.61 Emanuel (No 14) Pty Ltd (in liq), Re; Macks v Blacklaw & Shadforth Pty Ltd (1997) 147 ALR 281; 24 ACSR 292; 15 ACLC 1099 .… 3.10, 3.11, 3.12, 3.21, 3.29, 3.39, 3.41, 3.54, 3.64, 3.71, 4.28, 4.29, 4.32, 4.49 Emaryan Pty Ltd, Re (1999) 30 ACSR 330 .… 8.53 Empire (Aust) Nominees Pty Ltd v Vince (2000) 35 ACSR 167; [2000] VSC 324 .… 11.76 Employ (No 96) Pty Ltd (in liq), Re (2013) 93 ACSR 48; [2013] NSWSC 61 .… 3.71, 4.28, 4.36, 4.42, 4.45, 4.57, 4.64, 5.11, 5.13, 8.10, 8.24, 8.42, 8.43, 8.52, 8.53 Emwest Products Pty Ltd v Olifent (1996) 22 ACSR 202 .… 2.27 Engineered Thermal Systems Pty Ltd v Salmon; Re Salmon and Speck Pty Ltd (in liq) [2012] FCA 1159 .… 11.60, 11.73 England v Smith [2001] Ch 419; [2000] 2 WLR 1141 .… 12.12, 12.13 English, Scottish and Australian Chartered Bank, Re [1893] 3 Ch 385 .… 12.5 Enston v Pardel (1957) 75 WN (NSW) 370 .… 2.52 Enterprise Colorvideo Productions Pty Ltd v Corporate Affairs Commission (NSW) [1984] 1 NSWLR 223 .… 9.133 Erlanger v New Sombrero Phosphate Co (1878) 3 App Cas 1218 .… 8.20 Ermayne, Re; Sims v Tech Holdings Pty Ltd (1998) 30 ACSR 330 .… 8.53, 8.54 ERS Engines Pty Ltd v Wilson (1994) 35 NSWLR 193; 14 ACSR 531 .… 9.28 Essendon Apartment Developments Pty Ltd (in liq) (No 2), Re [2013] VSC 210 .… 6.21 Eton College v Minister of Agriculture, Fisheries and Food [1964] Ch 274 .… 10.48 Eurofood IFSC Ltd, Re [2006] Ch 508 .… 12.17, 12.18 Exception Holdings Pty Ltd (in liq) v Albarran (No 2) (2005) 194 FLR 274; [2005] NSWSC 981 .… 9.170, 9.171

Exchange Travel (Holdings) Ltd (No 3), Re [1997] 2 BCLC 579 .… 11.63 Expile Pty Ltd v Jabb’s Excavations Pty Ltd (2003) 45 ACSR 711; [2003] NSWCA 163 .… 2.4 Expo International Pty Ltd (in liq) v Chant [1979] 2 NSWLR 820; 4 ACLR 679 .… 2.23, 2.38

F Fabric Dyeworks (Aust) Pty Ltd v Benharron (unreported, Supreme Court, Vic, Smith J, 29 May 1998) .… 10.32 FAI Traders Insurance Co Ltd v Ferrara (1996) 41 NSWLR 91 .… 10.32, 10.34, 10.38 Fairline Furniture (Aust) Pty Ltd (in liq), Re (1988) 12 ACLR 787 .… 9.150 Federal Commissioner of Taxation v B & G Plant Hire Pty Ltd (1994) 14 ACSR 283 .… 10.118 —v Jaques (1956) 95 CLR 223 .… 4.2 —v Radilo Enterprises Pty Ltd (1997) 72 FCR 300; 142 ALR 305 .… 6.15 —v Spotless Services Ltd (1996) 186 CLR 404; 141 ALR 92 .… 3.67 —v St Helen’s Farm (ACT) Pty Ltd (1981) 146 CLR 337 .… 7.12 Federated Clerks’ Case (1949) 79 CLR 428; 23 ALJR 621 .… 7.20, 9.43, 10.1 Federation Group Ltd (ACN 001 532 827)(in liq), Re [2005] FCA 900 .… 12.13 Felixstowe Dock & Railway Co v United States Lines Inc; Freightliners Ltd v United States Lines Inc [1988] 2 All ER 77; [1989] QB 360 .… 12.5 Feret v Hill (1854) 15 CB 207 .… 8.20 Ferrier & Knight v Civil Aviation Authority (1994) 55 FCR 28; 127 ALR 472 . … 4.4, 4.5, 8.46, 11.62 Fielding (as Liquidator of Lyngray Developments Pty Ltd) v Dushas [2013] QCA 55 .… 7.30, 7.31, 7.36 Finance Facilities Pty Ltd v Federal Commissioner of Taxation (1971) 127 CLR 106 .… 8.43 Finnerty v Clark [2011] EWCA Civ 858 .… 6.9

First Equilibrium Pty Ltd v Bluestone Property Services Pty Ltd (in liq) (2013) 95 ACSR 654 .… 2.12 First Line Distribution Pty Ltd v Paul Whiley (1995) 18 ACSR 185; 13 ACLC 1216 .… 2.2 First Strategic Development Corporation Ltd (in liq) v Chan [2014] QSC 60 .… 10.28, 10.35, 10.47, 10.89 Fisher v Divine Homes Pty Ltd (2011) 85 ACSR 512; [2011] NSWSC 8 .… 2.66, 2.69 Fletcher v Fortress Credit Corp (Australia) II Pty Ltd (2011) 82 ACSR 352; [2011] QSC 030 .… 3.11, 3.64 —v Landgridge [2002] FMCA 139 .… 3.35 Flinders Trading Co Pty Ltd, Re (1978) 20 SASR 14; 3 ACLR 218 .… 9.88, 9.148, 9.151 Florence Land and Public Works Co, Re; Ex p Moor (1878) 10 Ch D 530 .… 9.124 Food Controller v Cork [1923] AC 647 .… 8.26 Foots v Southern Cross Mine Management Pty Ltd (2007) 234 CLR 52; 241 ALR 32 .… 4.23 Forster v Wilson (1843) 12 M & W 191 .… 10.137 Fortress Credit Corp (Australia) II Pty Ltd v Fletcher (2014) 308 ALR 166; [2014] NSWCA 148 .… 1.1, 1.14, 1.15, 1.16, 10.133, 10.135, 10.136, 10.137, 10.141, 10.142, 10.145, 10.147 Freightlines Northern Territory Pty Ltd (in liq), Re [2000] 2 Qd R 384; [1999] QSC 209 .… 9.134, 9.143, 9.144, 9.148, 9.153 French Caledonia Travel Service Pty Ltd (in liq), Re (2003) 59 NSWLR 361; 48 ACSR 97; [2003] NSWSC 1008 .… 9.41 Frost v Sheahan [2012] FCAFC 46 .… 3.35

G G & M Aldridge Pty Ltd v Walsh (2001) 203 CLR 662; 38 ACSR 1 .… 1.14, 4.2, 4.18, 4.46, 8.27

Gainsford, Re; Tannenbaum v Tannenbaum (2012) 216 FCR 543; 293 ALR 699; [2012] FCA 904 .… 12.15, 12.18 Gange v Sullivan (1966) 116 CLR 418; 40 ALJR 224 .… 3.60 Garforth v Newsmith Stainless Ltd [1979] 1 WLR 409; [1979] STC 129 .… 3.53 Gas Lighting Improvement Co Ltd v Inland Revenue Commissions [1923] AC 723 .… 10.1 Gas Transport Corp v Official Committee of Unsecured Creditors of Navigator Holdings plc [2007] 2 BCLC 141; [2007] 1 AC 508; [2006] UKPC 26 .… 12.2 Gattellaro v Westpac Banking Corporation (2004) 204 ALR 258 .… 8.61 Gazal Apparel Pty Ltd v Davies (2007) 247 LSJS 391; [2007] SASC 91 .… 11.134 Gemmell v Le Roi Homestyle Cookies Pty Ltd (in liq) [2014] VSCA 182 .… 11.13 General Motors Acceptance Corporation Australia v Southbank Traders Pty Ltd (2007) 227 CLR 305; 234 ALR 608; [2007] HCA 19 .… 9.71 Gibbons v Deputy Commissioner of Taxation [2003] NSWSC 936 .… 2.15, 2.66, 5.17, 5.24, 10.119 Gillespie v City of Glasgow Bank (1879) 4 App Cas 632 .… 9.43 Glendale Land Development Ltd (in liq) [1982] 2 NSWLR 563; 7 ACLR 171 . … 2.23 Global Realty Development Corporation v Dominion Wines Ltd (in liq) (2005) 56 ACSR 474; [2005] NSWSC 1221 .… 11.124 Gloria Marshall Australia Pty Ltd (in liq) v Bell Press Pty Ltd [2002] NSWSC 1191 .… 11.158 Glubb, Re; Bamfield v Rogers [1900] 1 Ch 354 .… 8.20 Gordon v Tolcher in his capacity as liquidator of Senafield Pty Ltd (in liq) (2006) 231 CLR 334; 60 ACSR 522; [2006] HCA 62 .… 11.18, 11.19, 11.22, 11.26, 11.48 Government of India v Taylor [1955] AC 491 .… 12.22

Gramophone Co Ltd v Magazine Holder Co (1911) 28 RPC 221 .… 8.48 Grant Samuel Corporate Finance Pty Ltd v Fletcher; JP Morgan Chase Bank, National Association v Fletcher [2014] HCATrans 167 .… 11.33, 11.45, 11.46 Great Southern Ltd (recs and mgrs apptd) (in liq), Re; Ex p Thackary (2012) 260 FLR 362; [2012] WASC 59 .… 1.48, 2.75 Great Wall Resources Pty Ltd (in liq), Re [2013] NSWSC 354 .… 7.23, 7.29, 8.35 Great Wall Resources Pty Ltd (in liq) v Davidovic Pty Ltd [2011] NSWSC 660 . … 4.56, 10.103 Green v Chiswell Furniture Pty Ltd (in liq) [1999] NSWSC 608 .… 11.35, 11.36 Green (as liquidator of Arimco Mining Pty Ltd) v CGU Insurance Ltd (2008) 67 ACSR 105; [2008] NSWCA 148 .… 10.47, 11.65, 11.66, 11.67, 11.68 Greig v Australian Building Industries Pty Ltd (in liq) [2004] 2 Qd R 17; [2003] QCA 298 .… 11.33, 11.40, 11.41, 11.47, 11.49 —v Commissioner of Taxation [2010] QSC 247 .… 2.26, 2.38 —v Deputy Commissioner of Taxation [2011] QSC 129 .… 2.62 Greig (as liquidators of Allens Services Ltd (in liq)) v Comissioner of Taxation (2010) 79 ACSR 101 .… 2.38 Griffith, Ex p (1883) 23 Ch D 69 .… 4.4 Grimaldi v Chameleon Mining (NL) (No 2); Chameleon Mining NL v Murchison Metals Ltd (2012) 287 ALR 22; [2012] FCAFC 6 .… 10.15, 10.17, 10.21, 10.22, 10.23, 10.28, 10.29 Grimwade v Federal Commissioner of Taxation (No 2) (1949) 78 CLR 199; [1949] ALR 609 .… 3.67 Groome, Ex p (1744) 1 Atk 115; 26 ER 75 .… 1.8 Grosvenor Hill (Qld) Pty Ltd v Barber (Interchase Corporation Case) (1994) 48 FCR 301; 120 ALR 262; 12 ACSR 646 .… 11.29 Group Four Industries Pty Ltd v Brosnan (1991) 56 SASR 234; 5 ACSR 649 .… 10.46 —v Brosnan (1992) 59 SASR 22; 8 ACSR 463 .… 10.50, 10.85

Guardian Mortgages v Miller (2004) 12 BPR 22,833; [2004] NSWSC 1236 .… 6.22 Guardian Securities Ltd, Re [1984] 1 NSWLR 95; 8 ACLR 822 .… 9.81, 9.87, 9.136, 9.145, 9.150 Guthrie v Chandler; sub nom Re Transconsult Australia Pty Ltd (in liq) (1991) 5 ACSR 387 .… 2.44, 8.77 —v Radio Frequency Systems Pty Ltd (2000) 34 ACSR 572 .… 2.46 Gye v McIntyre (1991) 171 CLR 609; 98 ALR 393 .… 1.11, 4.52, 10.137

H H & J Wigmore & Co v Rundle (1930) 44 CLR 222 .… 2.10 H & S Credits Ltd, Re [1969] 2 NSWLR 231; 90 WN (Pt 1) (NSW) 495 .… 1.9 Hadfield v ACN 092 328 400 Pty Ltd [2011] NSWSC 114 .… 9.28 Hall v Aust-Amec Pty Ltd (unreported, Fed C of A, Lindgren J, 20 September 1994) .… 2.30 —v Commissioner of Taxation (2004) 51 ACSR 169; [2004] NSWSC 950 .… 8.48 —v Ledge Finance Ltd [2005] NSWSC 645 .… 6.20, 6.24, 8.1 —v Poolman (2007) 65 ACSR 123; [2007] NSWSC 1330 .… 2.17, 2.26, 2.36, 2.38, 4.53, 10.46, 10.47, 10.75, 10.92, 10.94, 10.96, 10.104, 10.127, 10.138 —v Poolman (2009) 75 NSWLR 99; 71 ACSR 139; [2009] NSWCA 64 .… 11.176 Hall (as liquidator of Reynolds Vineyards Pty Ltd) v Commissioner of Taxation (2004) 51 ACSR 169; [2004] NSWSC 950 .… 8.48, 10.121 —v Commissioner of Taxation (2004) 51 ACSR 173; [2004] NSWSC 985 .… 2.61, 8.50, 10.122, 11.54, 11.71, 11.72 Hamilton v BHP Steel (JLA) Ltd (1995) 13 ACLC 1548 .… 2.26, 2.32, 8.61 —v Commonwealth Bank of Australia (No 2) (1992) 9 ACSR 90; 10 ACLC 1611 .… 8.5, 8.46 —v National Australia Bank Ltd (1996) 66 FCR 12; 19 ACSR 647; 137 ALR 231 .… 8.26, 8.27, 9.126

—v O’Malley [2004] NSWSC 615 .… 5.24 —v Property Investments Ltd [1983] WAR 317; 7 ACLR 932 .… 9.139, 9.143 Hamilton’s Windsor Ironworks, Re; Ex p Pitman & Edwards (1879) 12 Ch D 707 .… 9.124 Handevel Pty Ltd v Comptroller of Stamps (Vic) (1985) 157 CLR 177; 62 ALR 204 .… 3.63 Hankey v Smith (1789) 3 TR 507n .… 10.137 Hanson Construction Materials Pty Ltd v Vimwise Civil Engineering (2006) NSW ConvR 56-137; [2005] NSWSC 880 .… 9.124, 9.127 Hardie Rubber Company Pty Ltd v General Tire & Rubber Company (1973) 129 CLR 521 .… 12.13 Hardy v Fothergill (1888) 13 App Cas 351 .… 1.8 Harkness v Commonwealth Bank of Australia (1993) 32 NSWLR 543; 12 ACSR 165 .… 2.40, 8.54, 8.57, 8.62 —v Partnership Pacific Ltd (1997) 23 ACSR 1 .… 2.72, 4.4, 4.7 —v Potts (1993) 10 ACSR 517 .… 4.38, 4.46 Harman v Fishar (1774) 1 Cowp 117; 98 ER 998 .… 4.4 Harmer v Federal Commissioner of Taxation (1989) 91 ALR 550 .… 9.50 Harris Scarfe Ltd (in liq), Re (2006) 203 FLR 46; 245 LSJS 424; [2006] SASC 277 .… 8.30, 11.28, 11.34, 11.40 Harris Scarfe Ltd (in liq), Re [2007] SASC 209 .… 11.76 Harris Scarfe Ltd (recs and mgrs apptd) (in liq), Re; Dwyer v R-Jay Pty Ltd (2007) 62 ACSR 287; [2007] SASC 115 .… 1.48, 2.62, 2.71 Harris Scarfe Ltd (in liq) (No 3) [2007] SASC 218 .… 1.48, 2.75 —v— (2008) 65 ACSR 616; [2008] SASC 74 .… 11.47, 11.49 Harris v Commissioner of Taxation [2006] 2 Qd R 445; 57 ACSR 706; [2006] QSC 108 .… 2.63, 8.50 Harris, Goodwin & Co, Re (1887) 7 QLJ (NC) N94 .… 1.7 Harris, Goodwin & Co, Re; Standard Insurance Co Ltd, Re [1968] Qd R 118 .… 12.24

Harrison v Lewis [2001] VSC 27 .… 10.40 Hart v Barnes [1983] 2 VR 517; 7 ACLR 310 .… 9.124 Haunstrup (dec’d), Re [1960] VR 302 .… 9.47 Hauxwell, Ex p; Re Hemingway (1883) 23 Ch D 626 .… 9.39 Hawcroft General Trading Co Ltd v Edgar (1996) 20 ACSR 541 .… 10.51 Hawkes Hill Publishing Co Ltd, Re [2007] EWHC 3073 (Ch); [2007] BCC 937 .… 4.46 Hawkins v Bank of China (1992) 26 NSWLR 562; 7 ACSR 349 .… 2.5, 10.1, 10.30, 10.31, 10.32, 10.34 Hayman, Christy & Lilly Ltd, Re [1917] 1 Ch 283 .… 9.38 Health & Life Care Ltd (in liq) v South Australian Asset Management Corporation (1995) 16 ACSR 453; 13 ACLC 552 .… 9.1 Heide Pty Ltd v Lester (1990) 3 ACSR 159; 8 ACLC 958 .… 2.34 Helicopter Sales Pty Ltd v Rotor- Work Pty Ltd (1974) 132 CLR 1; 4 ALR 77 . … 10.121 Hellen v Alex G Grivas Pty Ltd [2002] NSWSC 1019 .… 11.69 Hession v Century 21 South Pacific Ltd (in liq) (1992) 28 NSWLR 120 .… 11.26, 11.65, 11.69 Hewlett Packard Australia Pty Ltd v Exeed Pty Ltd (2004) 48 ACSR 670; [2004] FCA 135 .… 9.142, 9.143 —v GE Capital Finance Pty Ltd (2003) 135 FCR 206; 203 ALR 51 .… 9.148, 9.150, 9.151 Hibernian Merchants Ltd, Re [1958] Ch 76; [1957] 3 All ER 97 .… 12.5 Highland v Exception Holdings Pty Ltd (in liq) (2006) 60 ACSR 223; [2006] NSWCA 318 .… 9.157, 9.158, 9.160, 9.161, 9.171 HIH Casualty and General Insurance Ltd and other companies, Re [2006] 2 All ER 671; [2005] EWHC 2125 (Ch) .… 1.7, 12.6 —, Re [2007] 1 All ER 177; [2006] EWCA Civ 732 .… 12.7 HIH Casualty and General Insurance Ltd, Re; McGrath v Riddell [2008] 3 All ER 869; [2008] 1 WLR 852; [2008] UKHL 21 .… 12.2, 12.5, 12.6, 12.7,

12.8, 12.9, 12.24 HIH Insurance Ltd (in liq), Re; McGrath (2004) 205 ALR 643; 48 ACSR 723 [2004] NSWSC 165 .… 11.40 Hiley v People’s Prudential Assurance Co Ltd (in liq) (1938) 60 CLR 468 .… 1.2, 10.137 Hillig (as liquidator of ACN 060 329 482 Pty Ltd (in liq)) v Commissioner of Taxation (2000) 35 ACSR 626 .… 8.73, 10.118, 10.119 Ho v Akai Pty Ltd (in liq) (2006) 24 ACLC 1526; [2006] FCAFC 159 .… 10.15, 10.17, 10.28, 10.98, 10.106, 10.112 Hobart Bridge Company Ltd v Federal Commissioner of Taxation (1951) 82 CLR 372 .… 10.1 Hobart Tepid Baths Ltd, Re (1940) 35 Tas LR 149 .… 9.37 Hodgson v Amcor Ltd; Amcor Ltd v Barnes (2012) 264 FLR 1; [2012] VSC 94 .… 5.11 Hoffenberg v District Court (NSW) [2010] NSWCA 142 .… 6.15 Horn v York Paper Co Ltd (1990) 3 ACSR 417 .… 12.30 —v York Paper Co Ltd (No 2) (1991) 23 NSWLR 622 .… 11.26 Hornby v Cardwell (1881) 8 QBD 329 .… 10.123 Horne v Chester & Fein Property Developments Pty Ltd [1987] VR 913 .… 1.12 —v Deputy Commissioner of Taxation [2005] VSC 409 .… 11.33, 11.34 Hortico (Aust) Pty Ltd v Energy Equipment Co (Aust) Pty Ltd (1985) 1 NSWLR 545 .… 3.51 Hughes v Hannover Ruckversicherungs AG [1997] 1 BCLC 497 .… 12.12 Humphery v McMullen (1868) 7 SCR (L) 84 .… 4.4, 4.5, 4.6 Hung v Warner, Re; Bellpac Pty Ltd (recs and mgrs apptd) (in liq), Re [2013] FCAFC 48 .… 3.64, 7.5, 7.7, 7.36 Hur v Samsun Logix Corp [2009] FCA 372 .… 12.15 Hurricane Formwork Pty Ltd (in liq)v Commissioner of Taxation [2009] FCA 133 .… 10.124

Hutchison v MS Wulguru Steel Pty Ltd [2012] FCA 272 .… 11.60 Hymix Concrete Pty Ltd v Garritty (1977) 13 ALR 321; 2 ACLR 559 .… 2.38 Hypec Electronics Pty Ltd (in liq) v Mead (2004) 61 NSWLR 169; 50 ACSR 448; [2004] NSWSC 731 .… 11.64

I IATA v Ansett Australia Holdings Ltd (2008) 234 CLR 151 .… 1.12 I C Johnson & Co Ltd, Re [1902] 2 Ch 101 .… 9.153 Illingworth v Houldsworth [1904] AC 355 .… 9.124, 9.125 IMF (Australia) Ltd v Meadow Springs Fairway Resort Ltd (2009) 253 ALR 240; [2009] FCAFC 9 .… 9.1, 9.122, 9.126 Imobridge Pty Ltd (in liq) (No 2), Re [2000] 2 Qd R 280 .… 11.68 Incorporated Council of Law Reporting for the State of Queensland v Federal Commissioner of Taxation (1924) 34 CLR 580 .… 3.26 Independent Automatic Sales Ltd v Knowles & Foster [1962] 3 All ER 27 .… 9.132 Independent Insurance Company Ltd, Re (2005) 193 FLR 43; 23 ACLC 1337; [2005] NSWSC 587 .… 12.10, 12.11, 12.12 Industrial Equity Ltd v Blackburn (1977) 137 CLR 567; 17 ALR 575; 3 ACLR 89 .… 10.1 Ingram v Ingram (1938) 38 SR (NSW) 407 .… 10.49 Inland Revenue Commissioners v Clay [1914] 3 KB 466 .… 9.47 —v Rowntree and Co Ltd [1948] 1 All ER 482 .… 6.15 International Air Transport Association v Ansett Australia Holdings Ltd (2008) 234 CLR 151; 242 ALR 47 .… 1.12 International Cat Manufacturing Pty Ltd (in liq) v Rodrick (2013) 97 ACSR 200 .… 2.35 —v Rodrick [2013] QSC 91 .… 2.12, 2.26, 5.24, 7.33, 10.21, 10.22, 10.23 International Greetings UK Ltd v Stansfield (2010) 80 ACSR 664; [2010] NSWSC 1357 .… 10.102

International Tin Council, Re [1987] 1 All ER 890; [1987] Ch 419 .… 12.5 Investa Properties Ltd, Re (2001) 40 ACSR 124; [2001] NSWSC 1089 .… 9.86, 9.143, 9.148, 9.151, 9.152 Investwell Pty Ltd (in liq) v Roberts [2011] NSWSC 784 .… 11.61 IPT Systems Ltd v MTIC Corporate Pty Ltd (2000) 158 FLR 349; [2000] WASC 316 .… 9.163 Irving v Starmaker (No 51) Pty Ltd (2005) 241 LSJS 413; [2005] SASC 309 .… 6.24 Island Industries Pty Ltd v Pitcher [2005] NFSC 2 .… 2.7 Iso Lilodw’ Aliphumelei Pty Ltd (in liq) v Commissioner of Taxation (2002) 42 ACSR 561; 50 ATR 391; [2002] NSWSC 644 .… 2.32, 2.34, 10.118, 10.126, 10.127 Issitch v Worrell (2000) 172 ALR 586; [2000] FCA 477 .… 2.72 Italiano Family Fruit Co Pty Ltd, Re (2010) 190 FCR 474; 276 ALR 349 .… 9.130, 9.131 Itek Graphix Pty Ltd v Elliott (2002) 54 NSWLR 207; [2002] NSWCA 104 .… 11.35, 11.38

J Jabbour v Official Receiver [2002] FMCA 28 .… 3.35 Jackson, Re [1973] NILR 67 .… 12.11 Jackson & Co Ltd, Re [1899] 1 Ch 348 .… 9.143 James v Andrews (2001) 166 FLR 11; 20 ACLC 425; [2001] NSWSC 1149 .… 10.11, 10.49 —v Commonwealth Bank of Australia (1995) 13 ACLC 1604 .… 4.17 James Hardie & Coy Pty Ltd v Barry (2000) 50 NSWLR 357; [2000] NSWCA 353 .… 11.23 —v Seltsam Pty Ltd (1998) 196 CLR 53; 159 ALR 268 .… 8.48 Janssen-Cilag Pty Ltd v Pfizer Pty Ltd (1992) 109 ALR 638 .… 7.10 Jardio Holdings Pty Ltd v Dorcon Constructions Pty Ltd (1984) 3 FCR 311; 2 ACLC 574 .… 3.37, 8.77

Jay, Ex p; Re Harrison (1880) 14 Ch D 19 .… 1.12 Jeffry & Katauskas Pty Ltd v SST Consulting Pty Ltd (2009) 239 CLR 75; 260 ALR 34; [2009] HCA 43 .… 11.65 Jelin Pty Ltd v Johnson (1987) 5 ACLC 463 .… 10.35 Jervis v Harris [1996] Ch 195; [1996] 1 All ER 303 .… 2.24 Jesseron Holdings Pty Ltd v Middle East Trading Consultants Pty Ltd (1994) 13 ACSR 455 .… 9.158, 9.171 Jetaway Logistics Pty Ltd (recs and mgrs apptd) (in liq) v Deputy Commissioner of Taxation (2008) 68 ACSR 226 .… 4.45 —v Deputy Commissioner of Taxation (2009) 26 VR 657; 76 ACSR 404 .… 2.19, 2.38, 4.52, 10.138 J H Billington Ltd v Billington [1907] 2 KB 106 .… 11.65 John Arnold’s Surf Shop Pty Ltd (in liq) v Heller Factors Pty Ltd (1979) 4 ACLR 26 .… 11.65 John Graham Reprographics Pty Ltd v Steffens (1987) 12 ACLR 779 .… 10.38 Jonas v Rocklea Spinning Mills Pty Ltd (2000) 18 ACLC 333; [2000] VSC 93 . … 11.26, 11.61, 11.69 Jonsson v Tim Ferrier Pty Ltd [2001] QSC 10 .… 8.21, 8.28 Joplin Brewery Co Ltd, Re [1902] 1 Ch 79 .… 9.153 Joye v Beach Petroleum NL & Cortaus Ltd (in liq) (1996) 67 FCR 275; 137 ALR 506; 20 ACSR 525 .… 12.11 JP Morgan Chase Bank, National Association v Fletcher (as liquidator of Octaviar Ltd) (recs and mgrs apptd) (in liq) (2014) 306 ALR 224; 97 ACSR 638; [2014] NSWCA 31 .… 9.133, 9.145, 9.146 JTS Property & Investments No 1 Pty Ltd (in liq) v Sadri [2010] NSWSC 1384 . … 5.27 Julzar Pty Ltd v Rodgers [1999] NSWSC 199 .… 4.65

K Kais v Turvey (1994) 11 WAR 357 .… 8.32 Kalls Enterprises Pty Ltd (in liq) v Baloglow (2007) 63 ACSR 557; [2007]

NSWCA 191; [2008] HCATrans 132 .… 3.12, 3.23, 3.77, 3.78, 5.5, 8.53 Kassem v Zhang [2008] NSWSC 1287 .… 11.61, 11.64 Kastropil, Re; Ex p Official Trustee in Bankruptcy (1989) 33 FCR 135; 109 ALR 568 .… 3.6, 3.10 Katayama v Japan Airlines Corp (2010) 79 ACSR 286; [2010] FCA 794 .… 12.15 Katoa Pty Ltd v Dartnall (1983) 8 ACLR 476 .… 8.61 Kazar (liquidator) v Kargarian; Re Frontier Architects Pty Ltd (in liq) (2011) 197 FCR 113; 284 ALR 237; [2011] FCAFC 136 .… 8.20, 11.6 Kazar, Re; Frontier Architects Pty Ltd (in liq) (2010) 81 ACSR 158; [2010] FCA 1381 .… 2.71, 3.14, 7.31, 7.33 K D Morris & Sons Pty Ltd (in liq) v Bank of Queensland Ltd (1980) 146 CLR 165; 30 ALR 321 .… 3.63 Keith v Verge [2009] WASC 338 .… 10.102, 10.130 Keith Smith East West Transport Pty Ltd (in liq) v Australian Taxation Office (2002) 42 ACSR 501; [2002] NSWCA 264 .… 2.4, 2.15, 2.29, 2.34, 2.60, 8.62 Kemp, Ex p; Re Fastnedge (1874) LR 9 Ch App 383 .… 2.5, 2.9 Kenna & Brown Pty Ltd (in liq) v Kenna (1999) 32 ACSR 430; [1999] NSWSC 533 .… 2.66, 10.46, 10.82, 10.92 Kerisbeck Pty Ltd, Re (1992) 10 ACLC 619 .… 2.34 Ketteman v Hansel Properties Ltd [1987] AC 189; [1988] 1 All ER 38 .… 11.49 Kilgariff v Morris (1955) 91 CLR 524; 29 ALJR 41b .… 3.62, 6.15 Kinch v Wolcott [1929] AC 482 .… 8.48 Kitay v Strathfield Holdings Pty Ltd (1998) 27 ACSR 716 .… 5.24, 8.26 KLDE Pty Ltd (in vol liq) v Commissioner for Stamp Duties [1984] ACLD 188 .… 8.26 Kolb, Re; Ex p England v FCT (1994) 51 FCR 31; 128 ALR 156 .… 10.137 Kostopoulos v GE Commercial Finance Australia Pty Ltd [2005] QCA 311 .… 3.59

Krecichwost v R (2012) 88 ACSR 339 .… 10.67, 10.68 Kris Cruisers Ltd, Re [1949] Ch 138; [1948] 2 All ER 1105 .… 9.79, 9.140, 9.142, 9.143, 9.153 Kuwait Asia Bank EC v National Mutual Life Nominees Ltd [1991] 1 AC 187 . … 10.16 Kyra Nominees Pty Ltd, Re [1981] WAR 120; (1980) 5 ACLR 60 .… 1.3

L Lam Soon Australia Pty Ltd v Molit (No 55) (1996) 70 FCR 34 .… 2.36 Landmark Corp Ltd (in liq), Re [1968] 1 NSWR 705; (1968) 88 WN (Pt 1) (NSW) 195 .… 9.1 Lanepoint Enterprises Pty Ltd (recs and mgrs apptd) v Australian Securities and Investments Commission (2010) 78 ACSR 487; [2010] FCAFC 49 .… 5.24 Lanpac International Pty Ltd (in liq), Re [1998] VSC 9 .… 4.24 Laurie v Carroll (1958) 98 CLR 310 .… 12.34 Lawrence Waterhouse Pty Ltd (in liq), Re; Shaw v Minsden Pty Ltd [2011] NSWSC 964 .… 2.66, 3.68, 7.22, 7.29, 7.33 Lazard Bros v Midland Bank [1933] AC 289 .… 12.5 Lebrain, Re (1975) 24 FLR 407 .… 8.5 Lee Kong v Pilkington (Australia) Ltd (1997) 25 ACSR 103; 15 ACLC 1561 . … 2.32, 2.43 Leigh, Re; AP and PJ King Pty Ltd (in liq) [2006] NSWSC 315 .… 11.76 Leigh-Mardon Pty Ltd v Wawn (1995) 17 ACSR 741 .… 10.39 Leisure Developments (Qld) Pty Ltd, Re (2002) 41 ACSR 276 .… 11.17 Leslie v Howship Holdings Pty Ltd (1997) 15 ACLC 459 .… 2.15 Lesvos Pty Ltd, Re [2012] NSWSC 1288 .… 7.5, 7.36, 7.38 Leveraged Equities Ltd v Finance and Equity Pty Ltd [2007] NSWSC 1197 .… 2.36 —v Hilldale Australia Pty Ltd (2008) 26 ACLC 182; [2008] NSWSC 190 .… 2.4, 2.35

Levi v Guerlini (1997) 24 ACSR 159; 15 ACLC 913 .… 2.34, 2.65, 2.66, 8.52, 8.56, 8.59 Lewis (as liquidator of Doran Constructions Pty Ltd (in liq)) v Doran (2005) 219 ALR 555; 54 ACSR 410; [2005] NSWCA 243 .… 2.4, 2.12, 2.13, 2.15, 2.19, 2.26, 2.34, 2.38, 3.68, 5.6, 5.9, 5.12, 5.13, 5.14, 7.30, 8.10 —v Cook (2000) 18 ACLC 490; [2000] NSWSC 191 .… 5.10, 5.24 —v Doran (2004) 208 ALR 385; [2004] NSWSC 608; 50 ACSR 175 .… 2.12, 2.19, 2.34, 2.36, 2.40, 2.44 Lewis Merthyr Consolidated Collieries Ltd; Lloyds Bank Ltd v Lewis Merthyr Consolidated Collieries Ltd, Re [1929] 1 Ch 498 .… 9.131 Lewis v Commissioner of Inland Revenue [2001] 3 All ER 499 .… 11.62 —v VI SA Australia Pty Ltd (2008) 252 ALR 533 .… 2.40, 2.43 L H Charles & Co Ltd, Re (1935) WN (Eng) 15 .… 9.136 L H K Nominees Pty Ltd v Kenworthy (2002) 26 WAR 517; [2002] WASCA 291 .… 2.47 Lifestyle Earls Court Pty Ltd (in liq) v Mentone Mansions Pty Ltd [2006] VSC 2 .… 4.27, 5.22 Lindholm, Re; Opes Prime Stockbroking Ltd (admin apptd) (recs and mgrs apptd) (2008) 68 ACSR 88 .… 1.11 Lindner v Wright (1976) 14 ALR 105 .… 10.48 Lines Bros Ltd, Re [1982] 2 All ER 183 .… 1.2 Lion Nathan Brewing Investments Pty Limited v Commissioner for ACT Revenue (1997) 79 FCR 177; 149 ALR 335 .… 9.47 Lister v Hooson [1908] 1 KB 174 .… 4.52 Livingspring Pty Ltd v Kliger Partners (2008) 66 ACSR 455; [2008] VSCA 93 . … 2.46, 2.47, 11.69 Lloyd Anthony Furniture Pty Ltd, Re; Ex p Walker (1996) 19 ACSR 478; 14 ACLC 540 .… 9.143, 9.150 Lloyds Bank Ltd v Marcan [1973] 1 WLR 1387 .… 8.17 Locktronic Systems Pty Ltd (No 1), Re [2008] VSC 626 .… 8.50

Locktronic Systems Pty Ltd (No 2), Re [2009] VSC 523 .… 11.61 Lombe v Wagga Leagues Club Ltd (2006) 56 ACSR 387; [2006] NSWSC 3 .… 9.135 Londish v Sheahan; Re Valofo Pty Ltd [2010] NSWSC 337 .… 2.35 London and Counties Assets Company Ltd v Brighton Grand Concert Hall and Picture Palace Limited [1915] 2 KB 493 .… 2.15 Longdendale Cotton Spinning Co, Re (1878) 8 Ch D 150 .… 9.1 Lord v Agreserves Australia Ltd [2006] FCA 598 .… 11.58 Loteka Pty Ltd (in liq), Re (1989) 15 ACLR 620 .… 8.77 Lucas v Currie (2013) 217 FCR 308; [2013] FCA 1404 .… 9.31, 9.35, 9.36 Lucas v Queensland Maintenance Services Pty Ltd (in liq) (recrs and mgrs apptd) [2012] FCA 1451 .… 9.32 Luckins v Hwy Motel (Carnarvon) Pty Ltd (1975) 133 CLR 164 .… 3.26

M M & R Jones Shopfitting Co Pty Ltd v National Bank of Australasia Ltd (1983) 68 FLR 282; 7 ACLR 445; 1 ACLC 946 .… 2.44, 2.59, 4.22 McColl’s Wholesale Pty Ltd v State Bank of NSW [1984] 3 NSWLR 365 .… 10.123 McDonald, Ex p; Re Partridge (1960) 61 SR (NSW) 622 .… 1.4 —v Hanselmann (1998) 144 FLR 463; (1998) 28 ACSR 49; [1998] NSWSC 171 .… 3.20, 5.7, 5.10, 5.17, 5.18, 5.19, 7.30, 8.33, 11.21 McDougall v Patterson (1851) 11 CB 755; 138 ER 672 .… 8.43 McGrath v National Indemnity Co (2004) 49 ACSR 403; 182 FLR 309; [2004] NSWSC 391 .… 11.33, 11.43, 12.35 McKern v Minister Administering the Mining Act 1978 (WA) (2010) 28 VR 1; 78 ACSR 630; [2010] HCATrans 327 .… 1.18, 4.21, 4.24, 4.39, 4.42, 4.44, 4.45 McLellan, Re; The Stake Man Pty Ltd v Carroll (2009) 76 ACSR 67; [2009] FCA 1415 .… 2.34, 2.39, 10.46, 10.47, 10.75, 10.82, 10.102, 12.34 Macleod v R (2003) 197 ALR 333; 77 ALJR 1047; [2003] HCA 24 .… 10.66

Macquarie Health Corp Ltd v Commissioner of Taxation (1999) 96 FCR 238; 169 ALR 16; [1999] FCA 1819 .… 8.16 McVeigh (as liquidator of JAG Plastering & Carpentry Pty Ltd (Vic)) v Commissioner of Taxation [2004] FCA 653 .… 2.48 Maelor Jones Investments (Noarlunga) Pty Ltd v Heywood-Smith (1989) 54 SASR 285; 7 ACLC 1232 .… 10.97 Magor & St Mellons Rural District Council v Newport Corp [1950] 2 All ER 1226 .… 11.29, 11.73 Maiden Civil (P & E) Pty Ltd, Re; Albarran v Queensland Excavation Services Pty Ltd (2013) 277 FLR 337; [2013] NSWSC 852 .… 9.6, 9.71 Main Camp Tea Tree Oil Ltd v Australian Rural Group Ltd (2002) 20 ACLC 726; [2002] NSWSC 219 .… 2.10, 2.18, 2.25 Makita (Aust) Pty Ltd v Sprowles (2001) 52 NSWLR 705; [2001] NSWCA 305 .… 2.53, 2.54 Mal Bower’s MacQuarrie Electrical Centre Pty Ltd (in liq), Re [1974] 1 NSWLR 254 .… 8.77 Maldon Enterprises Pty Ltd (in liq), Re; Melsom v United Development Corporation Group Pty Ltd (unreported, WASC, Ipp J, 19 February 1993) . … 2.44 Mann v Sangria Pty Ltd (2001) 38 ACSR 307; [2001] NSWSC 172 .… 3.12, 3.64, 3.71, 3.74, 3.75, 4.39, 4.45, 8.56 Manpac Industries Pty Ltd v Ceccattini (2002) 20 ACLC 1304; [2002] NSWSC 330 .… 2.4, 2.15, 2.27, 10.81, 10.92 Manson v Smith [1997] 2 BCLC 161 .… 10.135 Maran Distributors Pty Ltd (in liq), Re (1992) 8 ACSR 653 .… 4.62 Marantha Ski Club Co-operative Ltd, Re (1976) 2 ACLR 245 .… 1.36 Marcolongo v Chen (2011) 242 CLR 546; 274 ALR 634; [2011] HCA 3 .… 8.17 Marino v Esanda Ltd [1986] VR 735 .… 11.57 Markets Nominees Pty Ltd v Commissioner of Taxation [2012] FCA 262 .… 9.125

Marks v Feldman (1870) LR 5 QB 275 .… 4.4, 8.5 —v GIO Australia Holdings Ltd (1998) 196 CLR 494; 158 ALR 333 .… 9.47 —v Trustees Executors and Agency Co Ltd (1948) 77 CLR 497 .… 9.50 Marriott Industries Pty Ltd v Mercantile Credits Limited; Maesbury Plumbers Pty Ltd (intervener) (1991) 9 BCL 256; 160 LSJS 288 .… 2.10, 2.18, 2.25 Marshall v Scottish Milk Marketing Board [1956] SLT 162 .… 3.26 Matheson Brothers Ltd, Re (1884) 27 Ch D 225 .… 12.6 Matthew Ellis Ltd, Re [1933] Ch 458 .… 9.37 Matthews v Geraghty (1986) 4 ACLC 727 .… 4.38 Maurice Drycleaners Pty Ltd (in liq) v National Australia Bank Ltd (1990) 8 ACLC 798 .… 8.46 Maxwell Communication Corp, Re (1994) 170 Bankr R 800 .… 12.8 Maxwell Communications Corp (No 2), Re; Barclays Bank v Homan [1992] BCC 757 .… 8.43 Maxwell Communications Corporation (No 2), Re [1994] 1 BCLC 1 .… 12.32 M C Bacon Ltd (No 2), Re [1991] Ch 127; [1990] BCLC 607 .… 11.62 Mead v Watson [2005] NSWCA 133 .… 11.64 Mecirt Holdings Pty Ltd, Re (1998) 16 ACLC 1148 .… 1.3 Melbase Corporation Pty Ltd v Segenhoe Ltd (1995) 17 ACSR 187; 13 ACLC 823 .… 2.4, 2.32, 2.33 Meldrum, Re; Ex p Butcher (1874) LR 9 Ch App 595 .… 8.68 Melsom v Vanpress Pty Ltd (1990) 3 ACSR 109 .… 4.5 Mendip Press Ltd, Re (1901) 18 TLR 38 .… 9.143 Merchant and Partners (Sydney) Pty Ltd v Halse (2000) 18 ACLC 254; [1999] WASCA 200 .… 4.25 Merrag Pty Ltd (in liq) v Khoury [2009] NSWSC 915 .… 4.46, 5.24, 7.36 Mesco Properties Ltd, Re [1979] 1 All ER 307; [1979] 1 WLR 588 .… 11.62 Metal Manufactuers Ltd v Lewis (1988) 13 ACLR 357 .… 10.1 —v Lewis (1986) 11 ACLR 122; 4 ACLC 739 .… 10.50, 10.54, 10.75

Metcalf Crane Services Pty Ltd v Rathner [2011] VSC 195 .… 8.53, 8.70 Metcash Trading Ltd v 8 Nai Investments Pty Ltd [2011] FCA 1400 .… 9.79, 9.88, 9.141, 9.143 Meteyard v Love (2005) 65 NSWLR 36; 56 ACSR 487; [2005] NSWCA 444 . … 11.14, 11.16 Metropolitan Brick Co v Hayward [1938] SASR 462 .… 2.10, 2.18, 2.25 Metropolitan Fire Systems Pty Ltd v Miller (1997) 23 ACSR 699 .… 10.46 MGT Samorr Knitting Mills Pty Ltd v Rocklea Spinning Mills Pty Ltd [2003] VSC 277 .… 2.1, 2.13, 4.26 M Hoffman Nominees Pty Ltd v Cosmas Fish Processors (International) Pty Ltd (in liq) (rec and mgr apptd) [1983] 1 VR 349; 7 ACLR 65 .… 9.37, 9.38, 9.39 MIG Trust Ltd, Re [1933] Ch 542 .… 9.146 Mike Electric (Aust) Pty Ltd (in liq), Re (1983) 71 FLR 117; 7 ACLR 600; 1 ACLC 758 .… 2.34, 8.46 Mills Conduit Investments Ltd v Leslie & Denholm [1932] 1 KB 233 .… 6.5 —v Tattersall [1940] 1 All ER 281; 56 TLR 209 .… 6.6 Milne v Attorney-General (Tas) (1956) 95 CLR 460 .… 11.61 Mineral & Chemical Traders Pty Ltd v T Tymczyszyn Pty Ltd (in liq) (1994) 15 ACSR 398 .… 11.63 Minister for Transport (WA) v Francis (2000) 35 ACSR 584 .… 3.71, 4.34, 4.37 Mistmorn Pty Ltd (in liq) v Yasseen (1996) 21 ACSR 173 .… 10.21, 10.23 Mitry v Business Australia Capital Finance Pty Ltd (in liq) [2010] NSWCA 360 .… 11.26 ML Ubase Holdings Co Ltd v Trigem Computer Inc (2007) 69 NSWLR 577; [2007] NSWSC 859 .… 12.11 MMAL Rentals Pty Ltd v Bruning (2004) 63 NSWLR 167; [2004] NSWSC 451 .… 9.47 Modern Master Pty Ltd (in liq) v Canon Australia Pty Ltd [2007] NSWDC 245 . … 4.66

Molit (No 55) Pty Ltd v Lam Soon Australia Pty Ltd (1996) 68 FCR 319 .… 10.43 —v Lam Soon Australia Pty Ltd (1997) 24 ACSR 47 .… 10.48 Mondello Farms Pty Ltd v Annatom Pty Ltd (2007) 64 ACSR 91 .… 10.45 Montecatini’s Patent, Re (1973) 47 ALJR 169 .… 2.52 Moor v Anglo-Italian Bank (1879) 10 Ch D 681 .… 9.1, 9.124 Morewood v South Yorkshire Railway & River Dun Co (1858) 3 H & N 798 .… 8.5 Morkaya v Parkinson; Parkinson v Morkaya [2008] NSWSC 1050 .… 2.40 Morley v Statewide Tobacco Services Ltd [1993] 1 VR 423; 8 ACSR 305 .… 10.49, 10.50, 10.54, 10.75 Morris v Commissioner of Taxation [2007] QSC 320 .… 2.44 —v Danoz Directions Pty Ltd (in liq) (No 2) [2010] FCA 836 .… 2.41, 2.55 —v Hanley [2000] NSWSC 957 .… 11.67 —v Woodings (1997) 25 ACSR 63; 16 ACLC 47 .… 9.150 Mosaic Oil NL v Angari Pty Ltd (No 2) (1990) 20 NSWLR 280 .… 3.3 Motor Terms Co Pty Ltd v Liberty Insurance Ltd (in liq) (1967) 116 CLR 177; [1967] ALR 465 .… 1.9, 8.38 Movitor Pty Ltd (in liq) v Sims (1996) 64 FCR 380; 136 ALR 643; 19 ACSR 440 .… 11.29, 11.63, 11.73 Muggeridge’s Settlement, Re (1860) 29 LJ (Ch) 288 .… 2.15 Mulherin v Bank of Western Australia Ltd; McCann v Bank of Western Australia Ltd [2006] QCA 175 .… 2.34, 3.69, 3.71, 5.8, 5.16, 5.17 Muller and McIntosh (as joint and several liquidators of Arafura Equities Pty Ltd (in liq)) v Academic Systems Pty Ltd [2007] QCA 218 .… 8.53, 8.63, 8.71 Multiplex Acumen Property Fund, Re [2009] NSWSC 1014 .… 9.143 Muntz v Smail (1909) 8 CLR 262 .… 4.4, 4.5 Murray v King (1984) 4 FCR 1; 55 ALR 559 .… 9.43 Mustang Marine Australia Services Pty Ltd (admin apptd), Re; Perpetual

Trustee Co Ltd v Mustang Marine Australia Services Pty Ltd [2010] NSWSC 1429 .… 10.114 Mustang Marine Australia Services Pty Ltd (in liq), Re (2013) 94 ACSR 601; [2013] NSWSC 360 .… 10.98, 10.102, 12.30

N N A Kratzmann Pty Ltd (in liq) v Tucker (No 1) (1966) 123 CLR 257 .… 8.68 —v Tucker (No 2) (1968) 123 CLR 295; [1968] ALR 616 .… 1.6, 8.6, 8.21, 8.27, 9.126, 10.114 Natcomp Technology Australia Pty Ltd v Graiche [2001] NSWCA 120 .… 10.21, 10.22, 10.23 National Acceptance Corp Pty Ltd v Benson (1988) 12 NSWLR 213 .… 8.76 National Australia Bank Limited v Davis & Waddell (Vic) Pty Ltd (2003) 44 ACSR 296; [2003] VSC 1 .… 9.47, 9.79, 9.134, 9.137, 9.138, 9.140, 9.143, 9.150 —v KDS Construction Services Pty Ltd (in liq) (1987) 163 CLR 668 .… 4.55 —v T2 Trading Pty Ltd [2003] FCA 1477 .… 9.143 National Bank of Australasia v Morris [1892] AC 287 .… 8.72 National Employers’ Mutual General Insurance Assn Ltd, Re (1995) 15 ACSR 624 .… 12.24 National Westminster Finance Aust Ltd v JD Johnson & Co [1991] 1 Qd R 130; 2 ACSR 649 .… 9.132 Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 110 ALR 449 .… 10.56 Nelson v Nelson (1995) 184 CLR 538 .… 4.4 Neowarra v State of Western Australia [2003] FCA 1399 .… 2.55 NEPV Solar, Re [2012] QSC 323 .… 11.61 Netet Pty Ltd v Mott (1994) 13 ACSR 586; 12 ACLC 578 .… 9.167 New Cap Reinsurance Corp (in liq) v AE Grant (2009) 72 ACSR 638; [2009] NSWSC 662; 207 ALR 676 .… 1.53, 4.46, 4.51, 8.20, 8.24, 8.27, 8.29, 8.30, 8.38, 8.43, 8.45, 11.26, 11.27, 11.61, 12.33, 12.37

—v Grant [2013] 1 AC 236; [2013] 1 All ER 521 .… 12.5, 12.35, 12.38 —v Reaseguros Alianza SA (2004) 186 FLR 175; [2004] NSWSC 787 .… 11.35, 11.36, 11.37, 11.39, 11.40, 11.41, 11.48 New Cap Reinsurance Corp Ltd v All American Life Insurance Co (2004) 49 ACSR 417; [2004] NSWSC 366 .… 4.24, 4.43 —v Faraday Underwriting Ltd (2003) 47 ACSR 306; 177 FLR 52; [2003] NSWSC 842 .… 8.24, 8.30 —v Renaissance Reinsurance Ltd (2002) 43 ACSR 65; [2002] NSWSC 856 .… 3.44, 8.22, 12.30 —v Somerset Marine Inc [2003] NSWSC 540 .… 3.11, 3.12, 3.30, 3.43 New Prance and Garrard’s Trustee v Hunting [1897] 2 QB 19 .… 4.5 New World Alliance Pty Ltd, Re; Sycotex Pty Ltd v Baseler (1994) 13 ACSR 766 .… 10.32 New World Alliance Pty Ltd, Re; Sycotex Pty Ltd v Baseler (No 2) (1994) 51 FCR 425 .… 10.51 Newark Pty Ltd (in liq), Re; sub nom Taylor v Carroll; Re Newark Pty Ltd (in liq) [1993] 1 Qd R 409; 6 ACSR 255 .… 2.26, 2.32, 2.34 Ng v Van Der Velde [2011] FCAFC 35 .… 5.24, 5.36 Nichol v Fearby; Nichol v Robinson [1923] 1 KB 480 .… 9.139, 9.143 Nilant v Borden Australia Pty Ltd (unreported, FCA, Hill J, 26 June 1996) .… 2.44, 2.59 —v Plexipack Packaging Services Pty Ltd (1996) 68 FCR 352; 21 ACSR 428; 14 ACLC 1559 .… 3.29, 3.38, 3.71, 4.29 —v Shenton [2001] WASCA 421 .… 10.116, 10.117 Norcast SárL v Bradken Limited (No 2) [2013] FCA 235 .… 3.27 Norfolk Plumbing Supplies Pty Ltd v Commonwealth Bank of Australia (1992) 6 ACSR 601 .… 2.28, 2.32, 3.37 Northside Properties Pty Ltd, Re [1971] 2 NSWLR 320 .… 1.9 Notaras v Hugh [2003] NSWSC 167 .… 2.57 Noxequin Pty Ltd v Deputy Commissioner of Taxation [2007] NSWSC 87 .…

2.4, 2.16, 8.48, 10.122, 10.133 N W Robbie Co Ltd v Witney Warehouse Co Ltd [1963] 3 All ER 613 .… 8.26

O Oakes v Turquand and Harding (1867) LR 2 HL 325 .… 8.20 Oasis Merchandising Ltd, Re [1998] Ch 170; [1997] 1 All ER 1009 .… 11.62 O’Brien v Komesaroff (1982) 150 CLR 31 .… 11.28 Octaviar (No 8), Re (2009) 73 ACSR 139; [2009] QSC 202 .… 6.20 Octaviar Administration Pty Ltd (in liq), Re (2013) 94 ACSR 612; [2013] NSWSC 786 .… 10.122, 11.34 Octaviar Ltd (formerly MFS Ltd), Re [2008] QSC 216 .… 1.48, 2.75 Octaviar Ltd (recs and mgrs apptd) (in liq), Re [2011] NSWSC 1691 .… 11.46 Octaviar Ltd (recs and mgrs apptd) (in liq), Re (2012) 271 FLR 413; [2012] NSWSC 1460 .… 11.42, 11.43 Octaviar Ltd (recs and mgrs apptd) (in liq), Re (2013) 93 ACSR 316; [2013] NSWSC 62 .… 11.46 Octavo Investments Pty Ltd v Knight (1979) 144 CLR 360; (1979) 4 ACLR 575 .… 3.54, 4.25, 11.63 Official Trustee in Bankruptcy v Baker (FCA, 5 August 1994, unreported) .… 8.17 Ogdens Ltd v Weinberg (1906) 95 LT 567; 22 TLR 729 .… 2.24 Ogilvie v Currie (1868) 37 LJ Ch 541 .… 8.20 Old Kiama Wharf Company Pty Ltd (in liq) v Betohuwisa Investments Pty Ltd [2010] FCA 1290 .… 11.24 —v—(2011) 85 ACSR 87; [2011] NSWSC 823 .… 5.11, 5.12, 5.14, 5.24, 11.24 Olifent v Australian Wine Industries Pty Ltd (1996) 19 ACSR 285 .… 8.57 Omnico Ltd, Re (1976) 1 ACLR 381 .… 4.55 Onefone Australia Pty Ltd v OneTel Ltd (2007) 61 ACSR 246; [2007] NSWSC 69; [2007] NSWSC 1188 .… 11.16, 11.17, 11.33, 11.34, 11.41, 11.46 Opes Prime Stockbroking Ltd, Re (2009) 179 FCR 20; 258 ALR 362 .… 1.11,

9.129 Orchard v Simpson (1857) 2 CB (NS) 299; 140 ER 431 .… 9.47 Origin Internet Solutions Pty Ltd (No 2), Re (2001) 51 ACSR 163; [2004] FCA 1354 .… 10.109 Osborn, Re (1932) 15 B & CR 189 .… 12.11 Osborn, Re; Ex p Trustee of Property of Osborn v Osborn (1989) 91 ALR 135 . … 8.68 Ostrgro Australia Pty Ltd v Syarrum Ostriches WAS Pty Ltd [2002] WASC 140 .… 2.46 Otzen v Beabout (1947) 75 CLR 116 .… 7.21 Owenlaw Mortgage Managers Ltd v Shepparton Retail Investments Pty Ltd [2011] VSC 544 .… 2.38 Owens Bank Ltd v Bracco [1992] 2 AC 443 .… 12.38 Oygevault International BV (in liq), Re (1994) 14 ACSR 245 .… 12.29

P Pacific Hardware Brokers (Qld) Pty Ltd, Re (1997) 16 ACLC 442 .… 3.31, 8.32 Page v Commonwealth Life Assurance Society Ltd (1935) 36 SR (NSW) 85 .… 4.23 Paine, Re; Ex p Read [1897] 1 QB 122 .… 4.34 Paino v Paino (2008) 40 Fam LR 96 .… 2.55 Palmer v Commissioner of Taxation [2006] NSWSC 1253 .… 10.132 Panadell Architectural Cladding Systems Pty Ltd v Panadell Industries Pty Ltd [2010] FCA 511 .… 9.88, 9.143 Panama, New Zealand and Australian Royal Mail Co, Re (1870) 5 Ch App 318 . … 9.124 Panasonic Australia Pty Ltd v Wily (1997) 23 ACSR 266 .… 1.42, 1.57 Papua New Guinea Dockyard Ltd v Adams (2005) 215 ALR 742; [2005] FCA 413 .… 9.96, 9.162 Paramount Airways Ltd, Re [1993] Ch 223; [1992] 3 WLR 690 .… 8.43, 12.32,

12.38 Park and McIntosh v Lanray Industries Pty Ltd (2010) 80 ACSR 186; [2010] QCA 257 .… 11.27 Parker v Gossage (1835) 2 Cr M & R 617; 150 ER 262 .… 2.15 —v Tucker (2010) 77 ACSR 525 .… 5.24 Parkfield Trust Ltd v Dent [1931] 2 KB 579 .… 6.6 —v Portman (1937) 81 Sol LJ 687 .… 6.6 Parramatta Electric Supply Co Ltd (1919) 19 SR (NSW) 103; 36 WN (NSW) 41 .… 9.153 Parsons v Martin (1984) 5 FCR 235 .… 12.13 Paul v Pavey & Matthews Pty Ltd (1985) 3 NSWLR 114; 2 BCL 274 .… 2.6 Pauls Ltd v Dwyer [2004] 2 Qd R 176; 43 ACSR 413; [2002] QCA 545 .… 7.40 Pavelic Investments Pty Ltd, Re (1983) 8 ACLR 417 .… 11.65 Payne v Young (1980) 145 CLR 609; 30 ALR 577 .… 11.57 Pearce v Button (1985) 8 FCR 40 .… 12.13 Pearson v Naydler [1977] 3 All ER 531; [1977] 1 WLR 899 .… 11.65 Pegulan Floor Coverings Pty Ltd v Carter (1997) 24 ACSR 651 .… 2.34, 2.40, 8.24, 8.30, 8.44, 8.46, 8.53, 11.18 Peldan v Anderson (2006) 227 CLR 471; 229 ALR 432 .… 3.34, 3.35 Pen-y-Van Colliery Company, Re (1877) 6 Ch D 477 .… 2.24 Peninsula Services Pty Ltd (in liq), Re (1987) 91 FLR 4 .… 1.36 Peninsular Group Ltd v Kintsu Co Ltd (1998) 44 NSWLR 534 .… 3.26 Pennywise Smart Shopping Australia Pty Ltd (in liq) v Sommer & Co Pty Ltd (1992) 59 SASR 539; 9 ACSR 557 .… 9.37 Perpetual Trustee Company Ltd, Re [2010] FCA 357 .… 9.78, 9.143 Perrins v State Bank of Victoria [1991] 1 VR 749 .… 9.130 Peruss, Re [1980] 2 NSWLR 443; 5 ACLR 176 .… 9.4 Peter Nobbs Consultancy Pty ltd (in liq) v Brambles Holdings Ltd (1987) 11 ACLR 460 .… 5.1

Peter Pan Management Pty Ltd v Capital Finance Corp (Aust) Pty Ltd (2001) 19 ACLC 1,392; [2001] VSC 227 .… 5.10 Peters v R (1998) 192 CLR 493; 151 ALR 51; [1998] HCA 17 .… 10.66, 10.67, 10.68 Petratos v Provident Capital Ltd [2009] FMCA 1168 .… 6.18 PFTZM Ltd (in liq), Re; Jourdain v Paul [1995] 2 BCLC 354; [1995] BCC 280 . … 10.27 Pioneer Concrete (Vic) Pty Ltd v Stule (1994) 20 ACSR 475 .… 2.34 —v Stule (No 2) (1996) 20 ACSR 480 .… 2.32 Plante v James [2011] QCA 109 .… 6.15 Playcorp Pty Ltd v Shaw (1993) 10 ACSR 212; 11 ACLC 641 .… 10.20, 10.90 Playspace Playground Pty Ltd v Osborn [2009] FCA 1486 .… 2.40, 2.44, 10.56, 10.57 Plumbers Supplies Co-operative Limited v Firedam Civil Engineering Pty Ltd [2011] NSWSC 325 .… 1.48, 2.75, 8.29 PMC Investments Pty Ltd, Re (1991) 9 ACLC 1559 .… 2.23 Port Supermarket Ltd, Re [1978] 1 NZLR 330 .… 9.39 Porter v Bonarrigo [2009] VSC 500 .… 9.127 —v Computer Based Technology Pty Ltd [2004] NSWSC 476 .… 9.1 Potts v Miller (1940) 64 CLR 282; 14 ALJR 341 .… 2.50, 2.52 Powell (as joint liquidators of Nolex Yachts Australia Pty Ltd (in liq)) v Fryer (2001) 37 ACSR 589; 159 FLR 433; [2000] SASC 97 .… 2.5, 2.16, 2.32, 2.34, 4.36, 4.45, 4.57, 10.30, 10.32, 10.33, 10.34, 10.37, 10.46, 10.47, 10.48, 10.53, 10.94, 10.102 Poyser v Commissioner for Corporate Affairs (1985) 3 ACLC 584 .… 10.117 Prentice v St George Bank Ltd (2002) 20 ACLC 923; [2002] NSWSC 358 .… 3.12, 3.65, 3.78, 4.32 Price (No 6), Re; Richardson v Commercial Banking Co of Sydney Ltd (1949) 15 ABC 26 .… 4.42 Prospect Electricity v Advanced Glass Technology of Australia Pty Ltd (1996)

22 ACSR 6 .… 8.58 PT Berlian Laju Tanker TBK v Nuse Shipping Ltd (The Aktor) [2008] EWHC 1330 (Comm) .… 3.52 PT Garuda Indonesia Ltd v Grellman (1992) 107 ALR 199; (1992) 35 FCR 515; 107 ALR 199 .… 4.3, 4.4, 8.67, 8.68 Public Trustee (Qld) v Octaviar Ltd (2009) 73 ACSR 139; [2009] QSC 202 .… 1.48, 2.44, 2.75

Q Quality Camera Co Pty Ltd, Re [1965] NSWR 1330; 83 WN (Pt 1) (NSW) 226 . … 8.26, 9.126 Quarry Quip Engineering Pty Ltd v Starr [2002] VSC 541 .… 10.78 Queensland Bacon Pty Ltd v Rees (1966) 115 CLR 266; [1966] ALR 855 .… 2.39, 2.40, 4.15, 4.21, 4.44, 4.57, 4.58, 4.59, 8.54, 8.57, 8.58, 8.59, 8.61, 8.62, 10.46 Queensland Company Credit Union v Na-Kuraga Ltd (2005) 55 ACSR 219; [2005] QSC 149 .… 9.79, 9.142, 9.143, 9.148, 9.149 Queensland v The Commonwealth (1977) 139 CLR 585 .… 4.23 Quick v Stoland Pty Ltd (1998) 29 ACSR 130; 157 ALR 615 .… 2.26, 2.52, 2.55, 2.57, 10.48, 10.102, 10.108, 10.109, 10.148

R R v Dunwoody (2004) 212 ALR 103; [2004] QCA 413 .… 1.22, 8.4 —v Ghosh [1982] QB 1053 .… 10.66 —v O’Driscoll (2003) 57 NSWLR 416; 200 ALR 283 .… 3.8 —v Oettinger [2014] ACTSC 47 .… 10.68 —v Portus; Ex p Federated Clerks Union of Australia (1949) 79 CLR 42 .… 9.43, 10.1 —v Seifert (1955) 73 WN (NSW) 358 .… 2.52 —v Timothy Rhys Hawker Williams (unreported, Supreme Court of Tasmania, 24 June 2004) .… 10.69

—v Toohey; Ex p Attorney-General (NT) (1980) 145 CLR 374 .… 7.20, 9.43 —v Turner (No 17) (2002) 10 Tas R 388; [2002] TASSC 18 .… 2.46 Rafeletos v Great Wall Resources Pty Ltd (No 4) [2012] FCA 1168 .… 5.6 Rambaldi v Dallbrook Pty Ltd (2003) 21 ACLC 1190; [2003] VSC 163 .… 11.48 Ramsay v National Australia Bank Ltd [1989] VR 59; 13 ACLR 732 .… 3.38, 3.41, 3.42, 4.26, 4.29 Ravi Nominees Pty Ltd, Re (1993) 10 ACSR 599 .… 3.37 Reading Trust Ltd v Spero [1930] 1 KB 492 .… 6.6 Rees v Bank of New South Wales (1964) 111 CLR 210; [1965] ALR 139 .… 2.17, 4.14, 4.63 Reese River Silver Mining Co Ltd v Smith (1869) LR 4 HL 64 .… 8.20 Regis Towers Real Estate Pty Ltd, Re (2006) 58 ACSR 523; [2006] NSWSC 852 .… 9.124 Reinsurance Australia Corp Ltd v Odyssey Re (Bermuda) Ltd (2000) 36 ACSR 348; [2000] NSWSC 1118 .… 2.24 Rema Industries v Coad (1992) 107 ALR 374; 7 ACSR 251 .… 10.38, 10.46, 10.54 Remuneration Data Base Pty Ltd v Pauline Goodyer Real Estate Pty Ltd [2007] NSWSC 59 .… 2.7 Rennie v Printbase Pty Ltd [2002] NSWSC 78 .… 8.62 Repco Ltd v Bartdon Pty Ltd Canadian Tire Corp & McEwans Ltd [1981] VR 1; 4 ACLR 787 .… 3.55 Residues Treatment & Trading Co Ltd v Southern Resources Ltd (1989) 52 SASR 54 .… 2.46 Resource Equities Ltd (subject to deed of company arrangement) v Carr [2007] WASC 246 .… 11.24 Revenue and Customs Commissioners v Holland; Re Paycheck Services 3 Ltd [2010] 1 WLR 2793; [2011] 1 All ER 430 ; [2010] UKSC 51 .… 10.15, 10.17 Reynolds Bros (Motors) Pty Ltd v Esanda Ltd (1983) 1 ACLC 1333; 8 ACLR

422 .… 9.124 RHD Power Services Pty Ltd (in liq), Re (1990) 3 ACSR 261 .… 2.34, 4.46 Rich v Australian Securities and Investments Commission (2005) 54 ACSR 365; [2005] NSWCA 233 .… 2.45 Richardson v Commercial Banking Co of Sydney Ltd (1952) 85 CLR 110 .… 4.10, 4.12, 4.13, 4.14, 4.18, 4.22, 4.29, 4.38, 4.40, 4.42, 4.44, 4.46, 4.57, 4.59 Rivarolo Holdings Pty Ltd v Casa Tua (Sales) Pty Ltd (1997) 24 ACSR 105 .… 5.17, 7.3, 7.29, 8.31 Roache v Australian Mercantile Land & Finance Co Ltd (No 2) [1966] 1 NSWR 384 .… 3.36 Robert Reid Pty Ltd v Cassidy (1966) 114 CLR 558; [1966] ALR 829 .… 1.32, 3.32, 3.33, 4.23 Roberts v Investwell Pty Ltd (in liq) (2012) 88 ACSR 689; [2012] NSWCA 134 .… 4.55, 9.127, 11.61 Robertson v Grigg (1932) 47 CLR 257; 6 ALJR 154 .… 4.34, 4.55, 9.132 Robins v Incentive Dynamics Pty Ltd (inliq) (2003) 45 ACSR 244 .… 1.52 Rodgers v Berchtold Pacific [2006] NSWSC 462 .… 11.51 —v Commissioner of Taxation (1998) 88 FCR 61; 158 ALR 220; 29 ACSR 270 .… 11.46, 11.48 Rolfe v Transworld Marine Agency Co NV (1998) 83 FCR 323; 28 ACSR 117 . … 12.11 Ross McConnel Kitchen & Co Pty Ltd (in liq) v Ross (1985) 9 ACLR 532; 3 ACLC 326 .… 10.4 Rothwells Ltd v Nommack (No 100) Pty Ltd [1990] 2 Qd R 85; 13 ACLR 421 . … 2.5, 2.6 Roufeil v Gliderol International Pty Ltd [2011] FCA 847 .… 2.40, 8.71 Rubin v Eurofinance SA [2010] EWCA Civ 895 .… 4.2 —v—[2013] 1 AC 236; [2013] 1 All ER 521 .… 1.14, 4.2, 5, 12.2, 12.24, 12.34, 12.35, 12.36, 12.38, 12.39 Russell Halpern Nominees Pty Ltd v Martin [1987] WAR 150; 10 ACLR 539 .

… 10.42 Russian and English Bank v Baring Bros and Co Ltd [1936] AC 405; [1936] 1 All ER 505 .… 1.1 Rust v Cooper (1777) 2 Cowp 629; 98 ER 1277 .… 4.4 Rynmarc Pty Ltd v Classic Ergonomic Chairs Pty Ltd (1994) 12 ACLC 1038 . … 9.139, 9.142, 9.143, 9.144, 9.147, 9.150

S SA Asset Management Corp v Sheahan (1995) 65 SASR 59; 17 ACSR 569 .… 9.1 SAJ v R (2012) 91 ACSR 308; [2012] VSCA 243 .… 10.67 Salcedo v Mawarie Mining Co Pty Ltd (1991) 6 ACSR 197 .… 9.98, 9.165 Salomon v Salomon & Co [1897] AC 22 .… 9.128, 10.1 Samuel v Newbold [1906] AC 461 .… 6.4, 6.5, 6.10, 6.17 Sandawell Pty Ltd (in liq), Re (1991) 4 ACSR 478 .… 9.134, 9.151 Sandell v Porter (1966) 115 CLR 666; 40 ALJR 71 .… 2.15, 2.26, 2.38, 2.51, 2.59 Sands & McDougall (Wholesale) Pty Ltd (in liq) v Federal Commissioner of Taxation (1996) 22 ACSR 383; 15 ACLC 115 .… 8.43, 8.63 —v Commissioner of Taxation (Cth) [1999] 1 VR 489; [1998] VSCA 76 .… 4.34, 4.57, 10.37 Sanguinetti v Stuckey’s Banking Co [1895] 1 Ch 176 .… 8.5 Sanwa Australia Finance Ltd v Ground-Breakers Pty Ltd (in liq) [1991] 2 Qd R 456; 2 ACSR 692 .… 9.79, 9.139, 9.143, 9.148, 9.150, 9.151 Saraceni v Australian Securities and Investments Commission (2012) 90 ACSR 618; [2012] FCA 688 .… 11.10 —v Jones [2012] WASCA 59 .… 11.30 Sargent v ASL Developments Ltd (1974) 131 CLR 634; 4 ALR 257 .… 3.61 Sarina, Re; Ex p Wollondilly Shire Council (1980) 32 ALR 596 .… 2.39 Sawers, Re; Ex p Blain (1879) 12 Ch D 522 .… 12.32

Sayed v R [2012] WASCA 17 .… 10.68 Scandees Danish Home Ice Cream Pty Ltd, Re [1995] 2 Qd R 678; 16 ACSR 777 .… 9.165 Scarfe Steel Supplies Pty Ltd v SMP Pty Ltd (1980) 27 SASR 187; 5 ACLR 262 .… 9.143 Schmierer v Commissioner of Taxation [2002] QSC 133 .… 8.73 —v Taouk (2004) 207 ALR 301 .… 6.15 Scott v Casualife Furniture Intl Ltd (Hong Kong) (2005) 56 ACSR 218; [2005] VSC 463 .… 11.33, 11.41 —v Commissioner of Taxation [2003] VSC 50 .… 10.118 —v Duncan [2007] FCAFC 30 .… 10.118, 10.124 —v Williams [2002] SASC 424 .… 10.92, 10.105 Scottish Petroleum Co, Re (1883) 23 Ch D 413 .… 8.20 Secretary of State for Trade and Industry v Deverell [2001] Ch 340 .… 10.15, 10.17 Securitibank Ltd, Re (No 2) [1978] 2 NZLR 136 .… 3.62, 6.15 Securities Exchange Guarantee Corp Ltd v Samuel Holdings Pty Ltd [2012] 1 Qd R 377 .… 7.20 Seed Corporate Finance Pty Ltd v Savvytel Pty Ltd [2010] FCA 733 .… 9.88, 9.143 Seldon v Davidson [1968] 1 WLR 1083 .… 6.15 Selkrig v Davies (1814) 2 Dow 230; 3 ER 848 .… 12.24 Shakespeares Pie Co Australia Pty Ltd v Multipye Pty Ltd [2005] NSWSC 1338 .… 2.39 Shapowloff v Dunn (1981) 148 CLR 72; 34 ALR 417; 5 ACLR 577 .… 10.3, 10.34 Sharp v Jackson [1899] AC 419 .… 4.5 Sheahan v Carrier Air Conditioning Pty Ltd & Campbell (1997) 189 CLR 407; 147 ALR 1 .… 2.16, 2.26, 2.34, 2.35, 2.46, 3.34, 3.42, 3.43,, 3.54, 3.71, 3.76, 4.1, 4.17, 4.18, 4.25

—v Fabienne Pty Ltd (1999) 17 ACLC 1600; [1999] SASC 335 .… 8.58 —v Hertz Australia Pty Ltd (1995) 16 ACSR 765 .… 2.16, 2.26, 2.34, 8.62, 10.75 —v Northern Australia Land & Agency Co Pty Ltd (1994) 176 LSJS 257 .… 2.46 —v Verco (2001) 37 ACSR 117 .… 10.48 Shears v Rogers (1832) 3 B & Ad 362 .… 8.5 Sheldrake v Paltoglou [2006] QCA 400 .… 8.45, 8.46 —v [2006] QCA 52 .… 4.24, 4.43, 5.24 Sheldrick v Aitken (1869) 6 WW & A’B (L) 59 .… 4.6 Shephard v Australia & New Zealand Banking Corp Ltd (1996) 41 NSWLR 431; (1996) 20 ACSR 81 .… 10.31, 10.33, 10.34, 10.35, 10.37 Shepherds Producers Co-operative Ltd (in liq), Re [2012] NSWSC 390 .… 11.15 Shipley v Marshall (1863) 14 CBNS 566; 143 ER 567 .… 9.132 Shirlaw v Associated Alloys Pty Ltd (2000) 18 ACLC 763; [2000] NSWCA 224 .… 4.34, 11.61 Shoe Lace Ltd, Re [1992] BCLC 636 .… 9.39 Sibroll Pty Ltd v Mitch Properties Pty Ltd (2007) 212 FLR 1; [2007] NSWSC 579 .… 11.26 Silven Properties Ltd v Royal Bank of Scotland plc [2003] EWCA Civ 109; [2004] 4 All ER 484 .… 6.18 Silver Valley Mines, Re (1882) 21 Ch D 381 .… 11.62, 11.64 Silvia v Brodyn Pty Ltd [2007] NSWCA 55 .… 11.61, 11.62 Simar Transit Mixes Pty Ltd v Baryczka (1998) 28 ACSR 238 .… 2.68 Simionato Holdings Pty Ltd, In the matter of (1997) 15 ACLC 477 .… 2.23 Sims, Re; Ex p Sheffield (1896) 3 Mans 340 .… 8.5 Sims v Celcast Pty Ltd (1998) 71 SASR 142; 16 ACLC 1140 .… 2.53, 2.63 —v Deputy Commissioner of Taxation (2006) 57 ACSR 249; [2006] NSWSC 305 .… 11.18

—v Deputy Commissioner of Taxation (2007) 69 ATR 185; [2007] NSWSC 998 .… 2.34, 2.37, 2.58, 2.62, 10.128, 10.129 —v Tech Holdings Pty Ltd (1998) 30 ACSR 330 .… 8.54, 8.56, 8.69 Singleton v Deputy Commissioner of Taxation [2007] NSWSC 1327 .… 12.34 Sipad Holding ddpo v Popovic (1995) 19 ACSR 108; 14 ACLC 307 .… 9.130 SJP Formwork (Aust) Pty Ltd (in liq) v Deputy Commissioner of Taxation (2000) 34 ACSR 604; [2000] NSWSC 604 .… 2.61, 8.21, 8.27, 8.28, 8.48, 10.126 Skouloudis Group Pty Ltd (in liq) v Planet Enterprizes Pty Ltd (2002) 41 ACSR 369; [2002] NSWSC 239 .… 5.7, 5.10, 5.14, 5.22, 7.3, 7.29, 7.35 Slaven v Menegazzo [2009] ACTSC 94 .… 7.35, 7.36, 8.39, 8.40 Smith, Re (1933) 6 ABC 49 .… 4.52 Smith v Deputy Commissioner of Taxation (1997) 23 ACSR 611 .… 8.56, 10.124, 10.131 —v Mills (The Case of Bankrupts) (1584) 2 Co Rep 25; 76 ER 441 .… 1.6, 1.7, 1.24, 1.28, 4.3 Smith Knight & Co, Re (1868) LR 5 Eq 223 .… 1.9 Solfire Pty Ltd (in liq), Re [1997] 2 Qd R 92; 25 ACSR 160 .… 3.73, 5.24, 5.28 Solomons v Ross (1764) 1 H Bl 131n .… 12.5 Southbank Traders Pty Ltd v General Motors Acceptance Corporation Australia (2006) ASC 155-081; [2006] VSCA 102 .… 9.71 Southern Cross Interiors Pty Ltd (in liq) v Deputy Commissioner of Taxation (2001) 53 NSWLR 213; 188 ALR 114; 39 ACSR 305; [2001] NSWSC 621 . … 2.7, 2.8, 2.12, 2.26, 2.29, 2.32, 2.34, 10.81, 10.84 Sparks v Berry (2001) 19 ACLC 1430; [2001] QSC 251 .… 3.8, 3.66, 5.14, 5.24 Spassked Pty Ltd v Commissioner of Taxation (No 2) (2002) 49 ATR 642; [2002] FCA 489 .… 2.52 Spectrum Joinery Pty Ltd (in liq) v Turners Building Supplies Pty Ltd [2005] ACTSC 70 .… 8.54, 8.71 Spectrum Plus Ltd, Re [2005] 2 AC 680; [2005] 4 All ER 209; [2005] UKHL 41

.… 9.124, 9.125 Spedley Securities Ltd (in liq) v Western United Ltd (in liq) (1992) 27 NSWLR 111; 7 ACSR 271 .… 4.34, 4.38, 4.46, 8.5, 8.46, 8.55, 8.72 —v Southern Sea Farms Ltd (1991) 6 ACSR 142 .… 8.51 Spencer v Commonwealth (1907) 5 CLR 418; 14 ALR 253 .… 8.40, 9.47 —v VMD Packaging Pty Ltd [2001] NSWCA 118 .… 2.51 Spies v R (2000) 201 CLR 603; 173 ALR 529; [2000] HCA 43 .… 10.66 Spika Trading Pty Ltd v Harrison (1990) 19 NSWLR 211; 1 ACSR 609 .… 10.104 S Richards & Co Ltd v Lloyd (1933) 49 CLR 49 .… 4.7, 4.38 SSET Construction Pty Ltd (in liq), Re; Sims v Khattar [2010] NSWSC 102 .… 2.69, 10.47, 10.102 St George’s Property Services (London) Ltd (in administration), Re; Clark v Finnerty [2010] EWHC 2358 (Ch) .… 6.18 St Martins Grosvenor Pty Ltd v American Home Assurance Co (unreported, NSWCA, Samuels JA, 18 March 1977) .… 3.49 Staff Membranes Pty Lyd (in liq) v Synflex Industries (International) Inc [1984] 2 NSWLR 116; 8 ACLR 962 .… 8.22, 12.30 Standard Chartered Bank of A’asia Ltd v Antico (1995) 38 NSWLR 290; 131 ALR 1; 18 ACSR 1 .… 2.28, 2.32, 10.16, 10.23, 10.28, 10.33, 10.55, 10.91 Standard Chartered Finance Ltd v De Barros Nominees Pty Ltd (in liq) (1988) 7 ACLC 15 .… 9.148 Standard Insurance Company Limited, Re [1968] Qd R 118 .… 12.6 Stanford International Bank Ltd (in receivership), Re [2010] 3 WLR 941 .… 12.18 Star v National Australia Bank Ltd (1999) 30 ACSR 583; [1999] NSWSC 305 . … 11.48, 11.69 —v O’Brien (1996) 40 NSWLR 695; 22 ACSR 434; 15 ACLC 144 .… 8.5, 8.46 Starkey, Re [1994] 1 Qd R 142; 115 ALR 305 .… 11.63 Starkey v Deputy Commissioner of Taxation (1993) 11 ACLC 558 .… 8.5

State Bank of Victoria Commissioners v Judson (1985) 3 ACLC 576 .… 9.36 Statewide Tobacco Services Ltd v Morley [1993] 1 VR 423; 2 ACSR 405 .… 10.50, 10.54, 10.75, 10.85 Stazdins & Cooper (as liquidators of Smart Co Pty Ltd (in liq)) v Tomazou (2010) 272 LSJS 12; [2010] SASC 262 .… 5.10 Steane’s (Bournemouth) Ltd, Re [1950] 1 All ER 21 .… 8.77 Stein v Blake [1996] AC 243 .… 1.11 Steinberg v Herbert (1988) 14 ACLR 80; 7 ACLC 134 .… 9.130 Stevens, Re (1929) 1 ABC 90 .… 4.25 Stevenson v Newnham (1853) 13 CB 285 .… 8.20 Stewart, Re; Newtronics Pty Ltd [2007] FCA 1375 .… 9.176 Stewart (in his capacity as liquidator of Newtronics Pty Ltd (in liq)) v Atco Controls Pty Ltd (ACN 005 182 481) (in liq) (2014) 307 ALR 562; 98 ACSR 601; [2014] HCA 15 .… 1.4, 9.1, 10.22, 11.2, 11.15 Stock v W Angliss and Co (Aust) Pty Ltd [1964] VR 502 .… 9.47 Stocznia Gdanska SA v Latreefers Inc [2000] All ER (D) 148; [2001] 2 BCLC 116 .… 12.5 Stoland Pty Ltd v Thurn (1997) 29 ACSR 280 .… 10.104 Storey v Lane (1981) 147 CLR 549; 36 ALR 129 .… 1.14 Stout v RA Wenham Builders Pty Ltd and Michilis Bros Pty Ltd [1980] 1 NSWLR 426 .… 11.49 Strand Wood Co Ltd, Re [1904] 2 Ch 1 .… 11.65, 11.66 Strazdins & Cooper (as liquidators of the Smart Company Pty Ltd (in liq)) v Tomazou & Enterprise Global Resources Pty Ltd [2010] SASC 262 .… 5.6, 7.30 Streetscape Projects (Australia) Pty Ltd v City of Sydney [2012] NSWCA 63 . … 11.34 Strong Wise Ltd v Esso Australia Resources Ltd (2010) 185 FCR 149 .… 12.1 Superior Press Pty Ltd (in liq) v Deputy Commissioner of Taxation (2004) 55 ATR 541; [2004] VSC 111 .… 10.119, 10.126

Sutherland v Liquor Administration Board (1997) 139 FLR 206; 24 ACSR 176 . … 1.42, 4.34, 4.57, 4.66, 8.24, 10.37 —v Lofthouse (2007) 64 ACSR 655 .… 4.57, 4.62, 4.63 — v Pascoe (2013) 297 ALR 44; [2013] FCAFC 15 .… 11.9 Sutherland (as joint liqs of Australian Coal Technology) v Hanson Construction Materials Pty Ltd (2009) 254 ALR 650; [2009] NSWSC 232 .… 2.38, 2.40 Sutherland (in his capacity as liquidator of Sydney Appliances Pty Ltd (in liq)) v Eurolinx Pty Ltd (2001) 37 ACSR 477; [2001] NSWSC 230 .… 1.42, 4.45, 4.57, 4.62, 4.66, 8.54, 8.56, 8.64 Sycotex Pty Ltd v Baseler (1994) 51 FCR 425; 122 ALR 531 .… 2.32 Sydneywide Distributors Pty Ltd v Red Bull Australia Pty Ltd (2002) 55 IPR 354; [2002] FCAFC 157 .… 2.55

T T & N Ltd, Re [2005] 2 BCLC 488 .… 1.7 Tagoori Pty Ltd (in liq) v Lee [2001] 2 Qd R 98 .… 11.49 Tailby v Official Receiver (1888) 13 App Cas 523; [1886-90] All ER Rep 486 . … 9.132 Takemura v National Australia Bank Ltd (2003) 11 BPR 21,185; [2003] NSWSC 339 .… 6.4, 6.22 Talon A Pty Ltd v Signav Pty Ltd (admins appted) [2009] FCA 990 .… 9.143 Tamone v How Fast Pty Ltd [1999] NSWSC 570 .… 9.148 Tank Systems Australia Pty Ltd (in liq) v United Goldfields Engineering Pty Ltd (in liq) (1992) 10 ACLC 1508 .… 9.145, 9.150 Taverstock Iron Works Co, Re (1871) 24 LT 605 .… 1.4 Taylor, Ex p; Re Goldsmid (1886) 18 QBD 295 .… 4.5 Taylor v Australia & New Zealand Banking Group Ltd (1988) 13 ACLR 780; 6 ACLC 808 .… 2.26, 2.32, 2.34 —v Powell (1993) 113 ALR 374 .… 10.38 —v White (1964) 110 CLR 129 .… 4.4, 8.68

—v Woden Constructions Pty Ltd [1998] FCA 1228 .… 11.35 Taylor Sinclair (Capital) Ltd (in liq), Re; Knights v Seymour Pierce Ellis Ltd [2001] 2 BCLC 176 .… 3.8 Telfer v Astarra Securities Pty Ltd [2010] NSWSC 682 .… 2.74 Tellsa Furniture Pty Ltd, Re (1985) 81 FLR 185; 9 ALR 869 .… 8.55 Tellsa Furniture Pty Ltd (in liq) v Glendave Nominees Pty Ltd (1987) 9 NSWLR 254; 13 ACLR 64 .… 8.77 Termijtelen v Van Arkel [1974] 1 NSWLR 525 .… 2.62, 8.48, 11.173 Thai Silk Co Ltd v Aser Nominees Pty Ltd (FCA, Hill J, 31 May 1989, unreported) .… 11.57 Theunissen v Dyer Pty Ltd (1995) 18 ACSR 804; 14 ACLC 37 .… 9.143, 9.144, 9.151 Thomas Mortimer Ltd, Re [1965] Ch 186n .… 9.38 Timberland Ltd v Equitable Forestry Services Pty Ltd, Re (1979) 4 ACLR 259 . … 1.4 Timbertown Community Enterprises Ltd v Holiday Coast Credit Union Ltd (1997) 15 ACLC 1679 .… 11.67 Titchfield Management Ltd v Vaccinoma Inc (2008) 68 ACSR 448; [2008] NSWSC 1196 .… 3.24, 12.3 Tolcher (as liquidator of Lloyd Scott Enterprises Pty Ltd) (in liq) v Capital Finance Australia Ltd (2006) 60 ACSR 584 .… 2.24, 4.45 —v— (2005) 143 FCR 300; 52 ACSR 328; [2005] FCA 108 .… 11.40, 11.41 —v National Australia Bank (2004) 48 ACSR 741; [2004] NSWSC 6 .… 1.16 —v National Australia Bank Ltd (2003) 44 ACSR 727; 174 FLR 251; [2003] NSWSC 207 .… 8.20, 8.21, 8.27, 8.28, 8.33, 8.53, 10.114, 11.40 Tolhurst Druce & Emmerson v Maryvell Investments Pty Ltd [2007] VSC 271 . … 5.24 Toof v Martin 80 US (13 Wall) 40 (1871) .… 1.30 Toowong Trading Pty Ltd (in liq), Re [1989] 1 Qd R 207; 13 ACLR 121 .… 2.32, 4.62, 8.46

Tosich Construction Pty Ltd (in liq) v Tosich (1997) 78 FCR 363; 23 ACSR 466 .… 3.12, 3.72, 3.73, 5.6, 5.8, 5.14, 5.22, 7.30, 11.29, 11.63 Totterdell v Nicol-Burmeister (1995) 13 ACLC 1521 .… 4.22 Touma, Re (2000) 171 ALR 275 .… 2.39 Tourprint International Pty Ltd (in liq) v Bott (1999) 32 ACSR 201 .… 10.47, 10.75, 10.89, 10.102 Toyota Motor Corporation Australia Ltd v Pias Settlements Pty Ltd (unreported, SC(NSW), Young J, 25 March 1997) .… 3.57 Trans Pacific Insurance Corp v Douglas (2009) 71 ACSR 569; [2009] NSWSC 308 .… 12.28 Transglobal Capital Pty Ltd v Yolarno Pty Ltd (2004) 60 NSWLR 143; [2004] NSWCA 136 .… 11.66 Treadwell v Hickey [2009] NSWSC 1395 .… 2.40 Trendent Industries Pty Ltd (in liq), Re (1983) 8 ACLR 115 .… 3.35 Trinick (as liquidator of Australian Foods Co Pty Ltd (in liq)) v EM & RM Williams & Sons (A Firm) [2009] WASC 297 .… 2.38, 8.53, 8.56 Tronson v White (1919) 27 CLR 344 .… 4.33 Tru Floor Service Pty Ltd v Jenkins (No 2) (2006) 232 ALR 532; [2006] FCA 632 .… 2.13, 2.15, 10.56 Tucker, Re; Aero Inventory (UK) Ltd v Aero Inventory (UK) Ltd (2009) 76 ACSR 19; [2009] FCA 1354 .… 12.20

U Ultraframe (UK) Ltd v Fielding [2005] EWHC 1638 (Ch) .… 10.17 Union Bank v Wolas (1991) 116 L Ed 2d 514 .… 4.2 United Builders Pty Ltd v Mutual Acceptance Ltd (1980) 144 CLR 673; 3 ALR 1 .… 9.125, 9.127 United Medical Protection Ltd (No 4), Re (2002) 42 ACSR 218; [2002] NSWSC 516 .… 8.43 United Medical Protection Ltd, Re (2003) 47 ACSR 705; [2003] NSWSC 1031 . … 2.4

United Shoe Machinery Co of Canada v Brunet [1909] AC 330 .… 8.20 United States Trust Co of New York v Australia & New Zealand Banking Group Ltd (1995) 17 ACSR 697 .… 1.12 Uniting Church in Australia Property Trust (Q) v Northbank Place (Vic) Pty Ltd (2009) 252 FLR 352; [2009] VSC 660 .… 3.26 Universal Distributing Co Ltd (in liq), Re (1933) 48 CLR 171; [1933] ALR 107 .… 9.1 Universal Financial Group v Mortgage Elimination Services (2006) 205 FLR 186; [2006] NSWSC 1132 .… 3.37, 3.65, 3.66, 3.69, 5.16, 5.24, 7.22 UTSA Pty Ltd (in liq) v Ultra Tune Australia Pty Ltd (1996) 21 ACSR 457 .… 11.30 —v— [1997] 1 VR 667; 21 ACSR 251 .… 11.30 —v— (1998, unreported) .… 11.61

V Valleys Rugby League Football Club Ltd, Re [1997] 2 Qd R 645 .… 10.21 Van Der Velde v Ng (No 3) [2009] FCA 1653 .… 5.24, 7.36 Vansittart, Re; Ex p Brown [1893] 2 QB 377 .… 8.5 Vasudevan (as joint and several liquidator of Wulguru Retail Investments Pty Ltd) (in liq) v Becon Constructions (Australia) Pty Ltd (2014) 97 ACSR 627; [2014] VSCA 14 .… 3.36, 7.1, 7.3, 7.17, 7.18, 7.21, 7.24, 7.25, 7.26, 7.27, 7.28, 7.29 Vector Capital Ltd v SNS Software Network Systems Pty Ltd (1988) 12 NSWLR 1; 12 ACLR 723 .… 9.150, 9.151 Verge v Devere Holdings Pty Ltd (No 4) [2010] FCA 653 .… 3.35 Verge v Stinson [2011] WASC 158 .… 7.22, 7.29 Versteeg & Versteeg v R (1988) 36 A Crim R 68 .… 10.41 Victoria Housing Estates Ltd v Ashpurton Estates Ltd [1983] Ch 110; [1982] 3 All ER 665 .… 9.151 Victrawl Pty Ltd v Telstra Corporation (1995) 183 CLR 595 .… 12.18 Virgtel Ltd v Zabusky [2012] QSC 42 .… 6.19

V R Dye & Co v Peninsula Hotels Pty Ltd (in liq) [1999] 3 VR 201; 32 ACSR 27; [1999] VSCA 60 .… 1.18, 3.64, 3.71, 3.74, 4.24, 4.27, 4.34, 4.35, 4.36, 4.39, 4.42, 4.45, 4.57, 4.62, 5.5, 5.9

W WA School Bus Services Pty Ltd (in liq) v Clover [2012] WASC 381 .… 5.16, 7.36 Wakim, Re; Ex p McNally (1999) 198 CLR 511; 163 ALR 270; [1999] HCA 27 .… 11.23 Walker Group Pty Ltd (in liq), Re (1994) 13 ACLC 434 .… 8.41, 8.42 Walker v CBA Corporate Services (NSW) Ltd (2012) 88 ACSR 153; [2012] FCA 328 .… 9.29, 9.32, 9.33, 11.35 —v Wimborne (1976) 137 CLR 1 .… 10.1 Wallman v Milestone Enterprises Pty Ltd [2006] WASC 260 .… 11.47 Walsh v Natra (2000) 1 VR 523 .… 1.18, 4.24, 4.43, 4.47, 4.48, 4.49, 4.51 —v Salzer Constructions Pty Ltd [1998] VSC 111 .… 4.26 Walsh (as liq of Thompson Land Ltd) v Terranova Pty Ltd (1994) 14 ACSR 432 .… 4.26 Ward, Re; Thomas v LG Abbot & Co Ltd (1950) 16 ABC 214 .… 8.24 Warner v Hung; Re Bellpac Pty Ltd (Receivers and Managers Appointed) (in liq) (No 2) (2011) 297 ALR 56; [2011] FCA 1123 .… 2.34, 3.64, 7.5, 7.7, 7.36 Watkinson v Hollington [1944] 1 KB 16 .… 3.55, 3.56 Watt v 3M Australia Pty Ltd & NEC Home Electronics Australia Pty Ltd [1984] 3 NSWLR 671; 9 ACLR 524 .… 10.4 Wayland as liquidator of ABC Containerline NV, Re (2005) 52 ACSR 750; [2005] NSWSC 1 .… 12.5 Weiss, Re; Ex p White v John Vicars & Co Ltd [1970] ALR 654 .… 4.62, 8.54 Welcome Homes Real Estate Pty Limited v Ziade Investments Pty Limited [2007] NSWCA 167 .… 2.44, 5.7, 5.8, 7.29 West End Networks Ltd (in liq), Re [2004] 2 AC 506 .… 10.138

West Ryde Plaza (Leasehold) Pty Ltd v Smith (1995) 17 ACSR 457; 13 ACLC 1,042 .… 10.35 Western Australian Turf Club v FCT (1978) 139 CLR 288; 19 ALR 167 .… 3.26 Weston (in his capacity as special purpose liquidator of OneTel Ltd (in liq)) v Publishing and Broadcasting Ltd (2012) 88 ACSR 80; [2012] NSWCA 79 . … 11.37 Weston Application, Re; Employers Mutual Indemnity (Workers Compensation) Ltd v Omni Corporation Pty Ltd (2009) 255 ALR 362; [2009] NSWSC 264 . … 11.52 Westpac Banking Corporation v Bell Group Ltd (in liq) (No 3) (2012) 89 ACSR 1 .… 1.15, 2.72 White Constructions (ACT) Pty Ltd (in liq) v White (2004) 49 ACSR 220; [2004] NSWSC 71 .… 2.12, 2.34 —v Davenham Trust Ltd [2010] EWHC 2748 (Ch) .… 6.18 Whitton (as liq of Chittagong Pty Ltd (in liq)) v Konemann Australia Pty Ltd (2002) 43 ACSR 436 .… 8.71 Whitton v Konemann Australia Pty Ltd (2002) 43 ACSR 436; [2002] NSWSC 1137 .… 4.66, 8.53, 8.62, 11.18 Whitton v Regis Towers Real Estate Pty Ltd (2007) 161 FCR 20 .… 2.47 Wickstead v Browne (1992) 30 NSWLR 1; [1992] NSWCA 272 .… 10.34, 10.35 Wigan v English and Scottish Law Life Assurance Assoc [1909] 1 Ch 291 .… 8.68 Wight v Eckhardt Marine GmbH (Cayman Islands) [2004] 1 AC 147; [2003] UKPC 37 .… 1.9 Wilcoxon, Re; Ex p Griffith (1883) 23 Ch D 69 .… 1.28 Wilkcorp Pty Ltd, Re (SC (Qld), Derrington J, 30 June 1997, unreported) .… 9.28 Willahra Pty Ltd (in liq) v Kim Management Pty Ltd [2013] 1 Qd R 387; 90 ACSR 539; [2012] QSC 143 .… 11.143 Willey, Ex p; Re Wright (1883) 23 Ch D 118 .… 1.5

Williams v Bearing Traders Pty Ltd (2008) 69 ACSR 334; [2008] NSWSC 135 . … 10.24 —v Lloyd (1933) 50 CLR 341 .… 8.5 Williams (as liquidator of Scholz Motor Group Pty Ltd (in liq)) v Peters [2010] 1 Qd R 475; 72 ACSR 365; [2009] QCA 180 .… 2.34, 2.43, 4.50, 8.53, 8.60, 8.63, 10.46, 10.82 Williams (as liquidator of Willahra Pty Ltd (in liq)) v Kim Management Pty Ltd [2013] 1 Qd R 387; 90 ACSR 539; [2012] QSC 143 .… 11.41, 11.42, 11.43 Williamson v Soil & Garden Suppliers Pty Ltd (WASC, Sanderson J, 2 June 1998, unreported) .… 11.65 Willis v Tozer [1961] NZLR 437 .… 9.39 Wilson, Ex p (1872) 7 Ch App 490 .… 12.24 Wilson v Dunn (1994) 35 NSWLR 121; 15 ACSR 156 .… 9.133 —v Moss (1909) 8 CLR 146 .… 6.10 Wilson Lovatt & Sons Ltd, Re [1977] 1 All ER 274 .… 11.61 Wilson Tyres Pty Ltd, Re (1992) 7 ACSR 318; 10 ACLC 756 .… 9.134, 9.143 Wiltrading (WA) Pty Ltd v Lumley General Insurance Ltd (2005) 30 WAR 290; [2005] WASCA 106 .… 3.60 Wiltshire Iron Co, Re; Ex p Pearson (1868) LR 3 App 443; 37 LJ Ch 554; 18 LT 423 .… 3.37, 8.76 Wily (in his capacity as liquidator of Goltep Constructions (NSW) Pty Ltd (in liq)) v Eastern Elevators Pty Ltd (2003) 45 ACSR 261; [2003] NSWSC 377 .… 8.53, 11.18 Wily v Bartercard Ltd (2000) 34 ACSR 186; [2000] NSWSC 372 .… 3.12, 3.65, 4.30, 8.34 —v Commissioner of Taxation [2002] NSWSC 909 .… 8.59 —v Eastern Elevators Pty Ltd (2003) 45 ACSR 261 .… 4.45, 8.53 —v King [2010] NSWSC 352 .… 11.51, 11.73 —v Lo Presti (No 2) (1998) 16 ACLC 85 .… 8.61 —v St George Partnership Banking Ltd (1999) 84 FCR 423; 30 ACSR 204 .…

4.38, 4.55, 8.4 —v Terra Cresta Business Solutions Pty Ltd [2006] NSWSC 1042 .… 2.36 Wimborne v Brien (1997) 23 ACSR 576 .… 1.4 Winkley v Paton (1943) 60 WN (NSW) 162 .… 10.48 Wood Hall Ltd v Pipeline Authority (1979) 141 CLR 443; 24 ALR 385 .… 3.50, 3.51 Woodgate v Davis (2002) 42 ACSR 286 .… 10.6, 10.31, 10.32 —v Fawcett (2008) 67 ACSR 611; [2008] NSWSC 868 .… 2.69, 7.35, 8.29, 8.53 Woodgate (as liquidator of Marketing Results Pty Ltd) v Network Associates International BV [2007] NSWSC 1260 .… 2.71, 4.32, 12.31 Workers Compensation Nominal Insurer v Perfume Empire Pty Ltd [2011] NSWSC 379 .… 1.48, 2.75 Wreckair Pty Ltd v Emerson (1991) 5 ACSR 576 .… 8.5

Y Yagerphone Ltd, Re [1935] Ch 392; [1935] All ER Rep 803 .… 1.16, 8.26, 9.126, 11.62 Yates Property Corp Pty Ltd (in liq) v Darling Harbour Authority (1991) 24 NSWLR 156; 73 LGRA 47 .… 9.47 Yelin Group Pty Ltd, Re; Li v Jin [2012] NSWSC 74 .… 2.34 Yeovil Glove Co Ltd, Re [1965] Ch 148; [1964] 2 All ER 849 .… 9.38, 9.40 Yorkshire Woolcombers Association Ltd, Re [1903] 2 Ch 284 .… 9.23, 9.124 Young v Commissioner of Taxation (2006) 56 ACSR 654; 24 ACLC 240; [2006] FCA 90 .… 2.61, 2.62, 8.48, 8.50, 8.63, 10.121 —v Commissioner of Taxation [2010] NSWSC 288 .… 3.29 —v Queensland Trustees Ltd (1956) 99 CLR 560 .… 2.24

Z Zappia v Grant Baines Transport Pty Ltd (2010) 77 ACSR 273; [2010] NSWSC

98 .… 2.66, 10.108 Ziade Investments Pty Ltd v Welcome Homes Real Estate Pty Ltd (2006) 57 ACSR 693; [2006] NSWSC 457 .… 2.34, 7.22, 7.29 Zurich Australian Insurance Ltd v Metals & Minerals Insurance Pte Ltd (2009) 240 CLR 391; 261 ALR 468; 84 ALJR 70 .… 3.67

Table of Statutes References are to paragraphs

Commonwealth A New Tax System (Goods and Services Tax) Act 1999 …. App B A New Tax System (Pay As You Go Act) Act 1999 …. App B Acts Interpretation Act 1901 s 2C(1) …. 7.19 s 2D …. 7.16 s 2E …. 7.16, 7.17 s 2F …. 7.16, 7.17 s 13(2)(d) …. 10.11 s 15AA …. 3.16 s 15AB …. 1.18, 4.23 s 15AB(1) …. 3.17 s 15AB(3) …. 3.17 s 15AD …. 3.17 s 36(1) …. 2.73 Administrative Decisions (Judicial Review) Act 1977 s 9 …. 11.19 s 79 …. 11.22 Banking Act 1959 s 5 …. 9.16, 9.19 Bankruptcy Act 1922 s 95 …. 4.8

Bankruptcy Act 1924 …. 1.34 s 24(1) …. 8.5 s 52(c) …. 4.10 s 84 …. 4.2 s 85 …. 4.2 s 86 …. 4.2 s 87 …. 4.2 s 88A …. 4.2 s 89 …. 4.2 s 92 …. 1.33 s 94(4) …. 1.33 s 95 …. 1.33, 2.15, 4.7, 4.8, 4.10, 4.38, 4.40, 4.42, 4.44, 4.46, 4.58, 4.59, 8.59 s 95(1) …. 4.2 s 95(2) …. 8.54 s 95(4) …. 4.14 s 96 …. 1.33 s 122(1) …. 4.46 s 122(4)(c) …. 4.46 Bankruptcy Act 1966 …. 1.5 s 29 …. 12.11, 12.12 s 52(2)(a) …. 2.39 s 60(1)(b) …. 1.14 s 82 …. 4.23 s 82(2) …. 10.138 s 86 …. 4.52, 10.136 s 112 …. 6.11 s 115 …. 2.72

s 118 …. 1.39 ss 120–122 …. 1.34, 1.36, 1.39, 8.2, 8.4, 8.21 s 120 …. 1.43, 3.36 s 120(1) …. 3.6, 5.1, 8.66 s 121 …. 1.24, 1.40, 3.36, 8.68 s 121(1) …. 3.34, 8.66 s 122 …. 3.4, 3.21, 3.35, 4.2, 4.16, 4.20, 4.24, 4.25, 4.38, 4.39, 4.40, 4.42, 4.43, 4.44, 4.48, 4.60, 4.61, 8.63, 12.30 s 122(1) …. 3.42, 3.54, 4.1, 4.8, 4.17, 4.18 s 122(2) …. 8.51 s 122(2)(a) …. 8.55, 8.68 s 127 …. 11.32 Bankruptcy Act Amendment Act 1987 …. 6.11 Bankruptcy Reform Act 1978 …. 4.2 Civil Aviation Act 1988 …. 4.60 Civil Dispute Resolution Act 2011 s 3 …. 11.4 s 4(1) …. 11.5 s 4(1A) …. 11.5 s 5 …. 11.5 s 6 …. 11.5 s 6(3) …. 11.4 s 7 …. 11.7 s 7(1) …. 11.6 s 9 …. 11.7 s 10(2) …. 11.7 s 11 …. 11.7

s 12(1) …. 11.7 s 12(2) …. 11.7 s 12(3) …. 11.7 s 17 …. 11.5 Civil Dispute Resolution Regulations 2011 reg 4(b) …. 11.5 Commonwealth Constitution s 51(17) …. 1.14, 1.33, 9.113 Companies and Securities Legislation (Miscellaneous Amendments) Act 1985 …. 9.158 Companies and Securities Legislation (Miscellaneous Amendments) Bill 1985 …. 9.158 Companies Code 1961 s 68A …. 9.56 s 205A …. 9.158 s 222(2)(c) …. 2.23 s 346(2)(a) …. 2.9 s 451 …. 1.48, 2.73, 8.51 s 451(1) …. 4.8 s 452 …. 9.4, 9.44 s 556(1) …. 2.31 s 556(1)(a) …. 2.5 Corporate Law Reform Act 1992 (CLRA) …. 1.45, 1.47, 1.48, 2.7, 3.5, 4.8, 5.1, 6.1, 8.75, 9.1, 9.3, 9.30, 9.45, 10.10, 10.136 Corporate Law Reform Bill 1992 …. 1.17, 1.18, 1.38, 1.48, 3.4, 3.19, 4.20, 4.21, 4.57, 5.2, 5.10, 6.12, 8.2, 8.41, 8.51, 8.63, 10.92 Corporations Act 2001 ss 9–17 …. 9.95, 9.162

s 9 …. 1.1, 1.9, 1.49, 2.1, 2.45, 2.73, 3.6, 3.8, 3.9, 3.12, 3.15, 3.22, 3.24, 3.26, 3.28, 3.34, 3.38, 3.40, 3.43, 3.45, 3.63, 3.65, 3.71, 4.22, 4.30, 5.4, 6.1, 6.13, 7.5, 7.12, 7.16, 7.19, 7.20, 7.21, 7.22, 8.16, 8.33, 8.40, 8.48, 9.28, 9.121, 9.123, 9.157, 9.159, 9.161, 10.14, 10.18, 11.9, 11.19, 12.25, App B s 9(a)(i) …. 10.18 s 9(a)(ii) …. 10.18, 10.20 s 9(b)(i) …. 10.18, 10.21 s 9(b)(ii) …. 10.25, 10.26, 10.27, 10.29 s 11 …. 9.163 s 13 …. 9.163 s 15(1)(a) …. 9.163 ss 18–21 …. 3.27 s 21 …. 3.27 s 46 …. 10.111 s 51 …. 9.23, 9.53, 9.92 s 51A …. 9.23, 10.103 s 51B …. 9.24 s 51C …. 9.23 s 51E …. 10.103 s 51F …. 9.93 s 53 …. 11.9 s 58AA …. 1.52, 11.9, 11.19, 12.11, 12.13 s 58AA(1) …. 9.49, 9.118, 9.134, 9.157 s 92 …. 7.13 s 95 …. 4.34 s 95A …. 2.7, 2.8, 2.18, 2.21, 2.22, 2.23, 2.24, 2.25, 2.29, 2.39, 9.48 s 95A(1) …. 2.5 s 95A(2) …. 2.4, 2.15

s 105 …. 2.73 s 109H …. 5.10, 7.35 s 119 …. 3.23 s 128 …. 9.56 s 137E …. 11.19 s 180 …. 10.11, 10.106 s 181 …. 10.11, 10.106 s 182 …. 10.106 s 184(1) …. 10.68 s 184(2) …. 10.68 s 184(2)(a) …. 10.67 s 201B …. 10.28 s 206A …. 10.116, 10.117 s 206B(3) …. 10.116 s 206C …. 10.13, 10.70, 10.98 s 232 …. 2.23 s 233 …. 2.74 s 251A(6) …. 2.49 s 256A(1) …. 2.49 s 261 …. 9.121 s 261(4) …. 9.133 s 262 …. 9.111 s 262(1)(a) …. 9.132 s 262(1)(b) …. 9.132 s 262(1)(c) …. 9.132 s 262(1)(d) …. 9.132, 9.142 s 262(1)(f) …. 9.132

s 262(2) …. 9.132 s 262(8) …. 9.132 s 262(9) …. 9.132 s 263 …. 9.132, 9.133, 9.135, 9.144 s 264 …. 9.132, 9.133 s 265(1) …. 9.117 s 265(9) …. 9.111 s 266 …. 1.35, 9.3, 9.62, 9.79, 9.84, 9.87, 9.88, 9.129, 9.136 s 266(1) …. 4.56, 9.66, 9.118, 9.155 s 266(1)(a) …. 9.133 s 266(1)(b) …. 9.133 s 266(1)(ba) …. 9.133 s 266(1)(c) …. 9.133 s 266(1)(c)(i) …. 9.133 s 266(1)(c)(ii) …. 9.133 s 266(1)(d) …. 9.133 s 266(1)(e) …. 9.133 s 266(1)(f) …. 9.133 s 266(3) …. 9.118, 9.155 s 266(4) …. 9.77, 9.85, 9.117, 9.118, 9.133, 9.135, 9.138, 9.139, 9.148, 9.149, 9.150, 9.151 s 266(4)(a) …. 9.118, 9.134, 9.137, 9.142 s 266(4)(b) …. 9.118, 9.134, 9.144, 9.145, 9.146 s 266(5) …. 9.117, 9.154 s 266(6) …. 9.155 s 266(6)(a) …. 9.155 s 266(6)(b) …. 9.155

s 266(6)(c) …. 9.155 s 266(6)(d) …. 9.155 s 266(7) …. 9.155 s 266(8) …. 9.155 s 267 …. 9.3, 9.93, 9.95, 9.98, 9.101, 9.129, 9.156, 9.163, 9.166, 9.169, 9.171 s 267(1) …. 9.157, 9.160, 9.167, 9.172 s 267(1)(a) …. 9.157 s 267(1)(b) …. 9.157, 9.164, 9.170 s 267(3)(a) …. 9.157, 9.168 s 267(3)(b) …. 9.157, 9.168 s 267(5) …. 9.117, 9.172 s 267(6) …. 9.172 s 267(7) …. 9.157, 9.159, 9.160, 9.162 s 268 …. 9.91 s 268(2) …. 9.132 s 270(1) …. 9.132 s 271 …. 9.117 s 272 …. 9.117 s 274 …. 9.117, 9.119 s 286(1) …. 2.46, 2.66, 2.70 s 286(2) …. 2.66, 2.70 s 302 …. 1.12 s 421 …. 3.42 s 433(3) …. 9.130 s 436 …. 9.98 s 436A …. 9.133 s 436B …. 9.133

s 436C …. 9.133 s 436C(1) …. 9.166 s 440B …. 9.117 s 442CB(1) …. 9.117 s 447C …. 9.166 s 459A …. 2.74, 9.28, 9.32, 9.33, 11.4, App G s 459B …. 2.74, 9.28, 9.32 s 459C(1) …. 2.40 s 459D …. 2.23 s 459E …. 2.7, 2.8, 2.9, 2.24 s 459P …. 2.40, 8.71 s 461 …. 2.74 s 461(1) …. 1.3 s 462 …. 2.23 s 464 …. 2.23 s 467B …. 9.33 s 468 …. 1.35, 3.37 s 468(1) …. 8.75, 8.76, 8.77 s 468(3) …. 8.77 s 471A …. 1.6 s 471B …. 1.2, 1.6, 9.1, 12.12, 12.19 s 471C …. 1.6, 9.1 s 477 …. 11.27 s 477(2) …. 11.28 s 477(2B) …. 11.76 s 477(2)(c) …. 11.29, 11.63 s 503 …. 11.28

s 511 …. 10.135 ss 513A–513C …. 8.46 s 513A …. 2.74, 2.75, 8.75, 9.64 s 513B …. 2.74, 2.75, 9.64 s 513C …. 2.74, 9.64, 9.70 s 530A(1) …. 11.15 s 530A(2) …. 11.15 s 530A(3) …. 11.15 s 553 …. 1.11 s 553(1) …. 1.9, 2.21 s 553C …. 4.53, 8.47, 10.135, 10.137 s 553C(1) …. 10.138 s 553C(2) …. 4.52, 10.138 s 553E …. 2.21 s 554E …. 4.56 s 555 …. 1.6, 1.12, 4.1, 12.4 s 556 …. 1.10 s 556(1)(a) …. 11.62, 11.64 s 556(1)(dd) …. 11.62, 11.64 s 561 …. 9.130, 9.131 s 562 …. 12.4 s 562A …. 12.4 s 564 …. 11.15 s 565 …. 1.36, 1.53, 2.73, 8.51 s 565(1) …. 1.35, 3.42 s 565(1)(d) …. 9.131 s 565(1)(e) …. 9.131

s 565(1)(g) …. 9.131 s 565(1)(h) …. 9.131 s 566 …. 1.35, 1.53 s 567 …. 1.53 s 567(5) …. 8.41 s 567(6) …. 8.41 s 580 …. 12.10 s 581(2)(a) …. 12.10, 12.11 s 581(3) …. 12.10, 12.12 s 581(4) …. 12.13 s 583 …. 12.4, 12.28 s 588(2)(a) …. 8.56 s 588C …. 3.46 s 588D …. 4.54, 9.1, 10.103 s 588E …. 11.56 s 588E(1) …. 2.63, 2.64 s 588E(3) …. 2.64 s 588E(3)(b) …. 2.65 s 588E(4) …. 2.64, 8.48 s 588E(4)–(7) …. 2.66 s 588E(4)(a) …. 2.66 s 588E(4)(b) …. 2.66 s 588E(5) …. 2.70 s 588E(6) …. 2.70 s 588E(6A) …. 7.1 s 588E(7) …. 2.70 s 588E(8) …. 1.49, 2.64, 2.71, 8.48

s 588E(9) …. 2.68, 2.69 s 588F(1)(a) …. 3.38 s 588F(3) …. 10.59 ss 588FA–588FDA …. 3.1 ss 588FA–588FE …. 3.3 s 588FA …. 1.46, 3.29, 4.2, 4.8, 4.20, 4.36, 4.38, 4.43, 4.44, 4.48, 4.52, 4.55, 7.28, 8.20, 9.103, 9.126, 9.129, App A, App B, App C s 588FA(1) …. 3.67, 3.72, 3.74, 4.22, 4.23, 4.24, 4.25, 4.32, 4.34, 4.50, 7.35 s 588FA(1)–(3) …. 4.57 s 588FA(1)(a) …. 3.44, 4.27 s 588FA(1)(b) …. 4.27, 4.39, 4.40, 4.41, 4.42, 4.45, 4.46, 4.47, 4.49, 4.51 s 588FA(2) …. 4.54, 4.56 s 588FA(3) …. 4.63, 4.64, 4.65 s 588FB …. 1.51, 3.19, 3.20, 3.78, 5.1, 5.2, 5.5, 5.10, 5.13, 5.24, 6.15, 7.3, 7.4, 7.28, 7.32, 7.37, 8.20, 9.29, 9.103, 9.129, 11.30 s 588FB(1) …. 1.46, 3.67, 5.6, 5.8, 5.11, 5.12, 5.15, 5.19, 7.5, 7.30, 7.35 s 588FB(1)(a)–(d) …. 5.3, 5.7, 5.14 s 588FB(2) …. 5.3, 5.11 s 588FC …. 1.49, 1.50, 2.71, 3.29, 3.67, 3.78, 4.67, 5.10, 5.26, 8.20, 11.30, App A, App B, App C s 588FC(a) …. 2.1, 2.3, 5.25, 8.9 s 588FC(a)(i) …. 3.67 s 588FC(b) …. 2.1, 2.3, 5.25, 8.9, 8.10, 8.11, 8.58 s 588FD …. 1.51, 2.1, 3.2, 6.7, 6.12, 6.19, 6.20, 6.21, 6.22, 6.23, 6.24, 7.28 s 588FD(1) …. 6.1, 6.13 s 588FD(2) …. 6.9, 6.14, 6.16 s 588FDA …. 1.51, 2.1, 3.15, 3.78, 5.17, 7.1, 7.2, 7.3, 7.4, 7.20, 7.21, 7.22, 7.23, 7.24, 7.25, 7.27, 7.28, 7.29, 7.34, 7.37, 7.38, 7.39, 8.19, 8.39, 9.43

s 588FDA(1) …. 7.8 s 588FDA(1)(a) …. 3.2, 3.14, 7.5, 7.6, 7.7, 7.10 s 588FDA(1)(a)(i) …. 7.7, 7.11 s 588FDA(1)(a)(ii) …. 7.7, 7.12 s 588FDA(1)(a)(iii) …. 7.7, 7.14 s 588FDA(1)(a)(iv) …. 7.7 s 588FDA(1)(b) …. 7.6 s 588FDA(1)(b)(i) …. 7.7, 7.15 s 588FDA(1)(b)(ii) …. 7.7, 7.16, 7.18 s 588FDA(1)(b)(iii) …. 3.67, 7.7, 7.18, 7.26 s 588FDA(1)(c) …. 7.5, 7.6, 7.30, 7.31, 7.35, 8.40 s 588FDA(1)(c)(i) …. 7.7 s 588FDA(1)(c)(ii) …. 7.7 s 588FDA(1)(c)(iii) …. 7.7 s 588FDA(2) …. 3.67, 7.5, 7.31, 7.33 s 588FDA(3) …. 7.8 s 588FDA(a) …. 7.9 s 588FE …. 1.48, 2.1, 2.61, 2.62, 3.67, 4.67, 5.19, 5.29, 8.1, 8.22, 8.41, 9.29, 12.3, App C s 588FE(1) …. 1.36, 2.1, 6.19 s 588FE(1)–(6A) …. 8.7 s 588FE(1)(b) …. 8.19 s 588FE(1)(c) …. 9.48 s 588FE(2) …. 3.78, 5.26, 8.15, App A, App B s 588FE(2)–(5) …. 8.53 s 588FE(2)–(6) …. 2.2, 3.1 s 588FE(2)–(6A) …. 1.1, 1.50

s 588FE(2A) …. 5.27, 7.5 s 588FE(2A)–(2B) …. 8.12 s 588FE(2A)–(6A) …. 2.73, 2.76 s 588FE(2A)(a) …. 8.13 s 588FE(2A)(a)(iii) …. 6.23 s 588FE(2A)(b) …. 8.13 s 588FE(2A)(c) …. 8.13 s 588FE(2B) …. 5.27, 7.5, 8.14 s 588FE(2)(b) …. 1.51 s 588FE(2B)(a)(iii) …. 6.23 s 588FE(2)(b)(i) …. 2.2, 2.73, 8.8 s 588FE(2)(b)(ii) …. 2.2, 2.73, 8.8 s 588FE(3) …. 5.26 s 588FE(4) …. 5.28, 8.16 s 588FE(5) …. 2.2, 5.28, 8.17, 11.49 s 588FE(6) …. 6.1, 6.19, 6.23, 8.18 s 588FE(6A) …. 7.38, 7.39, 8.19 s 588FE(7) …. 8.19 s 588FF …. 1.3, 1.47, 1.49, 1.50, 2.1, 2.62, 2.63, 2.71, 3.31, 3.78, 4.43, 5.29, 6.25, 8.1, 8.2, 8.3, 8.6, 8.19, 8.22, 8.23, 8.26, 8.49, 8.50, 8.52, 8.74, 10.110, 10.118, 10.119, 10.122, 10.133, 10.134, 11.1, 11.4, 11.7, 11.18, 11.20, 11.21, 11.22, 11.29, 11.30, 11.55, 11.60, 11.61, 11.65, 11.69, 12.30, 12.31, 12.37, App B, App C, App D, App E s 588FF(1) …. 2.70, 3.20, 3.29, 6.23, 7.37, 8.21, 8.25, 8.27, 8.40, 8.43, 8.44, 8.48, 11.26, 11.31, 11.33, 11.34, 11.40, 11.43, 11.49, App A s 588FF(1)(a) …. 6.24, 8.28, 8.29, 8.30, 8.46, 11.27 s 588FF(1)(a)–(j) …. 8.24 s 588FF(1)(b) …. 8.31, 8.32, 11.27 s 588FF(1)(c) …. 5.19, 8.33, 8.34, 8.45, 11.27

s 588FF(1)(d) …. 8.35, 11.27 s 588FF(1)(e) …. 6.24, 8.36 s 588FF(1)(f) …. 8.37 s 588FF(1)(g) …. 8.38 s 588FF(1)(h) …. 8.20 s 588FF(1)(h)–(j) …. 8.39 s 588FF(2) …. 8.25 s 588FF(3) …. 8.43, 9.29, 9.33, 11.28, 11.41, 11.42, 11.47, 11.48, 11.49, 11.57 s 588FF(3)(a) …. 11.31, 11.33, 11.35, 11.36, 11.37 s 588FF(3)(a)(i) …. 1.48 s 588FF(3)(a)(ii) …. 1.48 s 588FF(3)(b) …. 11.32, 11.33, 11.34, 11.35, 11.36, 11.37, 11.40, 11.42, 11.43, 11.44, 11.46 s 588FF(4) …. 7.1, 8.25, 8.40 s 588FG …. 3.31, 5.29, 7.38, 8.50, 8.54, 8.64, 8.70 s 588FG(1) …. 1.47, 5.30, 6.25, 7.37, 8.52, 8.65 s 588FG(1)(a) …. 5.19 s 588FG(1)(b) …. 5.19, 5.20 s 588FG(1)(b)(i) …. App C s 588FG(2) …. 1.47, 2.71, 5.21, 5.30, 6.25, 7.3, 7.5, 7.28, 7.37, 8.52, 8.65 s 588FG(2)(a) …. 8.53, 8.57 s 588FG(2)(b) …. 8.53, 8.57, 8.62 s 588FG(2)(b)(i) …. 8.58, 8.60, 8.63 s 588FG(2)(b)(ii) …. 8.63 s 588FG(2)(c) …. 8.53, 8.66, 8.69, 11.32 s 588FG(3) …. 10.118 s 588FG(3)–(6) …. 8.73

s 588FGA …. 8.21, 8.48, 8.74, 10.7, 10.73, 10.87, 10.122, 10.132, 10.134, 11.1, 11.34, 11.72, 12.34, App E s 588FGA(1) …. 2.62, 10.118, 10.124 s 588FGA(2) …. 2.62, 10.118, 10.119, 10.120, 10.121, 10.124, 10.133, 10.138, 11.71, App D, App F s 588FGA(3) …. 11.71 s 588FGA(3)(a) …. 10.119, 10.120 s 588FGA(3)(b) …. 10.119, 10.120 s 588FGA(4) …. 8.50, 10.121, 10.123, 11.54, 11.71 s 588FGA(5) …. 10.123, 10.124 s 588FGB …. 10.73, 10.125, 10.132, App F s 588FGB(1)–(6) …. 10.124 s 588FGB(3) …. 10.126, 10.127 s 588FGB(4) …. 10.128, 10.129 s 588FGB(4)(a)(i) …. 10.127 s 588FGB(4)(a)(ii) …. 10.127 s 588FGB(5) …. 10.84, 10.87, 10.88, 10.130 s 588FGB(6)(a) …. 10.131 s 588FH …. 11.1 s 588FH(1) …. 2.71 s 588FH(1)(c) …. 8.41 s 588FH(2) …. 1.49, 2.65, 2.71, 8.41 s 588FH(2)(b) …. 8.53 s 588FH(3) …. 2.71 s 588FH(4) …. 8.41 s 588FI …. 3.67, 4.52 s 588FI(2) …. 8.42 s 588FI(3) …. 8.42

s 588FJ …. 1.50, 9.3, 9.4, 9.5, 9.30, 9.32, 9.33, 9.38, 9.41, 9.44, 9.47, 9.129, 11.1 s 588FJ(1)(a) …. 9.28 s 588FJ(1)(b) …. 9.28 s 588FJ(2) …. 2.71, 9.28, 9.29, 9.34, 9.39, 9.48 s 588FJ(2)(a) …. 9.34, 9.35, 9.40 s 588FJ(2)(b) …. 9.34 s 588FJ(2)(c) …. 9.34, 9.42, 9.44 s 588FJ(2)(d) …. 9.34, 9.45, 9.46 s 588FJ(2)(e) …. 9.34, 9.45 s 588FJ(3) …. 2.71, 9.48 s 588FJ(4) …. 9.34, 9.35, 9.36 s 588FJ(5) …. 9.34, 9.46 s 588FJ(6) …. 1.49, 2.71, 9.49 s 588FK …. 9.53, 9.64 s 588FK(1) …. 9.53 s 588FK(2) …. 9.53 s 588FK(3) …. 9.53 s 588FK(4) …. 9.53 s 588FL …. 3.46, 9.61, 9.66, 9.92 s 588FL(1)(a) …. 9.62, 9.67, 9.68 s 588FL(1)(a)(i) …. 9.62 s 588FL(1)(a)(ii) …. 9.62 s 588FL(1)(a)(iii) …. 9.62 s 588FL(1)(b) …. 9.62 s 588FL(1)(b)(ii) …. 9.62 s 588FL(1)(b)(iii) …. 9.62

s 588FL(2) …. 9.62, 9.63, 9.80 s 588FL(2)(a)(i) …. 9.63 s 588FL(2)(a)(ii) …. 9.63 s 588FL(4) …. 9.50, 9.55, 9.68, 9.77, 9.91 s 588FL(4)(a) …. 9.67, 9.68 s 588FL(4)(a)(i) …. 9.68 s 588FL(4)(a)(ii) …. 9.68 s 588FL(4)(b) …. 9.67 s 588FL(5) …. 9.55, 9.68, 9.155 s 588FL(5)(b) …. 9.68 s 588FL(6) …. 9.68 s 588FL(7) …. 9.64 s 588FM …. 9.51, 9.65, 9.82, 9.84, 9.85, 9.88, 9.90, 9.133, 9.134 s 588FM(1) …. 9.79, 9.80 s 588FM(2) …. 9.83, 9.86, 9.89 s 588FM(2)(a)(i) …. 9.77, 9.81 s 588FM(2)(a)(ii) …. 9.77, 9.81 s 588FM(2)(b) …. 9.77, 9.82 s 588FM(3) …. 9.77, 9.83 s 588FN …. 9.5, 9.61 s 588FN(1) …. 9.91 s 588FN(2) …. 9.91 s 588FN(3) …. 9.91 s 588FN(4) …. 9.55 s 588FO(1)(a) …. 9.92 s 588FO(1)(b) …. 9.92 s 588FO(2)(a) …. 9.92

s 588FO(2)(b) …. 9.92 s 588FP …. 9.117, 9.156, 11.1 s 588FP(1) …. 9.93, 9.95, 9.102 s 588FP(1)(a) …. 9.93 s 588FP(1)(b) …. 9.93, 9.95 s 588FP(1)(c) …. 9.97 s 588FP(2) …. 9.93, 9.95 s 588FP(2)(a) …. 9.95 s 588FP(2)(b) …. 9.95 s 588FP(2)(c) …. 9.95 s 588FP(3)(a) …. 9.97 s 588FP(3)(b) …. 9.97 s 588FP(3)(c) …. 9.97 s 588FP(4) …. 9.93, 9.100, 9.101 s 588FP(4)(a) …. 9.100 s 588FP(5) …. 9.94 s 588FP(7) …. 9.102 s 588FP(9) …. 9.102 s 588G …. 1.39, 2.21, 10.2, 10.5, 10.6, 10.7, 10.11, 10.18, 10.24, 10.30, 10.31, 10.32, 10.34, 10.37, 10.40, 10.47, 10.56, 10.57, 10.59, 10.75, 10.86, 10.89, 10.92, 10.93, 10.106, 10.111 s 588G(1) …. 10.49, 10.65, 10.74 s 588G(1A) …. 10.44 s 588G(1)(a) …. 10.12, 10.15 s 588G(1)(b) …. 10.12, 10.45 s 588G(1)(c) …. 10.12, 10.46 s 588G(1)(d) …. 10.12, 10.48 s 588G(2) …. 1.49, 2.64, 2.71, 10.1, 10.12, 10.13, 10.49, 10.65, 10.70, 10.72,

10.102, 10.106, 10.110 s 588G(2)(a) …. 10.51, 10.52, 10.53 s 588G(2)(b) …. 10.52, 10.53 s 588G(2)(b)(i) …. 10.46 s 588G(3) …. 10.13, 10.33, 10.65, 10.68, 10.69, 10.101, 10.102, 10.107 s 588G(3A) …. 10.60 s 588G(3)(a) …. 10.61, 10.62 s 588G(3)(aa) …. 10.62 s 588G(3B) …. 10.60 s 588G(3)(b) …. 10.61, 10.62 s 588H …. 10.113 s 588H(1) …. 10.72 s 588H(2) …. 10.10, 10.72, 10.74, 10.75, 10.79, 10.81, 10.83, 10.96 s 588H(3) …. 10.72, 10.81, 10.83, 10.96 s 588H(3)(a)(i) …. 10.80, 10.82 s 588H(3)(a)(ii) …. 10.80 s 588H(3)(b) …. 10.80 s 588H(4) …. 10.72, 10.83, 10.84, 10.87, 10.88, 10.89, 10.90, 10.125, 10.127, 10.130 s 588H(4)–(6) …. 10.49 s 588H(5) …. 10.72, 10.91, 10.124 s 588H(6) …. 10.91 s 588J …. 8.28, 10.13, 10.106, 10.114, 10.115, 11.1 s 588J(1) …. 10.98 s 588J(2) …. 1.49, 10.70, 10.100 s 588J(3) …. 10.100 s 588K …. 8.28, 10.13, 10.101, 10.106, 10.114, 10.115, 11.1

s 588L …. 10.98, 10.101 s 588M …. 2.64, 2.71, 8.27, 8.28, 10.57, 10.72, 10.75, 10.92, 10.98, 10.105, 10.106, 10.110, 10.115, 11.1, 11.29, 11.68 s 588M(1) …. 10.102, 11.73 s 588M(1)(c) …. 10.103 s 588M(2) …. 10.13, 10.102, 10.104, 10.114, 10.138, 11.73 s 588M(3) …. 10.13, 10.102, 10.104, 10.108, 10.109, 10.114, 11.73 s 588M(4) …. 10.102 s 588MT(2)(b) …. 11.73 s 588N …. 10.105 s 588P …. 10.106 s 588Q(c) …. 10.107 s 588Q(d) …. 10.107 s 588R …. 10.13, 10.102, 10.110, 11.1 s 588R(1) …. 10.108 s 588S …. 10.13, 10.109 s 588S(a) …. 10.108 s 588S(b) …. 10.108 s 588T …. 10.13, 10.102, 10.108, 10.110, 11.1 s 588T(2)(b) …. 10.109 s 588T(3)(c) …. 10.109 s 588T(3)(d) …. 10.109 s 588U …. 10.108 s 588U(1) …. 10.110 s 588U(1)(a) …. 10.110 s 588U(1)(b) …. 10.110 s 588U(1)(c) …. 10.110

s 588U(2) …. 10.110 s 588V …. 10.112, 10.137 s 588V(1)(d)(i) …. 10.113 s 588V(1)(e) …. 10.111 s 588V(d)(i) …. 10.111 s 588V(d)(ii)(A) …. 10.111 s 588V(d)(ii)(B) …. 10.111 s 588W …. 1.49, 2.64, 2.71, 4.53, 8.28, 10.92, 10.114, 10.115, 10.135, 10.137, 11.29, 11.73 s 588W(1)(a) …. 10.112 s 588W(1)(b) …. 10.112 s 588W(1)(c) …. 10.112 s 588W(2) …. 10.112 s 588X …. 2.71 s 588X(2) …. 10.113 s 588X(3)(a) …. 10.113 s 588X(4) …. 10.113 s 588X(5) …. 10.113, 10.124 s 588X(6) …. 10.113 s 588Y …. 8.28 s 588Y(1) …. 10.114 s 588Y(2) …. 10.115 s 588Y(4) …. 10.115 s 588Z …. 10.116, 10.117 s 589 …. 10.141 s 592 …. 10.7 s 592(1) …. 10.140, 10.141

s 592(1)(a) …. 10.5 s 592(2)(b) …. 10.10 s 592(6) …. 10.5, 10.141 s 593 …. 10.5 s 596AA(1) …. 10.142 s 596AA(2) …. 10.142 s 596AB …. 10.105, 10.142 s 596A(b) …. 11.10 s 596A(b)(iii) …. 11.9 s 596AC …. 10.105, 10.142 s 596AG …. 10.142 s 596AH …. 10.142 s 596B …. 11.9, 12.13 s 596B(1) …. 11.10 s 596F …. 11.11 s 597 …. 11.14 s 597(4) …. 11.11 s 597(5A) …. 11.11 s 597(9) …. 11.9 s 597(12) …. 11.12, 11.13 s 597(12A) …. 11.12, 11.13, 11.15 s 597(14) …. 11.15 s 597(14a) …. 11.15 s 597A …. 11.9 s 601CD …. 12.28 s 601CL …. 12.14 s 601CL(14) …. 12.29

s 601CL(15) …. 12.29 s 601CL(16) …. 12.29 s 761F …. 7.19 s 761FA …. 7.19 s 1211(b) …. 10.59 s 1305 …. 2.46, 2.49 s 1305(1) …. 2.45, 2.47 s 1305(2) …. 2.45 s 1306 …. 2.46 s 1317E(1) …. 10.70 s 1317G …. 10.13, 10.70 s 1317H …. 10.13, 10.106 s 1317J(1) …. 10.70 s 1317S …. 10.92, 10.94, 10.95, 10.132 s 1317S(2)(b)(i) …. 10.93 s 1317S(2)(b)(ii) …. 10.93 s 1317S(3)(a) …. 10.93 s 1317S(3)(b) …. 10.93 s 1317S(3)(c) …. 10.93 s 1318 …. 10.92, 10.95 s 1318(1) …. App F s 1318(4) …. 10.132 s 1322(4) …. 9.101, 9.171 s 1322(4)(d) …. 11.33 s 1332 …. 10.56 s 1335(1) …. 11.69 s 1337H(2) …. 11.24

s 1337J …. 11.24 s 1337K …. 11.24 s 1337L …. 11.24 ss 1499–1510 …. 9.5, 9.120 s 1499 …. 9.94, 9.116, 9.118, 9.119 s 1502 …. 9.118 ss 1502–1506 …. 9.133, 9.156 s 1502(1) …. 9.116 s 1504(1) …. 9.118 s 1504(3) …. 9.118, 9.134 s 1504(3)(b)(i) …. 9.118 s 1504(3)(b)(ii) …. 9.118 s 1504(3)(c) …. 9.118 s 1507 …. 9.117 s 1508 …. 9.117 s 1509 …. 9.94 s 1510 …. 9.30, 9.116 Pt 1.2 Div 3 …. 3.27 Pt 5.1 …. 1.49 Pt 5.2 …. 1.49, 12.14 Pt 5.3A …. 1.49 Pt 5.4 …. 1.49, 9.30, 9.116 Pt 5.4A …. 9.30, 9.116, 12.14 Pt 5.4B …. 1.49, 9.30, 9.116 Pt 5.6 …. 1.49 Pt 5.6 Div 1A …. 1.9, 2.74, 10.102 Pt 5.6 Div 6 …. 1.9

Pt 5.6 Div 8 …. 1.9 Pt 5.6 Div 9 …. 12.4 Pt 5.7 …. 3.26, 12.3 Pt 5.7B …. 1.14, 1.15, 1.16, 1.18, 1.35, 1.45, 1.49, 1.52, 2.1, 2.23, 2.73, 3.1, 3.2, 3.4, 3.8, 3.13, 3.21, 3.22, 3.55, 3.64, 3.65, 3.67, 3.78, 4.2, 4.21, 4.23, 4.24, 4.41, 4.45, 4.52, 4.54, 4.62, 5.5, 6.19, 8.2, 8.4, 8.6, 8.20, 8.45, 8.47, 9.12, 10.5, 10.83, 10.86, 10.103, 10.107, 10.111, 11.1, 11.2, 11.32, 12.37 Pt 5.7B Div 2 …. 1.50, 8.1, 8.24, 12.25 Pt 5.7B Div 2A …. 9.53 Pt 5.7B Div 3 …. 10.11 Pt 5.7B Div 6A …. 3.47 Pt 5.7B Div 7A …. 1.53 Pt 5.8A …. 10.142 Pt 5.9 …. 11.12, 11.15, 11.16 Pt 5B.2 Div 2 …. 12.4 Corporations Amendment (Insolvency) Act 2007 …. 8.12 Corporations Amendment (Repayment of Directors’ Bonuses) Act 2003 …. 1.50, 7.1 Corporations Law s 51B …. 11.19 s 109H …. 3.18 s 267 …. 9.158 s 461(1)(a) …. 9.4 s 565 …. 1.48, 4.8 s 566 …. 9.3, 9.4 s 592 …. 2.32, 10.4, 10.69 Corporations Regulations 2001 reg 7.5.01 …. 3.55

Corporations Rules …. 11.60, 11.71, 12.26 Form 2 …. 12.26 r 1.8 …. 11.71 r 2.1(1) …. 11.51 r 2.2 …. 11.51 r 2.2(1)(a) …. 11.74 r 2.2(1)(b) …. 11.71 r 2.2(3) …. 11.51 r 2.7(1) …. 12.26, 12.27 r 2.11 …. 12.26, 12.27 r 11.6 …. 11.15 r 11.7 …. 11.15 r 11.9 …. 11.15 r 15A.3(3) …. 12.27 r 15A.3(4) …. 12.27 r 15A.4 …. 12.27 r 15A.5 …. 12.27 r 15A.6 …. 12.26 r 15A.7(1) …. 12.27 r 15A.8(1) …. 12.27 r 15A.8(2) …. 12.27 r 15A.9 …. 12.27 Crimes Act 1914 s 4AA(1) …. 10.60 Criminal Code Ch 2 …. 10.66 s 4.1 …. 10.63

s 5.1 …. 10.63 s 6.1(2) …. 10.61 s 6.2(2) …. 10.61 s 9.2 …. 10.62, 10.63 s 13.1 …. 10.62 s 13.2 …. 10.60 Cross-Border Insolvency Act 2008 …. 12.2, 12.4 s 2 …. 12.14 s 8 …. 12.14 s 10 …. 12.14, 12.15 s 13 …. 12.26 s 16 …. 12.19 s 17(1) …. 12.25 s 17(2) …. 12.25 Sch 1 …. 12.14 Cross-Border Insolvency Bill 2008 …. 12.4 Evidence Act 1995 s 4 …. 2.54 s 79 …. 2.55 s 140 …. 10.57 Family Law Act 1975 s 41 …. 9.93 Federal Court (Corporations) Rules 2000 …. 11.51 Federal Court of Australia Act 1976 s 43 …. 11.61 s 51A …. App D, App E Federal Court Rules 1979

O 13 r 2 …. 11.48 Federal Court Rules 2011 r 5.23(c) …. 11.60 r 9.05 …. 11.28 r 10.42 …. 12.33 r 10.43(1) …. 12.33 r 10.43(2) …. 12.33 r 10.43(6) …. 12.33 r 30.03 …. App G Income Tax Assessment Act 1915 …. 3.58 Income Tax Assessment Act 1936 s 95A(2) …. 9.50 s 218 …. 8.16 s 220AAE …. 10.118 s 220AAM …. 10.118 s 220AAR …. 10.118 s 221F …. 10.118 s 221G …. 10.118 s 221P …. 10.118 s 221YHDC(2) …. 10.118 s 221YHDZD(1) …. 10.118 s 221YHDZD(1A) …. 10.118 s 222AHA …. 10.118 s 436A …. 8.16 Income Tax Assessment Act 1997 s 104-60(1) …. 3.34 Judiciary Act 1903

s 79 …. 11.46 Jurisdiction of Courts (Cross-vesting) Act 1987 …. 11.23 Personal Property Securities Act 2009 …. 10.103 s 8 …. 9.23 s 8(1) …. 9.10 s 8(1)(c) …. 9.21 s 8(1)(h) …. 9.21 s 8(2) …. 9.10 s 8(3) …. 9.10 s 10 …. 9.7, 9.9, 9.12, 9.13, 9.16, 9.17, 9.19, 9.64, 9.102, 9.113 s 12(1) …. 9.6, 9.8, 9.10 s 12(2) …. 9.10 s 12(3)(b) …. 9.75 s 12(3)(c) …. 9.11, 9.75 s 13 …. 9.11 s 14 …. 9.20 s 18 …. 9.17 s 19 …. 9.15 s 19(1) …. 9.14 s 19(2) …. 9.14, 9.23, 9.27 s 19(3) …. 9.17 s 19(4) …. 9.14, 9.23 s 20 …. 9.6, 9.18 s 20(1)(b) …. 9.14 s 20(1)(b)(i) …. 9.14 s 20(1)(b)(ii) …. 9.14 s 20(1)(b)(iii) …. 9.14

s 20(2) …. 9.17, 9.106 s 20(2)(a)(ii) …. 9.17 s 20(2)(b)(i) …. 9.17 s 21 …. 9.18, 9.63 s 21(1)(a) …. 9.19 s 21(1)(b)(i) …. 9.19 s 21(1)(b)(ii) …. 9.19 s 21(1)(b)(iii) …. 9.19 s 21(2)(a) …. 9.19 s 21(2)(b) …. 9.19 s 21(2)(c) …. 9.16 s 21(3) …. 9.19 s 21(4) …. 9.20 s 23 …. 9.15 s 24(1) …. 9.15 s 24(3) …. 9.15 s 26 …. 9.16, 9.19 s 27 …. 9.16, 9.19 s 28 …. 9.16, 9.19 s 29 …. 9.16, 9.19 s 51 …. 9.64 s 55(2) …. 9.114, 9.115 s 55(3) …. 9.114 s 55(4) …. 9.115 s 55(5) …. 9.114 s 56(1) …. 9.52 s 56(2) …. 9.52

s 79(1) …. 9.23 s 79(2) …. 9.23 s 109(5)(ba) …. 9.104 s 123 …. 9.97 s 123(2)(a) …. 9.104 s 123(3)(a) …. 9.104 s 123(4) …. 9.104 s 124(1) …. 9.104 s 124(2) …. 9.104 s 124(3) …. 9.104 s 126(1) …. 9.104 s 126(2) …. 9.104 s 150 …. 9.20 s 151 …. 9.20 s 153(1) …. 9.20 s 235 …. 9.7 s 254(2)(a) …. 9.21 s 254(2)(b) …. 9.21 s 254(2)(c) …. 9.21 s 254(2)(f) …. 9.21 s 254(2)(g) …. 9.21 s 261 …. 9.22 s 262 …. 9.22 s 263(1) …. 9.22 s 263(2) …. 9.22 s 263(3) …. 9.23 s 264 …. 9.22

s 266(4) …. 9.77 s 267 …. 3.46, 9.69, 9.71, 9.73 s 267(1)(a) …. 9.72 s 267(1)(a)(ii) …. 9.70 s 267(1)(a)(iii) …. 9.70 s 267(1)(aa) …. 9.74 s 267(1)(b) …. 9.70, 9.72, 9.74, 9.75 s 267(2) …. 9.70 s 267(3) …. 9.76 s 267(3)(a) …. 9.76 s 267(3)(b) …. 9.76 s 267A …. 3.46, 9.69, 9.73, 9.75 s 267A(1) …. 9.72 s 267A(1)(a) …. 9.72 s 267A(1)(b) …. 9.72 s 267A(1)(c) …. 9.72 s 267A(1)(d) …. 9.72 s 267A(1)(e) …. 9.72 s 267A(2)(a) …. 9.76 s 267A(2)(b) …. 9.76 s 267A(3) …. 9.76 s 268 …. 9.91 s 268(1) …. 9.74 s 268(1)(a)(i) …. 9.74 s 268(1)(a)(ii) …. 9.74 s 268(1)(a)(iii) …. 9.74 s 268(2) …. 9.74

s 269 …. 9.92 s 269(1)(a) …. 9.75 s 269(1)(b) …. 9.75 s 269(2)(a) …. 9.75 s 269(2)(b) …. 9.75 s 296(g) …. 9.76 s 297 …. 9.57 s 298(1) …. 9.58 s 298(1)(a) …. 9.56 s 298(2)(a) …. 9.56 s 298(3)(a) …. 9.58 s 298(3)(b) …. 9.58 s 299(1)(b)(ii) …. 9.59 s 299(1)(b)(iii) …. 9.59 s 299(2) …. 9.59 s 299(2)(a) …. 9.59 s 299(2)(b) …. 9.59 s 299(2)(c) …. 9.59 s 300 …. 9.60 s 306(2) …. 9.6, 9.7, 9.106, 9.111, 9.116 s 307 …. 9.105, 9.106 s 308 …. 9.52, 9.106 s 320 …. 9.113 s 321 …. 9.114, 9.115 s 322 …. 9.114 s 322(1) …. 9.113 s 322(2) …. 9.111

s 322A …. 9.114 s 323 …. 9.115 s 323(a) …. 9.115 s 323(b) …. 9.115 s 324(1) …. 9.113 s 324(1)(b) …. 9.113 s 324(1)(c) …. 9.113 s 324(2) …. 9.113 s 332 …. 9.105 s 332(a) …. 9.107 s 332(b) …. 9.107 s 332(b)(i) …. 9.107 s 332(b)(ii) …. 9.107 s 332(c) …. 9.107 s 332(d) …. 9.107 s 333(3) …. 9.108 s 339(1) …. 9.27 s 339(3) …. 9.27 s 339(5) …. 9.27, 9.30 s 339(6) …. 9.27 s 340(1)(a) …. 9.24 s 340(1)(b) …. 9.5, 9.24 s 340(2) …. 9.26 s 340(3) …. 9.26 s 340(4A) …. 9.24 s 340(5) …. 9.25 s 341(1)–(4) …. 9.26

s 341(1B) …. 9.25 ss 297–300 …. 9.52, 9.55 ss 330–332 …. 9.107 Pt 2.6 …. 9.6 Pt 5.3 …. 9.6 Pt 7.2 …. 9.6 Personal Property Securities (Corporations and Other Amendments) Act 2010 …. 9.5 Personal Property Securities Corporations Bill …. 9.3, 9.4, 9.5, 9.10, 9.19, 9.27, 9.30, 9.45, 9.52, 9.57, 9.59, 9.61, 9.63, 9.65, 9.66, 9.68, 9.71, 9.73, 9.74, 9.75, 9.76, 9.91, 9.93, 9.94, 9.102, 9.108, 9.112, 9.117, 9.119 Personal Property Securities Regulations 2000 reg 7.1 …. 9.22 reg 9.2(1) …. 9.108 Taxation Administration Act 1953 Sch 1 Div 260 …. 12.22 Sch 1 Div 268 …. 10.118 Sch 1 Subdiv 16-B …. 8.74, 10.115, 10.118, App E Trade Practices Act 1974 s 51AA …. 6.21 s 51AB …. 6.21 s 51AC …. 6.21 s 52A …. 6.10 Uniform Companies Act 1961 s 124 …. 10.15 s 222(2)(c) …. 2.23 s 293 …. 1.48, 2.73 s 294 …. 2.23, 9.3, 9.4

Australian Capital Territory Corporations Rules 2000 …. 11.51 Court Procedures Rules 2006 …. 11.51 Div 2.4.2 r 220 …. 11.28 r 1721 …. 11.61 r 6501(1)(a) …. 12.33 Jurisdiction of Courts (Cross-vesting) Act 1993 …. 11.23

New South Wales Associations Incorporation Act 2009 …. 3.26 Capital Reform (Miscellaneous Provisions) Act 1946 s 6(4) …. 11.68 Civil Procedure Act 2005 Pt 2A …. 11.8 s 18C …. 11.8 s 68 …. 11.16, 11.17 s 100 …. 8.45, App A s 101 …. App A Companies Act 1961 s 124 …. 10.15 s 303(3) …. 10.3, 10.31 s 304(1A) …. 10.3 s 374C …. 10.3 s 374D …. 10.3, 10.4 Companies (New South Wales) Code 1981 s 368(1) …. 8.76 s 451(1) …. 4.8, 12.30

s 556 …. 10.4, 10.31, 10.33, 12.30 s 556(1) …. 10.32, 10.34 Contracts Review Act 1980 …. 6.10 Conveyancing Act 1919 s 37A …. 1.4, 1.18, 1.24, 8.4, 8.17 Courts and Other Legislation Further Amendment Act 2013 …. 11.8 Evidence Act 1995 s 4 …. 2.54 s 69 …. 2.50 s 144 …. 8.61 Jurisdiction of Courts (Cross-vesting) Act 1987 s 5(2)(b)(iii) …. 11.23 Moneylending Act 1941 s 30 …. 6.5 Security Interests in Goods Act s 7(6) …. 9.59 Supreme Court (Corporations) Rules 1999 …. 11.51 Supreme Court Rules 1970 Pt 8 r 2 …. 11.56 Pt 8 r 6 …. 11.59 Pt 10 r 1A(a) …. 12.30 Pt 31 r 2 …. 11.59 Uniform Civil Procedure Rules 2005 r 6.19 …. 11.56, 11.57 r 6.24 …. 11.28 r 6.25 …. 11.28 r 6.27 …. 11.28

r 6.29 …. 11.28 r 11.2 …. 12.34 r 11.4(1) …. 12.33 r 11.5 …. 12.34 r 36.16 …. 11.45, 11.46 r 42.1 …. 11.61 r 42.21 …. 11.66 r 42.34 …. 11.21 r 51.50 …. 11.66 Pt 11, Sch 6 …. 12.30, 12.33 Uniform Evidence Act s 69 …. 2.50

Northern Territory Corporations Law Rules 2000 …. 11.51 Evidence Act 1939 s 42B …. 2.50 Instruments Act …. 9.22 Jurisdiction of Courts (Cross-vesting) Act 1987 …. 11.23 Supreme Court Rules r 7.04 …. 12.33 r 9.06 …. 11.28 Uniform Evidence Act s 69 …. 2.50

Queensland Associations Incorporation Act 1981 …. 3.26

Companies Act 1931 s 275(1) …. 4.58 s 275(2) …. 4.58 s 284 …. 10.2 Corporations Proceedings Rules …. 11.51 Evidence Act 1977 s 84 …. 2.50 Insolvency Act 1874 ss 107–109 …. 2.21 s 107 …. 4.6 Jurisdiction of Courts (Cross-vesting) Act 1987 …. 11.23 Moneylenders Act 1916 s 4(1) …. 6.5 Property Law Act 1974 s 238 …. 8.4 Supreme Court Act 1995 s 47(1) …. 8.45 Uniform Civil Procedure Rules 1999 r 69 …. 11.28 r 74 …. 11.28 r 681(1) …. 11.61 Pt 7 Div 1 …. 12.33

South Australia Bills of Sale Act 1886 …. 9.22 Companies (SA) Code s 556 …. 10.75

Corporations Rules 2003 …. 11.51 Evidence Act 1929 s 45CA …. 2.50 Goods Securities Act 1986 …. 9.22 Insolvency Act 1886 s 161 …. 4.6 Jurisdiction of Courts (Cross-vesting) Act 1987 …. 11.23 Law of Property Act 1936 s 86 …. 1.24, 8.4 Liens on Fruit Act 1923 …. 9.22 Mercantile Law Act 1936 …. 9.22 Stock Mortgages and Wool Liens Act 1924 …. 9.22 Supreme Court Civil Rules 2006 r 40(2) …. 12.33 r 74 …. 11.28 r 75 …. 11.28 r 263(1) …. 11.61 Supreme Court Rules 1987 r 31.02 …. 11.28

Tasmania Associations Incorporation Act 1964 …. 3.26 Bankruptcy Act 1870 s 85 …. 4.6 Bills of Sale Act 1900 …. 9.22 Companies Code (Tasmania) s 556(1) …. 10.37

Conveyancing and Law of Property Act 1884 s 40 …. 8.4 Jurisdiction of Courts (Cross-vesting) Act 1987 …. 11.23 Lending of Money Act 1915 s 2(1)(a) …. 6.5 s 2(1)(b) …. 6.5 s 2(1)(c) …. 6.5 Stock, Wool, and Crop Mortgages Act 1930 …. 9.22 Supreme Court (Corporations) Rules 2000 …. 11.51 Supreme Court Rules 2000 Pt 7 Div 10 …. 12.33 r 184 …. 11.28

Victoria Associations Incorporation Act 1981 …. 3.26 Chattel Securities Act 1987 s 3 …. 9.71 s 7 …. 9.71 s 8 …. 9.59 Civil Procedure Act 2010 s 22 …. 11.8 s 29 …. 11.8 s 47(3)(b) …. 11.8 s 70(1)(c) …. 11.8 Civil Procedure and Legal Profession Amendment Act 2011 …. 11.8 Companies Code s 440 …. 1.12

Companies (Victoria) Code s 230 …. 3.62 s 451(1) …. 3.38, 4.8, 4.26 s 556 …. 10.38 s 556(1) …. 10.50 s 556(2)(a) …. 10.50 s 556(2)(b) …. 10.54 Credit Act 1984 …. 6.5 Insolvency Act 1915 s 151 …. 4.6 Jurisdiction of Courts (Cross-vesting) Act 1987 …. 11.23 Moneylenders Act 1958 s 28(1) …. 6.5 Property Law Act 1958 s 172 …. 1.24, 8.4 Rules of the Supreme Court O 18 r 6 …. 11.28 Supreme Court Act 1958 s 81 …. 2.9 Supreme Court (Corporations) Rules 2003 …. 11.51 Supreme Court (General Civil Procedure) Rules 2005 r 7.04 …. 12.33 r 9.06 …. 11.28 Uniform Evidence Act s 69 …. 2.50

Western Australia

Associations Incorporation Act 1987 …. 3.26 Bankruptcy Act 1892 s 46(1) …. 4.6 Companies (WA) Code s 556(1) …. 10.42 Evidence Act 1906 ss 73A–73B …. 2.50 s 73N …. 2.50 s 73Q …. 2.50 s 73U …. 2.50 s 79C …. 2.46 Jurisdiction of Courts (Cross-vesting) Act 1987 …. 11.23 Moneylenders Act 1912 s 4(1) …. 6.5 Property Law Act 1969 s 89 …. 1.24, 8.4 Rules of the Supreme Court O 66 r 1(1) …. 11.61 Rules of the Supreme Court 1971 O 10 …. 12.33 Supreme Court (Corporations) (WA) Rules 2004 …. 11.51 Uniform Evidence Act s 69 …. 2.50

United Kingdom 1 Jac I, c 1 s 2 …. 1.28 2 Rich II, St 2, c 3 (1379) …. 1.22

3 Hen VII, c 4 (1486) …. 1.22, 1.23 8 & 9 W III c 27 …. 1.22 21 Jac ch 19 (1623) …. 1.25 50 Edw III, c 6 (1376) …. 1.22, 4.3, 8.4 An Act Against Excessive Usury (12 Car 2, c 13) (1660) …. 6.3 An Act against Such Persons as Do Make Bankrupt 1542–43 s 1 …. 1.24 s 4 …. 1.24 An Act Against Usurie (37 H viii c 9) (1545) …. 6.3 An Act Against Usury (21 Jac ch 17) (1624) …. 6.3 An Act to Amend the Law relating to Bankruptcy and Insolvency in England 1861 (24 & 25 Vic, c 134) s 69 …. 1.26 An Act to Reduce Rate of Interest (13 Anne, c 15) (1713) …. 6.3 An Act Touching Orders for Bankrupts 1571 …. 1.24 Bankruptcy Act 1543 …. 1.18 Bankruptcy Act 1571 (13 Eliz I, c 5) (Statute of Elizabeth) …. 8.4, 8.17 Bankruptcy Act 1571 (13 Eliz I, c 7) (Statute of Elizabeth) …. 1.6 Bankruptcy Act 1869 (32 & 33 Vic, c 71) …. 1.26, 1.32 s 92 …. 1.29, 4.5 Bankruptcy Act 1883 (46 & 47 Vic, c 52) …. 1.27 s 47(1) …. 3.6 s 52 …. 3.34 Bankruptcy Act 1890 (53 & 54 Vic, c 71) …. 1.27 Bankruptcy Act 1914 (4 & 5 Geo V, c 59) …. 1.27, 1.33 s 42 …. 8.66 s 42(1) …. 3.6

s 42(4) …. 3.34 s 44 …. 1.29, 4.2 s 59 …. 3.34 s 66 …. 6.8 Bankruptcy Law Consolidation Act 1849 (12 & 13 Vic, c 106) s 126 …. 1.26, 3.6, 8.5 Bankrupts Act 1603 (1 Jac 1, c 15) …. 1.25, 8.5 Bankrupts Act 1825 (6 Geo IV, c 16) s 73 …. 1.26, 3.8, 4.4, 8.5 Bubble Act 1720 (6 Geo I, c 18) …. 1.31 Bill Against Usurie (5 & 6 Edw 6, c 20) (1555) …. 6.3 Companies Act 1862 s 133(1) …. 1.6 s 153 …. 8.76 Companies Act 1862 (25 & 26 Vic, c 89) …. 1.6, 1.31, 2.24 s 153 …. 8.76 Companies Act 1900 s 15 …. 9.146 Companies Act 1929 s 265 …. 1.48, 2.73, 8.51 s 266 …. 9.3, 9.38 s 275 …. 10.2 Companies Act 1948 (11 & 12 Geo 6 c 38) s 101 …. 9.140 s 320 …. 1.48, 2.73, 8.51 s 322 …. 9.3 s 322(1) …. 9.40

s 332 …. 10.2 s 332(1) …. 10.3 Companies Act 1985 s 612 …. 6.8 Companies Clauses Consolidation Act 1845 ss 14–16 …. 3.34 s 18 …. 3.34 s 19 …. 3.34 Companies (Consolidation) Act 1908 (8 Edw 7, c 69) s 93 …. 9.3 s 212 …. 9.3, 9.5, 9.38 Consumer Credit Act 1974 …. 6.6 s 8(2) …. 6.7 s 9(1) …. 6.7 ss 137–140 …. 6.7 Foreign Judgments (Reciprocal Enforcement) Act 1933 …. 12.35, 12.37, 12.38 Fraudulent Conveyances Act 1571 (13 Eliz I c 5) …. 3.6, 4.3, 8.4 s 1 …. 1.24 s 2 …. 1.24 s 6 …. 1.24 Fraudulent Conveyances Act 1587 (29 Eliz I c 5) …. 1.24 Income and Corporations Taxes Act 1970 s 204 …. 3.53 Insolvency Act 1841 (5 Vic No 17) (NSW) s 8 …. 4.6, 4.7 Insolvency Act 1865 (28 Vic No 273) (Vic) …. 4.6

Insolvency Act 1985 …. 6.8 Insolvency Act 1986 s 130(2) …. 12.12 s 238 …. 1.27, 3.8 s 238(2) …. 12.32 s 239 …. 1.27, 4.6 s 240 …. 2.73 s 244 …. 6.1, 6.8, 6.10, 6.18 s 244(1) …. 6.9 s 244(3) …. 6.9 s 245(2) …. 9.39 s 339 …. 1.27 s 340 …. 1.27 s 423(2) …. 12.32 s 426 …. 12.9, 12.35, 12.37 s 426(4) …. 12.7 s 426(5) …. 12.7 s 436 …. 3.8 Insolvency Rules1986 rule 4.218(2)(a)(i) …. 11.63 rule 4.218(3)(a)(iii) …. 11.63 rule 6.5.4(d) …. 6.18 Insolvent Debtors Act 1813 …. 1.26 Joint Stock Companies Act 1844 (7 & 8 Vic, c 110) …. 1.31 Joint Stock Companies Act 1856 (19 & 20 Vic, c 47) s 76 …. 1.29, 3.10 Law of Property Act 1925

s 172 …. 1.24 Limited Liability Act 1855 (18 & 19 Vic, c 133) …. 1.6, 10.1 Money-Lenders Act 1900 (63 & 64 Vic, c 51) …. 6.4 s 1 …. 6.5 Moneylenders Act 1927 (17 & 18 Geo 5, c 21) …. 6.4, 6.6 Municipal Elections (Corrupt and Illegal Practices) Act 1884 …. 9.139 Statute of Acton-Burnell (1283) (11 Edw 1) …. 1.22 Statute of Anne (4 Anne, c 17 (1705) …. 1.24, 1.25 Statute of Anne (10 Anne, c 15 (1711) …. 1.24, 1.25 Statute of Bankrupts 1542 (34 & 35 Henry VIII, c 4) …. 1.6, 1.24, 4.3 Statute of Elizabeth 1571 (13 Eliz, c 7) …. 3.6 Statute of Elizabeth 1571 (13 Eliz, c 8) …. 1.24, 4.3, 6.3 Statute of Merchants (1283) (13 Edw 1, st 3) …. 1.22 Statute of Wales (1284) (12 Edw 1, st 3) …. 2.6 Usury Laws Repeal Act 1854 (17 & 18 Vic, c 90) …. 6.4 s 1(1) …. 6.4, 6.5 s 6 …. 6.4

New Zealand Personal Property Securities Act …. 9.6

Northern Ireland Cross-Border Insolvency Regulation 2007 …. 12.2

Scotland Cross-Border Insolvency Regulations 2006 …. 12.2

United States of America Bankruptcy Act 1841 …. 1.30 Bankruptcy Code Ch 15 …. 12.2 s 1516(c) …. 12.18 Bankruptcy Reform Act 1978 …. 4.2

International Hague Conference on Private International Law …. 12.39 UNCITRAL United Nations Commission On International Trade Law (Model Law on Cross-Border Insolvency with Guide to Enactment) 1997 …. 12.2, 12.4, 12.10, 12.14 Art 2(a) …. 12.15 Art 2(d) …. 12.15 Art 2(f) …. 12.16 Art 2(j) …. 12.37 Art 9 …. 12.15 Art 15(1) …. 12.15 Art 15(2) …. 12.26 Art 15(3) …. 12.26 Art 16(3) …. 12.16, 12.17, 12.18 Art 17 …. 12.21 Art 17(1) …. 12.16 Art 17(2)(a) …. 12.16 Art 17(2)(b) …. 12.16 Art 17(4) …. 12.27 Art 19 …. 12.20, 12.27 Art 20(1) …. 12.19

Art 20(1)(a) …. 12.20 Art 20(1)(b) …. 12.20 Art 20(1)(c) …. 12.20 Art 21 …. 12.20, 12.27, 12.39 Art 22.2 …. 12.20 Art 22.3 …. 12.20 Art 22(1) …. 12.23, 12.24 Art 22(3) …. 12.27 Art 23 …. 12.24 Art 25 …. 12.39 Art 27 …. 12.39 Art 32 …. 12.24 UNIDROIT Convention on International Interests in Mobile Equipment …. 9.16 Vienna Convention on the Law of Treaties 1969 …. 12.18

List of Abbreviations ALRC

Australian Law Reform Commission

CLRA

Corporate Law Reform Act 1992

Clyne Report

The report of the committee appointed by the Attorney- General of the Commonwealth of Australia on 23 February 1956 to review the Bankruptcy Law of the Commonwealth, chaired by Sir Thomas Clyne and dated 14 December 1962

Corporations Act

Corporations Act 2001 (Cth)

Cork Report

Report of the Review Committee on Insolvency Law and Practice (1982) Cmnd 8558

EM to the CLR Bill

Explanatory Memorandum to the Corporate Law Reform Bill 1992

Harmer Commission

Australian Law Reform Commission, General Insolvency Inquiry headed by Ronald Harmer

Harmer Report

Australian Law Reform Commission, General Insolvency Inquiry, Report No 45, 1988

Model Law

UNCITRAL Model Law on Cross-Border Insolvency

PMSI

Purchase Money Security Interest

PPSA

Personal Property Securities Act 2009 (Cth)

PPS Regulations

Personal Property Securities Regulations 2010 (Cth)

Contents Foreword Detailed Table of Contents Preface Table of Cases Table of Statutes List of Abbreviations Chapter 1

Introduction

Chapter 2

Establishing Insolvency and Determining the Relation-Back Day

Chapter 3

Transaction

Chapter 4

Unfair Preferences

Chapter 5

Uncommercial Transactions

Chapter 6

Unfair Loans

Chapter 7

Unreasonable Director-Related Transactions

Chapter 8

Voidable Transactions

Chapter 9

Avoiding and Vesting of Security Interests

Chapter 10

Civil and Criminal Liability of Directors

Chapter 11

Practice and Procedure

Chapter 12

Cross-Border Insolvency Aspects of Voidable Transactions

Appendix A Precedent Originating Process Seeking Relief Under s 588FF Appendix B Precedent Points of Claim in Support of Claim for Relief Under s 588FF (Unfair Preference) Appendix C Precedent Defence to Points of Claim in Support of Application for Relief Under s 588FF

Appendix D Precedent Interlocutory Application Seeking Relief Under s 588FGA Appendix E Precedent Points of Claim in Support of Application for Relief Under s 588FGA Appendix F Precedent Defence to Points of Claim in Support of Application for Relief Under s 588FGA Appendix G Precedent Letter of Request Index

Detailed Table of Contents Foreword Table of Contents Preface Table of Cases Table of Statutes List of Abbreviations

Chapter 1 Introduction Definition and purpose of voidable transaction Winding up Winding up in insolvency Role of the liquidator Distribution of assets in a winding up Development of pari passu rule The principle of pari passu distribution Exceptions to pari passu distribution Insolvency set-off in s 553C Debt subordination agreements The underlying rationale of avoidance proceedings in insolvency law The policy and purpose of Pt 5.7B Avoidance provisions in force prior to Pt 5.7B History of avoidance provisions in insolvency law Ancient and Roman law

Paulian action Middle Ages and the Law Merchant The beginnings of bankruptcy and avoidance of transactions Jacobean period and avoidance of transactions Insolvent Debtor’s Court Victorian reformation of bankruptcy law The origins of English preference law The evolution of bankruptcy laws in Australia Bankruptcy Act 1924 (Cth) The Clyne Report and the Bankruptcy Act 1966 (Cth) The avoidance regime in place immediately before the commencement of Pt 5.7B (23 June 1993) The Harmer Report Harmer Commission recommendations The Harmer Report’s review of avoidance provisions Changes recommended to the law of preferences Running accounts Removal of the expression ‘settlement’ Focus on effect of transaction The Corporate Law Reform Act 1992 (CLRA) Overview and structure of Pt 5.7B Scope of this text

Chapter 2 Establishing Insolvency and Determining the Relation-Back Day Introduction Insolvency— concept and definition

The meaning of debt When are debts ‘due and payable’? The court’s approach to determining insolvency The cash flow test How far into the future does the court look when determining whether a company can pay its debts as and when they become due and payable? Contingent and prospective liabilities Commercial reality Determining when debts are due and payable Determining resources available to pay debts Temporary lack of liquidity is not insolvency What if a company is able but unwilling to pay its debts? The usual indicia of insolvency Liquidity ratios Proving insolvency — evidentiary matters Onus and standard of proof The use of books and records in establishing insolvency Hearsay evidence Expert evidence Proving insolvency — practical examples Establishing insolvency by way of admission Statutory presumptions of insolvency 110 Section 588E(3)(b) — continuing insolvency presumption Section 588E(4) — failure to keep financial records Section 588E(8) — presumptions for ‘another recovery proceeding’ Determining the relation-back day

Chapter 3 Transaction Introduction The Harmer Report Historical development Meaning of transaction Transaction — Corporations Act provisions Section 588FDA restricted to specific types of transactions Purposive approach to construction Elements of the s 9 definition of transaction Body corporate Part 5.7 body ‘To which the body is a party’ Conveyance Transfer Disposition ‘By the body’ Property of the body Guarantee Payment Obligation Release and waiver Loan The court’s approach to determining whether there is a transaction for the purposes of Pt 5.7B Transaction ‘entered into’ and acts giving effect to a transaction Composite transactions Existence of transaction a question of law

Transaction ‘of a company’ and ‘of the company’

Chapter 4 Unfair Preferences Introduction Historical development of preference provisions Early statutory definitions of fraudulent preference The era of modern Australian bankruptcy law The High Court’s development of preference law Richardson v Commercial Banking Rees v Bank of NSW Queensland Bacon v Rees Airservices Australia v Ferrier Sheahan v Carrier Air Conditioning The Harmer Report and Parliament’s response Elements of an unfair preference ‘A transaction … given by a company to a creditor of the company’ (s 588FA(1)) ‘The company and the creditor are parties to the transaction’ (s 588FA(1)(a)) Necessity of debtor–creditor relationship Pre-payment of goods or services Preferential effect — the position under the previous legislation Problems in interpreting s 588FA Conflicting interpretations of s 588FA The doctrine of ‘ultimate effect’ The ultimate effect doctrine in the context of s 588FA(1)(b) Point in time at which preferential result is determined Set-off under s 553C

Secured debts Running accounts — continuing business relationship (s 588FA(3)) Modern application of the running account defence Running account need not exist for entire relation back period When unfair preference voidable Time limits

Chapter 5 Uncommercial Transactions Introduction Parliament’s response to the Harmer Report recommendations Elements of s 588FB ‘Transaction of a company’ ‘If and only if’ Relevant matters to be considered Objective test Purposive approach to be used What is uncommercial? Onus and proof Benefit and detriment Further examples of cases under s 588FB Insolvent transactions — s 588FC Voidable transactions — s 588FE

Chapter 6 Unfair Loans Introduction History of unfair loans

Early regulation of interest rates Money-Lenders Act 1900 (UK) Moneylenders Act 1927 (UK) Modern United Kingdom legislation Insolvency Act 1986 (UK) — ‘extortionate credit transactions’ Harmer Report Recommendation that courts have power to reopen certain transactions Parliament’s response Elements of s 588FD Meaning of ‘loan’ Meaning of ‘extortionate’ High interest rates not prima facie extortionate Test for ‘extortionate’ stringent in commercial context Judicial guidance on the operation of s 588FD Cases addressing loans other than under s 588FD When an unfair loan will be voidable Liquidators may apply for relevant orders Defences under s 588FG

Chapter 7 Transactions

Unreasonable

Director-Related

Introduction Similarities to and differences from s 588FB (uncommercial transactions) Elements of s 588FDA Transaction of a company (s 588FDA(1)) Transaction ‘by the company’ (s 588FDA(1)(a)) Conveyance, transfer or other disposition by the company of property of the

company (s 588FDA(1)(a)(i)) Issue of securities by the company (s 588FDA(1)(a)(ii)) Incurring by the company of an obligation (s 588FDA(1)(a)(iii)) Payment etc made to a director of the company (s 588FDA(1)(b)(i)) Payment etc made to a close associate of a director of the company (s 588FDA(1)(b)(ii)) Payment etc made to a person on behalf of, or for the benefit of (s 588FDA(1)(b)(iii)) Person On behalf of For the benefit of A reasonable person in the company’s circumstances would not have entered into the transaction (s 588FDA(1)(c)) Time at which reasonableness is to be assessed (s 588FDA(2)) Examples of the application of s 588FDA(1)(c) Defences Remedies

Chapter 8 Voidable Transactions Introduction History of voidable transaction provisions Interpretation of void as voidable in previous voidable transaction provisions Species of voidable transaction (s 588FE) Insolvent transactions (ss 588FC and 588FE(2)) Elements of an insolvent transaction Where company in administration or subject to deed of company arrangement before being wound up (ss 588FE(2A) and (2B)) Uncommercial transactions (s 588FE(3))

Insolvent transaction where related entity a party (s 588FE(4)) Defeating the rights of creditors etc (s 588FE(5)) Unfair loan (s 588FE(6)) Unreasonable director-related transaction (s 588FE(6A)) Transaction not voidable in the general law sense The meaning of voidable in the context of Pt 5.7B Section 588FF only available where a transaction of a company Orders that can be made where a court finds voidable transaction Benefit of orders under s 588FF Types of orders available under s 588FF Payment of money (s 588FF(1)(a)) Transfer of property (s 588FF(1)(b)) Payment of benefits (s 588FF(1)(c)) Order in form of proprietary remedy (s 588FF(1)(d)) Discharge of debt (s 588FF(1)(e)) Indemnification of liability to assignee (s 588FF(1)(f)) Varying or regulating creditor’s right to prove in winding up (s 588FF(1) (g)) Varying agreements (s 588FF(1)(h)–(j)) Relief where court finds unreasonable director-related transactions Liquidator may recover from related entity benefit resulting from insolvent transaction (s 588FH) Creditor who gives up benefit of unfair preference may prove for preferred debt (s 588FI) Whether court has discretion to make order under s 588FF Claims for interest in s 588FF applications Date for calculating interest Set-off under s 553C

Can orders under s 588FF be made by consent or by admission? When the court may not make an order (s 588FG) Persons against whom orders not to be made The elements of s 588FG(2) Good faith (s 588FG(2)(a)) No reasonable grounds for suspecting company was insolvent or would become insolvent (s 588FG(2)(b)(i)) No reasonable ground for suspecting insolvency (s 588FG(2)(b)(ii)) Reasonable person in the person’s circumstances would have had no such ground for suspecting insolvency (s 588FG(2)(b)(ii)) Relationship between s 588FG(2)(b)(i) and s 588FG(2)(b)(ii) The court’s approach to examining reasonable suspicion of insolvency Valuable consideration and change of position (s 588FG(2)(c)) Reliance on s 588FG seldom successful Knowledge of creditor is sum total of officers’ knowledge Sections 588FG(3)–(6) Commissioner of Taxation’s indemnity against directors (s 588FGA) Disposition of property made after the commencement of a winding up (s 468)

Chapter 9 Avoiding and Vesting of Security Interests Introduction The Personal Property Securities Act 2009 (Cth) Application of the PPSA Overview of PPSA nomenclature Personal property Security interest Grantor

Collateral How a security interest may become enforceable under the PPSA Attachment and enforceability against a grantor Enforceability against third parties — secured party possesses the collateral Enforceability against third parties — interest perfected by control Enforceability against third parties — by agreement Perfection of security interest When a security interest in particular collateral is perfected Registration on the PPS Register Exclusions and saving provisions ‘Circulating security interest’ ‘Circulating asset’ ‘Current asset’ When a current asset will not be a circulating asset References to charges and fixed and floating charges Circulating security interest created within six months before relation-back day (s 588FJ) Application of s 588FJ Purpose and history of s 588FJ Necessity for order for winding up in insolvency Exceptions to s 588FJ (s 588FJ(2)) Advances paid to the company (ss 588FJ(2)(a) and (b)) Substance of transaction determines if ‘paid to the company’ Effect of conditions being imposed on advance as to payment of creditors ‘Át or after’ As consideration for the circulating security interest Rule in Clayton’s case

‘Liability under a guarantee or other obligation undertaken … on behalf of, or for the benefit of, the company’ (s 588FJ(2)(c)) ‘On behalf of’ Amounts payable for property or services supplied to the company (s 588FJ(2)(d)) Solvency (s 588FJ(3)) Liquidator may recover ‘realised amount’ where debt discharged Vesting of PPSA security interests if not continuously perfected (ss 588FL– 588FO) Vesting of security interests Continuously perfected Knowledge under the PPSA Actual knowledge Constructive knowledge When a party will be taken to have actual or constructive knowledge Proof of knowledge reversed for certain insider transactions Effect of availability of data for search on PPS Register Vesting of PPSA security interests if collateral not registered within time (s 588FL) Application and operation of s 588FL Covered by s 588FL(2) Similarities and differences between s 588FL and former s 266 When PPSA security interest vests in company (s 588FL(4)) Title of third parties acquiring property for new value unaffected (s 588FL(5)) Vesting of unperfected security interests under the PPSA (ss 267 and 267A PPSA) Section 267 PPSA Section 267A PPSA

Intended complementary operation of PPSA and Corporations Act vesting provisions Security interests unaffected by ss 267 and 267A PPSA Statutory right to damages of certain consignors, lessors and bailors (s 269 PPSA) Where title of third parties unaffected Extension of time for registration (S 588FM) Grounds for extension — ‘accidental or due to inadvertence or some other sufficient cause’ (s 588FM(2)(a)(i)) Not of such a nature as to prejudice the position of creditors or shareholders (s 588FM(2)(a)(ii)) On other grounds, it is just and equitable to grant relief (s 588FM(2)(b)) Factors relevant to the exercise of the Court’s discretion under s 588FM Conditions on such an order Reserving liberty to discharge or vary order if insolvency within six months of registration Order without prejudice to person subsequently obtaining security Order reserving liberty to apply PPSA security interests unaffected by s 588FL (s 588FN) Certain lessors, bailors and consignors entitled to damages (s 588FO) Security interests in favour of an officer of company etc void (s 588FP) Persons covered by s 588FP (s 588FP(1)(b)) Taking a step to enforce a security interest (s 588FP(1)(c)) When the Court may give leave for enforcement of a security interest (s 588FP(4)) Title of third parties acquiring property unaffected (s 588FP(7)) Other ways in which a security interest granted to a person associated with the company may be avoided Seizure of property under s 123 PPSA

Transitional provisions under the PPSA ‘Transitional security interest’ ‘Migrated security interest’ Registration and temporary perfection Data migration issues Australian Register of Company Charges Non-migrated security interests Priority between migrated security interests and non-migrated transitional security interests Transitional security interest — effect of insolvency on priorities Transitional security interest — priorities other than in insolvency Transitional security interests — priority where not determined under PPSA Personal Property Securities (Corporations and Other Amendments) Act 2010 — transitional provisions Application of Ch 2K provisions during transitional period Application of former s 266 of the Corporations Act Priority of registrable charges (s 1506 Corporations Act) Repealed provisions — Chapter 2K Meaning of charge Terminology in jurisprudence concerning charges Whether a charge was fixed or floating Voidable charges Priority for certain claims Registration under former s 262 Corporations Act Certain charges void against liquidator or administrator (former s 266 Corporations Act) Application to the Court to extend period for registration of charge (former s 266(4) Corporations Act)

Evidence in support of the application Grounds for the order to be made (former s 266(4)(a) Corporations Act) ‘Accidental or due to inadvertence’ ‘Some other sufficient cause’ Examples of circumstances within former s 266(4)(a) Corporations Act ‘Is not of a nature to prejudice the position of creditors or shareholders’ (former s 266(4)(b) Corporations Act) ‘That on other grounds it is just and equitable to grant relief’ (former s 266(4)(b) Corporations Act) Factors relevant to the exercise of the Court’s discretion Period of delay Solvency Effect on unsecured creditors Conditions that may be imposed upon the order Successive charges Title of third parties acquiring property for value unaffected Charges in favour of certain persons void in certain cases (former s 267 Corporations Act) History and purpose of former s 267 Corporations Act ‘Relevant person’ ‘In favour of’ ‘Officer’ ‘Associated’ Meaning of ‘enforcement’ Reliance on statutory right of appointment under s 436C not a purported enforcement step Effect of assignment to relevant persons within six-month period When leave may be granted for a charge to be enforced

Retrospective leave may not be granted under former s 267 Corporations Act Whether s 1322(4) available to rescue charge from invalidity Title of third parties acquiring property for value unaffected

Chapter 10 Civil and Criminal Liability of Directors Introduction Evolution of s 588G Purpose of s 588G The Harmer Report The Corporate Law Reform Act 1992 Director’s duty to prevent insolvent trading (s 588G) Elements of s 588G Contravention of s 588G(2) — summary of civil and criminal consequences A person is a director of a company at the time when the company incurs a debt (s 588G(1)(a)) Persons validly appointed as a director (subparagraph (a)(i)) Alternate directors (subparagraph (a)(ii)) Person acting in the position of director (subparagraph (b)(i)) Directors of the company accustomed to act in accordance with the person’s instructions or wishes (paragraph (b)(ii)) Corporations as de facto and shadow directors Professional advisors At the time the company incurs a debt (s 588G(1)(a)) Examples of when a debt is incurred for the purposes of s 588G Contingent debts Debt not damages Taxes and other statutory imposts

Supply of goods or services Obligations under a lease Section 588G(1A) The company is insolvent at that time [when the company incurs a debt] or becomes insolvent by incurring the debt or by incurring at that time debts including that debt (s 588G(1)(b)) Reasonable grounds for suspecting that the company is insolvent or would become insolvent (s 588G(1)(c)) The time is at or after the commencement of ‘this Act’ (s 588G(1)(d)) Contravention of s 588G (s 588G(2)) Director’s awareness of the company’s insolvency (s 588G(2)(a)) A reasonable person in a like position in the company’s circumstances would be aware of the company’s insolvency (s 588G(2)(b)) Onus and standard of proof Contravention of s 588G as an offence (s 588G(3)) The person suspected at the time when the company incurred the debt that the company was insolvent or would become insolvent as a result of incurring that debt or other debts (s 588G(3)(c)) The person’s failure to prevent the company incurring the debt was dishonest (s 588G(3)(d)) Section 588G as a civil penalty provision Defences Reasonable grounds to expect solvency (subs 588H(2)) Director’s reliance on information (subs 588H(3)) Illness or some other good reason (subs 588H(4)) All reasonable steps to prevent company incurring debt (subs 588H(5)) Relief from liability for contravention of civil penalty provision (ss 1317S and 1318) Orders for compensation On application for civil penalty order Court may order compensation (s

588J) Criminal court may order compensation (s 588K) Recovery of compensation for loss resulting from insolvent trading (s 588M) Avoiding double recovery (s 588N) Effect of ss 588J, 588K and 588M (s 588P) Certificates evidencing contravention (s 588Q) Proceedings by a creditor (ss 588R, 588S, 588T, 588U) When holding company liable for insolvent trading by subsidiary (ss 588V and 588W) Defences to proceedings under s 588W (s 588X) Application of amount paid as compensation (s 588Y) Court may make order imposing liability where person managed company while disqualified (s 588Z) Directors to indemnify Commissioner of Taxation if certain payments set aside (s 588FGA) Rights of directors Defences to claims under s 588FGA (s 588FGB) Reasonable grounds to expect solvency (subs 588FGB(3)) Director’s reliance on information (subs 588FGB(4)) Illness or some other good reason (subs 588FGB(5)) All reasonable steps to prevent company incurring debt (subs 588FGB(6)) Whether s 1318 available in response to claims brought by the Commissioner of Taxation under s 588FGA Costs in s 588FGA matters Availability of set-off under s 553C Practice and procedure in insolvent trading claims Incurring of certain debts; fraudulent conduct (s 592) Employee entitlements (Part 5.8A)

Chapter 11 Practice and Procedure Introduction The decision to commence recovery proceedings Pre-litigation steps Requirements of Civil Dispute Resolution Act 2011 (Cth) Effect of statutory requirement on s 588FF applications State legislation Information gathering under Pt 5.9 Privilege during examinations under Pt 5.9 Use of transcript of examination in later proceedings Section 68 of the Civil Procedure Act 2005 (NSW) Appropriate court Distinction between ‘Court’ and ‘court’ Conflict of law issues Power to transfer proceedings under s 1317H Liquidator as proper plaintiff Substitution of liquidators as plaintiffs Can a cause of action under s 588FF be assigned? Time periods for commencing s 588FF actions Extensions of time under s 588FF(3)(b) The court’s approach to determining applications for extension of time under s 588FF(3) Consequences of non-commencement within the time period ‘Blanket’ or ‘shelf’ orders for extension of time under s 588FF(3) Opportunity to be heard Form of order extending time under s 588FF(3) Variation of an order extending time under s 588FF(3)

The effect of setting aside the extension order Amendment Joinder of defendant after expiry of time limit not permitted Correcting the name of a defendant Commencing proceedings Pleadings Notice to affected parties Court practice notes Joining multiple defendants in a single s 588FF proceeding Separate proceedings — multiple defendants Default judgment Costs orders in s 588FF proceedings Security for costs Security for costs when a litigation funder is involved Whether s 1335 is available to order security for costs against liquidators Commissioner of Taxation’s statutory right of indemnity under s 588FGA Procedural aspects of claims under s 588FGA Procedural aspects of claims under s 588M Procedural aspects of claims under s 588T Funding avoidance and recovery actions — litigation funding

Chapter 12 Cross-Border Insolvency Aspects of Voidable Transactions Introduction Universalist versus territorialist approach Voidable transactions in cross-border insolvency Statutory regulation of cross-border insolvency

Cross-border insolvency at common law Principal and ancillary windings up All creditors to be treated equally Pt 5.6 Div 9 of the Corporations Act — cooperation between Australian and foreign courts in external administration matters (s 581) Court must act in aid of, and be auxiliary to, the courts of prescribed countries (s 581(2)) Letters of request from a foreign court to an Australian court (s 581(3)) Requests for assistance by Australian courts (s 581(4)) The Model Law and the Cross-Border Insolvency Act Applications for recognition Two types of foreign proceedings ‘Centre of Main Interest’ Stay of individual actions or proceedings Relief that may be granted upon recognition An example of the Model Law in practice: Akers v Saad Investments Co Ltd Treatment of voidable transactions under the Model Law Procedural aspects of applying for recognition under the Model Law Service of documents Winding up of foreign companies under Pt 5B.2 Div and winding up of Pt 5.7 bodies under s 583 Applicability of Pt 5.7B to foreign defendants and foreign assets Service outside of Australia Enforcement of judgment overseas Rubin v Eurofinance SA New Cap Reinsurance Corp Ltd Rubin appeal Non-enforceability under Model Law

Appendix A Precedent Originating Process Seeking Relief Under s 588FF Appendix B Precedent Points of Claim in Support of Claim for Relief Under s 588FF (Unfair Preference) Appendix C Precedent Defence to Points of Claim in Support of Application for Relief Under s 588FF Appendix D Precedent Interlocutory Application Seeking Relief Under s 588FGA Appendix E Precedent Points of Claim in Support of Application for Relief Under s 588FGA Appendix F Precedent Defence to Points of Claim in Support of Application for Relief Under s 588FGA Appendix G Precedent Letter of Request Index

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1 Introduction DEFINITION AND PURPOSE OF VOIDABLE TRANSACTION 1.1 A voidable transaction is a transaction1 of a company2 that may be voidable3 because of the operation of any one or more of subsections 588FE(2) to 588FE(6A) of the Corporations Act 2001 (Cth) (Corporations Act)4 in the context of a winding up. Section 588FE is found in Pt 5.7B of the Act headed ‘Recovery of Property or Compensation for the Benefit of Creditors of Insolvent Company’ which commenced on 23 June 1993.5 As the title of that part suggests, the voidable transaction provisions contained in Pt 5.7B are intended to assist a liquidator of a company in recovering property or compensation for the benefit of creditors and forms an integral part of winding up. Those provisions serve the purpose of redressing imbalance to the detriment of the general body of creditors resulting from favourable treatment of certain persons in transactions undertaken while the company was still a going concern.6 Winding up is the process that eventually sees the corporate entity cease to exist.7 The winding up refers to the winding up [page 2] of the company’s affairs.8 That is, ‘getting in such assets as can be got in, and paying therewith such debts as are ascertainable, and disposing of the surplus (if any) to those entitled thereto’9 on a pari passu10 basis.

Winding up 1.2 Winding up is a form of collective enforcement of a company’s debts and a winding-up order is made not for the benefit of an individual creditor but for the benefit of creditors as a whole.11 Hence, a creditor’s right to a winding-up order is not the creditor’s individual right but a representative right.12 It has long been established that, upon a winding up, any rights in personam that a creditor may have against the company effectively cease, and the creditor instead obtains the benefit of a statutory right to share in the fund of assets13 administered by the liquidator on behalf of all creditors.14 This is reinforced by s 471B of the Corporations Act which provides that a person cannot begin or proceed with a proceeding in a court against a company being wound up without first obtaining leave from the Court.15 It is not surprising then that the beginning of a winding up has been described in its legal nature as ‘the equivalent of the court giving leave to enforce a judgment’.16

Winding up in insolvency 1.3 As will be seen in Chapter 8, only a liquidator of a company has standing to seek orders under s 588FF17 for the recovery of property for the benefit of creditors under Pt 5.7B. In the context of voidable transaction litigation, liquidators are usually appointed by the Court following applications to wind up a company ‘in insolvency’18 although [page 3] liquidators appointed under a creditors’ voluntary winding up can also pursue voidable transaction claims.19 The winding up of a company by the Court20 on the basis of insolvency is by far the most common ground relied upon by creditors to support a winding-up application21 and is regulated by Pts 5.4 and 5.4B.22 Part 5.4, headed ‘Winding Up in Insolvency’, reflects recommendations made by the Australian Law Reform Commission in 1988, in its landmark General Insolvency Inquiry headed by Ronald Harmer,23 that there should be a legislative distinction between the winding up of solvent and insolvent companies.24 The Harmer Commission considered that the previous legislation that existed prior to 23 June 199325 created a perception that any company which was being wound up was insolvent, and that this could cause misunderstanding

and be embarrassing to those associated with the winding up of solvent companies. The Harmer Commission therefore recommended that the phrase ‘winding up in insolvency’ should be adopted in the legislation to ensure that distinction.26 The report also recommended placing those legislative provisions dealing with the winding up of companies in insolvency in a separate Part of the legislation to ensure less confusion between the different types of winding up.27 [page 4] In addition to the above recommendations, the Harmer Commission made extensive recommendations regarding the regulation of provisions concerning the avoidance of transactions antecedent to a winding up. The Harmer Report and the relevant recommendations in that regard are discussed in detail at 1.37.

Role of the liquidator 1.4 Generally, the liquidator’s role in a winding up is to administer the insolvent company’s estate strictly in accordance with the duties and obligations specifically imposed by the Corporations Act and under general law28 with the ultimate aim of winding up the company.29 The liquidator’s principal duties have been described as including taking possession of and protecting the company’s assets, making lists of contributories and creditors, having disputed cases adjudicated upon, realising the company’s assets and applying the proceeds in due course of administering amongst the creditors and contributories.30 As Lord Romilly MR observed in Re Taverstock Iron Works Co:31 The duties of an official liquidator are very plain and simple. Generally they may be thus stated: He is to do everything he can to augment the disposable assets of the company; in all extraordinary cases he is to take the directions of the court as to the course to be adopted, and in so doing he is to assist the court as much as he can with the information he has acquired.32

A liquidator’s duty is owed to the body of creditors as a whole and to the Court.33 It is no part of a liquidator’s duty to ensure that litigation conducted in the course of the realisation of assets is for the benefit of a secured creditor, or any particular creditor.34 Indeed, the High Court has observed that it is part of a liquidator’s duties to ‘carefully scrutinise’ charges existing over company property and, in certain circumstances, to attack them and have them declared void.35 The relevant benefit is that which is sought by the realisation

[page 5] of assets, namely the augmentation of assets available for distribution.36 It is the duty of a liquidator to realise assets and, to that end, a liquidator has the power to bring proceedings although care must be exercised in determining whether to commence litigation.37 As mentioned above, only a liquidator has standing to commence proceedings under s 588FF38 in respect of voidable transactions. Prior to commencing any proceedings the liquidator needs to take into account a variety of considerations including the strength of the case against the potential defendant, whether the potential defendant has sufficient assets to meet any judgment debt and the costs of litigation. This issue is discussed in more detail in Chapter 11.

DISTRIBUTION OF ASSETS IN A WINDING UP 1.5 The voidable transactions provisions, and indeed, winding up generally, have their origins in bankruptcy law. Many of the concepts, policies and processes that apply in company insolvency law derive from the law of bankruptcy and it is no surprise that the winding up of a company has been described as a ‘kind of bankruptcy’.39 Although now statutorily distinct, prior to 23 June 1993 the voidable transaction provisions contained in the Bankruptcy Act 1966 (Cth) applied directly to companies. After 23 June 1993 a completely separate and distinct legislative regime dealing with voidable transactions of companies also contained in Pt 5.7B came into effect.

Development of pari passu rule 1.6 An insolvent company is, by definition, one that is unable to pay its debts as and when they become due and payable.40 In a typical winding up of a company in insolvency there are limited assets available to discharge the company’s creditors who each have varying and competing claims. This lack of available assets in the context of an insolvency to meet competing creditors’ claims gives rise to one of the central issues that has beset insolvency law since the advent of human civilisation,

[page 6] namely, what is the most efficient and equitable way of distributing the limited assets available to creditors in a winding up? Fletcher describes the challenge of insolvency law in this context as follows: Throughout the history of human civilisation the phenomenon of insolvency has had to be confronted by lawmakers conscious of the need to find some acceptable principle on which to attempt an orderly resolution of competing, and in the final analysis irreconcilable, interests. At an individual level, the natural desire of every creditor to be paid in full is unattainable in the circumstances of the debtor’s absolute insolvency, whilst the equally natural desire of a financially distressed debtor to be released from the burden of his liabilities cannot normally be achieved without commensurate sacrifices being required of the unpaid creditors. At the level of the community or society within which such issues fall to be resolved, questions of public policy need to be addressed in the interest of maintaining general confidence in the integrity of legal obligations that are ultimately based upon credit. Yet if too strict and inflexible a policy is adopted towards the enforcement of debts and the penalisation of those who default, this can create disincentives to business initiative and enterprise which, for all their attendant risks, ultimately bring about economic vitality and help raise the level of social prosperity.41

In response to this recurring conundrum, insolvency (as well as bankruptcy) law developed the rule of pari passu,42 an equitable principle which requires distribution of the limited assets of a company in liquidation be distributed rateably and equally amongst the company’s unsecured43 creditors.44 The pari passu rule has an ancient history and, in Anglo- Australian jurisprudence, can be traced back to at least the 16th century — well before the advent of the limited liability company.45 In one of the earliest bankruptcy statutes, ‘The Statute of Bankrupts’ passed in 1542 during the reign of King Henry VIII,46 the Preamble provided relevantly that: Where divers and sundry persons craftily obtaining into their hands great substance of other men’s goods do suddenly flee to parts unknown or

[page 7] keep their houses, not minding to pay or restore to any their creditors their debts and duties, but at their own will and pleasure consume the substance obtained by credit of other men, for their own pleasure and delicate living, against all reason, equity and good conscience … the Lord Chancellor … shall have power and authority by virtue of this Act to take … imprisonment of their bodies or otherwise, as also with their [real and personal property however held] and to make sale of said [real and personal property however held] for true satisfaction and payment of the said creditors, that is to say; to every of the said creditors a portion, rate and rate like, according to the quantity of their debt.

In the seminal decision of The Case of Bankrupts47 Sir Edward Coke explained the principle of pari passu distribution in the context of a decision

involving the 1571 Statute of Elizabeth 13 Eliz c 7: The authority of the commissioners [similar to the position of liquidator], scil to sell, &c that is to say, to every one of the creditors a portion, rate and rate alike, according to the quantity of his or their debt. So that the intent of the makers of the said Act, expressed in plain words, was to relieve the creditors of the bankrupt equally, and that there should be an equal and rateable proportion observed in the distribution of the bankrupt’s goods amongst the creditors, having regard to the quantity of their several debts; so that one should not prevent the other, but all should be in aequali jure [in the same legal position.]48

The origins of pari passu distribution in the winding up of companies can be traced back to the Companies Act 1862 (UK) which contained detailed winding up provisions including a provision for pari passu distribution.49 The pari passu principle is currently enshrined in the Corporations Act in s 555 which provides: Debts and claims proved to rank equally except as otherwise provided Except as otherwise provided by this Act, all debts and claims proved in a winding up rank equally and, if the property of the company is insufficient to meet them in full, they must be paid proportionately.

As will be seen below, the Corporations Act ‘otherwise provides’ in a wide variety of instances and these statutory exceptions, as a practical matter, significantly erode pari passu distribution in an actual company insolvency. Despite the many exceptions to pari passu distribution, the principle nonetheless remains a potent guiding force in corporate insolvency law. [page 8]

The principle of pari passu distribution 1.7 The pari passu principle has been described as ‘a fundamental component of English law’.50 As Professor Goode has observed in respect of English corporate insolvency law: The most fundamental principle of insolvency law is that of pari passu distribution, all creditors participating in the common pool in proportion to the size of their admitted claims … It is this principle of rateable distribution which marks off the rights of creditors in a winding up from their preliquidation entitlements. Prior to winding up each creditor is free to pursue whatever enforcement measures are open to him … The rule here, in the absence of an insolvency proceeding, is that the race goes to the swiftest … Liquidation puts an end to the race. The principle first come first served gives way to that of orderly realisation of assets by the liquidator for the benefit of all secured creditors and distribution of the net proceeds pari passu. The pari passu principle is all pervasive. Its broad effect is to strike down all agreements which have as their object or result the unfair preference of a particular creditor by removal from the estate on winding up of an asset that would otherwise have been available for the general body of creditors.51

The position is the same in Australia. In 1988, for example, the Harmer Commission emphasised the principle of pari passu distribution when recommending that the then priority enjoyed by the Commissioner of Taxation be abolished: Equal sharing has long been regarded as a fundamental principle of insolvency law. The Commission’s review of the priority provisions of the legislation was guided by this principle and was the basis of the Commission’s recommendation that the priority of the Commissioner of Taxation which (in some areas of taxation) provides a substantial advantage to the Commissioner over other creditors, should be abolished. The principle of equal sharing is also evident in the Commission’s recommendations for the distribution of trust property.52

Some commentators have struggled in ascertaining a justification for the pari passu rule. One commentator has noted that justification for the rule ‘lies in the unquestioned, perhaps unquestionable, intrinsic fairness of equal treatment for all in the chronically money-starved world of [page 9] insolvency distribution’.53 In British Eagle International Airlines Ltd v CIE Nationale Air France,54 Lord Morris described the pari passu rule as ‘the rule of fairness’.55 As will be seen below, ultimately, the main policy consideration at play is the efficient distribution of the insolvent’s estate by an independent third party, the liquidator, in an attempt to achieve a fair distribution of limited available assets. 1.8 As mentioned above, the principle of pari passu distribution is one derived from equity. Story, in his Commentaries on Equity Jurisprudence,56 observes that: [I]n equity, it is a general rule that equitable assets shall be distributed equally, and pari passu, among all creditors, without any reference to the priority or dignity of the debts.57

Likewise, in 1888, Lord Fitzgerald LC explained in Hardy v Fothergill that: The bankruptcy law, as it now exists, seems to depend on the great principle of equity — the doctrine of equality — that is to say, equality among the creditors in the common shipwreck, and justice and humanity to the debtor if he gives up all his property — everything that he has — for equal distribution amongst his creditors, and has conformed to and has not violated the provisions of the bankruptcy law.58

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Theoretically at least, the pari passu principle entails that the rights of each of a company’s creditors are co-extensive and commensurate.59 As will be seen below, however, true pari passu distribution amongst all creditors is rarely achieved in practice because of the numerous statutory exceptions to equal distribution.60 1.9 The pari passu rule is indifferent to the fact that certain creditors may have been treated more generously than others by the debtor in the lead up to the liquidation61 and takes creditors as they find them. As Lord Romilly MR explained in Re Smith Knight & Co: The Act of Parliament unquestionably says that everybody shall be paid pari passu, but that means everybody after the winding up has commenced. It does not mean that the Court shall look into past transactions, and equalise all the creditors by making good to those who have not received anything a sum of money equal to that which other creditors have received. It takes them exactly as it finds them, and divides the assets amongst the creditors, paying them their dividend on their debts as they then exist.62

In addition, upon a winding up, the claims of each creditor remain unchanged.63 Winding up merely affects the status of a company and severely restricts the types of action that individual creditors may take against the company.64 When winding up commences, a creditor’s right to prove in the winding up replaces pre-existing rights against the company.65 As Lord Hoffmann explained in Wight v Eckhardt Marine GmbH (Cayman Islands):66 The winding up leaves the debts of the creditors untouched. It only affects the way in which they can be enforced. When the order is made, ordinary proceedings against the company are stayed (although the stay can be enforced only against creditors subject to the personal jurisdiction of

[page 11] the court). The creditors are confined to a collective enforcement procedure that results in pari passu distribution of the company’s assets. The winding up does not either create new substantive rights in the creditors or destroy the old ones. Their debts, if they are owing, remain debts throughout. They are discharged by the winding up only to the extent that they are paid out of dividends. But when the process of distribution is complete, there are no further assets against which they can be enforced. There is no equivalent of the discharge of a personal bankrupt which extinguishes his debts. When the company is dissolved, there is no longer an entity which the creditor can sue. But even then, discovery of an asset can result in the company being restored for the process to continue.67

Only creditors of the company at the time that the winding up order is made will benefit from a distribution of the company’s assets. As Lord Hoffmann continued to explain in Wight v Eckhardt Marine GmbH (Cayman Islands):68 It therefore seems to their Lordships that the principle of pari passu distribution according to the

values of debts at the date of winding up does not necessarily lead to the conclusion that someone who was a creditor at that date must be allowed to participate in the distribution even when he is no longer a creditor at all. There is nothing unfair, or contrary to principle, in a rule which requires that anyone who claims to participate in a distribution should have the status of a creditor at the time when he makes that claim. It would be strange if the court can have regard to subsequent events in valuing a creditor’s contingent claim at much less than it would have been thought to be worth at the date of the order but not to the fact that someone has ceased to be a creditor at all.69

In Australia, specific statutory provisions resolve previous uncertainty in the case law70 and make it plain that the relevant date in determining which creditor’s claims are provable is the date of the winding up order. Section 553(1) of the Corporations Act provides that subject to Div 6 (proof and ranking of claims) and Div 8 (pooling), all debts payable by and claims against the company which arose before the ‘relevant date’ are admissible to proof against the company in the winding up. The expression ‘relevant date’ is defined in s 9 of the Act to mean the day on [page 12] which the winding up is taken to have begun under Div 1A of Pt 5.6, which in most cases will be the day the winding-up order was made.71

Exceptions to pari passu distribution 1.10 As mentioned above, as a practical matter in most windings up, pari passu distribution is rarely achieved.72 As the Harmer Report noted: Despite this principle, the objective of equal distribution is rarely, if ever, achieved because of the extensive range of creditors upon whom a statutory priority is conferred. It is the view of the Commission that, to the maximum extent possible, the principle of equality should be maintained by insolvency law subject to these qualifications: it should not intrude unnecessarily upon the law as it otherwise affects property rights and securities; and it should encourage the effective administration of insolvent estates. Any departure from this approach should only be countenanced by reference to clearly defined principles or policies which enjoy general community support.73

Under s 556 of the Corporations Act, in the winding up of a company certain debts and claims must be paid in priority to all other secured debts and claims. The list of debts and claims to be paid in priority is extensive and includes:

expenses properly incurred by a liquidator in preserving, realising or getting in property of the company, or in carrying on the company’s business; wages, superannuation contributions and superannuation guarantee charges payable by the company in respect of services rendered to the company by employees before the relevant date;74 amounts due in respect of injury compensation, being compensation the liability for which arose before the relevant date.75

Insolvency set-off in s 553C 1.11 A notable exception to the pari passu rule is insolvency set-off which finds statutory force in s 553C of the Corporations Act. The statutory right of set-off contained in s 553C is a self-executing provision and prevails [page 13] over any contrary agreement between the parties. In Gye v McIntyre,76 the High Court held that the equivalent bankruptcy provision to s 553C is self-executing in that its operation is automatic and not dependent upon either party taking a step to prove in the bankruptcy or liquidation. Moreover, the High Court held that such a set-off provision cannot be contracted out of.77 As Finkelstein J explained in Re Lindholm; Opes Prime Stockbroking Ltd (admin apptd) (recs and mgrs apptd): One of the most important exceptions … is insolvency set-off. Insolvency set-off arises when there are mutual debts or other mutual dealings between an insolvent person and a creditor. The amount due by one to the other is set off against the debt due by that other and only the difference can be claimed. Insolvency set-off is a significant encroachment upon the pari passu rule. If a creditor of an insolvent person is required to pay his debt and prove in the insolvency for the debt owed to him, he will not be paid in full. Set-off ensures that the debt owed to him is paid out at 100c on the dollar at least to the extent of any debt owed by him. In a commercial sense, a right of set-off is the equivalent of a security interest. Indeed, set-off has been called a security interest: see, for example, Lord Hoffman in Stein v Blake [1996] AC 243 … . Moreover, set-off ‘is [both] mandatory and self executing’.78

Debt subordination agreements 1.12 In addition, creditors may, amongst themselves, agree that distribution of a company’s assets in a winding up may proceed in a certain way provided such agreement does not purport to bind, or otherwise prejudice, non-party creditors.

Such debt subordination agreements are a common feature of modern commerce and provide an exception to the pari passu rule. In Horne v Chester & Fein Property Developments Pty Ltd79 the court gave effect to an agreement amongst certain creditors of a company being wound up that was made prior to its liquidation to distribute the company’s assets in particular way. As the court observed: In my opinion, s 440 [of the Companies Act (Victoria)]80 does not require that in all cases a liquidator must distribute pari passu. He may distribute

[page 14] in accordance with an agreement between the parties where to do so could not adversely affect any creditor not a party to the agreement. That is not to say that the liquidator is bound in all cases to attempt to solve private differences between creditors. However, in the assessment of evidence proferred in proof of debt, the liquidator is constantly called upon to exercise his judgment, albeit that many a disputed proof must end in litigation. A liquidator will continue to judge each case on the merits of its own facts. If final distribution to two or three or a group of creditors is not possible before litigation declares their respective rights, then so be it. Distribution to the general body of creditors cannot be affected for the reason, as I have held, that a private agreement between some creditors cannot affect the rights of others not a party to that agreement.

While the courts may tolerate creditors amongst themselves agreeing as to who is to have priority in a winding up, the law will not countenance agreements which may prejudice the general body of creditors. At general law, there is a principle that one cannot contract out of the provisions of the insolvency legislation which govern the way in which assets are dealt with in a liquidation.81 This so-called anti-deprivation rule was described by Cotton LJ in Ex parte Jay; Re Harrison in these terms: There cannot be a valid contract that a man’s property shall remain his until his bankruptcy, and on the happening of that event shall go over to someone else, and be taken away from his creditors.82

Similarly, in British Eagle International Airlines Ltd v Compagnie Nationale Air France, Lord Cross explained: But what the respondents are saying here is that the parties to the ‘clearing house’ arrangements by agreeing that simple contract debts are to be satisfied in a particular way have succeeded in ‘contracting out’ all the provisions contained in s 302 for the payment of unsecured debts “pari passu”. In such a context it is to my mind irrelevant that the parties to the ‘clearing house’ arrangements had good business reasons for entering into them and did not direct their minds to the question how the arrangements might be affected by the insolvency of one or more of the parties. Such a ‘contracting out’ must, to my mind, be contrary to public policy. The question is, in essence, whether what was called in argument the ‘mini liquidation’ flowing from the clearing house arrangements is to yield to or to prevail over the general liquidation. I cannot doubt that on principle the rules of the general liquidation should prevail.83

[page 15] In a similar vein, the Victorian Supreme Court in Horne v Chester and Fein Property Developments Pty Ltd,84 expressed the rule as being that: In insolvency law, the whole of the debtor’s estate should be available for distribution to all creditors, and that no one creditor or group of creditors can lawfully contract in such a manner as to defeat other creditors not parties to the contract.

1.13 In International Air Transport Association v Ansett Australia Holdings,85 the High Court held that whether or not the whole of the debtor’s estate should be available for distribution to all creditors is a matter of statutory construction rather than an immutable rule. Referring to the decision of Horne v Chester and Fein Property Developments Pty Ltd,86 the plurality of the High Court explained: Whether the whole of the debtor’s estate is available for distribution to all creditors, and whether all creditors are to participate equally in the distribution of that estate, are questions that depend entirely upon what the relevant statute provides. What is advanced is a rule that public policy assumes that there can be both an affirmative and a negative answer to each of those questions. To the extent that the rule of public policy depends upon there being universal and invariable rules that the whole estate is available to all creditors and all creditors are entitled to participate equally, the rule of public policy depends upon an affirmative answer to both of the identified questions. Yet by asserting that the public policy achieves what the statute otherwise does not achieve, the rule assumes that the questions identified have been answered in the negative. This contradiction suggests that the rule that is asserted is unsound [emphasis in original].

THE UNDERLYING RATIONALE OF AVOIDANCE PROCEEDINGS IN INSOLVENCY LAW 1.14 One of the primary objectives of avoidance provisions, including the provisions contained in Pt 5.7B, is that of securing equality of distribution among creditors of the same class.87 The unstated premise [page 16]

of Pt 5.7B is that certain forms of activity in the period leading up to the commencement of winding up interfere with due operation of the pari passu principle by causing to be in other hands resources that should form part of the insolvent estate for the benefit of creditors as a whole.88 Pursuing this objective requires the balancing of the interests of the unsecured creditors of the insolvent company and of third parties that have been involved in bona fide transactions with the insolvent company.89 At least historically, the avoidance of certain transactions by a company prior to its winding up was designed to ensure that particular creditors do not receive an advantage at the expense of the general body of creditors. In Rubin v Eurofinance SA,90 the Supreme Court of the United Kingdom explained: In order to achieve a proper and fair distribution of assets between creditors, it will often be necessary to adjust prior transactions and to recover previous dispositions of property so as to constitute the estate which is available for distribution. The principle of equality among creditors which underlies the pari passu principle may require the adjustment of concluded transactions which but for the winding up of the company would have remained binding on the company, and the return to the company of payments made or property transferred under the transactions or the reversal of their effect. Systems of insolvency law use avoidance proceedings as mechanisms for adjusting prior transactions by the debtor and for recovering property disposed of by the debtor prior to the insolvency. Thus under the Insolvency Act 1986 an administrator, or liquidator, or trustee in bankruptcy may, where there has been a transaction at an undervalue, or amounting to an unlawful preference, apply for an order restoring the position to what it would have been had the transaction not taken place: ss 238 et seq and 339 et seq. Other systems of law have similar mechanisms, but they will differ in matters such as the period during which such transactions are at risk of reversal and the role of good faith of the parties to the transaction.

The court then went on to explain the underlying policy of avoidance: The underlying policy is to protect the general body of creditors against a diminution of the assets by a transaction which confers an unfair or improper advantage on the other party, and it is therefore an essential aspect of the process of liquidation that antecedent transactions whose consequences have been detrimental to the collective interest of the

[page 17] creditors should be amenable to adjustment or avoidance: Fletcher Law of Insolvency (4th edn, 2009) para 26–002; Goode Principles of Corporate Insolvency Law (4th edn, 2011) para 13–03.91

The policy and purpose of Pt 5.7B 1.15 As will be seen throughout this book, the voidable transaction provisions contained in Pt 5.7B do not create any right of action in the company or allow the liquidator to recover.92 Rather, they enable the liquidator, as the official

charged with the task of collecting and administering the insolvent estate, to seek the assistance of the court in augmenting that estate for the benefit of creditors by countering the effects of pre-liquidation transactions of certain kinds.93 In the New South Wales Court of Appeal decision of BP Australia Ltd v Brown94 Spigelman CJ observed that it is difficult to identify a single overriding rationale for the various kinds of transactions which are susceptible to avoidance. As will be seen below, the kinds of transactions that are susceptible to being set aside are varied.95 The description of the underlying policy of avoidance provisions by the Harmer Report is in the barest of terms, and does not readily assist with identifying such an overriding rationale: Insolvency law has long adopted the policy of avoiding transactions by which an insolvent individual or company disposed of property within a relevant period prior to the actual commencement of the formal insolvency in circumstances that are unfair to the general body of unsecured creditors. This area of insolvency law is, consequently, retrospective in nature. Transactions by which property has been disposed of before the formal insolvency administration commenced may be reviewed. If the circumstances under which the transaction occurred and the effect of the transaction offend the policy of the law the transaction may be avoided (hence, the terminology ‘avoidance of antecedent transactions’). Because it operates in such a retrospective fashion it is necessary to balance the interests of the unsecured creditors of the insolvent and persons who have engaged in fair transactions with the insolvent [emphasis added].96

The Harmer Commission’s reference to the precise ‘policy of the law’ in this paragraph is unclear, but ultimately clarified in paragraph [632] of [page 18] the Harmer Report. The Harmer Commission rejected a suggestion the policy of the then existing law relating to voidable transaction should be changed, explaining: In the end, however, the Commission decided that the policy of the existing law should not be altered. In particular, such a change to policy would do much to undermine two fundamental principles of insolvency law — that of equal sharing between creditors and that of promoting an orderly process both during and immediately preceding the formal insolvency administration. To abandon the existing policy would deliberately favour and encourage creditors who quite legally extracted payments from the debtor — even at the eleventh hour.97

In addition, the Court of Appeal of Western Australia has observed: While [the provisions of Pt 5.7B] may not have been accompanied by a clear statement of relevant purpose or object, it can be said that the terms of Pt 5.7B of the Corporations Act did identify a clear purpose of that legislation, namely, to assist liquidators to obtain orders to rectify the effect of transactions that prevent fair distribution of the assets of an insolvent company to creditors and to empower courts to make necessary orders to achieve that purpose.98

1.16 To the extent that a single overriding rationale for Pt 5.7B is to be identified, it is suggested that such a rationale is alluded to in the Corporations Act itself which describes Pt 5.7B as recovering property or compensation for the benefit of creditors of an insolvent company. The common theme throughout Pt 5.7B is to achieve a benefit that flows to creditors of an insolvent company by impugning transactions the law considers to have displaced the fundamental principle of equality of distribution. To that end the Harmer Report noted that: The law should provide a convenient means of collecting or recovering property that should properly be applied toward payment of the debts and liabilities. In applying this principle, the Commission paid particular attention to the law which allows transactions to be avoided if made by an insolvent in the period prior to the commencement of a formal insolvency administration. The principle was also relevant in reviewing the procedures for the discovery, protection and realisation of property. The principle of equal sharing between creditors should be retained and in some areas reinforced.

[page 19] Equal sharing has long been regarded as a fundamental principle of insolvency law. The Commission’s review of the priority provisions of the legislation was guided by this principle … [emphasis in original].99

As mentioned above, one of the primary duties of a liquidator is to augment the insolvent estate for the benefit of all creditors. Barrett JA explained the concept in Fortress Credit Corporation (Australia) II Pty Ltd v Fletcher: When I refer to augmenting the insolvent estate for the benefit of creditors, I intend to recognise the reality that, although in a simple s 588FF(1)(a) case, the order is an order for the payment of money ‘to the company’, the right by virtue of which the money is received is a right of neither the company nor the liquidator; that the company has no capacity to mount a recovery action; and that the benefit of the recovery inures wholly for the benefit of the persons who will participate under the winding up. Among early cases under the present provisions in which this was recognised are Tolcher v National Australia Bank Ltd (2003) 44 ACSR 727; 174 FLR 251; [2003] NSWSC 207 and Tolcher v National Australia Bank Ltd (2004) 48 ACSR 741; 182 FLR 419; [2004] NSWSC 6. The provisions now in force share with their predecessors the characteristic that they are ‘only intended to apply in … a winding up for the benefit of the general creditors’: Willmott v London Celluloid Co (1886) 34 Ch D 147 at 150 per Cotton LJ (and see Re Yagerphone Ltd [1935] 1 Ch 392; NA Kratzmann Pty Ltd (in liq) v Tucker (No 2) (1968) 123 CLR 295; [1968] ALR 616; [1968] HCA 44).100

Ultimately, Pt 5.7B is concerned with attempting to achieve equality of distribution amongst creditors which in turn is concerned with fairness. As Spigelman CJ observed in BP Australia Ltd v Brown: The overriding principle in Pt 5.7B is one of fairness. Fairness is determined by what is, in substance, a legislative presumption of unfairness in identified circumstances. That presumption is a rebuttable one. A person who has received the benefit of a transaction being one of those identified by the legislature

to be voidable should, in appropriate circumstances, disgorge the benefit so received.101

In Pt 5.7B, the perceived unfairness manifests itself in various ways. As Spigelman CJ observed: The most that can be said of all the provisions [in Pt 5.7B] is that, in every case, by legislative judgment, there may be a party to a transaction with an insolvent company who was unfairly enriched by that transaction. The high level of generality encapsulated in the word ‘unfair’ is inescapable. In some circumstances the nature of the benefit is a preference, of any character,

[page 20] which accrued shortly before liquidation. The unfairness involved is the unfairness of queue jumping. In other situations the relevant unfairness arises from the acquiring of an advantage by way of a transaction which is ‘uncommercial’, as defined, or which is an ‘unfair loan’, as also defined, so as to constitute a ‘transaction at an under-value’.102

While the focus of attention of particular provisions may be disparate, ultimately, each of the voidable transaction provisions of Pt 5.7B seek to recover property for the benefit of all creditors with a view to achieving fairness for the general body of creditors. With respect to peferences, for example, the focus of attention is upon the interrelationship of creditors inter se.103 With respect to uncommercial transactions and unfair loans, the focus of attention is on the relationship between the debtor company and the rights and interests of those who have had commercial dealings with it, including, but not limited to, creditors.104 1.17 In the Explanatory Memorandum to the Corporate Law Reform Bill 1992 (EM to the CLR Bill), Parliament described the purpose of Pt 5.7B as follows: The purpose of the provisions in this proposed Division is to ensure that unsecured creditors are not prejudiced by the disposition of assets or the incurring of liabilities by a company in a period shortly before the winding up which would have the effect of favouring certain creditors or other persons, and especially related entities. This might occur where a creditor (whether or not that creditor has some connection with the company) was paid out in full rather than having to prove for a proportion of the debt in the winding up. The provisions also seek to avoid transactions where the body of unsecured creditors might be prejudiced by the company having given away assets or incurred liabilities without adequate consideration passing to the company. This is particularly so where such a disposition might have the effect of benefiting persons or entities associated with the company such as directors, their relatives or associated companies. The provisions are also aimed at ensuring that unsecured creditors as a body are not prejudiced by the company’s having entered into wholly unrealistic loans or other agreements on which the interest rate or other charges are excessive to the point of being ‘extortionate’.105

Avoidance provisions in force prior to Pt 5.7B 1.18 The statements in both the Harmer Report and the EM to the CLR Bill make it clear that the underlying purpose of Pt 5.7B is similar, if not the same, as that which prevailed prior to the introduction of Pt 5.7B [page 21] in 1993 namely, ensuring all available assets are distributed pari passu to the general body of creditors. Having regard to the above, it is clear that in order to understand the policy and purpose underlying Pt 5.7B, it is necessary to understand the policy of avoidance provisions prior to its introduction. Indeed, the Victorian Court of Appeal has expressly observed that the enactment of Pt 5.7B, at least insofar as it relates to the law of preferences, ‘makes no great changes in the law relating to the avoidance of preferences in winding up’.106 Likewise, in the context of examining the Australian bankruptcy legislation (which shares the same lineage as Pt 5.7B) the High Court has observed that English case law concerning the bankruptcy statutes as they were developed in that century is part of the context for an understanding of the modern legislation in this country, using the term ‘context’ in the wide sense spoken of in CIC Insurance Ltd v Bankstown Football Club Ltd: It is well settled that at common law, apart from any reliance upon s 15AB of the Acts Interpretation Act 1901 (Cth), the court may have regard to reports of law reform bodies to ascertain the mischief which a statute is intended to cure. Moreover, the modern approach to statutory interpretation (a) insists that the context be considered in the first instance, not merely at some later stage when ambiguity might be thought to arise, and (b) uses ‘context’ in its widest sense to include such things as the existing state of the law and the mischief which, by legitimate means such as those just mentioned, one may discern the statute was intended to remedy …107

In interpreting Pt 5.7B, the context includes the mass of case law and jurisprudence developed over a period of nearly five hundred years in relation to the various avoidance provisions in bankruptcy (and other) legislation.108 In understanding that context, it is necessary to consider the history of bankruptcy law in both England and Australia.

HISTORY OF AVOIDANCE

PROVISIONS IN INSOLVENCY LAW109 1.19 Throughout history, English bankruptcy law and its derivatives have struggled to balance the general objects of collective execution in [page 22] order to secure equitable distribution of property for the benefit of all creditors and preventing the debtor from dealing with his or her property to the detriment of creditors.110 As explained in the historical excursus below, this conundrum has beset all civilisations, ancient and modern alike, although the various responses have varied markedly over time.111

Ancient and Roman law 1.20 Studies in ancient law show that in many societies customary dealing required that payment be uniformly contemporaneous with delivery of goods. Credit sales and indebtedness were practically unknown.112 Even after the advent of suspension of payment, indebtedness was regarded as an ‘anomaly’ and a ‘perversion of the traditional and customary method of dealing’.113 The sanction against failure to pay was typically religious, aided by a primitive procure of execution by seizure of the person of the debtor or his family, who was either put to work, or in some cases such as under the Babylonian Code of Hammurabi, sold into slavery as a means of meeting the debt obligation. Under early Roman law, a debtor pledged his own person to the creditor, and upon default faced arrest and death, or slavery.114 The early sanctions of execution against the person, rather than the property, of the debtor required no organised system akin to bankruptcy for seizure and division of the property of the debtor. However, many ancient systems slowly evolved so that execution for debts was increasingly directed against property rather than the person.115 In early Roman law execution against property was first used for debts owed to the state, a practice that was later extended to private debts, although it seems that seizure of the person remained an integral part of [page 23]

the process on the basis that the debt obligation, and execution in aid of it, was personal, but the debtor could save himself from the consequences by giving his property. Levinthal describes the ‘transition’ in Roman law as ‘from execution against the person to execution against the debtor’s estate in its entirety, to the sale of what was known as his universal succession, for the benefit of as many creditors as cared to avail themselves thereto’.116 The first Roman process of general execution was called ‘bonorum emptio’ or ‘venditio’ and resulted in a ‘missio in possessionem’ which placed the debtor’s property in the hands of the creditors, to be dealt with in accordance with a series of decrees that required advertisement of a subsequent sale and calls for claims, the appointment from among the creditors of a ‘magister’ to supervise the sale, and finally a public auction at which the whole of the estate (the universal succession) was sold to the highest bidder and pro rata distribution of the proceeds among the claiming creditors.117 By the reign of Justinian, the process had changed to one known as the bonorum distractio, where the creditors applied for a ‘missio in bona’, which placed the property of the debtor into the hands of a ‘curator’ chosen by the Praetor, who then sold the several parts of the estate, rather than the universal succession, and paid the creditors pro rata from the proceeds,118 although the debtor still became ‘infamis’119 and remained liable to arrest and imprisonment if the missio in bona ‘produced no results’.120 The risk of imprisonment, and ‘infamia’, could be avoided by an alternative procedure known as the ‘cessio bonorum’, which was only available to debtors whose insolvency was not due to their own fault, and who confessed their insolvency to the Praetor and surrendered their estate for distribution among creditors.121 The bonorum distractio is generally accepted as the foundation of most modern systems of bankruptcy.122 [page 24]

Paulian action 1.21 Roman law also regulated the collection and distribution of the debtor’s estate, and gave relief against conveyances in fraud of a creditor,123 and any ‘… act or forbearance by which a debtor diminished the amount of his property divisible among his creditors was held to be in fraud of creditors’.124 A transfer of property without valuable consideration, including in favour of an innocent recipient, could be rescinded, and a fraudulent transfer could be rescinded even

if valuable consideration was given.125 There was a range of remedies in personam and in rem: (1) an actio Pauliana in personam; (2) an interdictum fraudatorium; (3) an actio in factum, available against a bona fide alienee; (4) the integrum restitutio with a view to an action in rem.126

The Institutes of Justinian contain the following description127 of the ‘actio Pauliana’ or ‘Paulian action’: Again, if any one has transferred his property to another in fraud of his creditors, upon judgment to that effect by the chief provincial magistrate, the creditors of the transferor may seize his property, avoid the transfer and recover the things transferred; that is, they may claim that the things have not been transferred at all and accordingly are still within the legal possession of the debtor.128

The ‘actio Pauliana’ or ‘Paulian action’ therefore permitted a creditor who had taken possession of a debtor’s property pursuant to a judgment to bring ‘an action against the holder of the alienated property, since the alienation is in fraud of them’129 and also extended to the recovery [page 25] of profits.130 The development of the Paulian action within Roman law is attributed to the fusion into a personal action of other forms of relief available to creditors against alienation by a debtor.131 The ‘actio Pauliana’ is thought to have infiltrated the legal systems of modern Continental Europe during the ‘revival of the systematic study of Roman Law in the twelfth century’, and is the basis of forms of relief available in those systems today under the same name.132 Some care is needed when undertaking comparisons with Roman law, as in Latin the word ‘fraus’ means prejudice or disadvantage, and deliberate or actual fraud, as understood today, was called ‘dolus’; thus marking a clear distinction between deliberate acts of dishonesty and acts that merely caused prejudice or disadvantage. The Latin word ‘fraus’ entered Middle English as the word ‘fraud’, through the old French ‘fraude’,133 and into the common law in the phrase ‘in fraudem creditorium’, where, for reasons that are now unclear, it meant in fraud of creditors or with intent to defraud creditors, a meaning closer to that of the Latin ‘dolus’. The consequences of the failure to distinguish between the Latin ‘fraus’ and ‘dolus’ can now be seen in the modern principles of law and of equity, where a distinction is necessary and is made between actual and constructive fraud.134

Middle Ages and the Law Merchant 1.22 Following the Roman decline, in Europe the law concerning debtor and creditor underwent a form of reversion from the highly developed Roman law principles and procedures and, instead, ‘execution directed against the person of the debtor became prevalent once more’.135 In contrast, during the medieval period in England execution against the person was not available and creditors’ remedies were limited to writs in [page 26] the Court of Common Pleas, which included writs for the sale or levy of goods, chattels or land profits.136 The ‘lex mercatoria’ or Law Merchant evolved in Continental Europe during the Middle Ages and incorporated many principles of Roman law137 as part of the revival of the study of Roman law in the 12th century.138 In England, following the Norman Conquest and a trade revival with Europe, the Law Merchant influenced the development of English law to the extent that the Staple Courts were established to apply the Law Merchant in place of the common law in all matters affecting the staple,139 and execution against the person for debt by imprisonment was available.140 The Statute of Acton-Burnell (1283)141 and the Statute of Merchants (1285)142 provided for execution by seizure of the person where the debtor was insolvent, and summary execution was available where a debtor was attempting to conceal his goods.143 One consequence of the possibility of execution by seizure of the person was that flight to a sanctuary or asylum in order to escape creditors became widespread, as once a debtor had entered sanctuary, both their person and their goods were immune from arrest or execution.144 Beginning in 1376, three attempts were made to control flight to sanctuary and the then prevalent practice of fraudulent conveyances to frustrate the efforts of execution creditors to obtain payment of [page 27] their debts. The statutes, 50 Edw III, c 6 (1376);145 2 Rich II, St 2, c 3 (1379)

and 3 Hen VII, c 4 (1486),146 however only applied to fraudulent conveyances where the debtor had entered a legally defined safe haven.147 The 1376 statute provided: Because divers people inheriting divers tenements, and borrowing divers goods in money or in merchandize, do give their tenements and chattels to their friends, by collusion thereof to have the profits at their will, and after do flee to the franchise of Westminster, of St Martin’s le Grand of London, or other such privileged places, and there do live a great time with an high countenance of another man’s goods and profits of the said tenements and chattels, until the said creditors shall be bound to take a small parcel of their debt, and release the remnant — It is ordained and asserted, that if it be found that such gifts be so made by collusions, that the said creditors shall have execution of the said tenements and chattels, as if no such gift had been made.

The 1379 statute addressed the issue in expanded terms: … in case of debt where the debtors make feigned gifts and feoffments of their goods and lands to their friends and others, and often withdraw themselves and flee into places of Holy Church privileged, and there hold them a long time, and take the profit of their said lands and goods so given by fraud and collusion, whereby their creditors have been long and yet be delayed of their debts and recovery, wrongfully and against good faith and reason: It is ordained and established, that after that the said creditors have thereof brought their writs of debt, and thereupon a capias awarded, and the Sheriff shall make his return that he hath not taken the said persons, because of such places privileged, in which they be or shall be entered, then after such return made, another writ shall be granted and made to the Sheriff, in which writ shall be comprised that proclamation be made openly at the gate of the place so privileged, where such persons be entered, by five weeks continually, every week once, that the same person be at a certain day comprised in the same writ before the King’s justices, there to answer to the plaintiff of his demand; And upon this writ, returned by the said Sheriff, that Proclamation is made in the said form, if the said persons called come not in proper person nor

[page 28] by attorney, judgment shall be given against them upon the principal for their default; And out of the same judgment execution shall be made of their goods and lands, being out of the place privileged, as well, that is to say, of those lands and goods so given by collusion, as of any other out of the same franchise, after that such fraud or collusion be duly found, in the same manner as that ought to have been, if no demise had been thereof made, notwithstanding the same demise.

1.23 The practices which the first two statutes sought to address apparently continued, resulting in the passage of a further statute, 3 Hen VII, c 4 (1486), which contained more detail of the offensive conduct, but gave no greater relief to creditors. Although each of these statutes gave relief against fraudulent alienations of property ‘for the use of the debtor himself, but not such alienations for the benefit of others, particularly favored creditors’,148 they were not concerned with a process akin to bankruptcy, although those laws ‘were made against those persons who today are called bankrupt’.149 By the first half of the 16th century, the role and influence of the Staple Courts

were in decline,150 and creditors were once again left largely to the machinery of the common law, which was shown to be inadequate because of the limitations on the property that could be seized under a writ of execution, and particularly fraudulent or fictitious conveyances by debtors, who would then retreat to sanctuary and live on the revenues.151 Individual creditors were left to pursue their individual remedies. If a creditor succeeded in execution against a debtor, the benefit was theirs alone to enjoy to the exclusion of other creditors. The practices of fraudulent alienations to favoured creditors and evasive conduct or flight by debtors continued.152 [page 29]

The beginnings of bankruptcy and avoidance of transactions 1.24 The first English bankruptcy statute was entitled ‘An Act against Such Persons as Do Make Bankrupt 1542–43’ (the 1543 Act);153 although some historians theorise that the 1543 Act ‘can hardly be spoken of as a true bankruptcy law, for it is in fact little more than a criminal statute directed against men who indulged in very prodigal expenditures and then made off’.154 Those historians argue that the foundations of modern bankruptcy laws were not fully laid until the passage of the bankruptcy statutes in the reign of Queen Anne, 4 Anne, c 17 (1705) and 10 Anne, c 15 (1711), which showed ‘the first signs of any relenting from the severity of its predecessors towards the unfortunate insolvent’ and contained all of the elements of modern bankruptcy including discharge.155 If and however that debate may be resolved, the 1543 Act, despite its penal character, was the first attempt in English law to deal with fraudulent debtors by a ‘compulsory administration and distribution on the basis of a statutable equity or equality among all the creditors’.156 The 1543 Act introduced summary collective execution and pro rata distribution of a fraudulent debtor’s property157 and specifically dealt with fraud on creditors, by providing for the recovery of debts if the ‘offenders’, as bankrupts were called: … intend to delay or defraud their Creditors deceitfully by covin or collusion, suffer … any other person to recover … debts … without … just cause and title so to do, proceeding bona fide, without fraud.158

Debtors could face imprisonment, and anyone who assisted a debtor to defraud creditors was also liable to punishment.159 The 1543 Act did not, however, provide adequate definition of, or procedures for, the collection and realisation of the bankrupt’s property; and it is commonly thought to have been unsuccessful. As the Act of 13 Elizabeth, c 7, (1571) complains despite the Act of 34 and 35 Henry VIII, c 4, fraudulent bankrupts had much increased, and it was necessary to make better [page 30] provision for suppressing them, and to declare who was to be deemed a bankrupt.160 The deficiencies of the 1543 Act were addressed in 1571 with the passage of two statutes. The first Act, entitled ‘An Act Touching Orders for Bankrupts’161 introduced two significant elements to the bankruptcy system: the statute was expressly limited to merchants,162 and it created the Commissioners of Bankruptcy to be appointed by the Lord Chancellor, to collect and sell the bankrupt’s property for rateable division among the unsecured creditors,163 and if necessary commit the bankrupt to prison. The second act, entitled ‘An Act Against Fraudulent Deeds, Alienations, Etc’,164 and known as the ‘Fraudulent Conveyances Act’, is generally acknowledged as ‘the foundation of the modern law’ concerning transaction avoidance. It dealt with the alienation of property by any owner that was intended to defraud creditors, and provided for the review of ‘feigned, covinous or fraudulent’ conveyances, gifts, grants and other dispositions ‘devised and contrived of malice, fraud, covin, collusion and guile’ to or for an intent or purpose to delay, hinder or defraud ‘creditors and others’, and declared them to be void. The wording of the statute was comprehensive, presumably seeking to avoid some of the difficulties of the earlier provisions to control fraudulent conveyances, by incorporating ‘feoffments, gifts, grants, alienations, conveyances, bonds, suits, judgments and executions’ as well as goods and chattels. Bona fide purchasers without notice of the intended fraud were not affected.165 [page 31]

Jurisprudence under the 1571 Acts is also the source of two of the most significant principles in the law of bankruptcy — the concept of a fraudulent preference given after the act of bankruptcy, and the doctrine of relation back,166 which emerged from the seminal case of Smith v Mills (The Case of Bankrupts)167 concerning dealings occurring in the period between an act of bankruptcy and the commencement of bankruptcy proceedings and control of the debtor’s property by the Commissioners. This jurisprudence is also the beginning of the distinction between the two fundamental types of voidable transaction, namely, the disposition by which property is transferred away for no or insufficient consideration, or for a collateral purpose; and preferences, which are transactions between debtors and creditors which result in a creditor or creditors recovering proportionately more of their debt than the other creditors.

Jacobean period and avoidance of transactions 1.25 In the Jacobean period168 further statutes were passed concerning the avoidance of transactions including 1 Jac 1, c 15 (1603) which was described as ‘[a]n act for the better relief of the creditors of such as shall become bankrupts’. That Act provided for the avoidance as against the bankruptcy commissioners of transactions whereby the bankrupt ‘shall convey, or procure or cause to be conveyed’ property to his children or other person or persons, and made provision for the first time for examination of the bankrupt concerning their affairs.169 The 1623 Act for the Further Description of a Bankrupt and Relief of Creditors Against Such as shall become Bankrupts and for Inflicting Corporal Punishment Upon the Bankrupts in some Special Cases,170 notes in its preamble that by that time bankruptcy, and transfers of property to defeat creditors, were an escalating problem. For this reason, the Act extended the punishment of pillory and ear-cutting to punish perjury, concealment of assets, refusal to disclose information about the bankrupt’s estate to the commissioners, and the making of a fraudulent conveyance of 20 pounds or more.171 The Act did not provide for the avoidance and recovery of [page 32] the transfer as a preference, and only imposed criminal liability. The Act also provided that the laws made against bankrupts ‘shall be in all things largely and beneficially construed and expounded for the aid, help and relief of …

creditors’.172 The Statutes of Anne, 4 Anne, c 17 (1705) and 10 Anne, c 15 (1711) were the first to ‘permit an allowance for maintenance to be made to a bankrupt who surrenders and, even more important, grant him a “discharge” from all debts owing at the commencement of his bankruptcy’, upon certification by the commissioners of compliance with the bankruptcy law,173 although the focus of the 1705 Act was the prevention of frauds frequently committed by bankrupts. The crime of fraudulent bankruptcy — defined as a debtor’s failure to cooperate fully with his creditors by appearing before the bankruptcy commissioners and disclosing all assets, after becoming a bankrupt — was made a capital offence by the Act of 4 & 5 Anne and remained so until 1820.174 Yet even at the time of the Statutes of Anne, the bankruptcy law still only applied to traders, and individuals who were not engaged in commerce were dealt with under ‘general laws of insolvency: a system still underpinned by imprisonment’.175

Insolvent Debtor’s Court 1.26 The English law of insolvency went through a period of substantial reform in the early 19th century, including the creation in 1813 of the Insolvent Debtors’ Court, to administer the Insolvent Debtors Act 1813, principally in an attempt to reduce the population of debtors in prison. That Act created a system ‘akin to bankruptcy for non-traders’ that permitted a debtor to be released from prison in the absence of any evidence of fraud, although by contemporary accounts the returns to creditors were poor.176 That system was itself reformed in 1820 by ‘An Act [page 33] for the Relief of Insolvent Debtors in England’,177 however the problems persisted and there was increasing pressure to apply the bankruptcy laws to nontraders.178 In 1825 the bankruptcy laws were consolidated by the passage of a statute entitled ‘An Act to amend the Laws relating to Bankrupts’.179 An avoidance provision was contained in s 73 and applied where a bankrupt, being insolvent at a time, ‘shall … have conveyed, assigned or transferred to any of his Children or any other Person’, any of various classes of real or personal property there set

out. In such case the commissioners were given power to ‘sell and dispose of the same … and every such Sale shall be valid against the Bankrupt, and such Children and Persons as aforesaid, and against all Persons claiming under him’. The Court of Bankruptcy was created in 1831 to bring bankruptcy under the control of a dedicated court.180 There was a further consolidation in 1849 by the Bankruptcy Law Consolidation Act 1849.181 Section 126 of the 1849 Act used similar language to s 73 of the 1825 Act, although the power to order the sale of the subject property was now granted to the Court of Bankruptcy rather than the commissioners. Bankruptcy laws were finally applied to non-traders in 1861 by ‘An Act to Amend the Law Relating to Bankruptcy and Insolvency in England 1861’,182 which provided in s 69 that ‘all debtors, whether Traders or not, shall be subject to the Provisions of this Act’. Under the Bankruptcy Act 1869 (UK) the debtor and his creditors were the only parties in a bankruptcy although ‘in practice it proved to be a disaster and failed to obtain public confidence’.183 However, the final abolition of imprisonment for debt was a significant advance.184

Victorian reformation of bankruptcy law 1.27 The rapid expansion of commerce, and subsequently of commercial credit, during the Victorian period became a catalyst for the [page 34] reform of bankruptcy law. The Bankruptcy Act 1883 (UK)185 is regarded as the foundation of modern systems. It was reformed by the Bankruptcy Act 1890 (UK),186 and then took its final shape as the Bankruptcy Act 1914 (UK).187 The 1914 Act188 remained in force and largely unchanged until the 1970s. In 1977 the United Kingdom government commissioned a major review of corporate insolvency and bankruptcy chaired by Sir Kenneth Cork. The report of the Insolvency Law Review Committee, entitled Insolvency Law and Practice, was published in 1982 and is known as the ‘Cork Report’. The Cork Report concluded that the United Kingdom law of insolvency was ‘so unsatisfactory that, unless fresh legislation is introduced soon, it will fall into even greater decay and be regarded with contempt by society and those whose needs it is supposed to serve’189 and that a rescue culture would serve the longer term interests of creditors. The Cork Report stated:

… the system for dealing with the problems created by insolvency has been tinkered with, patched and extended by false analogies, so that today it is replete with anomalies, inconsistencies and deficiencies. We are convinced that the systems (for they are numerous) no longer work satisfactorily. They do not accomplish what is required of them; moreover, they no longer accord with what the general public conceives to be the demands of fairness and justice for all in a modern society.190

The Cork Report was followed in 1984 by a White Paper, ‘A Revised Framework for Insolvency Law’, and the Insolvency Act 1986 (UK), which enacted uniform legislation for the regulation of personal and corporate insolvency. Sections 238 and 239 respectively deal with transactions at an undervalue and preferences in corporate insolvency, and ss 339 and 340 contain substantially similar provisions for personal insolvency.

The origins of English preference law 1.28 By 1584, the courts had begun to recognise what could loosely be called a preference in today’s terms. Following the decision in Smith v Mills (The Case of Bankrupts)191 and in the absence of any statutory provision concerning preferences, the principles were developed through [page 35] the common law. Lord Mansfield is generally acknowledged as laying the foundations of the modern law of voidable preferences in Alderson v Temple.192 1.29 The first statutory provision in English law for the review of preferences was contained in s 76 of the Joint Stock Companies Act 1856193 which provided that a conveyance, transfer, mortgage, delivery of goods, payment or other act in relation to property done by a company registered under the Act that would be deemed to be a fraudulent or undue preference if done by or against an individual trader in the event of his bankruptcy; would be deemed to be an undue or fraudulent preference in the event of the winding up of the company and would be invalid accordingly. Joint stock companies proliferated in the 19th century Victorian era period following the repeal of restrictions introduced by the Bubble Act of 1720,194 which forbade joint-stock companies other than those authorised by royal charter. The Bubble Act was repealed in 1825 and in 1844 the Joint Stock Companies Act 1844 (UK)195 became law with a consequent increase in the use of the joint stock company as a business vehicle. Insolvent companies were dealt

with in the Court of Chancery ‘in like manner as against other bankrupts’.196 The Companies Act 1862 (UK)197 subsequently removed companies from the bankruptcy regime by providing that companies were to be wound up under that Act.198 1.30 The first preference provision applicable to personal bankruptcy was contained in the Bankruptcy Act 1869 (UK).199 The preference provision in the Bankruptcy Act 1914 (UK),200 which would remain [page 36] substantially unchanged until the Insolvency Act 1986 (UK), was contained in s 44 in the following form: 44 (1) Every conveyance or transfer of property, or charge thereon made, every payment made, every obligation incurred, and every judicial proceeding taken or suffered by any person unable to pay his debts as they become due from his own money certain in favour of any creditor, or of any person in trust for any creditor, with a view of giving such creditor, or any surety or guarantor for the debt due to such creditor, a preference over the other creditors, shall, if the person making, taking, paying or suffering the same is adjudged bankrupt on a bankruptcy petition presented within three months after the date of making, taking, paying or suffering the same, be deemed fraudulent and void as against the trustee in the Bankruptcy. (2) This section shall not affect the rights of any person making title in good faith and for valuable consideration through or under a creditor of the bankrupt. (3) Where a receiving order is made against a judgment debtor in pursuance of section one hundred and eight of this Act, this section shall apply as if the debtor had been adjudged bankrupt on a bankruptcy petition presented at the date of the receiving order.

The historical roots of the provision in the law of fraud can be discerned in the form of s 44(1) which deems the dealing to be ‘fraudulent’. 1.31 In the United States, the 1841 Bankruptcy Act201 was the first in English or American legal history to expressly forbid preferences, and the first significant expression of a formalised policy of rateable distribution according to objective rules.202 In Arnold v Maynard,203 Story J considered the effect of the transaction to be of greater importance than the debtor’s intent: ‘mere private intention cannot overcome the legal intention … of the Act’.204 In 1871, the United States Supreme Court adopted the objective rule that the debtor’s culpable intention inhered in the natural and probable consequences of his or her conduct: ‘[The transfer] must be taken as conclusive evidence that a preference was intended’.205

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The evolution of bankruptcy laws in Australia 1.32 Windeyer J, sitting in the High Court, described the antecedents of Australian bankruptcy law in Robert Reid Pty Ltd v Cassidy206 as follows: Bankruptcy law is the product of a great number of English statutes going back to the time of Henry VIII, which were consolidated in the nineteenth century, and in their consolidated form transplanted, with various amendments, to Australia.

Prior to passage of the first Commonwealth legislation in 1924, each of the former colonies, and then states, had in place bankruptcy legislation that was variously based on the Bankruptcy Act 1883 (UK) or Bankruptcy Act 1869 (UK).207 Before Federation in 1901, each of the colonies passed laws relating to bankruptcy and insolvency.208

Bankruptcy Act 1924 (Cth) 1.33 Section 51(xvii) of the Constitution vests the power to make laws with respect to bankruptcy and insolvency in the Commonwealth. The passage of the Bankruptcy Act 1924 (Cth) was the first exercise by the Commonwealth of its legislative power concerning bankruptcy, and the delay was due to a process of research and consideration of the various iterations of the bankruptcy legislation in force at different times in the United Kingdom and the Australian states.209 The Bankruptcy Act 1924 commenced in 1928, and as enacted was based on the Bankruptcy Act 1883 (UK) (in its final shape enacted as the Bankruptcy Act 1914 (UK)),210 although in certain areas it substantially differed. One of the areas of difference was the treatment of preferences in s 95, which required only that the transaction have ‘the effect’ of giving a preference, rather than focussing on the subjective intent of the debtor to prefer the recipient creditor to the detriment of the other creditors.211 It is also notable that s 95 contained that part of the English provision that deemed the preference dealing to be ‘fraudulent’. Section 96 gave a [page 38] defence for transactions that took place before the date of sequestration where at

the time of the transaction the other party had no notice of any act of bankruptcy by the debtor, or the presentation of a petition, and the transaction was in good faith and in the ordinary course of business. The avoidance provisions were contained in ss 92 and 94. Section 92 contained restrictions of the right of certain creditors to retain the benefit of execution against the debtor. Section 94 rendered void against the trustee ‘settlements’ within the meaning of the section that were not made before or ‘in consideration of marriage or made in favour of a purchaser or encumbrancer in good faith and for valuable consideration’ or of property upon ‘the wife or child of the settlor that accrued to the settlor after marriage in the right of his wife’. Section 94(4) gave a defence to bona fide purchasers for value who acquired from the person who benefited from the settlement or from the trustee.

The Clyne Report and the Bankruptcy Act 1966 (Cth) 1.34 In 1956 the then Commonwealth Attorney-General appointed a committee to review the bankruptcy law of the Commonwealth. The committee, chaired by Sir Thomas Clyne, a Federal Judge in Bankruptcy, reported on 14 December 1962. The recommendations of the committee were numerous and largely adopted in whole. Those recommendations were passed into law as the Bankruptcy Act 1966 (Cth), which commenced on 4 March 1968 and remains in force. The avoidance provisions are contained in ss 120–122, which give relief against preferences, void settlements and fraudulent conveyances. Matters arising under the Bankruptcy Act 1924 (Cth) and under the Bankruptcy Act 1966 (Cth) were heard in the Federal Court of Bankruptcy, which was established in 1930 and continued until the Federal Court was established in 1975.

The avoidance regime in place immediately before the commencement of Pt 5.7B (23 June 1993) 1.35 Prior to the commencement of Pt 5.7B on 23 June 1993, the corporations legislation incorporated, without modification, the provisions of bankruptcy law governing avoidance of antecedent transactions. Section 565(1) of the Corporations Law stated: A settlement, a conveyance or transfer of property, a charge on property, a payment made, or an obligation incurred, by a company that, if it had been made or incurred by a natural person, would, in the event of his or her becoming a bankrupt, be void as against the trustee in the bankruptcy, is, in the event of the company being wound up, void as against the liquidator.

[page 39] Before the introduction of the present corporate insolvency regime on 23 June 1993, the corporations legislation contained some provisions specific to companies being wound up, such as s 266 (avoiding unregistered charges), s 566 (avoiding floating charges) and s 468 (avoiding dispositions of property made after winding up has commenced). However, the better known avoidance provisions such as preferences and fraudulent conveyances incorporated the avoidance provisions of the bankruptcy law by reference. 1.36 The most widely relied upon provisions of the Bankruptcy Act 1966 that applied to companies by virtue of s 565 of the Corporations Law immediately prior to 23 June 1993 were: Section 120 which provided relevantly that unless made in good faith and for valuable consideration, a settlement of property made within two years of the relevant date in favour of a purchaser or encumbrancer was void. ‘Settlement’ in that regard was defined to include a disposition of property, which had to contemplate that the property would be permanently retained by the recipient for the ultimate benefit of persons other than the recipient. The opacity of the term ‘settlement’ caused practical difficulties in applying the section to companies in liquidation. Section 121 which rendered void a disposition of property (including a mortgage or a charge) made with intent to defraud creditors.212 Proving intent to defraud required a demonstration that there was a real intent to hinder, defeat or delay creditors of the company.213 ‘Creditors’ could include prospective creditors. Section 122 which allowed liquidators to recover a conveyance or transfer of property, a charge on property, or a payment made, or an obligation incurred, by an insolvent company in favour of a creditor, having the effect of giving that creditor a preference, priority or advantage over other creditors, being a conveyance, transfer, charge, payment or obligation executed, made or incurred within certain time-frames. The above statutory regime regarding the avoidance of transactions as it applied to companies had been in force since about 1928. However, in 1988 the Harmer Commission forcefully recommended the radical overhaul, at least in form, of this regime.

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THE HARMER REPORT 1.37 On 20 November 1983, the then Federal Attorney-General asked the ALRC to inquire into the law and practice relating to the insolvency of both individuals and bodies corporate. The commissioner in charge of the inquiry, Ronald Harmer, was provided with broad terms of reference and was asked to inquire into ‘the law and practice relating to the insolvency of both individuals and bodies corporate’. The Harmer Report was the first comprehensive review of individual and corporate insolvency law in Australia.214 The inquiry was prompted after the identification by the ALRC of a number of shortcomings in the insolvency regime of the day. The Commission was of the view that, in light of significant social and economic change, particularly the increased use of credit, a comprehensive examination of insolvency law in Australia was warranted. The Commission was also influenced by international developments. In 1982, the Cork Committee published its landmark report in the United Kingdom215 following five years of inquiry. The report’s firm conclusion was that the United Kingdom law of insolvency was ‘so unsatisfactory that, unless fresh legislation is introduced soon, it will fall into even greater decay and be regarded with contempt by society and those whose needs it is supposed to serve’. While the Harmer Commission reached the same conclusion regarding Australian insolvency law, it was nonetheless firmly of the view that appropriate change was needed.

Harmer Commission recommendations 1.38 In formulating its specific recommendations, the Commission was guided by nine principles which it identified as underpinning modern insolvency law.216 Those principles were: 1.

The fundamental purpose of an insolvency law is to provide a fair and orderly process for dealing with the financial affairs of insolvent individuals and companies.

2.

The insolvency law should provide mechanisms that enable both debtor and creditor to participate with the least possible delay and expense.

[page 41]

3.

An insolvency administration should be impartial, efficient and expeditious.

4.

The law should provide a convenient means of collecting or recovering property that should properly be applied toward payment of the debts and liabilities of an insolvent person.

5.

The principle in some areas of equal sharing between creditors should be retained and in some areas reinforced.

6.

The end result of an insolvency administration, particularly as it affects individuals, should, with very limited exceptions, give effective relief or release from the financial liabilities and obligations of the insolvent.

7.

Insolvency law should, as far as convenient and practical, support the commercial and economic processes of the community.

8.

As far as is possible and practical, insolvency laws should not conflict with the general law.

9.

An insolvency law should enable ancillary assistance in the administration of an insolvency originating in a foreign country.

This focus on efficiency was also adopted by the legislature. The introduction to the EM to the CLR Bill, in which the legislature adopted most of the Harmer Commission’s recommendations, makes this apparent: The reforms to be effected in implementing recommendations of the Harmer Report … are many and varied. Their overall aim, however, is to make Australia’s corporate insolvency laws operate more efficiently and effectively than they have done in recent years.217

The Harmer Report’s review of avoidance provisions 1.39 The Harmer Report commenced its review of the then avoidance regime by noting that as at 1988 there were three main types of such provisions: creditor preferment provisions such as ss 118 and 122 of the Bankruptcy Act 1966 which were designed to recover the effect of a transaction in favour of a creditor or creditors;218 voluntary dispositions such as void settlements under s 120 of the Bankruptcy Act and fraudulent conveyances under s 121 of the Bankruptcy Act; and avoidance of certain types of securities and, in particular, charges. While each of the above avoidance provisions were critically reviewed, the Harmer Commission recommended that the policy of the then existing [page 42] law should not change. In particular, the Harmer Commission recommended a

specific set of provisions regulating the avoidance of antecedent transactions in company law legislation.219 A review of the main recommendations220 made by the Harmer Commission regarding avoidance provisions is set out below. In addition to the various recommendations to the then avoidance provisions the Harmer Commission recommended a ‘total restructuring of the legislation concerning director liability’.221 These recommendations regarding director liability, which were largely adopted by Parliament including the implementation of a specific and positive duty imposed upon directors to prevent insolvent trading by a company,222 are discussed in greater detail at 10.8.

Changes recommended to the law of preferences 1.40 Consistent with the Harmer Commission’s suggestion that the policy of the then existing law not be altered,223 its recommendations regarding changes to then s 121 of the Bankruptcy Act 1966 which regulated the law of preferences were largely cosmetic: It is proposed that a preferential transaction should be defined without using the current terminology of a ‘preference, priority or advantage over other creditors’. It thus proposed that preferential transaction should be defined as a transaction: that is made when the debtor was insolvent to or for the benefit of a person on account of a past debt or liability that occurs within the prescribed time period and which enables that person to receive more toward satisfaction of the debt or liability than would otherwise be the case in the winding up. The aim of the provision is to express the nature of a preference in relatively clear and simple terms.224

1.41 Recommendation was also made for changes to the previous defences to preference claims which required a defendant to establish: [page 43] no knowledge or reason to suspect that the debtor was insolvent at the time of the transactions the transaction was made ‘in the ordinary course of business’ and the creditor had no reason to suspect that the effect of the transaction would be to prefer.225

The Harmer Commission recommended that the expression ‘in the ordinary course of business’ be removed as it was considered that the ‘ordinary course of business’ test can involve a consideration of the ‘intent’ of the debtor in making a

payment to a creditor.226 In particular, the commission recommended that there should be a single ground of defence to a preference claim, namely that, in the circumstances in which the transaction was made, the creditor did not have reason to suspect that the company was insolvent at the time of the transaction.227 As will be seen below, while Parliament accepted the former recommendation it did not follow the latter.

Running accounts 1.42 At the time of the Harmer Report, it was a well-established defence to a preference claim that if a particular individual transaction could be shown to be part of a ‘running account’ then its preferential effect had to be determined not by reference to that single individual transaction but by reference to the fate of the running account between the date of the first of the payments and the date of the liquidation.228 A running account is another name for an active account running from day to day, as opposed to an account where further debits are not contemplated.229 The essential feature of a running account is that is predicated on a continuing relationship of debtor and creditor with an expectation that further debits and credits will be recorded.230 The Harmer Commission supported the approach adopted by the courts in respect of running accounts and recommended that it be ‘reinforced with a statutory provision which [page 44] would allow the court to have regard to the relationship between the parties and, if appropriate, the history of transactions between them’.231

Removal of the expression ‘settlement’ 1.43 As mentioned above, under s 120 of the then Bankruptcy Act 1966 a ‘settlement’ of property made within two years of the relevant date in favour of a purchaser or encumbrancer was void unless made in good faith and for valuable consideration. The Harmer Commission recommended removal of the use of the expression ‘settlement’. As the Commission explained:232 The type of transaction caught by the present legislation has traditionally been regarded as one which transferred property from one person to another, with the intention that the property be retained or preserved in one form or another and enjoyed by the recipient. This sense of the word ‘settlement’

coupled with some confined legislative expression of the method by which a settlement might be effected has led to some artificiality. Some transactions, for example, gifts of money, forgiveness of debts, even gifts of furniture and other personal property, could not be avoided because the gift was not coupled with the intention that the property be retained or preserved by the recipient. In addition, however, the language of the present provision is antiquated. It does not provide a clear statement of what the law seeks to avoid. It is more suited to a general law of property seeking to define circumstances regulating the enjoyment and devolution of property. For example, there are extensive references in the existing provision to ‘marriage settlements’ and their protection. They have little or no relevance in contemporary Australian society.233 … Based upon these considerations the Commission proposed in DP 32 (para 437) that the existing provision should be repealed and a new provision constructed.234

Focus on effect of transaction 1.44 The Harmer Commission recommended that the legislation focus upon the effect of the transaction rather than its particular type:235 The Commission proposed in DP 32 (para 438) that instead of focusing on the method of disposition, the better approach was to categorise the effect or substance of the transaction which the law seeks to review namely, the depletion in value of the property of the insolvent. On that approach any transaction dealing with property of a person who

[page 45] subsequently becomes insolvent should be subject to review and possible avoidance if it has been made at an undervalue. This would catch the ‘gift’ and, indeed, all transactions in respect of property whereby no value or a value significantly less than the value of the property disposed of is provided in exchange by the recipient. There is nothing surprisingly new in this concept of a transaction at an undervalue. It is already the basis upon which sales of property involving a company and a person related to the company are reviewed. The Commission recommends that the words ‘settlement’ and ‘disposition’ be no longer used in the antecedent transaction provisions. The emphasis should be on the element of undervalue — not the method by which the property has been disposed of. Use of the term ‘transaction’, expanded in the manner recommended in the definition provision so as to include all the usual modes of transferring or disposing of property, helps to achieve this result.236

Further, the Commission recommended that the term ‘transaction’ should be expanded and include an agreement for the provision of services by a company to a related person or to a company by a related person. The object of this recommendation was to permit agreements for the payment of salary or remuneration to be reviewed and avoided if the quantum is considered excessive.237

THE CORPORATE LAW REFORM ACT 1992 (CLRA) 1.45 The Corporate Law Reform Act 1992 (Cth) (CLRA) introduced Pt 5.7B into the then Corporations Law with effect from 23 June 1993. The EM to the CLR Bill provides useful insight into Parliament’s intention in enacting Pt 5.7B. For example, the purpose of the provisions in Pt 5.7B is described by Parliament to: … ensure that unsecured creditors are not prejudiced by the disposition of assets or the incurring of liabilities by a company in a period shortly before the winding up, which would have the effect of favouring certain creditors or other persons, and especially related entities. This might occur where a creditor (whether or not that creditor has some connection with the company) was paid out in full rather than having to prove for a proportion of the debt in the winding up. The provisions also seek to avoid transactions where the body of unsecured creditors might be prejudiced by the company having given away assets or incurred liabilities without adequate consideration passing to the company. This is particularly so where such a disposition might have the effect of benefiting persons or entities associated with the company such as directors, their relatives or associated

[page 46] companies. The provisions are also aimed at ensuring that unsecured creditors as a body are not prejudiced by the company’s having entered into wholly unrealistic loans or other agreements on which the interest rate or other charges are excessive to the point of being extortionate.238

In addition, Parliament noted that: The Harmer Report made the observation that insolvency law has long adopted the policy of avoiding transactions by which an insolvent individual or company disposed of property within a relevant period prior to the commencement of formal insolvency in circumstances where to allow the transaction would be unfair to the general body of unsecured creditors. The Harmer Report noted in particular that this area of insolvency law is, consequentially, retrospective in nature. Because it operates in a retrospective fashion, it is necessary to balance the interests of unsecured creditors of the insolvent and persons who have engaged in fair transactions with the insolvent. The proposed provisions seek to set out clearly the transactions and the circumstances in which a liquidator may avoid them in the context of a corporate winding up. The new provisions set out comprehensively matters which may be taken into account by a court and also provide the Court with a broad range of options for the orders which may be most appropriately made. Additionally, the new provisions enable a broad range of transactions to be examined by a liquidator with a view to having them set aside or modified by a court. The new provisions also make certain modifications to the time limits within which a transaction must have occurred in order for it to be reviewed, particularly in the case where the parties to a transaction are entities related to the company.239

Part 5.7B introduced both new terminology and new statutory concepts into Australian company insolvency law. In particular, Pt 5.7B provides a specific

statutory definition for a ‘voidable transaction’ and sets out the circumstances in which such transactions could be attacked. As will be seen below, however, even where a particular transaction satisfies the definition of voidable transaction, the provisions of Pt 5.7B do not necessarily avoid that transaction. In contrast, transactions were, in fact, avoided under the previous regime.240 1.46 Some of the more salient features of Pt 5.7B include: an attempt by the legislature to simplify the law of preferences with the introduction of the expression ‘unfair preferences’ in s 588FA. As will be seen in Chapter 4 it is debatable if this has been achieved; [page 47] the introduction of the concept of ‘uncommercial transaction’ in s 588FB(1); and the introduction of the concept of ‘unfair loans’ into Australian insolvency legislation.241 1.47 The CLRA also introduced new protective provisions in s 588FG. Section 588FG(1) provides protection to persons not party to the impugned transaction. A court cannot make an order under s 588FF that materially prejudices a right or interest of a person other than a party to the transaction if it is proved that the person received no benefit from the transaction; or in relation to each benefit that the person received from the transaction, the person received the benefit in good faith and, at the time of receiving the benefit, had no reasonable grounds for suspecting that the company was insolvent or would become so as a result of the transaction, and a reasonable person in the circumstances of that person would not have had grounds for so suspecting (s 588FG(1)). For parties to the impugned transaction, the protective provisions work slightly differently. Section 588FG(2) provides that the court may not make an order under s 588FF materially prejudicing a right or interest of a person, if the transaction is not an unfair loan and it is proved that the person became a party to the transaction in good faith; and at the time of becoming a party to the transaction the person had no reasonable grounds for suspecting that the company was insolvent at that time or would become so as a result of the transaction or an act

done or omission made for the purposes of giving effect to the transaction; and a reasonable person in the position of the person would have had no such grounds for suspecting; and the person has provided valuable consideration under the transaction or has changed his or her position in reliance on the transaction.242 The defendant need no longer prove that they received the benefit ‘in the ordinary course of business’.243 1.48 Section 588FE244 of the Corporations Act sets out the time scales within which transactions must fall in order to be voidable.245 The statutory [page 48] concept of ‘relation-back day’ is central to determining these time scales,246 and is also used as the reference point from which time periods are measured for the purposes of the statutory presumptions of insolvency.247 Determining the relation-back day has significant practical effects, as it determines the period within which recovery proceedings can be commenced,248 and therefore what property a liquidator may recover.249 Despite its origins in bankruptcy law, the concept of ‘relation-back’ in company insolvency is separate to and distinct from the concept of ‘relation-back’ in bankruptcy law.250 As mentioned above, the Harmer Report suggested both the concept and expression of ‘relation-back’ be abolished and replaced with the expression of ‘relevant-day’.251 However, in the event Parliament instead chose to adopt the expression ‘relation-back day’. Any similarity to the bankruptcy doctrine of relation-back was unintended.252

Overview and structure of Pt 5.7B 1.49 Chapter 5 of the Corporations Act deals with external administration253 and is divided into 14 Parts. Each of those parts deals with the various forms of external administration under the Act including [page 49] arrangements and reconstructions,254 receivers of company property,255 administration256 and winding up in insolvency.257 The process for winding up a company in insolvency or by the Court258 is regulated by Pt 5.4B.259 The actual

winding up, including the regulation of liquidators and the proof and ranking of claims, is regulated by Pt 5.6.260 Part 5.7B is divided into nine divisions. Division 1 contains definitions and various presumptions that are to be made in recovery proceedings.261 A ‘recovery proceeding’ in relation to a company is defined to mean:262 (a) an application under s 588FF by the company’s liquidator;263 or (b) proceedings begun under s 588FH(2) by the company’s liquidator;264 or (c) proceedings under s 588J(2),265 insofar as they relate to the question whether a security interest;266 (d) proceedings begun under s 588FJ(6) by the company’s liquidator;267 or (e) proceedings for a contravention of s 588G(2) in relation to the incurring of a debt by the company;268 or (f)

proceedings under s 588W in relation to the incurring of a debt by the company.269 [page 50]

Section 588E contains presumptions relating to when a company is insolvent270 and a number of presumptions that can be made for the purposes of another recovery proceeding in relation to the company.271 The presumptions contained in s 588E, in particular those in s 588E(8), are to assist liquidators in proving matters in subsequent recovery proceedings commenced in relation to a company. For example, if the subsequent proceeding is an application by a liquidator for relief under s 588FF, then a matter of the kind referred to in a paragraph of s 588FC must be presumed that that matter was the case.272 Any presumptions under s 588E operate except so far as the contrary is proved for the purposes of the proceeding concerned.273 1.50 The ‘voidable transaction’ provisions are found in Div 2 of Pt 5.7B which contains 13 sections. Section 588FE sets out when a transaction274 is voidable for the purposes of s 588FF. A transaction of a company that is being wound up may be voidable because of the operation of any one or more of s 588FE(2)–(6) if the transaction was entered into on or after 23 June 1993.275 A transaction of a company may also be voidable because of the operation of s 588FE(6A) if the transaction was entered into on or after the commencement of

the Corporations Amendment (Repayment of Directors’ Bonuses) Act 2003.276 Section 588FE sets out nine instances in which a transaction will be voidable. In addition, s 588FJ sets out when a circulating security interest277 in property of the company created after 23 June 1993278 is voidable.279 Section 588FE refers to four broad types of transactions that are potentially voidable. These are: 1. unfair preferences;280 2. uncommercial transactions;281 3. unfair loans to a company;282 4. unreasonable director-related transactions.283 [page 51] Each of the above types of transactions are defined in the Corporations Act by reference to specific criteria and are conceptually separate and distinct. The cognate concept of ‘insolvent transaction’ is found in s 588FC.284 An insolvent transaction is either an unfair preference or an uncommercial transaction of the company entered into when the company is insolvent or where the company becomes insolvent because of, amongst other things, entering into the transaction.285 In order to be voidable, the particular type of transaction must have been entered into at a particular time stipulated within any of the subsections in s 588FE (or s 588FJ). The timing of the transaction is particularly critical as transactions entered into outside of the specific statutory timeframes set out in s 588FE will not be susceptible to being attacked. 1.51 The common characteristic among each subsection of s 588FE which renders transactions voidable is that the transaction took place in the context of actual insolvency or looming insolvency. Although s 588FE contemplates a wide variety of circumstances in which a transaction will be voidable, practically, and in most cases, a transaction will be voidable if: it is an insolvent transaction — that is, it is either an unfair preference given by the company, or an uncommercial transaction of the company entered into when the company is insolvent;286 it was entered into, or an act was done for the purpose of giving effect to it during the 6 months ending on the relation-back day.287

The relation-back day will in most cases be the day on which the winding up order was filed.288 As will be explained in Chapter 4, most voidable transaction proceedings involve unfair preferences that took place in the six months prior to the relation-back day. By contrast, uncommercial transactions,289 unfair loans to a company290 and unreasonable directorrelated transactions291 are infrequently the subject of consideration by the courts for a number of reasons.292 [page 52] 1.52 Once a transaction is identified as a voidable transaction the court293 has the power make various orders for the benefit of the company.294 As will be seen in Chapter 8, no provision of Pt 5.7B actually operates to make any transaction caught by its operation ‘voidable’. Rather, the consequence of a transaction being characterised as a ‘voidable transaction’ is that such a transaction becomes susceptible to be avoided or ‘reviewed’ under Pt 5.7B.295 The provisions of Pt 5.7B direct the court to take transactions as it finds them and not to operate upon concluded transactions, so as to deprive them of efficacy or effect296 Curiously, neither the statutory provisions in Pt 5.7B nor orders of the court made under them cause the relevant ‘transaction’ to be ‘void’.297

SCOPE OF THIS TEXT 1.53 This book examines the voidable transaction provisions contained in Pt 5.7B of the Corporations Act which, as explained above, are concerned with avoiding transactions prior to the commencement of a winding up where those transactions were entered into after 23 June 1993. Accordingly, this book does not examine the avoidance of company transactions that take place subsequent to the commencement of a winding up298 such as the disclaimer of onerous property by a liquidator under Pt 5.6, Div 7A. There is also no discussion of other causes of action or remedies available to a liquidator to recover company property such as the constructive trust299 nor is there any discussion of the statutory mechanisms for avoiding transactions that occurred prior to 23 June 1993.300 The rules and mechanisms for the actual distribution of property to creditors once it has been recovered by the liquidator are discussed in a summary fashion at 1.4. Practitioners are, however, recommended to consult more

generalised texts in that regard.301

1.

Section 9 of the Corporations Act contains an inclusive definition of ‘transaction’. See 3.7ff for a detailed discussion.

2.

‘Company’ in the present context is defined relevantly to mean a company registered under the Corporations Act and includes a Pt 5.7 body. For a discussion of Pt 5.7 body see 3.24ff.

3.

The expression ‘voidable’ here is used in the sense described by s 588FE of the Corporations Act. The expression voidable does not necessarily correlate with the general law use of that expression and on one view is a misnomer. See 8.20.

4.

All references to sections are references to the Corporations Act unless otherwise specified.

5.

The date of commencement of the Corporate Law Reform Act 1992 (Cth) (CLRA). See 1.45.

6.

Fortress Credit Corporation (Australia) II Pty Ltd v Fletcher (2014) 308 ALR 166; [2014] NSWCA 148 at [125] per Barrett JA.

7.

A company actually ceases to exist when it is deregistered. See Pt 5A.1 especially ss 601AC and 601AD of the Corporations Act.

8.

Russian and English Bank v Baring Bros and Co Ltd [1936] AC 405 at 433; [1936] 1 All ER 505 at 523 per Lord Russell.

9.

Russian and English Bank v Baring Bros and Co Ltd [1936] AC 405 at 433; [1936] 1 All ER 505 at 523 per Lord Russell.

10. The concept of pari passu distribution is discussed in detail at 1.6ff. 11. Winding up has also been described as a form of equitable execution: Re Chapel House Colliery Co (1883) 24 Ch D 259 per Bowen LJ. 12. See Buckley J’s comments in Re Crigglestone Coal Company Ltd [1906] 2 Ch 327. 13. Under Pt 5.6 Div 6 of the Corporations Act. 14. Re Lines Bros Ltd [1982] 2 All ER 183 at 190. See also Hiley v People’s Prudential Assurance Co Ltd (in liq) (1938) 60 CLR 468 at 496. 15. Court here is a reference to a capital ‘C’ Court as opposed to a lower ‘c’ court. A capital ‘C’ Court is defined in s 58AA to include the Federal Court and State Supreme Courts. 16. Re Lines Bros Ltd [1982] 2 All ER 183 at 189. 17. See 8.26. 18. Part 5.4B. There are two broad methods for winding up, namely a compulsory winding up by the Court (of which winding up in insolvency is one species) and voluntary winding which is regulated by Pt 5.5. There are in turn two forms of voluntary winding up — a members’ voluntary winding up and a creditors’ voluntary winding up. A members’ voluntary winding up necessarily entails the company is solvent: s 494(1). A creditors’ voluntary winding up on the other hand entails the company is insolvent. If at any time during the course of a members’ winding up it appears to the liquidator the company is insolvent then the winding up can only proceed as a creditors’ winding up: see Re Kyra Nominees Pty Ltd [1981] WAR 120; 5 ACLR 60. For a distinction between the various forms of winding up see the decision of Master Sanderson in Re Mecirt Holdings Pty Ltd (1998) 16 ACLC 1148. 19. See for example New Cap Reinsurance Corporation Ltd v A E Grant (2009) 257 ALR 740; 72 ACSR 638; [2009] NSWSC 662.

20. Only a capital ‘C’ superior Court has the power to wind up a company: see s 459A. 21. Other grounds for winding up by the Court are found in s 461(1) which sets out ‘general grounds’ in which a company may be wound up by the Court. These general grounds include if: (a) the company has by special resolution resolved that it be wound up by the Court; or (c) the company does not commence business within one year from its incorporation or suspends its business for a whole year; or … (k) the Court is of opinion that it is just and equitable that the company be wound up. 22. Part 5.4A deals with winding up by the Court on ‘other grounds’, namely grounds other than insolvency. Part 5.4B also deals with winding up by the Court generally. 23. Australian Law Reform Commission, General Insolvency Inquiry, Report No 45, 1988 (Harmer Report). The Commission, headed by Mr Harmer, is referred to as the ‘Harmer Commission’ for convenience. For a detailed discussion see 1.37. 24. Harmer Report at [131]. See also the Explanatory Memorandum to the Corporate Law Reform Bill 1992 (‘EM to the CLR Bill’) at [658]–[663]. 25. Part 5.7B was introduced into the then Corporations Law by the Corporate Law Reform Act 1992 (‘CLRA’). Whose provisions that inserted Pt 5.7B commenced on 23 June 1993. See 1.45ff. 26. EM to the CLR Bill at [131]. 27. EM to the CLR Bill at [131]. 28. Re Timberland Ltd v Equitable Forestry Services Pty Ltd (1979) 4 ACLR 259 at 281. 29. Wimborne v Brien (1997) 23 ACSR 576 at 582 per Dunford AJA, Handley and Powell JJA agreeing. 30. Wimborne v Brien (1997) 23 ACSR 576 at 582 per Dunford AJA, Handley and Powell JJA agreeing, citing Ex parte McDonald; Re Partridge (1960) 61 SR (NSW) 622 at 629. 31. Re Taverstock Iron Works Co (1871) 24 LT 605. 32. See also Stewart v Atco Controls Pty Ltd (in liq) (2014) 307 ALR 562; 98 ACSR 601 at [58] per Crennan, Kiefel, Bell, Gageler and Keane JJ. 33. Stewart v Atco Controls Pty Ltd (in liq) (2014) 307 ALR 562; 98 ACSR 601; [2014] HCA 15 at [58] per Crennan, Kiefel, Bell, Gageler and Keane JJ. 34. Stewart v Atco Controls Pty Ltd (in liq) (2014) 307 ALR 562; 98 ACSR 601; [2014] HCA 15 at [60] per Crennan, Kiefel, Bell, Gageler and Keane JJ. 35. Stewart v Atco Controls Pty Ltd (in liq) (2014) 307 ALR 562; 98 ACSR 601; [2014] HCA 15 at [58] per Crennan, Kiefel, Bell, Gageler and Keane JJ. 36. Stewart v Atco Controls Pty Ltd (in liq) (2014) 307 ALR 562; 98 ACSR 601; [2014] HCA 15 at [59] per Crennan, Kiefel, Bell, Gageler and Keane JJ. 37. Stewart v Atco Controls Pty Ltd (in liq) (2014) 307 ALR 562; 98 ACSR 601; [2014] HCA 15 at [59] per Crennan, Kiefel, Bell, Gageler and Keane JJ. 38. This is the sole statutory mechanism for obtaining relief in respect of voidable transactions under the Act. In some cases, provisions such as s 37A Conveyancing Act 1919 (NSW) may also be relied upon to set aside ‘alienations of property with intent to defraud creditors’. For a discussion see Chapter 8. 39. Ex parte Willey; Re Wright (1883) 23 Ch D 118 at 128 per Jessel MR. 40. Section 95A of the Corporations Act. This definition encapsulates the cash flow test of solvency as opposed to the balance sheet test. For a detailed discussion of the concept of insolvency see

Chapter 2. 41. IF Fletcher, The Law of Insolvency, 4th ed, Sweet & Maxwell, London, 2009, at 1-004. See also, generally, Rebecca Parry, James Ayliffe QC and Sharif Shivji, Transaction Avoidance in Insolvencies, OUP, 2nd ed, 2011 which discusses the position in the United Kingdom. 42. Latin, literally ‘with an equal step’. ‘Pari’ equal and ‘passu’ meaning ‘step’. 43. In a winding up, secured creditors have two broad forms of right, namely rights in rem and rights in personam. While unsecured creditors are prevented from taking any action against the company while it is being wound up by virtue of s 471B, s 471C of the Corporations Act expressly provides that nothing in either ss 471A or 471B affects a secured creditor’s right to realise or otherwise deal with the creditor’s security interest. See further Chapter 9. 44. Although this is subject to a significant number of exceptions as explained at 1.10. 45. The concept of limited liability in English jurisprudence did not take place until 1855 with the enacting of the Limited Liability Act 1855 (UK) (18 & 19 Vic, c 133). 46. ‘An Acte againste suche persones as doo make Bankrupte’, 34 & 35 Henry VIII, c 4. 47. Smith v Mills (The Case of Bankrupts) (1584) 2 Co Rep 25; 76 ER 441. 48. See 4.3 for the balance of this quote. See further 1.19ff below for a detailed discussion of the history of avoidance provisions in bankruptcy law. 49. Companies Act 1862 (UK) s 133(1). This provision, however, was restricted to voluntary winding up. Professor Goode notes: ‘It appears to have been assumed that the court would exercise the powers to produce a similar result’: see R M Goode, Principles of Corporate Insolvency Law, 4th ed, Sweet & Maxwell, 2011, at [1-10]. 50. Re HIH Casualty and General Insurance Ltd; McMahon v McGrath [2006] 2 All ER 671 per David Richards J. See also Re Bank of Credit and Commerce International SA (No 8) [1997] 4 All ER 568 at 573 where the House of Lords described the pari passu principle as fundamental. See also Barclays Bank Ltd v TOSG Trust Fund Ltd [1984] 1 All ER 628 at 636; Re T&N Ltd [2005] 2 BCLC 488 at [74]. 51. R M Goode, Principles of Corporate Insolvency Law, 4th ed, Sweet & Maxwell, London, 2011, pp 59–60. 52. Harmer Report at [33]. 53. M G Bridge, ‘Collectivity, Management of Estates and the Pari Passu rule in Winding Up’ in Armour et al, Voidable Transactions in Corporate Insolvency, Hart Publishing, Oxford and Portland, Oregon, 2003, 2. 54. British Eagle International Airlines Ltd v CIE Nationale Air France [1975] 2 All ER 390. 55. See also Re Harris, Goodwin & Co (1887) 7 QLJ (NC) N94; Smith v Mills (The Case of Bankrupts) (1584) 2 Co Rep 25; 76 ER 441; British Eagle International Airlines v CIE Nationale Air France [1975] 2 All ER 390; Hardy v Fothergill (1888) 13 App Cas 351 at 363; and see generally S W Symons, Pomeroy’s Equity Jurisprudence (5th ed) Vol 2 at 144–8 [405]–[407]. See also Akers (as joint foreign representative of Saad Investments Company Ltd) (in official liquidation) v Deputy Commissioner of Taxation (2014) 100 ACSR 287; [2014] FCAFC 57 at [138] per Allsop CJ, Robertson and Griffiths JJ agreeing. The High Court has refused special leave: Akers, Stephen John as a joint foreign representative of SAAD Investments Company Limited (in Official Liquidation) (A Company registered in the Cayman Islands) v Deputy Commissioner of Taxation [2014] HCATrans 231 (17 October 2014) per Crennan and Gageler JJ. In refusing special leave, Crennan J commented that ‘we are not persuaded that there are sufficient reasons to doubt the correctness of the decision of the Full Court of the Federal Court of Australia to warrant a grant of special leave to appeal’.

56. J Story, Commentaries on Equity Jurisprudence, 3rd ed, Sweet & Maxwell, London, 1920. 57. J Story, Commentaries on Equity Jurisprudence, 3rd ed, Sweet & Maxwell, London, 1920, p 590. 58. Hardy v Fothergill (1888) 13 App Cas 351 at 363. 59. Ex parte Groome (1744) 1 Atk 115; 26 ER 75. 60. See 1.10. 61. M G Bridge, ‘Collectivity, Management of Estates and the Pari Passu Rule in Winding Up’ in Armour et al, Voidable Transactions in Corporate Insolvency, Hart Publishing, Oxford and Portland, Oregon, 2003, p 2. 62. Re Smith Knight & Co (1868) LR 5 Eq 223 at 226. 63. In Re Braemar Investments Ltd [1988] BCC 366 at 371, Hoffmann J [as his Lordship then was] spoke of unsecured creditors of a company having proprietary interests that have not yet ‘technically crystallised’. 64. For example under s 471B, while a company is being wound up in insolvency or by the Court, a person cannot begin or proceed with a proceeding in a court against the company or in relation to property of the company enforcement process in relation to such property except with the leave of the Court and in accordance with such terms (if any) as the Court imposes. 65. Motor Terms Co Pty Ltd v Liberty Insurance Ltd (in liq) (1967) 116 CLR 177; [1967] ALR 465. 66. Wight v Eckhardt Marine GmbH (Cayman Islands) [2004] 1 AC 147 at [27]. 67. Wight v Eckhardt Marine GmbH (Cayman Islands) [2004] 1 AC 147 at [27]. For example, a company may be reinstated even after it is dissolved under s 601AH. 68. Wight v Eckhardt Marine GmbH (Cayman Islands) [2004] 1 AC 147 at [27]. 69. Wight v Eckhardt Marine GmbH (Cayman Islands) [2003] UKPC 37 at [33]. 70. Motor Terms Co Pty Ltd v Liberty Insurance Ltd (in liq) (1967) 116 CLR 177; Day & Dent Constructions Pty Ltd (in liq) v North Australian Properties Pty Ltd (prov liq apptd) (1982) 150 CLR 85 at 89; Re H & S Credits Ltd [1969] 2 NSWLR 231; 90 WN (Pt 1) (NSW) 495; Re Northside Properties Pty Ltd [1971] 2 NSWLR 320 at 323; and Dodlot Ltd v Hartogen Energy Ltd (1991) 25 NSWLR 278; 6 ACSR 397 at 403. 71. For a discussion of when a winding up commences see 2.74ff. 72. For this, and other reasons, the pari passu principle has been labelled a myth. See, for example, R Mokal, ‘Priority as Pathology: the Pari Passu Myth’ (2001) 60 Cambridge Law Journal 581. 73. Harmer Report at [713]. 74. Which is usually the winding up order. See the definition of ‘relevant date’ in s 9. 75. Which is usually the winding up order. See the definition of ‘relevant date’ in s 9. 76. Gye v McIntyre (1991) 171 CLR 609. 77. The High Court’s decision was applied by the House of Lords in Stein v Blake [1996] AC 243. 78. Re Lindholm; Opes Prime Stockbroking Ltd (admin apptd) (recs and mgrs apptd) (2008) 68 ACSR 88 at [8]–[9]. 79. Horne v Chester & Fein Property Developments Pty Ltd [1987] VR 913 at 922. See also United States Trust Co of New York v Australia & New Zealand Banking Group Ltd (1995) 17 ACSR 697. 80. Section 440 of the Companies (Victoria) Code was in the same terms as s 555 of the Corporations Act which provided: ‘Except as otherwise provided by this Code, all debts proved in a winding up rank equally and, if the property of the company is insufficient to meet them in full, they shall be

paid proportionately’. 81. British Eagle International Airlines Ltd v Compagnie Nationale Air France [1975] 1 WLR 758; Carreras Rothman Ltd v Freeman Mathews Treasure Ltd [1985] Ch 207 at 226E–226F and IATA v Ansett Australia Holdings Ltd (2008) 234 CLR 151 at [76]. 82. Ex parte Jay; Re Harrison (1880) 14 Ch D 19 at 26. 83. British Eagle International Airlines Ltd v Compagnie Nationale Air France [1975] 1 WLR 758 at 780–1. 84. Horne v Chester and Fein Property Developments Pty Ltd [1987] VR 913 at 919. This passage was quoted with approval by the plurality of the High Court in International Air Transport Association v Ansett Australia Holdings Ltd (2008) 234 CLR 151 at 181. 85. International Air Transport Association v Ansett Australia Holdings (2008) 234 CLR 151; 242 ALR 47 at 48. 86. Horne v Chester and Fein Property Developments Pty Ltd [1987] VR 913 at 919. 87. G & M Aldridge Pty Ltd v Walsh (as liq of Thomson Land Ltd (rec and mgr apptd) (in liq)) (2001) 203 CLR 662 at [29]. See also Storey v Lane (1981) 147 CLR 549; 36 ALR 129, where the issue for determination was the validity of s 60(1)(b) of the Bankruptcy Act 1966 (stay of legal process against the person or property of the debtor) as Commonwealth legislation with respect to bankruptcy and insolvency within s 51(17) of the Constitution. Having noted that the object of the relief of process provision was to ensure the availability of the assets of a debtor in the interests of his creditors generally (ALR 133). 88. Fortress Credit Corporation (Australia) II Pty Ltd v Fletcher (2014) 308 ALR 166; [2014] NSWCA 148 at [126] per Barrett JA. 89. Harmer Report at [629]. See also the comments of Spigelman CJ in BP Australia Ltd v Brown (2003) 58 NSWLR 322; 46 ACSR 677; [2003] NSWCA 216 at [91]. 90. Rubin v Eurofinance SA [2013] 1 AC 236 at [94]. 91. Rubin v Eurofinance SA [2013] 1 AC 236 at [95] per Lord Colins SCJ (with whom Lord Walker and Lord Sumption agreed). 92. Fortress Credit Corporation (Australia) II Pty Ltd v Fletcher (2014) 308 ALR 166; [2014] NSWCA 148 at [127] per Barrett JA. 93. Fortress Credit Corporation (Australia) II Pty Ltd v Fletcher (2014) 308 ALR 166; [2014] NSWCA 148 at [127] per Barrett JA. 94. See, for example, the comments of Spigelman CJ in BP Australia Ltd v Brown (2003) 46 ACSR 677 at [92] and also 4.1. 95. See 1.50. 96. Harmer Report at [629]. 97. Harmer Report at [632]. 98. Westpac Banking Corporation v Bell Group Ltd (in liq) (No 3) (2012) 89 ACSR 1 at [737]. 99. Harmer Report at [33]. 100. Fortress Credit Corporation (Australia) II Pty Ltd v Fletcher (2014) 308 ALR 166; [2014] NSWCA 148 at [128] per Barrett JA. 101. BP Australia v Brown (2003) 46 ACSR 677 at [98]. 102. BP Australia v Brown (2003) 46 ACSR 677 at [96]–[97].

103. BP Australia v Brown (2003) 46 ACSR 677 at [92]. 104. BP Australia v Brown (2003) 46 ACSR 677 at [92]. 105. EM to the CLR Bill at [1035]. 106. See McKern v Minister Administering the Mining Act 1978 (WA) (2010) 28 VR 1; 78 ACSR 630 (special leave refused, see [2010] HCATrans 327); Walsh v Natra Pty Ltd (2000) 1 VR 523; V R Dye & Co (a firm) v Peninsula Hotels Pty Ltd (in liq) (1999) 32 ACSR 27. 107. CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384 at 408. 108. The other legislation includes provisions such as s 37A of the Conveyancing Act 1919 (NSW) which is derived from the avoidance provisions in the 1543 Bankruptcy Act. See 1.24. 109. Insolvency law is used in this context to refer to both personal and company insolvency. In Australia, ‘bankruptcy’ relates to individuals whereas ‘insolvency’ relates to companies. In the United States of America, ‘bankruptcy’ usually relates to both individuals and companies. In England and Wales, ‘insolvency’ is used to relate to both individuals and companies. 110. LE Levinthal, ‘The Early History of Bankruptcy Law’ (1918) 66 University of Pennsylvania Law Review and American Law Register 223 at 225. Levinthal discusses ancient, Roman and pre-modern customs of dealing with insolvent debtors. 111. See 1.6. See also the comprehensive and learned overview of bankruptcy law in a paper by the Hon T F Bathurst, Chief Justice of New South Wales, ‘The Historical Development of Insolvency Law’, delivered to the Francis Forbes Society For Australian Legal History, Sydney, 3 September 2014. 112. LE Levinthal, ‘The Early History of Bankruptcy Law’ (1918) 66 University of Pennsylvania Law Review and American Law Register 223 at 228–31. 113. LE Levinthal, ‘The Early History of Bankruptcy Law’ (1918) 66 University of Pennsylvania Law Review and American Law Register 223 at 228–31. 114. LE Levinthal, ‘The Early History of Bankruptcy Law’ (1918) 66 University of Pennsylvania Law Review and American Law Register 223–31. 115. LE Levinthal, ‘The Early History of Bankruptcy Law’ (1918) 66 University of Pennsylvania Law Review and American Law Register 223 at 232. 116. LE Levinthal, ‘The Early History of Bankruptcy Law’ (1918) 66 University of Pennsylvania Law Review and American Law Register 223 at 233. 117. LE Levinthal, ‘The Early History of Bankruptcy Law’ (1918) 66 University of Pennsylvania Law Review and American Law Register 223 at 235–36. 118. LE Levinthal, ‘The Early History of Bankruptcy Law’ (1918) 66 University of Pennsylvania Law Review and American Law Register 223 at 236. 119. ‘Infamia’ is described as ‘political death’, and a person who became ‘infamis’ was not permitted in the Senate or the Magistracies and Courts; see JLB Allsop and L Dargan, ‘The History of Bankruptcy and Insolvency Law in England and Australia’, in J Gleeson, J Watson and E Peden (eds), Historical Foundations of Australian Law, Vol II, The Federation Press, Sydney, 2013, p 415. 120. LE Levinthal, ‘The Early History of Bankruptcy Law’ (1918) 66 University of Pennsylvania Law Review and American Law Register 223 at 238. 121. JLB Allsop and L Dargan, ‘The History of Bankruptcy and Insolvency Law in Australia’, in J Gleeson, J Watson and E Peden (eds), Historical Foundations of Australian Law, Vol II, The Federation Press, Sydney, 2013, p 420. 122. LE Levinthal, ‘The Early History of Bankruptcy Law’ (1918) 66 University of Pennsylvania Law Review and American Law Register 223 at 236.

123. For a general discussion of the Roman law see, M Radin, ‘Fraudulent Conveyances at Roman Law’, Virginia Law Review, Vol 18, No 2 (Dec 1931), pp 109–30; see also LE Levinthal, ‘The Early History of Bankruptcy Law’ (1918) 66 University of Pennsylvania Law Review and American Law Register 223 at 239. 124. LE Levinthal, ‘The Early History of Bankruptcy Law’ (1918) 66 University of Pennsylvania Law Review and American Law Register 223 at 239. 125. LE Levinthal, ‘The Early History of Bankruptcy Law’ (1918) 66 University of Pennsylvania Law Review and American Law Register 223 at 239. 126. LE Levinthal, ‘The Early History of Bankruptcy Law’ (1918) 66 University of Pennsylvania Law Review and American Law Register 223 at 239. 127. The Institutes of Justinian, 4, 6, 6; quoted in M Radin, ‘Fraudulent Conveyances at Roman Law’, Virginia Law Review, Vol 18, No 2 (Dec, 1931), p 109. 128. M Radin, ‘Fraudulent Conveyances at Roman Law’, Virginia Law Review, Vol 18, No 2 (Dec, 1931), p 109–10. Radin also describes a similar action, known as the Fabian action, which was available for fraud on the rights of a patron. 129. M Radin, ‘Fraudulent Conveyances at Roman Law’, Virginia Law Review, Vol 18, No 2 (Dec, 1931), p 109–10, quoting the Greek paraphrase of the Institutes, attributed to Theophilus [Theophilus, Par Inst ad I, 6, 6] and the description from Paul’s commentary on Plautius, B 6 [Dig 22, 1, 38, 4]. 130. M Radin, ‘Fraudulent Conveyances at Roman Law’, Virginia Law Review, Vol 18, No 2 (Dec, 1931), p 109–10, quoting the Greek paraphrase of the Institutes, attributed to Theophilus [Theophilus, Par. Inst. ad I, 6, 6] and the description from Paul’s commentary on Plautius, B 6 [Dig 22, 1, 38, 4]. 131. M Radin, ‘Fraudulent Conveyances at Roman Law’, Virginia Law Review, Vol 18, No 2 (Dec, 1931), p 110. 132. M Radin, ‘Fraudulent Conveyances at Roman Law’, Virginia Law Review, Vol 18, No 2 (Dec, 1931), p 110. In The Law of Fraudulent and Voluntary Conveyances, 3rd ed (1908) HW May (at pp 6–8) showed how it corresponded with Roman civil law, and had been incorporated in the common law of Scotland and in Roman Dutch law. 133. Australian Concise Oxford Dictionary, 5th ed, Oxford University Press, Melbourne, 2009. 134. M Radin, ‘Fraudulent Conveyances at Roman Law’, Virginia Law Review, Vol 18, No 2 (Dec, 1931), p 111. 135. LE Levinthal, ‘The Early History of Bankruptcy Law’ (1918) 66 University of Pennsylvania Law Review and American Law Register 223 at 241. 136. JLB Allsop and L Dargan, ‘The History of Bankruptcy and Insolvency Law in Australia’, in J Gleeson, J Watson and E Peden (eds), Historical Foundations of Australian Law, Vol II, The Federation Press, Sydney, 2013, pp 420–21. 137. JLB Allsop and L Dargan, ‘The History of Bankruptcy and Insolvency Law in Australia’ in J Gleeson, J Watson and E Peden (eds), Historical Foundations of Australian Law, Vol II, The Federation Press, Sydney, 2013, p 421. 138. M Radin, ‘Fraudulent Conveyances at Roman Law’, Virginia Law Review, Vol 18, No 2 (Dec, 1931), p 110. 139. LE Levinthal, ‘Early History of Bankruptcy’ (1919) 67 University of Pennsylvania Law Review 1 at 8. Broadly speaking, the staple referred to the system of trade in goods and related taxation. 140. JLB Allsop and L Dargan, ‘The History of Bankruptcy and Insolvency Law in Australia’ in J

Gleeson, J Watson and E Peden (eds), Historical Foundations of Australian Law, Vol II, The Federation Press, Sydney, 2013, p 422. 141. 11 Edw I. 142. 13 Edw I, st 3. 143. The Statute of Merchants (1285) (13 Edw I, st 3) allowed merchants to imprison a debtor until they disclosed their assets or satisfied their obligations. 144. For example, a June 1533 census of the Westminster sanctuary (which was spacious — ‘as big as a fourth of the whole city’ (André Réville, ‘L’abjuratio Regni’ (1892) 50 Révue Historique 1 at 37)) noted 95 residents: KJ Kesselring, Mercy and Authority in the Tudor State, Cambridge University Press, 2003, p 45. Sanctuary for debt was abolished in 1697 by the Act for the more effectual relief of creditors in cases of escapes, and for preventing abuses in prisons and pretended privileged places (8 & 9 W III c 27). 145. This Act noted the practice of debtors giving ‘tenements and chattels’ to friends ‘by collusion thereof to have the profits at their will’, and fleeing to privileged places such as Westminster until their creditors were bound to take ‘a small parcel’ of their debt, and provided that if it were found that the gifts were made by collusion the debtor’s creditors could have execution of the tenements and chattels as if no such gift had been made. 146. This statute also noted the practice of flight to sanctuary and other privileged places, and conveyances with intent to defraud, and provided that all deeds of gift of goods and chattels made, or to be made, of trust for the use of the person making the deed of gift were void and of no effect. 147. For a general discussion of these statutes see the judgment of McPherson JA in R v Dunwoody [2004] QCA 413, commencing at [104]–[107]. 148. LE Levinthal, ‘Early History of Bankruptcy’ (1919) 67 University of Pennsylvania Law Review 1 at 13. 149. LE Levinthal, ‘Early History of Bankruptcy’ (1919) 67 University of Pennsylvania Law Review 1 at 11. 150. See discussion in JLB Allsop and L Dargan, ‘The History of Bankruptcy and Insolvency Law in Australia’ in J Gleeson, J Watson and E Peden (eds), Historical Foundations of Australian Law, Vol II, The Federation Press, Sydney, 2013, p 423. 151. JLB Allsop and L Dargan, ‘The History of Bankruptcy and Insolvency Law in Australia’ in J Gleeson, J Watson and E Peden (eds), Historical Foundations of Australian Law, Vol II, The Federation Press, Sydney, 2013, pp 423–4. 152. LE Levinthal, ‘Early History of Bankruptcy’ (1919) 67 University of Pennsylvania Law Review 1 at 13–14. 153. ‘An Act Against Such Persons as Do Make Bankrupt 1542–43’ 34 & 35 Hen VIII, c 4 (1542). 154. LE Levinthal, ‘Early History of Bankruptcy’ (1919) 67 University of Pennsylvania Law Review 1 at 1. 155. LE Levinthal, ‘Early History of Bankruptcy’ (1919) 67 University of Pennsylvania Law Review 1 at 18–19. 156. LE Levinthal, ‘Early History of Bankruptcy’ (1919) 67 University of Pennsylvania Law Review 1 at 14. 157. Section 1 of the 1543 Act. 158. Section 4 of the 1543 Act. 159. JLB Allsop & L Dargan, ‘The History of Bankruptcy and Insolvency Law in Australia’ in J Gleeson,

J Watson and E Peden (eds), Historical Foundations of Australian Law, Vol II, The Federation Press, Sydney, 2013, p 425; LE Levinthal, ‘Early History of Bankruptcy’ (1919) 67 University of Pennsylvania Law Review 1 at 15. 160. LE Levinthal, ‘Early History of Bankruptcy’ (1919) 67 University of Pennsylvania Law Review 1 at 14–16. 161. 13 Eliz 1, c 7 (1571). 162. Defined as a ‘merchant or other person using or exercising the trade of merchandize by way of bargaining, exchange, rechange, bartry, chevisance, or otherwise, in gross or by retail … or seeking his or her trade or living by buying and selling’. This definition excluded merchants that traded in money or credit. In 1623, it was expanded by 21 Jac ch 19 §2 to include those ‘that shall use the Trade or Profession of a Scrivener, receiving other Men’s Money or Estates into his Trust or Custodie’. The merchant qualification for bankruptcy would survive until 1861. 163. 13 Eliz 1, c 7 §2. 164. 13 Eliz 1, c 5, confirmed by 29 Eliz I c 5 (1587). Repealed by the Law of Property Act 1925 s 207. Section 172 of the Law of Property Act 1925 (UK) now provides that voluntary conveyances made with intent to defraud creditors are voidable. The Fraudulent Conveyance Act was the origin of provisions in Australian state property legislation (see s 37A of the Conveyancing Act 1919 (NSW), s 172 of the Property Law Act 1958 (Vic), s 86 of the Law of Property Act 1936 (SA) and s 89 of the Property Law Act 1969 (WA)), and s 121 of the Bankruptcy Act 1966 (Cth). Section 37A of the Conveyancing Act 1919 (NSW) is discussed briefly at 8.17. 165. Fraudulent Conveyances Act ss 1, 2 and 6. 166. See the discussion in JLB Allsop and L Dargan, ‘The History of Bankruptcy and Insolvency Law in Australia’ in J Gleeson, J Watson and E Peden (eds), Historical Foundations of Australian Law, Vol II, The Federation Press, Sydney, 2013, pp 426–27. 167. Smith v Mills (The Case of Bankrupts) (1584) 2 Co Rep 25a; 76 ER 441. See 1.6 and 4.3. 168. 1603–1625. The Jacobean period in English law began with the 1603 accession of James VI of Scotland to the English throne, making him James I of England. 169. LE Levinthal, ‘Early History of Bankruptcy’ (1919) 67 University of Pennsylvania Law Review 1 at 18. 170. 21 Jac 1, c 19 (1623). 171. The bankrupt that could not demonstrate that their inability to pay their debts was due to causes beyond their control would also be pilloried, and would lose an ear; see LE Levinthal, ‘Early History of Bankruptcy’ (1919) 67 University of Pennsylvania Law Review 1 at 17. 172. The Act also confirms that the commissioners had the power to examine the ‘wife or wives’ of any bankrupt suspected of concealing property from creditors. The amending Act 1 Jac C 15 (1603) introduced the formal examination of the bankrupt for the first time in English law. 173. LE Levinthal, ‘Early History of Bankruptcy’ (1919) 67 University of Pennsylvania Law Review 1 at 18. 174. E Kadens, ‘The Last Bankrupt Hanged: Balancing Incentives in the Development of Bankruptcy Law’ (2010) 59 Duke Law Journal 1229 at 1231. 175. JLB Allsop and L Dargan, ‘The History of Bankruptcy and Insolvency Law in Australia’ in J Gleeson, J Watson and E Peden (eds), Historical Foundations of Australian Law, Vol II, The Federation Press, Sydney, 2013, p 432. 176. JLB Allsop and L Dargan, ‘The History of Bankruptcy and Insolvency Law in Australia’ in J Gleeson, J Watson and E Peden (eds), Historical Foundations of Australian Law, Vol II, The

Federation Press, Sydney, 2013, pp 437–8. 177. 1 Geo IV c 119 (1820). 178. JLB Allsop and L Dargan, ‘The History of Bankruptcy and Insolvency Law in Australia’ J Gleeson, J Watson and E Peden (eds), Historical Foundations of Australian Law, Vol II, The Federation Press, Sydney, 2013, pp 437–8. 179. 6 Geo IV, c 16 (1825). 180. An Act to Establish a Court in Bankruptcy (1831) 1 & 2 Will IV c 56. 181. Bankruptcy Law Consolidation Act (1849) 12 & 13 Vic, c 106. 182. 24 & 25 Vic, c 134 (1861). 183. The Report of the Insolvency Law Review Committee, entitled Insolvency Law and Practice was published in 1982 (Cork Report) at 48. 184. JLB and L Dargan, ‘The History of Bankruptcy and Insolvency Law in Australia’ in J Gleeson, J Watson and E Peden (eds), Historical Foundations of Australian Law, Vol II, The Federation Press, Sydney, 2013, pp 439–44. 185. 46 & 47 Vic, c 52 (1883). 186. 53 & 54 Vic, c 71 (1890). 187. Bankruptcy Act 1914 (UK) 4 &5 Geo V, c 59. The Act of 1914 followed the report by the Muir Mackenzie Committee in 1908 and is often described as a ‘tidying up operation and did not alter in any material respect the system devised in 1883’. 188. The form of the 1914 Act ultimately became the substantive basis of the first bankruptcy act passed by the Commonwealth of Australia, the Bankruptcy Act 1924 (Cth), although there were some differences as discussed below. 189. Cork Report at [1981]. 190. Cork Report at [9]. 191. Smith v Mills (The Case of Bankrupts) (1584) 2 Co Rep 25a; 76 ER 441. 192. Alderson v Temple (1786) 4 Burr 2235 at 2239–40; 98 ER 165 at 167–8; see historical discussion in Re Wilcoxon; Ex parte Griffith (1883) 23 Ch D 69 at 74 (CA) per Bowen LJ. See 1.6 and 4.3ff. 193. Joint Stock Companies Act 1856 (19 & 20 Vic, c 47) s 76. The 1856 Act introduced a single system of winding up which could be initiated by a creditor, a contributory or the company itself. Most of the concepts, terminology and processes characteristic of the current insolvency regime stem from the 1856 Act. 194. 6 Geo I, c 18 (1720). 195. 7 & 8 Vic, c 110 (1844). 196. JLB Allsop and L Dargan, ‘The History of Bankruptcy and Insolvency Law in Australia’ in J Gleeson, J Watson and E Peden (eds), Historical Foundations of Australian Law, Vol II, The Federation Press, Sydney, 2013, pp 446–7 citing 7 & 8 Vic, c 111. 197. 25 & 26 Vic, c 89. 198. JLB Allsop and L Dargan, ‘The History of Bankruptcy and Insolvency Law in Australia’ in J Gleeson, J Watson and E Peden (eds), Historical Foundations of Australian Law, Vol II, The Federation Press, Sydney, 2013, pp 446–7. 199. Bankruptcy Act 1869 (UK) (32 & 33 Vic, c 71) s 92. See 4.5. 200. Bankruptcy Act 1914 (UK) (4 & 5 Geo V c 59). The Act of 1914 followed the report by the Muir

Mackenzie Committee in 1908: see fn 187. 201. 5 Stat 440, ch 9, 9 August 1841. 202. W Weisberg, ‘Commercial Morality, the Merchant Character, and the History of Voidable Preferences’ (1986) 39(1) Stanford Law Review 3. 203. Arnold v Maynard 1 F Cas 1181 CCD Mass 1842 (no 561). 204. Arnold v Maynard 1 F Cas 1181 CCD Mass 1842 (no 561) at 1183. 205. The court held that the payment could only remain with the favoured creditor if the insolvent debtor were able to prove that he was wholly ignorant of his insolvency: Toof v Martin 80 US (13 Wall) 40, 48 (1871), a case on the Bankruptcy Act of 1867, 14 Stat 517, ch 176, 2 March 1867. 206. Robert Reid Pty Ltd v Cassidy (1966) 114 CLR 558; [1966] ALR 829 per Windeyer J. 207. New South Wales, Victoria, South Australia and Western Australia based on the Bankruptcy Act 1883 (UK) and Queensland and Tasmania based on the Bankruptcy Act 1869 (UK). 208. See JLB Allsop and L Dargan, ‘The History of Bankruptcy and Insolvency Law in Australia’ in J Gleeson, J Watson and E Peden (eds), Historical Foundations of Australian Law, Vol II, The Federation Press, Sydney, 2013, p 415. 209. JLB Allsop and L Dargan, ‘The History of Bankruptcy and Insolvency Law in Australia’ in J Gleeson, J Watson and E Peden (eds), Historical Foundations of Australian Law, Vol II, The Federation Press, Sydney, 2013, p 455. 210. Bankruptcy Act 1914 (UK) 4 &5 Geo V, c 59. The Act of 1914 followed the report by the Muir Mackenzie Committee in 1908: see fn 187. 211. For a more detailed discussion of the history of preference provisions in Australia, see Chapter 4. 212. See Re Marantha Ski Club Co-operative Ltd (1976) 2 ACLR 245 per Bowen LJ and Re Peninsula Services Pty Ltd (in liq) (1987) 91 FLR 4 on the application of s 121 of the Bankruptcy Act to companies under the Corporations Law. 213. J O’Donovan, ‘Voidable Dispositions and Undue Preferences: The Transition to the New Regime’ (1994) 12 Company and Securities Law Journal 7 at 9. 214. Prior to the Harmer Report, the Clyne Committee had conducted a review of the law relating to bankruptcy between 1959 and 1962. The Committee was appointed by the Commonwealth Attorney-General on 23 February 1956 to review the bankruptcy law of the Commonwealth. See 1.34. 215. Report of the Review Committee on Insolvency Law and Practice (1982) Cmnd 8558 (Chairman: Sir Kenneth Cork). 216. Harmer Report, Summary, at [5] and [32]. There were originally eight principles identified by the Australian Law Reform Commission, General Insolvency Inquiry, Discussion Paper No 32, at [14]. 217. EM to the CLR Bill at [14]. 218. Harmer Report at [628]. 219. Harmer Report at [633]. 220. Not all of the recommendations made by the Harmer Commission were adopted. For example at [697] of the Harmer Report the Commission recommended abolition of the concept of ‘relation back’. This was not adopted by Parliament: see CBA Corporate Services (NSW) Pty Ltd v Walker and Moloney (in their capacity as the liquidators of ZYX Learning Centres Ltd) (recs and mgrs apptd) (in liq) (2013) 212 FCR 444; 95 ACSR 135 at [65]. However, the modern concept of ‘relation-back day’ in company insolvency operates differently to the concept of ‘relation back’: see 2.72ff.

221. Harmer Report at [283]. 222. Now found in s 588G of the Corporations Act. 223. Harmer Report at [632]. 224. Harmer Report at [638]. 225. Harmer Report at [644]. 226. Harmer Report at [646]. 227. Harmer Report at [648]. 228. See 4.57 for a thorough discussion. 229. Airservices Australia v Ferrier (1996) 185 CLR 483; 21 ACSR 1 at 17. 230. Airservices Australia v Ferrier (1996) 185 CLR 483; 21 ACSR 1 at 17. See also Rees v Bank of New South Wales (1964) 11 CLR 210 at 232. See also the New South Wales Court of Appeal’s decision in Panasonic Australia Pty Ltd v Wily (1997) 23 ACSR 266 at 269–73 per Sheller JA with whom Mason P and Powell JA agreed. See also Sutherland v Eurolinx Pty Ltd (2001) 37 ACSR 477 at [147] per Santow J. For an example of where the court found there was no running account see Sutherland v Liquor Administration Board (1997) 139 FLR 206; 24 ACSR 176. 231. Harmer Report at [655]. 232. Harmer Report at [662]. 233. Harmer Report at [664]. 234. Harmer Report at [665]. 235. Harmer Report at [666]. 236. Harmer Report at [667]. 237. Harmer Report at [670]. For a thorough discussion on the concept of transaction, see Chapter 3. 238. EM to the CLR Bill at [1035]. 239. EM to the CLR Bill at [1034]. 240. Although the expression ‘void’ when used in the bankruptcy context was always taken to mean voidable. See 8.5. 241. The provision was introduced following a recommendation of the Harmer Report, and is drawn from the ‘extortionate credit transaction’ provisions of the Insolvency Act 1986 (UK). See Chapter 6. 242. For a thorough discussion of s 588FG see 8.51ff. 243. Section 122(4)(c) Bankruptcy Act 1966. 244. Section 588FE was introduced by the CLRA, with effect from 23 June 1993: see EM to the CLR Bill at [1049]–[1054]. The section has a long heritage: see, for example, Companies Act 1929 (UK) s 265; Companies Act 1948 (UK) s 320; Uniform Companies Act s 293; Companies Code s 451 and Corporations Law s 565. For a more detailed discussion of s 588FE see 2.76 and Chapter 8. 245. EM to the CLR Bill at [1049]. 246. EM to the CLR Bill at [364]. On time periods in relation to particular transactions, see 2.72. 247. See discussion of the statutory presumptions at 2.63ff. 248. Section 588FF(3)(a)(i) requires claims concerning voidable transactions to be commenced (or at least an application by the liquidator for an extension of time: s 588F(3)(a)(ii)) within three years of the relation-back day. See 11.31ff.

249. See, for example, Re Great Southern Ltd (recs and mgrs apptd) (in liq); Ex parte Thackary (2012) 260 FLR 362; [2012] WASC 59 per Sanderson M; Plumbers Supplies Co-operative Limited v Firedam Civil Engineering Pty Ltd [2011] NSWSC 325 per Barrett J; Workers Compensation Nominal Insurer v Perfume Empire Pty Ltd [2011] NSWSC 379 per Barrett J; Deputy Commissioner of Taxation v TMPL Pty Ltd (2010) 80 ACSR 528 per Perram J citing with approval Public Trustee (Qld) v Octaviar Ltd (2009) 73 ACSR 139; [2009] QSC 202 at [184] per McMurdo J; Re Octaviar Ltd (formerly MFS Ltd) [2008] QSC 216 per McMurdo J; Re Octaviar Ltd (No 8) [2009] QSC 202 per McMurdo J; Re Harris Scarfe Ltd (in liq) (No 3) [2007] SASC 218 per Gray J. See further the decision of Santow J in Deputy Commissioner of Taxation v ACN 001 330 203 Pty Limited (in liq) [1999] NSWSC 798 at [8] where the court found that the appointment of the administrator was a nullity, the purported voluntary administration had no effect and the relation-back day accordingly commenced on the date the summons for winding up was first filed. 250. On determining the relation-back day, see 2.72ff. 251. Harmer Report at [635]. 252. EM to the CLR Bill at [392]. See also 2.72ff. 253. The expression ‘external administration’ is not defined in the Corporations Act. However s 161A which deals with use of a company’s name on documents suggests that external administration is a company that is being wound up, under administration, has executed a deed of company arrangement that has not yet terminated, pays a managing controller of property appointed to it or there is a receiver of property of the company. 254. Part 5.1. 255. Part 5.2. 256. Part 5.3A. 257. Part 5.4. 258. Only a ‘Court’ is empowered to wind up a company. ‘Court’ is defined in s 9 to include the Federal Court and a State Supreme Court. 259. It is beyond the scope of this book to describe in detail the process for winding up a company in insolvency. For a more detailed discussion see F Assaf, Statutory Demands and Winding Up in Insolvency, 2nd ed, LexisNexis, Australia, 2012. 260. Headed ‘Winding Up Generally’. 261. Section 588E. 262. Section 588E. Company is defined in s 9 to mean relevantly a company registered under the Corporations Act and includes a Pt 5.7 body. 263. See paragraph (a) of the definition of ‘recovery proceeding’ is s 588E. For a detailed discussion of s 588FF see Chapter 8. 264. See paragraph (b) of the definition of ‘recovery proceeding’ in s 588E. For a detailed discussion of s 588FH see 8.41ff. 265. See paragraph (c) of the definition of ‘recovery proceeding’ in s 588E. For a more detailed discussion of security interest, see Chapter 9. 266. Security interest is defined in s 51A of the Corporations Act to mean a PPSA security interest or a charge, lien or pledge. For a thorough discussion of these concepts see Chapter 9. 267. See paragraph (d) of the definition of ‘recovery proceeding’ in s 588E. For a detailed discussion of s 588FJ(6), see 9.49. 268. See paragraph (e) of the definition of ‘recovery proceeding’ in s 588E. For a detailed discussion of s

588G, see Chapter 10. 269. See paragraph (f) of the definition of ‘recovery proceeding’ in s 588E. For a more detailed discussion of s 588W, see 10.111ff. 270. See 2.63ff for a detailed discussion. 271. Section 588E(8). 272. Section 588E(8)(a). 273. Section 588E(9). 274. For a thorough discussion of the concept of transaction see Chapter 3. 275. Section 588FE(1)(a). 276. See 8.19. 277. For a discussion see Chapter 9. 278. See Chapter 9. 279. See 9.28ff. 280. Defined in s 588FA. See Chapter 4. 281. Section 588FB. See Chapter 5. 282. Section 588FD. See Chapter 6. 283. Section 588FDA. See Chapter 7. 284. For a discussion of insolvent transaction, see 8.9ff. 285. Section 588FC. 286. Section 588FC. This is general only. Section 588FC also sets out other circumstances which describe when a particular transaction may be an insolvent transaction. See 8.9. 287. Section 588FE(2)(b). 288. See the definition of relation-back day in s 9 and also s 513A. See also 2.72. 289. Section 588FB. See Chapter 5. 290. Section 588FD. See Chapter 6. 291. Section 588FDA. See Chapter 7. 292. For a discussion of these reasons see respectively, Chapter 5 ‘Uncommercial Transactions’, Chapter 6 ‘Unfair Loans’ and Chapter 7 ‘Unreasonable Director-Related Transactions’. 293. This is ‘court’ with a lower case ‘c’ and is defined in s 58AA to mean any court as opposed to ‘Court’ with a capital ‘C’ which is defined in s 58AA to mean relevantly the Federal Court or a State Supreme Court. See 8.24. 294. See 8.26ff. 295. See K J Bennetts, ‘Voidable Transactions: Consequences of Removing Avoidance Powers from the Liquidator and Vesting them in the Court’ (1994) 2 Insolv LJ 136 at 138. 296. New Cap Reinsurance Corp Ltd v AE Grant (2009) 72 ACSR 638 at [19] per Barrett J. 297. New Cap Reinsurance Corp Ltd v AE Grant (2009) 72 ACSR 638 at [19] per Barrett J. 298. See, for example, s 468. For a brief discussion see 8.75. 299. See, for example, Robins v Incentive Dynamics Pty Ltd (in liq) (2003) 45 ACSR 244.

300. See, for example, s 565 (undue preference), s 566 (effect of floating charge) and s 567 (liquidator’s right to recover in respect of certain transactions). There is a brief discussion of s 592 at 10.140. 301. See, for example, C Symes and J Duns, Insolvency Law, 2nd ed, LexisNexis, Sydney, 2012 and also M Gronow et al, McPherson’s Law of Company Liquidation, 4th ed, Thomson Reuters, Sydney, 2014.

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2 Establishing Insolvency and Determining the Relation-Back Day INTRODUCTION 2.1 As explained in Chapter 1, Part 5.7B allows a company’s liquidator1 to seek various orders2 in respect of a voidable transaction. In order to be a voidable transaction,3 the relevant transaction4 will most often, but not always, be an ‘insolvent transaction’.5 The insolvent transaction will be either an ‘unfair preference given by the company’ or an ‘uncommercial transaction of the company’.6 As will be seen below, the common characteristic of each of these insolvent transactions is that the particular transaction is entered into or given effect to at a time when the company is insolvent7 or, alternatively, the company becomes insolvent because of entering into the transaction or giving effect to the transaction.8 The other voidable transactions regulated by Pt 5.7B, unfair [page 54] loans9 and unreasonable director-related transactions, do not share this characteristic.10 2.2 Where a company is being wound up, a transaction may be voidable because of the operation of any one or more of subss 588FE(2)–(6)11 if the transaction was entered into on or after 23 June 1993.12 In addition to satisfying the requirements of an insolvent transaction, the transaction will only be voidable if it is entered into within a certain time of the company’s winding up.

A transaction will usually be voidable under s 588FE if it is an ‘insolvent transaction’ of a company and it was entered into, or an act was done for the purpose of giving effect to it: during the six months ending on the relation-back day;13 or after the relation-back day but on or before the day when the winding up began.14 The period during which a transaction will be susceptible to being voidable is often referred to as the ‘relation back period’ and in the case of an insolvent transaction, may vary from a period of six months up to a period of 10 years.15 2.3 There are three broad elements of an insolvent transaction under s 588FC: 1.

There must be a transaction16 of a company.17

2.

The transaction is either an unfair preference18 given by the company or an uncommercial transaction19 of the company.20

3.

The transaction is entered into or given effect to at a time when the company is insolvent21 or, alternatively, the company becomes [page 55] insolvent because of entering into the transaction or giving effect to the transaction.22

The first and second elements are discussed in detail in other chapters.23 This chapter is dedicated to discussing the concept of insolvency and the relationback period.

INSOLVENCY— CONCEPT AND DEFINITION 2.4 Section 95A(2) of the Corporations Act provides that a person24 who is not solvent is insolvent.25 A person is solvent if, and only if, the person is able to pay all the person’s debts as and when they become due and payable.26 It is well

established that s 95A enshrines the classic ‘cash flow test’ of solvency27 as opposed to the ‘balance sheet test’ of [page 56] solvency.28 While that may be true, as a practical matter, the court, in determining whether a company is insolvent, often looks at a company’s balance sheet in satisfying itself that a company has in fact been able to pay its debts as and when they fall due.29 Before turning to discussing the court’s approach to determining insolvency, it is necessary to discuss the concepts of ‘debt’ and when debts become ‘due and payable’.

The meaning of debt 2.5 The word ‘debt’ is not defined in the Corporations Act. It has been said that debt is not a word of precise and inflexible denotation30 and there is no ‘universal definition’ of the word.31 It is generally accepted, however, that the expression when used in the Corporations Act should be given its ordinary and natural meaning, that is, ‘a liability or obligation to pay or render something’.32 Another useful working definition of debt is a liquidated sum in money presently due, owing and payable by one person, called the debtor, to another person called the creditor.33 The word ‘debt’ comes from the Latin ‘debeo’, that is ‘I have an obligation’.34 It is a general expression capable of both a narrow and a wide interpretation.35 In a narrow sense, debt refers only to money demands, fixed, liquidated and payable at the material date.36 In a wider sense, a debt includes [page 57] all sums which any person is legally liable to pay, whether such sums have become actually payable or not.37 The qualifying words ‘due and payable’ in s 95A(1) suggest that the legislature intended the word ‘debt’ to connote the former, narrow definition and it is this definition which is now accepted as correct, although there is some ambiguity on this point.38 2.6 The writ of debt is one of the oldest common law forms of action,39 first

appearing in the 12th century, and has been described as the earliest writ of a contractual nature to have been regularly issued.40 The action of debt was used to recover a liquidated sum, which included a contract debt.41 In the 13th century, the writ of debt came to be used for both money claims and claims for chattels.42 In time, the detinue form of the writ became appropriate where specific chattels were claimed, whereas the writ of debt was appropriate where fungible goods were claimed by number, weight or measure, for example, crops.43 The medieval concept of a debt has been described as a ‘sum certain’ — a definite, liquidated sum of money or quantity of chattels due in law from debtor to creditor.44 Simpson explains the old action of debt as follows: … a plaintiff in an action of debt [had to] claim in the writ one entire sum, which he must specify in his count or declaration which corresponds to the modern statement of claim he must show the ground for his claim, and he was allowed to claim in one action a total sum made up of a number of smaller sums due on different grounds.45

A plaintiff claiming in debt had to claim the entire sum as failure to do so was fatal to any action. An action in debt was, therefore, all or nothing.46 The all or nothing nature of the action of debt ruled out any possibility of the plaintiff claiming an uncertain sum by way of quantum meruit, for example, as the writ of debt had to demand a precise sum.47 [page 58] The scope of the action of debt was wide48 though it was mainly used to enforce bonds (sealed instruments which bound or obliged the debtor to pay a sum certain) and to recover debts due by informal contractual transactions, for example, for the recovery of money lent, the price of goods sold and remuneration for services.49

When are debts ‘due and payable’? 2.7 The Corporate Law Reform Act 1992 (Cth) (CLRA) introduced the expression ‘due and payable’ into the then Corporations Law, as it then was, in 1993 where it occurred twice. The first instance was in s 95A which sets out the definitions of solvency and insolvency.50 The second instance was in s 459E51 which deals with creditors’ statutory demands. Ever since its introduction in 1993, there has been surprisingly little judicial discussion as to the precise meaning of the words ‘due and payable’ within the meaning of both ss 95A and

459E.52 It is, however, unclear whether the concept of a ‘debt’ that is due and payable is the same when used in both ss 95A and 459E. For example, there is conflicting authority as to whether the concept of a debt when used in s 95A would include a claim for unliquidated damages.53 In the context of s 459E at least, a debt is said to be due and payable when it is ascertainable, immediately payable and presently recoverable or enforceable by action.54 Such a definition would preclude, for example, an unliquidated claim for damages.55 That proposition is attributed to Ormiston J in the decision of Re Elgar Heights Pty Ltd (No 1).56 [page 59] 2.8 In Southern Cross Interiors Pty Ltd v Deputy Commissioner of Taxation,57 Palmer J of the Supreme Court of New South Wales held that in the context of s 95A ‘due’ and ‘payable’ were clearly synonymous. His Honour’s conclusion was partially based upon the ordinary meaning of those words58 and partially upon Ormiston J’s review of the authorities59 in Re Elgar Heights (No 1).60 In the Shorter Oxford Dictionary, for example, ‘due’ is defined to mean ‘owing or payable as an obligation or debt’ whereas payable means ‘falling due [usually] at or on a specified date’. With such circular definitions it is tempting to conclude that the expression ‘due and payable’ within the meaning of s 459E is tautologous and there exists no discernible distinction between the two expressions. This analysis, however, overlooks the potentially ambiguous meaning of the word ‘due’ as explained by Ormiston J in Re Elgar Heights (No 1). 2.9 In Re Elgar Heights (No 1), a firm of solicitors issued a statutory demand to a former client company under the predecessor of s 459E (s 364(2)(a) of the Companies (Victoria) Code) requiring payment of their bill of costs. The bill of costs upon which the statutory demand was based did not comply with s 81 of the Supreme Court Act 1958 (Vic), which required a detailed bill of costs to be signed by the solicitors, so that the solicitors were not entitled to commence or maintain any action for the recovery of those fees. Ormiston J held that, as no proper bill had been served, no fees were then ‘due’ to the solicitors as at the date of serving the demand. In the course of his judgment, Ormiston J traced the history of s 364(2)(a) and in doing so revealed the genesis of the expression ‘due and payable’. His Honour’s review of the earlier decisions led him to the conclusion that the words ‘then due’ were potentially ambiguous and could be

interpreted as meaning either presently or immediately due (in the sense that they were owing) or presently or immediately payable, which would connote an immediate right to payment.61 In other words, the expression ‘due’ contemplated debts which were presently owing but which were not yet payable and debts which were both immediately due, [page 60] in the sense of being immediately payable.62 As Mellish J explained in Ex parte Kemp; Re Fastnedge: Now, the words ‘debts due to him’ are certainly words which are capable of a wide or narrow construction. I think that prima facie, and if there be nothing in the context to give them a different construction, they would include all sums certain which any person is legally liable to pay, whether such sums had become payable or not. On the other hand, there can be no doubt that the word ‘due’ is constantly used in the sense of ‘payable’, and if it is used in that sense, then no debts which had not actually become payable when the act of bankruptcy was committed would be included. Lastly, the expression ‘debts due’ is sometimes used in bankruptcy proceedings to include all demands which can be proved against a bankrupt’s estate, although some may not be strictly debts at all.63

A similar view to that of Mellish J was expressed by the High Court in H J Wigmore & Co v Rundle.64 In that case, the High Court held that the word ‘due’ ‘is not unequivocal. It is capable of referring either to the time of payment or to the existence of indebtedness’.65 In a similar vein, Gibbs CJ held in Clyne v Deputy Commissioner of Taxation,66 in the context of taxation legislation, the word ‘due’ could mean either owing, although not payable until some future date, or it could mean presently payable. 2.10 In Main Camp Tea Tree Oil Ltd v Australian Rural Group Ltd,67 Barrett J observed that it is axiomatic that a debt may be presently owing but not yet either ‘due’ or ‘payable’. ‘It may likewise be “owing” and “due” but not yet “payable”.’ It is not possible, however, ‘for a debt “owing” to be “payable” but not “due”’. In other words, the expression ‘due and payable’ connotes not only that a debt is owed (so that the debtor is indebted) but also connotes that the time for payment has arrived and ‘the obligation to pay is an unqualified and unfettered obligation requiring immediate performance’.68 [page 61]

2.11 In the context of voidable transaction cases, determining precisely when a debt becomes due and payable is quite often the subject of conflicting evidence. For example, contractual terms may stipulate, say, 30 day payment terms. The conduct of the debtor company and the creditor may suggest that the creditor over time accepted, say, 90 day payment terms possibly giving rise to an estoppel in favour of the company. In determining whether a company is insolvent the court will take into account this ‘commercial reality’ of a creditor providing the debtor company with a degree of latitude in payment terms. This is discussed at 2.26ff.

THE COURT’S APPROACH TO DETERMINING INSOLVENCY 2.12 The question of whether a company is able to pay its debts as and when they fall due and payable is a question of fact to be determined in all the circumstances, including the nature of its assets and business and commercial reality.69 Although it is established that whether a corporation is insolvent at any given time is ‘first and last a question of fact’70 there are numerous cases that set out the principles (including legal principles) that are said to be relevant to the resolution of that factual issue.71 Quite often the key issue that devolves for consideration in determining insolvency is whether the company was, in fact, insolvent at a particular time (or period of time) or whether the company was experiencing a mere ‘temporary lack of liquidity’. [page 62] 2.13 The test of insolvency is objective. In Lewis (as liquidator of Doran Constructions Pty Ltd) v Doran, Giles JA (with whom Hodgson and McColl JJA agreed) explained: Section 95A speaks of objective ability to pay debts as and when they become due and payable, but ability must be determined in the circumstances as they were known or ought to have been known at the relevant time, without intrusion of hindsight. There must of course be ‘consideration … given to the immediate future’ (Bank of Australasia v Hall (1907) 4 CLR 1514 at 1528; 14 ALR 51 at 54–5 per Griffith CJ), and how far into the future will depend on the circumstances including the nature of the company’s business and, if it is known, of the future liabilities. Unexpected later discovery of a

liability, or later quantification of a liability at an unexpected level, may be excluded from consideration if the liability was properly unknown or seen in lesser amount at the relevant time.72

Hence, in Lewis (as liquidator of Doran Constructions Pty Ltd) v Doran, the liquidator of a company argued that an amount of just over one million dollars could not be taken into account in determining the level of cash funds available to the relevant company without also taking into account ‘the corresponding liabilities’ said to be necessary to be deducted from those funds (such as amounts payable to subcontractors). The court rejected the liquidator’s argument. The court found instead that the ‘corresponding liabilities’ were only established as a liability some years after the relevant time. The court considered such later liabilities could be excluded from consideration because the liability was properly unknown or seen as a lesser amount at the relevant time.73 2.14 In the absence of the operation of a statutory presumption of insolvency,74 the court’s general approach to determining insolvency in voidable transaction cases can be summarised as follows: The test of solvency in the Corporations Act incorporates the ‘cash flow test’ as opposed to the ‘balance sheet test’. In determining insolvency, the court takes into account the financial position of the company as a whole having regard to ‘commercial reality’. A temporary lack of liquidity does not constitute insolvency, however there is often a very fine line between the two. [page 63] The courts have developed some ‘usual indicia’ of insolvency which are a useful guide to assist the court in determining insolvency, although not necessarily determinative. The question of whether or not a company is insolvent is ultimately a question of fact to be determined objectively.

The cash flow test 2.15 As mentioned above,75 s 95A(2) encapsulates the ‘cash flow test’ of insolvency. This test, also known as ‘commercial insolvency’, has been a part of

equity jurisprudence for hundreds of years.76 The test looks to the objective ability of a company to pay its debts as and when they fall due.77 The cash flow test is to be contrasted with the ‘balance sheet’ test of insolvency which looks to a company’s net asset position at a particular point in time.78 Under the balance sheet test, a company is insolvent if its total liabilities exceed the total value of its assets.79 Section 95A is derived from the comments of Barwick CJ in Sandell v Porter80 where his Honour made the following observations in relation to the former s 95 of the Bankruptcy Act 1924–1960 (Cth): Insolvency is expressed in s 95 as an inability to pay debts as they fall due out of the debtor’s own money. But the debtor’s own moneys are not limited to his cash resources immediately available. They extend to moneys which he can procure by realization by sale or by mortgage or pledge of his assets within a relatively short time — relative to the nature and amount of the debts and to the circumstances, including the nature

[page 64] of the business, of the debtor. The conclusion of insolvency ought to be clear from a consideration of the debtor’s financial position in its entirety and generally speaking ought not to be drawn simply from evidence of a temporary lack of liquidity. It is the debtor’s inability, utilizing such cash resources as he has or can command through the use of his assets, to meet his debts as they fall due which indicates insolvency.81

In enacting s 95A, the legislature omitted the words ‘own money’ from the definition of solvency. Despite this omission, the essential aspect of solvency, the ability of a company to pay its debts as and when they fall due, endures. Furthermore, the omission of the words ‘own money’ from the definition of solvency merely removed an ‘artificial restriction’82 so that the court under s 95A is required to decide whether the company is able, as at the alleged date of insolvency, to pay all its debts as they become payable by reference to the commercial realities.83 The omission of the words ‘own money’ did not necessarily represent a departure from case law prior to the introduction of s 95A which recognised that a company’s capacity to raise funds from its resources or by way of unsecured borrowing could properly be taken into account when assessing insolvency on a cash flow basis.84 2.16 The focus of the cash flow test of insolvency is the liquidity and viability of the company’s business.85 The relevant question is not whether the company would be able, if time were given to it, to pay its debts out of its assets, but whether the company is presently able to do so with moneys actually available.86 As Barrett J explained in Noxequin Pty Ltd v Deputy Commissioner

of Taxation: The emphasis must be upon the extent of cash and other liquid assets (by which I mean assets readily convertible into cash), compared with the quantum of debts due and payable and to become due and payable in the immediate future. A comparison between the two can be made only as at a particular point but a state of solvency requires that, at each such point, the cash and liquid assets be sufficient to cover the debts due and payable and to become due and payable in the immediate future.87

[page 65] In determining insolvency utilising the cash flow test under s 95A, the court is required to ascertain: the company’s existing debts and the company’s debts within the near future; the date each debt will be due for payment; and the company’s present and expected cash resources and the date each item will be received. The prospect of the company being able to trade profitably in the future and restoring its financial position is not relevant to the enquiry of solvency. The question is whether a company can pay its debts as they become due and payable.88 2.17 The emphasis in the cases upon the cash flow test does not necessarily mean that an examination of a company’s balance sheet is irrelevant.89 Rather, under the cash flow test, the balance sheet of a company assumes subsidiary relevance. A company may at the same time be asset rich yet insolvent.90 As a practical matter, the court will often examine a company’s balance sheet, and in some cases, the asset position of the company may be relevant in assessing solvency. The cash flow test, for example, allows a court to take into account assets available to the company which can be realised in order to answer indebtedness although there is a temporal limitation to this. As Barwick CJ explained in Rees v Bank of New South Wales: It is quite true that a trader, to remain solvent, does not need to have ready cash by him to cover his commitments as they fall for payment, and that in determining whether he can pay his debts as they become due regard must be had to his realizable assets. The extent to which their existence will prevent a conclusion of insolvency will depend on a number of surrounding circumstances, one of which must be the nature of the assets and in the case of a trade, the nature of his business.91

[page 66] The point was further explained by Palmer J in Hall v Poolman92 as follows: An asset cannot be taken into account in assessing solvency at a particular time without reference to the time it would realistically take to effect realisation and produce cash. It is no indication of solvency — indeed, it is the opposite — to point to property as available to meet debts falling due next month when, even with the utmost expedition, that property cannot be turned into cash for 6 months. Realisable property can only be taken into account in assessing solvency ‘if that property is in such a position as to title and otherwise that it could be realised in time to meet the indebtedness as the claims mature’: Bank of Australasia v Hall (1907) 4 CLR 1514 at 1543; 14 ALR 51 at 80; see, for example, Crema (Vic) Pty Ltd v Land Mark Property Developments (Vic) Pty Ltd (2006) 58 ACSR 631; [2006] VSC 338 at [141]–[144] per Dodds-Streeton J and Noxequin Pty Ltd v Deputy Commissioner of Taxation [2007] NSWSC 87 at [14] and [15] per Barrett J.

How far into the future does the court look when determining whether a company can pay its debts as and when they become due and payable? 2.18 A difficulty often confronted by the courts in determining insolvency is ascertaining how far into the future the court should look in determining when debts become due and payable. As explained above, the words ‘due and payable’ connote not only that a debt is owed (so that the debtor is indebted) but also that the time for payment has arrived and ‘the obligation to pay is an unqualified and unfettered obligation requiring immediate performance’.93 That being so, the court looks only to the ‘reasonably immediate future’.94 Precisely how far into the future a court will look will depend on the circumstances including the nature of the company’s business and, if it is known, of the future liabilities.95 As Ward J observed in Bentley Smythe Pty Ltd v Anton Fabrications (NSW) Pty Ltd: … the s 95A test requires ascertainment of the company’s existing debts, its debts within the near future, the date each will be due for payment, the company’s present and expected cash resources and the date each item

[page 67] will be received … The court’s task is to decide whether the company is suffering from a temporary lack of liquidity in which case it is not insolvent … or a[n] ‘endemic shortage of working capital’ (citations omitted).96

2.19 The question of solvency in the context of a voidable transaction case is necessarily retrospective in nature.97 While this gives the court the benefit of hindsight in assessing whether a company was insolvent,98 the court must examine the question of insolvency as at the relevant date, having regard to information then known or ought to have been known to the company.99 The question of solvency is determined in the circumstances as they were known or ought to have been known at the relevant time without what Giles JA in Lewis v Doran100 called ‘the intrusion of hindsight’.101 For example, the unexpected later discovery of a liability, or later quantification of a liability at an unexpected level, may be excluded from consideration if the liability was properly unknown or seen in lesser amount at the relevant time.102 So, in Lewis v Doran103 the New South Wales Court of Appeal rejected a claim by a liquidator that the court should take into account a prospective liability of the company for damages which only crystallised several years after the relevant date.104 In Bell Group Ltd (in liq) v Westpac Banking Corp (No 9), Owen J explained the position as follows: In my opinion, Giles JA’s reference in Lewis v Doran to an assessment made ‘without the intrusion of hindsight’ means that, when determining the company’s ability to pay, it must be done according to the circumstances or state of affairs which were known or ‘knowable’ at the time. In other words, if an event or fact was either not in existence or was not properly knowable, it is impossible that anyone would have or should have considered it. That fact, therefore, cannot be relevant to an assessment of a company’s ability to pay. Giles JA at [95] gives an

[page 68] example (on the inflow side) of ‘a hopelessly insolvent person who wins the lottery’, and at [103] (on the liabilities side) of an ‘unexpected later discovery of a liability’. In my view, a court can take into account facts available in hindsight (that is, after the determinative date of solvency) if the facts help determine which version of conflicting accounts as to the state of affairs is the more likely. The fact that an event actually took place might weigh in favour of the alleged expectation as being a commercial reality. But that fact alone is not determinative. It is one only of a host of matters that may intrude into the decision-making process.105

Contingent and prospective liabilities 2.20 There is divergence of judicial opinion as to whether a court, in determining insolvency in voidable transaction claims, is to take into account contingent or prospective liabilities. A contingent debt exists if there is an existing obligation out of which a liability on the part of the debtor to pay a sum of money will arise in a future event, whether it be an event that must happen or

only an event that may happen.106 A prospective debt is one not immediately payable but which will certainly become due in the future on a date which is presently determined or which will be determined by reference to future events.107 2.21 In Bank of Australasia v Hall, a majority of the High Court held that the word ‘debts’ in s 107 of the Insolvency Act 1874 (Qld) included any liability of the debtor provable in bankruptcy.108 This included the debtor’s liability to a claim in unliquidated damages. One of the grounds relied upon by the majority of the court in taking a wide view of the word ‘debts’ was that a wide construction gave effect to the object of the provision for the avoidance of preferences, which requires regard to be had to the position of all persons who would be entitled to claim in a bankrupt estate. As O’Connor J explained: The governing circumstance in all three sections [ss 107, 108 and 109 of the Insolvency Act] is the same, namely, that the debtor at the time of the transaction was unable to pay his debts as they became due out

[page 69] of his own moneys. Such a condition of affairs might well be described as impending insolvency, and the policy of the sections would appear to be that at such a crisis the debtor should not be allowed to so deal with his property as to prejudice the interests of those who, in the event of his subsequent insolvency, would be entitled to a share of it in distribution. In charging the court with the duty of determining whether the debtor’s affairs had reached that crisis at the time of the transaction impeached, it surely must have been intended that it should make as real an inquiry into the existence of the debts and of the moneys available to pay them as they became due as a man of business would make if he had to determine the same issue for himself, having due regard to the interests of all those who would be entitled to claim against his estate in the event of adjudication.109

The above analysis suggests that the word ‘debts’ when used in the context of s 95A includes claims for unliquidated damages. However, in Box Valley Pty Ltd v Kidd, the New South Wales Court of Appeal held that in determining whether a company was unable to pay its debts as and when they became due and payable within the meaning of s 95A, the court could not take into account a potential, but highly probable, liability to pay damages which the company would incur under an existing contract. In Box Valley Pty Ltd v Kidd the company had a contingent liability to pay damages which would have been admissible as proof in a winding up. The Court of Appeal (comprising Bryson and Basten JJA and Gzell J) held that such a liability was not a ‘debt’ for the purposes of s 95A. As Bryson JA observed: The debts referred to in the test of solvency in s 95A are only part of the debts or claims provable in

winding-up referred to in s 553(1); and for the purposes of s 588G the debts which come under consideration are not be identified in the case of an insolvent company with the debts provable referred to in s 553E. The word ‘debt’ is used in s 95A of the Corporations Act without any supporting definition. An entitlement to claim damages for breach of a contractual obligation to sell and deliver goods is not a debt within the ordinary meaning of that word … an obligation … which when it comes into existence will be an obligation for unliquidated damages, is not a debt.110

2.22 In New Cap Reinsurance Corporation Ltd (in liq) v A E Grant, White J of the Supreme Court of New South Wales observed that the Court of Appeal’s decision in Box Valley Pty Ltd v Kidd was inconsistent with the High Court’s decision in Bank of Australasia v Hall.111 Although [page 70] his Honour favoured the view that contingent and prospective liabilities could be taken into account when assessing insolvency for the purposes of s 95A, his Honour felt bound to follow the Court of Appeal’s decision rather than that of the High Court.112 During the course of judgment, White J made a number of observations calling into question the Court of Appeal’s decision in Box Valley Pty Ltd v Kidd. 2.23 First, White J noted that the court in Box Valley Pty Ltd v Kidd did not have the High Court’s decision in Bank of Australasia v Hall drawn to its attention.113 Second, the Court of Appeal also potentially overlooked s 459D of the Act. Section 459D provides that where, on an application under ss 232, 462 or 464 (applications to wind up on grounds of oppression or insolvency), the question arises whether the company is insolvent, the court may take into account a contingent or prospective liability of the company. The predecessor to this provision, s 222(2)(c) of the Companies Act 1961 (Cth), was considered by Needham J in Expo International Pty Ltd (in liq) v Chant where his Honour said that: It is interesting to note that, in deciding whether a company is unable to pay its debts on a winding up petition, the court is required to take into account ‘the contingent and prospective liabilities of the company’: s 222(2)(c). It would be strange if a different test applied for determining the same factual question under s 294.114

Similarly, White J observed in New Cap Reinsurance Corporation Ltd (in liq) v A E Grant that it would be strange if, in determining insolvency as defined by s 95A for the purposes of Pt 5.7B, the court were not able to take into account contingent or prospective liabilities of a company when such liabilities are required to be taken into account when determining whether a company should

be wound up on the ground of insolvency. Third, White J noted that the Court of Appeal did not refer to other cases in which a person with a claim to unliquidated damages has been held to be a creditor or contingent creditor such as Re Glendale Land Development Ltd (in liq), Re PMC Investments Pty Ltd and In the Matter of Simionato Holdings Pty Ltd.115 [page 71] 2.24 Despite the inconsistency in the case law referred to above, the New South Wales Court of Appeal’s decision in Kidd remains good law.116 Furthermore, the Court of Appeal’s decision in Kidd that a debt for the purposes of s 95A does not include a claim for unliquidated damages is consistent with the concept of a debt being due and payable in the context of s 459E. In that regard, it is well established that a debt due and payable for the purposes of s 459E does not include a claim for unliquidated damages.117 In the context of s 459E at least, a debt is to be distinguished from damages for breach of contract and from other unliquidated claims.118 As mentioned above, debt was a form of action for a liquidated sum and not for damages or compensation.119 Damages are pecuniary compensation obtainable by success in an action for a wrong which is either in tort or a breach of contract.120 As Sir George Jessel MR explained in Re Pen-y-Van Colliery Company121 in relation to proofs of debt under the 1862 Companies Act: In all cases the debts and claims are to be admitted to proof; but the [1862 Companies Act] treats ‘claims’ as distinguished from ‘debts’, thus shewing that a claim sounding in damages is not a debt, though it becomes provable under the winding up, whatever the form of winding up may be; and the Act gives the claimant as well as the creditor a right to go in and apply to the liquidator. Of course if the liquidator does not admit the proof, then the claimant must take proceedings against the liquidator and turn his claim into a debt, and then when he obtains a judgment he becomes a creditor, and not before.

Unlike a damages claim, a plaintiff suing in debt need not establish that any loss or damage was caused by the defendant’s conduct.122 [page 72] An obligation to pay unliquidated damages is not a debt123 and cannot, for example support a statutory demand.

2.25 One way in which Hall may be able to be distinguished from modern cases is on the basis that s 95A requires a court in assessing solvency to take into account debts that are both due and payable whereas the relevant provision in Hall required debts only to be ‘due’. As mentioned above, the words ‘due and payable’ when used in relation to ‘debt’ suggest that such a debt must be owed, the time for payment has arrived and ‘the obligation to pay is an unqualified and unfettered obligation requiring immediate performance’.124 This would accordingly preclude a claim against the company in unliquidated damages. However, the points raised by White J in New Cap Reinsurance (see 2.22ff) above suggest that the matter is not free from doubt.

Commercial reality 2.26 It is now generally accepted that in assessing whether a company is insolvent the courts will take into account ‘commercial reality’.125 The expression ‘commercial reality’ was first introduced in this context in 1988 by McGarvie J in Taylor v Australia & New Zealand Banking Group Ltd where his Honour observed that the question of whether a [page 73] company was unable to pay its debts as they fell due was a question of fact ‘to be decided as a matter of commercial reality in the light of all the circumstances’.126 This proposition was soon taken up in later cases.127 Despite the adoption of the phrase, precisely what ‘commercial reality’ entailed remained (and remains) unclear. In Hamilton v BHP Steel (JLA) Pty Ltd, Young J (as his Honour then was) sought to explain ‘commercial reality’ as follows: It seems to me that the words ‘commercial reality’ mean that one must look at the circumstances in the light of prevailing business practices. Business and commercial practices change from time to time. Once upon a time bank staff would work back until they had balanced their books to the last penny, nowadays one suspects that the cost of labour means that banks have abandoned this practice and are prepared to write off minor balances at the end of the day. Attitudes of paying debts have also changed. Now that many businesses are funded on borrowed capital, commercial debtors endeavour to minimise their payment of interest to their own financiers by delaying payment to creditors as long as realistically possible. The methods employed keep some members of the bar busy in giving lectures to credit managers etc as to how to counter them. A most common strategy is simply to pay the creditor late, putting it onto the creditor to make the choice as to whether to indicate clearly that it is not prepared to trade with a slow payer, or alternatively, to tolerate what the debtor is doing, or alternatively again, impose interest. Often such decisions, so far as creditors are concerned, lead to conflict between the sales and marketing department on one side, and the credit and accounting

department on the other. I believe that when one is working out questions of insolvency in the 1990s, one needs to take into account that such happenings are common in the commercial community because this is part of the commercial reality with which the court has to deal.128

2.27 In Southern Cross, Palmer J observed in relation to the above comments that Young J’s ‘views as to the impact of what are said to be [page 74] common business practices on the ‘commercial reality’ test of insolvency may be regarded as at one end of the spectrum of judicial thinking’129 and that Young J’s comments had ‘not found general support’.130 In fairness to Young J, the effect of his Honour’s comments in Hamilton may have been exaggerated. As Young J later explained in Manpac Industries Pty Ltd v Ceccattini: In Hamilton I indicated that that course of conduct may mean that despite what is written on the invoices etc as to time for payment, industry practice or dealings between the parties demonstrate that everyone accepts that debtors will often not pay creditors within normal trading terms. In business circumstances sometimes this is quite necessary in an industry which is experiencing recession because otherwise creditors may not be able to sell their product at all. Even though they would prefer people to stick to their 30 day terms it is better to have recalcitrant debtors than sell no product at all. What I said in Hamilton seems to have been developed into a much stronger statement by counsel in Emwest Products Pty Ltd v Olifent (1996) 22 ACSR 202, 209–210 and in Southern Cross at 315. However, if what is said in Hamilton is properly examined, it will be seen that the proposition expounded is not only quite in accordance with authority, but is also good commercial and legal common sense.131

2.28 The precise meaning of the expression ‘commercial reality’ is however unclear. As Chesterman J observed in Emanuel Management Pty Ltd v Foster’s Brewing Group Ltd: The defendants urge me to adopt the approach taken by the court in Re Newark Pty Ltd (in liq) [1993] 1 Qd R 409 [where the court observed that the question of whether a company was unable to pay its debts as they fell due was a question of fact ‘to be decided as a matter of commercial reality in the light of all the circumstances’] which is, in any event, binding upon me. The difficulty, with respect, is in knowing precisely what that case decided. It is all very well to say that it endorsed the principle that courts decide questions of insolvency ‘as a matter of commercial reality in the light of all the circumstances’ but this principle is no more than an imprecise description of an evasive concept. I do not understand how ‘commercial reality’ can determine when a debt is due

[page 75] for payment. Indeed I do not understand what ‘commercial reality’ is, let alone how it may be discovered.132

There may be some merit to Chesterman J’s observations although the balance of authority favours the view that the determination of insolvency must take into account commercial realities. As Palmer J explained in Southern Cross: … in considering the company’s financial position as a whole, the court must have regard to commercial realities … In assessing whether a company’s position as a whole reveals surmountable temporary illiquidity or insurmountable endemic illiquidity resulting in insolvency, it is proper to have regard to the commercial reality that, in normal circumstances, creditors will not always insist on payment strictly in accordance with their terms of trade but that does not result in the company thereby having a cash or credit resource which can be taken into account in determining solvency: Bank of Australasia v Hall (1907) 4 CLR 1514 at 1528; Re Norfolk Plumbing at 615; Taylor v Australia and New Zealand Banking at 784; Guthrie v Radio Frequency Systems Pty Ltd (2000) 34 ACSR 572 at 575. The commercial reality that creditors will normally allow some latitude in time for payment of their debts does not, in itself, warrant a conclusion that the debts are not payable at the times contractually stipulated and have become debts payable only upon demand: Standard Chartered Bank v Antico at 331; Hall v Press Plumbing; Melbase at 199; Carrier at 253; Cuthbertson v Thomas at 320; Lee Kong at 112.133

Determining when debts are due and payable 2.29 It was seen in 2.4 above that the concept of insolvency for the purposes of s 95A of the Act entails the inability of a company to pay its debts as they become due and payable. Quite often in voidable transaction cases, the court will be faced with competing evidence in determining when precisely the relevant debts of the company became due and payable. In so doing, the courts are cognisant that in commercial life, creditors often afford debtors a degree of latitude in the payment of their debts and do not always necessarily insist upon strict adherence to the payment terms of contracts.134 The conundrum faced by the [page 76] courts was summarised by Palmer J in Southern Cross Interiors Pty Ltd v Deputy Commissioner of Taxation: Whether, and in what circumstances, the court can determine a company’s inability to pay its debts by taking into account the apparent laxity of its creditors in pressing for prompt payment has been the subject of much judicial attention. There is conflict in the authorities as to whether, for the purpose of ascertaining insolvency, a trading debt is to be regarded as payable when it is required to be paid under the terms of the relevant contract or whether the court can take into account normal or likely indulgences granted to the company by its creditors. The cases recognise that the former proposition may produce a test of unrealistic rigidity while the latter may produce a test which is so imprecise as to be impossible of consistent and principled application. Many judges have, therefore, struggled to find some middle ground between the two competing views. The result, unfortunately, is that the law on

this point is in a state of some uncertainty.135

In Southern Cross Interiors, the directors of a company argued that its debts were not due and payable in accordance with the express terms of the respective contracts with trade creditors. The directors argued that although contractual payment terms stipulated payments were due 30 days from invoice date, a substantial number of trade creditors’ debts had been outstanding for more than 30 days for the relevant period. During that period, there was no evidence that trade creditors made demands for payment. On the available evidence, it was submitted that an inference should be drawn that all creditors of the company waived their rights to payment at the times stipulated in the respective contracts. Accordingly, the debts became payable on demand and there was no evidence of any demand being made by any creditor during the relevant period. 2.30 Palmer J rejected the directors’ arguments. His Honour observed that there was insufficient evidence that would suggest creditors had varied their payment terms. In particular: the normal trading terms of the company’s creditors required payment within 30 days of invoice. Further, the company’s tax debts were due and payable within 21 days; the directors of the company adduced no evidence of any agreement, express or implied, between the company and any of its trade creditors for a variation of the times for payment; [page 77] there was no evidence of an established and recognised course of conduct either in the industry in which the company operated or, more particularly, between the company and its creditors, whereby normal trading terms were varied. All that could be gleaned from the evidence was that some creditors had failed to enforce strictly the company’s payment obligations. The reasons for such failure were unexplained. In assessing the company’s solvency, the court considered it was appropriate to act upon the basis that the normal terms of trading between the company and its creditors as to time for payment were unvaried. 2.31 There are, however, cases in which the courts have found that payment

terms have been varied. For example, in the unusual case of Calzaturificio Zenith Pty Ltd (in liq) v NSW Leather & Trading Co Pty Ltd the court found as a matter of fact that ‘a significant number’ of the company’s creditors were extending up to 90 days credit to the company but, pursuant to a factoring arrangement, the company was receiving payment of debts due to it within seven days. Based upon those facts, the court found that the company: … was receiving the benefit of a credit arrangement of something of the order of 60 days or more, comparing what it had to pay and what it was receiving. And on its turn-over, that credit arrangement of something of the order of 60 days or more was a very significant factor in determining its ability to pay its debts as they fell due. That being so, merely to take a balance sheet which puts opposite each other book debts and creditors’ liabilities as if they were to be equated is, in my view, erroneous. It would be necessary to make an appropriate calculation to decide when the creditors had to be paid and when the debts were likely to be received in order to decide whether at any particular moment of time the company was or was not able to pay its debts as they fell due.136

Similarly, in 3M Australia Pty Ltd v Kemish the court was concerned with an insolvent trading claim against a director under former s 556(1) of the Companies Code. The key issue in that case was whether the plaintiff had established that ‘immediately before the time when the [plaintiff’s] debt [was] incurred there [were] reasonable grounds to expect that the company [would] not be able to pay all its debts as and when they [became] due’. Foster J observed: I am satisfied that a debt does not necessarily become ‘Due’ within the meaning of the section upon the date originally stipulated for its payment. I consider that it is proper to take into account arrangements made by the

[page 78] company with the creditor for extended time for payment, even where such arrangements would not be contractually binding upon the creditor. Even where there is no express arrangement for the extension of credit beyond the time originally stipulated, I think it appropriate to take into account in determining whether the section has been satisfied, whether a course of dealing between the company and a particular creditor would reasonably lead to an expectation on the part of the defendant that some reasonable extension of a period of credit would be allowed by the creditor as a matter of grace. Clearly, nice questions of fact must be involved in such considerations and the question of whether the ‘Due’ date for payment of a company’s debt has been extended, will depend upon the precise circumstances relating to the individual debt, and the particular creditor.137

2.32 Both Calzaturificio and Kemish have subsequently received mixed judicial reaction and there is potentially conflicting authority on this point.138 Having said that, as Gummow J explained in Sycotex Pty Ltd v Baseler: Any conflict between the authorities may be more illusory than real and factual rather than legal. I would not consider such an issue to be a question of law to be decided by the application of a rigid rule. Rather, the statute [s 592 of the Corporations Law] appears to focus attention upon what it is

reasonable to expect in a given set of circumstances, such a consideration necessarily being made by someone operating in a practical business environment. Attention is focussed at whether a person would expect that at some point the company would be unable to meet a liability. Such a question is necessarily a factual one to be decided in light of all the circumstances of the case. At one end of the spectrum a company may be operating in an industry where a code of practice of paying 60 days after invoicing has arisen, despite stated terms of 30 days. If the company has a large number of creditors, it may be reasonable to expect that all of them would not suddenly insist on being paid in

[page 79] 30 days. At the other end of the spectrum would be a case where a single creditor had granted an indulgence on one occasion. It may well not be reasonable to expect a repetition of that event [emphasis added].139

In any event, in Southern Cross Interiors Pty Ltd v Deputy Commissioner of Taxation, Palmer J, after reviewing the conflicting case law on this point, concluded as follows: In assessing solvency, the court acts upon the basis that a contract debt is payable at the time stipulated for payment in the contract unless there is evidence, proving to the court’s satisfaction, that: there has been an express or implied agreement between the company and the creditor for an extension of the time stipulated for payment; or there is a course of conduct between the company and the creditor sufficient to give rise to an estoppel preventing the creditor from relying upon the stipulated time for payment; or there has been a well-established and recognised course of conduct in the industry in which the company operates, or as between the company and its creditors as a body, whereby debts are payable at a time other than that stipulated in the creditors’ terms of trade or are payable only on demand: Re Newark Pty Ltd (in liq); Taylor v Carroll (1991) 6 ACSR 255 at 260; Standard Chartered Bank of Australia Ltd v Antico (No 2) (1995) 38 NSWLR 290 at 331; Melbase Corp Pty Ltd v Segenhoe Ltd (1995) 17 ACSR 187; Cuthbertson & Richards Sawmills Pty Ltd v Thomas (1998) 28 ACSR 310; Powell v Fryer (2001) 37 ACSR 589.140

2.33 The critical point is that ultimately, the determination of precisely when a debt becomes due and payable is a matter for evidence. It is for the party asserting that a company’s contract debts are not payable at the times contractually stipulated to make good that assertion by satisfactory evidence.141 As Lindgren J explained in Melbase: There are several reasons why a debt may not have ‘become due and payable’. The terms of the contract between debtor and creditor

[page 80]

may be such that there must first be the making of a demand and a non-compliance with it after the allowance of a reasonable opportunity: cf Bunbury Foods Pty Ltd v National Bank of Australasia Ltd (1984) 153 CLR 491; 51 ALR 607. Even where there was once a date stipulated for payment, the contract may have been subsequently varied, expressly or by implication, and the implication may have arisen from conduct including a course of dealing. Moreover, a creditor may be estopped from insisting upon payment without first giving notice effective to put an end to an assumption by the debtor, caused or contributed to by the creditor, that payment need not be made. The point is that on the facts of individual debtor–creditor relationships, the ordinary operation of legal and equitable principles may produce the result that a debt does not become ‘due and payable’ (in the sense of entitling the creditor to sue the debtor to judgment immediately and without any intervening act or event) until later than the original contractual terms would allow.142

Determining resources available to pay debts 2.34 The taking into account of commercial reality will also include examining whether resources are available to the company to pay its debts. Palmer J explained the position succinctly in Southern Cross as follows: Commercial realities will be relevant in considering what resources are available to the company to meet its liabilities as they fall due, whether resources other than cash are realisable by sale or borrowing upon security, and when such realisations are achievable: Sandell v Porter; Taylor v ANZ; Newark and Sheahan v Hertz.143

As is the case with determining whether a debt is due and payable, ascertaining the commercial reality that a company may be able to liquidate resources such as assets to pay its debts is ultimately a question of fact to be established by evidence. As Owen J explained in Bell Group Ltd (in liq) v Westpac Banking Corp (No 9): Commercial reality dictates that the assessment of available funds is not confined to the company’s cash resources. It is legitimate to take into account funds the company can, on a real and reasoned view, realise by sale of assets, borrowing against the security of its assets, or by other reasonable means. It is a question of fact to be determined in accordance with the evidence.144

[page 81] If the court is satisfied that as a matter of commercial reality the company has a resource available to pay all its debts as they become due and payable then it will not matter that the resource is an unsecured borrowing or a voluntary extension of credit by another party.145 The resources of the company’s directors or shareholders for example may be relevant provided there is evidence that resources were in fact readily available and the directors were willing and able to provide such resources for the benefit of the company.146 In Mulherin v Bank of Western Australia Ltd; McCann v Bank of Western Australia Ltd147 the

Queensland Court of Appeal held that whether a company has the ability to pay debts as and when they become due and payable, or lacks that ability, is to be determined by considering its financial position as a whole, with reference not merely to its strict legal rights and obligations under agreements with creditors and debtors, but by taking into account ‘commercial realities’.148 As Muir J explained in that case: The availability of unsecured borrowings is also relevant where, for example, they are capable of providing temporary liquidity pending the realisation

[page 82] of assets or the obtaining of secured loans. There is some authority149 for the proposition that unsecured loans by directors cannot be taken into account. But where it can be shown that directors are likely to continue to support the company, whether by unsecured loans or otherwise, there is no reason in principle why such support should be regarded as irrelevant. The likely existence of continued support of directors and/or shareholders may be a significant consideration in assessing the solvency of a development project vehicle such as UTC. Its only capacity to pay its debts on or before the conclusion of the development was dependent on the sale of the developed real property for a price higher than the outgoings of the development. In such circumstances, there will tend to be an expectation, once the development is embarked upon financed by loans secured and otherwise, that as long as loan conditions are observed the loans will be extended until the conclusion of the project through sale of the developed lots. That assumes, of course, that lenders continue to have a reasonable expectation that the borrower will have a continued ability to perform its obligations under its loan agreements. And the continued existence of confidence on the part of lenders will depend largely on their assessment of whether the development is likely to result in a net profit or loss.150

2.35 For example, in Leveraged Equities Limited v Hilldale Australia Pty Limited, a director in that case deposed that he was prepared to, and did in fact, draw down upon a finance facility personally available to him to assist the company pay its debts as follows: I am prepared to draw down those available funds and lend those monies to the [company] if it becomes necessary at any time to assist the [company] to pay its debts as and when they fell due [sic]. I am prepared to lend the [company] those monies on the basis that the loan was repayable only when the defendant was able to meet all of its other liabilities as and when those liabilities fall due.

Hammerschlag J found that as a matter of commercial reality, the funds advanced by the director to the company represented a resource available to it to pay its debts as and when they fall due.151 Similarly, in International Cat Manufacturing Pty Ltd (in liq) v Rodrick Morrison JA confirmed that regard can be had to the financial support of a director [page 83]

or related company where the evidence establishes that the directors are likely to continue it.152 The Court found in that case: If one has regard to the ‘commercial realities’, the findings open to his Honour were all one way. Mr Rodrick had committed himself to financing ICM to one degree or other from as early as February or March 2003. His belief in the quality of the product ICM produced, and its likely success, led him not only to provide finance to it but to commit as a part owner of the company. Further, his own catamaran, C3505, was partly under construction at the time when he had to consider whether he could continue financing in exchange for the charge. On his own evidence he was a willing and committed financier. The commercial realities are that the provision of that finance meant that as at the date of the charge ICM was able to pay its debts as and when they fell payable. In my respectful opinion, the fact that the loans may have been technically repayable on demand, does not avoid the commercial reality that Mr Rodrick had no intention of making a demand earlier than the sale of C3506. Thus, the incurring of the loan debt by ICM did not give rise to the substitution of one debt for another, as the appellant contends. It did give rise to an obligation which ICM was likely to meet on the sale of C3506.153

By contrast in Londish v Sheahan; Re Valofo Pty Ltd, a submission was put that the directors of the company in question would have supported the company to pays its debts as and when they became due and payable. Palmer J accepted that the directors could have supported the company with cash injections but found they were not obliged in law to do so and, on the evidence, chose not to do so. His Honour found that as a matter of commercial reality, the directors’ personal resources were not, therefore, to be taken into account as resources available to the company.154 2.36 Quite often, a company may have the financial support of a related company or form part of a corporate group. For example, in Lam Soon Australia Pty Ltd v Molit (No 55),155 the court found there was ‘financial support’ from the parent company which was sufficient to warrant a finding of solvency. The court however will not accept any [page 84] assertions of financial support uncritically. As Young CJ in Eq explained in Wily v Terra Cresta Business Solutions Pty Ltd: However, I emphasise that the cases are talking about commercial realities, not of the belief in a fairy godmother. We do from time to time have companies, particularly subsidiary companies, or companies in a group, saying ‘oh, well, I know we couldn’t pay the debt, but we expected our holding company or our associated company to pay it’. That is usually not sufficient, unless the factual circumstances show that there are reasonable grounds for believing that the company will be supported. Reasonable grounds are based usually on an agreement, or estoppel, or some other understanding which, if not legally binding, would be accepted by reasonable persons of business as being reliable. It is insufficient that there has been support in the past and that there is no particular agreement as to what

is to happen in the future.156

Again, ultimately the matter is one of evidence as to the circumstances of the company as a whole. As Palmer J observed in Hall v Poolman: It is trite that the test of solvency of a company under s 95A of the CA is, first and last, a question of fact and that the court approaches that question as a matter of commercial reality. If one member of a group of companies has, as a matter of commercial reality, ready recourse to the assets of another member of the group for payment of the first company’s debts as they fall due, and that recourse will not result in the insolvency of the second company or in merely delaying the insolvency of the first, then the court may have regard to that fact in assessing whether the first company is able to pay its debts as they fall due: Lewis v Doran (2004) 208 ALR 385; 50 ACSR 175; [2004] NSWSC 608 at [116] … If commercial reality requires the court, in assessing the solvency of company A in a group, to have regard to the assets of assets in company B in the group, commercial reality will also require the court to look at the liabilities of company B. Company B’s liabilities may be such that it cannot use its assets to assist company A without becoming insolvent itself. In such a case, company B’s assets cannot be regarded as available to pay company A’s debts: the law does not condone robbing Peter to pay Paul.157

In Hall v Poolman, there was uncontested evidence before the court that the relevant corporate group operated as one business with consolidated accounts. The income derived from the individual members was used by all members collectively and there were regular transfers of funds between the bank accounts of certain companies in the group, whenever required, for operational purposes. The group had a loan facility of $30m which was secured under crosscollateralised fixed and [page 85] floating charges given by all members of the group. There were also extensive loans between companies in the group. Palmer J observed that in those circumstances, in assessing whether two of the companies in the group were able to pay their own respective debts as they fell due, it was not justifiable to have regard to their own assets and to the assets of other companies in the group as possible sources of cash in isolation from the financial position of the group as a whole. However, the mere fact that a company is part of a group does not, in itself, make the solvency position of the group relevant. As Barrett J observed in Leveraged Equities Ltd v Finance and Equity Pty Ltd: The evidence does not refer to any contract, agreement or arrangement under which the defendant is entitled to financial support from other companies. Nor is there anything to indicate the form that any

financial support might take. Even if it is accepted that the defendant is a member of a ‘group’ of companies (a concept which, in the particular context, is not elaborated or explained), the court could not accept as relevant to an assessment of the defendant’s solvency ‘support’ by other members of the ‘group’ unless it had evidence of what the support entailed and precisely what financial resources were available to the defendant as a result of the ‘support’.158

2.37 Furthermore, the fact that a company may have offered to it finance from a related party to pay its creditors does not mean that solvency will necessarily be established. The court will examine whether the funds being advanced or offered are merely substituting one form of immediate obligation for another. As Barrett J explained in ASIC v Edwards: I accept that funds which, on a realistic commercial assessment, are capable of being raised from outside sources are relevant to the question whether a company is solvent. But the availability of such funds in the form of a loan will not enhance solvency (or have the potential to avoid a finding of insolvency) unless the loan terms are such as to exclude the loan liability from consideration in its own right as part of the debts due or near due. In other words, availability of loan funds for a very short term or payable on demand, as a source from which debts overdue may be paid, does not enhance solvency: it merely substitutes one form of immediate (or near immediate) obligation for another. There is also the point (emphasised by the Court of Appeal in Expile Pty Ltd v Jabb’s Excavations Pty Ltd (2003) 45 ACSR 711; [2003] NSWCA 163) that the capacity to raise funds from external sources must be judged in a practical and businesslike way by reference to the commercial realities of the case, not by way of some theoretical textbook exercise. Possibilities are not

[page 86] enough. Genuine and realistic availability, as a matter of commercial reality, must be seen.159

Temporary lack of liquidity is not insolvency 2.38 It is well established that a temporary lack of liquidity does not equate to insolvency. In Sandell v Porter,160 Barwick CJ explained that the conclusion that a company is insolvent is determined from a consideration of the debtor’s financial position in its entirety and, generally speaking, ought not be drawn simply from evidence of a temporary lack of liquidity.161 In the oft-cited case of Hymix Concrete Pty Ltd v Garritty, Jacobs J (with whom Barwick CJ and Gibbs J agreed) said: A temporary lack of liquidity must be distinguished from an endemic shortage of working capital whereby liquidity can only be restored by a successful outcome of business ventures in which the existing working capital has been deployed.162

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Despite the well entrenched distinction between temporary illiquidity and insolvency, there are few cases in which the distinction has been successfully employed in favour of the debtor company.163

What if a company is able but unwilling to pay its debts? 2.39 As mentioned above, the test of solvency contained in s 95A refers only to a person’s ability to pay all their debts as and when they become due and payable. The cases have drawn a distinction between a person’s inability as opposed to their unwillingness to pay their debts as and when they fall due. The latter will not constitute insolvency. As Barwick CJ observed in Queensland Bacon Pty Ltd v Rees: To be insolvent, the debtor must be unable, as distinct from being merely unwilling, to pay his debts as they fall due. It is one thing to suspect a man’s solvency in the sense that one doubts whether he is solvent or insolvent. It is another thing to suspect that he is in fact insolvent.164

The distinction between an inability and an unwillingness to pay debts was starkly illustrated in the bankruptcy decision of Re Sarina; Ex parte Wollondilly Shire Council.165 In that case a creditor served a bankruptcy notice upon a debtor which the debtor failed to comply with. The debtor argued that he was able to pay his debts but in relation to the particular debt the subject of the bankruptcy notice was not willing to pay same. Under s 52(2)(a) of the Bankruptcy Act 1966, the court could dismiss an application for a sequestration order if the debtor established that he was ‘able to pay his debts’. The creditor argued that the word ‘able’ should be construed as ‘willing and able’. The Full Federal Court comprising Bowen CJ, Sweeney and Lockhart JJ disagreed. The Full Federal Court held that the drastic consequences of bankruptcy: … negate the existence of any policy underlying the [Bankruptcy] Act that a debtor should be made bankrupt if he is able to pay his debts but is unwilling to do so. If a debtor is able to pay his debts but is recalcitrant, his creditors may resort to the remedies otherwise afforded by the law such as execution against his property and garnishee proceedings.166

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The usual indicia of insolvency 2.40 In attempting to determine whether or not a company is insolvent, the

courts have developed various ‘indicia’ of insolvency. In Australian Securities and Investments Commission v Plymin (No 1), for example, Mandie J referred to a number of indicia of insolvency:167 continuing losses; liquidity ratios below one; overdue Commonwealth and State taxes;168 poor relationship with bank, including inability to borrow further funds; no access to alternative finance; inability to raise further capital; suppliers placing company on cash on delivery or otherwise demanding special payments before resuming supply; creditors unpaid outside trading terms; issuing of post-dated cheques; dishonoured cheques; special arrangements with selected creditors; solicitors’ demands, summonses and the like; payments to creditors of rounded amounts not reconcilable to specific invoices; and inability to produce timely and accurate financial information to indicate trading performance and financial position, and to make reliable forecasts.169 Similarly, in Lewis v Doran, Palmer J described ‘the usual indicia of insolvency’: a history of dishonoured cheques; suppliers insisting on COD terms; [page 89] the issue of post-dated or ‘rounded sum’ cheques;

special arrangements with creditors; inability to produce timely, audited accounts; unpaid group tax, payroll tax, workers’ compensation premiums or superannuation contributions; demands from bankers to reduce overdraft and other evidence of deteriorating relations with bankers; receipt of letters of demand, statutory demands and court processes for debt.170 The presence of one or more of the above indicia in any particular case is not necessarily conclusive of insolvency.171 For example, in Queensland Bacon Pty Ltd v Rees, Kitto J observed in relation to the dishonour of a cheque that: In many situations, of course, the dishonour of a cheque, unless otherwise explained, carries a strong suggestion of insolvency; but in others it may indicate, to those who are constantly dealing with the drawer and know the general course he is pursuing in his business, no more than a policy of wringing the last ounce of credit out of everyone who can be fobbed off with promises.172

Further, it has been observed for example that a company’s failure to comply with a statutory demand creates a presumption of insolvency only for the purposes of a winding-up application which may be brought under s 459P of the Corporations Act but not otherwise. In that regard, the words of s 459C(1) of the Corporations Act provide that the section has effect ‘for the purposes of’ certain nominated provisions including s 459P.173 Having said that, any inquiry into whether insolvency existed at a particular time is generally assisted by searching for the usual indicia of insolvency174 and the cumulation of the various indicia of insolvency may make it difficult for a company to refute it was insolvent.175 Conversely, the complete absence of the indicia may suggest that a company was not [page 90] insolvent.176 However, the absence of one or more of the above indicia does not necessarily establish that a company was solvent.177 2.41 The Australian Securities and Investments Commission (ASIC) in Information Sheet 42 — Insolvency — a Guide for Directors has expressed the view that the following are ‘key indicators’ of insolvency:

ongoing losses; poor cash flow; absence of a business plan; incomplete financial records or disorganised internal accounting procedures; lack of cash-flow forecasts and other budgets; increasing debt (liabilities greater than assets); problems selling stock or collecting debts; unrecoverable loans to associated parties; creditors unpaid outside usual terms; solicitors’ letters, demands, summonses, judgments or warrants issued against your company; suppliers placing the company on cash-on-delivery (COD) terms; issuing post-dated cheques or dishonouring cheques; special arrangements with selected creditors; payments to creditors of rounded sums that are not reconcilable to specific invoices; overdraft limit reached or defaults on loan or interest payments; problems obtaining finance; change of bank, lender or increased monitoring/involvement by financier; inability to raise funds from shareholders; overdue taxes and superannuation liabilities; board disputes and director resignations, or loss of management personnel; increased level of complaints or queries raised with suppliers; and an expectation that the ‘next’ big job/sale/contract will save the company. [page 91] As a publication of a statutory authority, the ASIC Information Sheet does not

have the force of law. In Morris v Danoz Directions Pty Ltd (in liq) (No 2), an expert took into account the ‘key indicators of insolvency’ as summarised in ASIC Information Sheet 42 referred to above.178 The expert adopted six of the above indicia and examined each of them in detail as it applied to the relevant company. Objection was taken to the use of the report on a number of grounds including that the utilisation of a list published by ASIC did not involve the application of any expertise by the expert and in any event it was not explained why some elements from the ASIC list had been used and not others. Perram J rejected the objections. His Honour held that although not determinative of the matter before him, cases such as Australian Securities and Investments Commission v Plymin179 underscored a significant matter, namely, that the factors appearing on the ASIC checklist are ‘commonsense’ indicators of insolvency.180

Liquidity ratios 2.42 A favoured form of indicia of insolvency relied upon by liquidators, but not necessarily the courts, is liquidity ratios. The two ratios most commonly used by liquidators are the current ratio (or working capital ratio) and the quick asset ratio (or quick ratio). The ‘current ratio’ is the ratio of current assets to current liabilities. A company with a current ratio lower than 1:1 and a net asset deficiency has a high probability of being insolvent. The quick asset ratio is calculated by dividing current assets that can be converted into cash, excluding inventories, by current liabilities. 2.43 In practice, liquidators often place heavy reliance upon such ratios in attempting to establish insolvency although at trial the significance of ratios will often be debated.181 From a legal perspective, the various liquidity ratios are but one factor the court takes into account when considering whether a company was insolvent182 and the existence [page 92] of seemingly poor liquidity ratios is not necessarily indicative of insolvency.183 In Lee Kong v Pilkington (Aust) Ltd184 Owen J said: A comparison of a corporation’s current assets and current liabilities may provide a useful guide to the

overall ability of the company to pay its debts … The comparison between current assets and liabilities, either in absolute form, or as a working capital ratio, can reveal whether a company will have sufficient funds on hand to pay the debts that will soon fall due. But it will depend on the circumstances.

Owen J went on to explain the necessity for caution to be exercised when relying upon such comparisons of assets to liabilities: An excess of current assets over current liabilities will not necessarily indicate ability to meet debts. It depends on the nature of the assets. For example, current assets might include a very high level of inventories. Inventories can help corporations meet their debts only if the inventories can be sold, and the money recouped, before their debts fall due. To use the language of Barwick CJ [in Sandell v Porter] the debtor company must be able to command money from its inventories before the debts fall due. If the amount of inventories is higher than could be sold before debts fall due, then to include the full amount of inventories is to overstate the level of readily realisable current assets available to the company. The test to be applied is not whether the company could meet all its debts, after sufficient time to sell all its inventory, but rather, whether it can meet the debts as they fall due, having regard to all realisable assets including inventory.185

Further, like any expert opinion, the significance attached to such ratios at trial will turn upon the appropriateness and correctness of the relevant methodology employed and whether the factual substratum underlying the opinion has been established.186

PROVING INSOLVENCY — EVIDENTIARY MATTERS187 Onus and standard of proof 2.44 A liquidator, in seeking to establish relief under the voidable transaction provisions of the Act, bears the onus of proof in establishing each of the elements of the relevant cause of action188 on the balance of [page 93] probabilities.189 As part of that onus it is incumbent upon the liquidator to prove that at all relevant times the company was insolvent.190 In voidable transaction cases, the task faced by the liquidator is to establish what Palmer J called in Lewis v Doran ‘retrospective insolvency’.191 This task necessitates an inquiry

into what actually happened. As Palmer J observed in that case: Where the question is retrospective insolvency, the court has the inestimable benefit of the wisdom of hindsight. One can see the whole picture, both before, as at and after the alleged date of insolvency. The court will be able to see whether as at the alleged date of insolvency the company was, or was not actually paying all of its debts as they fell due and whether it did, or did not, actually pay all those debts which, although not due as at the alleged date of insolvency, nevertheless became due at a time which, as a matter of commercial reality and common sense, had to be considered as at the date of insolvency. By reference to what actually happened, rather than to conflicting experts’ opinions as to the implications of balance sheets, the court’s task in assessing insolvency as at the alleged date should not be very difficult.192

Notwithstanding his Honour’s comments that the court’s task in assessing insolvency should not be very difficult, as a practical matter proving insolvency is quite often a challenging task. Typically, liquidators will rely upon the following evidence to prove insolvency: the company’s financial records, particularly profit and loss statements, balance sheets and cash flow forecasts; opinion evidence (usually but not always) from the liquidator examining the company’s financial statements;193 [page 94] evidence of the usual indicia of insolvency (see 2.40). Such an approach usually leads to the following evidentiary challenges to proving insolvency in the context of voidable transaction cases: incomplete books and records and establishing the authenticity of records; the rule against hearsay evidence; and determining whether expert evidence is admissible and if so, what weight should be afforded to such evidence. These evidentiary challenges are discussed in detail below.

The use of books and records in establishing insolvency

2.45 Section 1305(1) of the Act provides that a book194 kept by a body corporate under a requirement of the Corporations Act is admissible in evidence in any proceeding and is prima facie evidence of any matter stated or recorded in the book195 regardless of whether the stated matter offends an exclusionary rule of evidence such as the hearsay rule or the opinion rule.196 The Act also provides that a document purporting to be a book kept by a body corporate is, unless the contrary is proved, taken to be a book kept as mentioned in s 1305(1).197 Section 1305(2) avoids the need to prove the authenticity of documents unless the presumption is rebutted.198 2.46 Section 286(1) requires a company to keep financial records199 that correctly record and explain its transactions and financial position and performance and would enable true and fair financial statements to be prepared and audited. There is, however, some uncertainty in the cases as to precisely what documents are required to be ‘kept’ and accordingly, [page 95] fall within the scope of ss 286 and 1305.200 Having said that, the key question under s 286 is whether the document fits into the process of recording and explaining the company’s transactions, financial position and performance and enabling true and fair financial statements to be prepared and audited.201 For example, the following documents have been found to have been prima facie admissible under s 1305: creditors’ ledgers and minutes of directors’ meetings;202 books kept by a liquidator;203 liquidator’s reports including provisional liquidator’s reports;204 budgets, business plans and trial balances are of a ‘financial kind’, even though they may not necessarily be accounting records.205 The following documents have been found not to have been prima facie admissible under s 1305: cash flow statements of a small proprietary company;206 journal entries, including ‘balancing entries’, which were the outcome of an

undisclosed process of judgment or inference by staff in an accounting firm;207 [page 96] statements by a director as to the company’s financial position recorded in minutes inadmissible under ss 1305 and 1306 to prove the truth of what was said (although such views may have been admissible under s 79C of the Evidence Act 1906 (WA) if the opinion was made by a ‘qualified’ person);208 a contractual document held by a company which was not shown to be part of its records.209 2.47 Section 1305(1) of the Act does not establish a presumption that company books (including accounts) are prima facie true and correct and accurate. Rather, all that s 1305(1) provides is that a company’s books are admissible and are ‘prima facie evidence of any matter stated or recorded’ in them.210 In other words, s 1305 does not elevate an entry in a book of account to the status of prima facie evidence of the transaction which the entry purports to record.211 An entry in the accounts of a company, such as the value of an asset, can be no more than prima facie evidence that an unknown person formed an opinion on an undisclosed basis that such a figure should appear in the accounts.212 As Wallwork J observed in L H K Nominees Pty Ltd v Kenworthy213 in response to a submission that because financial accounts of a company were prepared by accountants based upon the company’s cash books the court should have found a misappropriation of funds in a certain amount recorded in the accounts because that was the amount shown in the balance sheet for that year as a ‘receivable’: There are two points to be made in response to this submission. The first, which is without practical significance, is that the balance sheet item is not prima facie evidence of defalcation, but only of simple indebtedness. The more fundamental answer, however, is that the evidence as to how the books were created refutes the prima facie effect of the entries in the balance sheet. The evidence to which we refer is the evidence as to how

[page 97] the amount in the balance sheet was in fact arrived at. The books were prepared by accountants whose only source of information outside the primary documents themselves [were the directors] who his

Honour found to be unreliable sources of information. It is therefore to be inferred that, when expenditure is treated in the accounts not as an expense of the trust or for its purposes but as a misappropriation, it represents the opinion of [the directors which] the trial Judge found to be unreliable. This is sufficient to displace the statutory presumption.214

2.48 In addition, even though a company book or record might be admissible, the court will need to assess the weight to be given to such a document. For example, in Australian Securities and Investments Commission v PFS Business Development Group Pty Ltd, Hargrave J summarised the court’s approach to the weight to be attached to a provisional liquidator’s report of a company’s affairs: I will consider the weight of statements in the provisional liquidator’s report by reference to each individual statement relied upon by ASIC or Tolson. In doing so, I will take account of the probabilities, the form of the statement in question (in particular as to whether any conclusion or opinion expressed by the provisional liquidators is supported by facts otherwise established or by facts or reasons expressed in the report) and as to the appropriate weight to give to hearsay statements recorded in the provisional liquidator’s report.215

Further, it has been said that because a liquidator’s (or administrator’s) report has the status of being prepared in discharge of statutory duties, that status gives such reports a degree of presumptive probative value.216 As Tadgell J observed in Re Action Waste Collections Pty Ltd (in liq); Crawford v O’Brien in relation to whether a liquidator was obliged to prove the authenticity of company records (prior to the introduction of s 1305 of the Act): It is a statutory duty of the liquidator, as an officer of the Court, to collect the assets of the company and to apply them in discharge of its liabilities … For the purpose of carrying out his duties the liquidator is entitled to take possession of all necessary books of account and other records and papers … The relevant winding up order was made some two and a half years or more before the liquidator issued these summonses and swore affidavits in support. Having regard to the statutory obligations which went with his appointment and the consequences of a failure to observe

[page 98] them, I think it would be contrary to common sense not to presume now that he had complied with such of his obligations as required him to obtain the company’s financial records and examine them. He should be presumed to have done so as a matter of duty. He has in fact sworn that the records he has seen are those of the company; and indeed the exhibited documents to which I have so far referred are entirely consistent with that assertion. Why should not that evidence be receivable and probative, until the contrary is shown, of the fact that the records the liquidator has examined are those of the company? It is no doubt true that the liquidator’s sworn statements that the records are those of the company depend partly on what he was told, or what he inferred, when he received and examined them. But that will not necessarily make his statements inadmissible.217

2.49 In contrast to s 1305 of the Act, s 251A(6) provides that a minute that is recorded and signed in accordance with s 251A is evidence of the proceeding,

resolution or declaration to which it relates, unless the contrary is proved. This presumption, however, only applies to minutes recorded in the minute book within one month as required by s 256A(1).218

Hearsay evidence 2.50 As a party examining matters after the event, the liquidator will of course have no personal knowledge of the solvency position of a company prior to liquidation. This gives rise to issues of hearsay evidence.219 In voidable transaction cases however, issues as to hearsay are usually more academic than practical. At general law, for example, the courts took a somewhat pragmatic and flexible attitude towards the admissibility of such documents. As Dixon J explained in Potts v Miller: … where a routine system is established for the very purpose of ascertaining the financial result of business operations consisting in multitudinous individual transactions, then, in spite of the use of living persons as part of the machinery for producing the result, the record is to be treated as the consequence of a system, and where, according to the common understanding and practice of business, the financial consequences would be ascertained from those records, then, when the issue submitted to a

[page 99] court of law is of that character, the court must receive that record as the appropriate evidence … The law is not so futile as to reject the only practicable source of information when an issue so arises.220

The various Evidence Acts in each jurisdiction now contain exceptions to the hearsay rule for books of account or business records.221

Expert evidence222 2.51 Typically, in seeking to prove a company was insolvent, a liquidator will rely upon expert opinion together with the relevant financial records of the company. In many cases, the liquidator provides such expert opinion personally. However, as mentioned above, the question of whether a company was insolvent at a particular time is a question of fact to be determined in the entirety of the circumstances.223 While expert evidence may be of assistance to the court, ultimately the most determinative material in that regard is not the opinion of experts but the inferences to be drawn from the primary records of the company and those with whom it was dealing.224 As Barwick CJ explained in Sandell v

Porter: Whether that state [insolvency] of [the debtor’s] affairs has arrived is a question for the court and not the one as to which expert evidence may be given in terms though no doubt experts may speak as to the likelihood of any of the debtor’s assets or capacities yielding ready cash in sufficient time to meet the debts as they fall due [emphasis added].225

2.52 As mentioned above, in seeking to establish insolvency, a liquidator will often seek to rely upon his or her own opinion as to insolvency based upon an examination of the company’s books and records. It is not unusual for a liquidator or accountant to express his or her opinion on the financial condition of a company based on books and records [page 100] which have been put into evidence or where their production has not been pressed.226 As Dixon J explained Potts v Miller: When such an occasion arises and the books [of a company] are allowed in evidence or their production is not insisted upon, an accountant’s statement of the result of his examination is receivable as the evidence of a person of skill (Johnson v Kershaw). Little English authority will be found explaining the grounds upon which the books of account kept according to an established system in organized business are receivable in evidence as proof, not of the occurrence of some particular fact recorded or indicated by a specific entry or narration, but of the financial progress or result of business operations conducted on a large scale. Common sense has prevailed and such materials are used in practice without objection.227

While it is not unusual for a liquidator to express a conclusion about whether a company was insolvent at a particular time after reviewing relevant books and records, such a conclusion is nonetheless still an opinion.228 In order for such an opinion to be accepted by the court and be given sufficient weight, the following needs to be taken into account. 2.53 It has been said that the ‘prime duty’ of experts in giving opinion evidence is to furnish the court as a trier of fact with criteria enabling evaluation of the validity of the expert’s conclusions.229 An expert cannot usurp the function of the court in making a finding of fact,230 for example as to whether or not a company was insolvent. Opinion evidence, provided it is intelligible, convincing and tested becomes a factor (often [page 101]

important) for consideration by the court231 in determining the question of insolvency.232 This is because the court must arrive at an independent assessment of the expert’s opinions and their value and this cannot be done unless their basis is explained.233 The court is not obliged to take the opinion of an expert as conclusive even though no other expert is called to contradict it.234 2.54 In jurisdictions where the Uniform Evidence Act applies,235 there is some uncertainty as to the precise requirements for admissibility of an expert report. In Makita (Australia) Pty Ltd v Sprowles,236 Heydon JA explained his view as follows: In short, if evidence tendered as expert opinion evidence is to be admissible, it must be agreed or demonstrated that there is a field of ‘specialised knowledge’; there must be an identified aspect of that field in which the witness demonstrates that by reason of specified training, study or experience, the witness has become an expert; the opinion proffered must be ‘wholly or substantially based on the witness’s expert knowledge’; so far as the opinion is based on facts ‘observed’ by the expert, they must be identified and admissibly proved by the expert, and so far as the opinion is based on ‘assumed’ or ‘accepted’ facts, they must be identified and proved in some other way; it must be established that the facts on which the opinion is based form a proper foundation for it; and the opinion of an expert requires demonstration or examination of the scientific or other intellectual basis of the conclusions reached: that is, the expert’s evidence must explain how the field of ‘specialised knowledge’ in which the witness is expert by reason of ‘training, study or experience’, and on which the opinion is ‘wholly or substantially based’, applies to the facts assumed or observed so as to produce the opinion propounded. If all these matters are not made explicit, it is not possible to be sure whether

[page 102] the opinion is based wholly or substantially on the expert’s specialised knowledge. If the court cannot be sure of that, the evidence is strictly speaking not admissible, and, so far as it is admissible, of diminished weight [emphasis added].

On this view, the party relying upon an expert opinion must prove by admissible evidence the factual assumptions upon which an opinion is based otherwise the opinion is not admissible. 2.55 A less restrictive view was taken by Branson J of the Federal Court in Quick v Stoland.237 In that case, a director of a company against whom an insolvent trading claim was pursued objected to the tender of an expert accountant’s report as to solvency on the basis that the facts upon which the chartered accountant had based his opinion had not been proved. The trial judge admitted the evidence and held for the company. The director appealed to the Full Court of the Federal Court. Although the appellant director was successful, Branson J expressed the view that the expert report in that case was admissible under s 79 of the Evidence Act 1995 (Cth).238 Emmett J however said there was

a ‘real question’ as to whether the opinions expressed by the expert as to the insolvency of the company were admissible.239 The main reason why Emmett J doubted the admissibility of the expert’s report in Quick v Stoland was that the opinions expressed by the accountant in that case were not based upon the accountant’s specialised knowledge. As his Honour observed: If there is a question of accounting practice involved in the determination of any of those amounts, the opinion of [the accountant] on such question, based on his specialised knowledge, would be relevant and admissible. However, absent any such questions, there would normally be no need for expert opinion to determine whether one figure is greater than another. Where the amounts are derived from balance sheets, that can be determined by the court upon examination of the balance sheets in evidence.240

The Full Federal Court came to consider the admissibility of expert evidence again in Sydneywide Distributors Pty Ltd v Red Bull Australia Pty Ltd.241 After referring to Heydon JA’s observation at [85] in Makita v Sprowles set out above, Branson J said: [page 103] The approach of Heydon JA as set out above is, as it seems to me, to be understood as a counsel of perfection. As a reading of his Honour’s reasons for judgment as a whole reveals, his Honour recognised that in the context of an actual trial, the issue of the admissibility of evidence tendered as expert opinion evidence may not be able to be addressed in the way outlined in the above paragraph.242

Subsequent Federal Court decisions have embraced her Honour’s approach.243 According to this line of authority, the court takes a more lenient approach to admissibility than that dictated by strict adherence to the approach of Heydon JA in Makita v Sprowles. Having said that, in the event that Heydon JA’s ‘counsel of perfection’ is not adhered to and a party seeking to rely upon an expert report does not prove all factual assumptions upon which an expert’s opinion is based then the court will likely afford such a report little, if any, weight. In that regard, even Branson J acknowledged in Quick v Stoland that there was a difference between admissibility and weight.244 In Re Tellsa Furniture Pty Ltd245 Young J made the following salient observations: Affidavits by accountants as to their researches into records may be extremely helpful to courts, and are admitted as a legitimate and sensible shortcut: see Potts v Miller (1940) 64 CLR 282 at 292 and pp 301–5, (as applied by Gibbs J in Re Montecatini’s Patent (1973) 47 ALJR 161 at 169, and see also Re Action Waste Collections Pty Ltd (in liq) [1981] VR 691; 60 FLR 393). However, if, as here, on a check of the records, the court finds that the affidavit is inaccurate, it will give it no weight, and indeed, will usually not allow the costs of preparing it.

2.56 The extent to which the Federal Court’s comments in Quick v Stoland and Red Bull have qualified Heydon JA’s comments in Makita v Sprowles remains open for debate.246 Austin J of the Supreme Court of [page 104] New South Wales in Dean-Willcocks v Commonwealth Bank of Australia expressly rejected the Federal Court’s approach described above.247 As a practical matter, it is suggested that a party seeking to rely upon expert opinion to establish that a company was insolvent should, as a matter of prudence ensure that: the relevant expert has the appropriate specified training, study or experience in an identifiable and established area of expertise; the expert, when expressing any opinion, should expressly articulate all factual assumptions relied upon and disclose the methodology adopted in reaching any conclusions; all factual assumptions relied upon by the expert in expressing an opinion should be established by way of admissible evidence; and ensure counsel is briefed to advise in relation to any expert report before any hearing.

Proving insolvency — practical examples 2.57 Ultimately, the key factual issue that is necessary to be proved is whether the company was able to pay all of its debts as and when they became due and payable. This will usually require an analysis of the financial position of a company at a given time as follows: identifying all of the company’s debts for the relevant time period in order to determine when those debts were due and payable; identifying all of the assets of the company for the relevant time period in order to determine the extent to which those assets were liquid or were realisable within a timeframe that would allow each of the debts to be paid as and when it became payable;

analysing the company’s business for the relevant time period in order to determine its expected net cash flow from the business by deducting from projected future sales the cash expenses which would be necessary to generate those sales; identifying arrangements between the company and prospective lenders, such as its bankers and shareholders, in order to determine whether any shortfall in liquid and realisable assets and cash flow could be made up by borrowings which would be repayable at a time later than the debts.248 [page 105] 2.58 The above approach to proving insolvency can be illustrated by way of example. In Sims v Deputy Commissioner of Taxation the relevant period in which the court was asked to determine whether the relevant company was insolvent was between about September 2001 to November 2001. The liquidator relied upon two expert reports he had prepared as to the financial position of the company.249 The evidence disclosed that, inter alia, as at 30 June 2001, the company had: a net deficiency in assets of $4,127,157; trade debtors of $799,903 of which 44% were more than 90 days old; total current liabilities of $2,374,384; a deficiency of working capital of $1,645,937; trade creditors of $1,653,060 of which 52.1% of the combined total was more than 90 days old; made provision for an amount owing for group tax of $188,738 of which $60,447 in respect of April 2001 had been due since 7 May 2001 and $61,774 in respect of May 2001 had been due since 7 June 2001. Between about July 2001 and November 2001, the company made an operating loss of $852,359. The lists of creditors prepared as at 30 June 2001 and 30 November 2001 respectively disclosed that a significant number of debts due at 30 June 2001 remained unpaid at the end of November 2001. As at 8 September 2001, the company owed the Deputy Commissioner of Taxation an amount of $290,000. On 18 October 2001, the company entered into an interim

instalment payment plan with the Deputy Commissioner of Taxation requiring payments to be made between October and November 2001. The company did not pay the payments under the instalment arrangement on time. In those circumstances, Hammerschlag J had no hesitation in finding that the company was insolvent from at least May 2001: From May 2001, [the company] was not in a position to pay its debts due to the Commissioner notwithstanding the forbearance of its [major creditor]. It was by then insurmountably and endemically illiquid. [The analysis by counsel for the company] … did not, and could not, deal with the manifest inability of the Company to pay its accruing tax debts while it struggled to pay off its past ones … Notwithstanding the indulgence from [the company’s major creditor] and whatever shareholder support it had available, as at 17 May 2001, 22 August 2001, 24 August 2001, 10 September 2001 and 13 September 2001, the Company was unable, utilising all its available resources, to meet its tax liabilities which

[page 106] had then fallen due. It was evidently unable to meet those that were falling due as it tried to reduce past liabilities.250

2.59 By contrast in Nilant v Borden Australia Pty Limited251 a liquidator failed to adduce sufficient evidence that the relevant company in that case was insolvent. The evidence of insolvency in that case comprised: accounts that were unaudited and unsigned by the company’s accountants; the directors of the company stated that at relevant times there were reasonable grounds for belief that the company would be able to pay its debts as and when they fell due although the unaudited financial statement suggested otherwise; a statement of affairs of the company signed six months after the relevant transaction sought to be impugned by the liquidator; and evidence from a sales manager of the company of a conversation with the company’s director ‘that he had entered into an agreement with a third party who had provided funds to the Company’. Apart from this assertion there was however no evidence of the company agreeing to sell its assets to pay off its debts. Hill J concluded that the evidence put forward by the liquidator was insufficient to establish insolvency. The company’s unaudited accounts for example merely planted ‘a suspicion of insolvency’. His Honour pointed out that

mere suspicion cannot substitute for proof. As Wootten J explained in M & R Jones Shopfitting Co Pty Ltd v National Bank of Australasia Ltd: In seeking the aid of a court in setting aside a payment as a preference a liquidator should bear in mind that the onus is on him to show the insolvency of the company at the relevant time, not merely to create some suspicion of insolvency. Normally it should not be difficult for a liquidator with the control of a company’s records to establish the factual position. As to the question of proof, I refer to Re Action Waste Collections Pty Ltd (in liq); Crawford v O’Brien [1981] VR 691.252

For example, in Sandell v Porter253 one of the matters relied upon to establish insolvency was that a debt had been unpaid for four months. Barwick CJ, with whom McTiernan and Windeyer JJ agreed, said: [page 107] However much it may lead to a suspicion that the debtor is not merely unwilling but in fact unable to pay it, the continuance of the unpaid debt itself does not establish the fact of that inability: in particular, it does not establish that fact as at any particular time.254

It is also not sufficient for a liquidator to put forward evidence on a piecemeal basis and ask the court to draw inferences. So, in Arena Management Pty Ltd (admin apptd) (rec and mgrs apptd) v Campbell Street Theatre Pty Ltd, the court found that at all relevant times the company in question was experiencing difficult trading conditions and that the directors were monitoring its cash flow position.255 However, the court also found that the situation the company faced clearly was still fluid and asset sales and further finance resources were actively discussed by the company directors at relevant times. The liquidator also said that he had conducted no analysis at all of ‘aged payables’ or outstanding creditors; had not ascertained whether any of the ‘payables’ had in fact been paid by the company, whether any were disputed, what were the terms of payment of any of the debts and whether any of the creditors had lodged proofs of debt. Moreover, the liquidator nowhere expressed the view, based upon any analysis of the company’s accounts, that as at the relevant time the company was unable to pay its debts as they fell due. Accordingly, Palmer J was not satisfied the company was insolvent at all relevant times. 2.60 Another example of where a liquidator failed to adduce sufficient evidence to establish insolvency is the New South Wales Court of Appeal decision in Keith Smith East West Transport Pty Ltd (in liq) v Australian Taxation Office.256 In that case the trial judge held that the evidence put forward to support the allegation of insolvency was so unreliable that the liquidators had

not discharged the onus of proving insolvency. On appeal, the court examined the following events: a letter from the company’s accountant to the Australian Taxation Office acknowledging the company’s inability to pay outstanding taxes and proposing a timetable to reduce the liability; a letter from the Australian Taxation Office indicating its willingness to accept a payment of an additional $10,000 per month in reduction of the debt; monthly payments by the company of $22,000 which included the payments in dispute; [page 108] after failing to make a payment in March 2000, the sale by the company of its book debts under a factoring agreement; and the use of the proceeds of the sale to make a disputed payment in May 2000 which discharged the outstanding debt to the Australian Taxation Office. The Court of Appeal upheld the trial judge’s decision that the liquidator had failed to adduce sufficient evidence. In particular the Court of Appeal found that in assessing solvency, the court pays regard to an express or implied agreement between a company and its creditors for an extension of the time stipulated for payment. In Keith Smith the company’s arrangement with the Australian Taxation Office for a gradual reduction in debts was substantially adhered to and accordingly insolvency was not established.

Establishing insolvency by way of admission 2.61 The authorities are divided as to whether a court can make a finding of insolvency without any final determination of evidence but based on admissions made by the parties. In Cadima Express v Deputy Commissioner of Taxation, a decision of Austin J, and S J P Formwork (Aust) Pty Ltd (in liq) v Deputy Commissioner of Taxation, a decision of Santow J, the court found that the issue of whether a transaction was voidable (and implicitly that a company was insolvent) could be satisfied by a consent judgment; that is, a judgment which the court enters without an examination of the facts.257 In Crosbie v

Commissioner of Taxation, Finkelstein J held that the court could not be satisfied that a transaction was voidable under s 588FE of the Corporations Act simply by reason of a consent judgment in which the admissions were made, because the requirement of ‘satisfaction’ in the section is a condition precedent to the exercise of power.258 His Honour considered that decisions such Cadima Express and S J P Formwork suffered from ‘patent error’, and that it was essential to prove to the court’s satisfaction the ‘jurisdictional fact’ which underpinned the exercise of power. [page 109] 2.62 The balance of authority however suggests that the position as articulated in Cadima Express is correct and that a court can act on a consent judgment by the parties on the issue of insolvency.259 The effect of these decisions is that a court is able to be satisfied as to the matters listed in s 588FE (including insolvency) without the necessity of formal proof of the relevant facts.260 That is to say, a party may admit the relevant facts or not put a particular fact in dispute. In Dean-Willcocks v Commissioner of Taxation (No 2)261 Austin J explained the position as follows: If Finkelstein J’s approach were correct, the court would become committed to undertaking an inquiry into the facts without any guidelines as to the type of evidence that should be required, in circumstances where there is no relevant contest between the parties. Such an approach would, to say the least, be unusual in our adversary system, where it is normally up to the parties to nominate the issues for determination, and the court resolves those issues on the basis of the evidence presented by the parties. There is a particular practical concern in cases under s 588FF. The court is required to be satisfied that a transaction of the company is voidable because of s 588FE, under which the transaction is voidable if, inter alia, it is an insolvent transaction. As senior counsel for the Commissioner pointed out, the timing of the company’s insolvency, for the purposes of a preference recovery, is frequently a difficult and complicated issue, particularly where the records of the company have not been satisfactorily kept. Where insolvency must be fully proved, it is likely that the report of an expert will be required, at significant expense. The selection, preparation and collation of documents for the expert can also be a difficult and expensive task. While the Crosbie case does not provide direct guidance as to the extent and nature of the proof that the court will require, a liquidator preparing an application for orders under s 588FF may well conclude, as a practical matter, that a report should be prepared in spite of the defendant’s consent, if the approach in Crosbie is correct. In my opinion, it would be unfortunate if the law were to have the practical result of causing very substantial expenditure to be made to procure an expert’s report, at the expense of unsecured creditors, where the report addresses a matter that was no longer in contest when it was commissioned … This conclusion is consistent with the courts’ general approach to admissions. A

[page 110]

court is never bound by admissions made inter parties or in the pleadings: Termijtelen v Van Arkel [1974] 1 NSWLR 525. It may decline to act on admissions if, for example, they are made so as to attract a jurisdiction that is not naturally present. However, in most cases it is appropriate to allow and even encourage parties to simplify litigation by making admissions so as to achieve the just, quick and cheap resolution of their dispute …

The issue of whether an admission will suffice usually arises in cases involving ss 588FF and 588FGA(1) and (2) in the context of an admission by the Commissioner of Taxation as to a company’s insolvency but denial (or nonadmission) of insolvency in the same proceedings by a director sued for indemnity.262 This point is discussed at 10.122.

Statutory presumptions of insolvency 2.63 Section 588E of the Corporations Act contains a number of presumptions the court is to make in ‘recovery proceedings’. The expression ‘recovery proceedings’ is defined in s 588E to include an application under s 588FF brought by the company’s liquidator in respect of a voidable transaction.263 Section 588E was introduced by the CLRA.264 The Harmer Commission explained the need for presumptions in the present context as follows: The need for presumptions. The fact of insolvency may be proved in various ways. However a liquidator, being a stranger to the past business operations of a company, is often confronted with considerable difficulty in affirmatively establishing that a company was insolvent at a time prior to the winding up, even though there may be every indication that this was the case. In many cases the liquidator will have to cope with either inadequate or meaningless company accounting records or no accounting records at all. To meet some of these difficulties it is proposed that there should be some presumptions to assist the liquidator in certain circumstances. The Commission recommends the following presumptions: presumption of continuing insolvency presumption of ‘balance sheet’ insolvency presumption where accounting records are obscure.265

[page 111] Ultimately, Parliament adopted the recommendation as to continuing insolvency and ‘obscure’ accounting records.266 2.64 Section 588E(3) sets out when a company is to be presumed insolvent for the purposes of recovery proceedings.267 The section provides that if the company is being wound up and it is proved, or because of subs 588E(4) or (8) it

must be presumed, that the company was insolvent at a particular time during the 12 months ending on the relation-back day then it must be presumed that the company was insolvent throughout the period beginning at that time and ending on that day.

Section 588E(3)(b) — continuing insolvency presumption 2.65 If a company is being wound up, and it is proven that the company was insolvent at a particular time during the 12 months ending on the relation-back day; then it must be presumed that the company was insolvent throughout the period beginning at that time and ending on that day: s 588E(3).268 The ‘continuing insolvency’ presumption is designed to assist a liquidator that might otherwise have difficulty establishing that a company had been insolvent for the whole of the 12-month period ending on the relation-back period, being a stranger to the company’s past affairs.269

Section 588E(4) — failure to keep financial records 2.66 Section 588E(4) creates a presumption of insolvency for a given period if a company is proven to have failed to keep financial records for the period270 (s 588E(4)(a)) or failed to retain records for seven years in relation to the period271 (s 588E(4)(b)), subject to exclusions in [page 112] subss 588E(5)–(7).272 The statutory presumption contained in s 588E(4) regarding financial records is directed to situations where the absence of proper financial records makes it difficult or impossible to reconstruct the financial position of the company at a particular time.273 So, for example, in Fisher v Divine Homes Pty Ltd274 a liquidator sought to rely on the statutory presumption under s 588E(4). The evidence disclosed, however, that the company did in fact keep some financial records. The fact that no income tax return, business activity statement, balance sheet or profit and loss account was prepared for the relevant period did not lead to the conclusion that ‘financial records’ for the relevant period were not kept.275 Accordingly, the liquidator was required to prove that

the relevant financial records were deficient as required by s 588E(4). As Barrett J explained: It follows that where, as here, there is evidence that ‘invoices’, ‘receipts’, ‘loan documents’ and ‘cheque books’ (including cheque butts) did exist in relation to the company’s activities, the presumption will not be available in relation to a given period unless the person seeking to rely on the presumption shows that those documents were, in respect of the period in question, deficient in the sense just mentioned. In the present case, the liquidator has proved nothing about the content of the ‘invoices’, ‘receipts’, ‘loan documents’ and ‘cheque books’ (including cheque butts). The fact that no income tax return, business activity statement, balance sheet or profit and loss account of Divine Homes was ever prepared says nothing about conformity of the documents that did exist with the criteria in s 286(1). In the case of a company carrying on a simple cash business it is quite conceivable that a collection of invoices and cheque butts in ‘raw form’ (supplemented by bank statements) will satisfy those criteria. The only available finding, on the evidence, is that, before the winding up order was made, the company ‘kept’ some documents within the ‘financial records’ concept and that each such document that was ‘kept’ related to some period or other, even though it is not possible to identify the period. That finding does not allow, in relation to any period, either

[page 113] a conclusion that no documents were ‘kept’ or a conclusion that any relating to the period that were ‘kept’ were deficient as to content in a way I have mentioned. Since the content of the totality of the documents that were kept in relation to a particular period is simply not known (beyond such content as is suggested by the description of a document — ‘invoice’, ‘receipt’, ‘loan document’ etc), it is not possible to find that that totality did not correctly record and explain the company’s transactions and financial position and performance or would not enable true and fair financial statements to be prepared and audited.276

Accordingly, his Honour refused to find that the liquidator had proved the matter in s 588E(4)(a), that is, that the company in that case failed to ‘keep’ financial records as required by s 286(1). 2.67 The rationale and purpose behind the presumptions of insolvency and the 12 month limitation period was explained by Parliament in the following terms: In relation to the presumption of continuing insolvency within a twelve month period prior to the relation-back day, the Harmer Report noted that a liquidator, being a stranger to the past business operations of a company, is often confronted with considerable difficulty in affirmatively establishing that a company was insolvent at a time prior to the winding up, even though there may be every indication that this was the case. This presumption has the effect that, once the liquidator proves insolvency at one point in time, insolvency after that point of time is presumed. The twelve month limitation period is to prevent remote instances of insolvent trading resulting in a presumption that insolvency continued to the commencement of the winding up. In relation to the accounting records presumption, the Harmer Report stated that the presumption was necessary to counter the regrettable but quite usual state of affairs where the lack or absence of

adequate books of account make it difficult or impossible to reconstruct the financial position of a company at or about a particular time.277

2.68 The presumptions of insolvency contained in s 588E are available in recovery proceedings within the meaning of that section and not any other proceedings.278 The statutory presumptions are rebuttable and operate except so far as the contrary is proved for the purposes of the proceedings concerned: s 588E(9). [page 114] 2.69 In order to establish the presumption under s 588E(9), the liquidator must prove that either no documents whatsoever meeting the description of financial records were kept for that period,279 or that the documents that were kept were deficient as to content as they did not correctly record and explain the financial position, performance and transactions of the company, or would not permit true and fair financial records to be prepared and audited.280 Separate and distinct proof is required in relation to each relevant period.281 2.70 The presumption does not apply in relation to a contravention of s 286(1) that is only minor or technical: s 588E(5). Section 588E(7) provides that the financial records presumption does not have effect, in an application under s 588FF(1), for the purposes of proving that an unfair preference given by the company is an insolvent transaction unless it is proven for the purposes of the application that a related entity of the company was a party to the unfair preference. The presumption also does not have effect, to the extent that it would prejudice a right or interest of a person for the company to be presumed insolvent because of a contravention of s 286(2), if it is proved that: (a) the contravention was due solely to the destruction, concealment or removal of financial records of the company; and (b) none of those financial records were destroyed, concealed or removed by the first-mentioned person; and (c) the (first mentioned) person was not, by act or omission, directly or indirectly, knowingly or recklessly party to or concerned in the destruction, concealment or removal of the financial records of the company.282

Section 588E(8) — presumptions for ‘another

recovery proceeding’ 2.71 Section 588E(8) sets out presumptions that are to be made for the purposes of ‘another recovery proceeding’ in relation to the company. The effect of section 588E(8) is that it must be presumed that certain matters were the case or that matters constituting a defence were the case, if, for the purposes of another recovery proceeding in relation to the company, there has been proved: [page 115] (a) if the other proceeding is an application under section 588FF by the company’s liquidator — a matter of the kind referred to in a paragraph of section 588FC or of subsection 588FG(2); or (b) if the other proceeding is a proceeding begun under subsection 588FH(2) by the company’s liquidator — a matter of the kind referred to in a paragraph of section 588FC or of subsection 588FG(2) or 588FH(1), or a defence under subsection 588FH(3); or (c) if the other proceeding is a proceeding, in so far as the proceeding relates to the question whether a security interest created by the company is void to any extent, as against the company’s liquidator, because of subsection 588FJ(2) or proceedings begun under subsection 588FJ(6) by the company’s liquidator, a matter of the kind referred to in subsection 588FJ(3); or (d) if the other proceeding is one for a contravention of subsection 588G(2) in relation to the incurring of a debt by the company (including proceedings under section 588M in relation to the incurring of the debt but not including proceedings for an offence), a matter of the kind referred to in a paragraph of section 588G, or a defence under section 588H; or (e) if the other proceeding is one under section 588W in relation to the incurring of a debt by the company, a matter of the kind referred to in a paragraph of subsection 588V(1), or a defence under section 588X.

The s 588E(8) presumptions are only available where insolvency has been proven in the other proceedings and are not available if insolvency was not contested: Re Harris Scarfe Ltd (recs and mgrs apptd) (in liq); Dwyer v R-Jay Pty Ltd.283 As a practical matter, if reliance is to be placed upon s 588E, that reliance should be pleaded in such a manner as to make such reliance apparent.284

DETERMINING THE RELATION-BACK DAY 2.72 The expression ‘relation-back’285 owes its origins to the law of

bankruptcy286 where it was the term given to a statutory provision that deemed the bankruptcy to have commenced at an earlier point in time [page 116] than it actually did; the deemed date was the date of the earliest act of bankruptcy committed by the bankrupt of the bankruptcy.287 Under the bankruptcy doctrine of relation back (which still exists in the bankruptcy context by virtue of s 115 of the Bankruptcy Act 1966) the absolute title of a person who committed an act of bankruptcy became fettered and remained contingent upon no petition being presented within six months of an act of bankruptcy.288 Relation back operated prior to bankruptcy to deprive a person who committed an act of bankruptcy of the ability to give a good title to his or her property to another.289 The position however was always different in the context of company insolvency and no such broad doctrine of relation back has ever applied in the winding up of corporations.290 The entitlement of an insolvent company prior to winding up to give a good title to its property to others is not, and was not, subject to any contingent disability such as that existed in bankruptcy law.291 Despite sharing a common historical root, the concept of ‘relation-back day’ in company insolvency is separate to and distinct from the concept of ‘relationback’ in bankruptcy.292 Indeed, in their report on insolvency, the Harmer Commission suggested both the concept and expression of ‘relation-back’ be abolished and replaced with the expression of ‘relevant-day’.293 In the event however, Parliament instead chose to adopt the expression ‘relation-back day’ but any similarity to the bankruptcy doctrine of relation-back was not intended.294 [page 117] 2.73 Section 588FE295 sets out the time scale within which transactions must fall in order to be voidable.296 Central to determining this time scale is the statutory concept of ‘relation-back day’.297 The relationback day is used in the Act as a reference point for the measurement of the time periods prior to the winding up within which transactions must occur in order for them to be categorised as reviewable under Pt 5.7B.298 It is also used as the reference point

from which time periods in connection with presumptions of insolvency are measured for the purposes of Pt 5.7B.299 As mentioned in 2.2, a transaction will usually be voidable under s 588FE if it is an ‘insolvent transaction’ of a company and it was entered into,300 or an act was done for the purpose of giving effect to it:301 a)

during the six months ending on the relation-back day:302 or

b)

after the relation-back day but on or before the day when the winding up began.303

In most unfair preference or uncommercial transaction cases, the relation-back period will be six months ending on the relation-back day304 although s 588FE(2A)–(6A) sets out other time periods.305 The expression ‘relation-back day’ is defined in s 9 of the Act to mean: (a) if, because of Division 1A of Part 5.6, the winding up is taken to have begun on the day when an order that the company or body be wound up was made — the day on which the application for the order was filed; or [page 118] (b) otherwise — the day on which the winding up is taken because of Division 1A of Part 5.6 to have begun.

2.74 Part 5.6 Div 1A sets out when a winding up is taken to have begun in both a compulsory winding up by the court (s 513A) and a voluntary winding up: s 513B. In most cases, where a court orders a company to be wound up under ss 233, 459A, 459B or 461 the winding up is usually taken to have commenced on the day the winding up order was made.306 Section 513A, however, also provides that a winding up is taken to have commenced in either of the following four cases: (a) if, when the order was made, a winding up of the company was already in progress — when the last-mentioned winding up is taken because of Division 1A of Part 5.6 to have begun or commenced; or (b) if, immediately before the order was made, the company was under administration — on the section 513C day307 in relation to the administration; or (c) if when the order was made, a provisional liquidator of the company was acting and immediately before the provisional liquidator was appointed, the company was under administration — on the section 513C day in relation to the administration; or (d) if, immediately before the order was made, a deed of company arrangement had been executed by the company and had not yet terminated — on the section 513C day in relation to the administration that ended when the deed was executed.

Where a provisional liquidator has been appointed, the winding up is deemed to commence when the winding up order is made. In Telfer v Astarra Securities Pty Ltd, Barrett J observed that there is no provision that back dates the commencement of a winding up on the sole basis that a provisional liquidator has been appointed to a company.308 2.75 Similar provisions to those contained in s 513A apply in relation to voluntary winding up under s 513B.309 In practice, issues sometimes arise in determining precisely when a winding up commences, particularly in cases involving voluntary administration and deeds of company arrangement. Determining the precise relation-back day can, [page 119] for example, often have significant practical effects in determining the appropriate limitation period310 in which proceedings for recovery may be commenced and hence determining what property may be recovered by a liquidator.311 2.76 Section 588FE(2A)–(6A) sets out further time periods depending on the type of transaction312. The following table summarises these periods, organised in ascending order of time period: Table 2.1: Further time periods for relation-back day Corporations Relevant transaction(s) Act provision Uncommercial transaction; unfair preference; unfair loan to the company; or an unreasonable director-related 588FE(2A) transaction and the company was under administration immediately before the Company was wound up Insolvent transaction and also 588FE(3) an uncommercial transaction

Period The period beginning at the start of the relation-back day and ending when the company made the special resolution that it be wound up voluntarily or when the Court made the order that the company be wound up 2 years ending on the relationback day

[page 120]

588FE(4)

588FE(5)

588FE(6)

588FE(6A)

An insolvent transaction of the company and a related entity of the company is a party to it and it was entered into or an act was done for the purpose of giving effect to it Unreasonable director-related transaction Insolvent transaction and the company became a party to it for the purpose, or for purposes including the purpose, of defeating, delaying or interfering with, the rights of any or all of its creditors on a winding up of the company and the transaction was entered into, or an act was done for the purpose of giving effect to the transaction Unfair loan made at any time on or before the day when the winding up began

4 years ending on the relationback day312

4 years ending on the relationback day

10 years ending on the relation-back day

No time limit

1.

A recognised foreign liquidator has the same standing as an Australian liquidator to bring proceedings to recover voidable transactions: see the Cross-Border Insolvency Act 2008 (Cth) which adopts the UNCITRAL Model Law on Cross-Border Insolvency. For a more detailed discussion of the Model Law see Chapter 12.

2.

Section 588FF.

3.

Section 588FE sets out the circumstances in which a transaction will be voidable.

4.

See s 9. For a more detailed discussion of the concept of ‘transaction’ see Chapter 3.

5.

Section 588FC.

6.

Section 588FC.

7.

Section 588FC(a).

8.

Section 588FC(b).

9.

Section 588FD. See Chapter 6 for a complete discussion.

10. Section 588FDA. See Chapter 7 for a complete discussion. 11. For a more detailed discussion of these provisions see Chapter 8. 12. Section 588FE(1). This chapter only deals with ‘insolvent transactions’ that are voidable. For unfair preferences see Chapter 4, for uncommercial transactions see Chapter 5, for unfair loans see Chapter 6 and for unreasonable director-related transactions see Chapter 7. 13. Section 588FE(2)(b)(i). 14. Section 588FE(2)(b)(ii). 15. Section 588FE(5). For a full discussion of the relation back period see 2.72ff. 16. For a detailed discussion of ‘transaction’ and ‘transaction of a company’, see Chapter 3. 17. Section 588FC. 18. For a discussion of unfair preferences, see Chapter 4. 19. For a discussion of uncommercial transactions, see Chapter 5. 20. Section 588FC. 21. Section 588FC(a). 22. Section 588FC(b). 23. For a discussion of what is a transaction see Chapter 3. For a discussion of unfair preferences see Chapter 4. The concept of uncommercial transactions is discussed in Chapter 5. 24. The expression ‘person’ in this context is not defined in the Corporations Act. Section 2C of the Acts Interpretation Act (1901) (Cth), however, provides that ‘(1) In any Act, expressions used to denote persons generally (such as “person”, “party”, “someone”, “anyone”, “no-one”, “one”, “another” and “whoever”), include a body politic or corporate as well as an individual’. 25. The expression ‘insolvent’ is included in s 9, the definition section, of the Corporations Act, which in turn refers to s 95A(2). 26. Section 95A(1). 27. This point is well made in the case law. See for example, Melbase Corporation Pty Ltd v Segenhoe Ltd (1995) 17 ACSR 187 at 198; 13 ACLC 823; Manpac Industries Pty Ltd v Ceccattini (2002) 20 ACLC 1304; [2002] NSWSC 330; Keith Smith East West Transport Pty Ltd (in liq) v Australian Taxation Office (2002) 42 ACSR 501; [2002] NSWCA 264 at [33] per Mason P with whom Handley and Giles JJA agreed; Re United Medical Protection Ltd (2003) 47 ACSR 705; [2003] NSWSC 1031 at [55] per Austin J; Australian Securities and Investments Commission v Plymin (No 1) (2003) 175 FLR 124; 46 ACSR 126 at [369]–[370] per Mandie J; Expile Pty Ltd v Jabb’s Excavations Pty Ltd (2003) 45 ACSR 711; [2003] NSWCA 163; Dean-Willcocks v Commissioner of Taxation (2004) 51 ACSR 353; [2004] NSWSC 1058 at [24] per Young CJ in Eq; Lewis (as Liquidator of Doran Constructions Pty Ltd) v Doran (2005) 54 ACSR 410; [2005] NSWCA 243; Duncan v Commissioner of Taxation; Re Trader Systems International Pty Ltd (in liq) (2006) 58 ACSR 555; [2006] FCA 885 at [34] per Young J; Crema (Vic) Pty Ltd v Land Mark Property Developments (Vic) Pty Ltd (2006) 58 ACSR 631; [2006] VSC 338 at [141] per Dodds-Streeton J; Box Valley Pty Ltd v Kidd (2006) 24 ACLR 471; [2006] NSWCA 26; Noxequin Pty Ltd v Deputy Commissioner of Taxation [2007] NSWSC 87; Sutherland as Joint Liquidators of Australian Coal Technology v Hanson Construction Materials Pty Ltd (2009) 254 ALR 650; [2009] NSWSC 232 at [8] per Barrett J; Arena Management Pty Ltd (admin apptd) (rec and mgrs app) v Campbell Street Theatre Pty Ltd [2010] NSWSC 957 at [50] per Palmer J; Campbell Street Theatre Pty Ltd (rec and mgr apptd) (in

liq) v Commercial Mortgage Trade Pty Ltd [2012] NSWSC 669 at [23] per Black J. The equivalent provision in the United Kingdom, s 123 of the Insolvency Act 1986 (UK), refers to both the cash flow and the balance sheet test: see the discussion in BNY Corporate Trustee Services Ltd v Neuberger Berman Europe Ltd [2013] UKSC 28. 28. See 2.15. 29. Leveraged Equities Ltd v Hilldale Australia Pty Ltd (2008) 26 ACLC 182; [2008] NSWSC 190 at [41] per Hammerschlag J. See also Melbase Corporation Pty Ltd v Segenhoe Ltd (1995) 17 ACSR 187 at 198; 13 ACLC 823; Crema (Vic) Pty Ltd v Land Mark Property Developments (Vic) Pty Ltd (2006) 58 ACSR 631; [2006] VSC 338; and Noxequin Pty Ltd v Deputy Commissioner of Taxation [2007] NSWSC 87 per Barrett J. 30. Hawkins v Bank of China (1992) 26 NSWLR 562; 7 ACSR 349 at 357 per Gleeson CJ commenting in relation to s 556(1)(a) of the former Companies Code, 1961. 31. Re Elgar Heights Pty Ltd (No 1) (1985) 9 ACLR 846 at 853; [1985] VR 657 at 664 per Ormiston J. 32. Hawkins v Bank of China (1992) 26 NSWLR 562; 7 ACSR 349 at 357 per Gleeson CJ, Kirby P and Sheller JA considering the meaning of debt in the context of s 556 of the Companies (NSW) Code 1981; Bartex Fabrics Pty Ltd v Phillips Fox (1994) 13 ACSR 667 at 672; 12 ACLC 462 per Young J within the context of s 459E; Powell v Fryer (2001) 159 FLR 433; 37 ACSR 589 at 598 per Olsson, Duggan and Williams JJ in the context of s 588G of the Corporations Act. 33. Rothwells Ltd v Nommack (No 100) Pty Ltd [1990] 2 Qd R 85; 13 ACLR 421 at 422 per McPherson J. 34. See the discussion by Young J in Commonwealth Bank of Australia v Butterell (1994) 35 NSWLR 64 at 67–8; 14 ACSR 343 at 346 where his Honour traces the history of the old action in debt. 35. Bank of Australasia v Hall (1907) 4 CLR 1514 at 1534; 14 ALR 51. 36. Bank of Australasia v Hall (1907) 4 CLR 1514 at 1534; 14 ALR 51. 37. Ex parte Kemp; Re Fastnedge (1874) LR 9 Ch App 383 at 387. 38. See the discussion at 2.7ff. 39. See, for example, F W Maitland, The Forms of Action at Common Law, Stevens & Sons, London, 1949. See also the discussion by McHugh JA (as he then was) in Paul v Pavey & Matthews Pty Ltd (1985) 3 NSWLR 114 at 119–30; 2 BCL 274. 40. A W B Simpson, A History of the Common Law of Contract — The Rise of the Action of Assumpsit, Clarendon Press, Oxford, 1975, p 53. 41. J Carter, Carter on Contract, looseleaf, LexisNexis Australia, at [01-030]. 42. This followed the Statute of Wales in 1284 (12 Edw I, c 6), prescribing different forms for claims and in money and claims for chattels. See Simpson, A History of the Common Law of Contract, note 40, p 56. 43. Simpson, A History of the Common Law of Contract, note 40, p 58. 44. Simpson, A History of the Common Law of Contract, note 40, p 61. 45. Simpson, A History of the Common Law of Contract, note 40, p 61. 46. Simpson, A History of the Common Law of Contract, note 40, p 62. 47. Simpson, A History of the Common Law of Contract, note 40, p 64. 48. McPherson J of the Supreme Court of Queensland in Rothwells Ltd v Nommack (No 100) Pty Ltd [1990] 2 Qd R 85; 13 ACLR 421 at 424 suggests that at common law a debt could arise in only one of three ways: (1) by judgment; (2) by deed under seal; and (3) as the quid pro quo for a

consideration that was executed. Simpson, however, suggests that the writ of debt was much broader in scope than this: A History of the Common Law of Contract, note 40, p 73ff. See also Halsbury’s Laws of Australia, Vol 9(1), ‘Contract’ at [110-1095]. 49. Simpson, A History of the Common Law of Contract, note 40, p 73. 50. Section 34 of the CLRA, effective 23 June 1993. 51. Section 57 of the CLRA, effective 23 June 1993. 52. See, for example, the frustration expressed by Palmer J in Southern Cross Interiors Pty Ltd (in liq) v Deputy Commissioner of Taxation (2001) 53 NSWLR 213; 39 ACSR 305 at [29]–[32]. 53. See the discussion at 2.21–2.25. 54. Island Industries Pty Ltd v Pitcher [2005] NFSC 2 at [44]–[45] per Wilcox J and Remuneration Data Base Pty Ltd v Pauline Goodyer Real Estate Pty Ltd [2007] NSWSC 59 at [39]–[42] per White J. 55. See the discussion at 2.24. 56. Re Elgar Heights Pty Ltd (No 1) [1985] VR 657; 9 ACLR 846. 57. Southern Cross Interiors Pty Ltd (in liq) v Deputy Commissioner of Taxation (2001) 53 NSWLR 213; 39 ACSR 305 at [30]. His Honour went so far as to say that the legislature had indulged in what might be described as a ‘surfeit of pleonasms’. 58. Southern Cross Interiors Pty Ltd v Deputy Commissioner of Taxation (2001) 53 NSWLR 213; 39 ACSR 305 at [26]. 59. Southern Cross Interiors Pty Ltd v Deputy Commissioner of Taxation (2001) 53 NSWLR 213; 39 ACSR 305 at [29]. 60. Re Elgar Heights Pty Ltd (No 1) [1985] VR 657; 9 ACLR 846. 61. Re Elgar Heights Pty Ltd (No 1) [1985] VR 657 at 666; 9 ACLR 846 at 854. 62. Re Elgar Heights Pty Ltd (No 1) [1985] VR 657 at 665; 9 ACLR 846 at 854 citing Mellish J in Ex parte Kemp; Re Fastnedge (1874) LR 9 Ch App 383 at 387–8. 63. Ex parte Kemp; Re Fastnedge (1874) LR 9 Ch App 383 at 387–8. 64. H J Wigmore & Co v Rundle (1930) 44 CLR 222. 65. H J Wigmore & Co v Rundle (1930) 44 CLR 222 at 228 per Gavan Duffy, Rich, Starke and Dixon JJ. 66. Clyne v Deputy Commissioner of Taxation (1981) 150 CLR 1 at 8ff; 55 ALJR 552. 67. Main Camp Tea Tree Oil Ltd v Australian Rural Group Ltd (2002) 20 ACLC 726; [2002] NSWSC 219. 68. Main Camp Tea Tree Oil Ltd v Australian Rural Group Ltd (2002) 20 ACLC 726; [2002] NSWSC 219 at [17] citing Marriott Industries Pty Ltd v Mercantile Credits Limited; Maesbury Plumbers Pty Ltd (intervener) (1991) 9 BCL 256; 160 LSJS 288 per King CJ in turn relying upon Metropolitan Brick Co v Hayward [1938] SASR 462 at 466 per Napier J. 69. See Southern Cross Interiors Pty Ltd v Deputy Commissioner of Taxation (2001) 53 NSWLR 213; 188 ALR 114; 39 ACSR 305; [2001] NSWSC 621 at [54]; Australian Securities and Investments Commission v Plymin (2003) 46 ACSR 126; [2003] VSC 123 at [368]–[380]; Tru Floor Service Pty Ltd v Jenkins (No 2) (2006) 232 ALR 532; [2006] FCA 632 at [44] per Sundberg J; Bell Group Ltd (in liq) v Westpac Banking Corp (No 9) (2008) 39 WAR 1; 70 ACSR 1 at [1110] per Owen J; First Equilibrium Pty Ltd v Bluestone Property Services Pty Ltd (in liq) (2013) 95 ACSR 654 at [33]; Bluestone Property Services Pty Ltd (in liq) v First Equilibrium Pty Ltd [2013] FCA 876 at [42]. See

also International Cat Manufacturing Pty Ltd (in liq) v Rodrick [2013] QSC 91 per Philip McMurdo J at [104]. 70. Lewis v Doran (2004) 208 ALR 385; 50 ACSR 175 at [106] per Palmer J approved on appeal in Lewis (as liquidator of Doran Constructions Pty Ltd) v Doran (2005) 219 ALR 555; [2005] NSWCA 243 at [79], Giles JA (with whom Hodgson JA and McColl JA agreed). 71. White Constructions (ACT) Pty Ltd (in liq) v White (2004) 49 ACSR 220; [2004] NSWSC 71 at [288] per McDougall J. 72. Lewis (as liquidator of Doran Constructions Pty Ltd) v Doran (2005) 219 ALR 555; 54 ACSR 410 at [103] per Giles JA (with whom Hodgson and McColl JJA agreed). See also the decision of Byrne J in Re MGT Samorr Knitting Mills Pty Ltd (in liq) [2003] VSC 277. See also Tru Floor Service Pty Ltd v Jenkins (No 2) (2006) 232 ALR 532; [2006] FCA 632 at [44] per Sundberg J. 73. Lewis (as liquidator of Doran Constructions Pty Ltd) v Doran (2005) 219 ALR 555; [2005] NSWCA 243 at [103] per Giles JA (with whom Hodgson JA and McColl JA agreed). 74. For a discussion of the statutory presumptions of insolvency see 2.63ff. 75. See 2.4. 76. A Keay, Avoidance Provisions in Insolvency Law, LBC Information Services, 1997, p 92. See, for example, Bayly v Schofield (1813) 1 M & S 338; 105 ER 127; Parker v Gossage (1835) 2 Cr M & R 617; 150 ER 262; Re Muggeridge’s Settlement (1860) 29 LJ (Ch) 288; London and Counties Assets Company Ltd v Brighton Grand Concert Hall and Picture Palace Limited [1915] 2 KB 493 at 501. 77. Lewis (as liquidator of Doran Constructions Pty Ltd) v Doran (2005) 219 ALR 555; [2005] NSWCA 243 at [103] per Giles JA with whom McColl and Hodgson JJA agreed. 78. Brooks v Heritage Hotel Adelaide Pty Ltd (1996) 20 ACSR 61 at 64; Leslie v Howship Holdings Pty Ltd (1997) 15 ACLC 459 at 465 per Sackville J; Keith Smith East West Transport Pty Ltd (in liq) v Australian Taxation Office (2002) 42 ACSR 501; [2002] NSWCA 264; Manpac Industries Pty Ltd v Ceccattini (2002) 20 ACLC 1304; [2002] NSWSC 330 at [40] per Young CJ in Eq; Gibbons v Deputy Commissioner of Taxation [2003] NSWSC 936 at [17]; Duncan v Commissioner of Taxation (2006) 58 ACSR 555; [2006] FCA 885 at [34]; Tru Floor Service Pty Ltd v Jenkins (No 2) (2006) 232 ALR 532; [2006] FCA 632 at [43] per Mason P, Handley and Giles JJA agreeing. 79. Crema (Vic) Pty Ltd v Land Mark Property Developments (Vic) Pty Ltd (2006) 58 ACSR 631; [2006] VSC 338 at [91]. 80. Sandell v Porter (1966) 115 CLR 666 at 670. 81. Sandell v Porter (1966) 115 CLR 666 at 670. 82. Lewis (as liquidator of Doran Constructions Pty Ltd) v Doran (2005) 219 ALR 555; [2005] NSWCA 243 at [80]. 83. Lewis (as liquidator of Doran Constructions Pty Ltd) v Doran (2005) 219 ALR 555; [2005] NSWCA 243 at [80]. For a discussion of commercial realities see 2.26. 84. Crema (Vic) Pty Ltd v Land Mark Property Developments (Vic) Pty Ltd (2006) 58 ACSR 631; [2006] VSC 338 at [143]. 85. Crema (Vic) Pty Ltd v Land Mark Property Developments (Vic) Pty Ltd (2006) 58 ACSR 631; [2006] VSC 338 at [141]. 86. Bank of Australasia v Hall (1907) 4 CLR 1514; 14 ALR 51 at 54–5 per Griffith CJ. 87. Noxequin Pty Ltd v Deputy Commissioner of Taxation [2007] NSWSC 87. 88. Bank of Australasia v Hall (1907) 4 CLR 1514 per Griffith CJ at 1528; Sheahan v Hertz Australia Pty Ltd (1995) 16 ACSR 765 at 769; Powell v Fryer (2001) 37 ACSR 589 per Olsson J (with whom

Duggan and Williams JJ agreed) at 600–1; Australian Securities and Investments Commission v Radisson Maine Property Group (Aust) Pty Ltd (2004) 51 ACSR 420; [2004] NSWSC 949 at [49]. 89. New Cap Reinsurance Ltd (in liq) v Grant (2008) 221 FLR 164; 68 ACSR 176 at [43] per White J. 90. Ace Contractors & Staff Pty Ltd v Westgarth Development Pty Ltd [1999] FCA 728 at [44]; Dwyer (as joint and several liquidators of Harris Scarfe Ltd (recs and mgrs apptd) (in liq)) v Chicago Boot Co Pty Ltd (2011) 82 ACSR 193 at [16]. 91. Rees v Bank of New South Wales (1964) 111 CLR 210 at 218; [1965] ALR 139. 92. Hall v Poolman (2007) 65 ACSR 123; [2007] NSWSC 1330 at [187]. 93. Main Camp Tea Tree Oil Ltd v Australian Rural Group Ltd (2002) 20 ACLC 726; [2002] NSWSC 219 at [17] citing Marriott Industries Pty Ltd v Mercantile Credits Limited; Maesbury Plumbers Pty Ltd (intervener) (1991) 9 BCL 256; 160 LSJS 288 per King CJ in turn relying upon Metropolitan Brick Co v Hayward [1938] SASR 462 at 466 per Napier J. See 2.7ff. 94. Bank of Australasia v Hall (1907) 4 CLR 1514 at 1527. 95. Lewis (as liquidator of Doran Constructions Pty Ltd) v Doran (2005) 219 ALR 555; [2005] NSWCA 243 at [103]. 96. Re Anton Fabrications (NSW) Pty Ltd; Bentley Smythe Pty Ltd v Anton Fabrications (NSW) Pty Ltd (2011) 248 FLR 384; [2011] NSWSC 186 at [49]. 97. Lewis v Doran (2004) 208 ALR 385; 50 ACSR 175 at [107] per Palmer J. 98. Lewis v Doran (2004) 208 ALR 385; 50 ACSR 175 at [108] per Palmer J. 99. Jetaway Logistics Pty Ltd v Deputy Commissioner of Taxation (2009) 26 VR 657; 76 ACSR 404 at [15] per Maxwell P, Byrne and Williams AJA. 100. Lewis (as liquidator of Doran Constructions Pty Ltd) v Doran (2005) 219 ALR 555; [2005] NSWCA 243 at [103] per Giles JA. 101. Lewis (as liquidator of Doran Constructions Pty Ltd) v Doran (2005) 219 ALR 555; [2005] NSWCA 243 at [103] per Giles JA. 102. Lewis (as liquidator of Doran Constructions Pty Ltd) v Doran (2005) 219 ALR 555; [2005] NSWCA 243 at [103]. 103. Lewis (as liquidator of Doran Constructions Pty Ltd) v Doran (2005) 219 ALR 555; [2005] NSWCA 243 at [103]. 104. Lewis (as liquidator of Doran Constructions Pty Ltd) v Doran (2005) 219 ALR 555; [2005] NSWCA 243 at [102]–[103]. 105. Bell Group Ltd (in liq) v Westpac Banking Corp (No 9) (2008) 70 ACSR 1; [2008] WASC 239. See also Re Octaviar Ltd (No 8) (2009) 73 ACSR 139 per McMurdo J at [135]. 106. Community Development Pty Ltd v Engwirda Construction Co (1969) 120 CLR 455 at 459; [1970] ALR 173 at 174–5. 107. Edwards v Attorney General (2004) 60 NSWLR 667; 50 ACSR 122 at [59]. 108. Bank of Australasia v Hall (1907) 4 CLR 1514 at 1527; 14 ALR 51 per Griffith CJ, at 1531 per Barton J, at 1536–7 per O’Connor J and at 1547 and 1549 per Isaacs J (Higgins J dissenting). 109. Bank of Australasia v Hall (1907) 4 CLR 1514 at 1537; 14 ALR 51. 110. Box Valley Pty Ltd v Kidd (2006) 24 ACLC 471; [2006] NSWCA 26 at [14]–[15]. 111. New Cap Reinsurance Ltd (in liq) v Grant (2008) 221 FLR 164; 68 ACSR 176 at [71]. See also the observation of the New South Wales Court of Appeal in Edwards v Australian Securities and

Investments Commission (2009) 264 ALR 723 at [89] although the court did not discuss the point. 112. See paragraph [71] of White J’s decision where his Honour relied upon Miliangos v George Frank (Textiles) Ltd [1976] AC 443. 113. New Cap Reinsurance Ltd (in liq) v Grant (2008) 221 FLR 164; 68 ACSR 176 at [61]. 114. Expo International Pty Ltd (in liq) v Chant [1979] 2 NSWLR 820 at 839; 4 ACLR 679 at 687–8 per Needham J. 115. Re Glendale Land Development Ltd (in liq) [1982] 2 NSWLR 563; 7 ACLR 171; Re PMC Investments Pty Ltd (1991) 9 ACLC 1559 and In the Matter of Simionato Holdings Pty Ltd (1997) 15 ACLC 477. 116. Edwards v Attorney General (2004) 60 NSWLR 667; [2004] NSWCA 272 at [90] per Young CJ in Eq, with whom Spigelman CJ and Mason P generally agreed; Chief Commissioner of State Revenue v Reliance Financial Services Pty Ltd [2006] NSWSC 1017 at [32] per White J; and Tolcher (as liquidator of Lloyd Scott Enterprises Pty Ltd) (in liq) v Capital Finance Australia Ltd (2006) 60 ACSR 584 at [23] per Tamberlin J. 117. See the discussion at 2.7ff. 118. Young v Queensland Trustees Ltd (1956) 99 CLR 560 at 569. 119. See 2.5ff. See also Byrne v Australian Airlines Ltd (1995) 185 CLR 410; 131 ALR 422 at 429 per Brennan CJ, Dawson and Toohey JJ. See also Ogdens Ltd v Weinberg (1906) 95 LT 567; 22 TLR 729 and CGI Information Systems and Management Consultants Pty Ltd v APRA Consulting Pty Ltd (2003) 47 ACSR 100; [2003] NSWSC 728 at [15]. 120. Harvey McGregor, McGregor on Damages, 15th ed, Sweet & Maxwell, London, 1988, [3] and [6]. 121. Re Pen-y-Van Colliery Company (1877) 6 Ch D 477 at 482. 122. Carter on Contract, note 41, at [43-001], citing Jervis v Harris [1996] Ch 195; [1996] 1 All ER 303 at 308. 123. First Line Distribution Pty Ltd v Paul Whiley (1995) 18 ACSR 185; 13 ACLC 1216; Reinsurance Australia Corp Ltd v Odyssey Re (Bermuda) Ltd (2000) 36 ACSR 348; [2000] NSWSC 1118; Box Valley Pty Ltd v Kidd (2006) 24 ACLC 471 at 477; [2006] NSWCA 26. See also Chief Commissioner of State Revenue v Reliance Financial Services Pty Ltd [2006] NSWSC 1017 at [32] per White J. 124. Main Camp Tea Tree Oil Ltd v Australian Rural Group Ltd (2002) 20 ACLC 726; [2002] NSWSC 219 at [17] citing Marriott Industries Pty Ltd v Mercantile Credits Limited; Maesbury Plumbers Pty Ltd (intervener) (1991) 9 BCL 256; 160 LSJS 288 per King CJ in turn relying upon Metropolitan Brick Co v Hayward [1938] SASR 462 at 466 per Napier J. 125. Sandell v Porter (1966) 115 CLR 666 at 670; Dunn v Shapowloff [1978] 2 NSWLR 235 at 244 per Mahoney J; Quick v Stoland Pty Ltd (1998) 157 ALR 615 at 626 per Finkelstein J with Emmett J agreeing; Southern Cross Interiors Pty Ltd v Deputy Commissioner of Taxation (2001) 53 NSWLR 213 at [54] per Palmer J; Lewis (as liquidator of Doran Constructions Pty Ltd) v Doran (2005) 219 ALR 555; [2005] NSWCA 243 at [79], Giles JA (with whom Hodgson JA and McColl JA agreed); Hall v Poolman (2007) 65 ACSR 123; [2007] NSWSC 1330 at [64] per Palmer J; Bentley Smythe Pty Ltd v Anton Fabrications (NSW) Pty Ltd (2011) 248 FLR 384; [2011] NSWSC 186 at [48]–[49] per Ward J; Campbell Street Theatre Pty Ltd (rec and mgr apptd) (in liq) v Commercial Mortgage Trade Pty Ltd [2012] NSWSC 669 at [23] per Black J. See also International Cat Manufacturing Pty Ltd (in liq) v Rodrick [2013] QSC 91 at [106] per Philip McMurdo J at [106] affirmed on appeal in International Cat Manufacturing Pty Ltd (in liq) v Rodrick (2013) 97 ACSR 200 at [100] and [102]. See also First Strategic Development Corporation Ltd (in liq) v Chan [2014] QSC 60 at [67] per Philip McMurdo J.

126. Taylor v Australia & New Zealand Banking Group Ltd (1988) 13 ACLR 780 at 783–4 at the same time referring to the comments of Barwick CJ in Sandell v Porter (1966) 115 CLR 666 at 670 (where his Honour did not mention commercial reality). See also the comments of Philippides J in Combis v Lightway Australia Pty Ltd [2012] QSC 323 and Greig v Commissioner of Taxation [2010] QSC 247 at [48] per Margaret Wilson J. 127. See, for example, Sheahan v Hertz Australia Pty Ltd (1995) 16 ACSR 765; Re Newark Pty Ltd (in liq); sub nom Taylor v Carroll; Re Newark Pty Ltd (in liq) (1991) 6 ACSR 255 at 259 per Thomas J, Derrington and Moynihan JJ agreeing. 128. Hamilton v BHP Steel (JLA) Pty Ltd (1995) 13 ACLC 1548, per Young J (as his Honour then was). 129. Southern Cross Interiors Pty Ltd v Deputy Commissioner of Taxation (2001) 53 NSWLR 213 at [51]; 39 ACSR 305. 130. See, for example, Downey v AIRA Pty Ltd (1996) 14 ACLC 1068 per Ashley J; Emwest Products Pty Ltd v Olifent (1996) 22 ACSR 202 at 209–10. See also the comments of Chesterman J in Emanuel Management Pty Ltd v Foster’s Brewing Group Ltd (2003) 178 FLR 1; [2003] QSC 205 at [90]–[92]. 131. Manpac Industries Pty Ltd v Ceccattini (2002) 20 ACLC 1304; [2002] NSWSC 330 at [40]. 132. Emanuel Management Pty Ltd v Foster’s Brewing Group Ltd (2003) 178 FLR 1; [2003] QSC 205 at [76] per Chesterman J. 133. Southern Cross Interiors Pty Ltd v Deputy Commissioner of Taxation (2001) 53 NSWLR 213 at [54]; 39 ACSR 305 at 306. See also Dwyer (as joint and several liquidators of Harris Scarfe Ltd (recs and mgrs apptd) (in liq)) v Chicago Boot Co Pty Ltd (2011) 82 ACSR 193 at [17] per Sulan J. 134. See, for example, the New South Wales Court of Appeal decision in Keith Smith East West Transport Pty Ltd (in liq) v Australian Taxation Office (2002) 42 ACSR 501; [2002] NSWCA 264 where Mason P (with whom Handley and Giles JJA agreed) observed at 513 that in assessing solvency, the court will pay regard to an express or implied agreement between a company and its creditor for an extension of the time stipulated for payment. 135. Southern Cross Interiors Pty Ltd v Deputy Commissioner of Taxation (2001) 53 NSWLR 213; 39 ACSR 305 at [34]. 136. Calzaturificio Zenith Pty Ltd (in liq) v NSW Leather & Trading Co Pty Ltd [1970] VR 605 at 609. 137. 3M Australia Pty Ltd v Kemish (1986) 10 ACLR 371 at 378; 4 ACLC 185. 138. For cases disapproving the approach in Calzaturificio and Kemish see Re Toowong Trading Pty Ltd (in liq) [1989] 1 Qd R 207; 13 ACLR 121; Norfolk Plumbing Supplies Pty Ltd v Commonwealth Bank of Australia (1992) 6 ACSR 601; Hall v Aust-Amec Pty Ltd (unreported, Fed C of A, Lindgren J, 20 September 1994); Lee Kong v Pilkington (Aust) Ltd (1997) 25 ACSR 103; Cuthbertson & Richards Sawmills Pty Ltd v Thomas (1998) 28 ACSR 310; and Credit Corp Australia Pty Ltd v Atkins (1999) 30 ACSR 727. For cases following the approach in Calzaturificio see Taylor v Australia & New Zealand Banking Group Ltd (1988) 13 ACLR 780; 6 ACLC 808; Re Newark Pty Ltd (in liq); Taylor v Carroll [1993] 1 Qd R 409; 6 ACSR 255; Constantinidis v JGL Trading Pty Ltd (1995) 17 ACSR 625; Hamilton v BHP Steel (JLA) Ltd (1995) 13 ACLC 1548; Standard Chartered Bank of Australia Ltd v Antico (No 2) (1995) 38 NSWLR 290; 131 ALR 1; Brooks v Heritage Hotel Adelaide Pty Ltd (1996) 20 ACSR 61; and Pioneer Concrete (Vic) Pty Ltd v Stule (No 2) (1996) 20 ACSR 480. 139. Sycotex Pty Ltd v Baseler (1994) 51 FCR 425; 122 ALR 531 at 540 per Gummow J. 140. Southern Cross Interiors Pty Ltd v Deputy Commissioner of Taxation (2001) 53 NSWLR 213; 39 ACSR 305 at 306. Compare, however, the comments of Davies AJ in Iso Lilodw’ Aliphumelei Pty Ltd (in liq) v Commissioner of Taxation (2002) 42 ACSR 561; [2002] NSWSC 644 where his

Honour observed that the principles enunciated by Palmer J in the above quote may imply a legality or inflexibility which is inconsistent with the point that the ultimate issue is a question of fact. With respect, Davies AJ’s observation ignores the fact that Palmer J himself was highly cognisant that establishing insolvency was ultimately a question of fact. 141. Melbase Corp Pty Ltd v Segenhoe Ltd (1995) 17 ACSR 187; Southern Cross Interiors Pty Ltd v Deputy Commissioner of Taxation (2001) 53 NSWLR 213 at [54]; 39 ACSR 305 per Palmer J; Powell v Fryer (2001) 37 ACSR 589. 142. Melbase Corp Pty Ltd v Segenhoe Ltd (1995) 17 ACSR 187 at 199. 143. Southern Cross Interiors Pty Ltd v Deputy Commissioner of Taxation (2001) 53 NSWLR 213 at [54]. See also McLellan v Carrol (2009) 76 ACSR 67 at [124] per Goldberg J. 144. Bell Group Ltd (in liq) v Westpac Banking Corp (No 9) (2008) 39 WAR 1; 70 ACSR 1 at [1090]. See also Owen J’s comments in Bell Group (in liq) v Westpac Banking Corp (No 6) [2006] WASC 54 at [101]–[107]. 145. Lewis v Doran (2004) 208 ALR 385; 50 ACSR 175 at [106] and [116] per Palmer J. See also Taylor v Australia & New Zealand Banking Group (1988) 13 ACLR 780 at 784 per McGarvie J; Heide Pty Ltd v Lester (1990) 3 ACSR 159; 8 ACLC 958 at 963 per O’Bryan J; Pioneer Concrete (Vic) Pty Ltd v Stule (1994) 20 ACSR 475 at 478 per Harper J; Re Benjamin’s Furniture Pty Ltd (in liq); Levi v Guerlini (1996) 21 ACSR 543 at 545 per Acting Master Chapman; Levi v Guerlini (1997) 24 ACSR 159 at 163 per Malcolm CJ, Murray and Heenan JJ; Pegulan Floor Covering Pty Ltd v Carter (1997) 24 ACSR 651 at 655 per Doyle CJ; Powell v Fryer (2001) 159 FLR 433; 37 ACSR 589, Olsson J (with whom Duggan and Williams JJ agreed), at FLR 444–5; ACSR 600–1; Australian Securities and Investments Commission v Plymin (No 1) (2002) 4 VR 168; Iso Lilodw’ Aliphumeleli Pty Ltd (in liq) v Commissioner of Taxation (2002) 42 ACSR 561; 50 ATR 391; Keith Smith East West Transport Pty Ltd (in liq) v Australian Taxation Office (2002) 42 ACSR 501; Emanuel Management Pty Ltd v Foster’s Brewing Group Ltd (2003) 178 FLR 1; White Constructions (ACT) Pty Ltd (in liq) v White (2004) 49 ACSR 220; Ziade Investments Pty Ltd v Welcome Homes Real Estate Pty Ltd (2006) 57 ACSR 693 at [45] per Gzell J; Australian Securities and Investments Commission v Sydney Investment House Pty Ltd (2008) 69 ACSR 1 at [54] per Hamilton J; Coates Hire Operations Pty Ltd v D-Link Homes Pty Ltd [2011] NSWSC 1279 at [73]ff per White J; Re Warner v Hung; Bellpac Pty Ltd (recs and mgrs apptd)( in liq) (No 2) [2011] FCA 1123 at [167] per Emmett J; and Re Yelin Group Pty Ltd; Li v Jin [2012] NSWSC 74 at [67] per Ward J. 146. Sims v Deputy Commissioner of Taxation [2007] NSWSC 998 at [158]. 147. Mulherin v Bank of Western Australia Ltd; McCann v Bank of Western Australia Ltd [2006] QCA 175. 148. Referring to Re Newark Pty Ltd (in liq) [1993] 1 Qd R 409 at 413–14; 6 ACSR 255 at 259–60; Southern Cross Interiors Pty Ltd (in liq) v Deputy Commissioner of Taxation (2001) 53 NSWLR 213; 188 ALR 114; 39 ACSR 305; [2001] NSWSC 621 at [51]–[53]. 149. See, for example, Re Mike Electric (Aust) Pty Ltd (in liq) (1983) 1 ACLC 758; Re RHD Power Services Pty Ltd (in liq) (1990) 3 ACSR 261; compare Re Kerisbeck Pty Ltd (1992) 10 ACLC 619. 150. Mulherin v Bank of Western Australia Ltd; McCann v Bank of Western Australia Ltd [2006] QCA 175 at [114]–[115] per Muir J, McMurdo P agreeing. See also Williams (as liquidator of Scholz Motor Group Pty Ltd) (in liq) v Scholz [2008] QCA 94 at [109]–[110] and International Cat Manufacturing Pty Ltd (in liq) v Rodrick (2013) 97 ACSR 200 at [102]–[112] per Morrison JA with whom Gotterson and Holmes JJA agreed. 151. Leveraged Equities Limited v Hilldale Australia Pty Limited [2008] NSWSC 190 at [72]. 152. International Cat Manufacturing Pty Ltd (in liq) v Rodrick (2013) 97 ACSR 200 at [105] per Morrison JA, Holmes and Gotterson JJA agreeing.

153. International Cat Manufacturing Pty Ltd (in liq) v Rodrick (2013) 97 ACSR 200 at [107]–[108]. 154. Londish v Sheahan; Re Valofo Pty Ltd [2010] NSWSC 337 per Palmer J. See similarly the decision of Philip McMurdo J in First Strategic Development Corporation Ltd (in liq) v Chan [2014] QSC 60 where the Court found that the degree of preparedness of the director of the insolvent company in that case was not such as to provide a reliable source of funds by which the company became able to pay its debt as and when they fell due. 155. Lam Soon Australia Pty Ltd v Molit (No 55) (1996) 70 FCR 34. 156. Wily v Terra Cresta Business Solutions Pty Ltd [2006] NSWSC 1042 at [43] per Young CJ in Eq. 157. Hall v Poolman (2007) 65 ACSR 123 at [64]. 158. Leveraged Equities Ltd v Finance and Equity Pty Ltd [2007] NSWSC 1197 at [19]. 159. ASIC v Edwards (2005) 22 ALR 148; 54 ACSR 583 at [99]. See also Sims v Deputy Commissioner of Taxation [2007] NSWSC 998 at [158] per Hammerschlag J. 160. Sandell v Porter (1996) 115 CLR 666. 161. Sandell v Porter (1996) 115 CLR 666 at 670–1. See also Hymix Concrete Pty Ltd v Garritty (1977) 13 ALR 321 at 328; 2 ACLR 559 at 566 per Jacobs J; Expo International Pty Ltd (in liq) v Chant [1979] 2 NSWLR 820; 4 ACLR 679; Lewis (as liq of Doran Constructions Pty Ltd) (in liq) v Doran (2005) 54 ACSR 410 at [107] per Giles JA with whom Hodgson and McColl JJA agreed; Duncan v Commissioner of Taxation; Re Trader Systems International Pty Ltd (2006) 58 ACSR 555 at [37] per Young J; Crema Pty Ltd v Land Mark Property Developments Pty Ltd (2006) 58 ACSR 631 at [142] per Dodds-Streeton J; Hall v Poolman (2007) 65 ACSR 123 at [266]; [2007] NSWSC 1330 at [104] per Palmer J; Bell Group Ltd (in liq) v Westpac Banking Corp (No 9) (2008) 39 WAR 1; 70 ACSR 1 at [1090] per Owen J; Australian Securities and Investments Commission v Sydney Investment House Equities Pty Ltd (2008) 69 ACSR 1 at [52] per Hamilton J; Re McLellan; The Stake Man Pty Ltd v Carroll (2009) 76 ACSR 67 at [104] per Goldberg J; Jetaway Logistics Pty Ltd v Deputy Commissioner of Taxation (2009) 76 ACSR 404 at [12] per Maxwell P, Byrne and Williams AJA; Burness (as liquidator of Denward Land Pty Ltd (in liq)) v Supaproducts Pty Ltd (2009) 74 ACSR 1 at [54] per Gordon J; Sutherland as Joint Liquidators of Australian Coal Technology v Hanson Construction Materials Pty Ltd [2009] NSWSC 232 at [11] per Barrett J; Trinick (as liquidator of Australian Foods Co Pty Ltd (in liq)) v EM & RM Williams & Sons (A Firm) [2009] WASC 297 at [96] per Murphy J; Greig (as liquidators of Allens Services Ltd (in liq)) v Comissioner of Taxation (2010) 79 ACSR 101 at [18] per Wilson J; Buzzle Operations Pty Ltd (in liq) v Apple Computer Australia Pty Ltd (2010) 77 ACSR 410 at [202] per White J; Greig v Commissioner of Taxation [2010] QSC 247 at [18] per Wilson J; Dwyer (as joint and several liquidators of Harris Scarfe Ltd (recs and mgrs apptd) (in liq)) v Chicago Boot Co Pty Ltd (2011) 82 ACSR 193 at [16] per Sulan J; Bentley Smythe Pty Ltd v Anton Fabrications (NSW) Pty Ltd [2011] NSWSC 186 at [49] per Ward J; Re Bluechip Development Corporation (Cairns) Pty Ltd [2011] QSC 368 at [182] per Lyons J; Owenlaw Mortgage Managers Ltd v Shepparton Retail Investments Pty Ltd [2011] VSC 544 at [30] per Gardiner AsJ. 162. Hymix Concrete Pty Ltd v Garritty (1977) 13 ALR 321; 2 ACLR 559 at 566. 163. One rare example is Arena Management Pty Ltd (admin apptd) (rec and mgrs app) v Campbell Street Theatre Pty Ltd [2010] NSWSC 957. See the discussion at 2.59. 164. Queensland Bacon Pty Ltd v Rees (1966) 115 CLR 266 at 292. 165. Re Sarina; Ex parte Wollondilly Shire Council (1980) 32 ALR 596. 166. Re Sarina; Ex parte Wollondilly Shire Council (1980) 32 ALR 596 at 599. See also Harkness v Commonwealth Bank of Australia Ltd (1993) 12 ACSR 165; Australia and New Zealand Banking Group Ltd v Foyster [2000] FCA 400 at [17]; Re Touma (2000) 171 ALR 275; McLellan v Carroll (2009) 76 ACSR 67 at [117]; and see also the decision of Barrett J in Shakespeares Pie Co Australia

Pty Ltd v Multipye Pty Ltd [2005] NSWSC 1338 at [10]. 167. Australian Securities and Investments Commission v Plymin (No 1) (2003) 175 FLR 124; 46 ACSR 126 at [386]. 168. In Buzzle Operations Pty Ltd (in liq) v Apple Computer Australia Pty Ltd [2010] NSWSC 233 White J at [55] described non-payment of PAYG and payroll tax as ‘classic indicia of insolvency’. Similarly in Morkaya v Parkinson; Parkinson v Morkaya [2008] NSWSC 1050, Brereton J at [42] described unpaid tax debt as one of the ‘significant indicia of insolvency’. 169. See, for example, the decisions of Lewis v VI SA Australia Pty Ltd (2008) 68 ACSR 493 and Playspace Playground Pty Ltd v Osborn [2009] FCA 1486. 170. Lewis v Doran (2004) 208 ALR 385; 50 ACSR 175 at [75]. The holding back of cheques drawn in payment of creditors is another indicia of insolvency: Hall v Poolman (2007) 65 ACSR 123; [2007] NSWSC 1330 at [163]. 171. Pegulan Floor Covering Pty Ltd v Carter (1997) 24 ACSR 651 at 655 per Doyle CJ; Lewis v VI SA Australia Pty Ltd (2008) 68 ACSR 493 at [16] per Mansfield J. 172. Queensland Bacon Pty Ltd v Rees (1966) 115 CLR 266 at 302; [1966] ALR 855. 173. Roufeil v Gliderol International Pty Ltd [2011] FCA 847 at [21]–[22] per Jagot J. 174. Sutherland (as Joint liqs of Australian Coal Technology) v Hanson Construction Materials Pty Ltd (2009) 254 ALR 650; [2009] NSWSC 232 at [13] per Barrett J; Treadwell v Hickey [2009] NSWSC 1395 at [64] per Barrett J. 175. Crossroads Fashions Pty Ltd (in liq) v Gavin [2002] QSC 179 at [24] per Muir J. 176. Lewis v Doran (2004) 208 ALR 385 at [75]. 177. Re Ashington Bayswater Pty Ltd (in liq) [2013] NSWSC 1008 at [5] per Black J referring to Re Damalock Pty Ltd (in liq); Lewis and Carter as liquidators of Damalock Pty Ltd (in liq) v VI SA Australia Pty Ltd (2008) 68 ACSR 493; [2008] FCA 1801 at [16] per Mansfield J. 178. Morris v Danoz Directions Pty Ltd (in liq) (No 2) [2010] FCA 836. 179. Australian Securities and Investments Commission v Plymin (No 1) (2003) 175 FLR 124; 46 ACSR 126. 180. Morris v Danoz Directions Pty Ltd (in Liq) (No 2) [2010] FCA 836 at [13]. 181. See, for example, the differing opinions of the experts in Lewis v VI SA Australia Pty Ltd (2008) 252 ALR 533 at [77]–[78]. 182. See, for example, Duncan v Commissioner of Taxation; Re Trader Systems International Pty Ltd (in liq) (2006) 58 ACSR 555 per Young J (Federal Court). 183. Bell Group Ltd (in liq) v Westpac Banking Corp (No 9) (2008) 70 ACSR 1 at [1958]. 184. Lee Kong v Pilkington (Australia) Ltd (1997) 25 ACSR 103 at 120; 15 ACLC 1561, Frankly J and Murray J agreeing. 185. Lee Kong v Pilkington (Aust) Ltd (1997) 25 ACSR 103 at 120; 15 ACLC 1561. 186. See, for example, the rejection of ratios in Williams (as liquidator of Scholz Motor Group Pty Ltd) v Scholz [2007] QSC 266 at [28]–[31] per Chesterman J. 187. It is beyond the scope of this text to examine in detail the law of evidence. Specialised texts and commentary abound. See, for example, J D Heydon, Cross on Evidence, LexisNexis Butterworths, 2012. 188. M & R Jones Shopfitting Co Pty Ltd v National Bank of Australasia Ltd (1983) 7 ACLR 445 at 451 per Wootten J; Guthrie v Chandler; sub nom Re Transconsult Australia Pty Ltd (in liq) (1991) 5

ACSR 387 per Owen J; Nilant v Borden Australia Pty Ltd (unreported, FCA, Hill J, 26 June 1996). 189. Morris v Commissioner of Taxation [2007] QSC 320; Public Trustee (Qld) v Octaviar Ltd (2009) 73 ACSR 139 at [133]; Coates Hire Operations Pty Ltd v D-Link Homes Pty Ltd [2011] NSWSC 1279 at [66] per White J. See however the decision of Black J in Ashington Baywater Pty Ltd (in liq) [2013] NSWSC 1008 where his Honour observed that in Playspace Playground Pty Ltd v Osborn [2009] FCA 1486, Reeves J ‘suggested that the Briginshaw standard is applicable in determining whether a company was insolvent …’ In the context of insolvent trading claims under ss 588G and 588M, it is established that the onus of proof is to the balance of probabilities, that is subject to the Briginshaw standard: see 10.56. 190. Re Maldon Enterprises Pty Ltd (in liq); Melsom v United Development Corporation Group Pty Ltd (unreported, WASC, Ipp J, 19 February 1993); Welcome Homes Real Estate Pty Limited v Ziade Investments Pty Limited [2007] NSWCA 167 at [40] per Hodgson JA with whom Spigelman CJ and Santow JA agreed. 191. As opposed to prospective insolvency when resisting a winding up application: Lewis v Doran (2004) 208 ALR 385; 50 ACSR 175 at [107]. 192. Lewis v Doran (2004) 208 ALR 385; 50 ACSR 175 at [108]. 193. For a discussion of the admissibility of a liquidator’s report and what weight is attached to such a report see 2.48. 194. See s 9 of the Corporations Act for a definition of ‘book’. 195. Under the Uniform Evidence Acts such records may also be admissible under the business records exception found in s 69 of the Uniform Evidence Acts. In that regard see Rich v Australian Securities and Investments Commission (2005) 54 ACSR 365; [2005] NSWCA 233 at [8] where the New South Wales Court of Appeal observed that: ‘[t]he business record provisions of the Evidence Act and s 1305 of the Corporations Act provided alternative and cumulative bases for the decision to admit the documents into evidence’. 196. Australian Securities and Investments Commission v Rich (2005) 53 ACSR 752 at [227]. 197. Section 1305(2). See also s 1306 which sets out the form and evidentiary value of books. 198. Australian Securities and Investments Commission v Rich (2005) 53 ACSR 752 at [227] per Austin J. In a similar vein, the general law provides there is a prima facie presumption that documents are made on the date they bear: Dillon v Gange (1941) 64 CLR 253 at 261 per Starke J, 264–5 per Williams J. 199. See s 9 of the Corporations Act for the definition of the expression ‘financial records’ 200. It has been said that s 1305 does not apply to any document ‘retained’ by a company, but only to records which it is required to keep in a systematic or periodic fashion as required by the Act: Residues Treatment & Trading Co Ltd v Southern Resources Ltd (1989) 52 SASR 54 at 77 per Perry J. This observation, however, was expressly disapproved by Mullighan J in Duke Group Ltd (in liq) v Pilmer (1994) 63 SASR 364 at 369–74; 15 ACSR 255. The balance of authority appears to favour the observations of Perry J. See for example Caratti v R (2000) 22 WAR 527; [2000] WASCA 279 at [119] per Malcolm CJ, Kennedy and Anderson JJ agreeing who endorsed the observations of Perry J. For a discussion of the elements of s 1305 and the conflicting authorities on what documents are required to be ‘kept’ by a company see Australian Securities and Investments Commission v Rich (2005) 53 ACSR 752 at [233]ff per Austin J. 201. Australian Securities and Investments Commission v Rich (2005) 53 ACSR 752 at [296] per Austin J. See [233]ff of his Honour’s judgment for a full discussion of ss 286 and 1305 of the Act. 202. Guthrie v Radio Frequency Systems Pty Ltd (2000) 34 ACSR 572 at [32] and [50]. 203. R v Turner (No 17) (2002) 10 Tas R 388; [2002] TASSC 18.

204. Australian Securities and Investments Commission v Rich (2005) 53 ACSR 752 at [223]ff per Austin J; Australian Securities and Investments Commission v PFS Business Development Group Pty Ltd (2006) 57 ACSR 553 at [62]ff per Hargraves J. 205. Australian Securities and Investments Commission v Rich (2005) 53 ACSR 752 at [293] per Austin J. 206. Ostrgro Australia Pty Ltd v Syarrum Ostriches WAS Pty Ltd [2002] WASC 140 per Bredmeyer M at [8]–[9]. The position however is different for public companies: s 295. 207. Whitton as Trustee of Estate of Rose v Regis Towers Real Estate Pty Ltd (in admin) (2007) 241 ALR 617 at [59] per Buchanan J, Marshall and Tracey JJ agreeing: ‘Section 1305 of the Corporations Act does not elevate the entry to prima facie evidence that any such transaction (or series of transactions) exists.’ See likewise the Victorian Court of Appeal’s decision in Livingspring Pty Ltd v Kliger Partners (2008) 66 ACSR 455; [2008] VSCA 93. 208. Guthrie v Radio Frequency Systems Pty Ltd (2000) 34 ACSR 572 at [50]. Similarly, managerial reports to the board were also inadmissible (documents are not books required to be kept by a company by reason of the provisions of the Corporations Act). 209. Sheahan v Northern Australia Land & Agency Co Pty Ltd (1994) 176 LSJS 257 at 267–8. 210. Livingspring Pty Ltd v Kliger Partners (2008) 66 ACSR 455; [2008] VSCA 93 at [37] per Maxwell P and Buchanan JA. 211. Whitton v Regis Towers Real Estate Pty Ltd (2007) 161 FCR 20 per Buchanan J, Marshall and Tracey JJ agreeing. 212. Whitton v Regis Towers Real Estate Pty Ltd (2007) 161 FCR 20 at [59] per Buchanan J, Marshall and Tracey JJ agreeing. 213. L H K Nominees Pty Ltd v Kenworthy (2002) 26 WAR 517; [2002] WASCA 291. 214. L H K Nominees Pty Ltd v Kenworthy (2002) 26 WAR 517; [2002] WASCA 291 at [256] per Anderson and Steytler JJ, Pullin and Murray JJ agreeing. 215. Australian Securities and Investments Commission v PFS Business Development Group Pty Ltd (2006) 57 ACSR 553; [2006] VSC 192 at [74]. 216. Australian Securities and Investments Commission v Rich [2005] NSWSC 417 at [220]. 217. Re Action Waste Collections Pty Ltd (in liq); Crawford v O’Brien [1981] VR 691 at 699–700; 38 ALR 199. See also McVeigh (as liquidator of JAG Plastering & Carpentry Pty Ltd (Vic)) v Commissioner of Taxation [2004] FCA 653, where Finkelstein J (at [6]) followed what was said by Tadgell J in Re Action Waste Collections Pty Ltd (in liq); Crawford v O’Brien [1981] VR 691. 218. Australian Securities and Investments Commission v Macdonald (No 11) (2009) 71 ACSR 368; [2009] NSWSC 287 at [24]. 219. It is not proposed to discuss the rules of evidence in any detail. See, for example, J D Heydon, Cross on Evidence, LexisNexis Butterworths, 2012. 220. Potts v Miller (1940) 64 CLR 282 at 304; 14 ALJR 341. 221. In New South Wales, Tasmania, Victoria, Northern Territory and Commonwealth Courts: s 69 of the Uniform Evidence Act (business records); Queensland: s 84 of the Evidence Act 1977 (books of account); Western Australia: ss 73A–73B, 73N, 73Q and 73U of the Evidence Act 1906; Northern Territory: s 42B of the Evidence Act 1939; South Australia: s 45CA of the Evidence Act 1929. 222. As mentioned above a detailed examination of the law of evidence is beyond the scope of this work. See for example J D Heydon, Cross on Evidence, LexisNexis Butterworths, 2012 at Chapter 15 ‘Opinion’.

223. See 2.12. 224. Spencer v VMD Packaging Pty Ltd [2001] NSWCA 118 at [53] per Heydon JA, Hodgson CJ in Eq and Davies AJA agreeing. 225. Sandell v Porter (1966) 115 CLR 666 at 670; 40 ALJR 71. 226. Potts v Miller (1940) 64 CLR 282; R v Seifert (1955) 73 WN (NSW) 358; Enston v Pardel (1957) 75 WN (NSW) 370; Quick v Stoland Pty Ltd (1998) 157 ALR 615 at 625–6. See also Arena Management Pty Ltd (admin apptd) (rec and mgrs apptd) v Campbell Street Theatre Pty Ltd [2010] NSWSC 957 at [51] per Palmer J. In Spassked Pty Ltd v Commissioner of Taxation (No 2) (2002) 49 ATR 642; [2002] FCA 489 at [13]–[14] Lindgren J referred to Potts v Miller as allowing an accountant who has inspected financial records to ‘summarise their effect’ in evidence. 227. Potts v Miller (1940) 64 CLR 282 at 303. See also the comments of Gibbs J in Re Montecatini’s Patent (1973) 47 ALJR at 169: ‘… when the books [of a company] are produced, or their production is not insisted on, an accountant who has examined them may state their general effect’. 228. Quick v Stoland Pty Ltd (1998) 157 ALR 615 at 618. The distinction between evidence of ‘fact’ and evidence of ‘opinion’ assumes a dichotomy which it is not always easy to draw: see the discussion of Branson J at 618–19. 229. Makita (Aust) Pty Ltd v Sprowles (2001) 52 NSWLR 705; [2001] NSWCA 305 at [59] per Heydon JA. See also Australian Securities and Investments Commission v Rich (2005) 54 ACSR 326 at [104] per Spigelman CJ, Giles and Ipp JJA agreeing. 230. Davie v Lord Provost, Magistrates and Councillors of the City of Edinburgh 1953 SC 34 at 39–40 per Lord President Cooper cited with approval by Heydon JA in Makita (Aust) Pty Ltd v Sprowles (2001) 52 NSWLR 705; [2001] NSWCA 305 at [59]. 231. Davie v Lord Provost, Magistrates and Councillors of the City of Edinburgh 1953 SC 34 at 39–40 per Lord President Cooper cited with approval by Heydon JA in Makita (Aust) Pty Ltd v Sprowles (2001) 52 NSWLR 705; [2001] NSWCA 305 at [59]. 232. In jurisdictions where the Uniform Evidence Act operates, the High Court has observed that s 76(1) of the Uniform Evidence Act ‘expresses the opinion rule in a way which assumes that evidence of an opinion is tendered “to prove the existence of a fact”’: Dasreef Pty Ltd v Hawchar (2011) 277 ALR 611 per French CJ, Gummow, Hayne, Crennan, Kiefel and Bell JJ at [31]. 233. Makita (Aust) Pty Ltd v Sprowles (2001) 52 NSWLR 705; [2001] NSWCA 305 at [68] per Heydon JA. 234. Makita (Aust) Pty Ltd v Sprowles (2001) 52 NSWLR 705; [2001] NSWCA 305 at [87] per Heydon JA. 235. The Uniform Evidence Act applies to proceedings in courts in New South Wales, Tasmania, Victoria, the Australian Capital Territory, the Northern Territory and a ‘federal court’ as defined: Evidence Act 1995, s 4. 236. Makita (Aust) Pty Ltd v Sprowles (2001) 52 NSWLR 705; [2001] NSWCA 305 at [85]. 237. Quick v Stoland (1998) 87 FCR 371; 157 ALR 615 at 619. 238. Quick v Stoland (1998) 87 FCR 371; 157 ALR 615 at 619. 239. Quick v Stoland (1998) 87 FCR 371; 157 ALR 615 at 624. 240. Quick v Stoland Pty Ltd (1998) 87 FCR 371; 157 ALR 615 at 624 per Emmett J. Finkelstein J similarly observed that: ‘[I]f the accountant seeks to do no more than state what is otherwise obvious from such records his evidence is not receivable. The position is different where some analysis of the books and records is required in order to draw the inferences that are sought to be made or if an analysis of those books and records might prove to be a difficult task for the judge or

jury’: at 626. 241. Sydneywide Distributors Pty Ltd v Red Bull Australia Pty Ltd (2002) 55 IPR 354; [2002] FCAFC 157. 242. Sydneywide Distributors Pty Ltd v Red Bull Australia Pty Ltd (2002) 55 IPR 354; [2002] FCAFC 157 at [7]. Weinberg and Dowsett JJ took a similar approach at [77] where their Honours observed that the use of the words ‘strictly speaking’ by Heydon JA at [85] of Makita v Sprowles should not be overlooked. Weinberg and Dowsett JJ’s approach to Makita v Sprowles was approved by the Court of Appeal in Adler v Australian Securities and Investments Commission (2003) 179 FLR 1 at 138 per Giles JA with whom Mason P and Beazley JA agreed, a position repeated in Paino v Paino (2008) 40 Fam LR 96 at 110–12 per Hodgson and McColl JJA. 243. See, for example, Neowarra v State of Western Australia [2003] FCA 1399 per Sundberg J; Dorajay Pty Ltd v Aristocrat Leisure Ltd [2005] FCA 1483 per Stone J; Morris v Danoz Directions Pty Ltd (in liq) (No 2) [2010] FCA 836 per Perram J. 244. Quick v Stoland (1998) 87 FCR 371; 157 ALR 615 at 624 at 619. See also Cadbury Schweppes Pty Ltd v Darrell Lea Chocolate Shops Pty Ltd [2006] FCA 363 at [7] per Heerey J. 245. Re Tellsa Furniture Pty Ltd (1985) 81 FLR 185; 9 ALR 869 at 871. 246. See, for example, the comments of Austin J in Dean-Willcocks v Commonwealth Bank of Australia (2003) 45 ACSR 564; [2003] NSWSC 466 at [13] and Notaras v Hugh [2003] NSWSC 167 at [3]– [8]. 247. Dean-Willcocks v Commonwealth Bank of Australia (2003) 45 ACSR 564; [2003] NSWSC 466. 248. This is a modified form of a list suggested by Emmett J in Quick v Stoland Pty Ltd (1998) 157 ALR 615 at 622. 249. Sims v Deputy Commissioner of Taxation (2007) 69 ATR 185; [2007] NSWSC 998 at [126]–[127]. 250. Sims v Deputy Commissioner of Taxation (2007) 69 ATR 185; [2007] NSWSC 998 at [150], [164]. 251. Nilant v Borden Australia Pty Limited (unreported, Federal Court of Australia, Hill J, 26 June 1995). 252. M & R Jones Shopfitting Co Pty Ltd v National Bank of Australasia Ltd (1983) 68 FLR 282; 7 ACLR 445 at 451. 253. Sandell v Porter (1966) 115 CLR 666. 254. Sandell v Porter (1966) 115 CLR 666 at 672. 255. Arena Management Pty Ltd (admin apptd) (rec and mgrs apptd) v Campbell Street Theatre Pty Ltd [2010] NSWSC 957. 256. Keith Smith East West Transport Pty Ltd (in liq) v Australian Taxation Office (2002) 42 ACSR 501; [2002] NSWCA 264. 257. Cadima Express v Deputy Commissioner of Taxation (1999) 157 FLR 424; 33 ACSR 527 per Austin J and S J P Formwork (Aust) Pty Ltd (in liq) v Deputy Commissioner of Taxation (2000) 34 ACSR 604; [2000] NSWSC 604 per Santow J. See also Dean-Willcocks v Commissioner of Taxation (No 2) (2004) 49 ACSR 325; [2004] NSWSC 286; Hall (as liquidators of Reynolds Wines Ltd) v Commissioner of Taxation [2004] NSWSC 985 per Barrett J; Cooper as liquidator of Wanted World Wide (Australia) Ltd (in liq) v Commissioner of Taxation (2004) 210 ALR 635; [2004] FCA 1063 per Lander J; and Young v Commissioner of Taxation (2006) 56 ACSR 654 per Tamberlin J. 258. Crosbie v Commissioner of Taxation (2003) 130 FCR 275; 21 ACLC 1659 per Finkelstein J. 259. See, for example, Cooper as liquidator of Wanted World Wide (Australia) Ltd (in liq) v Commissioner of Taxation (2004) 210 ALR 635; [2004] FCA 1063 per Lander J; Young v Commissioner of Taxation (2006) 56 ACSR 654 per Tamberlin J; Re Harris Scarfe Ltd (recs and

mgrs apptd) (in liq); Dwyer v R-Jay Pty Ltd (2007) 62 ACSR 287; [2007] SASC 115 at [16] per Debelle J; and Greig v Deputy Commissioner of Taxation [2011] QSC 129 at [6] per Lyons J. 260. Re Harris Scarfe Ltd (recs and mgrs apptd) (in liq); Dwyer v R-Jay Pty Ltd (2007) 62 ACSR 287; [2007] SASC 115 at [16] per Debelle J. 261. Dean-Willcocks v Commissioner of Taxation (No 2) (2004) 49 ACSR 325; [2004] NSWSC 286 at [25]–[28]. 262. See, for example, Crosbie v Commissioner of Taxation (2003) 21 ACLC 1659; Dean-Willcocks v Commissioner of Taxation (No 2) (2004) 49 ACSR 325; [2004] NSWSC 286; Harris v Commissioner of Taxation [2006] 2 Qd R 445; Young v Commissioner of Taxation (2006) 56 ACSR 654; and Sims v Deputy Commissioner of Taxation [2007] NSWSC 998 per Hammerschlag J at [117]. 263. See s 588E(1) of the Corporations Act for a definition of ‘recovery proceedings’. 264. Commenced on 23 June 1993. 265. Australian Law Reform Commission, General Insolvency Inquiry, Report No 45, Volume 1 at [290]. 266. EM to the CLR Bill at [1015]–[1021]. 267. Section 588E(1) defines ‘recovery proceeding’ as meaning (a) an application under section 588FF by the company’s liquidator; or (b) proceedings begun under subsection 588FH(2) by the company’s liquidator; or (c) proceedings, in so far as they relate to the question whether a security interest created by the company is void to any extent, as against the company’s liquidator, because of subsection 588FJ(2); or (d) proceedings begun under subsection 588FJ(6) by the company’s liquidator; or (e) roceedings for a contravention of subsection 588G(2) in relation to the incurring of a debt by the company (including proceedings under section 588M in relation to the incurring of the debt but not including proceedings for an offence); or (f) proceedings under section 588W in relation to the incurring of a debt by the company. 268. Rebuttal of this presumption is likely to require that the company’s insolvency be affirmatively proved: Levi v Guerlini (1997) 24 ACSR 159; 15 ACLC 913. 269. EM to the CLR Bill at [1020]. 270. The requirement to keep financial records is found in s 286(1). 271. The requirement to retain financial records is found in s 286(2). 272. See 2.70. 273. EM to the CLR Bill at [1021]. See, for example, Re Lawrence Warehouse Pty Ltd (in liq) [2011] NSWSC 964 at [230ff]. See, for example, Levi v Guerlini (1997) 24 ACSR 159; Kenna & Brown Pty Ltd (in liq) v Kenna [1999] NSWSC 533 where Bergin J found that the company had falsified some of its books and records; ASC v Forem Freeway Enterprises Pty Limited (1999) 30 ACSR 339; Crossroads Fashions Pty Ltd (in liq) v Gavin [2002] QSC 179; Gibbons v Deputy Commissioner of Taxation [2003] NSWSC 936; Zappia v Grant Baines Transport Pty Limited [2010] NSWSC 98; Shaw v Minsden Pty Ltd [2011] NSWSC 964. Cf Re Ashington Baywater Pty Ltd (in liq) [2013] NSWSC 1008 per Black J at [40]ff per Black J. 274. Fisher v Divine Homes Pty Ltd (2011) 85 ACSR 512; [2011] NSWSC 8. 275. Fisher v Divine Homes Pty Ltd (2011) 85 ACSR 512; [2011] NSWSC 8 at [23]. 276. Fisher v Divine Homes Pty Ltd (2011) 85 ACSR 512; [2011] NSWSC 8 at [25]–[27]. 277. EM to the CLR Bill at [1020]–[1021]. 278. Simar Transit Mixes Pty Ltd v Baryczka (1998) 28 ACSR 238 at 243 per Millhouse J, Doyle CJ and Nyland J agreeing.

279. Fisher v Divine Homes Pty Ltd (2011) 85 ACSR 512; [2011] NSWSC 8 at [24]. 280. Woodgate v Fawcett (2008) 67 ACSR 611; [2008] NSWSC 868. 281. Re SSET Construction Pty Ltd; Sims v Khattar [2010] NSWSC 102 at [37]–[38] per Austin J. 282. Section 588E(6). 283. Re Harris Scarfe Ltd (recs and mgrs apptd) (in liq); Dwyer v R-Jay Pty Ltd (2007) 97 SASR 377; 62 ACSR 287. See also Woodgate as liquidator of Marketing Results Pty Ltd v Network Associates International BV [2007] NSWSC 1260. 284. Re Kazar; Frontier Architects Pty Ltd (in liq) (2010) 81 ACSR 158 at [86] per Flick J. 285. The doctrine was originally known as the doctrine of ‘relation’. Under the Bankrupts Act 1571 (13 Eliz I c 7) there was an unlimited relation-back period. Under the doctrine a trader was deprived from the moment of committing an act of bankruptcy, of all power of charging or disposing of his property to the prejudice of his creditors: see Harkness v Partnership Pacific Ltd (1997) 23 ACSR 1 at 24. 286. See Re Carl Hirth; Ex parte the Trustee [1899] 1 QB 612 at 623, where Lindley MR referred to relation back as a ‘doctrine … peculiar to bankruptcy’ which enabled the trustee to override transactions and dealings, following an act of bankruptcy, in order to recover the property of the bankrupt. 287. Harmer Report at [696]. 288. Westpac Banking Corporation v Bell Group Ltd (in liq) (No 3) (2012) 89 ACSR 1 at [2645]. 289. Westpac Banking Corporation v Bell Group Ltd (in liq) (No 3) (2012) 89 ACSR 1 at [2645]. 290. Westpac Banking Corporation v Bell Group Ltd (in liq) (No 3) (2012) 89 ACSR 1 at [2645]. 291. Issitch v Worrell (2000) 172 ALR 586; [2000] FCA 477 at [36]; Westpac Banking Corporation v Bell Group Ltd (in liq) (No 3) (2012) 89 ACSR 1 at [2645]. 292. See also CBA Corporate Services (NSW) Pty Ltd v Walker and Moloney; Re ZYX Learning Centres Ltd (recs and mgrs apptd) (in liq) (2013) 95 ACSR 135 at [64]ff per Foster, Barker and Griffths JJ. 293. Harmer Report at [635]. 294. EM to the CLR Bill at [392]. 295. Section 588FE was introduced by the CLRA 1992, with effect from 23 June 1993: see EM to the CLR Bill at [1049]–[1054]. The section has a long heritage: see, for example, s 265 of the Companies Act 1929 (UK), s 320 of the Companies Act 1948 (UK), s 293 of the Uniform Companies Act, s 451 of the Companies Code and s 565 of the Corporations Law. 296. EM to the CLR Bill at [1049]. 297. The present insolvency regime in the United Kingdom contains a similar concept in s 240 of the Insolvency Act 1986 (UK) known as the ‘onset of insolvency’. 298. EM to the CLR Bill at [364]. 299. See 2.73. 300. See 3.67ff. 301. See 3.67ff. 302. Section 588FE(2)(b)(i). 303. Section 588FE(2)(b)(ii). 304. In calculating time practitioners should be aware of s 105 of the Act which provides that without

limiting s 36(1) of the Acts Interpretation Act 1901, in calculating how many days a particular day, act or event is before or after another day, act or event, the first-mentioned day, or the day of the first-mentioned act or event, is to be counted but not the other day, or the day of the other act or event. 305. See 2.76. See Chapter 8 for a discussion of when a transaction will be voidable. 306. Section 513A(e). 307. The s 513C day in relation to the administration of a company is: (a) if, when the administration began, a winding up of the company was in progress — the day on which the winding up is taken because of this Division to have begun; or (b) otherwise — the day on which the administration began. See for example Olsen v Nodcad Pty Ltd (1999) 32 ACSR 118 per Austin J. 308. Telfer v Astarra Securities Pty Ltd [2010] NSWSC 682 at [19]. 309. See s 513B of the Corporations Act for provisions on voluntary winding up. 310. Section 588FF(3)(a)(i) requires claims concerning voidable transactions to be commenced (or at least an application by the liquidator for an extension of time: s 588FF(3)(a)(ii)) within three years of the relation-back day. See 11.31ff. 311. See, for example, Harris Scarfe Ltd (in liq) (No 3) [2007] SASC 218 (per Gray J); Re Octaviar Limited [2008] QSC 216 (McMurdo J); Re Octaviar Ltd (No 8) [2009] QSC 202 (McMurdo J); Deputy Commissioner of Taxation v TMPL Pty Ltd (subject to deed of company arrangement) (2010) 80 ACSR 528 per Perram J citing with approval Public Trustee (Qld) v Octaviar Ltd (2009) 73 ACSR 139; [2009] QSC 202 at [184] per McMurdo J; Plumbers Supplies Co-operative Limited v Firedam Civil Engineering Pty Ltd [2011] NSWSC 325 Barrett J; Workers Compensation Nominal Insurer v Perfume Empire Pty Ltd [2011] NSWSC 379 per Barrett J; Re Great Southern Ltd (recs and mgrs apptd) (in liq); Ex parte Thackary [2012] WASC 59 per Sanderson M. See further the decision of Santow J in Deputy Commissioner of Taxation v ACN 001 330 203 Pty Limited (in liq) (formerly Bertram & Son Pty Limited) (unreported, Supreme Court of New South Wales, Santow J, 6 August 1999) where the court found that the appointment of the administrator was a nullity, the purported voluntary administration had no effect and the relation-back day accordingly commenced on the date the summons for winding up was first filed: at [8]. 312. This table does not refer to the six month time period referred to in subsection 588FE(2). See 2.73. 313. The extended time period for transactions involving a ‘related entity’ follows a recommendation made by the Harmer Commission that ‘a related person who is a creditor for an insolvent is more likely to be aware of the financial affairs of the insolvent and may be able to exert influence to gain some advantage … [and] experience has shown that related person creditors are more likely to be favoured by the insolvent when financial difficulties emerge’: at [636]. For a discussion of section 588FE(4) see 8.16. The expression related entity is defined in s 9 of the Corporations Act.

[page 121]

3 Transaction INTRODUCTION 3.1 At the heart of Pt 5.7B is the ‘voidable transaction’. As explained in Chapter 8, that compound expression is used to describe various transactions that may be ‘voidable’1 because of the operation of any one or more of subsections 588FE(2) to (6). Section 588FE of the Corporations Act describes five species of voidable transaction:2 1.

an unfair preference within the meaning of s 588FA;3

2.

an uncommercial transaction within the meaning of s 588FB;4

3.

an insolvent transaction within the meaning of s 588FC;5

4.

an unfair loan to the company within the meaning of s 588FD;6 and

5.

an unreasonable director-related transaction of the company within the meaning of s 588FDA.7

3.2 The central and common concept to each of these types of voidable transactions, save for s 588FD, is that of ‘transaction’. As will be seen below, the expression ‘transaction’ has been given a broad interpretation by the courts in part because of the wide statutory ‘definition’8 in s 9 and also because of the historically wide forms of transactions susceptible to being avoided in bankruptcy law.9 By contrast, s 588FDA, which deals with unreasonable director-related transactions, applies if and only if the transaction is of a particular kind specified in s 588FDA(1)(a). [page 122]

The express stipulation of the types of transaction in s 588FDA(1)(a) has the effect of confining the operation of the section to dealings that are far narrower than the meaning of ‘transaction’ that applies for the other provisions in Pt 5.7B. 3.3 Sections 588FA to 588FE inclusive are concerned only with the delineation and definition of types or classes of transactions.10 If the court is satisfied that a transaction is a ‘voidable transaction’ because of s 588FE then the only jurisdiction that is enlivened is the jurisdiction to make an order under s 588FF.11 In Edenden v Bignell, Barrett J explained the operation of ss 588FA– 588FE as follows: … They lay down criteria against which a transaction must be assessed in order to decide whether it comes within a particular class of transactions relevant to the operation of other statutory provisions. A conclusion that a transaction falls within one or more of the classes relevant to the operation of Div 2 of Pt 5.7B does not, of itself, cause any right or obligation to arise. In particular, a conclusion that a particular transaction is a ‘voidable transaction’ does not indicate the availability of general law contractual remedies in relation to the transaction. ‘Voidable transaction’ is merely a statutory label relevant to the working of the statutory provisions which refer to ‘voidable transactions’. It is not a characterisation for the purpose of the law of contract.12

THE HARMER REPORT 3.4 The Harmer Report13 specifically recommended an extensive definition of the term ‘transaction’ to capture a wide range of means through which the property of a company may be disposed.14 When enacting Pt 5.7B, Parliament expressly adopted the suggested expansive definition. As Parliament observed in the Explanatory Memorandum to the Corporate Law Reform Bill 1992 (EM to the CLR Bill): The proposed definition is based on a recommendation of the Harmer Report and will be sufficiently extensive as to embrace a wide range of means by which property may be disposed of. The definition applies to each of the reviewable transaction provisions. The definition extends the description of transactions to which the corresponding provision of the

[page 123] Bankruptcy Act section 122 relates to. Section 122 of the Bankruptcy Act refers only to ‘a conveyance or transfer of property, a charge on property, or a payment made, or an obligation incurred’.15

3.5 The recommendation of the Harmer Report that the term ‘transaction’ be extensively and inclusively defined was accepted by Parliament and inserted into

the then Corporations Law by virtue of the Corporate Law Reform Act 1992 (Cth) (CLRA). As will be seen below, the statutory concept of transaction in the Corporations Act is now significantly broader than that which existed under the previous regime.

HISTORICAL DEVELOPMENT 3.6 As explained in Chapter 1, historically, the law of bankruptcy in England became concerned with conduct by insolvent persons who sought to parcel out their estates to creditors that they saw fit to prefer, thereby undermining the principle of equality and just distribution of the assets of the bankrupt between a debtor’s creditors. The early English preference provisions16 avoided ‘payments, sales or contracts’ made after an act of bankruptcy and during the relation back period. The history of the early English provisions in this context was set out by French J (as he then was) in Re Kastropil; Ex parte Official Trustee in Bankruptcy: In 1571, 13 Eliz 1 c 5 was enacted and declared all conveyances and dispositions of property, real or personal, made with the intention of defrauding creditors to be null and void against them. 13 Eliz 1 c 7, ‘An act touching orders for bankrupts’, was enacted in the same year and made provision for the appointment of Commissioners to administer the bankrupt’s estate. 1 Jac 1 c 15, passed in 1604 as ‘An act for the better relief of the creditors of such as shall become bankrupts’ provided for the avoidance as against the Bankruptcy Commissioners of transactions whereby the bankrupt ‘shall convey, or procure or cause to be conveyed’ property to his children or other person or persons. A similar collocation appeared in s 73 of 6 Geo IV c 16 (1825) directed to the case where a bankrupt, being at the time insolvent, ‘shall … have conveyed, assigned or transferred to any of his Children or any other Person,’ any of various classes of real or personal property there set out … The term ‘settlement’ made its first appearance in English bankruptcy legislation when the Bankruptcy Act 1869 was enacted. Section 91 provided: Any settlement of property made by a trader not being a settlement … made in favour of a purchaser or incumbrancer in good faith

[page 124] and for valuable consideration … shall, if the settlor becomes bankrupt within two years after the date of such settlement, be void as against the trustee of the bankrupt appointed under this Act, … … ‘Settlement’ shall for the purposes of this section include any conveyance or transfer of

property. Similar verbiage appeared in the relevant parts of s 47(1) of the Bankruptcy Act 1883 (UK), save for the deletion of the limiting reference to traders. The inclusive definition of ‘settlement’ was retained. Section 47(1) was reproduced as s 42(1) of the Bankruptcy Act 1914 (UK). It appeared in the Bankruptcy Act 1924 (Cth) and is substantially reflected in s 120(1) of the Bankruptcy Act 1966. The definition of ‘settlement’ however, is extended from ‘any conveyance or transfer of property’ to ‘any disposition’. [emphasis added]17

As French J explains, the scope of transactions susceptible to being avoided by a court in the insolvency context has expanded markedly over the centuries. This broad scope is now made clear by the expansive meaning of transaction in s 9 of the Act.

MEANING OF TRANSACTION 3.7 In modern English the word ‘transaction’ is the noun of the transitive verb ‘transact’, and is thought to have entered Middle English from the Late Latin word ‘transactio’.18 In Late Latin, the word ‘transactio’ is a feminine third declension noun that means a deal, business arrangement or negotiated settlement.19 The word ‘transaction’ appeared in Middle English around 1460 with the meaning ‘the adjustment of a dispute’, although in 1647 it had an attested meaning of ‘a piece of business’. In Modern English the general usage meaning of ‘transaction’ is a piece of especially commercial business done, a deal or the management of business.20 3.8 The word ‘transaction’ is not a term of art.21 The Shorter Oxford English Dictionary defines transaction as meaning: ‘to carry through [page 125] negotiations; to have dealings, do business; to treat; also, to manage or settle affairs … to carry on, do business.’ Similarly, the Macquarie Dictionary defines the word as ‘an affair; a piece of business’. The emphasis of the word ‘transaction’ is on commercial activity or the conducting of business and is not concerned with the legal formalities of the activity.22 Hence, an unlawful transaction is still a transaction for the purposes of Part 5.7B.23 Modern cases have construed the word ‘transaction’ broadly both in Australia24 and in

England. For example, in Re Taylor Sinclair (Capital) Ltd (in liq); Knights v Seymour Pierce Ellis Ltd,25 a liquidator brought a claim for repayment of moneys alleging there were transactions at an undervalue within the meaning of s 238 of Insolvency Act 1986 (UK). The issue was whether there was a transaction for the purposes of s 238. In finding that there was a transaction, his Honour observed: It is right to say that the word ‘transaction’ as a matter of ordinary language embraces a potentially wide range of possibilities. Furthermore, the inclusive definition of s 436 of the 1986 Act is of broad ambit. It reads: ‘transaction’ includes a gift, agreement or arrangement, and references to entering into a transaction shall be construed accordingly. Doubtless, one should be wary of circumscribing the width of the statutory language of s 238 lest the evident policy of the section be undermined. Nevertheless, as I read the section it does envisage that, apart perhaps from the case of a mere gift which is expressly included within ss 238 and 436, a transaction will be something which involves at least some element of dealing between the parties to the transaction. Not only is this implicit in the word ‘transaction’ itself, but it is reinforced by the references in s 238 to (a) the ‘entry into’ a transaction (b) ‘with a person’ and (c) ‘on terms that provide’. Whilst plainly an actual contract is not required in order for there to be a transaction, the language of the section is redolent of contract and mutual dealing.26

Those comments apply with equal force to the s 9 definition of transaction which, as seen below, seeks to define transaction by reference to various examples. [page 126]

Transaction — Corporations Act provisions 3.9 As mentioned above, the recommendation of the Harmer Commission that the term ‘transaction’ be extensively and inclusively defined was accepted by Parliament when enacting the CLRA. The Dictionary in s 9 of the Corporations Act gives the term ‘transaction’ the following meaning: … in Part 5.7B, in relation to a body corporate or Part 5.7 body, means a transaction to which the body is a party, for example (but without limitation): (a) a conveyance, transfer or other disposition by the body of property of the body; and (b) a security interest granted by the body in its property (including a security interest in the body’s PPSA retention of title property); and (c) a guarantee given by the body; and (d) a payment made by the body; and

(e) an obligation incurred by the body; and (f)

a release or waiver by the body; and

(g) a loan to the body; and includes such a transaction that has been completed or given effect to, or that has terminated.

3.10 The current definition is an evolution of the definition introduced in 1992 by the CLRA.27 While the recommendations of the Harmer Report maintained the ‘broad policy’ of the Bankruptcy Act 1966 concerning avoidance of antecedent transactions, there were some significant differences in approach, particularly to the definition of the concept of a transaction.28 As seen in Chapter 1, the voidable transaction provisions have their origin in the law of bankruptcy. The examples in the s 9 definition of transaction are reminiscent of the types of transactions stipulated in the various avoidance provisions of the bankruptcy acts as they evolved over time. Section 76 of the Joint Stock Companies Act 185629 for example provided that a ‘conveyance, transfer, mortgage, delivery of goods, payment or other act’ in relation to property done by a company could be declared void if deemed to be a fraudulent or unfair preference.30 [page 127] The various examples given have accordingly well developed meanings in the insolvency law and these are discussed in more detail at 3.32ff. 3.11 It has been said that s 9 does not define ‘transaction’ at all, but rather, and merely, provides a list of examples,31 which are ‘non-definitive’,32 or … through the process of exemplification typify the forms of conduct or dealing engaged in by a company that will be characterised as a transaction for its purposes.33

The examples given however suggest that the concept of transaction is a wide one.34 As Barrett J said in Australian Kitchen Industries Pty Ltd v Albarran: The relevant concept of ‘transaction’ is, as the definition implies, very broad. Its breadth is illustrated by a number of cases in which a series of steps, over a period, involving several parties and not always contractual consequences, have been held to be a ‘transaction’. ‘Transaction’ includes an arrangement giving rise to an estoppel under which one party may not resile from a position. And, as the definition itself makes clear (for example, by referring to a disposition of property), a ‘transaction’ may be unilateral in character. These matters are made clear by the decision of the Full Federal Court in Re Emanuel (No 14) Pty Ltd (in liq); Macks v Blacklaw & Shadforth Pty Ltd and those of the Court of Appeal in Bartercard Ltd v Wily and Somerset Marine Inc v New Cap Reinsurance Corp (in liq).’35

3.12 The examples given in the s 9 meaning of ‘transaction’ have the

common characteristic that the conduct or dealing engaged in by the debtor company has the consequence of effecting a change in its rights, liabilities or property.36The meaning of ‘transaction’ in s 9 of the Act is not exhaustive37 and includes steps taken over a period of time and [page 128] involving a number of parties38 that have been completed, effected or terminated.39 As Black J explained in Campbell Street Theatre Pty Ltd (rec and mgr apptd) (in liq) v Commercial Mortgage Trade Pty Ltd: … A series of dealings may constitute a transaction if they are connected in being directed to bring about a change in the company’s rights, liabilities or property: Re Emanuel (No 14) Pty Ltd (in liq); Macks v Blacklaw & Shadforth Pty Ltd above; Tosich Construction Pty Ltd (in liq) v Tosich (1997) 78 FCR 363; 15 ACLC 637. The characterisation of the entry into the Loan Agreement, Mandate Agreement and Charge as a single transaction is supported by the links between the relevant agreements, so that the Loan Agreement provided for advances in respect of services under the Mandate Agreement and the Charge secured the performance of Campbell Street’s obligations under the Loan Agreement and the Mandate Agreement. No party contended to the contrary before me.40

3.13 The types of conduct or dealing that may constitute a ‘transaction’ are therefore not closed, and it is open to the court to characterise other kinds of conduct or dealing, in which the relevant common characteristics can be identified, as a ‘transaction’ for the purposes of Pt 5.7B.

Section 588FDA restricted to specific types of transactions 3.14 As explained in Chapter 7, the unreasonable director-related transaction provisions in s 588FDA only apply to transactions of the kind set out in s 588FDA(1)(a), which are: a payment made by the company; or a conveyance, transfer or other disposition by the company of property of the company; or the issue of securities by the company; or the incurring by the company of an obligation (including a contingent obligation) to make such a payment, disposition or issue.

[page 129] 3.15 In contrast to the definition in s 9, which by its terms is inclusive and therefore not limited, s 588FDA is a closed category that identifies the types of dealings to which it applies, and which are far narrower than the meaning of ‘transaction’ given in s 9. The transaction must however still be a ‘transaction of a company’.41

Purposive approach to construction 3.16 When construing the term ‘transaction’, s 15AA of the Acts Interpretation Act 1901 (Cth) requires the court to prefer the interpretation that would best achieve the purpose or object of an Act, whether or not that purpose or object is expressly stated in the Act, to each other interpretation.42 As explained in Chapter 1, the purpose of the voidable transaction provisions is to ensure that unsecured creditors are not prejudiced by the disposition of assets or the incurring of liabilities by a company in a period shortly before the winding up, which would have the effect of favouring certain creditors or other persons, and especially related entities.43 3.17 Section 15AB(1) of the Acts Interpretation Act expressly permits the use of extrinsic material in the interpretation of an Act to: confirm that the meaning of a provision is the ordinary meaning conveyed by the text of the provision taking into account its context in the Act and the purpose or object underlying the Act; or resolve issues of ambiguity or obscurity, or where the ordinary meaning otherwise conveyed by the text of the provision leads to a result that is manifestly absurd or is unreasonable. Before using extrinsic material or considering the weight to be given to such material, s 15AB(3) requires the court to consider the desirability of persons being able to rely on the ordinary meaning of the text of the provision taking into account its context in the Act and the purpose or object underlying the Act, the need to avoid prolonging legal or other proceedings without some compensating advantage, and any other relevant matters. The practical consequence of s 15AB(1) and (3) is, in most cases, the primacy of the ordinary meaning conveyed by the text of the provision in its context, and informed by the object

or purpose underlying the Act. Significantly, s 15AD of the Acts Interpretation Act provides that where an Act includes examples of the operation of a provision, as does the meaning of ‘transaction’ in s 9, the example is not exhaustive, and the example may extend the operation of the provision. [page 130] 3.18 The approach to construction required by the Acts Interpretation Act is not, for practical purposes, materially different to that required by the former s 109H of the Corporations Law. The approach was described, in a different statutory context, in Brookfield Multiplex Ltd v International Litigation Funding Partners Pte Ltd: Moreover, the modern approach to construction emphasises the need to construe the provision in its context, having regard to, inter alia, the legislative history and relevant extrinsic material in order to ascertain the ‘mischief’ which the statute is intended to cure: CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384 at 408; 141 ALR 618 at 634–5 (Bankstown Football Club). The starting point is to consider the context in its widest sense, and this process may be undertaken without any reliance on s 15AB of the Acts Interpretation Act: Bankstown Football Club at CLR 408; ALR 634–5; see also Kennon v Spry (2008) 251 ALR 257; [2008] HCA 56 at [89]. I do not consider that this is inconsistent with the observations of Mason J in Australian Softwood Forests.[44] His Honour referred at CLR 129; ALR 262; ACLR 50 to the importance of context. His remarks at CLR 130; ALR 262–3; ACLR 50–1 about the comprehensive language of the definition must be considered in light of the statements in the explanatory memorandum to the Managed Investments Bill which point to the difficulties of the earlier definition and the search for greater certainty in the new definition of ‘managed investment scheme’. This is not to cast any doubt on the authorities, which I accept, to the extent that they discourage the reading down of the broad language of the definition influenced by any preconceptions of the unintended impact of the definition on particular transactions.45

3.19 In Demondrille Nominees Pty Ltd v Kevin R Shirlaw & Cornelis Holdings Pty Ltd (in liq)46 the Full Court of the Federal Court, in characterising a transaction for the purposes of a claim under the uncommercial transactions provisions in s 588FB, relied on the EM to the CLR Bill and said: The purpose or object of the provisions is to prevent a depletion of the assets of a company which is being wound up by, relevantly, ‘transactions at an under-value’ entered into within a specified limited time prior to the commencement of the winding up: see explanatory memorandum,

[page 131] para 1014. To construe the expression ‘uncommercial transaction’ to catch the agreement in the way in

which we have done promotes the purpose or objects of the provisions …47

3.20 Young J discussed the practical considerations of that approach in McDonald v Hanselmann48 and noted: … there seem to be some inconsistencies in the approach of the division which need to be examined bearing in mind its object. Section 588FB focuses on the company. The prime thrust is that one takes a reasonable person in the company’s circumstances and asks whether that person would have entered into the transaction. To do this, one focuses on the benefits and detriment to the company in entering into the transaction. However, one then has to focus as well on the benefits to the other parties to the transaction. It is not completely clear why one does this as a matter of logic, but the purpose behind the division was mainly to stop transactions to related entities or to relatives. Then, if an order is to be made, under s 588FF(1)(c) one does not look to the detriment suffered by the company at all, but rather ‘some or all of the benefits’ that the purchaser has received. Why the words ‘some or all’ appear is unclear. Mr Smith submitted that they show that the court has a discretion. Although this is odd when one is really making someone atone for an uncommercial transaction, it may well be the case because s 588FF(1) of the Law does use the word ‘may’.

Young J ultimately concluded that the court should incline to favour that construction of s 588FB that benefits the unsecured creditors in whose interests the liquidator acts, and then consider whether the impugned transaction resulted in the recipient receiving a gift or obtaining a bargain of such magnitude that it could not be explained by normal commercial practice.49 3.21 In Re Emanuel (No 14) Pty Ltd (in liq); Macks v Blacklaw & Shadforth Pty Ltd50 the Full Court observed that s 122 of the Bankruptcy Act 1966 particularised the types of transaction that would constitute a preference if they satisfied the other requirements. In contrast, the provisions in Pt 5.7B refer only to a ‘transaction’ possessing particular characteristics and ‘the s 9 definition, while exemplifying ‘transactions’, makes no attempt to define the word itself’. It was for this reason that the Full Court warned that while decisions under the earlier provisions would provide useful guidance to [page 132] the interpretation of Pt 5.7B51, care needed to be taken to ensure that proper account is taken of the significant textual differences between the old and the new regimes.52 The Full Court also noted the more expansive net cast by the new approach and said that a dealing might constitute a ‘transaction’ for the purpose of Pt 5.7B that would not have been caught by any one of the types of transaction specified in s 122 of the Bankruptcy Act 1966.

ELEMENTS OF THE S 9 DEFINITION OF TRANSACTION Body corporate 3.22 As mentioned above, the s 9 definition of transaction applies ‘in relation to a body corporate’. The expression ‘body corporate’ is defined in s 9 to include a body corporate that is being wound up or has been dissolved. The cognate concept of ‘body’ is defined in s 9 to mean a body corporate or an unincorporated body and includes, for example, a society or association. It is unclear why the legislature chose to use the more awkward phraseology of ‘body corporate’ rather than the word ‘company’ when defining transaction for the purposes of Part 5.7B. As explained below, in order for a transaction to by voidable under Part 5.7B, the transaction must be that ‘of a company’, or in the case of s 588FDA ‘by the company.’ The word company is in turn defined to mean a company registered under the Corporations Act and in Part 5.7B includes a Part 5.7 body. 3.23 Under s 119 of the Corporations Act, a company comes into existence as a body corporate at the beginning of the day on which it is registered. Section 119 impliedly suggests that a company comes into existence with the attributes given by the common law to a body corporate, except so far as the Corporations Act or other legislation modifies or supplements those attributes.53 The expression ‘body corporate’, emanates from the general (or common) law where it refers to vehicles to which the legal system, by the process of incorporation, has given the capacity to have legal rights and duties as a fictional legal person.54

Part 5.7 body 3.24 The expression ‘Part 5.7 body’ is defined in section 9 to mean: ‘(a) a registrable body that is a registrable Australian body and: [page 133] (i)

is registered under Division 1 of Part 5B.2; or

(ii) is not registered under that Division but carries on business in this jurisdiction55 and

outside its place of origin56; or (b) a registrable body that is a foreign company and: (i)

is registered under Division 2 of Part 5B.2; or

(ii) is not registered under that Division but carries on business in Australia; or (c) a partnership, association or other body (whether a body corporate or not) that consists of more than 5 members and that is not a registrable body;

but does not include an Aboriginal and Torres Strait Islander corporation.’ 3.25 A ‘registrable body’ is in turn defined to mean ‘a registrable Australian body or a foreign company’. A ‘registrable Australian body’ means: (i)

a body corporate57 that is not a company, an exempt public authority or a corporation sole; or

(ii) an unincorporated body that, under the law of its place of formation may sue or be sued or hold property in the name of an officer appointed for that purpose; but does not include a foreign company.58 3.26 The concept of a Pt 5.7 body is directed towards entities other than corporations formed under the Act, including foreign corporations, chartered and other types of corporations,59 bodies corporate that are not [page 134] companies,60 unincorporated associations and bodies, public authority corporations (although they may, by virtue of exemption, not be a ‘registrable Australian body’ and therefore fall outside the meaning),61 and partnerships (with more than five partners).62 Subparagraph (c) of the meaning of ‘Pt 5.7 body’ in s 9 contains what appears to be a catchall clause that refers to ‘other body (whether corporate or not)’. The Corporations Act does not, however, contain any meaning for, explanation or indication of, the type or nature of the entities that will constitute an ‘other body’, and the issue is yet to receive judicial consideration. 3.27 Div 3 of Pt 1.2 of the Corporations Act contains meanings for ‘carrying on business’ in Australia or in a State or Territory (s 21) and otherwise than for profit (s 18) which nevertheless constitutes ‘carrying on business’. Section 19 provides that a reference to ‘business of a particular kind’ will include where that

kind of business is part of, or carried on in conjunction with, other business, and s 20 provides that ‘carrying on business’ can be alone or in conjunction with others. Section 21 of the Corporations Act deals with carrying on business, and provides that a body carries on business in Australia if it has a place of business in Australia or in a State or Territory. Section 21(2) provides that a body will be treated as carrying on business if it establishes or uses a share transfer office or share registration office in Australia or in the State or Territory; or if it administers, manages or otherwise deals with property [page 135] situated in Australia or in the State or Territory as an agent, legal person representative or trustee. Section 21(3) provides that a body corporate does not carry on business in Australia ‘merely because’ it does certain things.63

‘To which the body is a party’ 3.28 Section 9 of the Corporations Act provides, unhelpfully, that a ‘party’ means: … in relation to a transaction that has been completed, given effect to, or terminated, includes a person who was a party to the transaction.

The Macquarie Dictionary defines party as meaning, relevantly, ‘a person immediately concerned in some transaction or legal proceeding’64 and explains its etymology as deriving from the Middle English word ‘parti(e)’, which in turn derived from the Old French ‘partir’ or ‘part.’ The etymology of ‘party’ suggests that all that is required for A to be ‘party to’ a transaction, is that A is part of what happened in that transaction. If, for example, the transaction is the theft of A’s property, A is, a party to the transaction, even though not involved in any deliberate activity in connection with that transaction.65 3.29 In Cashflow Finance Pty Ltd (in liq) v Westpac Banking Corp66 Einstein J found that the underlying policy of preference provisions (such as s 588FA) supported a wider meaning of the term ‘party’ where the secretary of a company disbursed money outside the scope of his or her authority by selectively paying certain favoured creditors. His Honour said that the liquidator in that case should not be in any worse position than if the same payments had been made with full authority of the board. There is no requirement that a ‘transaction’ be one in

which the company [page 136] is the active party.67 In Young v Commissioner of Taxation68 the issue was whether a payment to the defendant made by a third party allegedly on behalf of an insolvent company was a ‘transaction’ for the purposes of ss 588FA, 588FC and 588FF(1). Palmer J rejected the argument that the payment was not a ‘transaction to which the company is a party’ because the company did not make the payment, and found that the company was party to a ‘transaction’ whereby money was borrowed from a third party and paid to the defendant, at the company’s direction, in reduction of its tax liability. This conclusion was fortified by the existence of certain entries in the company’s books concerning the transaction.69 3.30 Likewise, a ‘transaction’ can include elements in which the company does not participate at all,70 and there is no requirement of knowledge, or consent, or voluntary participation in the notion of being a ‘party’ to a transaction.71 In New Cap Reinsurance Corp Ltd v Somerset Marine Inc72 the court considered a motion to strike out a claim by a liquidator for repayment of certain moneys received by the defendant pursuant to reinsurance treaties. The actual payments were made through letters of credit established in support of the reinsurance treaties, to which the defendant argued it was not party. Gzell J found that the defendant’s acceptance of the letters of credit as discharging the plaintiff’s indebtedness to them required their authorisation and consequently there was a transaction between them, albeit part of a larger transaction. 3.31 While the courts have adopted an expansive view of ‘party’ in this context, the concept does have its limits. So, in Re Pacific Hardware Brokers (Qld) Pty Ltd73 a director used funds of the company to purchase an engagement ring for a woman who became his wife. The liquidator sought to recover the ring under s 588FF on the basis that the purchase of the ring was an uncommercial transaction of the company. The key issue in the case was whether the wife was a ‘party to the transaction’ since s 588FG prohibits the making of an order materially prejudicing the right or interest of a person other than a party to a transaction if the

[page 137] person received the benefit in good faith and at the time it was received the person had no reasonable ground for suspecting the company was or would become insolvent because of entering into the transaction.74 The wife gave unchallenged evidence that as far as she was aware her husband had paid for the ring and that she knew nothing of her husband’s business activities or whether the company was solvent or insolvent at the time she received the ring. The liquidator failed in his attempt to recover the ring on the basis that the director’s new wife was not on the facts a ‘party’ to the transaction within the meaning of s 588FG. As Mackenzie J explained: She was the recipient of the ring and benefited thereby. She had input into its design. Nevertheless she was not a party to the transaction in the sense contemplated by s 588FG. The liquidator has not challenged her evidence that she was not aware of the source of the funds and, in particular, her evidence that she was not aware that funds were to be derived from the company. If the facts had been as she believed them to be, she would have been entitled to the ring as between her and her husband on the basis that a gift in contemplation of marriage is a gift conditional upon marriage occurring, which condition was fulfilled by her … Whether a person fits the description of a party to the transaction will depend to a degree on the facts of the individual case. In the present case she was not a party to the transaction and, on the evidence, fits the other criteria which protect her against an order under s 588FF.

An order was however made against the director ordering him repay to the company the purchase price of the ring.

Conveyance 3.32 The ordinary meaning of ‘conveyance’ is, relevantly, ‘the transfer of property from one owner to another’ or ‘a document effecting’ the transfer.75 A conveyance, typically, is an instrument by which an interest in land is transferred.76 As Kitto J explained in Robert Reid Pty Ltd v Cassidy: A more important consideration, however, is to be found in the natural meaning of the words ‘conveyance’, ‘transfer’ and ‘charge’, as used in relation to property. No doubt the first two of those words may be used in an appropriate context to include a payment of money, but normally they connote the execution of a formal instrument.77

[page 138] 3.33 In the insolvency context, the word is of wide import.78 Nonetheless, in the bankruptcy context at least, there was a conceptual difference between a

‘conveyance’ and ‘payment.’ As Menzies J explained in Robert Reid Pty Ltd v Cassidy: Whether a payment by a debtor to his creditor is in truth a ‘conveyance or transfer’ by a debtor of his property can perhaps be most easily tested by taking the case of a debtor whose account is in debit giving his creditor a cheque upon his overdrawn account which is in due course honoured by his bank. What would happen in such a case is simply that the debtor’s liability to his bank would be increased. It would be inaccurate to say that the debtor has conveyed or transferred any of his property to his creditor. Indeed, it is only when payment is made in cash that it may be thought that the payment could fall within the description of a conveyance or transfer of the debtor’s property but, as I have said, a payment in cash should not be considered in isolation from other payments. Furthermore, to pay what one owes, even if the payment be in cash, does not fall easily within the description of a person making a conveyance or transfer of his property to his creditor. As to the nature of a payment in money, see Nussbaum, Money in the Law, pp 22 et seq.79

Transfer 3.34 The ordinary and natural meaning of the word ‘transfer’ is the conveying of a property right from one person to another as a result of an act performed by the transferor with the intention that the property would pass.80 In the context of s 121(1) of the Bankruptcy Act 196681 at least, the word ‘transfer’ bears its ordinary meaning82 and there is no reason why the word ‘transfer’ should not bear its ordinary meaning in the context of s 9 of the Corporations Act. McKerracher J of the Federal Court of Australia summarised the general meaning of transfer in Healey v Commissioner of Taxation in the context of s 104-60(1) of the Income Tax Assessment Act 1997 (Cth): The term ‘transfer’ has been seen as being one of broad import. For example, in Gathercole v Smith (1881) 17 Ch D 1 (at 7), ‘transfer’ was said to be ‘one of the widest terms’ that can be used. It has been used in

[page 139] many contexts, including for an unregistered ‘assignment or transfer’ of book debts: see National Bank of Australia v Falkingham [1902] AC 585. A gift of money was a ‘transfer of property’ within s 47(3) of the Bankruptcy Act 1883 (UK) (s 52) (Re Player, Ex p Harvey, No 1 (1885) 54 LJ QB 533 (see Bankruptcy Act 1914 (ss 59 and 42(4)). A conveyance of shares in consideration of natural love and affection was a ‘transfer’ within ss 14, 15 and 16 of the Companies Clauses Consolidation Act 1845 (UK) (s 16), and was not a ‘transmission’ within s 18 and s 19 (Copeland v North Eastern Railway 6E and B 277; see also Nanney v Morgan (1887) Ch D 603 at 604). In relation to a transfer of shares, it has related to a legal title to shares (Ireland v Hart [1902] 1 Ch 522). A transfer of shares in a company was held not to include a letter signed by a shareholder abandoning his rights to bonus shares in favour of a nominee: see Re Poole Shipping Co [1920] 1 Ch 251.83

3.35 ‘Transfer’ is clearly a word of wide import. In the bankruptcy context,

for example, the following have been taken to constitute transfers of property: granting a mortgage or charge84 or other security;85 severing a joint tenancy;86 issuing shares in a company that diluted other shareholders’ interests;87 and forgiving a debt.88 In Re Trendent Industries Pty Ltd (in liq)89 Needham J held that a seizure of goods pursuant to a contractual retention of title clause transferred the possession, and the right to possession, of the goods, was a transfer of ‘property’ within the meaning of s 122 of the Bankruptcy Act 1966, which was then incorporated into the Companies Act 1961 (NSW).

Disposition 3.36 The ordinary meaning of ‘disposition’ is a bestowal, by deed or will, or control and the power of disposal.90 In Benson v Cook,91 the Full [page 140] Court of the Federal Court considered, inter alia, whether transactions in which moneys were rolled over from one superannuation fund to another were dispositions and settlements within the meaning of ss 120 and 121 of the Bankruptcy Act 1966. In finding that the relevant transactions were dispositions, Beaumont J quoted approvingly from the following decision of Jacobs JA in the New South Wales Court of Appeal decision of Roache v Australian Mercantile Land & Finance Co Ltd (No 2): In a legal context, disposition means the act of disposing or disposing of … Disposing of, in this sense, means dealing with definitely or a getting rid of or a getting done with a particular item … It usually refers in this particular meaning to a making over of an item by way of sale or bargain because then there is a definite dealing with the item and a getting rid of it, a finishing with it.92

Hence, a mortgage of property will be a disposition of property93 as will a payment94 of money.95 3.37 There is considerable jurisprudence concerning the term ‘disposition of property’ in the context of s 468 of the Corporations Act, and its predecessors, which renders void certain dispositions after the commencement of a winding

up, and in that context the phrase is widely construed.96 In Mosaic Oil NL v Angari Pty Ltd (No 2)97 Young J said: The words ‘dispose’ or ‘disposition’ may have very wide meanings depending on the context: see, eg, Henty House Pty Ltd (In Vol Liq) v Federal Commissioner of Taxation (1953) 88 CLR 141 at 152 and McGain v Federal Commissioner of Taxation (1966) 116 CLR 172. Even presenting one’s own bankruptcy petition may amount to a disposition, Re Cotgrave Mynors v Cotgrave [1903] 2 Ch 705 and In Marriage of Bassola; Official Trustee in Bankruptcy (Intervener) (1985) 10 Fam LR 413.

For the purposes of s 468 and its predecessors, ‘disposition of property’ has been held to include a sale,98 payment of money,99 the granting of [page 141] an encumbrance100 and the relinquishment of rights under a security.101 A direction to a third party for payment is a disposition.102

‘By the body’ 3.38 With the exception of subpara (g), each item of the definition of ‘transaction’ in s 9 of the Corporations Act refers to an act or specified type of dealing ‘by the body’. In Nilant v Plexipack Packaging Services Pty Ltd103 Nicholson J said that the words ‘by the body’ govern the scope of the definition and the relevant ‘body corporate’ is that which is said to have entered into a transaction, which must be the active party.104 Nilant was an unfair preference claim brought by a liquidator arising from the sale by an insolvent company of its business to a third party on terms which required that part of the purchase price was to be paid to a creditor of the company. Nicholson J rejected the claim on the basis that the contract of sale was not a ‘transaction’ for the purposes of s 588FA(1)(a) because the creditor who received the part of the sale price, thereby extinguishing the company’s debt, was not a party to the contract. In doing so, his Honour applied the decision of the Full Court of the Supreme Court of Victoria in Ramsay v National Australia Bank Ltd105 and specifically the following passage where the Full Court was construing the words ‘a payment made … by’ in s 451(1) of the Companies (Victoria) Code: We have seen no authority for the proposition that a payment out of his own moneys by B to C, pursuant to a contractual obligation to discharge A’s debt to C, an obligation imposed upon B by a contract between A and B, can be said to be a payment made by A to C. The words of s 451 must be given their ordinary, natural meaning.

3.39 Nicholson J’s decision in Nilant however was reversed by the Full Court

of the Federal Court in Re Emanuel (No 14) Pty Ltd (in liq); Macks v Blacklaw & Shadforth Pty Ltd106 for two reasons. First, it was [page 142] not correct to say that the company was not a party to the extinguishment of its debt to the creditor because the purchaser of the business made the payment, as the purchaser required the company’s authorisation to make the payment to the creditor. As the Court explained: In so far as it is suggested that A was not party to the extinguishment of C’s debt brought about by B’s payment, we note again that A’s authorisation of B’s payment is necessary to discharge the debt, save in exceptional cases of no present relevance: see generally Beatson, supra, Ch 7; Goffand Jones, supra, p 17 and especially footnote 2. In this way A is a party to the extinguishment even if it be said A is not a party to the payment itself.107

3.40 Second, the ‘language’ of the s 9 meaning of transaction exemplified but did not define ‘transaction’ and did not preclude a finding that the transaction was made up of composite dealings in not all of which the company participated, but to which it was still a party: We confine our observations for present purposes simply to a course of dealing initiated by a debtor for the purpose of, and having the effect of, extinguishing a debt. It is not apparent to us why it should not be said that, where a debtor so acts and extinguishes a debt, the relevant ‘transaction’ is the totality of the dealings through which the debtor procures the intended outcome, irrespective of whether one or more of the dealings in the sequence in question does not involve or require the participation of the debtor but does require that of a third party. The transaction, in other words, is the totality of the dealings initiated by the debtor so as to achieve the intended purpose of extinguishing the debt.108

3.41 In reaching their conclusion, the Full Federal Court expressly criticised the passage referred to above in Ramsay v National Australia Bank Ltd:109 We have, with respect, some difficulty with this conclusion. Before a payment made by B to C can be effective to discharge A’s debt to C, ordinarily it must be made with A’s authorisation or ratification: see Mason and Carter, Restitution Law in Australia, para 846 (Butterworths, Sydney, 1995); Goffand Jones, The Law of Restitution, p 17 (4th ed, Sweet and Maxwell, London, 1993); and see generally on payment of another’s debt, Beatson, The Use and Abuse of Unjust Enrichment, Ch 7 (Clarendon Press, Oxford, 1991). Where a payment is so made it can properly be said that it is A’s act that makes B’s payment efficacious at

[page 143] law to discharge the debt to C. This, of itself, does not provide reason for saying that the payment itself is made by A. Nonetheless where that payment constitutes part of the consideration B furnished and A

required in the A-B contract and where, inter alia, that consideration is in the final settlement of the obligations inter se of A and B, then we see no compelling reason for not concluding that A has made the payment to C albeit by using B as its instrument for the purpose. It is, though, unnecessary to consider either [t]his matter or Ramsay’s case further for reasons we give below.110

3.42 Shortly after the Full Federal Court handed down its decision in Re Emanuel, the High Court delivered its judgment in Sheahan v Carrier Air Conditioning Pty Ltd & Campbell.111 In Sheahan, the High Court considered the question of whether or not two payments made by the receiver of a company constituted ‘payments’ by that company for the purposes of s 122(1) of the Bankruptcy Act, as incorporated into the Corporations Law by s 565(1).112 A plurality of the Court, comprising Dawson, Gaudron and Gummow JJ,113 held that the relevant payments were to be characterised as payments made by the receiver rather than as payments made by the company. In arriving at this conclusion the plurality expressly approved the above-mentioned passage from the Victorian Full Court decision in Ramsay v National Australia Bank Ltd,114 the same passage which a few weeks before the Full Federal Court had expressly criticised. After referring to Ramsay, the plurality of the High Court concluded: The result, as applied to the present case, is that, even if the payments by the receiver out of the s 421 account are to be characterised as made pursuant to a contractual obligation of the receiver to Carrier and Air Con to discharge TOC’s pre-receivership debts to them, there has been no payment, within the meaning of the preference provisions, made by TOC to Carrier and Air Con. The payments, to adapt the terms used by McLelland CJ in Eq in Craftsman Modern Constructions Pty Ltd (in liq) v National Bank of Australasia Ltd [[1968] 2 NSWR 71 at 76] were not

[page 144] made from moneys belonging to TOC, nor in any relevant sense were they made by an agent of TOC.

3.43 Although the Full Court’s comments in Emanuel regarding Ramsay were obiter and did not expressly form the basis of the Full Court’s reasoning, the High Court’s decision in Sheahan potentially undermines the Full Court’s conclusions in Emanuel. According to Sheahan, a transaction is not ‘by’ a company unless it is made from moneys belonging to the company or made by an agent of the company. The point however does not appear to have been fully articulated in subsequent decisions115 and Re Emanuel has been consistently referred to approvingly.116 There accordingly is some uncertainty as to the precise scope of the meaning of ‘transaction’ in s 9 and whether the expression ‘by the body’ should be read down which would achieve an outcome consistent with that achieved in Sheahan.

3.44 Subsequent cases have held that the expression ‘by the body’ should be widely construed.117 For example, in Cashflow Finance Pty Ltd (in liq) v Westpac Banking Corp Einstein J found that the expression ‘by the body’ caught transactions where an officer of the body was acting dishonestly and outside the scope of his authority.118 The now settled construction of the term ‘the body’ in the context of the s 9 definition of ‘transaction’ was set out by Barrett J in New Cap Reinsurance Corporation Ltd (in liq) v Renaissance Reinsurance Ltd,119 an unfair preference case: To the extent that s 588FA(1)(a) requires the company to be a ‘party’, it repeats or reinforces one of the elements of ‘transaction’ dictated by the applicable s 9 definition of that term. All but one of the examples of ‘transaction’ mentioned in the definition focus upon the act of the company (or, as it is called there, the ‘body’) — paras (a)–(f) all start with an abstract noun followed by ‘by the body’, with a connecting verb in several cases (‘created’, ‘given’, ‘made’ or ‘incurred’).

[page 145]

Property of the body 3.45 The Dictionary in s 9 defines ‘property’ as: … any legal or equitable estate or interest (whether present or future and whether vested or contingent) in real or personal property of any description and includes a thing in action.

3.46 The expression ‘interest’ in relation to land is in turn defined in s 9 to include a legal or equitable estate or interest in the land or a right, power or privilege over, or in relation to, the land. For the purposes of Pt 5.7B the meaning of property is ‘affected by’ s 588C, which extends the meaning to include property subject to certain security interests by the operation of ss 267 or 267A of the Personal Property Securities Act 2009 (Cth) (PPSA)120 and s 588FL of the Corporations Act 2001 (Cth).121 Section 588C provides: ‘property’ of a company includes PPSA retention of title property, if the security interest in the property is vested in the company because of the operation of any of the following provisions: (a) (property subject to unperfected security interests); (b) section 588FL of this Act (collateral not registered within time).

3.47 The interpretation of the expression ‘security interest’ is generally dealt with in Pt 1.2 Div 6A of the Corporations Act (ss 51–51F). That expression and related concepts are discussed in detail in Chapter 9.

Guarantee 3.48 The expression ‘guarantee’ is not defined in the Act. The ordinary meaning of guarantee is relevantly ‘a formal promise that an obligation will be fulfilled’ or a document giving that undertaking.122 Samuels JA explained the concept in St Martins Grosvenor Pty Ltd v American Home Assurance Co: A guarantee is a collateral engagement to answer for the debt, default or miscarriage of another person (Bank of New South Wales v Permanent Trustee Co of New South Wales Ltd (1943) 68 CLR 1 at 11 per Latham CJ) and the event upon which its obligation is conditioned may be that other person’s failure to pay an existing debt, or one shortly to arise, or to perform some duty. It is given in support of the primary liability of a third person.123

[page 146] 3.49 In St Martins Grosvenor, Samuels JA considered the submission that an insurance bond provided in substitution of a retention fund under a building contract was a guarantee. His Honour found that the contention was without substance unless the bond could be regarded as a guarantee, or in the nature of a guarantee, and the defendant as a surety. Samuels JA went on to say that he had hesitation in concluding that a bond by an insurance company to pay could be said to be anything else than a primary obligation, not a secondary obligation to discharge a liability only if the principal debtor fails in his duty.124 3.50 The mere fact that a document may be labelled a guarantee does not necessarily mean that in substance a guarantee exists. So, in Wood Hall Ltd v Pipeline Authority,125 the High Court considered the effect of a document called a ‘Bank Guarantee’ in which a bank unconditionally undertook to pay to an authority, upon demand, a sum up to the limit specified as security for a contractor’s due and faithful performance of the construction of certain pipelines. Barwick CJ said: … The description ‘guarantee’ commercially applied to the bank documents in this case is, in my opinion, a complete misnomer. The relationship of the bank to the owner or to the contractor has, in my opinion, none of the elements of suretyship … there is no basis whatever upon which the unconditional nature of the bank’s promise to pay on demand can be qualified by reference to the terms of the contract between the contractor and the owner.126

3.51 Likewise in Hortico (Aust) Pty Ltd v Energy Equipment Co (Aust) Pty Ltd, Young J considered a ‘guarantee’ which provided relevantly: The Commonwealth Bank of Australia 367 Collins Street, Melbourne hereby undertakes to hold itself responsible to [Energy Australia] on behalf of Hortico Aust Pty Ltd for the sum of $570,000 (Five

hundred and seventy thousand dollars) with regard to design, supply, installation and commissioning of one fluidised finafire boiler and housing to be installed at Yallah NSW. The Bank will be responsible for the said sum until a notification has been received from you either that such sum is no longer required by you or that you desire payment to be made to you of the whole thereof or the balance remaining after any payment or payments.’

[page 147] After referring to Wood Hall, Young J concluded that the only possible construction of the document was that it was an unconditional promise to pay by the bank upon demand by Energy Australia.127

Payment 3.52 ‘Payment’ is not defined in the Corporations Act. The term ‘payment’ is very wide128 and its ordinary meaning is the ‘act or instance of paying’ or an ‘amount paid’.129 In Beckhaus Civil Pty Ltd v Brewarrina Shire Council (No 2), Macready M observed: The Oxford English Dictionary defines the verb ‘pay’ to mean: ‘To give (a person) what is due in discharge of a debt, or as a return for services done, or goods received, or in compensation for injury done; to remunerate, recompense.’ In turn, ‘payment’ is defined as ‘[t]he action, or an act, of paying.’ From this it can readily be concluded that the touchstone of the ordinary and natural meaning of the expressions ‘to pay’ and ‘receives payment’ in the present context is the act of a debtor transferring by way of satisfaction whatever is owed by him or her to a creditor. It therefore follows that the defendant’s payment to the plaintiff of the judgment debt arising from the summary judgment of 18 October 2002 falls within this definition on the basis that it is not concerned with any restrictions on the right of the payee to apply the funds paid, but merely the act of payment in itself.130

The precise meaning of ‘payment’ will vary depending on the context in which it is used. For example, in PT Berlian Laju Tanker TBK v Nuse Shipping Ltd (The Aktor),131 a case concerning the sale of a ship, Clarke J said: Whether or not payment has occurred will depend on whether funds have been transferred by ‘any commercially recognised method of transferring funds, the result of which is to give the transferee the unconditional right to the immediate use of the funds transferred’: see The Brimnes, Tenax Steamship Co Ltd v Brimnes (owners) [1973] 1 All ER 769 at 782, [1973] 1 WLR 386 at 400; [1974] 3 All ER 88 at 98, 110, [1975] QB 929 at 948, 963 and A/S Awilco v Fulvia SpA di Navigazione, The Chikuma [1981] 1All ER 652 at 656, [1981] 1 WLR 314 at 318 …

[page 148]

3.53 A more expansive interpretation was given by Walton J in Garforth v Newsmith Stainless Ltd.132 In that case, a company approved bonuses to two directors who were also the controlling shareholders. The bonuses were credited directly to the directors’ current accounts with the company on which they were entitled to draw at any time. The question was whether that gave rise to a ‘payment’ of each bonus within the meaning of section 204 of the Income and Corporations Taxes Act 1970 (UK). His Honour observed that if moneys are placed by one person unreservedly … at the disposal of any other person, that, I think, must be equivalent to payment.’ 3.54 There is some uncertainty as to whether the relevant payment need be from the body’s own money.133 In Octavo Investments Pty Ltd v Knight134 the High Court concluded that in ascertaining who made a ‘payment for the purposes of s 122(1) of the Bankruptcy Act 1966 (Cth), ownership of the money from which the payment is made is not determinative.135 By contrast, in the subsequent High Court decision in Sheahan v Carrier Air Conditioning Pty Ltd & Campbell136 a plurality of the High Court suggested that in order to constitute a payment by the company in the context of s 122(1) the payment a transaction is not ‘by’ a company unless it is made from moneys belonging to the company or made by an agent of the company.137 However, the Full Federal Court’s decision of Emanuel138 suggests that in order for there to be payment ‘by’ the body, the body need to necessarily be a party to the transaction or all discrete aspects of that transaction.139

Obligation 3.55 Obligation is also one of the examples referred to in the Dictionary meaning of ‘transaction’, but not defined in the Act.140 The ordinary [page 149] meaning of obligation is ‘the constraining power of a law, precept, duty, contract … a duty; a burdensome task …a binding agreement, esp. one enforceable under legal penalty; a written contract or bond …141 At general law, the primary meaning of ‘obligation’ is ‘a tie’,142 contractual or statutory, including by delegated legislation.143 3.56 In Dodlot Ltd v Hartogen Energy Ltd,144 the court was asked to

determine whether a payment was a provable debt in the winding up of the defendant. The payment for which the proof of debt was lodged was said to be a preference void against the liquidator of the plaintiff, although the order to wind up the plaintiff had not been made until after the order to wind up the defendant. The defendant resisted the application on the basis that the only claims provable in the winding up of the defendant were claims which were in existence at the commencement of the winding up, and that until the appointment of the liquidator of the plaintiff there was no one to whom the defendant could owe any obligation. Young J considered the meaning of obligation and particularly whether an obligation could exist in any form without there being a person to whom the obligation was owed: The essential nature of an obligation is as set out in Zimmermann, The Law of Obligations[145] p 1, as follows: Nam fundi et aedes obligatae sunt ob Amoris praedium said Astaphium ancilla in Plautus’ play Truculentus (at 214), thus providing us with the oldest source in which the word ‘obligare’ is used. The substantive ‘obligatio’ can be traced back to Cicero. As to the literal meaning of the term, its root ‘lig-’ indicates that something or somebody is bound; just as we are all ‘bound back’ (to God) by virtue of our ‘re-ligio’. This idea is still clearly reflected in the famous definition which Justinian advanced in his Institutes, where he introduced the subject of the law of obligations: ‘obligatio est iuris vinculum, quo necessitate adstringimur alicius solvendae rei secundum nostrae civitatis iura.’ Today the technical term ‘obligation’ is widely used to refer to a twoended relationship which appears from the one end as a personal right to claim and

[page 150] from the other as a duty to render performance. The party ‘bound’ to make performance is called the debtor (debitor, from debere), while at the other end of the obligation we find the ‘creditor’, who has put his confidence in this specific debtor and relies (credere) on the debtor’s will and capacity to perform. As far as the Roman terminology is concerned, ‘obligatio’ could denote the vinculum iuris looked at from either end; it could refer to the creditor’s right as well as to the debtor’s duty. This obviously makes it somewhat difficult to render the Roman idea in English, for the English term ‘obligation’ is merely oriented towards the person bound, not towards the person entitled. With the words ‘my obligations’ I can refer only to my duties, not to my rights.146

In finding that the debt was provable, Young J did not follow the reasons of Scott LJ in Watkinson v Hollington147 that for every obligation there must at all times be an obligor and an obligee. 3.57 Young J returned to the nature of obligation in Toyota Motor Corporation Australia Ltd v Pias Settlements Pty Ltd,148 where he said:

The word ‘obligation’ is an odd word. I analysed it in Dodlot Ltd v Hartogen Energy Ltd (1991) 25 NSWLR 278 at 281–282. The word ‘obligation’ always refers to a duty, something that someone is bound to do. Originally, the word meant what someone was bound to do under a bond, but later on that meaning has expanded. However, cases such as RMR Housing Society Ltd v Combs [1951] 1 KB 486 show that there is a tendency to read down words such as ‘obligation’ in leases. In that case the English Court of Appeal said that an obligation of a tenancy only included obligations connected with the land, not the personal obligations of the tenant, such as the obligation to remain in the landlord’s employ. Where one has a licence as opposed to a lease one is less able to distinguish between personal obligations and property obligations, but it would seem to me ‘any of its obligations’ must be restricted in some way such as to deal with the obligations which go to the heart of the relationship between the parties.

3.58 The question arises whether ‘obligation’ in the context of the Corporations Act refers to an obligation other than a legal obligation, for example a moral or social obligation. The issue arose in Brett v Barr-Smith149 where the High Court had to determine whether there was an obligation in a mortgage that required the mortgagor to pay the [page 151] mortgagee’s income tax on the interest to be paid under the mortgage entered into before the commencement of the Income Tax Assessment Act 1915 (Cth). The court held that there was no such obligation in the mortgage. Higgins J said that ‘obligation is a technical term of law with a clear, definite meaning’, which involves ‘binding’ and that there was no basis for treating ‘obligation’ as meaning anything other than a legal obligation. The test was whether there was any legal sanction. The case needs to be treated with some caution because the court’s reasoning rested upon the fact that they were construing a mortgage, which used legal technical terms, and they applied the then cardinal rule of interpretation that technical words must have their legal effect unless the contrary is made clear. That approach is not consistent with statutory construction in accordance with the current provisions of the Acts Interpretation Act. The case was also subsequently distinguished by the High Court in David Securities Pty Ltd v Commonwealth Bank of Australia (Swiss Franc case),150 although in relation to a term in a mortgage that was somewhat different.

Release and waiver 3.59 The Corporations Act contains no definition of the words ‘release’ or ‘waiver.’ The word release has many shades of meaning in ordinary usage.

Relevantly, the ordinary meaning of release includes ‘remit’, ‘surrender’ or ‘make over’.151 ‘Waiver’ means the act or instance of waiving, and the document recording a waiver. ‘Waive’ means to ‘refrain from insisting on or using a right, claim, opportunity or legitimate plea’.152 In Commonwealth Bank of Australia v Cluness153 Young J referred with approval to the definition of release in Williston on Contracts:154 Williston [at para 1820] properly sets out the definition of a release, namely, ‘A release, as the word is used technically in speaking of executory contracts, is a discharge under seal of an existing obligation or right of action.’ He goes on to say, ‘In the law of conveyancing, however, a release operates not only to destroy the right of the party executing the

[page 152] instrument but creates a similar right in the party to whom it is executed. In other words, it is a grant or a conveyance, and such was the early theory of a release even when it related to a right of action’.

3.60 In contract, a waiver is the election by a party not to enforce a right or rights conferred by the contract.155 The Queensland Court of Appeal commented on the general meaning of the term waiver in contract, and the relationship between waiver and the equitable doctrines of election and estoppel in Kostopoulos v GE Commercial Finance Australia Pty Ltd (Verwayen’s/Voyager Case): … it is necessary to say something about the term ‘waiver’. There has been, for some time, a controversy as to whether ‘waiver’ refers to an independent legal doctrine or is more properly considered as ‘an imprecise term capable of describing different legal concepts, notably election and estoppel’. It is unnecessary to attempt to resolve that controversy in order to dispose of this case. It is enough to say that, if it is correct that ‘… the primary meaning of the word ‘waiver’ in legal parlance is the abandonment of a right in such a way that the other party is entitled to plead the abandonment by way of confession and avoidance if the right is thereafter asserted’, then what is sometimes termed a ‘waiver’ must usually, in the absence of a new agreement between the parties, refer to what is, in substance, either election or estoppel. This is especially so in a contractual context. If one party to the contract chooses to act in a manner inconsistent with the exercise of a contractual right, then that will usually amount to an election to abandon that right. Alternatively, if one party communicates to another party to the contract that it will not be exercising one of its contractual rights, and the other party orders its affairs accordingly, then an estoppel may arise. If the first party gives no sign, either by word or deed, that it does not intend to rely on one of its contractual rights then it can only be assumed that the right has not been abandoned. In such circumstances there would be no basis for thinking otherwise.156

3.61 A consideration of the equitable doctrines of election and estoppel is beyond the scope of this work, although in equity a waiver will be generally described as an intentional relinquishment of a right or interest: Commonwealth v Verwayen (Verwayen’s/Voyager Case).157 A similar

[page 153] concept is found in the decision of the High Court in Sargent v ASL Developments Ltd.158

Loan 3.62 The ordinary meaning of loan is ‘something lent, especially a sum of money to be returned normally with interest’ or ‘the act of lending or the state of being lent’.159 Ormiston J considered the nature of ‘loan’ for the purposes of s 230 of the then Companies (Vic) Code in Brick & Pipe Industries v Occidental Life Nominees Pty Ltd: There is no direct authority on the meaning of the relevant provisions of s 230, although it is not a section new to the Code. Strangely the word ‘loan’ has not been frequently defined and in the many authorities cited, although the concept of lending was assumed to be understood, only one definition appears, namely in the judgment of Richardson J in Re Securitibank Ltd (No 2) [1978] 2 NZLR 136 at 167: ‘The essence of a loan of money is the payment of a sum of money on condition that at some future time an equivalent amount will be repaid’: cf also Kilgariff v Morris (1955) 91 CLR 524 at 527– 8.160

3.63 The decision in Brick & Pipe Industries v Occidental Life Nominees Pty Ltd also considers the clear distinction between a bill facility and a loan and the authorities to support the conclusion that a bill facility is not a loan.161 That distinction is again effectively rendered moot by the inclusive nature of the definition and the fact that a bill facility, or any similar species of financial accommodation, almost certainly effects a change in the rights, liabilities or property of the company and would therefore be a transaction within the meaning of s 9. [page 154]

THE COURT’S APPROACH TO DETERMINING WHETHER THERE IS A TRANSACTION FOR THE PURPOSES

OF PT 5.7B 3.64 In determining whether there is a transaction for the purposes of Part 5.7B the court must look at the transactions between the parties in a manner which accords with commercial reality.162 The court does not isolate particular individual steps in the course of a business relationship so as to give one element a different characteristic from that which the totality of that relationship would evidence but instead looks at the transaction as a whole.163 Hence, a transaction may include a payment by the company which has the effect of extinguishing the debt of another164 or it may consist of a series of events occurring at different points of time which are sufficiently connected together.165 As Emmett J explained in Warner v Hung; Re Bellpac Pty Ltd (Receivers and Managers Appointed) (in liq): The concept of transaction is very broad. A series of steps over a period, involving several parties, can constitute a transaction. A transaction includes an arrangement giving rise to an estoppel under which one party may not resile from a position. Further, a transaction may be unilateral in character (see Australian Kitchen Industries Pty Ltd v Albarran (2004) 51 ACSR 604 at [24]). A number of separate dealings may together be regarded as constituting one transaction. Nevertheless, in every case, it is vital that, however the transaction is constituted, it must be able to be characterised as a transaction of the company (see Kalls Enterprises Pty Ltd v Baloglow (2006) 58 ACSR 63 at [27]).166

3.65 Similarly, in Universal Financial Group v Mortgage Elimination Services,167 Austin J concluded that directions for the payment of commissions that deprived a company of substantial income streams at a time when, to the knowledge of the directors, the company was facing [page 155] a substantial claim in court proceedings, were ‘transactions’ within the meaning of the Act: The solicitor for the first and second cross-defendants challenged the proposition that the directions to AFG and Lawfund were ‘transactions’ for the purposes of Pt 5.7B, as defined in s 9 of the Corporations Act. But in my opinion the word ‘transaction’, which is defined in s 9 in a nonexclusive way, should be read having regard to the legislative policy underlying the voidable transactions provisions (Wily v Bartercard Ltd (2000) 34 ACSR 186 at [48]), and designates any arrangement between two or more parties which produces legal consequences, including contractual consequences, and even (as I observed in Wily v Bartercard) legal consequences under the law of equitable estoppel. By parity of reasoning, a direction which causes payments to be made to B which otherwise would be made to A is a transaction, at least when acted upon (see also Prentice v St George Bank Ltd (2002) 20 ACLC 923).168

3.66 An arrangement that operates by way of contract or by equitable estoppel is a ‘transaction’. In Wily v Bartercard Ltd,169 Austin J held that a consensual arrangement based on unsigned documentation which provided for the termination of a business licence and the valuation and setting off of the goodwill of the business, whether it operated as a binding contract or gave rise to an estoppel, was a ‘transaction’ because it produced legal consequences under either the law of contract or of estoppel. A unilateral act can also be a ‘transaction’170 a conclusion supported by the definition itself, which refers to a ‘disposition’ of property — for example, the direction for payment in Universal Financial Group v Mortgage Elimination Services.171 The meaning of ‘transaction’ will not be confined to transactions or dealings that are lawful or enforceable, provided it is treated as binding and has been given effect.172

Transaction ‘entered into’ and acts giving effect to a transaction 3.67 In order to be a voidable transaction under s 588FE, the relevant transaction must usually have been ‘entered into’ or ‘an act was done for the [page 156] purpose of giving effect to it’ at a certain time.173 In s 588FC, a transaction may be an insolvent transaction even if an act is done, or an omission is made, for the purpose of giving effect to the relevant transaction. The Dictionary does not contain a meaning for the term ‘entered into’174 or ‘enter’. In ordinary usage, the word ‘enter’ has a variety of contextual meanings one of which is subscribe to or bind oneself by an agreement or alternatively to deal with175 although, in the context of the provisions in Pt 5.7B, it is more properly characterised as a phrasal verb meaning to participate or take a role or interest in or become a party to the relevant transaction. In ordinary usage, the preposition ‘into’ is used to demonstrate the pronoun’s relationship to another word in the sentence, in this instance the word ‘transaction’. The meaning of the phrase ‘entered into’ as used in Pt 5.7B has not received any direct judicial consideration,176 and this may be an example of there being no authority for an obvious proposition.177 Absent judicial guidance the phrase ought be given its ordinary meaning. 3.68 The act (or omission) need not give effect to the whole transaction, and

it is sufficient if it gives effect to a substantial part of the transaction.178 The ‘purpose’ does not have to be the sole or dominant purpose, and it is sufficient if one of the purposes of doing the act or making the omission is for the purpose of giving effect to the transaction.179 For example, in Lewis [page 157] (as liq of Doran Constructions Pty Ltd (in liq)) v Doran,180 the New South Wales Court of Appeal found that the posting of journal entries following resolutions of directors to restructure debt within a group of companies was an act done for the purpose of giving effect to a transaction. Likewise, in Demondrille Nominees Pty Ltd v Shirlaw181 entry into a deed that provided for the payment of a deposit in a real estate transaction, which had not in fact been paid, was found to be an act for the substantial purpose of giving effect to the transaction because the deed created a credit. 3.69 In Universal Financial Group v Mortgage Elimination Services (in liq),182 Austin J found that directions for payments given outside the relation back period, that was acted upon over a period of time including within six months of the relation back day, were acts giving effect to a transaction, and a transaction. The Queensland Court of Appeal in Mulherin v Bank of Western Australia Ltd; McCann v Bank of Western Australia Ltd183 held that extensions of a loan facility, and the consequent provision of replacement guarantees, were acts done for the purpose of giving effect to an earlier initial facility agreement in respect of the bank guarantee, and were all part of one transaction.

Composite transactions 3.70 Many commercial transactions are complex and involve multiple or a series of pre-ordained elements or dealings that together are intended to achieve a commercial outcome. Some of the steps or elements may not individually achieve a commercial outcome or purpose, but within the context of the other dealings are necessary to achieve the commercial outcome. For example, the passing of resolutions by a company may be an essential step in a chain of dealings or events to produce a designated outcome. Transactions of this kind are properly described as ‘composite transactions’. 3.71 Neither the definition of ‘transaction’ in s 9, nor the examples given

within it, involves any corresponding transaction (such as the receipt of goods in return for payment)184 and composite transactions therefore [page 158] raise issues concerning the proper identification of the ‘transaction’ that is the subject of claims for relief under various provisions in Pt 5.7B. In Re Emanuel (No 14) Pty Ltd (in liq); Macks v Blacklaw & Shadforth Pty Ltd, the Full Court of the Federal Court said: … we do not see the language of s 9 (which exemplifies but does not define ‘transaction’) as precluding a finding of a transaction to which the debtor A is a party merely because that transaction itself is made up of a composite of dealings in not all of which A participates.185

The scope of ‘transaction’ is therefore not limited to the matters set out in the subparagraphs of the definition. A transaction can cover a series of steps or dealings: linked by some unifying plan or purpose;186 that are designed or implemented to meet a particular objective;187 or linked together to attain a definite objective.188 A series of steps involving several parties and taken over a period of time, and not always giving rise to contractual consequences, can be a ‘transaction’.189 A series of dealings may constitute a transaction if they are connected in being directed to bring about a change in the company’s rights, liabilities or property.190 The approach to identification of a transaction was described by Black J in Re Employ (No 96) Pty Ltd (in liq): The identification of the relevant transaction must have reference to the totality of the relationship between the parties and a series of dealings

[page 159] may constitute a transaction if they are connected in being directed to bring about a change in the company’s rights, liabilities or property.191

3.72 Although it is be possible that a transaction may be composed of a series of steps, some or all of which may also be properly described individually as

transactions those steps must be linked in some way.192 For example, in Mann v Sangria Pty Ltd,193 a liquidator sought to recover groups of payments to pay off accumulated trade debts pursuant to an arrangement in settlement of litigation. Bryson J found that the ‘transaction’ for the purposes of s 588FA(1) was the whole of a series of events including the order for goods, delivery of the goods and delivery of the invoice, and the subsequent payment by cheque. Bryson J said that although each of the payments was a discrete transaction, the ‘transaction’ consisted of a whole series of events that were sufficiently and directly connected to each other as to constitute one transaction. 3.73 The elements, and the limits, of a composite transaction are not always clear. In Tosich Construction Pty Ltd v Tosich,194 Lehane J refused relief in respect of a payment from a company to a director in reduction of its indebtedness to him which the director then gifted to his daughter, on the basis that the transaction should be not construed as including the gift. In circumstances where the benefits and detriments of the transaction from the company’s point of view were clear, Lehane J said that he could not see why a reasonable person in the company’s circumstances would have regarded the fact that Mr Tosich was to apply the proceeds of the reduction of his debt in making a gift to his daughter as particularly relevant to the question whether the company should enter into the transaction. By contrast, in Re Solfire Pty Ltd (in liq),195 Ambrose J held that a composite transaction was a strategy to defeat the company’s judgment creditors and the payments made by the company were an uncommercial transaction warranting a grant of relief. In that case the directors took a bill of sale over the assets of the company, to secure earlier indebtedness, and then entered into a deed with the [page 160] company to accept reduced amounts on the basis that they would satisfy only certain of the company’s creditors. 3.74 The difficulties inherent in defining the limits of composite transactions are well illustrated in the running account cases. For example, in Mann v Sangria,196 a liquidator sought to recover as unfair preferences two groups of payments that had been made by a food wholesaler to one of its suppliers. The company was insolvent at the date of the payments and the issue was whether a defence was available under s 588FA(1). After referring to the relevant

authorities concerning preferential payments in running accounts, including the judgment of Ormiston JA in V R Dye & Co v Peninsula Hotel Pty Ltd (in liq),197 Bryson J198 described the difficulties inherent in a literal reading of s 588FA(1) in the following terms: A particular difficulty of attempting a literal approach to the application of s 588FA(1), which is resolved by some observations of Ormiston JA is the identification of the transaction referred to in any particular attempt to apply the subsection. When an attempt is made to apply literally the circular and inclusive definition of ‘transaction’ to the sales of meat and payments which took place in May and June 1998 several different characterisations of the relevant transaction are literally available and could conceivably produce different results. If, as the definition when read literally seems to authorise, the transaction is characterised as the payment alone and all other aspects of the events which led to the payment are not regarded as part of the transaction, the conclusion that the transaction is an unfair preference is inescapable, and is preordained by the characterisation; after delivering the meat, and both before and after receiving a post-dated cheque Sangria was a creditor in respect of an unsecured debt, the tender of a cheque and of course of a post-dated cheque was no more than conditional payment and the debt was not discharged but continued to exist until the cheque was met (as each cheque was). Paring down the characterisation of the relevant transaction to such a narrow sliver involves ignoring the facts which make the payment comprehensible and which can be taken together with the payment to constitute a transaction, defensibly a transaction within the ordinary meaning of that word and within the defined meaning.

3.75 Bryson J ultimately referred with approval to the judgment of Ormiston JA in V R Dye to the effect that it was ‘necessary, in order properly to characterise any transaction, to look at the totality of the business relationship between the parties so as to see whether there [page 161] is a true preferring of a creditor by the insolvent company’.199 In his Honour’s judgment, the orders, delivery product and invoices, and the payments at the time or shortly thereafter, led to the conclusion that ‘the transaction consisted of the whole series of events, as they were sufficiently directly connected together, and sufficiently discrete from any other events, to constitute one transaction within the meaning and purpose of the subsection’, and the payments were not unfair preferences.200 It is, however, worth noting that Bryson J also said that ‘a different characterisation may have been given if the events in any of the series had not been as closely related together as they were’.201 3.76 Difficulties also arise with transactions involving third parties. In Re Burness; Denward Lane Pty Ltd (in liq),202 Gordon J held that for a third party payment to be taken to be a payment ‘accepted’ or ‘made’ by the debtor it is not necessary for there to be evidence of an arrangement between the debtor and a

third party whereby at the direction of the debtor, the third party made payment to the creditor in discharge of an obligation owed by the third party to the debtor. All that is required is that the payment made by the third party is authorised by the debtor.203

Existence of transaction a question of law 3.77 The question of whether particular facts constitute a ‘transaction’ within the meaning of the Act is one of law only. In Australian Kitchen Industries Pty Ltd v Albarran204 Barrett J said that the question is: … whether the facts, as found, were of such a quality or description as to come within the ‘transaction’ concept employed in the relevant sections of the Corporations Act. Given the nature and scope of those provisions, the relevant question goes beyond the mere meaning of an ordinary word, that generally being a question of fact.

Barrett J then referred to the decision of Mason J in Hope v Bathurst City Council where his Honour observed: Many authorities can be found to sustain the proposition that the question whether facts fully found fall within the provisions of a statutory

[page 162] enactment properly construed is a question of law. One example is the judgment of Fullagar J in Hayes v Federal Commissioner of Taxation (1956) 96 CLR 47 at 51, where his Honour quoted the comment of Lord Parker of Waddington in Farmer v Cotton’s Trustees [1915] AC 922 at 932, which was adopted by Latham CJ in Commissioner of Taxation v Miller (1946) 73 CLR 93 at 97, that where all the material facts are fully found, and the only question is whether the facts are such as to bring the case within the provisions properly construed of some statutory enactment, the question is one of law only. Fullagar J then said (1956) 96 CLR at 51: … this seems to me to be the only reasonable view. The distinction between the two classes of question is, I think, greatly simplified, if we bear in mind the distinction, so clearly drawn by Wigmore, between the factum probandum (the ultimate fact in issue) and facta probantia (the facts adduced to prove or disprove that ultimate fact). The ‘facts’ referred to by Lord Parker … are the facta probantia. Where the factum probandum involves a term used in a statute, the question whether the accepted facta probantia establish that factum probandum will generally — so far as I can see, always — be a question of law.205

The question of whether a particular composite transaction is a transaction of the company is a question of fact involving an evaluative judgment having regard to the nature and extent of involvement.206

TRANSACTION ‘OF A COMPANY’ AND ‘OF THE COMPANY’ 3.78 Each of sections 588FB, 588FC and 588FDA refer to a ‘transaction of a company’ whereas sections 588FE and 588FF refer to transactions of ‘the company.’ The use of the definite article in sections 588FE and 588FF is explicable on the basis that those provisions relate to a particular transaction of the company identified by the Court as being voidable. The indefinite article used in sections 588FB, 588FC and 588FDA can be explained by those provisions as being definitional in nature. The New South Wales Court of Appeal considered the meaning of the words ‘transaction of the company’ in Pt 5.7B in Kalls Enterprises Pty Ltd (in liq) v Baloglow.207 In that case, Giles JA said: [page 163] In Pt 5.7B the words ‘of the company’ add something. As well as being a transaction to which the company is party, which comes from there being a transaction, the transaction must warrant the description of a transaction of the company. Unless being a party to a transaction requires such involvement that the description applies without more, which does not seem to me a correct understanding, being a transaction to which the company is a party and being a transaction of the company are not co-extensive. In this I do not accept the appellants’ submission that all that was required for there to be a transaction of a company was that the transaction be one to which the company was a party, referring to Prentice v St George Bank (2002) 20 ACLC 923; [2002] NSWSC 358 at [24]. Austin J there said that it seemed to him the limitation of a transaction to one to which the company was a party was ‘no different from’ the limitation in ss 588FC and 588FE(2) to a transaction of a company. On the facts, however, in that case the transaction did not involve any conduct or dealing by the relevant company (see especially at [45]), and I do not think his Honour’s observation can support the submission.208

1.

This does mean voidable in the general law sense: see 8.5ff.

2.

See Chapter 8 for a detailed discussion of when a transaction will be voidable under the Corporations Act.

3.

For a discussion see Chapter 4.

4.

For a discussion see Chapter 5.

5.

For a discussion see 8.9.

6.

For a discussion see Chapter 6

7.

For a discussion see Chapter 7.

8.

It has been observed that s 9 does not set out a definition at all. See 3.11.

9.

For a discussion of the development of the law of bankruptcy, see 1.19ff. See 3.11 for a discussion of the types of transactions historically voidable in bankruptcy law.

10. Edenden v Bignell [2007] NSWSC 1122 at [21] per Barrett J. 11. Edenden v Bignell [2007] NSWSC 1122 at [22] per Barrett J. 12. Edenden v Bignell [2007] NSWSC 1122 at [21]. For a more detailed discussion of the concept and consequences of a voidable transaction, see Chapter 8. 13. Australian Law Reform Commission, General Insolvency Inquiry, Discussion Paper No 32 (the Harmer Discussion Paper), Canberra, August 1987 and the Australian Law Reform Commission, General Insolvency Inquiry, Report No 45 (the Harmer Report), Canberra, 1988. 14. Ibid, commencing at [637]. 15. EM to the CLR Bill at [371]. 16. Report of the Review Committee on Insolvency Law and Practice (Cmnd 8558 (1982)), (‘the Cork Report’), Ch 28 at p 274 [1200]ff, and p 282 [1241] and following. See 1.24ff and 4.5ff for a more detailed discussion. 17. Re Kastropil; Ex parte Official Trustee in Bankruptcy (1989) 33 FCR 135; 109 ALR 568 at 572–3. 18. Australian Concise Oxford Dictionary, 5th ed, Oxford University Press, Melbourne, 2009. 19. Oxford Latin Dictionary, Oxford University Press, 1982. 20. Australian Concise Oxford Dictionary, 5th ed, Oxford University Press, 2009. 21. R v O’Driscoll (2003) 57 NSWLR 416; 200 ALR 283 at [29] per Spigelman CJ, Hulme J and Carruthers AJ agreeing and referring to Bendir v Anson [1936] 3 All ER 326 at 330. 22. Sparks v Berry [2001] QSC 251 at [13] per Chesterman J. 23. Sparks v Berry [2001] QSC 251 at [13] per Chesterman J. 24. See, for example, Capital Finance Australia Ltd v Tolcher (2007) 245 ALR 528; 64 ACSR 705; [2007] FCAFC 185 at [120] per Gordon J, Heerey J agreeing. 25. Re Taylor Sinclair (Capital) Ltd (in liq); Knights v Seymour Pierce Ellis Ltd [2001] 2 BCLC 176. 26. Re Taylor Sinclair (Capital) Ltd (in liq); Knights v Seymour Pierce Ellis Ltd [2001] 2 BCLC 176 at [20]. 27. The differences are found in subpara (b). The 1992 definition referred only to a charge created by the body on its property. 28. Re Emanuel (No 14) Pty Ltd (in liq); Macks v Blacklaw & Shadforth Pty Ltd (1997) 147 ALR 281 at 283. 29. 19 & 20 Vic, c 47. 30. See 1.29. See also the decision of French J in Re Kastropil; Ex parte Official Trustee in Bankruptcy (1989) 33 FCR 135; 109 ALR 568 at 572–3 referred to at 3.6. 31. Re Burness; Denward Lane Pty Ltd (in liq) (2009) 259 ALR 339; [2009] FCA 893 at [8]. 32. Cussen v Sultan (2009) 74 ACSR 496; [2009] NSWSC 1114 at [18] per Nicholas J. 33. Re Emanuel (No 14) Pty Ltd (in liq); Macks v Blacklaw & Shadforth Pty Ltd (1997) 147 ALR 281 at 288. 34. Australian Kitchen Industries Pty Ltd v Albarran (2004) 51 ACSR 604; [2004] NSWSC 1047 at [24]; Fletcher v Fortress Credit Corp (Australia) II Pty Ltd (2011) 82 ACSR 352; [2011] QSC 030

at [12]. 35. (2004) 51 ACSR 604 at [24]. 36. Campbell Street Theatre Pty Ltd (rec and mgr apptd) (in liq) v Commercial Mortgage Trade Pty Ltd [2012] NSWSC 669 at [13] per Black J citing Re Emanuel (No 14) Pty Ltd (in liq); Macks v Blacklaw & Shadforth Pty Ltd (1997) 147 ALR 281; 24 ACSR 292 at 299; Wily v Bartercard Ltd (2000) 34 ACSR 186 at 195–6; [2000] NSWSC 372; affirmed Bartercard Ltd v Wily (2001) 39 ACSR 94; [2001] NSWCA 262; New Cap Reinsurance Corp Ltd v Somerset Marine Inc [2003] NSWSC 540; Australian Kitchen Industries Pty Ltd v Albarran (2004) 51 ACSR 604; [2004] NSWSC 1047. 37. Wily v Bartercard Ltd (2000) 34 ACSR 186; [2000] NSWSC 372 at[48]; affirmed Bartercard Ltd v Wily (2001) 39 ACSR 94; [2001] NSWCA 262. 38. Re Emanuel (No 14) Pty Ltd (in liq); Macks v Blacklaw & Shadforth Pty Ltd (1997) 147 ALR 281; 24 ACSR 292 and Australian Kitchen Industries Pty Ltd v Albarran (2004) 51 ACSR 604; [2004] NSWSC 1047 at [24]. See also Wily v Bartercard Ltd (2000) 34 ACSR 186; 18 ACLC 448; [2000] NSWSC 372 (upheld on appeal in Bartercard Ltd v Wily (2001) 39 ACSR 94; 19 ACLC 1461; [2001] NSWCA 262); Mann v Sangria Pty Ltd (2001) 38 ACSR 307; [2001] NSWSC 172; Prentice v St George Bank Ltd (2002) 20 ACLC 923; [2002] NSWSC 358; Kalls Enterprises Pty Ltd (in liq) v Baloglow (2007) 63 ACSR 557 [2007] NSWCA 191 at [101]–[102]. 39. Re Kazar; Frontier Architects Pty Ltd (in liq) (2010) 81 ACSR 158; [2010] FCA 1381 at [14] per Flick J. 40. Campbell Street Theatre Pty Ltd (rec and mgr apptd) (in liq) v Commercial Mortgage Trade Pty Ltd [2012] NSWSC 669 at [13] per Black J. 41. For a more detailed discussion of what is a transaction of a company, see 3.78. 42. Former s 109H of the Corporations Act provided a similar directive. 43. For discussion see Chapter 1. 44. Australian Softwood Forests Pty Ltd v Attorney-General (NSW); Ex rel CAC (1981) 148 CLR 121; 36 ALR 257. 45. Brookfield Multiplex Ltd v International Litigation Funding Partners Pte Ltd (2009) 180 FCR 11; 260 ALR 643 at [211]–[214]. 46. Demondrille Nominees Pty Ltd v Kevin R Shirlaw & Cornelis Holdings Pty Ltd (in liq) (1997) 25 ACSR 535; 15 ACLC 1716; applied in McDonald v Hanselmann (1998) 28 ACSR 49. 47. Demondrille Nominees Pty Ltd v Kevin R Shirlaw & Cornelis Holdings Pty Ltd (in liq) (1997) 25 ACSR 535; 15 ACLC 1716 at 548 per Foster, Lindgren and Madgwick JJ. 48. McDonald v Hanselmann (1998) 28 ACSR 49 at 53; [1998] NSWSC 171. 49. McDonald v Hanselmann (1998) 28 ACSR 49 at 53; [1998] NSWSC 171. 50. Re Emanuel (No 14) Pty Ltd (in liq); Macks v Blacklaw & Shadforth Pty Ltd (1997) 147 ALR 281 at 283; (1997) 24 ACSR 292. 51. For a discussion about the use of cases decided under the previous regime to interpret Part 5.7B see 4.23ff. 52. Re Emanuel (No 14) Pty Ltd (in liq); Macks v Blacklaw & Shadforth Pty Ltd (1997) 147 ALR 281 at 283; (1997) 24 ACSR 292. 53. Ford’s Principles of Corporations Law, LexisNexis looseleaf, at [4.020]. 54. Ford’s Principles of Corporations Law, LexisNexis looseleaf, at [1.051.3].

‘This jurisdiction’, is defined in s 9 to mean, relevantly, the geographical area comprising each of 55. the referring States, the Capital and Northern Territories, and their respective coastal seas. 56. The meaning in s 9 includes a temporal element so that, at any particular time, in relation to a body corporate incorporated in a State or Territory, that State or Territory, and, in any other circumstance, the place of incorporation. The place of origin of an unincorporated body is the State, Territory or place where the body was formed: see the s 9 definition of ‘place of origin’. 57. Section 9 provides a definition ‘body corporate’, which includes a ‘body corporate that is being wound up or has been dissolved’. See, for example, Titchfield Management Ltd v Vaccinoma Inc [2008] NSWSC 1196, commencing at [10] concerning a Delaware corporation that had been dissolved under the law of Delaware. 58. The definition of Part 5.7 body contains a multitude of expressions which are themselves in turn defined in the Corporations Act. Given the intricate nature of the definitions it is beyond the scope of this work to consider all elements of the definition of a Part 5.7 body in detail. The intricacies of the definition of ‘Part 5.7 body’ are well illustrated by Barrett J Lunn v Cardiff Coal Co (2002) 43 ACSR 649; [2002] NSWSC 1247 commencing at [9]. 59. See, for example, Uniting Church in Australia Property Trust (Q) v Northbank Place (Vic) Pty Ltd (2009) 252 FLR 352; [2009] VSC 660, where Gardiner AsJ in the Supreme Court of Victoria held that a body incorporated under the Uniting Church in Australia Act 1977 (Qld) was a Pt 5.7 body. 60. Bodies formed under associations incorporation legislation in the States and Territories; for example the Associations Incorporation Act 2009 (NSW), Associations Incorporation Act 1981 (Vic), Associations Incorporation Act 1981 (Qld), Associations Incorporation Act 1987 (WA), Associations Incorporation Act 1964 (Tas). The legislation differs in each State or Territory (despite the similarities in the title). 61. Care needs to be taken in relation to public authorities. See, for example, Re Woorabinda Aboriginal Council (1995) 18 ACSR 191 where Demack J in the Supreme Court of Queensland said that the question whether a body is a public authority is one of fact and degree which often requires a balancing of the various features of the body concerned, including (a) whether private individuals have a financial interest in its profits or assets; Western Australian Turf Club v Federal Commissioner of Taxation (1978) 139 CLR 288; 19 ALR 167; Marshall v Scottish Milk Marketing Board [1956] SL T 162; Bradford Corporation v Myers [1916] 1 AC 242, applied; (b) whether its public functions are merely incidental to its private pursuits; Western Australian Turf Club v FCT (1978) 139 CLR 288; 19 ALR 167, applied; (c) whether its powers derive from a private or nonstatutory source; Incorporated Council of Law Reporting for the State of Queensland v Federal Commissioner of Taxation (1924) 34 CLR 580; Committee of Direction of Fruit Marketing v Australian Postal Commission (1980) 144 CLR 577; 30 ALR 599, applied. 62. See Peninsular Group Ltd v Kintsu Co Ltd (1998) 44 NSWLR 534 at 536, where the New South Wales Court of Appeal discussed the operation of s 583 which deals with the winding up of Part 5.7 bodies. 63. For example, if the body corporate is or becomes a party to a proceeding or effects settlement of a proceeding or of a claim or dispute; holds meetings of its directors or shareholders or carries on other activities concerning its internal affairs or maintains a bank account. For a discussion of what constitutes carrying on business in this context see the decision of Gordon J in Norcast SárL v Bradken Limited (No 2) [2013] FCA 235 at [254] and that of Barrett J in Application of Campbell; Re Gebo Investments (Labuan) Ltd v Signatory Investments Pty Ltd (2005) 54 ACSR 111; [2005] NSWSC 544. See also Luckins v Hwy Motel (Carnarvon) Pty Ltd (1975) 133 CLR 164 and Dunlop Pneumatic Tyre Co Ltd v Aktien-Gesellschaft für Motor und Motorfahrzeugbau Vorm Cudell & Co [1902] 1 KB 342 cited by Barrett J in Application of Campbell; Re Gebo Investments (Labuan) Ltd v Signatory Investments Pty Ltd (2005) 54 ACSR 111 at [40]; [2005] NSWSC 544.

64. See Cashflow Finance Pty Ltd (in liq) v Westpac Banking Corp [1999] NSWSC 671 at [519]. 65. See Cashflow Finance Pty Ltd (in liq) v Westpac Banking Corp [1999] NSWSC 671 at [519]. 66. Cashflow Finance Pty Ltd (in liq) v Westpac Banking Corp [1999] NSWSC 671 at [521]. 67. Cashflow Finance Pty Ltd (in liq) v Westpac Banking Corp [1999] NSWSC 671 at [518], citing Re Emanuel (No 14) Pty Ltd (in liq); Macks v Blacklaw & Shadforth Pty Ltd (1997) 147 ALR 281; 15 ACLC 1099 at 1,105, rejecting the reasoning of Nicholson J in Nilant v Plexipack Packaging Services Pty Ltd (1996) 68 FCR 352; 21 ACSR 428. 68. Young v Commissioner of Taxation [2010] NSWSC 288. 69. Young v Commissioner of Taxation [2010] NSWSC 288 at [30]. 70. Cashflow Finance Pty Ltd (in liq) v Westpac Banking Corp [1999] NSWSC 671 at [519]. 71. Cashflow Finance Pty Ltd (in liq) v Westpac Banking Corp [1999] NSWSC 671 at [519]. 72. New Cap Reinsurance Corp Ltd v Somerset Marine Inc [2003] NSWSC 540. 73. Re Pacific Hardware Brokers (Qld) Pty Ltd (1997) 16 ACLC 442. 74. See 8.51 for a more detailed discussion. 75. Australian Concise Oxford Dictionary, 5th ed, Oxford University Press, Melbourne, 2009. See likewise the decision of Chief Commissioner of Stamp Duties v WF Securities Pty Ltd (1995) 95 ATC 4284 where Mahoney JA said ‘the term “conveyance” according to its ordinary meaning involves, of course, that the instrument in question transfers or vests property.’ 76. Credland v Potter (1874) LR 10 Ch App 8 at 12 per Lord Cairns LC. 77. Robert Reid Pty Ltd v Cassidy (1966) 114 CLR 558 at 562 per Kitto J, Menzies and Owen JJ agreeing. 78. Robert Reid Pty Ltd v Cassidy (1966) 114 CLR 558 at 562 per Kitto J, Menzies and Owen JJ agreeing. 79. Robert Reid Pty Ltd v Cassidy (1966) 114 CLR 558 at 573 per Menzies J. See also Anscor Pty Ltd v Clout (Trustee) [2004] FCAFC 71 at [2] per Wilcox and Moore JJ. 80. Camm v Linke Nominees Pty Ltd (2010) 190 FCR 193; [2010] FCA 1148 at [32] per Tracey J. 81. Section 121(1) of the Bankruptcy Act, 1966 relevantly provides that ‘A transfer of property by a person who later becomes a bankrupt (the transferor) to another person (the transferee) is void against the trustee in the transferor’s bankruptcy if … [certain criteria are satisfied].’ 82. Peldan v Anderson (2006) 227 CLR 471 at 481. 83. Healey v Commissioner of Taxation [2012] FCA 269 at [68]; affirmed on appeal in Healey v Commissioner of Taxation [2012] FCAFC 194. 84. Frost v Sheahan [2012] FCAFC 46 at [68], [69] per Finn, Cowdroy and Flick JJ. 85. For example, a bill of sale: Fletcher v Landgridge [2002] FMCA 139 per Driver FM. 86. Peldan v Anderson (2006) 227 CLR 471; 229 ALR 432 per Gummow, Kirby, Hayne, Callinan and Crennan JJ. 87. Verge v Devere Holdings Pty Ltd (No 4) [2010] FCA 653 per McKerracher J. 88. Jabbour v Official Receiver [2002] FMCA 28 per McInnis FM. 89. Re Trendent Industries Pty Ltd (in liq) (1983) 8 ACLR 115. 90. Australian Concise Oxford Dictionary, 5th ed, Oxford University Press, Melbourne, 2009. 91. Benson v Cook (2001) 114 FCR 542; [2001] FCA 1684 at [8]–[12]; upheld on appeal to the High

Court in Cook v Benson (2003) 214 CLR 370; 198 ALR 218; [2003] HCA 36. 92. Roache v Australian Mercantile Land & Finance Co Ltd (No 2) [1966] 1 NSWR 384 at 386 per Jacobs JA. 93. Vasudevan (as joint and several liquidator of Wulguru Retail Investments Pty Ltd) (in liq) v Becon Constructions (Australia) Pty Ltd (2014) 97 ACSR 627; [2014] VSCA 14 at [15] per Nettle JA, Beach JA and McMillan AJA agreeing. 94. For a discussion of payment, see 3.52. 95. Cook v Benson (2003) 214 CLR 370 at 374 per Gleeson CJ, Gummow, Hayne and Heydon JJ. 96. Re Dittmer Gold Mines Ltd (No 3) [1954] St R Qd 275; Mosaic Oil NL v Angari Pty Ltd (No 2) (1990) 20 NSWLR 280 at 284. 97. Mosaic Oil NL v Angari Pty Ltd (No 2) (1990) 20 NSWLR 280 at 284. 98. Re Wiltshire Iron Co; Ex parte Pearson (1868) LR3 Ch App 443; 37 LJ Ch 554; 18 LT 423. 99. Norfolk Plumbing Supplies Pty Ltd v Commonwealth Bank of Australia (1992) 6 ACSR 601. 100. Jardio Holdings Pty Ltd v Dorcon Constructions Pty Ltd (1984) 3 FCR 311; 2 ACLC 574; Re Dittmer Gold Mines Ltd (No 3) [1954] St R Qd 275. 101. Re Ravi Nominees Pty Ltd (1993) 10 ACSR 599; Mosaic Oil NL v Angari Pty Ltd (No 2) (1990) 20 NSWLR 280. 102. Universal Financial Group v Mortgage Elimination Services (in liq) (2006) 205 FLR 186; [2006] NSWSC 1132 at [130] per Austin J. 103. Nilant v Plexipack Packaging Services Pty Ltd (1996) 68 FCR 352; 21 ACSR 428 at 433 per Nicholson J. 104. Nilant v Plexipack Packaging Services Pty Ltd (1996) 68 FCR 352; 21 ACSR 428 at 433 per Nicholson J. 105. Ramsay v National Australia Bank Ltd [1989] VR 59. For a summary of the facts in Ramsay, see 4.26. 106. Re Emanuel (No 14) Pty Ltd (in liq); Macks v Blacklaw & Shadforth Pty Ltd (1997) 147 ALR 281 at 287–9; 24 ACSR 292. 107. Re Emanuel (No 14) Pty Ltd (in liq); Macks v Blacklaw & Shadforth Pty Ltd (1997) 147 ALR 281 at 288; 24 ACSR 292. 108. Re Emanuel (No 14) Pty Ltd (in liq); Macks v Blacklaw & Shadforth Pty Ltd (1997) 147 ALR 281 at 288; 24 ACSR 292. 109. Ramsay v National Australia Bank Ltd [1989] VR 59 referred to at 3.38. 110. Re Emanuel (No 14) Pty Ltd (in liq); Macks v Blacklaw & Shadforth Pty Ltd (1997) 147 ALR 281 at 287; 24 ACSR 292. 111. Sheahan v Carrier Air Conditioning Pty Ltd & Campbell (1997) 189 CLR 407. The facts of this case are summarised at 4.17. 112. Section 122(1) of the bankruptcy Act, 1966 (Cth) relevantly provided that ‘A conveyance or transfer of property, a charge on property, a payment made or an obligation incurred by a person who is unable to pay his debts as they become due from his own money in favour of a creditor, having the effect of giving that creditor a preference, priority or advantage over other creditors, being a conveyance, transfer, charge, payment or obligation executed, made or incurred … [if certain criteria are satisfied] … is void as against the trustee in the bankruptcy.’ 113. Brennan CJ and Kirby J dissenting.

114. Ramsay v National Australia Bank Ltd [1989] VR 59 at 63; 13 ACLR 732 at 736. See 3.38. 115. The only decision in which the point appears to have been raised is the decision of Gzell J in New Cap Reinsurance Corp Ltd v Somerset Marine Inc [2003] NSWSC 540 albeit in the context of a summary dismissal application. His Honour however did not express any concluded view on the matter. 116. See for example the cases in 3.71ff and 4.28ff. 117. Cashflow Finance Pty Ltd (in liq) v Westpac Banking Corp [1999] NSWSC 671 at [518]. 118. Cashflow Finance Pty Ltd (in liq) v Westpac Banking Corp [1999] NSWSC 671 at [518]. 119. New Cap Reinsurance Corporation Ltd (in liq) v Renaissance Reinsurance Ltd (2002) 43 ACSR 65 at [14]. 120. See discussion of the ss 267 and s 267A vesting provisions in Chapter 9 at 9.69ff. 121. See discussion of the s 588FL vesting provisions in Chapter 9 at 9.50ff. 122. Australian Concise Oxford Dictionary, 5th ed, Oxford University Press, Melbourne, 2009. 123. St Martins Grosvenor Pty Ltd v American Home Assurance Co (unreported, NSWCA, Samuels JA, 18 March 1977) at 8–9. 124. St Martins Grosvenor Pty Ltd v American Home Assurance Co (unreported, NSWCA, Samuels JA, 18 March 1977) at 8–9. 125. Wood Hall Ltd v Pipeline Authority (1979) 141 CLR 443; 24 ALR 385. 126. Wood Hall Ltd v Pipeline Authority (1979) 141 CLR 443 at 445; 24 ALR 385 per Barwick CJ. 127. Hortico (Aust) Pty Ltd v Energy Equipment Co (Aust) Pty Ltd (1985) 1 NSWLR 545 at 550ff. 128. Re Bank of Queensland Ltd [1997] 2 Qd R 129 at 133 per McPherson JA. 129. Australian Concise Oxford Dictionary, 5th ed, Oxford University Press, Melbourne, 2009. 130. Beckhaus Civil Pty Ltd v Brewarrina Shire Council (No 2) [2004] NSWSC 1160 at [74] per Macready M. 131. PT Berlian Laju Tanker TBK v Nuse Shipping Ltd (The Aktor) [2008] EWHC 1330 (Comm) at [21] per Clarke J. 132. Garforth v Newsmith Stainless Ltd [1979] 1 WLR 409; [1979] STC 129. 133. Octavo Investments Pty Ltd v Knight (1979) 144 CLR 360 at 368. 134. Octavo Investments Pty Ltd v Knight (1979) 144 CLR 360 at 368. 135. See the comments of Kirby J in in Sheahan v Carrier Air Conditioning Pty Ltd & Campbell (1997) 189 CLR 407. 136. Sheahan v Carrier Air Conditioning Pty Ltd & Campbell (1997) 189 CLR 407. 137. See 3.42. 138. Re Emanuel (No 14) Pty Ltd (in liq); Macks v Blacklaw & Shadforth Pty Ltd (1997) 147 ALR 281 at 287–9; 24 ACSR 292. 139. See 3.43ff. See also the review of the authorities relating to the Court’s approach to Pt 5.7B at 3.64ff which makes clear that the courts have adopted a broad interpretation of ‘transaction’. 140. Regulation 7.5.01 of the Corporations Regulations 2001 (Cth) contains a definition of ‘obligation’ for the purposes of Pt 7.5 of those regulations, which deals with compensation regimes for financial markets. The definition (although not relevant to Pt 5.7B of the Act) refers to obligations arising under a law, market licensee’s operating rules or an agreement between the licensee and market

participants and so on. The definition is consistent with the conclusion that an obligation is something that is bound by law or under contract to be done. 141. Australian Concise Oxford Dictionary, 5th ed, Oxford University Press, Melbourne, 2009. 142. Watkinson v Hollington [1944] 1 KB 16 at 21 per Scott LJ. 143. Repco Ltd v Bartdon Pty Ltd Canadian Tire Corp & McEwans Ltd [1981] VR 1; 4 ACLR 787. 144. Dodlot Ltd v Hartogen Energy Ltd (1991) 25 NSWLR 278; 6 ACSR 397. 145. Zimmermann, The Law of Obligations, Juta, Cape Town, 1990. 146. Dodlot Ltd v Hartogen Energy Ltd (1991) 25 NSWLR 278; 6 ACSR 397 at 400 per Young J. 147. Watkinson v Hollington [1944] KB 16 at 21. 148. Toyota Motor Corporation Australia Ltd v Pias Settlements Pty Ltd (unreported, SC(NSW), Young J, 25 March 1997) at 7. 149. Brett v Barr-Smith (1919) 26 CLR 87. 150. David Securities Pty Ltd v Commonwealth Bank of Australia (Swiss Franc case) (1992) 175 CLR 353; 109 ALR 57. 151. Australian Concise Oxford Dictionary, 5th ed, Oxford University Press, Melbourne, 2009. 152. Australian Concise Oxford Dictionary, 5th ed, Oxford University Press, Melbourne, 2009. 153. Commonwealth Bank of Australia v Cluness (1997) 8 BPR 15,467. The judgment also contains, in Appendix 1 commencing at p 13, an informative analysis of the relationship between releases, covenants not to sue, and whether they can be subject to conditions precedent (they can) and conditions subsequent (they cannot). 154. Williston on Contracts, 3rd ed, vol 15, Lawyers Co-op Publishing Co, New York, 1972, at [1820]. 155. Gange v Sullivan (1966) 116 CLR 418; 40 ALJR 224. 156. Kostopoulos v GE Commercial Finance Australia Pty Ltd [2005] QCA 311 at [36]–[37], citing Commonwealth v Verwayen (Verwayen’s/Voyager Case) (1990) 170 CLR 394 at 406; 95 ALR 321; Banning v Wright [1972] 1 WLR 972 at 979; cf Wiltrading (WA) Pty Ltd v Lumley General Insurance Ltd (2005) 30 WAR 290; [2005] WASCA 106 at [40]–[48]. 157. Commonwealth v Verwayen (Verwayen’s/Voyager Case) (1990) 170 CLR 394; 95 ALR 321. 158. Sargent v ASL Developments Ltd (1974) 131 CLR 634; 4 ALR 257. 159. Australian Concise Oxford Dictionary, 5th ed, Oxford University Press, 2009. See also 6.15. 160. Brick & Pipe Industries v Occidental Life Nominees Pty Ltd (1990) 3 ACSR 649 at 691. 161. Brick & Pipe Industries v Occidental Life Nominees Pty Ltd (1990) 3 ACSR 649 at 691. In relation to the difference between a loan and bill facility, see the judgment of Lord Devlin in Chow Yoong Hong v Choong Fah Rubber Manufactory [1962] AC 209 at 215, 216–7, referred to with approval in the High Court by the majority in Handevel Pty Ltd v Comptroller of Stamps (Vic) (1985) 157 CLR 177; 62 ALR 204 at CLR 194–5, and in the judgment of Aickin J (with whom Mason J concurred) in K D Morris & Sons Pty Ltd (in liq) v Bank of Queensland Ltd (1980) 146 CLR 165 at 194; 30 ALR 321 at 343. 162. Cussen v Sultan (2009) 74 ACSR 496; [2009] NSWSC 1114 at [21] per Nicholas J. 163. Cussen v Sultan (2009) 74 ACSR 496; [2009] NSWSC 1114 at [21] per Nicholas J; V R Dye and Co v Peninsula Hotels Pty Ltd (in liq) [1999] 3 VR 201; 32 ACSR 27; [1999] VSCA 60 per Ormiston JA at [37]; Fletcher v Fortress Credit Corp (Australia) II Pty Ltd (2011) 82 ACSR 352; [2011] QSC 030 at [14].

164. Cussen v Sultan (2009) 74 ACSR 496; [2009] NSWSC 1114 at [21] per Nicholas J citing Re Emanuel (No 14) Pty Ltd (in liq); Macks v Blacklaw & Shadforth Pty Ltd (1997) 147 ALR 281; 24 ACSR 292. 165. Cussen v Sultan (2009) 74 ACSR 496; [2009] NSWSC 1114 at [21] per Nicholas J citing Mann v Sangria Pty Ltd (2001) 38 ACSR 307; [2001] NSWSC 172. 166. Warner v Hung; Re Bellpac Pty Ltd (Receivers and Managers Appointed) (in liq) (2011) 297 ALR 56; [2011] FCA 1123 at [198]; affirmed Hung v Warner; Re Bellpac Pty Ltd (Receivers and Managers Appointed) (in liq) [2013] FCAFC 48. 167. Universal Financial Group v Mortgage Elimination Services (2006) 205 FLR 186; [2006] NSWSC 1132. 168. Universal Financial Group v Mortgage Elimination Services (2006) 205 FLR 186; [2006] NSWSC 1132 at [118]–[119] per Austin J. 169. Wily v Bartercard Ltd (2000) 34 ACSR 186 at 195–6; [2000] NSWSC 372 at [48]; Warner v Hung; Re Bellpac Pty Ltd (Receivers and Managers Appointed) (in liq) (2011) 297 ALR 56; [2011] FCA 1123 at [198]. 170. Australian Kitchen Industries Pty Ltd v Albarran (2004) 51 ACSR 604; [2004] NSWSC 1047 at [24]. 171. Universal Financial Group v Mortgage Elimination Services (2006) 205 FLR 186; [2006] NSWSC 1132 at [118]–[119]. 172. Sparks v Berry [2001] QSC 251 at [12]–[13]. 173. See Chapter 8 for a full discussion of the circumstances in which a transaction will be voidable under s 588FE. Similar phraseology is used in each of ss 588FA(1), 588FB(1), 588FC(a)(i), 588FDA(1)(b)(iii) and (2) and in 588FI. 174. The Dictionary contains a meaning for the differently conjugated ‘enter into’, although it makes little sense if read into the provisions in Pt 5.7B. The meaning is that a person who enters into or becomes a party to an agreement in relation to voting shares or other securities, or exercises an option in relation to voting shares or securities granted, is taken to enter into a transaction in relation to those shares or securities. 175. Australian Concise Oxford Dictionary, Oxford University Press, 5th ed, 2009. 176. The phrase does appear in other and different statutory contexts, although the decisions concerning those provisions are not particularly instructive: see Federal Commissioner of Taxation v Spotless Services Ltd (1996) 186 CLR 404; 141 ALR 92 (taxation); Grimwade v Federal Commissioner of Taxation (No 2) (1949) 78 CLR 199; [1949] ALR 609 (taxation – entered into with intent); Zurich Australian Insurance Ltd v Metals & Minerals Insurance Pte Ltd (2009) 240 CLR 391; 261 ALR 468; 84 ALJR 70 (Insurance Contracts Act). 177. Burrows v Knightley & Nationwide News Pty Ltd (1987) 10 NSWLR 651 at 656 per Hunt J. 178. Demondrille Nominees Pty Ltd v Kevin R Shirlaw & Cornelis Holdings Pty Ltd (in liq) (1997) 25 ACSR 535 at 549; Re Lawrence Waterhouse Pty Ltd (in liq); Shaw v Minsden Pty Ltd [2011] NSWSC 964 at [224]. 179. Demondrille Nominees Pty Ltd v Kevin R Shirlaw & Cornelis Holdings Pty Ltd (in liq) (1997) 25 ACSR 535 at 549; Re Lawrence Waterhouse Pty Ltd (in liq); Shaw v Minsden Pty Ltd [2011] NSWSC 964 at [224]. 180. Lewis (as liq of Doran Constructions Pty Ltd (in liq)) v Doran (2005) 219 ALR 555; [2005] NSWCA 243 at [121]–[124], dismissing an appeal from Lewis v Doran (2004) 208 ALR 385; [2004] NSWSC 608 at [122].

181.

Demondrille Nominees Pty Ltd v Kevin R Shirlaw & Cornelis Holdings Pty Ltd (in liq) (1997) 25 ACSR 535 at 549.

182. Universal Financial Group v Mortgage Elimination Services (in liq) [2006] NSWSC 1132 at [114]– [121]. 183. Mulherin v Bank of Western Australia Ltd; McCann v Bank of Western Australia Ltd [2006] QCA 175 at [32] and [126]. 184. Minister for Transport v Francis (as joint liquidators of Civcon Pty Ltd) (in liq) (2000) 35 ACSR 584 at [45]; [2000] WASCA 149 per Templeman J with Kennedy J agreeing. 185. Re Emanuel (No 14) Pty Ltd (in liq); Macks v Blacklaw & Shadforth Pty Ltd (1997) 147 ALR 281 at 288; 24 ACSR 292. 186. Mulherin v Bank of Western Australia Ltd; McCann v Bank of Western Australia Ltd [2006] QCA 175 at [126]. 187. Mulherin v Bank of Western Australia Ltd; McCann v Bank of Western Australia Ltd [2006] QCA 175 at [126]. 188. Nilant v Plexipack Packaging Services Pty Ltd (1996) 68 FCR 352; 21 ACSR 428 at 433 per Nicholson J. This decision was not followed by the Full Court of the Federal Court in Re Emanuel (No 14) Pty Ltd (in liq); Macks v Blacklaw & Shadforth Pty Ltd (1997) 147 ALR 281 at 287–9, although this particular statement was not subject to criticism and is consistent with subsequent authority. Care should nevertheless be exercised when referring to and relying on the decision. 189. Australian Kitchen Industries Pty Ltd v Albarran (2004) 51 ACSR 604; [2004] NSWSC 1047 at [24]. See, however, the discussion at 3.42ff identifying some uncertainty in the case law having regard to the High Court’s decision in Sheahan v Carrier Air Conditioning Pty Ltd & Campbell (1997) 189 CLR 407. 190. Black J in Campbell Street Theatre Pty Ltd (rec and mgr apptd) (in liq) v Commercial Mortgage Trade Pty Ltd [2012] NSWSC 669 at [13], citing Re Emanuel (No 14) Pty Ltd (in liq); Macks v Blacklaw & Shadforth Pty Ltd above; Tosich Construction Pty Ltd (in liq) v Tosich (1997) 78 FCR 363. 191. Re Employ (No 96) Pty Ltd (in liq) (2013) 93 ACSR 48; [2013] NSWSC 61 at [15], citing Tosich Construction Pty Ltd (in liq) v Tosich (1997) 78 FCR 363; Mann v Sangria Pty Ltd (2001) 38 ACSR 307; [2001] NSWSC 172 at [31]; Capital Finance Australia Ltd v Tolcher (2007) 164 FCR 83; 64 ACSR 705; [2007] FCAFC 185 at [120]. See also Cussen v Sultan (2009) 74 ACSR 496; [2009] NSWSC 1114 at [21], citing V R Dye & Co v Peninsula Hotels Pty Ltd (in liq) [1999] 3 VR 201; 32 ACSR 27; [1999] VSCA 60 per Ormiston JA at [37]. 192. Capital Finance Australia Ltd v Tolcher [2007] 164 FCR 83 at 98; FCAFC 185 at [74] per Lindgren J speaking of transaction in the context of s 588FB. 193. Mann v Sangria Pty Ltd (2001) 38 ACSR 307; [2001] NSWSC 172. 194. Tosich Construction Pty Ltd v Tosich (1997) 23 ACSR 466 at 473–4. 195. Re Solfire Pty Ltd (in liq) [1997] 2 Qd R 92; 25 ACSR 160. 196. Mann v Sangria (2001) 38 ACSR 307; [2001] NSWSC 172. 197. V R Dye & Co v Peninsula Hotel Pty Ltd (in liq) [1999] 3 VR 201; 32 ACSR 27. See also 4.35. 198. V R Dye & Co v Peninsula Hotel Pty Ltd (in liq) [1999] 3 VR 201; 32 ACSR 27 at [39]. 199. Mann v Sangria (2001) 38 ACSR 307; [2001] NSWSC 172 at [40], quoting Ormiston JA in V R Dye & Co v Peninsula Hotel Pty Ltd (in liq) at [39]–[40]. 200. Mann v Sangria (2001) 38 ACSR 307; [2001] NSWSC 172 at [41].

201. Mann v Sangria (2001) 38 ACSR 307; [2001] NSWSC 172 at [42]. 202. Re Burness; Denward Lane Pty Ltd (in liq) (2009) 259 ALR 339; [2009] FCA 893 at [45]. See also 4.30. 203. See also the discussion at 3.42ff regarding the High Court’s decision in Sheahan v Carrier Air Conditioning Pty Ltd & Campbell (1997) 189 CLR 407. 204. Australian Kitchen Industries Pty Ltd v Albarran (2004) 51 ACSR 604; [2004] NSWSC 1047 at [23]. 205. Hope v Bathurst City Council (1980) 144 CLR 1 at 7; 29 ALR 577 at 581 per Mason J. 206. Kalls Enterprises Pty Ltd (in liq) v Baloglow (2007) 63 ACSR 557; [2007] NSWCA 191 at [104]. 207. Kalls Enterprises Pty Ltd (in liq) v Baloglow (2007) 63 ACSR 557; [2007] NSWCA 191 at [102]– [105]; special leave refused [2008] HCATrans 132. 208. Kalls Enterprises Pty Ltd (in liq) v Baloglow (2007) 63 ACSR 557; [2007] NSWCA 191 at [102]– [105]; special leave refused [2008] HCATrans 132.

[page 164]

4 Unfair Preferences INTRODUCTION 4.1 By far the most common species of transaction sought to be impugned in the context of company insolvency is the unfair preference. An insolvent company will typically try and remain afloat by paying, or preferring, some creditors at the expense of others. The practical effect of discharging an unsecured creditor’s debt during insolvency is, usually, to deplete the resources available to the company’s other creditors and hence offend the sacred insolvency law principle of pari passu distribution,1 now enshrined in statute by virtue of s 555 of the Corporations Act.2 As explained in Chapter 1, the general policy3 underlying avoidance provisions is to avoid ‘the change which, if allowed to be effectual, would dislocate the statutory order of priorities amongst the creditors’.4 In other words, the law of unfair preferences focuses attention upon the interrelationship of creditors inter se5 and, ultimately, the policy objective of the avoidance provisions in insolvency law6 is to protect the general body of creditors against a diminution of [page 165] the assets available to them from transactions which confers an unfair advantage to a select few.7 4.2 In addition, it has been suggested that the avoidance provisions in insolvency law may have a deterrent effect on future creditors by discouraging them from gaining an advantage over other creditors. This was made clear by the

High Court in G & M Aldridge Pty Ltd v Walsh8 where a plurality of the High Court cited with approval the following passage from the United States Supreme Court decision of Union Bank v Wolas: The purpose of the preference section [of The Bankruptcy Reform Act of 1978] is two-fold. First, by permitting the trustee to avoid prebankruptcy transfers that occur within a short period before bankruptcy, creditors are discouraged from racing to the courthouse to dismember the debtor during his slide into bankruptcy. The protection thus afforded the debtor often enables him to work his way out of a difficult financial situation through cooperation with all of his creditors. Second, and more important, the preference provisions facilitate the prime bankruptcy policy of equality of distribution among creditors of the debtor. Any creditor that received a greater payment than others of his class is required to disgorge so that all may share equally. The operation of the preference section to deter ‘the race of diligence’ of creditors to dismember the debtor before bankruptcy furthers the second goal of the preference section — that of equality of distribution.9

In G & M Aldridge the High Court expressly stated that the same policy is at work in the Australian preference legislation.10 In the High Court’s view: A primary objective of that legislation, including Pt 5.7B, is that of securing equality of distribution among creditors of the same class. The pursuit of that objective has the consequential effect of deterring the ‘race to the courthouse’ and that, in turn, enhances the prospect of enabling debtors to trade out of their difficulties without undue and discriminatory risk to creditors.11

[page 166] Earlier, in the decision of Federal Commissioner of Taxation v Jaques,12 the High Court, comprising Dixon CJ, Fullagar, Kitto and Taylor JJ observed in relation to the fraudulent preference provision found in the former s 95(1) of the Bankruptcy Act 1924: It is true that [s 95] is not included in the group of sections by which the Act prescribes the order of priorities to be observed by the trustee in the application of the estate of a bankrupt, namely ss 84, 85, 86, 87, 88A and 89 in Div 2 of Pt VI. It is, however, in the nature of a corollary to those sections, in the sense that it is directed to ensuring that the administration of a bankrupt’s estate in accordance with them shall not be prevented by any conveyance, transfer, charge, payment, obligation or judicial proceeding, occurring within six months before the presentation of the petition and not possessing certain saving characteristics, which, if it were allowed to be effective, would put a debt ahead of the place appropriate to it in the prescribed order. Its operation, so far as payments are concerned, is to ‘prevent a payment to anybody who, but for such payment, would share in the administration of the bankrupt’s estate’, that is to say ‘any person who, at the date of the payment to him, would have had to come in and prove and rank with the other creditors in the bankruptcy’: Re Paine; Ex parte Read [1897] 1 QB 122 at 124. The section is therefore analogous in its purpose to the old rule which invalidated a fraudulent preference on the ground that if it were permitted to stand ‘the policy of the bankruptcy laws would be defeated’: Wheelwright v Jackson (1813) 5 Taunt 109 at 115 (128 ER 628, at 630), and to the provision now in force in England under s 44 of the Bankruptcy Act 1914 which has been described as invalidating such a preference as ‘a fraud upon the administration in bankruptcy’: Butcher v Stead (1875) LR 7 HL 839, at 852 [emphasis added].13

As will be seen below, despite a change in the language of the preference provisions now contained in s 588FA, the theme of equality of distribution among creditors that pertained under the previous regime persists.14 Unfortunately, despite the continuation of these policy objectives, the courts have struggled to develop a coherent and consistent jurisprudence regarding s 588FA. Given the inconsistency in the case law, and the relative importance of this provision in the sphere of voidable transactions, it is considered that a more detailed historical excursus on the law of preferences is necessary. [page 167]

HISTORICAL DEVELOPMENT OF PREFERENCE PROVISIONS15 4.3 As mentioned in Chapter 1, the concept of unfair preference has its genesis in bankruptcy law. Although bankruptcy law has long held, since at least the time of the Statute of Elizabeth in 1571,16 that fraudulent conveyances of property made prior to a bankruptcy as being void,17 provisions for avoiding transactions whereby the debtor discharged an unsecured debt prior to bankruptcy came much later. Indeed, the effect of the decisions upon the Statute of Elizabeth was that a transaction made prior to bankruptcy could not be impeached on the ground merely that it constituted a preference of a particular creditor by a debtor.18 The mere preference of one creditor over another prior to bankruptcy did not bring the case within the Elizabethan statute.19 However, the preferring of a creditor after an act of bankruptcy was voidable. In the famous 1584 case of Smith v Mills (The Case of Bankrupts)20 Sir Edward Coke explained the position as follows: And so we see in divers cases, as well as the Common Law, as upon the like statutes, such constructions have been made; for, as Cato saith, Ipsae etenim leges cupiunt ut jure regantur; [The laws themselves desire to be ruled by right] And therefore it is held, in 35 Hen 8 tit Testaments, Br 19 a man holdeth three manors of three several lords by knights service, each manor of equal value, he cannot devise two manors and leave the third to descend, according to the generality of the words of the Acts of 32 & 34 Hen 8 of Wills, for then he should prejudice the other two lords, but, by a favourable and equal construction, he can devise but two parts of each manor, so that equality between them shall be observed … So here, in our case, there ought to be an equal distribution secundum quantitatem debitorum suorum [according to the amount of their debts] but if, after the debtor becomes a bankrupt, he may prefer one (who peradventure hath least need), and defeat and defraud many other

poor men of their true debts, it would be unequal

[page 168] and unconscionable, and a great defect in the law, if, after that he hath utterly discredited himself by becoming a bankrupt, the law should credit him to make distribution of his goods to whom he pleased, being a bankrupt man, and of no credit; but the law, as hath been said before, hath appointed certain commissioners, of indifferency and credit, to make the distribution of his goods to every one of his creditors, rate and rate alike, a portion, according to the quantity of their debts, as the statute speaketh [emphasis added].

4.4 This statutory lacuna left creditors of a bankrupt without remedy where a debtor discharged the debt of an unsecured creditor in preference to others prior to any bankruptcy.21 The ‘fraudulent preference’, as it was originally known, emerged during the time of Lord Mansfield in the eighteenth century22 as a response to this omission.23 Unlike the current statutory concept of ‘unfair preference’ however it was the courts, and not Parliament, that devised the fraudulent preference as a branch of the law of public policy.24 Indeed, the avoidance of preferences in bankruptcy was a common law development that was based on the policy of statute law.25 In 1768, 101 years prior to any express statutory provision defining fraudulent preferences,26 and in an example of the court giving effect to the doctrine of the ‘the equity of the statute’,27 Lord Mansfield declared in Alderson v Temple that: … it is certain that the Statutes of Bankruptcy leave a trader, to the moment of an act of bankruptcy committed, every power an owner can have over his estate. The statute says (I Jac I, c 1 s 2), ‘Fraudulent conveyances shall be an act of bankruptcy’. Other acts that are fraudulent are not made acts of bankruptcy, but they are attended with the consequences of fraud, at law; which is, ‘that fraud renders every act void … All acts to defraud creditors or the public laws of the land are void; and if the nature of the act be a conveyance or grant, ‘tis not only void, but an act

[page 169] of bankruptcy. It has been determined that a conveyance by a trader, of all his effects for the payment of one or more bona fide creditors of the most meritorious kind, though his effects do not amount to half what is due, is void; because it is not an act in the ordinary course of business; it is not such an act as a man could do, but it must be followed by an immediate act of bankruptcy, and it is defeating the equality that is introduced by the Statutes of Bankruptcy, and the criminal (for the bankrupt is considered as a criminal) is taking upon himself to prefer whom he pleases [emphasis added].28

In Lord Mansfield’s formulation, the key issue to be resolved in determining

whether a particular transaction was a fraudulent preference was the intention of the debtor in making the payment29 or, to use Lord Mansfield’s words, if the transaction was ‘fraudulent, and done with no other view whatsoever but to defeat the equality of the bankrupt laws, it is void on account of such intended fraud’.30 However, not every pre-bankruptcy transaction between the debtor and a creditor by which such creditor obtained an advantage or preference over the other creditors was void.31 For example in Harman v Fishar, Lord Mansfield observed: But no case ever came before us where we were warranted to say that no case can exist of a legal preference. For if a man were to make a payment but the evening before he becomes bankrupt, independent of the Act of Parliament and in a course of dealing and trade, it would be good; or suppose legal diligence used by a creditor, and execution or ca. sa. [capias ad satisfaciendum; a writ of execution on a personal judgment] is in the house, and under terror of that he makes an assignment and delivery of his effects, it would be valid; the object not being to give a preference, but to deliver himself.32

The fraudulent preference doctrine was thus confined within narrow limits33 and required a voluntary transaction on the debtor’s part whose sole intention was to prefer one or more creditors over others.34 [page 170]

Early statutory definitions of fraudulent preference 4.5 Lord Mansfield’s concept of fraudulent preference was incorporated35 into statute just over 100 years later in s 92 of the Bankruptcy Act 1869 (UK). That section provided for the first time a statutory definition of fraudulent preference as follows: Every conveyance or transfer of property or charge thereon made, every payment made, every obligation incurred, and every judicial proceeding taken or suffered by any person unable to pay his debts as they become due, from his own moneys, in favour of any creditor or any person in trust for any creditor, with a view of giving such creditor a preference over the other creditors, shall, if the person making, taking, paying, or suffering the same become bankrupt within three months after the date of making, taking, paying, or suffering the same, be deemed fraudulent and void as against the trustee of the bankrupt appointed under this Act; but this section shall not affect the rights of a purchaser, payee, or incumbrancer in good faith, and for valuable consideration [emphasis added].

This statutory definition36 was intended to codify the decisions regarding fraudulent preferences37 and reflected the then current understanding of the earlier English case law.38 The words ‘with a view’ clearly contemplated an intention on behalf of the debtor to prefer a creditor.39 As Isaacs J explained in

Muntz v Smail,40 one of the earliest decisions of the High Court regarding bankruptcy: But the truth is, as Lord Halsbury said in Sharp v Jackson,41 quoting Lord Esher — ‘Whether it is called “intention” or “view”, or “object” does not appear to me to matter much. The question is whether in fact he had the intention to prefer certain creditors.’ And again —

[page 171] It seems to me clear, therefore, that he made this conveyance, not with the ‘intention’ or ‘view’ or ‘object’, or whatever it may be called, of preferring these persons, but for the sole purpose of shielding himself. Under these circumstances, what he did is not a fraudulent preference within the ‘Bankruptcy Act’. Therefore, it comes to be a mere question of what is meant by ‘preference’. If ‘preference’ was the dominant ‘aim’, or ‘intention’, or ‘object’, or ‘view’, or ‘purpose’, or ‘motive’, the transaction is struck at; otherwise not.

4.6 While intention of a debtor to prefer one or more creditors over others was a central feature of the English bankruptcy legislation (and remains the case today)42 the position in New South Wales43 took a radically different approach. That radical approach was encapsulated in s 8 of the Insolvency Act 1841, 5 Vic No 17 (NSW) which introduced the phrase ‘having the effect of preferring any then existing creditor to another’. Section 8 stated: And be it enacted, That all alienations transfers gifts surrenders deliveries mortgages or pledges of any estate goods or effects real or personal warrants of attorney cognovits actionem and judgments entered up thereon made by any person being insolvent or in contemplation of surrendering his estate as insolvent or knowing that legal proceedings for obtaining an order for the sequestration of his estate as insolvent, have been commenced or within sixty days preceding the making of any order for sequestration of his estate as insolvent, and having the effect of preferring any then existing creditor to another shall be and are hereby declared to be absolutely void [emphasis added].

Section 8 of the New South Wales Act came to be considered by the New South Wales Full Court in the 1868 decision of Humphery v McMullen.44 After summarising the English position existing at the time,45 the Full Court emphasised the importance of construing the actual words of the statute: Such then was the state of the law on this point, and such was the nature of the decisions in England, when our Statute, 5 Vict, No 17, was passed. And it must be assumed that the framers of our Act had in view not only the English enactments, but also the decisions upon the subject. When, under such circumstances, we find the local legislature, which has in other respects made considerable departures from the English law on the subject of bankruptcy and insolvency, using in this enactment terms so

[page 172]

very different from those used in the English enactments, we may fairly ask whether the preference indicated by the 8th section of our Act is not altogether different from the ‘fraudulent preference’ of the English law. Are we to assume that the words ‘fraudulent’ and ‘voluntary’, which occur in the English enactments, but are altogether omitted (we must suppose advisedly and intentionally) from ours, are to be introduced by implication into the latter? Is it not, on the contrary, more reasonable to conclude that the framers of our Act meant to get rid of these questions of intention, on the part of the insolvent debtor, which caused so much difficulty in some of the English cases, and to rest the validity or invalidity of the transactions solely on the question whether, in point of fact, the creditor obtained a preference? This construction would embrace not only those cases which, according to the English doctrine, depend on the debtor’s voluntariness and intention to prefer, but also those in which such voluntariness and intention may not exist [emphasis added].

The Full Court’s decision in Humphery v McMullen was contrary to the Privy Council’s decision in the earlier case of Bank of Australasia v Harris.46 In that case, the Privy Council construed the phrase ‘having the effect of preferring any then existing creditor’ in s 8 of the 1841 Act as requiring the preference to be fraudulent. Similarly, in Sheldrick v Aitken,47 the Victorian Full Court held that s 31 of the Insolvency Statute 1865, 28 Vict No 273 (which was in identical terms to s 8 of the 1841 Act) applied only to preferences which were fraudulent. Despite these authorities to the contrary, the position in New South Wales remained as enunciated in Humphery v McMullen48 that fraud (and accordingly intention) was not a necessary element in establishing whether a transaction was a preference.

The era of modern Australian bankruptcy law 4.7 In 1928, the first Commonwealth bankruptcy statute in the form of the Bankruptcy Act 1924 (Cth) came into effect. Section 95 of that Act substantially adopted49 the New South Wales approach to preferences and provided relevantly as follows: … every payment made … by any person unable to pay his debts as they become due from his own money, in favour of any creditor … having the effect of giving that creditor … a preference, a priority or an advantage over the other creditors, shall, if the debtor becomes bankrupt on a bankruptcy petition presented within six months thereafter be void as against the trustee in bankruptcy.

[page 173] The conflict in the interpretation of s 8 of the New South Wales Act referred to above, and subsequently s 95 of the Commonwealth Act was resolved by the High Court in S Richards & Co Ltd v Lloyd.50 In rejecting a contention that s 95 of the Commonwealth Act required a requisite intention in order to establish a

‘preference’ within the meaning of that section Rich and Dixon JJ held: The question has been examined more than once since the Federal Statute came into force — see Re Stevens (1929) 1 ABC 90 at pp 94–6; Re Sanderson (1930) 2 ABC 182 at pp 187–8; Re Mazok (1930) 2 ABC 237 at pp 241–3, (1931) SR(Q) 19; Re Scott, (1931) 4 ABC 8 at pp 13–26, and 3 Aust Law Jo 174 and 211. We think the language of the section, the history of the bankruptcy legislation in Australia, and the course of the colonial decisions provide considerations which displace the effect of the decision in Bank of Australasia v Harris … which, after all, was given on a very different Statute, containing a context which, in the Commonwealth Act, does not appear with the critical words that are in effect common to both enactments. This contention, therefore, should be rejected.51

4.8 Section 95 of the Bankruptcy Act 1922 (Cth) applied to companies by virtue of the various State companies legislation then in place.52 Subsequently, the Bankruptcy Act 1966 (Cth) commenced on 4 March 1968 where the relevant preference provision was found in s 122. Section 122(1) of the Bankruptcy Act 1966 provided that: A conveyance or transfer of property, a charge on property, or a payment made, or an obligation incurred, by a person who is unable to pay his debts as they become due from his own money (in this section referred to as ‘the debtor’), in favour of a creditor, having the effect of giving that creditor a preference, priority or advantage over other creditors, being a conveyance, transfer, charge, payment or obligation executed, made or incurred: (a) within 6 months before the presentation of a petition on which, or by virtue of the presentation of which, the debtor becomes a bankrupt; … is void as against the trustee in the bankruptcy.

Until 1993, the various Companies Acts and the Corporations Law incorporated s 122 of the Bankruptcy Act 1966 by reference53 and applied s 122 to a company winding up. As mentioned in Chapter 1, Parliament amended the then Corporations Law with the enactment of [page 174] the Corporate Law Reform Act 1992 (Cth) (CLRA) in 1992. That Act introduced54 the present s 588FA following recommendations made by the Harmer Commission.55

The High Court’s development of preference law 4.9 Although the conceptual framework of unfair preference law has an ancient lineage as explained above, many of the key aspects of Anglo-Australian insolvency preference law were refined by the High Court during the 1950s and

1960s. In particular, in a series of cases examining preference law in the context of running accounts56 the High Court examined in detail the notion of a preference and when and in what circumstances a transaction will have a preferential effect. An examination of these cases assists in understanding the key concepts in this area and helps to elucidate the manner in which the sections were intended to operate.

Richardson v Commercial Banking 4.10 In Richardson v Commercial Banking Co of Sydney Ltd,57 a solicitor, Price, was a gambler who ‘resorted to all the time-honoured devices for keeping his head above the surface’58 by, inter alia, misappropriating clients’ monies and intermingling trust funds with his own funds. Price operated two accounts with the local bank, an office account (with an overdraft) and a trust account. With the assistance of the bank’s local manager, Price was able to overdraw his accounts in order to try and meet his mounting liabilities. In the six months prior to Price’s bankruptcy, Price made a number of deposits into the office account which reduced the office overdraft account within the limits of its security. In addition, Price made four deposits in the trust account when it was overdrawn. Each of those transactions were sought to be impugned by the trustee in bankruptcy under s 95(1) of the Bankruptcy Act 1924–195059 on the basis that they were preferences. Apart from one transaction, the High Court, comprising Dixon, Williams and Fullagar JJ, found that the transactions were not preferences. In commencing their [page 175] analysis, their Honours set out what is required in assessing the effect of a transaction: In considering what is the effect of the transaction impeached under s 95, in this case a deposit, or each of a succession of deposits, to the credit of an overdrawn current account or an overdrawn trust account at a bank, there are two things that it is important to have clearly in mind. One of them is the kind of ‘effect’ which the provision treats as decisive. It must be ‘the effect of giving the creditor a preference, a priority or advantage over the other creditors’: it is then void in bankruptcy if the sequestration is within six months. Section 95 supposes a bankruptcy, and it is in relation to that bankruptcy that the question arises whether, over the other creditors, a preference priority or advantage has been given to the particular creditor. Section 52(c), on the other hand, propounds the hypothetical question whether in the event of bankruptcy such an effect would be produced. The bankruptcy or the petition must of course be within six months: s 55(1)(c) [emphasis added].60

Section 52(c) of the Bankruptcy Act 1924–1950 provided that a debtor commits an act of bankruptcy ‘if in Australia or elsewhere he makes any conveyance or transfer of his property or part thereof, or creates any charge thereon which would, under this or any other Act be void as a preference or a fraudulent preference is he became bankrupt’. The court continued in setting out the second thing required when considering the effect of a transaction: The second thing is that the effect is a consequence of the payment and that where the payment forms an integral, an inseparable, part of an entire transaction its effect as a preference involves a consideration of the whole transaction.61

In other words, in order to be preferential, the effect of the relevant transaction must be of a quality contemplated by the statute and the relevant qualitative effect must be a consequence of the relevant transaction. 4.11 In relation to the trust account transactions, the court found no preferential effect in respect of each of those transactions. For example, on 1 September 1947, a cheque for £2,025 was debited on the trust account leaving the account overdrawn in the amount of £1,994. The following day, Price deposited an amount of £2,024 which brought the trust account into credit again. On the same day as the cheque for £2,025 was honoured and debited, the bank was given a deposit to cover it consisting of four cheques. The court found that those payments were transmitted to the bank so that the cheque of £2,025 on the trust account might be honoured. The court accordingly found that it was [page 176] ‘obvious that there was no preferential treatment of an existing debt, no preference over other creditors brought about by the transaction’.62 4.12 The court’s consideration of the payments made to the office account required a more sophisticated analysis given the number and complexity of the transactions involved. The office account in that regard was very active and in the six months prior to bankruptcy it was frequently overdrawn to an amount greater than the security provided of £680. The trustee in bankruptcy claimed that payments into the office account in reduction of this excess resulted in giving a preference to the bank over other creditors but insofar as the payments into the office account reduced the overdraft below the value of the security, the trustee did not claim that these were preferences. The High Court disagreed that the amounts so paid were preferences as alleged by the trustee (save for a deposit

of £390 paid in as the office account was closed). In the court’s view, the payments were not payments made to the bank independently of the arrangement by Price with the bank manger that the latter should honour cheques outstanding, but, on the contrary, they were made only to enable the bank to meet cheques which Price had given or was about to give.63 The court then made the following observations: In considering whether the real effect of a payment was to work a preference its actual business character must be seen and when it forms part of an entire transaction which if carried out to its intended conclusion will leave the creditor without any preference priority or advantage over other creditors the payment cannot be isolated and construed as a preference. Nor can it matter that in the particular circumstances, whether because of illegality or for any other reason, the law could not be invoked if the creditor did falsify the understanding or expectations of the debtor which formed the basis of the payment. If the creditor does carry on his relations with the debtor on the intended footing and so obtains in the result no preference priority or advantage over other creditors from the payment, the fact that it was open to him, without exposing himself to any legal remedy at the suit of the debtor, to interrupt the course of dealing or the progress of the transaction and thus secure for himself a preference, is not enough to show that the payment had the effect of giving such a preference priority or advantage. For ex hypothesi that was not its final effect in fact. In this case it may be remarked that when Price was arrested and his account was closed, the overdraft was greater than at the beginning of the six months [emphasis added].64

The High Court found that the deposits paid into the office account fell into one of three cases (apart from a final preferential deposit made [page 177] on the day of Price’s arrest described below) and therefore could not be considered as having any preferential effect. The first class comprised deposits whereby it was clear that they were intended to cover, and did no more than cover, specific cheques which had come in or were coming in. A second class differed from the first only in the fact that the amount of the deposit more than sufficed to cover the particular cheques presented or impending the ‘dangerous character’65 of which was the prime purpose for the search for funds. The third and final class comprised amounts deposited to reduce the indebtedness on the overdraft which exceeded the value of the security. 4.13 The final preferential deposit made on the day of Price’s arrest comprised a cheque in the amount of £290, which was deposited by Price into the office account but only after the bank manager insisted it be handed to him. The cheque was received from one of Price’s clients as monies on trust and was the balance of purchase money for a cottage the client had purchased. The High

Court observed that had the deposit been Price’s own money the effect would have plainly been to give the bank a preference as it reduced Price’s indebtedness to the bank. However the fact that the monies belonged to Price’s client made the question not an easy one.66 The court nonetheless held the payment to be preferential: On the whole it appears to us that the payment of a cheque representing trust funds into the office account, were it otherwise to operate to give a preference to the bank, would be within s 95. It is within s 95 because, although the same moneys could never but for the misappropriation have been available to the bankrupt’s creditors, there would be a preference, priority or advantage effected in favour of the bank as a creditor, in making a payment to it, when other creditors must prove and other creditors suffer the disadvantage of being exposed to the competition upon the assets of the proof of the defrauded owner of the funds.67

Rees v Bank of NSW 4.14 In 1964, the High Court again considered whether payments by a debtor to a bank were preferences within the meaning of s 95 of the Bankruptcy Act 1924–1950 (Cth). In Rees v Bank of New South Wales68 a retail trading company arranged with its bank to pay all of its takings into the company’s account with amounts applied each month in permanent reduction of its overdraft with the bank. Under this arrangement, between 1 December 1960 and 8 February 1961, the company reduced [page 178] its overdraft with the bank by £20,302. The company was subsequently wound up on 10 February 1961 and the liquidator sought to impugn the payments of £20,302 on the basis that they were preferences captured by s 95 of the Bankruptcy Act 1924–1950 (Cth). The High Court found that the payments were preferences. In doing so, the court distinguished its earlier decision of Richardson v Commercial Banking Co of Sydney Ltd. As Barwick CJ explained: … in my opinion [Richardson v Commercial Banking Co of Sydney Ltd (1952) 85 CLR 110] has no relevance to the resolution of this. In [Richardson v Commercial Banking Co of Sydney Ltd], except for the receipt of the cheque of £390, the bank’s indebtedness was not permanently reduced … In this case the challenge is not to individual payments as was the case with the cheque for £390 in [Richardson v Commercial Banking Co of Sydney Ltd], nor was there an account in liquidation as in Re K B Docker (1938) 10 ABC 198. But at the time of the receipt of each deposit during the relevant period, the bank was able to retain at least some portion of it in permanent reduction of its account. What part it did retain can be determined by taking the total intake into the account during the period and deducting the outgo. It is unnecessary to endeavour to assign this remainder to particular deposits, for the position as to the bank’s knowledge in relation to the company’s solvency and in relation to the effect of any

permanent reduction in the company’s indebtedness to the bank was the same throughout the period. Nor is there any need to analyse the course of the overdrawn account during the period to determine whether a preference which had been obtained at one point of time was foregone by the making of further advances which for the time being may have exceeded the extent of the preference. It is sufficient in the circumstances of this case to take the overall effect of the deposits and the withdrawals in the period.69

The Chief Justice also observed that: In my opinion the liquidator can choose any point during the statutory period in his endeavour to show that from that point on there was a preferential payment and I see no reason why he should not choose, as he did here, the point of the peak indebtedness of the account during the six months period.70

Kitto and Taylor JJ agreed with the learned Chief Justice. In Kitto J’s judgment, his Honour made it clear that in considering whether a particular payment was a preference, the court examined the ultimate effect of a particular transaction: That the ultimate effect of each deposit was to give the bank a preference to the extent to which the deposit contributed to the excess of deposits

[page 179] over payments out made in the period is clear. To that extent each deposit was void as against the liquidator (Bankruptcy Act 1924–1960 (Cth), s 95(1)) unless the bank discharged the burden of proving that in respect of that deposit it was a payee in good faith and for valuable consideration and in the ordinary course of business: ss 95(2)(b) and (3) …71

Kitto J also considered the meaning of the ‘effect’ referred to in s 95(4) of the Bankruptcy Act 1924–1960 (Cth) which provided as follows, relevantly: For the purposes of this section a creditor shall not be deemed to be a … payee … in good faith if the … payment were made … under such circumstances as to lead to the inference that the creditor knew or had reason to suspect that the debtor was unable to pay his debts as they became due, and that the effect of the … payment … would be to give him a preference, priority or advantage over the other creditors.

Kitto J continued to explain: Richardson’s Case having decided that the effect referred to in subs (1) is the ultimate effect in a case where the payment formed an integral step in a unified course of payments and counter-payments, the question is whether the same is true of the effect referred to in subs (4). If it is, there is a difficulty in applying the words ‘knew or had reason to suspect’ in such a case, for the payer could not have either knowledge or suspicion as to what the ultimate effect ‘would be’, though he may have a suspicion as to what it was likely to be. I think the answer is that the effect referred to in subs (4) is the immediate effect, so that a creditor who receives a payment from the debtor cannot be held to be a payee in good faith if, at the time of receiving it, he knows or has reason to suspect that the debtor is unable to pay his debts and that the payment, if allowed to stand, will place him in a better position vis-à-vis other creditors than he would occupy if the debtor became bankrupt with the amount unpaid. This is true, in my opinion, even in respect of a payment as to which it is impossible to say without looking to the

result of a series of payments in and out whether it is caught by subs (1) as having in fact the effect of giving a preference. Construing subs (4) in the manner stated, I agree with the other members of the Court that the present case falls within the subsection, and that therefore the general finding of good faith does not suffice to save the bank from the avoidance of the preference which in fact it obtained [emphasis added].72

[page 180]

Queensland Bacon v Rees 4.15 The next significant decision of the High Court was the well known decision of Queensland Bacon Pty Ltd v Rees.73 In that case, the High Court analysed whether various transactions occurring in the context of a running account were preferential. The details and an analysis of that case are set out at 4.58. In Queensland Bacon, the High Court emphasised the importance of examining the ‘effect in fact’ of a particular transaction. As Barwick CJ observed: It is clear that it is the effect in fact of the making, incurring, or occurrence of the challenged conveyance, charge, payment, obligation or judicial proceeding which will determine whether or not a preference priority or advantage is given to the creditor: Downs Distributing Co Pty Ltd v Associated Blue Star Stores Pty Ltd (in liq) (1948) 76 CLR 463. In general, to pay one of a number of creditors, and neither paying, securing nor arranging with the others, is to prefer the creditor who is paid. But it seems to me that it is one thing to pay a sum of money in the liquidation of an indebtedness, so as to end the relationship of debtor and creditor and, that it may be quite another to make a payment on account of a ‘running’ indebtedness, the payment not in anywise intended or understood to end the relationship of the debtor and creditor, but rather to ensure its continuance.74

Airservices Australia v Ferrier 4.16 Airservices Australia v Ferrier (Compass Airlines case)75 was the next significant High Court decision to discuss the concept of preference in detail. That case was again a running account case in the context of the former s 122 of the Bankruptcy Act 1966.76 The High Court reiterated what it had said on earlier occasions regarding preferential effect, namely, in determining the effect of a transaction it is necessary to assess the ultimate effect of a transaction and specifically whether the transaction results in a decrease in the net value of the assets that are available to meet the competing demands of other creditors.77 As the plurality of the High Court explained: Thus, where the payment is a step in a wider transaction, ‘its actual business character must be seen and when it forms part of an entire transaction which if carried out to the intended conclusion will leave the

[page 181] creditor without any preference priority or advantage over other creditors the payment cannot be isolated and construed as a preference’. If the purpose of a payment is to secure an asset or assets of equal or greater value, the payee receives no advantage over other creditors. The other creditors are no worse off and, where the value of the assets has increased, they are actually better off. Thus, a debtor does not prefer a creditor to the other creditors if he or she pays a debt, or part of it, to induce the creditor to supply goods of equal or greater value than the amount of the payment. In that situation, it is of no relevance that the debt that is discharged happens to be a stale one. If the present value of the goods supplied is equal to or greater than the payment, the other creditors are no worse off. They are in the same position that they would have been in if the parties had so structured the transaction that the debtor paid for the new supply of goods instead of discharging the old debt. Thus, a customer does not prefer his or her banker to other creditors where, pursuant to an antecedent arrangement between the banker and its customer, the customer deposits money to meet a liability already incurred in respect of specific cheques that the banker has met on the faith of the arrangement. A court, exercising jurisdiction under s 122 of the Bankruptcy Act, does not allow itself to be unsighted by the shadow of the legal form when it can see that the economic effect of the transaction does not give the creditor any preference, priority or advantage over the general body of creditors.78

Sheahan v Carrier Air Conditioning 4.17 Shortly after the decision in Airservices, the High Court came again to consider the law of preferences in Sheahan v Carrier Air Conditioning Pty Ltd & Campbell.79 In that case, Brennan CJ emphasised that the only preference with which s 122(1) of the Bankruptcy Act 1966 was concerned was a preference as between the payee and other general creditors who would otherwise be entitled to share in the money paid. His Honour cited with approval the following passage of Young J in James v Commonwealth Bank of Australia: Although there appears to be a dearth of authority on the point, s 122(1) is directed at a situation of the pool of assets being available to creditors generally, being detrimentally affected by a transaction in favour of one creditor. Accordingly, in my view, what one has to do is to consider the situation of the creditors generally before the transaction, and then look at the situation afterwards and see whether the other creditors, that is the general creditors, have been disadvantaged … To my mind, cases such as Richardson v Commercial Banking Co of Sydney Ltd do focus

[page 182] consideration on the ultimate effect of the transaction with respect to the general creditors over and against the relevant creditor. Accordingly, in my view, if one can see that the position of the general creditors after the transaction was no worse than it was before the transaction then the transaction does not have the effect of giving a preference to one creditor over the others [emphasis added].80

Brennan CJ went on to hold that if a fund in the hands of a debtor or a

debtor’s agent is charged with the payment of a secured debt that would exhaust the fund, so that no part of the fund is available for distribution among the general creditors, and a payment to a general creditor is made out of the fund with the consent of the chargee, that creditor gains no preference at the expense of other general creditors. The effect of such a payment is not to prefer the payee among the general creditors but to prefer the payee to the secured creditor who would otherwise have been entitled to the money paid.81 4.18 Brennan CJ’s conclusion in Sheahan v Carrier Air Conditioning Pty Ltd & Campbell was disapproved by the majority of the High Court in G & M Aldridge Pty Ltd v Walsh.82 In that case a bank held a mortgage debenture which gave it a floating charge over all of a company’s assets. The charge subsequently crystallised after the bank made a demand on the company. About one week after the charge had crystallised, the company, which was insolvent, agreed with 12 trade contractors to pay the amounts owing to them. The company made part payments to the contractors. The company’s liquidator then sought to recover these part payments as unfair preferences under s 122(1) of the Bankruptcy Act 1966. The contractors argued that they received no preference on the basis that because the bank’s charge had crystallised, had the company been put into liquidation at the time of the agreement between the company and the contractors there would have been no surplus available to the company’s unsecured creditors. The High Court rejected the argument. In doing so, the High Court noted: Further, even if, as is the case in the present matters, a payment is made by the company, the question is not whether the payment was ‘at the expense of other general creditors’. The question is whether the payment gave the recipient a preference, priority or advantage.

[page 183] It is not the case that the existence of an equitable interest in a third party, whether by way of ownership or security, in property which is transferred, or money which is paid, to an unsecured creditor necessarily denies the possibility the unsecured creditor is thereby preferred as against other unsecured creditors.83

The court then referred to the comments of Dixon, Williams and Fullagar JJ in Richardson v Commercial Banking Co of Sydney Ltd84 to the effect that although the moneys in which a third party may have an interest have been paid to an unsecured creditor there can nonetheless be a preference to an unsecured creditor when other creditors must prove and suffer the disadvantage of being exposed to competition in proving. As the High Court in G & M Aldridge Pty Ltd v Walsh

concluded: If the assets which had been disbursed to some of the unsecured creditors were promptly recovered by the bank, those unsecured creditors would have no preference, priority or advantage over others. If, as here, the unsecured creditors retain the payments, they are preferred to others. It is no answer to the conclusion that there is a preference in such a case to say that the bank might have acted differently. Nor is it an answer to say that there might be, or even will be, no assets that will be available for distribution between remaining unsecured creditors. It is no answer because, first, they are preferred in the obvious sense that their debts are wholly or partly met by the debtor. Second, they are preferred over other unsecured creditors who ‘suffer the disadvantage of being exposed to the competition upon the assets of the proof’ of the bank in an amount greater than would be the case had the assets been applied to the bank’s debt rather than being depleted by the payment to the preferred unsecured creditors. Unlike the circumstances considered in Sheahan it cannot be said that the payments were made by the secured creditor rather than the company.85

THE HARMER REPORT AND PARLIAMENT’S RESPONSE 4.19 As explained in Chapter 1,86 the Harmer Commission was of the view that the policy of the then existing law ‘should not be altered’.87 In response to a submission by Justice Pincus that Parliament should abandon avoidance of preference actions on the basis that such actions face too many practical obstacles, the Harmer Commission responded by confirming the importance of maintaining an avoidance regime: [page 184] The Commission gave this submission careful consideration because of the fundamental issue that it raises. In the end, however, the Commission decided that the policy of the existing law should not be altered. In particular, such a change to policy would do much to undermine two fundamental principles of insolvency law — that of equal sharing between creditors and that of promoting an orderly process both during and immediately preceding the formal insolvency administration. To abandon the existing policy would deliberately favour and encourage creditors who quite legally extracted payments from the debtor — even at the eleventh hour. Further, the Commission considered that if the recommendations concerning the law relating to preferences contained in this Report are adopted the resultant legislation will provide a more relevant and less cumbersome method of adjustment between creditors. Finally, although comparatively few applications for recovery of preferences come before the courts, the evidence to the Commission suggested that there is, nonetheless, a lively ‘market’ in the recovery of preferences. Many such claims are made, contested and settled without recourse to the courts [emphasis added].88

4.20 In relation to preferences, the Harmer Commission proposed removing

the reference to ‘preference, priority or advantage over other creditors’ in the former s 122 of the Bankruptcy Act 1966 and instead proposed s 588FA with the aim of expressing the nature of a preference in ‘relatively clear and simple terms’.89 The Explanatory Memorandum to the Corporate Law Reform Bill 1992 (EM to the CLR Bill) explained s 588FA in the following terms: Proposed section 588FA defines an ‘unfair preference’ to be a transaction to which a company and the creditors are parties and which results in the creditor receiving in respect of the debt that the company owes to the creditor more than the creditor would receive in respect of that debt if the transaction had been set aside and the creditor had to prove for the debt in the winding up of the company. At present such transactions may be attacked by a liquidator under section 122 of the Bankruptcy Act as it is applied by section 565 of the Corporations Law. Section 122 refers at present to a transaction which has the effect of giving to the creditor a ‘preference, priority or advantage’ over other creditors of the company, whereas the new provision specifies quite clearly what that expression means in the context of a corporate winding up.90

[page 185] 4.21 It is clear from a reading of both the Harmer Report and the EM to the CLR Bill that Parliament did not intend to alter the policy underlying the law relating to the avoidance of transactions in company insolvency. Instead, the changes introduced by Pt 5.7B can largely be seen as cosmetic. Although the language is different, the substantive operation of the provisions in Pt 5.7B were intended to operate in much the same way as the previous regime. As Parliament explained: Proposed Div 2 establishes a new regime under which a liquidator may seek court orders having the effect of avoiding certain transactions preceding the winding up of a company. The provisions of the present law which enable liquidators to avoid certain antecedent transactions have their effect by importing into the Corporations Law by reference the provisions of the Bankruptcy Act which enable a trustee in bankruptcy to avoid certain transactions in the case of a bankrupt. The Harmer Report recommended that there should be separate (although similar) provisions regulating antecedent transactions in both the relevant bankruptcy and companies legislation. The Harmer Report made the observation that insolvency law has long adopted the policy of avoiding transactions by which an insolvent individual or company disposed of property within a relevant period prior to the commencement of formal insolvency in circumstances where to allow the transaction would be unfair to the general body of unsecured creditors … The proposed provisions seek to set out clearly the transactions and the circumstances in which a liquidator may avoid them in the context of a corporate winding up. The new provisions set out comprehensively matters which may be taken into account by a court and also provide the court with a broad range of options for the orders which may be most appropriately made. Additionally, the new provisions enable a broad range of transactions to be examined by a liquidator with a view to having them set aside or modified by a court. The new provisions also make certain modifications to the time limits within which a transaction must have occurred in order for it to be reviewed, particularly in the case where the parties to a transaction are entities related to the company.91

Moreover, as mentioned in Chapter 1, Parliament expressly stated that the purpose of Pt 5.7B was to ensure that unsecured creditors are not prejudiced by the disposition of assets or the incurring of liabilities by a company in a period shortly before the winding up which would have the effect of favouring certain creditors or other persons and especially related entities.92 As explained above, this is precisely the same policy objective sought to be achieved by the previous regime.93 [page 186]

ELEMENTS OF AN UNFAIR PREFERENCE 4.22 Under s 588FA(1) of the Corporations Act, a particular transaction will constitute an unfair preference where the following elements are satisfied: a)

there is ‘a transaction given by a company to a creditor of the company’;94

b)

if, and only if, the company95 and the creditor are parties to the transaction (even if someone else is also a party); and

c)

if, and only if, the transaction results in the creditor receiving from the company, in respect of an unsecured debt that the company owes to the creditor, more than the creditor would receive from the company in respect of the debt if the transaction were set aside and the creditor were to prove for the debt in a winding up of the company.96

A transaction can be an unfair preference even if the transaction is entered into, is given effect to, or is required to be given effect to, because of an order of an Australian court or a direction by an agency.97 The onus upon establishing each of the above elements is upon the liquidator.98 The fact that a transaction may constitute an unfair preference does not necessarily mean it will be susceptible to being set aside. In order for a [page 187]

preference to be liable to be set aside it must also satisfy the requirements of a voidable transaction. Generally, the unfair preference must have been entered into at a time when the company was insolvent. For a thorough discussion of when an unfair preference will also be voidable see 8.8ff. 4.23 In contrast to the previous regime,99 s 588FA is a definitional section that provides there will be an unfair preference ‘if and only if’ the various elements set out in s 588FA(1) are present. As will be seen below however, despite the seemingly ‘relatively clear and simple terms’100 in which s 588FA is expressed, the courts have struggled to clarify its meaning and the scope of its operation. In particular, the following issues remain unclear: Has the so-called doctrine of ultimate effect, a feature of the previous regime, survived the introduction of Pt 5.7B? At what point in time is the relevant preferential effect to be determined, specifically, is the relevant point in time at the time of the transaction sought to be impugned in the context of a hypothetical winding up or is the relevant time during the actual winding up of the insolvent company? Common to both of these issues is whether, and to what extent, the case law regarding the previous regime101 can be used to clarify the operation of s 588FA. Although, ultimately what the court is required to do is construe the plain and natural meaning of the statute to give effect to Parliament’s intention102 the court cannot simply ignore the policy of the previous legislative regime. As Gleeson CJ, Gummow, Hayne and Crennan JJ also observed in Foots v Southern Cross Mine Management Pty Ltd: Of course, this court is not permitted to ‘arrive at [its] own judgment as though the pages of the law reports were blank’.103 In Coventry, that is why in their joint judgment, Gleeson CJ, Gummow, Hayne and Callinan JJ turned to the earlier authorities to give content to, and to elucidate the meaning of, the current statute. However, to the extent that

[page 188] it concerns the proof of a costs order made after bankruptcy, the decision in British Gold Fields neither gives content to, nor elucidates, s 82 of the Bankruptcy Act. Rather, what was said in that case is at odds with the natural and ordinary meaning of the legislation. In that regard, it should no longer be followed in Australia.104

Similarly, in Page v Commonwealth Life Assurance Society Ltd Jordan CJ observed:

The law of bankruptcy is the creature of statute; but, nevertheless, the policy of the bankruptcy law has always been regarded as a useful guide in determining the operation and limitations of the letter of the law.105

Having said that, while the legislative history of a provision and previous cases decided in respect of historical provisions may assist the court in ascertaining the appropriate context, they must not allow the court to be distracted from the primary task of construing the words of the statute. As Gleeson CJ, Gummow, Hayne and Crennan JJ explained in Foots v Southern Cross Mine Management Pty Ltd when seeking to construe s 82 of the Bankruptcy Act 1966: A significant part of the argument in this court concerned the authority to be accorded in Australia to a nineteenth century English decision, In Re British Gold Fields of West Africa.106 The English case law concerning the bankruptcy statutes as they were developed in that century is part of the context for an understanding of the modern legislation in this country, using the term ‘context’ in the wide sense spoken of in CIC Insurance Ltd v Bankstown Football Club Ltd.107 Nonetheless, this should not obscure the consideration that the appeal essentially turns upon the construction of s 82 of the Bankruptcy Act 1966 (Cth) (‘the Bankruptcy Act’) in particular the identification of the debts and liabilities which are provable in bankruptcy …108

[page 189] Having regard to the above authorities, it is clear that the historical context in which the voidable transaction provisions such as s 588FA evolved cannot be ignored. However, where the clear words of the statute suggest a departure from history, then clearly the words of the statute must prevail. 4.24 It is not surprising then that the balance of authority109 favours the view that the enactment of Pt 5.7B was not intended by Parliament to radically alter the policy and purpose underlying the law of unfair preferences.110 For example, in Re Lanpac International Pty Ltd (in liq)111 Chernov J noted that the circumstances which constitute an ‘unfair preference’ under s 588FA(1) are the same as those which constituted a preference under s 122 of the Bankruptcy Act 1966 (Cth).112 Although the policy and purpose underlying Pt 5.7B may be the same as that under the previous regime, the reality is that there has been a significant change in language to the relevant provisions.113

‘A transaction … given by a company to a creditor of the company’ (s 588FA(1))

4.25 As explained in detail in Chapter 3 the concept of ‘transaction’ has been broadly interpreted by the courts. Even so, s 588FA(1) requires any transaction to have been ‘given by’ a company itself.114 ‘Given’ is the past [page 190] participle of the verb ‘give’ whose ordinary meaning is ‘freely transfer the possession of (something) to (someone); hand over to.’115 Contrary to the previous statutory regime,116 there is no express requirement under s 588FA that any payment is to be sourced from the company’s own monies.117 Rather, the payment the subject of a transaction sought to be impugned can be sourced from monies other than the company.118 As the High Court observed in Sheahan v Carrier Air Conditioning Pty Ltd & Campbell119 in respect of the former s 122 of the Bankruptcy Act 1966: No doubt, as the authorities indicate, there may be a payment made by the debtor within the meaning of s 122(1) where the debtor directs a third party who holds funds at the direction of the debtor or is otherwise obliged to the debtor to account to the debtor not by payment to the debtor but to a creditor of the debtor.120

So, in Re Stevens121 the respondent creditor arranged sale of an insolvent debtor’s business to a third party for £475. Part of the purchase money (£400) was given by the third party to the respondent creditor. The court held that the part payment received from the third party was a payment made by the debtor. The court held that the debtor ‘parted with his assets, and the payment which he himself should have received he has authorised to be made to the creditor, and it is just the same as if he had received payment himself and had himself handed such payment to [the creditor]’. The result in Re Stevens was that the third party was to be treated as having acted on behalf of the debtor.122 4.26 By contrast, in Ramsay v National Australia Bank Ltd the directors of an insolvent company established a new company.123 On 31 March 1984 the insolvent company sold to the new company the whole of its undertaking for $1. The new company agreed to take over the debts of the insolvent company and to indemnify the latter in respect of them. On 24 August 1984 the respondent bank set up a new account [page 191]

for the new company, credited the insolvent company’s account for the whole amount of the insolvent company’s overdraft and debited the new company’s account with the overdraft. The liquidator sought to set aside the difference between the peak overdraft in the insolvent company’s account on 27 June 1984 of $55,820.54 and the insolvent company’s overdraft on 24 August of $54,045.77. The liquidator’s application was based primarily on the former s 451(1) of the Companies Code (Vic) which provided: A settlement, a conveyance or transfer of property, a charge on property, a payment made, or an obligation incurred, by a company that, if it had been made or incurred by a natural person, would, in the event of his becoming bankrupt, be void as against the trustee in the bankruptcy, is, in the event of the company being wound up, void as against the liquidator.

The Full Court of the Supreme Court of Victoria found that the payment made by the new company to the bank could not be said to be a payment made ‘by’ the insolvent company.124 Ramsay, however, was criticised by the Full Federal Court in Re Emanual (No 14) Pty Ltd (in liq); Macks v Blacklaw & Shadforth Pty Ltd (1997) 147 ALR 281, a detailed discussion of which is found at 3.38ff and 4.27ff.

‘The company and the creditor are parties to the transaction’ (s 588FA(1)(a)) 4.27 As mentioned above, s 588FA(1)(a) requires that the company and the creditor are parties to the transaction (even if someone else is also a party). This requirement read together with s 588FA(1)(b) entails that in order for a transaction to constitute a preference any such preference must be given to a creditor in respect of an existing debt which the debtor owes the creditor.125 4.28 Ordinarily, establishing that the company and the creditor are parties to the transaction will be a relatively easy task. In examining whether there is a relevant transaction between the parties, the courts look [page 192] at the relevant transactions in a manner which accords with commercial realities.126 That is to say, in deciding whether a composite transaction is a transaction of the company there must be a practical and realistic appraisal of the constituent dealings and the overall transaction.127 Difficulties sometimes arise

however where liquidators seek to set aside transactions involving third parties.128 In the leading decision Re Emanuel (No 14) Pty Ltd (in liq); Macks v Blacklaw & Shadforth Pty Ltd129 the Full Federal Court considered the situation where an insolvent company (Company A) directed one of its creditors (Creditor B) to pay monies to another of Company A’s creditors (Creditor C) which if made and accepted, resulted in a partial discharge of Company A’s debt to Creditor C. The question that arose in that case was whether where that payment is made to and accepted by Creditor C, could it properly be said that the insolvent company and Company C are parties to a ‘transaction’ within the meaning of s 588FA of the Act? The Full Federal Court answered that question in the affirmative. 4.29 At first instance, the trial judge came to the opposite conclusion on the basis that because the relevant payment was not made by the insolvent company directly to Creditor C it could not be said that Creditor C was a party to the transaction. In doing so the trial judge accepted the correctness of, and followed, the decision of R D Nicholson J in Nilant v Plexipack Packaging Services Pty Ltd.130 The facts in Nilant were similar to that of Emanuel. In Nilant, the insolvent company sold its business to a third party on terms, inter alia, that part of the purchase price was to be paid to another creditor of the insolvent company. The insolvent company’s liquidator sought a declaration that the payment was an unfair preference. This was refused. R D Nicholson J found that for the purposes of the definition of ‘transaction’ in s 9 of the Corporations Act, the payment to the third party was not ‘a payment made by [page 193] [the insolvent company]’.131 Further, and in any event, the Full Federal Court took an expansive view of the expression ‘transaction.’ In concluding that a transaction within the meaning of s 588FA is the totality of the dealings initiated by the debtor so as to achieve the intended purpose of extinguishing the debt, the Full Federal Court observed: Such a conclusion is consonant with standard dictionary meanings given ‘transaction’ [sic]. It finds some support in decisions on the Bankruptcy Act 1966 (Cth) provisions dealing with voidable transactions and, most notably, Richardson v Commercial Banking Co of Sydney Ltd (1952) 85 CLR 110 which recognised that a discrete dealing (eg, the payment of money) may itself merely be part of an ‘entire’ or ‘whole transaction’: at 129. And, given the characteristics we have identified as being integral to the forms of ‘transaction’ envisaged by s 9, it is consistent with the burden of the statutory ‘definition’ itself. We conclude, then, that a course of dealing initiated by a debtor that is intended to,

and does, extinguish a creditor’s debt can in its totality be a transaction for the purposes of Pt 5.7B of the Corporations Law notwithstanding that the achievement of that end can only be realised through the participation of a third party in a particular dealing (or dealings) within the overall transaction, being a particular dealing (or dealings) to which the debtor is not or may not be a party.132

4.30 A similar problem confronted Gordon J in Re Burness; Denward Lane Pty Ltd (in liq).133 In that case Supaproducts Pty Ltd (Supaproducts) manufactured and supplied building hardware to an insolvent company which was later wound up. The liquidator sought to recover as unfair preferences certain payments made by a related party of the insolvent company. The question arose as to whether the payments made by the related (third party) on behalf of the insolvent company could be impugned as unfair preferences. Gordon J found that in the circumstances they could. As her Honour explained: [page 194] If the benefit is in the form of discharge of a person’s debt (as occurred here), the first question is whether the payment by [the related party] was authorised or unauthorised by [the insolvent company]? If the payment was authorised, then the payment is a third party payment of the kind identified by the court in Re Emanuel (No 14) at ALR 289; ACSR 300, namely: … a course of dealing initiated by a debtor that is intended to, and does, extinguish a creditor’s debt … notwithstanding that the achievement of that end can only be realised through the participation of a third party in a particular dealing (or dealings) within the overall transaction, being a particular dealing (or dealings) to which the debtor is not or may not be a party. I do not accept that Re Emanuel (No 14) is authority for the proposition that before a payment by a third party can be taken to be a payment ‘accepted’ or ‘made’ by the debtor there must be evidence of an arrangement between the debtor and the third party whereby at the direction of the debtor, the third party made a payment to the creditor in discharge of an obligation owed by the third party to the debtor. That is not what the authorities establish: see Simpson v Egginton (1855) 10 Ex 845 at 847–8; Smith v Cox [1940] 2 KB 558 at 560; Oakleigh Acquisitions Pty Ltd (in liq) v Steinochr [2005] WASCA 247 at [81]. Where a payment made by a third party to a creditor is authorised by the debtor, nothing more is required. The debt is discharged by the third party at the request of or with the acceptance of the debtor. On the other hand, if a debt is discharged by a third party payment which is unauthorised, the debt is not necessarily discharged: see Oakleigh Acquisitions Pty Ltd (in liq) v Steinochr [2005] WASCA 247 at [82] (Oakleigh); Birks and Beatson, 1976, p 190; Friedmann, 1983, pp 536–7; R Goff and G Jones, The Law of Restitution, 7th ed, Sweet & Maxwell, London, 2007, at 1-077 and 3-016. The debtor has a choice — to accept or not to accept the payment. If the debtor ratifies or accepts the unauthorised payment by the third party, the debtor will be liable to the third party who made the payment. In other words, the ‘acceptance’ will give the third party a claim for money paid for and at the request of the debtor or, as it is sometimes put, impose upon the debtor a duty of restitution. If the debtor does not ratify the payment, the original debt it owed to the creditor remains outstanding: see Lumbers v W Cook Builders Pty Ltd (in liq) (2008) 232 CLR 635; 247 ALR 412; [2008] HCA 27 at [43], [47]–[54] and [77]–[80] (Lumbers).134

4.31 Likewise in Commissioner of Taxation v Kassem and Secatore, the

liquidator of Mortlake Hire Pty Ltd (Mortlake) sought to recover a [page 195] number of payments made to the Commissioner of Taxation.135 Although the payments were made within the relevant relation back period they were not made, in the physical sense, by Mortlake itself. Rather, the trial judge found that although the funds were physically transferred to Mortlake’s integrated client account with the Deputy Commissioner by a related company, Antqip Pty Ltd (Antqip), they were funds that were lent by Antqip to Mortlake and paid to the Commissioner at Mortlake’s direction. The Full Federal Court held that the position as between Mortlake and Antquip was no different from a drawing by Mortlake on an overdraft from its bank with a direction to the bank to pay the creditor directly. Such a payment constitutes a loan by the bank to its customer.136 The court found that in all the circumstances there was an unfair preference: If unfairness is an element of the statutory definition in s 588FA(1), it is plain that, consistently with the authorities to which we have referred, the payments to the Commissioner gave him preference over other creditors because he obtained full payment of the debt whereas other unsecured creditors were left to prove in the winding up. Unsurprisingly, this result is in conformity with the definition in s 588FA(1) because both paras (a) and (b) of that subsection are satisfied. In summary, as we have already said, the position in the present case is no different from that which would apply if Mortlake were to have borrowed the funds on overdraft from its bank and paid the creditor with those funds. Where an insolvent company makes such a payment to fully discharge an existing creditor during the relation back period the creditor cannot be heard to argue that the payment was not an unfair preference.137

4.32 A different result obtained in Woodgate (as liquidator of Marketing Results Pty Ltd) v Network Associates International BV (Woodgate).138 In Woodgate, the liquidator of two related companies, Marketing Results Pty Limited (MR) and Quadtel International Pty Limited (Quadtel), sought to set aside eight payments made to the defendant. Barrett J found that six of the payments were made by MR and two by Quadtel. There was evidence showing that the affairs and finances of MR and Quadtel were intermingled. Each was a wholly owned subsidiary of Quadtel Limited. While each company had its [page 196]

own bank account, payments were sometimes made from a particular company’s account without regard for whether the debt being paid was a debt of that company or of the other company. It was submitted that the two payments made by Quadtel might properly be regarded instead as payments made by MR on the basis of the reasoning in Re Emanuel. Barrett J rejected the submission: It [was] not possible to draw any inference that, on this or any other basis, money paid by Quadtel to the defendant in truth represented payment by Mr to the defendant. The evidence shows that Mr was indebted to the defendant and that an agreed payment plan envisaged payments by Mr corresponding with those actually made by Quadtel. But there is no way of concluding what the consideration was, as between MR and Quadtel, and therefore no basis for reaching conclusions of the kind to which the Full Federal Court [in Re Emanuel] referred. I proceed, therefore, on the basis that payments totalling $104,000.00 were made by Mr to the defendant in the period 2 January 2003 to 21 February 2003; that each such payment was made in reduction of indebtedness owing, due and payable by Mr to the defendant at the date of the payment; and that the two payments made by Quadtel to the defendant ($11,200.00 on 8 January 2003 and $12,000.00 on 6 February 2003) were not referable to MR’s indebtedness to the defendant (nor did they, on the evidence, relate to any indebtedness of Quadtel to the defendant). The two Quadtel payments therefore do not need to be considered further.139

4.33 The fact that an insolvent company may have discharged a debt jointly owed to two or more creditors by paying only one of them is no impediment to setting aside the entirety of such a transaction, even where both of the creditors are paid in full. So, in Tronson v White a debtor owed to the appellant and another creditor, Wessling, jointly a sum of £200.140 The debtor paid the £200 to the appellant who in turn gave half of same to the other creditor. The trustee in bankruptcy was rightfully entitled to recover the whole of the £200 from the appellant. As Isaacs J explained: The transaction was a joint one, in which the appellant and Wessling were jointly concerned in the whole payment. The division of the money was not a matter for the debtor, the insolvent: it was not that he owed two separate sums of £100 each; but he owed one indivisible

[page 197] debt of £200, and when it was paid it was, so far as the insolvent was concerned, paid to both of the creditors jointly. The appellant, therefore, is as much responsible for the Wessling £100 as for her own £100 — the division between them being a matter for their mutual concern.141

Necessity of debtor–creditor relationship 4.34 The plain language of s 588FA clearly contemplates the existence of a debtor–creditor relationship between the company and the creditor against whom

a transaction is sought to be impugned.142 For example, s 588FA(1) talks about a transaction given by a company to a creditor of the company. Moreover, s 588FA(1)(b) expressly requires the creditor to receive the transaction from the insolvent company in respect of an unsecured debt that the company owes to the creditor. This is the same position that existed under the previous regime. As Dixon J explained in Robertson v Grigg: The relationship of debtor and creditor was for long the very foundation of the provisions of the bankruptcy law affecting preference, and, although exceptions have been introduced, the old rule otherwise remains and nothing can amount to a preference unless the person preferred is a creditor. Sec 95 does not depart from this general principle. In making each separate advance on the faith of the agreement and thereby obtaining a charge in respect of the advance, the respondent did not obtain any benefit or advantage in relation to the past indebtedness. He did not deal with the debtor in his capacity of creditor. No pre-existing debt was better secured or otherwise affected by reason of any subsequent advance. There was, therefore, no preference to him as a creditor.143

Under the previous regime, a ‘creditor’ was taken to mean anyone who could prove in the bankruptcy as well as persons to whom a debt is immediately due and payable at the time of the relevant transaction.144 A debt in this context can include a tax debt.145 [page 198]

PRE-PAYMENT OF GOODS OR SERVICES 4.35 The purported pre-payment of goods or services by an insolvent company to one or more of its creditors quite often makes the determination of whether a particular transaction constitutes an unfair preference problematical. Generally speaking, a genuine pre-payment of goods or services will not constitute an unfair preference. As the majority of the High Court explained in Airservices Australia v Ferrier: The law becomes more complicated when a debtor makes a payment to his or her creditor and thereafter receives goods or services. If the payment is no more than a repayment of a past debt, it will constitute a preference if made within the six-month period before application for winding up is made. If, however, the payment is in truth a prepayment for goods or services to be provided later, the payment does not constitute a preference, any more than a COD payment for goods to be delivered amounts to a preference. It is in this area of mutual dealings that there have been developed the concepts upon which the appellant relied, namely the need to look at the entire transaction and also the principle of the running account.146

So, in V R Dye & Co v Peninsula Hotels Pty Ltd (in liq) an insolvent company pre-paid an amount of $8,500 to a firm of accountants.147 The amount so deposited was estimated by the accountants in accordance with a fee estimate provided prior to the company’s winding up. The Victorian Court of Appeal found that the money was paid by the company and received by the accountants for and on account of fees and disbursements to be incurred by the accountants. Inherent in the agreement was an authorisation to the accountants to take fees and disbursements out of that money. On 19 June 1996, the accountants gave the company a post-dated cheque for an amount of $8,500 for which was deposited into the accountant’s trust account. Between 19 June 1996 and 2 July 1996 the accountants provided professional services to the company in accordance with the fee estimate and also incurred some disbursements. On 1 July 1996, the accountants issued an invoice for $4,154.90. On 2 July 1996, the accountants drew an amount of $4,154.90 from the trust account in payment of the invoice. The matter was heard before a Local Court Magistrate who took the view that up until 2 July 1996, the $8,500 was held on trust to which the accountants could not have recourse until the work was completed. On appeal to the Supreme Court, the judge took a similar view holding there was no genuine prepayment of fees because it was agreed that the [page 199] monies were to be held in a trust account. The accountants thus had no beneficial interest in the money until the time it was effectively handed over by the company when the accountants drew it from the trust account. By the time the moneys were in fact taken from the trust account and applied for the benefit of the accountants thereafter a debtor–creditor relationship had come into existence. At that stage that drawing down or payment effected an unfair preference within the meaning of s 588FA. 4.36 The single judge decision in the Supreme Court, however, was overturned by the Victorian Court of Appeal. After finding that the doctrine of ultimate effect148 remained relevant within the context of Pt 5.7B, Ormiston JA found that the relevant payments constituted a genuine prepayment of services. As his Honour explained: … The effective transaction in this case had begun a fortnight earlier on about 19 June 1996 when the cheque for $8500 was paid over to [the accountants]. The relevant ‘transaction’ consisted of both that payment and the later drawing down of $4154.90 in favour of the [accountants] and, if it were relevant,

the other later payments out which exhausted the original $8500, albeit that some of those payments were not as originally contemplated. Looked at in that way there was a payment made in advance for the provision of services by the [accountants] which was effectuated only in part by the drawing down on 2 July. At the time the first stage of the transaction took place the [accountants were] not a creditor of the company: [the accountants were] in exactly the same position as a person receiving a prepayment or obtaining payment in a CAD transaction. The only difference was that effectuating the payment in this case was, for convenience, split into a number of stages. Each stage was essential to the whole of the transaction but neither should be looked at on its own. The objective purpose of the transaction which commenced with the payment of the cheque for $8500 was to induce the [accountants] to provide services to be carried out in the future and, as the [accountants] was not then a creditor of the company, the ultimate effect of both that payment and the later drawing down was not to give a preference of the kind proscribed by s 588FA.149

As a practical matter, Ormiston JA also pointed out that a precise evaluation of services and goods provided can never be made satisfactorily and, unless there be some dishonest attempt to overvalue particular goods or services, they ought for practical purposes to be taken as having been received at face value, that is, at the value at which the company agreed to acquire them.150 [page 200] 4.37 A similar result obtained before the Full Court of the Supreme Court of Western Australia in Minister for Transport (WA) v Francis.151 In that case an insolvent company contracted with the Minister for Transport on 15 January 1996 to construct a harbour. In April 1996, the insolvent company sought an advance payment of $300,000. However, the Minister instead made an advance payment of $150,000. Two further advance payments were also subsequently made. At first instance, the learned Master held that none of the amounts were genuine pre-payments and that the transactions constituted unfair preferences. On appeal, the Full Court of the Western Australian Supreme Court comprising Templeman J (with whom Kennedy J agreed), overturned the Master’s decision primarily on the basis that at the time that the relevant payments were made, the Minister was not a creditor of the company. As Templeman J explained: In fact, there was not a payment by the [Minister] of the whole amount certified and a ‘repayment’ by [the company]. The [Minister] paid a net amount. In calculating that amount, the payments made in April and May 1996 were brought into account. They were treated as being part-payments of the total. Indeed, the situation on 9 August was precisely the same as it would have been if the earlier payments had not been made. That being so, I am not persuaded that either the overall transaction, or any element of it, resulted in a decrease in the net value of the assets available to [the company’s] creditors. In short, the [Minister] was not a creditor of [the company]: he was a debtor, with the result that s 588FA had no application.152

PREFERENTIAL EFFECT — THE POSITION UNDER THE PREVIOUS LEGISLATION153 4.38 Under the previous legislation, in order to constitute a preference, the relevant transaction sought to be impugned must have had the effect of giving a creditor a ‘preference, priority or advantage over other creditors’.154 The preferential effect of a particular transaction was determined objectively with the intention of both the debtor and the recipient creditor being irrelevant.155 Having said that, the purpose of [page 201] the debtor in making the payment had evidentiary significance.156 The previous statutory language necessarily required a comparison to be made between the ‘preference priority or advantage’ bestowed upon the creditor vis-à-vis other creditors. So much was made clear by the High Court in Richardson v Commercial Banking Co of Sydney Ltd157 that the previous s 95 of the Bankruptcy Act 1924 ‘supposes a bankruptcy, and it is in relation to that bankruptcy that the question arises whether, over the other creditors, a preference priority or advantage has been given to the particular creditor’. As McLelland J observed in Harkness v Potts: Furthermore, in my opinion, the phrase ‘preference, priority or advantage over other creditors’ requires a comparison to be made between (i) the position of the recipient as a result of the challenged payment (and any sufficiently connected transactions) and (ii) the position of other creditors, in relation to the subsequent winding up. It does not invite a comparison between (i) the position of the insolvent company as a result of the challenged payment (and any sufficiently connected transactions) and (ii) the position which the insolvent company would have been in if the challenged payment had not been made (unless of course the latter comparison can be shown to be relevant to the former).158

‘The subsequent winding up’ to which his Honour referred was a hypothetical winding up occurring at the time of the transaction.159 In addition, cases decided under the previous legislation made it clear that the ‘effect’ to be considered was the ultimate effect of the transaction. As explained above, and elaborated upon below, the relevant transaction sought to be impugned could not be viewed in isolation160 and the court must have resort to the business purpose and context of the payment to determine whether it gives the creditor a preference over other

creditors.161 Moreover, in order to be a preference under the previous legislation, the relevant payment must discharge pro tanto162 an existing debt.163 The court’s approach to determining whether a particular transaction was a preference under the previous legislation was summarised by McLelland J in Harkness v Potts as follows: [page 202] (1) A number of otherwise separate transactions may have such a connection as to require the ultimate all to be considered in determining the ‘effect’ of one of them. (2) The relevant ‘effect’ is the ultimate effect in relation to the subsequent winding up. (3) The ‘other creditors’ whose position is to be compared with that of the creditor to which the challenged payment is made, are creditors as at the time of that payment. (4) The expression ‘creditors’ includes not only persons to whom a debt is immediately due and payable at the time of the challenged payment, but also persons who by reason of a then existing liability of the debtor company would be entitled to prove in a hypothetical winding up occurring at that time.164 As will be seen below, save for item 3 above, the courts, in interpreting and applying s 588FA, have adopted essentially the same approach.

PROBLEMS IN INTERPRETING S 588FA 4.39 The differing language between s 588FA of the Corporations Act and the previous s 122 of the Bankruptcy Act 1966 has created problems in interpretation for the courts. Some judges have lamented the paucity of the language used in s 588FA. As Ormiston JA observed in V R Dye & Co v Peninsula Hotels Pty Ltd (in liq): As is clear from its terms [s 588FA] concentrates on the potential result of an impugned transaction in as much as it requires the court to ascertain whether the allegedly preferred creditor has received more from the company than that creditor would receive if the transaction were set aside and it had to prove

for the debt in ‘a winding up of the company’. In the past, of course, it was necessary to ascertain whether the transaction had the effect of giving a creditor a ‘preference, priority or advantage’ over other creditors and, although the earlier applicable sections were construed so as not to require such preference to be intentional, the words connoted some unfair advantage, priority or preference. The new subsection concentrates, some might say unfortunately, only on the hypothetical result, that is, assuming the words used in the subsection are intended to be an exclusive definition. If there be an avoidance of a transaction where a company is insolvent, then it follows as the night the day that the creditor will share pari passu with the other creditors and will receive less than full payment. If it is not set aside, presumably because it is not an ‘unfair preference’, then that creditor will obviously have received more, but the words now employed give no inkling as to which transactions will

[page 203] be set aside and which will not. In other words the definition looks only to the consequences, not to the reason for that ‘result’.165

Similarly, in Mann v Sangria Pty Ltd Bryson J said: I find the words of s 588FA very bare of indications of the purpose which the provision was intended to serve. If it was intended simply to avoid all the insolvent company’s payments to creditors during the relation back period unless they were exactly equal to the liquidation dividend that result could have been produced directly without introducing the word ‘unfair’ or any connotation of an unfair preference. If the subsection is read in the most strictly literal way the word ‘unfair’ appears to be introduced to no purpose, except to lend a pejorative epithet to a highly general avoidance of transactions. Unless the purposive approach taken by Ormiston JA is correct I am unable to see what unfairness would be corrected and what advantage there might be in laying hands on all dealings with an insolvent company and retrospectively invalidating all payments of money for money’s worth; that would make an insolvent company an economic pariah and ensure its failure. Considerations related to the purpose of the provision appear to me to support indications in the text of subs 588FA(1) which seem to pick up a transaction which already has at its opening a creditor, a company and a debt and applies its comparison to a receipt which is a result of the transaction.166

There is some merit to these observations. Interpreted and applied literally, the words in s 588FA(1)(b) could potentially capture transactions that were never considered to be ‘preferential’ in nature under the previous regime such as COD payments and even cash transactions that involved a slight delay between the supply of goods and the time of payment.167 Further, the prefatory words ‘if and only if’ suggests that the elements of s 588FA are the only way in which an unfair preference can be made out.168 In addition, there is some uncertainty as to whether the reference to ‘a winding up’ in s 588FA(1)(b) is to some hypothetical winding up (as was the case under the previous regime) or the actual winding up. 4.40 While s 588FA does not, in express terms, refer to the ‘effect’ of a transaction, the language used clearly incorporates the notion of preferential effect. As is clear from the analysis of the High Court’s decisions referred to above,169 in order for a transaction to be impugned

[page 204] as a preference under the previous regime, the transaction necessarily ‘resulted in the creditor receiving from the company, in respect of an unsecured debt that the company owes to the creditor, more than the creditor would receive from the company in respect of the debt if the transaction were set aside and the creditor were to prove for the debt in a winding up of the company’. The ‘result’ of the transaction that is specified in s 588FA(1)(b) is an express articulation of the ‘effect’ that was contemplated under provisions such as s 95 of the Bankruptcy Act 1924 and s 122 of the Bankruptcy Act 1966. As the High Court explained in Richardson,170 for a transaction to be captured by s 95 of the Bankruptcy Act 1924, two things needed to be demonstrated. The first was that the transaction must have been of a kind having the effect of giving the creditor a preference, a priority or advantage over the other creditors. The second was that the effect was a consequence of the payment. Both of these elements are present in s 588FA: the preferential effect of the transaction is that the creditor receives more than the creditor would receive from the company in respect of the debt if the transaction were set aside and the creditor were to prove for the debt in a winding up of the company. The requirement for a causal nexus between the transaction and the preferential effect is made clear by the use of the prefatory words ‘results in the creditor receiving’. Nonetheless, the wording of s 588FA(1) (b) is in some respects unsatisfactory and has led to inconsistency in the decisions as discussed below.

Conflicting interpretations of s 588FA 4.41 A divergence of authority exists regarding at least two aspects of the proper interpretation of s 588FA(1)(b).171 The first aspect is whether the socalled ‘doctrine of ultimate effect’ which the case law developed under the previous regime172 remains relevant under Pt 5.7B and the second is the appropriate point in time at which the preferential effect of a particular transaction is determined. The balance of authority suggests that in determining whether or not a particular transaction constitutes an unfair preference under s 588FA, the court, as it did under the previous regime, looks to the ultimate effect of the transaction. The preponderance of authority also favours the view that the relevant time in determining preferential effect is during the actual winding up as opposed to the time of the actual transaction.

[page 205]

THE DOCTRINE OF ‘ULTIMATE EFFECT’173 4.42 As the above excursus on the various High Court decisions regarding the early preference provisions makes clear, in determining the preferential effect of a particular transaction the court had regard to the transaction’s actual business character and the commercial context in which the transaction (usually a payment) is made.174 It is obvious that what the High Court was attempting to achieve was a commercially sensible and pragmatic approach to the law of unfair preferences so as not to unduly disrupt commercial activity. That is why, in cases such as Richardson, when attempting to determine preferential effect, the High Court examined the ultimate effect of a particular transaction and not necessarily its immediate effect. This so called ‘ultimate effect doctrine’ was explained by the High Court in the following terms in Airservices Australia v Ferrier: To have the effect of giving the creditor a preference, priority or advantage over other creditors, the payment must ultimately result in a decrease in the net value of the assets that are available to meet the competing demands of other creditors.175

The reason for examining the ‘ultimate effect’ of a transaction was because on a strict and literal reading of the previous preference provisions176 almost every payment made during the relation back period would be susceptible to being set aside as an unfair preference. As Clyne J observed in Re Price (No 6); Richardson v Commercial Banking Co of Sydney Ltd: I do not think that s 95(1) can be given a strictly literal interpretation. Such an interpretation would have strange results and results which, in my opinion, were not intended by the legislature. On a strictly literal interpretation of s 95(1), any payment into a banking account by a debtor, however trivial an amount, and made nearly six months before the debtor’s bankruptcy, would be a preference, because at the time of payment it gave the banker a momentary advantage, though in substance and in fact it had no effect in preferring the banker to other creditors. Such an interpretation would give to the section an application which had no regard to the policy of the law, or to the continuous and reciprocal obligations which are contracted from day to day between debtors and creditors in the course of their business operations. In my opinion, to create a preference under this section, there must, in the event of

[page 206]

bankruptcy, be a discrimination between creditors of a final or ultimate character [emphasis added].177

Similar observations can, and have, been made in respect of s 588FA.178 On this basis alone it can be argued that the ultimate effect ‘doctrine’ remains as valid today as it was in 1952 when the High Court decided Richardson and not surprisingly, the preponderance of authority supports the view that the ‘doctrine’ remains relevant for the purposes of s 588FA(1)(b).179 After reviewing the authorities on ultimate effect under the previous regime, Ormiston JA concluded in V R Dye & Co v Peninsula Hotels Pty Ltd (in liq): I would see the logical consequence of these authorities as requiring that, for the purpose of characterising any impugned transaction and its effect for the purposes of the preference provisions, in each case the court should look at the ‘ultimate effect’ of the ‘entire transaction’ (Airservices at 505 and 509) before determining whether it has worked an unfair preference within the meaning of s 588FA.180

Likewise, as Nettle JA of the Victorian Court of Appeal held in McKern v Minister Administering the Mining Act 1978 (WA): … it is apparent that the new statutory regime was not intended to change the basic structure of voidable preference law and, that unless some sort of qualification or exception is read into s 588FE, it would have the effect of making very significant changes to the existing law with wide ranging consequences … Further, while there may be other ways of accommodating the sorts of transactions which, in theory, could be regarded as preferential but which, traditionally, have not been so regarded, the common law doctrines of ultimate effect and total transaction are capable of continuing to provide a rational basis by which to identify which such transactions should be exempt …181

[page 207] 4.43 In Sheldrake v Paltoglou182 however the Queensland Court of Appeal appeared to reject the contention that the ultimate effect doctrine had any application under the present regime. In that case, de Jersey CJ, with whom McMurdo P and Muir J agreed, observed: The respondent also submitted that these circumstances nevertheless gave rise to no unfair preference, because of the balancing element of benefit to the company, through the respondent’s facilitating completion of the sale of the business (cf Re Discovery Books Pty Ltd (1972) 20 FLR 470 at 478). That case concerned the materially different s 122 Bankruptcy Act 1966 (Cth). In terms of s 588FA of this legislation, it sufficed, for there to be an unfair preference, that in respect of the unsecured debt, the respondent received more than she would receive were she left to prove in the winding up, and that was plainly the position here.183

Similarly, in Walsh v Natra Pty Ltd Phillips JA observed: Moreover, counsel’s argument depended very much on the submission that overall the general body of unsecured creditors was not being prejudiced; the general pool of creditors was no worse off, he said,

after the transaction than before. I am by no means clear that that is an argument that still runs under the new s 588FA; the section does not in terms look to the effect of the transaction on ‘other creditors’, as did the former law. Here the question is, in terms at least, whether the transaction results in the creditor receiving more than it would in a winding up if the transaction were set aside and the creditor were to prove — which as I have said invites a comparison between a return in this case of 100 cents in the dollar on $40,000 and a dividend of nothing in the winding up. The effect of the transaction on ‘other creditors’ does not per se have a part to play in the comparison required by s 588FA, although it might perhaps become material in certain circumstances when an order for repayment was being sought under s 588FF. I merely mention the possibility; I say nothing more about it. It does not fall for consideration on this appeal, which is only concerned with the trial judge’s ruling that there was no case to answer under s 588FA.184

It awaits to be seen whether the High Court will resolve the inconsistency in the case law. 4.44 To the extent the word ‘doctrine’ suggests some rigid or inflexible principle, the use of that epithet is unfortunate.185 As the High Court [page 208] made clear in Richardson and subsequent decisions, the court was attempting to introduce some flexibility into the unfair preference regime by adopting a commercial and practical approach. Prior to Richardson, the general approach was, quite simplistically, to treat as a preference any payment to one of several creditors for an antecedent debt.186 The decision in Richardson ‘was a corrective to the rigidity’ of that approach.187 Yet at the same time, it would be a mistake to treat Richardson and subsequent cases as having established another, equally rigid, set of rules.188 As Fox J explained in Re Discovery Books Pty Ltd: The fact is that a payment made for a past debt arising from an isolated transaction is probably, but not necessarily a preference, and a payment made for a contemporaneous consideration, such as the supply of goods, is probably not a preference, but it may be. The question, which is one of fact in each case, is whether the business or commercial effect in the bankruptcy, of the payment or other disposition was to give to one creditor a preference, a priority or an advantage over other creditors. There must be cases where the relevant effect of a payment or other dealing is unclear; in those cases the onus on the official receiver or liquidator may be crucial.189

The above comments by Fox J are equally as relevant to s 588FA (save for the reference to preference, a priority or an advantage) as they were to s 122 of the Bankruptcy Act 1966 and its predecessor s 95 of the Bankruptcy Act 1924– 1960. The key point is that the court does not slavishly examine the immediate, or alternatively, ultimate effect of a transaction in each case. It is also critical to analyse not only what a payment is for, but also the business consequences of making the payment.190 So, in Re Discovery Books Pty Ltd, Fox J found that an

insolvent company’s payments for rent during the relation back period were not preferential because: …it would be wrong to treat the payments as void because it does not appear that [the landlord creditor] thereby obtained preferences over other creditors. They were payments which were for the current use of the premises. On those premises the company carried on business. The use of the premises was calculated to produce income which would have increased, at least temporarily, the assets of the company and this in turn was likely to have been of benefit to creditors. One cannot correlate rent payments with benefits to the creditors, or evaluate the benefit (if any), but

[page 209] this is simply to say that a preference cannot be proved. It is well accepted that in general a payment for goods supplied at or about the time of payment is not a preference, and the present position is analogous. There is of course the difference in the present case, which makes it a stronger one, that the right to possession and the correlative right to receive rent were not the result of separate ad hoc agreements, but flowed directly from the original lease agreement made in 1969.191

Similarly, in Airservices Australia v Ferrier192 the High Court found that the payments made by the insolvent airline in that case, when taking into account their business purpose and context were not preferential: … But if the purpose of the payment is to induce the creditor to provide further goods or services as well as to discharge an existing indebtedness, the payment will not be a preference unless the payment exceeds the value of the goods or services acquired. In such a case a court, exercising jurisdiction under s 122 of the Bankruptcy Act, looks to the ultimate effect of the transaction. Whether the payment is or is not a preference has to be ‘decided not by considering its immediate effect only but by considering what effect it ultimately produced in fact’ (footnotes omitted).193

The High Court emphasised the importance of not viewing a particular transaction in isolation: As a consequence, a payment made during the six month period cannot be viewed in isolation from the general course of dealing between the creditor and the debtor before, during and after that period. Resort must be had to the business purpose and context of the payment to determine whether it gives the creditor a preference over other creditors.194

Echoing the comments of the High Court in Richardson and subsequent cases, the majority of the High Court in Airservices continued: Thus, where the payment is a step in a wider transaction, ‘its actual business character must be seen and when it forms part of an entire transaction which if carried out to the intended conclusion will leave the creditor without any preference priority or advantage over other creditors the payment cannot be isolated and construed as a preference’. If the purpose of a payment is to secure an asset or assets of equal or greater value, the payee receives no advantage over other creditors. The other creditors are no worse off and, where the value of the assets has increased, they are actually better off. Thus, a debtor does not prefer a creditor to the other creditors if he or she pays a debt, or part of it, to induce the creditor to supply goods of equal or greater value than the amount of the payment. In that situation, it is of no relevance that the debt that is discharged happens to be a stale one. If the present value of the

goods

[page 210] supplied is equal to or greater than the payment, the other creditors are no worse off. They are in the same position that they would have been in if the parties had so structured the transaction that the debtor paid for the new supply of goods instead of discharging the old debt. Thus, a customer does not prefer his or her banker to other creditors where, pursuant to an antecedent arrangement between the banker and its customer, the customer deposits money to meet a liability already incurred in respect of specific cheques that the banker has met on the faith of the arrangement. A court, exercising jurisdiction under s 122 of the Bankruptcy Act, does not allow itself to be unsighted by the shadow of the legal form when it can see that the economic effect of the transaction does not give the creditor any preference, priority or advantage over the general body of creditors (footnotes omitted).195

The ultimate effect doctrine in the context of s 588FA(1)(b) 4.45 The ultimate effect doctrine has been readily embraced by the courts when interpreting and applying s 588FA(1)(b).196 So, in McKern v Minister Administering the Mining Act 1978 (WA),197 an insolvent mining company made thirteen payments to the Western Australian Minister administering the Mining Act totalling $1,630,095.93 in respect of rent and royalties. The Minister claimed that because of the operation of the ultimate effect doctrine, the transactions were not unfair preferences. The Minister submitted that the effect of that doctrine was that the liquidators bore the onus of establishing that the payments sought to be impugned must ultimately have resulted in a decrease in [page 211] the net value of the assets that were available to meet the claims of other creditors. At first instance, the trial judge concluded that the doctrine of ultimate effect continued to apply in the context of Pt 5.7B and that the doctrine applied equally to both the rent payments and the royalty payments. On appeal, the Victorian Court of Appeal comprising Nettle and Mandie JJA and Beach AJA, confirmed the trial judge’s view that the ultimate effect doctrine remained relevant in the context of Pt 5.7B and upheld the trial judge’s decision that there was no

preferential effect in relation to the rental payments. This is because the purpose of the rental payments was to secure an asset for the benefit of the mining company. In other words, the purpose of the rental payments was to secure an asset of equal or greater value than the rental payments. The Victorian Court of Appeal, however, found that this was not the case in relation to the royalty payments. Unlike the rent, which could be viewed as a price paid to obtain a future period of occupation, the royalty payments merely prevented recovery action by the Minister. The fact that a payment results in a creditor’s abstention from taking action to close down a debtor’s business or to wind up the debtor to enforce an existing debt, does not mean that payment is anything other than the discharge of an existing debt.

Point in time at which preferential result is determined 4.46 As mentioned above, there is uncertainty in the authorities as to the appropriate point in time at which preferential result is determined. In New Cap Reinsurance Corporation Ltd v AE Grant198 Barrett J noted that it is by no means clear whether the question posed by s 588FA(1)(b) is to be approached by reference to the circumstances of the particular winding up presided over by the liquidator by whom the s 588FF(1) application is made.199 In Merrag Pty Ltd (in liq) v Khoury200 Palmer J stated that the effect of a transaction as a preference must be ascertained as at the time it was made, not as at the time of the actual liquidation. On this view one must assume a notional liquidation of the debtor company immediately prior to the impugned transaction and compare what the creditor would have received in such a liquidation with what the creditor has received as a result of the transaction.201 This view is consistent with the balance of authority that pertained under the previous regime. For [page 212] example, in Calzaturificio Zenith Pty Ltd (in liq) v NSW Leather & Trading Co Pty Ltd Menhennitt J observed in relation to s 95(1) of the Bankruptcy Act 1924–1965 (Cth) that: In my view, a reading of s 95(1) produces first the result that for there to a preference, a priority or advantage, in the first instance a comparison must be made at the moment the payment is made between liabilities then due and owing and not between liabilities, on the one hand, due and owing and liabilities, on the other hand, which will at some time thereafter become due and owing.202

Likewise, in Spedley Securities Ltd (in liq) v Western United Ltd (in liq), McLelland J held that: As a matter of language, the concept of one creditor being given a preference, priority or advantage over other creditors as the effect of a particular transaction, carries the connotation that the ‘other creditors’ are persons having that status at the time of that transaction. The use of the identical expression in s 1224(4)(c)(ii) provides strong support for this view. The same view of s 122(1) is to be found expressed in such authorities as there are on the matter: see Calzaturificio Zenith Pty Ltd (in liq) v NSW Leather & Trading Co Pty Ltd [1970] VR 605 at 610–11 per Menhennitt J; Re Discovery Books Pty Ltd (1973) 20 FLR 470 at 475 per Fox J; M & R Jones Shopfitting Co Pty Ltd (in liq) v National Bank of Australasia Ltd (1983) 68 FLR 282 at 289–90; 7 ACLR 445 at 451-453; 1 ACLC 946; at 952 per Wootten J. This approach is also implicit in the decision of the Court of Appeal in Re J F Aylmer (Manildra) Pty Ltd; Burgess v Spooner (1968) 12 FLR 337; 89 WN (Pt 1) (NSW) 79. I do not regard anything said in Stephen v Doyle, Re Mazok; Ex parte Rees; E Sachs & Co, Respondent [1931] QSR 19, Re Stevens; Ex parte Official Receiver; McPhee (Respondent) (1929) 1 ABC 90, Rees v Bank of New South Wales or Richardson v The Commercial Banking Co of Sydney (1952) 85 CLR 110, on which reliance was placed by the plaintiffs, as inconsistent with this view.203

Moreover, in Airservices Australia v Ferrier,204 the majority of the High Court, comprising Dawson, Gaudron and McHugh JJ, observed that the relevant time for determining whether payments have the effect of giving a creditor a preference, priority or advantage over other creditors of the insolvent company was the time of payment and not the date of [page 213] liquidation, citing Calzaturificio Zenith Pty Ltd (in liq) v NSW Leather & Trading Co Pty Ltd205 and Re Discovery Books Pty Ltd.206 Not all of the authorities decided under the previous regime spoke with one voice on this point. For example, in Re RHD Power Services Pty Ltd (in liq), McPherson SPJ observed: In any event the question is not whether at the time the payments were made, they had the effect of preferring the respondent over other creditors, but whether they will do so in the winding up. The decisive consideration is whether, if allowed to stand, those payments will dislocate the statutory order of priorities among creditors of the company: Burns v Stapleton (1959) 102 CLR 97 at 104. In a case of unsecured creditors, the fundamental requirement of the statutory order in a winding up is that creditors of equal degree be paid pro rata according to the amount of their debts. The evidence before me is that there is a very large number of unsecured creditors and no or very few assets out of which to pay them. The estimated deficiency in the company report as to affairs is $582,452. The result is that the respondent will, unless these payments are set aside, receive payment in full, whereas other unsecured creditors will receive nothing. Plainly that would have the effect of preferring the respondent.207

4.47 In the Victorian Court of Appeal decision of Walsh v Natra,208 Phillips

JA (with whom Charles and Callaway JJA agreed) held that s 588FA(1)(b) does not require a consideration of a hypothetical winding up as at the date of the payment which is sought to be impugned. Rather, the comparison that s 588FA(1)(b) requires to be drawn is between the amount which the creditor receives by way of the impugned payment and the probable return to the creditor if that transaction were set aside and the creditor proved instead in the actual winding up.209 In Walsh v Natra, an insolvent company carried on business as a retailer of motor vehicle radiators. One of its creditors, Natra Pty Ltd (Natra), supplied the goods to the insolvent company on the basis of a running account. In May 1992, Natra took a mortgage over real property that the company owned as security for the amounts owing by the company from time to time. In June 1993, Natra refused to supply the company except for cash on delivery. On 30 August 1993, Natra stopped supplying the company with goods altogether. However, between 26 November 1993 and 10 [page 214] February 1994, the insolvent company made the following payments totalling $51,000 to Natra: Date

Payment

26 November 1993 7 December 1993 17 December 1993 23 December 1993 30 December 1993 2 January 1994 6 January 1994 12 January 1994 14 January 1994 1 February 1994 10 February 1994

$40,000 $500 $500 $500 $500 $500 $500 $500 $500 $5,000 $2,000

It was common ground during the trial that since 26 November 1993, the company was insolvent. On 10 February 1994, Natra sought to have the

company wound up, claiming that an amount of $171,912.39 was still owing to it. The company was wound up by the Supreme Court of Victoria on 13 May 1994. As at that date the company had two unsecured creditors in addition to Natra, namely, the Deputy Commissioner of Taxation and one of Natra’s employees. During liquidation, the liquidator realised the company’s assets whereby $92,997.19 was paid to Natra in respect of its secured debt, leaving a balance owing to Natra of $78,915. In the event, there was no dividend at all for unsecured creditors. On 8 April 1996, the liquidator commenced proceedings to recover from Natra the $51,000 worth of payments listed above. The liquidator claimed that each payment was a voidable transaction by virtue of either s 588FA or alternatively s 588FB.210 4.48 Before the trial judge, counsel for Natra called no evidence and submitted that s 588FA called for a comparison between the amount received by the creditor in the transaction which was sought to be impugned and the amount which that creditor would probably have received as an unsecured creditor in a hypothetical winding up of the company as at the date of the transaction had the creditor repaid the amount received and proved for the full amount owing to it as an unsecured creditor. Counsel for Natra further submitted that there was no detailed evidence about the asset and liability position of the [page 215] company in a hypothetical winding up on the date of the transaction sought to be impugned and accordingly there was no evidence about the amount of the dividend which would have been received had Natra proved as an unsecured creditor. The trial judge found in Natra’s favour. The Victorian Court of Appeal, however, overturned the trial judge’s decision. Phillips JA rejected the argument that the preferential effect must be determined by consideration of a hypothetical winding up as at the date of the payments sought to be impugned. As Phillips JA observed: I see no reason not to conclude that the best evidence of what a creditor would receive in ‘a winding up’ is what unsecured creditors did receive in the winding up that followed and which has given rise to the proceedings in which the transaction under scrutiny is impugned.211

Similarly, Callaway JA reasoned as follows: 1. Speaking very generally, the indefinite article is used the first time a person or thing is mentioned and the definite article, or ‘that’ or ‘those’, is used thereafter. Section 588FA contains several examples. Compare the way in which the words ‘transaction’, ‘company’ and ‘creditor’ are used: at

first it is ‘[a] transaction’, ‘a company’ and ‘a creditor’ but thereafter, quite correctly, it is ‘the company’, ‘the creditor’ and ‘the transaction’. The winding up of the company, the first time it is mentioned, is called ‘a winding up’. There is no implication that it is a different winding up from the winding up in the course of which the transaction is avoided. 2. Paragraph (b) postulates a cumulative test, namely whether the transaction results in the creditor’s receiving more than the creditor would receive in respect of the debt if (i) the transaction were set aside and (ii) the creditor were to prove for the debt. The reference to the transaction’s being set aside is a reference to the actual winding up. If parliamentary counsel desired to refer to a hypothetical winding up, he or she would have said something like ‘if the transaction had not taken place’. The words ‘setting aside’ refer not to the transaction’s being disregarded but to its being avoided … 3. Section 588FA is expressly directed to ‘unfair preferences’. Its purpose is to prevent a creditor from obtaining an unfair advantage by receiving more than the creditor would receive in the winding up if the transaction were avoided. The test of unfairness is not a hypothetical winding up that did not take place but the advantage in fact gained over other unsecured creditors in the actual winding up. To that extent the difference between s 588FA and s 122 of the Bankruptcy Act 1966 (Cth), which expressly referred to other creditors, is less than might at first appear.212

[page 216] 4.49 The court in Walsh v Natra also examined the court’s approach to determining whether a transaction was an unfair preference when an unsecured creditor had received only part payment of its debt during the relation back period. On appeal, counsel for Natra argued that the comparison required for the purposes of s 588FA(1)(b) was not between the amount of the payment received by the creditor by means of the impugned transaction and the amount which the creditor would have received had the transaction not occurred and the creditor proved instead for that amount in a winding up; but rather, between the amount of the payment made to the creditor and the amount which the creditor would have received in a winding up had the impugned transaction not taken place and the creditor proved in the winding up for the full amount of its unsecured debt. In Walsh v Natra, the creditor (Natra) was owed $213,000 of which $83,000 was unsecured. By reason of the impugned transaction on 26 November 1993, Natra received $40,000. In Natra’s submission, the question posed by s 588FA(1)(b) was whether, by virtue of the transaction which was impugned (the $40,000 payment), the creditor received from the company ‘in respect of an unsecured debt [of $83,000] more than the creditor would receive from the company in respect of [that debt of $83,000] if the transaction [ie the $40,000] was set aside and the creditor were to prove for the debt [that is, the unsecured debt of $83,000] in a winding up of the company’.213

While acknowledging that Natra’s submission had superficial attraction, Phillips JA rejected the argument.214 [The construction advocated by Natra] requiring, as it does, a comparison of the dividend in a winding up on the whole of the unsecured debt ($83,000) with the payment of merely part of the unsecured debt ($40,000), the construction which counsel advocated does not require a comparison of like with like. If, as submitted, the whole debt is relevant though part only has been paid in the impugned transaction, the comparison of like with like would surely require comparing the probable dividend on proof in a winding up for $83,000 with not merely the payment of $40,000, but with that payment coupled with the probable dividend in a winding up on the balance of the debt (ie, on a further $43,000, using the example given). On that analysis the creditor will obviously have received more by reason of the impugned transaction occurring before winding up than it would receive in a winding up (even a hypothetical winding up) if, as we may assume, all the creditors are not paid in full; for $40,000 plus a dividend on $43,000 in winding up must be more than simply a dividend on $83,000. At least part of the provable debt has been paid in full.

[page 217] Phillips JA then went on to consider the proper construction of s 588FA(1): But in my opinion the better view is that s 588FA(1) is looking to the unsecured debt or, if part only is involved in the impugned transaction, to such part of the unsecured debt as is involved. That is in line with the position under the former legislation, and it has been said that the new Division 2 was not intended to make great change: V R Dye & Co v Peninsula Hotels Pty Ltd (in liq) at 961 per Ormiston JA. In a case like the present, it can fairly be said that the creditor received 100 cents in the dollar in respect of an unsecured debt, being a portion only of a total unsecured debt of $83,000. In respect of $40,000 of that debt, the creditor received $40,000: and the comparison which is sought by para (b) is between that payment of $40,000 and the probable return to the creditor in a winding up if that payment of $40,000 were set aside and the creditor were to prove for that $40,000 (being its resuscitated debt) in that winding up. In a case like the present, the question becomes this: is 100 cents in the dollar (which was received for the relevant part of the total unsecured debt) more than the probable dividend on proof for the like sum in a winding up, supposing that the impugned transaction were first set aside? [emphasis added].215

4.50 Phillips JA’s analysis was approved by the Queensland Court of Appeal in Williams (as liquidator of Scholz Motor Group Pty Ltd) (in liq) v Peters.216 In that case, a motor dealership became insolvent by 1 June 2005 but continued to trade. On 12 September 2005, a potential customer met with two of the directors of the insolvent company and discussed purchasing a car owned and registered in the name of the company for $165,000. The customer agreed to purchase the car and obtained finance for the purchase. The customer paid $10,000 in cash and the balance was paid by way of cheque and the customer was accordingly provided with a receipt for $165,000. The court found that it was the common intention of the parties that the $165,000 could be used as the company saw fit. Subsequently, the customer took delivery of the car but no transfer documents

were processed. The customer also sought finance of $165,275 in respect of the car by hire purchase agreement. On [page 218] 19 September 2005, a finance company paid $165,000 into the company’s overdraft account for the car. The insolvent company then gave the customer a cheque for $165,000 was drawn on the company’s overdraft account and ownership of the vehicle was transferred into the customer’s name. That cheque was later dishonoured. Another cheque was then issued to the customer but that was also dishonoured. The customer then reached an agreement with the company, acknowledging the debt of $165,000 which was to be paid by way of weekly instalments of at least $50,000. The company also offered to give the customer two cars by way of security and told that if payment in full was not made by a certain date, he could dispose of the vehicles. The customer did so, selling them for $50,000 and $35,000 to a car dealer. The liquidator of the insolvent company sought to recover from the customer the amount he received, being $10,000 plus the proceeds of sale of the two cars ($85,000), claiming that the transactions were voidable transactions as an unfair preference. The customer counterclaimed, seeking a declaration that a payment of $165,000 made to the company by the finance company on the customer’s behalf was to have been held in trust by the company for him, a declaration that the customer was entitled to priority over unsecured creditors in the company’s winding up in relation to the unpaid balance of $165,000, namely $70,000, and an order that the $70,000 be paid to him. The trial judge dismissed the liquidator’s claim and adjourned the customer’s counterclaim. The liquidator then appealed to the Queensland Court of Appeal claiming that the trial judge should have granted the application under s 588FF. In a notice of contention, the customer claimed that the judge was correct to dismiss the liquidator’s claim because of the matters raised in his counterclaim. The customer also argued that there was no voidable preference. The Queensland Court of Appeal comprising McMurdo P, Muir and Fraser JJA upheld the liquidator’s appeal and dismissed the customer’s counterclaim. The Court of Appeal observed that implicit in the primary judge’s finding was that on the winding up of the company, approximately 70 cents in the dollar would be available for distribution to unsecured creditors. Applying the

reasoning in Walsh v Natra, the primary judge held that in determining whether the payment of the $10,000 and the transfer of the two cars amounted to a transaction or transactions resulting in an unfair preference, it was necessary to compare those benefits with what the respondent would have received had he proved in the winding up. On the findings of the primary judge, the respondent would have received some 70% of $95,000. Accordingly, the primary judge held the transactions constituted unfair preferences. On appeal, the customer submitted that the comparison which should have been [page 219] made was between the benefit received by the transactions ($95,000) and the amount which would have been received had the transactions been set aside and the respondent proved for the full amount of the debt of $165,000. The customer submitted that the approach in Walsh v Natra leads to ‘the absurd consequence’ that a creditor will practically always be held to have received 100 cents in the dollar where part payment is made. Consequently, ‘every receipt of value received by a creditor will be found to have a preferential effect’. Additionally, the customer submitted that the assessment must be made with reference to ‘an unsecured debt’. There was only one such debt, namely, the sum of $165,000. The Queensland Court of Appeal rejected the customer’s arguments. Instead: If the [customer’s] construction of s 588FA(1)(b) is correct, any creditor could, by payment of part of its unsecured debt in an amount not exceeding the sum recoverable on the debtor’s winding up in respect of the whole of the debt, retain the whole of the part payment and prove for the balance of the debt in the winding up. The creditor would then rank equally with other unsecured creditors in respect of the balance but would retain 100 cents in the dollar on the original payment. That this was an unlikely result was recognised in Walsh … The case has now stood for some nine years as an authority on the construction of s 588FA(1). In my opinion the construction placed on para (b) of s 588FA(1) does no violence to the language of the provision and achieves a result which conforms with the likely legislative intention that the provision accommodate, in a practical way, part payments of unsecured debts as well as payments in full. This court should not depart from the construction of the subject division determined in Walsh unless of opinion that the decision is clearly wrong and in my respectful opinion that is not the case.217

4.51 The decision in Walsh v Natra has been subject to criticism218 and indeed, the court in Natra itself acknowledged that either construction of s 588FA(1)(b) ‘puts some strain on the language’.219 Even so, what the court was seeking to do in Walsh v Natra was to adopt a pragmatic approach in determining the appropriate time for assessing the

[page 220] preferential effect of a transaction. In that regard the court expressly noted that evidence of what might occur in a hypothetical winding up may be appropriate in some cases. As Phillips JA explained: If for any reason the evidence of what happened in the actual winding up that followed an impugned transaction was unavailable or unsatisfactory, a liquidator seeking to recover a voidable transaction which was an unfair preference might, I suppose, be permitted to lead evidence of what the creditor would have received in some hypothetical winding up on a date relevant to s 588FA. Obviously, to be relevant a winding up must be one in which the impugned transaction could probably be set aside and which the creditor could prove instead; but I see no reason why, when the statute refers only to the probable return to the creditor in ‘a winding up’, evidence might not be led of the probable return in a hypothetical situation. Indeed, that may have to be the case to the extent that s 588FA becomes relevant in an administration under Pt 5.3A of the Law … In such circumstances the setting aside of the transaction and the creditor’s proving instead in a winding up will be altogether hypothetical — which may explain why the section does not refer to ‘the winding up’; but it does not follow that the hypothetical winding up which the section must then be taken to posit must be as at the date of the impugned transaction. Indeed the express hypothesis of setting aside the impugned transaction and the creditors proving instead suggest to me a winding up which takes place after, and not at the time of, the transaction in question.220

In any event, in most cases, and as a practical matter, the relevant date of assessing the preferential effect of a transaction or transactions will probably not matter. This is because in many insolvencies the insolvent position of the company during the relation back period will be such that any return to creditors in a ‘hypothetical’ winding up at the time of the transaction sought to be impugned will be similar to any return to creditors in the actual winding up. This was recognised by Phillips JA in Walsh v Natra: But the wider problem is whether [s 588FA(1)(b)] looks to a notional winding up at all: does it look to a hypothetical winding up on the date of each impugned payment, or does it look to a winding up which is, in a case like this, the winding up that actually occurs? In most cases this simply will not matter: it would be obvious that the company, being insolvent, was insolvent when the payment was made and insolvent at the commencement of the winding up: so that whether the winding up to which para (b) directs attention takes place (notionally) at the date of the impugned transaction or (actually) when winding up actually follows, the result is the same: the creditor having received 100 cents in the dollar on such part of the unsecured debt as was involved in the transaction has

[page 221] surely received more than he would receive in a winding up, especially a winding up in insolvency [emphasis added].221

SET-OFF UNDER S 553C 4.52 Section 553C of the Corporations Act provides for a statutory right of set-off between creditors and persons who had ‘dealings’ with the insolvent company.222 It has historically been the position however that, generally speaking, no right of set-off is available where the transaction is a voidable transaction under Pt 5.7B. This is so for at least three reasons. Firstly, to allow the set-off would effectively mean that the creditor would in effect receive preferential treatment.223 Secondly, s 553C(2) provides an exception to any setoff where the person involved with the transaction with the insolvent company ‘had notice of the fact that the company was insolvent’.224 Thirdly, a creditor’s right to prove for any debt would arguably not arise unless any unfair preference had been repaid under s 588FI. Section 553C of the Act provides: (1) Subject to subs (2), where there have been mutual credits, mutual debts or other mutual dealings between an insolvent company that is being wound up and a person who wants to have a debt or claim admitted against the company: (a) an account is to be taken of what is due from the one party to the other in respect of those mutual dealings; and (b) the sum due from the one party is to be set off against any sum due from the other party; and (c) only the balance of the account is admissible to proof against the company, or is payable to the company, as the case may be. (2) A person is not entitled under this section to claim the benefit of a set-off if, at the time of giving credit to the company, or at the time of receiving creditor from the company, the person had notice of the fact that the company was insolvent.

[page 222] A set-off provided under s 553C is self-executing in the sense that its operation is automatic and does not depend upon the option of either party.225 The set-off operates at the time the liquidation takes effect.226 The onus is upon the liquidator to establish that a set-off under s 553C(2) is not available.227 More modern authorities favour the view that set-off under s 553C is available in the context of a voidable transaction claim. One case in which set-off under s 553C in this context was utilised at first instance was in Jetaway Logistics Pty Ltd (recs and mgrs apptd) (in liq) v Deputy Commissioner of Taxation,228 where a liquidator brought an action against the Deputy Commissioner of Taxation

claiming that the Commissioner had received unfair preferences. The insolvent company owed a substantial amount of tax to the Commissioner. At the same time, the insolvent company was entitled to diesel fuel grants under a Commonwealth scheme administered by the Commissioner. The Commissioner allowed taxpayers entitled to the grant to offset the entitlement to the grant against tax otherwise payable to the Commissioner. After making two arrangements to defer payment of tax owing to the Commissioner, the Commissioner suggested, and the insolvent company agreed to apply its monthly diesel fuel entitlement in payment of its accrued tax liability. Ultimately, set-offs totalling $875,540 were made between 18 March and 31 August 2004. The liquidators claimed that the set-offs constituted unfair preferences. The Commissioner argued that each of the set-off transactions did not constitute a preference within the meaning of s 588FA because, in particular, in a winding up the Commissioner would have been entitled, under the set-off provision contained in s 553C, to set-off against the tax due by the insolvent company the diesel fuel rebate the Commissioner owed Jetaway and only prove for the balance. At first instance, Robson J of the Supreme Court of Victoria upheld the Commissioner’s arguments and accordingly dismissed the liquidator’s claim. On appeal, the Victorian Court of Appeal overturned Robson J’s decision but on the basis that the Commissioner had ‘notice of the fact’ that the company was insolvent, therefore invoking s 553C(2) [page 223] and, accordingly, disentitling the commissioner to rely upon the set-off provision contained in s 553C.229 4.53 Further, in the New South Wales Court of Appeal decision of Buzzle Operations Pty Ltd (in liq) v Apple Computer Australia Pty Ltd230 Young JA, with whom Hodgson and Whealy JJA agreed, held, in obiter, that set-off under s 553C is available to a defendant in response to a claim by a liquidator for an uncommercial transaction.231 In making this observation his Honour expressly approved the reasoning of Mansfield J in Re ACN 007 537 000 Pty Ltd (in liq); Ex parte Parker232 where his Honour held that s 553C was available in the context of a claim by a liquidator for relief under s 588W for an insolvent trading claim against a holding company.233 A more detailed discussion of Ex parte Parker is found at 10.135ff.234

SECURED DEBTS 4.54 Section 588FA(2) provides that for the purposes of s 588FA(1), a secured debt235 is taken to be unsecured to the extent of so much of it (if any) as is not reflected in the value of the security. Section 9 of the Act provides that the expression ‘unsecured’ in relation to a debt, has in Pt 5.7B, a meaning affected by s 588D. Section 588D provides in turn that, for the purposes of Pt 5.7B, a secured debt becomes an unsecured debt to the extent that the creditor proves for the debt as an unsecured creditor. At the time of writing there is no known case that has analysed s 588FA(2) in detail. What follows are some observations on the position that pertained under the previous regime. From a conceptual perspective, [page 224] and as a matter of principle, there is no reason why those earlier decisions, as set out below, should not continue to apply in the context of Pt 5.7B. 4.55 As mentioned above, what provisions such as s 588FA seek to avoid are changes which, if allowed to be effectual, would dislocate the statutory order of priorities amongst creditors.236 For example, the conversion of an unsecured debt to a secured debt will likely have a preferential effect and be susceptible to being avoided.237 Where, however, a debtor pays a secured debt the creditor is not preferred by the payment. So much was made clear in the contact of the previous regime by the High Court in National Australia Bank Ltd v KDS Construction Services Pty Ltd (in liq).238 Further, even where a creditor is preferred when security is given, any payment made pursuant to the security ‘does no more than give effect to the [security]’.239 In a similar vein, the taking of security for a current advance to an insolvent company does not constitute a preference by the insolvent company to the creditor. In Robertson v Grigg, Dixon J explained:240 A charge was created in favour of the respondent in respect of each such advance as it was made, but the creation of the charge cannot be a preference within s 95 because it did not operate to prefer him in respect of any then existing debt … In making each separate advance on the faith of the agreement and thereby obtaining a charge in respect of the advance, the respondent did not obtain any benefit or advantage in relation to the past indebtedness. He did not deal with the debtor in his capacity as creditor. No pre-existing debt was better secured or otherwise affected by reason of any subsequent advance. There was, therefore, no preference to him as a creditor.

Having said that, as explained above, in determining whether there is an unfair preference it is necessary to have regard to the end result of a transaction rather than its form. For example, under the previous regime, if a creditor made a current advance on security to a debtor merely an order that the debtor could use the new advance to pay a previously unsecured debt, then that would be a transaction by which the creditor obtained an unfair preference over other creditors notwithstanding that he was in form providing current consideration for the secured debt.241 [page 225] However, if a third party were to make a current advance on security to allow a debtor to pay an existing creditor, the party making the advance would not gain a preference as creditor by taking the security, nor could the original creditor be said to be gaining a preference, unless the new lender was acting as trustee for him or there was some other circumstance causing the giving of the security to be in his favour.242 Similarly, the conversion of an unsecured debt into a secured debt would have a preferential effect. For example, in Burns v Stapleton243 an unsecured creditor of an insolvent debtor agreed to lend the debtor a sum of £500 and to sell him certain cows on credit for the sum of £1,900. As part of the transaction, the debtor agreed to secure the repayment of the loan by way of mortgages over certain lands held by the debtor as joint tenant with his wife. The moneys were advanced and the cows delivered to the debtor and mortgages were executed by the debtor and his wife to secure repayment of a total sum of £2,732 which was the amount of the loan, the price of the cows, interest and the preexisting debt of £232. The High Court found that the conversion of an unsecured debt into the secured debt constituted a preference but that the creation of security in relation to the newly created debt did not constitute a preference.244 As the court explained: As far as the £232 was concerned, it is obvious that by the mortgages in question the bankrupt gave the [creditor] a preference or advantage over the other creditors, for he thereby converted an unsecured debt into one secured upon [the debtor’s] equity of redemption in his interest as a joint tenant in the subject lands. But as regards the balance of the mortgage money the position was different … As regards the £2,400, the instruments made no change which improved the [creditor’s] position vis-à-vis the other creditors … The securing of the £2,400 by this equitable mortgage was not a preference to the [creditor], but it is not theretofore a creditor of [the debtor] for any part of that amount.245

4.56 Practically speaking, in most cases involving s 588FA(2), the key question will be whether the relevant debt in question is secured or unsecured. It

is beyond the scope of this text to discuss in any great detail the various types of securities that fall within the ambit of s 588FA(2).246 So, [page 226] for example, in Bradnam’s Windows and Doors Pty Ltd v Offermans,247 a creditor agreed to extend credit to an insolvent company in connection with the supply of goods to the company. The relevant agreement created various charges over the insolvent company’s property in favour of the creditor. Between 30 July 2008 and 28 October 2008, the insolvent company paid to the creditor an amount of $80,870.82 in satisfaction of debts due and owing by the company to the creditor. The liquidator of the company sought to set aside these payments as alleged unfair preferences. The creditor defended the action by claiming, inter alia, that the creditor was a secured creditor of the company by virtue of the credit agreements. The Queensland Court of Appeal found that the creditor was in fact a secured creditor and accordingly s 588FA did not apply to the subject transactions. As the Court of Appeal explained: On a literal construction, s 588FA would not seem to apply to the subject transactions as, subject to the exception provided for in subs (2), subs (1)(b) applies only to a transaction which results in a receipt by the creditor ‘in respect of an unsecured debt that the company owes to the creditor’. In s 588FA the words ‘unsecured debt(s)’ identify the type of debt ‘that the company owes to the creditor’ to which the section relates, and it is arguable that the words ‘unsecured debt’ should not be construed as meaning ‘a debt not secured by a security which is void as against the liquidator, the administrator of the company, or the deed’s administrator’ as the case may be. Section 588FA is concerned with a transaction between the company and creditor concerning a debt owed by the company to the creditor. It does not specifically advert to the operation of s 266(1). Moreover, s 588FA(1)(b) is contained in Div 2 of Pt 5.7B of the Act dealing with voidable transactions whereas s 266 is to be found in Ch 2K of the Act dealing with registration of charges and, as has been seen, nothing in Ch 2K renders void an unregistered charge or renders a debt secured by the charge ‘an unsecured debt’.248

In Great Wall Resources Pty Ltd (in liq) v Davidovic Pty Ltd, Macready AsJ considered the meaning of the expression ‘value of the security’ in the context of s 588FA(2).249 His Honour observed that there did not appear to be any judicial consideration specifically on the meaning of ‘value of the security’. It was submitted before his Honour that s 554E [page 227]

of the Act provided some assistance. The relevant subsections provide as follows: (3) If the creditor surrenders a security to the liquidator for the benefit of creditors generally, the creditor may prove for the whole of the amount of the secured debt. (4) If the creditor realises the security, the creditor may prove for any balance due after deducting the net amount realised, unless the liquidator is not satisfied that the realisation has been effected in good faith and in the proper manner. (5) If the creditor has not realised or surrendered the security, the creditor may: (a) estimate its value; and (b) prove for the balance due after deducting the value so estimated.

It was accordingly submitted before Macready AsJ that the ‘value of the security’ to which 588FA(2) refers is the amount that the secured creditor would obtain if the security interest was enforced and property subject to the security realised. In response to that submission, it was put to his Honour that the value of the solicitor’s lien in that case was reflected in the amount of the costs that it secures, pending any judgment and that simply because the retaining lien was ‘passive’ did not negate its value. His Honour however did not resolve the issue.

RUNNING ACCOUNTS — CONTINUING BUSINESS RELATIONSHIP (S 588FA(3)) 4.57 Section 588FA(3) provides that where: (a) a transaction is, for commercial purposes, an integral part of a continuing business relationship (for example, a running account) between a company and a creditor of the company (including such a relationship to which other persons are parties); and (b) in the course of the relationship, the level of the company’s net indebtedness to the creditor is increased and reduced from time to time as the result of a series of transactions forming part of the relationship; then: (c) subsection 588FA(1) applies in relation to all the transactions forming part of the relationship as if they together constituted a single transaction; and (d) the transaction referred to in paragraph (a) may only be taken to be an unfair preference given by the company to the creditor if, because of subsection (1) as applying because of paragraph (c)

[page 228] of this subsection, the single transaction referred to in the last-mentioned paragraph is taken to be such an unfair preference.

Parliament’s intention in enacting s 588FA(3) was to ‘embody’ in statute the well established general law principles relating to running accounts.250 As Parliament explained in the EM to the CLR Bill: Subsection 588FA(2) provides that where a transaction is, for a commercial purpose, an integral part of a continuing business relationship such as a running account between a creditor and the company (including such a relationship to which other persons are parties), it should not be attacked as a preference, but rather the effect of all the transactions which form the relationship between that creditor and the company should be taken into account as though they constituted a single transaction. This provision is aimed at embodying in legislation the principles reflected in the cases of Queensland Bacon Pty Ltd v Rees (1967) 115 CLR 266 and Petagna Nominees Pty Ltd v A E Ledger (1989) 1 ACSR 547. The effect of these principles is that it is implicit in the circumstances in which payments are made to reduce the outstanding balance in a running account between purchaser and supplier that there is a mutual assumption that the relationship of purchaser and supplier would continue as would the relationship of debtor and creditor. The net effect, therefore, is such that payments ‘in’ are so integrally connected with payments ‘out’ that the ultimate effect of the course of dealings should be considered to determine whether the payments are preferences.251

A running account between traders is merely another name for an active account running from day to day, as opposed to an account where further debits are not contemplated.252 The essential feature of a running account is that it predicates a continuing relationship of debtor and creditor with an expectation that further debits and credits will be recorded.253 Usually, a payment or payments are credited against the [page 229] balance owing in the account. In this way, a running account is contrasted with an account where the expectation is that the next entry will be a credit entry that will close the account by recording the payment of the debt or by transferring the debt to the bad or doubtful debt account.254 The significance of a running account lies in the inferences that can be drawn from the facts that answer the description of a ‘running account’ and not necessarily the label itself.255 The relevant inferences sought to be drawn relate to the enquiry of what is the ultimate effect of a transaction. As the High Court has explained: If the record of the dealings of the parties fits the description of a ‘running account’, that record will usually provide a solid ground for concluding that they conducted their dealings on the basis that they

had a continuing business relationship and that goods or services would be provided and paid for on the credit terms ordinarily applicable in the creditor’s business. When that is so, a court will usually be able to conclude that the parties mutually assumed that from a business point of view each particular payment was connected with the subsequent provision of goods or services in that account. Sometimes, however, the transactions recorded in the account may be so sporadic that a court cannot conclude that there was the requisite connection between a payment and the future supply of goods even though the account was kept ‘in the ordinary form of a running account in which debits and credits are recorded chronologically and in which payments are not shown as attributable to any particular deliveries but are brought generally into credit’. Thus, it is not the label ‘running account’ but the conclusion that the payments in the account were connected with the future supply of goods or services that is relevant, because it is that connection which indicates a continuing relationship of debtor and creditor. It is this conclusion which makes it necessary to consider the ultimate and not the immediate effect of individual payments.256

[page 230] However it is enough if on the facts of the case however discerned: … the court can feel confident that implicit in the circumstances in which the payment is made is a mutual assumption by the parties that there will be a continuance of the relationship of buyer and seller with resultant continuance of the relation of debtor and creditor in the running account, so that, to use the expressions employed in Richardson’s Case, ‘it is impossible’ … in a business sense — “to pause at any payment into the account and treat it as having produced an immediate effect to be considered independently of what followed …257

At general law, where a payment forms an integral or inseparable part of an entire transaction, its effect as a preference involves a consideration of the whole transaction.258 4.58 In the leading decision of Queensland Bacon Pty Ltd v Rees, the High Court explained the court’s approach to considering whether payments made into a running account were preferential as follows: A running account of any debtor who has reached insolvency must present difficulties under s 95. A debtor who pays something off his grocer’s account in order to induce the shop keeper to give him further supplies of groceries can hardly be held, as it seems to us, to give the grocer a preference, if that was the clear basis of the payment. If the grocer credited the money as a payment for the future deliveries instead of the past deliveries of groceries he would in the end be in exactly the same position and yet he could not be attacked as having received a preference. But without stating any principle with an application beyond the facts of this case, it is enough to decide that the payments into the office account possessed in point of fact a business purpose common to both parties which so connected them with the subsequent debits to the account as to make it impossible to pause at any payment into the account and treat it as having produced an immediate effect to be considered independently of what followed and so to be adjudged a preference.259

In Queensland Bacon Pty Ltd v Rees,260 Hennessy’s Self Service Stores Pty Ltd operated a number of retail outlets in Brisbane. As part of its business, it operated running accounts with various of its suppliers. On 16 March 1961,

Hennessy’s went into liquidation. In several applications, the liquidator sought to impugn various payments made by Hennessy’s [page 231] to Queensland Bacon Pty Ltd (Queensland Bacon), the Egg Marketing Board, Burns Philp and Co Ltd (Burns Philp) and Foley Brothers Pty Ltd (Foley Brothers). The applications were brought under s 275(1) and (2) of the various Queensland Companies Acts, 1931 to 1955 (Qld) which imported the provisions of s 95 of the Bankruptcy Act 1924–1960 into the Companies Acts. One of the central issues to be decided concerned what Barwick CJ described as: … the manner of determining whether a payment by a debtor, who has a number of creditors, to one of them has the effect of giving that creditor a preference priority or an advantage over other creditors in a case where there is a ‘running account’ between the debtor and that creditor which continues operative after the receipt of the payment which is challenged, though that payment considered in isolation would, when made, have the effect of preferring that creditor to others who were not then being paid.261

In each application, the key facts were essentially the same. In all applications: there was no binding agreement between the creditor and Hennesy’s that the company’s order would be accepted, or that payment according to the agreed terms for goods already delivered would entitle the company to obtain further supplies on credit; the course of business between the company and each creditor was such that the company could reasonably expect that so long as it paid the creditor’s accounts according to the current credit arrangements between them, the creditor would continue to supply upon the company’s order and upon the agreed terms of credit, goods in which they were mutually dealing. On the other hand, that course of business was such that the company could expect a rejection of its further orders for goods to be supplied on credit if it failed so to pay the creditor’s account; all purchases of the company from the creditor were placed to the debit of the company in a single account in the books of the creditor and all payments made by the company, though generally made in response to and in accordance with specific accounts rendered by the creditor, were credited generally to that account.

At trial, the judge accepted the evidence given on behalf of each of the creditors that the creditors did not know and did not in fact suspect that the company was insolvent at all relevant times but rather suspected that the company was experiencing a temporary cash flow difficulties. [page 232] 4.59 After referring to the court’s comments in Richardson regarding running accounts262 Barwick CJ observed: These expressions were guarded and appear to cover two different types of situation; one in which the payment is part of a larger single transaction and the other where the payment, though in discharge of a specific and identifiable indebtedness, is none the less linked in some fashion with other items in what is described, for want of any more precise nomenclature, as a ‘running account’. But though guarded they do indicate that the mere fact that the payment is in discharge of an existing or past indebtedness is not enough to require in all circumstances that the effect of the payment vis-a-vis other creditors and their claims is to be estimated in complete isolation [emphasis added].263

After distinguishing the facts of Richardson, Barwick CJ expounded the following principles: In my opinion, it is enough if, on the facts of any case, the court can feel confident that implicit in the circumstances in which the payment is made is a mutual assumption by the parties that there will be a continuance of the relationship of buyer and seller with resultant continuance of the relation of debtor and creditor in the running account, so that, to use the expressions employed in Richardson’s Case (1952) 85 CLR, at p 133, ‘it is impossible’— I interpolate, in a business sense — ‘to pause at any payment into the account and treat it as having produced an immediate effect to be considered independently of what followed …’264

In the case of a running account the question of preference or no preference is not to be determined payment by payment but rather to be determined by the fate of the running account between the date of the first of the payments made within the relation back period and the date of the liquidation. So, in the application regarding Queensland Bacon, Hennessy’s made the following payments within the relation back period: Date of payment

Amount (in pounds, shillings and pence)

1 November 1960 8 November 1960 15 November 1960 23 November 1960

£2700-0-0 £2,700-0-0 £2,700-0-0 £2,700-0-0

29 November 1960

£2,940-12-6

6 December 1960 21 December 1960 16 January 1961

£2,700-0-0 £2,700-0-0 £2,700-0-0 [page 233]

Barwick CJ found that the ‘clear’ basis of the arrangement between Hennesy’s and Queensland Bacon was the continuing supply of goods by the latter. The amount of each of the payments made within the relation back period of £2,700 was referable in part to the value of the further supply anticipated at the time the amount of £2,700 was agreed upon. The basis of the payments was a continuation of the relationship of buyer and seller and of the running account. Accordingly, the question of whether there was a preference was not to be ascertained by reference to each individual payment but was to be determined by the ultimate balance of the running account between the date of the first of the payments of £2,700 and the date of the liquidation (16 March 1961). His Honour found that the net effect of the payments was a reduction in the running account of some £4,000 and was therefore prima facie a preference to that extent.265 Ultimately the court found that Queensland Bacon could avail itself of the good faith defence found in the former s 95(2) of the Bankruptcy Act 1924–1950 and the transactions were not set aside. 4.60 Consideration of the running account concept came before the High Court again in Airservices Australia v Ferrier.266 In Airservices, an insolvent airline company made various payments to Airservices Australia who provided services to the airline company for terminal and navigation, meteorological information, rescues and firefighting. The Civil Aviation Act 1988 (Cth) authorised Airservices to determine the charge for these services and to impose penalties for late payments. Airservices debited the account of the airline on the first day of each month for the services provided in the preceding month. In the six-month period prior to winding up the airline made nine payments to Airservices totalling $10,351,523.90. However, taking into account all debits and credits during the six month period the amount owing by the airline to Airservices increased from $4,301,071.74 on 1 July 1991 to $10,413,598.90 on 20 December 1991. At first instance, Lockhart J declared that the payments were not preferences, a decision that was subsequently overturned by the Full Federal

Court. On appeal to the High Court, a majority, Dawson, Gaudron and McHugh JJ, allowed the appeal with Brennan CJ and Toohey J dissenting. In the majority’s view, each payment was connected with ensuring continuation of a business relationship: Although individual payments were appropriated to specific debts and penalties, from a business point of view each payment must be considered to be connected with the subsequent provision of services by Airservices … The account was an active one with daily dealings between the

[page 234] parties. Services rendered during the preceding month were debited to the account at the beginning of each month. In addition, penalties for late payment were debited monthly. The balance of the account rose and fell as debits and credits were recorded. There was but one account, not a series of separate accounts for each month or for each service. The facts recorded in the ‘running account’ indicate that Compass and Airservices had a continuing relationship which contemplated further debits and credits and that the individual payments were intended to continue and not determine that relationship. The various payments must therefore be regarded as so connected with the continuing provision of services, that it is the ultimate and not the immediate effect of each payment on the relationship of Compass and Airservices that is relevant.267

While the High Court observed that determination of whether a particular transaction will be preferential is an objective exercise, evidence of the purpose of the debtor in making the payment may be relevant. As the High Court explained: If a payment is part of a wider transaction or a ‘running account’ between the debtor and the creditor, the purpose for which the payment was made and received will usually determine whether the payment has the effect of giving the creditor a preference, priority or advantage over other creditors. If the sole purpose of the payment is to discharge an existing debt, the effect of the payment is to give the creditor a preference over other creditors unless the debtor is able to pay all of his or her debts as they fall due. But if the purpose of the payment is to induce the creditor to provide further goods or services as well as to discharge an existing indebtedness, the payment will not be a preference unless the payment exceeds the value of the goods or services acquired. In such a case a court, exercising jurisdiction under s 122 of the Bankruptcy Act, looks to the ultimate effect of the transaction. Whether the payment is or is not a preference has to be ‘decided not by considering its immediate effect only but by considering what effect it ultimately produced in fact’.268

4.61 In reaching their conclusion that the relevant payments were not preferences, the plurality of the High Court examined the ultimate effect of the relevant transactions observing: Throughout the six month period, Airservices provided Compass with services whose value far exceeded the value of the payments that Compass made during that period. At the end of the six month period, Airservices was more than $8 million worse off than it had been at the commencement of the period. It gained no advantage over the general body of creditors unless one takes the jurisprudentially unsound view

[page 235] that, for the purpose of s 122, the court looks only to the debt that the payment discharges and ignores the business context of the payment. Moreover, the dealings of the parties were reflected in a series of services and payments unified by the many undertakings of Compass to meet the credit terms of Airservices. Although individual payments were appropriated to specific debts and penalties, from a business point of view each payment must be considered to be connected with the subsequent provision of services by Airservices.269

Applying the doctrine of ultimate effect, the High Court considered there was no preferential treatment. Indeed, the general body of creditors were actually better off because of the payments: Once the doctrine of ultimate effect is applied, it follows that the payments to Airservices gave it no preference, priority or advantage over the general body of creditors. On the contrary, the general body of creditors benefited from the revenues that were generated as the result of the services provided by and at the expense of Airservices. The value of the services provided exceeded the amount of the payments during the relevant period by several million dollars.270

In the High Court’s view, to ignore the practical relationship between the payments and the subsequent supply of services and the ultimate effect of the dealings between the parties would not advance the purpose for which s 122 of the Bankruptcy Act 1966 was enacted.271 As mentioned above, that purpose is to strike down those payments by a debtor during the six months period prior to bankruptcy that have the effect of depleting the assets available to the general body of creditors.272

Modern application of the running account defence 4.62 The courts have confirmed that the above principles enunciated by the High Court with respect to the concept of running account in the context of the previous regime apply equally to Pt 5.7B.273 In particular, the Victorian Court of Appeal has confirmed that, as was the case under the previous legislation, where the balance of a continuing account fluctuates over the relation back period, a liquidator faced with the prospect of having to treat the account as a notional single transaction is entitled to pick the peak indebtedness during the relation back period as the beginning of the arrangement, in order to maximise [page 236] recovery.274 In that regard, the liquidator is entitled to choose any point during

the statutory relation back period in his or her endeavour to show that from that point on there was a preferential payment in order to maximise recovery.275 In other words, the amount of any preference in the context of a running account will normally be the difference between the highest amount owed by the debtor during the six month relation back period under that account and the amount finally owed at the date of winding up.276 4.63 For example, in Sutherland v Lofthouse,277 a decision of the Victorian Court of Appeal, a company carried on a business of blending and selling stock feeds and as part of its business, it purchased additives for livestock feeds from a number of suppliers including from the appellants. One of the appellants gave evidence that he and the company never formalised any trading terms and simply worked on the unspoken assumption that trading terms were the usual trading terms in the industry which were 30 days, although for most of the working relationship with the company the account was roughly within 60 days. The trial judge found that the company was insolvent ‘probably from April, May 2001 and indisputably from January 2002’ and that each of the payments made to the appellants between 17 May and 4 October 2002 was an unfair preference. The trial judge also found that the impugned payments were not made as under a running account and therefore that s 588FA(3) of the Act did not apply. Nettle JA (with whom Neave and Redlich JJA concurred) disagreed. Nettle JA opined that an examination of the statement of the account between the parties strongly implied that it was mutually assumed from a business point of view that each particular payment was connected with the subsequent provision of goods or services on account. His Honour noted in particular that in order to establish a running account defence it was not necessary for there to be a consistency in the credit terms between the parties. As Nettle JA explained: As the statement of account shows, in August 2002 the appellants supplied the company with more than $20,000 worth of product, thereby lifting the level of outstanding accounts to $60,341.23. Thereafter, the only payments of any substance were the round payments of either $5000

[page 237] or $6000. Meanwhile, supplies continued on a regular and recurring basis such that by the end of the relation back period the account balance stood once again at $43,012.21; or, in other words, at the level of approximately 2 months’ worth of supplies (in accordance with the usual implied terms as to the conduct of the account, as Mr Sutherland deposed). To that is to be added Mr Lister’s evidence that the company made the round payments of $5000 and $6000 ‘because we needed the product and Mr Sutherland would have said, “Well, I want at least the value of that product that you are receiving to be paid to come off the account before you get the goods”’. To my way of thinking, all of that bespeaks an

implied understanding that each payment was tied to future supply. No doubt, the few payments which were made at or about the date of delivery were made at a point sooner than terms of 60 days would ordinarily suggest. So too, in one sense, the round payments of $6000 and $5000 and $8000 were not made 60 days after delivery. Broadly speaking, they were made in order to keep the level of indebtedness at or about the level of the cost of 2 months’ worth of supplies, after allowing for fresh supplies. But the operation of the running account defence is not dependent on continuity of the same credit terms throughout the relation back period, and even less upon showing that each payment was made at or about the same length of time after the supply to which it relates. Nor is it necessarily inimical to the operation of the defence that a payment be made with the express purpose of reducing a debt earlier incurred, so long as it is also for the purpose of obtaining further goods or services.278

In respect of the last point, Nettle JA referred to what the majority of the High Court said in Airservices: … where the relationship of debtor and creditor contemplates further debits and credits, it is difficult to see how the appropriation of payment to an earlier debt has any significance at all unless, as in Rees v Bank of New South Wales, the parties expressly agree that one of the purposes of the payment is to permanently reduce the level of indebtedness below the level existing at the time of the agreement. Even then, as Rees assumes, where the relationship is a continuing one, the preference will be not more than the amount that constitutes the difference between the indebtedness at the commencement of the agreement and the indebtedness at the end of the six-month period.279

In Sutherland v Lofthouse the trial judge erred firstly by holding that if the predominant purpose of any payment made during the course of a running account is the discharge of past indebtedness, the payment [page 238] cannot be treated as part of the running account and, secondly in holding that if in the course of a running account one or more payments are made on the basis of cash on delivery, the running account thereupon terminates notwithstanding that the parties continue thereafter to supply goods and to make payments in circumstances which would otherwise imply that they intend to continue the relationship of buyer and seller, and so of debtor and creditor on running account. As explained above where a payment forms part of such a wider series of transactions, it is not to the point that one of the purposes of the payment is to reduce existing indebtedness unless the parties are agreed that it should be a permanent reduction in indebtedness.280 Further, and moreover, the court looks to the total business effect of that series of transactions and does not treat individual payments as preferences.281 4.64 A different result obtained in Re Employ (No 96) Pty Ltd (in liq)282 in which the liquidator of a company commenced proceedings against chartered

accountants and related entities for recovery of alleged preference payments. The company retained the accountants to provide accounting services. The liquidator alleged that two payments made by the company to the accountants while it was insolvent on 5 April 2007 and 1 May 2007 were individually or collectively a transaction, being part payment of the company’s indebtedness to the accountants and related entities to 5 April 2007. The accountants argued that the two payments were made as part of a running account, comprising accounting services rendered from January 2007 to at least 1 May 2007, and the value of the services exceeded, by $198,229.69, the value of the payments including those payments. The liquidators responded by contending that a running account could only have existed from 1 May 2007 because the purpose of the first two payments was to discharge a pre-existing debt. After referring to the ‘well-established’ principles regarding running account referred to above Black J rejected the accountant’s arguments: There is no clear link between the first two payments and the provision of future or contemporaneous services. Rather, those payments appear to have been made simply to pay down the debt arising from the provision of earlier services, prior to the discussion at the 1 May meeting and the arrangement set out in the 1 May letter for provision of future services at double rates. These two transactions, taken as a whole, seem to me to be a payment to [the accountants] against a prior debt, not linked with the provision of further services, and allowing a preference to [the

[page 239] accountants] which thereby required more than it would receive in respect of the debt in a winding up. Mr Heesh’s evidence is that, even if the liquidators were successful in the proceedings and recovered an amount of $280,240 with interest and legal fees, [the company’s] creditors would not receive a dividend of 100c in the dollar: Heesh at [48]. In my view, the first two payments were not part of a continuing business relationship involving the provision of the earlier and later services, as distinct from payments made for the dominant purpose of repaying the debt then outstanding in respect of the provision of the earlier services, and s 588FA(3) is not applicable to them. In my view, these two payments were unfair preferences for the purposes of s 588FA of the Corporations Act.283

Running account need not exist for entire relation back period 4.65 In seeking to rely upon a running account defence, it is not necessary to demonstrate that the running account existed during the entirety of the relation back period. So, in Clifton v CSR Building Products Pty Ltd284 counsel for the defendant submitted that s 588FA(3) was to be interpreted as requiring there to be a running account for the whole of the period of the relation back period and

that if at any time during the relation back period the running account is terminated, this termination operates to extinguish the existence of such running account for the entire period of the relation back period. Peek J of the Supreme Court of South Australia rejected the submissions. His Honour referred to the decision of Young J in Julzar Pty Ltd v Rodgers.285 In Julzar the payments sought to be avoided were made during the six month relation back period comprised of one payment made on 10 February 1995 and then a later group of payments all between 3 April to 2 June 1995. Justice Young held that the payment made on 10 February 1995 was made as part of a running account pursuant to a ‘continuing business relationship’ but by 1 April 1995 there was no longer any factual basis for a running account. In those circumstances Young J found that the payments made between 3 April and 2 June 1995 were preferences but that the earlier payment on 10 February 1995 (within the relation back period) was not a preference, the running account defence applying to it. Justice Peek considered that Young J’s approach was correct and noted that while a number of cases might appear to refer to the running account period as being the same as the relation back period, that is simply because the running account in those cases happened to have existed for the whole [page 240] of the relation back period.286 His Honour pointed out that s 588FA(3) does not refer to the term ‘relation back period’ but rather refers to a continuing business relationship and the critical period is obviously the period in which a genuine running account functions as part of a continuing business relationship.287 4.66 The liquidator bears the onus of excluding that a running account defence is available.288 As Santow J observed in Sutherland v Eurolinx Pty Ltd: Finally, the codification of the so-called running account has become definitional of what is an ‘unfair preference’. That means that, in terms of onus, what was once merely a defence is now an ingredient or element of that which the plaintiff liquidator must prove in establishing whether it is a preference (and its dimension). The onus in that sense has shifted to the party attaching the payments.289

In Whitton v Konemann Australia Pty Ltd290 Austin J was invited not to follow Santow J’s comments but instead observed that he saw no reason to disagree with the opinions carefully and thoughtfully expressed by Santow J.291

WHEN UNFAIR PREFERENCE VOIDABLE 4.67 As mentioned above, the fact that a particular transaction may constitute an unfair preference is not sufficient to make it susceptible to being set aside. In order to be a voidable transaction, the unfair preference will usually have to satisfy the criteria of being an insolvent transaction contained in s 588FC and the other criteria for a voidable transaction in s 588FE. Section 588FE also sets out other instances in which an unfair preference will be voidable. For a more thorough discussion of when an unfair preference will be voidable and the types of orders a court may make upon so finding see 8.7ff and 8.24ff respectively.

Time limits 4.68 See 11.31ff.

1.

See Airservices Australia v Ferrier (1996) 185 CLR 483; 21 ACSR 1. For a discussion of the principle of pari passu distribution, see 1.6ff.

2.

Section 555 provides that except as otherwise provided by the Corporations Act, all debts and claims proved in a winding up rank equally and, if the property of the company is insufficient to meet them in full, they must be paid proportionately.

3.

In BP Australia Ltd v Brown (2003) 46 ACSR 677 at [92] Spigelman CJ observed that it is difficult to identify a single overriding rationale for the various kinds of transactions which are susceptible to avoidance citing A Keay, Avoidance Provisions in Insolvency Law, LBC Information Services, Sydney, 1997, Ch 3. Having said that, the policy rationale regarding unfair preferences of protecting the general body of creditors becomes plain when consideration is given to the historical development of the principle as explained below.

4.

Burns v Stapleton (1959) 102 CLR 97 at 104.

5.

BP Australia Ltd v Brown (2003) 46 ACSR 677 at [92] per Spigelman CJ.

6.

This is common to both personal bankruptcy and corporate insolvency.

7.

R M Goode, Principles of Corporate Insolvency Law, 4th ed, Sweet & Maxwell, 2011, at [13-03]. See similarly the comments of Brennan CJ in Sheahan v Carrier Air Conditioning Pty Ltd & Campbell (1997) 189 CLR 407; 147 ALR 1 at 14 where his Honour observed that the purpose of s 122(1) of the Bankruptcy Act 1966 (the predecessor to s 588FA) is to recoup the moneys of a bankrupt that have been paid preferentially in order to replenish the pool of assets which the creditors — that is, the general creditors— are entitled to share rateably.

8.

G & M Aldridge Pty Ltd v Walsh (2001) 203 CLR 662; 38 ACSR 1.

9.

Union Bank v Wolas (1991) 116 L Ed 2d 514.

10. Albeit in respect of s 122 of the Bankruptcy Act 1966; G & M Aldridge Pty Ltd v Walsh (2001) 203

CLR 662; 38 ACSR 1 at [29]. 11. G & M Aldridge Pty Ltd v Walsh (2001) 203 CLR 662; 38 ACSR 1 at [29]. The same position is true in England: see also Rubin v Eurofinance SA [2010] EWCA Civ 895 at [55] per Ward LJ. 12. Federal Commissioner of Taxation v Jaques (1956) 95 CLR 223. 13. Federal Commissioner of Taxation v Jaques (1956) 95 CLR 223 at 229–30. See also 4.7ff for a discussion of former s 95(1) of the Bankruptcy Act 1924. 14. This was made plain in the Harmer Report and the EM to the CLR Bill. See 4.19 and see also 1.39 and the EM to the CLR Bill at [1035]. 15. This is only a summary. For a more detailed exposition see the remarkable historical review by Priestley JA in Harkness v Partnership Pacific Ltd (1997) 23 ACSR 1. 16. An Act against Fraudulent Deeds, Alienations, &c 1571 (13 Eliz I c 5). Justice Allsop et al writing extra-judicially notes that the Statute of Elizabeth is considered to be the foundation of the modern law on the subject although earlier examples of legislation with similar effect can be traced back to 1376, eg the Statute of 50 Edw III c 6: Allsop et al, ‘The History of Bankruptcy and Insolvency law in England and Australia’ in Watson et al, Historical Foundations of Australian Law, Federation Press, 2013, Volume 2 at 426. See 1.6 and 1.24ff. 17. See 1.24ff. 18. PT Garuda Indonesia Ltd v Grellman (1992) 107 ALR 199 at 208–9. 19. PT Garuda Indonesia Ltd v Grellman (1992) 107 ALR 199 at 208–9. 20. Smith v Mills (The Case of Bankrupts) (1584) 2 Co Rep 25a; 76 ER 441. 21. Harkness v Partnership Pacific Ltd (1997) 23 ACSR 1 at 32. 22. See, for example, Bills v Smith (1865) 6 B & S 314 at 319; 122 ER 1211; Ex parte Griffith (1883) 23 Ch D 69 at 74; Bank of Australasia v Hall (1907) 4 CLR 1514 and see Harkness v Partnership Pacific Ltd (1997) 23 ACSR 1 at 32. 23. Harkness v Partnership Pacific Ltd (1997) 23 ACSR 1 at 33. 24. Taylor v White (1964) 110 CLR 129 at 143 per Kitto J. 25. Nelson v Nelson (1995) 184 CLR 538 at 553–4. 26. The actual expression ‘fraudulent preference’ appeared earlier. See, for example, s 82 of the Bankrupts (England) Act 1825 (6 Geo 4 c 16) where the words ‘such payment not being a fraudulent preference of such creditor’ were introduced. 27. Nelson v Nelson (1995) 184 CLR 538 at 553–4 per Deane and Gummow JJ. Lord Mansfield’s initiatives in this regard are also considered by some to be an example of judicial activism: see for example the comments of Tindal CJ in Cook v Rogers (1831) 7 Bing 438; 131 ER 169 who described the doctrine of fraudulent preference as a ‘contrivance of courts of law’ and a ‘bold doctrine’. 28. Alderson v Temple (1786) 4 Burr 2235 at 2239–40; 98 ER 165 at 167–8. See similarly Marks v Feldman (1870) LR 5 QB 275 per Baron Martin. 29. Taylor v White (1964) 110 CLR 129 at 143 per Kitto J. 30. Rust v Cooper (1777) 2 Cowp 629 at 633; 98 ER 1277 at 1279. See also Muntz v Smail (1909) 8 CLR 262 at 292. 31. Ferrier & Knight v Civil Aviation Authority (1994) 55 FCR 28; 127 ALR 472 at 486 referring to the New South Wales Full Court decision in Humphery v McMullen (1868) 7 SCR (L) 84 at 89–90. 32. Harman v Fishar (1774) 1 Cowp 117; 98 ER 998 at 1001.

33. Ferrier & Knight v Civil Aviation Authority (1994) 55 FCR 28; 127 ALR 472 at 486 referring to the New South Wales Full Court decision in Humphery v McMullen (1868) 7 SCR (L) 84 at 89–90. 34. Humphery v McMullen (1868) 7 SCR (L) 84 at 89–90. 35. Melsom v Vanpress Pty Ltd (1990) 3 ACSR 109 at 111 per Malcolm CJ, Wallace and Kennedy JJ. In Humphery v McMullen (1868) 7 SCR (L) 84 at 89–90, the New South Wales Full Court opined that Lord Mansfield’s doctrine of fraudulent preference had ‘crept into the statute law’. Curiously, the first preference provision in English law actually appeared in the context of company insolvency law in the Joint Stock Companies Act 1856: see 1.29. The evolution of the concept of preference, however, took place in the context of bankruptcy legislation. 36. This statutory definition was subsequently incorporated in s 48(1) of the Bankruptcy Act 1883 (UK). 37. Ex parte Taylor; Re Goldsmid (1886) 18 QBD 295 at 299 per Lord Esher MR. 38. Ferrier & Knight v Civil Aviation Authority (1994) 55 FCR 28; 127 ALR 472 at 486 reversed by the High Court on other grounds in Airservices Australia v Ferrier (1996) 185 CLR 483; 21 ACSR 1. 39. Ex parte Taylor; Re Goldsmid (1886) 18 QBD 295 at 299 per Lord Esher MR. See also Muntz v Smail (1909) 8 CLR 262 at 292 per Isaacs J who points out that the expression ‘with a view’ is synonymous with motive, wish or desire. 40. Muntz v Smail (1909) 8 CLR 262 at 292. 41. Sharp v Jackson [1899] AC 419 where Lord Halsbury adopted the language of Lord Esher MR in the Court of Appeal in New Prance and Garrard’s Trustee v Hunting [1897] 2 QB 19. 42. See s 239 of the Insolvency Act 1986 (UK). 43. The other Australian colonies originally followed the English position in their respective bankruptcy statutes: see, for example, s 151 of the Insolvency Act 1915 (Vic), s 107 of the Insolvency Act of 1874 (Qld), s 161 of the Insolvent Act 1886 (SA), s 46(1) of the Bankruptcy Act 1892 (WA) and s 85 of the Bankruptcy Act 1870 (Tas). 44. Humphery v McMullen (1868) 7 SCR (L) 84 at 89–90. 45. See 4.4. 46. Bank of Australasia v Harris (1861) 15 Moo PCC 97; 15 ER 429. 47. Sheldrick v Aitken (1869) 6 WW & A’B (L) 59. 48. Humphery v McMullen (1868) 7 SCR (L) 84 at 89–90. 49. Harkness v Partnership Pacific Ltd (1997) 23 ACSR 1 at 21. 50. S Richards & Co Ltd v Lloyd (1933) 49 CLR 49. 51. S Richards & Co Ltd v Lloyd (1933) 49 CLR 49 at 60. 52. For example, s 293 of the Companies Act 1961. 53. For example, s 451(1) of the various Companies Codes and subsequently by s 565 of the Corporations Law. 54. Section 588FA of the Corporations Act and other provisions in Pt 5.7B commenced operation on 23 June 1993. 55. See 4.19. 56. For a discussion of the concept of running account, see 4.57ff. 57. Richardson v Commercial Banking Co of Sydney Ltd (1952) 85 CLR 110 sometimes referred to as Price’s case.

Richardson v Commercial Banking Co of Sydney Ltd (1952) 85 CLR 110 at 126 per Dixon, Williams 58. and Fullagar JJ. 59. See 4.7 for the text of s 95(1) of the Bankruptcy Act 1924–1950. 60. Richardson v Commercial Banking Co of Sydney Ltd (1952) 85 CLR 110 at 129. 61. Richardson v Commercial Banking Co of Sydney Ltd (1952) 85 CLR 110 at 129. 62. Richardson v Commercial Banking Co of Sydney Ltd (1952) 85 CLR 110 at 130. 63. Richardson v Commercial Banking Co of Sydney Ltd (1952) 85 CLR 110 at 132. 64. Richardson v Commercial Banking Co of Sydney Ltd (1952) 85 CLR 110 at 132. 65. Richardson v Commercial Banking Co of Sydney Ltd (1952) 85 CLR 110 at 133. 66. Richardson v Commercial Banking Co of Sydney Ltd (1952) 85 CLR 110 at 136. 67. Richardson v Commercial Banking Co of Sydney Ltd (1952) 85 CLR 110 at 136. 68. Rees v Bank of New South Wales (1964) 111 CLR 210. 69. Rees v Bank of New South Wales (1964) 111 CLR 210 at 220. 70. Rees v Bank of New South Wales (1964) 111 CLR 210 at 221. 71. Rees v Bank of New South Wales (1964) 111 CLR 210 at 222. 72. Rees v Bank of New South Wales (1964) 111 CLR 210 at 223. Part 5.7B contains no provision which negatives the good faith ‘defence’ contained in s 588FG. Rather, such a defence is made out only if the various limbs of s 588FG are made out: see 8.51. 73. Queensland Bacon Pty Ltd v Rees (1966) 115 CLR 266. 74. Queensland Bacon Pty Ltd v Rees (1966) 115 CLR 266 at 282–3. 75. Airservices Australia v Ferrier (Compass Airlines case) (1996) 185 CLR 483. 76. For a detailed discussion see 4.60. 77. Airservices Australia v Ferrier (1996) 185 CLR 483; 21 ACSR 1 at 15 referring to Re Discovery Books (1972) 20 FLR 470 at 475 per Fox J: ‘[O]ne must ultimately come back to considering whether by reason of the payment, or dealing, there is less money available for the general body of creditors’. See 4.62. 78. Airservices Australia v Ferrier (Compass Airlines case) (1996) 185 CLR 483 at [10] per Dawson, Gaudron and McHugh JJ. 79. Sheahan v Carrier Air Conditioning Pty Ltd & Campbell (1997) 189 CLR 407. See also 4.25. 80. James v Commonwealth Bank of Australia (1995) 13 ACLC 1604 at 1607–8 per Young J. 81. Sheahan v Carrier Air Conditioning Pty Ltd & Campbell (1997) 189 CLR 407 at 424 per Brennan CJ. 82. G & M Aldridge Pty Ltd v Walsh (2001) 203 CLR 662; 38 ACSR 1 per Gleeson CJ, Gaudron, Gummow, Hayne and Callinan JJ. 83. G & M Aldridge Pty Ltd v Walsh (2001) 203 CLR 662; 38 ACSR 1 at [22]–[23]. 84. Richardson v Commercial Banking Co of Sydney Ltd (1952) 85 CLR 110. 85. G & M Aldridge Pty Ltd v Walsh (2001) 203 CLR 662; 38 ACSR 1 at [28]. 86. See 1.37–1.40. 87. Harmer Report at [632].

88. Harmer Report at [632]. 89. Harmer Report at [638]. The Commission also recommended removal of the ‘ordinary course of business test’ in s 122 of the Bankruptcy Act 1966 on the basis that there was uncertainty in the case law regarding this expression: at [646]. 90. EM to the CLR Bill at [1039]–[1040]. 91. EM to the CLR Bill at [1033]–[1034]. 92. EM to the CLR Bill at [1035]. See 1.17. 93. With respect the comment by the Victorian Court of Appeal in McKern v Minister Administering the Mining Act 1978 (WA) (2010) 28 VR 1; 78 ACSR 630 at [24] that there were ‘indications in the Harmer Report and Explanatory Memorandum that the new regime was intended to be a comprehensive statutory regime that avoids common law conceptions’ is not an accurate reflection of either the Harmer Report or the Explanatory Memorandum for the reasons set out in 4.21. For example, in the EM to the CLR Bill at [1042] Parliament expressly states that the introduction of s 588FA(3) was intended to incorporate the principles enunciated in Queensland Bacon Pty Ltd v Rees (1967) 115 CLR 266. 94. Transaction is defined in s 9 to mean a transaction to which the body is a party, eg (but without limitation): (a) a conveyance, transfer or other disposition by the body of property of the body; and (b) a security interest granted by the body in its property (including a security interest in the body’s PPSA retention of title property); and (c) a guarantee given by the body; and (d) a payment made by the body; and (e) an obligation incurred by the body; and (f) a release or waiver by the body; and (g) a loan to the body and includes such a transaction that has been completed or given effect to, or that has terminated. For a detailed discussion see Chapter 3. 95. Company is defined in s 9 to mean, relevantly, a company registered under the Act and includes a Pt 5.7 body. For a discussion of a Pt 5.7 body see 3.24ff. 96. Section 588FA(1)(b). 97. Section 588FA(1). 98. See Richardson v Commercial Banking Co of Sydney Ltd (1952) 85 CLR 110 at 135 per Dixon, Williams and Fullagar JJ. See also Totterdell v Nicol-Burmeister (1995) 13 ACLC 1521 per Scott J referring to M & R Jones Shop Fitting Co Pty Ltd (in liq) v National Bank of Australasia Ltd (1983) 1 ACLC 946 per Wootten J. See also Dwyer v Chicago Boot Co Pty Ltd [2005] SASC 373 at [10] referring approvingly to a passage from A Keay, McPherson’s Law of Company Liquidation, 4th ed, Thomsons Reuters Australia, 2000, p 441. 99. That is, s 95 of the Bankruptcy Act 1922–1950 and s 122 of the Bankruptcy Act 1966. 100. Harmer Report at [638]. 101. By previous regime it is meant the avoidance regime that existed prior to the introduction of Pt 5.7B on 23 June 1993. 102. See Commissioner of Taxation v Unit Trend Services Pty Ltd (2013) 297 ALR 190; [2013] HCA 16 at [47] per French CJ, Crennan, Kiefel, Gageler and Keane JJ; Commissioner of Taxation v Consolidated Media Holdings Ltd (2012) 293 ALR 257; [2012] HCA 55 at [39]; and Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355 at 381 [69] per McHugh, Gummow, Kirby and Hayne JJ; Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue (2009) 239 CLR 27 at 46–7. 103. Referring to Queensland v The Commonwealth (1977) 139 CLR 585 at 599 per Gibbs J. 104. Foots v Southern Cross Mine Management Pty Ltd (2007) 234 CLR 52; 241 ALR 32 at [64]. 105. Page v Commonwealth Life Assurance Society Ltd (1935) 36 SR (NSW) 85 at 89 cited with

approval by Windeyer J in Robert Reid Pty Ltd v Cassidy (1966) 114 CLR 558 at 576. 106. Re British Gold Fields of West Africa [1899] 2 Ch 7. 107. CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384 at 408 where the High Court observed: ‘It is well settled that at common law, apart from any reliance upon s 15AB of the Acts Interpretation Act 1901 (Cth), the court may have regard to reports of law reform bodies to ascertain the mischief which a statute is intended to cure. Moreover, the modern approach to statutory interpretation (a) insists that the context be considered in the first instance, not merely at some later stage when ambiguity might be thought to arise, and (b) uses “context” in its widest sense to include such things as the existing state of the law and the mischief which, by legitimate means such as those just mentioned, one may discern the statute was intended to remedy …’ 108. Foots v Southern Cross Mine Management Pty Ltd (2007) 234 CLR 52; 241 ALR 32 at [2]. 109. See 4.42ff for a discussion of the differing judicial views expressed regarding whether concepts that formed part of the previous law remain relevant to Pt 5.7B. For example in Sheldrake v Paltoglou [2006] QCA 52 the Queensland Court of Appeal observed that the so called doctrine of ultimate effect, very much a feature under the previous regime, had no place in Pt 5.7B. See also the comments of Gzell J in New Cap Reinsurance Corporation Ltd v All American Life Insurance Co (2004) 49 ACSR 419; [2004] NSWSC 366. 110. See, for example, V R Dye & Co v Peninsula Hotels Pty Ltd (in liq) [1999] 3 VR 201; 32 ACSR 27 at [26] per Ormiston JA; Walsh v Natra Pty Ltd (2000) 1 VR 523 at [24] per Phillips JA; Re Centaur Mining & Exploration Ltd (2008) 68 ACSR 249 at [13] per Robson J; McKern v Minister Administering the Mining Act 1978 (WA) (2010) 28 VR 1; 78 ACSR 630 at [25] (special leave refused: Minister Administering the Mining Act 1978 (WA) v McKern [2010] HCATrans 327 per French CJ and Bell J). 111. Re Lanpac International Pty Ltd (in liq) [1998] VSC 9. 112. Re Lanpac International Pty Ltd (in liq) [1998] VSC 9 at [40]. See also the comments of Black J in Re Ashington Bayswater Pty Ltd (in liq) [2013] NSWSC 1008 at [48]. 113. As explained in 4.39ff. 114. See, for example, the comments of the High Court in Octavo Investments Pty Ltd v Knight (1979) 4 ACLR 575 at 581. In Octavo the High Court held that payments made by a trustee company were preferences because any liquidator of that company would have had access to a charge over trust assets (which is available to a trustee for the purposes of enforcing its indemnity for liability) over the moneys paid for the benefit of all of the trustee’s creditors. The payments were therefore made to the prejudice of the creditors generally and accordingly attracted the operation of s 122(1) of the Bankruptcy Act 1966. 115. The Macquarie Concise Dictionary, 3rd ed, 2001, pp 471–2. 116. For example s 122 of the Bankruptcy Act 1966. 117. See, for example, Sheahan v Carrier Air Conditioning Pty Ltd & Campbell (1997) 189 CLR 407; 147 ALR 1. 118. See the discussion at 4.26. 119. Sheahan v Carrier Air Conditioning Pty Ltd & Campbell (1997) 189 CLR 407; 147 ALR 1. 120. Sheahan v Carrier Air Conditioning Pty Ltd & Campbell (1997) 189 CLR 407. See 4.8 for the text of s 122 of the Bankruptcy Act 1966. 121. Re Stevens (1929) 1 ABC 90 at 93. 122. Sheahan v Carrier Air Conditioning Pty Ltd & Campbell (1997) 189 CLR 407. Compare Merchant and Partners (Sydney) Pty Ltd v Halse (2000) 18 ACLC 254; [1999] WASCA 200.

123. Ramsay v National Australia Bank Ltd [1989] VR 59; 13 ACLR 732 per Murphy, Southwell and Phillips JJ. 124. Ramsay v National Australia Bank Ltd [1989] VR 59 at 63; 13 ACLR 732 per Murphy, Southwell and Phillips JJ. This passage was approved by the High Court in Sheahan v Carrier Air Conditioning Pty Ltd & Campbell (1997) 189 CLR 407 at 438. Compare MGT Samorr Knitting Mills Pty Ltd v Rocklea Spinning Mills Pty Ltd [2003] VSC 277 and Re Thompson Land Ltd (in liq); Walsh v Salzer Constructions Pty Ltd [1998] VSC 111 where the court in each case distinguished Ramsay. See also the decision of Hayne J in Walsh (as liq of Thompson Land Ltd) v Terranova Pty Ltd (1994) 14 ACSR 432 where a related party paid an insolvent company’s creditor with monies deposited by the insolvent company with the related party. 125. V R Dye & Co v Peninsula Hotels Pty Ltd (in liq) [1999] 3 VR 201; 32 ACSR 27 at [4]. For a more detailed discussion of the requirement of the relationship of debtor–creditor see 4.34ff. 126. V R Dye & Co v Peninsula Hotels Pty Ltd (1993) 3 VR 201 at 214 per Ormiston JA. See also Kalls Enterprises Pty Ltd (in liq) v Baloglow [2007] NSWCA 191 at [105] per Giles JA. 127. Kalls Enterprises Pty Ltd (in liq) v Baloglow [2007] NSWCA 191 at [105]. See also Lifestyle Earls Court Pty Ltd (in liq) v Mentone Mansions Pty Ltd [2006] VSC 2. 128. See also, for example the decision of Black J in Re Employ (No 96) Pty Ltd (in liq) (2013) 93 ACSR 48 where the court, confronted with a situation where chartered accountants conducted their practice through a partnership as well as through associated entities, was required to determine whether the partnership in that case was a party to the relevant transaction. 129. Re Emanuel (No 14) Pty Ltd (in liq); Macks v Blacklaw & Shadforth Pty Ltd (1997) 147 ALR 281; 24 ACSR 292. 130. Nilant v Plexipack Packaging Services Pty Ltd (1996) 21 ACSR 428; 14 ACLC 1559. For a discussion of this case see 3.38ff. 131. In reaching this conclusion R D Nicholson J followed the decision of the Full Court of the Supreme Court of Victoria in Ramsay v National Australia Bank Ltd [1989] VR 59; 13 ACLR 732 where the court rejected the proposition that ‘… a payment out of his own moneys by B to C, pursuant to a contractual obligation to discharge A’s debt to C, an obligation imposed upon B by a contract between A and B, can be said to be a payment made by A to C’. See also, for example, the decision of Austin J in Wily v Bartercard (2000) 34 ACSR 186 at [48] where his Honour observed that an arrangement between two parties which produces legal consequences under either the law of contract or the law of equitable estoppel is a ‘transaction’ for the purposes of s 588FA. 132. Re Emanuel (No 14) Pty Ltd (in liq); Macks v Blacklaw & Shadforth Pty Ltd (1997) 147 ALR 281 at 288–9. See further 3.39ff. 133. Re Burness; Denward Lane Pty Ltd (in liq) (2009) 74 ACSR 1. 134. Re Burness; Denward Lane Pty Ltd (in liq) (2009) 74 ACSR 1 at [44]–[46]. 135. Commissioner of Taxation v Kassem and Secatore (2012) 205 FCR 156; [2012] FCAFC 124. 136. Commissioner of Taxation v Kassem and Secatore (2012) 205 FCR 156; [2012] FCAFC 124 at [41]. See, for example, Andrews v ANZ Banking Group Ltd (2011) 86 ACSR 292 at [82] per Gordon J. 137. Commissioner of Taxation v Kassem and Secatore (2012) 205 FCR 156; [2012] FCAFC 124 at [62]– [63]. 138. Woodgate (as liquidator of Marketing Results Pty Ltd) v Network Associates International BV [2007] NSWSC 1260. 139. Woodgate (as liquidator of Marketing Results Pty Ltd) v Network Associates International BV [2007] NSWSC 1260 at [19]–[20]. See similarly, the decision of Austin J in Prentice v St George

Bank Ltd [2002] NSWSC 358 where his Honour distinguished Re Emanuel (No 14) Pty Ltd (in liq); Macks v Blacklaw & Shadforth Pty Ltd (1997) 147 ALR 281. 140. Tronson v White (1919) 27 CLR 344. 141. Tronson v White (1919) 27 CLR 344 at 348. 142. V R Dye & Co v Peninsula Hotels Pty Ltd [1999] 3 VR 201 at [36]; 32 ACSR 27; Sands & McDougall Wholesale Pty Ltd (in liq) v Commissioner of Taxation [1999] 1 VR 489 at [35]–[37]; Minister for Transport v Francis (2000) 35 ACSR 584 at [47]; Shirlaw v Associated Alloys Pty Ltd [2000] NSWCA 224 at [48]; Capital Finance Australia Ltd v Tolcher (2007) 64 ACSR 705; [2007] FCAFC 185 at [117] (per Gordon J, Heerey J agreeing); Burness v Supaproducts Pty Ltd (2009) 259 ALR 339; 74 ACSR 1; 27 ACLC 1381 at [28]–[31], [50]. 143. Robertson v Grigg (1932) 47 CLR 257 per Dixon J. See also V R Dye & Co v Peninsula Hotels Pty Ltd (in liq) [1999] 3 VR 201; 32 ACSR 27 at 29 per Tadgell JA. 144. Re Paine; Ex parte Read [1897] 1 QB 122; Re Blackpool Motorcar Co Ltd; Hamilton v Blackpool Motorcar Co Ltd [1901] 1 Ch 77; Spedley Securities Ltd (in liq) v Western United Ltd (1992) 7 ACSR 271. 145. See Sutherland v Liquor Administration Board [1997] 24 ACSR 176 per Young J. For a more detailed discussion of the concept of debt see 2.5ff. See also the Victorian Court of Appeal decision in Sands & McDougall Wholesale Pty Ltd (in liq) v Commissioner of Taxation [1999] 1 VR 489 at [36]. 146. Airservices Australia v Ferrier (1996) 185 CLR 483 at 517; 21 ACSR 1. 147. V R Dye & Co v Peninsula Hotels Pty Ltd (in liq) [1999] 3 VR 201; 32 ACSR 27. 148. See the discussion at 4.42. 149. V R Dye & Co v Peninsula Hotels Pty Ltd (in liq) [1999] 3 VR 201; 32 ACSR 27 at [42] per Ormiston JA, Winnecke P and Tadgell JA agreeing. 150. V R Dye & Co v Peninsula Hotels Pty Ltd (in liq) [1999] 3 VR 201; 32 ACSR 27 at [36]. See also Beveridge v Whitton [2001] NSWCA 6 per Heydon JA (with whom Mason P and Powell JA agreed) and Re Employ (No 96) Pty Ltd (in liq) (2013) 93 ACSR 48 at [50] per Black J. 151. Minister for Transport (WA) v Francis (2000) 35 ACSR 584. 152. Minister for Transport (WA) v Francis (2000) 35 ACSR 584 at [55]. 153. Section 95 of the Bankruptcy Act 1924 and s 122 of the Bankruptcy Act 1966. 154. Section 95 of the Bankruptcy Act 1924 and s 122 of the Bankruptcy Act 1966. 155. S Richards and Co Ltd v Lloyd (1933) 49 CLR 49 at 59–60, 62, 64; Matthews v Geraghty (1986) 4 ACLC 727 at 733; and Airservices Australia v Ferrier (1996) 185 CLR 483 at 501; 21 ACSR 1. 156. Airservices Australia v Ferrier (1996) 185 CLR 483 at 501; 21 ACSR 1. 157. See 4.10ff. 158. Harkness v Potts (1993) 10 ACSR 517 at 521. See also Wily v St George Partnership Banking Ltd (1999) 84 FCR 423. 159. Harkness v Potts (1993) 10 ACSR 517 at 521. This is also consistent with McLellands J’s view expressed in Spedley Securities Ltd (in liq) v Western United Ltd (in liq) (1992) 27 NSWLR 111. See also the discussion at 4.46 regarding the relevant time for determining preferential effect. 160. At 4.42ff. 161. Airservices Australia v Ferrier (1996) 185 CLR 483 at 502; 21 ACSR 1.

162. To that extent. 163. Airservices Australia v Ferrier (1996) 185 CLR 483 at 491; 21 ACSR 1 per Brennan CJ who was in the minority but the comment is plainly correct. 164. Harkness v Potts (1993) 10 ACSR 517 at 521. 165. V R Dye & Co v Peninsula Hotels Pty Ltd (in liq) [1999] 3 VR 201; 32 ACSR 27 at [27]. 166. Mann v Sangria Pty Ltd (2001) 38 ACSR 307; [2001] NSWSC 172 at [37]. 167. McKern v Minister Administering the Mining Act 1978 (WA) (2010) 28 VR 1; 78 ACSR 630 at [20]. 168. See, for example, the Queensland Court of Appeal’s comments in relation to the expression ‘if and only if’ in another statutory context in Butler Rains Menzies & Co v Devine [1994] 1 Qd R 1 at 5; 8 ACSR 579 at 583. 169. See 4.38. 170. Richardson v Commercial Banking Co of Sydney Ltd (1952) 85 CLR 110. See 4.10. 171. The full text of that paragraph is set out at 4.22. 172. That is, the regime that existed prior to the introduction of Pt 5.7B. See 4.8. 173. This is sometimes referred to as ‘the landlord’s defence’: see McKern v Minister Administering the Mining Act 1978 (WA) (2010) 28 VR 1; 78 ACSR 630. See especially Re Discovery Books (1973) 20 FLR 470 per Fox J. 174. Richardson v Commercial Banking Co of Sydney Ltd (1952) 85 CLR 110 at 132. 175. Airservices Australia v Ferrier (1996) 185 CLR 483; 21 ACSR 1 at 1. 176. Section 95 of the Bankruptcy Act 1924 and s 122 of the Bankruptcy Act 1966. 177. Re Price (No 6); Richardson v Commercial Banking Co of Sydney Ltd (1949) 15 ABC 26 (a decision which was upheld on appeal by the High Court in Richardson v Commercial Banking Co of Sydney Ltd (1952) 85 CLR 110. 178. McKern v Minister Administering the Mining Act 1978 (WA) (2010) 28 VR 1; 78 ACSR 630 at [20]. See also Re Employ (No 96) Pty Ltd (in liq) (2013) 93 ACSR 48 at [37] per Black J. 179. V R Dye & Co v Peninsula Hotels Pty Ltd (in liq) [1999] 3 VR 201; 32 ACSR 27; McKern v Minister Administering the Mining Act 1978 (WA) (2010) 28 VR 1; 78 ACSR 630; Re Employ (No 96) Pty Ltd (in liq) (2013) 93 ACSR 48 at [37] per Black J. 180. V R Dye & Co v Peninsula Hotels Pty Ltd (in liq) [1999] 3 VR 201 at [38]; 32 ACSR 27. 181. McKern v Minister Administering the Mining Act 1978 (WA) (2010) 28 VR 1; 78 ACSR 630 at [25]– [27]. See also the decision of Mandie JA (with whom Beach AJA agreed) at [114] following the earlier Victorian Court of Appeal decision in V R Dye & Co v Peninsula Hotels Pty Ltd (in liq) [1999] 3 VR 201; 32 ACSR 27. 182. Sheldrake v Paltoglou [2006] QCA 52. 183. Sheldrake v Paltoglou [2006] QCA 52 at [9]. 184. Walsh v Natra Pty Ltd (2000) 1 VR 523 at [47]. See, for example, New Cap Reinsurance Corp Ltd v All American Life Insurance Co (2004) 49 ACSR 417; [2004] NSWSC 366 at [15] where Gzell J observed: ‘It is no part of the proof of an unfair preference to establish an affectation upon the assets of the insolvent company and it is unnecessary to plead any such affectation’. 185. Despite this the High Court has referred to the ‘doctrine of ultimate effect’ (Airservices Australia v Ferrier (1996) 185 CLR 483; 21 ACSR 1 at 20) an expression which has subsequently been used by later courts: McKern v Minister Administering the Mining Act 1978 (WA) (2010) 28 VR 1; 78 ACSR

630. 186. As observed by Fox J in Re Discovery Books Pty Ltd (1973) 20 FLR 470 at 478. 187. Re Discovery Books Pty Ltd (1973) 20 FLR 470 at 478 per Fox J. 188. Re Discovery Books Pty Ltd (1973) 20 FLR 470 at 478 per Fox J. 189. Re Discovery Books Pty Ltd (1973) 20 FLR 470 at 478 per Fox J 190. As was done by Barwick CJ in Queensland Bacon Pty Ltd v Rees (1966) 115 CLR 266. 191. Re Discovery Books Pty Ltd (1973) 20 FLR 470 at 478. 192. Airservices Australia v Ferrier (1996) 185 CLR 483; 21 ACSR 1. See 4.16. 193. Airservices Australia v Ferrier (1996) 185 CLR 483; 21 ACSR 1 at 14. 194. Airservices Australia v Ferrier (1996) 185 CLR 483; 21 ACSR 1 at 15. 195. Airservices Australia v Ferrier (1996) 185 CLR 483; 21 ACSR 1 at 15. 196. See V R Dye & Co (a firm) v Peninsula Hotels Pty Ltd (in liq) (1999) 32 ACSR 27 per Winnecke P, Tadgell and Ormiston JJA; Beveridge v Whitton [2001] NSWCA 6 at [25] per Heydon JA (Mason P and Powell JA agreeing); Mann v Sangria Pty Ltd (2001) 38 ACSR 387 per Bryson J; Sutherland v Eurolinx Pty Ltd (2001) 37 ACSR 477 at [140] per Santow J; Wily v Eastern Elevators Pty Ltd (2003) 45 ACSR 261 per Dunford J; Tolcher v Capital Finance Australia Ltd (2006) 60 ACSR 584 at [25] per Tamberlin J; Sutherland v Lofthouse (2007) 64 ACSR 655 per Nettle JA (Neave and Redlich JJA agreeing); Jetaway Logistics Pty Ltd (recs and mgrs apptd)(in liq) v Deputy Commissioner of Taxation (2008) 68 ACSR 226 per Robson J (overturned on other grounds by the Victorian Court of Appeal in Jetaway Logistics Pty Ltd v Deputy Commissioner of Taxation (2009) 76 ACSR 404); McKern v Minister Administering the Mining Act 1978 (WA) (2010) 28 VR 1; 78 ACSR 630 at [5], [25]–[27] per Nettle JA and [117]–[118] per Mandie JA (Beach AJA agreeing); Commissioner of Taxation v Kassem and Secatore (2012) 205 FCR 156; [2012] FCAFC 124 at [51] per Jacobson, Siopis and Murphy JJ; Re Employ (No 96) Pty Ltd (in liq) (2013) 93 ACSR 48 at [37] per Black J. 197. McKern v Minister Administering the Mining Act 1978 (WA) (2010) 28 VR 1; 78 ACSR 630. 198. New Cap Reinsurance Corp Ltd v AE Grant (2009) 72 ACSR 638. 199. New Cap Reinsurance Corp Ltd v AE Grant (2009) 72 ACSR 638 at [47]. 200. Merrag Pty Ltd (in liq) v Khoury [2009] NSWSC 915. 201. G & M Aldridge Pty Ltd v Walsh (2001) 203 CLR 662; 38 ACSR 1. This is also the position in England, see for example the decision of Lewison J in Re Hawkes Hill Publishing Co Ltd [2007] EWHC 3073 (Ch); [2007] BCC 937 at [31]. 202. Calzaturificio Zenith Pty Ltd (in liq) v NSW Leather & Trading Co Pty Ltd [1970] VR 605 at 610. 203. Spedley Securities Ltd (in liq) v Western United Ltd (in liq) (1992) 27 NSWLR 111; 7 ACSR 271 at 274. 204. Airservices Australia v Ferrier (1996) 185 CLR 483; 21 ACSR 1. 205. Calzaturificio Zenith Pty Ltd (in liq) v NSW Leather & Trading Co Pty Ltd [1970] VR 605. 206. Re Discovery Books Pty Ltd (1972) 20 FLR 470 at 475 See footnote 35 of the High Court’s decision in Airservices Australia v Ferrier (1996) 185 CLR 483; 21 ACSR 1. See also Harkness v Potts (1993) 10 ACSR 517 at 521 per McLelland J. 207. Re RHD Power Services Pty Ltd (in liq) (1990) 3 ACSR 261 at 264. 208. Walsh v Natra (2000) 1 VR 523.

209. Walsh v Natra (2000) 1 VR 523 at [31]. 210. For a discussion of s 588FB see Chapter 5. 211. Walsh v Natra Pty Ltd (2000) 1 VR 523 at 533. 212. Walsh v Natra Pty Ltd (2000) 1 VR 523 at 542. 213. Walsh v Natra Pty Ltd (2000) 1 VR 523 at 530. 214. Walsh v Natra Pty Ltd (2000) 1 VR 523 at 530. 215. Walsh v Natra Pty Ltd (2000) 1 VR 523 at 530. See also the Full Federal Court’s comments in Re Emanuel (No 14) Pty Ltd (in liq); Macks v Blacklaw & Shadforth Pty Ltd (1997) 24 ACSR 292 at 301 where the court held that the creditor in that case had received ‘from the company’ more than it would have received if the transaction were set aside and the creditor was to prove in ‘the winding up’ of the insolvent company. In Emanuel, the Full Federal Court held that a transaction could result in a creditor ‘receiving from the company’ even if the creditor and the company were not parties to all of the component elements of the relevant transaction. 216. Williams (as liquidator of Scholz Motor Group Pty Ltd) (in liq) v Peters (2009) 72 ACSR 365. 217. Williams (as liquidator of Scholz Motor Group Pty Ltd) (in liq) v Peters (2009) 72 ACSR 365 at [47], [50]–[51]. 218. See, for example, Morrison, ‘What is the Date of Preferential Effect in Construing s 588FA of the Corporations Act?’ (2010) 18 Insolvency Law Journal 26 and Hamilton, ‘Is There Something “Plainly Wrong” with the Current Law?’ (2002) 22 Australian Insolvency Journal 18. See also Bennetts, ‘Establishing Preferential Effect Under Avoidance Powers, Corporations Law’ (1994) 12 Australian Bar Review 170, an article written before the decision in Walsh v Natra but nonetheless strongly arguing that the relevant date for determining preferential effect is the date of the transactions sought to be impugned. 219. Walsh v Natra Pty Ltd (2000) 1 VR 523 at [25]. 220. Walsh v Natra Pty Ltd (2000) 1 VR 523 at [32]. 221. Walsh v Natra Pty Ltd (2000) 1 VR 523 at [30]. See, for example, Barrett J’s approach in New Cap Reinsurance Corporation Ltd v AE Grant (2009) 72 ACSR 638 at [48]. 222. Section 553C is equivalent to s 86 of the Bankruptcy Act 1966. For a discussion of set-off in this context see Gye v McIntyre (1991) 171 CLR 609; 98 ALR 393. 223. Lister v Hooson [1908] 1 KB 174 at 176–7; Re A Debtor [1927] 1 Ch 410; Re Clements (1931) 7 ABC 255 at 268; Re Smith (1933) 6 ABC 49 at 57; Calzaturificio Zenith Pty Ltd (in liq) v NSW Leather & Trading Co Pty Ltd [1970] VR 605; Re Buchanan Enterprises Pty Ltd (1982) 7 ACLR 407 at 409. 224. See, for example, Jetaway Logistics Pty Ltd v Deputy Commissioner of Taxation (2009) 26 VR 657; 76 ACSR 404. 225. Gye v McIntyre (1991) 171 CLR 609 at 622; 98 ALR 393. 226. Gye v McIntyre (1991) 171 CLR 609 at 622; 98 ALR 393. 227. Jetaway Logistics Pty Ltd (recs and mgrs apptd) (in liq) v Deputy Commissioner of Taxation (2008) 68 ACSR 226 at [270] (overturned by the Full Federal Court in Jetaway Logistics Pty Ltd v Deputy Commissioner of Taxation (2009) 26 VR 657; 76 ACSR 404 on other grounds. 228. Jetaway Logistics Pty Ltd (recs and mgrs apptd) (in liq) v Deputy Commissioner of Taxation (2008) 68 ACSR 226. 229. Jetaway Logistics Pty Ltd v Deputy Commissioner of Taxation (2009) 26 VR 657; 76 ACSR 404 per Maxwell P, Byrne and Williams AJJA.

230. Buzzle Operations Pty Ltd (in liq) v Apple Computer Australia Pty Ltd (2011) 82 ACSR 703; [2011] NSWCA 109. 231. Buzzle Operations Pty Ltd (in liq) v Apple Computer Australia Pty Ltd (2011) 82 ACSR 703; [2011] NSWCA 109 at [277]. 232. Re ACN 007 537 000 Pty Ltd (in liq); Ex parte Parker (1997) 25 ACSR 560. 233. This decision has been criticised. See, for example, Derham, The Law of Set-Off, 3rd ed (Oxford University Press, 2003) at [13.20]. The position in England is that no set-off is available between a debt due to a ‘misfeasant’ and his or her liability to repay moneys which he or she has been ordered to pay in misfeasance proceedings. 234. See also Hall v Poolman (2007) 65 ACSR 123; [2007] NSWSC 1330 at [415]–[431] per Palmer J (set-off available in response to insolvent trading claim). 235. Section 588D of the Corporations Act provides that for the purposes of Pt 5.7B a secured debt becomes an unsecured debt to the extent that the creditor proves for the debt as an unsecured creditor. A secured debt can include an equitable mortgage or charge: see for example Roberts v Investwell Pty Ltd (in liq) (2012) 88 ACSR 689. 236. Burns v Stapleton (1959) 102 CLR 97 at 104 per Dixon CJ, Kitto and and Windeyer JJ. 237. See, for example, Re Ashington Bayswater Pty Ltd (in liq) [2013] NSWSC 1008. 238. National Australia Bank Ltd v KDS Construction Services Pty Ltd (in liq) (1987) 163 CLR 668 at 679. 239. Wily v St George Partnership Banking Ltd (1999) 84 FCR 423; 30 ACSR 204 at [23]. See also Roberts v Investwell Pty Ltd (in liq) (2012) 88 ACSR 689; [2012] NSWCA 134. 240. Robertson v Grigg (1932) 47 CLR 257 at 271. 241. Re Omnico Ltd (1976) 1 ACLR 381 at 385 per Wootten J. 242. Re Omnico Ltd (1976) 1 ACLR 381 at 385 per Wootten J. 243. Burns v Stapleton (1959) 102 CLR 97. 244. See, for example, Re Ashington Bayswater Pty Ltd (in liq) [2013] NSWSC 1008 where Black J found that the conversion of unsecured debt into secured debt by way of charge constituted an unfair preference within the meaning of s 588FA. 245. Burns v Stapleton (1959) 102 CLR 97 at 105 per Dixon CJ, Kitto and Windeyer JJ. 246. See, for example, the more specialised text of E Sykes and S Walker, The Law of Securities, 5th ed, LBC, Australia, 1993. See however Chapter 9 which contains a comprehensive discussion concerning company charges and security interests created under the recent Personal Property Securities Act 2009. 247. Bradnam’s Windows & Doors Pty Ltd v Offermans [2011] 2 Qd R 408; 83 ACSR 428. 248. Bradnam’s Windows & Doors Pty Ltd v Offermans [2011] 2 Qd R 408; 83 ACSR 428 at [11]–[13]. 249. Great Wall Resources Pty Ltd (in liq) v Davidovic Pty Ltd [2011] NSWSC 660. 250. Re Employ (No 96) Pty Ltd (in liq) (2013) 93 ACSR 48 at [43] per Black J. See also V R Dye & Co v Peninsula Hotels Pty Ltd (in liq) [1999] 3 VR 201; 32 ACSR 27 at [26]; Cash Flow Finance Pty Ltd (in liq) v Westpac Banking Corp [1999] NSWSC 671 at [507]; Sutherland v Eurolinx Pty Ltd (2001) 37 ACSR 477; Clifton v CSR Building Products Pty Ltd [2011] SASC 103 at [69]. Whether or not s 588FA(3) constitutes an exclusive code relating to running accounts is debatable as is the question of whether s 588FA constitutes a code: see 4.56. 251. EM to the CLR Bill at [1042].

252. Airservices Australia v Ferrier (1996) 185 CLR 483; 21 ACSR 1 at 17 where the High Court noted at footnote 56: ‘The term “running account” seems to come from the world of banking where it is synonymous with a current account “on which cheques are drawn and to which credits are paid, as opposed to a deposit account on which normally cheques are not drawn”: Hanson, Dictionary of Banking and Finance (1985) p 183, and see the definition of “current account” in Woelfel, The Fitzroy Dearborn Encyclopedia of Banking & Finance, 10th ed (1994), p 278, as an “open, continuing, and running account”.’ 253. Airservices Australia v Ferrier (1996) 185 CLR 483; 21 ACSR 1 at 17. See Rees v Bank of New South Wales (1964) 11 CLR 210 at 232. See also the Victorian Court of Appeal’s decision in Sutherland v Lofthouse (2007) 64 ACSR 655 at [35] per Nettle JA (Neave and Redlich JJA agreeing) and the New South Wales Court of Appeal’s decision in Panasonic Australia Pty Ltd v Wily (1997) 23 ACSR 266 at 269–73 per Sheller JA with whom Mason P and Powell JA agreed. See also Sutherland v Eurolinx Pty Ltd (2001) 37 ACSR 477 at [147] per Santow J. For an example of where the court found there was no running account see Sutherland v Liquor Administration Board (unreported, Supreme Court of New South Wales, 19 June 1997 per Young J). For a case where the court held that there was no running account between a taxpayer company and the Commissioner of Taxation see the Victorian Court of Appeal decision in Sands & McDougall Wholesale Pty Ltd (in liq) v Commissioner of Taxation [1989] 1 VR 489 at [36]. 254. Airservices Australia v Ferrier (1996) 185 CLR 483; 21 ACSR 1 at 17. 255. Airservices Australia v Ferrier (1996) 185 CLR 483; 21 ACSR 1 at 17. 256. Airservices Australia v Ferrier (1996) 185 CLR 483; 21 ACSR 1 at 17. See also Sutherland v Lofthouse (2007) 64 ACSR 655 at [35] per Nettle JA (Neave and Redlich JJA agreeing). 257. Queensland Bacon Pty Ltd v Rees (1966) 115 CLR 266 at 286; Airservices Australia v Ferrier above, CLR 492; ALR 625–6; ACSR 18 and Sutherland v Lofthouse (2007) 64 ACSR 655 at [35] per Nettle JA (Neave and Redlich JJA agreeing). 258. Richardson v Commercial Banking Co of Sydney Ltd (1952) 85 CLR 110 at 129; Re Employ (No 96) Pty Ltd (in liq) (2013) 93 ACSR 48 at [37] per Black J. 259. Queensland Bacon Pty Ltd v Rees (1966) 115 CLR 266 at 133. 260. Queensland Bacon Pty Ltd v Rees (1966) 115 CLR 266. 261. Queensland Bacon Pty Ltd v Rees (1966) 115 CLR 266 at 280. 262. Richardson v Commercial Banking Co of Sydney Ltd (1952) 85 CLR 110 at 129; Re Employ (No 96) Pty Ltd (in liq) (2013) 93 ACSR 48. See 4.10. 263. Queensland Bacon Pty Ltd v Rees (1966) 115 CLR 266 at 280 at 284. 264. Queensland Bacon Pty Ltd v Rees (1966) 115 CLR 266 at 280 at 286. 265. Queensland Bacon Pty Ltd v Rees (1966) 115 CLR 266 at 291. 266. Airservices Australia v Ferrier (1996) 185 CLR 483. 267. Airservices Australia v Ferrier (1996) 185 CLR 483 at 507; 21 ACSR 1 at 19. 268. Airservices Australia v Ferrier (1996) 185 CLR 483 at 501–2; 21 ACSR 1 at 14. 269. Airservices Australia v Ferrier (1996) 185 CLR 483 at 507; 21 ACSR 1 at 19. 270. Airservices Australia v Ferrier (1996) 185 CLR 483 at 509; 21 ACSR 1 at 20. 271. Airservices Australia v Ferrier (1996) 185 CLR 483; 21 ACSR 1 at 21. 272. Airservices Australia v Ferrier (1996) 185 CLR 483 at 509; 21 ACSR 1 at 21. 273. See, for example, V R Dye & Co v Peninsula Hotels Pty Ltd (in liq) [1999] 3 VR 201; 32 ACSR 27

at [27]–[28]; Sutherland v Lofthouse (2007) 64 ACSR 655 at [34]ff. 274. Sutherland v Lofthouse (2007) 64 ACSR 655 at [50]. 275. See Rees v Bank of New South Wales (1964) 111 CLR 210 at 221; Re Weiss; Ex parte White v John Vicars & Co Ltd [1970] ALR 654 at 661 per Gibbs J; Re Toowong Trading Pty Ltd (1988) 13 ACLR 121; Re Maran Distributors Pty Ltd (in liq) (1992) 8 ACSR 653; Sutherland v Lofthouse (2007) 64 ACSR 655 per Nettle JA, Neave and Redlich JJA agreeing. 276. Sutherland v Eurolinx Pty Ltd (2001) 37 ACSR 477 at [2] per Santow J. 277. Sutherland v Lofthouse (2007) 64 ACSR 655. 278. Sutherland v Lofthouse (2007) 64 ACSR 655 at [38]–[39]. 279. Airservices Australia v Ferrier (1996) 185 CLR 483; 21 ACSR 1 at CLR 508; ACSR 19–20. 280. See 4.57 and Sutherland v Lofthouse (2007) 64 ACSR 655 at [47]. 281. See 4.57–4.60 and Sutherland v Lofthouse (2007) 64 ACSR 655 at [46]. 282. Re Employ (No 96) Pty Ltd (in liq) (2013) 93 ACSR 48. 283. Re Employ (No 96) Pty Ltd (in liq) (2013) 93 ACSR 48 at [27]–[43]. 284. Clifton v CSR Building Products Pty Ltd [2011] SASC 103. 285. Julzar Pty Ltd v Rodgers [1999] NSWSC 199. 286. Clifton v CSR Building Products Pty Ltd [2011] SASC 103 at [84]. 287. Clifton v CSR Building Products Pty Ltd [2011] SASC 103 at [84]. See also the comments of Santow J in Sutherland v Eurolinx Pty Ltd (2001) 37 ACSR 477 at [140] and [168]. 288. Clout v Andi-Co Australia Pty Ltd (2013) 96 ACSR 512 at [66] per Mullins J. 289. Sutherland v Eurolinx Pty Ltd (2001) 37 ACSR 477 at 508. 290. Whitton v Konemann Australia Pty Ltd (2002) 43 ACSR 436. 291. At [54]. See also Modern Master Pty Ltd (in liq) v Canon Australia Pty Ltd [2007] NSWDC 245 per Hungerford DCJ at [31]; Maxsted v HP Launder Holdings Australia Pty Ltd [2006] SADC 130 at [90] per Lovell J.

[page 241]

5 Uncommercial Transactions INTRODUCTION 5.1 The statutory concept of ‘uncommercial transaction’ contained in s 588FB of the Corporations Act was introduced by Parliament1 in 1993 to rectify perceived deficiencies in the then existing law.2 Under the former s 120(1) of the Bankruptcy Act 1966 (Cth) a ‘settlement’3 in favour of a purchaser or encumbrancer was void if it was made in the absence of good faith and without valuable consideration. As part of its consideration of the avoidance of antecedent transactions,4 the Harmer Commission noted the limitation in s 120 arising from use of the word ‘settlement’. As the authors observed: The type of transaction caught by the present legislation has traditionally been regarded as one which transferred property from one person to another, with the intention that the property be retained or preserved in one form or another and enjoyed by the recipient. This sense of the word ‘settlement’ coupled with some confined legislative expression of the method by which a settlement might be effected has led to some artificiality. Some transactions, for example, gifts of money, forgiveness of debts, even gifts of furniture and other personal property, could not be avoided because the gift was not coupled with the intention that the property be retained or preserved by the recipient. … the language of the present provision is antiquated. It does not provide a clear statement of what the law seeks to avoid. It is more suited to a general law of property seeking to define circumstances regulating the enjoyment and devolution of property. For example, there are extensive references in

[page 242] the existing provision to ‘marriage settlements’ and their protection. They have little or no relevance in contemporary Australian society.5

In order to overcome the perceived problems associated with use of the word

‘settlement’ the Harmer Commission recommended removal of the word in its entirety. Rather than focus upon the method of disposition, the Harmer Commission recommended focusing upon the effect of the relevant transaction: Avoid ‘method of disposition’ approach. The Commission proposed in DP 32 (para 438) that instead of focusing on the method of disposition, the better approach was to categorise the effect or substance of the transaction which the law seeks to review namely, the depletion in value of the property of the insolvent. On that approach any transaction dealing with property of a person who subsequently becomes insolvent should be subject to review and possible avoidance if it has been made at an undervalue. This would catch the ‘gift’ and, indeed, all transactions in respect of property whereby no value or a value significantly less than the value of the property disposed of is provided in exchange by the recipient. There is nothing surprisingly new in this concept of a transaction at an undervalue. It is already the basis upon which sales of property involving a company and a person related to the company are reviewed. Recommendation. The Commission recommends that the words ‘settlement’ and ‘disposition’ be no longer used in the antecedent transaction provisions. The emphasis should be on the element of undervalue — not the method by which the property has been disposed of. Use of the term ‘transaction’, expanded in the manner recommended in the definition provision so as to include all the usual modes of transferring or disposing of property, helps to achieve this result.6

Parliament’s response to the Harmer Report recommendations 5.2 The Harmer Commission’s recommendations were, for the most part, embraced by Parliament.7 In the Explanatory Memorandum to the Corporate Law Reform Bill 1992 (EM to the CLR Bill) Parliament described the purpose of s 588FB as follows: Proposed section 588FB defines an uncommercial transaction to be a transaction which a reasonable person in the company’s circumstances would not have entered into, having regard to the benefits to the company and the detriments to the company of entering the transaction and the respective benefits to other parties and any other relevant matter. The transaction does not have to be between the company and one of

[page 243] its creditors but can be with any other party. At present, a liquidator may attempt to have a transaction set aside under section 120(1) of the Bankruptcy Act where a ‘settlement’ has been made without good faith and not for valuable consideration. The way in which this section has been phrased for the purposes of dealing with bankrupt estates involves the use of language which has not been clear in its application to companies. In particular, the element of undervalue is expressed more clearly in proposed section 588FB. The tests under proposed section 588FB for whether a transaction is uncommercial relies on the phrase ‘if … it may be expected that a reasonable person in the company’s circumstances would not have entered into the transaction’. The provision is specifically aimed at preventing companies disposing of

assets or other resources through transactions which resulted in the recipient receiving a gift or obtaining a bargain of such magnitude that it could not be explained by normal commercial practice. Where consideration is given by the other party to the transaction but the consideration is nominal or trivial or lacks “a commercial quality” then, provided it occurs within the time period set out in the proposed section 588FE, the liquidator may apply to a court to have the transaction set aside or another order made under proposed section 588FF so that the body of unsecured creditors is not prejudiced by this transaction.8

ELEMENTS OF S 588FB 5.3 An uncommercial transaction will exist if the following elements are satisfied: (a) there is a transaction of a company;9 and (b) if, and only if, it may be expected that a reasonable person in the company’s circumstances would not have entered into the transaction, having regard to the various matters set out in s 588FB(1). The various matters in s 588FB(1) to which regard is to be had are: (a) the benefits (if any) to the company of entering into the transaction;10 and (b) the detriment to the company of entering into the transaction;11 and (c) the respective benefits to other parties to the transaction of entering into it;12 and (d) any other relevant matter.13 [page 244] Section 588FB(2) provides that a transaction may be an uncommercial transaction of a company because of s 588FB(1) whether or not a creditor of the company is a party to the transaction14 and even if the transaction is given effect to, or is required to be given effect to, because of an order of an Australian court or a direction by an agency.15

‘Transaction of a company’ 5.4 The threshold requirement in s 588FB is that the dealing must be a

‘transaction of a company’. The dictionary in s 9 contains a meaning for ‘transaction’, which is broad and inclusive. The meaning of ‘transaction’, and the related concept of ‘transaction of a company’, is discussed in detail in Chapter 3. 5.5 In Kalls Enterprises Pty Ltd (in liq) v Baloglow16 Giles JA observed that the words ‘of the company’ when used in Pt 5.7B generally add something, and it follows that a dealing that is a ‘transaction’ within the meaning of the Act, but which is not a ‘transaction of a company’ as that phrase has been interpreted, will not be an ‘uncommercial transaction’ and fall within s 588FB.17 To be a transaction of a company requires more than a transaction to which the company is merely a party;18 the level of the company’s involvement must be sufficient. The key issue is whether the company is ‘so bound up in the transaction’ that it can properly be characterised as a ‘transaction of a company’, which is a question of fact and degree based on a practical and realistic assessment of each dealing forming the transaction and of the overall transaction. Composite transactions involving a collection of dealings require careful analysis, as a composite transaction may include events or actors that are not dealings by the company, or actors acting on behalf of the company, and the collection of dealings may not warrant the description [page 245] of a transaction of the company.19 Further, as Ipp JA noted in Kalls,20 a transaction may be ‘of’ more then one company or party.

‘If and only if’ 5.6 As mentioned above, a transaction is an uncommercial transaction ‘if, and only if’ it may be expected that a reasonable person in the company’s circumstances would not have entered into the transaction, having regard to the four matters set out in s 588FB(1).21 The prefatory words ‘if and only if’ suggest that the elements of s 588FB are the only way in which an uncommercial transaction can be made out.22 The inquiry is whether a reasonable person would not have entered into the transaction, not what the particular company might have done.23 The correct approach was described by Burchett, Foster and North JJ in Tosich Construction Pty Ltd (in liq) v Tosich:

What the court must do is consider each of the matters to which reference is made in s 588FB(1) and, having regard to them, reach a conclusion as to whether a reasonable person in the company’s circumstances would not have entered into the transaction.24

In Lewis (as liquidator of Doran Constructions Pty Ltd) v Doran the New South Wales Court of Appeal said that to fall within s 588FB(1) ‘… [i]t must positively appear that the reasonable person would not have entered into the transaction’.25 [page 246]

Relevant matters to be considered 5.7 While the section requires consideration of the matters identified in s 588FB(1)(a)–(d), not all of those factors will always be relevant.26 Any one or more of the factors may render the transaction as uncommercial.27 Other relevant matters include whether the transaction was negotiated and completed at arm’s length and whether those controlling the entities involved in the transaction are the same or related.28 Where the purchaser is a related entity in the corporate sense, or a relation by blood or by law in the individual sense, then the court should look at the transaction far more closely and be less inclined to excuse a sale at an undervalue because of some commercial factor.29

OBJECTIVE TEST 5.8 The test for determining whether a transaction is uncommercial is objective, having regard to the whole of the company’s circumstances.30 The words ‘it may be expected’ in s 588FB(1) emphasise the objective nature of the inquiry. As Burchett, Foster and North JJ explained in Tosich Construction Pty Ltd (in liq) v Tosich: We should add that, in the expression ‘it may be expected that a reasonable person in the company’s circumstances would not have entered into the transaction’, it is difficult to see what meaning is added by the words ‘it may be expected that’. These words can hardly qualify the reference to what a reasonable person would have done, so as to introduce a statutory norm that assumes a reasonable person doing something other than what a reasonable person would do. We think senior counsel for the appellants was probably correct when he suggested

[page 247] the draftsman’s intention was simply to emphasize the objective nature of the inquiry, not into what the particular company might have done, but into whether a reasonable person would not have entered into the transaction.31

In Welcome Homes Real Estate Pty Ltd v Ziade Investments Pty Ltd (in liq) Hodgson JA placed significance on the presence of the word ‘may’ in the prefatory words of s 588FB(1).32 5.9 In determining what the hypothetical reasonable person in the company’s circumstances would have done, consideration is given to the company’s state of knowledge, through the directing mind(s),33 which includes a ‘proper perception of the future, but without the influence of hindsight’.34 In assessing a transaction, the court will consider the totality of the business relationship between the parties, what they intended to effect, and how their intention was effected, in part or in whole, by the impugned transaction.35

PURPOSIVE APPROACH TO BE USED 5.10 The courts have adopted a purposive approach in interpreting s 588FB.36 In that regard, the purpose of s 588FB is to prevent companies from disposing of assets on terms that cannot be explained by normal commercial practice37 or where the consideration lacks a commercial [page 248] quality.38 In Demondrille Nominees Pty Ltd v Shirlaw39 the Full Court of the Federal Court referred to the purpose and object of ss 588FB and 588FC and then said: These provisions are clearly the current attempt by the legislature to balance the interests of the unsecured creditors of a company being wound up and those who would otherwise would be the beneficiaries of pre-winding up transactions entered into by the company: cf para [1034] of the explanatory memorandum which accompanied the Corporate Law Reform Bill 1992. … The purpose or object of the provisions with which we are concerned is to prevent a depletion of the assets of a company which is being wound up by, relevantly, ‘transactions at an under-value’ entered

into within a specified limited time prior to the commencement of the winding up: see explanatory memorandum, para [1014]. To construe the expression ‘uncommercial transaction’ to catch the agreement in the way in which we have done promotes the purpose or objects of the provisions to which we have referred.40

A similar statement and approach is found in Lewis v Cook41 where Austin J adopted a purposive interpretation mandated by the former s 109H of the Corporations Act. Justice Young described the approach slightly differently in McDonald v Hanselmann42 when he said that ‘the court should incline in construing the section to favour that construction which benefits the unsecured creditors in whose interest the liquidator acts’.

WHAT IS UNCOMMERCIAL? 5.11 While s 588FB(1) contains a test for determining whether a transaction will be an ‘uncommercial transaction’, the section itself offers no guidance concerning the types of conduct or transactions that will be relevantly uncommercial, apart from s 588FB(2) which provides that certain matters will not affect the characterisation of a transaction.43 [page 249] As mentioned above, the Harmer Report and the EM to the CLR Bill provide insight into the object and purpose of the provisions44 which emphasised the undesirability of transactions at an undervalue. It is now well established, however, that s 588FB is not limited to transactions at an undervalue or for inadequate consideration.45 It has been said that the categories of uncommercial transaction are not closed.46 The reach of s 588FB is enhanced by its focus on the outcomes for the company and other parties to the transaction, expressed through the legislative requirement to assess the relative benefit(s) and detriment(s) as a result of the transaction.47 5.12 In Lewis (as liquidator of Doran Constructions Pty Ltd (in liq)) v Doran Giles JA sitting in the New South Wales Court of Appeal said: Transactions at an undervalue were no doubt the primary target of the provisions, but the description of an uncommercial transaction in s 588FB(1) was not limited to such transactions. The description directed primary attention to a balancing of benefit and detriment, only in the broadest sense involving undervalue. A transaction could conceivably be one a reasonable person in the company’s

circumstances would not have entered into although for full value; or it could be one a reasonable person in the company’s circumstances would have entered into although at an undervalue, for example a forced sale to overcome temporary illiquidity. For s 588FB(1), in addition to regard to benefits and detriments to the company, regard was to be had to the benefits to the other parties to the transaction. It appears to have been contemplated that a transaction detrimental to the company but beneficial to other parties to the transaction might not unreasonably be entered into. If, for example, there were no creditors and no prospect of creditors, it may be that the controller of the company could reasonably sacrifice its interests to the interests of other parties to the transaction.48

[page 250] To similar effect is the decision of Justice Pembroke in Old Kiama Wharf Company Pty Ltd (in liq) v Betohuwisa Investments Pty Ltd where his Honour said: Any situation in which a reasonable person in the company’s circumstances would not have entered into the transaction, even if it were for full value, justifies the conclusion that it is uncommercial.49

5.13 Generally, a transaction given for full consideration will not be an uncommercial transaction. In Buzzle Operations Pty Ltd (in liq) v Apple Computer Australia Pty Ltd50 Young JA, after referring to the dicta of Giles JA in Lewis (as liquidator of Doran Constructions Pty Ltd (in liq)) v Doran,51 said that ‘the fact that the transaction is assessed as being for full value or full consideration takes the parties a fair way along the track in avoiding their transaction being termed “uncommercial”. The fact that a transaction is for full consideration will not always lead to the conclusion that it is not an uncommercial transaction’. In the same case of Buzzle for example, Hodgson JA (with whom Whealy JA agreed) found that the relevant transactions in that case were uncommercial transactions even though they had been for full value.52 In the same case, Young JA concluded that the relevant transactions were not likely to be uncommercial transactions although his Honour observed that the primary judge overstated the position in finding that full consideration renders the transaction commercial but Young JA did not consider that that necessarily required review of his decision.53 Young JA also observed that when assessing the adequacy of consideration for the purposes of s 588FB, ‘exact equivalence’ is not necessary, rather, ‘only a fair equivalence between what is given and what is received’ was required.54 [page 251]

5.14 A summary of the core principles to be applied in assessing whether a transaction is uncommercial were set out by Gordon J in Capital Finance Australia Ltd v Tolcher: (1) as the express words of s 588FB make clear, it is an objective standard to determine if a transaction is uncommercial: see also Lewis (as liquidator of Doran Constructions Pty Ltd (in liq) v Doran (2005) 54 ACSR 410 at [156] and Tosich Construction Pty Ltd (in liq) v Tosich (1997) 78 FCR 363 at 366–7; (2) four criteria are to be considered — the benefits enjoyed by the company (s 588FB(1)(a)), the detriment to the company (s 588FB(1)(b)), the respective benefits others received (s 588FB(1)(c)) and any other relevant matters (s 588FB(1)(d)); (3) the objective criteria are not considered in some vacuum but by reference to ‘the company’s circumstances’ which must include the state of knowledge of those who were the directing mind of the company, such as its controlling director or directors: Tosich Construction at 367; and (4) for a transaction to be ‘uncommercial’ it must result in ‘the recipient receiving a gift or obtaining a bargain of such magnitude that it [cannot] be explained by normal commercial practice’ or where ‘the consideration … lacks a “commercial quality”’: see Peter Pan Management Pty Ltd v Capital Finance Corp (Aust) Pty Ltd (2001) 19 ACLC 1,392 at [43]; Lewis v Cook (2000) 18 ACLC 490 at [45]–[46] and Demondrille Nominees Pty Ltd v Shirlaw (1997) 25 ACSR 535 at 548 and the explanatory memorandum, Corporate Law Reform Bill 1992 at [1044].55 A more recent summary of the general approach to s 588FB(1) is found in Campbell Street Theatre Pty Ltd (rec and mgr apptd) (in liq) v Commercial Mortgage Trade Pty Ltd where Black J observed: The purpose of the section includes preventing companies disposing of their assets or other resources through transactions that result in the recipient receiving a gift or obtaining a bargain of such commercial magnitude that it could not be explained by normal commercial practice: Skouloudis Group Pty Ltd (in liq) v Planet Enterprizes Pty Ltd (2002) 41 ACSR 369; [2002] NSWSC 239 at [14]– [15]. In Lewis (as liq of Doran Constructions Pty Ltd (in liq)) v Doran (2005) 219 ALR 555; 54 ACSR 410; [2005] NSWCA 243 at [136], where Giles JA observed that the description of an ‘uncommercial transaction’ in s 588FB(1) is ‘directed primary attention to a balancing of benefit and detriment, only in the broadest sense involving undervalue’. Whether a reasonable person in the company’s circumstances would not have entered into the transaction is determined

[page 252]

by an objective inquiry, by reference to the factors specified in s 588FB(1): Tosich Construction Pty Ltd (in liq) v Tosich above at FCR 367; Old Kiama Wharf Company (in liq) v Betohuwisa Investments Pty Ltd [2011] NSWSC 823; (2011) 85 ACSR 87 at [35]. The possibility that this section may apply to an agreement under which excessive service fees were paid has been recognised in the academic literature: see A Keay, ‘Liquidators’ Avoidance of Uncommercial Transactions’ (1996) 70 ALJ 390 at 393.56

The concept of an uncommercial transaction is not limited to transactions or dealings that are lawful or enforceable, provided it is treated as binding and has been given effect.57 5.15 The fact that a transaction is entered into when a company is insolvent ‘is not itself sufficient to make the transaction an uncommercial transaction within the meaning of s 588FB’.58

ONUS AND PROOF 5.16 The liquidator bears the onus of proof under s 588FB.59 The courts have nevertheless been prepared to find that transactions were uncommercial on the basis of an apparent departure from commercial practice, lack of commercial justification or explanation and simply lack of evidence, although the latter group of cases may be properly understood as findings based on inferences from other evidence.60 For example, in Universal Financial Group v Mortgage Elimination Services61 the finding was based on an inference concerning the primary purpose of the directions for payment in circumstances where Austin J found that the directions lacked any ‘proper commercial justification’ and no adequate rationale had been advanced to explain the redirection of funds in that case. [page 253] 5.17 In Mulherin v Bank of Western Australia Ltd; McCann v Bank of Western Australia Ltd62 the majority of the Queensland Court of Appeal referred to Demondrille Nominees63 and McDonald v Hanselmann64 and found transactions to be ‘uncommerical’ where ‘there [was] little about the subject transaction which accord[ed] with normal commercial practice’. Jerrard JA, dissenting, found that the liquidator had failed to discharge his onus, even in circumstances where the defendant’s evidence ‘did not show it was not’

uncommercial.65 Similarly, in Gibbons v Deputy Commissioner of Taxation66 Nicholas J found that payments to a related company were uncommercial because there was no evidence of any benefit to the company and that ‘no evidence established an explanation for the payments consistent with normal commercial practice’.67 In Rivarolo Holdings Pty Ltd v Casa Tua (Sales) Pty Ltd68 Windeyer J found that a transaction involving the defendant taking the assets of the company without a sufficient corresponding benefit to the company was an uncommercial transaction, in part because there was ‘no sensible explanation’ for the transaction. The case is interesting for a related reason in that a claim against the director personally failed because his position as a shareholder of the company that received the assets was too remote to be regarded as bringing him a benefit from the transaction.69

BENEFIT AND DETRIMENT 5.18 The concepts of ‘benefit’ and ‘detriment’ are integral elements of s 588FB(1) and are central to the analysis and characterisation of any transaction impugned as uncommercial. The dictionary in s 9 of the Corporations Act contains a meaning for ‘benefit’, which is ‘any benefit, whether by way of payment of cash or otherwise’. The dictionary does not, however, give a meaning for ‘detriment’, although the term has now [page 254] been interpreted in a broad way. ‘“Detriment” in s 588FB(1)(a) is not limited to a detriment that can necessarily be measured in money terms. The word detriment in the context of s 588FB refers to commercial detriment’.70 The ordinary meaning of detriment is ‘harm or damage’.71 5.19 For the purpose of determining whether a transaction is an uncommercial transaction, s 588FB(1) directs consideration of: the benefits and the detriment to the company of entering into the impugned transaction; and the respective benefits to other parties to the transaction.

The concept of benefit is also found in s 588FF(1)(c), which expressly permits the court to order a person to pay an amount that ‘fairly represents some or all of the benefits’ the person has received because of the transaction that is voidable under s 588FE.72 The nature and the interplay of benefit and detriment inherent in ss 588FB(1) and 588FF(1)(c) is well described by Young J in McDonald v Hanselmann: … there seem to be some inconsistencies in the approach of the division which need to be examined bearing in mind its object. Section 588FB focuses on the company. The prime thrust is that one takes a reasonable person in the company’s circumstances and asks whether that person would have entered into the transaction. To do this, one focuses on the benefits and detriment to the company in entering into the transaction. However, one then has to focus as well on the benefits to the other parties to the transaction. It is not completely clear why one does this as a matter of logic, but the purpose behind the division was mainly to stop transactions to related entities or to relatives. Then, if an order is to be made, under s 588FF(1)(c) one does not look to the detriment suffered by the company at all, but rather ‘some or all of the benefits’ that the purchaser has received. Why the words ‘some or all’ appear is unclear. Mr Smith submitted that they show that the court has a discretion. Although this is odd when one is really making someone atone for an

[page 255] uncommercial transaction, it may well be the case because s 588FF(1) of the Law does use the word ‘may’.73

Young J’s analysis omits a reference to the role of benefit in s 588FG(1), however it eruditely demonstrates the central role of the balancing of ‘benefit’ and ‘detriment’ in the operation of s 588FB and associated provisions. 5.20 The decision of Buzzle Operations Pty Ltd (in liq) v Apple Computer Australia Pty Ltd74 illustrates the role of benefit and detriment in the context of an uncommercial transaction. In that case a company acquired the stock and businesses of certain resellers of computer products. Each of the resellers transferred to the company stock acquired from Apple on credit. The consideration to the resellers included a deferred cash component that would be paid by the company upon the satisfaction of certain conditions, being a float of the company on the Australian Securities Exchange or other specified circumstances. Before satisfaction of any of the conditions triggering the cash payments to the resellers, the company made payments to Apple of amounts owing to Apple by the resellers, and the company treated those payments as a reduction of its debt to the resellers. The payments were attacked as uncommercial transactions. At first instance White J:

rejected the claim that the payments were uncommercial transactions,75 in part on the basis that the company suffered no detriment from the payments, and in fact benefited by the reduction of its debts to the resellers, even though those debts had not then become due and payable;76 rejected an argument by Apple that it had received no benefit from the payments in reduction of the reseller’s debts because it could have enforced securities to recover the outstanding money. Justice White said that Apple bore the onus to establish that it could have recovered the payments and, in any event, there was benefit to Apple in recovering the payments without resorting to the security;77 and [page 256] upheld Apple’s defence under s 588FG(1)(b), finding that it received the payments in good faith, and without reasonable grounds for suspecting the company’s insolvency.78 5.21 The New South Wales Court of Appeal comprising Hodgson JA, Young JA and Whealy JA dismissed the appeal by the company (because Apple had established all of the elements of a defence under s 588FG(2)). In doing so, however, it reached some conclusions that were different to those of the trial judge concerning the uncommercial transactions claim, relevantly: It was a detriment to the company to make payment to Apple on behalf of resellers, when the company had no obligation either to the resellers or to Apple to make the payment, and it was otherwise in need of cash flow for its own operations. In that context Young J said that ‘detriment’ refers to commercial detriment and is not limited to detriment that can be measured in money terms.79 In addition to the detriment to the company, the transaction had benefits to the resellers, since the payment of their debts were paid, and to Apple, which received payment without having to pursue the resellers.80 The transaction was an uncommercial transaction in circumstances where the conditions triggering the cash payments to the resellers had not occurred at the date of the payment, and did not later occur, and where the directors had not on reasonable grounds formed the view that the company had adequate cash

flow to make the payments, and could not have formed that view.81 5.22 In Skouloudis Group Pty Ltd (in liq) v Planet Enterprizes Pty Ltd,82 the liquidator failed in its attempt to set aside as uncommercial, a transaction involving the transfer of a business of a company to the wife of a director. The consideration for the transfer was the taking over [page 257] of the company’s liabilities and the entitlements owed to its employees. Windeyer J found that the transfer benefited the company because its liabilities, which the company was unable to meet, were also transferred, and the only possible detriment was if a higher price could have been obtained for the business at the time it was transferred, or if the company could have continued running the business and made a profit in the future, which was not established on the evidence. The decision needs to be treated with some caution because the result appears to have been heavily influenced by deficiencies in the evidence led by the liquidator,83 who brought the matter on quickly through the court’s duty list. Likewise in Tosich Construction Pty Ltd v Tosich,84 Lehane J refused relief in respect of a payment from a company to a director in reduction of its indebtedness to him, which the director gifted to his daughter who used it to purchase real estate. Lehane J said that the benefits and detriments of the transaction from the company’s point of view were clear; it suffered a detriment by reason of the reduction in its working capital and it obtained a benefit to the extent that its net indebtedness to the director was reduced. Lehane J also observed that he could not see why a reasonable person in the company’s circumstances would have regarded the fact that the director was to apply the proceeds of the reduction of his debt in making a gift to his daughter as particularly relevant to the question whether the company should enter into the transaction. The finding was upheld on appeal by the Full Court of the Federal Court which observed that ‘[t]he obtaining of a discharge of a legal obligation must in general be regarded as a benefit, although the value of the benefit may be affected by the circumstances’.85 5.23 By contrast, in D’Aloia v Commissioner of Taxation,86 a company made substantial payments to the Commissioner of Taxation in relation to the taxation

liabilities of a related entity. Merkel J found that while there were some benefits to the company from making the payments, they were minor compared to the amount it paid and that a reasonable person in the company’s circumstances would not have made the payments. [page 258]

FURTHER EXAMPLES OF CASES UNDER S 588FB 5.24 Circumstances where an ‘uncommercial transaction’ have been found include: a purported forgiveness of debts;87 a director forgiving a debt owed to the company without consideration.88 The court found an uncommercial transaction even though the value of the loan was questionable because of the director’s financial circumstances; an agreement requiring a company to pay a substantial upfront fee for services that did not specify the quantity or quality of services, require any particular result, and in circumstances where the principal of the entity, which was to provide the services, did not appear to have any particular qualifications to so provide, was a bargain of such magnitude that it was wholly inexplicable by normal commercial practice;89 a sole-director company refinancing the company’s mortgage finance, which was in default, and in the process requiring the company to borrow additional funds, which were lent to the sole director’s brother-in-law, who in turn paid them to the director to discharge the brother-in-law’s unsecured debt to the director, which had also been in default;90 the transfer of the businesses and lease of property of an insolvent company to an entity controlled by related parties that were not vulnerable to the creditors’ claims;91 the grant of a charge the effect of which was that the company encumbered its assets so as to convert a loan from an unsecured interest to a secured interest,

with no substantial corresponding commercial benefit to the company;92 a composite transaction that was a strategy to defeat the company’s judgment creditors, where the directors took a bill of sale over the assets of the company, to secure earlier indebtedness, and then entered a deed with the company to accept reduced amounts on the basis that they would satisfy only certain of the company’s creditors;93 [page 259] a company that made substantial payments to the Commissioner of Taxation in relation to the taxation liabilities of a related entity;94 payments to related companies where there was no evidence of the provision of any service or other benefit;95 a transfer of real estate where the company received less than the market value;96 a scheme to divert the assets and business of a company to a new entity;97 two ‘round robin’ exercises where payments were made by a company which then passed through the books of several other companies before being returned to the first company, and associated entries in the accounts, which had the effect of concealing the true level of indebtedness;98 the grant of a backdated lease of commercial premises with a consent to assignment of the lease, to facilitate the sale of the business operated from the premises so that arrears of rentals were paid out of the proceeds of the sale;99 directions for the payment of commissions that deprived a company of substantial income streams at a time when, to the knowledge of the directors, the company was facing a substantial claim in court proceedings and, separately a deed of assignment of rights and entitlement arising from litigation;100 [page 260] a lease of premises on unusual terms, including a rental significantly below prevailing market rates;101

a transfer of shares at an undervalue, where the consideration for the transfer, and its timing, had the practical effect of impeding a former trustee of a trust from exercising its right of indemnity against the assets of the trust; and102 a company entering into a charge that encumbered its assets so as to convert a loan from an unsecured interest to a secured interest, with no substantial corresponding commercial benefit.103

INSOLVENT TRANSACTIONS — S 588FC 5.25 An uncommercial transaction will be an insolvent transaction within the meaning of: s 588FC(a) if the transaction is entered into, or any act or omission for the purpose of giving effect to the transaction takes place, when the company is insolvent; or s 588FC(b) if the company becomes insolvent because of the transaction, or any act or omission giving effect to the transaction. For a more detailed discussion of s 588FC, see 8.9ff.

VOIDABLE TRANSACTIONS — S 588FE 5.26 A transaction that is an insolvent transaction within the meaning of s 588FC, and also an uncommercial transaction, is voidable under s 588FE(3) if it was entered into, or an act was done for the purpose of giving effect to it, during the two years ending on the relation-back day. It should be noted for completeness that an uncommercial transaction that is an insolvent transaction within the meaning of s 588FC would, on a strict reading of the provisions, also be voidable under s 588FE(2), although in practice there would be no reason to proceed under

[page 261] s 588FE(2). The material difference between the sections is the length of the period before the relation-back day in which the voidable transaction may occur, which is longer in s 588FE(3). 5.27 An ‘uncommercial transaction’ may also be voidable under s 588FE(2A) or (2B), which permit the avoidance of transactions of a company that was under administration, or subject to a deed of company arrangement, before a voluntary or court-ordered winding up, in certain circumstances. These provisions are discussed at 8.13ff. 5.28 Where the uncommercial transaction is an ‘insolvent transaction’, and the other party to the transaction is a related entity, the transaction is voidable under s 588FE(4) ‘if it was entered into, or an act was done giving effect to it, during the four years ending on the relation-back day’. Where the uncommercial transaction is an insolvent transaction, and the company became a party to the transaction for purpose of ‘defeating, delaying, or interfering with, the rights of any or all of its creditors on a winding up of the company’, the transaction is voidable under s 588FE(5) if it ‘was entered into, or an act was done giving effect to it, during the 10 years ending on the relation-back day’.104 For a more detailed discussion of these provisions see 8.16ff. 5.29 Where, on the application of a company’s liquidator, a court is satisfied that a transaction of the company is voidable because of s 588FE, the court may make one or more of the types of orders set out in s 588FF. A detailed discussion of the types of orders that can be made is contained in Chapter 8. Section 588FG sets out circumstances in which a court is not to make an order under s 588FF and is discussed in more detail at 8.51ff. 5.30 An example of a case where the defendant successfully established a defence under s 588FG(2) to a claim under s 588FB is Buzzle Operations [page 262] Pty Ltd (in liq) v Apple Computer Australia Pty Ltd.105 At first instance, the defendant succeeded on a defence under s 588FG(1), on the basis that it was not party to the transaction. The finding was overturned on appeal,106 however the

defendant was permitted to rely on a defence under s 588FG(2), which was not pressed at trial and that succeeded on appeal.107

1.

Corporate Law Reform Act 1992 (Cth) (CLRA). Section 588FB commenced on 23 June 1993.

2.

There was, for example, some uncertainty as to whether s 120(1) applied to companies at all. See the discussion by McLelland J in Peter Nobbs Consultancy Pty ltd (in liq) v Brambles Holdings Ltd (1987) 11 ACLR 460.

3.

See also the former s 567 of the Corporations Law that was repealed by the CLRA.

4.

Harmer Report at [628].

5.

Harmer Report at [662], [664].

6.

Harmer Report at [666]–[667].

7.

Harmer Report at [669]. The Harmer Commission recommended that a transaction that occurred at an undervalue may be avoided by the liquidator. This recommendation was adopted by the legislature.

8.

EM to the CLR Bill at [1043]–[1044].

9.

Section 588FB(1) of the Corporations Act. For a detailed discussion of what is a transaction of a company, see Chapter 3.

10. Section 588FB(1)(a). 11. Section 588FB(1)(b). 12. Section 588FB(1)(c). 13. Section 588FB(1)(d). 14. Section 588FB(2)(a). 15. Section 588FB(2)(b). 16. Kalls Enterprises Pty Ltd (in liq) v Baloglow (2007) 63 ACSR 557; [2007] NSWSC 191 at [102]; special leave refused: Baloglow v Kalls Enterprises Pty Ltd (in liq) [2008] HCATrans 132. 17. See 3.78ff for a discussion of the concept of ‘transaction of a company’ and particularly the decision of the New South Wales Court of Appeal in Kalls Enterprises Pty Ltd (in liq) v Baloglow (2007) 63 ACSR 557; [2007] NSWCA 191 at [27], [102]–[105]; special leave refused: Baloglow v Kalls Enterprises Pty Ltd (in liq) [2008] HCATrans 132; Capital Finance Australia Ltd v Tolcher (2007) 245 ALR 528; [2007] FCAFC 185 at [71]. 18. Kalls Enterprises Pty Ltd (in liq) v Baloglow (2007) 63 ACSR 557; [2007] NSWCA 191 at [102]; Capital Finance Australia Ltd v Tolcher (2007) 245 ALR 528; [2007] FCAFC 185 at [71]. 19. Kalls Enterprises Pty Ltd (in liq) v Baloglow (2007) 63 ACSR 557; [2007] NSWCA 191 at [102]– [105]; special leave refused: Baloglow v Kalls Enterprises Pty Ltd (in liq) [2008] HCATrans 132, citing the Victorian Court of Appeal decision in V R Dye & Co v Peninsula Hotels Pty Ltd (1993)150 FLR 307; 32 ACSR 27; [1999] VSCA 60 at [36]–[38]; Capital Finance Australia Limited v Tolcher (2007) 245 ALR 528; [2007] FCAFC 185 at [71]. For a discussion of composite transactions, see Chapter 3. 20. Kalls Enterprises Pty Ltd (in liq) v Baloglow (2007) 63 ACSR 557; [2007] NSWSC 191 at [212] per Ipp JA; special leave refused: Baloglow v Kalls Enterprises Pty Ltd (in liq) [2008] HCATrans 132. 21. Rafeletos v Great Wall Resources Pty Ltd (No 4) [2012] FCA 1168 at [32] per Emmett J. See 5.3.

22. See, for example, the Queensland Court of Appeal’s comments in relation to the expression ‘if and only if’ in another statutory context in Butler Rains Menzies & Co v Devine [1994] 1 Qd R 1 at 5; (1992) 8 ACSR 579 at 583. 23. Tosich Construction Pty Ltd (in liq) v Tosich (1997) 78 FCR 363 per Burchett, Foster and North JJ. 24. Tosich Construction Pty Ltd (in liq) v Tosich (1997) 78 FCR 363 at 367 per Burchett, Foster and North JJ; Capital Finance Australia Ltd v Tolcher (2007) 245 ALR 528; 64 ACSR 705; [2007] FCAFC 185 at [129]. 25. Lewis (as liquidator of Doran Constructions Pty Ltd) v Doran (2005) 219 ALR 555; 54 ACSR 410 at [157] per Giles JA, Hodgson and McColl JJA agreeing, citing Tosich Construction Pty Ltd (in liq) v Tosich (1997) 78 FCR 363 at 367 per Burchett, Foster and North JJ. See also Strazdins & Cooper (as liquidators of the Smart Company Pty Ltd (in liq)) v Tomazou & Enterprise Global Resources Pty Ltd [2010] SASC 262 at [101]–[102] per Withers J. 26. Tosich Construction Pty Ltd (in liq) v Tosich (1997) 78 FCR 363 at 367 per Burchett, Foster and North JJ. For a discussion of these matters, see 5.18ff. 27. McDonald v Hanselmann (1998) 28 ACSR 49 at 56 per Young J; 144 FLR 463 at 470; [1998] NSWSC 171; Welcome Homes Real Estate Pty Ltd & v Ziade Investments Pty Ltd (in liq) [2007] NSWCA 167 at [52]–[57] per Hodgson JA, Spigelman CJ and Santow JA agreeing. 28. McDonald v Hanselmann (1998) 28 ACSR 49 at 56; 144 FLR 463 at 470; [1998] NSWSC 171 per Young J. 29. McDonald v Hanselmann (1998) 28 ACSR 49 at 56; 144 FLR 463 at 470 per Young J; Skouloudis Group Pty Ltd (in liq) v Planet Enterprizes Pty Ltd (2002) 41 ACSR 369; [2002] NSWSC 239 at [14]–[15] per Windeyer J. 30. Capital Finance Australia Ltd v Tolcher (2007) 245 ALR 528; 64 ACSR 705 at [129] per Gordon J, Heerey J agreeing; Tosich Construction Pty Ltd (in liq) v Tosich (1997) 78 FCR 363 at 367 per Burchett, Foster and North JJ; Mulherin v Bank of Western Australia Ltd; McCann v Bank of Western Australia Ltd [2006] QCA 175 at [105] per Muir J, McMurdo P agreeing. 31. Tosich Construction Pty Ltd (in liq) v Tosich (1997) 78 FCR 363 at 366–7. 32. Welcome Homes Real Estate Pty Ltd v Ziade Investments Pty Ltd (in liq) [2007] NSWCA 167 per Hodgson JA, Spigelman CJ and Santow JA agreeing. 33. Tosich Construction Pty Ltd (in liq) v Tosich (1997) 78 FCR 363 at 367 per Burchett, Foster and North JJ. 34. Lewis (as liquidator of Doran Constructions Pty Ltd (in liq)) v Doran (2005) 219 ALR 555; 54 ACSR 410 at [159] per Giles JA, Hodgson and McColl JJA agreeing. 35. Cussen v Sultan (2009) 74 ACSR 496; [2009] NSWSC 1114 at [23] per Nicholas J, citing the Victorian Court of Appeal decision in V R Dye & Co v Peninsula Hotels Pty Ltd (in liq) [1999] 3 VR 201; 32 ACSR 27 at [40]. 36. See s 15AA of the Acts Interpretation Act 1901 (Cth). 37. Demondrille Nominees Pty Ltd v Shirlaw (1997) 25 ACSR 535 at 548 per Foster, Lindgren and Madgwick JJ; Skouloudis Group Pty Ltd (in liq) v Planet Enterprizes Pty Ltd (2002) 41 ACSR 369; [2002] NSWSC 239 per Windeyer J; McDonald v Hanselmann (1998) 28 ACSR 49 at 53 per Young J; Campbell Street Theatre Pty Ltd (rec and mgr apptd) (in liq) v Commercial Mortgage Trade Pty Ltd [2012] NSWSC 669 at [16] per Black J; Stazdins & Cooper (as liquidators of Smart Co Pty Ltd (in liq)) v Tomazou (2010) 272 LSJS 12; [2010] SASC 262 at [65] per Withers J; Kazar (in his capacity as the liquidator of Frontier Architects Pty Ltd (in liq)) (ACN 099 631 982) v Kargarian (2010) 81 ACSR 158 at [19] per Flick J.

38. Capital Finance Australia Ltd v Tolcher (2007) 245 ALR 528; 64 ACSR 705; [2007] FCAFC 185 at [129] per Gordon J, Heerey J agreeing, citing Peter Pan Management Pty Ltd v Capital Finance Corp (Aust) Pty Ltd (2001) 19 ACLC 1,392; [2001] VSC 227 at [43] per Mandie J; Lewis v Cook (2000) 18 ACLC 490; [2000] NSWSC 191 at [45]–[46] per Austin J; Demondrille Nominees Pty Ltd v Shirlaw (1997) 25 ACSR 535 at 548. 39. Demondrille Nominees Pty Ltd v Shirlaw (1997) 25 ACSR 535 per Foster, Lindgren and Madgwick JJ. 40. Demondrille Nominees Pty Ltd v Shirlaw (1997) 25 ACSR 535 at 548 per Foster, Lindgren and Madgwick JJ. 41. Lewis v Cook (2000) 18 ACLC 490; [2000] NSWSC 191 at [46]. 42. McDonald v Hanselmann (1998) 28 ACSR 49 at 52; [1998] NSWSC 171. 43. There is no precise definition at common law of what is an ‘uncommercial transaction’: Hodgson v Amcor Ltd; Amcor Ltd v Barnes (2012) 264 FLR 1; [2012] VSC 94 at [1154] per Vickery J. 44. The provisions introduced through the CLRA differed from those proposed in the Harmer Report in some respects, one being that the proposed draft legislation specified certain types of transactions that would be caught by the section. See 5.2. 45. Old Kiama Wharf Co Pty Ltd (in liq) v Betohuwisa Investments Pty Ltd (2011) 85 ACSR 87; [2011] NSWSC 823 at [33]–[34] per Pembroke J. 46. Re Employ (No 96) Pty Ltd (in liq) (2013) 93 ACSR 48; [2013] NSWSC 61 at [60] per Black J citing the judgment of Gordon J in Capital Finance Australia Ltd v Tolcher (2007) 64 ACSR 705; [2007] FCAFC 185 at [129]. The observation is curious if for no other reason than that s 588FB itself contains no categories, although the requirement for a ‘transaction’ within the meaning of the Corporations Act imports some element of categorisation. 47. Lewis (as liquidator of Doran Constructions Pty Ltd (in liq)) v Doran (2005) 219 ALR 555; 54 ACSR 410 at [136] per Giles JA. 48. Lewis (as liquidator of Doran Constructions Pty Ltd (in liq)) v Doran (2005) 219 ALR 555; 54 ACSR 410 at [136] per Giles JA, Hodgson and McColl JJA agreeing. 49. Old Kiama Wharf Company Pty Ltd (in liq) v Betohuwisa Investments Pty Ltd (2011) 85 ACSR 87; [2011] NSWSC 823 at [34] per Pembroke J, citing Lewis (as liq of Doran Constructions Pty Ltd (in liq)) v Doran (2005) 219 ALR 555; 54 ACSR 410 at [136] per Giles JA. 50. Buzzle Operations Pty Ltd (in liq) v Apple Computer Australia Pty Ltd (2011) 277 ALR 189; 82 ACSR 703 at [84] per Young AJA (Hodgson and Whealy JJA agreeing with some qualification). 51. The dicta referred to is paragraph [136] of the decision in Lewis (as liquidator of Doran Constructions Pty Ltd (in liq)) v Doran (2005) 219 ALR 555; 54 ACSR 410 which is set out at 5.12. 52. Buzzle Operations Pty Ltd (in liq) v Apple Computer Australia Pty Ltd (2011) 277 ALR 189; 82 ACSR 703 at [3]–[5] per Hodgson JA, Whealy JA agreeing.The claim under s 588FB was, however, defeated by a defence under s 588FG(2). 53. Buzzle Operations Pty Ltd (in liq) v Apple Computer Australia Pty Ltd (2011) 277 ALR 189; 82 ACSR 703 at [85]. 54. Buzzle Operations Pty Ltd (in liq) v Apple Computer Australia Pty Ltd (2011) 277 ALR 189; 82 ACSR 703; [2011] NSWCA 109 at [82] per Young JA; Re Employ (No 96) Pty Ltd (in liq) (2013) 93 ACSR 48; [2013] NSWSC 61 at [62]. 55. Capital Finance Australia Ltd v Tolcher (2007) 245 ALR 528; 64 ACSR 705; [2007] FCAFC 185 at [129]. 56. Campbell Street Theatre Pty Ltd (rec and mgr apptd) (in liq) v Commercial Mortgage Trade Pty Ltd

[2012] NSWSC 669 at [16]. 57. Sparks v Berry [2001] QSC 251 at [12]–[13] per Chesterman J. 58. Buzzle Operations Pty Ltd (in liq) v Apple Computer Australia Pty Ltd (2010) 77 ACSR 410; [2010] NSWSC 233 at [222] per White J; Re Kazar; Frontier Architects Pty Ltd (in liq) (2010) 81 ACSR 158 at [20] per Flick J. 59. Mulherin v Bank of Western Australia Ltd; McCann v Bank of Western Australia Ltd [2006] QCA 175 at [25], [27] per Jerrard JA (dissenting on other grounds). 60. WA School Bus Services Pty Ltd (in liq) v Clover [2012] WASC 381 at [8], [10] per Sanderson M. This case should be treated with caution, as it seems to proceed on the basis that there is a requirement for evidence to show it was reasonable for the company to enter the transaction, which is an inversion of the test in s 588FB(1), and a reversal of the onus. 61. Universal Financial Group v Mortgage Elimination Services (2006) 205 FLR 186; [2006] NSWSC 1132 at [120] per Austin J. 62. Mulherin v Bank of Western Australia Ltd; McCann v Bank of Western Australia Ltd [2006] QCA 175 at [108] per Muir J, McMurdo P agreeing. 63. Demondrille Nominees Pty Ltd v Shirlaw (1997) 25 ACSR 535 at 548 per Foster, Lindgren and Madgwick JJ. 64. McDonald v Hanselmann (1998) 144 FLR 463; 28 ACSR 49 at 56 per Young J. 65. Mulherin v Bank of Western Australia Ltd; McCann v Bank of Western Australia Ltd [2006] QCA 175 at [27]. 66. Gibbons v Deputy Commissioner of Taxation [2003] NSWSC 936. 67. Gibbons v Deputy Commissioner of Taxation [2003] NSWSC 936 at [69]. 68. Rivarolo Holdings Pty Ltd v Casa Tua (Sales) Pty Ltd (1997) 24 ACSR 105. 69. Rivarolo Holdings Pty Ltd v Casa Tua (Sales) Pty Ltd (1997) 24 ACSR 105 at 109. A claim against the director could now be brought under s 588FDA on the basis that the transaction was an unreasonable director-related transaction. Section 588FDA was introduced in 2003 to provide relief against transactions to, on behalf of, or for the benefit of a director or a close associate. 70. Buzzle Operations Pty Ltd (in liq) v Apple Computer Australia Pty Ltd (2011) 277 ALR 189; 82 ACSR 703; [2011] NSWCA 109 at [117] per Young JA, Hodgson and Whealy JJA agreeing. 71. Australian Concise Oxford Dictionary, 5th ed, Oxford University Press, Melbourne 2009. 72. See also s 588FG(1)(a) and (b), which set out restrictions on the power of the court to make orders under s 588FF that materially prejudice the rights or interests of a non-party to the transaction, if it is proved that they either received no benefit because of the transaction, or that any benefit was received in good faith and the person had no reasonable grounds for suspecting that the company was insolvent or would become insolvent and a reasonable person in those circumstances would have no such grounds for so suspecting. For a detailed discussion, see 8.51ff. 73. McDonald v Hanselmann (1998) 28 ACSR 49 at 53; [1998] NSWSC 171 per Young J. 74. Buzzle Operations Pty Ltd (in liq) v Apple Computer Australia Pty Ltd (2010) 77 ACSR 410; [2010] NSWSC 233. See also the decision on appeal in Buzzle Operations Pty Ltd (in liq) v Apple Computer Australia (2011) 81 NSWLR 47; 82 ACSR 703; [2011] NSWCA 109. 75. Buzzle Operations Pty Ltd (in liq) v Apple Computer Australia Pty Ltd (2010) 77 ACSR 410; [2010] NSWSC 233 at [220]. 76. Buzzle Operations Pty Ltd (in liq) v Apple Computer Australia Pty Ltd (2010) 77 ACSR 410; [2010] NSWSC 233 at [222].

77. Buzzle Operations Pty Ltd (in liq) v Apple Computer Australia Pty Ltd (2010) 77 ACSR 410; [2010] NSWSC 233 at [224] per White J. 78. Buzzle Operations Pty Ltd (in liq) v Apple Computer Australia Pty Ltd (2010) 77 ACSR 410; [2010] NSWSC 233 at [223] per White J. 79. Buzzle Operations Pty Ltd (in liq) v Apple Computer Australia Pty Ltd (2011) 81 NSWLR 47; 82 ACSR 703; [2011] NSWCA 109 at [117] per Young JA, Hodgson and Whealy JJA agreeing. 80. Buzzle Operations Pty Ltd (in liq) v Apple Computer Australia Pty Ltd (2011) 81 NSWLR 47; 82 ACSR 703; [2011] NSWCA 109 at [5] per Hodgson JA, Whealy JA agreeing. 81. Buzzle Operations Pty Ltd (in liq) v Apple Computer Australia Pty Ltd (2011) 81 NSWLR 47; 82 ACSR 703; [2011] NSWCA 109 at [4] per Hodgson JA, Whealy JA agreeing. Young JA was equivocal on this point, at [85]. See the discussion at 5.13. 82. Skouloudis Group Pty Ltd (in liq) v Planet Enterprizes Pty Ltd (2002) 41 ACSR 369; [2002] NSWSC 239. 83. Skouloudis Group Pty Ltd (in liq) v Planet Enterprizes Pty Ltd (2002) 41 ACSR 369; [2002] NSWSC 239 at [17]. 84. Tosich Construction Pty Ltd v Tosich (1997) 23 ACSR 466 per Lehane J. 85. Tosich Construction Pty Ltd (in liq) v Tosich (1997) 78 FCR 363 at 367 per Burchett, Foster and North JJ; see also Lifestyle Earls Court Pty Ltd (in liq) v Mentone Mansions Pty Ltd [2006] VSC 2 at [61] per Mandie J. 86. D’Aloia v Commissioner of Taxation (2003) 203 ALR 609; 48 ACSR 204; [2003] FCA 1336 per Merkel J. 87. Lewis v Cook (2000) 18 ACLC 490; [2000] NSWSC 191 at [47]–[64] per Austin J. 88. Sparks v Berry (2001) 19 ACLC 1430 at [15] per Chesterman J. 89. Campbell Street Theatre Pty Ltd (rec and mgr apptd) (in liq) v Commercial Mortgage Trade Pty Ltd [2012] NSWSC 669 at [21] per Black J. 90. JTS Property & Investments No 1 Pty Ltd (in liq) v Sadri [2010] NSWSC 1384 per Bryson J; contrast Hamilton v O’Malley [2004] NSWSC 615 where the claim under s 588FB failed. 91. Old Kiama Wharf Co Pty Ltd (in liq) v Betohuwisa Investments Pty Ltd (2011) 85 ACSR 87; [2011] NSWSC 823 per Pembroke J. 92. Re Ashington Bayswater Pty Ltd (in liq) [2013] NSWSC 1008 per Black J. 93. Re Solfire Pty Ltd (in liq) (1997) 25 ACSR 160 at 165 per Ambrose J. 94. D’Aloia v Commissioner of Taxation (2003) 203 ALR 609; 48 ACSR 204; [2003] FCA 1336 per Merkel J. 95. Gibbons v Deputy Commissioner of Taxation [2003] NSWSC 936 at [69] per Nicholas J. See also Duncan v Commissioner of Taxation; Re Trader Systems International Pty Ltd (in liq) (2006) 58 ACSR 555; [2006] FCA 885, affirmed Scott v Duncan [2007] FCAFC 30 per Sundberg, Emmett and Middleton JJ. 96. Merrag Pty Ltd (in liq) v Khoury [2009] NSWSC 915 at [86]–[89] per Palmer J; Van Der Velde v Ng (No 3) [2009] FCA 1653 at [37], affirmed Ng v Van Der Velde [2011] FCAFC 35 per Dowsett, Edmonds and Gordon JJ; Kitay v Strathfield Holdings Pty Ltd (1998) 27 ACSR 716. 97. Parker v Tucker (2010) 77 ACSR 525 per Gordon J. 98. Australian Securities and Investments Commission v Lanepoint Enterprises Pty Ltd (recs and mgrs apptd) (No 2) (2009) 72 ACSR 52; [2009] FCA 493 at [54]–[79]; Lanepoint Enterprises Pty Ltd

(recs and mgrs apptd) v Australian Securities and Investments Commission (2010) 78 ACSR 487; [2010] FCAFC 49 at [25]–[32]; reversed in Australian Securities and Investments Commission v Lanepoint Enterprises Pty Ltd (recs and mgrs apptd) (2011) 244 CLR 1; 83 ACSR 126; [2011] HCA 18 on points unrelated to the findings at first instance concerning the uncommercial transactions. 99. Sheldrake v Paltoglou [2006] QCA 52 per de Jersey CJ, McMurdo P and Muir J. 100. Universal Financial Group v Mortgage Elimination Services (2006) 205 FLR 186; [2006] NSWSC 1132 at [118]–[121] (direction) and at [123]–[127] (deed of assignment) per Austin J. 101. Tolhurst Druce & Emmerson v Maryvell Investments Pty Ltd [2007] VSC 271 per Dodds-Streeton J. 102. Re DJG Equities Pty Ltd [2014] NSWSC 36 per Black J. 103. Re Ashington Bayswater Pty Ltd (in liq) [2013] NSWSC 1008 per Black J. Contrast the decision in International Cat Manufacturing Pty Ltd (in liq) v Rodrick [2013] QSC 91 where the claim that the transaction was uncommercial failed because entry into the charge benefited the company, by ensuring the ongoing provision of finance to enable it to trade as a solvent company pending the receipt of the proceeds of the boats it manufactured; affirmed in International Cat Manufacturing (in liq) v Rodrick (2013) 97 ACSR 200; [2013] QCA 372 per Holmes, Gotterson and Morrison JJA. 104. Transactions that fall within s 588FE(5) are an ‘unfair preference’, or an ‘uncommercial transaction’, where it can also be shown that the transaction was entered into for the purpose of defeating, delaying or interfering with the rights of creditors. Prior to the introduction of Pt 5.7B, transactions of that kind were dealt with under s 121 of the Bankruptcy Act 1966 in its various iterations. An example of a ‘uncommercial transaction’ that also fell within s 588FE(5) is Re Solfire Pty Ltd (in liq) (1997) 25 ACSR 160 at 165. In that case Ambrose J held that a composite transaction was a strategy to defeat the company’s judgment creditors, where the directors took a bill of sale over the assets of the company, to secure earlier indebtedness, and then entered into a deed with the company to accept reduced amounts on the basis that they would satisfy only certain of the company’s creditors. 105. Buzzle Operations Pty Ltd (in liq) v Apple Computer Australia Pty Ltd (2010) 77 ACSR 410 (first instance) and Buzzle Operations Pty Ltd (in liq) v Apple Computer Australia (2011) 81 NSWLR 47; 82 ACSR 703. 106. Buzzle Operations Pty Ltd (in liq) v Apple Computer Australia (2011) 81 NSWLR 47; 82 ACSR 703 at [142]–[146] per Young JA (Hodgson and Whealy JJA agreeing). 107. Buzzle Operations Pty Ltd (in liq) v Apple Computer Australia (2011) 81 NSWLR 47; 82 ACSR 703 at [147]–[171] per Young JA (Hodgson and Whealy JJA agreeing).

[page 263]

6 Unfair Loans INTRODUCTION 6.1 The statutory concept of ‘unfair loan’1 contained in s 588FD of the Corporations Act is a relatively new one in the context of company insolvency. Created by the Corporate Law Reform Act 1992 (Cth) (CLRA) as part of the reforms that introduced Pt 5.7B,2 s 588FD is unique among the voidable transaction provisions in that the section focuses upon a single type of transaction.3 In order for a loan to a company4 to be characterised as ‘unfair’, s 588FD imposes the onerous requirement that either the interest on, or charges in relation to, the loan were ‘extortionate’ at a particular time.5 This requirement, together with the commercial reality that in many cases a company nearing insolvency will be an objectively unattractive credit risk, has meant that at the time of writing there is no published case where a transaction has been avoided under s 588FF because it has been determined to be an unfair loan within the meaning of s 588FD.6 Given the lack of case law regarding s 588FD,7 the precise scope and operation of s 588FD remains unclear. Nonetheless, assistance on these matters can be obtained from a consideration of the legislative history of [page 264] s 588FD and case law that has been decided in relation to extortionate credit provisions contained in consumer law.

HISTORY OF UNFAIR LOANS 6.2 Although the concept of an unfair loan is a relatively new one in corporate insolvency; attempts to regulate interest payable on loans, both personal and commercial, have a long history. The Roman Twelve Tables of 443 BC imposed a limit on the rate of interest of 8½%. In 88 BC, Sulla raised the usury limit to 12%. This official rate remained in place until the Code of Justinian (553AD), which set a graduated scale of maximum rates ranging from 8% on loans made by banks, to 6% on loans made by ordinary citizens, to 12% on maritime loans. The law of Justinian made some allowance for risk, and permitted higher rates of interest for certain ‘hazard’ forms of lending. The early Christian church vigorously condemned taking interest, supported by Biblical authority.8 In early modern Europe this opposition waned, tempered by pragmatic statements by John Calvin and Martin Luther to the effect that lending at interest could be open so long as the rate was not ‘oppressive’ (Calvin) or in excess of 4 or 5% (Luther). Although legal prohibitions against usury varied in their extent, they were generally actively enforced. Increasingly complex economic structures, and increasingly sophisticated avoidance techniques,9 ultimately meant that usury became harder to prosecute.

Early regulation of interest rates 6.3 In 1545, England became the first European country to establish a statutory rate of allowable interest. ‘An Act against Usurie’10 permitted lending at up to 10% interest. The preamble stated that: … where divers actes have bene made for the avoyding and punishment of usury, being a thing unlawful, and other corrupt bargaines, shifts, and chevisances, which be so obscure in terms, and so many questions growen upon ye same, and of so litle effect, that litle punishment, but rather incouragement to offenders that ensued thereby.

A storm of controversy ensued, and the Act was repealed in 1555 by a ‘Byll Against Usurie’, 5 & 6 Edw 6, c 20 (1555). That legislation absolutely prohibited lending money at interest. Interest was legalised once more by 13 Eliz, c 8 (1571). In 1624 the limit was set at 8%,11 [page 265]

in 1660 at 6%,12 and finally at 5% by the Statute of Anne in 1713.13 In 1787, the utilitarian philosopher Jeremy Bentham published a series of letters titled Defence of Usury.14 Bentham saw no reason for making interest rates an exception to the general rule of freedom of contract: One thing then is plain; that, antecedently to custom growing from convention, there can be no such thing as usury: for what rate of interest is there that can naturally be more proper than another? what natural fixed price can there be for the use of money more than for the use of any other thing? Were it not then for custom, usury, considered in a moral view, would not then so much as admit of a definition: so far from having existence, it would not so much as be conceivable: nor therefore could the law, in the definition it took upon itself to give of such offence, have so much as a guide to steer by. Custom therefore is the sole basis, which, either the moralist in his rules and precepts, or the legislator in his injunctions, can have to build upon. But what basis can be more weak or unwarrantable, as a ground for coercive measures, than custom resulting from free choice? My neighbours, being at liberty, have happened to concur among themselves in dealing at a certain rate of interest. I, who have money to lend, and Titius, who wants to borrow it of me, would be glad, the one of us to accept, the other to give, an interest somewhat higher than theirs: why is the liberty they exercise to be made a pretence for depriving me and Titius of ours?15

Money-Lenders Act 1900 (UK) 6.4 Bentham’s views were indicative of a gathering trend. England repealed all laws against usury in 1854, as they had been found to be ‘completely ineffective’.16 Between 1854 and 1900, the Court of Chancery provided the only form of control on the lending of money generally or on interest rates. In 1897, a Select Committee of the House of Commons was appointed to inquire into ‘the alleged evils attendant upon the system of money-lending by professional money-lenders, at high rates of interest, or under oppressive conditions as to repayment’. The subsequent introduction of the Money-Lenders Act 1900 (UK) (Money-Lenders Act)17 increased protections available to a debtor against a moneylender. Lord James of Hereford explained in the leading case of Samuel v Newbold: [page 266] Now the objects of the Act can easily be traced from its contents. The ends sought to be remedied by it were generally recognized. A class of men well known under the term ‘money-lenders’ were, under different names and disguises, carrying on the business of lending money. No usury laws remained to restrain them, and so in many instances they lent money at as high a rate of interest as could be wrung from the necessities of the borrower. Terms were imposed which caused default, however technical, to add to the burthen to be borne by the debtor. No sufficient legal remedy existed. The old Chancery jurisdiction was too narrow to meet the case. It

was not with remaindermen and reversioners that the modern money-lender dealt. The needy, helpless, perhaps unwary, borrower was of a different class to those who had in former days applied to the Court of Chancery for relief. It was principally in the county courts the money-lender sought to enforce his contract, and those courts had no power to grant direct relief against oppressive contracts.18

The Money-Lenders Act articulated a flexible standard of unconscionability and gave the court the power to reopen a transaction and take an account between the moneylender and the person sued on two conditions: that the interest charged in respect of the sum actually lent is excessive, or that the amounts charged for expenses, inquiries, fines, bonus, premium, renewals or any other charges, are excessive; or that the contract is harsh and unconscionable, or is otherwise such that a Court of Equity would give relief.19 6.5 Under the Money-Lenders Act, the court was empowered to reopen the transaction where proceedings were taken in any court by a moneylender20 to recover money lent and there was evidence which satisfied the court (a) that the interest charged in respect of the sum actually lent was excessive, or (b) that the amounts charged for expenses etc, were excessive, and that in either case it was shown (c) that the transaction was harsh and unconscionable or (d) that it was otherwise such that a Court of Equity would give relief.21 Having reopened the transaction, the court could take an account between the lender and the borrower, relieve the borrower from payment judged by the court to be in excess of the sum adjudged by the court to be ‘fairly due in respect of such interest, principal and charges’, and could revise or set aside in whole or in part any security given or agreement made in respect [page 267] of money lent by the moneylender. The court was also able to order the moneylender to indemnify the borrower or other person sued if the person had parted with the security.22 In Samuel v Newbold,23 the House of Lords concluded that excessive interest rates may, rather than must, render a transaction harsh and unconscionable, and thus susceptible to variation under the Act; and where interest was apparently excessive it was for the lender to prove facts that demonstrated that the contract was not in fact harsh and unconscionable. From about 1912, legislation in

similar terms to the Money-Lenders Act 1900 was enacted in the Australian states.24

Moneylenders Act 1927 (UK) 6.6 The Moneylenders Act 1927 (UK)25 was intended to enlarge the scope of the remedial powers of the court under the 1900 Act,26 and amended the 1900 Act to provide that an interest rate of 48% per annum was prima facie excessive, and the transaction harsh and unconscionable. A moneylender applying to the court to give judgment against a borrower for more than a sum equivalent to the money lent and 48% per annum interest had to satisfy the court that, in all the circumstances of the case, the rate of interest was not excessive and that the transaction was not harsh and unconscionable.27 The courts demonstrated that they were willing to uphold rates of interest in excess, sometimes well in excess, of the 48% threshold where a high rate was justified by the surrounding [page 268] circumstances.28 The Crowther Report29 concluded that any protection the Moneylenders Act 1927 gave to borrowers was ‘largely ineffective’, and recommended that the provision should be extended to the whole field of consumer credit.30 The Consumer Credit Act 1974 (UK), introduced as a result of the Crowther Report recommendations, did not include an interest rate threshold.

Modern United Kingdom legislation 6.7 The legislative antecedents of s 588FD can ultimately be traced back to the Consumer Credit Act 1974 (UK) (Consumer Credit Act). The Consumer Credit Act relates to credit and hire facilities to ‘individuals’.31 The court’s powers regarding extortionate credit bargains applied to agreements whenever made, where the debtor was an individual, even if the credit had been repaid or the agreement discharged in some way.32 The ‘extortionate credit bargains’ regime was replaced in 2007 by an ‘unfair relationships test’.33 Under the Consumer Credit Act, a credit agreement34 could be reopened, if the court thought just, on the ground that the credit bargain was extortionate:

on application for that purpose made by the debtor or a surety to an appropriate court; [page 269] at the instance of a debtor or surety in any proceedings to which the debtor and creditor were parties, being proceedings to enforce the credit agreement, any security relating to it, or any linked transaction; or at the instance of the debtor or a surety in other proceedings in any court where the amount paid or payable under the credit agreement was relevant.35

Insolvency Act 1986 (UK) — ‘extortionate credit transactions’ 6.8 In 1985, the United Kingdom Parliament enacted the Insolvency Act 1985 (UK). This Act incorporated many of the suggestions made by the Cork Committee in its 1982 Report.36 Although the Insolvency Act received Royal Assent and became law on 30 October 1985, the government of the day chose to delay implementation of all but a few of its provisions and to draw up a new Act that consolidated the provisions of the 1985 Act with the provisions of the Companies Act 1985 that were concerned with receivership and winding up. That new Act was the Insolvency Act 1986 (UK), which was brought into force from 29 December 1986. Section 244 of the Insolvency Act 1986 relates to ‘extortionate credit transactions’.37 It was introduced following recommendations made by the Cork Commission in its 1982 Report38 to repeal s 66 of the Bankruptcy Act 1914 (UK).39 Section 66 of the Bankruptcy Act 1914, which formerly applied in the winding up of insolvent companies in the United Kingdom by virtue of s 612 of the Companies Act 1985 (UK), restricted the rate of interest that could be proved for in a liquidation (in the case of a debt carrying interest) to 5% per annum, without prejudice to a creditor’s right to, if entitled, receive a higher rate of interest out of the estate if a surplus remained after the payment of all debts. The Insolvency Act 1985 repealed s 66 of the Bankruptcy Act 1914 and Parliament consequently enacted s 244 of the Insolvency Act.40 Simply removing s 66 would have allowed proofs of debt to include exorbitant rates of interest, and the court was therefore given power under s 244 to reopen credit transactions on the

application of a liquidator or an administrator (also in keeping with a recommendation of the Cork Committee).41 [page 270] 6.9 Section 244 of the Insolvency Act 1986 was modelled on the ‘extortionate credit bargains’ regime in the Consumer Credit Act 1974 (UK)42 and applies where the company is, or has been, a party to a transaction for, or involving, the provision of credit to the company.43 Under s 244, the court may make an order on the application of an administrative receiver, liquidator or provisional liquidator ‘with respect to the transaction if the transaction is or was extortionate and was entered into in the period of three years ending with the day on which the company entered administration or liquidation’ (as the case may be).44 A transaction is ‘extortionate’ for the purposes of s 244 if, having regard to the risk accepted by the person providing credit: the terms of the agreement ‘are or were such as to require grossly exorbitant payments to be made (whether unconditionally or in certain contingencies) in respect of the provision of the credit’; or the credit transaction ‘otherwise grossly contravened ordinary principles of fair dealing’.45 If an application is made under s 244, the relevant transaction is presumed to be, or to have been (as the case may be) extortionate unless the contrary is proved.46 United Kingdom liquidators may therefore wait and see what evidence the lender is able to provide, whereas Australian liquidators must provide evidence that the terms of the loan were grossly exorbitant having regard to the factors set out in s 588FD(2) of the Corporations Act.47

HARMER REPORT 6.10 In the Harmer Report, the Harmer Commission observed that companies were not generally in a position, whether in a winding up or otherwise, to take advantage of the then existing legislative provisions such as s 52A of the

(former) Trade Practices Act 1974 (Cth)48 or the [page 271] Contracts Review Act 1980 (NSW)49 which might enable an unfair credit transaction to be dealt with by the courts.50 Under s 52A(1) of the former Trade Practices Act, a corporation was, in connection with the supply or possible supply of goods or services, prohibited from engaging in conduct that was ‘unconscionable’. The concept of unconscionability is well established in equity jurisprudence and is generally taken to mean ‘not in accordance with the ordinary principles of fair dealing’.51 However, as the Harmer Commission noted, the application of s 52A was limited to goods and services of a kind ordinarily acquired for personal, domestic or household use or consumption.52

Recommendation that courts have power to reopen certain transactions 6.11 The Harmer Commission also referred to the extortionate credit transaction provisions in the Insolvency Act 1986 (UK) (Insolvency Act) mentioned above.53 In addition, the Commission noted it was ‘aware’ of cases where companies had entered into an extortionate credit transaction and the liquidators of those companies had no ready means to set the transactions aside or have their terms varied.54 Accordingly, the Harmer Commission recommended that similar provisions55 should exist in the relevant Australian insolvency legislation. Specifically, the Commission recommended that the court have power to: … re-open transactions and make various orders for relief from transactions in an insolvency where it is satisfied that the interest charged in respect of the loan or any amount charged in relation to the lending

[page 272] of the money was unfair having regard to the risk (that is, the likelihood that the creditor would be repaid and other commercial transactions which a creditor takes into account in determining whether to make a loan), the value of any security taken for the loan, the time of repayment, the amount of the loan and other relevant circumstances. The factors to which the court is directed to have regard are intended to protect creditors from actions to review loans made at an interest rate which was above the

market rate even though reasonable in the circumstances.56

The Harmer Commission noted that the recommendation should be read in light of the 1987 repeal of s 112 of the Bankruptcy Act 1966 (Cth),57 as it was reasonable to protect other creditors from claims for extortionate amounts of interest given that any amount of interest now ranked equally with other claims.58

Parliament’s response 6.12 Section 588FD was introduced by the Corporate Law Reform Act 1992 (Cth) (CLRA) into the then Corporations Law. Its purpose is to protect unsecured creditors from prejudice flowing from a company entering into a loan agreement for grossly excessive terms, rather than from terms which could simply be seen as ‘bad bargains’ with the benefit of hindsight.59 Section 588FD works to attack loans that no reasonable company in normal circumstances would enter into unless there was some underlying rationale, such as a benefit to the lender in insolvency from the sham arrangement.60 The Explanatory Memorandum to the Corporate Law Reform Bill 1992 (EM to the CLR Bill) described the new unfair loans provision as ‘quite different from anything contained in the present law and is directed to the situation where the rights of unsecured creditors as a class are prejudiced by the company’s having entered into a loan agreement for which the consideration is excessive’.61 [page 273]

ELEMENTS OF S 588FD 6.13 Section 9 provides that the expression ‘unfair loan’ has the meaning given by s 588FD. Section 588FD(1) in turn provides that a loan to a company62 is unfair if, and only if: the interest on the loan was extortionate when the loan was made, or has since become extortionate because of a variation;63 or the charges in relation to the loan were extortionate when the loan was made, or have since become extortionate because of a variation.64

A loan to a company that meets either of these criteria will be unfair even if the interest is, or charges are, no longer extortionate: s 588FD(1). 6.14 The Corporations Act does not give statutory meanings for the expressions ‘extortionate’,65 ‘loan’,66 ‘interest’ or ‘charges’. The Macquarie Dictionary gives a meaning for interest as ‘payment, or a sum paid, for the use of money borrowed (the principal), or for the forbearance of a debt; or the rate per cent per unit of time represented by such a payment’.67 The Macquarie Dictionary relevantly gives a meaning for charges as ‘a pecuniary burden, encumbrance, tax, or lien; cost; expense; liability to pay’.68 Section 588FD(2) provides that in determining whether interest on a loan or charges in relation to a loan was or became extortionate at a particular time, the court is to have regard to the following matters as at that time: (c) the risk to which the lender was exposed; and (d) the value of any security in respect of the loan; and (e) the term of the loan; and (f)

the schedule for payments of interest and charges and for repayments of principal; and

(g) the amount of the loan; and (h) any other relevant matter.

So, for example, a loan may still be an unfair loan under s 588FD even if there has been an increase in associated risks during the life of the loan [page 274] that means that the interest or charges are no longer extortionate. The list of factors in s 588FD(2) is not exhaustive.

Meaning of ‘loan’ 6.15 The expression ‘loan’ is not defined in the Corporations Act. It has been observed that the essence of a loan of money is the payment of a sum of money on condition that at some future time, an equivalent amount will be repaid.69 At general law, in determining whether a transaction is a loan, it is important to look at the substance and not merely at the form of the transaction.70 A loan ‘involves an obligation on the borrower to repay the sum borrowed’.71 In the absence of an express or implied agreement as to repayment, it will normally be implicit that

the moneys are to be repaid within a reasonable time of a request for payment, if not on demand.72 In the Full Federal Court decision of Federal Commissioner of Taxation v Radilo Enterprises Pty Ltd,73 the court cited with approval the following passage from a leading text on moneylenders: A loan of money may be defined, in general terms, as a simple contract whereby one person (the lender) pays or agrees to pay a sum of money in consideration of a promise by another person (the borrower) to repay the money upon demand or at a fixed date. The promise of repayment may or may not be coupled with a promise to pay interest on the money so paid. The essence of the transaction is the promise of repayment. As Lowe J put it in a judgment delivered on behalf of himself and Gavan Duffy and Martin JJ: ‘“Lend” in its ordinary meaning in our view imports an obligation on the borrower to repay’, (Ferguson v O’Neil [1943] VLR 30 at 32). Without that promise, for example, the old indebitatus count of money lent would not lay. Repayment is the ingredient which links together the definitions of ‘loan’ to be found in the Oxford English Dictionary, the various legal dictionaries and the text books. In essence then a loan is a payment of money to or for someone on the condition that it will be repaid.74

[page 275] Likewise, in Inland Revenue Commissioners v Rowntree and Co Ltd,75 the English Court of Appeal concluded that for there to be a transaction capable of being classified as a loan, there must be a relationship of a borrower and a lender, giving rise to a loan of money in relation to which there is a promise to repay. Not every credit transaction will be a loan.76 Credit transactions that are not loans may, however, still be susceptible to being set aside as ‘uncommercial transactions’ within the meaning of s 588FB.

Meaning of ‘extortionate’ 6.16 As mentioned at 6.14, in having regard to whether the interest on, or charges in relation to, a loan are extortionate, the court ‘is to’ have regard to the factors set out in s 588FD(2). The expression ‘is to’ suggests that the matters set out in s 588FD(2) are mandatory considerations.77 Having said that, the requirement of s 588FD(2)(h) to take into account ‘any other relevant matter’ specifically leaves open other matters the court may consider relevant as to what is extortionate. The Macquarie Dictionary defines ‘extortionate’ as ‘exorbitant; grossly

excessive’.78 Similarly, the Oxford English Dictionary (OED) defines ‘exorbitant’ as ‘deviating from the normal, prescribed or customary track’. In the legal context, ‘exorbitant’ derives from the use of ‘exorbitans’ in Roman law and is defined in the OED as ‘anomalous, not coming within the intended scope of a law’, or ‘abnormal, not in accordance with general principle’.79 The OED traces the etymology of ‘extortion’ from the Latin extortionem, a noun of action from the verb extorquere, to extort or to tear away. The OED defines ‘extortion’ as ‘the action or practice of extorting or wresting anything, esp. money, from a person by force or by undue exercise of authority or power; an instance of this; an act of illegal exaction’. The OED records the first usage of extortionate in the legal context in 1607 by the civil lawyer John Cowell in an early legal [page 276] dictionary called The Interpreter, as signifying:80 ‘an vnlawfull or violent wringing of mony or mony worth from any man’. Daniel Defoe used it in 1727 in the context of a debt, referring to ‘[p]aying an intollerable extortion of ten to fifteen or twenty per Cent. Premium’. The etymology and historical usage of ‘extortion’ give it a modern implication of taking that which should not be taken, or of taking more than one’s due.

High interest rates not prima facie extortionate 6.17 A high rate of interest does not prima facie lead to a conclusion that the loan agreement is or was extortionate, or harsh and unconscionable. Historically, courts have been prepared to uphold very high interest rates where a debtor has had bad credit, minimal collateral, or both. Whether interest is ‘excessive’ is a relative and elastic concept.81 In Earl of Aylesford v Morris,82 Lord Selborne LC noted the effect of the 1854 abolition of usury laws: The usury laws, however, proved to be an inconvenient fetter upon the liberty of commercial transactions; and the arbitrary rule of equity as to sales of reversions was an impediment to fair and reasonable, as well as to unconscionable, bargains. Both have been abolished by the Legislature; but the abolition of the usury laws still leaves the nature of the bargain capable of being a note of fraud in the estimation of this Court … These changes of the law have in no degree whatever altered the onus probandi in those cases, which, according to the language of Lord Hardwicke, raise ‘from the circumstances or conditions of the parties contracting — weakness on one side, usuary on the other, or extortion, or advantage taken of that weakness’ — a presumption of fraud. Fraud does not here mean deceit or circumvention; it means an unconscientious use of the power arising out of these circumstances and conditions; and when the relative position of the parties is such as prima facie to

raise this presumption, the transaction cannot stand unless the person claiming the benefit of it is able to repel the presumption by contrary evidence, proving it to have been in point of fact fair, just, and reasonable.

Legitimate commercial pressure will not amount to economic duress.83 In Alec Lobb (Garages) Ltd v Total Oil GB,84 Dillon LJ of the Court of Appeal (with whom Waller and Dunn LJJ agreed) considered the above passage from Earl of Aylesford v Morris and noted that: [page 277] … [t]he whole emphasis is on extortion, or undue advantage taken of weakness, an unconscientious use of the power arising out of the inequality of the parties’ circumstances, and on unconscientious use of power which the court might in certain circumstances be entitled to infer from a particular, and in these days notorious, relationship unless the contract is proved to have been in fact fair, just and reasonable. Nothing leads me to suppose that the course of the development of the law over the last 100 years has been such that the emphasis on unconscionable conduct or unconscientious use of power has gone and relief will now be granted in equity in a case such as the present if there has been unequal bargaining power, even if the stronger has not used his strength unconscionably [emphasis added].

Test for ‘extortionate’ stringent in commercial context 6.18 In a commercial transaction where interest rates were clearly disclosed at the outset, the test for ‘extortionate’ will be very stringent.85 In the English decision of White v Davenham Trust Ltd,86 Davenham had entered into two secured loan facility agreements with St George (of which Mr White had been director), making funds available for the purposes of buying, refurbishing and selling two London properties. Interest was payable at a monthly rate, which substantially increased in the event of default.87 Moneys owed were secured by charges over each property, and Mr White entered into a guarantee by which he guaranteed the payment or discharge to Davenham of ‘all moneys and liabilities’ owing or incurred from time to time by St George to Davenham. There was no dispute that the guarantee applied to sums owing under both agreements. The project ran into difficulties and Davenham subsequently had administrators appointed to St George on the basis of their security. In their report, the administrators anticipated that there would be insufficient realisations to allow for a distribution to non-preferential creditors, and stated that they were investigating the possibility of a claim under s 244 of the Insolvency Act 1986 (UK) and continuing to review the prospect of salvaging the company as a going concern. Davenham issued a statutory demand to Mr White, who applied to have

it set aside on three grounds: (a) that Davenham held security in respect of the debt; (b) that the facility agreements were extortionate credit bargains within the meaning of s 244 of the Insolvency Act; and (c) that the default interest sought by Davenham was an unenforceable penalty at common law. [page 278] The deputy registrar concluded that, in all the circumstances, it was unjust that Mr White should face bankruptcy on the facts of the case and determined that the statutory demand should be set aside on discretionary grounds.88 Davenham appealed, and Mr White contended in a respondent’s notice that the s 244 and penalty points were properly arguable defences for St George. Floyd J of the Chancery Division noted with approval the authorities in support of the principle that a creditor need not realise security, or pursue a principal debtor, before taking recovery action.89 His Honour considered that the deputy registrar had wrongly taken into account certain matters in exercising his discretion to set aside the demand, and that his Honour was therefore justified in exercising the discretion afresh.90 In re-examining the s 244 claim, Floyd J discussed the stringent nature of the test for an extortionate credit transaction. His Honour quoted with approval from Professor Goode’s work Consumer Credit Law and Practice: Nevertheless, it seems clear that the concepts of extortion and unconscionability are very similar. ‘Extortionate’ like ‘harsh and unconscionable’, signifies not merely that the terms of the bargain are stiff, or even unreasonable, but that they are so unfair as to be oppressive. This carries with it the notion of morally reprehensible conduct on the part of the creditor in taking grossly unfair advantage of the debtor’s circumstances. This element of moral culpability, in the form of abuse of power or bargaining position, is well brought out in the judgment of Sir John Donaldson MR in Wills v Wood [1984] CCLR 7: ‘It is, of course, clear that the Consumer Credit Act 1974 gives the widest possible control over credit bargains which, for a variety of reasons, might be considered “extortionate”. But the word is “extortionate” not “unwise”. The jurisdiction seems to me to contemplate at least a substantial imbalance in bargaining power of which one party has taken advantage.’91

[page 279] Mr White had contended before the registrar that as the loan agreements were extortionate credit transactions, the company accordingly had an arguable (if partial) cross claim in an action for recovery of the principal debts.92 Floyd J concluded that there was no realistic prospect of a cross claim being brought

under s 244, and the facilities could not be considered extortionate given that both parties were sophisticated lenders and borrowers.93

JUDICIAL GUIDANCE ON THE OPERATION OF S 588FD 6.19 At the time of writing, there are no cases where a transaction has been identified as an unfair loan under s 588FD, and orders made accordingly under s 588FF, although the few cases which have considered s 588FD provide some guidance as to the court’s approach in relation to the operation of the provision. In the leading case of Emanuel Management Pty Ltd v Foster’s Brewing Group Ltd,94 various related companies (the plaintiffs) sought to have certain property transactions set aside on multiple bases, including that some of the transactions were voidable transactions under Pt 5.7B. The companies argued that a substantial increase in the profit share fee when a loan made by one of the defendants to the companies (originally made in June 1987) was extended in September 1988 rendered the loan unfair. Chesterman J of the Supreme Court of Queensland flatly rejected this on the basis that the loan extension pre-dated the commencement of Pt 5.7B.95 His Honour declined to accept the plaintiffs’ submission that the words ‘made at any time’ in s 588FE(6) overrode the commencement provisions in s 588FE(1),96 concluding that the two sections could be read harmoniously and there was no time limit in s 588FE(6) other than that the loan must [page 280] have been made on or after 23 June 1993. His Honour went on to say that even if the unfair loans provision had applied, the profit fee was not ‘extortionate’ in the circumstances, given the substantial risk that the lender undertook and the benefit to group companies afforded by the extension.97 The plaintiffs also complained that the interest rate on the loan was not adjusted during the term of the loan to reflect a general decline in market interest rates. Chesterman J concluded that this issue did not come within the purview of s 588FD, as it was not an instance of the interest rate being extortionate when the loan was made or

varied.98 The plaintiffs also sought an order that the interest rates charged on certain loans entered into prior to 23 June 1993, but varied after that date, were contrary to s 588FD and therefore a transaction that was voidable under s 588FE(6). His Honour concluded that s 588FD was applicable, and noted that both the profit fee and the interest rate were subject to the same considerations, namely that the rate charged in any given set of circumstances reflects the risk to the lender, the ability of the borrower to repay the principal and to service the loan in the interim, the value of the property taken to secure the loan and the cost and difficulty involved in the possible sale of the property.99 In the circumstances, a rational observer would have expected the lender to charge a higher rate of interest than a borrower in ordinary circumstances could have obtained. His Honour observed: The considerations discussed earlier when considering the complaint about profit fees is relevant to the complaint about extortionate rates of interest. The rate charged in any given set of circumstances will reflect the risk to the lender, the ability of the borrower to repay the principal and to service the loan in the interim, the value of the property taken to secure the loan and the cost and difficulty involved in selling the property if the lender is obliged to act in that regard. The rate will also reflect competition between lenders for business and the attractiveness of a borrower to lenders. Mr MacDonald explained that EFG was a ‘lender of last resort’ (T.7087.20). It is to be expected that borrowers who have recourse to such lenders will pay a higher rate of interest than if they were wealthy customers of first class institutions. Other factors of relevance have been mentioned. Emanuel was insolvent. Its only prospect of paying interest was from the sale of land which by reason of its size and zoning

[page 281] would be attractive only to a small class of discerning buyer and much effort and time would be required to make the land saleable at all. EFG at the time was not in the business of money lending. All in all the situation was one in which the rational objective observer would expect a lender to impose a rate of interest higher than the prevailing market rate charged to borrowers in ordinary circumstances. Section 588FD uses strong words when describing when a loan will be unfair. The interest rate must be ‘extortionate’. This means it must be exorbitant, or grossly excessive, or characterised by extortion. This latter term is the act of extorting, ie wresting or wringing something from a person by violence, intimidation or abuse of authority, or obtaining money etc by force, torture, threats or the like. See the Macquarie Dictionary. It is not enough to make a loan unfair for the purposes of s 588FD that the interest rate charged is higher, even substantially higher, than the market rate for similar transactions. There must be something in the fixing of the rate which brings to mind the concepts implicit in the word I have just identified. There is a particular difficulty when there are no similar transactions and one is forced to compare interest rates charged on ‘ordinary’ transactions with those which are unusual and which by their nature would attract a higher rate of interest [emphasis added].100

6.20 In Re Octaviar (No 8),101 McMurdo J of the Supreme Court of Queensland considered an application by the Public Trustee of Queensland on behalf of certain creditors to have deeds of company arrangement for Octaviar Ltd (OL) and Octaviar Administration Pty Ltd terminated. In the course of considering the application (ultimately granted on other grounds not relevant for present purposes), the court considered an argument that the liquidators of OL would wish to investigate interest and charges payable to Fortress Credit Corporation (Australia) II Pty Ltd (Fortress) as a consequence of variations to a pre-existing loan facility, to assess whether they were extortionate so as to engage s 588FD.102 The first variation extended the time for repayment of $150 million of the $250 million due on 1 December 2007. In consideration for the extension, OL was required to pay an ‘Extension Fee’ of $1.5 million, and additional interest over the three month period of the extension totalling $4.5 million. It was submitted that the additional interest was extortionate, when considered with the extension fee and added to the interest already payable, in circumstances where the loan was secured by a charge over the whole of the assets of OA that was more than adequate to meet repayment of the loan. McMurdo J accepted that a liquidator [page 282] would wish to investigate the question, but described it as ‘not an obviously strong case’.103 In relation to the second transaction, a further $50 million was lent in February 2008. At least $7 million was retained by Fortress as fees for the further advance and variation of the original facility. His Honour accepted that a liquidator would wish to investigate whether the retained sum was an extortionate charge for the purposes of s 588FD.104 A $15 million ‘participation fee’ became the subject of a further agreement between Fortress and Octaviar Castle (Castle), dated February 2008, by which Castle agreed to pay $15 million to Fortress. The effect of this was to give Castle the right to participate in the proceeds of recoveries under the YVE facility agreement.105 McMurdo J declined to express a view on whether the $15 million would constitute an extortionate charge for the purposes of s 588FD.106 6.21 In Re Essendon Apartment Developments Pty Ltd (in liq) (No 2),107 the court considered an application by a company in liquidation for the removal of

caveats over property that it sought to sell, together with an order restraining the lodgment of further caveats. The caveators, who had purchased units in a proposed but incomplete development off the plan, submitted that the liquidator should seek to have a second mortgage over the property pre-dating their contracts set aside on the basis that it secured an unfair loan within the meaning of s 588FD. The relevant loan bore an interest rate of 60% per annum, or 72% per annum if in default. The liquidator adduced evidence demonstrating that the relevant loan was for a relatively small amount ($120,000), was for a short period (three months), at an interest rate of 5% per month, was secured by a second mortgage, and that the property secured was not developed.108 In Robson J’s view: I am not satisfied that the loan was an unfair loan under s 588FD or that the liquidator was in error in deciding that it was not. On the evidence, the lender was exposed to relatively high risk. The mortgage was a second mortgage on an undeveloped development. There is no evidence of the value of the security. The loan was for three months. The loan was only for $120,000.109

[page 283]

Cases addressing loans other than under s 588FD 6.22 Cases decided in the non-insolvency context may provide some guidance on the operation of s 588FD. So, in Takemura v National Australia Bank Limited,110 Young CJ in Eq considered a loan with a 6% per month compound interest rate which resulted in a per annum rate exceeding 72% and a second agreement with a compound interest rate of 5% per month (60% per annum). His Honour concluded that the fact that the interest rate on the loan, which was commercial in nature, may have been excessive was not a reason of itself to refuse a decree of specific performance of the agreement. In the context of a larger discussion of the history of usury law, his Honour remarked: Section 588FD deals with unfair loans to a company, if the interest on the loan was extortionate when the loan was made or has since become extortionate … Perhaps the principal way when the Court handles such a case is to consider all the circumstances and, if appropriate, to make an order reducing the amount that is due.111

His Honour equated s 588FD with the situations in which equity might intervene, and concluded that the circumstances of the instant case were not such as to require an intervention. In Guardian Mortgages v Miller,112 the applicant argued that a mortgage was unjust within the meaning of s 7 of the Contracts Review Act, or unconscionable

under one or other of ss 51AA, 51AB and 51AC of the Trade Practices Act 1974.113 Wood CJ at CL upheld a loan with an interest rate of 174% per annum, which was reducible to 144% per annum if paid promptly. His Honour noted that ‘[t]he interest rate, although admittedly high, does not constitute of itself an unconscionable or unjust provision, in a case such as the present involving a commercial loan, where there was no unconscionable pressure placed on the Defendant by the Plaintiff to enter into the transaction’.114 In Accom Finance Pty Ltd v Mars Pty Ltd,115 Windeyer J of the Supreme Court of New South Wales ultimately upheld a loan with an interest rate of 120% per annum, reducible to 60% per annum if paid on time, with unpaid monthly interest to be capitalised (compound). His Honour explained: [page 284] The final issue to address is whether Accom’s interest rates somehow made the transaction unconscionable. Many people would think that the rates of interest charged were exorbitant for first mortgage loans of say 75% of value. I agree. But bad bargains are not necessarily unconscionable bargains or illustrative of unconscionable conduct. The fact is that there have been quite a number of decisions in this Court of trial judges where interest rates similar to the ones here have been upheld or at least not resulted in any relief being given on that ground: eg, Takemura v National Australia Bank Ltd [2003] NSWSC 339; Guardian Mortgages v Miller [2004] NSWSC 1236; King Investment Solutions v Hussain [2005] NSWSC 1076. Accom’s rates, or at least the higher rates, have nothing whatsoever to do with risk, although it is possible the lower rates might have some connection in view of the speed with which the loans are made available. The higher rates really have everything to do with what the lender thinks can be got away with, which at least here seems to be a doubling of the lower rate. However, unless there is pure asset lending, the fact that the rates appear exorbitant does not in itself make them unconscionable.116

WHEN AN UNFAIR LOAN WILL BE VOIDABLE 6.23 If a company is being wound up, a loan to the company will usually be voidable under s 588FE(6) if it is an unfair loan within the meaning of s 588FD and was entered into at any time at or before the day when the winding up of the company is taken to have begun.118 This is in contrast to other voidable transaction provisions which specify various time limits in which a transaction will be susceptible to being set aside. The winding up of a company will

generally be taken to have begun or commenced on the day the winding up order is made. Part 5.6 Div 1A of the Corporations Act sets out principles for when a winding up is taken to have begun.119 If, on the application of the company’s liquidator, a court is satisfied that a transaction of the company is voidable because of one of the provisions in s 588FE, the court may make one of the orders listed in s 588FF(1).120 [page 285]

Liquidators may apply for relevant orders 6.24 Under s 588FF, the liquidator may apply to the court121 for relevant orders, such as an order releasing the company wholly or partly from the debt owed under the loan, or from any security provided under the loan.122 In practical terms, it is likely that the court will need to make more than one order — for example, an order compelling the lender to repay some or all of the moneys paid under the loan (s 588FF(1)(a)), and a further order releasing the company from part or all of any debt incurred (s 588FF(1)(e)). In pursuing the statutory cause of action under s 588FF, the liquidator is not seeking any kind of contractual relief such as rectification with respect to the original loan agreements.123 As a practical matter, in making a claim under s 588FD, the applicant must plead material facts that indicate why a rate of interest is alleged to be extortionate, and a bald assertion of a ‘reasonable’ rate of interest is not sufficient.124

Defences under s 588FG 6.25 A court may not make an order under s 588FF that materially prejudices a right or interest of a person who has established a defence under s 588FG. Section 588FG(1) protects a person who was not a party to the transaction, and s 588FG(2) protects a person who was a party to the relevant transaction.125 A defendant lender is not likely to be able to establish that they were not a party to a transaction, and so receive the protection of s 588FG(1). However, an assignee of the debt that takes the debt in good faith without reasonable grounds for suspecting that the company was insolvent, or would become so (where a

reasonable person would have had no such grounds), would arguably be able to establish a defence under s 588FG(1) to an unfair loan claim. Section 588FG(2) provides that a court may not make an order under s 588FF materially prejudicing a right or interest of a person that was a party to a transaction if it is proved that (a) the person became a party to the transaction in good faith; and (b) that at the time when the person became such a party, the person had no reasonable grounds [page 286] for suspecting that the company was or would become insolvent, and a reasonable person would also not have had grounds for so suspecting; and (c) that the person has provided valuable consideration under the transaction or changed his or her position in reliance on the transaction. The wording of s 588FG(2) expressly excludes both unfair loans and unreasonable director-related transactions126 from the protection of this good faith defence. For a more detailed discussion of s 588FG, see 8.51ff.

1.

Section 9 of the Corporations Act provides that ‘unfair loans’ has the meaning given by s 588FD.

2.

See 1.45.

3.

The expression ‘transaction’ contains a ‘definition’ in s 9 of the Act although the so-called definition is more akin to a list of examples. For a more detailed discussion of transaction, see Chapter 3.

4.

Company is defined in s 9 to mean, relevantly, a company registered under the Act and includes a Pt 5.7 body. For a discussion of Pt 5.7 body, see 3.24ff.

5.

Section 588FD(1).

6.

Section 588FE(6) provides that a transaction of a company is voidable if it is an unfair loan to the company made at any time on or before the day the winding up began. See 6.23.

7.

The position is the same in the United Kingdom regarding s 244 of the Insolvency Act 1986 (UK). See R Parry et al, Transaction Avoidance in Insolvencies, Oxford University Press, Oxford, 2011, at [6.08] where it is noted that there is no reported decision regarding s 244.

8.

See, for example, Exodus 22:25 and Leviticus 25:35–37. The New Testament is rather more equivocal: Luke 19:23, Matthew 25:27.

9.

‘[U]surious contracts, which are so many that one can hardly understand them’: ‘The Mirror of True Penitence’, Fra Jacopo Passavanti (1302–1357).

10. 37 H viii c 9 (1545). 11. ‘Act Against Usury’, 21 Jac I, c 17 (1624). 12. ‘Act Against Excessive Usury’, 12 Car 2, c 13 (1660).

13. ‘Act to Reduce Rate of Interest’, 13 Anne, c 15 (1713). This statute would later form the basis of American anti-usury statutes. 14. J Bentham, Defence of Usury: Shewing the Impolicy of the Present Legal Restraints on Pecuniary Bargains in a Series of Letters to a Friend, Payne and Foss, London, 1787. 15. J Bentham, Defence of Usury at [II.4]. 16. Usury Laws Repeal Act 1854, 17 & 18 Vic, c 90; Takemura v National Australia Bank Ltd (2003) 11 BPR 21,185; [2003] NSWSC 339 at [19] per Young CJ in Eq. 17. 63 & 64 Vic, c 51. 18. Samuel v Newbold [1906] AC 461 at 471. 19. Section 1(1) of the Money-Lenders Act. 20. A ‘moneylender’ was defined in s 6 of the Money-Lenders Act, and did not include a person whose principal business was not the lending of money. 21. Section 1 of the Money-Lenders Act. 22. Section 1, Money-Lenders Act. 23. See Lending of Money Act 1915 (Tas) s 2(1)(a)–(c); Moneylenders Act 1912 (WA) s 4(1); Moneylenders Act 1958 (Vic) s 28(1); Moneylending Act 1941 (NSW) s 30; Moneylenders Act 1916 (Qld) s 4(1). State moneylending legislation was generally repealed and replaced by the consumer credit legislation of the 1970s and 1980s — for example, the Credit Act 1984 (Vic) repealed the Moneylenders Act 1958 (Vic). 24. Samuel v Newbold [1906] AC 461 at 473; [1904–7] All ER Rep 693. 25. 17 & 18 Geo 5, c 21, s 10. 26. Mills Conduit Investments Ltd v Leslie & Denholm [1932] 1 KB 233 at 238 per Lord Hanworth MR, Scrutton, Lawrence, Greer, Slesser and Romer LJJ agreeing (also refusing an appeal against an order for judgment by consent on the basis that the interest claimed of 200% exceeded the threshold). 27. Parkfield Trust Ltd v Dent [1931] 2 KB 579 at 581 per Swift J; Mills Conduit Investments Ltd v Leslie & Denholm [1932] 1 KB 233 at 238. 28. See Reading Trust Ltd v Spero [1930] 1 KB 492 (60% and 80% per annum interest rates approved where borrower was a businessman who could give no security other than promissory notes, had poor credit and was already in debt); Parkfield Trust Ltd v Dent [1931] 2 KB 579 (160% per annum high but not excessive in the circumstances); Parkfield Trust Ltd v Portman (1937) 81 Sol LJ 687 (177% per annum interest rate approved where loan secured by speculative reversion in an insurance company loan); Mills Conduit Investments Ltd v Tattersall [1940] 1 All ER 281; 56 TLR 209 at 210 per Du Parcq LJ (120% per annum interest rate approved for a loan to a borrower who provided no income information and secured the loan with a postdated cheque). 29. Consumer Credit, Cmnd 4596, Report of the Committee, Lord Crowther, 1971 (Crowther Report). 30. Crowther Report, ss 6.6.3–6.64. 31. Before 2008, the financial limit of the Consumer Credit Act was £25,000 (see former s 8(2)). The Act now applies to individuals regardless of the amount at issue. An ‘individual’ for the purposes of the Act is now defined as a natural person, an unincorporated association, or a partnership comprising three partners or fewer: s 189(1). 32. See, for example, Davies v Directloans Ltd [1986] 1 WLR 823. 33. The change was recommended by the Department of Trade and Industry in its 2003 White Paper ‘Fair, Clear and Competitive: The Consumer Credit Market in the 21st Century’.

‘Credit’ included a cash loan, and any other form of financial accommodation: s 9(1). ‘Credit 34. agreement’, for the purposes of ss 137–140, meant ‘any agreement between an individual (the “debtor”) and any other person (the “creditor”) by which the creditor provides the debtor with credit of any amount’. 35. Section 139(1) of the Consumer Credit Act. 36. Report of the Review Committee on Insolvency Law and Practice, Cmnd 8558, 1982 (Cork Report). 37. Section 343 of the Consumer Credit Act is the analogous provision in bankruptcy. 38. Report of the Review Committee on Insolvency Law and Practice, Cmnd 8558, 1982 (Cork Report). 39. 4 & 5 Geo 5 Ch 59. 40. See Cork Report at [1381]. 41. Cork Report at [1381]. See also s 189 of the Insolvency Act 1986, which provides that interest is only payable on debts proved in a winding up (including any portion of that debt which is itself interest on the remainder) if a surplus remains after payment of all debts proved in the winding up. The interest is payable on the debts in respect of the periods for which they have been outstanding since the company went into liquidation: s 189(2). 42. Lord Lucas of Chilworth, HL Deb 07 February 1985 Vol 459 c 1220. See also Finnerty v Clark [2011] EWCA Civ 858 at [10] per Mummery LJ. 43. Section 244(1) of the Insolvency Act 1986 (UK). 44. Note that the time is reckoned from the date the company ‘went into liquidation’, in the case of a liquidation, and not from the commencement of the winding up. 45. Section 244(3) of the Insolvency Act. 46. Section 244(3) of the Insolvency Act. 47. See 6.14. 48. The section was subsequently amended to clarify that courts other than the Federal Court had jurisdiction under the section by the Trade Practices Legislation Amendment Act 2008 (see EM to the Trade Practices Legislation Amendment Bill 2008 at [2.19]). The unconscionable conduct provision is now in Sch 2 item 21 of the Australian Consumer Law (as contained in the Competition and Consumer Act 2010 (Cth)). 49. The Contracts Review Act 1980 (NSW) provides for relief in respect of unjust contracts, defined to include unconscionable, harsh or oppressive contracts: s 4(1). Corporations are precluded from obtaining relief under the Act by s 6(1). The matters to be considered by the court are set out in s 9. See further Halsbury’s Laws of Australia at [95-975]. 50. Harmer Report at [803]. The Report also noted that the Commission was aware of cases where companies had entered into extortionate credit transactions as borrowers, and the liquidators of those companies had had no ready means to set the transactions aside, or to have their terms varied. 51. Samuel v Newbold [1906] AC 461 at 467 and 470; Wilson v Moss (1909) 8 CLR 146 at 155 per Griffiths CJ and at 165 per Isaacs J; and Castles v Freidman (1910) 11 CLR 580 at 591 per Isaacs J. 52. Section 52A(5) of the Trade Practices Act 1974. 53. Section 244 of the Insolvency Act 1986 (UK). 54. Harmer Report at [803]. 55. Harmer Report at [803]. 56. Harmer Report at [804].

Section 112 was repealed by the Bankruptcy Amendment Act 1987, effective 1 March 1988. The 57. section was also applicable to companies and deferred the claims of creditors for interest above 12%. 58. Harmer Report at [804]. 59. EM to the CLR Bill at [1048]. Section 588FD will not apply to a situation where ‘the rational objective observer would expect a lender to impose a rate of interest higher than the prevailing market rate charged to borrowers in ordinary circumstances’: Emanuel Management Pty Ltd v Foster’s Brewing Group Ltd (2003) 178 FLR 1; [2003] QSC 205 at [620] per Chesterman J. 60. EM to the CLR Bill at [1048]. 61. EM to the CLR Bill at [1048]. 62. ‘Company’ means a company registered under the Corporations Act, and includes a Pt 5.7 body. 63. Section 588FD(1)(a). 64. Section 588FD(1)(b). The prefatory words ‘if and only if’ suggest that the elements of s 588FD(1) are the only way in which an unfair loan can be made out: Butler Rains Menzies & Co v Devine [1994] 1 Qd R 1 at 5 (albeit in a different context). 65. On the meaning of ‘extortionate’, see 6.16. 66. On the meaning of ‘loan’, see 6.15. 67. The Macquarie Dictionary, revised 3rd ed, Macquarie University, 2001, p 589. 68. The Macquarie Dictionary, revised 3rd ed, Macquarie University, 2001, p 185. 69. Brick & Pipe Industries Ltd v Occidental Life Nominees Pty Ltd (1990) 3 ACSR 649 at 691 referring to the judgment of Richardson J in Re Securitibank Ltd (No 2) [1978] 2 NZLR 136 at 167. See also Schmierer v Taouk (2004) 207 ALR 301 at 309 per White J; Plante v James [2011] QCA 109 at [20] per Muir JA, with whom White JA and Margaret McMurdo P agreed; Dimond v Lovell [2000] QB 216; [1999] 3 All ER 1 at [56] per Richard Scott V-C of the Court of Appeal. 70. Brick and Pipe Industries v Occidental Life Nominees Pty Ltd (1990) 3 ACSR 649 at 691 per Ormiston J. See also the discussion by Ormiston J at [1992] 2 VR 279 at 321–3. 71. Federal Commissioner of Taxation v Radilo Enterprises Pty Ltd (1997) 72 FCR 300; 142 ALR 305 at 317 (Full Federal Court). 72. Seldon v Davidson [1968] 1 WLR 1083. 73. Federal Commissioner of Taxation v Radilo Enterprises Pty Ltd (1997) 72 FCR 300; 142 ALR 305 at 317. 74. C L Pannam, The Law of Money Lenders in Australia and New Zealand, Law Book Company, Sydney, 1965. 75. Inland Revenue Commissioners v Rowntree and Co Ltd [1948] 1 All ER 482. 76. For example, a contribution by one partner to the funds of the partnership is not a loan to any or all of the partners, as it creates no debt payable by the partners to the person standing in the situation otherwise occupied by a lender (although in a very wide sense it may be considered an advance). ‘The partners are not in a proper sense borrowers who immediately incur a debt which is repayable by them to a creditor’: Kilgariff v Morris (1955) 91 CLR 524; 29 ALJR 41b per Dixon CJ, McTiernan and Williams JJ. 77. See Hoffenberg v District Court (NSW) [2010] NSWCA 142 at [10] per Basten JA. 78. The Macquarie Dictionary, revised 3rd ed, Macquarie University, 2001, p 391. 79. Definition taken from OED online.

80. J Cowell, The Interpreter; or, Booke Containing the Signification of Words Wherein is Set Foorth the True Meaning, Legate, Cambridge, 1607. 81. Samuel v Newbold [1906] AC 461 at 475 and 476 per Lord James. 82. Earl of Aylesford v Morris (1873) LR 8 Ch App 484 at 490–1; [1861–73] All ER Rep 300 at 302–3. 83. Alec Lobb (Garages) Ltd v Total Oil GB [1983] 1 All ER 944 (affirmed on other grounds [1985] 1 All ER 303). 84. Alec Lobb (Garages) Ltd v Total Oil GB [1985] 1 All ER 303 at 312; [1985] 1 WLR 173. 85. White v Davenham Trust Ltd [2010] EWHC 2748 (Ch) at [50]. 86. White v Davenham Trust Ltd [2010] EWHC 2748 (Ch). 87. Interest was payable at 1.5% per month, increasing to 3% in the event of default, under the first agreement. Interest was payable at 1.6% per month, increasing to 3% in the event of default, under the second agreement. See White v Davenham Trust Ltd [2010] EWHC 2748 (Ch) at [3]. 88. Rule 6.5(4)(d) of the Insolvency Rules 1986 (UK) provides that the demand may be set aside, if the court is satisfied for reasons other than those provided in r 6.5(4)(a)–(c) that it ‘ought to be set aside’. 89. White v Davenham Trust Ltd [2010] EWHC 2748 (Ch) at [21]–[31]. See China and South Sea Bank Ltd v Tan Soon Gin [1990] 1 AC 536; [1989] 3 All ER 839 at 543H per Lord Templeman (creditor can elect if, when and how to pursue sources of repayment); Silven Properties Ltd v Royal Bank of Scotland plc [2003] EWCA Civ 109; [2004] 4 All ER 484 at [14] (mortgagee under no duty to exercise power to enforce security); Re McCann [1985] 2 Qd R 381 at 382 (nothing in the Bankruptcy Act 1966 prevents a secured creditor from issuing a bankruptcy notice against a surety); Petratos v Provident Capital Ltd [2009] FMCA 1168 at [25] (realisation of securities not a precondition to pursuing guarantor or debtor into bankruptcy); Re Chandra; Ex parte United Overseas Bank Ltd HCB 3453/2000 (High Court of Hong Kong) (equity does not compel a creditor to proceed against a solvent principal debtor or co-surety before placing the whole burden of a debt upon a particular surety). 90. White v Davenham Trust Ltd [2010] EWHC 2748 (Ch) at [40]. 91. R Goode, Consumer Credit Law and Practice, LexisNexis, London, 1999, at [47.26]. 92. White v Davenham Trust Ltd [2010] EWHC 2748 (Ch) at [47]. In other proceedings, Mr White and his co-guarantor had made an application for the administrators to be replaced, on the basis that they were failing to pursue a s 244 application to establish that the interest rates payable under the loan agreement were part of an extortionate credit transaction. The application was rejected on the basis that there was insufficient connection between the problem and the proposed solution: see Re St George’s Property Services (London) Ltd (in administration); Clark v Finnerty [2010] EWHC 2358 (Ch). 93. White v Davenham Trust Ltd [2010] EWHC 2748 (Ch) at [47] and [50]. 94. Emanuel Management Pty Ltd v Foster’s Brewing Group Ltd (2003) 178 FLR 1; [2003] QSC 205. This decision was distinguished on unrelated grounds in Virgtel Ltd v Zabusky [2012] QSC 42. 95. Emanuel Management Pty Ltd v Foster’s Brewing Group Ltd (2003) 178 FLR 1; [2003] QSC 205 at [436]. 96. Emanuel Management Pty Ltd v Foster’s Brewing Group Ltd (2003) 178 FLR 1; [2003] QSC 205 at [476]–[482]. 97. Emanuel Management Pty Ltd v Foster’s Brewing Group Ltd (2003) 178 FLR 1; [2003] QSC 205 at [484]. 98. Emanuel Management Pty Ltd v Foster’s Brewing Group Ltd (2003) 178 FLR 1; [2003] QSC 205 at

[493]. 99. Emanuel Management Pty Ltd v Foster’s Brewing Group Ltd (2003) 178 FLR 1; [2003] QSC 205 at [620]. 100. Emanuel Management Pty Ltd v Foster’s Brewing Group Ltd (2003) 178 FLR 1; [2003] QSC 205 at [620]–[621]. 101. Re Octaviar (No 8) (2009) 73 ACSR 139; [2009] QSC 202. 102. Re Octaviar (No 8) (2009) 73 ACSR 139; [2009] QSC 202 at [143]. 103. Re Octaviar (No 8) (2009) 73 ACSR 139; [2009] QSC 202 at [143]. 104. Re Octaviar (No 8) (2009) 73 ACSR 139; [2009] QSC 202 at [144]. 105. Re Octaviar (No 8) (2009) 73 ACSR 139; [2009] QSC 202 at [35]–[39]. 106. Re Octaviar (No 8) (2009) 73 ACSR 139; [2009] QSC 202 at [144]. 107. Re Essendon Apartment Developments Pty Ltd (in liq) (No 2) [2013] VSC 210. 108. Re Essendon Apartment Developments Pty Ltd (in liq) (No 2) [2013] VSC 210 at [56]. 109. Re Essendon Apartment Developments Pty Ltd (in liq) (No 2) [2013] VSC 210 at [61]. 110. Takemura v National Australia Bank Ltd (2003) 11 BPR 21,185; [2003] NSWSC 339. 111. Takemura v National Australia Bank Ltd (2003) 11 BPR 21,185; [2003] NSWSC 339 at [20]. 112. Guardian Mortgages v Miller (2004) 12 BPR 22,833; [2004] NSWSC 1236. 113. Guardian Mortgages v Miller (2004) 12 BPR 22,833; [2004] NSWSC 1236 at [95]. 114. Guardian Mortgages v Miller (2004) 12 BPR 22,833; [2004] NSWSC 1236 at [104]. 115. Accom Finance Pty Ltd v Mars Pty Ltd (2007) 13 BPR 24,729; [2007] NSWSC 726. 116. Accom Finance Pty Ltd v Mars Pty Ltd (2007) 13 BPR 24,729; [2007] NSWSC 726 at [54]. 117. For when a transaction will be voidable generally, see Chapter 8. 118. Section 588FE(6). See also s 588FE(2A)(a)(iii) and s 588FE(2B)(a)(iii). 119. See 2.74. 120. See Chapter 8 for a more detailed discussion. 121. The ‘court’ is defined as lower case ‘c’ meaning any court: see s 58AA. 122. On the orders that may be applied for under s 588FF, see 8.30ff. 123. Hall v Ledge Finance Ltd [2005] NSWSC 645 at [12]. 124. Irving v Starmaker (No 51) Pty Ltd (2005) 241 LSJS 413; [2005] SASC 309 at [35]–[46] per Layton J. 125. See 8.51ff for a discussion. 126. See Chapter 7.

[page 287]

7 Unreasonable Director-Related Transactions INTRODUCTION 7.1 Section 588FDA, headed ‘Unreasonable Director-Related Transactions’, was introduced by amendments to the Corporations Act made by the Corporations Amendment (Repayment of Directors’ Bonuses) Act 2003 (Cth). Section 588FDA only applies if the relevant transaction was entered into after the commencement of the amendments on 11 April 2003.1 The amendments permit liquidators to reclaim ‘unreasonable’ payments made to directors by companies prior to a liquidation.2 Unlike some other voidable transaction provisions,3 however, the insolvency of the company at the time of an unreasonable director-related transaction is not a relevant consideration for a court in deciding if it is a voidable transaction.4 The object of s 588FDA is to assist in the recovery of funds, assets and other property to companies in liquidation where payments or transfers of property to directors are unreasonable.5 The provision is an anti-avoidance provision aimed at preventing errant directors from stripping benefits out of companies to their own advantage.6 The amendments apply to transactions made to, on [page 288] behalf of, or for the benefit of a director or a close associate of a director7 that are unreasonable and entered into within a period four years prior to liquidation.8

7.2 The Explanatory Memorandum to the Corporations Amendment (Repayment of Directors’ Bonuses) Bill 2002 does not discuss the factors that instigated the amendments, however contemporaneous material shows that s 588FDA was introduced primarily in response to high profile failures of public companies9 where the respective liquidations revealed that directors and senior executives had been paid significant remuneration and bonuses even as the companies were losing substantial amounts of money.10 In the Second Reading Speech to the Bill, the then Treasurer said: ‘[This Bill] … gives a strong statutory expression of the Government’s intention that directors do not receive unreasonable remuneration, particularly when creditors, employees and shareholders are at risk.’ 7.3 One other possible motivation of the Parliament in introducing s 588FDA was to deal with situations of the kind that emerged in some of the early cases under s 588FB where claims failed on the basis that the connection between the director and the entity or person receiving the assets or the benefit was too remote. For example, in Rivarolo Holdings Pty Ltd v Casa Tua (Sales) Pty Ltd,11 the court found that a transaction where the assets of the company were taken by the defendant without a sufficient corresponding benefit to the company was an uncommercial transaction, however the claim against the director personally failed because his position as a shareholder of the company that received the assets was too remote to be regarded as bringing him a benefit from the transaction.12 Similarly, in Skouloudis Group Pty Ltd (in liq) v Planet Enterprizes Pty Ltd,13 the liquidator failed in his attempt to set aside as an uncommercial transaction the transfer of the business of the company to the wife of [page 289] a director. In Vasudevan (as joint and several liquidator of Wulguru Retail Investments Pty Ltd) (in liq) v Becon Constructions (Australia) Pty Ltd,14 Nettle JA, with whom Beach JA and McMillan AJA agreed, observed that: ‘… it is apparent from the terms of s 588FDA, and also from the Explanatory Memorandum, that the very point of the section was and is to catch directorrelated transactions of kinds not otherwise liable to avoidance as unfair preferences, uncommercial transactions or unfair loans.’15 Part of the court’s reasoning in Vasudevan in support of that conclusion was that the insolvency of

the company is not a relevant consideration in s 588FDA, which is expressly exempted from the operation of the defences in s 588FG(2).16 7.4 While the catalyst for, and the initial focus of, the proposed amendments was unreasonable remuneration, the scope of s 588FDA as legislated is sufficiently broad, and has been successfully used to attack, transactions other than the payment of bonuses and remuneration. In practice, s 588FDA has been little used, particularly in relation to claims to recover unreasonable remuneration to directors and their associates, and initially with limited success in relation to other kinds of transactions. This is no doubt in part because the similarities to s 588FB, which is often also pleaded against the transactions sought to be impugned, and the continuing controversy over whether s 588FDA will apply in circumstances where the benefit to the director is indirect.17

Similarities to and differences from s 588FB (uncommercial transactions) 7.5 Section 588FDA(1)(c) and s 588FB(1) are drafted in almost identical terms and superficially at least, they appear to have overlapping spheres of operation. There are, however, significant differences in the structure of the two sections, and their treatment in ss 588FE, 588FF and 588FG. First, s 588FDA(1) (a) narrows the scope of the concept of ‘transaction’ in comparison to the meaning given in s 9 and used elsewhere in Div 2 [page 290] of the Act.18 For that reason, care should be used when looking at cases under s 588FB because of its use of the broader meaning of ‘transaction’ in s 9. A dealing that falls within the broader meaning of ‘transaction’ in s 9 may not come within the narrower meaning in s 588FDA(1)(a). Second, s 588FDA(2), unlike s 588FB, specifies the time at which the test is to be applied to a transaction, being the time at which the transaction is entered into rather than the time when the obligation is incurred. Third, an uncommercial transaction under s 588FB is not voidable unless it is also an ‘insolvent transaction’ within the meaning of s 588FC, or falls within s 588FE(2A) or (2B). As mentioned above, insolvency of the company at the time of the transaction is not a requirement for an unreasonable director-related transaction where the solvency of the company

when it enters the transaction is irrelevant.19 The practical effect of this difference is that liquidators have greater scope to attack pre-liquidation transactions under s 588FDA(1), although the kind of transactions that may be impugned is more limited than would otherwise be the case under s 588FB. Fourth, s 588FF(4) contains a limitation of the power of the court to make orders under s 588FF where the transaction is voidable ‘solely’ because it is an unreasonable director-related transaction. Fifth, the defence in s 588FG(2) is not available concerning an unreasonable director-related transaction.20

ELEMENTS OF S 588FDA 7.6 Section 588FDA requires four broad elements to be satisfied in order for a transaction to constitute an unreasonable director-related transaction, namely: there is a transaction of a company;21 the transaction is of a type mentioned in paragraph 588FDA(1)(a) ‘by’ the company;22 the benefit of the transaction is ‘to’ the director or other persons specified in paragraph 588FDA(1)(b); and it may be expected that a reasonable person in the company’s circumstances would not have entered into the transaction having regard to the matters set out in paragraph 588FDA(1)(c). [page 291] The presence of the conjunction ‘and’ at the end of each of paragraphs 588FDA(1)(a), (b) and (c) suggests that the above elements are cumulative. 7.7 As explained below, subparagraph 588FDA(1)(a) sets out various species of transactions that may constitute an unreasonable director-related transaction. Subparagraph 588FDA(1)(b) also describes three broad categories of person to whom the transaction is directed. The result is that an unreasonable directorrelated transaction may take a number of statutorily limited forms. Under s 588FDA, a transaction23 of a company24 is an unreasonable director-related

transaction of the company if, and only if:25 (a) the transaction is either a payment made by the company,26 a conveyance, transfer or other disposition by the company of property of the company,27 the issue of securities by the company28 or the incurring by the company of an obligation (including a contingent obligation)29 to make such a payment, disposition or issue;30 and (b) the payment, disposition or issue is, or is to be, made to either a director of the company,31 a close associate of a director of the company32 or a person on behalf of, or for the benefit of, a director or close associate of a director of the company;33 and (c) it may be expected that a reasonable person in the company’s circumstances would not have entered into the transaction, having regard to: [page 292] the benefits (if any) to the company of entering into the transaction;34 and the detriment to the company of entering into the transaction;35 and the respective benefits to other parties to the transaction of entering into it;36 and any other relevant matter.37 7.8 Section 588FDA(3) does not describe the circumstances in which a director-related transaction will be unreasonable, but rather requires a case-bycase analysis of the benefit and detriment to various parties to the transaction. Section 588FDA(3) provides that a transaction may be an unreasonable directorrelated transaction because of s 588FDA(1) whether or not a creditor of the company is a party to the transaction38 and even if the transaction is given effect to, or is required to be given effect to, because of an order of an Australian court or a direction by an agency.39

Transaction of a company (s 588FDA(1)) 7.9 Like s 588FB, the threshold requirement in s 588FDA is that the dealing must be a ‘transaction of a company’ although as noted above, s 588FDA(a)

limits the types of transactions to which it applies rather than importing the considerably broader meaning of ‘transaction’ in s 9.40 The expression ‘transaction’ of a company is discussed in detail at 3.78ff.

Transaction ‘by the company’ (s 588FDA(1)(a)) 7.10 Each of the transactions stipulated in s 588FDA(1)(a) must be transactions ‘by’ the company. The existence of the preposition ‘by’ in s 588FDA(1)(a) suggests a requirement that there be a sufficient causal link between the stipulated transaction and the company.41 The expression ‘by’ is discussed in more detail at 3.38ff. [page 293]

Conveyance, transfer or other disposition by the company of property of the company (s 588FDA(1) (a)(i)) 7.11 The expressions ‘payment’,42 ‘conveyance’,43 ‘transfer’,44 and ‘disposition’45 are not defined in the Corporations Act. Those expressions have, however, received judicial consideration in other, yet similar, statutory contexts and are each discussed in detail in Chapter 3.46

Issue of securities by the company (s 588FDA(1)(a) (ii)) 7.12 The word ‘issue’ is defined in s 9 to include: (a) in relation to interests in a managed investment scheme — make available; and (b) otherwise — circulate, distribute and disseminate. The word ‘issue’ in the context of securities has received considerable judicial attention. In the context of shares for example, the word ‘issue’ generally means, where an allotment has taken place, that the shareholder is put in control of the shares allotted.47 In Central Piggery Company Ltd v McNicoll & Hurst (1949)

78 CLR 594, Dixon J explained: Speaking generally the word ‘issue’ used in relation to shares means, where an allotment has taken place, that the shareholder is put in control of the shares allotted. A step amounts to issuing shares if it involves the investing of the shareholder with complete control over the shares. Re Ambrose Lake Tin and Copper Co (Clarke’s Case) (1878) 8 Ch D 635 makes that quite clear. Cockburn LCJ said — (1878) 8 Ch D, at p 638 ‘inasmuch as the term “issue” is used, it must be taken as meaning something distinct from allotment, and as importing that some subsequent act has been done whereby the title of the allottee becomes complete, either by the holder of the shares receiving some certificate, or being placed on the register of shareholders, or by some other step by which the title derived from the allotment may be made entire and complete.’ Cotton LJ (1878) 8 Ch D, at p 641 speaks of the steps by which the allottee becomes complete master of the shares. Thesiger LJ (1878) 8 Ch D, at p 642 says that — ‘there is no magic to be attributed either to an allotment or to the issue of certificates, but in each case the Court must look at all the circumstances of the case, and see whether practically and substantially there has been an issue of shares at a time when there was not a contract registered’.

[page 294] 7.13 Section 92 of the Corporations Act defines ‘securities’ as: (a) debentures, stocks or bonds issued or proposed to be issued by a government; or (b) shares in, or debentures of, a body; or (c) interests in a managed investment scheme; or (d) units of such shares. It is beyond the scope of this text to discuss in detail when there will be an issue of securities and readers are directed to more general texts.48

Incurring by the company of an obligation (s 588FDA(1)(a)(iii)) 7.14 The word ‘incurring’ has also received judicial consideration in other contexts. A detailed discussion of the concept of incurring, albeit in the context of incurring a debt, is set out at 10.31ff. The expression ‘obligation’ is discussed in detail at 3.55.

Payment etc made to a director of the company (s 588FDA(1)(b)(i))

7.15 The expression ‘director’ is defined in s 9 of the Corporations Act to mean not only validly appointed directors but also a person who is not validly appointed as a director but acts in the position of a director. The expression ‘director of a company’ is discussed in detail at 10.14.

Payment etc made to a close associate of a director of the company (s 588FDA(1)(b)(ii)) 7.16 The expression ‘close associate of a director’ is defined in s 9 to mean a relative of the director or a relative of a spouse of the director. The term ‘relative’ is in turn defined to mean the spouse, parent49 or remoter lineal ancestor, child50 or remoter issue, or brother or sister of a person. The word ‘spouse’ is defined in s 9 to include a de facto partner of the person within the meaning of the Acts Interpretation Act 1901 (Cth). Section 2D of the Acts Interpretation Act provides that for the purposes of a provision of an Act that is a provision in which de facto partner has the meaning given by the Acts Interpretation Act, a person [page 295] is the de facto partner of another person (whether of the same sex or a different sex) if: (a) the person is in a registered relationship with the other person under section 2E of the Acts Interpretation Act; or (b) the person is in a de facto relationship with the other person under section 2F of the Acts Interpretation Act. 7.17 Section 2E of the Acts Interpretation Act provides that a person is in a registered relationship with another person if the relationship between the persons is registered under a prescribed law of a State or Territory as a prescribed kind of relationship. Section 2F provides that a person is in a de facto relationship with another person if the persons: (a) are not legally married to each other; and (b) are not related by family; and (c) have a relationship as a couple living together on a genuine domestic

basis.51 7.18 The close associate provisions in s 588FDA(1)(b)(ii) are designed to catch a benefit flowing to a close associate whether or not the benefit has the effect of legally or financially advantaging the director in question.52 By contrast, the natural and ordinary meaning of the words ‘for the benefit of’ in s 588FDA(1)(b)(iii) is calculated to catch a benefit which legally or financially advantages the director in question regardless of whether it is paid or directed to a close associate of the director.53 Since the two regimes are aimed at different albeit potentially intersecting sets of possibilities, it would run counter to the intention of the legislation to read down either of those subparagraphs to the point of mutual exclusion.54 [page 296]

Payment etc made to a person on behalf of, or for the benefit of (s 588FDA(1)(b)(iii)) Person 7.19 The word ‘person’ is not specifically defined in s 9 to but has a meaning affected by each of s 761F (which deals with partnerships) and s 761FA (which deals with multiple trustees). Section 2C(1) of the Acts Interpretation Act defines a ‘person’ to include a body politic or corporate as well as an individual.

On behalf of 7.20 The expression ‘on behalf of’ is defined in s 9 to include ‘on the instructions of’. The expression in the context of s 588FDA has, however, received little judicial attention. In R v Toohey; Ex parte Attorney-General (NT), Stephen, Mason, Murphy and Aickin JJ observed in a different context that: The phrase ‘on behalf of’ is, as Latham CJ observed in R v Portus; Ex parte Federated Clerks Union of Australia (1949) 79 CLR 428 at 435 ‘not an expression which has a strict legal meaning’, it bears no single and constant significance. Instead it may be used in conjunction with a wide range of relationships, all however in some way concerned with the standing of one person as auxiliary to or representative of another person or thing.55

7.21 The words ‘on behalf of’ do not necessarily imply that the relevant

transaction was with the actual authority of the person represented.56 In the context of s 588FDA, the words ‘on behalf of’ suggest some benefit flows to the relevant director and it is insufficient that the benefit be a result of the instructions of the director (notwithstanding the definition of ‘on behalf of’ in s 9). As Nettle JA explained in Vasudevan (as joint and several liquidator of Wulguru Retail Investments Pty Ltd) (in liq) v Becon Constructions (Australia) Pty Ltd: As at present advised, I think there may be force in [the] contention that, in the context of s 588FDA(1) (b)(iii), the requirement that a disposition be made ‘on behalf of’ a director requires something more than that it be effected on the instructions of the director. Arguably, the provenance of the section and the objectives which (according to the Explanatory

[page 297] Memorandum) it was designed to achieve, imply that a disposition to a person ‘on behalf of a director’ connotes a disposition which is of some benefit to the director. At the same time, however, I doubt that Parliament intended to confine the operation of s 588FDA to direct benefits or that the section should be so construed.57

For the benefit of 7.22 The word ‘benefit’ is defined in s 9 to mean any benefit, whether by way of payment of cash or otherwise. In Universal Financial Group v Mortgage Elimination Services,58 Austin J, in obiter, took a broad view of the concept of ‘benefit’ and observed that commissions due to a company that were by direction paid to a company of which the director’s son was a shareholder were for the benefit of a close associate of the director who gave the direction. However, in Ziade Investments Pty Ltd v Welcome Homes Real Estate Pty Ltd,59 Gzell J, also in obiter, took a more narrow view and held that the benefit held by a third person that will bring a close associate of a director within the statutory provision must be a direct benefit and not a derivative benefit constituted by an increase in value of shares in a company or units in a trust.60 Likewise, in Lawrence Waterhouse Pty Ltd; Shaw v Minsden Pty Ltd,61 Ward J (as her Honour then was) considered whether a transfer of property to a company associated with the sole director and shareholder was an unreasonable directorrelated transaction within the meaning of s 588FDA. Her Honour concluded that the claim failed on the basis that s 588FDA does not extend to a dealing with a company or trust where a director or his or her ‘close associate’ is a shareholder or beneficiary of that entity.62

[page 298] 7.23 Brereton J reviewed the competing authorities in Re Great Wall Resources Pty Ltd (in liq)63 ultimately concluding that the balance of authority favours the proposition that only a direct benefit will suffice.64 Central to his Honour’s reasoning was the well-established distinction in legal identity between a company and its shareholders which meant that a payment to a company is not a payment for the benefit of its shareholders.65 His Honour also observed that the idea of something being ‘for the benefit of’ someone is well established in law, and involves the notion of the separation of the legal and beneficial interest.66 Brereton J said that one reason to prefer the more restricted meaning of ‘for the benefit of’ which his Honour favoured was that: … the use in s 588FDA of the concept of ‘a close associate’ … As Gzell J observed in Ziade, if it had been intended to capture in s 588FDA payments to companies of which the director of the payer was a shareholder, one would have expected a wider definition of ‘close associate’.67

7.24 The issue of the competing approaches to the interpretation of benefit in the context of s 588FDA arose before the Court of Appeal of the Supreme Court of Victoria in Vasudevan (as joint and several liquidator of Wulguru Retail Investments Pty Ltd) (in liq) v Becon Constructions (Australia) Pty Ltd.68 In that case three companies, which had the same sole director, entered into a deed to restructure certain debts. The net effect of the transactions was to subject one of the companies, which was not previously liable for the debts, to a liability as surety for debts in respect of which director was previously the sole surety, and to mortgage its property to secure those obligations. There was no benefit to the company in the transactions. The company that assumed the obligations was subsequently wound up in insolvency and liquidators appointed, however before the appointment it entered into a contract to sell the mortgaged land. The liquidator challenged the deed of restructure and the mortgage on the basis that it was an unreasonable director-related transaction. 7.25 There was no issue that the mortgage was a relevant disposition of property. The principal issue that arose for consideration was whether the transaction was for the ‘benefit’ of the director, because it had the [page 299] effect of relieving him of his obligations as surety, which implicitly raises the

question of whether the operation of s 588FDA, properly construed, is confined to direct benefits to the director or whether an indirect benefit is sufficient. Nettle JA, with whom Beach JJA and McMillan AJA agreed, observed that it should be ‘presumed’ that the Parliament deployed the language of s 588FDA with the intention of achieving the objective of preventing errant directors from stripping benefits out of companies to their own advantage.69 Accordingly the Court concluded that: According to ordinary acceptation, ‘benefit’ includes both direct and indirect benefits and, prima facie, that accords with the apparent objective of the section. If so, why should the notion of benefit be confined to direct benefit for the purposes of the section?70

7.26 The Court ultimately found that the director had in any event received a benefit in the form of a covenant not to sue him, and the prospect of relief from his obligations as surety.71 In reaching that conclusion, the Court rejected a submission that the director had not received a benefit of the relevant kind, because he had not received an equitable interest or something in the nature of an equity in disponed property72 apparently based on the reasoning of Brereton J in Great Wall that the notion of ‘benefit’ required a separation of legal and beneficial interests.73 The Court’s reasons for rejecting the submission were threefold. First, if the contention were correct, the words ‘for the benefit of’ in s 588FDA(1)(b)(iii) would add nothing to the preceding expression of ‘on behalf of’.74 Second, the natural and ordinary meaning of a requirement that something be for ‘for the benefit of’ a person is that it be ‘for the advantage, profit or good’ of the person.75 Third, the natural [page 300] and ordinary meaning of ‘for the benefit of’ accords with the objective of the section of preventing directors stripping benefits out of companies to their own advantage.76 7.27 The Court also specifically rejected a submission that the words ‘on behalf of’ are intended to capture cases in which the director derives an equitable interest in the disponed property and that ‘for the benefit of’ is directed at cases in which the director in question derives a mere equity in the disponed property.77 After referring to paragraph [44] of Brereton J’s decision in Great Wall where his Honour justified the narrow interpretation of the words ‘for the benefit of’ by reference to the definition of ‘close associate,78 the Court observed:

With respect, however, I disagree [with Brereton J]. As I see it, the close associate provisions are designed to catch a benefit flowing to a close associate whether or not the benefit has the effect of legally or financially advantaging the director in question. In contrast, the natural and ordinary meaning of ‘for the benefit of’ in s 588FDA is calculated to catch a benefit which legally or financially advantages the director in question regardless of whether it is paid or directed to a close associate of the director. Since the two regimes are aimed at different albeit potentially intersecting sets of possibilities, it would run counter to the evident intention of the legislation to read down either to the point of mutual exclusion.79

7.28 The Court in Vasudevan also rejected a submission that a further reason to read down ‘for the benefit of’ in the manner suggested by Brereton J was that, otherwise, any number of transactions attracting defences that prevent them being classed as voidable transactions under ss 588FA, 588FB and 588FD, would be at risk of being struck down as unreasonable director-related transactions to which no such defences apply. The Court was swift to reject the submission: I do not think that contention to be persuasive. In my view, it is apparent from the terms of s 588FDA, and also from the Explanatory Memorandum, that the very point of the section was and is to catch director-related transactions of kinds not otherwise liable to avoidance as unfair preferences, uncommercial transactions or unfair loans. In effect,

[page 301] that is the converse of a parliamentary intention to confine the operation of s 588FDA to transactions of the kind with result in the director in question receiving an equitable interest or equity in relation to the disponed property. Contrary to counsel’s submission, s 588FG(2) in effect confirms that is so by providing in substance that a court is not to avoid a voidable transaction to which the defences apply unless the transaction is an unfair loan or an unreasonable director-related transaction.80

7.29 The narrower interpretation of s 588FDA in cases such as Ziade Investments Pty Ltd v Welcome Homes Real Estate Pty Ltd81 and Re Great Wall Resources Pty Ltd (in liq) requiring a direct, and not a derivative, benefit to the director or ‘close associate’ of a director limits the reach of s 588FDA in a way that the interpretation in Vasudevan would not. The narrower interpretation would prevent the grant of a remedy in circumstances akin to those in cases such as Rivarolo Holdings Pty Ltd v Casa Tua (Sales) Pty Ltd82 and Skouloudis Group Pty Ltd (in liq) v Planet Enterprizes Pty Ltd.83 Vasudevan is a decision of an intermediate Court of Appeal, while the decisions in Ziade Investments Pty Ltd v Welcome Homes Real Estate Pty Ltd84 and Re Great Wall Resources Pty Ltd (in liq)85 are first instance decisions. As the issue involves the interpretation of the Corporations Act as uniform national legislation, first instance judges are compelled to follow Vasudevan unless convinced that it is plainly wrong.86

[page 302]

A reasonable person in the company’s circumstances would not have entered into the transaction (s 588FDA(1)(c)) 7.30 The test in s 588FDA(1)(c) is expressed in virtually the same terms as s 588FB(1) concerning uncommercial transactions. The underlying test is the same subject to the additional requirement for a benefit to a director or a ‘close associate’.87 Because of the similarities, the jurisprudence concerning the meaning of uncommercial transaction will be relevant to the interpretation of s 588FDA(1)(c). As is the case with s 588FB, an objective standard is applied in determining whether a transaction is uncommercial for the purposes of s 588FDA(1)(c)88 and it must positively appear that a reasonable person would not have entered into the transaction.89 Transactions with directors, or with a close associate who is a ‘relative’, require a higher level of scrutiny, and the court should be less inclined to excuse the sale at an undervalue because of some commercial factor.90 7.31 For the purposes of the test in s 588FDA(1)(c) the relevant criteria the Court is to consider are: (a) the benefits enjoyed by the company; (b) the detriment to the company; (c) the respective benefits others received; and (d) any other relevant matters. The criteria in 588FDA(1)(c) are assessed by reference to the circumstances of the company, including the state of knowledge of those who were the directing mind of the company.91 To avoid doubt, s 588FDA(2) provides that, if: (a) the transaction is a payment, disposition or issue; and (b) the transaction is entered into for the purpose of meeting an obligation the company has incurred; the test in paragraph (1)(c) applies to the transaction taking into account the circumstances as they exist at the time when the transaction

[page 303] is entered into (rather than as they existed at the time when the obligation was incurred). The test in s 588FDA(1)(c) applies to the transaction taking into account the circumstances as they exist at the time when the transaction is entered into (rather than as they existed at the time when the obligation was incurred).92 7.32 Each of the criteria listed in 7.31 is discussed in Chapter 5 in the context of s 588FB.

Time at which reasonableness is to be assessed (s 588FDA(2)) 7.33 Section 588FDA(2) states, for the avoidance of doubt, that the test in s 588FDA is to be applied to the transaction, taking into account the circumstances as they existed at the time when the transaction was entered into.93 The reasonableness of the dealing or payment is therefore to be assessed at the time it was implemented or made, rather than when the company agreed as a matter of contract, and a transaction may therefore be unreasonable at the time it takes place, even if it was not unreasonable when the company entered into the underlying contractual obligation.94

EXAMPLES OF THE APPLICATION OF S 588FDA(1)(C) 7.34 Despite the narrowing of the types of transactions that are susceptible to being categorised as unreasonable director-related transactions within the meaning of s 588FDA, the section has been successfully utilised in the context of a wide variety of transactions as the following examples illustrate. 7.35 In Slaven v Menegazzo,95 Mansfield J concluded that a contract for the sale of land was an unreasonable director-related transaction in circumstances where a director of the vendor company was the father of the purchaser. His Honour found that the benefits to the vendor company were ‘negligible’ and the

detriment clear as it received ‘no real consideration’. In declaring the contract for sale void his Honour observed: [page 304] The test of an unreasonable director-related transaction is relevantly expressed in s 588FD(a)(1)(c) itself. It is unhelpful to paraphrase the test, rather than simply to apply it. Nevertheless, the application of that test may be informed by the purpose of that provision: s 109H of the Act. In Skouloudis Group Pty Ltd (in liq) v Planet Enterprizes Pty Ltd (2002) 41 ACSR 369, Windeyer J took the same approach in considering the application of s 588FB of the Act to the facts of that case. Section 588FB(1) defines an uncommercial transaction in terms identical in relevant respects to s 588FDA(1)(c). The purpose is to prevent companies disposing of their assets through transactions which result in the recipient receiving a benefit from the company of such commercial magnitude that it is not explainable by normal commercial considerations. See also Woodgate v Fawcett (2008) 67 ACSR 611. As in this case, the transaction there considered inured to the substantial benefit of the family members of a director and to the significant prejudice (and at the time of this transaction to the significant potential prejudice) of its unsecured creditors: see per Hammerschlag J at [106].96

Likewise, in Woodgate v Fawcett,97 a company’s director closed down the business of the company, arranged the sale of the company’s property and used the proceeds to discharge a loan by the director’s parents to the company and other loans for which the parents had pledged their properties so that they obtained discharges of the mortgages over their two properties. The liquidator sought an order directing the director’s parents to pay to the company an amount equal to the amounts paid by the company to the lender which discharged the parents’ loans, and, correspondingly discharged the mortgages which secured the loans over the parents’ property on the basis that the transaction was a voidable transaction within the meaning of s 588FE of the Act, either because it was an unfair preference given by the company to the Fawcetts as creditors within the meaning of s 588FA(1) of the Act or because it was an unreasonable directorrelated transaction within the meaning of s 588FDA(1) of the Act. His Honour concluded that no reasonable person in the company’s circumstances would have entered into the transaction and found it was an reasonable director-related transaction within the meaning of s 588FDA.98 Woodgate was not a case of a sale of company assets at an undervalue. The case was one, instead, of a company under the stewardship of the director having conferred a benefit on his parents in circumstances where legitimate unsecured creditors had been prejudiced. The company had disposed of its most significant assets with the beneficiaries being persons other than the company and its unsecured creditors.

[page 305] 7.36 Other examples include: Re Lesvos Pty Ltd where company funds were deposited into a director’s home loan account. There was no apparent benefit to the company and the payments to the bank were made ‘on behalf of, or for the benefit of’ a director or a close associate of a director. Brereton J found the transactions to be unreasonable director-related transactions.99 Fielding (as liquidator of Lyngray Developments Pty Ltd) v Dushas where 29 payments over a two year period by a company to the mortgage account of the sole director’s daughter were found to be unreasonable director-related transactions.100 Merrag Pty Ltd (in liq) v Khoury in which there was a transfer of real estate where the company received less than half the market value.101 WA School Bus Services Pty Ltd (in liq) v Clover where the provision of vendor finance to the spouse of a director was used for the purchase of property.102 Warner v Hung; Re Bellpac Pty Ltd (recs and mgrs apptd) (in liq) which involved an assignment of convertible bonds.103 Slaven v Menegazzo where a contract for the sale of real property of the company on terms as to payment of the purchase price were unusual. The consideration included an amount previously paid to the company, but which was not applied for the benefit of the company, and a release of indebtedness.104

DEFENCES 7.37 A significant difference between ss 588FB and 588FDA is the express and practical limitations on the availability of the defences in s 588FG to a claim impugning a transaction as an ‘unreasonable director-related transaction’. Section 588FG(1) prevents a court making an order under s 588FF(1) against a defendant who is not a party to the transaction and who has a right or interest that would be materially prejudiced by the making of an order. While the

defence is technically [page 306] available to answer a claim impugning a transaction under 588FDA(1), the requirement in that section for the other party to be a ‘close associate’ or ‘relative’ would in most cases restrict if not exclude the possibility of a defence under s 588FG(1). Section 588FG(2), by it terms, excludes ‘unreasonable director-related transactions’ from the operation of that section. 7.38 A liquidator alleging that a transaction is an unreasonable directorrelated transaction under s 588FDA is not required to establish insolvency in order for the transaction to be declared voidable under s 588FE(6A). The defences to insolvent transactions such as good faith and reasonable grounds under s 588FG do not apply.105

REMEDIES 7.39 An unreasonable director-related transaction within the meaning of the s 588FDA is a voidable transaction under s 588FE(6A) if: (a) it was entered into, or an act was done for the purposes of giving effect to it during the four years ending on the relation-back day; or (b) after that day but on or before the day when the winding up began.106 7.40 For a detailed discussion of when an unreasonable director-related transaction will be voidable, see 8.40.

1.

Section 588FE(1)(b).

2.

Explanatory Memorandum to the Corporations Amendment (Repayment of Directors’ Bonuses) Bill 2002 at [1.1].

3.

Specifically, an unfair preference or an uncommercial transaction: see s 588FC.

4.

Sections 588E(6A) and 588FF(4).

5.

Explanatory Memorandum to the Corporations Amendment (Repayment of Directors’ Bonuses) Bill 2002 at [1.2].

6.

Vasudevan (as joint and several liquidator of Wulguru Retail Investments Pty Ltd) (in liq) v Becon Constructions (Australia) Pty Ltd (2014) 97 ACSR 627; [2014] VSCA 14 at [19] per Nettle JA, Beach JA and McMillan AJA agreeing.

7.

Explanatory Memorandum to the Corporations Amendment (Repayment of Directors’ Bonuses) Bill 2002 at [1.3], [3.4].

8.

Explanatory Memorandum to the Corporations Amendment (Repayment of Directors’ Bonuses) Bill 2002 at [1.3].

9.

For example, One.Tel, Ansett Airlines and HIH.

10. S Bottomley and A Forsyth, The New Corporate Law, Corporate Law and Accountability Research Group, Working Paper No 1, Monash University, June 2006, at 14–15. 11. Rivarolo Holdings Pty Ltd v Casa Tua (Sales) Pty Ltd (1997) 24 ACSR 105. 12. Rivarolo Holdings Pty Ltd v Casa Tua (Sales) Pty Ltd (1997) 24 ACSR 105, at 109. 13. Skouloudis Group Pty Ltd (in liq) v Planet Enterprizes Pty Ltd (2002) 41 ACSR 369; [2002] NSWSC 239. 14. Vasudevan (as joint and several liquidator of Wulguru Retail Investments Pty Ltd) (in liq) v Becon Constructions (Australia) Pty Ltd (2014) 97 ACSR 627; [2014] VSCA 14. 15. Vasudevan (as joint and several liquidator of Wulguru Retail Investments Pty Ltd) (in liq) v Becon Constructions (Australia) Pty Ltd (2014) 97 ACSR 627; [2014] VSCA 14 at [28]. 16. Vasudevan (as joint and several liquidator of Wulguru Retail Investments Pty Ltd) (in liq) v Becon Constructions (Australia) Pty Ltd (2014) 97 ACSR 627; [2014] VSCA 14 at [28]. 17. See 7.25. 18. Warner v Hung; Bellpac Pty Ltd (recs and mgrs apptd) (in liq) (2011) 297 ALR 56 at [175] per Emmett J; affirmed Re Hung v Warner; Bellpac Pty Ltd (recs and mgrs apptd) (in liq) [2013] FCAFC 48. 19. Re Lesvos Pty Ltd [2012] NSWSC 1288 at [22] per Brereton J. 20. Re Lesvos Pty Ltd [2012] NSWSC 1288 at [22] per Brereton J. 21. For a discussion of this expression generally see Chapter 3. 22. The expression ‘company’ is defined in s 9 to mean relevantly a company registered under the Corporations Act. 23. Section 588FDA does not use the meaning of ‘transaction’ in the dictionary in s 9 although some of the examples of transaction set out in s 588FDA(1) appear in the s 9 definition. Section 588FDA only applies if the dealing is of a kind specified in s 588FDA(1)(a) which ‘narrows the scope of the concept of transaction’: see Warner v Hung; Bellpac Pty Ltd (recs and mgrs apptd) (in liq) (2011) 297 ALR 56 at [175] per Emmett J; affirmed Re Hung v Warner; Bellpac Pty Ltd (recs and mgrs apptd) (in liq) [2013] FCAFC 48. For a discussion of the meaning of ‘transaction’ in other provisions in Pt 5.7B, see Chapter 3. 24. ‘Company’ is defined in s 9 to mean, relevantly, a company registered under the Act and includes a Pt 5.7 body. For a discussion of Pt 5.7 body, see 3.24. 25. The expression ‘if and only if’ suggests that the elements contained in s 588FDA are each mandatory elements. See, for example, the Queensland Court of Appeal’s comments in relation to the expression ‘if and only if’ in another statutory context in Butler Rains Menzies & Co v Devine [1994] 1 Qd R 1 at 5; 8 ACSR 579 at 583. 26. Section 588FDA(1)(a)(i).

27. Section 588FDA(1)(a)(ii). 28. Section 588FDA(1)(a)(iii). 29. Section 588FDA(1)(c). 30. Section 588FDA(1)(a)(iv). 31. Section 588FDA(1)(b)(i). 32. Section 588FDA(1)(b)(ii). 33. Section 588FDA(1)(b)(iii). 34. Section 588FDA(1)(c)(i). 35. Section 588FDA(1)(c)(ii). 36. Section 588FDA(1)(c)(iii). 37. Section 588FDA(1)(c)(iv). 38. Section 588FDA(1)(a). 39. Section 588FDA(1)(b). 40. The meaning of the broader expression ‘transaction of a company’ is discussed in detail in Chapter 3. 41. Janssen-Cilag Pty Ltd v Pfizer Pty Ltd (1992) 109 ALR 638 at 642 per Lockhart J commenting in the context of the former s 82 of the Trade Practices Act 1974 (Cth). 42. See 3.52. 43. See 3.32. 44. See 3.34. 45. See 3.36. 46. See especially 3.32ff. 47. Central Piggery Company Ltd v McNicoll & Hurst (1949) 78 CLR 594 per Dixon J. See also Federal Commissioner of Taxation v St Helen’s Farm (ACT) Pty Ltd (1981) 146 CLR 337. 48. See, for example, Ford’s Principles of Corporations Law (LexisNexis, looseleaf) and Austin and Black’s Annotations to the Corporations Act (LexisNexis, looseleaf). 49. The expression ‘parent’ is defined in s 9 to mean ‘without limiting who is a parent of a person for the purposes of [the Corporations] Act, someone is the parent of a person if the person is his or her child because of the definition of child in … section [9].’ 50. The expression ‘child’ is defined in s 9 to mean ‘without limiting who is a child of a person for the purposes of this Act, someone is the child of a person if he or she is a child of the person within the meaning of the Family Law Act 1975.’ 51. Section 2F(2) of the Acts Interpretation Act 1901 provides that in determining for the purposes of paragraph 2F(1)(c) whether two persons have a relationship as a couple, all the circumstances of their relationship are to be taken into account, and sets out various circumstances which the court is to take into account. 52. Vasudevan (as joint and several liquidator of Wulguru Retail Investments Pty Ltd) (in liq) v Becon Constructions (Australia) Pty Ltd (2014) 97 ACSR 627; [2014] VSCA 14 at [26] per Nettle JA, Beach JA and McMillan AJA agreeing. See also 7.20. 53. Vasudevan (as joint and several liquidator of Wulguru Retail Investments Pty Ltd) (in liq) v Becon Constructions (Australia) Pty Ltd (2014) 97 ACSR 627; [2014] VSCA 14 at [26] per Nettle JA,

Beach JA and McMillan AJA agreeing. See also 7.20. 54. Vasudevan (as joint and several liquidator of Wulguru Retail Investments Pty Ltd) (in liq) v Becon Constructions (Australia) Pty Ltd (2014) 97 ACSR 627; [2014] VSCA 14 at [26] per Nettle JA, Beach JA and McMillan AJA agreeing. See also 7.20. 55. R v Toohey; Ex parte Attorney-General (NT) (1980) 145 CLR 374, at 386 per Stephen, Mason, Murphy and Aickin JJ. See also Securities Exchange Guarantee Corp Ltd v Samuel Holdings Pty Ltd [2012] 1 Qd R 377 at 402 per Chesterman JA with whom McMurdo P agreed. See also the authorities referred to at 9.43ff. 56. Otzen v Beabout (1947) 75 CLR 116 at 122 per Latham CJ, Dixon, McTiernan and Williams JJ. 57. Vasudevan (as joint and several liquidator of Wulguru Retail Investments Pty Ltd) (in liq) v Becon Constructions (Australia) Pty Ltd (2014) 97 ACSR 627; [2014] VSCA 14 at [16] per Nettle JA, Beach JA and McMillan AJA agreeing. 58. Universal Financial Group v Mortgage Elimination Services (2006) 205 FLR 186 at 212; [2006] NSWSC 1132. 59. Ziade Investments Pty Ltd v Welcome Homes Real Estate Pty Ltd [2006] NSWSC 457; affirmed on appeal in Welcome Homes Real Estate Pty Ltd v Ziade Investments Pty Ltd [2007] NSWCA 167, although the issue under s 588FDA was not considered. See also Re Lawrence Waterhouse Pty Ltd; Shaw v Minsden Pty Ltd [2011] NSWSC 964 at [281] per Ward J (citing Ziade Investments Pty Ltd v Welcome Homes Real Estate Pty Ltd [2006] NSWSC 457) and Verge v Stinson [2011] WASC 158 at [15] per Sanderson M. 60. Ziade Investments Pty Ltd v Welcome Homes Real Estate Pty Ltd [2006] NSWSC 457 at [89]. 61. Lawrence Waterhouse Pty Ltd; Shaw v Minsden Pty Ltd [2011] NSWSC 964 at [276]–[281] per Ward J. 62. Lawrence Waterhouse Pty Ltd; Shaw v Minsden Pty Ltd [2011] NSWSC 964 at [279] per Ward J. 63. Re Great Wall Resources Pty Ltd (in liq) [2013] NSWSC 354 at [28]–[46]. 64. Re Great Wall Resources Pty Ltd (in liq) [2013] NSWSC 354 at [40]. 65. Re Great Wall Resources Pty Ltd (in liq) [2013] NSWSC 354 at [46]. 66. Re Great Wall Resources Pty Ltd (in liq) [2013] NSWSC 354 at [43] per Brereton J. 67. Re Great Wall Resources Pty Ltd (in liq) [2013] NSWSC 354 at [44] per Brereton J. 68. Vasudevan (as joint and several liquidator of Wulguru Retail Investments Pty Ltd) (in liq) v Becon Constructions (Australia) Pty Ltd (2014) 97 ACSR 627; [2014] VSCA 14. 69. Vasudevan (as joint and several liquidator of Wulguru Retail Investments Pty Ltd) (in liq) v Becon Constructions (Australia) Pty Ltd (2014) 97 ACSR 627; [2014] VSCA 14 at [19] per Nettle JA, Beach JA and McMillan AJA agreeing. 70. Vasudevan (as joint and several liquidator of Wulguru Retail Investments Pty Ltd) (in liq) v Becon Constructions (Australia) Pty Ltd (2014) 97 ACSR 627; [2014] VSCA 14 at [19] per Nettle JA, Beach JA and McMillan AJA agreeing. 71. Vasudevan (as joint and several liquidator of Wulguru Retail Investments Pty Ltd) (in liq) v Becon Constructions (Australia) Pty Ltd (2014) 97 ACSR 627; [2014] VSCA 14 at [20] per Nettle JA, Beach JA and McMillan AJA agreeing. 72. Vasudevan (as joint and several liquidator of Wulguru Retail Investments Pty Ltd) (in liq) v Becon Constructions (Australia) Pty Ltd (2014) 97 ACSR 627; [2014] VSCA 14 at [21] per Nettle JA, Beach JA and McMillan AJA agreeing. 73. Re Great Wall Resources Pty Ltd (in liq) [2013] NSWSC 354 at [43]

74. Vasudevan (as joint and several liquidator of Wulguru Retail Investments Pty Ltd) (in liq) v Becon Constructions (Australia) Pty Ltd (2014) 97 ACSR 627; [2014] VSCA 14, at [22] per Nettle JA, Beach JA and McMillan AJA agreeing. 75. Vasudevan (as joint and several liquidator of Wulguru Retail Investments Pty Ltd) (in liq) v Becon Constructions (Australia) Pty Ltd (2014) 97 ACSR 627; [2014] VSCA 14, at [23] per Nettle JA, Beach JA and McMillan AJA agreeing. 76. Vasudevan (as joint and several liquidator of Wulguru Retail Investments Pty Ltd) (in liq) v Becon Constructions (Australia) Pty Ltd (2014) 97 ACSR 627; [2014] VSCA 14, at [24] per Nettle JA, Beach JA and McMillan AJA agreeing. 77. Vasudevan (as joint and several liquidator of Wulguru Retail Investments Pty Ltd) (in liq) v Becon Constructions (Australia) Pty Ltd (2014) 97 ACSR 627; [2014] VSCA 14, at [22] per Nettle JA, Beach JA and McMillan AJA agreeing. 78. Paragraph [44] of Brereton J’s decision in Great Wall is set out at 7.23. 79. Vasudevan (as joint and several liquidator of Wulguru Retail Investments Pty Ltd) (in liq) v Becon Constructions (Australia) Pty Ltd (2014) 97 ACSR 627; [2014] VSCA 14, at [26] per Nettle JA, Beach JA and McMillan AJA agreeing. 80. Vasudevan (as joint and several liquidator of Wulguru Retail Investments Pty Ltd) (in liq) v Becon Constructions (Australia) Pty Ltd (2014) 97 ACSR 627; [2014] VSCA 14 at [28] per Nettle JA, Beach JA and McMillan AJA agreeing. 81. Ziade Investments Pty Ltd v Welcome Homes Real Estate Pty Ltd [2006] NSWSC 457; affirmed on appeal in Welcome Homes Real Estate Pty Ltd v Ziade Investments Pty Ltd [2007] NSWCA 167, although the issue under s 588FDA was no considered. See also Re Lawrence Waterhouse Pty Ltd; Shaw v Minsden Pty Ltd [2011] NSWSC 964 at [281] per Ward J (citing Ziade Investments Pty Ltd v Welcome Homes Real Estate Pty Ltd [2006] NSWSC 457) and Verge v Stinson [2011] WASC 158 at [15] per Sanderson M. 82. Rivarolo Holdings Pty Ltd v Casa Tua (Sales) Pty Ltd (1997) 24 ACSR 105. 83. Skouloudis Group Pty Ltd (in liq) v Planet Enterprizes Pty Ltd (2002) 41 ACSR 369; [2002] NSWSC 239. 84. Ziade Investments Pty Ltd v Welcome Homes Real Estate Pty Ltd [2006] NSWSC 457 affirmed on appeal in Welcome Homes Real Estate Pty Ltd v Ziade Investments Pty Ltd [2007] NSWCA 167 although the issue under s 588FDA was not considered. See also Re Lawrence Waterhouse Pty Ltd; Shaw v Minsden Pty Ltd [2011] NSWSC 964 at [281] per Ward J (citing Ziade Investments Pty Ltd v Welcome Homes Real Estate Pty Ltd [2006] NSWSC 457) and Verge v Stinson [2011] WASC 158 at [15] per Sanderson M. 85. Re Great Wall Resources Pty Ltd (in liq) [2013] NSWSC 354. 86. Australian Securities Commission v Marlborough Gold Mines Ltd (1993) 112 ALR 627 at 629; 10 ACSR 230 at 232; 87. Strazdins and Cooper (as liquidators of the Smart Company Pty Ltd (in liq)) v Tomazou & Enterprise Global Resources Pty Ltd [2010] SASC 262 at [67] and [68] per Withers J. For a discussion see Chapter 5 at 5.7ff. 88. Fielding (as liquidator of Lyngray Developments Pty Ltd) v Dushas [2013] QCA 55 at [40]. 89. Lewis (as liquidator of Doran Constructions Pty Ltd (in liq)) v Doran (2005) 219 ALR 555; [2005] NSWCA 243 at [157] per Giles JA citing Tosich Construction Pty Ltd (in liq) v Tosich (1997) 78 FCR 363 at 367 in relation to s 588FB. 90. McDonald v Hanselmann (1998) 28 ACSR 49 at 56 per Young J; Fielding (as liquidator of Lyngray

Developments Pty Ltd) v Dushas [2013] QCA 55 at [40]. 91. Fielding (as liquidator of Lyngray Developments Pty Ltd) v Dushas [2013] QCA 55 at [40]. 92. Re Kazar; Frontier Architects Pty Ltd (in liq) (2010) 81 ACSR 158; [2010] FCA 1381 at [23]. 93. Re Kazar; Frontier Architects Pty Ltd (in liq) (2010) 81 ACSR 158; [2010] FCA 1381 at [23] per Flick J; International Cat Manufacturing Pty Ltd (in liq) v Rodrick [2013] QSC 91 at [121]. 94. Re Lawrence Waterhouse Pty Ltd (in liq); Shaw v Minsden Pty Ltd [2011] NSWSC 964 at [277] per Ward J. 95. Slaven v Menegazzo [2009] ACTSC 94. 96. Slaven v Menegazzo [2009] ACTSC 94 at [46]. 97. Woodgate v Fawcett (2008) 67 ACSR 611; [2008] NSWSC 868 at [96]–[109]. 98. Woodgate v Fawcett (2008) 67 ACSR 611; [2008] NSWSC 868 at [108]. 99. Re Lesvos Pty Ltd [2012] NSWSC 1288 at [22]–[23] per Brereton J. 100. Fielding (as liquidator of Lyngray Developments Pty Ltd) v Dushas [2013] QCA 55 at [26], [63]. 101. Merrag Pty Ltd (in liq) v Khoury [2009] NSWSC 915 at [86]–[89]; Van Der Velde v Ng (No 3) [2009] FCA 1653 at [37]; affirmed Ng v Van Der Velde [2011] FCAFC 35. 102. WA School Bus Services Pty Ltd (in liq) v Clover [2012] WASC 381 at [8], [10]. 103. Warner v Hung; Re Bellpac Pty Ltd (recs and mgrs apptd) (in liq) [2011] FCA 1123 at [161] to [180], per Emmett J, affirmed Re Hung v Warner; Bellpac Pty Ltd (recs and mgrs apptd) (in liq) [2013] FCAFC 48. 104. Slaven v Clinton John Menegazzo [2009] ACTSC 94. 105. Re Lesvos Pty Ltd [2012] NSWSC 1288 at [22] per Brereton J. 106. Section 588FE(6A). See 8.19 for a more detailed discussion.

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8 Voidable Transactions INTRODUCTION 8.1 As seen in Chapters 4 to 7, sections 588FA to 588FE are concerned with the delineation and definition of types or classes of transactions.1 Those sections lay down criteria against which a transaction must be assessed in order to decide whether it is voidable within the meaning of s 588FE.2 As will be seen below, the statutory concept of ‘voidable transaction’ found in s 588FE3 is central to the operation of Pt 5.7B and once a court is satisfied that a transaction is a ‘voidable transaction’ because of s 588FE, the court’s jurisdiction is enlivened to make an order under s 588FF. Under s 588FF, the court may make a wide variety of orders4 and it is clear from a plain reading of s 588FF that Parliament intended the court to be given flexibility in the framing of orders. A conclusion that a transaction falls within one or more of the classes relevant to the operation of Div 2 of Pt 5.7B does not, of itself, cause any right or obligation to arise.5 In particular, a conclusion that a particular transaction is a ‘voidable transaction’ does not indicate the availability of general law contractual remedies in relation to the transaction.6 ‘Voidable transaction’ is merely a statutory label relevant to the working of the statutory provisions which refer to ‘voidable transactions.’7 8.2 As mentioned in Chapter 1, the purpose of Pt 5.7B is to protect unsecured creditors8 by redressing imbalance to the detriment of the [page 308] general body of creditors resulting from favourable treatment of certain persons

in transactions undertaken while the company was still a going concern.9 In contrast with the previous regime where transactions were declared ‘void’ as against the liquidator in certain circumstances, the object of the remedial provision found in s 588FF is to provide the court with flexibility in the making of orders. As the Explanatory Memorandum to the Corporate Law Reform Bill 1992 (EM to the CLR Bill) explains: The Court under proposed section 588FF is given a number of options for the making of orders, including orders which would effect compensation to the company, transfer of assets to the company, indemnification of the company or variation of an agreement … Proposed section 588FF is an ‘enabling provision’, giving the Court very wide powers to make appropriate orders in respect of voidable transactions to fit the particular circumstances. Under the Bankruptcy Act, the characterisation of the transaction as being one to which sections 120 to 122 apply renders the transaction void against a trustee in bankruptcy and, by virtue of Corporations Law section 565, void against a liquidator. Consequently, the Court is not involved and therefore there is less flexibility to do justice between the parties, when one or more may be innocent of any ‘wrong doing’.10

8.3 This chapter discusses the conceptual and practical aspects of voidable transactions and the types of orders the court can make under s 588FF and also when the court cannot make such orders. For a discussion of procedural matters relating to proceedings involving voidable transactions, see Chapter 11.

History of voidable transaction provisions 8.4 One of the earliest pieces of legislation for the avoiding of transactions for the benefit of creditors was the Fraudulent Conveyances Act of 157111 also known as the Statute of Elizabeth.12 The Fraudulent [page 309] Conveyances Act was enacted for the purpose of avoiding certain fraudulent transactions where the debtor’s intention was to ‘delay, hinder or defraud creditors’. The preamble to the Act provided that: For the avoiding of feigned, covinous and fraudulent feoffments, gifts, grants, alienations, bonds, suits, judgments and executions, as well of lands and in tenements, as of goods and chattels … which feoffments, gifts, grants etc have been and are devised and contrived of malice, fraud, covin, collusion or guile to the end, purpose and intent to delay, hinder or defraud creditors and others of their just and lawful actions, suits, debts, etc; not only to the let or hindrance of the due course and execution of law and justice, but also to the overthrow of all true and plain dealing, bargaining and chevisance between man and man, without the which no commonwealth or civil society can be maintained or continued.

Every such ‘feoffment, gift, grant etc’13 was declared ‘to be clearly and utterly void’.14 Despite modification of the language over the years, the policy of the Fraudulent Conveyances Act persists to this day and is found most notably in s 121 of the Bankruptcy Act 1966 (Cth) (Bankruptcy Act 1966)15 and of course Pt 5.7B of the Corporations Act 2001 (Cth) (Corporations Act).16 Even today, however, the relevant provisions of the Bankruptcy Act 1966 still provide that certain transactions of the debtor are ‘void’ as against the trustee in bankruptcy.17

Interpretation of void as voidable in previous voidable transaction provisions 8.5 Despite the use of the word void in subsequent insolvency statutes,18 the courts always interpreted ‘void’ as meaning voidable. In Re Williams; [page 310] Williams v Lloyd, Dixon J explained in relation to former s 94(1) of the Bankruptcy Act19 (1924–1932) that: Section 94(1) does not avoid the entire transaction for all purposes. It makes the ‘settlement’ void against the trustee in the bankruptcy. Such a provision means voidable at the instance of the trustee as from the time as at which his title accrues (Re Brall; Ex parte Norton [1893] 2 QB 381; Re Carter & Kenderdine’s Contract [1897] 1 Ch 776). It invalidates the ‘settlement’ only ‘against the trustee,’ which means for the purpose of letting in his claim; in order that his demand may be given effect to (Ex parte Blaiberg; Re Toomer (1883) 23 Ch D 588; Sanguinetti v Stuckey’s Banking Co [1895] 1 Ch 176). In all other respects and after the demands of the trustee have been satisfied the settlement stands (compare Curtis v Price (1805) 12 Ves J 89 at 103, per Sir W Grant M R; Re Sims; Ex parte Sheffield (1896) 3 Mans 340). To bring about this result it is enough if the provision includes and nullifies the transmutation of the beneficial interest, or in other words makes ineffectual every step taken by the bankrupt which would otherwise cause the beneficial interest to pass.20

Likewise, in Brady v Stapleton21 Dixon CJ and Fullagar J observed: The truth seems to be that, although the statute uses, and most emphatically uses, the word ‘void’, the courts have always treated a fraudulent assignment as effective unless and until a creditor or creditors intervene by levying execution or taking legal proceedings. In Shears v Rogers (1832) 3 B & Ad 362 Littledale J said: ‘The assignment was void as soon as the creditors claimed to treat it as such, though not until then’: cf Bessey v Windham (1844) 6 QB 172 per Lord Denman CJ. In Morewood v South Yorkshire Railway & River Dun Co (1858) 3 H & N 798 at 800 per Pollock CB, in the course of argument, said: ‘“Void” does not mean utterly and absolutely void, but void sub modo.’

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Early case law also established that any transaction that may have been captured by the various Bankruptcy Act provisions mentioned above was not affected unless and until action was taken by the trustee and an order was made by the court.22 As Lindgren J explained in Anscor Pty Ltd v Clout (Trustee): ‘Void’ in the expression ‘void against the trustee’ in s 120 (as in ss 121 and 122) means ‘voidable’, so that where the debtor/later bankrupt (or a transferee from the debtor) transfers property for no consideration or a consideration less than market value, within the time specified in the section, the transferee (and an acquirer from the transferee) takes a good title, but one which may, depending on the circumstances, be defeated if the trustee elects to avoid the transfer by the debtor/bankrupt: among numerous authorities, see Re Vansittart; Ex parte Brown [1893] 2 QB 377; Re Brall; Ex parte Norton [1893] 2 QB 381 (Brall); Re Carter and Kenderdine’s Contract [1897] 1 Ch 776 …23

As explained below, this position persists under Pt 5.7B. 8.6 Once a transaction was captured by the relevant provisions, however, the court had wide scope to grant appropriate relief effectively reversing the transaction. As the High Court explained in NA Kratzmann Pty Ltd (in liq) v Tucker (No 2): Section 95 of the Bankruptcy Act, of course, dealt not only with payments of money having the effect of giving a preference to a creditor; it dealt also with conveyances and transfers of property, charges upon property and judicial proceedings taken or suffered by a person unable to pay his debts as they became due from his own money having such an effect. The consequences of avoiding transactions or dealings of such an assorted character may well differ from case to case but there can be no doubt that the Court may, in an appropriate case, make not only a declaration but also afford consequential relief by an appropriate order. It may, for instance, declare a conveyance of land or a transfer of specific chattels void and direct the delivery up of the relevant instrument or a reconveyance of the land to the trustee or a re-transfer of the chattels to him. And this it may do even if the grantee or transferee has been adjudged bankrupt before the declaration was made. In such a case the avoidance of the

[page 312] conveyance or transfer annihilates, as against the trustee, the title of the grantee or transferee and means that the trustee may assert his bankrupt’s original title and (deny that the land or chattels form part of the estate of the bankrupt grantee or transferee.24

The wide scope of powers available to the court continues under Pt 5.7B and is to be found in s 588FF.25

SPECIES OF VOIDABLE TRANSACTION (S 588FE)

8.7 As mentioned in Chapter 2, s 588FE(1) provides that if a company is being wound up, a transaction may be voidable because of any one or more of subss 588FE(2)–(6)26 or because of s 588FE(6A). Section 588FE(2)–(6A) sets out eight separate instances in which a transaction will be voidable27 for the purposes of Pt 5.7B. Each of subss 588FE(2)–(6) sets out various cumulative criteria necessary to give the relevant transaction the quality of being ‘voidable’ in the statutory sense.

Insolvent transactions (ss 588FC and 588FE(2)) 8.8 By far the most common species of voidable transactions are ‘insolvent transactions’ which are defined in s 588FC (the elements of which are discussed at 8.9). In addition to satisfying the requirements of an insolvent transaction, the transaction will only be voidable if it is entered into within a certain time of the company’s winding up. A transaction will usually be voidable under s 588FE if it is an ‘insolvent transaction’ of a company and it was entered into, or an act was done for the purpose of giving effect to it: during the six months ending on the relation-back day;28 or after the relation-back day but on or before the day when the winding up began.29 The period during which a transaction will be susceptible to being voidable is often referred to as the ‘relation-back period’ and in the case of an insolvent transaction, may vary from a period of six months up to a period of 10 years.30 [page 313]

Elements of an insolvent transaction 8.9 There are three broad elements of an insolvent transaction under s 588FC as follows: 1. there must be a transaction31 of a company;32 2. the transaction is either an unfair preference given by the company or an uncommercial transaction of the company;33 and

3. the transaction is entered into or given effect to34 at a time when the company is insolvent35 or, alternatively, the company becomes insolvent because of entering into the transaction or giving effect to the transaction.36 Because different time periods apply to,37 and different consequences result from, the characterisation of a transaction,38 s 588FC is used as a drafting device, to ‘build up’ to the definition of a voidable transaction.39 The statutory concept of ‘insolvent transaction’ looks to both the character and nature of the transaction and the relationship that particular transaction has with the company’s insolvency. This latter point in turn looks to either the timing of the transaction (and whether or not the timing of the transaction coincides with the insolvency of a company) or the effect of the transaction (and whether the transaction or things done in giving effect to the transaction cause the company to become insolvent).40 8.10 By its terms, s 588FC requires the liquidator to prove that the company was insolvent, or became insolvent, because of the transaction, or an act giving effect to the transaction. The words ‘because of’ in s 588FC(b) require a causal nexus between the transaction, or an act giving effect to it, and the insolvency of the company. The nature of the causal nexus was considered by the New South Wales Court of Appeal [page 314] in Lewis (as liquidator of Doran Constructions Pty Ltd) v Doran41 where Giles JA said that an expansive notion of causation was inconsistent with the purpose of avoidance provisions, and that: Where s 588FC(b) looks to an act or omission causing or contributing to insolvency, the insolvency should be quite closely related to the entry into or giving effect to the transaction; if it were not so, the provisions would not guide conduct towards validity, but would avoid transactions because of the turn of later events.

His Honour’s reasoning rested in part on the proposition that an uncommercial transaction was permissible, at least so far as the avoidance provisions are concerned, if the company was solvent and did not become insolvent because of the transaction, or an act giving effect to it, and that directors should be able to conduct the affairs of the company without ‘running foul’42 of the avoidance provisions. 8.11 The causal requirement in s 588FC(b) is satisfied if the transaction, or

the act or omission which took place for the purpose of giving effect to it, is a cause of the company’s insolvency.43 The use of the word ‘person’ in s 588FC(b) (ii) means that the relevant act or omission need not be an act of the company itself. For example, in Campbell Street Theatre Pty Ltd (rec and mgr apptd) (in liq) v Commercial Mortgage Trade Pty Ltd44 Black J accepted the evidence of an expert that the company became immediately insolvent on the execution of an agreement, that in effect required the company to make a payment on execution of the agreement, when the company had no funds to make the payment. 8.12 In 2007, ss 588FE(2A)–(2B) were introduced by the Corporations Amendment (Insolvency) Act 2007 (Cth) (effective 31 December 2007). Those two subsections deal respectively with voidable transactions when a company was under administration immediately before being wound up and when a company is under voluntary administration. Subsections 588FE(2A) and (2B) were enacted to reflect recommendations of the [page 315] Corporations and Markets Advisory Committee report, Corporate Voluntary Administration, 1998.45 The recommendations followed the identification of two lacunae in the voidable transaction provisions prior to 31 December 2007 — none of the then voidable transaction provisions applied where they took place after the beginning of an administration that preceded a winding up, and the voidable transaction provisions did not apply to transactions effected during a voluntary administration that preceded a winding up.

Where company in administration or subject to deed of company arrangement before being wound up (ss 588FE(2A) and (2B)) 8.13 Under s 588FE(2A), a transaction is voidable if it is: (a) either an uncommercial transaction46 of the company, an unfair preference47 given by the company to a creditor of the company, an unfair loan48 to the company or an unreasonable director-related transaction49 of the company;50 and (b) the company was under administration immediately before the company

resolved by special resolution that it be wound up voluntarily or the court ordered that the company be wound up;51 and (c) the transaction was entered into, or an act was done for the purpose of giving effect to it, during the period beginning at the start of the relationback day and ending when the company made the special resolution that it be wound up voluntarily or when the court made the order that the company be wound up;52 and (d) the transaction, or the act done for the purpose of giving effect to it, was not entered into, or done, on behalf of the company by, or under the authority of, the administrator of the company.53 [page 316] 8.14 Under s 588FE(2B), a transaction is voidable if: (a) the transaction is either an uncommercial transaction of the company, an unfair preference given by the company to a creditor of the company, an unfair loan to the company or an unreasonable director-related transaction of the company; and (b) the company was subject to a deed of company arrangement immediately before the company resolved by special resolution that it be wound up voluntarily or the court ordered that the company be wound up; and (c) the transaction was entered into, or an act was done for the purpose of giving effect to it, during the period beginning at the start of the relationback day and ending when the company made the special resolution that it be wound up voluntarily or when the court made the order that the company be wound up; and (d) the transaction, or the act done for the purpose of giving effect to it, was not entered into, or done, on behalf of the company by, or under the authority of the administrator of the deed or, alternatively, the administrator of the company.

Uncommercial transactions (s 588FE(3)) 8.15 Under s 588FE(3), a transaction is voidable if it is an insolvent

transaction, and also an uncommercial transaction of the company and it was entered into, or an act was done for the purpose of giving effect to it, during the two years ending on the relation-back day. The wording of this provision appears to make s 588FE(2) redundant in the sense that in some cases an insolvent transaction will also include an uncommercial transaction by virtue of the definition in s 588FC.

Insolvent transaction where related entity a party (s 588FE(4)) 8.16 This section requires the following three elements to be satisfied in order for a transaction to be voidable: (a) the transaction54 is an insolvent transaction55 of the company; and (b) a related entity of the company is a party56 to it; and (c) the transaction was entered into, or an act was done for the purpose of giving effect to it, during the four years ending on the relation-back day. [page 317] The expression ‘related entity’ is defined broadly in s 9 to mean any of the twelve examples set out in the definition.57 The examples given in turn refer to numerous other definitions contained in the Corporations Act. For example, item (e) of the definition of ‘related entity’ in s 9 refers to a ‘relative of a director’. The expression ‘relative’ is defined in s 9 to mean, in relation to a person the spouse, parent or remoter lineal ancestor, child or remoter issue, or brother or sister of the person. The Corporations Act in turn provides definitions for spouse, parent and child.58 Section 588FE(4) was considered by the Full Federal Court in Macquarie Health Corp Ltd v Commissioner of Taxation.59 In that case, the Commissioner of Taxation served notices on a company under s 218 of the Income Tax Assessment Act 1936 (Cth) (ITAA 1936). The Commissioner of Taxation then applied to have the company wound up; however, an administrator was appointed under s 436A. Section 218 of the ITAA 1936 relevantly provided that the Commissioner may at any time, by notice in writing, require any person by whom any money is due or accruing or may become due, to a taxpayer to pay to

the Commissioner such amount that is specified in the notice. The company was eventually wound up and the liquidator applied to have various of the s 218 notices issued by the Commissioner of Taxation set aside on the basis that they were insolvent transactions. The Full Federal Court comprising Hill, Sackville and Finn JJ rejected the liquidator’s claim, stating that: In our view, neither the service of the s 218 notices by the Commissioner nor any payments by the debtors pursuant to the notices could constitute a ‘transaction of the company’ within s 588FE(4) of the Corporations Law. A fortiori, the taxpayer and the Commissioner were not both parties to any relevant transaction. The taxpayer itself did not engage in any conduct that had the effect of changing its rights, liabilities or property. The only relevant conduct was engaged in by the Commissioner and, if regard is had to any payment pursuant to the notices, by the debtor.60

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Defeating the rights of creditors etc (s 588FE(5)) 8.17 Section 588FE(5) provides that a transaction is voidable if: (a) it is an insolvent transaction61 of the company; and (b) the company became a party62 to the transaction for the purpose, or for the purposes including the purpose, of defeating, delaying, or interfering with, the rights of any or all of its creditors on a winding up of the company; and (c) the transaction was entered into, or an act done was for the purpose of giving effect to the transaction, during the 10 years ending on the relation-back day.

This provision is similar to provisions that appear in the non-insolvency context such as s 37A of the Conveyancing Act 1919 (NSW) which provides, relevantly: … every alienation of property… with intent to defraud creditors, shall be voidable at the instance of any person thereby prejudiced.

Section 37A is a provision with a long history and is a descendant of the Fraudulent Conveyances Act 1571 (13 Eliz I, c 5). The meaning and effect of s 37A was explained by the High Court in Marcolongo v Chen63 where French CJ, Gummow, Crennan and Bell JJ quoted with approval the following observations of Russell LJ in Lloyds Bank Ltd v Marcan: I am not sure what is meant by a perfectly innocent defeat, hindrance or delay. It must be remembered that in every case under this section the debtor has done something which in law he has power and is entitled to do: otherwise it would never reach the section. If he disposes of an asset which would be available to his creditors with the intention of prejudicing them by putting it, or its worth, beyond their reach, he is in the ordinary case acting in a fashion not honest in the context of the relationship of debtor and creditor. And in cases of voluntary disposition that intention may be inferred. … The

intention of Mr Marcan is perfectly plain: the lease to his wife was designed expressly to deprive the bank of the ability to obtain the vacant possession to which the bank plainly attributed value, and to diminish to that extent the strength of the bank’s position as creditor. To take that action at that juncture, in my judgment, was, in the context of relationship of debtor and creditor, less than honest: it was sharp practice, and not the less so because he was advised that he had power to grant the lease. It was, in my judgment, a transaction made with intent to defraud the bank within section 172, and would have been within the [Elizabethan Statute].64

[page 319] In Billingham v Whyte,65 Barrett J held that s 37A of the Conveyancing Act applied to a company. In that case, Barrett J referred approvingly to a passage by Drummond J in Official Trustee in Bankruptcy v Baker: [W]hen one person intends to pass his property to another in order to deprive actual creditors or identifiable potential creditors of timely recourse to the property and he does that in what, as a matter of fact, can be identified as a single transaction, it does not matter whether the transaction comprises a single step, eg, an assignment of the property directly from disponor to disponee or whether, as here, a number of steps involving persons additional to the original disponor and the person he intends to be the ultimate recipient of his property are involved: the term ‘disposition’ is wide enough to cover both kinds of transaction. It is true that a disposition of property will occur immediately the owner divests himself of a right in that property by transferring it or by diminishing his interest in the property, eg by encumbering it. But the ordinary meaning of ‘disposition’ is, according to the Shorter Oxford English Dictionary, ‘arrangement (of affairs, measures etc), especially for the accomplishment of a purpose or plan’. The term used in its ordinary sense is apt to describe the accomplishment of a plan by the implementation of a number of separate steps all taken to achieve the planned objective.66

Unfair loan (s 588FE(6)) 8.18 A transaction will also be voidable if it is an unfair loan to the company made at any time on or before the day when the winding up began. This provision is notable in that there is no limitation period specified as to when an unfair loan will be voidable.67

Unreasonable director-related transaction (s 588FE(6A)) 8.19 Section 588FE(6A) provides that a transaction will be voidable if: (a) it is an unreasonable director-related transaction of the company; and (b) it was entered into, or an act was done for the purposes of giving effect to it during the four years ending on the relation-back day or after that day but

on or before the day when the winding up began. Section 588FE(7) provides that a reference in s 588FE to doing an act also includes a reference to making an omission.68 [page 320] As mentioned in Chapter 7,69 the liquidator does not need to establish insolvency in order to obtain relief under s 588FF if it is established that a transaction is an unreasonable director-related transaction. Section 588FDA only applies if the relevant transaction was entered into after the commencement of the amendments on 11 April 2003.70

TRANSACTION NOT VOIDABLE IN THE GENERAL LAW SENSE 8.20 Despite its central role in Pt 5.7B, there is no definition of the expression ‘voidable’ or ‘voidable transaction’. The Macquarie Dictionary defines the adjective ‘voidable’ as meaning ‘capable of being avoided … capable of being made or adjudged void’. At general law, for example, a distinction is drawn between contracts that are ‘void’ and those that are merely ‘voidable’.71 As Latham CJ explained in Commonwealth Homes and Investment Co Ltd v Smith: The question which arises is not one of a distinction between a voidable contract and what is sometimes called a void contract. A voidable contract is a contract which in fact has been created, but which one party is entitled to avoid, for example, on the ground of some invalidating circumstance, such as fraud. A void contract is strictly a contradiction in terms, but the phrase is conveniently used to describe cases where what appears to be a contract is not really a contract and never has been a contract …72

As will be seen below, however, no provision of Pt 5.7B actually operates to make any transaction caught by its operation ‘voidable’.73 Indeed, the expression ‘voidable transaction’ is, on one view, a misnomer. The consequence of a transaction being characterised as a ‘voidable transaction’ is that such a transaction becomes susceptible to being [page 321]

avoided or ‘reviewed’ under Pt 5.7B.74 As Barrett J explained in New Cap Reinsurance Corporation Ltd v AE Grant: The important point is that, although Div 2 of Pt 5.7B of the Corporations Act is, according to its heading, concerned with ‘voidable transactions’, its provisions do not operate upon concluded transactions so as to deprive them of efficacy or effect. Neither the statutory provisions nor orders of the court made under them cause the relevant ‘transaction’ to be ‘void’ (although the particular type of order authorised by s 588FF(1)(h) may cause ‘an agreement constituting, forming part of, or relating to’ the relevant transaction to be ‘void’). On the contrary, the provisions direct the court to take transactions as it finds them. If a particular transaction has particular characteristics, the court has statutory jurisdiction to make one or more of the orders specified in s 588FF(1).75

Likewise, in Hall v Ledge Finance Ltd,76 Barrett J explained: Despite use of the word ‘voidable’ as a label in Part 5.7B and references, in general parlance about Part 5.7B, to the ‘avoidance’ of transactions and the ‘recovery’ of moneys related to transactions, the statutory provisions are not concerned with undoing transactions or re-arranging the financial relationships of parties to transactions, vis-à-vis those transactions themselves. They do not involve reliance on contractual rights or the contractual consequences of events. The liquidator, in pursuing the statutory cause of action, does not sue upon a contract or for restitution consequent upon the invalidity of a transaction. Nor is the liquidator affected by any vitiating elements to which a transaction may be subject, except to the extent that those elements may be shown by a defendant to make unavailable the ‘transaction’ foundation for the liquidator’s claim, in the sense that there never was in truth a transaction (even one liable to be rescinded or declared void). The liquidator’s task is merely to prove facts justifying a conclusion that the company became party to a ‘transaction’ described in s 588FA, s 588FB, s 588FC or was the borrower under a loan described in s 588FD. If any of those things is proved and if, in addition, elements are shown as referred to in a sub-section of s 588FE such as to cause the transaction to be given by s 588FE the statutory designation ‘voidable’, the liquidator has access to the statutory jurisdiction conferred on the court by s 588FF(1).77

[page 322] Similarly, in Tolcher v National Australia Bank Ltd,78 Palmer J observed that an order under s 588FF(1) vindicates ‘not property rights which the company itself would have had prior to liquidation, but rather statutory rights which the liquidator alone has under [the statutory scheme in consequence of winding up]’. In Kazar (liquidator) v Kargarian; Re Frontier Architects Pty Ltd (in liq)79 Greenwood, Rares and Foster JJ took a similar view: The sole basis upon which the appellant made his claim in the Techno Build proceeding was that the transaction pursuant to which the house was constructed on the Nicholls property was an unreasonable director-related transaction and was thus voidable as against the appellant. This claim was sourced in ss 588FDA, 588FE(6A) and 588FF of the Corporations Act. When a transaction is voidable, in order to render it void, the party against whom it is voidable must elect to avoid the transaction and must communicate that election to the other party or parties to the transaction. Unless and until the party entitled to avoid the transaction takes those steps, the transaction remains effective.80

The meaning of voidable in the context of Pt 5.7B 8.21 As mentioned above, prior to the introduction of Pt 5.7B, ss 120–122 of the Bankruptcy Act 1966 (Cth) rendered certain transactions ‘void’ against the trustee in bankruptcy and, by virtue of s 565 of the Corporations Law, void against a liquidator.81 Section 588FF was intended to provide the court with a more active role in shaping appropriate relief. In BP Australia Ltd v Brown,82 Spigelman CJ explained the changes effected by Pt 5.7B: … The new regime [now Pt 5.7B of the 2001 Act] recommended by the Harmer Report expanded the range of pre-liquidation transactions which could be avoided and, significantly for present purposes, enhanced the armoury of liquidators in a number of ways, not least by enabling the court to make a wide range of rectifying orders. These were identified in s 588FF(1).

[page 323] That subsection represented a substantial change to the pre-existing scheme. Prior to Pt 5.7B, the practice was for the court to declare a disposition to be void with the consequences left to the general law, together with some statutory powers of limited scope such as s 567 of the Corporations Law. Section 588FF(1) identifies a range of specific orders that can be made and which are more focused and more comprehensive than the orders that were hitherto available by way of relief under the general law or statute. The extension of the ability of liquidators to act on behalf of the general body of creditors, by broadening the range of antecedent transactions that were susceptible to avoidance, curing the preexisting uncertainty as to the applicability of provisions such as s 120 of the Bankruptcy Act (see A Keay, Avoidance Provisions in Involvency Law, LBC , 1997 at 70) and clarifying the orders that can be made, was balanced by a requirement for greater expedition in the conduct of a liquidation.83

Notwithstanding the expansion of the type of orders that can now be made by the court, the fundamental policy underlying such avoidance provisions has been maintained.84 Similarly, the language in s 588FF(1) contemplating payments of money to the company, did not radically alter the practice as it existed under the previous regime. The commonality between the two regimes in this regard was explained by Santow J in SJP Formwork (Aust) Pty Ltd v Deputy Commissioner of Taxation.85 In that case, the court made orders in favour of the liquidators (the plaintiffs) against the Deputy Commissioner of Taxation as follows: … Pursuant to section 588FF of the Corporations Law, the Defendant pay to the Plaintiffs the sum of $180,000 within 28 days of the date of this order …86

The Deputy Commissioner then sought an indemnity from the directors under s 588FGA. The directors resisted the Deputy Commissioner’s claim on the basis that the orders made by the court were not made under s 588FF because they were made in favour of both plaintiffs (being both the company and the

liquidators). The directors argued that the reference to the liquidators in the order was fatal to the orders being ‘under section 588FF’. Santow J rejected the argument: The short answer to this submission is to be found in the long established authority of NA Kratzmann Pty Ltd (in liq) v Tucker (No 2) (1968) 123 CLR 295; [1968] ALR 616 in particular at CLR 300–1: explained further

[page 324] in Mineral & Chemical Traders Pty Ltd v T Tymczyszyn Pty Ltd (in liq) (1994) 15 ACSR 398 at 416–7 per Santow J. There the High Court deals with the law as it had long stood since the 1930s. It affirmed that a charge that was not a specific one could not prevail over the trustee in bankruptcy or liquidator when monies were recovered by way of preference. The monies vested in the liquidator on behalf of the company rather than the chargee. Significantly the orders made in Kratzmann recognised that legal outcome by affirming that the monies were to be paid to the company in liquidation, not, be it noted, to the liquidator; see the trial judge at CLR 296 and as made by the High Court at CLR 304, where the reference is again to payment ‘to the respondent’ being the company in liquidation. Thus even with the liquidation of companies governed by a regime that made voidness of preferences against the liquidator, the conventional order in relation to a recovered preference contemplated payment to the company; obviously a company in control of its liquidator who would then via the liquidator apply the money in accordance with the Kratzmann principles for the benefit of unsecured creditors, not for the benefit of any chargee. While the drafting of the present orders referred in the plural to the plaintiffs, that drafting should be understood as being simply recognition, albeit not drafted with pellucid clarity, that the payment in question was recovered for the company though necessarily paid to the liquidator on behalf of the company. So understood, the orders meet the description of an order ‘under section 588FF’, for the purposes of s 588FGA of the Corporations Law. That is how I conclude those orders should be understood in the forensic context in which made under a legislative regime which still governs the recovery of preferences by reference to the unaltered Kratzmann principles.87

8.22 It is important to note that s 588FF is solely concerned with enabling the court to make, on the application of the liquidator, a range of orders against other persons in relation to transactions of the company that are voidable because of s 588FE.88 Section 588FF does not necessarily provide a mechanism whereby the company in liquidation ‘attacks’ the other party to a transaction previously entered into by [page 325] the company.89 The conceptual basis of s 588FF has been explained by Barrett J as follows:

To the extent that it is sensible to regard any ‘complaint’ of the liquidator as underlying a s 588FF application, it is, in concept, a complaint on behalf of the company as an embodiment of its creditors’ interests about the conduct of those responsible for the company’s pre-liquidation activities. To the extent that there is an attack, it is an attack upon the actions of the former administration. To the extent that an objective needs to be identified, it is the objective of obtaining, with the assistance of the statute, financial resources to be applied in meeting the claims of creditors and, as to any surplus, those of members. The liquidator seeks to remedy depletion, not to defeat receipt of whatever it was that the creditor received by virtue of the transaction in question. The paragraphs of s 588FF(1) under which the liquidator may obtain an order for the payment of money do not contemplate ‘recovery’ in the sense applicable to damages and debts. The court’s power is simply a power to direct a person to pay money to the company. Any attack on an undue preference or fraudulent conveyance is always an attack on the giver and the giving, not on the recipient and the receipt.90

The object of ‘attack’ is the transaction of the giving by the company of a preference, priority or advantage followed by its winding up.91

Section 588FF only available where a transaction of a company 8.23 An order under s 588FF is only available in respect of a ‘transaction of the company’92 of a particular quality.93 Those particular transactions have been discussed comprehensively in other chapters of this book.94 For a detailed discussion of what constitutes a transaction of a company, see Chapter 3. [page 326]

ORDERS THAT CAN BE MADE WHERE A COURT FINDS VOIDABLE TRANSACTION 8.24 As explained above, despite Div 2 of Pt 5.7B of the Corporations Act being headed ‘voidable transactions’, the relief sought by the liquidator does not operate upon concluded transactions so as to deprive them of efficacy or effect.95 Rather, the court may make ‘one or more of’ the orders specified in s 588FF(1).96 Generally, those orders may be categorised as follows:97

orders directing a person to pay to the company an amount of money;98 orders directing a person to transfer to the company property;99 orders relating to debts incurred, or security or guarantee given by the company — for example releasing or discharging a debt incurred, an order directing a person to indemnify the company in respect of some or all of its liability to the assignee;100 and orders declaring agreements constituting, forming part of, or relating to, a voidable transaction to be void or unenforceable or orders varying such agreements.101 Section 588FF does not constitute an exclusive ‘code’102 for making orders and the court has available to it sufficient flexibility to mould relief accordingly. For example, s 588FF(1)(c) allows the court to make an order ‘… requiring a person to pay to the company an amount that, in the court’s opinion, fairly represents some or all of the benefits that the person has received because of the transaction’.103 Such an order has [page 327] been construed as permitting the court to make an order for interest.104 This flexibility is consistent with Parliament’s intention.105 8.25 Section 588FF(1) must be read subject to subsections (2) and (4). Section 588FF(2) provides that nothing in s 588FF(1) limits the generality of anything else in it. Section 588FF(4) relates specifically to unreasonable director-related transactions and is discussed at 8.40ff.

Benefit of orders under s 588FF 8.26 Although the proper plaintiff for bringing claims for relief under s 588FF is the liquidator,106 the beneficiary of any orders made for the payment of moneys is the company itself.107 Each of paras (a)–(d) and (f) of s 588FF(1) expressly empower the court to make orders so that any benefit flows ‘to the company’. This is in contrast to the position under the previous regime whereby creditors were ordered to pay to the liquidator amounts found to be voidable.108 8.27 As explained above, s 588FF directs the court to take transactions as it

finds them.109 If a particular transaction has particular characteristics then, and only then, does the court have statutory jurisdiction to make one or more of the orders specified in s 588FF(1). Generally, amounts that are recovered by a liquidator under provisions such as s 588FF are for the benefit of unsecured creditors and not secured creditors. As Barrett J explained in Tolcher v National Australia Bank: In each of these cases [ss 588FF and 588FM], it is the liquidator as liquidator who initiates proceedings against another party. If the liquidator is successful in making out his or her case, the result is an order of the court that that other party pay money to the company. Palmer J held in Tolcher v National Australia Bank Ltd (2003) 174 FLR

[page 328] 251 that the particular recoveries with which I am presently concerned were ‘recovered in exercise of rights available only to the liquidator’. As a result, the money received by way of settlement of the claims under ss 588FF and 588M was not property of [the company in liquidation] subject to the [fixed and floating] charge in favour of the [the secured creditor in holder of the charge] but, as Palmer J put it, ‘property which is available for distribution to [the company’s] unsecured creditors in the administration of the winding up’, this being a dichotomy which existed under previous legislation as shown by the High Court’s decision in NA Kratzmann Pty Ltd (in liq) v Tucker (No 2) (1968) 123 CLR 295; [1968] ALR 616.110

For a more detailed discussion of the treatment of secured and unsecured property within the context of the Personal Property Securities Act 2009 (Cth) (PPSA), see Chapter 9. 8.28 There is uncertainty in the case law as to whether moneys recovered under s 588FF are subject to any extant security over company property or instead enure for the benefit of all creditors. Under the previous regime, the position was that any property so recovered was for the benefit of all unsecured creditors and could not, for example, be subjected to any charge. In NA Kratzmann Pty Ltd v Tucker (No 2) the High Court said: But where security has been given by a bankrupt over all of his assets and a payment to a creditor is made by him out of moneys subject to the charge and the payment is, as against the trustee, subsequently declared void as a preference the moneys paid, when recovered, will not be subject to the charge. In such a case it may be said that although the moneys paid as a preference were at the time of payment subject to the charge, the moneys recovered by the trustee are not the same moneys and that they do not,

[page 329]

by virtue of payment to the trustee, become moneys of the bankrupt or in any way subject to the charge; when recovered they become the moneys of the trustee and his title to them does not depend upon his succession to any title which the bankrupt had.111

In SJP Formwork (Aust) Pty Ltd (in liq) v Deputy Commissioner of Taxation,112 Santow J held that, notwithstanding the enactment of Pt 5.7B, the position that existed under the previous regime as explained by the High Court in Kratzmann persisted. His Honour was fortified in his conclusion by s 588Y which provides that an amount paid to a company under s 588J, s 588K, s 588M or s 588W is not available to pay a secured debt of the company unless all the company’s unsecured debts have been paid in full.113 In Jonsson v Tim Ferrier Pty Ltd,114 Jones J of the Supreme Court of Queensland said, in obiter, that s 588FF(1)(a) appeared to make a change to the position of property recovered by a liquidator in unfair preference actions insofar as it directs that moneys recovered by the liquidator which have been subject to a voidable transaction become the property of the company. His Honour also observed, in obiter, that any such funds recovered by a liquidator under s 588FF would be subject to any charge which a creditor would have over the company’s assets. Finkelstein J examined the position in more detail in Re Cook as liquidator of Italiano Family Fruit Co Pty Ltd (in liq).115 In that case, following an exhaustive review of the authorities, Finkelstein J concluded that acceptance of the proposition that moneys recovered in preference actions are not caught by a charge over the company’s current and future assets, rests on uncertain and, perhaps, unsound rules and distinctions and that: … The question whether a charge should attach to preference recoveries ought not depend on the nature of the property recovered. Saying that money recoveries are held on some kind of trust for creditors explains the mechanism by which that money is excluded from the company’s general assets, but does not explain why it should be excluded in the first place. What is required is a careful consideration of the true role of the avoidance provisions, and, for the purpose of deciding who should benefit from

[page 330] them, an analysis of the competing interests of secured and unsecured creditors as well as an analysis of the liquidator’s ability to seek protection for his/her costs and expenses. As the cases show these are difficult issues not easily solved. The High Court hinted in [G & M Aldridge Pty Ltd v Walsh (2001) 203 CLR 662 at [17]] that it may reconsider Kratzmann. If the High Court does not do so, Parliament should resolve this matter. In any event it is preferably for Parliament to do so, because in no small measure, questions of policy rather than legal principle are involved.116

Types of orders available under s 588FF

Payment of money (s 588FF(1)(a)) 8.29 By far the most common form of order made under s 588FF is that made under para (1)(a) which allows the court to make an order directing a person to pay to the company an amount equal to some or all of the money that the company has paid under the transaction. The purpose of an order under s 588FF(1)(a) for the payment of money to a company in liquidation is not to compensate or make whole that company. The section does not create a proprietary right of any kind in the company.117 In Woodgate v Fawcett,118 for example, the sole director and shareholder of a company made payments on behalf of his parents to discharge the parents’ liability to a mortgagee in the amount of $2,593,295.44. The court found that such a payment was an unfair preference and accordingly ordered the parents to pay the company the amount of $2,593,295.44 together with interest. Likewise, in New Cap Reinsurance Corporation Ltd v AE Grant119 a reinsurer made various payments while it was insolvent to the defendants who were persons associated together as the members of a Lloyd’s syndicate. Barrett J ordered that the full amount of the payments be repaid by the Lloyd’s names notwithstanding that the liquidator had made no formal demand for repayment prior to the commencement of proceedings.120 8.30 The purpose of making an order under s 588FF(1)(a) has been variously described as to avoid the conferring of preferential benefits121 and to adjust the rights of creditors in accordance with the principle of [page 331] pari passu distribution hence alleviating the unfairness associated with the preferential effect of the voidable transaction.122 Barrett J explained the position in New Cap Reinsurance Corp Ltd v AE Grant: The purpose of an order under s 588FF(1)(a) for the payment of money to a company in liquidation is not to compensate or make whole that company. The section does not create a proprietary right of any kind in the company: New Cap Reinsurance Corp Ltd v Faraday Underwriting Ltd (2003) 47 ACSR 306; 177 FLR 52; [2003] NSWSC 842 at [38]; Re Harris Scarfe Ltd (in liq) (2006) 203 FLR 46; [2006] SASC 277 at [26]. As with preference avoidance provisions in bankruptcy, the objective is to adjust the rights of creditors among themselves in such a way as to eliminate the effects of favourable treatment afforded to one or more creditors, to the exclusion of others, in the period immediately before an insolvent administration commences.123

Transfer of property (s 588FF(1)(b)) 8.31 Section 588FF(1)(b) allows the court to make an order directing a person to transfer to the company, property that the company has transferred under the transaction. While a potentially far-reaching power, in practice the power is rarely used by the courts. In Rivarolo Holdings Pty Ltd v Casa Tua (Sales) Pty Ltd124 the liquidators of a company sought orders setting aside a transaction involving the sale by the insolvent company of its assets to the first defendant and a re-transfer of those assets to the company. The first defendant was ordered to transfer to the liquidator the assets still held by the first defendant that were transferred. 8.32 For the court to make an order under s 588FF(1)(b), however, the recipient of the property must be ‘a party to the transaction’.125 For example, in Re Pacific Hardware Brokers (Qld) Pty Ltd126 an engagement ring was purchased with funds from an insolvent company and given to the director’s then fiancée (who subsequently became the director’s wife). The liquidator of the company sought an order from the wife that the ring be returned. The court refused on the basis that the wife could not be considered a party to the transaction because, at the time of receiving [page 332] the ring, she knew nothing of the husband’s business affairs and nothing of the fact that moneys had been diverted from company funds.127

Payment of benefits (s 588FF(1)(c)) 8.33 Section 588FF(1)(c) allows the court to make an order requiring a person to pay to the company an amount that, in the court’s opinion, fairly represents some or all of the benefits that the person has received because of the transaction. In making an order under s 588FF(1)(c), the court does not look to the detriment suffered by the company, but rather ‘some or all of the benefits’ that the purchaser has received.128 This provision has been construed broadly and sufficiently wide enough to empower the court to award interest.129 The New South Wales Court of Appeal has observed that the word ‘benefits’ in s 588FF(1)(c) is construed as meaning something other than money.130 The court does not appear, however, to have been referred to the definition of ‘benefit’ in s

9 of the Act which relevantly provides that ‘benefit’ means any benefit, whether by way of payment of cash or otherwise. 8.34 In Wily v Bartercard Ltd,131 Bartercard Ltd operated as a reciprocal trade exchange by which members of its trading program exchanged goods and services among themselves. A company known as BBX operated as a reciprocal trade exchange under licence from Bartercard. BBX was indebted to Bartercard for a significant amount. In 1996, at a time when BBX was insolvent, Bartercard terminated BBX’s licence and transferred BBX’s business to it. At first instance, the liquidator successfully sought an order under s 588FF(1)(c) that Bartercard pay back to BBX an amount representing the benefit it had obtained as a result of the transfer. In relation to whether Bartercard had received a benefit within the meaning of s 588FF(1)(c), the trial judge (Austin J) found: On 28 August 1996 Bartercard took over the business of the Central Coast brokerage, pursuant to a transaction in which it terminated BBX’s licence. In the same transaction Mr Butcher and BBX acknowledged that $110,020 would be a fair and equitable sum attributable to the value of the brokerage, and that this amount would be set off against the debt owed by BBX to Bartercard. The benefit which it thereby obtained was

[page 333] the business, including its goodwill, customers, plant and equipment and the licence. Consequently, it was no longer under any obligation to pay any licensee a share of the transaction fees received from members. Bartercard submits that it obtained nothing of value. Bartercard says that it was entitled to terminate the licence on that day and had it done so without more, it would have become entitled to take over the customers allocated to the Central Coast brokerage. Bartercard notes that the customers were members of the Bartercard program. Termination had the effect that any asset or value with respect to the business, disappeared. There was no goodwill (citing Commissioner of Taxation v Murry (1998) 72 ALJR 1065). Bartercard submits that Mr Singleton’s valuation, which equates the goodwill of the Central Coast brokerage with the customer base, is unhelpful because the customer base always belonged to Bartercard. It says that BBX’s entitlement to use any part of the customer base came to an end when the licence was terminated. In my opinion Bartercard’s submission is beside the point. The question is not whether the business had any value after the licence was terminated. The question is whether, termination having occurred by arrangement between the parties, Bartercard received a benefit under terms of the arrangement. Mr Singleton’s evidence shows that the goodwill of the business had a value prior to the termination, a conclusion which is supported by other evidence as I have shown. The arrangement between the parties assigned a value to the business of $110,020. By carrying out the arrangement, Bartercard received leased premises and plant and equipment, while also undertaking liabilities for rent and wages and other matters. It was relieved of the obligation to share members’ transaction fees with BBX. In these circumstances it received a benefit.132

On appeal,133 the New South Wales Court of Appeal upheld the trial judge’s decision.

Order in form of proprietary remedy (s 588FF(1)(d)) 8.35 Section 588FF(1)(d) permits the court to order a person to transfer to the company property that, in the court’s opinion, fairly represents the application of money that the company has paid under the transaction or further, or alternatively, proceeds of property that the company has transferred under the transaction. The provision allows the court to craft an order in the form of a proprietary remedy,134 for example where the court has found property is held on behalf of the company under a resulting trust.135 [page 334]

Discharge of debt (s 588FF(1)(e)) 8.36 Under s 588FF(1)(e), the court may make an order releasing or discharging, wholly or partly, a debt incurred, or a security or guarantee given, by the company under or in connection with the transaction. The provision is often utilised by liquidators to relieve a company from the burden of a preliquidation charge over company property. So, in Campbell Street Theatre Pty Ltd (rec and mgr apptd) (in liq) v Commercial Mortgage Trade Pty Ltd136 a company entered into a loan agreement, deed of mandate and fixed and floating registered charge during the time it was insolvent. A receiver was later appointed by the chargeholder. The court found that each of the transactions was an uncommercial transaction, an insolvent transaction and a voidable transaction within the meaning of the Act. The court accordingly ordered that each of the mandate, the loan and the charge and any documents giving effect to them or the transaction, be released or discharged insofar as it might require any payments by the company to the chargeholder be released or discharged insofar as it secured payments to the chargeholder.137

Indemnification of liability to assignee (s 588FF(1)(f)) 8.37 This section allows the court to order a person to indemnify the company in respect of some or all of its liability to the assignee of a debt in the

event the relevant transaction is an unfair loan and a debt, security or guarantee has been assigned. As explained in Chapter 6, cases involving unfair loans are extremely rare and there appear to be no reported decisions in which this provision has been successfully invoked.

Varying or regulating creditor’s right to prove in winding up (s 588FF(1)(g)) 8.38 The court may also make an order providing for the extent to which, and the terms on which, a debt that arose under, or was released or discharged to any extent by or under, the transaction may be proved in a winding up of the company under s 588FF(1)(g). Barrett J explained the nature of the order in New Cap Reinsurance Corporation Ltd v AE Grant as follows: One type of order contemplated by s 588FF(1) does not entail payment of money to the company or variation of the legal relationship between the company and another person. Section 588FF(1)(g) allows the court to make an order varying or regulating a person’s right to prove a debt in

[page 335] the winding up. When winding up commences, a creditor’s right to prove in the winding up replaces pre-existing rights against the company: Motor Terms Co Pty Ltd v Liberty Insurance Ltd (in liq) (1967) 116 CLR 177; [1967] ALR 465. In a s 588FF(1)(g) case, therefore, the court’s order merely redefines the basis on which the person’s right is to be taken into account by the liquidator for the purposes of allocation of benefits in the administration of the estate. It is the right of proof arising upon and by virtue of winding up that a s 588FF(1)(g) order may modify.138

Varying agreements (s 588FF(1)(h)–(j)) 8.39 Sections 588FF(1)(h)–(j) each relate to agreements constituting, forming part of or relating to the voidable transaction and allow the court to make: an order declaring an agreement constituting, forming part of, or relating to, the transaction, or specified provisions of such an agreement, to have been void at and after the time when the agreement was made, or at and after a specified later time: s 588ff(1)(h); an order varying such an agreement as specified in the order and, if the court thinks fit, declaring the agreement to have had effect, as so varied, at and after the time when the agreement was made, or at and after a specified later time: s

588ff(1)(i); an order declaring such an agreement, or specified provisions of such an agreement, to be unenforceable: s 588ff(1)(j). In all of these cases, the court’s order will alter a legal relationship between the company and another person; and it will do so to the benefit of the company and to the detriment of the other person. It is for that reason that it will be appropriate for the company to be a party to the proceedings initiated by the liquidator.139 In Slaven v Menegazzo140 for example, a liquidator sought to have declared void a contract for the sale of property made by a company prior to its liquidation as vendor, and one of the director’s sons, as purchaser. The basis for the claim was that the contract was an unreasonable director-related transaction for the purposes of s 588FDA of the Act. Mansfield J of the Supreme Court of the Australian Capital Territory found that the company received no benefit from the transaction and that viewed in its entirety the transaction was an unreasonable director-related transaction. His Honour accordingly ordered that the contract for sale be declared void. [page 336]

Relief where court finds unreasonable director-related transactions141 8.40 Section 588FF(4) limits the exercise of the powers in s 588FF(1) in the case of an unreasonable director-related transaction to make orders only for the purpose of recovering for the benefit of the creditors of the company the difference between the total value of the benefits provided by the company under the transaction and the value (if any) that it may be expected that a reasonable person in the circumstances of the company would have provided having regard to the matters referred to in s 588FDA(1)(c).142 Section 588FF(4) provides that if the transaction is a voidable transaction solely because it is an unreasonable director-related transaction, the court may make orders under s 588FF(1) only for the purpose of recovering for the benefit of the creditors of the company the difference between: (a) the total value of the benefits provided by the company under the transaction; and

(b) the value (if any) that it may be expected that a reasonable person in the company’s circumstances would have provided having regard to the matters referred to in s 588FDA(1)(c). Section 588FF(4) requires the court to assess the ‘value’ of the benefits provided by the company and the ‘value’ of the benefit that a reasonable person in the company’s circumstances would have provided having regard to the matters in s 588FDA(1)(c), to determine the limit, if any, on the courts power to make orders under s 588FF(1). The presence of the words in parentheses ‘(if any)’ expressly contemplate that there may be circumstances where the hypothetical reasonable person in the company’s circumstance would not have provided to the recipient a benefit of any value, a conclusion which would permit the court to make an order to recover the whole of the value of the benefit. The expression ‘value’ is defined in s 9 to include ‘in relation to an asset, includes amount’. In the absence of any legislative guidance, or a method for ascertaining the value, the court may have regard to general valuation principles.143 The operation of the above provisions was explained by Mansfield J in Slaven v Menegazzo.144 In that case, a company prior to liquidation entered into a contract for the sale of real property to one of the director’s sons. Mansfield J found that in the circumstances the ‘transaction’ was an unreasonable directorrelated transaction and accordingly declared [page 337] the contract void. In the course of reasoning his Honour observed that the Act required the transaction to be identified in a particular manner. As his Honour explained: The word ‘transaction’ in Pt 5.7B (which includes s 588FDA) is defined to include a transaction to which a company is a party. Consequently, the transaction for the purposes of s 588FDA is the Contract. It is the Contract by which the company disposed of its equitable interest in the property, or alternatively incurred the obligation to dispose of the property. The introductory words of s 588FDA, in particular the word ‘is’, require that identification of the transaction in that narrow way. That does not preclude the wider circumstances surrounding the transaction, or underlying the transaction, being taken into account. Section 588FDA(1)(c)(iv) directs attention to ‘any other relevant matter’. On this application, Mr Slaven through counsel, accepted that other relevant matters included the wider arrangements and circumstances underlying or surrounding the Contract.145

In relation to the appropriate relief to be granted, his Honour found that the

company received no benefit from the transaction. It was therefore appropriate for the entire transaction to be effectively undone. As his Honour observed: That being the case, it [the contract for sale] is a voidable transaction under s 588FE(6A) as it was entered into during four years ending on the relation-back day, that is, at least within four years of the date of winding up of the company. The court therefore has the powers under s 588FF(1) of the Act. In the case of unreasonable director-related transactions, as noted above, s 588FF(4) permits the making of orders under that subsection only for the purpose of recovering for the benefit of the creditors of the company, the difference between the total value of the benefits provided by the company under the transaction, and the value (if any) that it may be expected that a reasonable person in the company’s circumstances would have provided having regard to the matters referred to in s 588FDA(1)(c). In my view, that is clear. The value of the benefits provided by the company under the transaction is the value of the property, in effect its purchase price. A reasonable person in the company’s circumstances would have expected that amount and the total value of the benefits provided by the company under the transaction would have been to that amount. In other words, the company should have, and would have, recovered the Contract price. The Contract in fact arranged for the company to recover no price at all for the property.146

[page 338]

Liquidator may recover from related entity benefit resulting from insolvent transaction (s 588FH) 8.41 Section 588FH applies where a company is being wound up and a transaction of the company: (a) is an insolvent transaction147 of the company;148 (b) is voidable under s 588FE; and (c) has had the effect of discharging, to the extent of a particular amount, a liability of a related entity149 of the company.150 The liability can arise whether under a guarantee or otherwise and whether contingent or otherwise.151 Where s 588FH applies, the company’s liquidator may recover from the related entity, as a debt due to the company, an amount equal to the amount referred to in s 588FH(1)(c). In deciding what orders (if any) to make under s 588FF on an application relating to the transaction, a court must take into account any amount recovered under s 588FH(2).152 The purpose of s 588FH was explained in the EM to the CLR Bill in the following terms: The purpose of proposed section 588FH is to replace subsections 567(5) and (6), which presently allow a liquidator to recover directly from an officer of the company where, as a result of an insolvent

transaction, that officer benefits through a reduction in liability in relation to a guarantee given by that officer. Under proposed section 588FH, where a transaction is an insolvent transaction and is voidable under proposed section 588FE and has had the effect of discharging a liability (whether under a guarantee or otherwise and whether contingent or otherwise) of a related entity of the company, the company’s liquidator may by proceedings in a court, recover from the related entity as a debt due to the company, the amount by which the liability has been discharged. Proposed section 588FH requires the Court in deciding what order to make against the other party to the transaction to take into account any amount recovered from the related party. Upon the making of a payment by a related entity, the related entity will have the same rights (whether by

[page 339] way of contribution, subrogation, indemnity or otherwise) that it would have had, had it discharged the relevant liability.153 By comparison with existing subsection 567(5) and (6), proposed section 588FH will: extend to a related person rather than merely to an officer of the company; and extend the ambit of recovery from the related person by permitting recovery of the amount by which the liability of the related person under a guarantee is reduced by the transaction (the existing provision would seem only to apply if the effect of the preference is to discharge the guarantee in full).

Typically, this provision is likely to be used in the circumstances where a company director guarantees a company’s debt and causes the company to satisfy the debt. As Parliament explained in the EM to the CLR Bill: This means that a director who has given a personal guarantee to a particular creditor, for example, cannot escape the consequences of the guarantee by arranging for that creditor to be paid out ahead of others just prior to the company’s insolvency, since this would, in effect reduce the pool of money available for other creditors.154

So, for example, in Re Walker Group Pty Ltd (in liq),155 a liquidator successfully sought orders against the director under s 588FH in circumstances where the director caused the company to pay out the balance of an equipment lease. Under s 588FH(4), in the event the liquidator does recover an amount under s 588FH(2) from the related entity, the related entity has the same rights whether by way of indemnity, subrogation, contribution or otherwise and against the company or anyone else as if the related entity had paid the amount in discharging, to the extent of that amount, the liability referred to in s 588FH(1) (c).

Creditor who gives up benefit of unfair preference may prove for preferred debt (s 588FI) 8.42 Section 588FI allows a creditor who gives up the benefit of an unfair preference to prove in the winding up in certain circumstances.156 That section applies where: [page 340] (a) a transaction is an unfair preference given by a company to a creditor of the company after 23 June 1993; and (b) at the request of the company’s liquidator, because of an order under s 588FF, or for any other reason, the creditor has put the company in the same position as if the transaction had not been entered into.

Section 588FI(2) prevents a court from making an order under s 588FF, on an application relating to the transaction, prejudicing a right or interest of the creditor. The creditor may prove in the winding up as if the transaction had not been entered into: s 588FI(3). Curiously, there is no corresponding provision to s 588FI(3) if an order is made against a party under s 588FF for recovery of the amount of an uncommercial transaction.157

Whether court has discretion to make order under s 588FF 8.43 There is uncertainty in the authorities as to whether the presence of the words ‘the court may make one or more of the following orders’ in s 588FF(1) confers upon the court a discretion whether or not to make the orders specified. In New Cap Reinsurance Corp Ltd v AE Grant158 Barrett J observed that ‘section 588FF(1), in terms, confers a discretion on the court’.159 Similarly, in BP Australia Ltd v Brown, Spigelman CJ observed: … If, contrary to the case management practice of most courts, delay in making such an application occurs, that would be a matter of considerable significance for the exercise of the discretion to grant the relief under s 588FF(3)(b). It would also play a part in the exercise of the discretion to make orders under s 588FF(1) … The requirement of commercial certainty on the part of those who have had past dealings with the corporation is to be balanced against the conflicting interest of the creditors of the company. The court, through the discretions it exercises under s 588FF(3) and s 588FF(1), is in a position to control unwarranted delay by liquidators.160 [emphasis added]

[page 341] The Full Court of the Supreme Court of South Australia in Ansell Ltd v Davies161 (per Doyle CJ, Anderson and David JJ) agreed with Spigelman CJ’s observation.162 The contrary view, however, has been expressed by Einstein J in Cashflow Finance Pty Ltd (in liq) v Westpac Banking Corp163 where his Honour noted that s 588FF more naturally reads as conferring a jurisdiction on the court, rather than stating that there is a discretion in the court.164 With respect, that interpretation is not consistent with a plain reading of s 588FF and, moreover, is not consistent with the appellate authority in BP Australia Ltd v Brown, and Ansell Ltd v Davies.165 8.44 It is not relevant to any discretion of the court that the making of an order under s 588FF(1) may not provide a financial benefit to creditors. As Doyle CJ explained in Pegulan Floor Coverings Pty Ltd v Carter: Apparently, the position in the insolvency was that any funds recovered would be absorbed in meeting the liquidator’s costs and, possibly, other expenses of the liquidation. It was argued that because there would be no benefit to creditors, an order for repayment should not be made. I reject that submission. To begin with, I can see no link between the purpose of the provision, which I accept, namely to avoid a preferential benefit to a creditor, and the conclusion that no order should be made because the creditors generally would not benefit from the order. Second, in my opinion the argument misconceives the operation of the relevant provisions. Their purpose is to avoid the conferring of preferential benefits. That is achieved by ordering repayment. The benefit to creditors, from these and other provisions, is a more general one than that identified by counsel for the appellant. It is the benefit of having the affairs of an

[page 342] insolvent company properly investigated and administered in an orderly fashion in terms of the provisions of the law. While most creditors no doubt hope for a benefit in the form of a dividend, the purpose of these provisions is wider than that.166

Claims for interest in s 588FF applications 8.45 There are two statutory sources of power for the court to award interest in recovery proceedings brought by liquidators under Pt 5.7B, namely the various rules of court and s 588FF(1)(c) (where applicable).167 It is beyond the scope of this chapter to discuss the various rules of court in each jurisdiction although those rules usually provide for the awarding of both pre-judgment and post-judgment interest.168 In Capital Finance Australia Ltd v Tolcher169 the Full

Federal Court identified s 588FF(1)(c) as the source of the court’s power to award interest.170 In New Cap Reinsurance Corp Ltd v AE Barrett J elaborated upon why s 588FF(1)(c) was an appropriate head of power to award interest: Section 588FF(1)(c) identifies, as one of the orders a court may make when ‘satisfied’ in terms of the opening words of s 588FF(1), an order ‘requiring a person to pay to the company an amount that, in the court’s opinion, fairly represents some or all of the benefits that the person has received because of the transaction’. I am satisfied that the question of ‘interest’, in the broad sense, should be approached by reference to s 588FF(1)(c).

[page 343] Since their receipt of the sums of US$2 million and US$3,980,600 in January 1999, the defendants have been in a position where they have been able to deploy the aggregate US$5,980,600 to their advantage without the need to raise it from some other source. The interest that the defendants have saved by not having to borrow US$5,980,600 should therefore be regarded as something that ‘fairly represents’ benefit received by them ‘because of’ the making of the payments to them, those payments being the relevant ‘transactions’. I am satisfied, therefore, that payment by the defendants of an appropriately calculated element on account of or in the nature of interest may, pursuant to s 588FF(1)(c), be ordered. Such a sum will not be, in concept, compensation to NCRA for having been kept out of its money. It will represent, rather, re-allocation of a benefit of the kind with which s 588FF(1)(c) is concerned.171

Date for calculating interest 8.46 One of the key issues that arises in calculating the amount of interest in recovery proceedings is the date from which interest should be calculated. The cases have identified four possible dates: 1. the date of the ‘transaction’ for s 588FF(1)(a) purposes; 2. the date of the appointment of the liquidator or the winding up order; 3. the date of the commencement of winding up under ss 513A–513C; and 4. the date on which the creditor who was the beneficiary of the transaction failed to comply with a demand by the liquidator. The balance of authority favours the view that the appropriate date from which interest is to be calculated in recovery proceedings is the date on which the creditor failed to comply with a demand by the liquidator.172 The principle was expounded by McLelland J in Spedley Securities Ltd (in liq) v Western United Ltd (No 2) (in liq):

[page 344] … it seems to me that it would rarely be appropriate to allow any amount for interest in respect of a period prior to a demand being made for the recovery of a preference. I am not proposing any inflexible rule, but in the ordinary run of cases, and particularly in the present case, it seems to me that it would not be proper to allow interest in respect of any period prior to a demand by the liquidator that any particular payment was in fact recoverable as a preference.173

Set-off under s 553C 8.47 The preponderance of authority in Australia suggests that set-off under s 553C is available where the transaction is a voidable transaction under Pt 5.7B. For a more detailed discussion, see 4.52.

Can orders under s 588FF be made by consent or by admission? 8.48 The preponderance of authority suggests that orders under s 588FF can be made by consent or by way of admissions.174 Section 588FF(1) applies where, on application by a liquidator, a court is ‘satisfied’ that a transaction of a company is voidable. In order to be so satisfied, the authorities suggest that admissions are sufficient and there is no jurisdictional fact to be satisfied before the court can make orders under s 588FF. As Austin J explained in DeanWillcocks Pty Ltd v Commissioner of Taxation (No 2): In my opinion there is no general principle preventing a court from being ‘satisfied’ of the matters that it is required by statute to address before making orders, where there is an admission between parties; nor is there any principle requiring a court in those circumstances to undertake its own factual inquiry when the parties invite it to do no more than act upon their consent. That is not to say that the court should simply act on consent orders without any independent thought. There being no jurisdictional bar to acting on admissions under s 588FF, it is up to the court to consider, in the circumstances of the instant case, whether admissions are sufficient to warrant its being ‘satisfied’. This conclusion is consistent with the courts’ general approach to admissions. A court is never bound by admissions made inter parties or

[page 345] in the pleadings: Termijtelen v Van Arkel [1974] 1 NSWLR 525. It may decline to act on admissions if, for example, they are made so as to attract a jurisdiction that is not naturally present. However, in most cases it is appropriate to allow and even encourage parties to simplify litigation by making admissions so as to achieve the just, quick and cheap resolution of their dispute: Supreme Court Rules, Pt 1 r 3;

and see Gramophone Co Ltd v Magazine Holder Co (1911) 28 RPC 221 at 225 per Lord Loreburn. A judgment or order by consent may determine conclusively the defendant’s liability (James Hardie & Co Pty Ltd v Seltsam Pty Ltd (1998) 196 CLR 53; 159 ALR 268), and may be res judicata (K R Handley, G R Spencer Bower and Sir A K Turner, The Doctrine of Res Judicata, 3rd ed, Butterworths, London, 1996, p 21, citing Kinch v Wolcott [1929] AC 482 at 493 per Lord Blanesborough).175

A court can accordingly make an order under s 588FF(1) by consent by admission of the relevant factual elements of a claim for relief under s 588FF (for example insolvency).176 Any order made by consent arguably177 constitutes proof178 of a relevant matter for the purposes of s 588E(4) and (8) and creates a rebuttable presumption of the relevant matter under those sections. Any such presumption, however, can be rebutted including by third parties affected by an order under s 588FF, and in particular, for example, directors who might otherwise be required to indemnify the Commissioner of Taxation under s 588FGA.179 In practice, any issues as [page 346] to whether presumptions may arise under s 588E are obviated by the bringing of multiple claims by liquidators in the one proceeding.180 8.49 A contrary view, expressed by Finkelstein J of the Federal Court, is that orders under s 588FF may not be made by consent. In Crosbie v Commissioner of Taxation, his Honour held: A court cannot be ‘satisfied’ that a transaction is a voidable transaction unless it has before it the facts which will establish that conclusion. Indeed, on one view the ‘satisfaction’ that is required by s 588FE is akin to a ‘jurisdictional fact’ the existence of which must be determined before the court can exercise its power to avoid a transaction: Parisienne Basket Shoes Pty Ltd v Whyte (1938) 59 CLR 369, at 390– 2; Minister for Immigration and Multicultural Affairs v Eshetu (1999) 197 CLR 611 at 650–1.181

As mentioned above, the preponderance of judicial opinion favours the contrary view to that put by Finkelstein J and his view in Crosbie has not been followed by single instance judges.182 Notwithstanding that, the issue may not necessarily be closed given that, on one view, Finkelstein J’s views may not be ‘plainly wrong’,183 and that no appellate court has ruled upon the issue. 8.50 While an order under s 588FF can be made by consent if there are no other parties to the action, a court considering doing so must be mindful of the rights of third parties184 particularly where the original parties to the claim are the liquidator and the Commissioner

[page 347] of Taxation.185 A consent order made without notice to directors from whom the Commissioner proposes to enforce the statutory indemnity under s 588FGA may be set aside as an irregularity.186 Once directors have been joined by the Commissioner seeking indemnity under s 588FGA(4), a s 588FF order cannot be made by consent without the directors first being given an opportunity to be heard.187

WHEN THE COURT MAY NOT MAKE AN ORDER (S 588FG) 8.51 While insolvency law has long held that certain transactions of an insolvent company are voidable, it has also recognised that in some cases a court order avoiding a particular transaction would work unfairness. Under the previous regime, for example, s 122(2) of the Bankrupty Act 1966 provided that even if a payment might otherwise be a preference, it was not to be classed as such if the transaction was ‘in good faith and for valuable consideration and in the ordinary course of business’.188 The current provision, s 588FG, was introduced on 23 June 1993 by the Corporate Law Reform Act 1992 (Cth) (CLRA). Unlike s 122(2), however, s 588FG does not require that the relevant transaction was in the ‘ordinary course of business’. Despite this, Parliament intended that the protective effect of s 588FG operated in a similar way to the previous s 122(2). As Parliament explained in the EM to the CLR Bill:189 The defences provided under 588FG are similar to defence provisions currently provided under section 122 of the Bankruptcy Act. The requirement of good faith is supplemented by requiring that on an objective test, the person had no reasonable grounds for suspecting that the company was insolvent at the time or would become insolvent.

[page 348] The requirement of the Bankruptcy Act that a person seeking to rely on the defence must show that the transaction was in the ordinary course of business has been dispensed with as there has been some judicial uncertainty as to its interpretation.

Persons against whom orders not to be made 8.52 Section 588FG contemplates two broad classes of persons against whom a court should not make an order under s 588FF. The first class are those persons ‘other than a party to the transaction’.190 The second are parties to an insolvent transaction.191 Under s 588FG(1), a court is not to make an order under s 588FF materially prejudicing a right or interest of a person other than a party to the transaction if it is proved that the person received no benefit because of the transaction; or in relation to each benefit that the person received because of the transaction: the person received the benefit in good faith; and at the time when the person received the benefit the person had no reasonable grounds for suspecting that the company was insolvent at that time or would become insolvent as mentioned in s 588FC(b) and a reasonable person in the person’s circumstances would have had no such grounds for so suspecting. Cases involving s 588FG(1) are relatively scarce with most decisions regarding s 588FG dealing with the defence available to parties in s 588FG(2).192 This is presumably because of the broad concept of ‘transaction’ contained in the Act.193

The elements of s 588FG(2) 8.53 The most common form of ‘defence’194 to a recovery action brought by liquidators is that under s 588FG(2). As mentioned above, [page 349] the section only applies to insolvent transactions within the meaning of s 588FE(2)–(5) and does not apply to a transaction that is an unfair loan195 or an unreasonable director-related transaction.196 Section 588FG(2) contains the following elements: (a) there exists a relevant insolvent transaction within the meaning of s 588FE; (b) a person who has become a party to the insolvent transaction did so in good faith: s 588FG(2)(a);

(c) at a time when the person became a party to the insolvent transaction the person had no reasonable grounds for suspecting the company was insolvent at that time or would become insolvent as mentioned in s 588FC(b): s 588FG(2)(b)(i); (d) at the time when the person became a party to the insolvent transaction a reasonable person in the person’s circumstances would have had no such grounds for so suspecting: s 588FG(2)(b)(ii); (e) the party to the transaction has provided valuable consideration under the transaction or has changed his, her or its position in reliance on the transaction: s 588FG(2)(c). Each of the above elements is cumulative and in order to succeed in a defence under s 588FG all elements must be proved.197 The onus is on the defendant to establish each of the above elements.198 The onus is [page 350] a demanding one.199 This is largely because s 588FH(2)(b) requires the defendant to prove two negative propositions.200

Good faith (s 588FG(2)(a)) 8.54 The expression ‘good faith’ when used in s 588FG is not defined and accordingly is to be given its natural meaning.201 The Australian Concise Oxford Dictionary defines ‘good faith’ as, inter alia, ‘honesty or sincerity of intention’. Accordingly, the words ‘good faith’ in the context of s 588FG have been interpreted as meaning to act with propriety or honesty.202 In Queensland Bacon Pty Ltd v Rees203 Barwick CJ set out the test for determining whether a creditor was a payee in good faith in the context of s 95(2)204 of the Bankruptcy Act 1924–1960: … The existence of knowledge or suspicion of insolvency negatives good faith: and the knowledge of circumstances from which ordinary men of business would conclude that the debtor is unable to meet his liabilities is knowledge of insolvency …205

[page 351]

8.55 In Spedley Securities Ltd (in liq) v Western United Ltd,206 McClelland J considered the meaning of the expression ‘payee … in good faith’ within the meaning of s 122(2)(a) of the Bankruptcy Act 1966.207 His Honour observed: I respectfully agree with the observation of Wootten J in Re Chisum Services Pty Ltd (1982) 7 ACLR 641 … for the purpose of s 122(2), ‘good faith is a subjective condition, requiring that the payee act with propriety and honesty’. In my opinion, … a creditor is a ‘payee … in good faith’ within the meaning of s 122(2)(a) if at the time of the payment to him he neither believed nor suspected the payment was such as to give him a preference over other creditors of an insolvent debtor …208

8.56 It has been said that the concept of good faith in s 588(2)(a) entails a subjective test.209 As Nicholas J explained in Cussen v Sultan: Section 588FG(2)(a) requires proof that a person became a party to the transaction in good faith. There is no presumption in the defendant’s favour. The defendant must establish a positive. The plaintiff is not required to prove the absence of good faith. The term ‘good faith’ is to be given its natural meaning, namely to act with propriety and honesty. This component of the defence imposes a subjective test … The concept of good faith is a concept separate from the requirements of s 588FG(2) (b) … The concept of ‘good faith’ encompasses notions of honesty of purpose, motive, or intention which actuated the defendant to become a party to the impugned transaction. The concepts are interchangeable. To show that a person became a party to the transaction subjectively in good faith it is necessary to prove that the motive which actuated the person to do so was honest and proper. The inquiry, accordingly, is directed to the party’s state of mind, with regard to his knowledge and belief about the nature of the transaction at the relevant time.210

[page 352] This ‘subjective’ element of the concept of good faith is well entrenched in the authorities.211 Essentially, the concept encompasses the state of mind of the creditor as to whether the transaction is to occur in circumstances which will, or may, advantage the creditor over other creditors of the company, so that the state of awareness of the creditor as to the company’s solvency will be directly relevant to that question.212 8.57 What is required to satisfy the onus of establishing good faith will vary with the circumstances of the case and there are no set criteria.213 As Nicholas J explained in Cussen v Sultan: … usually a defendant would need to have an understanding of the substance of the transaction sufficient to show that he became a party to it with an honest and proper motive or purpose. Adopting the words of Mansfield J in Smith (at 322) the defendant must demonstrate that in becoming a party to the transaction he acted without an expectation that the transaction was uncommercial. In my opinion, for the defendant to benefit from s 588FG(2)(a) it is necessary to prove that the motive and intention in becoming a party to the transaction was founded on a genuine belief, or knowledge, that the transaction was of an ordinary business kind or was not uncommercial.

Such belief or knowledge may well depend upon information obtained by making enquiries to ascertain the character of the transaction prior to becoming a party to it. However, evidence which shows only that the defendant, at the time of becoming a party, was aware that the transaction was, or possibly was, outside normal commercial experience would indicate a motive to profit from, or to take advantage of, an uncommercial transaction at the company’s expense. Put another way, the defendant must show that the purpose or motive was not to receive a return or to obtain a bargain of such magnitude that it could not be explained by normal commercial practice: compare: Capital Finance Australia Ltd at [73]. Thus the defendant would need to prove the probability that in becoming a party to an impugned transaction it was not his purpose to exploit its inherent uncommerciality.214

[page 353] The concept of good faith is a concept separate from the requirements of s 588FG(2)(b).215 Having said that, the good faith element is negatived if a creditor knew, believed or suspected that the debtor was insolvent or that the payment would give the creditor a preference over other creditors: Harkness v Commonwealth Bank of Australia Ltd; Queensland Bacon Pty Ltd v Rees.216 The good faith element can also be negatived if, viewed objectively, a reasonable person in the creditor’s position would have suspected insolvency, as explained below.

No reasonable grounds for suspecting company was insolvent or would become insolvent (s 588FG(2)(b) (i)) 8.58 Section 588FG(2)(b)(i) requires that the party to a transaction has no reasonable grounds for suspecting that the company was insolvent at all relevant times as opposed to might be insolvent.217 As Barrett J observed in DeanWillcocks Pty Ltd v Commissioner of Taxation: It is important to emphasise that the relevant suspicion is one of actual and existing insolvency, as distinct from impending or potential insolvency. That, as the Full Court of the Supreme Court of South Australia pointed out in Sheahan v Fabienne Pty Ltd (1999) 17 ACLC 1600; [1999] SASC 335, is something that was made clear in Queensland Bacon Pty Ltd v Rees (above).218

Section 588FG(2)(b)(i) also requires the person to have no reasonable grounds for suspecting that the company would become insolvent as mentioned in s 588FC(b). In other words, the person must have no reasonable grounds for suspecting that the company would become insolvent because of, or because of matters including, entering into the transaction or a person doing an act, or making an omission, for the purpose of giving effect to the transaction.

[page 354] 8.59 In the leading decision of Queensland Bacon Pty Ltd v Rees,219 the High Court considered the operation of the former s 95 of the Bankruptcy Act 1924– 1960 (Cth).220 Kitto J observed as follows: In the first place, the precise force of the word ‘suspect’ needs to be noticed. A suspicion that something exists is more than a mere idle wondering whether it exists or not; it is a positive feeling of actual apprehension or mistrust, amounting to ‘a slight opinion, but without sufficient evidence’, as Chambers’ Dictionary expresses it. Consequently, a reason to suspect that a fact exists is more than a reason to consider or look into the possibility of its existence. The notion which ‘reason to suspect’ expresses in subs (4) is, I think, of something which in all the circumstances would create in the mind of a reasonable person in the position of the payee an actual apprehension or fear that the situation of the payer is in actual fact that which the sub-section describes — a mistrust of the payer’s ability to pay his debts as they become due and of the effect which acceptance of the payment would have as between the payee and the other creditors. The question thus posed by the sub-section is to be answered in the present cases as at the time when each of the relevant payments was about to be accepted. It is an objective question. What the payee or anyone else inferred at the time is not to be treated as decisive, though the Court may be assisted in reaching its own conclusion by seeing how business men in fact reacted to the circumstances. The character of the circumstances is what has to be decided: were they such as to lead to the specified inference? The inference is that the payee had cause to suspect the existence of two states of fact. As to the first, the word ‘unable’ must be given its full force. The second goes further: it is that the payer’s affairs are in such a state that acceptance of the payment (assuming that it would be allowed to stand) would put the payee in a better position vis-à-vis the other creditors than he would be in if the payer were bankrupt or, in

[page 355] the case of a company, were in liquidation. If the proper inference from the circumstances is that there was a sufficient reason for the payee to form an actual suspicion — a real apprehension though with insufficient warrant for a positive conclusion — that the situation had both these features, he is debarred by subs (4) from being deemed a payee in good faith. Otherwise he is not.221

No reasonable ground for suspecting insolvency (s 588FG(2)(b)(ii)) 8.60 As mentioned above, the good faith element may be negatived if, viewed objectively, no reasonable person in the creditor’s position would have held the relevant belief. In other words, in order to establish a defence under s 588FG(2) the respondent must prove that subjectively he or she had no reasonable grounds for suspecting that the company was insolvent and that,

considered objectively, no reasonable person in the respondent’s position would have suspected insolvency.222 That is why in Cook’s Constructions Pty Ltd v Brown,223 Santow JA described the test under s 588FG(2)(b)(i) as possessing a ‘hybrid’ character. As his Honour explained: … Confusion derives from the reference to ‘subjective’ in relation to [s 588FG(2)(a)] where it is contrasted with the ‘objective’ second hurdle. The ‘subjective’ test in truth has something of a hybrid character. Thus the person referred to in s 588FG(2)(b)(i) has to have ‘no reasonable grounds’ for suspecting insolvency at the relevant time. The requirement of ‘no reasonable grounds’ is clearly objective. That is why it is possible to envisage a circumstance in which a person may receive payment honestly and in that sense in good faith. Yet on an objective consideration, that person may have had reasonable grounds for suspecting insolvency. Despite good faith, the defence fails. But the requirement of good faith and the subjective test coalesce where the person has both acted in good faith in ignorance of insolvency and had no reasonable grounds for suspecting it.224

So, for example, in Williams (as liquidator of Scholz Motor Group Pty Ltd (in liq)) v Peters,225 a company operating as a motor dealership also operated a trust account. On about 1 June 2005, the company was [page 356] insolvent and continued to trade. On 12 September 2005, a customer purchased a car owned and registered in the name of the company for $165,000. The customer purchased the car paying $10,000 in cash and the balance by way of cheque. At the time of the purchase, the customer informed the company directors that the customer wished to obtain finance for the car. On 19 September, a finance company paid $165,000 into the company’s overdraft account for the car. The customer was informed of the payment made by the finance company and was provided by the company with a cheque for $165,000 drawn on the overdraft account and ownership of the car was transferred into the customer’s name. The cheque for $165,000 was subsequently dishonoured. The customer visited the directors and was told that the company had been having problems with their bank and that the bank was not clearing funds until the funds were fully processed which would take time. The customer accepted this but another cheque was later issued to the customer which was also dishonoured. At a subsequent meeting between the directors of the company and the customer, the company acknowledged a debt of $165,000 and agreed to pay it by way of instalments. The company subsequently went into liquidation and the liquidator brought proceedings against the customer seeking to recover some of the payments made by the company pursuant to the payment plan as an unfair

preference. The customer in turn sought a declaration that a payment of $165,000 made to the company by the finance company on the customer’s behalf was held in trust by the company for him and that the customer was entitled to priority over unsecured creditors in the company’s winding up in relation to the unpaid balance of $165,000. The Queensland Court of Appeal comprising McMurdo P, Muir and Fraser JJA unanimously rejected the customer’s arguments. According to Muir JA: When regard is had to the background matters identified by the [customer’s] counsel, it is not difficult to accept that on 24 September 2005, when the respondent was given an explanation for the dishonouring of the first cheque, he was disposed to accept it. A reasonable person in his position may well have accepted the explanation also. But, plainly, a reasonable person in the position of the [customer] would have been aware at the time that he had paid $165,000 to the company on 16 September and that a further $165,000 had been transferred into the company’s bank account by Daimler on 19 September. Such a reasonable person would have wondered why there could have been difficulty in returning his $165,000 if the company was not experiencing liquidity problems. He would have appreciated that his claims to payment were morally, if not legally, greater than those of the company’s general body of creditors. Such a reasonable person’s doubts would have increased when, on collecting the cheque dated 29 September 2005 for $165,000, he was

[page 357] told not to bank it until Monday, 3 October, because the bank was still not releasing the proceeds of deposited cheques until they had been cleared. This explanation would have informed him that the company was dependent on new monies coming into the account in order to pay old debts. The [customer] received the letter of dishonour in relation to the second cheque on 5 October 2005. He again spoke to Messrs Scholz and Seymour and was given much the same excuse for its being dishonoured. In order to address what must have been obvious expressions of concern by the [customer], he was presented with the 6 October 2005 document. That document gave no guarantee of payment. It amounted only to a pious statement of intention to pay the money the next day, failing which the directors would procure the company to pay the debt by weekly instalments of no less than $50,000 per week. The document made plain the lack of certainty on the part of the company’s directors that $165,000 of the [customer’s] money, wrongfully withheld, could be repaid promptly. The primary judge concluded that the ‘guarantee’ was some comfort to the [customer] that they would stand by their word and pay him. Even if this finding is accepted, in my view, the contents of this remarkable document, and the fact that it was thought necessary to bring it into existence, would have served only to alarm a reasonable person about the state of the company’s finances.226

8.61 In determining whether a person had no reasonable grounds for suspecting the company was insolvent, the court will take into account commercial reality. For example, in Wily v Lo Presti (No 2), Young J observed: People in the real world of commerce are used to people who pay their debts at the last moment or whose cheques bounce from time to time or who are unsatisfactory customers, and the mere fact that this sort of thing happens does not necessarily mean that a reasonable person of business would

suspect that the debtor was insolvent.227

Similarly, in Queensland Bacon Pty Ltd v Rees,228 Barwick CJ observed that the dishonour of a single cheque would not necessarily give rise to a suspicion of insolvency: In the third place, his Honour had evidence from bank officers that the marking on the dishonour of 15th October indicated that arrangements to put the drawer in funds were in train and that payment on re-presentation was probable. It is, to my mind, too narrow a view of insolvency to say that the dishonour of the cheque in such circumstances gave reason to

[page 358] suspect that the debtor was insolvent. The general restriction of credit then present must have affected a great number of quite solvent people who would find themselves temporarily short of cash and under a necessity to make arrangements to cover the ‘short fall’ in their overdraft accommodation. The appellant had every reason, in my opinion, to think, in the circumstances, that the debtor whom he understood to have a large, valuable, saleable and well-managed stock would be in a position speedily to make arrangements to remedy what appeared to the appellant to be his temporary lack of liquidity. I would not wish to minimize the significance of the issue of a cheque by a trader which is dishonoured by his banker — particularly by a trader whose credit is focal to his survival in business. That the dishonour calls for inquiry and probably some action is undoubted and, in some circumstances, it may provide ground for suspicion of insolvency. But, here in the circumstances I have outlined, although it indicated a lack of liquidity, it did not, in my respectful opinion, indicate insolvency.229

Likewise, in Hamilton v BHP Steel (JRA) Pty Ltd230 Young J observed that when taking into account commercial reality, the court must look at the circumstances in light of prevailing business practices and of the commercial reality of the particular industry in which a particular company is trading. As his Honour observed: … one needs to look at the ordinary conduct of the business community from time to time to see whether there is objectively grounds for suspicion. At a time when there is an inflationary economy and people are anxious to pay their business debts as soon as possible to get income tax deductions in the current year, one may very well have suspicious circumstances when a customer falls well behind the terms of trading. On the other hand, in a recessionary environment where people wish to save on their own interest bills in respect of borrowed capital, such suspicion will not necessarily be so engendered. I think an examination of the cases bears this out, though, as far as I can see, no case has gone quite so far as saying boldly what I have just said. Thus in Katoa Pty Ltd v Dartnall (1983) 8 ACLR 476, a supplier sent a statement bearing the words in red and black ‘Final Notice’ and ‘Payment within 7 days or legal action will be taken’ and ‘Your a/c is only operating on c.o.d. Please send cheque’, in the case of a company whose account was always running in arrears and had previously been placed

[page 359]

on a cash on delivery basis and where the supplier would have telephoned the company on a large number of occasions seeking payment. However, Kennedy J said at 478, ‘There was nothing unusual in this. It was, indeed, characteristic of the trade, in which its customers were themselves often kept waiting for funds.’ The payments were payments fair in the trade uninfluenced by prospects of bankruptcy. Again in Re Britton: Ex parte Barnes (1984) 2 FCR 35, Woodward J found that in the retail clothing industry there was a difficult time because of a serious downturn in the economy generally. Many stores including that run by the bankrupt had financial problems because they could not sell their stock on hand, a supplier had sent accounts from July to November with stickers on them such as ‘Overdue’, ‘Final Notice’, ‘Payment within 7 days or legal action will be taken’ and there had been dishonoured cheques. Notwithstanding this, the learned judge held that in a commercial situation, a reasonable person in the creditor’s position would not have cause to suspect the bankrupt was in fact insolvent.231

However, in Emanuel Management Pty Ltd v Foster’s Brewing Group Ltd,232 Chesterman J observed that if ‘commercial reality’ means ‘prevailing business practices’ those practices must be proved by way of admissible evidence, or must be so notorious as to allow judicial notice to be taken of them. Chesterman J continued: I would accept that, when determining questions of solvency, the answer is not to be found only in the fact that creditors were not paid in accordance with the time stipulated in their invoices. One does not need recourse to notions of ‘commercial reality’ to reach this conclusion. The question must always be whether a company was able to pay its debts as they fell due or, in Young J’s phrase ‘an appreciation of whether moneys can be readily mustered in order to pay creditors’. This investigation may involve a consideration of why debts were not paid on time. In my opinion the appropriate course is to regard the issue as one of fact and to address the question — when was Management unable to pay its debts as they fell due — by reference to all of the evidence which appears relevant to that question. It is, I think, neither helpful nor necessary separately to ascertain whether some of the evidence may be indicative of ‘commercial reality’ or ‘business practice’ for to do so may be to lead to a distraction from the real inquiry.233

In some cases, however, it may be open to a court to take into account judicial notice of business practices either in accordance with the common [page 360] law doctrine of judicial notice or by virtue of provisions such as s 144 of the Evidence Act 1995 (NSW).234

Reasonable person in the person’s circumstances would have had no such ground for suspecting insolvency (s 588FG(2)(b)(ii)) 8.62 The objective element of s 588FG(2) is reinforced by s 588FG(2)(b)(ii)

which poses an objective test.235 The ‘reasonable person’ is assumed to have the knowledge and experience of an average business person but not the skills and experience of an expert financial analyst or lawyer.236 Whether there are reasonable grounds to suspect insolvency is judged by reference to the circumstances prevailing between the parties at the time of the transaction, and without hindsight,237 and necessarily requires an examination of the evidence.238 In the leading decision of Cussen v Commissioner of Taxation the New South Wales Court of Appeal interpreted the words ‘a reasonable person in the person’s circumstances’ as requiring an objective ‘reasonable business person’ test to be applied and did not require the court to take into account the acumen, perspicacity and resources of the particular creditor. The word ‘circumstances’ did not refer to a characteristic of a person but to an external factor of some kind.239 In doing so, the Court of Appeal approved the following observations of Palmer J at first instance: … As has been emphasised by Austin J in Dean-Willcocks v Commonwealth Bank of Australia (2003) 45 ACSR 564 [33]–[35], the objective test imposed by s 588FG(2)(b)(ii) does not require an examination whether the particular creditor, acting reasonably, would have had reasonable grounds for suspecting insolvency, with the consequence that if the creditor happens to be a bank (or a tax collecting authority) one asks whether a reasonable bank (or a reasonable tax collecting authority)

[page 361] would reasonably have had such a suspicion. Rather, whether or not the creditor would have reasonably had a suspicion is determined according to the presumed perception of ‘the ordinary person on the Bondi bus’: per Young J in Harkness v Commonwealth Bank of Australia Ltd (1993) 32 NSWLR 543 at 545–6; 12 ACSR 165 at 167–9. That pithy phrase simply denotes that an objective test is to be applied and the standard measurement is that of a hypothetical person who is assumed to have the knowledge and experience of the ‘average business person’, but certainly not the skills and experience of an expert financial analyst or someone with legal training or any other kind of tertiary education.240

Similarly, in Harkness v Commonwealth Bank of Australia, Young J observed that: When considering the objective test, one is making an assessment ‘according to the standards of an ordinary reasonable man’ (per Latham CJ in Downs Distribution at 476) that is the standard of ‘ordinary men of business’ (per Barwick CJ in Queensland Bacon at 287) would apply to the circumstances. As Kitto J said in the latter case at 303: It is an objective question. What the payee or anyone else inferred at the time is not to be treated as decisive, though the court may be assisted in reaching its own conclusion by seeking how businessmen in fact reacted to the circumstances. The standard is that of the ordinary person on the Bondi bus. That person is not necessarily a university

graduate, that person is not necessarily a person who has a background in the financial world. One does not necessarily impute to the ordinary person of business in the short-term money market or even a banker any particular intellectual standard or standard of competence. The standard is that of the average business person. The fact that an expert financial analyst, or a barrister or a solicitor or even a judge might add up the factors and say that on the basis of his or her experience ‘of course there must be reason to suspect insolvency’ is not enough.241

The expression ‘a reasonable person in the person’s circumstances’ refers to the actual circumstances as they existed on the date they entered into the transaction and not other, hypothetical circumstances. For example, if the circumstances were such that no inquiries had been made by the creditor of the company’s financial position then it is not [page 362] permissible for the court to go further and to act on the basis of what such inquiries would or may have revealed.242

Relationship between s 588FG(2)(b)(i) and s 588FG(2)(b)(ii) 8.63 The language of s 588FG(2)(b)(i) and s 588FG(2)(b)(ii) is similar and the latter may be seen as redundant. Not surprisingly, there is disagreement in the authorities as to whether the requirements of s 588FG(2)(b)(i) and s 588FG(2)(b) (ii) have different spheres of operation. In Downey v Aira Pty Ltd,243 Ashley J of the Supreme Court of Victoria observed: As to the second of the matters, it is no doubt right to say that all the words of a statute should be given a meaning, if that is possible. I find it difficult, however, to see how a different result could obtain from the operation of subpara(b)(i) and subpara(ii). The question — has the creditor proved that he had no reasonable grounds for suspecting insolvency? — requires an objective consideration of the circumstances. Once that is done, the answer to the question would seem to be ‘no’ if, objectively, there were no reasonable grounds — regardless whether the creditor was a reasonable or a quite unreasonable person. If that be so, then subpara(b)(ii), though expressed conjunctively, would seem to be otiose. What can at least be said is that subpara(b)(ii) makes it abundantly clear that proof of a negative — upon an objective consideration of the circumstances removed from the creditor (but not the creditor’s circumstances) — is required before the creditor can make out a subs (2) defence.

However, in Sims v Celcast Pty Ltd,244 the Full Court of the Supreme Court of South Australia disagreed with Ashley J’s observation. In that case, Williams J held: In my view (b)(ii) does have work to do independently of b(i). It seems that the trial Judge in the present case (who quoted the abovementioned passage from Downey v Aira) has not sufficiently

understood the subtleties which may be associated with the application of these two subsections in different situations. (see Sands & McDougall v Commissioner of Taxation 22 ACSR 383 at 406 per Nathan J). The reasonable person in the circumstances of Celcast (subpara(b)(ii)) is not necessarily to be equated with Celcast acting reasonably in its perception of events under subpara(b)(i). In a typical commercial situation the creditors may have available various snippets of information concerning the debtor’s affairs which may be assembled by one creditor in a form which facilitates (whether formally

[page 363] or informally) the making of an appreciation as to the financial health of the debtor. The form in which the creditor assembles the information may be critical in reaching a decision as to whether there is a basis for a suspicion of insolvency. The jigsaw of information may sometimes be difficult to piece together; it may be mere chance (or it may be experience or diligence) which leads a creditor to draw together in a meaningful form the pieces of information relating to a delinquent debtor so as to provide a conclusion which gives cause for suspicion as to insolvency. So, for example an astute creditor may derive from a debtor’s balance sheets (and other material) a wealth of information based on a series of sophisticated calculations; detailed analysis of published accounts (perhaps alongside other information) may provide a clue as to insolvency which is not apparent without that research to another creditor who is less diligent.245

The ‘subtleties’ associated with the two subsections were alluded to by Parliament in the EM to the CLR Bill: The defences provided under 588FG are similar to defence provisions currently provided under section 122 of the Bankruptcy Act. The requirement of good faith is supplemented by requiring that on an objective test, the person had no reasonable grounds for suspecting that the company was insolvent at the time or would become insolvent.246

As the Full Court of South Australia pointed out in Sims v Celcast, the test posed by s 588FG(2)(b)(i) that the person ‘had no reasonable grounds for suspecting that the company was insolvent at that time or would become insolvent’ is not necessarily the same as the plainly objective test posited by subpara (ii) which requires that a reasonable person in the person’s circumstances would have had no such grounds for so suspecting. Section 588FG(2)(b)(ii) reinforces and puts beyond doubt the objective element of the defence which may otherwise be lacking if s 588FG(2)(b)(i) alone was relied upon.247 The Full Court of the Supreme Court of South Australia elaborated upon the distinction between the two subparagraphs in the subsequent decision of Chicago Boot Co Pty Ltd v Davies & McIntosh (as joint and several liquidators of Harris Scarfe Ltd) as follows: … Williams J reasoned that subpara (b)(i) requires consideration of whether the particular creditor, with its perspicacity, the information available to it, and with such analysis (if any) of that information as it

[page 364] had made, had reasonable grounds to suspect the debtor’s insolvency. Subparagraph (b)(ii) on the other hand, requires consideration of whether a reasonable person in the creditor’s circumstances, using the information reasonably available in those circumstances and making the analysis of that information which a reasonable person would make, would have had reasonable grounds to suspect the debtor’s insolvency. This is because a reasonable person in the circumstances of the creditor (subpara (b)(ii)) may have grounds for suspicion whereas the particular creditor, acting reasonably in its perception and analysis (if any) of the circumstances (subpara (b)(i)) may not, and vice versa.248

The court’s approach to examining reasonable suspicion of insolvency 8.64 As mentioned above, in determining whether a creditor ought to have had a reasonable suspicion of insolvency, the court examines all of the circumstances that existed at the time without the benefit of hindsight.249 As Santow J explained in Sutherland (in his capacity as liquidator of Sydney Appliances Pty Ltd (in liq)) v Eurolinx Pty Ltd: The case law illustrates that there is no single factor whose presence invariably establishes that there was, or should have been, the requisite suspicion. Rather it is a question of looking not in hindsight but through the contemporary eyes of the parties, at the commercial circumstances then prevailing between them. This is to identify in that context those factors pointing towards insolvency of the debtor. This in turn is in order to ascertain which of those factors were apparent to the payee, and then the cumulative impact that knowledge of them should have had, or did have, upon the payee. There will also be potentially countervailing factors and circumstances to be weighed in the balance which could have tended to dispel suspicion at the time.250

So, in Cussen v Commissioner of Taxation,251 a liquidator brought an unfair preference claim against the Deputy Commissioner of Taxation. The relevant company in that case was a substantial trading company. In August 1998, the company approached the Australian Taxation Office (ATO) explaining that it had a temporary liquidity problem. The ATO granted the company an extension of time for payment of sales tax. Thereafter the evidence disclosed that: [page 365] In March 1999 the ATO was informed that the company had ‘cash flow difficulties’ and the statement was made that the company would submit sales tax returns but would only ‘remit moneys as — when able to do’. Sales tax returns for the months of February and March were lodged by the due dates of

21 February and 21 April but no cheque was sent, just the returns. There was no arrangement in place for late payment. The sales tax return for April 1999 due on 21 May 1999 was lodged, but no cheque was tendered. The sales tax return for April 1999 showed a low level of sales for the month. In May 1999, following threats by the ATO to serve a statutory demand if no payment was made or formal arrangement entered into, the ATO was informed that the company ‘had financial difficulties over the past 6 months’ with sales being down. However, that was expected to change with an increase in sales over the next several months and the anticipated sale of one of the company’s buildings. At the end of July 1999 the company received further accommodation from the ATO with respect to the outstanding sales tax for the balance of April and for May and June. The need for this extension was explained in terms of the delay in the settlement of the sale of the company’s building. Further instalments were agreed to be paid in the amount of $700,000 on 30 July, $500,000 on 2 August and $1,443,679.16 on 10 August. The first instalment was paid a day early; the second was paid two days late. With respect to the last of these three instalments the company sought a further extension. It informed the ATO that it had received the proceeds for sale of its land but that its bank demanded the proceeds. The company said it had a ‘cash flow problem and [would] need an extra month to settle’. The company proposed a ‘final’ repayment schedule covering the sales tax for the month of July due on 21 August by three payments on 13 August, 23 August and 3 September. The proposal was accepted. As at 3 September 1999 sales tax for the months of February, March, April, May, June and July had all been paid in full together with interest and imposed penalties. Having regard to the above, Spigelman CJ of the Supreme Court of New South Wales found that a defence under s 588FG had been properly made out. His Honour’s analysis is consistent with the approach suggested by Santow J in ensuring that all of the relevant circumstances are examined through the contemporary eyes of the parties. The Court found that in all the circumstances the company’s failure to make

[page 366] sales tax payments on the due date indicated a cash flow problem, not insolvency.252 To that end, the Court gave substantial weight to the course of actual payments.253 A company’s preparedness to pay a high rate of interest indicates that it is unable to arrange finance from normal sources.254 It is an indicator of financial stress, which may be of weight in a particular case. However, there may be circumstances in which a short-term deferral at a higher interest rate is commercially preferable to an alternative. The preparedness to pay a higher rate of interest may only indicate a temporary cash flow problem. The decrease in the company’s monthly sales figures did not give rise to a suspicion of insolvency.255 By the time it had become apparent that sales had not fully recovered after July 1999 and were not increasing, the company had met its deferred obligations and was making its sales tax payments with virtually no delay.256 A company is entitled to muster the resources available to it in any configuration it wishes.257 The Court rejected the liquidator’s submission that the company’s tax returns constituted actual knowledge, which, together with other information, constituted reasonable grounds for suspecting insolvency.258 The 1996–1997 tax return was of no significance and, at best, was only suggestive of the possibility of a cash flow problem. The 1997–1998 tax return did suggest that cash flow difficulties were likely to be experienced. Although the financial information contained in the return may have put the request for delay in May 1999 in a different light, the return only became available on 30 August 1999 by when payments had been made to reduce the debt and, within three days, the overdue balance had been cleared.259 8.65 Similarly, in Buzzle Operations Pty Ltd (in liq) v Apple Computer Australia Pty Ltd,260 a creditor received various payments from a company [page 367] during a period when the company was insolvent. Some of the payments were received about three weeks after their due date. Notwithstanding this, White J at first instance accepted that the payments were received by the creditor in good faith and had no reasonable grounds for suspecting that the company was insolvent.261 As White J observed: In the circumstances that [the creditor] knew that [the company] had trouble with its accounting system

which created problems in reconciling the cash banked against debtors, and had not processed invoices, so that it had difficulty in identifying and therefore collecting its debts, but where this was also expected to be a temporary ‘teething’ difficulty, I do not consider that the delay by 8 December in paying the debt which was due on 1 December created reasonable grounds to raise an actual apprehension or fear or mistrust as to [the company’s] ability to pay its debts as they became due and payable, other than a temporary inability to do so which could reasonably be attributed to those teething difficulties. The evidence does not establish that by 8 December [the creditor] had identified that [the company] was suffering serious trading losses or that it was in a position to do so. In my view, as at 8 December 2000, [the creditor] has established that it did not suspect and had no reasonable grounds for suspecting that [the company] was insolvent at that time, or would become insolvent by making the payment of $108,623.55 on behalf of [a third party]. A reasonable person in its circumstances would have had no such grounds for so suspecting.262

On appeal to the New South Wales Court of Appeal the court found that the creditor was justified in relying upon s 588FG to defend the liquidator’s claim, however the court found that s 588FG(2) was the appropriate provision and not s 588FG(1).263

Valuable consideration and change of position (s 588FG(2)(c)) 8.66 In order to make good a defence under s 588FG, a creditor must also establish that the person has provided valuable consideration under the transaction or has changed his, her or its position in reliance on the transaction under s 588FG(2)(c). Little consideration has been given to the meaning of ‘valuable consideration’ in the context of s 588FG. In Barton v Official Receiver264 the High Court approved the following observation of Sir Robert Megarry and Peter Gibson J in Re Abbott265 [page 368] when considering the words ‘valuable consideration’ in the context of s 42 of the Bankruptcy Act 1914 (UK): Plainly, ‘good consideration’, in the sense of the natural love and affection that a man has for his wife and children, is not enough. Nor is a merely nominal consideration, even though it would suffice to support a simple contract at common law. In the context of the avoidance of settlements by a trustee in bankruptcy, a ‘purchaser … for valuable consideration’ must be someone who can not only be described as being a ‘purchaser’ but can also be said to have given a consideration for his purchase which has a real and substantial value, and not one which is merely nominal or trivial or colourable.

In Barton, the High Court concluded that the expression a ‘purchaser … for valuable consideration’ within the meaning of s 120(1) of the Bankruptcy Act

1966266 is one who has given consideration for his or her purchase ‘which has a real and substantial value, and not one which is merely nominal or trivial or colourable’. 8.67 The concept of valuable consideration in the bankruptcy context was explored in more detail by the Full Federal Court in PT Garuda Indonesia Ltd v Grellman.267 In PT Garuda an accountant misappropriated $250,000 from his employer. The accountant eventually confessed to his employer and it was agreed that if the moneys were repaid the employer would not report the matter to police. The accountant paid the employer $100,000 by way of bank cheque and also transferred a residential property for a stated consideration of $150,000. The trustee in bankruptcy successfully argued before the trial judge that the transfer of property was void under s 121 of the Bankruptcy Act 1966268 but was unsuccessful in having the $100,000 payment declared void. In declaring the transfer of the real property void, the trial judge found that the employer was privy to the accountant’s fraud in respect of the former vendor of the real property against the accountant. On appeal to the Full Federal Court, one of the major issues was whether the two transactions were for valuable consideration. The Full Federal Court held that both [page 369] transactions were for valuable consideration within the meaning of then s 121 of the Bankruptcy Act 1966. 8.68 The Full Court, comprising Wilcox, Gummow and von Doussa JJ, found that ‘past consideration’ was valuable consideration for the purposes of s 121 of the Bankruptcy Act 1966. As the Full Court explained: … In Re Meldrum; Ex parte Butcher (1874) LR 9 Ch App 595 it was held that a payment made in satisfaction of an outstanding trading debt was one made for valuable consideration within the proviso to the section. The Court of Appeal in Chancery expressed its approval of an earlier decision of the court in Re Craven and Marshall; Ex parte Tempest (1870) LR 6 Ch App 70 where it had been said that a conveyance of property in consideration of a sum of money which was to be set off against a debt could be protected under the proviso, even if the transfer had on the part of the debtor been made with a view to giving a preference. Under the Australian counterpart, in s 95 of the Bankruptcy Act 1924, Kitto J in Taylor v White (1964) 110 CLR 129 at 139 applied Re Meldrum; Ex parte Butcher, supra, and said that consideration consisting of the making of a loan was enough for the purposes of the proviso in s 95(2) to constitute valuable consideration for repayment of the loan: see also Dixon CJ at 136 and Menzies J at 155. Although Kitto J referred to the consideration constituted by the making of the loan as ‘past’ consideration, in the technical language of today it would more accurately be described as executed consideration: see Cheshire and Fifoot’s Law of Contract, 5th Aust ed, at para

208, and Re Osborn; Ex parte Trustee of property of Osborn v Osborn (1989) 91 ALR 135 at 138.269

The Full Federal Court observed that another factor in favour of this conclusion was that if the position were otherwise a payment by a debtor in satisfaction of an outstanding account due to the creditor received by the creditor in good faith and in the ordinary course of business could not come within the protective provisions of s 122(2)(a) except in rare cases where the payment is accompanied by some new contemporaneous consideration.270 However, the court drew a distinction between payments or transfers of property made in discharge of an antecedent debt and transactions where a debtor conveys property by way of assignment or mortgage as security for an existing indebtedness: A long line of authority holds that transactions of the latter kind will be held to be made for valuable consideration for the purpose of the avoiding provisions of the Act only where there is new valuable consideration moving from the party receiving the benefit of the security at the time of

[page 370] the transaction to the debtor. The position was summarised by Gibbs J in Re Hyams; Official Receiver v Hyams, supra, at 254: It is clear that the mere existence of an antecedent debt is not consideration for the giving of a security in respect of that debt; ‘in order to have consideration for a further security there must be an agreement, express or implied, to give time or some further consideration, or else there must be an actual forbearance which ex post facto may become the consideration to support the deed’: Wigan v English and Scottish Law Life Assurance Assoc [1909] 1 Ch 291 at 303. See also Glegg v Bromley, supra; and NA Kratzmann Pty Ltd (in liq) v Tucker (No 1) (1966) 123 CLR 257 at 278, 289 … In either class of case there will only be valuable consideration sufficient to bring a transaction within the protective provisions of the Act if the consideration is adequate in the sense that its relationship to the value of the payment or transfer is real and substantial and not one which is merely normal or trivial or colourable: cf Barton v Official Receiver (1986) 161 CLR 75 at 86; 66 ALR 355.271

The ground for distinction between the two types of transaction is that in the former the payment or transfer of property is made in performance of an obligation incurred by the payer or transferor at the time of, and as part of, the original transaction which created the debt. The payment or transfer is made in discharge of an obligation which has been subsisting since that time. In the latter case, there is a new and additional transaction which must be accompanied by new valuable consideration in exchange for the new obligation incurred by the person giving security.272 In either class of case, however, there will only be

valuable consideration sufficient to bring a transaction within s 121 of the Act if the consideration is adequate in the sense that its relationship to the value of the payment or transfer is real and substantial and not one which is merely nominal or trivial or colourable.273 8.69 Given the lack of judicial guidance on the meaning of the expression ‘valuable consideration’ in the context of s 588FG(2)(c), the precise scope of the expression remains unclear. Having said that, there is some indication in the case law that the interpretation of ‘valuable consideration’ within the previous bankruptcy regime is equally applicable to the present regime. For example, in Buzzle Operations Pty Ltd (in liq) v Apple Computer Australia Pty Ltd274 Young JA held that s 588FG(2)(c) does not require [page 371] the person to establish that they gave full consideration but just that they provided ‘valuable consideration’.275 In Buzzle, Young JA accepted a submission that satisfaction and release of an antecedent debt is valuable consideration (echoing although not expressly referring to the analysis of the Full Federal Court in PT Garuda) even where the relevant debt that is released is that of a third party.

Reliance on s 588FG seldom successful 8.70 In practice, reliance upon s 588FG often fails. In Metcalf Crane Services Pty Ltd v Rathner,276 for example, a creditor operated a crane hire service. On 3 March 2008, the creditor rendered its final invoice to the insolvent company which totalled about $55,000. The next day, the company requested further crane services from the creditor on another building site. The creditor indicated to the company that it would not provide further services until all outstanding invoices were paid. The company responded that it expected payment from its customer soon. On 21 April 2008, the creditor took steps to recover the outstanding amount by sending a letter of demand from its solicitors. The company responded with an instalment plan over about five months. The creditor’s solicitors rejected the instalment plan and the creditor subsequently commenced proceedings in the Victorian Magistrates’ Court against the company and its directors as guarantors of the company’s debts. On 4 June 2008 winding up proceedings were commenced against the company in the Federal Court by

another creditor. On 5 September 2008, the Magistrates’ Court proceedings were settled and the company made a payment to the creditor for $62,000 in accordance with the settlement. The company was later wound up on 27 November 2008. Robson J of the Supreme Court of Victoria found that in all the circumstances, a creditor would have reasonably suspected that the company was insolvent at all relevant times. 8.71 Similarly, in Roufeil v Gliderol International Pty Ltd,277 a creditor received payments from an insolvent company on 1 February 2008 and 27 March 2008 in the following circumstances: In December 2006 the creditor, a supplier to the company, ceased its trading relationship with the company. According to the creditor’s records the company had not paid the creditor’s invoices as due and owing from 30 September 2006. [page 372] The creditor filed a statement of claim against the company on 9 February 2007. On 23 April 2007 the creditor obtained a judgment in its favour in the sum of $29,477.17 and issued a statutory demand for payment of that amount. The company did not pay the amount and the creditor commenced winding up proceedings against the company on 12 July 2007. On 28 November 2007 the ATO served a garnishee notice on one of the company’s banks in respect of a tax debt due and owing in the sum of $109,652.82. Pursuant to an agreed payment of $21,700 by instalments, the company paid the creditor $17,000 on 1 February 2008. On 4 February 2008, the creditor’s winding up proceedings against the company were dismissed. The company paid the second instalment of $4700 on 27 March 2008. On 17 March 2008, an insurer served a statutory demand on the company for payment of unpaid premiums for workers’ compensation insurance in the sum of $2296.64. The statutory demand was not satisfied. On 6 May 2008 another creditor commenced winding up proceedings against the company and the company was wound up on 10 June 2008.

Jagot J of the Federal Court accepted the creditor’s submissions that the winding up application made by the creditor on 12 July 2007 on the basis of the company’s failure to meet the statutory demand created a presumption of insolvency only for the purpose of the winding up application under s 459P but not otherwise. Despite that, her Honour found that the statutory defence had not been made out: … As to the objective requirement, a reasonable person in [the creditor’s] position at the time the payments were made would have suspected [the company’s] insolvency. As noted above, [the creditor] ceased its commercial relationship with [the company] in December 2006. It may be inferred that it did so because [the company] had not paid any of its invoices (even in part) since 30 September 2006. There is no suggestion that [the creditor] extended the due dates for payment nor that [the company] had any proper reason to avoid payment. After [the creditor] obtained judgment in its favour in respect of these invoices, [the company] did not satisfy [the creditor’s] statutory demand. Although [the company] agreed to pay its debt in instalments and made the required payments (in the face of the winding-up proceedings), the history of [the creditor’s] dealings with [the company] presented grounds which would have led a

[page 373] reasonable person in [the creditor’s] position to suspect [the company’s] insolvency.278

While her Honour’s observations regarding the presumption of solvency arising from a statutory demand are correct, in reality, the issuing of a statutory demand by a creditor and subsequent non-compliance by the company, will make it very difficult for a creditor to argue that it had no reasonable grounds for suspecting insolvency. As mentioned in Chapter 2, the issuing of a statutory demand by a creditor is one of the usual indicia of insolvency recognised by the case law.279 In Muller v Academic Systems Pty Ltd the Queensland Court of Appeal observed that: Whilst one could not conclude that a creditor, who becomes so frustrated with an inability to recover a debt that he serves a statutory demand and within the period provided for by that demand accepts a lesser sum in full settlement, could never discharge the onus of establishing a defence under s 588FG, it has to be said that ordinarily the inference would be open in such circumstances that the creditor had grounds for suspecting that the company was insolvent at the time payment was made.280

Knowledge of creditor is sum total of officers’ knowledge 8.72 In a large organisation, such as the Australian Taxation Office or a bank, the state of mind of that organisation is the sum total of all of its officers’

knowledge.281 As Lord Hobhouse observed in National Bank of Australasia v Morris: Whatever may have been the state of Balfour’s (the Bank’s Sydney Manager) knowledge, it is the bank who are sued, and they cannot get rid of knowledge which is brought home to them in Melbourne by alleging the ignorance of their agent in Sydney.282

[page 374]

SECTIONS 588FG(3)–(6) 8.73 Sections 588FG(3), (4), (5) and (6) apply to taxation283 debts. The purpose of the provisions is to avoid doubt and they are not intended to limit the cases where a person may be taken to have provided valuable consideration under a transaction.284 Section 588FG(5) clarifies the meaning of ‘valuable consideration’ for the purposes of s 588FG(2)(c).285 The provisions, however, do not convert the Commissioner into a supplier of goods and services.286

COMMISSIONER OF TAXATION’S INDEMNITY AGAINST DIRECTORS (S 588FGA) 8.74 Section 588FGA applies if the court makes an order under s 588FF against the Commissioner of Taxation because of the payment of an amount in respect of certain taxation liabilities.287 For a full discussion of this provision, see 10.118.

DISPOSITION OF PROPERTY MADE AFTER THE COMMENCEMENT OF A

WINDING UP (S 468)288 8.75 In addition to the voidable transaction provisions which relate to dispositions of company property made before a winding up, s 468(1) provides that any disposition of property of the company, other than an exempt disposition, made after the commencement289 of the winding up by the court is, unless the court otherwise orders, void. The expression ‘exempt disposition’ is defined to include:290 [page 375] a disposition made by the liquidator, or by a provisional liquidator, of the company pursuant to a power conferred on him or her by the Corporations Act, the rules of the court that appointed the liquidator or an order of the court;291 a disposition made in good faith by, or with the consent of, an administrator of the company;292 or a disposition under a deed of company arrangement executed by the company.293 Section 468 was amended by the CLRA so that it now only applies to dispositions made after the commencement of the winding up as provided for in s 513A, which will generally be the date of the making of the winding up order. Prior to the commencement of CLRA, dispositions that were made between the commencement of the winding up application and the actual winding up order were also captured because under the previous legislation a winding up was taken to have commenced as at the date of the filing of the winding up application.294 8.76 Provisions similar to s 468(1) have a long pedigree in insolvency legislation going back at least as far as s 153 of the Companies Act 1862 (UK).295 The purpose of provisions such as s 468 was explained by Lord Cairns LJ in Re Wiltshire Iron Co Ltd; Ex parte Pearson in relation to s 153 of the Companies Act of 1862 (UK). As his Lordship explained: The 153rd section no doubt provides that all dispositions of the property and effects of the company made between the commencement of the winding-up (that is the presentation of the petition) and the order for winding-up, shall, unless the court otherwise orders, be void. This is a wholesome and

necessary provision, to prevent, during the period which must elapse before a petition can be heard, the improper alienation and dissipation of the property of a company in extremis. But where a company actually trading, which it is the interest of everyone to preserve, and ultimately to sell, as a going concern, is made the object of a winding-up petition, which may fail or may succeed, if it were to be supposed that transactions in the ordinary course of its current trade, bona fide entered into and completed, would be avoided, and would not, in the discretion given to the court, be maintained, the result would be that the presentation of a petition, groundless or well-founded, would,

[page 376] ipso facto, paralyze the trade of the company, and great injury, without any counterbalance of advantage, would be done to those interested in the assets of the company.296

The expression ‘disposition’297 was considered in detail by McPherson J in Re Loteka Pty Ltd (in liq) where his Honour observed: In Re Mal Bower’s MacQuarrie Electrical Centre Pty Ltd (in liq) [1974] 1 NSWLR 254 at 257–8, Street CJ in Eq considered the word ‘disposition’ in this context and held that it meant ‘transfer or alienate’. With that I respectfully agree, although preferring perhaps to express it more expansively in the form that, in order to constitute a ‘disposition’ within the context of s 368(1), there must be some change that takes out of the company at least the beneficial ownership in a corporate asset and passes it to someone else. The statutory prohibition does not operate upon a mere contract after winding up unless it is one that of its own force serves then to transfer an interest in a corporate asset away from the company.298

‘Void’ in this context means void and not merely voidable. In considering the meaning of the word ‘void’ in s 368(1) of the Companies (NSW) Code,299 Kirby P said in National Acceptance Corp Pty Ltd v Benson: It is sufficient to dispose of the present appeal to conclude that the word ‘void’ as used in s 368(1), means void for all purposes related or incidental to the administration of the winding up of the company and as between the company and a person dealing with the company. At the least that is what the word means. Upon that basis, when the winding up order was made in the present case, payment by the company to the appellant was thereby rendered by the Act to be ‘void’ when made. In the result, at least between the company and the appellant and the appellant and the present respondents, the law treats the payment as never having happened.300

Similarly, Priestley JA said: To this point, it seems to me that the meaning of the subsection is that unless the court otherwise orders, upon a winding up order being made any disposition, transfer or alteration within the meaning of the subsection that has taken place after the time of the filing of the application for the winding up is to have no legal effect from the time that it took place. That

[page 377] is, once the winding up order is made, the transaction must be regarded as never having taken place at

all in law, unless the court otherwise orders.301

8.77 Notwithstanding s 468(1), the court may,302 where an application for winding up has been filed but a winding up order has not been made: (a) validate the making, after the filing of the application, of a disposition of property of the company; or (b) permit the business of the company or a portion of the business of the company to be carried on, and such acts as are incidental to the carrying on of the business or portion of the business to be done, during the period before a winding up order (if any) is made. It is well established that the court has a wide discretion to validate a transaction. The relevant principles were summarised by Owen J in Guthrie as liquidator of Transconsult Australia Pty Ltd v Chandler: There is abundant authority to support the proposition that there is a wide and general discretion to validate and that attempts to classify cases in which the discretion will, or ought to be, exercised will most likely be fruitless: see Re Steane’s (Bournemouth) Ltd [1950] 1 All ER 21 at 25; Jardio Holdings Pty Ltd v Dorcon Constructions Pty Ltd (1984) 3 FCR 311 at 316; Re Rampton Holdings Pty Ltd (in liq), supra, (ACLC) at 222. That having been said, it is possible to elicit from the authorities a number of principles … (1) The discretion must be exercised within the statutory framework in which s 368 occurs, namely the winding up of a company. As a general statement, all assets and liabilities of the company are to be marshalled and calculated as at the commencement of winding up so that there can be a rateable division of assets among creditors of a class. However, adherence to the pari passu principle is not determinative. There may be a departure from the principle of rateable distribution if there are demonstrated special considerations which warrant the departure: Tellsa Furniture Pty Ltd (in liq) v Glendave Nominees Pty Ltd (1987) 9 NSWLR 254 at 255, 261; 13 ACLR 64 at 65, 71. (2) If the payment is made for goods or services supplied to the company honestly and in the ordinary course of business and for the benefit of the company, a validation order will generally be made: Tellsa Furniture Pty Ltd (in liq) v Glendave Nominees Pty Ltd, supra, (NSWLR) at 256, 264–5.

[page 378] (3) The element of benefit to the company will usually be satisfied if the transaction relates to the need to continue business and earn income, or, save loss, during the pendency of the petition: Re Rampton Holdings Pty Ltd (in liq); supra, (ACLC) at 224. (4) The fact that payment is made for goods or services supplied prior to the commencement of the winding up will not necessarily disentitle the creditor to validation order: Re Atlas Truck Services Pty Ltd (1974) 24 FLR 220.303

1.

Edenden v Bignell [2007] NSWSC 1122 at [21] per Barrett J.

2.

Edenden v Bignell [2007] NSWSC 1122 at [21] per Barrett J.

3.

The expression ‘voidable transaction’ is not actually defined in the Corporations Act. See 8.20.

4.

A detailed discussion of the types of orders that may be made is found at 8.24ff.

5.

Edenden v Bignell [2007] NSWSC 1122 at [21] per Barrett J.

6.

Edenden v Bignell [2007] NSWSC 1122 at [21] per Barrett J.

7.

Edenden v Bignell [2007] NSWSC 1122 at [21] per Barrett J. See also Hall v Ledge Finance Ltd [2005] NSWSC 645 at [12] and New Cap Reinsurance Corporation Ltd v A E Grant (2009) 72 ACSR 638 at [19]. See 3.3.

8.

See 1.14ff.

9.

Fortress Credit Corporation (Australia) II Pty Ltd v Fletcher (2014) 308 ALR 166; [2014] NSWCA 148 at [125] per Barrett JA.

10. EM to the CLR Bill at [1037], [1055]–[1057]. 11. 13 Eliz 1, c 5. As explained in Chapter 1, it was by no means the earliest. See, for example, the excursus of MacPherson JA in R v Dunwoody (2004) 212 ALR 103; [2004] QCA 413 in which his Honour suggested the earliest such statute in English law was the 1376 Act of 50 Edw 3, c 6. See 1.19ff for a detailed history of avoidance provisions in insolvency law. 12. There were in fact two statutes of Elizabeth of 1571, one that related to non-trade debtors (13 Eliz 1, c 5) and one that related to trade debtors (13 Eliz 1, c 7). See the scholarly discussion of Priestly JA in Harkness v Partnership Pacific Ltd (1997) 41 NSWLR 204 at 228ff and also by Lindgren J in Anscor Pty Ltd v Clout (Trustee) (2004) 135 FCR 469; [2004] FCAFC 71. 13. The Fraudulent Transactions Act was interpreted as not applying to preferences: Cannane v J Cannane Pty Ltd (in liq) (1998) 192 CLR 557 at [39]. See also Director of Public Prosecutions (Vic) v Le (2007) 232 CLR 562 at [117] per Kirby and Crennan JJ. However, in Alderson v Temple (1768) 96 ER 384 Lord Mansfield held that where a debtor makes a payment that he knows is in contravention of the spirit of the bankruptcy laws, the payment is recoverable as a fraudulent preference. This ‘common law’ principle was given statutory force by s 92 of the Bankruptcy Act 1869 (UK) (32 & 33 Vic, c 71): see the discussion of the Full Federal Court in Wily v St George Partnership Banking Ltd (1999) 84 FCR 423; 30 ACSR 204. 14. (13 Eliz 1, c 5), s 1. 15. See 1.36 and the discussion of the Full Federal Court in PT Garuda Indonesia Ltd v Grellman (1992) 35 FCR 515; 107 ALR 199 at 205ff. Prior to 16 December 1996, s 121 of the Bankruptcy Act applied to ‘fraudulent dispositions’. 16. See also Conveyancing Act 1919 (NSW) s 37A; Property Law Act 1974 (Qld) s 238; Law of Property Act 1936 (SA) s 86; Conveyancing and Law of Property Act 1884 (Tas) s 40; Property Law Act 1958 (Vic) s 172; Property Law Act 1969 (WA) s 89. 17. See, for example, ss 120, 121 and 122 of the Bankruptcy Act. 18. For example, the Bankrupts Act 1603 (Eng) (1 Jac, c 15) relevantly provided for the avoidance of transactions whereby the bankrupt ‘shall convey, or procure or cause to be conveyed’ property to his children or other person or persons; s 73 of the Bankrupts Act 1825 (Eng) (6 Geo IV, c 16) and s 126 of the Bankrupt Law Consolidation Act 1849 (Eng) (12 and 13 Vic, c 106). 19. Section 94 of the Bankruptcy Act 1924–1932 provided ‘(1) Any settlement of property … shall, (i) if the settlor becomes bankrupt within two years after the date of the settlement — be void against the trustee in the bankruptcy; and (ii) if the settlor becomes bankrupt at any subsequent time within five 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 settlor’s interest in the property passed to the trustee of the settlement or to the donee thereunder on its execution …’. 20. Re Williams; Williams v Lloyd (1934) 50 CLR 341 at 374 per Dixon J. See also Price v Parsons (1936) 54 CLR 332 at 351–2. 21. Brady v Stapleton (1952) 88 CLR 322 at 333; [1952] ALR 989. 22. Re Lebrain (1975) 24 FLR 407 at 410; Wreckair Pty Ltd v Emerson (1991) 5 ACSR 576 at 584–5; Spedley Securities Ltd v Western United Ltd (1992) 7 ACSR 721 at 722; Hamilton v Commonwealth Bank of Australia (1992) 9 ACSR 90 at 124 and 125; Starkey v Deputy Commissioner of Taxation (1993) 11 ACLC 558 at 565; Star v O’Brien (1997) 15 ACLC 144 at 151. See also Marks v Feldman (1870) LR 5 QB 275 at 280 and 282; Re Brall [1893] 2 QB 381; Sanguinetti v Stuckey’s Banking Co [1895] 1 Ch 176 at 180–1; Williams v Lloyd (1933) 50 CLR 341 at 374 and Star v O’Brien (1997) 15 ACLC 144 at 151. 23. Anscor Pty Ltd v Clout (Trustee) (2004) 135 FCR 469 at [43]. 24. N A Kratzmann Pty Ltd (in liq) v Tucker (No 2) (1968) 123 CLR 295 at 298; [1968] ALR 616. 25. See 8.21. 26. If the transaction was entered into on or after 23 June 1993. See 2.2. 27. On one view the transactions are not technically voidable in the general law sense: see 8.20. 28. Section 588FE(2)(b)(i). 29. Section 588FE(2)(b)(ii). 30. Section 588FE(5). For a discussion of the relation-back period, see 2.72ff. 31. See Chapter 3 for a discussion of ‘transaction’ and transaction ‘of’ a company. 32. Section 588FC. A company is defined in s 9 to mean relevantly a company registered under the Corporations Act. 33. Section 588FC. 34. The expression ‘given effect to’ has received little judicial consideration. See, for example, the Full Federal Court decision in Demondrille Nominees Pty Ltd v Shirlaw (1997) 25 ACSR 535. 35. Section 588FC(a). 36. Section 588FC(b). 37. The relation-back day and corresponding relation-back period is one such time-frame: see 2.72ff. 38. For a discussion of transaction, see Chapter 3. 39. EM to the CLR Bill at [1046]. 40. Section 588FC(b). 41. Lewis (as liquidator of Doran Constructions Pty Ltd) v Doran (2005) 219 ALR 555; 54 ACSR 410; [2005] NSWCA 243 at [138]; see also Re Employ (No 96) Pty Ltd (in liq) (2013) 93 ACSR 48; [2013] NSWSC 61 at [88] per Black J, concerning the words ‘because of’ in s 588FG, which his Honour said ‘contemplate a direct causative relationship’. 42. Lewis (as liquidator of Doran Constructions Pty Ltd) v Doran (2005) 219 ALR 555; 54 ACSR 410; [2005] NSWCA 243 at [137]–[138]. For a discussion of the concept of an act giving effect to a transaction, see 3.67ff. 43. Campbell Street Theatre Pty Ltd (rec and mgrs apptd) (in liq) v Commercial Mortgage Trade Pty

Ltd [2012] NSWSC 669 at [22] per Black J, citing Lewis (as liquidator of Doran Constructions Pty Ltd) v Doran (2005) 219 ALR 555; 54 ACSR 410. 44. Campbell Street Theatre Pty Ltd (rec and mgrs apptd) (in liq) v Commercial Mortgage Trade Pty Ltd [2012] NSWSC 669 at [35]. 45. Specifically recommendation 51. See the Explanatory Memorandum to the Corporations Amendment (Insolvency) Bill 2007 at [7.197]–[7.203]. Such reforms were foreshadowed by Austin J in Chief Commissioner of State Revenue v Rafferty’s Resort Management Pty Ltd (in liq) (2008) 217 FLR 230; 66 ACSR 199; [2008] NSWSC 452. 46. See Chapter 5. 47. See Chapter 4. 48. See Chapter 6. 49. See Chapter 7. 50. Section 588FE(2A)(a). 51. Section 588FE(2A)(b). 52. Section 588FE(2A)(c). 53. Section 588FE(2A)(d). 54. See Chapter 3 for a discussion of ‘transaction’ and transaction ‘of’ a company. 55. See 8.8ff. 56. See Chapter 3 for a discussion of the expression ‘party’. 57. Namely, (a) a promoter of the body; (b) a relative of such a promoter; (c) a relative of a spouse of such a promoter; (d) a director or member of the body or of a related body corporate; (e) a relative of such a director or member; (f) a relative of a spouse of such a director or member; (g) a body corporate that is related to the first-mentioned body; (h) a beneficiary under a trust of which the first-mentioned body is or has at any time been a trustee; (i) a relative of such a beneficiary; (j) a relative of a spouse of such a beneficiary; (k) a body corporate one of whose directors is also a director of the first-mentioned body; (l) a trustee of a trust under which a person is a beneficiary, where the person is a related entity of the first-mentioned body because of any other application or applications of this definition. 58. See 7.16 for a more detailed discussion. 59. Macquarie Health Corp Ltd v Commissioner of Taxation (1999) 96 FCR 238; 169 ALR 16; [1999] FCA 1819. 60. Macquarie Health Corp Ltd v Commissioner of Taxation (1999) 96 FCR 238; 169 ALR 16 [1999] FCA 1819 at [133]. 61. See 8.8ff. 62. See Chapter 3 for a discussion of the expression ‘party’. 63. Marcolongo v Chen (2011) 242 CLR 546; 274 ALR 634; [2011] HCA 3. 64. Lloyds Bank Ltd v Marcan [1973] 1 WLR 1387 at 1390–1. 65. Billingham v Whyte [2011] NSWCA 463. 66. Official Trustee in Bankruptcy v Baker (FCA, 5 August 1994, unreported). This passage was approved by the Full Court of the Federal Court in Caddy v McInnes (1995) 131 ALR 277. For another example of where s 37A of the Conveyancing Act 1919 was used by a liquidator in the context of an insolvency, see Hall v Poolman (2007) 65 ACSR 123; [2007] NSWSC 1330 at [513]ff.

67. For a detailed discussion as to what is an unfair loan, see Chapter 6. 68. For a detailed discussion of s 588FDA, see Chapter 7. 69. See 7.1. 70. Section 588FE(1)(b). 71. For older authorities, see, for example, Stevenson v Newnham (1853) 13 CB 285 at 302–3, Ex Ch; Feret v Hill (1854) 15 CB 207 at 223–7; Oakes v Turquand and Harding (1867) LR 2 HL 325 at 346; Ogilvie v Currie (1868) 37 LJ Ch 541 at 546; Reese River Silver Mining Co Ltd v Smith (1869) LR 4 HL 64 at 69, 73–4; Clough v London and North Western Rly Co (1871) LR 7 Exch 26 at 34; Erlanger v New Sombrero Phosphate Co (1878) 3 App Cas 1218 at 1227–8; Re Scottish Petroleum Co (1883) 23 Ch D 413 at 430–2; Aaron’s Reefs v Twiss [1896] AC 273 at 290–1, 294; Re Glubb; Bamfield v Rogers [1900] 1 Ch 354 at 361–2 per Lindley MR; United Shoe Machinery Co of Canada v Brunet [1909] AC 330 at 339; Abram Steamship Co v Westville Shipping Co [1923] AC 773 at 782–3, 787 per Atkinson LJ. 72. Commonwealth Homes and Investment Co Ltd v Smith (1937) 59 CLR 443 at 445. 73. The closest provision is s 588FF(1)(h) which provides that the court may make ‘an order declaring an agreement constituting, forming part of, or relating to, the transaction, or specified provisions of such an agreement, to have been void at and after the time when the agreement was made, or at and after a specified later time’. 74. See Bennetts, ‘Voidable Transactions: Consequences of Removing Avoidance Powers from the Liquidator and Vesting them in the Court’ (1994) 2 Insolvency Law Journal 136 at 138. 75. New Cap Reinsurance Corp Ltd v AE Grant (2009) 72 ACSR 638; [2009] NSWSC 662 at [19]. 76. Hall v Ledge Finance Ltd [2005] NSWSC 645. 77. Hall v Ledge Finance Ltd [2005] NSWSC 645 at [12]. See also the comments of Finkelstein J in Re Cook; Italiano Family Fruit Co Pty Ltd (in liq) (2010) 190 FCR 474; 80 ACSR 680; [2010] FCA 1355 at [48]. See similarly the High Court’s comments in Burns v Stapleton (1959) 102 CLR 97. 78. Tolcher v National Australia Bank Ltd (2003) 44 ACSR 727; 174 FLR 251; [2003] NSWSC 207 at [10]. 79. Kazar (liquidator) v Kargarian; Re Frontier Architects Pty Ltd (in liq) (2011) 197 FCR 113; 284 ALR 237; [2011] FCAFC 136. 80. Kazar (liquidator) v Kargarian; Re Frontier Architects Pty Ltd (in liq) (2011) 197 FCR 113; 284 ALR 237; [2011] FCAFC 136 at [88]. See also Capital Finance Australia Ltd v Tolcher (2007) 164 FCR 83; 64 ACSR 705 per Heerey, Lindgren and Gordon JJ at [148]. 81. For a more detailed history of the antecedent provisions, see 1.19ff. 82. BP Australia Ltd v Brown (2003) 58 NSWLR 322; 46 ACSR 677; [2003] NSWCA 216. 83. BP Australia Ltd v Brown (2003) 58 NSWLR 322; 46 ACSR 677; [2003] NSWCA 216 at [106]– [108] per Spigelman CJ, Mason P and Handley JA agreeing. 84. See 1.15ff and 4.19. 85. SJP Formwork (Aust) Pty Ltd v Deputy Commissioner of Taxation (2000) 34 ACSR 604; [2000] NSWSC 604. 86. SJP Formwork (Aust) Pty Ltd v DCT (2000) 34 ACSR 604; [2000] NSWSC 604 at [2]. 87. SJP Formwork (Aust) Pty Ltd v Deputy Commissioner of Taxation (2000) 34 ACSR 604; [2000] NSWSC 604 at [18]–[20]. See also the comments of Palmer J in Tolcher v National Australia Bank Ltd (2003) 44 ACSR 727; [2003] NSWSC 207 at [13]–[15] where his Honour preferred the views of Santow J in SJP Formwork to the contrary view expressed by Jones J in Jonsson v Tim Ferrier Pty

Ltd [2001] QSC 10. In the latter case, Jones J was not referred to SJP Formwork and his Honour’s comments were in any event obiter. 88. New Cap Reinsurance Corp Ltd (in liq) v Renaissance Reinsurance Ltd (2002) 43 ACSR 65; [2002] NSWSC 856 at [22]. 89. New Cap Reinsurance Corp Ltd (in liq) v Renaissance Reinsurance Ltd (2002) 43 ACSR 65; [2002] NSWSC 856 at [22]. 90. New Cap Reinsurance Corp Ltd (in liq) v Renaissance Reinsurance Ltd (2002) 43 ACSR 65; [2002] NSWSC 856 at [23]–[24]. 91. New Cap Reinsurance Corp Ltd (in liq) v Renaissance Reinsurance Ltd (2002) 43 ACSR 65; [2002] NSWSC 856 at [25]–[27] citing the comments of Cohen J in respect of the previous regime in Staff Engineered Membranes Pty Ltd v Synflex Industries (International) Inc [1984] 2 NSWLR 116; 8 ACLR 962 who in turn relied upon the observations of the High Court in Burns v Stapleton (1959) 102 CLR 97 at 104. 92. See 3.78 for a discussion of the expression ‘transaction of the company’. 93. Kalls Enterprises Pty Ltd (in liq) v Baloglow (2007) 63 ACSR 557; [2007] NSWCA 191 at [97]; New Cap Reinsurance Corporation Ltd (in liq) v Renaissance Reinsurance Ltd (2002) 43 ACSR 65; [2002] NSWSC 856 at [15]. 94. For unfair preferences, see Chapter 4; for uncommercial transactions, see Chapter 5; for unfair loans, see Chapter 6; for unreasonable director-related transactions, see Chapter 7. 95. New Cap Reinsurance Corp Ltd v AE Grant (2009) 72 ACSR 638; [2009] NSWSC 662 at [19] per Barrett J. 96. For a discussion of the types of orders that can be made, see 8.29ff. 97. Specifically, s 588FF provides for 10 types of orders to be made. 98. Corporations Act 2001 (Cth) s 588FF(1)(a), (c). 99. Corporations Act 2001 (Cth) s 588FF(1)(b), (d). 100. Corporations Act 2001 (Cth) s 588FF(1)(e), (f), (g). 101. Corporations Act 2001 (Cth) s 588FF(1)(h), (i), (j). 102. Pegulan Floor Coverings Pty Ltd v Carter (1997) 24 ACSR 651 at 659–60. Quaere, however, whether Pt 5.7B has displaced the liquidator’s action for money had and received (see Re Ward; Thomas v LG Abbot & Co Ltd (1950) 16 ABC 214): see Sutherland v Liquor Administration Board (1997) 24 ACSR 176 per Young J. The issue is potentially important because of the relatively short limitation period of three years under s 588FF as opposed to a six year period for money had and received. 103. Section 588FF gives no guidance as to the approach to be taken in deciding, in a particular case, whether the amount recoverable under s 588FF in respect, for example, of an uncommercial transaction should be equal to some or all of the money that the company has paid under the transaction: see, for example, the approach of Black J in Re Employ (No 96) Pty Ltd (in liq) (2013) 93 ACSR 48. 104. See 8.45. 105. EM to the CLR Bill at [1035]–[1037]. 106. See 11.26. 107. In Kitay v Strathfield Holdings Pty Ltd (1998) 27 ACSR 716, Parker J observed that this reflects the common law principle that winding up does not effect a transfer of company property and that the property continues to belong to the company: KLDE Pty Ltd (in vol liq) v Commissioner for Stamp

Duties [1984] ACLD 188. It does not pass to the liquidator: Food Controller v Cork [1923] AC 647 at 671. 108. See, for example, Octavo Investments Pty Ltd v Knight (1979) 144 CLR 360. See further Re Yagerphone Ltd [1935] Ch 392; [1935] All ER Rep 803; NW Robbie Co Ltd v Witney Warehouse Co Ltd [1963] 3 All ER 613; Re Quality Camera Co Pty Ltd [1965] NSWR 1330; Bibra Lake Holdings (in liq) v Firmadoor Australia Pty Ltd (1992) 7 ACSR 380; Hamilton v National Australia Bank Ltd (1996) 19 ACSR 647; Bank of New Zealand v Essington Developments Pty Ltd (1991) 5 ACSR 86 at 89–90. 109. New Cap Reinsurance Corp Ltd v AE Grant (2009) 72 ACSR 638; [2009] NSWSC 662 at [19]. 110. Tolcher v National Australia Bank (2004) 48 ACSR 741; [2004] NSWSC 6 at [21]. See also Re Yagerphone Ltd [1935] Ch 392; [1935] All ER Rep 803; NA Kratzmann Pty Ltd (in liq) v Tucker (No 2) (1968) 123 CLR 295; [1968] ALR 616; Bibra Lake Holdings (in liq) v Firmadoor Australia Pty Ltd (1992) 7 WAR 1; 7 ACSR 380; Hamilton v National Australia Bank Ltd (1996) 66 FCR 12; 19 ACSR 647; SJP Formwork (Australia) Pty Ltd v Deputy Commissioner of Taxation (2000) 34 ACSR 604; [2000] NSWSC 604; G&M Aldridge Pty Ltd v Walsh (2001) 203 CLR 662; 38 ACSR 1; [2001] HCA 27; Tolcher v National Australia Bank Ltd (2003) 44 ACSR 727; [2003] NSWSC 207; Tolcher v National Australia Bank (2004) 48 ACSR 741; [2004] NSWSC 6 at [21]. See further Bank of New Zealand v Essington Developments Pty Ltd (1991) 5 ACSR 86 at 89–90 where McLelland J opined that: The position of a creditor with a charge over all the assets of a company and a receiver appointed by that creditor appears to be that if as a result of the avoidance of the transactions property is recovered in specie, then that property is included in the assets of the company which are subject to the charge and which therefore are available to the receiver for the benefit of the secured creditor. See, however, the discussion in Chapter 9 in relation to the treatment of property the subject of a PPSA interest during liquidation. 111. NA Kratzmann Pty Ltd v Tucker (No 2) (1968) 123 CLR 295 at 300–1; [1968] ALR 616. 112. SJP Formwork (Aust) Pty Ltd (in liq) v Deputy Commissioner of Taxation (2000) 34 ACSR 604. 113. Palmer J approved Santow J’s analysis in Tolcher v National Australia Bank Ltd (2003) 44 ACSR 727. See also the comments of Lehane J in Hamilton v National Australia Bank (1996) 19 ACSR 647 at 672 and Campbell J in Blundell v Macrocom [2004] NSWSC 848 and also the decision of Barrett J in Plumbers Supplies Co-Operative Limited v Firedam Civil Engineering Pty Ltd [2011] NSWSC 325 at [40]. 114. Jonsson v Tim Ferrier Pty Ltd [2001] QSC 10. 115. Re Cook as liquidator of Italiano Family Fruit Co Pty Ltd (in liq) (2010) 190 FCR 474; 80 ACSR 680; [2010] FCA 1355. 116. Re Cook as liquidator of Italiano Family Fruit Co Pty Ltd (in liq) (2010) 190 FCR 474; ACSR 680 at [62]. 117. New Cap Reinsurance Corporation Ltd v AE Grant (2009) 72 ACSR 638 at [21] per Barrett J. 118. Woodgate v Fawcett (2008) 67 ACSR 611 per Hammerschlag J. 119. New Cap Reinsurance Corp Ltd v AE Grant (2009) 72 ACSR 638; [2009] NSWSC 662 per Barrett J. 120. New Cap Reinsurance Corp Ltd v AE Grant (2009) 72 ACSR 638; [2009] NSWSC 662 at [69] and [77]. 121. Pegulan Floor Coverings Pty Ltd v Carter (1997) 24 ACSR 651 at 659 per Doyle CJ.

122.

New Cap Reinsurance Corp Ltd v AE Grant (2009) 72 ACSR 638; [2009] NSWSC 662 per Barrett J. For a discussion of the pari passu rule, see 1.6ff.

123. New Cap Reinsurance Corp Ltd v AE Grant (2009) 72 ACSR 638; [2009] NSWSC 662 at [21]. 124. Rivarolo Holdings Pty Ltd v Casa Tua (Sales) Pty Ltd (1997) 24 ACSR 105. This appears to be the only reported decision in which this power has been invoked. 125. For a discussion of the expression ‘party’, see Chapter 3. 126. Re Pacific Hardware Brokers (Qld) Pty Ltd (1997) 16 ACLC 442. 127. Re Pacific Hardware Brokers (Qld) Pty Ltd (1997) 16 ACLC 442 at 446 per Mackenzie J. See 3.31 for a more detailed discussion. 128. McDonald v Hanselmann (1998) 28 ACSR 49 at 53 per Young J. 129. See Capital Finance Australia Ltd v Tolcher (2007) 64 ACSR 705; [2007] FCAFC 185 per Gordon J at [143] and [147], Heerey J concurring, and Lindgren J at [84]. See 8.45 for a more detailed discussion. 130. Commissioner of Taxation (NSW) v Sims (2008) 68 ACSR 568 at [33] per Ipp JA, Beazley and MacFarlan JJA agreeing. 131. Wily v Bartercard Ltd (2000) 34 ACSR 186; [2000] NSWSC 372. 132. Wily v Bartercard Ltd (2000) 34 ACSR 186; [2000] NSWSC 372 at [50]–[53]. See also 5.18 and 7.22ff for a discussion of benefit of ss 588FB and 588FDA respectively. 133. Bartercard Ltd v Wily (2001) 39 ACSR 94; [2001] NSWCA 262. 134. Re Great Wall Resources Pty Ltd (in liq) [2013] NSWSC 354 at [26] per Brereton J. 135. Bellach v Chamberlain [2011] NSWSC 528. 136. Campbell Street Theatre Pty Ltd (rec and mgr apptd) (in liq) v Commercial Mortgage Trade Pty Ltd [2012] NSWSC 669 per Black J. 137. See also, for example, Arena Management Pty Ltd (admin apptd) (recs & mgrs apptd) v Campbell Street Theatre Pty Ltd [2010] NSWSC 957 at [79] per Palmer J. 138. New Cap Reinsurance Corp Ltd v AE Grant (2009) 72 ACSR 638; [2009] NSWSC 662 at [18]. 139. New Cap Reinsurance Corp Ltd v AE Grant (2009) 72 ACSR 638; [2009] NSWSC 662 at [17] per Barrett J. See also 11.27. 140. Slaven v Menegazzo [2009] ACTSC 94. 141. For a discussion of unreasonable director-related transactions, see Chapter 7. 142. Slaven v Menegazzo [2009] ACTSC 94 at [30] per Mansfield J. 143. For the general principles, see Spencer v Commonwealth (1907) 5 CLR 418; 14 ALR 253; and for a similar context, see Pauls Ltd v Dwyer [2004] 2 Qd R 176; 43 ACSR 413 at 420; [2002] QCA 545. 144. Slaven v Menegazzo [2009] ACTSC 94. The facts are briefly set out at 8.39. 145. Slaven v Menegazzo [2009] ACTSC 94 at [31]–[32]. 146. Slaven v Menegazzo [2009] ACTSC 94 at [49]. 147. For a discussion of insolvent transaction, see 8.8. 148. Company is defined in s 9 to mean relevantly a company registered under the Corporations Act. 149. For a discussion of related entity, see 8.16. 150. Section 588FH(1).

151. Section 588FH(1)(c). 152. Section 588FH(3). 153. EM to the CLR Bill at [1062]–[1065]. 154. EM to the CLR Bill at [361]. 155. Re Walker Group Pty Ltd (in liq) (1994) 13 ACLC 434. 156. As described by Black J in Re Employ (No 96) Pty Ltd (in liq) (2013) 93 ACSR 48 at [84] per Black J. See also New Cap Reinsurance Corp Ltd v AE Grant (2009) 72 ACSR 638; [2009] NSWSC 662 at [58] per Barrett J. 157. Re Employ (No 96) Pty Ltd (in liq) (2013) 93 ACSR 48 at [84] per Black J. 158. New Cap Reinsurance Corp Ltd v AE Grant (2009) 72 ACSR 638; [2009] NSWSC 662. 159. New Cap Reinsurance Corp Ltd v AE Grant (2009) 72 ACSR 638; [2009] NSWSC 662 at [59]. See also Sands & McDougall (Wholesale) Pty Ltd (in liq) v Federal Commissioner of Taxation (1996) 22 ACSR 383 at 410; 15 ACLC 115 at 138, reversed on appeal by the Victorian Court of Appeal in Sands & McDougall Wholesale Pty Ltd (in liq) v Commissioner of Taxation (Cth) [1999] 1 VR 489 who do not express a view on this point. 160. BP Australia Ltd v Brown (2003) 58 NSWLR 322; 46 ACSR 677; [2003] NSWCA 216 at [157] and [171] per Spigelman CJ, Mason P and Handley JA agreeing. See also Bovis Lend Lease Pty Ltd v Wily (2003) 45 ACSR 612; [2003] NSWSC 467 at [194] per Austin J; Re United Medical Protection Ltd (No 4) (2002) 42 ACSR 218; [2002] NSWSC 516 at [49]. 161. Ansell Ltd v Davies (2008) 67 ACSR 356; [2008] SASC 203. 162. See, for example, Black J’s tentative approach in Re Employ (No 96) Pty Ltd (in liq) (2013) 93 ACSR 48. 163. Cashflow Finance Pty Ltd (in liq) v Westpac Banking Corp [1999] NSWSC 671 at [567]–[570]. 164. See, similarly, Cussen v Sultan (2009) 74 ACSR 496; [2009] NSWSC 1114 at [24]–[30]. Support for this argument may also be found in McDougall v Patterson (1851) 11 CB 755 at 773; 138 ER 672 at 679 per Jervis CJ; Finance Facilities Pty Ltd v Federal Commissioner of Taxation (1971) 127 CLR 106 at 134–5 per Windeyer J. In Sands & McDougall Wholesale Pty Ltd (in liq) v Commissioner of Taxation [1999] 1 VR 489; [1998] VSCA 76 the Victorian Court of Appeal did not decide the issue. 165. The equivalent English provision found in s 423(2) of the Insolvency Act (UK) 1986 provides that the court ‘may’ make such order as it thinks fit for restoring the position and protecting victims of transactions intended to defraud creditors. That section is said to confer a discretion upon the English court to make appropriate orders: Re Paramount Airways Ltd [1993] Ch 223; Re Maxwell Communications Corp (No 2); Barclays Bank v Homan [1992] BCC 757. 166. Pegulan Floor Coverings Pty Ltd v Carter (1997) 24 ACSR 651 at 658–9. 167. Section 588FF(1)(c) provides that the court may make an order requiring a person to pay to the company an amount that, in the court’s opinion, fairly represents some or all of the benefits that the person has received because of the transaction. 168. See, for example, s 100 of the Civil Procedure Act 2005 (NSW) which applies to proceedings for the recovery of money. See, however, the comments of Barrett J in New Cap Reinsurance Corp Ltd v AE Grant (2009) 72 ACSR 638; [2009] NSWSC 662 at [63] where his Honour queried whether proceedings for an order for the payment of money sought under s 588FF(1)(a) are properly characterised as ‘proceedings for the recovery of money’ within the meaning of s 100 of the Civil Procedure Act 2005 (NSW). His Honour, however, accepted that interest could be awarded in s 588FF under provisions such as s 100 on the basis of the Queensland Court of Appeal decision in Sheldrake v Paltoglou [2006] QCA 400 which proceeded on the basis that the Queensland

equivalent of s 100(1) (being s 47(1) of the Supreme Court Act 1995 (Qld)) allowed interest to be awarded on a sum ordered to be paid under s 588FF(1)(a). 169. Capital Finance Australia Ltd v Tolcher (2007) 164 FCR 83; 64 ACSR 705; [2007] FCAFC 185. An appeal to the High Court was compromised: see [2008] HCA Trans 316. 170. See at [143] and [147] per Gordon J, Heerey J concurring and Lindgren J, at [84]. See also New Cap Reinsurance Corp Ltd v AE Grant (2009) 72 ACSR 638; [2009] NSWSC 662 at [64] per Barrett J. 171. New Cap Reinsurance Corp Ltd v AE Grant (2009) 72 ACSR 638; [2009] NSWSC 662 at [64]– [66]. 172. See Spedley Securities Ltd (in liq) v Western United Ltd (No 2) (in liq) (1992) 7 ACSR 721 per McLelland J; Ferrier & Knight v Civil Aviation Authority (1994) 55 FCR 28; 127 ALR 472; Star v O’Brien (1996) 40 NSWLR 695; 22 ACSR 434; Pegulan Floor Coverings Pty Ltd v Carter (1997) 24 ACSR 651; Sheldrake v Paltoglou [2006] QCA 400; Capital Finance Australia Ltd v Tolcher (2007) 164 FCR 83; 64 ACSR 705; [2007] FCAFC 185 at [143]–[153]. For cases where interest was ordered from the date of commencement of winding up, see Hamilton v Commonwealth Bank of Australia (No 2) (1992) 9 ACSR 90; 10 ACLC 1611; Re Mike Electric (Aust) Pty Ltd (in liq) (1983) 71 FLR 117; 7 ACLR 600; Maurice Drycleaners Pty Ltd (in liq) v National Australia Bank Ltd (1990) 8 ACLC 798; Re Toowong Trading Pty Ltd (1988) 13 ACLR 121. 173. Spedley Securities Ltd (in liq) v Western United Ltd (No 2) (in liq) (1992) 7 ACSR 721 at 722. 174. Dean-Willcocks Pty Ltd v Commissioner of Taxation (No 2) (2004) 49 ACSR 325; [2004] NSWSC 286; Cooper v Commissioner of Taxation (2004) 139 FCR 205; 210 ALR 635; [2004] FCA 1063; Hall v Commissioner of Taxation (2004) 51 ACSR 169; [2004] NSWSC 950; Young v Commissioner of Taxation (2006) 56 ACSR 654; [2006] FCA 90; Duncan v Commissioner of Taxation (2006) 58 ACSR 555; [2006] FCA 885 and Noxequin Pty Ltd v Deputy Commissioner of Taxation [2007] NSWSC 87 at [6] per Barrett J. See also the authorities collated by Austin and Black, Austin & Black’s Annotations to the Corporations Act, LexisNexis, Sydney, looseleaf at [5.588FA]. 175. Dean-Willcocks Pty Ltd v Commissioner of Taxation (No 2) (2004) 49 ACSR 325; [2004] NSWSC 286 at [27]–[28]. See also Re Harris Scarfe Ltd (in liq) (2007) 62 ACSR 287; [2007] SASC 115; Cooper (as liquidator of Wanted World Wide (Australia) Ltd (in liq)) v Commissioner of Taxation (2004) 139 FCR 205; 210 ALR 635; [2004] FCA 1063; Hall (as liquidator of Reynolds Vineyards Pty Ltd) v Commissioner of Taxation (2004) 51 ACSR 169; [2004] NSWSC 950; Young v Commissioner of Taxation (2006) 56 ACSR 654; 24 ACLC 240; [2006] FCA 90 at [8]; Duncan v Commissioner of Taxation (2006) 58 ACSR 555; [2006] FCA 885; at [25]; Dwyer v R-Jay Pty Ltd (2007) 247 LSJS 466; [2007] SASC 115. 176. Dean-Willcocks Pty Ltd v Commissioner of Taxation (No 2) (2004) 49 ACSR 325; 22 ACLC 1034; [2004] NSWSC 286 at [18]–[35]; Cooper (as liquidator of Wanted Worldwide (Australia) Pty Ltd (in liq)) v Federal Commissioner of Taxation (2004) 139 FCR 205; 22 ACLC 1284 at 1290; Hall (as liquidators of Reynolds Wines Ltd) v Commissioner of Taxation (2004) 186 FLR 111; [2004] NSWSC 985 at [4]–[9]; Young v Federal Commissioner of Taxation (2006) 24 ACLC 240; [2006] FCA 90 at [5]–[9]; Harris v Federal Commissioner of Taxation (2006) 24 ACLC 648; [2006] QSC 108 at [21]–[23]. 177. Young v Commissioner of Taxation (2006) 56 ACSR 654; 24 ACLC 240; [2006] FCA 90 at [10]. Although see Austin J’s comments in Dean-Willcocks (as liq of SJP Formwork (NSW) Pty Ltd (in liq)) v Commissioner of Taxation (No 2) (2004) 49 ACSR 325 at [10]. 178. ‘Prove’ is defined in s 9 of the Corporations Act as ‘includes establish in any way (for example, but without limitation, through the operation of a presumption for which this Act or a law of a State or Territory provides)’. 179. Young v Commissioner of Taxation (2006) 56 ACSR 654; 24 ACLC 240; [2006] FCA 90 at [10]. See

10.118ff for a more detailed discussion. 180. See, for example, Dean-Willcocks (as liq of SJP Formwork (NSW) Pty Ltd (in liq)) v Commissioner of Taxation (No 2) (2004) 49 ACSR 325 at [31]. See also 11.56ff for a discussion of procedural issues. 181. Crosbie v Commissioner of Taxation (2003) 130 FCR 275; [2003] FCA 922 at [2]. 182. See, for example, Dean-Willcocks (as liq of SJP Formwork (NSW) Pty Ltd (in liq)) v Commissioner of Taxation (No 2) (2004) 49 ACSR 325 and Cooper (as liquidators of Wanted World Wide (Australia) Ltd (in liq)) v Commissioner of Taxation (2004) 139 FCR 205; 210 ALR 635. 183. See Australian Securities Commission v Marlborough Gold Mines Ltd (1993) 177 CLR 485 where the High Court held that a single judge interpreting the Corporations Law should not depart from an interpretation placed on such legislation by another Australian intermediate appellate court unless convinced that that interpretation is plainly wrong. 184. See Dean-Willcocks v Commissioner of Taxation (No 2) (2004) 49 ACSR 325; [2004] NSWSC 286 at [27]–[28] per Austin J; Cooper (as liquidator of Wanted World Wide (Aust) Ltd (in liq)) v Commissioner of Taxation (2004) 139 FCR 205; 210 ALR 635; [2004] FCA 1063 at [44]–[53] per Lander J; Young v Commissioner of Taxation (2006) 56 ACSR 654; [2006] FCA 90 at [8]–[9] per Tamberlin J; Noxequin at [6]. See also Commissioner of Taxation v Moodie (2014) 308 ALR 571; 98 ACSR 274; [2014] NSWCA 59 at [52] per McColl JA with whom Meagher and Barrett JJA agreed. 185. See Commissioner of Taxation v Moodie (2014) 308 ALR 571; 98 ACSR 274; [2014] NSWCA 59 at [52] per McColl JA with whom Meagher and Barrett JJA agreed. See also Hall (as liquidators of Reynolds Wines Ltd) v Commissioner of Taxation (2004) 51 ACSR 173; [2004] NSWSC 985 at [16] per Barrett J. 186. For example under provisions such as UCPR NSW r 36.15(1). See also Harris v Commissioner of Taxation [2006] 2 Qd R 445; (2006) 57 ACSR 706; [2006] QSC 108, Mackenzie J and Commissioner of Taxation v Moodie (2014) 308 ALR 571; 98 ACSR 274; [2014] NSWCA 59 at [52] per McColl JA with whom Meagher and Barrett JJA agreed. 187. See Re Locktronic Systems Pty Ltd (No 1) [2008] VSC 626. See also Commissioner of Taxation v Moodie (2014) 308 ALR 571; 98 ACSR 274; [2014] NSWCA 59 at [52] per McColl JA with whom Meagher and Barrett JJA agreed. 188. Similar provisions include s 265 of the Companies Act 1929 (UK), s 320 of the Companies Act 1948 (UK), s 451 of the Companies Code and s 565 of the Corporations Law. For an example of this provision being applied, see the decision of Young J in Spedley Securities Ltd v Southern Sea Farms Ltd (1991) 6 ACSR 142. 189. EM to the CLR Bill at [1061]. 190. Section 588FG(1). 191. Section 588FG(2). 192. For a rare example of a successful s 588FG(1) defence, see Re Employ (No 96) Pty Ltd (in liq) (2013) 93 ACSR 48. 193. See, for example, Levi v Guerlini (1997) 24 ACSR 159 and Buzzle Operations Pty Ltd (in liq) v Apple Computer Australia Pty Ltd (2011) 81 NSWLR 47; 82 ACSR 703; [2011] NSWCA 109 at [6], [143]–[146] and [287]. In the latter case, the trial judge found that the respondent could take advantage of s 588FG(1) whereas on appeal the Court of Appeal found that it could not because it was a party of the relevant transaction. In the event, the Court of Appeal allowed the respondent to take advantage of s 588FG(2). 194. Section 588FG does not use the language of a ‘defence’ (cf, however, s 588FGB) although the courts have recognised that s 588FG provides a defence to a claim brought under s 588FF: see Re

Employ (No 96) Pty Ltd (in liq) (2013) 93 ACSR 48 at [81]ff per Black J; Kalls Enterprises Pty Ltd (in liq) v Baloglow (2007) 63 ACSR 557 at [82] per Giles, Ipp and Basten JJA; Wily (in his capacity as liquidator of Goltep Constructions (NSW) Pty Ltd (in liq)) v Eastern Elevators Pty Ltd (2003) 45 ACSR 261 at [4] per Dunford J. 195. See Chapter 6. 196. See Chapter 7. 197. Cussen v Sultan (2009) 74 ACSR 496 at [32] per Nicholas J. 198. Levi v Gurline (1997) 24 ACSR 159 at 170 per Malcolm CJ (Murray and Heenan JJ agreeing); Sims v Celcast Pty Ltd (1998) 71 SASR 142 at 197; Re Ermayne Pty Ltd (1999) 30 ACSR 330 at 332 per Wicks J; Whitton v Konemann Australia Pty Ltd (2002) 43 ACSR 436 at [19] per Austin J; Wily v Eastern Elevators Pty Ltd (2003) 45 ACSR 261 at [32] per Dunford J; Dean-Willcocks v Commissioner of Taxation (Cth) (2004) 51 ACSR 353; [2004] NSWSC 1058 at [7] per Young J; Cook’s Construction Pty Ltd v Brown (2004) 49 ACSR 62 at [19] per Young CJ in Eq (Santow and Hodgson JA agreeing); Tolcher v Capital Finance Australia Ltd (2006) 60 ACSR 584 at [56] per Tamberlin J; Muller & McIntosh v Academic Systems Pty Ltd [2007] QCA 218 at [9] per Williams JA (White and Atkinson JJ agreeing); Woodgate v Fawcett (2008) 67 ACSR 611 at [93] per Hammerschlag J; Burness v Supaproducts Pty Ltd (2009) 79 ACSR 1 at [55] per Gordon J; Cussen v Sultan (2009) 74 ACSR 496 at [32] per Nicholas J; Trinick v EM and RM Williams & Sons [2009] WASC 297 at [171] per Murphy J; Buzzle Operations Pty Ltd (in liq) v Apple Computer Australia Pty Ltd (2011) 81 NSWLR 47; 82 ACSR 703; [2011] NSWCA 109 at [169] per Young JA (Hodgson and Whealy JA agreeing); Metcalf Crane Services Pty Ltd v Rathner [2011] VSC 195 at [47] per Robson J; and Re Employ (No 96) Pty Ltd (in liq) [2013] NSWSC 61 at [85] per Black J. 199. Pegulan Floor Coverings Pty Ltd v Carter (1997) 24 ACSR 651 at 658 per Doyle CJ; Re Emaryan Pty Ltd (1999) 30 ACSR 330 at 332 per Wicks J; D’Aloia v Federal Commissioner of Taxation (2003) 48 ACSR 204 at [17] per Merkel J. 200. Dean-Willcocks v Commissioner of Taxation (2008) 73 ATR 801; [2008] NSWSC 1113 at [16] per Barrett J; Trinick as liquidator of Australian Foods Company Pty Ltd (in liq) v Keller [2009] WASC 298 at [131]; Williams (as liquidator of Scholz Motor Group Pty Ltd (in liq)) v Peters [2010] 1 Qd R 475 at [53]; Chicago Boot Co Pty Ltd v Davies (as joint & several liquidators of Harris Scarfe Ltd) (2011) 282 ALR 378; 85 ACSR 309; [2011] SASCFC 92 at [19]. 201. Downey v Aira Pty Ltd (1996) 14 ACLC 1068 at 1075; Re Ermayne; Sims v Tech Holdings Pty Ltd (1998) 30 ACSR 330 at 336; Sutherland (in his capacity as liquidator of Sydney Appliances Pty Ltd (in liq)) v Eurolinx Pty Ltd (2001) 37 ACSR 477 at [39] per Santow J; Cussen v Sultan (2009) 74 ACSR 496 at [33]. 202. Re Ermayne; Sims v Tech Holdings Pty Ltd (1998) 30 ACSR 330 at 336; Sutherland (in his capacity as liquidator of Sydney Appliances Pty Ltd (in liq)) v Eurolinx Pty Ltd (2001) 37 ACSR 477 at [39] per Santow J; Spectrum Joinery Pty Ltd (in liq) v Turners Building Supplies Pty Ltd [2005] ACTSC 70 at [20] per Gray J; Cussen v Sultan (2009) 74 ACSR 496 at [33] per Nicholas J. 203. Queensland Bacon Pty Ltd v Rees (1966) 115 CLR 266. 204. The predecessor to s 122(2) of the Bankruptcy Act 1966. Section 95(2) relevantly provided that ‘… (2) Nothing in this section shall affect the rights of a purchaser, payee or encumbrancer in good faith and for valuable consideration and in the ordinary course of business’. 205. Queensland Bacon Pty Ltd v Rees (1966) 115 CLR 266 at 287. See also Harkness v Commonwealth Bank of Australia Ltd (1993) 12 ACSR 165 at 167. See also Re Weiss; Ex parte White v John Vicars & Co Ltd [1970] ALR 654 at 664 and Re Chisum Services Pty Ltd (1982) 7 ACLR 641 at 648 per Wootten J where his Honour observed that ‘[g]ood faith is a subjective condition, requiring that the payee act with propriety and honesty’: Butcher v Stead (1875) LR 7 AGL 839 at 849.

206. Spedley Securities Ltd (in liq) v Western United Ltd (1992) 7 ACSR 271. 207. Section 122(2) of the Bankruptcy Act 1966 relevantly provided that: Nothing in this section affects: (a) the rights of a … payee … in good faith …. 208. Spedley Securities Ltd (in liq) v Western United Ltd (1992) 7 ACSR 271 at 278–9 per McClelland J. 209. See, however, the comments of Barrett J in Dean-Willcocks v Commissioner of Taxation (2008) 73 ATR 801; [2008] NSWSC 1113 at [10] where his Honour observed that ‘I do not think it is all that helpful to attempt to characterise one inquiry as “subjective” and the other as “objective”. One should merely approach the two inquiries according to the terms in which they have been expressed by the legislature’: at [10]. 210. Cussen v Sultan (2009) 74 ACSR 496 at [33]–[34]. See also Downey v Aira Pty Ltd (1996) 14 ACLC 1068 at 1075; Levi v Guerlini (1997) 24 ACSR 159 at 170; Sims v Tech Holdings Pty Ltd (1998) 30 ACSR 330 at 336; Mann v Sangria Pty Ltd (2001) 38 ACSR 307 at [44]–[45] per Bryson J; Sutherland (in his capacity as liquidator of Sydney Appliances Pty Ltd (in liq)) v Eurolinx Pty Ltd (2001) 37 ACSR 477 at [39] per Santow J; Cook’s Construction Pty Ltd v Brown [2004] NSWCA 105 at [45] per Santow JA (agreeing with Hodgson and Young CJ in Eq); Trinick v EM and RM Williams & Sons (a firm) [2009] WASC 297 at [168] per Murphy J. 211. Downey v Aira Pty Ltd (1996) 14 ACLC 1068 at 1075; Sutherland (in his capacity as liquidator of Sydney Appliances Pty Ltd (in liq)) v Eurolinx Pty Ltd (2001) 37 ACSR 477; [2001] NSWSC 230 at [39]; Cussen v Sultan (2009) 74 ACSR 496 at [33]. 212. Smith v Commissioner of Taxation (1997) 23 ACSR 611 at 621 per Mansfield J. 213. Cussen v Sultan (2009) 74 ACSR 496. 214. Cussen v Sultan (2009) 74 ACSR 496 at [37]–[38]. 215. Olifent v Australian Wine Industries Pty Ltd (1996) 19 ACSR 285 at 290. See the discussion at 8.60. 216. Harkness v Commonwealth Bank of Australia Ltd (1993) 12 ACSR 165 at 167; Queensland Bacon Pty Ltd v Rees (1966) 115 CLR 266 at 287; [1966] ALR 855. 217. Prospect Electricity v Advanced Glass Technology of Australia Pty Ltd (1996) 22 ACSR 6 at 14 per Priestley JA referring to Queensland Bacon Pty Ltd v Rees (1967) 115 CLR 266 at 293 per Barwick CJ and at 303 per Kitto J. 218. Dean-Willcocks Pty Ltd v Commissioner of Taxation (2008) 73 ATR 801; [2008] NSWSC 1113 at [13]. 219. Queensland Bacon Pty Ltd v Rees (1967) 115 CLR 266. 220. Section 95 of the Bankruptcy Act 1924–1960 (Cth) provided: (1) … (2) Nothing in this section shall affect — … (b) the rights of a purchaser, payee or encumbrancer in good faith and for valuable consideration and in the ordinary course of business. (3) The burden of proving that the provisions of the last preceding sub-section have been complied with shall lie upon the person who relies upon their having been complied with. (4) For the purposes of this section a creditor shall not be deemed to be a purchaser, payee or encumbrancer in good faith if the conveyance, transfer, charge, payment or obligation were made or incurred under such circumstances as to lead to the inference that the creditor knew or had reason to suspect that the debtor was unable to pay his debts as they became due, and

that the effect of the conveyance, transfer, charge, payment or obligation would be to give to him a preference, a priority or an advantage over the other creditors. 221. Queensland Bacon Pty Ltd v Rees (1967) 115 CLR 266 at 303. See also Levi v Guerlini (1997) 24 ACSR 159 at 173–4; Wily v Commissioner of Taxation [2002] NSWSC 909 at [20] and DeanWillcocks Pty Ltd v Commissioner of Taxation (2008) 73 ATR 801; [2008] NSWSC 1113 at [12]. 222. Williams (as liquidator of Scholz Motor Group Pty Ltd (in liq)) v Peters [2010] 1 Qd R 475 at [55] per Muir JA (McMurdo and Fraser JJA agreeing). 223. Cook’s Constructions Pty Ltd v Brown (2004) 49 ACSR 62. 224. Cook’s Constructions Pty Ltd v Brown (2004) 49 ACSR 62 at [45]–[46]. 225. Williams (as liquidator of Scholz Motor Group Pty Ltd (in liq)) v Peters [2010] 1 Qd R 475; 72 ACSR 365; [2009] QCA 180. 226. Williams (as liquidator of Scholz Motor Group Pty Ltd (in liq)) v Peters [2010] 1 Qd R 475; 72 ACSR 365; [2009] QCA 180 at [64]–[66]. 227. Wily v Lo Presti (No 2) (1998) 16 ACLC 85 at 92. For a discussion of commercial reality, see 2.26ff. 228. Queensland Bacon Pty Ltd v Rees (1967) 115 CLR 266. 229. Queensland Bacon Pty Ltd v Rees (1967) 115 CLR 266 at 293. See similarly the comments of Kitto J in Queensland Bacon Pty Ltd v Rees (1967) 115 CLR 266 at 302 who said: ‘In many situations, of course, the dishonour of a cheque, unless otherwise explained, carries a strong suggestion of insolvency; but in others it may indicate, to those who are constantly dealing with the drawer and know the general course he is pursuing in his business, no more than a policy of wringing the last ounce of credit out of everyone who can be fobbed off with promises’. 230. Hamilton v BHP Steel (JRA) Pty Ltd (1995) 13 ACLC 1548. 231. Hamilton v BHP Steel (JRA) Pty Ltd (1995) 13 ACLC 1548 at 1563. 232. Emanuel Management Pty Ltd v Foster’s Brewing Group (2003) 178 FLR 1; [2003] QSC 205. 233. Emanuel Management Pty Ltd v Foster’s Brewing Group Ltd (2003) 178 FLR 1; [2003] QSC 205 at [94]–[95]. 234. Gattellaro v Westpac Banking Corporation (2004) 204 ALR 258. 235. Harkness v Commonwealth Bank of Australia Ltd (1993) 12 ACSR 165 at 167–9 per Young J; Sutherland (in his capacity as liquidator of Sydney Appliances Pty Ltd (in liq)) v Eurolinx Pty Ltd (2001) 37 ACSR 477 at [38] per Santow J; Whitton v Konemann Australia Pty Ltd (2002) 43 ACSR 436 at [21] and [35] per Austin J; Cussen v Commissioner of Taxation (2003) 47 ACSR 107 at [46] per Palmer J; D’Aloia v Federal Commissioner of Taxation (2003) 48 ACSR 204; Dean-Willcocks v Commonwealth Bank of Australia (2003) 45 ACSR 564 at 572 per Austin J; Cussen v Commissioner of Taxation (2004) 51 ACSR 530; Cussen v Commissioner of Taxation (2003) 47 ACSR 107 at [46] per Palmer J. 236. Cussen v Commissioner of Taxation (2003) 47 ACSR 107; [2003] NSWSC 841 at [64]. 237. Rennie v Printbase Pty Ltd [2002] NSWSC 78 at [19]. 238. Re Burness; Denward Lane Pty Ltd (in liq) (2009) 74 ACSR 1 at [53]. 239. Cussen v Commissioner of Taxation (2004) 51 ACSR 530; [2004] NSWCA 383 at [31] per Spigelman CJ (Handley and Tobias JJA agreeing). 240. Cussen v Commissioner of Taxation (2003) 47 ACSR 107; [2003] NSWSC 841 at [64]. 241. Harkness v Commonwealth Bank of Australia (1993) 32 NSWLR 543; 12 ACSR 165 at 168. See also Dean-Willcocks v Commonwealth Bank of Australia (2003) 45 ACSR 564 at [34], [35] per

Austin J; Keith Smith East West Transport Pty Ltd (in liq) v Australian Taxation Office (2002) 42 ACSR 501 and Sheahan v Hertz Australia Pty Ltd (1995) 16 ACSR 765. 242. Cussen v Commissioner of Taxation (2004) 51 ACSR 530 at [113] per Spigelman CJ (Handley and Tobias JJA agreeing). 243. Downey v Aira Pty Ltd (1996) 14 ACLC 1068 at 1087. 244. Sims v Celcast Pty Ltd (1998) 71 SASR 142; 16 ACLC 1140. 245. Sims v Celcast Pty Ltd (1998) 71 SASR 142 at 145–6; 16 ACLC 1140. 246. EM to the CLR Bill at [1061]. 247. See also Chicago Boot Co Pty Ltd v Davies & McIntosh (as joint and several liquidators of Harris Scarfe Ltd) (2011) 282 ALR 378; [2011] SASCFC 92; Muller and McIntosh (as joint and several liquidators of Arafura Equities Pty Ltd (in liq)) v Academic Systems Pty Ltd [2007] QCA 218; Williams (as liquidator of Scholz Motor Group Pty Ltd (in liq)) v Peters [2010] 1 Qd R 475. 248. Chicago Boot Co Pty Ltd v Davies & McIntosh (as joint and several liquidators of Harris Scarfe Ltd) (2011) 282 ALR 378; [2011] SASCFC 92 at [21]. 249. Chicago Boot Co Pty Ltd v Davies & McIntosh (as joint and several liquidators of Harris Scarfe Ltd) (2011) 282 ALR 378; [2011] SASCFC 92 at [23]. 250. Sutherland (in his capacity as liquidator of Sydney Appliances Pty Ltd (in liq)) v Eurolinx Pty Ltd (2001) 37 ACSR 477; [2001] NSWSC 230. 251. Cussen v Commissioner of Taxation (2004) 51 ACSR 530. 252. Cussen v Commissioner of Taxation (2004) 51 ACSR 530 at [40] per Spigelman CJ, Handley and Tobias JJA agreeing. 253. Cussen v Commissioner of Taxation (2004) 51 ACSR 530 at [51] per Spigelman CJ, Handley and Tobias JJA agreeing. 254. Cussen v Commissioner of Taxation (2004) 51 ACSR 530 at [55] per Spigelman CJ, Handley and Tobias JJA agreeing. 255. Cussen v Commissioner of Taxation (2004) 51 ACSR 530 at [56] per Spigelman CJ, Handley and Tobias JJA agreeing. 256. Cussen v Commissioner of Taxation (2004) 51 ACSR 530 at [58] per Spigelman CJ, Handley and Tobias JJA agreeing. 257. Cussen v Commissioner of Taxation (2004) 51 ACSR 530 at [61] per Spigelman CJ, Handley and Tobias JJA agreeing. 258. Cussen v Commissioner of Taxation (2004) 51 ACSR 530 at [74]ff per Spigelman CJ, Handley and Tobias JJA agreeing. 259. Cussen v Commissioner of Taxation (2004) 51 ACSR 530 at [83] per Spigelman CJ, Handley and Tobias JJA agreeing. 260. Buzzle Operations Pty Ltd (in liq) v Apple Computer Australia Pty Ltd (2010) 238 FLR 384; 77 ACSR 410. 261. Buzzle Operations Pty Ltd (in liq) v Apple Computer Australia Pty Ltd (2010) 238 FLR 384; 77 ACSR 410. 262. Buzzle Operations Pty Ltd (in liq) v Apple Computer Australia Pty Ltd (2010) 238 FLR 384; 77 ACSR 410 at [204]. 263. Buzzle Operations Pty Ltd (in liq) v Apple Computer Australia Pty Ltd (2011) 81 NSWLR 47; 82 ACSR 703.

264. Barton v Official Receiver (1986) 161 CLR 75. 265. Re Abbott [1983] 1 Ch 45. 266. That section relevantly provided that: ‘A settlement of property … not being — (a) a settlement made … in favour of a purchaser … in good faith and for valuable consideration … is, if the settlor becomes a bankrupt within two years after the date of the settlement, void as against the trustee in the bankruptcy.’ 267. PT Garuda Indonesia Ltd v Grellman (1992) 35 FCR 515; 107 ALR 199. 268. Section 121 of the Bankruptcy Act 1966: ‘(1) Subject to this section, a disposition of property, whether made before or after the commencement of this Act, with intent to defraud creditors, not being a disposition for valuable consideration in favour of a person who acted in good faith, is, if the person making the disposition subsequently becomes a bankrupt, void as against the trustee in the bankruptcy’. 269. PT Garuda Indonesia Ltd v Grellman (1992) 35 FCR 515; 107 ALR 199 at 214. 270. PT Garuda Indonesia Ltd v Grellman (1992) 35 FCR 515; 107 ALR 199 at 214. 271. PT Garuda Indonesia Ltd v Grellman (1992) 35 FCR 515; 107 ALR 199 at 215. 272. PT Garuda Indonesia Ltd v Grellman (1992) 35 FCR 515; 107 ALR 199 at 215. 273. PT Garuda Indonesia Ltd v Grellman (1992) 35 FCR 515; 107 ALR 199 at 215. 274. Buzzle Operations Pty Ltd (in liq) v Apple Computer Australia Pty Ltd (2011) 277 ALR 189; 82 ACSR 703. 275. Buzzle Operations Pty Ltd (in liq) v Apple Computer Australia Pty Ltd (2011) 81 NSWLR 47; 82 ACSR 703 at [162]. For other cases where s 588FG has been successfully relied upon, see Sims v Tech Holdings Pty Ltd (1998) 30 ACSR 330. 276. Metcalf Crane Services Pty Ltd v Rathner [2011] VSC 195. 277. Roufeil v Gliderol International Pty Ltd [2011] FCA 847. 278. Roufeil v Gliderol International Pty Ltd [2011] FCA 847 at [27]. For other cases in which reliance upon s 588FG has been unsuccessful, see Spectrum Joinery Pty Ltd (in liq) v Turners Building Supplies Pty Ltd [2005] ACTSC 70; Sheldrake v Paltoglou [2006] QCA 52; Clifton v CSR Building Products Pty Ltd (2011) 275 LSJS 456; [2011] SASC 103. 279. See 2.40. See also, for example, Chicago Boot Co Pty Ltd v Davies & McIntosh (as joint and several liquidators of Harris Scarfe Ltd) (2011) 85 ACSR 309; Whitton (as liq of Chittagong Pty Ltd (in liq)) v Konemann Australia Pty Ltd (2002) 43 ACSR 436. 280. Muller v Academic Systems Pty Ltd [2007] QCA 218 at [33] per Williams JA, White and Atkinson JJ agreeing. 281. Dean-Willcocks v Commissioner of Taxation (2004) 51 ACSR 353 at [56] per Young CJ in Eq. See also National Bank of Australasia v Morris [1892] AC 287 at 290 and Spedley Securities Ltd v Western United Ltd (1992) 27 NSWLR 111 at 118–19. 282. National Bank of Australasia v Morris [1892] AC 287 at 290. 283. Section 588FG(4) provides that ‘tax’ means tax (however described) payable under a law of the Commonwealth or of a state or territory, and includes, for example, a levy, a charge, and municipal or other rates. 284. Section 588FG(6)(a). 285. Hillig (as liquidator of ACN 060 329 482 Pty Ltd (in liq)) v Commissioner of Taxation (2000) 35 ACSR 626 at [16] per White J.

286. See Schmierer v Commissioner of Taxation [2002] QSC 133 at [17] and [20] per Chesterman J. 287. Those liabilities are specified in s 588FGA(1)(a) and include withheld amounts under Subdiv 16-B in Sch 1 to the Taxation Administration Act 1953 and amount of unpaid superannuation guarantee charge under Div 268 in Sch 1 to the Taxation Administration Act 1953. GST is not specified in s 588FGA. 288. This is only a summary. For a more detailed discussion, see R P Austin and I M Ramsay, Ford’s Principles of Corporations Law, LexisNexis, Sydney, looseleaf at [27.123]ff. 289. The commencement of a winding up is determined by s 513A. 290. Section 468(2). 291. Section 468(2)(a). 292. Section 468(2)(aa). 293. Section 468(2)(ab). See also s 468(2)(b). 294. For Parliament’s reasons for amending s 468, see EM to the CLR Bill at [806]ff. 295. See, for example, the comments of McPherson J in Re Loteka Pty Ltd (in liq) (1989) 15 ACLR 620 at 622. 296. Re Wiltshire Iron Co Ltd; Ex parte Pearson (1868) 3 Ch App 443 at 446. 297. In the context of the similarly worded s 368(1) of the Companies Code (Qld). 298. Re Loteka Pty Ltd (in liq) (1989) 15 ACLR 620 at 623. See also the authorities collated by Austin and Black, Austin & Black’s Annotations to the Corporations Act, LexisNexis, Sydney, looseleaf, at [5.468]. 299. A provision similarly worded to s 468(1). 300. National Acceptance Corp Pty Ltd v Benson (1988) 12 NSWLR 213 at 215 per Kirby P. 301. National Acceptance Corp Pty Ltd v Benson (1988) 12 NSWLR 213 at 220 per Priestley JA, with whom Clarke JA agreed. 302. Section 468(3). 303. Guthrie as liquidator of Transconsult Australia Pty Ltd v Chandler (1991) 5 ACSR 387 at 394–5.

[page 379]

9 Avoiding and Vesting of Security Interests INTRODUCTION 9.1 One of the fundamental principles of company insolvency law1 is that a secured creditor has a specific right to the assets over which its debt is secured for the purpose of paying the debt, without needing to prove in the insolvency.2 As early as 1878, Sir George Jessel MR expounded the principle in Re Longdendale Cotton Spinning Co: The mere fact that a winding-up order has been made makes no difference, and does not confer upon the company the right of preventing a mortgagee from realizing his security …3

Generally, property over which there is a valid security does not belong to the asset pool available for paying unsecured creditors.4 This principle is enshrined in s 471C of the Corporations Act 2001 (Cth) (Corporations Act), which provides that the statutory injunction in s 471B [page 380] prohibiting a person from taking action against a company in liquidation does not affect a secured creditor’s right to realise or otherwise deal with its security.5 A secured creditor has choices in an insolvency, and may: rely on its security (and need not prove in a winding up);6 realise the security independently of the liquidation and then prove for the

balance; surrender the security to the liquidator and prove for the whole debt as an ordinary unsecured creditor;7 or place a value on the security and prove in respect of the difference between the estimated value and the total debt.8 However, a secured creditor ‘cannot have it both ways’ and may not both retain the security and prove for the full amount of the debt.9 9.2 Historically, the charge has been one of the most common forms of company security. In an attempt to raise finance, a company is likely to ‘charge’ its assets for the benefit of a secured creditor. That said, the law recognises that giving security during impending liquidation may work an injustice to other creditors and allows for certain securities to be set aside. For these reasons, company insolvency law has long had [page 381] provisions for the avoidance of certain security interests focussing, in particular, on company charges. 9.3 Prior to 30 January 2012,10 company charges were regulated by Chapter 2K of the Corporations Act and could be avoided under ss 266, 267 and 588FJ. Section 588FJ was introduced by the Corporate Law Reform Act 1992 (CLRA)11 which commenced on 23 June 1993. Provisions such as s 588FJ have a long history in company insolvency law.12 One of the earliest predecessors of s 588FJ was s 212 of the Companies (Consolidation) Act 1908 (UK)13 which was enacted in response to a recommendation made by the Loreburn Committee14 in its 1906 Report. Submissions to the committee had strongly advocated for the abolition of floating charges, expressing concern about unpaid suppliers unwittingly contributing to assets over which the holder of a floating charge had security. The committee ultimately favoured the retention of floating charges, balanced by provisions to counter abuse where a creditor took a floating charge in order to secure a pre-existing debt.15 9.4 Section 588FJ was immediately preceded by s 566 of the Corporations Law and prior to that, s 294 of the Uniform Companies Act 1961 and s 452 of the Companies Code. When enacted in 1993, s 588FJ was intended to have

essentially the same effect as s 566 of the Corporations Law, but with ‘improvements to the drafting’, as recommended in the Harmer Report.16 The Harmer Report recommended the essential retention of s 452 of the Companies Code, with three minor alterations:17 making a charge exempt from invalidity where it secures money paid at the direction of the company (as well as to the company), in order [page 382] to retain commercial flexibility without disturbing the intention of the section; due to commercial considerations, providing that a charge should not be invalidated where it secures payment of a liability under a guarantee or other obligation undertaken by the company at or after the time of creation of the charge; and due to commercial considerations, providing that a charge should not be invalidated where it secures the market value of goods or services supplied to the company at or after the time of creation of the charge, together with interest.18 Section 566 of the Corporations Law used the word ‘invalid’, rather than void, but it is suggested that this difference is not material. 9.5 On 30 January 2012, the regulation of security interests in ‘personal property’ (that is, property other than real property) was radically overhauled with the commencement of the Personal Property Securities Act 2009 (Cth) (the PPSA).19 The Personal Property Securities (Corporations and other Amendments) Act 2010 (Cth) (PPS Corporations Act) amended the Corporations Act to align it with the concepts and functional approach of the PPSA)20 primarily by repealing Ch 2K (subject to transitional provisions).21 The PPS Corporations Act also introduced the concept of a ‘circulating security interest’, defined as a floating charge or a security interest within the meaning of the PPSA22 over a ‘circulating asset’23 to which the grantor has title.24 As part of these changes, Parliament amended Pt 5.7B which now provides, relevantly, that in the course of a winding up a circulating security interest is void as against a company’s liquidator unless it possesses certain characteristics.

[page 383]

THE PERSONAL PROPERTY SECURITIES ACT 2009 (CTH)25 9.6 The PPSA is a law about security interests in personal property26 that codifies the regulation of those security interests by:27 defining ‘security interest’28 and its related concept of ‘personal property’;29 setting out when a security interest will be enforceable against third parties;30 providing for the Personal Property Securities Register (PPS Register), a single national register of security interests;31 and setting out rules of priority in respect of competing security interests.32 The PPSA is modelled on broadly similar New Zealand, Canadian and United States legislation33 and draws on work by the United Nations bodies UNCITRAL34 and UNIDROIT.35 The body of case law that has developed in these jurisdictions is therefore helpful in the interpretation of the Australian PPSA.36 Precedent from other jurisdictions, however, should be treated with a degree of caution. Despite broad similarities, there are important differences in the way the Australian legislation has been drafted.37 The history of Australian personal property securities [page 384] reform stretches back to 1972.38 In 1993, the Australian Law Reform Commission produced an interim report that recommended a functional approach to security interests.39 In 2006, the Standing Committee of AttorneysGeneral released the Options Paper Review of the Law on Personal Property Securities, seeking comment on a registration system based upon the substance of the transaction rather than the form of the instrument. The operative provisions of the PPSA, including the PPS Register, became effective on 30 January 2012.40

Application of the PPSA 9.7 The application of the PPSA to a particular transaction is determined by whether: the transaction has the necessary connection with Australia;41 the relevant property is ‘personal property’;42 and [page 385] the interest arising from the transaction is a ‘security interest’ within the meaning of the PPSA.43

Overview of PPSA nomenclature 9.8 As a code, the PPSA utilises its own unique nomenclature and creates statutory concepts previously unknown to Anglo-Australian commercial law. Broadly speaking, the key concepts may be summarised in logical order and by reference to traditional commercial law concepts as follows: ‘Personal property’: the PPSA is concerned only with personal, as opposed to real, property. The concept of personal property is well known to the general law.44 ‘Security interest’: at the heart of the PPSA is the security interest which equates broadly to the general law concept of ‘security’ in the sense of securing payment of an obligation. The key difference however is that the PPSA focuses upon the substance of the security as opposed to its form.45 ‘Grantor’ is generally equivalent to the borrower, mortgagor or chargor under pre-PPSA commercial law.46 ‘Collateral’ essentially means secured property.47 ‘Attachment’: this is a concept unique to the PPSA with no exact general law equivalent. The concept is however broadly similar to the creation of binding legal relations. In order for a security interest to be enforceable against the grantor, the security interest must have ‘attached’ to the collateral.48 ‘Perfection’ is a another concept unique to the PPSA. Perfection will usually

occur by the registration of a security interest in collateral. This registration, or perfection, of the security interest offers a greater form of protection to the holder of the security interest than simple attachment.49 [page 386]

Personal property 9.9 ‘Personal property’ is defined in s 10 of the PPSA to mean property (including a licence) other than land or a right, entitlement or authority granted by or under the law of the Commonwealth or a State or Territory and declared by that law not to be personal property for the purposes of the PPSA: s 10. ‘Land’ includes all estates and interests in land, whether freehold, leasehold or chattel, but does not include fixtures: s 10.

Security interest 9.10 ‘Security interest’ is generally defined in s 12(1) of the PPSA as: [a]n interest in personal property provided for by a transaction that, in substance, secures payment or performance of an obligation (without regard to the form of the transaction or the identity of the person who has title to the property).50

The expression ‘transaction’ is not defined in the PPSA and the precise scope of that definition is left to be determined by the general law.51 ‘Substance’ refers to legal or commercial substance. In determining whether an interest in personal property is a security interest, the PPSA takes a ‘functional approach’.52 Legal outcomes under the PPSA depend on the effect of a transaction, rather than its form.53 Section 12(2) of the PPSA sets out examples of transactions providing for interests in personal property that are a ‘security interest’ if the transaction, in substance, secures payment or performance of an obligation: a fixed charge; a floating charge; a chattel mortgage; [page 387]

a conditional sale agreement (including an agreement to sell subject to retention of title); a hire purchase agreement; a pledge; a trust receipt; a consignment (whether or not a commercial consignment); a lease of goods (whether or not a PPSA lease); an assignment; a transfer of title; a flawed asset arrangement. 9.11 Another example of a security interest includes the interest of a lessor or bailor of goods under a PPS lease.54 A PPS lease includes a lease or bailment of goods: (a) for a term of more than one year; or (b) for an indefinite term; or (c) for a term of up to one year that is automatically renewable or that is renewable at the option of one of the parties, for one or more terms if the total of all the terms might exceed one year; or (d) for a term of up to one year, in a case in which the lessee or bailee, with the consent of the lessor or bailor, retains uninterrupted (or substantially uninterrupted) possession of the leased or bailed property for a period of more than one year after the day the lessee or bailee first acquired possession of the property. The PPSA deems certain interests to be security interests regardless of whether they in substance secure payment or performance of an obligation55 including: the interest of a transferee under a transfer of accounts or chattel paper; the interest of a consignor who delivers goods to a consignee under a commercial consignment; and the interest of a lessor or bailor of goods under a PPS lease.56

Grantor

9.12 Section 10 of the PPSA defines a grantor as including a person who has the interest in the personal property to which a security interest [page 388] is attached. In the context of voidable transactions under Part 5.7B this will usually be the insolvent company.

Collateral 9.13 ‘Collateral’ is defined in s 10 of the PPSA as follows: (a) means personal property to which a security interest is attached; and (b) in relation to a registration with respect to a security interest — includes personal property described by the registration (whether or not a security interest is attached to the property).

HOW A SECURITY INTEREST MAY BECOME ENFORCEABLE UNDER THE PPSA Attachment and enforceability against a grantor 9.14 As mentioned above, a security interest is only enforceable against a grantor in respect of particular collateral if it has ‘attached’ to that collateral.57 A security interest attaches to collateral when: (a) the grantor has rights in the collateral, or the power to transfer rights in the collateral to the secured party; and (b) value58 is given for the security interest; or the grantor does an act by which the security interest arises.59 For the avoidance of doubt, the PPSA makes it clear that a secured party will not be taken to have agreed to defer the time at which its security interest attaches merely because the security interest is a floating charge.60 However, for a security interest to be enforceable against third parties, one of the following must also apply:61

the secured party possesses the collateral;62 the secured party has perfected the security interest by control;63 a security agreement that provides for the security interest covers the collateral.64 [page 389]

Enforceability against third parties — secured party possesses the collateral 9.15 If the requirements for attachment have been satisfied,65 a security interest is enforceable against third parties if the secured party possesses the collateral. A grantor and a secured party cannot both have possession of collateral.66 The meaning of possession is set out in s 24(1) of the PPSA which states that a secured party will not have possession of personal property if the property is in the actual or apparent possession of the grantor or debtor or another person on their behalf.67

Enforceability against third parties — interest perfected by control 9.16 If a security interest has attached to collateral, it is enforceable against third parties where the secured party has also perfected the security interest by control. Like the concept of possession, to ‘control’ is to remove the ability for an external party to control the relevant asset. In this respect, perfection by control is mutually exclusive and is available for the following forms of personal property:68 an ADI account;69 an intermediated security;70 an investment instrument;71 a negotiable instrument that is not evidenced by a certificate;72 a right evidenced by a letter of credit that states that the letter of credit must be presented on claiming payment or requiring the performance of an

obligation;73 or satellites and other space objects.74 [page 390]

Enforceability against third parties — by agreement 9.17 A security interest can attach to collateral on the basis of an oral agreement, and thereby be enforceable against the grantor (namely, the conferral of rights in personam). But a security interest can only become enforceable against third parties under the PPSA if: it is attached to the collateral (see s 19); and a security agreement that provides for the security interest covers the collateral in accordance with s 20(2), that is: — the security agreement is evidenced by writing that is signed by the grantor,75 or adopted or accepted by the grantor by an act or omission that reasonably appears to be done with the intention of adopting or accepting the writing;76 and — the writing evidencing the agreement contains a description of the particular collateral.77 Section 10 of the PPSA defines ‘security agreement’ as ‘(a) an agreement or act by which a security interest is created, arises or is provided for; or (b) writing evidencing such an agreement or act’. Section 18 sets out general rules about security agreements and security interests.

PERFECTION OF SECURITY INTEREST 9.18 As set out above, a security interest that satisfies the requirements of s 20 of the PPSA will be enforceable against third parties. But other parties may hold a competing security interest or other type of interest in the collateral. The PPSA contains a series of rules that regulates priorities between security interests, or between security interests and other types of interests.78 ‘Perfection’

of a security interest is dealt with by s 21 of the PPSA and generally allows the secured party to ensure that the security interest: will have its best possible priority position; will be least likely to be lost on a disposal of the collateral; and is less likely to vest in the grantor on its insolvency. [page 391]

When a security interest in particular collateral is perfected 9.19 A security interest in particular collateral is perfected if: it is temporarily perfected by force of the PPSA;79 it is otherwise perfected by force of the PPSA;80 or all of the following apply (regardless of the order in which attachment and any step in s 21(2) occurs);81 — the security interest is attached to the collateral;82 — the security interest is enforceable against a third party;83 and — s 21(2) applies84 because: (i)

a registration is effective with respect to the collateral (for any collateral);85 or

(ii) the secured party has possession other than by seizure or repossession (for any collateral);86 or (iii) the secured party has control of the collateral, and the collateral is one of the following kinds of collateral: (a) an ADI account;87 (b) an intermediated security;88 (c) an investment instrument;89 (d) a negotiable instrument that is not evidenced by a certificate;90

(e) a right evidenced by a letter of credit that states that the letter of credit must be presented on claiming payment or requiring the performance of an obligation;91 or (f)

satellites and other space objects.92 [page 392]

Perfection by control occurs when a creditor takes all the necessary steps to be in a position to deal with the collateral without further action by the grantor.93 It would be impractical to require perfection by registration or possession of ADI accounts; investment entitlements; investment instruments; uncertificated negotiable instruments; rights evidenced by certain letters of credit and satellites (and indeed impossible to ‘possess’ that which is intangible). In such circumstances, these kinds of collateral can be perfected by control.94

Registration on the PPS Register 9.20 Registration on the PPS Register is the most commonly used method of perfecting a security interest. Registration requires a financing statement to be lodged on the PPS Register, by application to the Registrar.95 A single registered financing statement may perfect one or more security interests (although difficulties might arise when trying to perfect different forms of security interest through the one financing statement, for example, a general security interest and a purchase money security interest (‘PMSI’)96).97 Conversely, a single security interest may be perfected by more than one registered financing statement, if the interest encompasses more than one class of collateral.98

EXCLUSIONS AND SAVING PROVISIONS 9.21 The PPSA does not apply to liens, charges and other interests in personal property arising by operation of law,99 or to special purpose trusts.100 The PPSA does not wholly extinguish the pre-existing law regarding the nature, creation, validity, enforceability and priority of interests in personal property; but

overrides it in certain ways, principally with respect to enforceability of securities and the priority afforded to security interests over competing interests.101 The PPSA is not intended to exclude the general law, or a law of the Commonwealth or a state or territory, to the extent that the law is capable of concurrent operation [page 393] with the PPSA.102 Specifically, the PPSA is not intended to exclude or limit the operation of a concurrent law in: determining whether something is personal property;103 prohibiting or restricting a person from creating or dealing with personal property or a security interest in personal property;104 prescribing the formal requirements for a security agreement;105 or extinguishing a security interest.106 9.22 This is subject to three qualifications: Section 19 (attachment) and s 21 (perfection) operate to the exclusion of any law of a State or Territory, to the extent that such a law would have the effect or restricting or otherwise limiting either section;107 Where a state or territory law requires or enables a person to register a security interest or its assignment, a failure to register under that law does not affect the validity of the security interest or assignment, or the priority or enforceability of the security interest, or otherwise limit the effect of the assignment;108and Where a State or Territory law prescribed by the Personal Property Securities Regulations 2010 (Cth) (PPS Regulations) relates expressly or by implication:109 — to a security agreement for a security interest in collateral, or — to an assignment (however described)110 of a security interest in collateral; and requires that a security agreement, or assignment of a security interest, be in a particular form or witnessed in a particular way.111

[page 394] Failure to comply with that prescribed State or Territory law does not affect the validity, priority or enforceability of the security interest or assignment, or otherwise limit the effect of the security agreement, the security interest or the assignment.112

‘CIRCULATING SECURITY INTEREST’ 9.23 The term ‘circulating security interest’ is defined in s 51C of the Corporations Act as: (a) a PPSA security interest, if: (i)

the security interest has attached to a circulating asset within the meaning of the Personal Property Securities Act 2009; and

(ii) the grantor (within the meaning of that Act) has title to the asset; or (b) a floating charge.

A ‘PPSA security interest’ is a security interest within the meaning of the PPSA, to which that Act applies, other than a transitional security interest.113 Section 51A of the Corporations Act defines ‘security interest’ as a PPSA security interest; or a charge, lien or pledge. The second limb of the s 51A definition imports the charges, liens and pledges otherwise excluded from the PPSA definition of ‘PPSA security interest’ by PPSA s 8 into the Corporations Act. The PPSA does not distinguish between ‘fixed’ and ‘floating’ security interests. Crystallisation is no longer a relevant concept.114 However, the grantor and the secured party may agree to particular terms regarding when the collateral may be disposed of by the grantor.115 Part 9.5 of the PPSA explains how references to a charge, a fixed charge, or a floating charge over property are to be interpreted under the PPS regime.116 At general law, a floating charge is a charge on a class of assets of the company present and future; where the class of assets is one that changes from time to time in the ordinary course of business of the company; [page 395]

and where the charge contemplates that the company can carry on its business in the ordinary course concerning that class of assets until some future step is taken by the chargee.117 Section 9 of the Corporations Act extends the general law meaning to include a charge that conferred a floating security at the time of its creation, but has since become a fixed or specific charge.

‘Circulating asset’ 9.24 If a grantor grants a security interest in personal property to a secured party,118 the personal property is a ‘circulating asset’ if:119 the secured party has given express or implied permission for transfer of the personal property to be made in the ordinary course of the grantor’s business, free from the security interest;120 or the personal property is a ‘current asset’ and not otherwise excluded from the definition of circulating asset.121

‘Current asset’ 9.25 Personal property is a ‘current asset’ if it is:122 (a) an account that arises from granting a right, or providing services, in the ordinary course of a business of granting rights or providing services of that kind (whether or not the account debtor is the person to whom the right is granted or the services are provided); (b) an account that is the proceeds of inventory; (c) an ADI account (other than a term deposit); (d) currency; (e) inventory;123 or (f)

a negotiable instrument.

[page 396]

When a current asset will not be a circulating asset 9.26 A current asset will not be a circulating asset if: ‘an effective registration with respect to the property, in relation to the grantor, discloses in accordance with the regulations, that the secured party has control

of the personal property; and ‘the secured party has control of the personal property ’;124 or ‘the personal property is goods’ and ‘the security interest is perfected by possession’.125

References to charges and fixed and floating charges 9.27 Section 339 of the PPSA is a deeming provision regarding references to a charge, a fixed charge or a floating charge over property in a law of the Commonwealth, or in a security agreement made on or after 30 January 2012.126 It applies to the extent that the charge has attached to personal property, title to the property is in the grantor and the charge is a security interest to which the PPSA applies.127 Until the grantor has ‘rights in the collateral’,128 the security interest will not have attached and the s 339 deeming provisions will not apply. Section 339 of the PPSA has the effect that: a reference to a charge over property is taken to be a reference to a security interest that has attached to a circulating asset; or attached to personal property that is not a circulating asset;129 a reference to a fixed charge over property is taken to be a reference to a security interest that has attached to personal property that is not a circulating asset;130 and a reference to a floating charge over property is taken to be a reference to a security interest that has attached to a circulating asset.131 The Corporations Act maintains the effect of pre-existing provisions regarding fixed charges, floating charges and charges so that parties [page 397] are not able to avoid existing provisions regarding fixed and floating charges.132

CIRCULATING SECURITY INTEREST

CREATED WITHIN SIX MONTHS BEFORE RELATION-BACK DAY (S 588FJ) Application of s 588FJ 9.28 Section 588FJ of the Corporations Act applies if: a company is being wound up in insolvency;133 and the company created134 a circulating security interest135 in property of the company at a particular time: — at or after 23 June 1993136 and during the six months ending in the relation-back day;137 or — after the relation-back day but on or before the day when the winding up began.138 Generally, where s 588FJ applies, a circulating security interest is void as against the company’s liquidator subject to various exceptions contained in s 588FJ(2) discussed below.139 Section 588FJ only applies where a company is being wound up in insolvency under s 459A or s 459B. It does not apply in a voluntary winding up.140 In Re Wilkcorp Pty Ltd141 an application had been made to the court that the company be wound up under s 461(1)(a) of the former Corporations Law (identical to s 461(1)(a) of the Corporations Act), on the basis that the company had, by special resolution, resolved that it be wound up by the court. The subsequent winding up order did not specify that the company was to be wound up in insolvency. Derrington J declared, on an application by the secured creditors, that [page 398] the company was not being wound up in insolvency and the security given in favour of the applications was not void under s 588FJ as against the

liquidator.142 9.29 If a circulating security interest is void in whole or in part under s 588FJ then the debt that it secures is unaffected and the creditor may still prove for the debt that is consequently unsecured in the winding up, as an unsecured creditor. Where a liquidator adopts the position that a circulating security interest is void, it may be necessary for a secured party to apply for a declaration that it is valid on the basis that it falls within an exception provided for by s 588FJ(2).143 Section 588FJ is not expressed to be subject to the time limits within s 588FF(3).144 If a circulating security interest is within the terms of s 588FJ, it is void from its inception to the extent the section stipulates against the liquidator, rather than voidable (as under ss 588FE and 588FF).145 A circulating security interest may escape the operation of s 588FJ, but still be voidable under s 588FE (for example, as an uncommercial transaction under s 588FB).146

Purpose and history of s 588FJ 9.30 As mentioned above, s 588FJ was introduced by the CLRA,147 and was amended by the PPS Corporations Act to replace references to ‘floating charges’ with references to ‘circulating security interests’ without other substantive change.148 In CBA Corporate Services (NSW) Pty Ltd v Walker and Moloney; Re ZYX Learning Centres Ltd (rec and mgrs apptd) (in liq),149 the Full Federal Court comprising Foster, Barker and Griffiths JJ observed that the changes to s 588FJ effected by the PPS Corporations Act ‘affected nomenclature, rather than substantive rights and obligations’.150 There is no reference to s 588FJ in the transitional [page 399] provisions of the PPS Corporations Act. Section 588FJ applies as if it had not been amended by the PPS Corporations Act in relation to a winding up under Pt 5.4, Pt 5.4A or Pt 5.4B (or subsequent liquidation), if the relevant winding-up application was made on or before 30 January 2012.151 A reference to a floating charge over property in a Commonwealth law or a security agreement is taken to be a reference to a security interest that has attached to a circulating asset, in other words a circulating security interest.152 9.31 The purpose of s 588FJ is essentially to prevent an insolvent company

from ‘converting’ unsecured debt to secured debt. In Lucas v Currie, Dowsett J explained as follows: I accept that s 588FJ is, broadly speaking, designed to avoid the ‘conversion’ of unsecured debt into secured debt in certain circumstances. The section attacks the secured status of a debt, not the debt itself. Of course, the consequences of losing security may be very serious. The section is primarily concerned with the validity of a floating charge which is created at a time when the company may be approaching insolvency … Broadly speaking, s 588FJ seeks to ensure that a floating charge created in the six months before the relation-back day secures against the liquidator, only advances made on or after the date of the creation of the charge and from which the company derives a tangible benefit. However the section does not invite an overall comparison of the company’s position with and without the purportedly secured advance. That is the point which the Full Court made in [Cutherbertson & Richards Sawmills Pty Ltd v Thomas (1999) 93 FCR 141; 30 ACSR 504] concerning s 588FJ. Rather, the section directs attention to the way in which any advance has been applied. Such a charge will not secure an advance which has been applied in discharge, directly or indirectly,153 of an unsecured debt owed to the chargee or to a related entity of the chargee.154

The exceptions in s 588FJ(2) are designed to limit the effect of s 588FJ to those circulating security interests which do not secure transactions that result in genuinely new value or benefit being provided to the company and therefore deplete net company assets to the detriment of unsecured creditors. [page 400]

Necessity for order for winding up in insolvency 9.32 Where a company is being wound up other than in insolvency, a liquidator may need to consider applying for an order under s 459A or s 459B that the company be wound up in insolvency so as to enliven 588FJ.155 In considering whether an order that the company should be wound up in insolvency will be made, the court will consider whether the company was solvent immediately after the circulating security interest was created, and whether any prejudice has been occasioned to the secured party by loss or destruction of evidence. 9.33 In Walker v CBA Corporate Services (NSW) Ltd156 Nicholas J of the Federal Court considered an application under s 459A157 that companies already the subject of a voluntary winding up be wound up in insolvency (in order to enliven the operation of s 588FJ).158 His Honour was satisfied that each of the companies were insolvent and had been insolvent at the date the liquidators filed their application under s 459A.159 His Honour went on to consider the relevant factors, with particular reference to s 588FJ:

There is nothing in the relevant provisions of the Act that expressly or impliedly requires the applicant for an order under s 459A to establish the insolvency of a company that is already the subject of a voluntary winding up as at the relation-back day. Nevertheless, I accept that the solvency (or insolvency) of the company at such a date may be relevant to an application under s 459A. Two particular situations come to mind. The first is where it is relevant to the merits of the proceeding in which s 588FJ is to be relied upon. The effect of s 588FJ(3) is that a floating charge given by a company being wound up in insolvency is not void as against the liquidator ‘if it is proved that the company was solvent immediately after that time’. The time referred to in s 588FJ(3) is the time at which the floating charge was created. It would be open to a person who had taken

[page 401] a charge from a company that was the subject of a voluntary winding up to show that the company was solvent immediately after the charge was given and that there would therefore be no good reason to order that the company be wound up in insolvency. The court would not make an order under s 459A if the only reason for doing so was to enable a liquidator to commence a proceeding under s 588FJ that was bound to fail. Another is where there is prejudice to the potential defendant by reason of the loss or destruction of evidence. The evidence on the application might show that evidence concerning the circumstances in which the charge was given, including evidence of a company’s solvency at or subsequent to that time, had been lost or destroyed in circumstances where there had been significant delay on the part of the liquidator in moving for an order under s 459A. The court might then consider that, even though there might be good reason for making the order sought, there might also be good reason for not making it because the person against whom s 588FJ was to be invoked may have been unfairly prejudiced as a result of the liquidator’s delay in applying for an order under s 459A.160

His Honour made the orders sought that each of the various companies should be wound up in insolvency under s 459A. On appeal, upholding Nicholas J, the Full Court emphasised that there is no need for a standard of probability or certainty of proceedings being brought by a liquidator under s 588FJ before an order can be lawfully made under s 459A.161

Exceptions to s 588FJ (s 588FJ(2)) 9.34 If s 588FJ of the Corporations Act applies, a circulating security interest is void against the liquidator except to the extent that it secures:162 an advance paid to the company, or at its direction, at or after that time and as consideration for the circulating security interest;163 interest on such an advance;164 the amount of a liability under a guarantee or other obligation undertaken at or

after that time on behalf of, or for the benefit of, the company;165 [page 402] an amount payable for property or services supplied to the company at or after that time;166 or interest on an amount so payable.167

Advances paid to the company (ss 588FJ(2)(a) and (b)) 9.35 If a circulating security interest is within s 588FJ(1), it is void as against the liquidator except so far as it secures an advance paid to the company, or at its direction, as consideration for the circulating security interest; or interest on such an advance.168 This exception however will not rescue a circulating security interest granted to secure an advance from invalidity, insofar as the advance was applied to discharge, directly or indirectly, an unsecured debt (whether contingent or otherwise) owed by the company to the secured party:169 s 588FJ(4).170 Section 588FJ(2) does not expressly invite consideration of the motive or intention of the parties to a circulating security interest but instead the section contemplates a retrospective consideration of the relevant transactions.171 Thus, in applying s 588FJ(2)(a), one looks to see if there was, in fact, an advance to the company or at its discretion, whether the advance occurred at a relevant time, and whether it was made as consideration for the security interest.172 9.36 Section 588FJ(4) requires examination of whether the company granting the security interest applied the advance, or any part of it in discharging, directly or indirectly, an unsecured debt owed to the secured party or a related entity. If there has been a relevant advance and a relevant discharge of debt, the question is as to the relationship between them.173 The words ‘directly and indirectly’ in this context were considered by Dowsett J in Lucas v Currie where his Honour observed: Obviously enough, the words ‘directly or indirectly’ should not be given an unduly narrow meaning. On the other hand, too liberal an interpretation might discourage genuine attempts to rescue companies in financial distress. Whilst any direct discharge of debt will generally be easy to recognize, an indirect discharge of debt may be more difficult to identify. The mechanical aspects of a transaction may

indicate that

[page 403] an advance has been so applied. I have in mind considerations such as timing, the amount of the advance as compared to the discharged debt, the availability of other funds, the existence of other debts, perhaps the intentions and interests of the person appropriating the advance (and/or associated persons including, possibly, the chargee) and any alternative ways in which the advance might have been appropriated.174

Section 588FJ(4) was designed to prevent ‘the most obvious of preferences’, where an unsecured creditor of the company agrees to make a further advance or continue to provide credit on the basis that security will be provided in respect of the advance or credit, and funds advanced were then used by the company in satisfaction or reduction of the existing unsecured debt.175 Such an arrangement effectively converts the creditor’s debt from unsecured to secured, without the company receiving any advantage.176

Substance of transaction determines if ‘paid to the company’ 9.37 Whether an advance has been paid to the company is to be determined by looking at the substance of the transaction, rather than its form.177 As Legoe J of the Supreme Court of South Australia explained in Pennywise Smart Shopping Australia Pty Ltd (in liq) v Sommer & Co Pty Ltd,178 the cases have consistently observed that ‘the particular facts of each case are decisive as to the substance of the transaction’. The court must look at the circumstances and determine whether, in the real result, there has been a payment to the company. Where there has been an actual payment, its real effect may simply be conversion of a debt from secured to unsecured, [page 404] or provision of funds to discharge favoured creditors in preference to the remainder, without net benefit being given to the company.179

Effect of conditions being imposed on advance as to

payment of creditors 9.38 Without more, the mere fact that the lender has imposed conditions upon the advance regarding payment of creditors does not prevent it from being a payment made to the company for the purposes of s 588FJ.180 In Re Matthew Ellis Ltd181 Romer LJ considered that payments of cash made subject to conditions as to how they should be spent remained within the scope of a predecessor provision: We have heard a certain amount of argument as to the construction to be placed upon s 266 of the Companies Act, 1929. For myself I have never been able to understand how any question of construction arises on that section. Its words appear to be quite plain, and I can see no justification for excepting from the words ‘cash paid’ in the section payments of cash made conditionally as to their mode of application. Astbury J, in Re Hayman, Christy & Lilly Ltd,182 excepted from those words cash payments as to which a condition of any kind is imposed by the lender. Eve J has given what in my opinion appears to be conclusive reasons for not adopting that construction. He has, however, himself, as I read his judgment, excluded from the words any payments of cash made upon the condition that the cash shall be applied in discharge of an existing liability of the company. For myself, I am unable to impose any such restriction upon the words of the section. Where, therefore, a man advances money to a company on the security of a debenture on the terms that the money so advanced is to be applied by the company in discharge of one of its existing liabilities or in the acquisition of some asset which the company does not at the moment possess, the money paid by the lender does not in my opinion cease to be cash paid to the company merely by reason of the imposition of that condition. There are, of course, certain considerations for the issue of a debenture which plainly do not amount to payments in cash. Where, for instance, an existing creditor of a company takes a debenture from the company to secure the amount of his debt on the terms that he shall not immediately press for payment of his debt, or where he takes a debenture for the amount of his debt on the terms that

[page 405] the debt itself is to be extinguished, obviously no cash passes from the debenture holder to the company. If in such a case he goes through the form of drawing a cheque in favour of the company for the amount of his debt on the terms that the company shall forthwith itself hand to him in exchange a cheque for the same amount, there has in form been a payment in cash. But in such a case there has not been a payment in cash if one looks at the substance and not at the form, and in considering whether there has been a payment in cash within the meaning of s 266 it is always the question of substance that must be regarded and not the question of form.183

A transaction that does not involve a cash payment to the company granting the circulating security interest may still, in substance, be an advance paid to the company.184 In Re Thomas Mortimer Ltd,185 advances made by a bank that held a debenture took the form of honouring cheques that the company had given to its creditors. Romer J held that payments made by the bank after the date of the charge were made in consideration for the charge: It is said, that granting that there was a payment in cash by the bankers after the date of the debenture,

the payment was not made in consideration of the debenture. In my opinion it was made in consideration of the debenture, and I think so for this reason: It is true that the bank had not entered into any binding arrangement with the company to make further advances, but when a cheque of the company is presented to the bank for payment I think it must be taken that the banker goes through the following process of thought or reasoning: ‘I am under no obligation to make this payment; I will, however, make the payment because you have given me this debenture.’ That is assented to by the company. The company ask the bank to make the payment because they have given the debenture, and the bank makes the payment because the debenture has been given. I think that, if not technically payment in consideration of the debenture, is a payment in consideration for the charge as that phrase is used in the section.

The question whether an advance is paid at the company’s direction is also presumably to be resolved by looking to the substance of the transaction, rather than its form.

‘At or after’ 9.39 Sections 588FJ(2) (a), (c), (d) and (e) refer to an advance paid ‘at or after’ the creation of the circulating security interest. The word ‘at’ does not mean contemporaneously with or immediately in exchange [page 406] for the security.186 Whether the advance is paid ‘at’ the creation of the security interest is ‘not a question of the clock’, but depends upon the circumstances of the case.187 An unreasonable delay of any advance paid will need explanation.188 If the secured party has pressed for execution of the documents, they may gain the benefit of the exception.189 In Re Shoe Lace Ltd,190 Hoffman J held that the degree of contemporaneity connoted by the words ‘at the same time’ in the broadly similar s 245(2) of the Insolvency Act 1986 (UK) was dependent upon the context and in this instance the regulatory and commercial context of the provision meant that a delay of any substantial length would be fatal to the exception. In that case, payments were made between February and April 1990, and a debenture was not executed in favour of the creditor until 24 July 1990. His Honour observed: There is no authority upon the meaning of ‘at the same time as’ in s 245. The degree of contemporaneity which such words connote must depend upon the context. It might not be unreasonable to say that two species of dinosaur became extinct ‘at the same time’ when millions of years separates their last known representatives. On the other hand, one would not say that the winner of a 100 metres race crossed the tape at the same time as the runner who came second, even though

they were separated by less than a tenth of a second. In s 245, the context is commercial and regulatory. For example, it forms part of a scheme which includes the requirement that particulars of a floating charge must be delivered to the registrar of companies within 21 days of its creation. The question, I think, is whether a businessman having knowledge of the kind of time limits imposed by the Insolvency and Companies Acts and using ordinary language would say that the payments had been made at the same time as the execution of the debenture.191 In my judgment no businessman would use such language of the payments made in this case [emphasis added].

[page 407]

As consideration for the circulating security interest 9.40 Predecessor provisions to s 588FJ(2)(a) used the phrase ‘in consideration’, which required a causal connection between the creation of the charge and the making of the advance. It did not require the secured party to demonstrate that the creation of the charge effected a binding obligation to make advances. As Harman LJ explained in Re Yeovil Glove Co Ltd192 in relation to the expression ‘in consideration for the charge’ in the context of s 322(1) of the Companies Act 1948 (UK): In my judgment the phrase is not used in the strict sense suggested by the liquidator. I take the exception to extend to subsequent payments made in reliance on and because of the existence of the charge. The point may be looked at slightly differently in this way: What was the consideration moving from the company every time it presented a cheque for cash? It was not merely an implied promise to repay on demand, but, by reason of the continued existence of the floating charge, a secured promise to repay, in consideration for which the cash was paid to the company.

Rule in Clayton’s case 9.41 If a borrower company has a running account with a lender financier, the rule in Devaynes v Noble (Clayton’s case)193 applies to determine the amount of ‘cash paid to the company’.194 Under that rule, sums credited to an account are appropriated in sequence in satisfaction of the earliest advances made from that account. In Re French Caledonia Travel Service Pty Ltd (in liq)195 Campbell J, of the Supreme Court of New South Wales, explained the application of Clayton’s case to s 588FJ: … If a section, such as s 588FJ Corporations Act 2001, invalidates a floating charge given by a company within six months of the commencement of its winding up, except the extent of any cash paid to the company at the time or subsequently to the creation of the charge, the amount of ‘cash paid to the company’ by a financier with whom the company already has a current account in overdraft is decided, in accordance with Clayton’s Case, by treating payments made by the company as

appropriated to the earliest advances, and each withdrawal from the account as a fresh advance, regardless of whether the net balance of the account increases: Re Thomas Mortimer Ltd [1965] Ch 186, Re Yeovil Glove Co Ltd [1962] 3 All ER 400 at 407, 409,

[page 408] Re Yeovil Glove Co Ltd [1965] Ch 148, Re James R Rutherford & Sons Ltd [1964] 1 WLR 1211.196

‘Liability under a guarantee or other obligation undertaken … on behalf of, or for the benefit of, the company’ (s 588FJ(2)(c)) 9.42 A circulating security interest will not be void against the liquidator to the extent that it secures ‘the amount of a liability under a guarantee or other obligation undertaken at or after that time on behalf of, or for the benefit of, the company’: s 588FJ(2)(c). This exception was introduced by the CLRA in response to a recommendation contained in the Harmer Report.197 The Harmer Commission had originally canvassed a proposal that the guarantee exception would apply where a benefit was given ‘to an associated entity or person in an ordinary commercial transaction’. But the provision was ultimately redrafted to make the company’s receipt of a material benefit a precondition (and so ensure that the exception would still encompass transactions for the benefit of related parties undertaken on a commercial basis).198 The burden of proving that a circulating security interest was undertaken for the benefit of the company and thus within this exception lies with the person seeking to uphold the interest.199

‘On behalf of’200 9.43 As mentioned in Chapter 7,201 the phrase ‘on behalf of’ does not have a ‘strict legal meaning’,202 and ‘bears no single and constant significance’.203 Its application to a given relationship will depend upon [page 409] the context.204 In determining whether an obligation was undertaken ‘on behalf of, or for the benefit of, the company’ for the purposes of the s 588FJ(2)(c)

exception, the court will apply an objective test.205 It may be that there is no material difference between the expressions ‘on behalf of’ and ‘for the benefit of’ in this context or generally.206 If something is done on behalf of or for the benefit of one person, that does not preclude it also being done on behalf of or for the benefit of others.207 For example, if a subsidiary company undertakes an obligation to indemnify its parent company as part of a funding agreement designed to secure the provision of funds to the subsidiary, the obligation will still have been incurred for the benefit of the subsidiary company for the purposes of s 588FJ(2)(c).208 9.44 It may be that the financial situation of a particular company was so dire at the time the company gave the security that it cannot properly be said to have been ‘for the benefit’ of the company. In A E Ledger, Official liquidator of Wright’s Hardware Pty Ltd (in liq) v Euro-National Investment Corp Ltd,209 the court considered s 452 of the Companies Code (a predecessor to s 588FJ). Brinsden J stated: Each case is to be judged on its own facts. If s 452 is to be avoided money must be paid to the company at the time or subsequently to the creation of the charge. That was the case here. The money paid to the company must be for the benefit of the company. That it was not will be revealed if the facts show that the company was used as a conduit pipe

[page 410] through which money passed to discharge a debt owed or jointly owed by those taking the debenture. An antecedent debt may be discharged without affecting the validity of the charge if it has been paid for legitimate business considerations for the benefit of the company. But the debt must be owed by the company and not some predecessor in its business. Money paid to a company will not be deemed for the benefit of the company if it is insufficient to prop up or help to prop up the apparently insolvent company and the real purpose is to benefit certain creditors [emphasis added].

However, in some cases there may unforeseen factors outside the control of the company, without the intervention of which granting the circulating security interest could be said to be ‘for the benefit’ of the company. In Cuthbertson & Richards Sawmills Pty Ltd v Thomas210 Einfeld J considered whether the success of the funds obtained in propping up, or helping to prop up, a company in financial difficulties determined whether the funds secured by the charge were ‘for the benefit’ of the company. After quoting the passage from A E Ledger reproduced above, his Honour went on to observe: That a company in fact gained no benefit from a charge, in that it was unable to obtain or maintain solvency despite the injection of funds that the charge secured, may indicate that the financial situation

of the company was such that the purpose of the charge could not realistically have been for the benefit of the company. However, any such conclusion must be tempered by the consideration that unforeseen factors outside the control of the company may have forced the company into liquidation so that without the influence of those factors the company may have been able to benefit from the charge.211

Amounts payable for property or services supplied to the company (s 588FJ(2)(d)) 9.45 A circulating security interest will not be void against the liquidator, to the extent that it secures an amount payable for property or services supplied to the company at or after the time that the interest was created,212 or interest payable on such an amount.213 This exception was introduced by the CLRA and reflects a recommendation in the Harmer Report.214 Simply lending money for the purpose of paying for specified [page 411] services will not enliven the exception where the secured party has not actually supplied property or services.215 9.46 The exception under s 588FJ(2)(d) will not rescue a circulating security from invalidity insofar as the amount payable for the property or services exceeds the market value of the property or services when supplied to the company (or interest payable on amounts exceeding that market value).216 The purpose of this provision is to ensure that security is not obtained in relation to prior debts owing to a secured party by inflating the value of the consideration given for the security.217 9.47 There is no statutory definition of ‘market value’ in the Corporations Act, and no case law on its meaning in the context of s 588FJ. However, references to market value (in a statutory or contractual context) usually invokes the frequently applied test in Spencer v Commonwealth218 of a hypothetical willing but not anxious purchaser and vendor, bargaining with each other.219 This test is sometimes referred to as the ‘exchange value test’.220 In Brisbane Water County Council v Cmr of Stamp Duties221 Waddell J of the Supreme Court of New South Wales explained the ordinary meaning of ‘market value’ as: … the best price which may reasonably be obtained for the property to be valued, if sold in the general

market. The cases cited[222] indicate that where

[page 412] the ‘value’ of an item of property is to be ascertained, this means its value in the general market, with three qualifications. Firstly, if there is no general market, as in the case of shares in a private company, such a market is to be assumed. Secondly, all possible purchasers are to be taken into account, even a purchaser prepared for his own reasons to pay a fancy price. Thirdly, the value to be ascertained is the value to the seller: Abrahams v Federal Commissioner of Taxation.[223] A requirement that something is to be valued on the ‘open market’ also imports these qualifications. The requirement of s 84G that stamp duty be assessed with respect to the market value of the motor vehicle may well not import any of these qualifications. But, if this is taken to be so, it does not, in my opinion, alter the ordinary meaning of the term ‘market value’ as used in the section.224

Special value to the vendor is to be disregarded in calculating market value.225 Similarly, the fact that particular purchasers are privileged over others in the market to buy at a reduced price is to be disregarded.226 In Benwerrin Developments Pty Ltd v Federal Commissioner of Taxation227 McGarvie J of the Supreme Court of Victoria described market value as ‘the price which would have been received if the trading stock had been sold in the ordinary way on the trader’s ordinary market’.228 [page 413] In Stock v W Angliss and Co (Aust) Pty Ltd),229 Sholl J of the Supreme Court of Victoria noted that ‘[i]n the case of many commodities the current market value thereof may be properly expressed as a range’.230

Solvency (s 588FJ(3)) 9.48 If it is proved that the company was solvent immediately after the time the circulating security interest was created, s 588FJ(2) does not apply: s 588FJ(3). Solvency has the meaning given by s 95A.231 Although there is no presumption of insolvency under s 588FJ(3), the person seeking to avoid the effect of s 588FJ(2) and uphold their security must prove solvency on the balance of the probabilities.232 In some circumstances, the insolvency of the company may be presumed because of the operation of s 588E.233

Liquidator may recover ‘realised amount’ where debt discharged 9.49 If a debt secured by the circulating security interest was discharged out of the company’s money or property during the six months ending on the relation-back day, or after the relation-back day but on or before the day when the winding-up began, the liquidator may by proceedings commenced in any court234 of competent jurisdiction recover the ‘realised amount’, calculated using the formula below.235 ‘Unsecured amount’ — ‘realisation costs’ = ‘realised amount’ ‘Unsecured amount’ is defined to mean the proportion of the realised amount that does not exceed so much of the debt as would have been unsecured against the liquidator if the debt had not been discharged, because of s 588FJ(2). ‘Realisation costs’ is defined to mean the proportion (if any) of the costs and expenses of enforcing the security interest that is attributable to realising the ‘realised amount’. [page 414]

VESTING OF PPSA SECURITY INTERESTS IF NOT CONTINUOUSLY PERFECTED (SS 588FL–588FO) Vesting of security interests 9.50 Sections 588FL–588FO deal with the vesting of PPSA security interests if they are not continuously perfected. Under subsection 588FL(4), a PPSA security interest ‘vests’ in the company unless the security is unaffected by s 588FL or by s 588FN. The expression ‘vest’ is not defined in the Corporations Act or the PPSA. The word ‘vest’, however, is of elastic import.236 The verb ‘vest’ as set out in the Oxford English Dictionary means ‘to place, settle or secure [something] in the possession of a person or persons; … with reference to

estates, rights titles etc’.237 In Harmer v Federal Commissioner of Taxation,238 French J explained the concept of ‘vest’ in the context of s 95A(2) of the Income Tax Assessment Act 1936 (Cth) which concerned the vesting of a beneficiary’s interest in the income of a trust estate: At the core of the relevant natural meaning of the word vest are the concepts of placing, settling or securing something with a person. Each of these embodies the idea of conferring. Brett LJ used the word ‘give’ in Coverdale v Charlton (1878) 48 LJQB 128. More controversial is the question whether ‘vest’ is to be taken in law as referring to a vesting in interest or in possession. The weight of authority supports the view that in English law it means, prima facie, vesting in interest, although whether it is so construed in a particular case will depend upon context: Marks v Trustees Executors and Agency Co Ltd (1948) 77 CLR 497 at 507. In Vol 50 of the fourth edition of Halsburys Laws of England at para 588 it is said that ‘The proper legal meaning of “vest” is “vest in interest”’.

The use of the term ‘vests’ as opposed to ‘void’ in both section 588L and 588N was clearly deliberate and highlights a sharp distinction between the two concepts. A security interest which is void does not change the parties to the security interest, namely, the chargee continues to exist but is unable to enforce the charge against the liquidator. On the other hand, a security interest which vests in the grantor effectively replaces the secured party with the grantor and thus eliminates the existence of the security interests all together. 9.51 It is not clear whether s 588FM (which deals with extension of time for registration)239 allows the court to validate, nunc pro tunc, that [page 415] which has already vested. The argument may be academic in certain circumstances, such as where the secured party is the deed administrator: see Re Black Opal IP Pty Ltd (subject to deed of company arrangement).240 However, in circumstances where the secured party is a separate creditor, there is a potential prejudice between unsecured creditors as a collective class (who serve to benefit from security interests vesting in the company) and a party who could only be a secured creditor if orders under s 588FM of the Corporations Act are granted. Whilst leave to apply to set aside any order obtained pursuant to s 588FM may be seen to be a practical way of approaching the potential prejudice discussed, it does not provide a complete answer. The failure of any given unsecured creditor to set aside an order obtained pursuant to s 588FM cannot remedy the jurisdictional limitation conferred by the operation of the Corporations Act and the PPSA.

Continuously perfected 9.52 Section 56 of the PPSA sets out how a security interest may be ‘continuously perfected’. A security interest is continuously perfected if, after it is perfected, it remains perfected under the PPSA at all times.241 Continuous perfection occurs even if the relevant security interest is perfected in two or more different ways at any particular time, or at different times.242 For example, a security interest could be perfected by possession and by a registration at one time, and at a later time be perfected by two different registrations. The EM to the PPS Bill contains working examples of how a security interest could be continuously perfected through a series of adjacent or overlapping perfections.243 9.53 Section 588FK sets out rules for interpretation and application of Part 5.7B Division 2A and provides as follows: in Pt 5.7B Div 2A ‘PPSA security interest’ has the meaning given by s 51 of the Corporations Act;244 other words or expressions have the same meaning as in the PPSA245 (despite any other Corporations Act provision);246 and [page 416] whether a person has acquired actual or constructive knowledge of a circumstance for the purposes of the Division is to be determined in accordance with ss 297–300 of the PPSA.247 Section 51 of the Corporations Act defines a PPSA security interest as a security interest within the meaning of the PPSA and to which that Act applies, other than a transitional security interest within the meaning of s 308 of the PPSA.248 9.54 The circumstances in which a security interest which is not continuously perfected will vest in the context of a winding up are discussed at 9.61.

Knowledge under the PPSA 9.55 The potential harsh operation of the vesting of security interests under s

588FL(4) is ameliorated by subsection 588FL(5) which provides that subsection 588FL(4) does not affect the title of a person to personal property if, inter alia, at the time the person acquires the property the person had no actual or constructive knowledge of the filing of an application for an order to wind up the company.249 Sections 297–300 of the PPSA: set out the meaning of constructive knowledge;250 explain when bodies corporate and other entities will be taken to have actual or constructive knowledge;251 provide certain rebuttable presumptions regarding knowledge in certain property transfers;252 and clarify the effect of registration on the PPS Register on actual or constructive knowledge.253

Actual knowledge 9.56 Although ‘actual knowledge’ is not defined in the PPSA, the examples given in s 298 of what is sufficient to establish that bodies corporate254 and other persons255 have actual knowledge suggest that in practice it will [page 417] simply mean what it says (although determining actual knowledge will depend on the facts and circumstances in a particular case).256

Constructive knowledge 9.57 ‘Constructive knowledge’ is used in circumstances where ‘a person might gain an advantage by deliberately not making inquiries where a reasonable person would make inquiries’.257 It is the knowledge of a circumstance that a person would have had actual knowledge of if they had either made the inquiries that an honest and prudent person would ordinarily have made in that situation or made the inquiries that an honest or prudent person with the first person’s actual knowledge would have made in that situation.258

When a party will be taken to have actual or constructive knowledge 9.58 A body corporate will be taken to have actual or constructive knowledge of a circumstance if a director, employee or agent who is responsible for acting on behalf of the body corporate in relation to such a circumstance had that knowledge; or the circumstance is communicated to a director, employee or agent who would have brought it to the attention of a such a responsible director, employee or agent if they had exercised reasonable care.259 ‘Reasonable care’ is not defined in the PPSA or the Corporations Act. However, a director, agent or employee is not required to bring information to another person’s attention unless doing so is part of their regular duties,260 or the director, agent or employee has reason to know both of the transaction to which the circumstance relates and that the transaction would be materially affected by the information.261 [page 418]

Proof of knowledge reversed for certain insider transactions 9.59 Section 299 reverses the onus of proof of knowledge for certain insider transactions. The section provides relevantly that where personal property is transferred between related companies,262 or a company and a director or officer of that company,263 the following is to be presumed for PPSA purposes unless the contrary is proved beyond a reasonable doubt: the transferee had actual or constructive knowledge that the acquisition constituted a breach of the security agreement that provided for the security interest in the personal property;264 the transferee had actual or constructive knowledge of a security interest in the personal property;265 and value was not given by the transferee for the interest acquired.266 As the civil standard of proof ‘would not afford sufficient protection or deterrent’ to address the ‘clear risk’ of fraud in property transfers between related

parties, this protective provision imposes the criminal standard of proof to better protect financiers holding PPSA security interests and deter fraudulent transactions.267

Effect of availability of data for search on PPS Register 9.60 The mere fact that data in a particular registration is available for search on the PPS Register does not mean that a person has notice, or actual or constructive knowledge, of the existence or contents of that registration.268

VESTING OF PPSA SECURITY INTERESTS IF COLLATERAL NOT REGISTERED WITHIN TIME (S 588FL) 9.61 If collateral is not registered within the time required by s 588FL of the Corporations Act, the section provides for the vesting in a company of PPSA security interests perfected by registration and by no other means on the commencement of defined forms of external administration (unless one of the exceptions in s 588FN applies).269 Section 588FL [page 419] replaces former s 266 of the Corporations Act.270 Brereton J of the Supreme Court of New South Wales summarised the effect of s 588FL in Re Black Opal IP Pty Ltd (subject to deed of company arrangement): Broadly, the effect of s 588FL(2) is that when a company is being wound up, an administrator has been appointed or a deed of company arrangement executed, any PPSA security interest which was perfected, registered, or enforceable against a third party after the latest of six months before the critical time or 20 days after the security agreement came into force or such later time as the court may fix under s 588FM, vests in the company [see Explanatory Memorandum at 6.5; see also Re Cardinia Nominees Pty Ltd [2013] NSWSC 32 at [11]].271

Part 8.2 of the PPSA provides for the vesting of unperfected security interests

in the grantor on the commencement of external administration.272

Application and operation of s 588FL 9.62 Section 588FL applies: where any of the following events occur: — an order is made, or a resolution is passed, for the winding up of a company;273 — an administrator is appointed;274 or — a deed of company arrangement executed (collectively, a ‘s 588FL(1)(a) event’);275 and a PPSA security interest in collateral granted by the company is ‘covered by’ s 588FL(2).276

Covered by s 588FL(2) 9.63 A PPSA security interest must meet three conditions to be covered by s 588FL(2): It must be enforceable against third parties, within the meaning of s 20 of the PPSA.277 [page 420] It must be perfected by registration and by no other means.278 Section 588FL(4) does not apply to an interest perfected by possession, control, or temporary perfection.279 The registration time for the collateral must have been after the latest of the times listed in s 588FL(2)(b): — six months before the ‘critical time’;280 or — the end of 20 business days after the security agreement came into force (or the critical time, if it is earlier);281 or — the end of 56 days after a foreign security interest became enforceable under the law of Australia (or the critical time, if it is earlier)282.

9.64 By virtue of s 588FK, ‘company’ has the meaning given by s 10 of the PPSA, and extends to registrable bodies registered under Pt 5B.2 of the Corporations Act. Section 588FL uses the defined term ‘critical time’ to refer to the date of commencement of a winding up or administration, which may be affected by relation back to an earlier event, by virtue of ss 513A, 513B or 513C of the Corporations Act.283 ‘Registration time’ has the meaning given by s 10 of the PPSA.284 ‘PPSA security interest’ has the meaning given by s 51 of the PPSA. 9.65 Late registration may be cured for the purposes of s 588FL by an order under s 588FM.285 The Explanatory Memorandum to the PPS Corporations Bill gives working examples of the practical operation of the s 588FL(2)(b) time periods.286

Similarities and differences between s 588FL and former s 266 9.66 The PPS Corporations Act replaced former s 266 of the Corporations Act (certain charges void against the liquidator or administrator) with s 588FL. The substance of s 266 was retained in order ‘to prevent security interests being granted fraudulently with knowledge of an imminent administration, liquidation, or deed of [page 421] company arrangement and to avoid property falling into the trustee’s or administrator’s estate or being claimed by unsecured creditors’.287 Although the Explanatory Memorandum to the PPS Corporations Bill uses the words ‘replace’ and ‘retained’, s 588FL has a wider operation than its predecessor. It is applicable to any PPSA security interest granted by the company in collateral that is perfected by registration and by no other means, whereas former s 266(1) was confined to the effect of external administration on a registrable charge. If a PPSA security interest is void under s 588FL, it vests in the company rather than being void as against the liquidator or administrator — another key difference from s 266. Section 588FL also differs from s 266 in that it imposes a requirement of registration within 20 business days, rather than 45 days.

When PPSA security interest vests in company (s 588FL(4)) 9.67 If the security interest first becomes enforceable against third parties at or before the critical time, the interest vests in the company immediately before the s 588FL(1)(a) event.288 If the security interest first becomes enforceable against third parties after the critical time, the interest vests in the company at the time that it becomes so enforceable.289

Title of third parties acquiring property for new value unaffected (s 588FL(5)) 9.68 Section 588FL(5) provides that the vesting provisions in s 588FL(4) do not affect the title of a person who acquires personal property: for new value;290 from: — a secured party;291 or — a person on behalf of a secured party;292 or — a receiver acting in the exercise of powers conferred by the security interest293 or implied by the general law;294 [page 422] if at the time of acquiring the property the person has no actual or constructive knowledge of the events set out in s 566FL(5)(b). The person claiming to have acquired the property without such actual or constructive knowledge bears the onus of proving that fact.295 This is because the relevant matters would generally be within their knowledge and it would be ‘unduly onerous to require the secured party to prove the transferee’s state of mind’.296 Section 588FL(5) safeguards bona fide purchasers for value and renders ineffective ‘fraudulent transactions designed to frustrate payments to creditors’.297

VESTING OF UNPERFECTED SECURITY INTERESTS UNDER THE PPSA (SS 267 AND 267A PPSA) 9.69 If a company has granted a security interest then the interest will vest in the company under s 267 or s 267A of the PPSA if: an order is made, or a resolution is passed, for the winding up of the company; an administrator is appointed to the company; or the company executes a deed of company arrangement (collectively, a ‘s 267(1)(a) event’);298 and the security interest is unperfected at that time.299

Section 267 PPSA 9.70 Section 267 of the PPSA relevantly provides that an unperfected security interest will vest in a company, if: the company granting the interest: — enters voluntary or court-ordered winding up;300 — enters administration;301 or — executes a deed of company arrangement;302 and [page 423] the security interest is unperfected at the time the winding up of the company is taken to have commenced, or the s 513C (of the Corporations Act) day in the case of any other company.303 The security interest vests in the company immediately before the s 267(1)(a) event.304 9.71 Section 267 of the PPSA differs from the broadly analogous provision of the Canadian statute in that s 267 provides that an unperfected security interest will vest in the grantor, rather than merely rendering the unperfected security

interest ineffective against the grantor’s trustee in bankruptcy or liquidator.305 This outcome is ‘not new to Australian law’, and the Explanatory Memorandum to the PPS Bill notes that the High Court has previously held in Associated Alloys v ACN 001 452 106 Pty Ltd (in liq)306 and General Motors Acceptance Corporation Australia v Southbank Traders Pty Ltd307 that non-registration could mean the loss of a supplier’s security interest.308 In General Motors Acceptance Corporation Australia v Southbank Traders Pty Ltd,309 the High Court considered the provisions of the Chattel Securities Act 1987 (Vic). That legislation contained a scheme for the registration of security interests in registrable goods. Section 7 of that Act provided for the extinguishment of the security interest (as defined in s 3) of a secured party in specified circumstances. The respondent, Southbank Traders Pty Ltd (Southbank), a wholesale car dealer, had sold cars to a retail car dealer, Kingstrate Pty Ltd (Kingstrate), under an agreement containing a Romalpa clause.310 The agreement stipulated that Southbank retained title to the goods until the purchase price was paid in full, and that Southbank could recover or resell the goods in question until the purchase price was paid. Kingstrate took possession of the cars [page 424] while the purchase price was still unpaid and purported to sell them to the appellant financier, General Motors Acceptance Corporation Australia (GMAC). In December 2002, GMAC registered a security interest under the Chattel Securities Act. At that time, Southbank had not registered a security interest. It registered its security interest in January 2003. Southbank subsequently sued GMAC for conversion, or alternatively in detinue. At first instance, Holt J in the County Court of Victoria dismissed Southbank’s claim on the basis that Southbank had an unregistered ‘security interest’ that had been extinguished upon the sale (or purported sale) of the vehicles to GMAC by the operation of the Chattel Securities Act.311 That decision was reversed by the Victorian Court of Appeal, where Maxwell P, Eames and Ashley JJA held that Southbank did not have a ‘security interest’, that s 7(1) did not apply to extinguish its interest, and that Southbank was entitled to succeed in the action.312 On appeal, the High Court considered the language of the Chattel Securities Act provisions and held that Southbank had a

security interest within the meaning of the Act: A conclusion that the definition of ‘security interest’ includes conditional sales is consistent with the purpose of the legislation, the statutory context, and the text, understood in the light of the potential width of the language used.313

Section 267A PPSA 9.72 Section 267A of the PPSA supplements s 267 by providing for the vesting of security interests where a security agreement was entered into before a ‘critical time’314 referred to in s 267, but the security interest attached to the collateral after that time. Section 267A relevantly provides that a security interest will vest in a corporate grantor if: [page 425] an order is made or resolution passed for the winding up of the company, an administrator is appointed or the company executes a deed of company arrangement;315 the grantor enters into a security agreement before the ‘critical time’;316 at the critical time, the security interest has not attached to the collateral and there is no registration that would perfect the security when it attaches to the collateral;317 the security interest attaches after the critical time;318 and the security interest is either unperfected or, if it is perfected by registration, the registration time is after the critical time.319 If s 267A applies, the security interest vests in the grantor when it attaches to the collateral.320

Intended complementary operation of PPSA and Corporations Act vesting provisions 9.73 The Explanatory Memorandum to the PPS Bill states that ss 267 and 267A of the PPSA are intended to operate in conjunction with Corporations Act provisions which specify the circumstances in which a security interest is void

against the liquidator (for example ss 266–267 of the Corporations Act).321

Security interests unaffected by ss 267 and 267A PPSA 9.74 Section 268(1) of the PPSA provides that the following security interests are unaffected by s 267 or s 267A: if the interest does not secure the payment or performance of an obligation: — PPSA security interest provided for by a transfer of an account or chattel paper;322 — certain kinds of PPS lease;323 or [page 426] — a commercial consignment;324 or a security interest for which perfection, and the effect of perfection or nonperfection, is governed by the law of a foreign jurisdiction at the time of an external administration event listed in s 267(1)(b);325 or the interest of a senior creditor under a turnover trust.326 These forms of interest are excluded as requiring their registration would have been unduly onerous.327

Statutory right to damages of certain consignors, lessors and bailors (s 269 PPSA) 9.75 Section 269 of the PPSA gives certain consignors, lessors and bailors a statutory right to damages and compensation if their security interest vests in the grantor under s 267 or s 267A of the PPSA.328 It applies to the security interest of a consignor under a commercial consignment,329 and the security interest of a lessor or bailor under a PPS lease.330 If a security interest vests in the grantor under s 267 or s 267A of the PPSA, the consignor, lessor or bailor is entitled to damages and compensation. The consignor, lessor or bailor is taken to have suffered damage immediately

before the interest vested331 and may recover damages equivalent to the greater of the amount determined in accordance with the consignment, lease or bailment and the sum of the market value of the leased, bailed or consigned property immediately before the time mentioned in s 267(1)(b) of the PPSA, and the amount of any other damage or loss resulting from its termination.332 This provision entitles the secured party to compensation that allows them to ‘participate in the grantor’s insolvency’.333 [page 427]

Where title of third parties unaffected 9.76 The vesting rules in ss 267 and 267A of the PPSA do not affect the title of a person that acquires personal property: for ‘new value’ within the meaning of the PPSA334 from: — a secured party, — someone acting on behalf of the secured party, or — a receiver acting under powers conferred by the security agreement or by the operation of the general law;335 if at the time of acquisition the person has no actual or constructive knowledge of the filing of a winding up application, the passing of a resolution that the company be wound up, the appointment of an administrator or the execution of a deed of company arrangement.336 The person asserting that they have acquired personal property without such actual or constructive knowledge must prove it.337

EXTENSION OF TIME FOR REGISTRATION (S 588FM) 9.77 A company, or any person interested, may apply to the Court for an

order under s 588FM fixing a later registration time for the purposes of s 588FL(2)(b)(iv).338 An order under s 588FM will avoid the vesting of a security interest in the grantor company under s 588FL(4).339 The application may only be made to a ‘Court’ (capital ‘C’) within the meaning of s 58AA.340 The Court may make the order sought on the application if it is satisfied that: the failure to register the collateral earlier was accidental or due to inadvertence or some other sufficient cause;341 or [page 428] the failure to register the collateral earlier was not of such a nature as to prejudice the position of creditors or shareholders;342 or it is just and equitable to grant relief on other grounds.343 The Court may make the order on any terms and conditions that seem just and expedient to it.344 Section 588FM was introduced by the PPS Corporations Act and replaces former s 266(4). The terms of s 588FM are broadly similar to the circumstances in which the Court could extend time for lodgment of a notice of a charge under former s 266(4) and authorities decided under the former section will assist the court to guide its discretion under s 588FM.345

Grounds for extension — ‘accidental or due to inadvertence or some other sufficient cause’ (s 588FM(2)(a)(i)) 9.78 Former subsection 266(4) allowed the Court to extend the period for registration of a charge.346 The authorities decided under that section will be of relevance to interpreting and applying the extension of time provision found in subsection 599FM(2). Those authorities were referred to and applied by Black J of the Supreme Court of New South Wales in Re Barclays Bank plc in the context of an application under s 588FM.347 Barclays Bank plc (Barclays) had provided a UK £8 million term loan facility in January 2012 to a publicly listed UK company, Sportingbet plc. The facility agreement contemplated that other companies within the Sportingbet plc group (including the Australian company now known as Centrebet International Pty Ltd (Centrebet)) would accede to the

facility agreement and provide additional security by 24 April 2012. Centrebet executed a General Security Deed on that date. Barclays had been advised by their Australian law firm that a financing statement should be registered and maintained with respect to the collateral under the General Security Deed to perfect the security interest (to the extent that perfection had not been achieved by other means). However, a financing statement was not registered until 9 August 2012. Barclays applied for an order under s 588FM to fix 9 August 2012 as the registration time. [page 429] Black J accepted evidence given by the solicitor charged with carriage of the transaction that she had not become aware of the timeframe for registration of security interests under the PPSA regime, and the consequences of nonregistration, until July 2012. His Honour, who was satisfied that the failure to register was due to ‘inadvertence’, which includes not being properly attentive, or in this case failing to understand the requirement to lodge notice of a security interest within the specified period and the consequences of failure to do so, held: I am satisfied that the failure to register the relevant security interests in this case was due to inadvertence, which includes being not properly attentive, or failing, in this case, to understand the requirement to lodge notice of a security interest within the specified period and the consequences of failure to do so; see the cases cited, in respect of s 266 of the Corporations Act in Austin & Black’s Annotations to the Corporations Act at [2K.266] and particularly National Australia Bank Ltd v Davis & Waddell (Vic) Pty Ltd (2003) 44 ACSR 296 at 308; Dempsey Resources Pty Ltd v Continental Coal Ltd [2009] FCA 1157 at [24]; Re Perpetual Trustee Company Ltd [2010] FCA 357; Metcash Trading Ltd v 8 Nai Investments Pty Ltd [2011] FCA 1400.348

His Honour also remarked that such errors were unsurprising during the transition to the PPS regime: Errors of this kind will no doubt occur, from time to time, in matters which had previously given rise to applications for extension of time under s 266 of the Corporations Act and will now give rise to similar applications under s 588FM of the Corporations Act. In particular, it will not be surprising if such errors occur during the transition to the Personal Property Securities Act 2010 (Cth) regime.349

9.79 The authorities in respect of s 266 of the Corporations Act were also referred to and applied by Black J in Re Cardinia Nominees Pty Ltd.350 In that case, Cardinia Nominees Pty Ltd (Cardinia) agreed to lend $725,000 to Inika Pty Ltd (Inika), on the basis that Inika would execute a Secured Convertible Bond Deed (Deed) in favour of Cardinia. The Deed was dated 3 August 2012, and relevantly provided that the loan would be secured by a charge in favour of

Cardinia over the whole of the assets of Inika, but left room for confusion regarding the entity responsible for registration. Cardinia advanced the whole of the loan monies to Inika. Inika also granted a security interest in favour of BMW Australia Finance Ltd, registered on 7 September 2012. The security interest of Cardinia in the collateral was registered on 7 September 2012, [page 430] five business days out of time. A director of Cardinia ultimately became aware of the possible consequences of late registration and Cardinia applied to the court for an order under s 588FM(1) fixing 7 September 2012 as the registration time. His Honour observed that: The concept of ‘inadvertence’ has been considered in the case law dealing with s 266 of the Corporations Act. In the present case, there seems to me to have been a least a lack of clarity as to who was responsible for registration of the security interest and, if cl 6.1 of the Secured Convertible Bond Deed was intended to confer that responsibility on Inika, a lack of action by Inika to discharge that responsibility. However, I do not consider that lack of clarity gave rise to an actual misunderstanding as to who was responsible for registration, of the kind considered in Re Kris Cruisers Ltd [1949] 1 Ch 138; [1948] 2 All ER 1105 or Queensland Company Credit Union v Na-Kuraga Ltd (2005) 55 ACSR 219; [2005] QSC 149. The parties appear to have proceeded on the (possibly mistaken) basis that Cardinia should attend to registration of the security interest in the collateral on the PPS Register, albeit that it ultimately did so by giving instructions to Inika’s solicitors in that regard. However, ‘inadvertence’ may also be established where a party operates under a mistake as to the consequences of failing to register a security interest: Sanwa Australia Finance Ltd v GroundBreakers Pty Ltd (in liq) [1991] 2 Qd R 456 at 461; (1990) 2 ACSR 692 at 695; National Australia Bank Limited v Davis & Waddell (Vic) Pty Ltd [2003] VSC 1; (2003) 44 ACSR 296; Metcash Trading Ltd v 8 Nai Investments Pty Ltd [2011] FCA 1400 at [8]. The approach adopted in the case law of treating a matter of that kind as amounting to inadvertence is consistent with the emphasis placed in the case law upon the benevolent operation of predecessor sections, at least where an error of a secured creditor in not attending to registration of its security within time is innocent and does not result from any disregard of its statutory obligations: Re Kris Cruisers Ltd above at 142; National Australia Bank v Davis & Waddell above at [67]. In the present case, Inika’s solicitor had informed Mr McGilvray [the director of Cardinia] of the time within which registration was required, but the potentially significant consequences of a failure to register had not been communicated to Mr McGilvray. In my view, Cardinia, through Mr McGilvray, was plainly operating under a mistake as to that matter.351

9.80 In Re Apex Gold Pty Ltd,352 Hammerschlag J of the Supreme Court of New South Wales considered an application under s 588FM(1) regarding a circulating security interest granted by Apex Gold Pty Ltd. The circulating security interest was not entered onto the PPS Register until just over two months after the last date for registration under s 588FL(2)(b)(ii).

[page 431] His Honour was satisfied on the basis of affidavit evidence that the failure to register within time was accidental or due to inadvertence on the part of the solicitor acting for the plaintiff secured party, or those acting under her supervision.353 The solicitor acting for the plaintiff had not given active consideration to an application under s 588FM for a period of some months after the date the interest was entered onto the PPS Register, because the plaintiff had been taking active steps to ensure that Apex Gold was able to complete contracts for sale of certain parts of its business, which would result in the eventual repayment of the whole of the debt secured by the circulating security interest. The solicitor was unaware that the financial position of the parent company of Apex Gold was such that it could require the appointment of a voluntary administrator before the expiry of a six-month period following the entry of the interest onto the PPS Register.

Not of such a nature as to prejudice the position of creditors or shareholders (s 588FM(2)(a)(ii)) 9.81 At the time of writing, there has been no judicial consideration of s 588M(2)(a)(ii). However, in Re Cardinia Nominees Pty Ltd354 Black J made the following salient observations when considering an application for extension of time under s 588FM(2)(a)(i): The courts have emphasised, in respect of predecessor sections, that unless an applicant [for extension of time under ss 266 or 588FM] leads evidence of the … solvency [of the company against whom the security interest is sought] and the likelihood of its solvency being maintained into the foreseeable future, an extension should not be granted unless steps are taken to protect the interest of unsecured creditors: Re Guardian Securities Ltd [1984] 1 NSWLR 95 at 97; (1984) 8 ACLR 822 at 823. Steps that might be taken to achieve that result include joining one or more unsecured creditors as representative parties; directing that notification of the application be given to unsecured creditors with a view to their being heard in opposition to it, if they wished to do so; or granting an extension of time reserving a right to the company or any unsecured creditor or any person representing the interests of unsecured creditors to apply at a later time to discharge or vary the order: Re Guardian Securities above at NSWLR 97–98, ACLR 824; Bevillesta Pty Ltd v Imagine Un Ltd above at [28].

[page 432]

On other grounds, it is just and equitable to grant

relief (s 588FM(2)(b)) 9.82 In Re Cardinia Nominees Pty Ltd,355 Black J of the Supreme Court of New South Wales observed in obiter he would have found that misunderstanding of the consequences of non-registration and uncertainty in the relevant agreement regarding the party responsible for registration of the security interest also had the result that it was just and equitable for the court to grant the extension of time sought under s 588FM.356

Factors relevant to the exercise of the Court’s discretion under s 588FM 9.83 If the grounds to make an order under s 588FM(2) sought are established, it remains necessary for the Court to exercise its discretion as to whether to make the order, and for the Court to exercise its discretion as to whether such an order should be made on terms and conditions under s 588FM(3).357 9.84 As mentioned above, evidence as to the financial position of the company granting the security interest is relevant to the exercise of the Court’s discretion under s 588FM, as it had been in applications under the predecessor provision s 266.358 In Re Barclays Bank plc,359 satisfactory evidence was provided to the court of the financial position of the grantor during the relevant period;360 that there had been no material change in that financial position; that no security had been granted other than security that may have arisen by statute or law as a result of the grantor’s normal business operations; and that the grantor had not incurred any debt of a material amount. Altogether, that financial information indicated that the grantor had been significantly profitable and had significant positive assets.361 Black J of the Supreme Court of New South Wales proceeded to make the order under s 588FM unconditionally: The fact of demonstrated solvency of Centrebet and that no other security interests were registered, and the absence of any indication of any risk

[page 433] of winding up or administration in respect of Centrebet, are also highly relevant matters, and assist the court to conclude that late registration ‘will not disturb or affect an accrued or accruing rights meriting consideration’ and support the making of the relevant order: Re Investa Properties Ltd (2001) 40

ACSR 124 at 31; [2001] NSWSC 1089; Dempsey Resources above at [22].362

However, if the evidence available as to the company’s financial position is not complete, the court will consider that as a factor relevant to its discretion to grant an order under s 588FM subject to conditions. In Re Cardinia Nominees Pty Ltd,363 the grantor company relied on unaudited balance sheets that formed part of its monthly management accounts. Those balance sheets were two months out of date and not otherwise verified by evidence of any company officer. Black J concluded that the evidence provided as to the financial position of the grantor and its ability to pay its debts as and when they fell due was ‘somewhat incomplete’, and of limited weight due to the omission of profit and loss information.364 A director of the company gave evidence that so far as he was aware the company was solvent and able to pay its debts as and when they fell due both at the time the company granted the security interest and at the time the director swore a further affidavit for the purposes of the s 588FM application. However, Black J considered that this evidence was somewhat qualified by the extent of the knowledge of the director as to these matters. His Honour ultimately concluded that the incomplete nature of the evidence as to the company’s financial position was a factor relevant to the court’s discretion to grant the order under s 588FM subject to conditions.365 9.85 The length of delay prior to registration of the security interest in the collateral is also relevant to the Court’s discretion under predecessor provisions to s 588FM,366 and remains relevant in respect of the exercise of discretion under s 588FM.367 In Re Black Opal IP Pty Ltd (subject to deed of company arrangement),368 Brereton J of the Supreme Court of New South Wales commented that generally the ‘significance of the passage of time is mainly related to the possibility of competing interests [page 434] having arisen’. In Re Barclays Bank plc,369 Black J of the Supreme Court of New South Wales considered that a delay of some two months between the last day of the 20 business day period and the date of registration was not a particularly long period. His Honour noted that Gilmour J had taken a similar view in Dempsey Resources Pty Ltd v Continental Coal Ltd370 in exercising the court’s discretion under s 266(4), in relation to delays of nine and 55 days before the date of registration.371 In Re Cardinia Nominees Pty Ltd,372 Black J accepted the applicant’s submission that a delay of five days was not lengthy.373

Conditions on such an order 9.86 An order under s 588FM(2) may be made unconditionally if there is satisfactory evidence of the company’s financial position and that no other security interest has been registered.374 Such evidence will assist the court in concluding that late registration ‘will not disturb or affect any accrued or accruing rights meriting consideration’.375 Conditions should only be imposed on an order extending the time for registration where there is a ‘demonstrated need’.376 9.87 As mentioned above, authorities in respect of former s 266 and predecessor sections emphasise that, unless the applicant leads evidence of the company’s solvency and likely future solvency, an extension should not be granted unless steps are taken to protect the interests of unsecured creditors.377 These steps might include joining one or more unsecured creditors as representative parties; directing that notice of the application be given to unsecured creditors, so that they may be heard in opposition if they wish; or granting an extension of time reserving a right [page 435] to the company, or any unsecured creditor (or a person representing their interests) to discharge or vary the order.378

Reserving liberty to discharge or vary order if insolvency within six months of registration 9.88 An order of this kind was commonly imposed under former s 266379 where evidence as to the company’s financial position was unavailable or incomplete.380 In Bevillesta Pty Ltd v Imagine UN Ltd,381 evidence regarding the company’s financial position was incomplete. Robson J of the Supreme Court of Victoria considered that in the absence of evidence of solvency, an extension order under s 266 should be granted on terms that reserved liberty to apply for the discharge or variation of the order to a liquidator, administrator or creditor of the company if any winding up of the company commenced; an administrator was appointed; or the company executed a deed of company arrangement within

six months of the date the notice of charge was lodged.382 In Re Cardinia Nominees Pty Ltd,383 Black J held that the rationale supporting the approach in Bevillesta Pty Ltd v Imagine UN Ltd384 for an extension under s 266 remains applicable in respect of s 588FM.385 Given the ‘somewhat incomplete’ nature of the evidence as to the company’s financial position, his Honour made an order under s 588FM on a basis that reserved the ability of a liquidator, administrator, deed administrator or other unsecured creditor to apply to discharge it within a six-month period from the date of registration of the security interest in the collateral.386 [page 436]

Order without prejudice to person subsequently obtaining security 9.89 An order under s 588FM(2) may also be granted on terms that it is without prejudice to the rights of any person who has obtained security over the assets subject to the security interest between the date the security interest was granted and the date of registration. For example, in Re Cardinia Nominees Pty Ltd387 a company had granted a security interest to a financier, BMW Australia Finance Ltd, before the expiry of the period for registration of the creditor’s security interest. The security interest granted to BMW Australia Finance Ltd was duly registered within the required 20 business day period. Black J granted the extension of time order sought by the creditor Cardinia subject to a term that it was to have no effect on the priority to be afforded to the security interest granted to BMW Australia Finance Ltd.388

Order reserving liberty to apply 9.90 In the Supreme Court of New South Wales decision of Re Apex Gold Pty Ltd,389 the company granting the circulating security interest had not been given notice of the s 588FM proceedings by the applicant creditor. Hammerschlag J granted an order under s 588FM subject to a condition reserving liberty to the company to apply to discharge or vary the order within seven days of the date of the order under s 588FM being made.390

PPSA SECURITY INTERESTS UNAFFECTED BY S 588FL (S 588FN) 9.91 Section 588FN specifies types of PPSA security interests that are unaffected by the vesting rule in s 588FL(4). Section 588FN was introduced by the PPS Corporations Act and its exceptions are similar to those contained in s 268 of the PPSA.391 The following types of PPSA security interests are unaffected by the vesting rule in s 588FL(4): a PPSA security interest provided for by a transfer of an account or chattel paper,392 certain kinds of PPS lease,393 or a commercial [page 437] consignment;394 if the interest does not secure the payment or performance of an obligation;395 a PPSA security interest held by a senior creditor under a turnover trust, if it is provided for by an agreement meeting the requirements of the section396 that is, in effect, an arrangement for the postponement of the junior creditor’s position;397 a PPSA security interest where: — the company acquired the collateral by transfer before the s 588FL critical time;398 and — the company did not acquire the collateral free of the security interest;399 and — the security interest became perfected before the critical time; and the interest remained continuously perfected by registration during either of the following periods: —

—

if the secured party consented to the transfer of the collateral, the period beginning at the end of five business days after the day of the transfer and ending no earlier than at the s 588FL critical time;400 or if the secured party did not agree to the transfer, the period beginning at the end of five business days after the day the secured party otherwise

acquires the actual or constructive knowledge required to perfect their interest by registration (or to re-perfect their interest by amendment of a registration) and ending no earlier than at the s 588FL critical time.401

CERTAIN LESSORS, BAILORS AND CONSIGNORS ENTITLED TO DAMAGES (S 588FO) 9.92 Section 588FO of the Corporations Act gives certain lessors, bailors and consignors a statutory right to damages if their PPSA security interest vests in a company under s 588FL. Section 588FO was [page 438] introduced by the PPS Corporations Act and is in similar terms to s 269 of the PPSA.402 It applies to the PPSA security interest of a consignor under a commercial consignment,403 or to a PPSA security interest of a lessor or bailor under a PPS lease.404 ‘PPSA security interest’ has the meaning given to it by s 51 of the Corporations Act. The consignor, lessor or bailor is taken to have suffered damage immediately before the interest vested under s 588FL405 and may recover compensation from the company equal to the greater of either the amount determined in accordance with the consignment, lease or bailment; or the sum of the market value of the consigned, leased or bailed property immediately before the s 588FL ‘critical time’ and the amount of any damage or loss resulting from termination of the consignment, lease or bailment.406 The security holder may be able to prove as an unsecured creditor for the amount of compensation in the company winding up proceedings.407

SECURITY INTERESTS IN FAVOUR OF AN OFFICER OF COMPANY ETC VOID

(S 588FP) 9.93 Section 588FP was introduced by the PPS Corporations Act and replaces the former s 267 of the Corporations Act.408 The object of the section is to prevent a company from granting a security interest to an officer of the company or persons associated with the officer that would then allow those persons to take steps to enforce the security.409 Under s 588FP(1), a security interest, and any powers purporting to be conferred by the instrument under which the security interest is created, are void, and are taken always to have been void, if the following three criteria are satisfied: (a) a company grants a security interest;410 (b) a person specified in subsection 588FP(2) is a secured party; and [page 439] (c) the secured party purports to take a step to enforce the security interest, within six months after the time (the relevant time)411 the instrument is made, without the leave of the Court412 under subsection 588FP(4).413 9.94 Section 588FP does not apply to a PPSA security interest in PPSA retention of title property,414 or to a registrable charge.415

Persons covered by s 588FP (s 588FP(1)(b)) 9.95 Subsection 588FP(2) specifies the persons the subject of s 588FP(1) as follows: (a) a person who is an officer (including a local agent of a foreign company) of the company at the relevant time;416 (b) a person who has been such an officer of the company at any time within the period of six months ending at the relevant time;417 (c) a person associated, in relation to the creation of the security interest, with a person of a kind mentioned in paragraph 588FP(2)(a) or (2)(b).418 9.96 ‘Officer’ has the meaning given by s 9 of the Corporations Act, and may include a shadow director.419 The expression is discussed in more detail at

10.14ff. The adjective ‘associated’ is not defined in s 9 of the Act. The word ‘associate’ however has the meaning given by ss 10–17 of the Corporations Act.420 Under case law decided in the context of the former [page 440] s 267, it was established that the word ‘associated’ was to be governed by the definition of ‘associate’ in ss 10–17.421

Taking a step to enforce a security interest (s 588FP(1)(c)) 9.97 Subsection 588FP(3) provides that without limiting the generality of s 588FP(1)(c), a secured party takes a step to enforce a security interest if the secured party: appoints a receiver, or a receiver and manager, under powers conferred by the instrument that created or evidences the security interest;422 either directly or by an agent enters into possession or assumes control of property of a company for the purposes of enforcement of the security interest;423 or seizes the property under s 123 PPSA for the purposes of enforcement of the security interest.424 9.98 Case law decided in the context of former s 267 of the Corporations Act and its predecessors established that enforcement involves the actual or attempted exercise of rights under the charge and not merely threatening or preparing to exercise such rights.425 In other words, taking an enforcement step requires an ‘element of immediate invocation or exercise of compulsive power’.426 By contrast, in Salcedo v Mawarie Mining Co Pty Ltd,427 McLelland J of the Supreme Court of New South Wales held that the voluntary surrender of charged property by a company to the creditor (without the creditor relying on rights under the charge) was not an enforcement step for the purposes of a predecessor to former s 267.428 Likewise, in Australian Innovation Ltd v DeanWillcocks (as Joint Administrators of Powerline GES Pty Ltd),429

[page 441] Palmer J of the Supreme Court of New South Wales held that a creditor does not take a step in the enforcement of its security for the purposes of former s 267 if they invoke their statutory right of appointment of an administrator under s 436 of the Corporations Act.430 9.99 A more detailed discussion of the authorities regarding enforcement in the context of former s 267 and its predecessor provisions is set out at 9.156ff.

When the Court may give leave for enforcement of a security interest (s 588FP(4)) 9.100 Under s 588FP(4), the Court may give leave for a security interest granted by the company to be enforced within six months after the relevant time: on application by a secured party; if the Court is satisfied that the company was solvent immediately before the relevant time;431 and if the Court is satisfied that in all the circumstances of the case, it is just and equitable for the Court to do so.432 9.101 In Re 21st Century Sign Co Pty Ltd,433 Ryan J of the Supreme Court of Queensland concluded that nothing in the former s 267 of the Corporations Law authorised the court to grant leave retrospectively.434 Given the object of s 588FP and the preconditions to the court giving leave under s 588FP(4), a step taken without leave to enforce a security interest otherwise within the scope of s 588FP is arguably also not capable of retrospective validation under s 1322(4).435 The court must not make an order under s 1322(4)(a) unless it is satisfied that the act in issue is essentially of a procedural nature; that the person or persons concerned in or party to the contravention or failure acted honestly; that [page 442] it is in the public interest that the order be made; and that no substantial injustice

has been or is likely to be caused to any person.436

Title of third parties acquiring property unaffected (s 588FP(7)) 9.102 Subsection 588FP(7) provides that subsection 588FP(1) does not affect the title of a person who acquires personal property, where the property is acquired: for new value;437 and without actual or constructive knowledge that the seller438 is: — a secured party, or — acting on the behalf of a secured party.439 The concepts of actual and constructive knowledge are discussed at 9.55ff. Under subsection 588FP(9), the onus of proving the fact that a person acquires property without actual or constructive knowledge as mentioned in paragraph 588FP(7)(b) lies with the person asserting that fact.

Other ways in which a security interest granted to a person associated with the company may be avoided 9.103 A security interest granted in favour of a specified person who is a director may also be voidable as an unreasonable director-related transaction440 or as an unfair preference441 or uncommercial transaction.442

SEIZURE OF PROPERTY UNDER S 123 PPSA 9.104 If a debtor company is in default under a security agreement, s 123 of the PPSA allows a secured party to seize collateral by any method permitted by law.443 Section 123 and other provisions in Ch 4 of the PPSA do not apply in relation to the property of a company while a

[page 443] receiver or a receiver and manager is the controller of that property.444 Intangible property may only be seized under s 123 by: provision of appropriate notice to the grantor and, if the intangible property is a licence, the licensor (or their successor as the case may be);445 or any other method agreed between the parties in the security agreement (and, where relevant, the licensor or their successor).446 Seizure of collateral under s 123 does not perfect the secured party’s security interest.447 Where a secured party has perfected a security interest in collateral by possession or control,448 and the debtor is in default under the security agreement;449 the secured party may seize the collateral under s 123 by giving a notice to the grantor (and, if the collateral is a licence, the licensor or their successor).450 Where physical removal of collateral is not practicable, a secured party may seize collateral under s 123 by taking ‘apparent possession’451 and may dispose of seized collateral under s 128 on the grantor’s premises.452 Collateral used by the grantor predominantly for personal, domestic or household purposes cannot be seized by apparent possession (although this is unlikely to be relevant to corporate insolvencies).453

TRANSITIONAL PROVISIONS UNDER THE PPSA 9.105 The PPSA received Royal Assent on 14 December 2009. However, the majority of its provisions started to apply from the ‘registration commencement time’ of 30 January 2012.454 Chapter 9 of the PPSA contains transitional provisions, and relevantly provides for: [page 444] interests created by security agreements in force immediately before 30

January 2012, that continue in force at and after that time (referred to as ‘transitional security interests’,455 which include; — ‘migrated security interests’,456 and — non-migrated security interests;457 the effect of insolvency on priorities where there is a transitional security interest involved;458 and priorities where there is a transitional security interest involved, other than in insolvency.459

‘Transitional security interest’ 9.106 A security agreement460 in force immediately before 30 January 2012,461 that continues in force at and after that time, is a ‘transitional security agreement’.462 A ‘transitional security interest’ is a security interest provided for by a transitional security agreement, if (a) it would constitute a PPSA security interest but was created before 30 January 2012, or (b) it is a PPSA security interest that arises after 30 January 2012, but arises out of a security agreement entered into before that date.463 Transitional security interests include ‘migrated security interests’ and ‘non-migrated security interests’.

‘Migrated security interest’ 9.107 Section 332 of the PPSA defines ‘migrated security interest’. An interest in personal property is a ‘migrated security interest’ if it meets all of the following conditions: it is a ‘transitional security interest’ in the personal property;464 and data in a ‘transitional register’ in relation to the property is:465 [page 445] — —

given to the Registrar as mentioned in s 330 or s 331;466 and accepted by the Registrar;467 and

a registration in that transitional register in relation to the property was effective immediately before the time the data was given to the Registrar;468

and the registration in a transitional register was duly authorised by the law under which the register was maintained.469 Section 330 of the PPSA defines ‘transitional register’ as data, in relation to personal property, that is held by an officer or agency of the Commonwealth, a State or a Territory in a register maintained under a law of the Commonwealth, a State or a Territory. The Attorney-General’s Department has selected transitional registers that were appropriate for migration to the PPS Register. For a list of these transitional registers, see .

Registration and temporary perfection 9.108 Migrated security interests are deemed to be registered on the PPS Register from immediately before 30 January 2012470 until the interest stops being ‘continuously perfected’,471 or the end-time of the registration (whichever is the earlier).472 If the Registrar is of the opinion that registration of a migrated security interest would have ended at a particular time in its original register (such as a bill of sale), that time must be noted in the PPS Register and registration of the migrated security interest will end at that time.473 The temporary perfection rules do not apply to an interest required to be registered on a transitional register by legislation that gave priority to registered security interests, if the interest was not registered before 30 January 2012.474 [page 446]

Data migration issues 9.109 Not all security interests recorded in transitional registers were migrated accurately. The grantor details in migrated registrations were originally recorded on the PPS Register in the same way that they were recorded on the transitional register that they came from. This will not necessarily correspond with the way that grantor details are required to be entered for new registrations on the PPS Register. For this reason, it may be necessary to conduct multiple searches to ensure that there is no valid registration in respect of relevant collateral.475 Due to data migration problems, it is prudent to search the register generally by both ABN and ACN.

Australian Register of Company Charges 9.110 A small number of charges were not migrated from the Australian Register of Company Charges and some charges registered with multiple chargees have been migrated to the PPS Register with only one secured party.476 Not all migrated ASIC charges were migrated with the Australian Company Number (ACN)477 for the grantor/chargor. Again, it may be necessary to conduct more than one search to establish whether there is a registration in respect of particular collateral.

Non-migrated security interests 9.111 Transitional security interests other than migrated security interests are non-migrated security interests.478 Non-migrated security interests are temporarily perfected for a period starting immediately before 30 January 2012479 and ending at the time when the security interest ceases to be continuously perfected otherwise than by temporary perfection; or on 31 January 2014,480 whichever is the earlier.481 However, temporary perfection does not apply to a transitional security interest that was a [page 447] registrable charge under former s 262 of the Corporations Act, where the charge was provisionally registered482 and is taken not to have been registered due to former s 265(9).483 If a fixed and floating charge over all assets of a company was a migrated security interest, it will be deemed to have attached and to have been perfected in relation to all assets of the grantor at 30 January 2012.484

Priority between migrated security interests and nonmigrated transitional security interests 9.112 Where a migrated security interest and a non-migrated transitional security interest compete for priority, the priority period would end at the earliest of the expiry of the 24-month temporary perfection period, or the time when one of the security interest stops being continuously perfected.485 The Explanatory Memorandum to the PPS Bill gives practical examples (note that the Explanatory Memorandum assumes a registration commencement time of 1 May

2010, not the actual registration commencement time of 30 January 2012).

Transitional security interest — effect of insolvency on priorities 9.113 If the priority between two security interests in the same collateral comes to be determined on or after 1 February 2014,486 s 324(1) of the PPSA provides that the priority will be determined as if s 322 (temporary perfection) had not been enacted if: the grantor or secured party in relation to either (or each) of the security interests is insolvent or bankrupt;487 and either (or each) of the security interests is a transitional security interest that has not been perfected other than under s 322.488 The effect of s 324(1) is that the deemed perfection afforded by s 322(1) will be ignored in any contest between security interests, if at least one of the interests is a transitional security interest that has not been otherwise perfected. Note that this provision applies if either the [page 448] grantor or the secured party is bankrupt or insolvent.489 Section 324(1) is in addition to, and does not derogate from, any other provision of Pt 9.4 Div 2 (Attachment, perfection and priority of transitional security interests).490

Transitional security interest — priorities other than in insolvency 9.114 Personal property may be subject to multiple transitional security interests and security interests created after the registration commencement time may relate to collateral that is also subject to one or more transitional security interests. The PPSA makes general provision in s 320(1) for priorities where transitional security interests are involved.491 Table 9.1: Priorities amongst transitional security interests

The following security interest:

has priority over …

because of …

A perfected transitional security interest

an unperfected security interest (whether transitional or not)

s 55(3)

A perfected transitional security interest An unperfected transitional security interest A perfected security interest (whether transitional or not)

a perfected security interest that is not a ss 55(5), 322 and 322A. transitional security interest an unperfected security interest that is ss 55(2) and 321. not a transitional security interest an unperfected transitional security s 55(3). interest

Section 320(3) provides that a reference to a ‘perfected security interest’ in s 320 is taken to be a reference to a transitional security interest that has been continuously perfected,492 at the time priority comes to be determined, since 30 January 2012.493 [page 449]

Transitional security interests — priority where not determined under PPSA 9.115 If priority between two transitional security interests is not otherwise able to be determined under the PPSA the interests have the same priority between themselves that they would have had under the law that applied to such priority immediately before the start of 30 January 2012, as if the PPSA had not been enacted.494 Section 323 of the PPSA provides that this rule applies to the following priorities in particular: the priority between two perfected transitional security interests, as s 321 has

the effect that the order of attachment between these two interests cannot be determined for the purposes of s 55(2);495 and the priority between two transitional security interests that have been continuously perfected since immediately before 30 January 2012, as ss 321– 322 have the effect that the order of attachment between these two interests cannot be determined for the purposes of s 55(4).496

PERSONAL PROPERTY SECURITIES (CORPORATIONS AND OTHER AMENDMENTS) ACT 2010 — TRANSITIONAL PROVISIONS 9.116 The PPS Corporations Act amendments do not apply in relation to a winding up under Pt 5.4 (winding up in insolvency), Pt 5.4A (winding up by the court on other grounds) or Pt 5.4B (winding up in insolvency or by the court) of the Corporations Act; or subsequent liquidation (subject to the balance of the transitional provisions), if the winding up application was made before 30 January 2012.497 A ‘registrable charge’ is a charge created before 30 January 2012 that was required to be registered by former s 262(1).498 Chapter 2K continues to apply to ‘registrable charges’ until 29 January 2019 as if it had not been amended by the PPS Corporations Act,499 subject to qualifications and exceptions in ss 1503–1506.500 [page 450]

Application of Ch 2K provisions during transitional period 9.117 The following provisions of Ch 2K continue to apply to registrable charges as defined until 29 January 2019 (in other words, for seven years from the registration commencement time of 30 January 2012):

s 265(1) (maintenance of Australian Register of Company Charges); s 266(4) (notices regarding registrable charges required to be lodged before 30 January 2012); s 272 (ASIC obligation to issue particulars of charges entered on register before 30 January 2012); s 274 (power of court to rectify register);501 and the existing exemption provisions from ss 266 and 267 (ss 266(6) and 267(5)).502 Although the Australian Register of Company Charges has been closed to further registrations, ASIC remains required to respond to requests for particulars. Under s 271, a company was required to keep copies of certain documents relating to charges and to keep a register of charges (whether or not registrable). These requirements stopped applying in relation to registrable charges on and from 30 January 2012.503 Specified provisions of Ch 2K requiring companies to lodge notices, and ASIC to enter or delete particulars in the register in relation to a document or notice, also ceased to apply on and from that date.504 Section 588FP (security interests in favour of an officer of company etc void) does not apply to registrable charges.505 Special transitional rules suspend the application of the PPS Corporations Act amendments to s 440B (restrictions on third party property rights in an administration) and s 442CB(1) (administrator’s duty of care on the sale of property).506

Application of former s 266 of the Corporations Act 9.118 Section 266 (certain charges void against liquidator or administrator) stopped applying to registrable charges at 30 January 2012,507 subject to s 1504 of the Corporations Act.508 Section 1504(2) [page 451] provides that s 266 continues to apply in relation to a registrable charge if the registrable charge is void under s 266 immediately before 30 January 2012, subject to the court’s power to make orders declaring a charge not to be void under s 266(1) or (3) (as the case requires).509

Under subsection 1504(3), the Court510 may declare a registrable charge that was void under s 266(1) or (3) before 30 January 2012 not to be (and never to have been) void if: it is satisfied of the matters set out in s 266(4),511 namely that the failure to lodge a notice in respect of a charge, or in respect of a variation in the terms of a charge: — was accidental or due to inadvertence or some other sufficient cause,512 or — is not of a nature to prejudice the position of creditors or shareholders;513 or — that on other grounds it is just and equitable to grant relief;514 and either: — an application was made under s 266(4) before 30 January 2012;515 or — an application was made for an order under s 1504(3) on or after 30 January 2012.516

Priority of registrable charges (s 1506 Corporations Act) 9.119 Subject to the PPSA transitional provisions,517 registrable charges have the priority between themselves that they would have had under the Corporations Act as in force immediately before 30 January 2012:518 s 1506. The priority rules for registrable charges continue to apply indefinitely.519 Registrable charges not notified before 30 January 2012 may be registered on the PPS Register, but will have priority dating to 30 January 2012 unless the chargee obtains a [page 452] court order under s 274 of the Corporations Act to retain their actual precommencement time priority.520

REPEALED PROVISIONS — CHAPTER 2K 9.120 Chapter 2K of the Corporations Act contained notice, priority and registration provisions for charges on property of companies registered under the Corporations Act.521 As mentioned above, Ch 2K was repealed as a consequence of the PPSA, subject to the operation of transitional provisions in ss 1499–1510 of the Corporations Act, effective 30 January 2012.522 A substantial body of jurisprudence developed in relation to charges. Despite the enactment of the PPSA, some of that jurisprudence remains relevant. 9.121 Section 9 of the Corporations Act continues to define a charge as ‘a charge created in any way and includes a mortgage and an agreement to give or execute a charge or mortgage, whether on demand or otherwise’.523 ‘Floating charge’ has the meaning given by the general law, and includes a charge that conferred a floating security at the time of its creation but has since become a fixed or specific charge.524 Neither definition was affected by the PPS Corporations Act. Section 261 defined ‘document of title’, ‘present liability’, ‘property’, ‘prospective liability’, ‘register’ and ‘registrable charge’. ‘Chargee’ is defined in s 9 to mean the holder of a charge and includes a person in whose favour a charge is to be given or executed, whether on demand or otherwise, under an agreement.

Meaning of charge 9.122 A charge secures a debt or an obligation by creating a security interest in property ‘without transfer of title or possession’ of the underlying asset(s).525 It is a proprietary interest, conferring rights in rem — that is, against a thing. Rights in rem are distinct from rights in personam — against a person. Prior to the introduction of the PPSA, charges were characterised as either fixed or floating. The concept of a [page 453]

charge was explained by the Full Federal Court in IMF (Australia) Ltd v Meadow Springs Fairway Resort Ltd (in liq): A charge is a hypothecation creating a security interest in respect of property without transfer of either title or possession. Such a security interest is a proprietary interest, conferring rights in rem. Such rights in rem will be binding upon third parties and will be unaffected by the insolvency of the owner of the property in question, subject of course to any questions of registration and the doctrine of the bona fide purchaser of the legal estate for value without notice. There are also circumstances, which are not of present relevance, where such an interest might be postponed by reason of disentitling conduct on the part of the holder of the interest. The proprietary interest created by a charge entitles the holder to resort to the property only for the purpose of satisfying the liability actually secured by the charge. The owner of the property remains as owner and retains the entitlement to have the property restored to it when the secured liability has been discharged or performed. Ordinarily, the holder of the charge will have no right to the property in question other than to sell it upon default in the performance of the secured obligation: see Re Bank of Credit and Commerce International SA [1998] AC 214 at 226; [1997] 4 All ER 568 at 576 and Associated Alloys (2000) 202 CLR 588; 171 ALR 568; [2000] HCA 25 at [6]. The proceeds of sale must be applied first in satisfaction of the expenses of sale, second in satisfaction of the secured obligation and third by return of any surplus to the owner of the property.526

The introduction of the PPSA has seen the significance of the charge decline as a mechanism for securing corporate debt. The importance of the form of the instrument has diminished because a security interest under the PPSA is subject to an ‘in substance’ test. This does away with the need to characterise whether the security interest is ‘fixed’ or ‘floating’.

Terminology in jurisprudence concerning charges 9.123 The signficant amount of jurisprudence concerning charges generated its own terminology, some of which found its way into statute. A chargor in the current context is a body corporate that gives a charge over some or all of its assets, most commonly as security for a loan. ‘Chargee’ is defined in s 9 of the Corporations Act to mean the holder of a charge and includes a person in whose favour a charge is to be given or executed, whether on demand or otherwise, under an agreement. [page 454] 9.124 A floating charge was a type of equitable security527 particular to companies.528 It allowed the company granting the charge to deal with assets within the relevant class of company property until the charge ‘crystallised’ or attached on a specified event529 (such as the appointment of a receiver or the

winding up of the company).530 A floating charge had three principal characteristics:531 it was a charge on a class of assets of the company present and future; where that class was one that changes from time to time in the ordinary course of business of the company; and the company could carry on its business with respect to that class of assets in the ordinary way until a future step was taken by or on behalf of those interested in the charge.532 9.125 The expression ‘fixed charge’ is not defined in the Corporations Act. However, the wording of former Ch 2K533 made it clear that fixed [page 455] and floating charges were mutually exclusive categories.534 In Illingworth v Houldsworth,535 Lord Macnaghten (with whom Lord James and Lord Lindley agreed) of the House of Lords observed that the distinction between a floating charge and a fixed or specific charge was readily apparent: A specific charge, I think, is one that without more fastens on ascertained and definite property or property capable of being ascertained and defined; a floating charge, on the other hand, is ambulatory and shifting in its nature, hovering over and so to speak floating with the property which it is intended to affect until some event occurs or some act is done which causes it to settle and fasten on the subject of the charge within its reach and grasp.

These observations were adopted in United Builders Pty Ltd v Mutual Acceptance Ltd536 by Mason J (Barwick CJ, Gibbs and Wilson JJ agreeing). Assets subject to a fixed charge can only be released from the charge with the active consent of the creditor, and are thus ‘permanently appropriated to the payment of the sum charged, in such a way as to give the creditor a proprietary interest in the assets’.537 9.126 Crystallisation is the process by which a floating charge becomes a fixed charge. It revokes the ‘licence’ which the company had from the chargee to deal with the assets in the ordinary course of its business, but does not of itself assign the property the subject of the charge, or give possession of it to the chargee.538 As explained above, the notion of crystallisation is not necessary for property the subject of a security interest under the PPSA to be dealt with in a

‘floating’ manner. Expenses of preserving, getting in and administering the fund belonging to secured creditors will be borne by that fund, and general winding up expenses will be borne by the fund of assets for payment of unsecured creditors.539 [page 456] However, if a liquidator avoids a preference under s 588FA, even a floating charge will not extend to the assets recovered, as the liquidator’s right to have the preference avoided is statutory in origin and operates for the benefit of the general body of creditors.540

Whether a charge was fixed or floating 9.127 In determining whether a charge was fixed or floating, the court’s task was to ascertain the intention of the parties. In doing so, the court would look to the surrounding circumstances and need not depend upon the language of the agreement, or the construction that the parties seek to give to that language.541 However, the instrument must have, as a minimum, indicated the parties’ intention that the relevant property should constitute a security.542 For an equitable charge (or mortgage) to come into existence, there must be an intention to create an immediate proprietary interest or immediate right of recourse to identifiable, present, or future property.543

Voidable charges 9.128 Charges offered a convenient form of security. The use of charges, however, particularly floating charges, risked discouraging other creditors from participating in the orderly process of administration or liquidation,544 for fear that they would be left empty-handed by a chargeholder able to ‘step in and sweep off everything’545 on the basis of their security. A floating charge could have also allowed a company to obtain credit on the basis of its apparent asset wealth, where those assets [page 457]

were in fact subject to a charge. Legislation categorising certain forms of unsecured debt as preferential was first introduced as early as 1897 to mitigate the effects of a charge on creditors considered especially worthy of protection in the event of insolvency.546 9.129 Under the statutory regime that existed prior to 30 January 2012, a charge could be avoided either under the specific provisions relating to charges (former ss 266, 267 and 588FJ) and the provisions relating to voidable transactions generally found in Part 5.7B. Liquidators often sought to avoid charges on the basis that they were unfair preferences within the meaning of s 588FA547 or an uncommercial transactions within the meaning of s 588FB.548

Priority for certain claims 9.130 Sections 433 and 561 of the Corporations Act mandate payment of certain priority claims out of assets subject to a circulating security interest,549 in specified circumstances.550 Both ss 433 and 561 were amended by the PPS Corporations Act to replace ‘floating charge’ with ‘circulating security interest’, but not otherwise amended. Where the company or registered body has not entered winding up at the date the receiver was appointed (or took possession or assumed control), s 433 requires a receiver or other controller551 enforcing a circulating security interest, to pay specified unsecured debts or amounts552 out of the company’s property in priority to debts secured by the circulating security interest. If the company is subsequently wound up, s 433 continues to operate.553 Section 433 imposes an obligation on the receiver regardless of if the free assets of the company are insufficient to meet priority [page 458] claims.554 The priorities are determined at the date of appointment of a receiver555 and continue to apply if the claim secured by the circulating security interest is discharged after the date of the appointment; and to funds received by a receiver after a winding up order is made.556 9.131 Section 561 of the Corporations Act provides that so far as the property of a company available in a winding up for the payment of unsecured creditors is insufficient to meet payment of defined preferential employee debts,557 payment of those debts must be made in priority over the claims of a secured party in

relation to a circulating security interest created by the company and may be made out of any property subject to that interest.558 Recourse may only be had to encumbered assets pursuant to s 561 if the company’s property is known to be insufficient to meet preferential employee debts. That conclusion should only be reached once the affairs of the company are known with sufficient clarity.559 [page 459] If a liquidator has realised assets encompassed by the security and retained the proceeds, he or she is a trustee of those proceeds until it is determined whether the company’s unsecured assets are insufficient to meet preferential debts.560

Registration under former s 262 Corporations Act 9.132 Former s 262 of the Corporations Act specified the categories of charges formerly required to be registered (and not required to be registered) with ASIC, including: floating charges on the whole or a part of the property, business or undertaking of the company;561 a charge on uncalled share capital;562 a charge on unpaid calls on shares;563 charges on personal chattels;564 and charges over book debts.565 Certain charges and other dealings were excluded from the notice, registration and priority provisions of Ch 2K by s 262(2), (8) and (9) (now repealed). Charges to which those provisions applied were required to be registered within 45 days after creation of the charge,566 or within 45 days after the acquisition of property subject to charge,567 by lodging [page 460] a notice with ASIC in the prescribed form with the particulars required by either

former ss 263 or 264.568 A notice required to be lodged under former ss 263, 264 or 268(2) could be lodged by the company or by any interested person.569

CERTAIN CHARGES VOID AGAINST LIQUIDATOR OR ADMINISTRATOR (FORMER S 266 CORPORATIONS ACT) 9.133 As mentioned above, former s 266 of the Corporations Act was repealed effective 30 January 2012, subject to the operation of transitional provisions in ss 1502–1506 Corporations Act.570 Former s 266 of the Corporations Act relevantly provided that where: an order was made, or a resolution was passed, for the winding up of a company;571 or an administrator was appointed to a company under ss 436A, 436B, or 436C;572 or a company executed a deed of company arrangement573 a registrable charge on property of the company was void as a security on that property as against the liquidator or administrator unless certain exceptions applied. Those exceptions were: a notice in respect of the charge was lodged574 under former ss 263 or 264 (as the case required):575 — within the period required by former ss 263 or 264 (as the case required);576 or — at least six months before the ‘critical day’ as defined in s 266(1)(c);577 or — the period of 45 days for lodging notice with respect to the charge had not expired when the external administration commenced;578 or

[page 461] the court extended the time for lodgment of the notice with respect to the charge under former s 266(4).579 Lodgment of the notice of charge with ASIC was sufficient to preserve its validity against a liquidator or administrator. In other words, registration did not need to be completed for the validity of the charge to be preserved for the purposes of former s 266.580

APPLICATION TO THE COURT TO EXTEND PERIOD FOR REGISTRATION OF CHARGE (FORMER S 266(4) CORPORATIONS ACT) 9.134 Given the similarities of former s 266(4) of the Corporations Act to s 588FM, the analysis of the case law with respect to s 266(4) is set out here in some degree of detail. Pursuant to s 266(4), now repealed, a company or any person interested could have applied to the Court581 to extend the period for lodgement of a notice in respect of a charge, or variation in the terms of a charge, if there had been a failure to lodge a notice in respect of a charge as required by a provision of Pt 2K.2.582 The Court may have, on such terms and conditions as seem just and expedient to it, extended the period by order if satisfied that the failure to lodge a notice as required by any provision in Pt 2K.2 fell under any of the following three grounds: was accidental or due to inadvertence or some other sufficient cause (former s 266(4)(a)); or was not of a nature to prejudice the position of creditors or shareholders (former s 266(4)(b)); or that on other grounds it was just and equitable to grant relief (former s 266(4)).583

These three bases for relief were disjunctive.584 [page 462]

Evidence in support of the application 9.135 In Lombe v Wagga Leagues Club Ltd,585 Barrett J of the Supreme Court of New South Wales, in considering an application under former s 266(4) of the Corporations Act, observed: Nor, in the entire absence of evidence of the circumstances in which the default in lodgement under s 263 occurred, do I consider that the court has before it the material to which regard is to be had in coming to a conclusion on the matter of extension of time under s 266(4). Even if the s 266(4) application is made by reference solely to the ‘other grounds’ referred to in the section in addition to those mentioned in paras (a) and (b), it will be relevant for the court to know the circumstances in which the initial default occurred. And when regard is had to those ‘other grounds’, there is an immediate focus on what is ‘just and equitable’, so far as concerns validation as against a liquidator by extension of time.586

9.136 An applicant for an extension was also required to provide evidence of the solvency of the company over whose assets were charged and the likelihood of that solvency being maintained into the future.587 Where evidence of solvency was incomplete or lacking, the court was likely to make any order under former s 266 of the Corporations Act subject to conditions.

Grounds for the order to be made (former s 266(4) (a) Corporations Act) 9.137 As mentioned above, former s 266(4)(a) of the Corporations Act contained three separate grounds. Establishing any one or more of the three grounds was sufficient to enliven the court’s discretion to extend time under s 266(4)(a).588 [page 463]

‘Accidental or due to inadvertence’ 9.138 ‘Accidental’, for the purposes of former s 266(4) of the Corporations

Act, included the concept of human error or mistake.589 In National Australia Bank Limited v Davis & Waddell (Vic) Pty Ltd590 Hansen J of the Supreme Court of Victoria concluded that an innocent mistake as to the consequences of an intentional decision to defer registration of a charge was ‘accidental within the ordinary meaning of the word and the terms of the Act’.591 9.139 Inadvertence should generally be distinguished from deliberate intent, as ‘surprise from set purpose’.592 The concept of inadvertence under former s 266(4) involves being ‘not properly attentive’,593 or a ‘failure to observe or to pay attention’.594 The Macquarie Dictionary defines ‘inadvertence’ as the quality of being inadvertent, or heedlessness; or as an act or effect of inattention, or an oversight. ‘Inadvertent’ is in turn defined as heedless, not attentive, characterised by lack of attention or unintentional.

‘Some other sufficient cause’ 9.140 In National Australia Bank Limited v Davis & Waddell (Vic) Pty Ltd,595 Hansen J of the Supreme Court of Victoria suggested that there may be ‘some other sufficient cause’ to grant relief where the failure to lodge [page 464] is simply negligent, and not based on a fraudulent or improper motive.596 His Honour noted the characterisation of a predecessor provision to s 266(4)597 by Vaisey J in Re Kris Cruisers Ltd598 as ‘a benevolent section’ in the sense that it appeared to give the chargee ‘a complete and unfettered opportunity for repentance and to place him in the same position as if he had been careful and not careless — diligent and not negligent’.

Examples of circumstances within former s 266(4)(a) Corporations Act 9.141 The cases illustrate a wide variety of instances in which the Court has considered that the failure to lodge the relevant notice was ‘accidental, or due to inadvertence or some other sufficient cause.’ For example, in Metcash Trading Ltd v 8 Nai Investments Pty Ltd [2011] FCA 1400, a junior employee of Metcash (the creditor) was under the mistaken belief that Metcash had agreed to defer

registration of its charge until another charge granted by the company was registered. Consequently, she deliberately deferred registration, but had not turned her mind to the consequences of failure to lodge a notice within the required period. The charge in favour of Metcash was ultimately registered 23 days out of time. Jacobson J of the Federal Court considered that although the junior employee took a deliberate decision not to register the charge, she did not advert to the significance of the failure to register within the prescribed 45-day period. Her actions were therefore held not to be deliberate in the sense that she was intending to flout the 45-day period. Not knowing all of the consequences of a particular action may thus still amount to inadvertence.599 9.142 Likewise, in Re Freightlines Northern Territory Pty Ltd (in liq),600 the applicant advanced $100,000 to Freightlines Northern Territory Pty Ltd pursuant to a bill of sale dated 13 April 1999 over certain motor vehicles or components thereof. The bill of sale was registered in Queensland on the Register of Encumbered Vehicles. It complied with the requirements of former s 262(1)(d) and so was subject to the requirements of former Ch 2K, including the requirement for registration within 45 days under former s 263. Thomas J considered that the failure to lodge was due to inadvertence or some other sufficient cause [page 465] within the meaning of former s 266(4)(a).601 Inadvertence could also be established where there was actual mistake as to the party responsible for registration and whether registration has been effected.602 In Hewlett Packard Australia Pty Ltd v Exeed Pty Ltd,603 Lindgren J of the Federal Court considered that the failure to lodge the notice in respect of the charge was ‘due to inadvertence’. Having reached a conclusion that the failure to lodge was due to inadvertence, his Honour concluded that it was unnecessary to consider the other two grounds for the exercise of the discretion. A different result obtained in Diploma Construction Pty Ltd v Precast Prestressed Buildings Perth Pty Ltd.604 In that case, Underwood J found that the failure to lodge the notice of the charge was neither inadvertent nor accidental, as the solicitor had adverted to the need to register throughout the period of delay but had simply not done so.605 Underwood J concluded that in the particular circumstances, no extension of time order should be made.

9.143 Other examples in which the courts have found that failure to lodge a notice with respect to a charge within time was ‘accidental, or due to inadvertence or some other sufficient cause’ occurred where there was: a misunderstanding of the law;606 ignorance of the statutory requirement to lodge a notice of the charge, including mistake as to the time limit for lodgement;607 [page 466] mistake or inadvertence as to the consequences of failing to register a charge;608 actual misunderstanding as to the party responsible for registration of a charge;609 failure to supervise an employee responsible for the preparation and execution of the charge;610 ignorance or inadvertence by a solicitor instructed by the company;611 misunderstanding or oversight regarding the registration consequences of a change in: — responsible entity of a managed investment scheme;612 — custodian and responsible entity;613 — trustee;614 [page 467] misapprehension of the formal requirements for lodgement of registration under the Act;615 or simple inattention.616

‘Is not of a nature to prejudice the position of creditors or shareholders’ (former s 266(4)(b)

Corporations Act) 9.144 An applicant who sought to invoke this ground needed to establish that the failure to lodge the notice within the prescribed time was not of a nature to prejudice the position of creditors or shareholders.617 However, this ground is ‘less demanding of proof than might appear at first sight’, as it adverts to the consequences of failure to lodge the notice rather than to the consequences of making an order extending time.618 For example, in Theunissen v Dyer Pty Ltd,619 Master Ng of the Supreme Court of Western Australia found that the applicant had met the requirements of former s 266(4)(b), as the chargor company had appointed administrators prior to the expiration of the 45-day period allowed for registration under former s 263. 9.145 In Tank Systems Australia Pty Ltd (in liq) v United Goldfields Engineering Pty Ltd (in liq),620 Master Adams of the Supreme Court of Western Australia concluded that the ‘prejudice’ referred to in former s 266(4)(b) ‘must of necessity be prejudice arising after the 45 days allowed for lodgment of the notice’. Prejudice to creditors or shareholders is more often considered as a factor relevant to the exercise of the discretion.621 [page 468] The fact that the interests of creditors may be prejudiced by the grant of an extension of time is not in itself a bar to the exercise of the discretion.622

‘That on other grounds it is just and equitable to grant relief’ (former s 266(4)(b) Corporations Act) 9.146 In Re MIG Trust Ltd,623 Lord Hanworth MR624 explained the broad nature of the discretion provided to the court: It seems to me quite clear that the Legislature did intend by those very wide terms not to give a restricted opportunity to repair an omission but to give the widest possible discretion to the Court in circumstances which need not show that the omission was accidental or due to inadvertence but which would be sufficient on other grounds to make it just and equitable to grant relief.

9.147 In Bevillesta Pty Ltd v Imagine UN Ltd,625 Robson J of the Supreme Court of Victoria described this ground as a basis on which, ‘other things being equal’, it might be just and equitable to grant relief.626 In Rynmarc Pty Ltd v

Classic Ergonomic Chairs Pty Ltd,627 Underwood J held that intervention of winding up between the creation of the charge and the application to extend the time for lodgement of a notice is an important factor against exercising the discretion in favour of the applicant even though lodgement occurred before the winding up, because an order extending the period will assist the applicant creditor over the other unsecured creditors.628

Factors relevant to the exercise of the Court’s discretion 9.148 The three grounds in former s 266(4) set out above were threshold requirements and meeting one or more of those requirements did not guarantee that an order extending time would be granted. Once the threshold was met, the Court was then required to be satisfied as to whether its wide discretion should be exercised in favour of the applicant.629 The discretion granted to the Court under former s 266(4) [page 469] was required to be exercised judicially, but it was cast in wide terms which were to be liberally construed.630 In determining whether to grant an order, the Court engaged in a balancing exercise ‘when relevant factors are weighed against the detriment to creditors if the time for registration is to be extended’.631 The relevant discretionary factors might also have been ‘taken into account in reaching a conclusion that the Court [was] not satisfied that on other grounds it was just and equitable to grant relief, or alternatively, they may, notwithstanding satisfaction of that, be relied on for refusing relief’.632 In exercising its discretion, the Court had regard to the interests of parties who might have been affected, including creditors and shareholders633 and whether it was justifiable to prefer the security holder’s position to that of creditors generally; the delay in registering the charge; whether the charge was over the whole of the company’s assets; and whether any unsecured creditors had changed their position by extending credit or advancing money, having searched the register before the charge was registered.634 The Court’s approach to the exercise of its discretion was summarised by Barrett J in Re Investa Properties Ltd (2001) 40 ACSR 124:

The next question is whether the discretion placed at the disposal of the court by the finding of accident or inadvertence should be exercised in the way the plaintiffs seek. The general nature of the discretion was referred to by Wheeler J in Morris v Woodings (1997) 25 ACSR 636. Her Honour noted that the discretion should be approached against the background of the statutory scheme in which it appears ‘which is concerned with protection of those who deal with companies by, inter alia, the provision of adequate notice of charges. The central issue, therefore, is whether the exercise of the discretion may cause prejudice to any person within

[page 470] the purview of that protection. This is borne out by a number of other cases. It is sufficient to mention Sanwa Australia Finance Ltd v Ground-Breakers Pty Ltd (in liq) [1991] 2 Qd R 456; 2 ACSR 692; Citibank Ltd v Linput Pty Ltd (in liq) (1991) 5 ACSR 361 and Tamone v How Fast Pty Ltd [1999] NSWSC 570; BC9903021.635

Period of delay 9.149 The period of delay in lodging the notice was relevant to the exercise of the discretion.636 Although a brief delay would not have necessarily been regarded as a bar to the court exercising its discretion in favour of an applicant under former s 266(4), lengthy delay may have been.637 Whether or not an unsecured creditor had checked the register of company charges in the relevant period would not have offset the weight to be given to delay in lodging the notice, if that delay was lengthy.638

Solvency 9.150 Solvency was a relevant rather than a governing condition, one of the ‘overall complex of facts upon which the court must exercise its discretion in deciding whether or not an order should be made and, if so, upon what terms and conditions’.639 In the absence of satisfactory evidence of solvency, an extension should not have been granted unless steps were taken to protect the interests of unsecured creditors.640 If winding up had already commenced or was imminent, an order might still have been granted under former s 266(4) if it was appropriate in all of the circumstances. Those circumstances must have been exceptional,641 and [page 471]

sufficiently so to justify the vanquishing of the rights that had accrued to unsecured creditors once the critical day had passed without lodgement of the notice or an application for an extension order.642 The intervention of administration did not exhaust the role of former s 266(4), and the court retained its power to extend time.643

Effect on unsecured creditors 9.151 The effect of an extension order on creditors, particularly on unsecured creditors if winding up is imminent or already underway, was a relevant consideration in the exercise of the court’s discretion under s 266(4).644 However, it was not an overriding one.645 Demonstrated [page 472] specific prejudice from acting on the basis of an incorrect register need not have been shown for the position of unsecured creditors to be taken into account by the court.646

Conditions that may be imposed upon the order 9.152 As mentioned above, one of the key issues in the exercise of the Court’s discretion was whether the exercise of the Court’s discretion would cause prejudice to any person within the protection of the statutory scheme. To ameliorate such prejudice, the Court could make orders subject to conditions. However, the power to impose conditions did not allow the Court to go so far as to effectively alter the terms of the charge. If, however, there was satisfactory evidence before the Court of the relevant company’s financial position, and it was established that it had not granted a security interest in the relevant period, the order may have been granted unconditionally.647 Generally, conditions were only imposed where there was a ‘demonstrated need’.648 9.153 In Re Joplin Brewery Co Ltd649 the Court qualified the order made by adding the words ‘but that this order be without prejudice to the rights of parties acquired prior to the time when the debentures shall be actually registered’.650 Buckley J opined that the proviso should be added to an order extending time unless there ‘is some good ground to the contrary’, such as evidence that the

order could not prejudice the rights of any creditors.651 An extension of time may also have been granted on terms that it was without prejudice to the rights of any person who, between the date of the charge and the actual date of registration, had obtained any charge or security over the assets subject to the applicant’s charge.652 A condition of this kind was for the protection of persons to whom specific rights of property had accrued in the assets of the [page 473] company, and did not extend to protect the inchoate or other rights of unsecured creditors.653

Successive charges 9.154 Failure to lodge notice of a charge within 45 days of its creation could not be remedied by taking a successive charge within that 45-day period over all or some of the same property or securing all or some of the same liability; unless it was proved to the satisfaction of the Court654 that the later charge was given in good faith for the purpose of correcting some material error in the earlier charge or under other proper circumstances and not for the purposes of avoiding or evading the registration provisions.655

Title of third parties acquiring property for value unaffected 9.155 The avoidance provisions in former s 266(1) and (3) did not affect the title of a person who purchased property from a creditor (or a receiver appointed by the creditor),656 if:657 the purchase was for value;658 and the purchase was in good faith and without notice of (as the case may be):659 — the filing of a winding up application;660 — the passing of a resolution for voluntary winding up;661 — the appointment of an administrator; or662 — the execution of a deed of company arrangement.663

[page 474] The onus of proving that a person purchased property in good faith and without such notice was with the person asserting it.664

CHARGES IN FAVOUR OF CERTAIN PERSONS VOID IN CERTAIN CASES (FORMER S 267 CORPORATIONS ACT) 9.156 As mentioned above, s 267 of the Corporations Act was repealed effective 30 January 2012, subject to the operation of transitional provisions in ss 1502–1506 of the Corporations Act.665 Given the absence of case law considering s 588FP in Australia to date, it is likely that authorities decided under s 267 and its predecessor provisions will be relevant to the interpretation and operation of s 588FP. 9.157 Section 267 provided that: if a company had created a charge on property of the company in favour of: — a ‘relevant person’;666 or — persons, at least one of whom is a ‘relevant person’;667 and the chargee668 purported to take a step in enforcement of the charge within six months after creation of the charge;669 and the Court670 had not given prior leave for the charge to be enforced;671 both the charge and any powers purported to be conferred by the instrument creating or evidencing the charge were void and taken always to have been void.672 A charge that was within the scope of s 267 was valid unless and until the chargee purported to take a step in the enforcement of the

[page 475] charge within six months of its creation without leave of the Court.673 If a charge became void because of s 267, the underlying debt, liability or obligation that it secured remained unaffected and the former secured party may have sought to prove for the debt in the liquidation as an unsecured creditor.674

History and purpose of former s 267 Corporations Act 9.158 The predecessor provisions of s 267 included s 205A of the Companies Code and s 267 of the Corporations Law. Section 205A was introduced into the Companies Code in 1985 by the Companies and Securities Legislation (Miscellaneous Amendments) Act 1985 (Cth), in order to address an apparent practice of insolvent companies granting a charge to principals associated with the company to secure loans or other indebtedness (with the effect that receivers appointed by those associated parties gained control of the company books).675 Section 205A supplemented the voidable transactions provisions by ‘turning the tables’, presuming such charges to be invalid and leaving it to the relevant person to establish the validity of any charge.676 In 400 Lonsdale Nominees Pty Ltd v Southern Cross Airlines Ltd (in liq),677 Hayne J of the Supreme Court of Victoria reviewed the legislative history of s 267 of the Corporations Law and explained its distinct purpose: This history of the legislative amendment reinforces what otherwise would be apparent from the terms of s 205A of the Codes (and now s 267 of the Corporations Law) that the legislature was concerned to say not that any charge created in favour of certain persons within 6 months of winding up was in every case void, but rather was concerned to fasten upon steps taken on the part of the chargee as the trigger for the avoidance of the charge. Whereas in provisions such as s 266 of the Corporations Law it is said that a charge is void as a security against the liquidator unless registered, s 267

[page 476] avoids the charge (not just against the liquidator) upon the chargee taking a step in the enforcement of the charge within 6 months after its creation. Attention is therefore directed by the legislature not only to the relationship between chargor and chargee but also to the nature and quality of the conduct of the chargee: for it is that which leads to the avoidance.678

‘Relevant person’ 9.159 Former s 267(7) defined ‘relevant person’, in relation to a charge created by a company, as: a person who was an officer of the company at the time when the charge is created;679 or a person who had been an officer at any time during the period of six months ending at that time when the charge is created;680 or a person associated, in relation to the creation of the charge, with such a present or former officer.681 ‘Officer’ retains the meaning given by s 9. ‘Company’ is defined in s 9 and includes a registered Australian body and a registered foreign company.

‘In favour of’ 9.160 The words ‘in favour of’ in s 267(1) and (7) referred to the identity of the person that was the chargee, and not to any benefit received or receivable by that person.682 The test of whether a charge was in favour of a relevant person, and thus caught by s 267, was whether it was in their favour and not whether it favoured the relevant person.683 Whether a charge was entered into by an officer in their capacity as representative or trustee was therefore not material.684 [page 477]

‘Officer’ 9.161 ‘Officer’ has the meaning given by s 9 of the Corporations Act and includes a director685 or secretary of the company. A director need not be a validly appointed director. For a detailed discussion of the concept of ‘director’, see 10.14ff.

‘Associated’ 9.162 The word ‘associated’ in the former s 267(7) definition of ‘relevant

person’ picks up on the definition of ‘associate’ in s 9 of the Corporations Act.686 ‘Associate’ is defined in s 9 as having the meaning given in ss 10–17 of the Corporations Act.687 Section 10(2) in turn provides that a ‘person’ is not an ‘associate’ of a primary person except as provided by ss 10–17.688 9.163 Section 15 provides an expanded general definition of when a person will be taken to be the ‘associate’ of a primary person.689 Section 16 sets out certain exclusions. Section 15(1)(a) provides that the ‘associate’ reference includes a reference to a person in concert with whom the primary person is acting, or proposes to act. ‘Acting in concert’ for the purposes of s 15(1)(a) involves at least an understanding between parties as to a common purpose or object, although that common purpose or object need not actually have been achieved.690 The test of associateship in s 15(1)(a) is based upon action, rather than relationships between persons.691 Section 15(1)(a) can accordingly be distinguished from provisions such as s 11 or s 13, which create tests of associateship based upon relationships rather than action. The meaning of the phrase ‘associate’ in the context of former s 267 had the effect that ‘acting in concert’ meant something more than simply [page 478] entering into a transaction, and required some pejorative element given the scope and purpose of former s 267.692 The fact that the debtor company and a creditor financier each received a benefit from entering into a charge, or the transaction of which the charge forms a part, did not in itself make the financier a person ‘associated’ with the company in relation to the creation of the charge, and thus a ‘relevant person’.693

Meaning of ‘enforcement’ 9.164 Enforcement, for the purposes of former s 267, ‘required an element of invocation or exercise of compulsive power’.694 The authorities made it clear that a chargee did not purport to take a step in the enforcement of a charge within the meaning of former s 267(1)(b)695 merely by threatening to exercise its rights as a secured creditor or by taking a step preparatory to the exercise of such rights. To purport to take a step in the enforcement of the charge, the creditor must have actually exercised, or have attempted to exercise, a right which it has

under the charge in aid of the realisation of its security.696 In 400 Lonsdale Nominees Pty Ltd v Southern Cross Airlines Ltd (in liq),697 Hayne J of the Supreme Court of Victoria considered the meaning of ‘enforcement’ for the purposes of former s 267. His Honour observed: There is no doubt that as a matter of ordinary English usage the ‘enforcement’ of a charge refers to compelling the observance of the rights asserted. Thus mere passive receipt of property the subject of the claimed right would not amount to what ordinary usage would describe as an ‘enforcement’ of that right by the person having the benefit of the right. Now it may be appropriate to give some broader meaning to ‘enforcement’ if it could be seen that the legislature’s intention was to strike at all transactions between chargor and chargee where the parties were related in the way contemplated by s 267 for it might then be said that the vice struck at is transactions of mortgage or charge between related parties. However I do not consider that such a legislative intention can be

[page 479] identified. First and foremost that is not what the section says. It applies only where the chargee purports to take a step in the enforcement of the charge; it does not apply to all charges of a particular kind. Secondly, as I have earlier noted, I do not consider that the legislative history reveals any such intention. Rather it emphasises that it is the characterisation of the chargee’s conduct which is critical.698

9.165 As explained above, enforcement involves the actual or attempted exercise of rights under the relevant interest, and will not be established if, for example: a company transfers assets voluntarily to a creditor, without the creditor relying on rights under the charge;699 a creditor issues a letter informing another party claiming an interest in the property of the existence of the charge, or that the creditor claims rights given by the charge;700 a creditor issues a letter to a company notifying it of breach and of the chargor’s intention to remove chattels;701 or a creditor requires a company to make books of account required to be kept under the charge available to an investigating accountant for inspection.702 However, a creditor sending a letter that simply gives notice of claimed rights or prospective action may be distinguished from serving a notice required under the charge as part of the procedure for the exercising rights or remedies given by

the charge.703

Reliance on statutory right of appointment under s 436C not a purported enforcement step 9.166 A creditor that invokes its statutory right to appoint an administrator under s 436C of the Corporations Act was held not to take a step in the enforcement of a charge for the purposes of former [page 480] s 267.704 In Australian Innovation Ltd v Dean-Willcocks (as joint administrators of Powerline GES Pty Ltd),705 Palmer J of the Supreme Court of New South Wales considered an application for a declaration under s 447C that administrators had been validly appointed. That appointment was challenged on the basis that the charge was invalid under former s 267, and that no event of default had occurred under the deed of charge. The purported step in the enforcement of the charge relied upon for the purposes of former s 267, was appointment of administrators under s 436C. His Honour concluded that an event of default had occurred under the charge that (subject to the question of the validity of the charge) entitled the chargee to appoint administrators under s 436C(1). In concluding that the charge was valid, and rejecting the challenge to the validity of the administrators’ appointment, Palmer J held: The legislature has conferred on a chargee, as well as upon the company itself and its liquidator, the power to invoke the potentially beneficial provisions of an administration because a chargee may otherwise be compelled to rely only upon its strict rights as a secured creditor when a less drastic remedy would be to the benefit of all concerned. The invocation by a chargee of a right to appoint an administrator conferred by statute is not, in my opinion, a purported step in the enforcement of the chargee’s rights conferred by the charge in aid of the realisation of the chargee’s security. On the contrary, appointment of an administrator by a chargee is a step which may often result in the chargee’s rights under the charge never being enforced at all.706

Effect of assignment to relevant persons within sixmonth period 9.167 Where a charge had been assigned to sureties (who were also ‘relevant persons’) that had paid out the amount claimed by the creditor from the debtor company,707 the company had not thereby created a charge and the charge was

not void under former s 267(1) if the assignees took an enforcement step within six months after that assignment.708 [page 481]

When leave may be granted for a charge to be enforced 9.168 The Court could grant leave for a charge to be enforced under former s 267(3) on application by a relevant person where the court was satisfied both: that the company was solvent709 immediately after the creation of the charge;710 and that it would be just and equitable in all the circumstances of the case to grant such leave.711 In Re 21st Century Sign Co Pty Ltd,712 Ryan J of the Supreme Court of Queensland considered the terms and object of former s 267(3): Section 267(3) enables the Court on application by a chargee to give leave for the charge to be enforced if it is satisfied, before the chargee purports to take a step in the enforcement of the charge, of two matters, namely that immediately after the creation of the charge, the company that created the charge was solvent, and that in all the circumstances of the case it is just and equitable for the Court to do so. The object of this provision seems to be to ensure that the Court will examine the circumstances in which a charge is created in favour of a relevant person in order to ensure that other creditors of the company are not prejudiced thereby.713

Retrospective leave may not be granted under former s 267 Corporations Act 9.169 The court could not grant retrospective leave under former s 267. In Re 21st Century Sign Co Pty Ltd,714 Ryan J concluded that nothing in the predecessor provision s 267 of the Corporations Law authorised the court to grant leave retrospectively: The Court had not given leave for the charge to be enforced. Accordingly the charge is void and is deemed always to have been void. The question then arises whether the charge can be validated. I can see nothing in s 267 of the Corporations Law which would authorise the Court to give retrospective leave.

[page 482] 9.170 In Exception Holdings Pty Ltd (in liq) v Albarran (No 2),715 Young CJ in Eq of the Supreme Court of New South Wales considered that the words in former s 267(1)(b) ‘“without the Court having … given leave for the charge to be enforced” mean what they say, and that is, that if a chargee takes the step of enforcing the charge and at that time has not got the leave of the court to do so, then the charge is vitiated for all purposes’.

Whether s 1322(4) available to rescue charge from invalidity 9.171 Section 1322(4) was not available to rescue a charge from invalidity under former s 267 if the chargee purports to take a step in the enforcement of the charge without prior leave of Court. In Re 21st Century Sign Co Pty Ltd,716 Ryan J of the Supreme Court of Queensland, in considering s 1322 of the Corporations Law (in similar terms to s 1322 of the Corporations Act), held that s 1322 did not allow the court to either grant leave retrospectively to take a step in the enforcement of a charge, or to make an order declaring that the failure to seek leave had not had the effect of invalidating the charge.717 His Honour’s observations were adopted in Jesseron Holdings Pty Ltd v Middle East Trading Consultants Pty Ltd718 and Exception Holdings Pty Ltd (in liq) v Albarran (No 2).719

Title of third parties acquiring property for value unaffected 9.172 Former s 267(5) provided that nothing in former s 267(1) operated to affect the title of a person to property (other than the charge concerned or an interest in the charge concerned): purchased for value from: — a chargee, — the agent of a chargee, or [page 483]

— a receiver appointed by a chargee under a charge in the exercise of powers conferred by the charge or implied by law; if the purchase was in good faith and without notice that the charge was created in favour of: — a person who is a relevant person in relation to the charge, or — persons, at least one of whom is a relevant person720 in relation to the charge.721 The onus of proving that a person purchased property in good faith and without notice that a charge was created in such circumstances was with the person asserting that fact.722

1.

See discussion in Chapter 1.

2.

IMF (Australia) Ltd v Meadow Springs Fairway Resort Ltd (2009) 253 ALR 240; [2009] FCAFC 9 at [64] per North, Emmett and Rares JJ.

3.

Re Longdendale Cotton Spinning Co (1878) 8 Ch D 150 at 153–4. His Honour cited Re David Lloyd & Co (1877) 6 Ch D 339, an ‘authority which emphatically negatives the existence of any such right’. Re Longdendale Cotton Spinning Co was followed by Debelle J of the Supreme Court of South Australia in Health & Life Care Ltd (in liq) v South Australian Asset Management Corporation (1995) 16 ACSR 453 at 458; 13 ACLC 552.

4.

Re David Lloyd & Co (1877) 6 Ch D 339 at 344 per James LJ (Court of Appeal); Buchler v Talbot [2004] 1 All ER 1289; [2004] 2 AC 298 at [62] per Lord Hoffman (House of Lords). However, expenses related to the realisation of the property affected by the security must be paid to the liquidator out of the proceeds of realisation in priority to payment made to the holder of the security: Re Universal Distributing Co Ltd (in liq) (1933) 48 CLR 171 at 175; [1933] ALR 107 per Dixon J. See also Stewart (in his capacity as liquidator of Newtronics Pty Ltd (in liq)) v Atco Controls Pty Ltd (ACN 005 182 481) (in liq) (2014) 307 ALR 562; 98 ACSR 601; [2014] HCA 15 where Crennan, Kiefel, Bell, Gageler and Keane JJ confirmed the principle in Re Universal Distributing Co Ltd.

5.

Section 471C was introduced by the Corporate Law Reform Act 1992 (Cth) (CLRA). The section implements a recommendation of the Harmer Report: see the Explanatory Memorandum to the Corporate Law Reform Bill 1992 (EM to the CLR Bill) at [746], [749]. However, if there is any dispute about the security, a creditor should seek leave of the court before taking possession. The liquidator is an officer of the court and the creditor otherwise runs the risk of being found guilty of contempt. Leave will be granted as of right if it is established that the security is valid and applies to the asset: Re Landmark Corp Ltd (in liq) [1968] 1 NSWR 705; 88 WN (Pt 1) (NSW) 195; SA Asset Management Corp v Sheahan (1995) 65 SASR 59; 17 ACSR 569 at 576 per Doyle CJ, Duggan and Nyland JJ agreeing.

6.

Re Longdendale Cotton Spinning Co (1878) 8 Ch D 150; SA Asset Management Corp v Sheahan (1995) 65 SASR 59; 17 ACSR 569 at 576 per Doyle CJ, Duggan and Nyland JJ agreeing.

7.

See the summary of the law as to election to surrender a security in an insolvency administration by Barrett J of the Supreme Court of New South Wales in Porter v Computer Based Technology Pty Ltd [2004] NSWSC 476 at [68]. Section 588D provides that ‘for the purposes of [Part 5.7B], a secured debt becomes an unsecured debt to the extent that the creditor proves for the debt as an unsecured

creditor.’ 8.

Health & Life Care Ltd (in liq) v South Australian Asset Management Corporation (1995) 16 ACSR 453 at 458; 13 ACLC 552 per Debelle J.

9.

Moor v Anglo Italian Bank (1879) 10 Ch D 681. In a winding up of an insolvent company, a secured creditor may only prove for its debt in accordance with s 554E: see further R P Austin and A J Black, Austin & Black’s Annotations to the Corporations Act, LexisNexis looseleaf, at [5.554D]. Section 554E is affected by s 554F (redemption of security interest by liquidator).

10. Being the date of commencement of the Personal Property Securities Act 2009. See 9.5. 11. See EM to the CLR Bill at [1068]–[1075]. 12. See s 212 of the Companies (Consolidation) Act 1908 (UK), s 266 of the Companies Act 1929 (UK), s 322 of the Companies Act 1948 (UK), s 294 of the Uniform Companies Act 1961, s 452 of the Companies Code and s 566 of the Corporations Law. 13. 8 Edw 7 c 69. 14. Cd 3052: Report of the Company Law Amendment Committee London, HMSO, 1906 at [41]. 15. Section 93 of the Companies Consolidation Act 1908 (UK) provided that certain charges, including floating charges, were void against the liquidator and any creditor of the company unless they were registered within the 21-day period stipulated by the Act. 16. See EM to the CLR Bill at [1068]. 17. The proposed amendments had been canvassed in the Harmer Discussion Paper ([456]) and were ‘clearly supported’ in submissions to the Commission: Harmer Report at [691]. 18. The Harmer Report notes that this last amendment would overcome the effect of Re Peruss [1980] 2 NSWLR 443; 5 ACLR 176 (on s 294 of the Companies Act 1961 (NSW)). 19. EM to the PPS Corporations Bill at [4.2]. 20. EM to the PPS Corporations Bill at [4.2]. 21. Sections 1499–1510 Corporations Act. See 9.116ff. 22. Other than a transitional security interest. 23. See s 340(1)(b) PPSA. 24. ‘Circulating security interest’ has the meaning given by ss 9 and 51C of the Corporations Act. See also s 340 PPSA concerning the meaning of ‘circulating asset’. 25. A detailed discussion of the PPSA and its labyrinth of intricate provisions is beyond the scope of this work. For a more detailed discussion, see J Harris and N Mirzai, Annotated Personal Property Securities Act, 2nd ed, Wolters Kluwer CCH, 2014 and C Wappert and B Whittaker et al, Personal Property Securities in Australia, looseleaf (Personal Property Securities). 26. Section 3 PPSA. 27. On the transitional provisions, see 9.105ff. 28. See s 12(1) PPSA. 29. The PPSA defines personal property as property (including a licence), other than land or a right, entitlement or authority granted by or under a law of the Commonwealth, a State or a Territory and declared by that law not to be personal property for the purposes of the PPSA: s 10 PPSA. 30. See s 20 PPSA. 31. See Pt 5.3 PPSA.

32. See Pt 2.6 PPSA. 33. Personal Property Securities Act 1999 (NZ) (the New Zealand legislation is itself based on the Personal Property Securities Act 1993 (Saskatchewan)); Personal Property Securities Act 1993 (Saskatchewan); Article 9 of the Uniform Commercial Code. 34. United Nations Commission on International Trade Law. 35. United Nations International Institute for the Unification of Private Law. See EM to the PPS Bill, Outline. 36. See Re Maiden Civil (P & E) Pty Ltd; Albarran v Queensland Excavation Services Pty Ltd (2013) 277 FLR 337; [2013] NSWSC 852 at [32]. 37. See the comparative table of Australian, New Zealand and Saskatchewan PPS legislation in Personal Property Securities. 38. Papers on the reform of personal property law were produced by the Molomby Committee (an ad hoc committee of the Law Council of Australia set up by the Attorney-General of Victoria in 1972): Law Council of Australia, Report On Fair Consumer Credit Laws To The Honourable G O Reid QC, MLA, Attorney-General For the State of Victoria By a Committee of the Law Council of Australia, Melbourne, (1971–1972); the Victorian Law Reform Commission and the Queensland Law Reform Commission (a joint discussion paper): Personal Property Securities Law: A Blueprint for Reform, Queensland Law Reform Commission, Discussion Paper 39 (1992) and Victorian Law Reform Commission, Discussion Paper 28 (1992); the New South Wales Law Reform Commission and the Australian Law Reform Commission (a joint discussion paper): Australian Law Reform Commission, Personal Property Securities, Discussion Paper 52 (1992) and New South Wales Law Reform Commission, Paper 28 (1992); and the Business Law Division of the Commonwealth Attorney-General’s Department in its 1995 paper Personal Property Securities. 39. Australian Law Reform Commission, Personal Property Securities, Report No 64 (1993) at [5.10]. 40. The PPSA became law on 14 December 2009. The operative provisions however started to apply at the ‘registration commencement time’ of 30 January 2012 which was determined by s 306(2) PPSA and the Personal Property Securities (Migration Time and Registration Commencement Time) Determination. 41. The PPSA applies to a security interest in goods if the goods are located in Australia, or if the grantor is an Australian entity: s 6. Section 235 provides for when personal property is located in a jurisdiction. Part 7.2 of the PPSA sets out the private international law rules regarding personal property security interests that will be applied in Australian courts. 42. ‘Personal property’ means property (including a licence) other than: land; or a right, entitlement or authority granted by or under the law of the Commonwealth or a State or Territory and declared by that law not to be personal property for the purposes of the PPSA: s 10 (see in Personal Property Securities [4.11.750]). ‘Land’ includes all estates and interests in land, whether freehold, leasehold or chattel, but does not include fixtures: s 10 PPSA. 43. See s 12(1) PPSA. 44. See 9.9. 45. See 9.10. 46. See 9.12. 47. See 9.13. 48. See 9.14. 49. See 9.16ff. 50. Section 8(1) of the PPSA lists interests to which the PPSA does not apply (qualified by s 8(2) and s

8(3)). The concept of ‘interest in personal property’ under the Act appears to be wider than the common law concept. See further GJ Tolhurst, T Coburn and A Peckham, ‘Security Interests at the Margins’ (2012) 40 Australian Business Law Review 241. 51. For a discussion of transaction in the context of Part 5.7B, see Chapter 3. 52. EM to the PPS Bill at [2.3]. 53. Before the PPSA, treatment of transactions creating security interests in personal property depended upon their legal form, rather than their substance. See HAJ Ford, RP Austin and IM Ramsay, Ford’s Principles of Corporations Law, LexisNexis looseleaf, at [19.041] and the list of Acts and administering entities in Australia in Standing Committee of Attorneys-General, Review of the Law on Personal Property Securities, Options Paper (2006) Attachment D, pp 24–5. On the invalidation of securities on insolvency prior to the CLRA, see Garry Hamilton, Invalidation of Securities Upon Insolvency, Federation Press, Sydney, 2000. 54. Section 12(3)(c) PPSA. 55. Section 12(3) PPSA. 56. See s 13 PPSA. 57. Section 19(1) PPSA. 58. ‘Value’ has the meaning given by s 10 PPSA. 59. Section 19(2) PPSA. Section 19(2) does not apply if the parties to a security agreement have agreed that the security interest will attach at a later time, in which case it attaches at that time. 60. Section 19(4) PPSA. 61. Section 20(1)(b) PPSA. 62. Section 20(1)(b)(i) PPSA. 63. Section 20(1)(b)(ii) PPSA. 64. Section 20(1)(b)(iii) PPSA. 65. Pursuant to s 19 PPSA. 66. Section 23 PPSA. 67. On possession of goods acquired by a common carrier, see s 24(3) PPSA. 68. Section 21(2)(c) PPSA. 69. ADI is short for authorised deposit-taking institution and has the same meaning as in s 5 of the Banking Act 1959 (Cth). An ADI account is an account, within the ordinary meaning of that term, kept by a person (whether alone or jointly with one or more other persons) with an ADI that is payable on demand or at some time in the future (as agreed between the ADI and the person or persons): s 10 PPSA. A secured party has control of the ADI account for the purposes of s 21 if (and only if) the secured party is the ADI. 70. Section 26 PPSA. 71. Section 27 PPSA. 72. Section 29 PPSA. 73. Section 28 PPSA. 74. There is no PPSA definition of ‘satellites and space objects’. The s 10 definition of ‘goods’ includes satellites and space objects, but they are not otherwise defined. They appear to have been included in response to the UNIDROIT Convention on International Interests in Mobile Equipment, even though Australia is not yet a signatory.

75. Section 20(2)(a)(i) PPSA. See s 19(3) of the PPSA on methods of signing, and s 10 of the PPSA for the definition of ‘writing’. 76. Section 20(2)(a)(ii) PPSA. 77. Section 20(2)(b)(i) PPSA. 78. A discussion of priorities is outside the scope of this work. For a more detailed discussion, see Personal Property Securities at [2.8200]ff. 79. Section 21(1)(a) PPSA. On temporary perfection, see 9.108. 80. Section 21(1)(a) PPSA. On perfection of goods in the possession of a bailee, see s 22 PPSA. 81. Section 21(3) PPSA. 82. Section 21(1)(b)(i) PPSA. 83. Section 21(1)(b)(iii) PPSA. 84. Section 21(1)(b)(iii) PPSA. 85. Section 21(2)(a) PPSA. 86. Section 21(2)(b) PPSA. 87. ADI is short for authorised deposit-taking institution and has the same meaning as in s 5 of the Banking Act 1959. An ADI account is an account, within the ordinary meaning of that term, kept by a person (whether alone or jointly with one or more other persons) with an ADI that is payable on demand or at some time in the future (as agreed between the ADI and the person or persons): s 10 PPSA. A secured party has control of the ADI account for the purposes of s 21 if (and only if) the secured party is the ADI. 88. Section 26 PPSA. 89. Section 27 PPSA. 90. Section 29 PPSA. 91. Section 28 PPSA. 92. There is no PPSA definition of ‘satellites and space objects’. The s 10 definition of ‘goods’ includes satellites and space objects, but they are not otherwise defined. 93. EM to the PPS Bill at [2.30]. 94. EM to the PPS Bill at [2.31]. 95. Section 150 PPSA. Applications will be accepted unless s 151 PPSA requires that they be excluded. 96. Section 14 PPSA. 97. Section 21(4) PPSA. 98. See item 4(c) in the table within s 153(1) PPSA. 99. Section 8(1)(c) PPSA. 100. Section 8(1)(h) PPSA. 101. See also H A J Ford, R P Austin and I M Ramsay, Ford’s Principles of Corporations Law (Ford), LexisNexis looseleaf, at [19.041]. 102. Section 254 PPSA. 103. Section 254(2)(a) PPSA. 104. Section 254(2)(b) and (c) PPSA.

105. Section 254(2)(f) PPSA. 106. Section 254(2)(g) PPSA. 107. Section 264 PPSA. 108. Sections 261 and 262 PPSA. 109. Regulation 7.1 of the Personal Property Securities Regulations 2010 prescribes the following laws for the purposes of s 263(1)(c): (a) Bills of Sale Act 1886 (SA); (b) Goods Securities Act 1986 (SA); (c) Liens on Fruit Act 1923 (SA); (d) Mercantile Law Act 1936 (SA); (e) Stock Mortgages and Wool Liens Act 1924 (SA); (f) Bills of Sale Act 1900 (Tas); (g) Stock, Wool, and Crop Mortgages Act 1930 (Tas); (h) Instruments Act (NT). 110. Section 263(2) PPSA has a non-exhaustive definition of ‘assignment’ for the purposes of s 263. 111. Section 263(1) PPSA. 112. Section 263(3) PPSA. 113. Section 51 Corporations Act. Section 308 PPSA defines ‘transitional security interest’. 114. Section 19(4) PPSA expressly provides that for the avoidance of doubt a reference in a security agreement to a floating charge is not a reference to an agreement that the security interest created by the floating charge attaches at a time later than provided under s 19(2) PPSA. 115. Section 79(1) PPSA provides that the security agreement cannot prevent the grantor from transferring the collateral where the collateral is capable of transfer. A transfer would then give rise to a default under the terms of the agreement: s 79(2) PPSA. 116. See 9.27. 117. Re Yorkshire Woolcombers Association Ltd [1903] 2 Ch 284 at 295 per Romer LJ. On floating charges, see 9.124. 118. ‘Secured party’ has the meaning given by s 51B Corporations Act. 119. Section 340(1)(b) PPSA. Despite s 340(1), if a grantor grants a security interest provided for by a transfer of an account or chattel paper, the account or chattel paper is not a circulating asset in relation to the security interest: s 340(4A) PPSA. 120. However, personal property is not a circulating asset merely because the secured party has given express authority to transfer specific personal property, or a specific class of personal property, free of the security interest: s 340(4) PPSA. 121. Section 340(1)(a) PPSA. On the exclusions, see 9.26. 122. Section 340(5) PPSA. 123. Inventory has its ordinary meaning for the purposes of ss 340(5) and 341 and the s 10 definition of inventory does not apply: s 341(1B) PPSA. 124. Section 340(2) PPSA. Section 341 provides for the meaning of control for the purposes of s 340(2). On personal property generally, see s 341(1A) PPSA. On control of inventory, see s 341(1) PPSA. On control of accounts, see ss 341(2)–(4) and 341A PPSA. The s 341 provisions are ‘not intended to be exhaustive of when a person might have control of a current asset’: EM to the PPS Bill at [9.66]. 125. Section 340(3) PPSA. 126. The ‘registration commencement time’. See s 318 PPSA. 127. Section 339(1) PPSA. Section 339(2) PPSA provides exceptions. 128. Section 19(2) PPSA. 129. Section 339(3) PPSA.

130. Section 339(5) PPSA. 131. Section 339(6) PPSA. 132. EM to the PPS Bill at [9.56]. 133. Section 588FJ(1)(a) Corporations Act. 134. See 9.10. 135. Circulating security interest is defined in s 51C Corporations Act. See 9.23. 136. Section 588FJ(1)(b), the operative date of the CLRA. Section 566 continues to apply in relation to a floating charge created before 23 June 1993, and within six months of the relation-back day. 137. For a discussion of the relation-back day see 2.72. 138. Section 588FJ(1)(b)(ii). Relation-back day has the meaning given by s 9 of the Corporations Act. See 2.73. 139. See 9.34ff. 140. See Re Carter (as liquidator of New Tel Ltd (in liq)) (2003) 44 ACSR 661; [2003] NSWSC 128 at [15] per Austin J (on s 459A); Hadfield v ACN 092 328 400 Pty Ltd [2011] NSWSC 114 at [19]– [21] per Barrett J (on s 459B); and Re Brodhan Pty Ltd (in administration) [2011] VSC 265 at [8] per Gardiner AsJ. 141. Re Wilkcorp Pty Ltd (SC(Qld), Derrington J, 30 June 1997, unreported). 142. Re Carter (as liquidator of New Tel Ltd (in liq)) (2003) 44 ACSR 661; [2003] NSWSC 128 at [13] per Austin J. See also ERS Engines Pty Ltd v Wilson (1994) 35 NSWLR 193; 14 ACSR 531 at 533, 541 per Young J. 143. See Cuthbertson & Richards Sawmills Pty Ltd v Thomas (1998) 28 ACSR 310; [1998] ACTSC 252 per Einfeld J. 144. Walker v CBA Corporate Services (NSW) Ltd (2012) 88 ACSR 153; [2012] FCA 328 at [64] per Nicholas J. 145. On the effect of this distinction in the cross-border insolvency context, see Chapter 12. 146. On uncommercial transactions, see Chapter 5. 147. See EM to the CLR Bill at [1068]–[1075]. 148. EM to the PPS Corporations Bill at [4.2]–[4.3]. 149. CBA Corporate Services (NSW) Pty Ltd v Walker and Moloney; Re ZYX Learning Centres Ltd (rec and mgrs apptd) (in liq) (2013) 212 FCR 444; 95 ACSR 135; [2013] FCAFC 74. 150. CBA Corporate Services (NSW) Pty Ltd v Walker and Moloney; Re ZYX Learning Centres Ltd (rec and mgrs apptd) (in liq) (2013) 212 FCR 444; 95 ACSR 135; [2013] FCAFC 74 at [32]. 151. Section 1510 Corporations Act. 152. Section 339(5) PPSA. 153. See s 588FJ(4). 154. Lucas v Currie (2013) 217 FCR 308; [2013] FCA 1404 at [59] per Dowsett J. 155. See, for example, on s 459A: Walker v CBA Corporate Services (NSW) Ltd (2012) 88 ACSR 153; [2012] FCA 328 per Nicholas J; Lucas v Queensland Maintenance Services Pty Ltd (in liq) (recrs and mgrs apptd) [2012] FCA 1451 at [60], [83] per Greenwood J. 156. Walker v CBA Corporate Services (NSW) Ltd (2012) 88 ACSR 153; [2012] FCA 328. 157. Section 467B provides that the court may make an order under s 459A even if the company is being

wound up voluntarily. His Honour’s conclusions were upheld on appeal by the Full Federal Court: CBA Corporate Services (NSW) Pty Ltd v Walker and Moloney; Re ZYX Learning Centres Ltd (recs and mgrs apptd) (in liq) (2013) 212 FCR 444; 95 ACSR 135; [2013] FCAFC 74. 158. The liquidators also sought an order under s 588FF(3) extending the time within which they could make an application under s 588FF. 159. Walker v CBA Corporate Services (NSW) Ltd (2012) 88 ACSR 153; [2012] FCA 328 at [66]. 160. Walker v CBA Corporate Services (NSW) Ltd (2012) 88 ACSR 153; [2012] FCA 328 at [67]–[69]. 161. CBA Corporate Services (NSW) Pty Lted v Walker and Moloney, Re ZYX Learning Centres Ltd (recs and mgrs apptd) (in liq) (2013) 212 FCR 444; 95 ACSR 135; [2013] FCAFC 74 at [49]. 162. Section 588FJ(2). 163. Section 588FJ(2)(a). Note the qualification to this exception in s 588FJ(4). 164. Section 588FJ(2)(b). Note the qualification to this exception in s 588FJ(4). 165. Section 588FJ(2)(c). 166. Section 588FJ(2)(d). Note the qualification to this exception in s 588FJ(5). 167. Section 588FJ(2)(e). Note the qualification to this exception in s 588FJ(5). 168. Section 588FJ(2)(a) and (b). 169. Or a related entity of the secured party, if the secured party is a body corporate. 170. ‘Related entity’ is defined in s 9. 171. Lucas v Currie (2013) 217 FCR 308; [2013] FCA 1404 at [48]. 172. Lucas v Currie (2013) 217 FCR 308; [2013] FCA 1404 at [48]. 173. Lucas v Currie (2013) 217 FCR 308; [2013] FCA 1404 at [48]. 174. Lucas v Currie (2013) 217 FCR 308; [2013] FCA 1404 at [49] per Dowsett J. 175. See Harmer Report at [694]. 176. See Harmer Report at [694]. The Harmer Commission noted that this amendment would enable transactions of this sort, employed in State Bank of Victoria Commissioners v Judson (1985) 3 ACLC 576 (and also successful in Re Yeovil Glove Co Ltd [1965] Ch 148; [1964] 2 All ER 849) to be avoided. 177. Re Matthew Ellis Ltd [1933] Ch 458 at 478 per Romer LJ (Court of Appeal); applied Re Destone Fabrics Ltd [1941] Ch 319 at 322 per Simonds J (affirmed without delivering a judgment by Scott, Clauson and Luxmoore LJJ); Re Hobart Tepid Baths Ltd (1940) 35 Tas LR 149 per Morris CJ; A E Ledger, the official liquidator of Wright’s Hardware Pty Ltd (in liq) v Euro-National Investment Corporation (WASC, Full Court, Wallace, Brinsden and Seamen JJ, 29 May 1989, unreported); Pennywise Smart Shopping Australia Pty Ltd (in liq) v Sommer & Co Pty Ltd (1992) 59 SASR 539; 9 ACSR 557. See also Re Matthew Ellis Ltd [1933] Ch 458 at 472 per Lord Hanworth MR: ‘I do not think it is right to divide up the transaction in this way. It must be looked at from a business point of view, as was done at the time when it was entered into by the persons concerned.’ 178. Pennywise Smart Shopping Australia Pty Ltd (in liq) v Sommer & Co Pty Ltd (1992) 59 SASR 539; 9 ACSR 557 at 576. 179. M Hoffman Nominees Pty Ltd v Cosmas Fish Processors (International) Pty Ltd (in liq) (rec and mgr apptd) [1983] 1 VR 349; 7 ACLR 65 at 72 per Lush J, with whom Starke and Jenkinson JJ agreed; citing Re Matthew Ellis Ltd [1933] Ch 458 at 477; Re Destone Fabrics Ltd [1941] Ch 319 at 324.

M Hoffman Nominees Pty Ltd v Cosmas Fish Processors (International) Pty Ltd (in liq) (rec and 180. mgr apptd) [1983] 1 VR 349; 7 ACLR 65 at 72 per Lush J. 181. Re Matthew Ellis Ltd [1933] Ch 458. 182. Re Hayman, Christy & Lilly Ltd [1917] 1 Ch 283 (considering s 212 of the Companies (Consolidation) Act 1908). 183. Re Matthew Ellis Ltd [1933] Ch 458 at 477–8. 184. See Re Thomas Mortimer Ltd [1965] Ch 186n; Re Yeovil Glove Co Ltd [1965] Ch 148; [1964] 2 All ER 849. 185. Re Thomas Mortimer Ltd [1965] Ch 186n. 186. Re Columbian Fireproofing Co Ltd [1910] 2 Ch 120 at 123 per Cozens-Hardy MR. 187. Re Columbian Fireproofing Co Ltd [1910] 1 Ch 758 at 765 per Neville J; Re Columbian Fireproofing Co Ltd [1910] 2 Ch 120 at 123 per Cozens-Hardy MR, at 123 per Farwell LJ. See also Re F and E Stanton Ltd [1929] 1 Ch 180; Re Port Supermarket Ltd [1978] 1 NZLR 330 (inordinate delay without satisfactory explanation can put a charge outside this exception); and M Hoffman Nominees Pty Ltd v Cosmas Fish Processors (International) Pty Ltd (in liq) (1982) 7 ACLR 65 at 73–4; 1 ACLC 525 at 528 per Lush J, with whom Starke and Jenkinson JJ agreed. 188. Re F & E Stanton [1929] 1 Ch 180. 189. Re F & E Stanton Ltd [1929] 1 Ch 180 at 194 per Maugham J (applying Ex parte Hauxwell; Re Hemingway (1883) 23 Ch D 626 at 640 per Fry LJ); Willis v Tozer [1961] NZLR 437 per Shortland J. 190. Re Shoe Lace Ltd [1992] BCLC 636 at 638–9. 191. Re Shoe Lace Ltd [1992] BCLC 636 at 638–9. 192. Re Yeovil Glove Co Ltd [1965] Ch 148; [1964] 2 All ER 849. 193. Devaynes v Noble (1816) 1 Mer 572 at 608–9; [1816] 35 ER 781 at 793. 194. Australia and New Zealand Banking Group Ltd v Westpac Banking Corporation (1988) 164 CLR 662 at 676; 78 ALR 157 at 164 per Mason CJ, Wilson, Deane, Toohey and Gaudron JJ. 195. Re French Caledonia Travel Service Pty Ltd (in liq) (2003) 59 NSWLR 361; 48 ACSR 97; [2003] NSWSC 1008 at [34]. 196. See also his Honour’s summary of Clayton’s case at [20]–[26]. 197. Harmer Report at [693]. 198. Harmer Report at [692]. 199. Cuthbertson & Richards Sawmills Pty Ltd v Thomas (1998) 28 ACSR 310; [1998] ACTSC 252 at [20] per Einfeld J; Cuthbertson & Richards Sawmills Pty Ltd v Thomas (1999) 93 FCR 141; 30 ACSR 504 at 509 per Heerey, Carr and Mansfield JJ. 200. Section 588FJ(2)(c) Corporations Act. 201. See 7.20. 202. Cuthbertson & Richards Sawmills Pty Ltd v Thomas (1999) 93 FCR 141; 30 ACSR 504 at 510 per Heerey, Carr and Mansfield JJ. 203. R v Portus; Ex parte Federated Clerks Union of Australia (1949) 79 CLR 428 at 435 per Latham CJ (in the context of the words ‘on behalf of the Crown’); cited R v Toohey; Ex parte Attorney-General (NT) (1980) 145 CLR 374 at 386; 28 ALR 27 at 35 per Stephen, Mason, Murphy and Aickin JJ; Federal Commissioner of Taxation v Commonwealth Bank of Australia (1992) 34 FCR 296; 105

ALR 294 at 299 per Beaumont, Wilcox and O’Loughlin JJ. 204. R v Toohey; Ex parte Attorney-General (NT) (1980) 145 CLR 374 at 386; 28 ALR 27 at 35 per Stephen, Mason, Murphy and Aickin JJ, adopting Dixon J’s observation in the Federated Clerks’ Case (1949) 79 CLR 428; 23 ALJR 621 that the ‘context and subject matter’ will be determinative. 205. Cuthbertson & Richards Sawmills Pty Ltd v Thomas (1999) 93 FCR 141; 30 ACSR 504 at 514 per Heerey, Carr and Mansfield JJ. 206. Cuthbertson & Richards Sawmills Pty Ltd v Thomas (1999) 93 FCR 141; 30 ACSR 504 at 514 per Heerey, Carr and Mansfield JJ. See Federal Commissioner of Taxation v Commonwealth Bank of Australia (1992) 34 FCR 296; 105 ALR 294 at 299 per Beaumont, Wilcox and O’Loughlin JJ; Gillespie v City of Glasgow Bank (1879) 4 App Cas 632 at 642 per Lord Hatherley; Murray v King (1984) 4 FCR 1 at 13; 55 ALR 559 at 570–1 per Morling J, agreeing with Spender and Sheppard JJ as to the orders to be made. See, however, the discussion of the two expressions at 7.20ff in the context of s 588FDA. 207. Federal Commissioner of Taxation v Commonwealth Bank of Australia (1992) 34 FCR 296; 105 ALR 294 at 299 per Beaumont, Wilcox and O’Loughlin JJ. 208. Cuthbertson & Richards Sawmills Pty Ltd v Thomas (1999) 93 FCR 141; 30 ACSR 504 at 514–5 per Heerey, Carr and Mansfield JJ. 209. A E Ledger, Official liquidator of Wright’s Hardware Pty Ltd (in liq) v Euro-National Investment Corp Ltd (WASC, Full Court, Wallace, Brinsden and Seamen JJ, 29 May 1989, unreported). 210. Cuthbertson & Richards Sawmills Pty Ltd v Thomas (1998) 28 ACSR 310; [1998] ACTSC 252. 211. Cuthbertson & Richards Sawmills Pty Ltd v Thomas (1998) 28 ACSR 310 at 315; [1998] ACTSC 252 at [20] per Einfeld J. 212. Section 588FJ(2)(d). 213. Section 588FJ(2)(e). 214. EM to the CLR Bill at [1070]. See the Harmer Report at [691]. 215. Deputy Commissioner of Taxation v TMPL Pty Ltd (subject to a deed of company arrangement) (No 3) (2011) 289 ALR 69; [2011] FCA 1403 at [122] per Perram J (money lent for the purposes of acquiring legal services, but services not actually obtained). 216. Section 588FJ(5). 217. Section 588FJ(5). 218. Spencer v Commonwealth (1907) 5 CLR 418 at 432, 440–1; 14 ALR 253 per Isaacs J. 219. MMAL Rentals Pty Ltd v Bruning (2004) 63 NSWLR 167; [2004] NSWSC 451 at [55]–[61] per Spigelman CJ (with whom Mason P and Hodgson JA agreed). Compare the slightly more modern formulation of the test in Marks v GIO Australia Holdings Ltd (1998) 196 CLR 494 at 514; 158 ALR 333 at [49] per McHugh, Hayne and Callinan JJ: ‘the value … is to be identified according to what price freely contracting, fully informed parties would have offered and accepted for it’. 220. Spencer v Commonwealth (1907) 5 CLR 418 at 431; 14 ALR 253; Boland v Yates Property Corp Pty Ltd (1999) 167 ALR 575 at 595; [1999] HCA 64 at [79] per Gleeson CJ, with whom Gaudron and Gummow JJ agreed. 221. Brisbane Water County Council v Cmr of Stamp Duties [1979] 1 NSWLR 320 at 324; 9 ATR 576. Followed Lion Nathan Brewing Investments Pty Limited v Commissioner for ACT Revenue (1997) 79 FCR 177; 149 ALR 335 at 339 per Cooper J. 222. Abrahams v Federal Commissioner of Taxation (1944) 70 CLR 23 at 29 per Williams J; Earl of Ellesmere v Inland Revenue Commissioners (1918) 119 LT 568 at 573 per Sankey J; Inland Revenue

Commissioners v Clay [1914] 3 KB 466 at 475 per Swinfen Eady LJ. 223. ‘Further, in applying the test, it must be remembered that the value to be ascertained is the value to the seller of the property in its actual condition at the relevant time (in the present case at the date of death) with all its existing advantages and all its possibilities’: Abrahams v Federal Commissioner of Taxation (1944) 70 CLR 23 at 29 per Williams J. 224. Compare the discussion of ‘open market’, in the context of share valuation, in Re Haunstrup (dec’d) [1960] VR 302 at 305 per Sholl J. In particular, note the further comments by Sholl J, at 314, that where there is ‘an actual market for the class of shares under consideration, even though it be less extensive than the hypothetical “open market” of the statute, a hypothetical buyer in the “open market” is in my opinion to be credited, unless some clear reason to the contrary appear, with an advertance to those considerations of business commonsense and prudence which seem likely to have been present to the minds of actual or potential buyers in the actual market’. 225. See Darbishire v Warran [1963] 3 All ER 310; [1963] 1 WLR 607; Benwerrin Developments Pty Ltd v Federal Commissioner of Taxation (1981) 53 FLR 329; 39 ALR 225 at 235 per McGarvie J; and Yates Property Corp Pty Ltd (in liq) v Darling Harbour Authority (1991) 24 NSWLR 156 at 162; 73 LGRA 47 per Kirby P and at 187 per Handley J (and see the dissenting judgment of Mahoney JA on the question of special value (at 163 and especially at 169–70)). 226. Orchard v Simpson (1857) 2 CBNS 299 at 305; 140 ER 431. 227. Benwerrin Developments Pty Ltd v Federal Commissioner of Taxation (1981) 53 FLR 329; 39 ALR 225 at 235. 228. His Honour relied on the authorities of Orchard v Simpson (1857) 2 CB (NS) 299; 140 ER 431; and BSC Footwear Ltd v Ridgway (Insp of Taxes) [1972] AC 544. 229. Stock v W Angliss and Co (Aust) Pty Ltd) [1964] VR 502 at 505. 230. See also the discussion in Coundrelis v Roads and Traffic Authority of New South Wales [2008] NSWLEC 72 at [9] per Biscoe J. 231. On s 95A, see Chapter 2. 232. Cuthbertson & Richards Sawmills Pty Ltd v Thomas (1999) 93 FCR 141; 30 ACSR 504 at 509 at [16],[19] per the Full Court (Heerey, Carr and Mansfield JJ). 233. See Chapter 2. 234. In s 588FJ(6), ‘court’ with a lower case ‘c’ is used and has the meaning given by s 58AA(1), that is, ‘any court’. On s 58AA, see 11.19. 235. Section 588FJ(6). See EM to the CLR Bill at [1075]. 236. Attorney-General (Quebec) v Attorney-General (Canada) [1921] 1 AC 401 at 409. 237. Harmer v Federal Commissioner of Taxation (1989) 91 ALR 550 at 562 per French J. 238. Harmer v Federal Commissioner of Taxation (1989) 91 ALR 550. 239. See 9.77. 240. Re Black Opal IP Pty Ltd (subject to deed of company arrangement) [2013] NSWSC 1225. 241. Section 56(1) PPSA. 242. Section 56(2) PPSA. 243. See EM to the PPS Bill at [2.111]. 244. Section 588FK(4). 245. Section 588FK(1).

246. Section 588FK(2). 247. Section 588FK(3). 248. On transitional security interests, see 9.106. 249. See also s 588FN(4) Corporations Act. 250. Section 297 PPSA. 251. Section 298 PPSA. 252. Section 299 PPSA. 253. Section 300 PPSA. 254. Section 298(1)(a) PPSA. 255. Section 298(2)(a) PPSA. 256. See, for example, Brick & Pipe Industries Ltd v Occidental Life Nominees Pty Ltd [1992] 2 VR 279; 6 ACSR 464 at 465 per McGarvie, Marks and Beach JJ, considering s 68A of the Companies Code, a predecessor of s 128 of the Corporations Act. On knowledge at general law, see Baden Delvaux & Lecuit v Société Géneralé pour Favoriser le Développement du Commerce et de l’Industrie en France SA [1992] 4 All ER 161 at 235–47; [1993] 1 WLR 509 per Peter Gibson J (in the context of a claim for knowing receipt and knowing assistance under Barnes v Addy (1874) LR 9 Ch App 244; 43 LJ Ch 513); Bank of Credit & Commerce International (Overseas) Ltd v Akindele [2001] Ch 437 at 450–54; [2000] 4 All ER 221 per Nourse LJ, with whom Ward and Sedley LJJ agreed; and Bell Group Ltd (in liq) v Westpac Banking Corp (No 9) (2008) 70 ACSR 1; 225 FLR 1 at [931]–[934] and generally per Owen J. 257. EM to the PPS Bill at [8.33]. 258. Section 297 PPSA. 259. Section 298(1) PPSA. 260. Section 298(3)(a) PPSA. 261. Section 298(3)(b) PPSA. 262. Section 299(1)(b)(ii) PPSA. 263. Section 299(1)(b)(iii) PPSA. 264. Section 299(2)(a) PPSA. 265. Section 299(2)(b) PPSA. 266. Section 299(2)(c) PPSA. 267. The provision is based on s 7(6) of the Security Interest in Goods Act 2005 (NSW), and s 8 of the Chattel Securities Act 1987 (Vic). EM to the PPS Bill at [8.37]. 268. Section 300 PPSA. 269. See 9.91. The exclusions are a reminder of the breadth of the PPSA concept of security interest. 270. See EM to the PPS Corporations Bill at [6.3]. 271. Re Black Opal IP Pty Ltd (subject to deed of company arrangement) [2013] NSWSC 1225 at [6] per Brereton J. 272. On ss 267 and 267A PPSA, see 9.69ff. 273. Section 588FL(1)(a)(i). 274. Section 588FL(1)(a)(ii).

275. Section 588FL(1)(a)(iii). 276. Section 588FL(1)(b). 277. Section 588FL(2)(a)(i), and see Note 2 to 588FL(2). 278. Section 588FL(2)(a)(ii). The PPSA provides for perfection by registration, possession or control, or by force of the Act (see Note 4 to s 588FL(2) and s 21 PPSA). 279. EM to the PPS Corporations Bill at [6.5]. 280. ‘Critical time’ has the meaning given by s 588FL(7). 281. Section 588FL(1)(b)(ii). 282. Section 588FL(1)(b)(iii). 283. Section 588FL(7). See Chapter 2 on ss 513A–513C of the Corporations Act. 284. Section 10 PPSA which provides relevantly that a company means a company registered under Pt 2A.2 or Pt 5B.1 of the Corporations Act. 285. On s 588FM, see 9.77ff. 286. EM to the PPS Corporations Bill at [6.5]. 287. EM to the PPS Corporations Bill at [6.2]–[6.3]. 288. Section 588FL(4)(a). 289. Section 588FL(4)(b). 290. Because of the interpretation provision s 588FK(1), ‘new value’ has the same meaning as in s 10 PPSA, that is ‘value other than value provided to reduce or discharge an earlier debt or liability owed to the person providing the value’. ‘Value’ is also defined in s 10. 291. Section 588FL(4)(a). 292. Section 588FL(4)(a). 293. Section 588FL(4)(a)(i). 294. Section 588FL(4)(a)(ii). 295. Section 588FL(6). 296. EM to the PPS Corporations Bill at [6.4]. 297. EM to the PPS Corporations Bill at [6.4]. 298. Section 267 PPSA. 299. Section 267A PPSA. See the Note to s 588FL(1) of the Corporations Act. 300. Section 267(1)(a)(i) PPSA. Section 267(1)(a)(iv) (sequestration) and s 267(1)(a)(v) (bankruptcy orders) set out the application of the vesting provisions in personal insolvency and are outside the scope of this work. 301. Section 267(1)(a)(ii) PPSA. 302. Section 267(1)(a)(iii) PPSA. 303. See s 267(1)(b) PPSA. In the case of winding up, the relevant time is the day that the winding up commences under s 513A or s 513B of the Corporations Act. 304. Section 267(2) PPSA. 305. Re Maiden Civil (P&E) Pty Ltd; Albarran v Queensland Excavation Services Pty Ltd [2013] NSWSC 852 at [70]–[71] per Brereton J.

306. Associated Alloys v ACN 001 452 106 Pty Ltd (in liq) (2000) 202 CLR 588; 171 ALR 568. 307. General Motors Acceptance Corporation Australia v Southbank Traders Pty Ltd (2007) 227 CLR 305; 234 ALR 608; [2007] HCA 19. 308. EM to the PPS Bill at [8.5]. 309. General Motors Acceptance Corporation Australia v Southbank Traders Pty Ltd (2007) 227 CLR 305; 234 ALR 608; [2007] HCA 19. 310. A retention of title clause, after Aluminium Industrie Vaassen BV v Romalpa Aluminium Ltd [1976] 1 WLR 676; [1976] 2 All ER 552. See also the overview of the history of, and difficulties with, Romalpa clauses in Associated Alloys v ACN 001 452 106 Pty Ltd (in liq) (2000) 202 CLR 588; 171 ALR 568 at [60]–[69] per Kirby J. 311. General Motors Acceptance Corporation Australia v Southbank Traders Pty Ltd (2007) 227 CLR 305; 234 ALR 608; [2007] HCA 19 at [4] per Gleeson CJ, Gummow, Kirby, Hayne and Heydon JJ. 312. Southbank Traders Pty Ltd v General Motors Acceptance Corporation Australia (2006) ASC 155081; [2006] VSCA 102 per Maxwell P, Eames and Ashley JJA. 313. General Motors Acceptance Corporation Australia v Southbank Traders Pty Ltd (2007) 227 CLR 305; 234 ALR 608; [2007] HCA 19 at [35] per Gleeson CJ, Gummow, Kirby, Hayne and Heydon JJ. The Chattel Securities Act 1987 (Vic) drew on the recommendations made by the Molomby Report. (See [24]–[26] and above at 9.6ff). The matter was remitted to the Court of Appeal for resolution of the outstanding grounds of appeal and to resolve issues arising under s 7(1) of the Chattel Securities Act from the outcome of the appeal to the High Court. 314. As referred to in s 267(1)(b) PPSA. 315. Section 267A(1)(a) PPSA which in turn refers to s 267(1)(a) PPSA. 316. Section 267A(1)(b) PPSA. 317. Section 267A(1)(c) PPSA. 318. Section 267A(1)(d) PPSA. 319. Section 267A(1)(e) PPSA. 320. Section 267A(1) PPSA. 321. EM to the PPS Bill at [8.2]–[8.3]. 322. Section 268(1)(a)(i) PPSA. 323. Section 268(1)(a)(ii) PPSA. A PPS lease is a lease or bailment for a period of less than a year in respect of goods which may or must be described by a serial number in accordance with the PPS Regulations. Regulation 2.2 sets out the classes of property that may be described by serial number when described as commercial property and must be described by serial number when described as consumer property. See also the PPS Register Fact Sheet ‘Collateral described by serial number: some considerations’ available from . 324. Section 268(1)(a)(iii) PPSA. 325. Section 267(1)(aa) PPSA. 326. Section 268(2) PPSA. Turnover trusts are commonly included in guarantees provided in commercial financing. 327. EM to the PPS Bill at [8.7]–[8.8]. 328. Section 588FO is the corresponding Corporations Act provision where a security interest has vested under s 588FL (see 9.86).

329. Section 269(1)(a) PPSA. See s 12(3)(b) PPSA. 330. Section 269(1)(b) PPSA. See s 12(3)(c) PPSA. 331. Section 269(2)(a) PPSA. 332. Section 269(2)(b) PPSA. 333. EM to the PPS Bill at [8.11]. 334. Value other than value provided to reduce or discharge an earlier debt or liability owed to the person providing the value: s 10 PPSA. ‘Value’ has the meaning given by s 10 PPSA. 335. See ss 267(3)(a) and s 267A(2)(a) PPSA. 336. See ss 267(3)(b) and 267A(2)(b) PPSA. 337. Section 296(g) PPSA, and see the Note to s 267(3) and 267A(3) PPSA. This is because ‘knowledge about the assertion is generally within the knowledge of the person making the assertions’: EM to the PPS Bill at [8.31]. 338. Section 588FM(1). 339. Re Cardinia Nominees Pty Ltd [2013] NSWSC 32 at [19] per Black J. 340. Section 588FM(1). ‘Court’ (capital ‘C’) is defined in s 58AA(1) to mean any of the following courts: ‘(a) the Federal Court; (b) the Supreme Court of a State or Territory …’. On s 58AA, see 11.19. 341. Section 588FM(2)(a)(i). 342. Section 588FM(2)(a)(ii). 343. Section 588FM(2)(b). 344. Section 588FM(3). 345. Re Barclays Bank plc [2012] NSWSC 1095 at [4] per Black J; Re Cardinia Nominees Pty Ltd [2013] NSWSC 2 at [12] per Black J. On the circumstances in which the Court could extend the time for registration of a charge under s 266(4) PPSA, see 9.134ff. 346. See the authorities decided in the context of s 266(4) at 9.141. 347. Re Barclays Bank plc [2012] NSWSC 1095. 348. Re Barclays Bank plc [2012] NSWSC 1095 at [13]. 349. Re Barclays Bank plc [2012] NSWSC 1095 at [11]. 350. Re Cardinia Nominees Pty Ltd [2013] NSWSC 32. 351. Re Cardinia Nominees Pty Ltd [2013] NSWSC 32 at [14]–[15]. 352. Re Apex Gold Pty Ltd [2013] NSWSC 881. 353. Re Apex Gold Pty Ltd [2013] NSWSC 881 at [13]. See also the decision of Brereton J in Re Appleyard Capital Pty Limited; 123 Sweden AB v Appleyard Capital Pty Limited [2014] NSWSC 782. 354. Re Cardinia Nominees Pty Ltd [2013] NSWSC 32. 355. Re Cardinia Nominees Pty Ltd [2013] NSWSC 32. 356. Re Cardinia Nominees Pty Ltd [2013] NSWSC 32 at [17] per Black J. Compare Bevillesta Pty Ltd v Imagine UN Ltd (2009) 69 ACSR 574; [2009] VSC 50 at [25]–[26] per Robson J. 357. Re Cardinia Nominees Pty Ltd [2013] NSWSC 32 at [18] per Black J. 358. On the authorities under s 266 see 9.148ff.

359. Re Barclays Bank plc [2012] NSWSC 1095. 360. The period between the end of the 20 business day registration period (23 May 2012) and the date of registration of the relevant security interests (9 August 2012). 361. Re Barclays Bank Plc [2012] NSWSC 1095 at [12], [15] per Black J. 362. Re Barclays Bank Plc [2012] NSWSC 1095 at [15] per Black J. 363. Re Cardinia Nominees Pty Ltd [2013] NSWSC 32. 364. Re Cardinia Nominees Pty Ltd [2013] NSWSC 32 at [22] per Black J. 365. On those conditions, see 9.86ff. 366. Dempsey Resources Pty Ltd v Continental Coal Ltd [2009] FCA 1157 at [20]–[21] per Gilmour J. 367. Re Barclays Bank Plc [2012] NSWSC 1095 at [14] per Black J; Re Cardinia Nominees [2013] NSWSC 32 at [18]. 368. Re Black Opal IP Pty Ltd (subject to Deed of Company Arrangement) [2013] NSWSC 1225 at [8]. 369. Re Barclays Bank plc [2012] NSWSC 1095. 370. Dempsey Resources Pty Ltd v Continental Coal Ltd [2009] FCA 1157. 371. Dempsey Resources Pty Ltd v Continental Coal Ltd [2009] FCA 1157 at [36] per Gilmour J. 372. Re Cardinia Nominees Pty Ltd [2013] NSWSC 32. 373. Re Cardinia Nominees Pty Ltd [2013] NSWSC 32 at [18] per Black J. 374. Dempsey Resources Pty Ltd v Continental Coal Ltd [2009] FCA 1157 at [22] per Gilmour J; Re Barclays Bank plc [2012] NSWSC 1095 at [15]–[18] per Black J. 375. Re Investa Properties Ltd (2001) 40 ACSR 124 at 133; [2001] NSWSC 1089 at [31] per Barrett J, applied in Re Barclays Bank plc [2012] NSWSC 1095 at [15] per Black J. 376. Re Barclays Bank plc [2012] NSWSC 1095 at [15]–[17] per Black J, citing Re Investa Properties Ltd (2001) 40 ACSR 124 at 133; [2001] NSWSC 1089 at [33] per Barrett J (citing Re a Ltd Company (1928) 28 SR (NSW) 364; 45 WN (NSW) 91 per Long Innes J). 377. Re Guardian Securities Ltd [1984] 1 NSWLR 95 at 97; 8 ACLR 822 at 823 per McLelland J. See 9.151ff. 378. Re Guardian Securities Ltd [1984] 1 NSWLR 95 at 97–8; 8 ACLR 822 at 823 per McLelland J; Bevillesta Pty Ltd v Imagine UN Ltd (2009) 69 ACSR 574; [2009] VSC 50 at [28] per Robson J. 379. See Panadell Architectural Cladding Systems Pty Ltd v Panadell Industries Pty Ltd [2010] FCA 511 at [19] per Emmett J; Seed Corporate Finance Pty Ltd v Savvytel [2010] FCA 733 at [12] per Emmett J; Metcash Trading Ltd v 8 Nai Investments Pty Ltd [2011] FCA 1400 at [12] per Jacobson J. See the discussion of the history and purpose of such protective orders in England and Australia in Re Flinders Trading Company Pty Ltd (1978) 20 SASR 14; 3 ACLR 218 at 220–4 per Bray CJ. 380. Re Barclays Bank plc [2012] NSWSC 1095 at [17] per Black J, citing as example Metcash Trading Ltd v 8 Nai Investments Pty Ltd [2011] FCA 1400 at [12]–[13] per Jacobson J. 381. Bevillesta Pty Ltd v Imagine UN Ltd (2009) 69 ACSR 574; [2009] VSC 50 at [36]. 382. Bevillesta Pty Ltd v Imagine UN Ltd (2009) 69 ACSR 574; [2009] VSC 50 at [32]–[36] per Robson J. 383. Re Cardinia Nominees Pty Ltd [2013] NSWSC 32. 384. Bevillesta Pty Ltd v Imagine UN Ltd (2009) 69 ACSR 574; [2009] VSC 50. 385. Re Cardinia Nominees Pty Ltd [2013] NSWSC 32 at [21] per Black J. See also Re Apex Gold [2013]

NSWSC 881. 386. Re Cardinia Nominees Pty Ltd [2013] NSWSC 32 at [24] per Black J. 387. Re Cardinia Nominees Pty Ltd [2013] NSWSC 32 at [25] per Black J. 388. Re Cardinia Nominees Pty Ltd [2013] NSWSC 32 at [25] per Black J. See also Re Apex Gold Pty Ltd [2013] NSWSC 881. 389. Re Apex Gold Pty Ltd [2013] NSWSC 881. 390. Re Apex Gold Pty Ltd [2013] NSWSC 881 at [18]–[19]. 391. On s 268 PPSA, see 9.74. 392. ‘Account’ and ‘chattel paper’ are both defined in s 10 PPSA. 393. See 9.11. 394. ‘Commercial consignment’ is defined in s 10 PPSA. 395. Section 588FN(1). These forms of PPSA security interest are ‘deemed security interests’ and their exclusion reflects a policy judgment that it would accordingly ‘operate unfairly’ to subject them to s 588FL(4): EM to the PPS Corporations Bill at [6.7]. See ss 12(3) and 13 PPSA concerning deemed security interests. 396. Section 588FN(2)(c) sets out the requirements for the substance of the agreement. 397. Section 588FN(2). 398. Section 588FN(3). 399. Section 588FN(3)(b). 400. Section 588FN(4)(a)(i) PPSA. 401. Section 588FN(3) Corporations Act. EM to the PPS Corporations Bill at [6.8]. For a discussion of actual or constructive knowledge in this context, see 9.56ff. 402. See 9.75. 403. Section 588FO(1)(a). 404. Section 588FO(1)(b). 405. Section 588FO(2)(a). 406. Section 588FO(2)(b). 407. See the Note to s 588FO. 408. On former s 267, see 9.156ff. 409. EM to the PPS Corporations Bill at [6.10]-[6.11]. 410. Section 588FP(1)(a). For a discussion of security interest, see 9.10. 411. Section 588FP(1)(b). The time the instrument or agreement is made, not the time of attachment of the security interest. See EM to the PPS Corporations Bill at [6.11]. 412. The reference to ‘Court’ in s 588FP is to capital ‘C’ Court which is defined in s 58AA(1) to mean any of the following courts: ‘(a) the Federal Court; (b) the Supreme Court of a State or Territory; (c) the Family Court of Australia; (d) a court to which s 41 of the Family Law Act 1975 applies because of a Proclamation made under s 41(2) of that Act.’ The Family Court of Western Australia is the only court to which s 41(2) currently applies (by Proclamation made 4 November 1991, FRLI F2005B01734). On s 58AA, see 11.19. 413. Section 588FP(1)(c).

414. Section 588FP(5). ‘PPSA retention of title property’ is defined in s 51F of the Corporations Act as personal property that the company does not own, but that it uses, occupies, or possesses; or has granted a PPSA security interest over. See EM to the PPS Corporations Bill at [5.14]ff. 415. Section 1509 Corporations Act. A ‘registrable charge’ is a charge created before 30 January 2012 that was required to be registered by s 262(1): s 1499 Corporations Act. 416. Section 588FP(2)(a). 417. Section 588FP(2)(b). 418. Section 588FP(2)(c). 419. See the discussion of shadow directors at 10.14ff. 420. See s 9 definition of ‘associate’. 421. See, for example, Papua New Guinea Dockyard Ltd v Adams (2005) 215 ALR 742; [2005] FCA 413 at [10]–[11] per Finkelstein J. See further the discussion at 9.162ff. 422. Section 588FP(3)(a). 423. Section 588FP(3)(b). 424. Section 588FP(3)(c). 425. Australian Innovation Ltd v Dean-Willcocks (as joint administrators of Powerline GES Pty Ltd) (2001) 40 ACSR 521; [2001] NSWSC 1204 at [26] per Palmer J; applied Cain v Aero Marine Consulting Pty Ltd (2003) 133 FCR 1; [2003] FCA 1016 at [69]-[70] per Goldberg J. 426. 400 Lonsdale Nominees Pty Ltd v Southern Cross Airlines Ltd (in liq) (1993) 10 ACSR 739 at 747; 11 ACLC 744 per Hayne J. 427. Salcedo v Mawarie Mining Co Pty Ltd (1991) 6 ACSR 197. 428. Salcedo v Mawarie Mining Co Pty Ltd (1991) 6 ACSR 197 at 201 per McLelland J; followed 400 Lonsdale Nominees Pty Ltd v Southern Cross Airlines Ltd (in liq) (1993) 10 ACSR 739 at 745; 11 ACLC 744. 429. Australian Innovation Ltd v Dean-Willcocks (as Joint Administrators of Powerline GES Pty Ltd) (2001) 40 ACSR 521; [2001] NSWSC 1204. 430. Australian Innovation Ltd v Dean-Willcocks (as Joint Administrators of Powerline GES Pty Ltd) (2001) 40 ACSR 521; [2001] NSWSC 1204 at [33] per Palmer J. 431. Section 588FP(4)(a). 432. Section 588FP(4)(b). There is no case law on s 588FP at the time of writing, but there is helpful case law in cases on former s 267(3) on the exercise of the court’s power under the predecessor provision. See 9.168. 433. Re 21st Century Sign Co Pty Ltd [1994] 1 Qd R 93 at 96; 9 ACSR 7 per Ryan J. 434. See further at 9.168. 435. However in Abalcheck Pty Ltd v Pullen (1990) 3 ACSR 246; 8 ACLC 1078 at 1085, Hodgson J was of the view, in obiter, that no absolute principle prevented an order being made under a predecessor to s 1322 retrospectively validating a charge. 436. Section 1322(6). 437. ‘New value’ has the meaning given by s 10 PPSA: ‘value other than value provided to reduce or discharge an earlier debt or liability owed to the person providing the value’. ‘Value’ has the meaning given by s 10 PPSA. 438. The ‘seller’ is a person specified by s 588FP(2), a person selling on their behalf, or a receiver (or

receiver and manager) appointed under powers conferred by an instrument creating or evidencing the security interest. 439. Section 588FP(7). EM to the PPS Corporations Bill at [6.12]. 440. On unreasonable director-related transactions, see Chapter 7. 441. Section 588FA. For a detailed discussion of s 588FA, see Chapter 4. 442. Section 588FB. For a detailed discussion of s 588FB, see Chapter 5. 443. Section 123(1) PPSA. 444. Section 116(1) PPSA. 445. Section 123(2)(a) PPSA. 446. Section 123(3)(a) PPSA. 447. Section 123(4) PPSA. 448. The secured party may have also perfected their interest other than by possession or control: s 124(3) PPSA. 449. Section 124(1) PPSA. 450. Section 124(2) PPSA. 451. Section 126(1) PPSA. 452. The disposal must not cause the grantor any greater cost or inconvenience than is necessarily incidental to the disposal: s 126(2) PPSA. 453. Section 109(5)(ba) PPSA. 454. Determined by s 306(2) PPSA and the Personal Property Securities (Migration Time and Registration Commencement Time) Determination to be the start of 30 January 2012. 455. Section 307 PPSA. See 9.106. 456. Section 332 PPSA. See 9.107. 457. See 9.111. 458. See 9.113. 459. See 9.114. 460. A security agreement is an agreement or act by which a security interest is created, arises, or is provided for; or writing evidencing such an agreement or act: s 10 of the PPSA. Contrast with the requirement for a written security agreement in s 20(2) of the PPSA. 461. The ‘registration commencement time’, as defined in s 306(2) PPSA. 462. Section 307 PPSA. 463. Section 308 PPSA. 464. Section 332(a) PPSA. 465. Section 332(b) PPSA. 466. Section 332(b)(i) PPSA. 467. Section 332(b)(ii) PPSA. 468. Section 332(c) PPSA. 469. Section 332(d) PPSA.

470. The ‘registration commencement time’, as defined in s 306(2) PPSA. 471. On continuous perfection, see 9.52. 472. EM to the PPS Bill at [9.19]. In practical terms, this may require review of records showing the premigration priority position if priority is unclear. See Personal Property Securities at [6.100]. On deeming and rectification provisions for incorrectly registered migrated data, see [6.1100] and [6.2350]. 473. Section 333(3) PPSA. 474. Regulation 9.2(1) of the Personal Property Securities Regulations. 475. Personal Property Securities Register Fact Sheet ‘Searching the PPSR — Considerations Regarding Migrated Registrations’ available from . 476. An updated list of known and resolved issues with migrated registrations is available at . ASIC also maintains a current list of non-migrated charges at . 477. See the suggestions for searching by organisation grantor in the Personal Property Securities Register Fact Sheet ‘Searching the PPSR — Considerations Regarding Migrated Registrations’ available from . 478. There is no definition of the expression ‘non-migrated security interest’ in the PPSA. See, however, the EM to the PPS Bill at Chapter 8, [22]ff. 479. The ‘registration commencement time’, as defined in s 306(2) PPSA. 480. ‘[T]he end of the month that is 24 months after the registration commencement time’: s 322(2) PPSA. 481. Section 322 PPSA, and see EM to the PPS Bill at [9.22]. 482. Section 265 Corporations Act provides for provisional registration where a notice in respect of a charge or property of a company is lodged without a stamp duty compliance certificate. On s 265, see R P Austin and A J Black, Austin & Black’s Annotations to the Corporations Act, LexisNexis looseleaf, at [2K.265]. 483. Personal Property Securities Regulations 2010 reg 9.2(2). 484. The ‘registration commencement time’ as defined in s 306(2) PPSA. 485. EM to the PPS Bill at [9.34]. 486. ‘[A]fter the end of the month that is 24 months after the registration commencement time’: s 324(1) (a) PPSA. The registration commencement time is 30 January 2012. 487. Section 324(1)(c) PPSA. 488. Section 324(1)(b) PPSA. 489. Bankruptcy and insolvency have the same meaning as in s 51(xvii) of the Constitution (s 10 PPSA). 490. Section 324(2) PPSA. 491. Section 320 PPSA. See also the PPS Register Fact Sheet ‘Transitional provisions’ available from . 492. ‘Continuously perfected’ has the meaning given by s 56 PPSA. See 9.52. 493. The ‘registration commencement time’, as defined in s 306(2) PPSA. 494. Section 323 PPSA. 495. Section 323(a) PPSA.

496. Section 323(b) PPSA. 497. The ‘registration commencement time’, as defined in s 306(2) PPSA: s 1510 Corporations Act. 498. A ‘registrable charge’ within the meaning of s 261 PPSA: s 1499 Corporations Act 499. The end of the ‘period of 7 years after the commencement time’: s 1502(1) Corporations Act. 500. Section 1502 Corporations Act. 501. On the court’s power to rectify the register, see R P Austin and A J Black, Austin & Black’s Annotations to the Corporations Act, LexisNexis looseleaf, at [2K.274]. 502. EM to the PPS Corporations Bill at [7.3]. 503. Section 1505 Corporations Act. 504. Section 1503 Corporations Act. If s 1503 applies, then any specified requirement for a person or company to lodge or give a notice, or for ASIC to enter or delete associated information in the register, ceased to apply from 30 January 2012. 505. On s 588FP, see 9.93ff. 506. Sections 1507 and 1508 Corporations Act. 507. The ‘commencement time’, as defined in s 1499 Corporations Act. 508. Section 1504(1) Corporations Act. 509. Section 1504(2) Corporations Act. 510. ‘Court’ (capital ‘C’) is defined in s 58AA(1) to mean relevantly any of the following courts: ‘(a) the Federal Court; (b) the Supreme Court of a State or Territory…’. On s 58AA, see 11.19. 511. Subsection 1504(3)(c) Corporations Act. 512. Former s 266(4)(a). 513. Former s 266(4)(b). 514. Former s 266(4). 515. Subsection 1504(3)(b)(i) Corporations Act. 516. Subsection 1504(3)(b)(ii) Corporations Act. On former s 266 and the factors relevant to the court’s discretion, see 9.134ff. 517. See 9.105. 518. The ‘commencement time’, as defined in s 1499 Corporations Act. 519. EM to the PPS Corporations Bill at [7.4]. 520. Section 1502 and see the EM to the PPS Corporations Bill at [7.6]. On s 274, see R P Austin and A J Black, Austin & Black’s Annotations to the Corporations Act, LexisNexis looseleaf, at [2K.274]. 521. The definition of ‘company’ for the purposes of Ch 2K (other than ss 273A–273E) includes registrable bodies registered under Pt 5B.2 Divs 1 and 2. 522. See 9.116ff. 523. Section 9 Corporations Act. 524. Section 9. See 9.124 on floating charges. 525. IMF (Australia) Ltd v Meadow Springs Fairway Resort Ltd (2009) 253 ALR 240; [2009] FCAFC 9 at [57] per North, Emmett and Rares JJ. 526. IMF (Australia) Ltd v Meadow Springs Fairway Resort Ltd (in liq) (2009) 253 ALR 240; [2009]

FCAFC 9 at [57]–[58] per North, Emmett and Rares JJ. 527. Buchler v Talbot [2004] 1 All ER 1289 at 1304; [2004] 2 AC 298 at [1] per Lord Nicholls. Floating charges were first recognised by the Court of Appeal in Chancery in Re Panama, New Zealand and Australian Royal Mail Co (1870) 5 Ch App 318. See also Re Florence Land and Public Works Co; Ex parte Moor (1878) 10 Ch D 530; Re Hamilton’s Windsor Ironworks; Ex parte Pitman & Edwards (1879) 12 Ch D 707 and Re Colonial Trusts Corp; Ex parte Bradshaw (1879) 15 Ch D 465 (in which Jessel MR referred to this form of security as a ‘floating security’ (see at 468, 469 and 472)). In Moor v Anglo-Italian Bank (1879) 10 Ch D 681 at 687, Jessel MR contrasted the new form of floating security with a ‘specific charge’ on the property of the company. 528. Cork Report at [101]; Harmer Report at [179]. 529. Re Yorkshire Woolcombers Association Ltd [1903] 2 Ch 284 at 295 (affirmed sub nom Illingworth v Houldsworth [1904] AC 355; Hart v Barnes [1983] 2 VR 517; (1982) 7 ACLR 310; Reynolds Bros (Motors) Pty Ltd v Esanda Ltd (1983) 1 ACLC 1333; 8 ACLR 422; Re Spectrum Plus Ltd [2005] 2 AC 680; [2005] 4 All ER 209; Re Regis Towers Real Estate Pty Ltd (2006) 58 ACSR 523; [2006] NSWSC 852. 530. Buchler v Talbot [2004] 1 All ER 1289; [2004] 2 AC 298 at [3] per Lord Nicholls. However, it is important to remember that the events entitling a chargeholder to appoint a receiver are a matter of contract and need not relate to insolvency, or indicate that the company that granted the charge is insolvent: Harmer Report at [181]. 531. Re Yorkshire Woolcombers Association Ltd [1903] 2 Ch 284 at 295 per Romer LJ; Re Spectrum Plus Ltd [2005] 2 AC 680; [2005] UKHL 41 at [139] per Lord Walker. See Harmer Report at [179]. Lord Justice Romer qualified his description in Re Yorkshire Woolcombers Association by saying that it was not an exhaustive definition, and it was possible that there could be a floating charge within the meaning of the Act that did not contain all three characteristics. 532. Hanson Construction Materials Pty Ltd v Vimwise Civil Engineering (2006) NSW ConvR 56-137; [2005] NSWSC 880 at [15] per Campbell J. 533. See, for example, former s 263(1)(a)(ii). 534. B & B Budget Forklifts Pty Ltd v CBFC Ltd (2008) 216 FLR 294; [2008] NSWSC 271 at [30] per Barrett J. 535. Illingworth v Houldsworth [1904] AC 355 at 358. 536. United Builders Pty Ltd v Mutual Acceptance Ltd (1980) 144 CLR 673; 3 ALR 1 at 6. 537. Re Spectrum Plus Ltd [2005] 2 AC 680; [2005] UKHL 41 at [138] per Lord Walker of Gestingthorpe; Re Australian Securities and Investments Commission; Re Richstar Enterprises v Carey (No 9) (2006) 58 ACSR 721; [2006] FCA 1242 at [65] per French J; B & B Budget Forklifts Pty Ltd v CBFC Ltd (2008) 216 FLR 294; [2008] NSWSC 271 at [34] per Barrett J; Markets Nominees Pty Ltd v Commissioner of Taxation [2012] FCA 262 at [49] per Tracey J. 538. IMF (Australia) Ltd v Meadow Springs Fairway Resort Ltd (in liq) (2009) 69 ACSR 507; [2009] FCAFC 9 at [60]. See Harmer Report at [189]. On crystallisation see also Harmer Report at [190]– [196]. 539. Buchler v Talbot [2004] 1 All ER 1289 at 1304; [2004] 2 AC 298 at [30]–[31] per Lord Hoffman, cited in IMF (Australia) Ltd v Meadow Springs Fairway Resort Ltd (2009) 253 ALR 240; [2009] FCAFC 9 at [60] per North, Emmett and Rares JJ. 540. Re Yagerphone Ltd [1935] Ch 392 at 396 per Bennett J; [1935] All ER Rep 803; Re Quality Camera Co Pty Ltd [1965] NSWR 1330; (1965) 83 WN (Pt 1) (NSW) 226 (McLelland CJ in Eq); Campbell v Michael Mount PPB (1995) 65 SASR 334; (1996) 14 ACLC 218 (per Doyle CJ, Matheson J agreeing); Hamilton v National Australia Bank Ltd (1996) 66 12; 137 ALR 231 at 245 per Lehane J.

See also Re N A Kratzmann Pty Ltd v Tucker (No 2) (1968) 123 CLR 295; [1968] ALR 616. See the discussion at 11.2. 541. Agnew v Commissioner of Inland Revenue [2001] 2 AC 710 at 725 per Lord Millett; [2001] UKPC 28; Hanson Construction Materials Pty Ltd v Vimwise Civil Engineering Pty Ltd [2005] NSWSC 880 at [22] per Campbell J (the surrounding circumstances may indicate that the parties could not have intended what is otherwise indicated by the wording of the charge); United Builders Pty Ltd v Mutual Acceptance Ltd (1980) 144 CLR 673; 3 ALR 1 at ALR 7 per Stephen J; Porter v Bonarrigo [2009] VSC 500 at [63]–[73] per Vickery J. 542. Avco Financial Services Ltd v White [1977] VR 561 at 564 per Gillard J, citing Cradock v Scottish Provident Institution (1893) 69 LT 380 at 382 per Romer J. 543. Roberts v Investwell Pty Ltd (in liq) (2012) 88 ACSR 689; [2012] NSWCA 134 at [29] per Bathurst CJ, Beazley JA and Tobias AJA agreeing. 544. On the ‘creditor’s bargain’ rationale for the statutory insolvency regime, see 1.6. 545. Salomon v Salomon & Co [1897] AC 22 at 51 per Lord Macnaghten. 546. Such as employees and liquidators. On the order of priority in which particular unsecured debts are to be paid from the realised assets of an insolvent company, see s 556 of the Corporations Act. See discussion of the priority of employee entitlements at 9.131. 547. See, for example, Arena Management Pty Ltd (recs and mgr apptd) v Campbell Street Theatre Pty Ltd (2011) 80 NSWLR 652. 548. See, for example, Arena Management Pty Ltd (recs and mgr apptd) v Campbell Street Theatre Pty Ltd (2011) 80 NSWLR 652. See also, for example, Opes Prime Stockbroking Ltd (2009) 179 FCR 20; 258 ALR 362. 549. As defined in s 51C of the Corporations Act. 550. The PPSA does not affect the operation of these priority provisions: s 140(1A) PPSA. 551. Other than a court-appointed receiver: Sipad Holding ddpo v Popovic (1995) 19 ACSR 108; 14 ACLC 307. 552. See s 433(3) Corporations Act. The priority debts include most of the priority debts payable out of secured assets under s 561, in particular the employee entitlements. 553. Re Italiano Family Fruit Co Pty Ltd (2010) 190 FCR 474; 276 ALR 349 at [74] per Finkelstein J. 554. Re Italiano Family Fruit Co Pty Ltd (2010) 190 FCR 474; 276 ALR 349 at [74] per Finkelstein J. 555. Steinberg v Herbert (1988) 14 ACLR 80 at 89; 7 ACLC 134 per Brisden and Kennedy JJ. 556. Re Italiano Family Fruit Co Pty Ltd (2010) 190 FCR 474; 276 ALR 349 at [74]; Re Custom Card (NSW) Pty Ltd [1979] 1 NSWLR 241; Perrins v State Bank of Victoria [1991] 1 VR 749. 557. The preferential employee debts are: (a) wages, superannuation contributions and the superannuation guarantee charge as specified in s 556(1)(e); (b) amounts due to employees of the company on or before the relevant date in respect of leave of absence because of an industrial agreement as specified in s 556(1)(g); (c) retrenchment payments as specified in s 556(1)(h); (d) amounts that are costs of the winding up pursuant to s 558(3) or 558(4) (namely, an amount that would have been a debt referred to in s 556(1)(e),(g) or (h) if payable on or before the relevant date); (e) and amounts given a derivative right of priority by s 560 (advances given to permit company to make priority payments to employees). Employees are given priority due to the fluctuating nature of the security granted by a floating security and the fact that employees may have contributed to the value of the security without being paid: Re Lewis Merthyr Consolidated Collieries Ltd; Lloyds Bank Ltd v Lewis Merthyr Consolidated Collieries Ltd [1929] 1 Ch 498 at 507–8 per Tomlin J. Section 561 should be read against the complete order of priorities in s 556. On s 556, see R P

Austin and A J Black, Austin & Black’s Annotations to the Corporations Act, LexisNexis looseleaf, at [5.556]. Detailed analysis of priority provisions is outside the scope of this work. For the history of s 561 of the Corporations Act, see R P Austin and A J Black, Austin & Black’s Annotations to the Corporations Act, LexisNexis looseleaf, at [5.561]. For the history of its predecessor UK provisions, see Buchler v Talbot [2004] 1 All ER 1289 at 1294; [2004] 2 AC 298 per Lord Nicholls of Birkenhead. On preferential debts generally, see Christopher Symes, Statutory Priorities in Corporate Insolvency Law, Ashgate, London, 2008. 558. Section 561 of the Corporations Act is triggered upon the company being wound up, regardless of whether s 433 already applies: Re Italiano Family Fruit Co Pty Ltd (2010) 190 FCR 474; 276 ALR 349 at [74] per Finkelstein J. 559. Re Italiano Family Fruit Co Pty Ltd (2010) 190 FCR 474; 276 ALR 349 at [70]. 560. Re Italiano Family Fruit Co Pty Ltd (2010) 190 FCR 474; 276 ALR 349 at [79]–[80]. 561. Former s 262(1)(a) Corporations Act. 562. Former s 262(1)(b) Corporations Act. 563. Former s 262(1)(c) Corporations Act. 564. Former s 262(1)(d) Corporations Act. Defined in s 262(3) as ‘a charge on any article capable of complete transfer by delivery,’ subject to the exceptions listed in the section. 565. Former s 262(1)(f) Corporations Act. Defined in s 262(4) as a charge on a debt due or to become due at some future time to the company on account of or in connection with a profession, trade or business carried on by the company, whether or not entered in a book. For example, see National Westminster Finance Aust Ltd v JD Johnson & Co [1991] 1 Qd R 130; 2 ACSR 649 at 654 per Macrossan CJ, Shepherdson and De Jersey JJ (charge over damages claim within the s 262(4) book debt definition). At general law, a book debt is a debt which should be recorded in the company’s books so as to properly disclose its business transactions and financial position from time to time (whether or not the debt is so recorded): Shipley v Marshall (1863) 14 CBNS 566 at 571–3 per Williams J; (1863) 143 ER 567; Tailby v Official Receiver (1888) 13 App Cas 523; [1886-90] All ER Rep 486; Robertson v Grigg (1932) 47 CLR 257; 6 ALJR 154; Independent Automatic Sales Ltd v Knowles & Foster [1962] 3 All ER 27 at 34. Section 262(4) excludes a charge on a marketable security, on a negotiable instrument or on a debt owing in respect of a mortgage, charge or lease of land from the definition of book debt. 566. Former s 263 Corporations Act. 567. Former s 264 Corporations Act. 568. The prescribed forms were ASIC Forms 309, 30 and 911. 569. Former s 270(1) Corporations Act. 570. See discussion at 9.116. 571. Former s 266(1)(a). 572. Former s 266(1)(a). 573. Former s 266(1)(ba). 574. A notice or other document is taken to be lodged when it is received at an office of ASIC in this jurisdiction by an officer authorised to receive it: s 261(4) Corporations Act. 575. Former s 266(1)(c). 576. Former s 266(1)(c)(i). 577. Former s 266(1)(c)(ii) Corporations Act. ‘Critical day’ is defined in s 266(8) Corporations Act.

578. Former s 266(1)(d)–(f) Corporations Act. 579. Section 588FM is the successor provision to s 266(4) Corporations Act. See 9.77ff. 580. Former s 266(1)(c) Corporations Act. See Enterprise Colorvideo Productions Pty Ltd v Corporate Affairs Commission (NSW) [1984] 1 NSWLR 223 at 226; 8 ACLR 767 per McLelland J; applied Wilson v Dunn (1994) 35 NSWLR 121; 15 ACSR 156 (Mahoney, Handley and Sheller JJA). 581. ‘Court’ (capital ‘C’) is defined in s 58AA(1) to mean relevantly any of the following courts: ‘(a) the Federal Court; (b) the Supreme Court of a State or Territory; …’. On s 58AA, see 11.19. 582. Former s 266(4) Corporations Act. Section 1504(3) of the Corporations Act expressly preserves a right of application in the case of registrable (ie pre-PPS) charges). See 9.116ff. 583. Former s 266(4) Corporations Act. 584. Re Sandawell Pty Ltd (in liq) (1991) 4 ACSR 478 at 480 per Mackenzie J; Re Wilson Tyres (1992) 7 ACSR 318 at 332 per Senior Master Mahony; National Australia Bank Ltd v Davis & Waddell (Vic) Pty Ltd (2003) 44 ACSR 296; [2003] VSC 1 at [45] per Hansen J. Compare Re Freightlines Northern Territory Pty Ltd (in liq) [2000] 2 Qd R 384 at 387; [1999] QSC 209 at [13] per Thomas JA (the just and equitable ground is not separately numbered, and may be thought ‘to state the ultimate requirement of which the first two are mere examples’). Section 588FM resolves any ambiguity by expressing the grounds clearly as alternatives. On s 588FM, see 9.77ff. 585. Lombe v Wagga Leagues Club Ltd (2006) 56 ACSR 387; [2006] NSWSC 3. 586. Lombe v Wagga Leagues Club Ltd (2006) 56 ACSR 387; [2006] NSWSC 3 at [41] per Barrett J. 587. Bevillesta Pty Ltd v Imagine UN Ltd (2009) 69 ACSR 574; [2009] VSC 50 at [28], citing Re L H Charles & Co Ltd (1935) WN (Eng) 15; and Re Guardian Securities Ltd [1984] 1 NSWLR 95 at 97; 8 ACLR 822 at 823 per McLelland J. 588. National Australia Bank Limited v Davis & Waddell (Vic) Pty Ltd (2003) 44 ACSR 296; [2003] VSC 1 at [45] per Hansen J. 589. Craig Mostyn & Co Pty Ltd v Old Valley Pty Ltd (in liq) (2004) 50 ACSR 282; [2004] FCA 1083 at [46] per French J. See also Re Daisytek Australia Pty Ltd (2003) 46 ACSR 424; [2003] FCA 768. In that case, Gyles J held that the failure to lodge the notice in respect of the charge was both accidental and due to inadvertence within the meaning of s 266(4)(a), but declined to set out the detailed facts leading to that conclusion (at [11]); Re Airport West Pty Ltd (2005) 54 ACSR 8; [2005] FCA 686 at [5] per Gyles J (failure to lodge caused by lapse in communication between solicitors in separate states both accidental and inadvertent within the meaning of s 266(4)(a)). 590. National Australia Bank Limited v Davis & Waddell (Vic) Pty Ltd (2003) 44 ACSR 296; [2003] VSC 1. 591. National Australia Bank Limited v Davis & Waddell (Vic) Pty Ltd (2003) 44 ACSR 296; [2003] VSC 1 at [58]. 592. Nichol v Fearby; Nichol v Robinson [1923] 1 KB 480 at 497 per McCardie J (regarding a failure to lodge under the Municipal Elections (Corrupt and Illegal Practices) Act 1884 (UK)). 593. Hamilton v Property Investments Ltd [1983] WAR 317; 7 ACLR 932 at 934; applied Sanwa Australia Finance Ltd v Ground-Breakers Pty Ltd (in liq) [1991] 2 Qd R 456 at 461; (1990) 2 ACSR 692 at 695 per Kelly SPJ, Macrossan CJ and Connolly J agreeing. 594. Rynmarc Pty Ltd v Classic Ergonomic Chairs Pty Ltd (1994) 12 ACLC 1038 per Underwood J. 595. National Australia Bank Limited v Davis & Waddell (Vic) Pty Ltd (2003) 44 ACSR 296; [2003] VSC 1 at [64]–[67]. 596. His Honour relied on Re Kris Cruisers Ltd [1949] Ch 138 at 141; [1948] 2 All ER 1105 at 1106 per Vaisey J.

597. Section 101 of the Companies Act 1948 (11 & 12 Geo 6 c 38). 598. Re Kris Cruisers Ltd [1949] Ch 138 at 142; [1948] 2 All ER 1105 at 1107. 599. Metcash Trading Ltd v 8 Nai Investments Pty Ltd [2011] FCA 1400 at [9]. 600. Re Freightlines Northern Territory Pty Ltd (in liq) [2000] 2 Qd R 384; [1999] QSC 209. 601. Re Freightlines Northern Territory Pty Ltd (in liq) [2000] 2 Qd R 384; [1999] QSC 209 at [11] per Thomas J. 602. Re Kris Cruisers Ltd [1949] Ch 138 at 141-2; [1948] 2 All ER 1105 per Vaisey J. See also, Queensland Company Credit Union v Na-Kuraga Ltd (2005) 55 ACSR 219; [2005] QSC 149. 603. Hewlett Packard Australia Pty Ltd v Exeed Pty Ltd (2004) 48 ACSR 670; [2004] FCA 135 per Lindgren J. 604. Diploma Construction Pty Ltd v Precast Prestressed Buildings Perth Pty Ltd (2004) 51 ACSR 482; [2004] FCA 1505 per Underwood J. 605. Rynmarc Pty Ltd v Classic Ergonomic Chairs Pty Ltd (1994) 12 ACLC 1038 at 1046. 606. Re Bootle Cold Storage Company [1901] WN 54 (there had also been delay by the stamping authorities); Re Mendip Press Ltd (1901) 18 TLR 38; Re Cunard Steamship Company [1908] WN 160; Re Wilson Tyres Pty Ltd (1992) 7 ACSR 318; 10 ACLC 756; Re Australia and New Zealand Banking Group Ltd; Harsit Holdings Pty Ltd [2008] NSWSC 1379 (company officer unaware of requirement to lodge notice of a charge on a marketable security within s 262(1)(g); but application for an order under s 266(4) dismissed on basis of supervening sale of relevant securities). 607. Re Jackson & Co Ltd [1899] 1 Ch 348 (on a filing requirement under the Companies Act 1867), distinguished Hamilton v Property Investments Ltd (1983) 7 ACLC 932 (ignorance of the law and subsequent inaction to be distinguished from intentional action when unaware of consequences of such action); Nichol v Fearby; Nichol v Robinson [1923] 1 KB 480 at 498, 501 per McCardie J; Re Dudley Engineering Pty Ltd [1968] 1 NSWR 483 at 485; (1967) 87 WN (Pt 1) (NSW) 326 per Street J; Sanwa Australia Finance Ltd v Ground-Breakers Pty Ltd (in liq) [1991] 2 Qd R 456 at 461; 2 ACSR 692 at 695–6 per Kelly SPJ, Macrossan CJ and Connolly J agreeing; Rynmarc Pty Ltd v Classic Ergonomic Chairs Pty Ltd (1994) 12 ACLC 1038 (awareness of requirement for prompt registration, although not of the 45-day period, not inadvertence when coupled with substantial later delay); In the matter of Lloyd Anthony Furniture Pty Ltd (1996) 19 ACSR 478; 14 ACLC 540 (Federal Court); National Australia Bank v T2 Trading Pty Ltd [2003] FCA 1477; Diploma Construction Pty Ltd v Precast Prestressed Buildings Perth Pty Ltd (2004) 51 ACSR 482; [2004] FCA 1505 (inadvertence where aware of requirement for prompt registration, although not of the 45day period); Talon A Pty Ltd v Signav Pty Ltd (admins appted) [2009] FCA 990; Theunissen v Dyer Pty Ltd 18 ACSR 804; 14 ACLC 37 per Master Ng. 608. Sanwa Australia Finance Ltd v Ground-Breakers Pty Ltd (in liq) [1991] 2 Qd R 456 at 461; 2 ACSR 692 at 695–6 per Kelly SPJ, Macrossan CJ and Connolly J agreeing; National Australia Bank Limited v Davis & Waddell (Vic) Pty Ltd (2003) 44 ACSR 296; [2003] VSC 1; Metcash Trading Ltd v 8 Nai Investments Pty Ltd [2011] FCA 1400 at [8] per Jacobson J. 609. Re Kris Cruisers Ltd [1949] Ch 138 at 141–2; [1948] 2 All ER 1105 at 1106–7 per Vaisey J; Queensland Company Credit Union v Na-Kuraga Ltd (2005) 55 ACSR 219; [2005] QSC 149 per Helman J. 610. Campbell Finance v Vivstan Packaging (Aust) Pty Ltd (in liq) [1998] 2 VR 340; 22 ACSR 109 at 116 per Batt J. 611. Re Freightlines Northern Territory Pty Ltd (in liq) [2000] 2 Qd R 384; [1999] QSC 209 per Thomas JA; Craig Mostyn & Co Pty Ltd v Old Valley Pty Ltd (in liq) (2004) 50 ACSR 282; [2004] FCA 1083 (French J); Panadell Architectural Cladding Systems Pty Ltd v Panadell Industries Pty Ltd

[2010] FCA 511 at [19] per Emmett J. 612. Re Investa Properties Ltd (2001) 40 ACSR 124 at 130; [2001] NSWSC 1089 at [22]–[29] per Barrett J. 613. Re Multiplex Acumen Property Fund [2009] NSWSC 1014. 614. Re Perpetual Trustee Co Ltd [2010] FCA 357 at [23] per Emmett J. 615. National Australia Bank Limited v Davis & Waddell (Vic) Pty Ltd (2003) 44 ACSR 296; [2003] VSC 1 at [58] per Hansen J; Seed Corporate Finance Pty Ltd v Savvytel Pty Ltd [2010] FCA 733 per Emmett J. 616. Scarfe Steel Supplies Pty Ltd v SMP Pty Ltd (1980) 27 SASR 187; 5 ACLR 262; Re ACE Funding Ltd (2003) 44 ACSR 363; [2003] FCA 59 (Conti J); Hewlett Packard Australia Pty Ltd v Exeed Pty Ltd (2004) 48 ACSR 670; [2004] FCA 135 at [43]–[45] per Lindgren J; Re Airport West Pty Ltd (2005) 54 ACSR 8; [2005] FCA 686 at [5] per Gyles J (the failure was also due to miscommunication between solicitors in separate States); Bevillesta Pty Ltd v Imagine UN Ltd (2009) 69 ACSR 574; [2009] VSC 50 at [25] per Robson J. 617. Rynmarc Pty Ltd v Classic Ergonomic Chairs Pty Ltd (1994) 12 ACLC 1038 per Underwood J. 618. Re Freightlines Northern Territory Pty Ltd (in liq) [2000] 2 Qd R 384; [1999] QSC 209 at [13] per Thomas JA. 619. Theunissen v Dyer Pty Ltd (1995) 18 ACSR 804 at 804; 14 ACLC 37. 620. Tank Systems Australia Pty Ltd (in liq) v United Goldfields Engineering Pty Ltd (in liq) (1992) 10 ACLC 1508 at 1510. 621. Re Application of Guardian Securities Ltd [1984] 1 NSWLR 95 at 98. See 9.151. 622. Craig Mostyn & Co Pty Ltd v Old Valley Pty Ltd (in liq) (2004) 50 ACSR 282; [2004] FCA 1083 at [48] per French J. 623. Re MIG Trust Ltd [1933] Ch 542 at 550. 624. In considering s 15 of the Companies Act 1900 (UK), in almost identical terms to s 266(4). 625. Bevillesta Pty Ltd v Imagine UN Ltd (2009) 69 ACSR 574; [2009] VSC 50. 626. Bevillesta Pty Ltd v Imagine UN Ltd (2009) 69 ACSR 574; [2009] VSC 50 at [26]. 627. Rynmarc Pty Ltd v Classic Ergonomic Chairs Pty Ltd (1994) 12 ACLC 1038. 628. Rynmarc Pty Ltd v Classic Ergonomic Chairs Pty Ltd (1994) 12 ACLC 1038 at 1047. 629. Queensland Company Credit Union v Na-Kuraga Ltd (2005) 55 ACSR 219 at 221; [2005] QSC 149 per Helman J; Re Freightlines Northern Territory Pty Ltd (in liq) [2000] 2 Qd R 384 at 387; [1999] QSC 209 at [13] per Thomas JA. 630. Hewlett Packard Australia Pty Ltd v GE Capital Finance Pty Ltd (2003) 135 FCR 206; 203 ALR 51 at [187] per Allsop J (and the authorities there cited). 631. Re Freightlines Northern Territory Pty Ltd (in liq) [2000] 2 Qd R 384 at 387; [1999] QSC 209 at [15] per Thomas JA. 632. Campbell Finance Pty Ltd v Vivstan Packaging (Aust) Pty Ltd (in liq) [1998] 2 VR 340 at 348; (1996) 22 ACSR 109 at 116 per Batt J. 633. Commercial Banking Co of Sydney Ltd v George Hudson Pty Ltd (in liq) (1973) 131 CLR 605 at 612; 2 ALR 1 at 4 per Menzies J and at CLR 621, ALR 12–13 per Stephen J; Re Flinders Trading Co Pty Ltd (1978) 20 SASR 14 at 46–8; 3 ACLR 218 per Mitchell J with whom Walter J agreed; Hewlett Packard Australia Pty Ltd v GE Capital Finance Pty Ltd (2003) 135 FCR 206; 203 ALR 51 at [27] per Branson J.

634. Standard Chartered Finance Ltd v De Barros Nominees Pty Ltd (in liq) (1988) 7 ACLC 15; Sanwa Australia Finance Ltd v Ground-Breakers Pty Ltd (in liq) [1991] 2 Qd R 456; 2 ACSR 692 at 700 per Kelly SPJ, Macrossan CJ and Connolly J agreeing; Citibank Ltd v Linput Pty Ltd (in liq) (1991) 104 FLR 239; 5 ACSR 361; Hewlett Packard Australia Pty Ltd v GE Capital Finance Pty Ltd (2003) 135 FCR 206; 203 ALR 51 per Branson J at [28], per Allsop J at [192]. 635. Re Investa Properties Ltd (2001) 40 ACSR 124 at [30] per Barrett J. 636. Dempsey Resources Pty Ltd v Continental Coal Ltd [2009] FCA 1157 at [20]–[21] per Gilmour J. 637. Queensland Company Credit Union v Na-Kuraga Ltd (2005) 55 ACSR 219 at 221; [2005] QSC 149 per Helman J. 638. Queensland Company Credit Union v Na-Kuraga Ltd (2005) 55 ACSR 219 at 222; [2005] QSC 149 per Helman J. 639. Re Dudley Engineering Pty Ltd [1968] 1 NSWR 483 at 486; (1967) 87 WN (Pt 1) (NSW) 326 at 331 per Street J. 640. Re Guardian Securities Ltd [1984] 1 NSWLR 95 at 97; (1984) 8 ACLR 822 at 823 per McLelland J; Bevillesta Pty Ltd v Imagine UN Ltd (2009) 69 ACSR 574; [2009] VSC 50 at [28]. On the protection of unsecured creditors, see 9.151. 641. Re Dudley Engineering Pty Ltd [1968] 1 NSWR 483 at 486; (1967) 87 WN (Pt 1) (NSW) 326 at 331 per Street J; Bloodstock Air Services of Australia Pty Ltd (in liq) v Roadrunner Equipment Pty Ltd (1985) 10 ACLR 36 at 38; 3 ACLC 735 per Rowland J; Vector Capital Ltd v SNS Software Network Systems Pty Ltd (1988) 12 NSWLR 1 at 7–8; 12 ACLR 723 at 728 per Needham J; Re Fairline Furniture (Aust) Pty Ltd (in liq) (1988) 12 ACLR 787 at 792 per Murray J (VSC); Douglas-Brown v Standard Chartered Finance Ltd (1990) 2 ACSR 737 at 742 per Malcolm CJ and Rowland J, with whom Wallwork J agreed; (1990) 8 ACLC 993; Sanwa Australia Finance Ltd v Ground-Breakers Pty Ltd (in liq) [1991] 2 Qd R 456; (1990) 2 ACSR 692 at 699 per Kelly SPJ, Macrossan CJ and Connolly J agreeing; Citibank Ltd v Linput Pty Ltd (in liq) (1991) 104 FLR 239; 5 ACSR 361 at 373 per McKenzie J; Tank Systems Australia Pty Ltd (in liq) v United Goldfields Engineering Pty Ltd (in liq) (1992) 10 ACLC 1508 per Adams M; Rynmarc Pty Ltd v Classic Ergonomic Chairs Pty Ltd (1994) 12 ACLC 1038 per Underwood J; Theunissen v Dyer Pty Ltd (1995) 18 ACSR 804 at 804; 14 ACLC 37 per Master Ng; Re Lloyd Anthony Furniture Pty Ltd; Ex parte Walker (1996) 19 ACSR 478 at 482; 14 ACLC 540 per Branson J; Morris v Woodings (1997) 25 ACSR 636 at 638; 16 ACLC 47 per Wheeler J; Campbell Finance v Vivstan Packaging (Aust) Pty Ltd (in liq) [1998] 2 VR 340; 22 ACSR 109 at 116 per Batt J; Hewlett Packard Australia Pty Ltd v GE Capital Finance Pty Ltd (2003) 135 FCR 206; 203 ALR 51 at [192] per Allsop J; CBFC Ltd v Corporate Consulting (Aust) Pty Ltd (in liq) [2010] QSC 395 at [14], [20]–[25] per Boddice J. Compare Craig Mostyn & Co Pty Ltd v Old Valley Pty Ltd (2004) 139 FCR 477; [2004] FCA 1083 at [50] per French J (if winding up is no bar to the exercise of the discretion, there is no justification for engrafting a requirement for ‘exceptional’ circumstances); and National Australia Bank Limited v Davis & Waddell (Vic) Pty Ltd (2003) 44 ACSR 296; [2003] VSC 1 at [77] per Hansen J, obiter (‘[t]he court should not place a hurdle in the path of an applicant, requiring an applicant to demonstrate exceptional circumstances to overcome the negative effect of an order on unsecured creditors in a winding up, when s 266(4) imposes no such hurdle’). 642. Hewlett Packard Australia Pty Ltd v GE Capital Finance Pty Ltd (2003) 135 FCR 206; 203 ALR 51 at [24] per Branson J; at [190]–[200] per Allsop J (Whitlam J dissenting). 643. Hewlett Packard Australia Pty Ltd v GE Capital Finance Pty Ltd (2003) 135 FCR 206; 203 ALR 51 at [175] per Allsop J. 644. Hewlett Packard Australia Pty Ltd v GE Capital Finance Pty Ltd (2003) 135 FCR 206; 203 ALR 51 at [220] per Allsop J; Re Dudley Engineering Pty Ltd [1968] 1 NSWR 483; 87 WN (Pt 1) (NSW) 326 per Street J; Re Flinders Trading Co Pty Ltd (1978) 20 SASR 14; 3 ACLR 218; Victoria

Housing Estates Ltd v Ashpurton Estates Ltd [1983] Ch 110 at 130; [1982] 3 All ER 665; Re Investa Properties Ltd (2001) 40 ACSR 124 at 133; [2001] NSWSC 1089 at [31] per Barrett J. 645. Re Sandawell Pty Ltd (in liq) (1991) 4 ACSR 478; Sanwa Australia Finance Ltd v Ground-Breakers Pty Ltd (in liq) [1991] 2 Qd R 456; 2 ACSR 692 at 699 per Kelly SPJ, Macrossan CJ and Connolly J agreeing; and Vector Capital Ltd v SNS Software Network Systems Pty Ltd (1988) 12 NSWLR 1 at 7–8; 12 ACLR 723 at 728 per Needham J; Theunissen v Dyer Pty Ltd (1995) 18 ACSR 804 at 805; 14 ACLC 37 per Master Ng. 646. Hewlett Packard Australia Pty Ltd v GE Capital Finance Pty Ltd (2003) 135 FCR 206; 203 ALR 51 at [220] per Allsop J. 647. Dempsey Resources Pty Ltd v Continental Coal Ltd [2009] FCA 1157. 648. Re Investa Properties Ltd (2001) 40 ACSR 124 at 133; [2001] NSWSC 1089 at [31]–[33] per Barrett J. 649. Re Joplin Brewery Co Ltd [1902] 1 Ch 79. 650. Re Joplin Brewery Co Ltd [1902] 1 Ch 79 at 81. 651. Re Joplin Brewery Co Ltd [1902] 1 Ch 79 at 81. See also Re Cinema Art Films [1930] NZLR 500 at 502–3. 652. Re I C Johnson & Co Ltd [1902] 2 Ch 101 (allowing appeal from an extension of time order that imposed a Joplin condition); Parramatta Electric Supply Co Ltd (1919) 19 SR (NSW) 103; 36 WN (NSW) 41; Re Kris Cruisers Ltd [1949] Ch 138 at 141; [1948] 2 All ER 1105 at 1106 per Vaisey J; Re Dudley Engineering Pty Ltd (1968) 1 NSWR 483; (1967) 87 WN (Pt 1) (NSW) 326. 653. Re Kris Cruisers Ltd [1949] Ch 138 at 141; [1948] 2 All ER 1105 at 1106 per Vaisey J; Re Ehrmann Brothers Ltd [1906] 2 Ch 697 at 706–7 per Romer LJ; Re Freightlines Northern Territory Pty Ltd (in liq) [2000] 2 Qd R 384 at 387; [1999] QSC 209 at [26] per Thomas JA. 654. ‘Court’ (capital ‘C’) is defined in s 58AA(1) to mean any of the following courts: ‘(a) the Federal Court; (b) the Supreme Court of a State or Territory; …’. On s 58AA, see 11.19. 655. Former s 266(5). 656. The chargee or receiver must be acting ‘in the exercise of powers conferred by the charge or implied by law’: former s 266(6). 657. Former s 266(6). 658. Former s 266(6). 659. Former s 266(6). 660. Former s 266(6)(a). 661. Former s 266(6)(b). 662. Former s 266(6)(c). 663. Former s 266(6)(d). 664. Former s 266(8). 665. See discussion at 9.116ff. 666. Former s 267(1)(a). A ‘relevant person’ was defined in s 267(7). See 9.159. 667. Former s 267(1)(a). 668. Defined in s 9 to mean the holder of a charge and include a person in whose favour a charge is to be given or executed, whether on demand or otherwise, under an agreement.

669. Former s 267(1)(b). 670. ‘Court’ (capital ‘C’) is defined in s 58AA(1) to mean any of the following courts: ‘(a) the Federal Court; (b) the Supreme Court of a State or Territory …’. On s 58AA, see 11.19. 671. Former s 267(1)(b). A Court may grant leave on application by a chargee for enforcement of the charge if satisfied that the company was solvent immediately after the creation of the charge (s 267(3)(a)), and that it is just and equitable in all the circumstances of the case for such leave to be granted (s 267(3)(b)). See 9.168. 672. Former s 267(1) Corporations Act. 673. 400 Lonsdale Nominees Pty Ltd v Southern Cross Airlines Ltd (in liq) (1993) 10 ACSR 739 at 745; (1993) 11 ACLC 744 per Hayne J; Highland v Exception Holdings Pty Ltd (in liq) (2006) 60 ACSR 223; [2006] NSWCA 318 at [25] per Giles JA (with whom Hodgson JA agreed), at [67] per Santow JA. 674. Former s 267(4). See also Highland v Exception Holdings Pty Ltd (in liq) (2006) 60 ACSR 223; [2006] NSWCA 318 at [68] per Santow JA. 675. See EM to the Companies and Securities Legislation (Miscellaneous Amendments) Bill 1985 at [259]; Highland v Exception Holdings Pty Ltd (in liq) (2006) 60 ACSR 223; [2006] NSWCA 318 at [69] per Santow JA. 676. See EM to the Companies and Securities Legislation (Miscellaneous Amendments) Bill 1985 at [258]–[263]. See also Jesseron Holdings Pty Ltd v Middle East Trading Consultants Pty Ltd (1994) 13 ACSR 455 at 457 per Young J. 677. 400 Lonsdale Nominees Pty Ltd v Southern Cross Airlines Ltd (in liq) (1993) 10 ACSR 739 at 745; 11 ACLC 744. 678. See also Highland v Exception Holdings Pty Ltd (in liq) (2006) 60 ACSR 223; [2006] NSWCA 318 at [25] per Giles JA, with whom Hodgson JA agreed on the question of s 267; and at [67], [71] per Santow JA. 679. Paragraph (a) of the definition of ‘relevant person’ is former s 267(7). 680. Paragraph (a) of the definition of ‘relevant person’ is former s 267(7). 681. Paragraph (b) of the definition of ‘relevant person’ in s 267(7). Former s 267(7) also defined ‘chargee’, ‘officer’ and ‘receiver’. 682. Highland v Exception Holdings Pty Ltd (in liq) (2006) 60 ACSR 223; [2006] NSWCA 318 at [22] per Giles JA, with whom Hodgson JA agreed on the question of s 267. 683. Highland v Exception Holdings Pty Ltd (in liq) (2006) 60 ACSR 223; [2006] NSWCA 318 at [85] per Santow JA. 684. Highland v Exception Holdings Pty Ltd (in liq) (2006) 60 ACSR 223; [2006] NSWCA 318 at [26] per Giles JA, with whom Hodgson JA agreed on the question of s 267. 685. ‘Director’ is defined in s 9 of the Corporations Act. 686. Section 10 Corporations Act; Papua New Guinea Dockyard Ltd v Adams (2005) 215 ALR 742; [2005] FCA 413 at [11]–[12] per Finkelstein J. 687. Sections 12 and 13 of the Corporations Act relate to, respectively, Chs 6–6C and Ch 7, and are not relevant to former s 267. 688. Note that s 10(3) of the Corporations Act provides that nothing in ss 10–17 limits the generality of anything else in ss 10–17. 689. See s 15 of the Corporations Act for the general definition.

Adsteam Building Industries Pty Ltd v Queensland Cement and Lime Company Ltd (No 4) [1985] 1 690. Qd R 127 at 132; 14 ACLR 456 at 459 per McPherson J; Bank of Western Australia v Ocean Trawlers Pty Ltd (1995) 13 WAR 407; 16 ACSR 501 at 524 per Owen J; followed IPT Systems Ltd v MTIC Corporate Pty Ltd (2000) 158 FLR 349; [2000] WASC 316 at [24]–[25] per Owen J; Bateman v Newhaven Park Stud Ltd (2004) 207 ALR 406; [2004] NSWSC 566 at[16]–[23] per Barrett J. 691. Such as in ss 11 or 13 of the Corporations Act. Bateman v Newhaven Park Stud Ltd (2004) 207 ALR 406; [2004] NSWSC 566 at [41] per Barrett J. 692. IPT Systems Ltd v MTIC Corporate Pty Ltd (2000) 158 FLR 349; [2000] WASC 316 at [26]–[27] per Owen J. 693. Buzzle Operations Pty Ltd (in liq) v Apple Computer Australia Pty Ltd (2010) 238 FLR 384; [2010] NSWSC 233 at [130]–[135], and especially at [132], per White J. 694. 400 Lonsdale Nominees Pty Ltd v Southern Cross Airlines Ltd (in liq) (1993) 10 ACSR 739 at 747; 11 ACLC 744 per Hayne J. 695. And its predecessor s 205A(1) of the Companies Code. 696. Australian Innovation Ltd v Dean-Willcocks (as Joint Administrators of Powerline GES Pty Ltd) (2001) 166 FLR 360; [2001] NSWSC 1204 at [26] per Palmer J. 697. 400 Lonsdale Nominees Pty Ltd v Southern Cross Airlines Ltd (in liq) (1993) 10 ACSR 739; 11 ACLC 744. 698. 400 Lonsdale Nominees Pty Ltd v Southern Cross Airlines Ltd (in liq) (1993) 10 ACSR 739 at 746; 11 ACLC 744. 699. Salcedo v Mawarie Mining Co Pty Ltd (1991) 6 ACSR 197 at 201 per McLelland J. 700. 400 Lonsdale Nominees Pty Ltd v Southern Cross Airlines Ltd (in liq) (1993) 10 ACSR 739 at 747; 11 ACLC 744 per Hayne J. 701. Re Scandees Danish Home Ice Cream Pty Ltd [1995] 2 Qd R 678 at 680; 16 ACSR 777 at 779 per Moynihan J. His Honour considered that ‘at its highest, it [the letter] gives notice of what might, if and when put into effect, constitute such a step’. 702. Buzzle Operations Pty Ltd (in liq) v Apple Computer Australia Pty Ltd (2010) 77 ACSR 410; 238 FLR 384; [2010] NSWSC 233 at [138]–[140] per White J. 703. Cain v Aero Marine Consulting Pty Ltd (2003) 133 FCR 1; [2003] FCA 1016 at [67] per Goldberg J; applying Re Scandees Danish Home Ice Cream Pty Ltd [1995] 2 Qd R 678 at 680; 16 ACSR 777 at 779 per Moynihan J. 704. Australian Innovation Ltd v Dean-Willcocks (as joint administrators of Powerline GES Pty Ltd) (2001) 40 ACSR 521; [2001] NSWSC 1204 at [33] per Palmer J. 705. Australian Innovation Ltd v Dean-Willcocks (as Joint Administrators of Powerline GES Pty Ltd) (2001) 40 ACSR 521; [2001] NSWSC 1204. 706. Australian Innovation Ltd v Dean-Willcocks (as joint administrators of Powerline GES Pty Ltd) (2001) 40 ACSR 521; [2001] NSWSC 1204 at [33] per Palmer J. 707. The principle of subrogation has the effect that the surety also simply ‘steps into the shoes of [the] creditor taking whatever rights or advantages that that creditor may have had against the principal debtor’: Netet Pty Ltd v Mott (1994) 13 ACSR 586 at 590; 12 ACLC 578 per Hayne J. 708. Netet Pty Ltd v Mott (1994) 13 ACSR 586 at 590; 12 ACLC 578 at ACSR 591. 709. For a discussion of ‘solvent’, see Chapter 2. 710. Former s 267(3)(a) Corporations Act.

711. Former s 267(3)(b) Corporations Act. 712. Re 21st Century Sign Co Pty Ltd [1994] 1 Qd R 93 at 96; 9 ACSR 77. 713. Re 21st Century Sign Co Pty Ltd [1994] 1 Qd R 93 at 97–8; 9 ACSR 77 at 77–8 per Ryan J, applied Exception Holdings Pty Ltd (in liq) v Albarran (No 2) (2005) 194 FLR 274; [2005] NSWSC 981 at [13] per Young CJ in Eq. 714. Re 21st Century Sign Co Pty Ltd [1994] 1 Qd R 93 at 96; 9 ACSR 77. 715. Exception Holdings Pty Ltd (in liq) v Albarran (No 2) (2005) 194 FLR 274; [2005] NSWSC 981 at [12]. 716. Re 21st Century Sign Co Pty Ltd [1994] 1 Qd R 93 at 96; 9 ACSR 77. 717. Re 21st Century Sign Co Pty Ltd [1994] 1 Qd R 93 at 97–8; 9 ACSR 77. 718. Jesseron Holdings Pty Ltd v Middle East Trading Consultants Pty Ltd (1994) 13 ACSR 455 at 461 per Young J. 719. Exception Holdings Pty Ltd (in liq) v Albarran (No 2) (2005) 194 FLR 274; [2005] NSWSC 981 at [12]–[16] per Young CJ in Eq. Appeal on other grounds dismissed: Highland v Exception Holdings Pty Ltd (in liq) (2006) 60 ACSR 223; [2006] NSWCA 318. See also Hodgson J of the Supreme Court of New South Wales in Abalcheck Pty Ltd v Pullen (1990) 3 ACSR 246 at 254–5; 8 ACLC 1078 at 1085 (no absolute principle prevented an order being made under a predecessor to s 1322 retrospectively validating a charge); and the discussion in Ford at [27.345.12] on the potential application of s 1322. 720. ‘Relevant person’ has the meaning given by former s 267(7) Corporations Act. 721. Former s 267(5) Corporations Act. 722. Former s 267(6) Corporations Act.

[page 484]

10 Civil and Criminal Liability of Directors INTRODUCTION 10.1 One of the fundamental principles of Anglo-Australian company law is that a company is a persona ficta — a separate and independent legal entity1 with its own rights, privileges, duties and liabilities. The separate entity doctrine2 facilitates the limitation of liability of a company’s directors and its members3 with the consequence that the rights, privileges, duties and liabilities ascribed by law to the company are not ordinarily ascribed to its directors or members by reason only of their being directors or members.4 Limited liability has been a feature of English law since 1855 following the enactment of the Limited Liability Act (UK) 1855 (18 & 19 Vic, c 133) with its major objective being the encouragement of entrepreneurial activity.5 Section 588G of the Corporations Act and cognate provisions6 effectively provide an exception to this separate entity doctrine by allowing a court to make an order against a director where the court is satisfied that a director has failed to prevent insolvent trading by a company in contravention [page 485] of section 588G(2).7 As will be seen below, the purpose of s 588G is to discourage directors of companies from improvidently committing the company to obligations to pay money as a debt when they have reasonable grounds for

supposing that their company is (or will, upon incurring the debt in question) become insolvent.8 That is to say, provisions such as s 588G require directors and those who take part in the management of a company to scrutinise carefully the circumstances in which the company incurs debts.9

Evolution of s 588G 10.2 Provisions such as s 588G are not new. In 1926, the Greene Committee10 reviewed the then existing English company legislation and expressed a concern with ‘fraudulent trading’. Specifically, the Committee was concerned with the practice of a person in control of a company holding a floating charge, while knowing that the company is on the verge of liquidation, who ‘fills up’ the security by means of goods obtained on credit and then appoints a receiver.11 To deal with this perceived evil, the Committee recommended that: Where in the course of winding up a company it appears that any business of the company has been carried on with the intent to defraud creditors of the company or of any other company or person or for any fraudulent or illegal purpose the Court should be empowered upon the application of the official receiver or of the liquidator or of any creditor or contributory to declare that all or any of the responsible directors of he company present or past shall be subject to unlimited personal liabilities in respect of all or any of the debts or other liabilities of the company and to make any necessary consequential orders for the purpose of enforcing such liability.12

The Greene Committee also recommended that the carrying on of any business of a company with any such intent or any such purpose and the obtaining of credit by or for the company in such circumstances, should be a criminal offence punishable by imprisonment.13 These [page 486] recommendations led to the enactment of s 275 of the Companies Act 1929 (UK) which empowered the court to declare any directors of a company personally liable for all of the company’s debts and other liabilities where in the course of a winding up of a company it appeared to the court that any business of the company had been ‘carried on with intent to defraud creditors of the company’. Section 275 of the Companies Act 1929 (UK) (which was later incorporated into s 332 of the Companies Act 1948 (UK)) was initially reproduced in Australia by Queensland as s 284 of the Companies Act of 1931 (Qld) with other states following suit.

10.3 In 1961, provisions in the Australian uniform companies legislation such as s 303(3) of the Companies Act 1961 (NSW)14 made it a criminal offence for an officer of a company who was knowingly a party to the contracting of a debt provable in the winding up of the company where the director at the time the debt was contracted had no reasonable or probable ground of expectation of commercial insolvency. In a prosecution for such an action, the prosecution had to prove beyond reasonable doubt that at the time of contracting the debt the director had no expectation, reasonably grounded in the whole of the circumstances then existent as he or she knew them, of being able to pay the debt.15 In 1962, the Jenkins Committee16 in the United Kingdom recommended that s 332(1) of the Companies Act 1948 (UK) should be extended to make directors and others, who have carried on the business of the company in a ‘reckless manner’, personally responsible without limitation of liability, for all or any of the debts or other liabilities of the company. Shortly after, in 1964, New South Wales introduced s 304(1A) of the Companies Act 1961 which provided that where a person had been convicted of an offence under s 303(3) the court may, on the application of the liquidator or a creditor, declare that the person shall be personally responsible without any limitation of liability for the payment of the whole or any part of that debt. Section 304(1A) was subsequently repealed and replaced by s 374D of the Companies Act 1961.17 Section 374D imposed personal liability on an officer of a company who had been convicted under former s 374C of the Companies Act, 1961 for being knowingly a party to the contracting of a debt by the company when the company was insolvent. The civil penalty imposed on an officer so convicted was [page 487] for the payment to the company of an amount equal to the whole of the debt in respect of which the conviction was made, or such part thereof as the court thought fit.18 10.4 Section 374D of the Companies Act 1961 was in turn replaced by s 556 of the Companies Code 1981. Section 556(1) of the Companies Code made it an offence for a director (and any person who took part in the management of a company) if the company incurred a debt and immediately before the debt was incurred there were reasonable grounds to expect that the company would not be

able to pay all its debts as and when they became due or there were reasonable grounds to expect that, if the company incurred the debt, it would not be able to pay all of its debts as and when they became due. Section 556 created a personal cause of action in favour of a creditor against a director in circumstances falling within s 556(1).19 Curiously, while a creditor was capable of recovering moneys pursuant to s 556(1) from an officer guilty of an offence under s 556(1) of the Code, a liquidator of the company could not.20 In 1991, s 556 of the Companies Code was replaced by s 592 of the former Corporations Law but the section was drafted in substantially the same terms as the previous legislation.21 10.5 Section 588G was introduced by the Corporate Law Reform Act 1992 (CLRA) following recommendations made by the Harmer Report and forms part of Pt 5.7B of the Act which took effect from 23 June 1993.22 Sections 592 and 593, however, were not repealed and the insolvent trading provisions of those sections continue to apply to debts incurred prior to 23 June 1993.23 What is not clear, however, is whether the offence of fraudulent trading contained in s 592(6) applies only in relation to debts incurred by the company after 23 June 1993 or whether there is no time limit for its operation. The Explanatory Memorandum to the Corporate Law Reform Bill 1992 (EM to the CLR Bill) expressly states that s 588G ‘replaces’ section 59224 and contains a [page 488] detailed comparison of the two sections.25 By contrast, the plain terms of s 592(6) do not stipulate a time limit.26

Purpose of s 588G 10.6 Like the sections that preceded it, s 588G is concerned with discouraging directors from causing their respective companies to trade while insolvent. As Barrett J explained in Woodgate v Davis: Section 588G and related provisions serve an important social purpose. They are intended to engender in directors of companies experiencing financial stress a proper sense of attentiveness and responsible conduct directed towards the avoidance of any increase in the company’s debt burden. The provisions are based on a concern for the welfare of creditors exposed to the operation of the principle of limited liability at a time when the prospect of that principle resulting in loss to creditors has become real. Very clear words would be needed to justify the conclusion that the underlying policy was displaced by the circumstance that the company operated not as a sole trader but in partnership; or that the directors of any company could exempt themselves from the need to be attentive and to act responsibly, on

paying of personal liability to compensate, by the simple expedient of causing their company to carry on business in partnership. The force of this last point is illustrated by the case where a single individual becomes a sole shareholder and sole director of each of two companies and causes those companies to trade as partners.27

As will be seen below, while the purpose of s 588G is admirable and can in many respects be seen as an improvement of the previous regime, the relatively few successful cases of recovery against directors for insolvent trading makes it questionable whether s 588G is the ‘clear, rational and readily enforceable’ provision advocated by the Harmer Commission.28 10.7 This chapter focuses primarily on s 588G and also other provisions in which a director of an insolvent company may be liable for the company’s debts such as ss 588FGA29 and 592.30 [page 489]

THE HARMER REPORT 10.8 The authors of the Harmer Report lamented the lack of a positive duty imposed upon company directors to prevent companies from trading whilst insolvent.31 The Harmer Commission also pointed out that under the previous regime any benefit of the civil liability for insolvent trading went to the particular creditor taking action and failed to provide a liquidator with standing to bring an action for the benefit of all creditors.32 The Harmer Commission accordingly recommended a ‘total restructuring’ of the legislation concerning director liability for insolvent trading.33 In summary, the Harmer Commission recommended the following changes:34 corporations legislation should impose on directors a duty to prevent the company from engaging in insolvent trading; breach of the duty should give rise to a civil liability to the company and there should be no criminal liability for breach; action for breach of the duty should be brought by the company through the liquidator or, if the court grants leave, through a creditor; where it is shown that a company has engaged in insolvent trading, a director of the company should be able to avoid liability by establishing at least one of

three defences (which are discussed at 10.72ff); if a director is found liable, the amount of the liability should be determined by the court and measured by reference to the loss or damage sustained by the creditors. The sum recovered should be applied for the benefit of all unsecured creditors; and that companies be liable for the debts or liabilities of related companies.35 As explained below, Parliament adopted most but not all of the above recommendations.36 10.9 The Harmer Commission considered that insolvent trading involved the incurring of a debt by a company when circumstances of insolvency exist and the company is subsequently wound up in insolvency.37 This formulation of a director’s duty removes attention from the incurring of a particular debt or debts and directs attention to the director’s responsibility for the overall financial management of [page 490] the company.38 It was suggested that the first defence to an insolvent trading claim was that the director had reasonable grounds for expecting that the company would be able to pay all its debts.39 In relation to that defence, the Harmer Commission observed as follows: This general defence is consonant with the responsibility of a director for the proper management of the company where the company becomes insolvent or is faced with imminent insolvent. It exonerates a director if that director has taken a proper and responsible role in the management of the company. It should be noted that the director must prove that he or she had reasonable grounds to expect the company would have been able to pay its debts (whereas the breach of duty occurs when there are reasonable grounds to suspect that the company will be unable to pay its debts).40

The Harmer Commission also recommended that companies be liable for the debts or liabilities of related companies.

The Corporate Law Reform Act 1992 10.10 As mentioned above, Parliament largely adopted the recommendations made in the Harmer Report. In the EM to the CLR Bill, it was noted that the proposed provisions dealing with insolvent trading addressed the criticisms

made in the Harmer Report of the previous insolvent trading provisions in a number of ways: criminal and civil sanctions will be separate, with criminal liability being retained or cases where actual dishonesty or fraud is involved; directors will be under a positive duty to ensure that the company does not incur debts while insolvent. Breach of this duty would render the director liable to civil action and will also constitute a breach of duty to which a civil penalty will apply; the liquidator will have a primary right to sue a director for the benefit of all unsecured creditors, the other unsecured creditors being permitted a separate right of action only where the liquidator fails to take action; the duty is expressed in such a way that the director will not be able to use lack of involvement in the company’s affairs as a basis for asserting that a particular transaction was entered into without his or her implied authority; and a series of rebuttable presumptions will assist the liquidator in establishing that the company was insolvent at a particular time.41 [page 491] Parliament provided little guidance on the operation of the various defences set out under s 588H. Some limited guidance is, however, provided by the EM to the CLR Bill in relation to the operation of subs 588H(2) as follows: Proposed subsection 588H(2) provides a defence where the director expected on reasonable grounds that the company was solvent and would remain solvent even if it incurred debt at the same time. It should be noted that the defence requires an expectation of solvency while the liability only requires a suspicion of insolvency. This provision draws on a defence presently available under paragraph 592(2) (b), where the absence of an expectation that the company would not be able to pay its debts is a defence.42

Parliament also adopted the recommendation made in the Harmer Report that a company be liable for the debts or liabilities of related companies although Parliament restricted such a provision to making holding companies liable for the debts of their subsidiaries.43

DIRECTOR’S DUTY TO PREVENT INSOLVENT TRADING (S 588G) Elements of s 588G 10.11 As mentioned above, one of the main recommendations made by the Harmer Commission was that legislation should impose a positive duty upon directors to prevent companies from trading whilst insolvent.44 In the draft legislation attached to the Harmer Report the suggested duty was expressed in prescriptive terms and expressly provided that ‘a director of a company has a duty to prevent the company from engaging in insolvent trading.’45 This drafting technique is consistent with other prescriptive (or positive) duties imposed by the Corporations Act upon directors such as ss 180 and 181. In adopting the Harmer Report’s recommendations regarding insolvent trading, however, Parliament instead chose to adopt a proscriptive approach in legislative drafting. Although Div 3 of Pt 5.7B in which s 588G is found is headed ‘Director’s duty to prevent insolvent trading’ the express terms of s 588G arguably impose no direct positive duty upon directors to prevent insolvent trading.46 Rather, s 588G indirectly imposes a duty upon directors to prevent insolvent trading in two distinct stages — first, by specifying four elements which must be satisfied before s 588G applies and second, [page 492] by specifying additional criteria which, if satisfied, lead to the result that a director has contravened s 588G. Despite the incongruity between the heading of Div 3 and the terms of s 588G, the ‘general flavour’ of s 588G is that a director has an obligation to deal with the company’s affairs in such a way to stop it incurring a debt.47 Further, subs 13(2)(d) of the Acts Interpretation Act 1901 (Cth)48 provides that any ‘heading to a Chapter, Part, Division or Subdivision appearing before the first section of an Act forms part of the Act’. 10.12 Section 588G applies if the following four conditions are satisfied: a person is a director49 of a company at the time when the company incurs a debt;50 and

the company is insolvent51 at that time, or becomes insolvent by incurring that debt, or by incurring at that time debts including that debt;52 and at that time, there are reasonable grounds for suspecting that the company is insolvent, or would so become insolvent as a result of incurring the debt or debts including the debt, as the case may be;53 and the time of incurring the debt was at or after 23 June 1993.54 If s 588G applies, a person contravenes the section by failing to prevent a company from incurring a debt if: they are aware at the time that the debt is incurred that there are reasonable grounds for suspecting that the company is insolvent, or would become so, as the case may be; or a reasonable person in a like position in the company’s circumstances would be so aware.55 Each of the above elements are discussed in detail below. [page 493]

Contravention of s 588G(2) — summary of civil and criminal consequences 10.13 A contravention of a 588G(2) has potentially both civil and criminal consequences for directors and may be summarised as follows: Under s 588M(2)56 the company’s liquidator may recover from the director, as a debt due to the company, an amount equal to the amount of the loss or damage suffered by the relevant creditor (or creditors) as a result of the director’s breach of s 588G(2). Under s 588R57 a creditor of a company that is being wound up may, with the written consent of the company’s liquidator, begin proceedings under s 588M in relation to the incurring by the company of a debt that is owed to the creditor but not otherwise (s 588M(3)). The liquidator’s consent is not required if the procedure set out in ss 588S58 and 588T59 are complied with.

Section 588G(2) is a civil penalty provision for the purposes of s 1317E.60 On an application for a civil penalty order the court may make orders for compensation under either ss 588J61 or 1317H or for a pecuniary penalty order of up to $200,000 under a 1317G.62 A criminal court may also order compensation under s 588K.63 Where the contravention of s 588G(2) is dishonest an offence is committed under s 588G(3) which is punishable by up to five years’ imprisonment.64 On application by ASIC, the Court may also disqualify a person from managing corporations for a period that the Court65 considers appropriate under s 206C.66 The above consequences are discussed in more detail below. [page 494]

A person is a director of a company at the time when the company incurs a debt (s 588G(1)(a)) 10.14 The expression ‘director of a company’ is defined in section 9. The definition distinguishes between two types of persons, namely those persons who are appointed as directors (the subparagraph (a) definition) and those persons who are not appointed as directors (the subparagraph (b) definition). The subparagraph (a) definition in turn provides two alternative limbs providing that a director is a person who is appointed to the position of a director (subparagraph (a)(i)) or, alternatively, is appointed to the position of an alternate director and is acting in that capacity regardless of the name that is given to their position (subparagraph (a)(ii)). The subparagraph (b) definition also provides two alternative limbs and deals with the circumstances where a person is not validly appointed. The first limb of the subparagraph (b) definition provides that, unless the contrary intention appears, a director is a person who is not validly appointed as a director if they act in the position of a director (subparagraph (b)(i)). The second limb of the subparagraph (b) definition provides that, unless the contrary intention appears, a director means a person who is not validly appointed as a director if the directors of the company or body are accustomed to act in accordance with the person’s instructions or wishes (subparagraph (b)(ii)). The second limb of subparagraph

(b), however, does not apply merely because the directors act on advice given by the person in the proper performance of functions attaching to the person’s professional capacity, or the person’s business relationship with the directors or the company or body.67 10.15 The purpose of the definition of director in s 9 is to identify the persons, other than professional advisers, who have real influence or control over the corporate affairs of the company.68 It is clear from the expanded definition of director in s 9, particularly paragraph (b), that the definition of ‘director’ has been contrived so as to enlarge the classes of persons concerned in the management and affairs of a [page 495] corporation upon whom legislative standards and liabilities, including s 588G, ought be imposed.69 Prior to the introduction of the current s 9 definition of director, the general law expanded the concept of a director to include both ‘de facto’ directors and ‘shadow’ directors. The original and traditional conception of a de facto director was a person who was appointed as a director, but whose appointment was defective, or ended, but who continued to act as a director.70 The conception evolved over time in conformity with changed statutory provisions relating to directors. In Corporate Affairs Commission v Drysdale71 the High Court held that provisions such as s 124 of the then Companies Act 1961, which imposed duties of honesty and diligence on directors, could be prosecuted for breach of that duty. The High Court held that s 124 of the Companies Act 1961 applied not only to persons lawfully in office but also to persons whose appointment was defective or otherwise invalid but who none the less exercised the office; who held over after their appointment came to an end; or seemingly, who occupied the office as a usurper (or director de son tort).72 The cases stressed that there was not one single decisive test of when a person will be found to be a de facto director and judges have, for the most part, cautioned against attempting to formulate one.73 10.16 The traditional concept of a shadow director was a person who exercises power or influence over the directors so that as a matter of course they are accustomed to act to secure compliance with his or her wishes, directions or instructions.74 A person may be a shadow director or

[page 496] de facto director even though that person is not capable of being validly appointed as a director.75 10.17 Historically, the courts drew a distinction between de facto directors and shadow directors although recent authority in Australia76 and in the United Kingdom77 has noted the erosion of the distinction. In Grimaldi v Chameleon Mining NL (No 2); Chameleon Mining NL v Murchison Metals Ltd, the Full Federal Court observed that with the extension of the de facto director concept to persons who have never purportedly been appointed director, a rigid distinction between a de facto and a shadow director cannot be maintained’.78 A person may be a de facto director or a shadow director even though they could not validly be appointed as a director of the company.79 With the extension of the de facto director concept to persons who have never purportedly been appointed director it is now clear that a person can be both a shadow director and de facto director. The issue was discussed by Justice White of the Supreme Court of New South Wales in the context of an insolvent trading claim in Buzzle Operations Pty Ltd (in liq) v Apple Computer Australia Pty Ltd. In that case his Honour noted the conceptual difficulty in one person being both a de facto and a shadow director and found that the definitions of shadow director and de facto director are compatible: In my respectful view that conceptual difficulty only arises if to be a shadow director within the second limb of para (b), all of the directors must be accustomed to act in accordance with the shadow director’s instructions or wishes in respect of all aspects of management. The objection to a person being both a de facto and a shadow director appears to be that one cannot be accustomed to act in accordance with the instructions or wishes of oneself. But it is clearly established that the influence of a shadow director need not be exercised over the whole field of the company’s corporate activities (Australian Securities Commission v AS Nominees Ltd (1995) 133 ALR 1 at 52–53; Secretary of State for Trade and Industry v Deverell [2001] Ch 340 at 354 [35]; Ho v Akai Pty Ltd

[page 497] (in liq) at ACLC 1531 [21](ii)). The better view is that ‘the directors’ who must be accustomed to act in accordance with the person’s instructions or wishes need not be all of the directors. In Ultraframe (UK) Ltd v Fielding [2005] EWHC 1638 (Ch) where Lewison J said that a person at whose direction a governing majority of the board is accustomed to act is capable of being a shadow director even though not all of the directors were accustomed so to act (at [1272]).80

10.18 Section 588G applies to persons who are ‘directors’ of a company as

that expression is defined in s 981 and therefore to persons who are: validly appointed as a director;82 validly appointed as alternate director and acting in that capacity regardless of the name that is given to their position;83 not validly appointed as a director, if they act in the position of a director;84 or not validly appointed as a director, but the directors of the company are accustomed to act in accordance with the person’s instructions or wishes.85

Persons validly appointed as a director (subparagraph (a)(i)) 10.19 The constitution of most companies specify the procedure for the appointment of directors.86 Some constitutions may place conditions or qualifications for valid appointment as a director. For example, if a company’s constitution requires a share qualification to be held at the time [page 498] of the person’s election or appointment as a director, and he or she does not hold the relevant shares, his or her appointment is invalid ab initio.87

Alternate directors (subparagraph (a)(ii)) 10.20 To fall within subparagraph (a)(ii) of the definition of director in s 9, a validly appointed alternate director must be ‘acting in that capacity’ which is a question of fact. Relevant matters include whether the alternate director was asked or called upon to act, whether they received papers of any board meeting or attended any board meeting or were involved in the management of the company.88 The concept of ‘acting’ in the relevant capacity is further discussed below.

Person acting in the position of director (subparagraph (b)(i))

10.21 As mentioned above, subparagraph (b)(i) of the s 9 definition of director extends the concept of director to persons who are not validly appointed as a director but who nevertheless act as a director.89 This extended meaning of ‘director’ equates to the traditional concept of a de facto director.90 Central to satisfying the subparagraph (b)(i) limb of the definition of director in section 9 is that the person ‘act in the position of a director’. Those words follow the language of Mason J in Corporate Affairs Commission v Drysdale91 and require that the person has to some extent performed the role or done ‘the work of a director’ or has undertaken functions that a director would be reasonably expected to perform given the company’s circumstances.92 The relevant roles and functions will differ with the commercial context and the operations, structure and governance of the company.93 [page 499] 10.22 Whether a person has acted as a director in the relevant sense is a question of substance94 and degree95 that requires a consideration of the duties performed by that person in the context of the operations and circumstances of the particular company.96 The court must make a value judgment about the proper characterisation of what the person in question had been doing in a particular company.97 Relevant factors include the size of the company, its internal practices and structure, the nature of the functions or powers that are exercised, including the level of delegation and of discretion available to the person, and the extent of any ‘holding out’ to third parties.98 Even absent an express holding out, however, the dealings with third parties may point to his or her having acted as a director.99 The perceptions of those dealing with the company that the person was a director may be significant, particularly where those perceptions are independently formed and reasonable and support the conclusion that the person was acting under colour of office, although perceptions cannot change the true character of the position in which the person acts.100 Whether the company itself has held out the person as a director is a relevant but not decisive consideration.101 10.23 To ‘act’ as a director, the person must perform the actual (and statutorily extended) top level management functions, however it is not necessary to show that the person has done things that only a director can lawfully do.102 The person’s relationship with a company may evolve

[page 500] over time into that of de facto director,103 and performance of the relevant roles and functions can be for a limited time104 and not necessarily be permanent. Conversely, the participation that made a person a de facto director may diminish over time to the point where the person ceases to be a de facto director.105 The functions assumed by a de facto director may be limited in scope and need not relate to all facets of the management of the company.106 In that context, it is important to distinguish between directors engaged in the affairs of the corporation generally and consultants engaged to perform specific functions107 although the fact that a person was a consultant to a corporation does not preclude a finding that the person is also a de facto director.108 The title or nomenclature used within or by the company is not determinative. For example, the designation ‘consultant’ will not preclude a finding that the person is a de facto director, and the question is resolved by reference to the nature and extent of the actual functions performed by the consultant including any relevant constraints. A limited consultancy by itself is unlikely to fall within the extended meaning of director and, conversely, a general and unconstrained consultancy that permits active participation in directing the affairs of the company may well be caught.109 The fact that a company has active directors or a properly constituted and functioning board does not preclude a finding that a person is a de facto director.110 [page 501] 10.24 De facto directors are capable of contravening s 588G. For example, in Williams v Bearing Traders Pty Ltd,111 a director purported to resign from the company for health reasons before the period in which the company had traded while insolvent, however, he continued to be a director of other companies within the same group and the evidence demonstrated that he had in fact acted as a director of the company in the relevant period. The Court held he had acted as a director when the company traded while insolvent.

Directors of the company accustomed to act in accordance with the person’s instructions or wishes

(paragraph (b)(ii)) 10.25 Subparagraph (b)(ii) of the s 9 meaning of ‘director’ closely equates to the traditional conception of a shadow director.112 In Buzzle Operations Pty Ltd (in liq) v Apple Computer Australia Pty Ltd,113 Hodgson JA summarised the effect of the subparagraph: [T]he statutory formula contemplates the directors being accustomed to act in accordance with the instructions or wishes of a person, in the sense of treating those instructions or wishes as themselves being a sufficient reason so to act, rather than making their own decisions in which those instructions or wishes are merely taken into account as one factor, external to the management of the company, bearing on what is in the best interests of the company.

10.26 To fall within subparagraph (b)(ii), the ‘directors of the company must be accustomed to act as directors of the company in accordance with the person’s instructions or wishes as to how they should so act’.114 The directors must be ‘collectively’ accustomed to act on the shadow director’s instructions or wishes;115 although unanimity is not required, and it is sufficient that a ‘governing majority’116 or ‘the [page 502] real decision-makers’117 are accustomed to act in accordance with the shadow director’s instructions or wishes. It is not necessary to show that the directors do not exercise any discretion of their own, however there must be a causal connection between the instruction or wish of the shadow director and the actions of the directors.118 The fact that executives who are not directors may be accustomed to act in accordance with the shadow director’s instructions or wishes is not sufficient.119 The requisite pattern of behaviour must be established from instructions ‘relating to director matters’ and not by acting in accordance with wishes concerning management matters.120 10.27 Subparagraph (b)(ii) of the s 9 definition assumes that giving advice may constitute the giving of an instruction or the expression of a wish121 although not every person who gives advice that is ‘heeded as a general rule is to be classed as a de facto or shadow director’.122 A party who has a genuine interest in giving advice to the board will not be a shadow or de facto director merely because the board acts on that advice in the best interest of the company or to preserve the position of the company.123 Examples of parties who have a genuine interest include banks or other security holders, and the fact that the

board may defer to a creditor as a matter of commercial expediency will not in itself make the creditor a shadow director.124 To establish a shadow directorship the evidence of the whole facts and circumstances must show that the shadow director has the potential to control, and used the power to control.125 [page 503] The control need not extend to ‘every facet of the company’ and ‘the fact that from time to time the board disregards advice is of little moment’.126

Corporations as de facto and shadow directors 10.28 Companies and other bodies corporate may be shadow directors127 and de facto directors.128 In Grimaldi v Chameleon Mining (NL) (No 2); Chameleon Mining NL v Murchison Metals Ltd, Finn, Stone and Perram JJ observed, without expressing a final view, that if a consultant is a corporation and what it does through its own directors or officers results in ‘acting in the position of a director’, then, and consistently with the policy of s 201B (which requires a director to be a natural person), it will be a question of fact as to which director (or officer) in the consultant company is (or are) the de facto director(s) of the corporation.129

Professional advisors 10.29 The section 9 meaning of ‘director’ contains an important qualification to the operation of subparagraph (b)(ii) concerning the role of professional advisors. The provision will not apply ‘merely because the directors act on advice given by the person in the proper performance of functions attaching to the person’s professional capacity, or the person’s business relationship with the directors or the company or body’. The word ‘merely’ is significant, and it leaves open the possibility that a person with a professional or business relationship with the company may nevertheless fall within the operation of subparagraph (b) (ii) of the meaning if the whole of the circumstances establish that they exercised control in the relevant sense.130 In the context of a professional or [page 504]

business relationship, something more than the provision of advice is required to fall within the meaning.131 A limited consultancy by itself is unlikely to fall within the extended meaning of director and, conversely, a general and unconstrained consultancy that permits active participation in directing the affairs of the company may well be caught.132

At the time the company incurs a debt (s 588G(1)(a)) 10.30 Central to the operation of s 588G is the incurring of a debt by the company at the time it is insolvent.133 The concept of debt has been explained in detail at 2.5. As seen from that discussion, the word ‘debt’ is not one of precise and inflexible denotation.134 In the context of s 588G, the expression ‘debt’ is to be construed in a practical and commonsense fashion135 and for present purposes is sufficient to be defined as a liability or obligation to pay or render something.136 Hence, a claim in quantum meruit has been taken to fall within the concept of debt for the purposes of s 588G. So, in Australian Securities and Investments Commission v Edwards,137 a company was the vehicle for a joint venture for the construction of a hotel. The company organised for building work to be performed by a building contractor but no formal building contract was ever executed. The building contractor performed building work at the request of the company and issued progress payments. Barrett J found that the company had incurred a debt for the purposes of s 588G notwithstanding the debt was one [page 505] founded in quantum meruit. Barrett J’s decision was affirmed on appeal.138 As Macfarlan JA explained on appeal: There is a wealth of authority for the proposition that a claim for the reasonable value of work done, enforceable by a quantum meruit action, is a ‘debt or liquidated demand’ for the purposes of court rules conferring procedural advantages on persons suing for debts or making demands for liquidated amounts. There is no present significance in any difference that may exist between the concepts of ‘debt’ and ‘liquidated demand’. The concepts are substantially the same and case authority indicating that a quantum meruit claim of the nature which is in question in the present case is a ‘debt or liquidated demand’ may be taken as authority that such a claim is a ‘debt’ for the purposes of s 588G of the Act … In my view it is clear, in light of this authority, that a liability in quantum meruit to pay to a plaintiff reasonable remuneration for work done at the request of the defendant is a ‘debt’ within the meaning of s 588G of the Act.139

10.31 Like the word debt, the word ‘incur’ is not one of precise and inflexible

denotation140 and it has been said that it is impossible to lay down an a priori rule as to the meaning of the phrase ‘incurs a debt’ that will be applicable to all cases generally.141 The case law has accordingly struggled to develop a clear, cogent and consistent approach to the meaning of the expression ‘incurs a debt’ and as a result there is conflicting authority on precisely when a debt is incurred for the purposes of s 588G. Nonetheless, it is possible to discern some principles of general application albeit with the proviso that any general approach may present difficulties in particular cases.142 The first use of the expression ‘incurs a debt’ in this context in Australian legislation occurred in 1982 when s 556 of the Companies (NSW) Code came into effect. Prior to that, s 303(3) of the Companies Act 1961 (NSW) made it an offence for an officer to be knowingly a party to the ‘contracting of a debt’ provable in the winding up where there were no reasonable or probable ground of expectation of the company [page 506] being able to pay that debt. The change in language in s 556, in certain respects, cast a wider net than the earlier language but, as will be seen below, created problems of its own.143 10.32 The transitive verb ‘incur’ derives from the Latin in meaning ‘towards’ or ‘upon’ and currere meaning ‘to run’. The Australian Concise Oxford Dictionary, 4th edition defines ‘incur’ as meaning to suffer, experience, or become subject to (something unpleasant) as a result of one’s own behaviour etc (incurred huge debts). The 9th edition of Black’s Law Dictionary defines ‘incur’ as ‘to suffer or bring on oneself (a liability or expense)’. Judicial pronouncements on the meaning of the word ‘incur’ in this context have been to a similar effect. In Commissioner of State Taxation (WA) v Pollock144 Ipp J, with whom Wallwork J agreed, observed that the normal meaning of the word ‘incur’ is to become liable to, or subject to, through one’s own action. His Honour stressed that this did not exclude rendering oneself liable through acts of omission. Likewise, in Hawkins v Bank of China145 Gleeson CJ expressed the view that a debt is incurred for the purposes of s 556(1) of the Companies (NSW) Code (a predecessor to s 588G) when, by its conduct or operations, a company has necessarily subjected itself to a conditional, but unavoidable, obligation to pay a sum of money at a future time.146 In the same case, Kirby P

stated that the expression ‘incurs a debt’ is, in isolation, entirely apt to describe an act on the part of a corporation whereby it renders itself liable to pay a sum of money in the future as a debt.147 The act of incurring happens when the corporation so acts as to expose itself contractually to an obligation to make a future payment of a sum of money as a debt148 or alternatively, the act, omission or other circumstance which causes the company to owe the debt.149 A company that incurs a debt in the course of a partnership nonetheless ‘incurs’ a debt for the purposes of s 588G.150 Where a number of debts are the subject of proceedings under s 588G, the section requires each debt to [page 507] be treated separately.151 A director may still be liable under s 588G even where the debt is not enforceable against the company.152 10.33 In Standard Chartered Bank of Australia Ltd v Antico (No 2),153 Hodgson J introduced a subtle variation to the concept of incur as explained by Gleeson CJ in Hawkins v Clayton. In Standard Chartered Bank, Hodgson J expressed the view that: …a company incurs a debt when, by its choice, it does or omits something which, as a matter of substance and commercial reality, renders it liable for a debt for which it otherwise would not have been liable. This formulation has three aspects which could cause difficulty in particular cases: first, as to whether the company has a choice whether to do (or omit) the act or not; secondly, as to whether it is the act or omission, or something else, which renders the company liable for the debt; and thirdly, as to whether the company would otherwise (in any event) have been liable for the debt [emphasis added].154

In Shepherd v Australia & New Zealand Banking Group Ltd,155 Bryson J observed that incurring a debt in the context of former s 556(1) of the Companies Code does not in any way express an element of choice, and the practical implications to which Hodgson J referred do not require any limitation of the language so as to apply only to the consequences of acts or omissions of the company’s choice or to obligations which the company chose to be involved in.156 Bryson J went on to explain that: In my opinion obligations imposed by law, including revenue law and the law of restitution, can be debts for this purpose, whether or not acts or omissions which the company chose to be involved in brought them into existence; there is nothing expressed or implied in s 556 to the contrary. In particular, where the company’s conduct and omissions involve it in liability for damages and the general law gives another party an election to recover money paid and by the election to bring a debt into existence, I see no warrant for not regarding that debt as a debt for the relevant

[page 508] purpose, or for not regarding the time of the election as the time when it was incurred.157

Bryson J’s view was endorsed by the Full Court of the Supreme Court of South Australia in Powell v Fryer.158 In that case, the insolvent company carried on the business of a manufacturer and wholesaler of yachts. On 9 June 1995 a resolution for winding up of the company was passed by a meeting of creditors. The liquidator alleged that the directors of the company contravened s 588G(3) by allowing the company to incur various debts while it was insolvent including accrued leave, superannuation and wage entitlements due to employees; termination payments due to employees; unpaid sales tax liabilities; assessed penalties for non-payment of sales tax; unpaid group tax liabilities; assessed penalties for non-payment of group tax; unpaid WorkCover levies; and assessed penalties for non-payment of WorkCover levies. The Full Court accepted that each of these liabilities were debts capable of being incurred. As Olsson J explained: In my opinion, not only is it well established that a statutory impost is capable of constituting a debt, but it is also the situation that, if, by reason of the normal, ongoing operations of a company (including the mere passive retention of existing staff or premises) it is rendered liable to pay a statutory impost, then it may properly be said that such impost has been ‘incurred’, as a debt, by the entity in question.159

With the endorsement of the view expressed by Bryson J in Shepherd v Australia & New Zealand Banking Group Ltd by the Full Court of the South Australian Supreme Court in Powell v Fryer, the balance of authority favours the view that no element of choice is required to establish that a company has incurred a debt for the purposes of s 588G. Nonetheless, in Australian Securities and Investments Commission v Plymin (No 1),160 Mandie J, while agreeing with Bryson J that s 588G does not express an element of choice, expressed the view that the exercise of choice will often be relevant to the question as to when a company has incurred a debt. For example, in the case of obligations imposed by revenue law, a choice will not be exercised in relation to incurring a taxation liability, but there will still be a choice exercised, that is, the decision to continue trading or the decision to proceed with whatever activity is likely to attract or involve the attraction of the relevant impost.161 [page 509]

Examples of when a debt is incurred for the purposes of s 588G Contingent debts 10.34 A contingent debt is a debt within the context of s 588G162 consistent with the position under the previous insolvent trading regime. Under the previous regime, the balance of authority favoured the view that the incurring of a contingent debt was a debt for the purposes of provisions such as s 556(1) of the Companies (NSW) Code 1981. In Hawkins v Bank of China,163 a company entered into a guarantee with the Bank of China in respect of liabilities of two other companies which formed part of the same group. Shortly after executing the guarantee the two principal debtors went into provisional liquidation and a demand was made upon the guarantor company. At issue was whether the company had incurred a debt within the meaning of s 556 of the Companies (NSW) Code by entering into the guarantee. The company contended that no debt was ever incurred for the purposes of s 556 and that s 556 had no application at all to the contracting of a contingent liability such as that which exists under a guarantee, even if the liability ultimately becomes an actual liability. Both at first instance and on appeal, the Court disagreed. The Court found that the company’s liability under the guarantee was for a liquidated sum albeit that it was contingent upon the happening of future events.164

Debt not damages 10.35 On present authority, the ‘debt’ to be incurred for the purposes of s 588G must be a debt in the sense of being a liquidated amount capable of being ascertained as opposed to an unascertained claim for damages.165 [page 510] So, in Shephard v Australia & New Zealand Banking Corp Ltd,166 various consumers entered into contracts with an insolvent company for the supply or the supply and erection of kit homes or kit garages, and paid deposits or prepayments to the insolvent company. The insolvent company failed to supply the kit homes and garages contracted for. The consumers contended that the

insolvent company incurred debts in the amounts of the deposits at the time it received payment of the deposits, alternatively at the expiry of reasonable times for performance of the contracts, or alternatively again when the insolvent company went into liquidation. The NSW Court of Appeal, comprising Meagher JA, Giles A-JA and Abadee A-JA disagreed. As Abadee A-JA explained: … whilst the creation of a contingent liability may be an incurring of a debt, it seems to me that not every obligation which may ultimately crystallise as a debt or judgment debt upon the occurrence of subsequent events will as a matter of law be an obligation characterised at the time of its being incurred as the incurring of a debt within the meaning of s 556. Again, I repeat that each case will turn upon its own facts … the incurring of a contingent entitlement to unliquidated damages does not fit comfortably with the word ‘debt’ within s 556.167

10.36 In Box Valley Pty Ltd v Kidd,168 the NSW Court of Appeal confirmed its view that an entitlement to claim damages for breach of a contractual obligation to sell and deliver goods is not a debt within the ordinary meaning of that word.169 As mentioned in Chapter 2 however,170 this observation is inconsistent with the High Court’s decision in Bank of Australasia v Hall.171 In Edwards v Australian Securities and Investments Commission,172 the NSW Court of Appeal noted the inconsistency but made no further comments.173

Taxes and other statutory imposts 10.37 There is inconsistency in the authorities as to whether an obligation to pay various taxes constitutes the incurring of a debt within [page 511] the meaning of insolvent trading provisions such as s 588G. In Castrisios v McManus,174 Cox J of the Tasmanian Supreme Court expressed the view that a company did not incur a debt within the meaning of s 556(1) of the Companies Code ‘by reason of doing the activities which attract the periodic obligations to pay sales tax.’ In his Honour’s view, no act on the part of the company in such circumstances can be identified as one which brings a debt into existence and the company does not incur a debt in the sense of bringing the liability of a debtor to a creditor upon itself.175 Castrisios v McManus was followed and applied by Acting Master Hawkins AM in Commissioner of State Taxation (WA) v Pollock.176 Subsequent cases have however not followed Castrisios v McManus and the preponderance of current authority favours the proposition that a tax is a debt capable of being incurred within the meaning of s 588G.177

Supply of goods or services 10.38 There is also inconsistency in the authorities as to when a company incurs a debt in the context of the sale of goods. In Hussein v Good,178 Southwell J of the Victorian Supreme Court held that a company incurs a debt for the purposes of s 556 of the Companies (Vic) Code when the goods in that case were delivered and not when the goods were ordered. Likewise, in Rema Industries and Services Pty Ltd v Coad,179 Lockhart J concluded that the debts were incurred at the time of delivery of the goods. In Lockhart J’s view the time at which a debt is incurred by a company in the context of a sale of goods will vary from case to case, depending principally upon the terms of the agreement between the parties, express or implied.180 [page 512] 10.39 In Leigh-Mardon Pty Ltd v Wawn,181 Hodgson J was of the view that there was ‘no hard and fast rule’ that a company incurs a debt for goods sold and delivered at the time when the goods are delivered. Hodgson J identified two possibilities as to when a company may incur a debt in the context of a sale of goods. The first possibility is where the goods ordered by the company were readily saleable by the vendor elsewhere at the same price so that refusal of delivery precludes any liability for the price, the debt could be said to be incurred by accepting delivery. The second possibility is where the goods were specially manufactured for the company and could not be sold elsewhere such that a refusal to take delivery would be a breach of contract resulting in damages approximating to the full price of the goods. In this latter case, the debt is said to be incurred by placing of the order. 10.40 The authorities were reviewed by Mandie J in Harrison v Lewis.182 In that case, an insolvent company contracted with a wine manufacturer for the purchase of specified cases of wine at $40 per case on 13 October 1997 with all wine to be taken by the company by the end of January 1998. On 31 January 1998, the wine manufacturer raised an invoice to the company for $122,400 although none of the wine had been delivered to the company and the invoice was not received until after delivery. The wine manufacturer had 30 to 60 day trading terms from the date of receipt of the invoice. The wine was delivered at the company’s directions on four separate occasions in February 1998. Mandie J identified three possible dates as to when the company incurred the debt for the

purposes of s 588G: 1. 13 October 1997 when the date was ordered; 2. 31 January 1998 when the wine had been bottled and packed appropriate to the order of the insolvent company and an invoice raised; or 3. on each date in February 1998 when delivery instructions were given or when delivery was accepted. Mandie J found that in substance and commercial reality the debt was incurred no later than 5 January 1998 when the wine manufacturer was instructed to bottle and pack the wine. By that stage, the wine had been on-sold by the insolvent company and the company had no alternative but to organise delivery of the wine. After reviewing the authorities, Mandie J summarised the legal position as follows: [page 513] The weight of authority shows that a debt can be incurred when the contract giving rise to the debt is entered into, even if contingencies affect the debt or the debt is a future debt. In the case of a future debt, it may be incurred at the time of entering the contract if it is then an ascertained or ascertainable amount or perhaps even if the only potential liability under the contract at that stage is for unliquidated damages. By the same token, a debt may in appropriate circumstances be incurred within the meaning of the section at a time later than the entry of the contract under which the debt arises or may arise. Although it is necessary to consider the terms of the relevant contract, the question when the debt is incurred within the meaning of the section does not depend on strict legal analysis but turns on when, in substance and commercial reality, the company is exposed to the relevant liability. The reason for the emphasis upon substance and commercial reality lies in the need to ensure that the language is interpreted, or applied to the facts, in a way which serves the purpose, or fits the context, of a provision punishing insolvent trading and in a way which avoids absurd results. The words ‘incurs a debt’ cannot be disregarded but, because of the aim and intent of the section, the focus must be on the conduct and choice of the alleged insolvent company. It is necessary to identify the time when the conduct and choice of the company caused the debt to be incurred because it is at that time that it must be shown that the director who has failed to prevent the company from incurring the debt had or ought to have had the requisite awareness that there were reasonable grounds for suspecting insolvency.183

10.41 The time at which a debt is incurred in the context of a supply of services has reached less judicial attention. In Versteeg & Versteeg v R,184 the court rejected the proposition that a company incurred a debt when a contractor was engaged to do work. Wallace J observed that: In my opinion the act of committing a corporation to liability under a written agreement for a lease is of an entirely different quality from the act of calling upon a subcontractor or supplier to do work or

supply goods pursuant to some pre-existing arrangement. In the former case the liability is ascertainable at the commencement of the term. In the latter case when a subcontractor or supplier who has already given a rate or a price is requested to come to a construction site to perform work or provide services day by day to be paid by the application of the rate or price to the amount of work or service performed, a debt is incurred whenever an amount owing becomes ascertainable. The alternative ground that the debt is incurred when the first work is done or the first goods are supplied ignores the fact that an increasing ascertainable sum is incurred day by day.

[page 514]

Obligations under a lease 10.42 A debt for rent under an agreement for lease is generally incurred at the time when the lease was entered into. In the leading decision of Russell Halpern Nominees Pty Ltd v Martin,185 two companies entered into an agreement to lease certain premises in November 1980. In June 1982, the owner of the premises obtained an order in the Supreme Court of Western Australia ordering the companies to execute a lease and pay arrears of rent. The owner of the premises commenced an action against the directors of the two companies under s 556(1) of the Companies (WA) Code to recover the rent. That section came into operation on 1 July 1982. Burt CJ, with whom Smith J agreed, held that: … the contention is that a debt was incurred from time to time as the rent became payable under the agreement. On that basis the appellant says that it can, under s 556(1) of the Code, recover all rent which became payable under the agreement for the period 1 July 1982 until 25 May 1983. That submission should be dealt with upon the basis that the lease was for a term which had not expired when on 25 May 1983 the appellant sold the premises. So understood, the proposition is that a tenant holding premises for a term ‘incurs a debt’ within the meaning of s 556(1) of the Code upon each and every rent day. I do not think that to be correct. Whatever the expression ‘incurs a debt’ might mean, it is clearly descriptive of an act which when done by the company in the stated circumstances exposes a director of the company and a person who took part in the management of the company when the debt was incurred, [sic] when the act was done, to a criminal liability … In a case such as this, when the term of the lease has not expired and when the landlord is holding the tenant to the agreement so that the tenant, whether in occupation of the leased premises or not, becomes liable to pay rent on the agreed rent days, I do not think that any relevant act on the part of the tenant beyond his entering into the lease in the first instance can be identified. And that being so, I do not think it can be said that a tenant company ‘incurs a debt’ within the meaning of the subsection whenever a present liability to pay rent is created by the tenant’s covenant in the lease operating upon the passage of time. To hold otherwise would be to say that if a company when in all respects financially sound were to enter into a lease for a term of years and at some time thereafter and for reasons which could not be anticipated it were to fall on bad times and be unable to pay its debts, the directors would thereafter and on every rent day within the remainder of the term be guilty of an offence for the reason that on that rent day the company ‘incurs a debt’. I am unable to accept that.

10.43 The conclusion in Russell Halpern Nominees Pty Ltd v Martin regarding rental payments does not lead to the conclusion that all

[page 515] obligations arising, at whatever time, under a lease are incurred the time of the agreement for lease. Hence, in Bans Pty Ltd v Ling,186 a company entered into a lease of premises but later went into liquidation. The lessor brought proceedings against the directors of the company under s 556 of the Companies (NSW) Code for all amounts under the lease including interest on default. Bryson J found a debt for interest following default under a lease is incurred when the default occurs. This was because the contingencies which must occur before there is an obligation to pay have to be appraised in a practical and common-sense fashion.187 Likewise, in Molit (No 55) Pty Ltd v Lam Soon Australia Pty Ltd188 no debt was incurred when a company became exposed to a claim for unliquidated damages for breach of a covenant in a lease not to damage the premises.

Section 588G(1A) 10.44 Section 588G(1A) sets out seven examples of when a company incurs a debt for the purposes of s 588G. The seven examples, which relate mainly to share transactions, are set out in the following table: When debts are incurred Action of company

1 paying a dividend

[operative table] When debt is incurred when the dividend is paid or, if the company has a constitution that provides for the declaration of dividends, when the dividend is declared

making a reduction of share capital to which Division 1 of Part 2J.1 2 applies (other than a reduction that when the reduction takes effect consists only of the cancellation of a share or shares for no consideration) buying back shares (even if the when the buy-back agreement is 3 consideration is not a sum certain in entered into money) redeeming redeemable preference

4 shares that are redeemable at its option

when the company exercises the option

[page 516] issuing redeemable preference shares 5 that are redeemable otherwise than at when the shares are issued its option when the agreement to provide the financially assisting a person to assistance is entered into or, if there 6 acquire shares (or units of shares) in is no agreement, when the assistance itself or a holding company is provided entering into an uncommercial transaction (within the meaning of 7 section 588FB) other than one that a when the transaction is entered into court orders, or a prescribed agency directs, the company to enter into

The company is insolvent at that time [when the company incurs a debt] or becomes insolvent by incurring the debt or by incurring at that time debts including that debt (s 588G(1)(b)) 10.45 Section 588G only applies when the company incurs a debt while it is insolvent or becomes insolvent by incurring that debt, or by incurring at that time debts including that debt.189 The concept of insolvency has been discussed in detail in Chapter 2. Essentially, insolvency for present purposes is an inability of a company to pay its debts as and when they become due and payable. That being so, the only contemporaneous debts to which reference is made in s 588G(1)(b), on a literal construction, must be debts which are immediately due and payable.190

Reasonable grounds for suspecting that the company

is insolvent or would become insolvent (s 588G(1)(c)) 10.46 The third element necessary to be satisfied in order for s 588G to apply is that at the time the company incurred the debt, there are reasonable grounds for suspecting that the company is insolvent, or would so become insolvent, as the case may be: s 588G(1)(c). The concept of ‘suspecting’ in this context is similar to that used in s 588FG(2)(b)(i) which has been discussed in detail at 8.58. Essentially, suspicion in this context is more than a mere idle wondering whether it exists or not; it is a positive feeling of actual apprehension or mistrust: Queensland Bacon [page 517] Pty Ltd v Rees.191 The test to be applied in relation to s 588G(1)(c) is an objective one.192 The inquiry relevant to s 588G(1)(c) is not an inquiry concerning the particular director whose conduct is under scrutiny.193 Rather, it is an inquiry into the objectively formed state of mind of a person of ordinary competence.194 Subsection 588G(1)(c) postulates reasonable grounds for suspicion of insolvency and the awareness of ‘a reasonable person’ in a like position in a company in the company’s circumstances.195 As the Full Court of the South Australian Supreme Court observed in Powell v Fryer: The test to be applied in relation to s 588G(1)(c) is objective: Metropolitan Fire Systems Pty Ltd v Miller (1997) 23 ACSR 699 at 702–3. As Duggan J pointed out in Group Four Industries Pty Ltd v Brosnan (1991) 56 SASR 234 at 238; 5 ACSR 649, the state of knowledge of a particular director and any assessment which he may have made as to the ability of the company to pay its debts is irrelevant. The court must make its own judgment on the basis of facts as they existed at the relevant time and without the benefit of hindsight.196

‘Reasonable’ in this context imports the standard of reasonableness appropriate to a director of reasonable competence and diligence, seeking properly to perform his or her duties as imposed by law (when viewed as a whole) and capable of reaching a reasonably informed opinion as to a company’s financial capacity.197 In other words, facts and matters must be shown to exist which would give grounds for a director acting in accordance with that standard to suspect insolvency. Hence, in determining whether s 588(1)(c) is satisfied, the court must ascertain firstly, what facts concerning the ability of the company to pay their

[page 518] debts as they fell due were, or should have been, known to a director as a competent director of those companies during the period; and second, would those facts have constituted reasonable grounds for suspicion of insolvency.198 10.47 So, in Hall v Poolman,199 a group of companies went into voluntary administration in August 2003 and into liquidation in November 2003, owing secured and unsecured creditors a total of approximately $130,000,000. At all relevant times the group had been in dispute with the Australian Taxation Office (ATO) regarding taxation liabilities. By June 2002, the group’s taxation liabilities were said to amount to $17,400,000. The group attempted to reach a compromised settlement with the ATO but in July 2003, the ATO rejected the group’s offer of compromise. As at 1 October 2002, the tax assessments for one of the major companies of the group had been outstanding since March 2001 and the company had not procured an agreement from the ATO to defer payment nor had it obtained a stay of enforcement proceedings. In those circumstances Palmer J found that: A reasonable director of [the main company] could not simply refuse to think about the consequences of this state of affairs for the solvency of [the main company]. A reasonable director of [the subsidiary company] could not refuse to think about the consequences to [the subsidiary company] if [the main company] had to be wound up because it was insolvent. It would have been the duty of a director of [the main company] and of [the subsidiary company] to obtain legal advice as to whether the tax assessed against [the main company] was due and payable, and then to consider the impact of that advice directly on the solvency of [the main company] and, indirectly, on the solvency of [the subsidiary company] … For these reasons, I conclude that a reasonable person in the like position of [a director of both the main company and the subsidiary company] would have been aware at all times during the period that there was no more than a hope or chance that the tax dispute between [the main company] and the ATO would be resolved on the terms proposed by [the main company]. [The director] himself conceded that, as a result of the advice [the company’s accountant] had given him on 22 January 2003, he had no more than ‘a bare hunch’ that he might be able to negotiate a commercial settlement with the ATO … A reasonable director in [the director’s] position must have contemplated the real possibility that

[page 519] the ‘worst case scenario’ described by [the accountant] in January 2003 would eventuate, namely, that the notices of assessment would remain ‘intact’, the ATO would enforce payment, and the insolvency of [the main company] would be manifest.200

Likewise, in Powell v Fryer201 a company carried on the business of a manufacturer and wholesaler of yachts from 28 August 1987 to 2 April 1995 on

premises which it owned at Goolwa in South Australia. On 9 June 1995 a resolution for winding up was passed by a meeting of creditors. The liquidator of the company commenced proceedings against a non-executive director of the company and also against the company’s managing director alleging contraventions of s 588G. At first instance202 the trial judge found that the following facts provided reasonable grounds for suspecting that the company was insolvent: The minutes of a directors meeting held on 8 April 1992 recorded that the company ‘continued to trade in the expectation and hope that there would be a revival in the trailer boat market … This was noted as not having been realised and in fact … there are no forward orders on the books … A review of the balance sheet … made it apparent that in its present position, [the company] is insolvent …’ The minutes of a shareholders meeting held on 6 May 1992 recorded that the directors advised shareholders that ‘to keep the business going we need an input of cash of $80,000 for finance charges, wages and creditors.’ At a directors’ meeting on 1 July 1992 one of the directors reported to the other directors that he had stopped purchasing as he believed he could not legally do so. The minutes of the meeting made plain that all directors viewed the company as being ‘at the absolutely critical stage’ and that all avenues had to be tried to realise funds.203 On appeal, the Full Court upheld the trial judge’s findings.204 [page 520]

The time is at or after the commencement of ‘this Act’ (s 588G(1)(d)) 10.48 Section 588G applies if the time of incurring the debt by the company is at or after ‘the commencement of this Act’: s 588G(1)(d). Read literally, ‘this Act’ refers to the Corporations Act 2001 which became operative on 1 July 2001. As mentioned in Chapter 1,205 Pt 5.7B, including s 588G, commenced on 23 June 1993 and this is the date to which s 588G(1)(d) refers.206 Hence, s 588G(1)(d) is one of those rare instances of a statute containing a typographical

error. In such a case, the courts will interpret legislation to avoid the consequences of a simple typographical or drafting error207 although there appear to be no decisions in the voidable transactions context which have expressly articulated the error.

CONTRAVENTION OF S 588G (S 588G(2)) 10.49 Once the threshold requirements of s 588G(1) are established the court then turns to consider whether a contravention of s 588G is made out. Subsection 588G(2) provides that by failing to prevent the company from incurring the debt (referred to in subsection 588G(1)), a person contravenes s 588G if: (a) the person is aware at that time that there are such grounds for so suspecting; or (b) a reasonable person in a like position in a company in the company’s circumstances would be so aware. The thing which, in terms of s 588G(2), constitutes contravention is a default rather than an act.208 A person contravenes s 588G by ‘failing to prevent the company from incurring the debt’. The words ‘failing’ and ‘prevent’ in this context were considered by Young CJ in EQ in James v Andrews: [page 521] The question that one must address when considering whether there was a contravention of s 588G(2) is, assuming that the actions set out in the statement of claim assert a failing to prevent a company from incurring a debt, where did that failure take place in the case of a director, who we will assume for present purposes, never left New Zealand. It seems to me that before addressing that question one must look to see what the words ‘failing to prevent’ comprehend. The word ‘failure’ is a word which can have various shades of meaning. Jordan CJ dealt with the question in Ingram v Ingram (1938) 38 SR (NSW) 407 at 410, which was summarised by Mahoney JA in CBS Productions Pty Ltd v O’Neill (1985) 1 NSWLR 601 at 616, as in many cases requiring, in circumstances such as the present, what Mahoney JA described as ‘volitional delinquency’, that is, one must look to see some delinquency occurring in the will of the propositus, where there has been an omission to comply with an obligation. Then one must look at the word ‘prevent’. One finds in the legal dictionaries all sorts of shades of meaning for the word, but it must never be forgotten that it is derived from the word ‘prevenio’, which means ‘I go before’ or ‘proceed’ and the basic concept in the word is that someone intervenes to

control a state of affairs, usually these days by stopping it. So the general flavour of s 588G(2) is that someone has an obligation to deal with the company’s affairs in such a way to stop it incurring a debt, and that that person is guilty of volitional delinquency in and about that obligation. The question then is where does that volitional delinquency take place, where the propositus is at all stages physically in New Zealand? … Where a New South Wales statute creates an obligation on a company director, then that obligation attaches to the company director wherever that company director may physically be. He is bound to discharge obligations and the mere fact that he is outside the jurisdiction is no answer. It is always difficult to deal with omissions, but when one casts the omission in terms of some sort of positive delinquency, as I have done, one looks to see the duty, looks to see what did not happen, and then asks where did it not happen, which is, of course, an Alice in Wonderland type question, but it has to be addressed and that then focuses on what possibly can happen to fulfil the obligation.209

The words ‘by failing to prevent’ in s 588G(2) do not imply that contravention can occur only if the particular director possesses a capacity, acting alone, to deflect the company from the particular course of action.210 In Australian Securities and Investments Commission v Plymin (No 1) Mandie J explained: [page 522] … What of an individual director? I do not think that the requirement that a director must have failed to prevent the company from incurring the debt means that it must be shown that the individual director had the power by himself to prevent either the incurring of each debt or, more realistically in the present context, to prevent Water Wheel’s continuing to trade. By analogy with the previous law and the reasoning referred to above, inactivity or the failure to attempt to prevent the company from trading or incurring the debt will be sufficient to constitute a failure to prevent the company from incurring the debt within the meaning of s 588G(2) … This analysis is in my view supported by the existence of the particular defences expressly provided for by s 588H(4) and (5) … In that regard I note that s 588H(6) provides that the matters to which regard is to be had in determining whether the director took all reasonable steps are to include any action a director took with a view to appointing an administrator of the company, when that action was taken and the results of that action. This latter provision suggests what the legislature had in mind in relation to the kind of steps which an individual director might take in any attempt to prevent a company from incurring a debt or debts. The constructional effect of providing for these defences is, it seems to me, that the legislation, read as a whole, treats a director, or at least an inactive or acquiescent director, as having failed to prevent the incurring of a debt unless the director satisfies the onus of proving one or more of the matters referred to in those sections. Put another way, the language in which these defences is couched depicts the obverse of a failure to prevent the company from incurring a debt.211

An appeal from Mandie J’s orders was dismissed by the Victorian Court of Appeal in Elliott v Australian Securities and Investments Commission; Plymin v Australian Securities and Investments Commission.212 In that decision, Messrs Elliott and Plymin were non-executive and managing director respectively of Water Wheel Mills Pty Ltd. The Australian Securities and Investments Commission commenced proceedings against both directors seeking, inter alia, civil penalty orders and pecuniary penalty orders alleging a breach of s 588G. On appeal, counsel for Mr Elliott submitted that in order for ASIC to succeed

against Mr Elliott, it was necessary for ASIC to establish that: [page 523] the director knew that a particular debt relied upon by ASIC was to be incurred; at that time the director had the necessary degree of awareness of insolvency; the director did not take steps to prevent the company from incurring that debt; and had the director so acted the debt would not have been incurred. Counsel for Mr Elliott further argued that liability for insolvent trading can only be established after an examination of the position of the individual director, including the aspects of his responsibility, duty to act and opportunity to take a meaningful step within the collective environment of the board. It was emphasised that Mr Elliott was a non-executive director on the relevant boards and was, for most of the time, one of four directors. Mr Plymin, on the other hand, was Managing Director. Key to Mr Elliott’s argument was that the duties and responsibilities of a non-executive director are critically different to those of directors involved in the day-to-day management of a company, or a director, such as the managing director, who has the authority to make executive decisions. It followed, so the argument ran, that the ability of an executive director to take action to prevent an insolvent company from incurring a debt could readily be distinguished from the position of a non-executive director. The argument continued that s 588G(2) does not purport to impose a liability on a director merely because the director did not prevent the company from incurring the debt or did not attempt to do so. Thus, an executive director might have the power to stop trading or seek to persuade the board to appoint an administrator but might fail to do so. Mr Elliott submitted that a contravention of s 588G(2) and corresponding liability for compensation and other penalties depended upon establishing ‘volitional delinquency’ on the part of the individual director — and not the board as a whole — in failing to stop the company incurring a particular debt. He submitted that such delinquency was not established by an omission to act unless the circumstances placed the director under a duty to do something which had utility in preventing the company incurring the debt. There was, so the argument ran, an intended nexus between

the volitional delinquency of the director when failing to prevent the company incurring ‘the debt’ and compensation which might be ordered. A director, so it was said, is only liable to compensate the company in respect of the loss and damage suffered by a creditor in respect of a particular debt which the director failed to prevent. [page 524] 10.50 The Victorian Court of Appeal, comprising Warren CJ, Charles JA and O’Bryan AJA unanimously rejected these arguments. The court commenced its analysis by referring to cases under the previous regime which considered s 556(1) of the Companies (Victoria) Code (referred to at 10.4). Under s 556(2)(a) of the Code it was a defence to an insolvent trading claim if the debt was incurred without the director’s ‘express or implied authority or consent.’ Particularly influential was the decision of Statewide Tobacco Services Ltd v Morley in which Ormiston J observed: It is thus apparent without considering the effects of s 556, that a director is obliged to inform himself or herself as to the financial affairs of the company to the extent necessary to form each year the opinion required for the director’s statements. Although that is only an annual obligation, it presupposes sufficient knowledge and understanding of the company’s affairs and its financial records to permit the opinion of solvency to be formed. See also per Hodgson J in Metal Manufacturers Pty Ltd v Lewis (1986) 11 ACLR 122 at 130; 4 ACLC 739 at 750. Provisions such as these provide some indication of the attitude now taken by the legislative scheme in the Code towards the role and duties of directors and that altered attitude should be taken into account in interpreting provisions such as s 556. Having regard to what I have said already about the broad structure of s 556 and the general scheme of the Code, it is thus apparent that, in enacting the present section, the legislature has deliberately sought to impose a heavier burden on directors and other officers of companies which happen to become insolvent. In my opinion it is part of a consistent legislative pattern over recent years whereby the duties and obligations of directors and company officers have been increased and made more onerous.213

Ormiston J dealt with the position of a non-executive director facing an insolvent trading claim under s 556(1) as follows: It would not be difficult to satisfy the first condition in relation to the trading company but I cannot accept that the power to prevent a debt being incurred should be the criterion for liability and the primary basis upon which the defence could be rebutted. It is impractical to suggest that an ordinary director — that is a director other than an executive director — could exercise such a power except with the concurrence of at least one or more of his or her fellow directors. If a director were entitled to rest supinely and protest that he could not act without the concurrence of one or more of his colleagues when he knew that the company was in fact insolvent, then the section would have little practical purpose.214

[page 525] The Victorian Court of Appeal then referred to paragraph [285] of the Harmer Report, which, as mentioned above215 emphasised that the proposed formulation in that Report of a director’s duty to prevent insolvent trading removes attention from the incurring of a particular debt or debts and directs attention to the director’s responsibility for the overall financial management of the company. The court also referred to paragraph [182] of the EM to the CLR Bill which provided inter alia that: The duty [to prevent insolvent trading] is expressed in such a way that the director will not be able to use lack of involvement in the company’s affairs as a basis for asserting that a particular transaction was entered into without his or her implied authority.

The Victorian Court of Appeal concluded that: Having regard to the context, the history and evident legislative purpose of ss 588G and 588H it is in our view clear that the effect of s 588G(2) is that a director contravenes the section ‘by not preventing’ or ‘by failing to prevent’ a company from incurring a debt, and that a director will be taken to have so failed if debts are incurred by a company at a time when there are reasonable grounds for suspecting that the company is insolvent. There is, we think, nothing in the wording of s 588G to support the contrary argument for which counsel for Elliott and Plymin contended. The Harmer Report, on which the legislation was based and the paragraphs in the explanatory memorandum to which reference has been made plainly support these conclusions. We also accept that the interpretation for which the appellants contend would make s 588H(5) both irrelevant and meaningless. It follows that we see no error in the trial judge’s reasons dealing with the director’s duty to prevent insolvent trading, and his Honour’s interpretation of ss 588G and 588H.216

In response to Mr Elliott’s submissions, the Court of Appeal found that: s 588G(2) does not require proof that an individual director failed in his or her duty to take a step which would have been effective to prevent the company incurring the debt; ASIC was not required to prove against Mr Elliott in order to establish a contravention under s 588G(2) that Mr Elliott was under a duty to take a particular step which would have been effective to prevent the company from incurring the debt and that Mr Elliott did not take such a step; and the trial judge was not required to consider what duty Mr Elliott had to prevent the company incurring each particular debt for which a contravention was alleged. [page 526]

Director’s awareness of the company’s insolvency (s 588G(2)(a)) 10.51 Subsection 588G(2)(a) requires proof of a subjective awareness by the director of grounds, whether or not the director had a ‘subjective suspicion’ of insolvency, which grounds may be objectively characterised as reasonable grounds for suspecting such insolvency.217 Subsection 588G(2)(a) does not require the plaintiff to establish that the particular director had an actual suspicion218 that the company was insolvent, nor does it require the plaintiff to prove that the director had an awareness that the specified facts and matters which were within his knowledge in fact constituted grounds, or reasonable grounds, for suspecting insolvency.219 If it cannot be shown that a director was subjectively aware of grounds for suspecting insolvency then s 588G(2)(b) provides an alternative basis for the plaintiff to establish a contravention of s 588G.220 10.52 It is tempting to think that subs 588G(2)(a) is redundant to prove a contravention given the alternative of subs 588G(2)(b).221 Mandie J has observed however that proof under subs 588G(2)(a) may affect the nature and quality of the contravention by the particular director, and therefore have consequential relevance in relation to that director.222

A reasonable person in a like position in the company’s circumstances would be aware of the company’s insolvency (s 588G(2)(b)) 10.53 As mentioned above, subs 588G(2)(b) is a true alternative to subs 588G(2)(a). Subsection 588G(2)(b) is satisfied if a reasonable person in a like position to the particular director in the relevant company’s circumstances would be aware of the existence of reasonable grounds for suspecting insolvency. This provision, unlike subs 588G(2)(a), does not require that the particular director was so aware. Subsection 588G(2)(b) [page 527] typically applies where the particular director was unaware of the facts and

matters constituting reasonable grounds for suspecting insolvency but a reasonable person in a like position would or ought to have ascertained those facts and matters.223 Having said that, in ascertaining whether subs 588G(2)(b) is satisfied, the court has regard to the facts and circumstances that the director ought to have known as well as to the facts and circumstances that were actually known to the director.224 10.54 This was the same position under the previous statutory regime.225 Under subs 556(2)(b) of the Companies Code it was a defence to an insolvent trading claim if a director could establish that at the time when the debt was incurred, he or she did not have reasonable cause to expect that the company would not be able to pay all its debts as and when they became due or that, if the company incurred that debt it would not be able to pay all its debts as and when they became due. In Capricorn Society Ltd v Linke226 Lander J sitting as a member of the Full Court of the South Australian Supreme Court referred approvingly to the comments of Hodgson J in Metal Manufacturers Ltd v Lewis227 where Hodgson J said in relation to the former s 556(2)(b) of the Companies Code: … the view that I have come to … is that in deciding whether or not a defendant has ‘reasonable cause’ within sec 556(2)(b), one can have regard to facts and circumstances actually known to the defendant, and also facts and circumstances which the defendant ought to know, having regard to the defendant’s position in the company and the duties associated with that position.228

Likewise in Statewide Tobacco Services Ltd v Morley Ormiston J said: What is reasonable, therefore, is related in part to the extent of the enquiries that the director has made and should have made about the company’s solvency. A director should not in those circumstances be entitled to hide behind ignorance of the company’s affairs which is of his

[page 528] own making or, if not entirely of his own making, has been contributed to by his own failure to make further necessary enquiries.229

Ormiston J’s decision was subsequently followed by Tadgell J in Commonwealth Bank of Australia v Friedrich and by Lockhart J in Rema Industries and Services Pty Ltd v Coad.230 In the latter case Lockhart J said: The test of ‘reasonable cause’ in the context in which the expression appears imports an objective standard, but it must be applied to the facts and circumstances known to the defendant and facts and circumstances which, by reason of the defendant’s duties as a director or officer of the company, ought to have been known to him. It would be absurd for a defendant to be able to establish a defence simply on the basis of what he in fact knew. This would reward the incompetent director who ought to have

known a great deal more than he in fact knew.231

In Morley v Statewide Tobacco Services Ltd (No 1)232 the Victorian Court of Appeal comprising Crockett, Southwell and Hedigan JJ observed: … we would have little hesitation in substantially adopting what seems to us, with respect, to be persuasive reasoning of Hodgson, Ormiston and Tadgell JJ. It does not seem right that in this day and age the director who takes sufficient interest in his duties to be fixed with knowledge of insolvency, may, if he neglects to act, become criminally and civilly liable, whereas a director who wholly ignores the obligations imposed upon him by the Code, can escape that liability by pleading his own ignorance of the relevant facts.233

10.55 It is also necessary to take into account the particular company’s circumstances. As Tadgell J explained in Commonwealth Bank of Australia v Friedrich: What constitutes the proper performance of the duties of a director of a particular company will be dictated by a host of circumstances, including no doubt the type of company, the size and nature of its enterprise, the provisions of its articles of association, the composition of its board and the distribution of work between the board and other officers: Byrne

[page 529] v Baker [1964] VR 443 at 450. To speak of a director of ordinary, reasonable or average competence or prudence, or indeed of an ordinary reasonable or average director, is to give no very useful description, whereas a person seeking properly to perform the duties of a director of a particular company can be identified by reference to more specific criteria of which ordinariness, reasonableness and averageness are, or may be, merely ingredients.234

Having said that, the courts now expect a minimum standard of competence from company directors. As Parliament explained in the EM to the CLR Bill: 1086. Under section 592, a director has a defence where he or she could show that the debt was incurred without his or her express or implied authority or consent. This defence has been successfully invoked in circumstances where a director failed to take an active role in the management of the company and could therefore claim that debts incurred while the company was insolvent were incurred without his or her authority. Such a situation does not accord with modern expectations about the role of company directors. In particular, most persons would nowadays expect all the directors of a company to acquaint themselves with the general financial position of theft company, and to take positive steps where necessary to protect the interests of members and creditors.235

ONUS AND STANDARD OF PROOF 10.56 The onus of establishing a contravention of s 588G lies upon the party asserting a contravention.236 Section 1332 of the Act relevantly provides that

where, in proceedings other than proceedings for an offence, it is necessary to establish for any purpose relating to a matter arising under the Act that a person has contravened a provision of the Act it is sufficient if it is established on the balance of probabilities. Authorities in the Federal Court suggest that while the standard of proof in civil proceedings for a contravention of s 588G is on the balance of probabilities that is subject to the well established ‘Briginshaw’ test.237 In Briginshaw v Briginshaw Dixon J said: [page 530] … [W]hen the law requires the proof of any fact, the tribunal must feel an actual persuasion of its occurrence or existence before it can be found. It cannot be found as a result of mere mechanical comparison of probabilities independently of any belief in its reality … it is enough that the affirmative of an allegation is made out to the reasonable satisfaction of the tribunal. But reasonable satisfaction is not a state of mind that is attained or established independently of the nature and consequence of the fact or facts to be proved. The seriousness of an allegation made, the inherent likelihood of an occurrence of a given description, or the gravity of the consequences flowing from a particular finding, are considerations which must affect the answer to the question whether the issue has been proved to the reasonable satisfaction of the tribunal. In such matters ‘reasonable satisfaction’ should not be produced by inexact proofs, indefinite testimony, or indirect inferences.238

The position was clarified in Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd where Mason CJ, Brennan, Deane and Gaudron JJ said: The ordinary standard of proof required of a party who bears the onus in civil litigation in this country is proof on the balance of probabilities. That remains so even where the matter to be proved involves criminal conduct or fraud. On the other hand, the strength of the evidence necessary to establish a fact or facts on the balance of probabilities may vary according to the nature of what it is sought to prove. Thus, authoritative statements have often been made to the effect that clear or cogent or strict proof is necessary ‘where so serious a matter as fraud is to be found’. Statements to that effect should not, however, be understood as directed to the standard of proof. Rather, they should be understood as merely reflecting a conventional perception that members of our society do not ordinarily engage in fraudulent or criminal conduct and a judicial approach that a court should not lightly make a finding that, on the balance of probabilities, a party to civil litigation has been guilty of such conduct.239

10.57 In Australian Securities and Investments Commission v Plymin (No 1)240 Mandie J held in the context of proceedings brought by ASIC for civil penalty proceedings for a contravention of s 588G that the balance of probabilities was applicable. His Honour accepted that the ‘stricter’ Briginshaw approach should be adopted although regard must be had to the High Court’s latter comments in Neat Holdings. Likewise, in Tru Floor Service Pty Ltd v Jenkins (No 2),241 where creditors of an

[page 531] insolvent company brought civil proceedings under s 588M, Sundberg J accepted that the Briginshaw standard was applicable although again recognising that it was necessary to take into account Neat Holdings.242 In doing so, his Honour also took into account s 140 of the Evidence Act 1995 (Cth). 10.58 As explained below, in proceedings where it is sought be established that a contravention of s 588G is an offence, the criminal standard will apply.

CONTRAVENTION OF S 588G AS AN OFFENCE (S 588G(3))243 10.59 Section 588G(3) provides that a person commits an offence if: (a) a company incurs a debt at a particular time; and (aa) at that time, a person is a director of that company; and (b) the company is insolvent at that time, or becomes insolvent by incurring that debt, or by incurring at that time debts including that debt; and (c) the person suspected at the time when the company incurred the debt that the company was insolvent or would become insolvent as a result of incurring that debt or other debts (as in paragraph (1)(b)); and (d) the person’s failure to prevent the company incurring the debt was dishonest.

The penalty for a contravention of s 588F(3) is 2,000 penalty units,244 or imprisonment for five years, or both.245 10.60 The elements of the offence are cumulative, and each must be established to the requisite standard of proof, which is beyond reasonable doubt.246 The offence contains some elements that are governed by the absolute liability and strict liability provisions of the Commonwealth Criminal Code (‘Criminal Code’).247 [page 532] 10.61 The element in s 588G(3)(a), namely, that the company incurs a debt at

a particular time, is governed by the absolute liability provisions in s 6.2(2) of the Criminal Code. The elements in s 588G(3)(aa) (person is a director at the time the debt is incurred) and in s 588G(3)(b) (that the company was or became insolvent by incurring the debt or debts including the debt) are governed by the strict liability provisions in s 6.1(2) of the Criminal Code. 10.62 The application of those provisions means that: there are no fault elements for the physical elements of those parts of the offence under s 588G(3)(a), (aa) and (b), and proof of the facts alone is sufficient to discharge the legal burden on the prosecution;248 the defence of mistake of fact under s 9.2 of the Criminal Code is available in respect of the elements in s 588G(3)(aa) and (b), directorship at the time the debt is incurred by the company and incurring the debt while insolvent or causing insolvency; and the defence of mistake of fact under s 9.2 of the Criminal Code is not available in respect of the element in s 588G(3)(a), the company incurring the debt at a particular time. 10.63 The term ‘physical element’ is defined in s 4.1 of the Criminal Code to be conduct, a result of conduct or a circumstance in which conduct or a result of conduct occurs. The term ‘fault element’ for a ‘physical element’ is defined in s 5.1 of the Criminal Code as intention, knowledge, recklessness or negligence. The defence of mistake of fact under s 9.2 of the Criminal Code is available for an offence that has a physical element for which there is no fault element if: (a) at or before the time of the conduct constituting the physical element, the person considered whether or not facts existed, and is under a mistaken but reasonable belief about those facts; and (b) had those facts existed, the conduct would not have constituted an offence.

10.64 The two remaining elements of the offence are the suspicion that the company was or would become insolvent as a result of incurring the debt or other debts and the dishonest failure to prevent the company incurring the debt. [page 533]

The person suspected at the time when the company incurred the debt that the company was insolvent or

would become insolvent as a result of incurring that debt or other debts (s 588G(3)(c)) 10.65 As to the suspicion element, the significant difference between the criminal offence in s 588G(3) and the civil penalty provision in s 588G(1) to (3) is the absence of a requirement for a reasonable ground for suspecting insolvency. The offence provision by its terms requires only a suspicion rather than a suspicion on reasonable grounds. The principles concerning suspicion of insolvency are considered in 10.46 and are ordinarily understood to require a ‘positive feeling of actual apprehension or mistrust’ and ‘actual apprehension or fear [that the company is unable to pay its debts as and when they become due and payable]’.249

The person’s failure to prevent the company incurring the debt was dishonest (s 588G(3)(d)) 10.66 Chapter 2 of the Criminal Code sets out general principles concerning Commonwealth offences, although the relationship between Chapter 2 of the Criminal Code and the Corporations Act is unclear and remains to be determined.250 The term ‘dishonest’ is not defined in the Corporations Act itself, and there is no generally applicable definition of dishonesty in the Criminal Code, although there are particular definitions to apply in specified divisions. Where a definition appears in the Criminal Code, it is in the following form: For the purposes of this Chapter, dishonest means: (a) dishonest according to the standards of ordinary people; and (b) known by the defendant to be dishonest according to the standards of ordinary people.251

The definition used in the Criminal Code is a statutory enactment of the test from the English Court of Appeal decision in R v Ghosh252 which is: … whether according to the ordinary standards of reasonable and honest people what was done was dishonest … if it was dishonest by those standards, then the jury must consider whether the defendant himself must have realised what he was doing was by those standards dishonest … it is dishonest for a defendant to act in a way which he knows ordinary people consider to be dishonest, even if he asserts or genuinely believes that he is morally justified in acting as he did.

[page 534]

The Ghosh test contains objective and subjective elements, and it proved difficult to apply in practice, particularly for juries. As a result, the Ghosh test was repeatedly rejected by the High Court particularly in Peters v R,253 Spies v R254 and Macleod v R,255 which formulated a new solely objective test. Despite those decisions, the Ghosh test was reintroduced by enactment into the Criminal Code. 10.67 The issue of the proper test of dishonesty in the Corporations Act came before the Court of Appeal of the Supreme Court of Victoria in SAJ v R256 concerning a charge under s 184(2)(a) of the Corporations Act that a director had dishonestly used his position with the intention of gaining advantage for another. In contest was whether in order to prove dishonesty, the Crown had to prove that the applicant was dishonest from both an objective and a subjective point of view in accordance with the decision of the English Court of Appeal in R v Ghosh or was only required to prove that the applicant acted dishonestly in a purely objective sense in accordance with the decision of the High Court of Australia in Peters v R. The Court of Appeal unanimously found that the appropriate test was whether or not the applicant acted ‘dishonestly’ as set out in the decision of the High Court in Peters v R257 and particularly that: 1. The Peters test is applicable even where dishonesty applies as a distinct fault element, as it does in s 184(2).258 2. There is nothing in the text or statutory context of s 184 to indicate that the word ‘dishonestly’ is used in any ‘special sense’. If the legislature had intended a special meaning it would have given the term a precise definition.259 3. There is nothing in the legislative history of s 184(2) to suggest that Parliament intended the word ‘dishonestly’ to bear other than the ordinary meaning the word imports.260 10.68 There are obviously textual and contextual differences between s 184(2) and s 588G(3), the use of the word ‘dishonestly’ in s 184(2) and ‘dishonest’ in s 588G(3) being one, and the interpretative provision in s 184(1) being another. Textual differences aside, and until the issue is [page 535]

expressly determined, the decision in SAJ v R261 supports the conclusion that for offences under the Corporations Act, including s 588G, the word ‘dishonest’ should be interpreted as requiring proof of objective dishonesty in conformity with R v Peters.262 10.69 The criminal provisions in s 588G(3) have been little used. At the time of writing the only known and publicly recorded conviction is R v Timothy Rhys Hawker Williams.263 In that case Mr Williams faced a total of 38 charges of failing to prevent insolvent trading, and two further charges under s 592(6) concerning fraudulent acts to defraud creditors of the company (issuing false invoices to a debt factoring company and retaining payment of monies on invoices the subject of the debt factoring arrangement). The total gross losses from the period of insolvent trading and from the fraudulent acts were approximately $367,479. Mr Williams apparently cooperated with the Australian Securities and Investments Commission and the Department of Public Prosecutions, pleaded guilty to the charges of insolvent trading and had made partial reparation to the creditors for the fraudulent acts and to other creditors. Despite all of those matters Mr Williams was nevertheless sentenced to imprisonment for 18 months but to be released after six months on good behaviour.

SECTION 588G AS A CIVIL PENALTY PROVISION 10.70 Section 1317E(1) of the Act prescribes s 588G(2) as a civil penalty provision. A breach of a civil penalty provision has potentially both civil and penal consequences and it has been said that proceedings for a civil penalty are a hybrid between civil and criminal law.264 Once a declaration of contravention of a civil penalty provision has been made the Australian Securities and Investments Commission can then seek a pecuniary penalty order (s 1317G) or a disqualification order under s 206C. Only ASIC may apply for a declaration of contravention: s 1317J(1). However a company’s liquidator may intervene in an application for a civil penalty order against a person in relation to a contravention of subs 588G(2): s 588J(2). A company’s liquidator who so intervenes is entitled to be [page 536] heard only if the Court265 is satisfied that the person committed the contravention in relation to the incurring of a debt by that company and only on the question whether the Court should order the person to pay compensation to the company.266 Proceedings for a declaration of contravention, a pecuniary penalty order, or a compensation order may be started no later than six years after the contravention.267 10.71 A detailed discussion of the civil penalty provisions is beyond the scope of this work and readers are referred to more specialised texts on this subject.268

DEFENCES 10.72 As mentioned above,269 in its recommendations regarding insolvent

trading, the Harmer Commission recommended that directors should be able to avoid liability for insolvent trading by being able to rely upon three defences:270 first, where the director had reasonable grounds to expect that the company would have been able to pay its debts from its own resources; second, where the director took reasonable steps to minimise the possible loss to creditors; and third, where the director was not able, for good reasons, to participate in the management of the company at the relevant time. Each of these recommendations was adopted by Parliament with some minor modification in s 588H. Instead of three defences, however, Parliament implemented four defences to a claim for insolvent trading: the director had reasonable grounds to expect the company was solvent (subs 588H(2)); the director reasonably relied upon information provided to him or her that the company was solvent (subs 588H(3)); the director did not take part in the management of the company at the time the debt was incurred because of illness or some other reason (subs 588H(4)); and the director took all reasonable steps to prevent the company from incurring the debt (subs 588H(5)). [page 537] Section 588H has effect for the purposes of proceedings for a contravention of subs 588G(2) in relation to the incurring of a debt (including proceedings under s 588M in relation to the incurring of the debt).271 In Elliott v Australian Securities and Investments Commission; Plymin v Australian Securities and Investments Commission,272 Mandie J observed in relation to the defences set out in s 588H: The constructional effect of providing for these defences is, it seems to me, that the legislation, read as a whole, treats a director, or at least an inactive or acquiescent director, as having failed to prevent the incurring of a debt unless the director satisfies the onus of proving one or more of the matters referred to in those sections. Put another way, the language in which these defences is couched depicts the obverse of a failure to prevent the company from incurring a debt.273

10.73 The provisions are effectively mirrored in s 588FGB in respect of a claim made under s 588FGA by the Commissioner of Taxation.274

Reasonable grounds to expect solvency (subs 588H(2)) 10.74 Subsection 588H(2) provides that it is a defence if it is proved that, at the time when the debt was incurred, the person had reasonable grounds to expect, and did expect, that the company was solvent at that time and would remain solvent even if it incurred that debt and any other debts that it incurred at that time. Because of the requirement of s 588G(1), the ‘person’ referred to in 588H(2) will always be a director within the meaning of the definition contained in s 9 and as discussed in detail at 10.14ff. The expression ‘prove’ is also defined in s 9 as including ‘to establish in any way.’ For a discussion of the concepts of when a debt is incurred, solvency and ‘reasonable grounds’ see 10.30ff, Chapter 2 and 10.46ff respectively. 10.75 The word ‘expect’ is to be understood according to its usage in ordinary parlance, namely, ‘to regard as likely to happen’ or ‘to expect to find’ or ‘to expect that it will turn out that’.275 What s 588H(2) [page 538] requires to be proved is whether a reasonable and prudent director of the company has reasonable grounds for regarding it as likely to happen that the company will not be able to pay its debts as and when they fall due.276 The statutory scheme is predicated on the basis that a director can, at one and the same time, have a ‘suspicion’ of insolvency and also an ‘expectation’ of solvency and this is made clear from the terms of ss 588G and 588H.277 The case law establishes however that reasonable grounds for ‘suspecting’ that a company is insolvent does not require the same degree of satisfaction as is required to determine if a director has reasonable grounds ‘to expect’ solvency.278 The distinction was explained by Austin J in Tourprint International Pty Ltd v Bott: ‘Expectation’, as required by s 588H(2), means a higher degree of certainty than ‘mere hope or possibility’ or ‘suspecting’: 3M Australia Pty Ltd v Kemish (1986) 10 ACLR 371 at 378; Dunn v Shapowloff [1978] 2 NSWLR 235 at 249; (1978) 3 ACLR 775. The defence requires an actual expectation that the company was and would continue to be solvent, and that the grounds for so expecting are reasonable. A director cannot rely on a complete ignorance of or neglect of duty (Metal Manufacturers Ltd v Lewis (1986) 11 ACLR 122 at 129) and cannot hide behind ignorance of the company’s affairs which is of their own making or, if not entirely of their own making, has been contributed to by their own failure to make further necessary inquiries: Statewide Tobacco Services Ltd v Morley (1990) 2 ACSR 405; Morley v Statewide Tobacco Services Ltd [1993] 1 VR 423; 8 ACSR 305.279

It is not appropriate to base an expectation of solvency upon the prospect that the company might trade profitably in the future thereby restoring its financial position.280 The relevant question of solvency is whether the company at the relevant time is able to pay its debts as they become due not whether it might be able to do so in the future if given time to trade profitably.281 Nor is it appropriate to base an expectation of solvency upon anticipated indulgences by a company’s creditors. As the Full Court of the South Australian Supreme Court observed in Carrier Air Conditioning Pty Ltd v Kurda in relation to the former s 556282 of the Companies (SA) Code: [page 539] A reasonable and prudent company director would assess whether a company is in a position to pay its debts as and when they fall due by reference to the legal obligations of the company not by reference to any indulgences which the company might have received from its creditors. He would have regard to the fact that the credit policy of any particular creditor might suddenly change and require any outstanding debts to be paid forthwith. The possibility of such a change could result from any one of a number of factors including the fact that the creditor is itself experiencing financial stringency or, as the circumstances of this case illustrate, a change in management. A reasonable and prudent director must found his expectations on reasonable grounds. An expectation that creditors will continue to permit late payment of accounts is founded on hope or optimism, not on reason. It is a policy fraught with danger and could only be reasonably adopted if the company was experiencing a temporary lack of liquidity. A reasonable and prudent director would acknowledge that, while his company might have enjoyed periods of grace in the payment of its debts, there could be no reasonable expectation that that situation would continue. Apart from these considerations, he would recognise that the very fact that the ability of a company to continue to trade depends on indulgences from its creditors points to the conclusion that it is unable to pay its debts as and when they fall due. In other words, a reasonable and prudent director will, generally speaking, be directing his attention to whether the company will be able to pay its debts on the date stipulated for payment.283

10.76 Likewise it is not appropriate for a director to base their expectation of solvency on the hope that the company will be able to realise assets to pay outstanding debts. As mentioned at 2.17 where a company has assets which, if realised, will pay outstanding debts and will enable debts incurred during the period of realisation to be paid as they fall due, the critical question for solvency is how soon will the proceeds of realisation be available? As Palmer J observed in Hall v Poolman: There comes a point where the reasonable director must inform himself or herself as fully as possible of all relevant facts and then ask himself or herself and the other directors: ‘How sure are we that this asset can be turned into cash to pay all our debts, present and to be incurred, within 3 months? Is that outcome certain, probable, more likely than not, possible, possible with a bit of luck, possible with a lot of luck, remote, or is there is no real way of knowing?’ … If the honest and reasonable answer is ‘certain’ or ‘probable’, the director can have a reasonable expectation of solvency … If the honest and

reasonable answer is anywhere from ‘possible’ to ‘no way of knowing’, the director can have no reasonable expectation of solvency … If the honest and reasonable

[page 540] answer is ‘more likely than not’, the director runs the risk that a court will hold to the contrary in an insolvent trading claim … If the honest and reasonable answer is ‘no way of knowing yet, we need more information’, the director must then ask: ‘How long before we have the information so that we can give a final answer?’ … If the honest and reasonable answer to that question is: ‘By a definite date which will not extend the realisation period (if there is to be one) beyond 3 months’, the director may reasonably say: ‘Let’s wait until then before deciding’. If the honest and reasonable answer is ‘there is no way of knowing yet when we will have the information to make a decision’, the director must say: ‘Then there is no way that we can now have a reasonable expectation of solvency and there is no way we can reasonably justify continuing to trade without knowing when we will know whether the company is insolvent. Call the administrators’. By this series of questions and answers I do not mean to lay down some pro forma test of directors’ liability for insolvent trading. Each case depends on its particular facts. These questions and answers merely serve to illustrate that when a company is struggling to pay its debts, the directors must face up to the issue of insolvent trading directly and with brutal honesty: they must not shirk from asking themselves the hard questions and from acting resolutely in accordance with the honest answers to those questions.284

10.77 The brief facts of Hall v Poolman are set out at 10.47. In concluding that the director in that case did not have reasonable grounds to expect both the main company and the subsidiary company were solvent at all relevant times, Palmer J took into account the director’s knowledge, at all times during the relevant period, of the following facts and circumstances: large scale refinancing and asset sales sufficient to alleviate the companies’ endemic cash shortage were commercially feasible only if the tax dispute with the ATO was resolved substantially in favour of the main company; a favourable settlement of the dispute with the ATO could not be predicted with any assurance, particularly in light of the fact that the main company’s settlement proposals prior to 15 November 2002 had been rejected, and that on 22 January 2003, after Deloitte had made their latest and strongest submission to the ATO, Deloitte was not prepared to give any comfort letter to the main company as to the likely result; the ATO had not made any firm commitment to give a decision as to the settlement proposal by any particular time during the period, [page 541]

and had repeatedly failed to meet suggested estimates for a time for decision; both companies were suffering an endemic cash shortage which could only be alleviated by large-scale refinancing and realisation of assets; while some additional cash could be generated by selling real property and sales, realisations from those sources would not be sufficient to enable both companies to pay all existing creditors and to pay future trading debts as and when they fell due for payment; both companies had incurred trade debts in October 2002 and throughout the period which were not being paid in full according to their trading terms, and were continuing to age; and both companies were continuing to incur substantial trade debts every month during the period when there was no means of knowing whether large-scale refinancing and asset sales could be achieved in sufficient time to enable those debts to be paid in full when they fell due. 10.78 The decision of Byrne J in Quarry Quip Engineering Pty Ltd v Starr285 is one of the rare cases in which a defence under s 588H(2) was established. In that case, a creditor of a small insolvent company sought relief against the company’s directors under s 588M in the Melbourne Magistrates Court. The evidence before the Magistrate showed that the company was a small company engaged in mechanical engineering. On 12 July 1999, a customer placed an order on the company for the supply of four tools for a total price of $114,000. This order was placed following discussions between one of the company’s directors and a representative of the customer. One of the company’s directors gave evidence that when he raised with the customer the difficulty of the company funding such an expensive order, the customer’s representative said that the customer ‘would provide funding on a progress basis [and that] as work was done we would collect funds from him’. For the purposes of completing the order, the company placed an order with the creditor for the supply of certain items. The evidence showed the company did not have the ability to pay for these supplies as and when they became payable otherwise than by using funds from the ordering customer. There was no evidence otherwise of insolvency of the company at the time of the placing of the orders. The project fell into difficulties and the company failed to pay its suppliers. [page 542]

10.79 The directors argued that they had reasonable grounds to expect and did expect that the company was solvent at the time the debt to the creditor was incurred and that it would remain solvent because the company had a funding agreement with the customer which they believed on reasonable grounds would be able to provide funds in accordance with its terms to pay the debts to the company’s creditors. On these facts the Magistrate upheld the directors’ defence under s 588H(2). On appeal to the Supreme Court of Victoria, Byrne J dismissed the appeal on the basis that there was sufficient evidence before the Magistrate to justify the directors’ reliance upon s 588H(2).

Director’s reliance on information (subs 588H(3)) 10.80 Subsection 588H(3) provides that at the time when the debt was incurred, it is a defence if the following three elements are proved: the director had reasonable grounds to believe, and did believe that a competent and reliable person (the other person) was responsible for providing to the director adequate information about whether the company was solvent (s 588H(3)(a)(i)); and the director had reasonable grounds to believe, and did believe that the other person was fulfilling that responsibility (s 588H(3)(a)(ii)); and the director expected, on the basis of information provided to him or her by the other person, that the company was solvent at that time and would remain solvent even if it incurred that debt and any other debts that it incurred at that time (s 588H(3)(b)). 10.81 Like the defence in s 588H(2), s 588H(3) is exculpatory in nature.286 The defence in s 588H(3) appears to acknowledge the observation of Ormiston J in Statewide Tobacco Services Ltd v Morley287 that directors are not required to be omniscient and are not presumed in all cases to be fully engaged in the company’s affairs.288 The defences afforded by subss 588H(2) and (3) will, in many cases, overlap.289 Reasonable reliance on information provided by apparently competent executives or auditors may justify an expectation of solvency for the purposes of both [page 543]

subsections.290 In Manpac Industries Pty Ltd v Ceccattini,291 Young CJ in Eq explained the operation of s 588H(3) as follows: It is extremely difficult for a person to say that a person is responsible for providing adequate information about solvency and was fulfilling that responsibility when the person allegedly relying on the other person was the source of the supply of information and that supply of information was not completely full. The subsection arises from the recommendations made in para 211 of the Law Reform Commission’s Discussion Paper No 32 as fleshed out in [303] and following of the Harmer Report. In [307] it was said: The Commission considers that the defence is clearly necessary in the case of larger companies in which it cannot be expected that directors will have control over every action taken in the conduct of the company’s business. Additionally, a defence of this nature may encourage a proper system of financial management. Thus the prime thrust of the defence is to cover the situation where there is a large corporation with bulky accounts and where there is a system in place of competent accountants, credit controllers and financial management and the board has a regime whereby those people, provided they are competent and responsible, will report to the board any problems that the board may pick up. The prime thrust of the exception is not to deal with the situation where a small company with directors who have little idea of accountancy, bring in a trouble shooter, supply the trouble shooter with information which may not be complete, receive reports back from the trouble shooter and then intend to rely on a report which is incomplete because they have provided incomplete information.

10.82 In order to establish a defence under s 588H(3) successfully, it is necessary to establish that the ‘other person’ was in fact responsible for providing to the director adequate information about whether the company was solvent and that he or she was fulfilling the responsibility of providing adequate information to him about whether the company was solvent. So, in Re McLellan; The Stake Man Pty Ltd v Carroll,292 a director sought to rely upon s 588H(3) on the basis that a person appointed by the insolvent company, Mr Bright, for the purpose of giving the company business advice regarding the company’s cash flows, costs and expenses, and an analysis of the business model profits and losses satisfied the requirement of the ‘other person’ mentioned in s 588H(3)(a) (i). Goldberg J found that Mr Bright was not required to fulfil the role or did [page 544] fulfil the role of a competent and reliable person who was responsible for providing to the director adequate information about whether the company was solvent. As his Honour explained: Certainly Mr Bright was a competent and reliable person but I do not consider that it can be said that he was ‘responsible’ for providing to [the director] adequate information about whether the company was solvent. True it is that on occasions he gave [the director] advice about whether the company was

solvent. He gave such advice in or about June 2005 and later during the relevant period, although his evidence as to what he told [the director] in relation to the solvency of the company during the relevant period was limited … The evidence does not satisfy me that Mr Bright was specifically given the role or task of providing [the director] ‘adequate information about whether the company was solvent’. Although Mr Bright told [the director] on a number of occasions that he did not consider that the company was insolvent, that information was given as part of the general accountancy and advisory work which Mr Bright was undertaking for the company. It was not given in discharge of a responsibility for providing to [the director] adequate information whether the company was solvent. Mr Bright was not providing to [the director] adequate information about whether the company was solvent. Rather, he was expressing an opinion based upon information provided by [the director] himself.293

Likewise in Australian Securities and Investments Commission v Plymin (No 1),294 the court rejected a director’s reliance on s 588H(3) on the basis that the court considered the director could not have reasonable grounds for relying upon the person providing the director with information. As Mandie J explained: I am not satisfied that [the director] had reasonable grounds to believe that Plymin, or management generally, was fulfilling the responsibility of providing adequate information to him about whether [the company] was solvent. On the contrary, I am satisfied that [the director] did not have any reasonable grounds to so believe and that such information as was provided to him was not adequate enough to provide such reasonable grounds. For example, [the director] admitted that by late July 1999, he had concerns about the reliability and quality of the financial information being provided to him as a director, and that the form of financial reporting which the board had asked for in October 1998 was still not forthcoming, and that the board was not being provided with up-to-date information about the trading performance and financial position of [the company].295

[page 545] His Honour went on to explain that in order to invoke a defence under s 588H(3) successfully, the director must also reasonably believe that the ‘other person’ for the purposes of s 588H(3)(a)(i) is competent and reliable: Further, I am not satisfied that [the director], an experienced businessman and company director, who showed himself in the witness box to be a very intelligent and astute individual, did not know at all relevant times that he could and should have obtained from management on a regular basis a list of debtors and creditors by age and amount (including the age and amount of off-balance sheet finance), regular profit and loss and cash-flow statements and reports on negotiations (if any) with creditors whose debts were outside trading terms. I am therefore not satisfied that at any relevant time [the director] believed that Plymin and management generally were competent and reliable persons who were fulfilling the responsibility to provide him with adequate information about whether the company was solvent. Indeed, having seen and heard [the director], give evidence, I consider that [the director], turned a blind eye to the details of [the company’s] liquidity crisis in the hope that ‘something would turn up’ to rescue the company and his own associated financial interests. In any event, I consider that the evidence negatives the existence of reasonable grounds for [the director], to believe that Plymin was a competent and reliable person within the meaning of s 588H(3).296

Illness or some other good reason (subs 588H(4)) 10.83 Subsection 588H(4) provides that if the person was a director of the company at the time when the debt was incurred, it is a defence if it is proved that, because of illness or for some other good reason, he or she did not take part at that time in the management of the company. Subsection 588H(4) is independent of subss 588H(2) and (3).297 The words ‘other good reason’ are clearly words of great generality298 although such a phrase must take its colour from its surroundings.299 As Spigelman CJ explained in Deputy Commissioner of Taxation v Clark: The focus of attention must be on what constitutes a ‘good reason’ for a director not to participate in management for the purposes of corporations law. This requires consideration of the duties of directors, particularly in, but not limited to, situations of insolvent trading. In my opinion, the

[page 546] process of interpretation should commence with a recognition that, for the reasons outlined above, it is a basal structural feature of corporations legislation in Australia that directors are expected to participate in the management of the corporation.300

In other words, subs 588H(4) operates on the assumption that every director will be involved in the management of the company unless ‘illness’ or other good reason excuses involvement.301 Having regard to the broader history of the case law regarding insolvent trading and the history of the enactment of Pt 5.7B, the words ‘good reason’ must be read down so that they do not conflict with the obligation of directors generally to participate in the management of the company.302 The Corporations Act context, both historical and textual, indicates that non-participation per se is impermissible.303 Accordingly, reasons which cause a director never to participate in management are not capable of constituting ‘good reason’ for not participating at a particular point of time.304 10.84 So, in Deputy Commissioner of Taxation v Clark,305 the New South Wales Court of Appeal considered an appeal of a decision of Palmer J306 who held that although the company in question was insolvent, a female director who had taken no part in the affairs of the company and had left it all to her husband to run constituted ‘some other good reason’ within the meaning of subs 588FGB(5)307 as she had not taken part at the relevant time in the management of the company (section 588FGB(5) is in identical terms to subs 588H(4).)308 On appeal, Spigelman CJ, with whom Handley and Hodgson JJA agreed, and after

exhaustive analysis of the history of subs 588H(4), allowed the appeal. 10.85 Spigelman CJ’s analysis was heavily influenced by the decision of Ormiston J in Statewide Tobacco Services v Morley309 where a female [page 547] director had taken no part in the activities of the company which was managed first by her husband and, after his death, by her son. In that case, Ormiston J rejected any notion of a ‘sleeping director’ defence: It is also important, in construing s 556 [of the Companies Code], to pay some regard generally to the duties now imposed on directors both by the application of the rules of equity and under the Companies Code. The present s 556 is to be interpreted in the light of the more stringent obligations now placed on directors … While there may not have been any significant change in directors’ general duties as laid down in s 229 of the Code, as compared with those imposed by s 124 of the Uniform Companies Act, there can be little doubt that a more rigorous approach should now be taken by the courts in the light of the scope of remedies thereunder and of other legislative changes … it is thus apparent that, in enacting the present section, the legislature has deliberately sought to impose a heavier burden on directors and other officers of companies which happen to become insolvent. In my opinion, it is part of a consistent legislative pattern over recent years, whereby the duties and obligations of directors and company officers have been increased and made more onerous.310

Spigelman CJ also noted the following passages from the Harmer Report: [304] … [T]he Commission intends that a rigorous standard be applied to directors. It is one thing to trade with shareholders’ money. It is another to trade relying on the credit provided by third parties. Directors should be responsible for ensuring that the solvency of their company be monitored on a continuing basis. If they even suspect that the company may be trading while insolvent, they should examine its affairs closely to ensure that there are reasonable grounds to expect that it will be able to pay its debts. [Emphasis added] [312] Non-participation in management. The final defence proposed in the DP 32 was where a director does not participate in the management of a company at the relevant time due to illness or other unavoidable cause. Such a defence is necessary since, in some circumstances, it is not appropriate for a provision designed to establish a proper standard of conduct by directors to impose liability on a director who was not in a position to influence the management of the financial affairs of the company at the relevant time. However, two submissions regarded the phrase ‘other unavoidable cause’ as unclear and unduly onerous. Mr Kelso suggested ‘other reasonable cause’ but that wording may permit a director to be absent in circumstances that are reasonable, but not consistent with the necessary commitment to an involvement with the management of a company in financial difficulties

[page 548] (for example if the director takes an overseas holiday). Accordingly, the Commission recommends that a director have a defence where, by reason of illness or other sufficient cause, he or she did not

participate in the management of the company at the relevant time.311

10.86 There is accordingly discernible in the provisions of Pt 5.7B a policy to ensure that steps are taken expeditiously to prevent a company continuing to incur debts when in financial difficulties and s 588G is directed to this purpose.312 This was made plain by the Harmer Report which stated: An ordered form of administration of the affairs of an insolvent person is at the centre of insolvency law — whether, in the case of an insolvent company, that law offers the prospect of a winding up or continuation of the corporate business. This approach is similar to that taken by insolvency law inquiry bodies in many overseas countries, such as USA, Canada, UK and some of the European nations. It also requires legislation to encourage directors to take early and orderly steps to deal with an existing or impending state of insolvency. The Commission’s recommendations in respect of potential director liability for the debts of an insolvent company may provide such encouragement … [T]he aim is to encourage early positive action to deal with insolvency.313

The cases on directors’ duties such as AWA Ltd v Daniels t/as Deloitte Haskins & Sells314 indicate that there is a core, irreducible requirement of involvement in the management of the company.315 The existence of a core, irreducible requirement of participation in management was one of the factors underlying the scheme for insolvent trading in Pt 5.7B.316 Accordingly, the determination of what may be a ‘good reason’ for not participating in the management of the company is illuminated by legislative provision and case law which identifies the standard of care and the standard of skill required of directors.317 10.87 The construction of ss 588H(4) and 588FGB(5) is assisted by the fact that the explanation for a failure to participate is, in each case, [page 549] focused on a particular point in time. In s 588H(4) the point of time is when the debt, which is the subject of proceedings under s 588G, was incurred.318 In the case of s 588FGB,319 the point of time is when a payment is made to the Commissioner of Taxation under s 588FGA.320 As explained above, every director is expected to participate in the management of the company. Section 588H, and therefore s 588FGB, operate on the assumption that that will occur and that is why the defence is only available with respect to non-participation at a specific point of time.321 Accordingly, Spigelman CJ disagreed with Palmer J that that the words in ss 588H and 588FGB(5) are ‘as wide as they could be in order that the court may determine each case on its own particular facts’.322 As Spigelman CJ explained: The words must be read down in accordance with the scope and purpose of the legislation in which

they appear. For the reasons I have set out above, the Corporations Act context, both historical and textual, indicates that non-participation per se is impermissible. Accordingly, in my opinion, reasons which cause a director never to participate in management are not capable of constituting ‘good reason’ for not participating at a particular point of time.323

10.88 Likewise, reasons which may excuse a person from the legal consequences of his or her acts in such disparate fields as duress, non est factum, undue influence, deceit, misleading and deceptive conduct and unconscionable conduct, will not constitute ‘good reason’ for purposes of the defences in ss 588H(4) and 588FGB(5).324 The focus is much narrower than that applicable in many of these disparate areas of the law and differs from each of them.325 There is no justification for a doctrine which would hold sleeping directors to be ‘de facto non-directors’, who should be relieved of their liabilities.326 Although, as a practical matter, [page 550] the conduct of such directors may never meet the requisite standard of participation in management, such conduct should not be excused as a ‘good reason’ in law.327 10.89 The operation of subs 588H(4) was also considered by Austin J in Tourprint International Pty Ltd (in liq) v Bott.328 In that case, a director attempted to resist a s 588G application brought by a company’s liquidator on the basis that he had been deceived and excluded from management by the other director of the company. Austin J rejected the argument that even if this were the case, this constituted a ‘good reason’ within the meaning of subs 588H(4). Austin J observed: In my opinion [the director’s] submission is contrary to the policy underlying the subsection as disclosed by the Harmer Committee. In paragraph 312 the Harmer Committee expressed the view that a director should not be excused where, though acting reasonably, he has not shown the ‘necessary commitment to an involvement with the management of a company in financial difficulties’. [The director] clearly did not show a proper degree of commitment to involvement in the financial management of the company, for he was never involved in financial management at all. He ought to have realised that by not having any such involvement, he was not properly discharging his responsibilities as a director. He ought to have taken steps from the outset, and at least by mid-1993, to ensure that he had a proper degree of involvement as a director in the management of the company. He ought, in short, to have confronted Mr Moore and insisted upon proper involvement in the company’s affairs. He cannot now treat Mr Moore’s deceptive conduct as a good reason for not taking part in management when he did not assert his rights as a director from the outset and with vigour.329

10.90 There do not appear to be any cases in which a defence under subs

588H(4) has been successfully invoked. One of the rare cases in which a defence was successfully raised under the previous regime is Androvin Pty Ltd v Figliomeni.330 In that case, a director was relieved from liability from insolvent trading because at the relevant time the director was overseas and had not been involved in the affairs of the company during the relevant time and had appointed an alternate director to act in his place. The court found that the relevant debts had [page 551] not been incurred with the ‘authority or consent’ of the director in the context of s 592(2)(a) of the former Corporations Law.331

All reasonable steps to prevent company incurring debt (subs 588H(5)) 10.91 Subsection 588H(5) provides that it is a defence if it is proved that the director took all reasonable steps to prevent the company from incurring the debt. In determining whether a defence under subs 588H(5) has been proved, subs 588H(6) provides that the matters to which regard is to be had include, but are not limited to: any action the director took with a view to appointing an administrator of the company; and when that action was taken; and the results of that action. Subsection 588H(6) suggests what the legislature had in mind in relation to the kind of steps which an individual director might take in any attempt to prevent a company from incurring a debt or debts.332 Further insight into what Parliament had in mind as to what constitutes reasonable steps can be gleaned from the Corporate Law Reform Bill 1992, Public Exposure Draft and Explanatory Paper where it was stated that: The use of the word reasonable in this provision requires the court to have regard to factors such as the size and complexity of the company concerned, the size of the debt which was incurred and the nature of the grounds which gave rise to the suspicion of insolvency. Clearly, where a company has liquidity problems, a court might expect a company to more stringently monitor its expenditure and income, and

where reasonable grounds exist for suspecting that the particular transaction would result in the insolvency of the company, for that to cause immediate action to be taken to ascertain whether or not this would result. To take advantage of s 588H(5) a court might require unequivocal action on the part of those directors seeking to rely on the defence to exercise what powers and functions they possess, either to prevent the incurring of the debt directly or to bring the matter to the attention, either of an officer with the necessary authority to prevent the incurring of the debt or to the board of directors where that is required. The provision is not intended to hamstring the company by requiring that every transaction no matter how

[page 552] small be scrutinised because of an academic possibility of the company’s trading whilst insolvent.333

The case of ‘sleeping’ or inactive directors is more problematic. In Standard Chartered Bank of Australia Ltd v Antico (No 2)334 Hodgson J observed in relation to former s 556(2) of the Companies Code335 that: In the case of so-called sleeping directors, I think it is largely a question of fact in each case whether inactivity does or does not imply authority or consent. If the circumstances are that a director knows or should know that the company is incurring debts which it will not be able to pay as they fall due, and does not try to prevent this by persuasion, calling a meeting, etc, then authority or consent may well be implied, even if the debts are being incurred by a managing director, and the defendant director has not the power, according to the constitution of the company, to override the managing director’s decisions.336

RELIEF FROM LIABILITY FOR CONTRAVENTION OF CIVIL PENALTY PROVISION (SS 1317S AND 1318) 10.92 Relief from liability for a contravention of s 588G is also available under s 1317S including proceedings for relief under ss 588M and 588W.337 There is a ‘sterile’ debate within the authorities as to whether s 1318 is also available in an insolvent trading case.338 The prevailing view in the Supreme Court of NSW at least in relation to claims brought other than by the Commissioner of Taxation is that s 1318 is so available.339 In Scott v Williams,340 Lander J of the South Australian Supreme Court reached the opposite conclusion. Ultimately however the debate ‘does not matter’ given that the considerations under both sections are essentially the same.341

[page 553] 10.93 Under subs 1317S(2) a court may relieve a person either wholly or partly from a liability to which the person would otherwise be subject, or that might otherwise be imposed on the person, because of the contravention if the person has acted honestly342 and having regard to all the circumstances of the case (including, where applicable, those connected with the person’s appointment as an officer, or employment as an employee, of a corporation or of a Pt 5.7 body) the person ought fairly to be excused for the contravention.343 In determining under subs 1317S(2) whether a person ought fairly to be excused for a contravention of s 588G, the matters to which regard is to be had include, but are not limited to:344 any action the person took with a view to appointing an administrator of the company or P 5.7 body;345 and when that action was taken;346 and the results of that action.347 10.94 Section 1317S confers a very wide discretion.348 The purpose of s 1317S is to ‘excuse company officers from liability in situations where it would be unjust and oppressive not to do so, recognising that such officers are businessmen and women who act in an environment involving risk in commercial decision-making’.349 In Powell v Fryer,350 Prior J at first instance suggested that ‘honesty’, for the purposes of the discretionary defence to an insolvent trading claim, included the requirement that the director had acted bona fide in the interests of the company, including its unsecured creditors. In Hall v Poolman,351 however, Palmer J disagreed with such a suggestion: With respect, I do not think that it is helpful or desirable to categorise failing to act in the interests of the company in all cases as dishonesty for the purposes of CA s 1317S(2)(b)(i) and s 1318(1). The descriptions ‘dishonesty’ and ‘failing to act honestly’ have a plain and pejorative meaning in ordinary usage. They carry connotations of fraud, shameful

[page 554] conduct and lack of integrity, particularly in relation to the acquisition of gain by unfair means.

Palmer J went on to explain honesty in the context of s 1317S:

In my view, when considering whether a person has acted honestly for the purposes of a defence under CA s 1317S(2)(b)(i) or s 1318, the Court should be concerned only with the question whether the person has acted honestly in the ordinary meaning of that term, ie, whether the person has acted without deceit or conscious impropriety, without intent to gain improper benefit or advantage for himself, herself or for another, and without carelessness or imprudence to such a degree as to demonstrate that no genuine attempt at all has been to carry out the duties and obligations of his or her office imposed by the Corporations Act or the general law. A failure to consider the interests of the company as a whole, or more particularly the interests of creditors, may be of such a high degree as to demonstrate failure to act honestly in this sense. However, if failure to consider the interests of the company as a whole, including the interests of its creditors, does not rise to such a high degree but is the result of error of judgment, no finding of failure to act honestly should be made, but the failure must be taken into account as one of the circumstances of the case to which the Court must have regard under CA s 1317S(2)(b)(ii) and s 1318.352

10.95 Palmer J concluded his analysis of the requirement of honesty in this context by observing that the lack of honesty in the context of ss 1317S and 1318 must involve some ‘moral turpitude’.353 To that end,354 there is no requirement in ss 1317S or 1318 that a person must give evidence of honesty before a finding of acting honestly can be made. A court may find that a person has acted honestly from an examination of the circumstances surrounding the breach of duty and from other evidence such as testimonials as to the person’s conduct before and after the breach of duty.355 However, dishonesty may exist in the absence of any subjective intention to deceive.356 As Madgwick J observed in Australian Securities Commission v Forem-Freeway Enterprises Pty Ltd: That Mr Morton did not subjectively intend outright to defraud customers of the company cannot avoid a conclusion that his behaviour in this regard was both unreasonable and dishonest. Any reasonable person

[page 555] in the position of a director of the company in its circumstances must have realised that at any given time its liabilities substantially exceeded its assets and that, by reason of the dishonoured cheques and the practice and/or entrenched fact of excessive delays in meeting customers’ orders, the company could only meet its debts as they fell due by falling into default in relation to obligations to customers. That is not an ability to pay debts as they fall due, and any reasonable person would understand this. The extent of what I have called the entrenched fact of excessive delays in meeting customers’ needs and the established practice of making unrealistic representations to them about how soon and how reliably they would get their equipment indicates that the boundary between self-deception as to the company’s prospects and conscious deception of its customers had been crossed, and crossed at Mr Morton’s behest. That was, in the ordinary meaning of the word, dishonest behaviour in relation to the affairs of the company.357

10.96 In Hall v Poolman, the facts of which have been briefly set out at 10.47, Palmer J found that the director in that case was aware at all times during the relevant period that the debts of a large number of trade creditors of the main

company and subsidiary company continued to age. His Honour acknowledged the difficulties directors face in such circumstances: … it is sometimes a difficult decision for a director of a trading corporation suffering from liquidity problems to decide whether, and when, to abandon hope of a change in the company’s fortunes and to summon the administrators. There are often pressing interests involved in the decision: the jobs of employees will be lost, the investment of shareholders will evaporate, and a promising venture in which a great deal of personal effort may have been expended will end in failure. On the other hand, the livelihood of creditors whose businesses depend on reasonably prompt payment may also be ruined if a company continues to trade while insolvent. When confronted with the necessity of making a decision involving these factors, a director cannot afford to procrastinate or to avoid confronting realities.358

His Honour found that the director’s reliance on the defences in ss 588H(2) and 588H(3) failed.359 Palmer J then went on to consider whether the director, Mr Irving, could avail himself of the benefit of ss 1317S and 1318: In the present case, as at the beginning of October 2002, Mr Irving had received advice from Fryer and Mr Jessup that Deloitte would be making

[page 556] a detailed submission to the Commissioner and that [the main company] had at least a reasonable prospect of achieving a favourable settlement …. I accept that if a quick and positive response from the ATO had been received, the Group could have set about a restructuring which very probably would have restored solvency. I accept that as at 15 November 2002 there was no reason to predict that a response from the ATO would be negative and might be up to eight months in coming … By the time of Mr Irving’s meeting with Mr Fryer on 22 January, it was clear that no progress had been made. Mr Fryer would give no letter of comfort as to [the main company’s] liability or the prospects of settlement. Mr Irving appreciated that he could not simply wait passively until the ATO responded, however long it took: he had to do his best to encourage a quick decision by talking to Mr Evans. He arranged a special meeting between himself, Mr Evans and other ATO officers on 5 February 2003. However, at the end of that meeting, Mr Irving formed the view that it could take up to ninety days more for the ATO to make its decision. In my opinion, it was on 5 February 2003 that Mr Irving ought to have appreciated that there was no reasonable prospect of the Reynolds Group resolving in the short term its dispute with the ATO, and of [the companies] being able to realise assets quickly enough to pay their debts as they fell due. He ought to have appreciated that debts incurred in October 2002 were already some ninety days overdue and would probably be at least 180 days overdue by the time a decision by the ATO was made. He ought to have realised that there could be no reliable prediction that the decision would be favourable. But, even if the decision were favourable, a further, possibly considerable, time would have to elapse before funds from asset sales and refinancing could flow to the companies.360

In those circumstances his Honour found that Mr Irving should have realised there was no way of forming a justifiable view that both the main company and its subsidiary could pay the debts already incurred and about to be incurred in anything like the time frame, or with anything like the degree of probability, that

creditors would have allowed when they supplied goods and services. His Honour found, however, that Mr Irving was acting honestly and could avail himself of exoneration under s 1317S at least for a limited period: As I have noted, the Liquidators do not suggest that, in permitting [the main company and subsidiary company] to continue trading during the Period, Mr Irving acted deceitfully or with conscious impropriety or in order to gain any advantage for himself or others. On the contrary, I find that at all times Mr Irving sought and considered the advice of highly competent professionals … Mr Irving formed a view and exercised his commercial judgment as to the prospects of Wines being able to resolve its dispute with the ATO in time to restore solvency to the Reynolds

[page 557] Group. That judgment was made in very difficult circumstances; it was made in the knowledge that a large and potentially profitable public company could be placed in liquidation simply because the ATO did not seem to be dealing with a commercial settlement proposal with any degree of expedition. What if the administrators were summoned and the Reynolds Group collapsed, only to be told days later that the ATO agreed to settle the dispute on favourable terms? It is not hard to envisage the Directors’ sense of frustration in such circumstances. Mr Irving’s commercial judgment proved erroneous, in my view, but I cannot say that it was made recklessly. I conclude that, in failing to prevent [the main company and subsidiary company] trading throughout the Period, Mr Irving acted honestly, for the purposes of a defence under CA s 1317S(2)(b)(i) and s 1318. I find that up to the conclusion of his meeting with Mr Evans on 5 February 2003, but only up to that time, Mr Irving acted as other reasonable, commercially experienced directors might have acted in waiting to see when a decision from the ATO could be expected with some certainty. I would, therefore, hold that, having regard to the conduct of Mr Irving and to the circumstances of the case at the time of his contravention of s 588G(2), Mr Irving should be wholly relieved, pursuant to CA s 1317S and s 1318, of liability for contravention of CA s 588G in respect of debts incurred by Wines and Vineyards from 1 October 2002 up to and including 5 February 2003, but no further.361

10.97 If a finding of honesty is made, the court must next consider whether the defendant ‘ought fairly to be excused’, having regard to the matters discussed in 10.93. The basic question to be resolved in this context is whether the defendant ‘has acted honourably, fairly, in good faith and in a common sense manner as judged by the standards of others of a similar professional background.’362

ORDERS FOR COMPENSATION On application for civil penalty order Court may order compensation (s 588J)

10.98 Section 588J provides means by which compensation can be recovered other than by a liquidator.363 Section 588J(1) vests a discretion364 [page 558] in the court to make an order for the payment of compensation to the subject company equal to the amount of that loss or damage where three criteria are satisfied namely: the person committed the contravention in relation to the incurring of a debt by a company; and the debt is wholly or partly unsecured; and the person to whom the debt is owed has suffered loss or damage in relation to the debt because of the company’s insolvency. Unlike s 588M, it is not a precondition to the operation of s 588J that the relevant company is being wound up.365 The word ‘compensation’ when used in s 588J is not used in its usual sense as recompense for the compensated party’s own loss.366 Under s 588J the loss suffered is that of the creditors in relation to the debt incurred, but the compensation is paid to the company.367 The court may make a compensation order under s 588J whether or not it makes a pecuniary penalty order under s 1317G or an order under s 206C disqualifying a person from managing corporations.368 An order to pay compensation that a court makes under s 588J may be enforced as if it were a judgment of the court: s 588L. 10.99 Where a defendant director by a continuous course of conduct may have committed numerous contraventions in relation to the incurring of debts by an insolvent company on and after the earliest date of insolvency it is necessary to identify the debts so incurred by the insolvent company and their respective amounts.369 The court then ascertains whether any loss or damage has been suffered by each relevant creditor because of the company’s insolvency.370 Generally, if it is proved that a debt was incurred by the insolvent company on and after the earliest date of insolvency and that debt was not paid by the insolvent company then in the absence of other evidence, the creditor has been shown to have

[page 559] suffered loss and damage in the amount of the debt (less any dividend received or likely to be received).371 The failure by a creditor to lodge a proof of debt is at best a failure to mitigate any loss and damage suffered by the creditor, and if a relevant debt to the creditor was incurred by an insolvent company then the creditor will have suffered loss and damage in the amount of the debt less the dividend which it would have received if it had lodged a proof of debt.372 10.100 The operation of s 588J is not confined to liquidation and the words of subss 588J(2) and (3) do not qualify the plain meaning of s 588J(1).373 Nor is the operation of s 588J precluded by the fact that the company’s creditors may have entered into a deed of company arrangement and the directors may have given consideration under such a deed. So far as the dividends payable under a deed of company arrangement do not fully repay creditors the amount of the debts, the creditors will still suffer loss and damage because of the company’s insolvency, even if the deeds extinguished the company’s debts and granted releases to the company.374

Criminal court may order compensation (s 588K) 10.101 Under s 588K the court may (whether or not it imposes a penalty) order a person to pay to the company compensation equal to the amount of that loss or damage if a court finds a person guilty of an offence375 under subs 588G(3) in relation to the incurring of a debt by a company and the court is satisfied that the debt is wholly or partly unsecured and the person to whom the debt is owed has suffered loss or damage in relation to the debt because of the company’s insolvency.376 An order to pay compensation under s 588K may be enforced as if it were a judgment of the court: s 588L. [page 560]

Recovery of compensation for loss resulting from insolvent trading (s 588M) 10.102 In contrast to s 588J,377 s 588M is contingent on the company being

wound up378 and is generally a cause of action available only to the liquidator379 although in some circumstances a creditor may sue for such compensation (see s 588M(3)).380 The effect of ss 588G and 588M(2) is that a company’s liquidator may recover from a director of the company loss and damage381 suffered by creditors of the company where the four criteria specified in subs 588M(1) are satisfied.382 Section 588M applies where: 1. a person (the director) has contravened subsection 588G(2) or (3) in relation to the incurring of a debt383 by a company; and 2. the person (the creditor) to whom the debt is owed has suffered loss or damage in relation to the debt because of the company’s insolvency; and 3. the debt was wholly or partly unsecured when the loss or damage was suffered; and 4. the company is being wound up. It is not necessary for a director to have been convicted of an offence in relation to the contravention384 or a civil penalty order made against the director in relation to the contravention385 to attract the operation of s 588M. Relief under s 588M is only available where the relevant company is ‘being wound up’ at the time of recovery.386 Proceedings under s 588M may only be commenced within 6 years after the beginning of a winding up.387 [page 561] Section 588M does not allow recovery of the amount of the creditor’s debt as such.388 Rather, s 588M allows recovery of compensation measured by reference to loss or damage suffered by the creditor in relation to the debt because of the debtor company’s insolvency.389 In most cases, the loss and damage adverted to in subss 588M(2) and (3) is the amount of the unpaid debt due to the creditor in question.390 In other cases, such as where a proof of debt is admitted and a substantial payment is made to all creditors rateably, the relevant loss or damage may be less than the amount of the debt.391 If the debts are recovered by a liquidator under s 588M they will form part of the estate of the company that is available for distribution among its creditors and contributories.392 If recovered by a creditor under s 588M(3), they will be retained by the creditor.393 There may be cases in which, because of particular or imputed knowledge of creditors,

a court will, in its discretion, refuse relief under ss 588M, 588R or 588T on grounds such as those which give rise to a finding of unconscionability.394 10.103 Section 588M is directed to the compensation of unsecured creditors (either wholly or partly unsecured). The Corporations Act provides little guidance as to when a debt is unsecured. Section 9 provides that ‘unsecured’ in relation to a debt, has in Part 5.7B a meaning affected by section 588D. Section 588D in turn provides that for the purposes of Part 5.7B, a secured debt becomes an unsecured debt to the extent that the creditor proves for the debt as an unsecured creditor. Curiously, the Corporations Act provides definitions of similar concepts, none of which apply to claims under s 588M. Section 51E defines ‘secured creditor’ of a corporation as meaning a creditor of the corporation, if the debt owing to the creditor is secured by a security interest. ‘Security interest’ is in turn [page 562] defined to mean a PPSA security interest395 or a charge, lien or pledge: s 51A. These definitions of course suggests the obvious namely, that an unsecured debt is a debt that is not secured in any way. In most cases whether or not there is an unsecured debt will be obvious. For example, any debt which does not have the benefit of a ‘security’ will be unsecured. The question that is likely to arise in the context of s 588M(1)(c) is whether a debt that is wholly or partly unsecured (or conversely wholly or partly secured). In Great Wall Resources Pty Ltd (in liq) v Davidovic Pty Ltd396 the question arose as to whether a solicitor’s lien secured a debt to a legal practitioner. Macready AsJ identified two broad types of solicitors’ lien: a ‘retaining lien’ and a ‘fruits of the action’ lien. His Honour found that the existence of either lien did not mean that a legal practitioner to whom fees were owed was a secured creditor. With the enactment of the Personal Property Securities Act 2009 (Cth), any personal property security (as opposed to real property security) will need to be analysed in the context of that legislation and also in the context of Divisions 2A and 2B of Part 5.7B.397 10.104 Where one director is sued for insolvent trading, it is open to that director to claim equitable contribution from his or her fellow directors.398 As was the case under s 556(1) of the Companies Code, joint and several liability of co-directors for insolvent trading follows, as a matter of law, from the nature of the liability created by subss 588M(2) and (3) of the Corporations Act as each

person who was a director during the period of insolvent trading, and who cannot make out a defence, is liable to compensate for the same loss by reason of contravention of the same statutory prohibition in s 588G(2) which is sufficient to attract the doctrine of equitable contribution.399 [page 563]

Avoiding double recovery (s 588N) 10.105 Section 588N is aimed at preventing double recovery by the liquidator or a creditor in any proceedings under s 588M.400 Under s 588N an amount recovered in proceedings under s 588M in relation to the incurring of a debt by a company is to be taken into account in working out the amount (if any) recoverable in any other proceedings under that section in relation to the incurring of the debt. Amounts recovered under s 588M must also be taken into account in proceedings under s 596AC in relation to a contravention of s 596AB that is linked to the incurring of the debt.401

Effect of ss 588J, 588K and 588M (s 588P) 10.106 Section 588P provides that ss 588J, 588K and 588M have effect in addition to, and not in derogation of, any rule of law about the duty or liability of a person because of the person’s office or employment in relation to a company and do not prevent proceedings from being instituted in respect of a breach of such a duty or in respect of such a liability. For example, the right to recover compensation from a director under s 588J does not derogate from any right to recover from a director under s 1317H for breach of duty of office.402 By contrast, under s 1317H, the award of ‘compensation’ to the company is for damage suffered by it resulting from the contravention, but the damage suffered under this provision includes ‘profits made by any person resulting from the contravention’.403 Nonetheless, in the context of insolvent trading, the conduct of directors that needs to be demonstrated to make out a s 588G(2) contravention reasonably closely approximates to that required to establish a breach of director’s duties under ss 180, 181 and 182 of the Corporations Act.404 However, the relief sought is not the same. As the Full Court of the Federal Court has observed: While it might be said that, in insolvent trading cases, the difference between the two types of claim

for relief [under ss 588G and 1317H] reflects in substance merely a choice as to two different measures of compensation, we consider such is not the case. The two species of relief serve different purposes; have different statutorily prescribed measures; and, importantly, are required to be specified individually in

[page 564] an application, including an application served out of the jurisdiction. In these circumstances relief sought under s 1317H is not the same relief as that sought under s 588J (or for that matter s 588M). In addition, s 1317H is a general provision. But s 588J (or s 588M) is a specific provision creating a remedy in a particular situation. The ordinary principle of statutory construction is that in cases in which ss 588J or 588M provide a remedy, s 1317H, being a general provision, does not apply: David Grant & Co Pty Ltd v Westpac Banking Corporation (1995) 184 CLR 265 at 276.405

Certificates evidencing contravention (s 588Q) 10.107 For the purposes of Pt 5.7B a certificate signed by the Registrar or other proper officer of an Australian court406 may state either: that that court has declared that a specified person has, by failing to prevent a specified company from incurring a specified debt, contravened subsection 588G(3) in relation to the company; or that a specified person was convicted by that court for an offence constituted by a contravention of section 588G in relation to the incurring of a specified debt by a specified company; or that a specified person charged before that court with such an offence was found in that court to have committed the offence but that the court did not proceed to convict the person of the offence. Such a certificate is conclusive evidence that the declaration was made, that the person was convicted of the offence, or that the person was so found, as the case may be407 and that the person committed the contravention.408 The certificate is conclusive evidence of such matters unless it is proved that the declaration, conviction or finding was set aside, quashed or reversed. The intention behind s 588Q is to enable a liquidator or other creditors to rely on previous proceedings to establish a contravention, thereby leaving only the issue of damages.409

Proceedings by a creditor (ss 588R, 588S, 588T, 588U) 10.108 Subdivision B of Div 4 of Pt 5.7B allows creditors to bring proceedings against directors under s 588M. Subdivision B, comprising [page 565] ss 588R, 588S, 588T and 588U, creates a screening process.410 A creditor who wishes to pursue a claim under s 588M(3) may do so by obtaining the written consent of the liquidator under s 588R(1).411 In the event that written consent is obtained no other preliminary is necessary.412 If, however, no written consent is obtained then the creditor may utilise the procedure prescribed by ss 588S and 588T. The effect of those provisions is that the creditor may not proceed unless:413 the creditor has given written notice to the liquidator in conformity with s 588S;414 and at the end of three months after the giving of the notice, the liquidator has not consented to the creditor beginning the proceedings;415 and on an application made after the end of the three month period, the court has given leave for the proceedings to begin.416 A notice under s 588S must:417 be in writing;418 and state that the creditor intends to begin proceedings under s 588M in relation to the incurring by the company of a specified debt that is owed to the creditor;419 and ask the liquidator to give to the creditor, within three months after receiving the notice, either a written consent to the creditor beginning the proceedings or a written statement of the reasons why the liquidator thinks that proceedings under s 588M in relation to the incurring of that debt should not be begun.420 ‘Proceedings’ in the context of s 588R includes any process by which a claim

under s 588M is made in a court of competent jurisdiction [page 566] including a claim made by an originating process and a claim made by way of amendment to an existing proceeding.421 10.109 Section 588T regulates when a creditor may sue for compensation without the liquidator’s consent and applies where a notice is given under s 588S. Under s 588T(2), a creditor may begin proceedings under s 588M in relation to the incurring by the company of the debt specified in the notice422 if at the end of three months after the liquidator receives the notice, he or she has not consented to the creditor beginning such proceedings and the court423 has given leave for the proceedings to begin on an application made after those three months under s 588T(2)(b). Where during those three months the liquidator gives to the creditor a written statement of the reasons why the liquidator thinks that such proceedings should not be begun and the creditor applies for leave under s 588T(2)(b) then the creditor must file the statement with the court when applying424 and in determining the application, the court is to have regard to the reasons set out in the statement.425 Leave may only be granted under s 588T(2) (b) so as to permit proceedings under s 588M to be brought in respect of the company’s incurring of a debt ‘specified’ in a notice given under s 588S.426 The court’s consideration is confined to the particular proposed proceeding in respect of which the liquidator’s consent was sought but not given.427 Little case law exists as to what approach the court should take in determining an application for leave under s 588T(2)(b). The comments of Barrett J in Edenden v Bignell provide some guidance: The legislation proceeds on the footing that actions against directors who allow their company to incur debts while insolvent will, in the ordinary course, be taken by the company’s liquidator so that recoveries become part of the fund applicable in the winding up for the benefit of creditors generally. The idea that an individual creditor may, for the creditor’s own separate benefit, recover from directors because of insolvent trading runs counter to that general expectation. It is for that reason that a creditor

[page 567] intending to proceed in that way must either obtain the consent of the liquidator under s 588R(1) (indicating, in effect, that the particular recovery opportunity is one that the liquidator has not seen fit to pursue in the interests of creditors generally) or negotiate the two hurdles created by s 588T(2).428

According to Barrett J the general impression is that the function of the court upon an application for leave under s 588T(2)(b) is to satisfy itself that the creditor seeking leave, being the intending plaintiff under s 588M(3), has a good arguable case against the directors and that there are no countervailing reasons why the ultimate relief should not be granted.429 One countervailing reason for these purposes is unconscionability as alluded to by the New South Wales Court of Appeal in Deputy Commissioner of Taxation v Clark.430 In seeking leave, creditors must identify the relevant, act, omission or circumstances amounting to the incurring of the debt by the company and the time at which the debt was incurred by the company.431 Each of the elements of ss 588G and 588M(3) will also need to be satisfied.432 10.110 Subsection 588U(1) sets out three events preventing a creditor from suing under s 588M, namely: the company’s liquidator has applied under s 588FF in relation to the debt, or in relation to a transaction under which the debt was incurred;433 or the company’s liquidator has begun proceedings under s 588M in relation to the incurring of the debt;434 or the company’s liquidator has intervened in an application for a civil penalty order against a person in relation to a contravention of subs 588G(2) in relation to the incurring of the debt.435 Subsection 588U(1) has effect despite ss 588R and 588T.436 [page 568]

When holding company liable for insolvent trading by subsidiary (ss 588V and 588W) 10.111 Section 588V makes a holding company liable for insolvent trading by its subsidiary in certain circumstances. The section effectively mirrors the operation of s 588G, as though the holding company were a director of the subsidiary.437 The expression ‘holding company’ in relation to a body corporate is defined in s 9 to mean a body corporate of which the first body corporate is a subsidiary. Section 46 and cognate provisions438 of the Corporations Act set out the relevant rules regarding whether one company is a subsidiary of another.439

A corporation contravenes s 588V if the following elements are satisfied: the corporation is the holding company of a company at the time when the company incurs a debt; and the (subsidiary) company is insolvent at that time, or becomes insolvent by incurring that debt, or by incurring at that time debts including that debt; and at that time, there are reasonable grounds for suspecting that the (subsidiary) company is insolvent, or would so become insolvent, as the case may be; and either the corporation, or one or more of its directors, is or are aware at that time that there are such grounds for so suspecting440 or, alternatively, having regard to the nature and extent of the corporation’s control over the company’s affairs and to any other relevant circumstances, it is reasonable to expect that a holding company in the corporation’s circumstances would be so aware441 or one or more of such a holding company’s directors would be so aware;442 and that time is at or after the commencement of Pt 5.7B, that is, 23 June 1993.443 [page 569] A corporation that contravenes s 588V however is not guilty of an offence. The rationale behind s 588V was explained by Parliament in the following terms: 1123. Under the existing law, the separate personality of each company generally prevents access to funds of a related company for the payment of the debts or liabilities of a debtor company. The Harmer Report concluded that this may operate unfairly where the business activity of the company has been directed or controlled by the related company. The Report noted that it is as though the related company was acting as a director of the other company and causing it to incur debts and liabilities.444

10.112 Relief for a contravention of s 588V is regulated by s 588W which allows the company’s liquidator to recover from the holding corporation, as a debt due to the company, an amount equal to the amount of the loss or damage where the following elements are satisfied: a corporation has contravened s 588V in relation to the incurring of a debt by a company;445 and the person to whom the debt is owed has suffered loss or damage in relation to the debt because of the company’s insolvency;446 and

the debt was wholly or partly unsecured when the loss or damage was suffered;447 and the company is being wound up. Proceedings under s 588W may only be begun within six years after the beginning of the winding up.448 In some circumstances it is arguable that the relief sought under s 588W is relevantly the same as that sought under s 588J. Though the causes of action differ, the relief in one case being against the companies as shadow directors, in the other as holding companies, there is an argument for saying that the relief sought is the same.449 [page 570]

Defences to proceedings under s 588W (s 588X) 10.113 Section 588X effectively mirrors the defences to insolvent trading claims set out in s 588H. Under s 588X(2) for example it is a defence to an action under s 588W if it is proved that, at the time when the debt was incurred, the holding corporation, and each relevant director (if any), had reasonable grounds to expect, and did expect, that the (subsidiary) company was solvent at that time and would remain solvent even if it incurred that debt and any other debts that it incurred at that time. Section 588X(3) expands on the particular defences available without limiting the generality of s 588X(2). Section 588X(3) sets out three defences, specifically: If it is proved that, at the time when the debt was incurred, the corporation, and each relevant director (if any) had reasonable grounds to believe, and did believe that a competent and reliable person was responsible for providing to the corporation adequate information about whether the company was solvent; that the person was fulfilling that responsibility and expected, on the basis of the information provided to the corporation by the person, that the company was solvent at that time; and would remain solvent even if it incurred that debt and any other debts that it incurred at that time.450 If it is proved that, because of illness or for some other good reason, a particular relevant director did not take part in the management of the corporation at the time when the company incurred the debt, the fact that the director was aware as mentioned in subparagraph 588V(1)(d)(i) is to be

disregarded.451 If it is proved that the corporation took all reasonable steps to prevent the company from incurring the debt.452 A ‘relevant director’ for the purposes of s 588X means a director of the corporation who was aware as mentioned in subparagraph 588V(1)(d)(i).453

Application of amount paid as compensation (s 588Y) 10.114 Subsection 588Y(1) provides that an amount paid to a company under ss 588J, 588K, 588M or 588W is not available to pay a secured debt of the company unless all the company’s unsecured debts have [page 571] been paid in full. This provision read together with s 588M(2) does not indicate a legislative intention that property recovered by a liquidator in exercise of the statutory right conferred by s 588M is to be regarded as property of the company so as to be available to a secured creditor contrary to the principle established in N A Kratzmann Pty Ltd (in liq) v Tucker (No 2).454 The policy underlying the enactment of subs 588Y(1) is to provide a pool of quarantined funds (being funds recovered under ss 588J, 588K and 588M(2) and (3)) to which unsecured creditors can have access, in priority over secured creditors, the purpose of which is to provide some protection to those considered to be most at risk from the consequences of insolvent trading.455 In the EM to the CLR Bill, Parliament explained: 1132. Proposed section 588Y provides that the amount paid to a company under proposed sections 588J, 588K, 588M or 588W not be available to pay a secured debt of the company unless all the company’s unsecured debts have been paid in full. The Harmer Report recommended any amount recovered be available for distribution only among unsecured creditors because insolvent trading will generally have its major impact upon that class, secured creditors having access to their security for any money owed to them. 1133. Proposed subsection 588Y(2) enables a court to order that compensation paid to the company not be available to pay a particular unsecured debt (until after the payment of all other unsecured debts), where the Court is satisfied that at the time when the company incurred that particular debt the creditor knew that the company was, or would become insolvent. 1134. Proposed subsection 588Y(3) provides that 588Y(2) has no application where a creditor brings

an action under proposed Division 4.

This is consistent with the recommendations of the Harmer Commission who observed in their Report: In DP 32 (para 14) the Commission proposed that the amount received by the company be applied for distribution in the winding up. The amount recovered is to be available for distribution only among unsecured creditors because insolvent trading will have its major impact upon them. Neither the cause of action available to a company under these provisions nor the proceeds of any such action should be available to the holder of a floating charge over the property for the company (except to the extent

[page 572] that such a charge holder is unsecured). This proposal was not a matter of controversy in the submissions.456

Ward J has observed that while a distinction is drawn in the legislation between a secured creditor and an unsecured creditor there is nothing in the legislation or the Explanatory Memorandum to suggest that a secured creditor who waives its rights as a secured creditor cannot participate in a distribution of such proceeds with other unsecured creditors on a pro rata basis, nor would this seem to infringe upon the objectives enunciated in respect of this provision.457 10.115 Subsection 588Y(2) limits the payment of compensation recovered under ss 588J or 588K, 588M or 588W in some circumstances. Where the court orders compensation under these sections and the court is satisfied that, at the time when the company incurred the debt, the person who suffered the loss or damage knew that the company was insolvent at that time or would become insolvent by incurring the debt, or by incurring at that time debts including the debt,458 the court may order that the compensation or amount paid to the company is not available to pay that debt unless all the company’s unsecured debts (other than debts to which orders under this subsection relate) have been paid in full. Subsection 588Y(2) does not apply in relation to proceedings under s 588M in relation to the incurring of a debt by a company if the proceedings are begun by a creditor of the company (as provided for in Subdivision B of Division 4).459 Nor does subsection (2) apply in relation to a liability that is taken to be a debt because of s 588F.460

Court may make order imposing liability where person managed company while disqualified (s

588Z) 10.116 The Harmer Report recommended that directors have unlimited personal liability where they have acted as directors or managers while disqualified or have permitted others to act as directors or managers while disqualified.461 Parliament adopted this recommendation in its [page 573] entirety462 and enacted s 588Z. Under s 588Z, the Court463 may, on the application of the company’s liquidator, order that a person is personally liable for so much of the company’s debts and liabilities as does not exceed an amount specified in the order where: (a) the company is being wound up; and (b) on or after 23 June 1993 and within four years before the relation-back day,464 a person contravened s 206A by managing the company. Section 206A prohibits disqualified persons, such as undischarged bankrupts,465 from managing a corporation.466 Section 588Z serves to support and reinforce the effective operation of s 206A in so far as it precludes an insolvent under administration managing a corporation.467 However, this is not the sole or even the primary means of enforcement of s 206A as the penal provisions of the Corporations Law have that role.468 10.117 The operation of s 588Z, in an appropriate case, is that a liquidator can secure an additional source of funds with which to meet, in whole or part, the debts and liabilities of a company in the process of winding up.469 Section 588Z involves the exercise of a discretion.470 There are two points of focus for the discretion namely, whether to make an order at all and the limit placed by the order on the personal liability ordered.471 Some guidance as to the exercise of that discretion was provided by the Full Court of the Supreme Court of Western Australia in Nilant v Shenton where Parker J observed: Although not explicit, a clear implication of [s 588Z] is that there should be some relevant connection between the debts and liabilities of the company and the role of the person, who is made subject to an order for personal liability, in the management of the company. It would appear that the

[page 574]

connection may be found in the incurring of one or more particular debts or liabilities, or in a more generalised level of debt or liability incurred in a course of management. The role of the person in the incurring of such particular debts or liabilities, or in allowing a more generalised level of indebtedness or liability to arise, will clearly be material to the exercise of discretion. The implication I would draw from the provision is that the conduct of the person in the management of the company, whether in respect of a particular transaction or of a more generalised nature, should disclose some element which makes it appropriate that the person should personally bear a financial responsibility for the consequences of his or her role in the management of the company. The precise nature of that element will no doubt vary considerably from case to case. Inevitably, the more complete understanding of its nature will be the product of a number of examples as individual cases fall to be decided.472

Unfortunately no subsequent cases have considered s 588Z in any detail. As mentioned above, however, one of the purposes of s 588Z is to support and reinforce the effective operation of s 206A. The purpose of provisions such as s 206A in prohibiting persons such as undischarged bankrupts from managing corporations is not to punish the person so acting but rather to protect the public from imprudent actions of the person so acting which could cause the public to suffer financial loss.473 So, in Nilant v Shenton, the Supreme Court of Western Australia made an order under s 588Z that a disqualified person be personally liable for a specified part of the debts of an insolvent company following the company incurring a debt of $200,000 in the form of a loan. Both the liquidator and the disqualified person appealed to the Supreme Court of Western Australia Full Court. The Full Court found that in the absence of necessary evidence and findings, a satisfactory view of the effect on the affairs of the company of this debt, incurred under the disqualified person’s influence, could not be formed. It had not been shown that the disqualified person’s management, in this respect, necessarily caused the public to suffer financial loss.474 The Court concluded that it had not been demonstrated that the public interest would be advanced in any significant way by the making of an order.475 [page 575]

DIRECTORS TO INDEMNIFY COMMISSIONER OF TAXATION IF CERTAIN PAYMENTS SET ASIDE (s 588FGA)

10.118 In addition to liability that may be imposed upon directors personally under the provisions referred to above, a director may also be liable to indemnify the Commissioner of Taxation under s 588FGA. Under s 588FGA, the Commissioner of Taxation is given an express statutory right of indemnity476 against each person who was a director of a company at the time certain payments were made by an insolvent company to the Commissioner which are subsequently avoided under s 588FF.477 The statutory indemnity only operates if the Court478 makes an order under s 588FF479 against the Commissioner of Taxation because of the payment of an amount in respect of the following taxation liabilities referred to in s 588FGA(1),480 inter alia: s 222AHA of the Income Tax Assessment Act 1936;481 Subdiv 16-B in Sch 1 to the Taxation Administration Act 1953482 (income tax withholding provisions483); or to pay the amount of an estimate of unpaid superannuation guarantee charge under Div 268 in Sch 1 to the Taxation Administration Act 1953.484 Until 30 June 1993, the Commissioner of Taxation had priority over all other unsecured creditors with respect to unremitted deductions for [page 576] certain tax debts.485 The Harmer Report recommended the abolition of the priorities accorded to the Commissioner of Taxation over all other unsecured creditors with respect to certain amounts deducted or withheld.486 Sections 588FGA and 588FGB were inserted into the then Corporations Law by the Insolvency (Tax Priorities) Legislation Amendment Act 1993 which introduced a new regime for the collection of unremitted deductions from salary or wages487 and sought to put the Commissioner in the same position as other creditors.488 This involved the abolition of the Commissioner’s priority on a winding up and was seen as essential for the smooth and efficient operation of the then proposed voluntary scheme of administration.489 In order to place the Commissioner in the same position as other creditors and to avail himself or herself of the statutory provisions of the Corporations Act prohibiting insolvent trading and providing for voidable transactions, the amendments provided that the liabilities of a company under a remittance provision are to be characterised as debts.490 To that end, payments in respect of tax liabilities are deemed to be for valuable

consideration.491 The risk that the Commissioner would generally be unable to avail himself or herself of defences under the voidable transactions provisions because of the Commissioner’s possession of details of the company’s financial health through tax information was sought to be ameliorated by requiring directors to indemnify the Commissioner against such orders.492 10.119 Under subs 588FGA(2) each person who was a director of the company when the payment was made is liable to indemnify the Commissioner in respect of any loss or damage resulting from the order. The ‘loss or damage’ referred to in subs 588FGA(2) is not the ‘loss or damage’ of the Commissioner but the ‘loss or damage’ of the Commonwealth which the [page 577] Commissioner has the responsibility of recovering.493 The loss or damage must be as a result of the order made by the court under s 588FF.494 The verb ‘result’ is defined in s 9 to include ‘result indirectly.’ Under s 588FGA(3) an amount payable to the Commissioner under subsection 588FGA(2) is a debt due to the Commonwealth and payable to the Commissioner495 and may be recovered in a court496 of competent jurisdiction by the Commissioner, or a Deputy Commissioner of Taxation, suing in his or her official name.497 There is little authority on the precise scope of the phrase ‘… in respect of any loss or damage resulting from the order’. Having said that, in the Explanatory Memorandum to the Insolvency (Tax Priorities) Legislation Amendment Bill 1993, Parliament explained the rationale behind s 588FGA as follows: … one of the elements of a successful defence to a recovery action by the liquidator in relation to such dispositions requires the disposition to have been made for valuable consideration. The risk remains, however, flowing from the Commissioner’s possible possession of financial details of the company’s health (through the receipt of tax information etc), that the Commissioner might still be precluded from asserting a defence under the voidable transactions provisions, on the basis that he or she was aware of the insolvency of the person making the disposition. To ameliorate this result the proposed amendment provides that where a court order is made against the Commissioner (under section 588FF of the Corporations Law, introduced by the Corporate Law Reform Bill 1992) requiring the return of the money paid by the company to discharge its liability under a remittance provision, (sic) the directors of the company at the time when the payment was made shall indemnify the Commissioner for any loss or damage suffered by the Commissioner as a result [new s 588FGA — inserted by clause 27]. The amount recoverable by the Commissioner is a debt due to the Commonwealth and may be recovered in a court of competent jurisdiction by the Commissioner or Deputy Commissioner [new s 588FGA(3)].

In Gibbons v Deputy Commissioner of Taxation, Nicholas J of the Supreme

Court of New South Wales explained that: In short, the amendments put the Commissioner in the same position as other creditors under the insolvency provisions of the Corporations Law. It is clear that s 588FGA is intended to provide to the Commissioner, in order to protect the revenue, an indemnity in respect of any loss or damage

[page 578] suffered as a result of being ordered to repay money paid by a company in discharge of its liability under a remittance provision. According to principle, it should be construed to the extent the language will allow so as to give full effect to the intended remedy. So construed, the indemnity covers the full amount which the Commissioner is ordered to pay, and its costs incurred in respect of the claim by a liquidator. Thus, for example, it was held in Browne v Deputy Commissioner of Taxation (1998) 153 ALR 10 that s 588FGA(2) places the Commissioner in a special position among the other creditors in the winding up of a company. When an order has been made by the Court under s 588FF against the Commissioner, each person who was a director of the company when the payment was made is rendered by s 588FGA(2) liable to indemnify the Commissioner in respect of any loss or damage resulting from the order for repayment.498

The loss and damage resulting from the order will accordingly include the Commissioner’s costs reasonably incurred in defending a claim under s 588FF as well as interest499 and also interest and costs the Commissioner of Taxation might be ordered to pay the plaintiff in consequence of reasonably but unsuccessfully defending a claim made against him under s 588FF.500 In some cases the court may make an adjustment regarding interest to reflect the fact that interest that may be ordered under s 588FF will likely relate to all of the impugned payments, whereas the indemnity under s 588FGA only relates to those payments which were made in respect of income tax withholding liabilities. For example, in Superior Press Pty Ltd (in liq) v Deputy Commissioner of Taxation, Byrne J adjusted the amount of interest to reflect the ratio of total tax payments recovered by the liquidator to the income tax withholding tax payments that attracted indemnity.501 Costs that are incurred in consequence of unreasonable conduct on the part of the Commissioner in defending the claim would not be ‘loss or damage resulting from the order’ within the meaning of s 588FGA(2) as the unreasonable conduct would breach the chain of causation.502 [page 579] The loss and damage resulting from the order referred to in subs 588FGA(2)

is the immediate loss resulting from the court’s order so that the director’s liability for indemnity arises following the payment of the court’s order. As the Full Federal Court explained in Browne v Deputy Commissioner of Taxation: In our opinion once the commissioner pays an amount to the company or liquidator in accordance with a court order under s 588FF, directors of the company at that time become liable to indemnify the commissioner in respect of the amount of payment; it is that payment that constitutes ‘the loss or damage resulting from the order’ of the court. Once the directors satisfy the indemnity by paying the requisite moneys to the commissioner then they are treated as if they were guarantors of a principal debt, have discharged their liability as guarantors and now stand in the shoes of the creditor by way of subrogation or, (as subs (5) of s 588FGA provides) ‘whether by way of indemnity, subrogation, contribution or otherwise’.503

In the Full Federal Court’s view, the indemnity created by s 588FGA(2) is not an indemnity for the ultimate or net loss suffered by the Commissioner which could only be ascertained once the distribution to the creditors is finally resolved. Instead the Full Court found that if a dividend becomes payable in respect of the principal debt previously due to the Commissioner by the company then the directors stand in the shoes of the Commissioner by right of subrogation and they may recover the amount of the dividend payable in the winding up that would previously have gone to the Commissioner.504 Further, if one of the directors discharges the whole or part of the liability as required by the obligation of statutory indemnity arising from s 588FGA(2), then that director also has a right of subrogation, contribution or indemnity against his or her fellow directors so as to achieve equality between all the directors.505 10.120 An amount payable to the Commissioner under subs 588FGA(2) is a debt due to the Commonwealth and payable to the Commissioner506 and may be recovered in a court507 of competent jurisdiction by the Commissioner, or a Deputy Commissioner of Taxation, suing in his or her official name.508 Under subs 588FGA(4) the court may, in the proceedings in which it made the order against the Commissioner, order a person [page 580] to pay to the Commissioner an amount payable by the person under subsection 588FGA(2). The Commissioner’s role in s 588FGA proceedings is not that of an interpleader where the only issue is insolvency as between the director from whom indemnity is sought and the liquidator.509 Nor can proceedings in which a liquidator seeks to recover moneys said to constitute voidable preferences from the Commissioner, to which the latter joins the directors pursuant to s

588FGA(4), be characterised as in the nature of an interpleader action. There are no rival claimants to the ownership of property seeking to satisfy a court as to which of them has the legitimate claim and the Commissioner cannot be said to be in the position of a stakeholder claiming no interest in the outcome of the dispute.510 These observations have consequences for costs in proceedings brought under s 588FGA s explained in 10.121.

Rights of directors 10.121 In matters involving, or potentially involving, a claim by the Commissioner under s 588FGA, it is important that the court afford any directors that may be affected procedural fairness and natural justice. It has already been mentioned in 8.50 that where the Commissioner proposes to consent to an order under s 588FF in proceedings brought by a liquidator and there are no other parties to the proceeding a court considering making such a consent order must be mindful of the rights of third parties.511 As Barrett J explained in Hall (as liquidators of Reynolds Wines Ltd) v Commissioner of Taxation: … a decision by the Commissioner to pursue the s 588FGA(4) route (as distinct from any other) in seeking to enforce the s 588FGA(2) indemnity carries within it a decision that the relevant directors should be afforded the position of third parties in the proceedings brought by the liquidator against the Commissioner. As a corollary, it must, in

[page 581] my opinion, be intended that the directors in question should be able to defend the liquidator’s claim against the Commissioner, that being a generally accepted incident of third party status: see Helicopter Sales Pty Ltd v Rotor-Work Pty Ltd (1974) 132 CLR 1; 4 ALR 77 per Barwick CJ at CLR 5; ALR 79 and Mason J at CLR 15; ALR 87.512

10.122 Third party status is afforded to directors on the basis that they would be prejudiced if denied the opportunity to contest the liquidator’s claim, as the making of an order against the Commissioner under s 588FF imposes an obligation on them to indemnify him pursuant to s 588FGA.513 Accordingly, directors who are joined by the Commissioner seeking relief under s 588FGA are entitled to challenge all matters that may be relevant to liability in the primary case as between the liquidator and the Commissioner. In Hall v Commissioner of Taxation, Barrett J observed: … the directors, as statutory third parties to the proceedings, must be afforded the right and ability to contest all matters relevant to the question of liability between the liquidators and the Commissioner, including the matter of insolvency. I agree with Finkelstein J that, in a case of this kind, basic

principles of justice so require. A likely consequence is that the liquidators will be put to proof of the matters in para 9 of the statement of claim despite the Commissioner’s admission. But it is to be borne firmly in mind that the Commissioner, as well as making the admission, has taken the particular opportunity made available by s 588FGA(4) to recast the liquidators’ proceedings by inserting as parties the persons who not only have a real interest in contesting the insolvency question but also are likely to have the factual wherewithal to do so. That those persons should be able to participate fully in that contest is, to me, obvious.514

[page 582] 10.123 Directors also have the benefit of subsection 588FGA(5) which provides that: A person who pays an amount under subsection (2) has the same rights: (a) whether by way of indemnity, subrogation, contribution or otherwise; and (b) against the company or anyone else; as if the payment had been made under a guarantee: (c) of the liability referred to in subsection (1); and (d) under which the person and every other person who was a director of the company as mentioned in subsection (2) were jointly and severally liable as guarantors.

Section 588FGA(5) is a deeming provision515 providing for a deemed guarantee by the directors of the debts of the company (in effect, the deemed principal debtor) to the Commissioner. The position was explained by Ipp JA in Federal Commissioner of Taxation v Sims: Under the general law, an implied contract arises as between the surety (or guarantor) and the principal debtor whereby the principal debtor undertakes to indemnity the surety in respect of those monies that the surety might pay towards the principal debt. In In re A Debtor [1937] Ch 156 Slesser LJ at 161 referred to the surety’s right of reimbursement from the principal debtor as ‘the implied undertaking of the principal debtor to repay the money paid on her behalf to the creditor’. In McColl’s Wholesale Pty Ltd v State Bank of NSW [1984] 3 NSWLR 365 Powell J (at 376) referred to this as ‘the orthodox view’. Powell J observed that, on the authorities: [W]here, in proceedings to enforce the right of indemnity, interest has, or costs have, been allowed, the court has justified its actions upon the basis that the sum or sums allowed is or are in the nature of damages for the principal debtor’s failure to honour his contract to indemnify the surety. It is well-settled that a surety may recover, as damages for breach of contract (as between the surety and the principal debtor), its costs incurred in reasonably defending actions brought against it: McColl’s Wholesale Pty Ltd v State Bank of NSW; Hornby v Cardwell (1881) 8 QBD 329, 336–337 (per Brett LJ with whom Cotton LJ agreed). Section 588FGA(2) cannot be explained as a deemed application of this rule as the Commissioner is not a deemed guarantor of the directors. But the rule does illustrate that the incurring of legal costs in defending a claim

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for which another is liable may, in certain circumstances, be regarded as damages incurred by the defending party.516

Defences to claims under s 588FGA (s 588FGB) 10.124 Section 588FGB sets out defences which are in virtually identical terms to the defences contained in ss 588H and 588X.517 The only difference between s 588FGB and the latter provisions is that subs 588FGB(6), in contrast to ss 588H(5) and 588X(5), provides that it is a defence if it is proved that there were no such [reasonable] steps the director could have taken.518 Section 588FGB has effect for the purposes of proceedings to recover from a person an amount payable under subs 588FGA(2) and proceedings under subs 588FGA(5) against a person of the kind referred to in s 588FGA(5)(d).519 The time when the payment referred to in subs 588FGA(1) was made is called the ‘payment time’.520 Practically, the defences under s 588FGB arise when there has been a court order under s 588FF.521 Broadly speaking, the defences in subs 588FGB(2)–(6) cover situations where it is ‘inappropriate’522 to hold a director responsible for a preferential payment on the grounds set out in those subsections. In Smith v Deputy Commissioner of Taxation Mansfield J observed: The defences potentially available under subss (3)–(5), but not pursued, relate to circumstances where the payment was made without ‘fault’ on the part of the directors, in the sense that the directors either had reason to believe that no question of an improper payment would arise or had an excuse for not preventing the payment. Similarly the defence under subs (6), in my view, contemplates circumstances where the payment was made despite the directors, either because they tried to prevent it or could not have done so. The focus of the subsection is on preventing the payment. It is not, in my view, to the point that the payment may have reflected a sensible commercial judgment at the time and in the circumstances in which it was made. In my view that is not the relevant test. I do not think the defence is made out where, on the facts, the directors far from

[page 584] taking steps to prevent the payment or from being powerless to prevent it, procured it.523

10.125 The defences under s 588H are discussed in detail at 10.72–10.91 and readers should refer to those paragraphs for a more detailed discussion of relevant principles regarding the defences to an insolvent trading claim in civil proceedings. Like the defences in subs 588H(4), the defences in s 588FGB have been rarely successfully invoked.

Reasonable grounds to expect solvency (subs

588FGB(3)) 10.126 Subsection 588FGB(3) provides that it is a defence if it is proved that, at the payment time, the person had reasonable grounds to expect, and did expect, that the company was solvent at that time and would remain solvent even if it made the payment.524 The expression ‘reasonable grounds to expect’ has been discussed in detail at 10.74.525 The concept of solvency is discussed in detail in Chapter 2.

Director’s reliance on information (subs 588FGB(4)) 10.127 Subsection 588FGB(4) provides that it is a defence if it is proved that, at the payment time, the person: (a) had reasonable grounds to believe, and did believe that a competent and reliable person (the other person) was responsible for providing to the director adequate information about whether the company was solvent526 and that the other person was fulfilling that responsibility;527 and

[page 585] (b) expected, on the basis of information provided to the director by the other person, that the company was solvent at that time and would remain solvent even if it made the payment.

Section 588FGB(4) is directed primarily to the circumstance where directors must rely primarily upon other persons, particularly accountants and actuaries, to prepare accounts which will disclose the financial position of a company. The section does not negate a director’s duty to keep himself or herself informed, and to form his or her own judgment about the affairs of the company of which they are a director.528 This section is in almost identical terms to subsection 588H(4) which is comprehensively discussed at 10.83.529 10.128 A rare case in which reliance upon subs 588FGB(4) was successful, albeit partially, is the decision of Hammerschlag J in Sims v Deputy Commissioner of Taxation.530 In that case, the Deputy Commissioner sought indemnity under s 588FGA from two directors, Mr and Mrs Maine. Mr Conway was the company’s Chief Financial Officer whose responsibilities included global billing operations and responsibility for all financial reporting and legal compliance requirements. Hammerschlag J found that although Mr Conway may have fallen short of providing the directors with adequate information, particularly as to the inability of the company to meet its continually accruing

tax obligations from about May 2001, the test under the first limb of s 588FGB(4) does not focus on whether Mr Conway did in fact fulfil his responsibility, but rather on whether the directors had reasonable grounds to believe he was doing so. 10.129 His Honour also observed that in many cases where a director who raises the defence has fallen short of his or her statutory or equitable duties to the company, the factual circumstances may preclude successful reliance on the defence because reliance on the information provider may not be reasonable and each case will depend on its own circumstances.531 Mrs Maine gave evidence of the type of information provided to her [page 586] by Mr Conway. It included a profit and loss schedule, information concerning creditors and debtors and current up to date financial data. Hammerschlag J found in all the circumstances that a defence under subs 588FGB(4) was made out. As his Honour explained: It was, in my view, reasonable for Mrs Maine, as a non-executive director, to leave that matter in his hands, as a highly qualified Chief Financial Officer, and for her to rely upon him to relay to her adequate information … I also find that there were reasonable grounds for a belief that he was competent and reliable and, as is referred to below, that he was fulfilling that responsibility until the end of October 2001. I find that Mrs Maine had reasonable grounds, until that time, for placing reliance upon Mr Conway … Mrs Maine’s evidence was that all times prior to 17 December 2001 she believed (held the expectation) that the Company could pay its debts as and when they fell due. Section 588FGB(4)(b) does not require the expectation to be reasonably based … In my view, with some degree of hesitation, I accept her evidence that she subjectively held the expectation until immediately before the administration commenced. However, subjectively holding the expectation is not sufficient for the defence. That expectation must be proved to have been held on the basis of information provided by Mr Conway … By [November 2001 Mrs Maine] was clearly placing reliance on Mr Maine who could himself have had no reasonable basis for an expectation that the Company was solvent … In the circumstances it seems to me that there is sufficient warrant, albeit by the barest of margins, to conclude that until the end of October 2001 Mrs Maine’s expectation was based, in part, on information provided by Mr Conway.532

Illness or some other good reason (subs 588FGB(5)) 10.130 Subsection 588FGB(5) provides that it is a defence if it is proved that, because of illness or for some other good reason, the person did not take part in the management of the company at the payment time. This section is in almost identical terms to s 588H(4) which has been discussed in detail at 10.83.

All reasonable steps to prevent company incurring debt (subs 588FGB(6)) 10.131 Subsection 588FGB(6) provides that it is a defence if it is proved that the person took all reasonable steps to prevent the company from making the payment533 or there were no such steps the person could have [page 587] taken.534 The focus of the subsection is on preventing the payment.535 As the Full Federal Court explained in Browne v Deputy Commissioner of Taxation: … the defence under subs (6) is similarly focused [to subsections 588(2) – (5)]. Thus the defence absolves directors from responsibility for the payment if they could not prevent it being made, having taken all reasonable steps available. If the directors could prevent the payment but do not believe it is commercially prudent to do so, they are responsible for the payment and will not be covered by the defence.536

In Browne counsel for the directors argued that, on the material before the primary judge, the directors took all reasonable steps to prevent the relevant payment being made to the Commissioner and that accordingly the defence under s 588FGB(6) was made out. Counsel submitted that the question of what comprises ‘reasonable steps’ must be determined having regard to all of the relevant circumstances existing at the time of payment. Those circumstances included the fact that the company derived a commercial benefit from making the payment to the Commissioner; that benefit being the discharge of the company’s tax liabilities for a lesser sum. Another circumstance relied upon was the fact that it was an offence to fail to remit group tax to the Commissioner. The Full Federal Court rejected the argument. The court found that the directors could have prevented the payment to the Commissioner by, for example, properly consulting with all creditors, and making every effort to obtain and obtaining a proper agreement with all creditors that they would take an equal percentage reduction of their debt such that the payments made to the Commissioner would not have had a preferential effect. By failing to take such a step the directors could not be excused from liability under subs 588FGB(6).537

Whether s 1318 available in response to claims brought by the Commissioner of Taxation under s

588FGA 10.132 In Palmer v Commissioner of Taxation538 White J of the Supreme Court of New South Wales observed in obiter that s 1318 is available to persons specified in s 1318(4), including directors, if a civil proceeding is [page 588] brought against them for ‘negligence, default, breach of trust or breach of duty’. His Honour observed that a claim against a director under s 588FGA was not of that kind. Such a claim arose simply from the fact of a director holding office as a director and the unavailability of the defences in s 588FGB.539 As mentioned above, however,540 the issue is likely to be only academic given the availability of s 1317S which has the same exculpatory effect as s 1318.

Costs in s 588FGA matters 10.133 Costs in proceedings under s 588FGA are at the discretion of the court541 and there is no universal principle as to when the Commissioner’s liability for costs in such applications should cease.542 So, in Commissioner of Taxation v Moodie543 a liquidator commenced proceedings against the Commissioner for relief under s 588FF and the Commissioner in turn sought relief under s 588FGA against the company’s director. On 20 September 2011, the liquidator made an offer of compromise to the Commissioner but the offer was not accepted. On 15 December 2011 the Commissioner withdrew his defence to the liquidator’s claim and on 30 March 2012 the director withdrew his defence to the Commissioner’s claim. On 2 April 2012, Brereton J gave judgment by consent in favour of the liquidator against the Commissioner for $1,298,356 and judgment for the Commissioner against the director pursuant to s 588FGA(2) in the amount of $842,587.69. His Honour ordered the Commissioner pay the liquidator’s costs on a party-party basis until the date of the offer of compromise and thereafter costs on an indemnity basis. The Commissioner appealed to the New South Wales Court of Appeal where the Commissioner identified the matter at issue as the proper exercise of the court’s discretion as to costs where the Commissioner concedes a liquidator’s claim, but the principal proceedings remain ‘alive’ while a third party contests the claim. The Commissioner submitted that, as a general proposition, he should not be

liable to pay the liquidator’s costs after he withdraws his defence because, from that point, he takes no active part in the proceedings and relied on cases such as Noxequin Pty Ltd v Deputy Commissioner of Taxation.544 Rather, the real and only dispute, the Commissioner argued, was between the liquidator and the third party. [page 589] 10.134 The New South Wales Court of Appeal rejected the Commissioner’s arguments and dismissed the appeal. Despite the withdrawal of the Commissioner’s defence, he continued to have an active role in the proceedings. As McColl JA explained (omitting case references): The liquidator has no interest in the controversy between the Commissioner and the director … I would reject the Commissioner’s submission the primary judge erred … in saying that the liquidator was not ‘in suit’ with [the director]. It is the commissioner who recast the liquidator’s proceedings by pursuing the s 588FGA indemnity … Once the director, but not the Commissioner, puts insolvency in issue the liquidator is compelled to fight the insolvency issue because a s 588FF order will not be made until that issue is resolved … The outcome of the dispute is critical to the liquidator’s ability to obtain a s 588FF order against the Commissioner and, in turn, to the Commissioner’s ability (subject to s 588FGB defences) to be indemnified by the director in respect of that order.545

While it may have been technically correct to say that once the Commissioner’s defence is withdrawn, he or she has no active role in the proceedings, it could not be said that ‘the real and only fight’546 is between the liquidator and the director. As McColl JA explained: The liquidator’s only interest is obtaining a s 588FF order against the commissioner. However, the Commissioner has dual interests: to resist the claim as against the liquidator and, in the event that is unsuccessful to recover from the director using the s 588FGA(4) route. Even where, as in this case, the Commissioner does not advance a positive defence, he stands to benefit from the director’s involvement if the latter succeeds on the insolvency issue. In such circumstances, subject to the terms of the pleadings or any agreement as between the Commissioner and the liquidator, it could be expected that the Commissioner would seek to piggyback on the finding that the company was not relevantly insolvent to resist the liquidator’s claim.547

Availability of set-off under s 553C548 10.135 As explained in 4.52ff, historically at least, set-off under provisions such as s 553C in the context of voidable transaction claims was not available.549 More recent authorities, however, suggest that

[page 590] set-off is so available. In the leading decision of Re ACN 007 537 000 Pty Ltd; Parker,550 Mansfield J expressly considered the availability of s 553C in the context of an insolvent trading claim. In Parker the liquidator of Baross Ceramics (SA) Pty Ltd sought directions under s 511 of the former Corporations Law as to whether he was entitled to set-off under s 553C the sum due to Barossa’s holding company, Amber, in the winding up of Barossa. The court was asked to assume that Amber had contravened s 588W so that the liquidator was entitled to recover from Amber under s 588W as a debt due to Barossa an amount equal to the loss due to that contravention in an agreed amount. Mansfield J acceded to the liquidator’s application and held that it was permissible for the liquidator to set-off Amber’s claim. 10.136 His Honour observed that s 553C in its current form was introduced by the Corporate Law Reform Act 1992 (Cth)551 and amounted to an adoption of the concepts underlying s 86 of the Bankruptcy Act 1966 in terms more appropriate to corporations.552 At paragraph [867] of the EM to the CLR Bill, it was explained that: Proposed subsection 553C(1) provides that subject to subsection (2), where there have been mutual credits, mutual debts, or other mutual dealings between an insolvent company that is being wound up and a person who wants to have a debt or claim admitted against the company, account is to be taken of what is due from one party to the other in respect to those dealings and the sum due from one party is to be set-off against any sum due from the other party, and only the balance of the account is admissible to proof against the company, or is payable to the company, as the case may be.

The Harmer Commission recommended a right of set-off for insolvent companies consistent with s 86 of the Bankruptcy Act.553 However the Commission also recommended that the situations for excluding a right of set-off should correspond to the situations where a transaction the subject of a set-off may be avoided on the basis that it is preferential.554 10.137 The object of set-off in bankruptcy is to ‘do substantial justice between the parties, where a debt is really due from the bankrupt to the debtor in his estate.’555 In Justice Mansfield’s view, s 553C should [page 591] be construed to be given ‘the widest possible scope’556 and generously

construed.557 In Gye v McIntyre,558 the High Court observed: On the other hand, ‘substantial justice’ requires that the operation of set-off in bankruptcy be confined within limits which protect the creditors of the bankrupt from being disadvantaged by a set-off being allowed in circumstances where debts, credits or other dealings have not been genuinely mutual as a matter of substance, such as where beneficial ownership is not the same or where, after bankruptcy or notice of an act of bankruptcy, a debtor of the bankrupt has bought up liabilities of the bankrupt at a discount for the purpose of setting them off against his own indebtedness: see, eg, Day & Dent Constructions (1982) 150 CLR 85, at p 95. Thus, it is established by the cases that set-off under a provision such as s 86 is not available in circumstances where the beneficial entitlement and liability in respect of the countervailing credits and debits do not correspond: see, eg, In re City Life Assurance Co [1926] Ch 191, at pp 216–217; Hiley v Peoples Prudential Assurance Co Ltd (1938) 60 CLR 468, at p 497.

It was argued before Mansfield J that the requirement of mutuality was lacking in the case before the Court. Specifically, a claim under ss 588W and 588V was a statutory claim which did not result from any mutual dealings between Amber Ceramics and Barossa at all. His Honour however rejected such a contention holding instead that: The [liquidator] accepts that in one sense the nature of his claim against Amber Ceramics does not result from any dealings between the two companies. His contention is that there are simply mutual debts between them. The debt in this instance, assuming his claim is made out, may not arise from any dealings between the two companies. In my view, that does not mean that the debt may not qualify for set-off under s 553C of the law. Subject to the two other matters raised, the two debts are between the same companies. The burden of them would lie in the same interests. They are commensurable, in that they both sound in money. I see no reason why, having regard to the substance of the two debts, they should not be set-off. There is no reason in logic or principle to exclude statutory debts from the compass of provisions such as s 553C: Re Kolb; Ex parte England v FCT (1994) 51 FCR 31; 128 ALR 156. Although mutual credits and mutual debits will ordinarily result from prior dealings between the two parties, I do not think that is necessarily so. See Hankey v Smith (1789) 3 TR 507n; Forster v Wilson (1843) 12 M & W 191. As the court in Gye v McIntyre said, above, at CLR 623: ‘the word “mutual” conveys the notion of reciprocity rather than of correspondence’.559

[page 592] 10.138 A similar result obtained in Hall v Poolman. In that case (the facts of which have been summarised at 10.47) a director claimed that he was entitled pursuant to s 553C to set-off against a liquidator’s insolvent trading claim the amount for which the company was liable to indemnify him under a deed of indemnity and the company’s constitution in respect of the Commissioner of Taxation’s claim against the director. The liquidator submitted that there had been no ‘mutual dealings’ between him and the director within the meaning of s 553C(1) and s 553C(2) deprived the director of any right to set-off because he knew the company was insolvent at the time he received ‘credit’ from the

company under the indemnity deed. Palmer J rejected the liquidator’s submission, finding there was both mutuality and dealings for the purposes of s 553C. As his Honour explained: …[the director’s] contingent claim against [the company], being founded on the indemnity deed entered into prior to [the company’s] liquidation, would be admissible to proof in [the company’s] liquidation: s 553(1) of the CA. However, [the company’s] claim under s 588M(2) of the CA for insolvent trading, being a claim for unliquidated damages arising from a liability imposed by statute, would not be a provable debt if [the director] went into bankruptcy: s 82(2) of the Bankruptcy Act 1966 (Cth). Nevertheless, as held in Gye, the mutuality requirement of s 553C of the CA is not lacking; that is so because [the director’s] claim is provable in [the company’s] liquidation. ‘Mutuality’, as required by s 553C, requires that the claims to be set-off are between the same parties, that the parties be indebted in the same interests or capacities, and that both claims ultimately sound in money. Whether the claims are similar in nature is irrelevant: Gye at CLR 623; ALR 401; Re West End Networks Ltd (in liq) [2004] 2 AC 506. All of the requirements for mutuality are satisfied in the present case.560

His Honour also found that there were ‘dealings’ for the purposes of s 553C: ‘Mutual dealings’ for the purposes of s 553C of the CA is a phrase of the widest import. Its construction is not to be limited by strict legal analysis of relationships. A common sense and pragmatic approach is required in order to do substantial justice, which is the very purpose of the section. A director acting in the course of his or her duties as such is ‘dealing’ with the corporation in this pragmatic sense, within the meaning of the section. Likewise, the corporation is ‘dealing’ with the director even though, as an incorporeal creature, it is passive in the relationship. For the purposes of the section, in this pragmatic sense the ‘dealing’ between the director and the corporation is ‘mutual’.561

[page 593] Palmer J accordingly found that the director was able to set-off against his liability to the company under s 588M(2) the amount which he was required to pay to the Commissioner of Taxation under s 588FGA(2) pursuant to the indemnity deed and under s 553C.562 Set-off under s 553C, however, is not available when at the time of giving credit to the company, or at the time of receiving credit from the company, the director had notice of the fact that the company was insolvent.563 A person will have notice of the fact that a company is insolvent if the person has actual notice of facts which disclose that the company lacks the ability to pay its debts as and when they become due and payable.564

PRACTICE AND PROCEDURE IN INSOLVENT TRADING CLAIMS 10.139 See 11.73ff.

INCURRING OF CERTAIN DEBTS; FRAUDULENT CONDUCT (S 592) 10.140 Section 592(1) applies to debts565 incurred566 before 23 June 1993. Any person who was a director of the company, or took part in the management of the company, at the time when such a debt was incurred contravenes subs 592(1) and the company and that person are liable for the payment of the debt where immediately before the time when the debt was incurred there were reasonable grounds to expect that the company will not be able to pay all its debts as and when they become due or there were reasonable grounds to expect that, if the company incurs the debt, it will not be able to pay all its debts as and when they become due.567 If there are two or more such persons, those persons are jointly and severally liable.568 The company for the purposes of s 592(1) must be one at the time when the debt was incurred, or becomes at [page 594] a later time, a company to which s 592 applies.569 Civil claims under s 592(1) can be brought directly be creditors.570 10.141 Subsection 592(6) deals with fraudulent conduct. Where a company has done an act with intent to defraud creditors of the company or of any other person or for any other fraudulent purpose and the company was at the time when it does the act, or becomes at a later time, a company to which s 592 applies,571 any person who was knowingly concerned in the doing of the act with that intent or for that purpose contravenes subs 592(6). Section 593 sets out the civil consequences of being convicted of an offence under subss 592(1) or 592(6) which includes a court making an order declaring that a person convicted

of an offence is personally responsible for the payment to the person to whom the debt is payable of an amount equal to the whole of the debt.572 It is not clear whether subs 592(6) applies only to debts incurred by a company prior to 23 June 1993. There have however been no cases in which this provision has been successfully invoked subsequent to that date.

EMPLOYEE ENTITLEMENTS (PART 5.8A) 10.142 Part 5.8A was introduced by the Corporations Law Amendment (Employee Entitlements) Act 2000 with effect from 30 June 2000. The object of Pt 5.8A is to protect the entitlements573 of a company’s employees from agreements and transactions that are entered into with the intention of defeating the recovery of those entitlements.574 Section 596AB provides that a person must not enter into a relevant agreement or a transaction with the intention of, or with intentions that include the intention of preventing the recovery of the entitlements of employees of a company or significantly reducing the amount of the entitlements of employees of a company that can be recovered. Under s 596AC, a person is liable to pay compensation under subss 596AC(2) or (3) if: [page 595] the person contravenes s 596AB in relation to the entitlements of employees of a company; and the company is being wound up; and the employees suffer loss or damage because of the contravention or action taken to give effect to an agreement or transaction involved in the contravention. The company’s liquidator may recover from the person an amount equal to the loss or damage as a debt due to the company.575 An employee may also commence proceedings in relation to a contravention of s 596AB pursuant to s 596AG and 596AH.

1.

Salomon v Salomon & Co [1897] AC 22. See also Gas Lighting Improvement Co Ltd v Inland Revenue Commissions [1923] AC 723 at 740–1 per Lord Sumner cited by Kitto J in Hobart Bridge Company Ltd v Federal Commissioner of Taxation (1951) 82 CLR 372 at 385; R v Portus; Ex parte Federated Clerks Union of Australia (1949) 79 CLR 42 per Latham CJ; Walker v Wimborne (1976) 137 CLR 1 at 6–7 per Mason J; Industrial Equity Ltd v Blackburn (1977) 137 CLR 567; 17 ALR 575; 3 ACLR 89, and Briggs v James Hardie & Co Pty Ltd (1989) 16 NSWLR 549 at 577.

2.

See R P Austin and I M Ramsay, Ford’s Principles of Corporations Law, LexisNexis, looseleaf at [4.140] (Ford’s Principles of Corporations Law).

3.

See Ford’s Principles of Corporations Law at [4.160] and [4.240].

4.

See Ford’s Principles of Corporations Law at [4.240].

5.

See, for example, Metal Manufacturers Ltd v Lewis (1988) 13 ACLR 357 at 359 per Kirby P.

6.

For example ss 588J, 588K and 588M.

7.

This will usually be a compensation order: see 10.101ff. Section 588G is a civil penalty provision, a contravention of which can expose a director to a pecuniary penalty order (see 10.70ff) or imprisonment (see 10.59ff).

8.

Hawkins v Bank of China (1992) 7 ACSR 349 at 363 per Kirby P (in relation to the predecessor to s 588G, s 556 of the Companies Code (NSW)).

9.

Metal Manufacturers Pty Ltd v Lewis (1988) 13 NSWLR 315 at 328 per McHugh JA commenting in relation to s 556 of the Companies Code (NSW).

10. Company Law Amendment Committee, 1925–26. Report presented to Parliament by command of His Majesty, Cmd 2657, London 1926 (Greene Report). 11. Greene Report at [61]. 12. Greene Report at [62]. 13. Greene Report at [62]. 14. Later becoming s 374C. 15. Shapowloff v Dunn (1981) 148 CLR 72; 34 ALR 417; 5 ACLR 577. 16. Report of the Company Law Committee, HMSO, London, 1962 (Cmnd 1749) (Jenkins Report), [503]. 17. Act No 61, 1971, s 9(i). 18. Section 374D(1)(a) Companies Act 1961. 19. 3M Australia Pty Ltd v Watt (1984) 9 ACLR 203 per Rogers J upheld by the NSW Court of Appeal in Watt v 3M Australia Pty Ltd & NEC Home Electronics Australia Pty Ltd [1984] 3 NSWLR 671; 9 ACLR 524 per Street CJ, Samuels and Priestley JJA. 20. Ross McConnel Kitchen & Co Pty Ltd (in liq) v Ross (1985) 9 ACLR 532; 3 ACLC 326 per Young J. 21. Elliott v Australian Securities and Investments Commission (2004) 48 ACSR 621 at [105] per Warren CJ, Charles JA and O’Bryan AJA. 22. The Harmer Report recommendations in that regard are discussed at 10.8. 23. Section 592(1)(a). 24. EM to the CLR Bill at [1083]. 25. See EM to the CLR Bill at [1076]–[1089]. The number of differences between ss 588G and 592. 26. Section 592(6) is discussed in more detail in 10.141. 27. Woodgate v Davis (2002) 42 ACSR 286 at [36]. 28. See Harmer Report at [280]. 29. See 10.118ff. 30. See 10.140ff.

31. Harmer Report at [280]. 32. Harmer Report at [279]. 33. Harmer Report at [283]. 34. Harmer Report at [283]. 35. Harmer Report at [336]. 36. See 10.10 for a discussion of Parliament’s response. 37. Harmer Report at [285]. 38. Harmer Report at [285]. 39. Harmer Report at [303]. 40. Harmer Report at [303]. 41. EM to the CLR Bill at [1082]. 42. EM to the CLR Bill at [1091]. 43. EM to the CLR Bill at [1122]. 44. Harmer Report at [280]. 45. See cl D2 of General Insolvency Inquiry, ALRC Report No 45, Vol 2 at p 69. 46. Cf Elliott v Australian Securities and Investments Commission (2004) 48 ACSR 621 at [100]ff where it is suggested that a positive duty is so imposed. 47. See, for example, James v Andrews (2001) 166 FLR 11; 20 ACLC 425; [2001] NSWSC 1149 at [17] per Young CJ in Eq and Elliott v Australian Securities and Investments Commission (2004) 48 ACSR 621 at [114] per Warren CJ, Charles JA and O’Bryan AJA. 48. See s 5C of the Corporations Act. 49. For a discussion of when a person is a director of a company, see 10.14ff. 50. See subs 588G(1)(a). For a discussion of the concepts ‘incur’ and ‘debt’, see 10.30ff. 51. For a discussion of when a company is insolvent, see Chapter 2. 52. See subs 588G(1)(b). 53. Subsection 588G(1)(c). For a detailed discussion of this limb, see 10.46ff. 54. Section 588G(1)(d) refers to ‘after the commencement of this Act’. However, this should be read as a reference to the commencement date of Pt 5.7B after its insertion into the Corporations Law by the Corporate Law Reform Act 1992. See Deputy Commissioner of Taxation v Dick (2007) 64 ACSR 61 at [88] per Santow JA (Spigelman CJ and Basten JA agreeing). 55. Subsection 588G(2). See 10.49ff. 56. See 10.102ff. 57. See 10.108ff. 58. See 10.108. 59. See 10.109. 60. See 10.70ff. 61. See 10.98ff. 62. See 10.70ff.

63. See 10.101. 64. See 10.59. 65. Section 206C empowers a capital ‘C’ Court only, relevantly a State Supreme Court or the Federal Court. See 11.19 on the s 58AA definition of ‘court’ and ‘Court’. 66. See 10.98. 67. The meaning of ‘director’ in s 9 is similar to the definition in the former s 60 of the Corporations Law which was repealed by the Corporate Law Economic Reform Program Act 1999 although there are material differences: see the discussion in Buzzle Operations Pty Ltd (in liq) v Apple Computer Australia Pty Ltd (2011) 277 ALR 189; [2011] NSWCA 109 at [181]–[187]. The current dictionary meaning of ‘director’ in s 9 of the Corporations Act was introduced by Schedule 3 to the Corporate Law Economic Reform Program Act 1999. 68. Chameleon Mining NL v Murchison Metals Ltd [2010] FCA 1129 at [94] per Jacobson J citing Ho v Akai Pty Ltd (in liq) (2006) 24 ACLC 1,526 at 1,531; [2006] FCAFC 159 at [21] per Finn, Weinberg and Rares JJ in turn citing Secretary of State for Trade and Industry v Deverell [2001] Ch 340 at 354. 69. Grimaldi v Chameleon Mining (NL) (No 2); Chameleon Mining NL v Murchison Metals Ltd (2012) 287 ALR 22 at [34] per Finn, Stone and Perram JJ. 70. Grimaldi v Chameleon Mining (NL) (No 2); Chameleon Mining NL v Murchison Metals Ltd (2012) 287 ALR 22; [2012] FCAFC 6 at [57] citing and quoting from Revenue and Customs Commissioners v Holland; Re Paycheck Services 3 Ltd [2010] 1 WLR 2793; [2011] 1 All ER 430 ; [2010] UKSC 51 at [54]. 71. Corporate Affairs Commission v Drysdale (1978) 22 ALR 161 at 164–5. 72. Grimaldi v Chameleon Mining (NL) (No 2); Chameleon Mining NL v Murchison Metals Ltd (2012) 287 ALR 22; [2012] FCAFC 6 at [37]. The emphasis on occupying the office arose from the then definition of ‘director’, although that element no longer forms part of the meaning in s 9. 73. Grimaldi v Chameleon Mining (NL) (No 2); Chameleon Mining NL v Murchison Metals Ltd (2012) 287 ALR 22 at [60] per Finn, Stone and Perram JJ. 74. Buzzle Operations Pty Ltd (in liq) v Apple Computer Australia Pty Ltd (2011) 277 ALR 189; [2011] NSWCA 109 at [182]–[185] per Young JA. See also Australian Securities Commission v AS Nominees Ltd (1995) 62 FCR 504; 133 ALR 1; Kuwait Asia Bank EC v National Mutual Life Nominees Ltd [1991] 1 AC 187; Standard Chartered Bank of Australia Ltd v Antico (No 2) (1995) 38 NSWLR 290; 131 ALR 1. 75. Buzzle Operations Pty Ltd (in liq) v Apple Computer Australia Pty Ltd (2010) 238 FLR 384; [2010] NSWSC 233 at [231] per White J. 76. Grimaldi v Chameleon Mining (NL) (No 2); Chameleon Mining NL v Murchison Metals Ltd (2012) 287 ALR 22; [2012] FCAFC 6 at [61]; Buzzle Operations Pty Ltd (in liq) v Apple Computer Australia Pty Ltd (2011) 277 ALR 189; [2011] NSWCA 109 at [223]. 77. Revenue and Customs Commissioners v Holland; Re Paycheck Services 3 Ltd [2010] 1 WLR 2793; [2011] 1 All ER 430 ; [2010] UKSC 51 at [91]. 78. Grimaldi v Chameleon Mining (NL) (No 2); Chameleon Mining NL v Murchison Metals Ltd (2012) 287 ALR 22; [2012] FCAFC 6 at [69]. 79. Buzzle Operations Pty Ltd (in liq) v Apple Computer Australia Pty Ltd (2010) 238 FLR 384; [2010] NSWSC 233 at [231] per White J. 80. Buzzle Operations Pty Ltd (in liq) v Apple Computer Australia Pty Ltd (2010) 238 FLR 384; [2010] NSWSC 233 at [235] per White J. This analysis was upheld on appeal: Buzzle Operations Pty Ltd v

Apple Computer Australia Pty Ltd (2011) 81 NSWLR 47; [2011] NSWCA 109 at [197] per Young JA (Hodgson and Whealy JJA agreeing). See also the comments by the Full Federal Court in Grimaldi v Chameleon Mining (NL) (No 2); Chameleon Mining NL v Murchison Metals Ltd (2012) 287 ALR 22; [2012] FCAFC 6 at [61], [69]. 81. By contrast, s 592(1) imposes liability on a person who ‘took part in the management of the company’, as well as any person who was a director of the company. 82. Subparagraph (a)(i) of the definition of director in s 9. 83. Subparagraph (a)(ii) of the definition of director in s 9. 84. Subparagraph (b)(i) of the definition of director in s 9. The New South Wales Court of Appeal has observed that there can be no doubt that s 588G applies to de facto directors: Deputy Commissioner of Taxation v Solomon (2003) 199 ALR 325 at [67] per Gzell J with whom Handley and Sheller JJA agreed. 85. Subparagraph (b)(ii) of the definition of director in s 9. 86. For a more detailed discussion see Austin et al, Company Directors: Principles of Law and Corporate Governance, LexisNexis at [2.30]. 87. See Australian Corporations Law Principles and Practice, LexisNexis looseleaf, at [3.2.0155] citing the decision of Blackburn J in Re Australian Continental Resources Ltd (1975) 10 ACTR 19; 1 ACLR 405. 88. Playcorp Pty Ltd v Shaw (1993) 10 ACSR 212; 11 ACLC 641. 89. Section 9 meaning (b)(i). 90. Buzzle Operations Pty Ltd (in liq) v Apple Computer Australia Pty Ltd (2011) 277 ALR 189; [2011] NSWCA 109 at [180] per Young JA. 91. Corporate Affairs Commission v Drysdale (1978) 22 ALR 161 at 164–5. 92. Grimaldi v Chameleon Mining (NL) (No 2); Chameleon Mining NL v Murchison Metals Ltd (2012) 287 ALR 22; [2012] FCAFC 6 at [65]. 93. Grimaldi v Chameleon Mining (NL) (No 2); Chameleon Mining NL v Murchison Metals Ltd (2012) 287 ALR 22; [2012] FCAFC 6 at [66] citing Mistmorn Pty Ltd (in liq) v Yasseen (1996) 21 ACSR 173 at 177–8; Deputy Commissioner of Taxation v Austin (1998) 28 ACSR 565 at 569–70; Natcomp Technology Australia Pty Ltd v Graiche [2001] NSWCA 120 at [14]–[15]; and Re Valleys Rugby League Football Club Ltd [1997] 2 Qd R 645 at 656. See also International Cat Manufacturing Pty Ltd (in liq) v Rodrick [2013] QSC 91 at [153]ff. 94. Grimaldi v Chameleon Mining (NL) (No 2); Chameleon Mining NL v Murchison Metals Ltd (2012) 287 ALR 22; [2012] FCAFC 6 at [68]. 95. Grimaldi v Chameleon Mining (NL) (No 2); Chameleon Mining NL v Murchison Metals Ltd (2012) 287 ALR 22; [2012] FCAFC 6 at [66]. 96. Deputy Commissioner Of Taxation v Austin (1998) 28 ACSR 565 at 570 per Madgwick J. See also Natcomp Technology Australia Pty Ltd v Graiche [2001] NSWCA 120. 97. Grimaldi v Chameleon Mining NL (No 2) [2012] FCAFC 6 at [70]. 98. Deputy Commissioner of Taxation v Austin (1998) 28 ACSR 565 at 569 to 571 per Madgwick J; Natcomp Technology Australia Pty Ltd v Graiche [2001] NSWCA 120. 99. Deputy Commissioner of Taxation v Austin (1998) 28 ACSR 565 at 570 per Madgwick J. 100. Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296 at 325; [2012] FCAFC 6 at [75]; International Cat Manufacturing Pty Ltd (in liq) v Rodrick [2013] QSC 91 at [161].

Grimaldi v Chameleon Mining (NL) (No 2); Chameleon Mining NL v Murchison Metals Ltd (2012) 101. 287 ALR 22; [2012] FCAFC 6 at [75]. 102. Deputy Commissioner of Taxation v Austin (1998) 28 ACSR 565 at 569 and 572 per Madgwick J; Natcomp Technology Australia Pty Ltd v Graiche (2001) 19 ACLC 1117; [2001] NSWCA 120; Grimaldi v Chameleon Mining (NL) (No 2); Chameleon Mining NL v Murchison Metals Ltd (2012) 287 ALR 22; [2012] FCAFC 6 at [70]–[71]. Grimaldi also discusses earlier authorities to the contrary and describes them as apt to mislead because of the difficulty in enumerating the functions that are the sole responsibility of a director or board and the effect that varying commercial circumstances will have on the roles and functions performed by directors. See also Buzzle Operations Pty Ltd (in liq) v Apple Computer Australia Pty Ltd (2011) 277 ALR 189; [2011] NSWCA 109 at [193] to [194] where Young JA referred to the same issue and said that that the question of whether certain activities are board activities or managerial decisions remains one of fact. 103. Grimaldi v Chameleon Mining (NL) (No 2); Chameleon Mining NL v Murchison Metals Ltd (2012) 287 ALR 22; [2012] FCAFC 6 at [67]. 104. Grimaldi v Chameleon Mining (NL) (No 2); Chameleon Mining NL v Murchison Metals Ltd (2012) 287 ALR 22; [2012] FCAFC 6 at [67]. 105. International Cat Manufacturing Pty Ltd (in liq) v Rodrick [2013] QSC 91 at [190]. 106. Grimaldi v Chameleon Mining (NL) (No 2); Chameleon Mining NL v Murchison Metals Ltd (2012) 287 ALR 22; [2012] FCAFC 6 at [69]. 107. Mistmorn Pty Ltd (in liq) v Yasseen (1996) 21 ACSR 173 at 183 per Davies J; Australian Securities Commission v AS Nominees Ltd (1995) 133 ALR 1 at 53; 18 ACSR 459 per Finn J; Standard Chartered Bank of Australia Ltd v Antico (No 2) (1995) 131 ALR 1; 18 ACSR 1 at 70 per Hodgson J. 108. Grimaldi v Chameleon Mining (NL) (No 2); Chameleon Mining NL v Murchison Metals Ltd (2012) 287 ALR 22; [2012] FCAFC 6 at [68] and [136]. 109. Grimaldi v Chameleon Mining (NL) (No 2); Chameleon Mining NL v Murchison Metals Ltd (2012) 287 ALR 22; [2012] FCAFC 6 at [68]. 110. Grimaldi v Chameleon Mining (NL) (No 2); Chameleon Mining NL v Murchison Metals Ltd (2012) 287 ALR 22; [2012] FCAFC 6 at [74]; International Cat Manufacturing Pty Ltd (in liq) v Rodrick [2013] QSC 91 at [160]. 111. Williams v Bearing Traders Pty Ltd (2008) 69 ACSR 334; [2008] NSWSC 1358. 112. Buzzle Operations Pty Ltd (in liq) v Apple Computer Australia Pty Ltd (2011) 277 ALR 189; [2011] NSWCA 109 at [180] per Young JA. 113. Buzzle Operations Pty Ltd (in liq) v Apple Computer Australia Pty Ltd (2011) 277 ALR 189; [2011] NSWCA 109 at [9]. 114. Buzzle Operations Pty Ltd (in liq) v Apple Computer Australia Pty Ltd (2010) 238 FLR 384; [2010] NSWSC 233 at [242] per White J upheld on appeal in Buzzle Operations Pty Ltd (in liq) v Apple Computer Australia Pty Ltd (2011) 277 ALR 189; [2011] NSWCA 109. 115. Buzzle Operations Pty Ltd (in liq) v Apple Computer Australia Pty Ltd (2010) 238 FLR 384; [2010] NSWSC 233 at [250] per White J upheld on appeal in Buzzle Operations Pty Ltd (in liq) v Apple Computer Australia Pty Ltd (2011) 277 ALR 189; [2011] NSWCA 109. 116. Buzzle Operations Pty Ltd (in liq) v Apple Computer Australia Pty Ltd (2011) 277 ALR 189; [2011] NSWCA 109 at [237] per Young JA; Buzzle Operations Pty Ltd (in liq) v Apple Computer Australia Pty Ltd (2010) 238 FLR 384; [2010] NSWSC 233 at [250] per White J.

117. Buzzle Operations Pty Ltd (in liq) v Apple Computer Australia Pty Ltd (2011) 277 ALR 189; [2011] NSWCA 109 at [232] per Young JA. 118. Buzzle Operations Pty Ltd (in liq) v Apple Computer Australia Pty Ltd (2010) 238 FLR 384; [2010] NSWSC 233 at [244] to [247] per White J. 119. Buzzle Operations Pty Ltd (in liq) v Apple Computer Australia Pty Ltd (2010) 238 FLR 384; [2010] NSWSC 233 at [250] per White J. 120. Buzzle Operations Pty Ltd (in liq) v Apple Computer Australia Pty Ltd (2011) 277 ALR 189; [2011] NSWCA 109 at [198] per Young JA. 121. Buzzle Operations Pty Ltd (in liq) v Apple Computer Australia Pty Ltd (2010) 238 FLR 384; [2010] NSWSC 233 at [249] per White J. 122. Buzzle Operations Pty Ltd (in liq) v Apple Computer Australia Pty Ltd (2011) 277 ALR 189; [2011] NSWCA 109 at [228] per Young JA. 123. Buzzle Operations Pty Ltd (in liq) v Apple Computer Australia Pty Ltd (2011) 277 ALR 189; [2011] NSWCA 109 at [229] per Young JA. 124. Buzzle Operations Pty Ltd v Apple Computer Australia Pty Ltd (2011) 81 NSWLR 47; [2011] NSWCA 109 at [228]–[232] per Young JA (Hodgson and Whealy JJA agreeing); Re PFTZM Ltd (in liq); Jourdain v Paul [1995] 2 BCLC 354 at 367–8; [1995] BCC 280 per Judge Paul Baker QC. 125. Buzzle Operations Pty Ltd (in liq) v Apple Computer Australia Pty Ltd (2011) 277 ALR 189; [2011] NSWCA 109 at [230] – [231] per Young JA. 126. Buzzle Operations Pty Ltd (in liq) v Apple Computer Australia Pty Ltd (2011) 277 ALR 189; [2011] NSWCA 109 at [230] per Young JA. 127. Buzzle Operations Pty Ltd (in liq) v Apple Computer Australia Pty Ltd [2010] NSWSC 233 at [228] and [231]; see also Standard Chartered Bank of Australia Ltd v Antico (No 2) (1995) 38 NSWLR 290 at 323; 131 ALR 1 at 65 per Hodgson J; Australian Securities and Investments Commission v Edwards (2005) 220 ALR 148; [2005] NSWSC 831 at [267]–[271]; Akai Pty Ltd (in liq) v Ho (2006) 57 ACSR 456; [2006] FCA 511 at [13]–[19] per Gyles J (affirmed Ho v Akai Pty Ltd (in liq) (2006) 24 ACLC 1526; [2006] FCAFC 159 at [27], [60]–[67] per Finn, Weinberg and Rares JJ). 128. Grimaldi v Chameleon Mining (NL) (No 2); Chameleon Mining NL v Murchison Metals Ltd (2012) 287 ALR 22; [2012] FCAFC 6 at [68]; Buzzle Operations Pty Ltd (in liq) v Apple Computer Australia Pty Ltd [2010] NSWSC 233 at [228] and [231]. 129. Grimaldi v Chameleon Mining (NL) (No 2); Chameleon Mining NL v Murchison Metals Ltd (2012) 287 ALR 22; [2012] FCAFC 6 at [68]. The question did not directly arise for determination in the appeal and the proposition was expressed as obiter. 130. Grimaldi v Chameleon Mining (NL) (No 2); Chameleon Mining NL v Murchison Metals Ltd (2012) 287 ALR 22; [2012] FCAFC 6 at [68] and [136]. 131. Buzzle Operations Pty Ltd (in liq) v Apple Computer Australia Pty Ltd (2011) 277 ALR 189; [2011] NSWCA 109 at [228]–[232]. 132. Grimaldi v Chameleon Mining (NL) (No 2); Chameleon Mining NL v Murchison Metals Ltd (2012) 287 ALR 22; [2012] FCAFC 6 at [68]. 133. As was the case under the previous regime. See the comments of Gleeson CJ in Hawkins v Bank of China (1992) 26 NSWLR 562; 7 ACSR 349 at 353 in relation to s 556(1)(a) of the former Companies Code 1961. 134. Hawkins v Bank of China (1992) 26 NSWLR 562; 7 ACSR 349 at 357 per Gleeson CJ commenting in relation to s 556(1)(a) of the former Companies Code 1961. 135. Hawkins v Bank of China (1992) 26 NSWLR 562; 7 ACSR 349 at 357 per Gleeson CJ, Kirby P and

Sheller JA considering the meaning of debt in the context of s 556 of the Companies (NSW) Code 1981; Powell (as joint liquidators of Nolex Yachts Australia Pty Ltd (in liq)) v Fryer (2001) 37 ACSR 589 at 598; 159 FLR 433 per Olsson, Duggan and Williams JJ in the context of Corporations Law s 588G; Bartex Fabrics Pty Ltd v Phillips Fox (1994) 13 ACSR 667 at 672; 12 ACLC 462 per Young J within the context of s 459E. 136. Hawkins v Bank of China (1992) 26 NSWLR 562; 7 ACSR 349 at 357 per Gleeson CJ, Kirby P and Sheller JA considering the meaning of debt in the context of s 556 of the Companies (NSW) Code 1981; Powell v Fryer (2001) 37 ACSR 589 at 598; 159 FLR 433 per Olsson, Duggan and Williams JJ in the context of Corporations Law s 588G; Bartex Fabrics Pty Ltd v Phillips Fox (1994) 13 ACSR 667 at 672; 12 ACLC 462 per Young J within the context of s 459E. 137. Australian Securities and Investments Commission v Edwards (2005) 54 ACSR 583. 138. Edwards v Australian Securities and Investments Commission (2009) 76 ACSR 369. 139. Edwards v Australian Securities and Investments Commission (2009) 76 ACSR 369 at [81]–[88] per Macfarlan JA, Spigelman CJ and Campbell JA agreeing. 140. Hawkins v Bank of China (1992) 26 NSWLR 562; 7 ACSR 349 at 357 per Gleeson CJ commenting in relation to s 556(1)(a) of the former Companies Code 1961. 141. Shephard v Australia & New Zealand Banking Corp Ltd (1996) 41 NSWLR 431 at 444 per Abadee A-JA, Meagher JA agreeing. 142. See, for example, the comments of Barrett J in Woodgate v Davis (2002) 42 ACSR 286 at [15]. 143. Hawkins v Bank of China (1992) 26 NSWLR 562; 7 ACSR 349 at 357 per Gleeson CJ. See the discussion of this case at 10.34. 144. Commissioner of State Taxation (WA) v Pollock (1993) 11 WAR 64; 12 ACSR 217. 145. Hawkins v Bank of China (1992) 26 NSWLR 562; 7 ACSR 349. 146. See Hawkins v Bank of China (1992) 26 NSWLR 562; 7 ACSR 349 at 572 and Powell v Fryer (2001) 37 ACSR 589 at [73]. 147. Hawkins v Bank of China (1992) 26 NSWLR 562; 7 ACSR 349 at 362 per Kirby P. 148. Hawkins v Bank of China (1992) 26 NSWLR 562; 7 ACSR 349 at 362 per Kirby P. 149. Australian Securities and Investments Commission v Edwards (2005) 54 ACSR 583 at [81] per Barrett J. 150. Woodgate v Davis (2002) 42 ACSR 286 at [19]. 151. Re New World Alliance Pty Ltd; Sycotex Pty Ltd v Baseler (1994) 13 ACSR 766 at 886 per Gummow J (in relation to s 592); Fabric Dyeworks (Aust) Pty Ltd v Benharron (unreported, Supreme Court, Vic, Smith J, 29 May 1998). 152. FAI Traders Insurance Co Ltd v Ferrara (1996) 41 NSWLR 91. 153. Standard Chartered Bank of Australia Ltd v Antico (No 2) (1995) 38 NSWLR 290 at 314. 154. Standard Chartered Bank of Australia Ltd v Antico (No 2) (1995) 38 NSWLR 290 at 314. 155. Shepherd v Australia & New Zealand Banking Group Ltd (1996) 20 ACSR 81. 156. Shepherd v Australia & New Zealand Banking Group Ltd (1996) 20 ACSR 81 at 89. 157. Shepherd v Australia & New Zealand Banking Group Ltd (1996) 20 ACSR 81 at 89 per Bryson J. 158. Powell v Fryer (2001) 37 ACSR 589. 159. Powell v Fryer (2001) 37 ACSR 589 at [72] per Olsson J.

160. Australian Securities and Investments Commission v Plymin (No 1) (2003) 46 ACSR 126. 161. Australian Securities and Investments Commission v Plymin (No 1) (2003) 46 ACSR 126 at [515] referring to Powell v Fryer (2001) 37 ACSR 589 at 605. 162. Powell v Fryer (2001) 37 ACSR 589 at [62] per Olsson J; Australian Securities and Investments Commission v Plymin (No 1) (2003) 46 ACSR 126 at [516] per Mandie J. This was the same position under the previous regime: Hawkins v Bank of China (1992) 26 NSWLR 562; 7 ACSR 349 at 356–7; Shephard v ANZ Banking Corp Ltd (1996) 41 NSWLR 431; FAI Traders Insurance Co Ltd v Ferrara (1996) 41 NSWLR 91 at 97. See also Shapowloff v Dunn (1981) 148 CLR 72; Wickstead v Browne (1992) 30 NSWLR 1; [1992] NSWCA 272; Commissioner of State Taxation (WA) v Pollock (1993) 11 WAR 64; 12 ACSR 217; 12 ACLC 28; and Bans Pty Ltd v Ling (1995) 16 ACSR 404; 13 ACLC 524. 163. Hawkins v Bank of China (1992) 26 NSWLR 562; 7 ACSR 349. 164. Hawkins v Bank of China (1992) 26 NSWLR 562; 7 ACSR 349 at 358 per Gleeson CJ. 165. Jelin Pty Ltd v Johnson (1987) 5 ACLC 463; Wickstead v Browne (1992) 30 NSWLR 1 at 14; Hawkins v Bank of China (1992) 26 NSWLR 562 at 569, 578; 7 ACSR 349; Commonwealth Bank of Australia v Butterell (1994) 35 NSWLR 64 at 68–70; West Ryde Plaza (Leasehold) Pty Ltd v Smith (1995) 17 ACSR 457 at 462; 13 ACLC 1,042 at 1,046; Commonwealth Bank of Australia v Butterell (1994) 35 NSWLR 64 at 68–70; Shephard v Australia & New Zealand Banking Corp Ltd (1996) 41 NSWLR 431. 166. Shephard v Australia & New Zealand Banking Corp Ltd (1996) 41 NSWLR 431. 167. Shephard v Australia & New Zealand Banking Corp Ltd (1996) 41 NSWLR 431 at 444–5 per Abadee A-JA, Meagher JA agreeing. 168. Box Valley Pty Ltd v Kidd (2006) 24 ACLC 471; [2006] NSWCA 26. 169. Box Valley Pty Ltd v Kidd (2006) 24 ACLC 471; [2006] NSWCA 26 at [14] per Bryson JA, Basten JA and Gzell J agreeing. 170. See 2.23. 171. Bank of Australasia v Hall (1907) 4 CLR 1514. See the comments of White J in New Cap Reinsurance Corporation Ltd (in liq) v A E Grant (2008) ACSR 176; [2008] NSWSC 1015 at [53]– [70]. 172. Edwards v Australian Securities and Investments Commission (2009) 264 ALR 723. 173. Edwards v Australian Securities and Investments Commission (2009) 264 ALR 723 at [89]. 174. Castrisios v McManus (1990) 4 ACSR 1 per Macfarlan JA, Spigelman CJ and Campbell JA agreeing. 175. Castrisios v McManus (1990) 4 ACSR 1 at 12. 176. Commissioner of State Taxation (WA) v Pollock (1992) 9 ACSR 295. 177. Commissioner of State Taxation (WA) v Pollock (1993) 12 ACSR 217 per Ipp J, with whom Pidgeon and Wallwork JJ agreed; Sutherland v Liquor Administration Board (1997) 24 ACSR 176 per Young J; Sands & McDougall Wholesale Pty Ltd (in liq) v Commissioner of Taxation [1999] 1 VR 489 at [36] per Charles JA with Brooking and Kenny JJA agreeing; Shepherd v Australia and New Zealand Banking Group Ltd (1996) 20 ACSR 81 at 89 per Bryson J; Powell v Fryer (2001) 37 ACSR 589; [2001] SASC 59 at [71] per Olsson J (Duggan and Williams JJ agreeing). 178. This case has been criticised at both academic and judicial level. See Abe Herzberg, ‘Insolvent Trading’ (1991) 9 Companies and Securities Law Journal 285 at 294ff and the endorsement of those comments by Rogers CJ Comm D in Bank of China v Hawkins (Rogers CJ Comm D, 29 October 1991, unreported).

179. Rema Industries and Services Pty Ltd v Coad (1992) 7 ACSR 251. 180. See also John Graham Reprographics Pty Ltd v Steffens (1987) 12 ACLR 779; Taylor v Powell (1993) 113 ALR 374 at 379; 10 ACSR 174 and Credit Corporation Australia Pty Ltd v Atkins (1999) 30 ACSR 727. See, however, the comments of Powell J in FAI Traders Insurance Co Ltd v Ferrara (1996) 41 NSWLR 91 at 108. 181. Leigh-Mardon Pty Ltd v Wawn (1995) 17 ACSR 741. 182. Harrison v Lewis [2001] VSC 27 at [29]–[30]. 183. Harrison v Lewis [2001] VSC 27 at [27]–[28] per Mandie J. 184. Versteeg & Versteeg v R (1988) 36 A Crim R 68. 185. Russell Halpern Nominees Pty Ltd v Martin [1987] WAR 150; 10 ACLR 539. 186. Bans Pty Ltd v Ling (1995) 16 ACSR 404. 187. Bans Pty Ltd v Ling (1995) 16 ACSR 404 at 408. 188. Molit (No 55) Pty Ltd v Lam Soon Australia Pty Ltd (1996) 68 FCR 319. 189. See s 588G(1)(c) and Mondello Farms Pty Ltd v Annatom Pty Ltd (2007) 64 ACSR 91 at [69] per Layton J. 190. Box Valley Pty Ltd v Kidd (2006) 24 ACLC 471; [2006] NSWCA 26 at [85] per Gzell J (sitting in the New South Wales Court of Appeal). 191. Queensland Bacon Pty Ltd v Rees (1966) 115 CLR 266 at 303. 192. Powell v Fryer (2001) 37 ACSR 589 at [76] per Olsson J, Duggan and Williams JJ agreeing; Hall v Poolman (2007) 65 ACSR 123 at [232] per Palmer J; Kenna & Brown Pty Ltd (in liq) v Kenna (1999) 32 ACSR 430 at [93]; Re McLellan; The Stake Man Pty Ltd v Carroll (2009) 76 ACSR 67; [2009] FCA 1415 at [144] per Goldberg J. See also 3M Australia Pty Ltd v Kemish (1986) 10 ACLR 371 at 372–3, 376, 378; Commonwealth Bank of Australia v Friedrich (1991) 5 ACSR 115 at 123; Rema Industries and Services Pty Ltd v Coad (1992) 107 ALR 374; 7 ACSR 251 at 259. 193. Australian Securities and Investments Commission v Edwards (2005) 54 ACSR 583 at [249] per Barrett J. 194. See Australian Securities and Investments Commission v Edwards (2005) 54 ACSR 583 at [249] per Barrett J. See also 3M Australia Pty Ltd v Kemish (1986) 10 ACLR 371 and Metropolitan Fire Systems Pty Ltd v Miller (1997) 23 ACSR 699. 195. Williams (as liquidator of Scholz Motor Group Pty Ltd (in liq)) v Scholz [2008] QCA 94 at [36] per Keane JA, Muir JJA and Mackenzie AJA agreeing. 196. Powell v Fryer (2001) 37 ACSR 589 at [76]. See also Hall v Poolman (2007) 65 ACSR 123 at [232] per Palmer J. 197. Australian Securities and Investments Commission v Plymin (No 1) (2003) 46 ACSR 126 at [423]. 198. See Hall v Poolman (2007) 65 ACSR 123 at [233] per Palmer J. See also Austin & Black’s Annotations to the Corporations Act at [5.588G]; Australian Securities and Investments Commission v Edwards (2005) 54 ACSR 583 at [249]; Australian Securities and Investments Commission v Plymin (2003) 46 ACSR 126 at [423] per Mandie J; Kenna & Brown Pty Ltd (in liq) v Kenna (1999) 32 ACSR 430 at [94]; Powell v Fryer (2001) 37 ACSR 589 at [76]. 199. Hall v Poolman (2007) 65 ACSR 123. 200. Hall v Poolman (2007) 65 ACSR 123 at [236]–[251]. 201. Powell v Fryer (2001) 37 ACSR 589.

202. Powell v Fryer [2000] SASC 97 affirmed on appeal in Powell v Fryer (2001) 37 ACSR 589. 203. See likewise Tourprint International Pty Ltd (in liq) v Bott (1999) 32 ACSR 201; Australian Securities and Investments Commission v Edwards (2005) 220 ALR 148; Green in his capacity as liquidator of Arimco Mining Pty Ltd (in liq) v CGU Insurance Ltd (2008) 67 ACSR 398; Re McLellan; The Stake Man Pty Ltd v Carroll (2009) 76 ACSR 67; Re SSET Construction Pty Ltd (in liq); Sims v Khattar [2010] NSWSC 102; First Strategic Development Corporation Ltd (in liq) v Chan [2014] QSC 60. 204. Powell v Fryer (2001) 37 ACSR 589 per Olsson, Duggan and Williams JJ. 205. See 1.1. 206. See also Molit (No 55) Pty Ltd v Lam Soon Australia Pty Ltd (1997) 24 ACSR 47 at 51 per Branson J; Quick v Stoland Pty Ltd (1998) 29 ACSR 130 at 142 per Finkelstein J; Sheahan v Verco (2001) 37 ACSR 117 at [94] per Mullighan J; Powell v Fryer (2001) 37 ACSR 589 at [57] per Olsson J with Duggan and Williams JJ agreeing; Deputy Commissioner of Taxation v Clark (2003) 45 ACSR 332 at [23] per Spigelman CJ with whom Handley and Hodgson JJA agreed; Deputy Commissioner of Taxation v Dick (2007) 64 ACSR 61 at [88] per Santow JA with Spigelman CJ and Basten JA agreeing. 207. Winkley v Paton (1943) 60 WN (NSW) 162; Clapham v National Assistance Board [1961] 2 QB 77; Eton College v Minister of Agriculture, Fisheries and Food [1964] Ch 274; Lindner v Wright (1976) 14 ALR 105. 208. Australian Securities and Investments Commission v Edwards (2005) 54 ACSR 583 at [253] per Barrett J. 209. James v Andrews (2001) 166 FLR 11; [2001] NSWSC 1149 at [22]–[24]. See also the discussion by the Victorian Court of Appeal in Elliott v Australian Securities and Investments Commission (2004) 10 VR 369; 48 ACSR 621; [2004] VSCA 54 at [114]ff. 210. Australian Securities and Investments Commission v Edwards (2005) 54 ACSR 583 at [253] per Barrett J. 211. Australian Securities and Investments Commission v Plymin (No 1) (2003) 46 ACSR 126 at [420] per Mandie J. See also Australian Securities and Investments Commission v Edwards (2005) 54 ACSR 583 at [253]ff per Barrett J and Morley v Statewide Tobacco Services Ltd [1993] 1 VR 423 at 439; 2 ACSR 405 at 422 per Ormiston J. 212. Elliott v Australian Securities and Investments Commission; Plymin v Australian Securities and Investments Commission (2004) 10 VR 369; 205 ALR 594; 185 FLR 245; 48 ACSR 621. 213. Statewide Tobacco Services Ltd v Morley (1990) 2 ACSR 405 at 412–13 affirmed on appeal in Morley v Statewide Tobacco Services Ltd [1993] 1 VR 423; 8 ACSR 305. 214. Statewide Tobacco Services Ltd v Morley (1990) 2 ACSR 405. See similarly the decision of the Full Court of the South Australian Supreme Court in Group Four Industries Pty Ltd v Brosnan (1992) 59 SASR 22; 8 ACSR 463. 215. See 10.9. 216. Elliott v Australian Securities and Investments Commission; Plymin v Australian Securities and Investments Commission (2004) 10 VR 369; 205 ALR 594; 185 FLR 245; 48 ACSR 621; [2004] VSCA 54 at [116]. 217. Australian Securities and Investments Commission v Plymin (No 1) (2003) 46 ACSR 126 at [426]. 218. Australian Securities and Investments Commission v Plymin (No 1) (2003) 46 ACSR 126 at [426]. See also Re New World Alliance Pty Ltd; Sycotex Pty Ltd v Baseler (No 2) (1994) 51 FCR 425 at 433; Hawcroft General Trading Co Ltd v Edgar (1996) 20 ACSR 541 at 548.

219. Australian Securities and Investments Commission v Plymin (No 1) (2003) 46 ACSR 126 at [426]. 220. Australian Securities and Investments Commission v Plymin (No 1) (2003) 46 ACSR 126 at [426]. 221. See N Coburn, Coburn’s Insolvent Trading, 2nd ed, Law Book Co, Sydney, 2003, at p 62 referred to in Australian Securities and Investments Commission v Plymin (No 1) (2003) 46 ACSR 126 at [426]. 222. Australian Securities and Investments Commission v Plymin (No 1) (2003) 46 ACSR 126 at [426]. 223. Australian Securities and Investments Commission v Plymin (No 1) (2003) 46 ACSR 126 at [426]. 224. Australian Securities and Investments Commission v Plymin (No 1) (2003) 46 ACSR 126 at [426]; Credit Corp Australia Pty Ltd v Atkins (1999) 30 ACSR 727 at 769. See also Powell v Fryer (2001) 37 ACSR 589 at 601. 225. Elliott v Australian Securities and Investments Commission; Plymin v Australian Securities and Investments Commission (2004) 48 ACSR 621 at [101]ff. 226. Capricorn Society Ltd v Linke (1996) 14 ACLC 431. 227. Metal Manufacturers Ltd v Lewis (1986) 11 ACLR 122; 4 ACLC 739 at 748–9. 228. Capricorn Society Ltd v Linke (1996) 14 ACLC 431 at 437. See also Credit Corp Australia Pty Ltd v Atkins (1999) 30 ACSR 727 at 769 and Powell v Fryer (2001) 37 ACSR 589 at 601. 229. Statewide Tobacco Services Ltd v Morley (1990) 2 ACSR 405 at 431 affirmed on appeal in Morley v Statewide Tobacco Services Ltd [1993] 1 VR 423; 8 ACSR 305. See also Commonwealth Bank of Australia v Friedrich (1991) 5 ACSR 115 per Tadgell J. 230. Commonwealth Bank of Australia v Friedrich (1991) 5 ACSR 115; Rema Industries and Services Pty Ltd v Coad (1992) 107 ALR 374; 7 ACSR 251. 231. Rema Industries v Coad (1992) 107 ALR 374; 7 ACSR 251 at 259. 232. Morley v Statewide Tobacco Services Ltd [1993] 1 VR 423; 8 ACSR 305. 233. Morley v Statewide Tobacco Services Ltd [1993] 1 VR 423; 8 ACSR 305 at 320. See also Credit Corporation Australia Pty Ltd v Atkins (1999) 30 ACSR 727; Group Four Industries Pty Ltd v Brosnan (1992) 59 SASR 22; 8 ACSR 463; and Arimco Mining Pty Ltd (in liq) v CGU Insurance Ltd (2008) 67 ACSR 398 at [313]. 234. Commonwealth Bank of Australia v Friedrich (1991) 5 ACSR 115 at 425. 235. See, for example, Australian Securities and Investments Commission v Plymin (No 1) (2003) 46 ACSR 126 at [423] and Commonwealth Bank of Australia v Friedrich (1991) 5 ACSR 115 at 122–6 (and cases there cited); Standard Chartered Bank of Australia Ltd v Antico (No 2) (1995) 38 NSWLR 290; 131 ALR 1; 18 ACSR 1; Kenna & Brown Pty Ltd v Kenna (1999) 32 ACSR 430 at 444; Credit Corp Australia Pty Ltd v Atkins (1999) 30 ACSR 727 at 741. 236. Playspace Playground Pty Ltd v Osborne [2009] FCA 1486 at [43] per Reeves J. 237. Australian Securities and Investments Commission v Plymin (No 1) (2003) 46 ACSR 126 at [367] per Mandie J; Tru Floor Service Pty Ltd v Jenkins (No 2) (2006) 232 ALR 532 at [50] per Sundberg J; Playspace Playground Pty Ltd v Osborn [2009] FCA 1486 at [43] per Reeves J. 238. Briginshaw v Briginshaw (1938) 60 CLR 336 at 361–2. 239. Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 110 ALR 449 at 449–50. 240. Australian Securities and Investments Commission v Plymin (No 1) (2003) 46 ACSR 126; [2003] VSC 123. 241. Tru Floor Service Pty Ltd v Jenkins (No 2) (2006) 232 ALR 532.

Tru Floor Service Pty Ltd v Jenkins (No 2) (2006) 232 ALR 532 at 547; [2006] FCA 632 per 242. Sundberg J. See also Playspace Playground Pty Ltd v Osborne [2009] FCA 1486 at [43] per Reeves J. 243. A detailed examination of criminal liability in this context is beyond the scope of this book. See, for example, Williams et al, Federal Criminal Law (LexisNexis, looseleaf). 244. Penalty unit means $170: Crimes Act 1914 (Cth) s 4AA(1). 245. Section 1211(b) and Sch 3 item 138 to the Corporations Act. 246. Commonwealth Criminal Code, s 13.2. 247. Subsections 588G(3A) and (3B). 248. As to the ‘legal burden’ see the Commonwealth Criminal Code, s 13.1. 249. Buzzle Operations Pty Ltd (in liq) v Apple Computer Australia Pty Ltd [2010] NSWSC 233 at [202]. 250. Chung v R [2007] NSWCCA 231. 251. See, for example, ss 130.3, 470.2, 471.1 and 473.1. 252. R v Ghosh [1982] QB 1053. 253. Peters v R (1998) 192 CLR 493; 151 ALR 51; [1998] HCA 17. 254. Spies v R (2000) 201 CLR 603; 173 ALR 529; [2000] HCA 43. 255. Macleod v R (2003) 197 ALR 333; 77 ALJR 1047; [2003] HCA 24. 256. SAJ v R (2012) 91 ACSR 308; [2012] VSCA 243; see also Krecichwost v R (2012) 88 ACSR 339 at [63]. 257. Peters v R (2012) 91 ACSR 308; [2012] VSCA 243 at [127]. 258. Peters v R (2012) 91 ACSR 308; [2012] VSCA 243 at [121], [122]. 259. Peters v R (2012) 91 ACSR 308; [2012] VSCA 243 at [125]. 260. Peters v R (2012) 91 ACSR 308; [2012] VSCA 243 at [126]. 261. Peters v R (2012) 91 ACSR 308; [2012] VSCA 243; Krecichwost v R (2012) 88 ACSR 339 at [63]. 262. Cf Sayed v R [2012] WASCA 17 and R v Oettinger [2014] ACTSC 47, although in different statutory contexts. 263. R v Timothy Rhys Hawker Williams (unreported, Supreme Court of Tasmania, 24 June 2004). 264. Australian Securities and Investments Commission v Rich (2004) 213 ALR 338; [2004] NSWSC 1062 at [50] per Austin J. 265. Section 588J refers to a capital ‘C’ Court relevantly the Federal Court or a State Supreme Court. 266. Section 588J(3). 267. Section 1317K. 268. See R P Austin and I M Ramsay, Ford’s Principles of Corporations Law, LexisNexis, looseleaf and R Austin and A Black, Austin & Black’s Annotations to the Corporations Act, LexisNexis, looseleaf. 269. See 10.8ff. 270. Harmer Report at [283]. 271. Section 588H(1). 272. Elliott v Australian Securities and Investments Commission; Plymin v Australian Securities and Investments Commission (2004) 48 ACSR 621.

273. Australian Securities and Investments Commission v Plymin (No 1) (2003) 46 ACSR 126 at [420]. 274. See 10.118ff. 275. Carrier Air Conditioning Pty Ltd v Kurda (1993) 11 ACSR 247 at 250 per Debelle J, Cox and Duggan JJ concurring, referring to the Macquarie Dictionary, Shorter Oxford English Dictionary and Fowler’s Modern English Usage, 2nd ed and Commonwealth of Australia v Friedrich (1991) 5 ACSR 115 at 126 to 127. See also Commonwealth Bank of Australia v Friedrich (1991) 5 ACSR 115 at 125–6 per Tadgell J. 276. Carrier Air Conditioning Pty Ltd v Kurda (1993) 11 ACSR 247 at 250 per Debelle J, Cox and Duggan JJ referring to s 556(1) of the Companies (SA) Code. 277. Re McLellan; The Stake Man Pty Ltd v Carroll (2009) 76 ACSR 67; [2009] FCA 1415 at [169] per Goldberg J. 278. Re McLellan; The Stake Man Pty Ltd v Carroll (2009) 76 ACSR 67; [2009] FCA 1415 at [169] per Goldberg J. 279. Tourprint International Pty Ltd v Bott (1999) 32 ACSR 201 at 215 referred to approvingly by Palmer J in Hall v Poolman v (2007) 65 ACSR 123 at [262]. 280. Sheahan v Hertz Australia Pty Ltd (1995) 16 ACSR 765 at 769. 281. Sheahan v Hertz Australia Pty Ltd (1995) 16 ACSR 765 at 769. See also 2.15ff. 282. The terms of s 556 are set out at 10.4. 283. Carrier Air Conditioning Pty Ltd v Kurda (1993) 11 ACSR 247 at 254–5 per Debelle J, Cox and Duggan JJ concurring. 284. Hall v Poolman (2007) 65 ACSR 123 at [269]–[275]. 285. Quarry Quip Engineering Pty Ltd v Starr [2002] VSC 541. 286. Southern Cross Interiors Pty Ltd v Deputy Commissioner of Taxation (2001) 39 ACSR 305 at [109] per Palmer J. 287. See 10.50. 288. See also Southern Cross Interiors Pty Ltd v Deputy Commissioner of Taxation (2001) 39 ACSR 305 at [109] per Palmer J. 289. Southern Cross Interiors Pty Ltd v Deputy Commissioner of Taxation (2001) 39 ACSR 305 at [110] per Palmer J. 290. Southern Cross Interiors Pty Ltd v Deputy Commissioner of Taxation (2001) 39 ACSR 305 at [110] per Palmer J. 291. Manpac Industries Pty Ltd v Ceccattini (2002) 20 ACLC 1304; [2002] NSWSC 330 at [52]–[54]. 292. Re McLellan; The Stake Man Pty Ltd v Carroll (2009) 76 ACSR 67; [2009] FCA 1415. 293. Re McLellan; The Stake Man Pty Ltd v Carroll (2009) 76 ACSR 67; [2009] FCA 1415 at [184]– [185]. See also Kenna & Brown Pty Ltd v Kenna (1999) 32 ACSR 430 and Australian Securities and Investments Commission v Edwards [2005] NSWSC 831 at [265] and Williams (as liquidator of Scholz Motor Group Pty Ltd (in liq)) v Scholz [2008] QCA 94 at [28]. 294. Australian Securities and Investments Commission v Plymin (No 1) (2003) 46 ACSR 126. 295. Australian Securities and Investments Commission v Plymin (No 1) (2003) 46 ACSR 126 at [559] per Mandie J. 296. Australian Securities and Investments Commission v Plymin (No 1) (2003) 46 ACSR 126 at [560] per Mandie J.

297. Deputy Commissioner of Taxation v Clark (2003) 45 ACSR 332 at [84] per Spigelman CJ with Handley and Hodgson JJA agreeing. 298. Deputy Commissioner of Taxation v Clark (2003) 45 ACSR 332 at [115] per Spigelman CJ with Handley and Hodgson JJA agreeing. 299. Deputy Commissioner of Taxation v Clark (2003) 45 ACSR 332 at [115] per Spigelman CJ with Handley and Hodgson JJA agreeing. 300. Deputy Commissioner of Taxation v Clark (2003) 45 ACSR 332 at [116]. 301. Deputy Commissioner of Taxation v Clark (2003) 45 ACSR 332 at [118] per Spigelman CJ with Handley and Hodgson JJA agreeing. 302. Deputy Commissioner of Taxation v Clark (2003) 45 ACSR 332 at [124] and [133] per Spigelman CJ with Handley and Hodgson JJA agreeing. 303. Deputy Commissioner of Taxation v Clark (2003) 45 ACSR 332 at [133] per Spigelman CJ with Handley and Hodgson JJA agreeing. 304. Deputy Commissioner of Taxation v Clark (2003) 45 ACSR 332 at [133] per Spigelman CJ with Handley and Hodgson JJA agreeing. See also First Strategic Development Corporation Ltd (in liq) v Chan [2014] QSC 60 at [95]. 305. Deputy Commissioner of Taxation v Clark (2003) 45 ACSR 332. 306. Southern Cross Interiors Pty Ltd v Deputy Commissioner of Taxation (2001) 53 NSWLR 213; 188 ALR 114; 39 ACSR 305; [2001] NSWSC 621. 307. For a discussion of s 588FGB(5), see 10.130. 308. Deputy Commissioner of Taxation v Clark (2003) 45 ACSR 332 at [16] per Spigelman CJ with Handley and Hodgson JJA agreeing. 309. Statewide Tobacco Services v Morley [1993] 1 VR 423; 8 ACSR 305. 310. Statewide Tobacco Services v Morley [1993] 1 VR 423; 8 ACSR 305 at 316–17. See also Commonwealth Bank of Australia v Friedrich (1991) 5 ACSR 115 per Tadgell J and Group Four Industries Pty Ltd v Brosnan (1992) 59 SASR 22; 8 ACSR 463. 311. Deputy Commissioner of Taxation v Clark (2003) 45 ACSR 332 at [82]–[83] per Spigelman CJ with Handley and Hodgson JJA agreeing. 312. Deputy Commissioner of Taxation v Clark (2003) 45 ACSR 332 at [90] per Spigelman CJ with Handley and Hodgson JJA agreeing. 313. Harmer Report at [53]. 314. AWA Ltd v Daniels t/as Deloitte Haskins & Sells (1992) 7 ACSR 759. 315. Deputy Commissioner of Taxation v Clark (2003) 45 ACSR 332 at [108] per Spigelman CJ with Handley and Hodgson JJA agreeing. 316. Deputy Commissioner of Taxation v Clark (2003) 45 ACSR 332 at [110] per Spigelman CJ with Handley and Hodgson JJA agreeing. 317. Deputy Commissioner of Taxation v Clark (2003) 45 ACSR 332 at [113] per Spigelman CJ with Handley and Hodgson JJA agreeing. 318. Deputy Commissioner of Taxation v Clark (2003) 45 ACSR 332 at [120] per Spigelman CJ with Handley and Hodgson JJA agreeing. 319. See 10.124ff. 320. Deputy Commissioner of Taxation v Clark (2003) 45 ACSR 332 at [120] per Spigelman CJ with

Handley and Hodgson JJA agreeing. 321. Deputy Commissioner of Taxation v Clark (2003) 45 ACSR 332 at [121] per Spigelman CJ with Handley and Hodgson JJA agreeing. 322. Deputy Commissioner of Taxation v Clark (2003) 45 ACSR 332 at [132] per Spigelman CJ with Handley and Hodgson JJA agreeing. 323. Deputy Commissioner of Taxation v Clark (2003) 45 ACSR 332 at [133] per Spigelman CJ. 324. Deputy Commissioner of Taxation v Clark (2003) 45 ACSR 332 at [133] per Spigelman CJ with Handley and Hodgson JJA agreeing. 325. Deputy Commissioner of Taxation v Clark (2003) 45 ACSR 332 at [133] per Spigelman CJ with Handley and Hodgson JJA agreeing. 326. Deputy Commissioner of Taxation v Clark (2003) 45 ACSR 332 at [167] per Spigelman CJ with Handley and Hodgson JJA agreeing. 327. Deputy Commissioner of Taxation v Clark (2003) 45 ACSR 332 at [167] per Spigelman CJ with Handley and Hodgson JJA agreeing. 328. Tourprint International Pty Ltd (in liq) v Bott (1999) 32 ACSR 201. 329. Tourprint International Pty Ltd (in liq) v Bott (1999) 32 ACSR 201 at [75]. See also First Strategic Development Corporation Limited (in liq) v Chan [2014] QSC 60. 330. Androvin Pty Ltd v Figliomeni (1996) 17 WAR 177; 14 ACLC 1461. 331. See also Playcorp Pty Ltd v Shaw (1993) 10 ACSR 212. 332. Australian Securities and Investments Commission v Plymin (No 1) (2003) 46 ACSR 126 at [420]. 333. EM to the CLR Bill at [1240]. 334. Standard Chartered Bank of Australia Ltd v Antico (No 2) (1995) 38 NSWLR 290; 18 ACSR 1. 335. Section 556(2) of the Companies Code provided that: ‘In any proceedings against a person under subs 556(1), it is a defence if the defendant proves that the debt was incurred without his express or implied authority or consent.’ 336. Standard Chartered Bank of Australia Ltd v Antico (No 2) (1995) 38 NSWLR 290; 18 ACSR 1 at [584] per Hodgson J. 337. Hall v Poolman (2007) 65 ACSR 123; [2007] NSWSC 1330 at [311] per Palmer J. 338. Hall v Poolman (2007) 65 ACSR 123; [2007] NSWSC 1330 at [311] per Palmer J. 339. See Kenna & Brown Pty Ltd v Kenna (1999) 32 ACSR 430 per Bergin J; Manpac Industries Pty Ltd v Ceccattini (2002) 20 ACLC 1304 per Young CJ in Eq and Hall v Poolman (2007) 65 ACSR 123; [2007] NSWSC 1330 at [311] per Palmer J. The position in relation to claims brought by the Commissioner of Taxation under s 588FGA is discussed at 10.118ff. 340. Scott v Williams [2002] SASC 424. 341. Hall v Poolman (2007) 65 ACSR 123; [2007] NSWSC 1330 at [314] per Palmer J. 342. See subs 1317S(2)(b)(i). 343. See subs 1317S(2)(b)(ii). 344. Subsection 1317S(3). 345. Subsection 1317S(3)(a). 346. Subsection 1317S(3)(b). 347. Subsection 1317S(3)(c).

348. Hall v Poolman [2007] NSWSC 1330 at [315] per Palmer J. 349. Daniels v Anderson (1995) 37 NSWLR 438 at 525 per Clarke and Sheller JJA referring to s 1318. See Hall v Poolman (2007) 65 ACSR 123; [2007] NSWSC 1330 at [315] per Palmer J. 350. Powell v Fryer (2000) 18 ACLC 480; [2000] SASC 97. 351. Hall v Poolman (2007) 65 ACSR 123; [2007] NSWSC 1330 at [318]. 352. Hall v Poolman (2007) 65 ACSR 123; [2007] NSWC 1330 at [325]. 353. Referring to Commonwealth Bank of Australia v Friedrich (1991) 5 ACSR 115 at 196 and Australian Securities and Investments Commission v Vines (2005) 56 ACSR 528 at [43]. 354. Australian Securities and Investments Commission v Macdonald (No 12) (2009) 259 ALR 116 at [26] per Gzell J. 355. Australian Securities and Investments Commission v MacDonald (No 12) (2009) 259 ALR 116 at [26] per Gzell J. 356. Australian Securities and Investments Commission v Edwards (No 3) (2006) 57 ACSR 209 at [9] per Barrett J. 357. Australian Securities Commission v Forem-Freeway Enterprises Pty Ltd (1999) 30 ACSR 339 at 346; [1999] FCA 179. See also Australian Securities and Investments Commission v Edwards (No 3) (2006) 57 ACSR 209 at [8]–[9]. 358. Hall v Poolman (2007) 65 ACSR 123; [2007] NSWSC 1330 at [329] per Palmer J. 359. Hall v Poolman (2007) 65 ACSR 123; [2007] NSWSC 1330 at [330]. 360. Hall v Poolman (2007) 65 ACSR 123; [2007] NSWSC 1330 at [332]–[335] per Palmer J. 361. Hall v Poolman (2007) 65 ACSR 123; [2007] NSWSC 1330 at [338]–[339] per Palmer J. 362. See Australian Securities and Investments Commission v Edwards (No 3) (2006) 57 ACSR 209 at [10] referring to Maelor Jones Investments (Noarlunga) Pty Ltd v Heywood-Smith (1989) 54 SASR 285 at 295; 7 ACLC 1232 per Olsson J. 363. Re Mustang Marine Australia Services Pty Ltd (in liq) (2013) 94 ACSR 601 at [9] per Brereton J. 364. Elliott v Australian Securities and Investments Commission; Plymin v Australian Securities and Investments Commission (2004) 48 ACSR 621 at [169]. 365. See Elliott v Australian Securities and Investments Commission; Plymin v Australian Securities and Investments Commission (2004) 48 ACSR 621 at [113]. See 10.102 for a detailed discussion of s 588M. 366. Ho v Akai Pty Ltd (in liq) [2006] FCAFC 159 at [55] per Finn, Weinberg and Rares JJ. 367. Ho v Akai Pty Ltd (in liq) [2006] FCAFC 159 at [55] per Finn, Weinberg and Rares JJ. 368. Section 588J. 369. Australian Securities and Investments Commission v Plymin (No 1) (2003) 46 ACSR 126 at [464]. 370. Australian Securities and Investments Commission v Plymin (No 1) (2003) 46 ACSR 126 at [464]. 371. Australian Securities and Investments Commission v Plymin (No 1) (2003) 46 ACSR 126 at [469]. 372. Australian Securities and Investments Commission v Plymin (No 1) (2003) 46 ACSR 126 at [473]. 373. Elliott v Australian Securities and Investments Commission; Plymin v Australian Securities and Investments Commission at [184], [185]. 374. Elliott v Australian Securities and Investments Commission; Plymin v Australian Securities and Investments Commission (2004) 48 ACSR 621 at [183], [185].

375. Section 73A defines when a court is taken to find a person guilty of an offence. 376. For a further discussion of s 588K see 10.106. 377. See 10.98. 378. See s 588M(1)(d). See also Re Mustang Marine Australia Services Pty Ltd (in liq) (2013) 94 ACSR 601 at [9] per Brereton J. 379. See s 588M(2). See also Re Mustang Marine Australia Services Pty Ltd (in liq) (2013) 94 ACSR 601 at [9] per Brereton J. 380. See 10.103. 381. Section 588M(2). 382. See Re Mclellan; The Stake Man Pty Ltd v Carroll (2009) 76 ACSR 67 at [1]. 383. Like s 588G, the ‘debt’ for the purposes of s 588M must be a debt as opposed to a claim for damages: see Ausdrill Ltd v Coleman (1997) 25 ACSR 462. See also 10.35. 384. Section 588M(1)(e). 385. Section 588M(1)(f). 386. International Greetings UK Ltd v Stansfield (2010) 80 ACSR 664; [2010] NSWSC 1357 at [17] per Barrett J. See also Keith v Verge [2009] WASC 338 at [20] and Re ACN 002 408 040 Pty Ltd (in liq) (2013) 94 ACSR 485 per Black J. 387. Subsection 588M(4). Div 1A of Pt 5.6 stipulates when a winding up is taken to have begun. See also the decision of Lehane J in Stoland Pty Ltd v Thurn (1997) 29 ACSR 280. 388. Edenden v Bignell [2007] NSWSC 1122 at [30] per Barrett J. 389. Edenden v Bignell [2007] NSWSC 1122 at [30] per Barrett J. 390. Powell v Fryer (2001) 37 ACSR 589; 159 FLR 433; [2001] SASC 59 at [88] referring to the decision of Austin J in Tourprint International Pty Ltd (in liq) v Bott (1999) 32 ACSR 201 at 217. See also Re SSET Construction Pty Ltd (in liq); Sims v Khattar [2010] NSWSC 102 at [115] per Austin J and Edenden v Bignell [2007] NSWSC 1122 at [30] per Barrett J. 391. Edenden v Bignell [2007] NSWSC 1122 at [30] per Barrett J. His Honour also notes that there may perhaps be circumstances in which the amount of the loss or damage exceeds the amount of the debt. 392. Quick v Stoland Pty Ltd (1998) 29 ACSR 130 at 146 per Finkelstein J. 393. Quick v Stoland Pty Ltd (1998) 29 ACSR 130 at 146 per Finkelstein J. 394. Deputy Commissioner of Taxation v Clark (2003) 45 ACSR 332 at [136] per Spigelman CJ, Handley and Hodgson JJA agreeing. 395. Section 51 defines ‘PPSA security interest’ (short for Personal Property Securities Act security interest) as meaning a security interest within the meaning of the Personal Property Securities Act 2009 and to which that Act applies, other than a transitional security interest within the meaning of that Act. See Chapter 9 for a discussion. 396. Great Wall Resources Pty Ltd (in liq) v Davidovic Pty Ltd (2011) 255 FLR 422; [2011] NSWSC 660 per Macready AsJ. 397. For a discussion of these provisions as well as the Personal Property Securities Act generally, see Chapter 9. 398. Hall v Poolman (2007) 65 ACSR 123 at [460]ff per Palmer J. 399. Hall v Poolman (2007) 65 ACSR 123 at [467] per Palmer J. On equitable contribution generally see

Burke v LFOT Pty Ltd (2002) 209 CLR 282 and Dering v Earl of Winchelsea (1787) 1 Cox Eq Cas 318; 29 ER 1184. See also Spika Trading Pty Ltd v Harrison (1990) 19 NSWLR 211; 1 ACSR 609. 400. Scott v Williams [2002] SASC 424 at [19] per Lander J. 401. See 10.142. 402. See s 588P. See also Ho v Akai Pty Ltd (in liq) [2006] FCAFC 159 at [50] per Finn, Weinberg and Rares JJ. 403. Ho v Akai Pty Ltd (in liq) [2006] FCAFC 159 at [55] per Finn, Weinberg and Rares JJ. 404. Ho v Akai Pty Ltd (in liq) [2006] FCAFC 159 at [56] per Finn, Weinberg and Rares JJ. 405. Ho v Akai Pty Ltd (in liq) [2006] FCAFC 159 at [57] per Finn, Weinberg and Rares JJ. 406. Section 588Q refers to a lower case ‘c’ court which has the meaning given in s 58AA, namely any court. 407. Section 588Q(c). 408. Section 588Q(d). 409. EM to the CLR Bill at [1113]. 410. Edenden v Bignell [2007] NSWSC 1122 at [32] per Barrett J. 411. A liquidator who states that he or she has ‘no objection’ to the proceedings constitutes consent for the purposes of s 588R: Zappia v Grant Baines Transport Pty Ltd (2010) 77 ACSR 273. 412. Edenden v Bignell [2007] NSWSC 1122 at [32] per Barrett J. 413. Edenden v Bignell [2007] NSWSC 1122 at [32] per Barrett J. 414. Section 588S(a). 415. Section 588S(b). 416. Section 588T. 417. These matters are mandatory. See Edenden v Bignell [2007] NSWSC 1122 at [37] per Barrett J. 418. Section 588S. 419. Section 588S(a). 420. Section 588S(b). 421. Quick v Stoland Pty Ltd (1998) 29 ACSR 130 at 147 per Finkeslstein J, Branson and Emmett JJ concurring. See also Zappia v Grant Baines Transport Pty Ltd (2010) 77 ACSR 273 for an example of where proceedings were commenced before a liquidator was appointed but were subsequently amended once the liquidator was appointed. 422. The debt must be specified in the notice. See Edenden v Bignell [2007] NSWSC 1122 at [37] per Barrett J. 423. The ‘court’ is a lower case ‘c’ court which is defined in s 58AA as meaning any court. 424. Section 588T(3)(c). 425. Section 588T(3)(d). 426. Edenden v Bignell [2007] NSWSC 1122 at [38] per Barrett J. 427. Edenden v Bignell [2007] NSWSC 1122 at [38] per Barrett J referring to Quick v Stoland Pty Ltd (1998) 157 ALR 615. 428. Edenden v Bignell [2008] NSWSC 666 at [12]. See further the EM to the CLR Bill at [1106]; Harmer Report at [315].

429. Referring to Re Origin Internet Solutions Pty Ltd (No 2) (2001) 51 ACSR 163; [2004] FCA 1354 at [12] per Finkelstein J. 430. Deputy Commissioner of Taxation v Clark (2003) 57 NSWLR 113; [2003] NSWCA 91 at [136] cited in Edenden v Bignell [2008] NSWSC 666 at [14]. 431. Edenden v Bignell [2008] NSWSC 666 at [17]. 432. For a discussion of these elements see 10.30 and 10.103. For a convenient summary of the elements see Edenden v Bignell [2008] NSWSC 666 at [16]. 433. Section 588U(1)(a). 434. Section 588U(1)(b). 435. Section 588U(1)(c). 436. Section 588U(2). 437. The EM to the CLR Bill at [1122]. 438. Section 47 deals with control of a company’s board and s 48 sets out matters to be disregarded. 439. Akai Pty Ltd v Ho [2006] FCA 511 at [25] per Gyles J. 440. Section 588V(d)(i). 441. Section 588V(d)(ii)(A). 442. Section 588V(d)(ii)(B). 443. Section 588V(1)(e) incorrectly refers to the commencement of ‘this Act’. This is a rare example of a typographical error in a statute. See the discussion at 10.48. 444. EM to the CLR Bill. See also paras [334] and [335] of the Harmer Report. 445. Section 588W(1)(a). 446. Section 588W(1)(b). 447. Section 588W(1)(c). 448. Section 588W(2). 449. Ho v Akai Pty Ltd (in liq) [2006] FCAFC 159 at [78] per Finn, Weinberg and Rares JJ. 450. Section 588X(3)(a). 451. Section 588X(4). 452. Section 588X(5). 453. Section 588X(6). See 10.111. 454. N A Kratzmann Pty Ltd (in liq) v Tucker (No 2) (1968) 123 CLR 295. See Tolcher v National Australia Bank Ltd (2003) 44 ACSR 727 at [16] per Palmer J. This is the same as the position in relation to monies recovered by a liquidator under s 588FF: see 8.21. 455. Re Mustang Marine Australia Services Pty Ltd (admin apptd); Perpetual Trustee Co Ltd v Mustang Marine Australia Services Pty Ltd [2010] NSWSC 1429 at [126] per Ward J. 456. Harmer Report at [320]. 457. Re Mustang Marine Australia Services Pty Ltd (admin apptd); Perpetual Trustee Co Ltd v Mustang Marine Australia Services Pty Ltd [2010] NSWSC 1429 at [133] per Ward J. 458. Section 588Y(2)(b). 459. Section 588Y(3).

460. Section 588Y(4). Section 588F relevantly provides that for the purposes of Pt 5.7B a company’s liability under a remittance provision to pay to the Commissioner of Taxation an amount equal to a deduction made by the company is taken to be a debt. A remittance provision is defined to mean inter alia any of the provisions of Subdivn 16-B in Sch 1 to the Taxation Administration Act 1953. 461. Harmer Report at [333]. 462. EM to the CLR Bill at [1135]ff. 463. The ‘Court’ referred to in s 588Z is an upper case ‘C’ Court meaning, relevantly, the Federal Court or a State Supreme Court. 464. For a detailed discussion of the relation-back day see 2.72. 465. Section 206B(3). 466. A discussion of s 206A is beyond the scope of this text. See, for example, Australian Securities and Investments Commission v Australian Investors Forum Pty Ltd (No 2) (2005) 53 ACSR 305; [2005] NSWSC 267 per Palmer J. 467. Nilant v Shenton [2001] WASCA 421 at [24] per Parker J with whom Steytler and Miller JJ agreed. 468. Nilant v Shenton [2001] WASCA 421 at [24] per Parker J with whom Steytler and Miller JJ agreed. 469. Nilant v Shenton [2001] WASCA 421 at [23] per Parker J with whom Steytler and Miller JJ agreed. 470. Nilant v Shenton [2001] WASCA 421 at [22] per Parker J with whom Steytler and Miller JJ agreed. 471. Nilant v Shenton [2001] WASCA 421 at [22] per Parker J with whom Steytler and Miller JJ agreed. 472. Nilant v Shenton [2001] WASCA 421 at [23] per Parker J with Steytler and Miller JJ agreeing. 473. See Poyser v Commissioner for Corporate Affairs (1985) 3 ACLC 584 per Murphy J referred to in Nilant v Shenton [2001] WASCA 421 at [25] per Parker J with whom Steytler and Miller JJ agreed. 474. Nilant v Shenton [2001] WASCA 421 at [39] per Parker J with whom Steytler and Miller JJ agreed. 475. Nilant v Shenton [2001] WASCA 421 at [41] per Parker J with whom Steytler and Miller JJ agreed. 476. Section 588FGA(2). 477. See Chapter 8. 478. ‘Court’ is defined in s 58AA as a capital ‘C’ Court which is defined relevantly as a State Supreme Court or the Federal Court. See, however, the analysis of Dodds-Streeton J in Scott v Commissioner of Taxation [2003] VSC 50 at [73]ff where her Honour suggested that the reference to capital ‘C’ Court in s 588FGA is likely to be a typographical error which called for legislative intervention. 479. Young J has described this as a precondition to the making of an indemnification order: see Duncan v Commissioner of Taxation; Re Trader Systems International Pty Ltd (in liq) (2006) 58 ACSR 555 at [16]. 480. In the event that any of the sections to the taxation legislation referred to in subs 588FGA(1) are repealed and re-enacted, s 10 of the Acts Interpretation Act 1901 (Cth) has the effect that s 588FGA(1) should be read as referring to and incorporating the new provision: Hillig v Commissioner of Taxation (2000) 35 ACSR 626 at [8] per White J. See also Iso Lilodw’ Aliphumeleli Pty Ltd (in liq) v Commissioner of Taxation (2002) 42 ACSR 561 at [8]. 481. Section 588FGA(1)(a)(vi). 482. Section 588FGA(1)(a)(vii). 483. Scott v Duncan [2007] FCAFC 30 at [13]. 484. Para 588FGA(1)(b). Other liabilities include former subsections 220AAE, 220AAM, 220AAR, 221F (except subsection 221F(12)), former s 221G (except subsection 221G(4A)) or former ss 221P,

221YHDC(2), 221YHZD(1) or (1A) and 222AHA of the Income Tax Assessment Act 1936: see paras 588FGA(1)(i)–(v). 485. See Deputy Commissioner of Taxation v Clark [2003] NSWCA 91 at [25] per Spigelman CJ, Handley and Hodgson JJA agreeing. 486. Harmer Report paras [733]–[741]). See also Deputy Commissioner of Taxation v Clark [2003] NSWCA 91 at [25] per Spigelman CJ, Handley and Hodgson JJA agreeing. 487. Federal Commissioner of Taxation v B & G Plant Hire Pty Ltd (1994) 14 ACSR 283 at 285 per Gummow J. 488. Hillig v Commissioner of Taxation (2000) 35 ACSR 626 at [10] per White J. See also Browne v Commissioner of Taxation (1998) 26 ACSR 750 at 754 per Lockhart, O’Loughlin and Kiefel JJ. 489. Hillig v Commissioner of Taxation (2000) 35 ACSR 626 per White J. 490. Hillig v Commissioner of Taxation (2000) 35 ACSR 626 per White J. 491. Section 588FG(3). 492. Hillig v Commissioner of Taxation (2000) 35 ACSR 626 per White J. See also Sims v Deputy Commissioner of Taxation (2006) 57 ACSR 249; [2006] NSWSC 305 at [35] per Campbell J and Commissioner of Taxation v Moodie (2014) 98 ACSR 274 at [51] per McColl JA with whom Meagher and Barrett JJA agreed. 493. Hillig v Commissioner of Taxation (2000) 35 ACSR 626 at at [18] per White J. The Commissioner for the purposes of s 588FGA is the alter ego of the Commonwealth: Hillig v Commissioner of Taxation (2000) 35 ACSR 626 at at [18] per White J. 494. Section 588FGA(2). 495. Section 588FGA(3)(a). 496. The ‘court’ in s 588FGA(3)(b) is defined as a lower case ‘c’ court meaning any court: s 58AA. 497. Section 588FGA(3)(b). 498. Gibbons v Deputy Commissioner of Taxation [2003] NSWSC 1126 at [34]. See also Southern Cross Interiors Pty Ltd v Deputy Commissioner of Taxation (2001) 53 NSWLR 213; 39 ACSR 305; [2001] NSWSC 621 and Hillig v Commissioner of Taxation [2001] 2 Qd R 147; 35 ACSR 626; [2000] QSC 403 at [18]. 499. Commissioner of Taxation v Sims (2008) 72 NSWLR 716; [2008] NSWCA 298 at [34] per Ipp JA, Beazley and Macfarlan JJA agreeing. 500. Commissioner of Taxation v Sims (2008) 72 NSWLR 716; [2008] NSWCA 298; Allens Services Ltd (in liq) v Commissioner of Taxation (2010) 79 ACSR 101 at [56]. See also Superior Press Pty Ltd (in liq) v Commissioner of Taxation [2004] VSC 111 at [37]–[39]; Duncan v Commissioner of Taxation; Re Trader Systems International Pty Ltd (in liq) (2006) 58 ACSR 555; [2006] FCA 885. 501. Superior Press Pty Ltd (in liq) v Deputy Commissioner of Taxation (2004) 55 ATR 541; [2004] VSC 111. See also Duncan v Commissioner of Taxation; Re Trader Systems International Pty Ltd (in liq) (2006) 58 ACSR 555 at [125]. 502. Commissioner of Taxation v Sims (2008) 72 NSWLR 716 at [37] per Ipp JA with whom Beazley and Macfarlan JJA agreed. 503. Browne v Deputy Commissioner of Taxation (1998) 26 ACSR 750 at 757. 504. Browne v Deputy Commissioner of Taxation (1998) 26 ACSR 750 at 757. 505. Browne v Deputy Commissioner of Taxation (1998) 26 ACSR 750 at 757. 506. Subsection 588FGA(3)(a).

507. The ‘court’ in subs 588FGA(3)(b) is defined as a lower case ‘c’ court. See the definition in s 58AA. 508. Subsection 588FGA(3)(b). 509. Commissioner of Taxation v Moodie (2014) 98 ACSR 274 at [96] per McColl JA with whom Meagher and Barrett JJA agreed doubting a previous observation by Ipp JA in Commissioner of Taxation v Sims (2008) 72 NSWLR 716; [2008] NSWCA 298 at [44]. 510. Commissioner of Taxation v Moodie (2014) 98 ACSR 274 at [99] per McColl JA with whom Meagher and Barrett JJA agreed. 511. See Harris v Commissioner of Taxation v (2006) 57 ACSR 706 per MacKenzie J; Dean-Willcocks v Commissioner of Taxation (No 2) (2004) 49 ACSR 325; [2004] NSWSC 286 at [27]–[28] per Austin J; Cooper (as liquidator of Wanted World Wide (Aust) Ltd (in liq)) v Commissioner of Taxation (2004) 139 FCR 205; 210 ALR 635; [2004] FCA 1063 at [44]–[53] per Lander J; Hall (as liquidator of Reynolds Vineyards Pty Ltd) v Commissioner of Taxation (2004) 51 ACSR 169 per Barrett J; Young v Commissioner of Taxation (2006) 56 ACSR 654; [2006] FCA 90 at [8]–[9] per Tamberlin J. See also Commissioner of Taxation v Moodie (2014) 98 ACSR 274 at [52] per McColl JA with whom Meagher and Barrett JJA agreed. 512. Hall (as liquidator of Reynolds Vineyards Pty Ltd) v Commissioner of Taxation (2004) 51 ACSR 173 at [16]. See also Carter, Re Spec FS NSW Pty Ltd (in liq) [2013] FCA 1027 at [29]. 513. Commissioner of Taxation v Moodie (2014) 98 ACSR 274 at [56] per McColl JA, Meagher and Barrett JJA agreeing. See also Dean-Willcocks v Commissioner of Taxation (No 2) (2004) 49 ACSR 325; [2004] NSWSC 286 at [40] per Austin J; Crosbie v Commissioner of Taxation (2003) 130 FCR 275; [2003] FCA 922 at [4]–[6] per Finkelstein J; Noxequin Pty Ltd v Deputy Commissioner of Taxation [2007] NSWSC 87 at [34]; and Duncan v Commissioner of Taxation (2006) 58 ACSR 555 at 561. See also Carter, Re Spec FS NSW Pty Ltd (in liq) [2013] FCA 1027 at [15]ff and Re Octaviar Administration Pty Ltd (in liq) (2013) 94 ACSR 612. 514. Hall (as liquidator of Reynolds Vineyards Pty Ltd) v Commissioner of Taxation v (2004) 51 ACSR 173 at [22]. See also Commissioner of Taxation v Moodie (2014) 98 ACSR 274 at [58]–[59] referring to the decision of Scrutton LJ in Barclays Bank v Tom [1923] 1 KB 221 at 223–4. 515. Commissioner of Taxation v Sims (2008) 72 NSWLR 716; [2008] NSWCA 298 at [27] per Ipp JA, Beazley and Macfarlan JJA agreeing. 516. Commissioner of Taxation v Sims (2008) 72 NSWLR 716; [2008] NSWCA 298 at [28]–[29]. 517. Deputy Commissioner vf Taxation v Clark (2003) 45 ACSR 332 at [16] per Spigelman CJ with Handley and Hodgson JJA agreeing. 518. Subsection 588FGB(6)(b). See also Deputy Commissioner of Taxation v Clark (2003) 45 ACSR 332 at [17]–[18] per Spigelman CJ with Handley and Hodgson JJA agreeing. 519. Subsection 588FGB(1). 520. Subsection 588FGB(2). 521. Deputy Commissioner of Taxation v Clark (2003) 45 ACSR 332 at [14] per Spigelman CJ with Handley and Hodgson JJA agreeing. 522. Browne v Deputy Commissioner of Taxation (1998) 26 ACSR 750 at 756. 523. Smith v Deputy Commissioner of Taxation (1997) 23 ACSR 611 at 644. 524. See Scott v Duncan [2007] FCAFC 30 (unsuccessful attempt by director to rely upon subs 588FGB(3)); Cooper v Commissioner of Taxation [2009] NSWSC 880 (unsuccessful attempt by director to rely upon subs 588FGB(3); Hurricane Formwork Pty Ltd (in liq) v Commissioner of Taxation [2009] FCA 133 (unsuccessful attempt by director to rely upon subs 588FGB(3)); Commissioner of Taxation v Paditham [2010] FCA 334 (unsuccessful attempt by director to rely

upon subs 588FGB(3)). 525. In the s 588FGB context see, for example, Iso Lilodw’ Aliphumeleli Pty Ltd (in liq) v Commissioner of Taxation (2002) 42 ACSR 561 (director’s unsuccessful attempt to invoke s 588FGB(3) defence); Superior Press Pty Ltd (in liq) v Deputy Commissioner of Taxation (2004) 55 ATR 541; [2004] VSC 111 (director unsuccessful in s 588FGB(3) defence); Duncan v Commissioner of Taxation; Re Trader Systems International Pty Ltd (in liq) (2006) 58 ACSR 555 per Young J (director unsuccessful in s 588FGB(3) defence); and the Queensland Court of Appeal decision in ColdhamFussell v Commissioner of Taxation (2011) 82 ACSR 439 (arguable case of defence in context of summary judgment application). 526. Subsection 588FGB(4)(a)(i). 527. Subsection 588FGB(4)(a)(ii). 528. Iso Lilodw’ Aliphumeleli Pty Ltd v Commissioner of Taxation (2002) 42 ACSR 561 at [80]. 529. See Deputy Commissioner of Taxation v Clark (2003) 45 ACSR 332 and Iso Lilodw’ Aliphumeleli Pty Ltd (in liq) v Commissioner of Taxation (2002) 42 ACSR 561. See also Cooper v Commissioner of Taxation [2009] NSWSC 880 (unsuccessful attempt by director to rely upon subsection 588FGB(4)); Hall v Poolman (2007) 65 ACSR 123; [2007] NSWSC 1330 (unsuccessful attempt by director to rely upon subsection 588FGB(4)). 530. Sims v Deputy Commissioner of Taxation [2007] NSWSC 998. 531. Sims v Deputy Commissioner of Taxation [2007] NSWSC 998 at [209]. 532. Sims v Deputy Commissioner of Taxation [2007] NSWSC 998 at [210]–[246] per Hammerschlag J. 533. Section 588FGB(6)(a). 534. Section 588FGB(6)(b). 535. Browne v Commissioner of Taxation (1998) 26 ACSR 750 at 754 per Lockhart, O’Loughlin and Kiefel JJ. 536. Browne v Commissioner of Taxation (1998) 26 ACSR 750 at 756 per Lockhart, O’Loughlin and Kiefel JJ. 537. Browne v Commissioner of Taxation (1998) 26 ACSR 750 at 756 per Lockhart, O’Loughlin and Kiefel JJ. See similarly the comments of Mansfield J in Smith v Deputy Commissioner of Taxation (1997) 23 ACSR 611 at 644. 538. Palmer v Commissioner of Taxation [2006] NSWSC 1253. 539. See also Commissioner of Taxation v Paditham [2010] FCA 334. 540. At 10.92. 541. Commissioner of Taxation v Moodie (2014) 98 ACSR 274 at [60] per McColl JA with whom Meagher and Barrett JJA agreed. 542. Commissioner of Taxation v Moodie (2014) 98 ACSR 274 at [75] per McColl JA with whom Meagher and Barrett JJA agreed. 543. Commissioner of Taxation v Moodie (2014) 98 ACSR 274. 544. Noxequin Pty Ltd v Deputy Commissioner of Taxation [2007] NSWSC 87. 545. Commissioner of Taxation v Moodie (2014) 98 ACSR 274 at [91] per McColl J. 546. Edginton v Clark [1964] 1 QB 367 at 384; [1963] 3 All ER 468 at 476. 547. Commissioner of Taxation v Moodie (2014) 98 ACSR 274 at [93] per McColl J. 548. Quaere whether equitable set-off or set-off under provisions such as s 21 of the Civil Procedure Act

2005 (NSW) may also be available in response to an insolvent trading claim. See Hall v Poolman (2007) 65 ACSR 123 at [432]–[424]. 549. This is the position in England. See Manson v Smith [1997] 2 BCLC 161 where Millett LJ opined that it has been settled for more than a century that no set-off was available between a debt due to a misfeasant and his liability to repay moneys which he or she had been ordered to pay in misfeasance proceedings. 550. Re ACN 007 537 000 Pty Ltd (in liq); Parker (1997) 25 ACSR 560. 551. Act 210 of 1992, s 92. 552. Re ACN 007 537 000 Pty Ltd (in liq); Parker (1997) 25 ACSR 560 at 565. 553. Harmer Report at [815]–[819]. 554. Harmer Report at [818]. 555. Parke B in Forster v Wilson (1843) 12 M & W 191 at 204. 556. Re ACN 007 537 000 Pty Ltd (in liq); Parker (1997) 25 ACSR 560 at 566. 557. Re ACN 007 537 000 Pty Ltd (in liq); Parker (1997) 25 ACSR 560 at 565. 558. Gye v McIntyre (1991) 171 CLR 609. 559. Re ACN 007 537 000 Pty Ltd (in liq); Parker (1997) 25 ACSR 560 at 568. 560. Hall v Poolman (2007) 65 ACSR 123 at [424]. 561. Hall v Poolman (2007) 65 ACSR 123 at [425]. 562. Hall v Poolman (2007) 65 ACSR 123 at [431]. See also Buzzle Operations Pty Ltd (in liq) v Apple Computer Australia Pty Ltd (2011) 82 ACSR 703 at [278] per Young JA, Hodgson and Whealy JJA agreeing. 563. Section 553C(2). 564. Jetaway Logistics Pty Ltd v Deputy Commissioner of Taxation (2009) 76 ACSR 404 per Maxwell P, Byrne AJA and Williams AJA. 565. For a discussion of the meaning of ‘debt’, see 2.5. 566. A discussion of the meaning of ‘incur’, see 10.31. 567. See, for example, Commonwealth Bank of Australia v Friedrich (1991) 5 ACSR 115; and Watt v 3M Aust Pty Ltd (1984) 9 ACLR 524. 568. Section 592(1). 569. Sections 592(1)(c) and 589. Section 592 applies to companies that, inter alia, have been wound up or are in the course of being wound up or that have been in the course of being wound up, where the winding up has been stayed or terminated by an order under s 482. 570. 3M Australia Pty Ltd v Watt (1984) 9 ACLR 203. For a more detailed discussion of s 592, see Australian Corporations Law Principles and Practice, (LexisNexis, looseleaf). 571. See s 589. Section 592 applies to companies that, inter alia, have been wound up or are in the course of being wound up or that have been in the course of being wound up, where the winding up has been stayed or terminated by an order under s 482. 572. For a more detailed discussion, see Australian Corporations Law Principles and Practice, (LexisNexis, looseleaf). 573. The expression entitlements is defined in subs 596AA(2). 574. Section 596AA(1).

575. Subsection 596AC(2).

[page 596]

11 Practice and Procedure1 INTRODUCTION 11.1 In seeking to recover property and compensation on behalf of a company’s creditors, one of the significant challenges practitioners are likely to face is the myriad court rules that regulate civil litigation. The Corporations Act itself provides little guidance on the appropriate procedure to be adopted in commencing and prosecuting actions for recovery under the various relief provisions contained in the Act.2 This is left to the various rules of court within each jurisdiction which, for present purposes, include inferior courts. Given the wide variety of rules of procedure and the unique practice within each jurisdiction, it is beyond the scope of this book to discuss in exhaustive detail the procedural requirements of recovery actions brought by liquidators. This chapter is restricted to discussing the more salient and peculiar aspects of practice and procedure in proceedings for recovery under Pt 5.7B with particular emphasis on proceedings in the superior courts.

The decision to commence recovery proceedings 11.2 As mentioned in Chapter 1, it is the duty of a liquidator to realise assets and, to that end, a liquidator has the power to bring proceedings.3 A liquidator however must exercise care in determining whether to [page 597]

commence litigation.4 Accordingly, the liquidator’s decision whether or not to commence proceedings seeking to recover property or compensation for the benefit of creditors of an insolvent company will be informed by a combination of legal, practical and commercial factors. At a threshold level, there will obviously need to be a voidable transaction identified capable of attracting the provisions of Pt 5.7B of the Corporations Act within the relevant limitation period.5 Practically and commercially, a liquidator will need to take into account various matters including: whether all the elements for obtaining relief under the Corporations Act have been satisfied;6 consideration of all defences that may be raised by prospective defendants; whether the liquidator has sufficient funding to pursue the litigation;7 whether the proposed defendant has sufficient capacity to meet any judgment debt; the anticipated total recovery for creditors;8 any potential adverse costs exposure;9 the appropriate court in which to commence proceedings;10 and the general risks associated with litigation. 11.3 In seeking to identify whether all of the necessary elements of a particular action have been satisfied, liquidators often choose to use the extensive examination powers contained in Pt 5.9 of the Corporations Act.11 The use of these powers may also enable the liquidator to determine whether the proposed defendant has sufficient assets to meet any judgment and/or if there is an insurance policy in place that may respond to the claim in whole or in part, what amounts may be able to be recovered from commencing proceedings. In that regard, one of the primary considerations to be taken into account by a liquidator in commencing proceedings is the anticipated total recovery for creditors [page 598] and not necessarily the anticipated dividend rate for creditors. As the New South

Wales Court of Appeal explained in Hall v Poolman: We agree that the anticipated dividend rate for creditors (that is, the comparison on a pro-rata basis between the amount of the anticipated total recovery and the amount owed to creditors) is not, of itself, relevant to the decision of a liquidator to commence or prosecute recovery proceedings. It is the anticipated total recovery for creditors and the range of amounts to be distributed to individual creditors that a liquidator should consider in deciding whether to take or continue with proceedings, for these amounts may show that bringing and prosecuting the proceedings will be justified in the interests of creditors as a whole even if creditors who are owed small amounts will receive only a tiny payment by way of dividend. It may be proper for liquidators to pursue a recovery action that will bring in a significant amount for distribution to creditors, even if the total value of creditor claims is so high that the dividend in cents per dollar will be very low. Recovery of, say, $10 million for creditors is likely to be worthwhile and proper even if total creditor claims amount to $1 billion and so the dividend will be no more than one cent in the dollar.12

Another significant practical consideration is whether there are sufficient funds available to the liquidator to pursue any action. Often there are no funds immediately available to a liquidator. In recent times, the availability of litigation funding has widened the scope for liquidators to pursue claims that otherwise may not have been pursued due to the absence of sufficient funds. Some of the practical considerations associated with litigation funding in the present context are discussed at 11.75.

PRE-LITIGATION STEPS Requirements of Civil Dispute Resolution Act 2011 (Cth) 11.4 Where the liquidator proposes to commence proceedings in the Federal Court of Australia, consideration must be given to the requirements of the Civil Dispute Resolution Act 2011 (Cth). This Act which commenced on 1 August 2011 aims to ensure that, as far as possible, people take genuine steps to resolve disputes before certain civil proceedings are instituted in the Federal Court of Australia.13 In that regard, the requirements of the Civil Dispute Resolution Act do not apply to ‘excluded proceedings’.14 At the time of writing, applications under s 588FF of the Corporations Act are not excluded proceedings within the meaning of Pt 4 of the Civil Dispute Resolution Act; however, proceedings [page 599]

for an order under s 459A of the Corporations Act to wind up a company in insolvency, if the application for the order relies on a failure by the company to comply with a statutory demand, are excluded.15 11.5 Under s 6 of the Civil Dispute Resolution Act, an applicant (the liquidator) who institutes civil proceedings in an eligible court must file a genuine steps statement at the time of filing the application. ‘Eligible court’ is defined in s 5 to mean, relevantly, the Federal Court of Australia. A genuine steps statement filed under s 6 must specify: the steps that have been taken to try to resolve the issues in dispute between the applicant and the respondent in the proceedings; or the reason why no such steps were taken which may relate to, but are not limited to the urgency of the proceedings. Section 4(1A) of the Civil Dispute Resolution Act provides: For the purposes of this Act, a person takes genuine steps to resolve a dispute if the steps taken by the person in relation to the dispute constitute a sincere and genuine attempt to resolve the dispute, having regard to the person’s circumstance and the nature and circumstances of the dispute.

Section 4(1) of the Civil Dispute Resolution Act gives some examples of steps that could be taken by a person as part of their taking genuine steps to resolve a dispute with another person, including the following: notifying the other person of the issues that are, or may be, in dispute, and offering to discuss them, with a view to resolving the dispute; responding appropriately to any such notification; providing relevant information and documents to the other person to enable the other person to understand the issues involved and how the dispute might be resolved; considering whether the dispute could be resolved by a process facilitated by another person, including an alternative dispute resolution process; if such a process is agreed to, agreeing on a particular person to facilitate the process and attending the process; if such a process is conducted but does not result in resolution of the dispute — considering a different process; attempting to negotiate with the other person, with a view to resolving some

or all of the issues in dispute, or authorising a representative to do so. Section 4(1) does not limit the steps that may constitute taking genuine steps to resolve a dispute. [page 600] 11.6 A respondent to proceedings commenced by the liquidator will need to file a genuine steps statement under s 7(1) before the hearing date of the application.16 A genuine steps statement filed under s 7(1) must state that the respondent agrees with the genuine steps statement filed by the applicant or, if the respondent disagrees in whole or part with the genuine steps statement filed by the applicant, specify the respect in which, and reasons why, the respondent disagrees. A lawyer acting for a person who is required to file a genuine steps statement must advise the person of the requirement and assist the person to comply with the requirement.17 There are potential ramifications for noncompliance.18

Effect of statutory requirement on s 588FF applications 11.7 Section 11 of the Civil Dispute Resolution Act provides that the Federal Court in ‘performing functions or exercising powers in relation to civil proceedings before it’ may take account of whether a person who was required to file a genuine steps statement in the proceedings filed such a statement and whether such a person took genuine steps to resolve the dispute. The precise scope of this section in the context of an application for relief under s 588FF is unclear. Even so, the failure by a prospective litigant or lawyer to comply with the relevant provisions of the Civil Dispute Resolution Act set out above may have ramifications for costs in any proceedings so commenced. In that regard, s 12(1) of the Civil Dispute Resolution Act provides that, relevantly, in exercising a discretion to award costs in a civil proceeding in an eligible court, the court may take account of whether a person who was required to file a genuine steps statement in the proceedings filed such a statement and whether such a person took genuine steps to resolve the dispute. Likewise, in exercising a discretion to award costs in a civil proceeding in an eligible court, the court may take account of any failure by a lawyer to comply with a duty imposed by s 9.19 If a lawyer is

ordered to bear costs personally because of a failure to comply with s 9, the lawyer must not recover the costs from the lawyer’s client.20

State legislation 11.8 In New South Wales, similar legislation to the Civil Dispute Resolution Act (found in Pt 2A of the Civil Procedure Act 2005 (NSW)) nominally commenced on 1 April 2011 but was repealed effective [page 601] 28 February 2013. That legislation sought to impose certain ‘Pre-litigation protocols’21 in respect of particular civil litigation.22 Commencement of Pt 2A was initially postponed for a period of 18 months by the transitional provisions of the Civil Procedure Act in Sch 6, to allow the government to make an evidence-based decision on the efficacy of such provisions and their application to proceedings in New South Wales courts.23 As it appeared that the Commonwealth review of the Civil Dispute Resolution Act was unlikely to conclude until 2014, the then scheduled March 2013 commencement of Pt 2A was no longer appropriate. Consequently, Pt 2A and related provisions in the Civil Procedure Regulations 2012 were repealed to provide certainty to the legal profession and other stakeholders by the Courts and Other Legislation Further Amendment Act 2013 (NSW), effective 28 February 2013. The Government has indicated that it remains open to the possibility of implementing reforms of this type in the future.24 In Victoria, the Civil Procedure Act 2010 which commenced on 1 January 2011, contained similar pre-litigation requirements. On 30 March 2011, the compulsory pre-litigation requirements were repealed by the passing of the Civil Procedure and Legal Profession Amendment Act 2011. The remaining provisions of the Civil Procedure Act 2010 give Victorian courts the power to determine whether any voluntary or mandatory pre-litigation processes should be adopted by the parties.25 At the time of writing, no other states or territories have implemented similar pre-action protocols for civil proceedings potentially relevant to corporate insolvency. [page 602]

INFORMATION GATHERING UNDER PT 5.926 11.9 Under Pt 5.9 of the Corporations Act a liquidator may utilise a number of information gathering powers. For example: mandatory examinations under s 596A; discretionary examinations under s 596B; directing a person to produce at an examination of that person books that are in the person’s possession pursuant to s 597(9); applying to a court under s 597A for an order directing a person to file an affidavit about a corporation’s examinable affairs. By far the most drastic, and potentially the most useful, information gathering power is that contained in s 596A. Under that section, the Court27 is to summon a person for examination about a corporation’s examinable affairs if an eligible applicant applies28 for the summons and the Court is satisfied that the person is an officer of the corporation or was such an officer during or after the two years ending, inter alia, when a winding up began.29 An eligible applicant is defined in s 9 to include, inter alia, a liquidator or provisional liquidator of a corporation. Section 9 also defines the expression ‘examinable affairs’, in relation to a corporation as follows: (a) the promotion, formation, management, administration or winding up of the corporation; or (b) any other affairs of the corporation (including anything that is included in the corporation’s affairs because of section 53); or (c) the business affairs of a connected entity of the corporation, insofar as they are, or appear to be, relevant to the corporation or to anything that is included in the corporation’s examinable affairs because of paragraph (a) or (b).

Section 53 of the Corporations Act sets out various matters elaborating upon the affairs of a body corporate. Those matters are extensive and comprehensive. [page 603] 11.10 Section 596A is truly mandatory and a Court is compelled to issue an

examination summons in the event that a liquidator applies for such a summons and the Court is satisfied of the matters set out in s 596A(b).30 By contrast, the Court may summon a person for examination about a corporation’s examinable affairs under s 596B if: an eligible applicant applies for the summons; and the Court is satisfied that the person has: –

taken part or been concerned in examinable affairs of the corporation and has been, or may have been, guilty of misconduct in relation to the corporation; or

–

may be able to give information about the examinable affairs of the corporation.31

11.11 Under s 596F, the Court may give directions at any time, subject to s 597, on any one or more of the following: a direction about the matters to be inquired into at an examination; a direction about the procedure to be followed at an examination; a direction about who may be present at an examination while it is being held in private; a direction that a person be excluded from an examination, even while it is being held in public; a direction about access to records of the examination; a direction prohibiting publication or communication of information about the examination (including questions asked, and answers given, at the examination); a direction that a document that relates to the examination and was created at the examination be destroyed. Other aspects of the conduct of the examination including whether the examination is public32 and who may take part in the examination33 are dealt with by section 597.34 [page 604]

Privilege during examinations under Pt 5.9 11.12 Section 597(12) provides that a person is not excused from answering a question put to the person at an examination on the ground that the answer might tend to incriminate the person or make the person liable to a penalty. This provision abrogates the privilege against self-incrimination and penalty privilege with respect to questions asked and answers given at the examination at least for the purposes of Division 1 of Part 5.9 of the Corporations Act.35 Section 597(12A) provides some protection to examinees and provides that where: (a) before answering a question put to a person (other than a body corporate) at an examination, the person claims that the answer might tend to incriminate the person or make the person liable to a penalty; and (b) the answer might in fact tend to incriminate the person or make the person so liable; the answer is not admissible in evidence against the person in: (c) a criminal proceeding; or (d) a proceeding for the imposition of a penalty; other than a proceeding under this section, or any other proceeding in respect of the falsity of the answer. As a practical matter, this means that examinees often repeat the word ‘privilege’ before each and every answer during the examination. 11.13 The effect of the above provisions was summarised by the Victorian Court of Appeal in Gemmell v Le Roi Homestyle Cookies Pty Ltd36 where the Court concluded that: In an examination under Division 1 of Part 9 of the Corporations Act (‘examination proceedings’) s 597(12) prevents a person from refusing to answer questions on the ground that the answers may tend to incriminate them or make them liable to a penalty. To that extent the Corporations Act abrogates common law privileges. Except to the extent described in (a), s 597(12) does not abrogate the common law privileges relating to self-incrimination and exposure to a penalty (hereafter ‘common law privilege’). [page 605]

Section 597(12A) confers direct use immunity in relation to the answers to questions asked in examination proceedings, if the person being examined claims that the answers will have that effect. A person who claims use immunity in examination proceedings will not be required to affirm answers to particular questions in pleadings or discovery in civil proceedings, if there is a real or appreciable risk that the answers would have the tendency of incriminating them or rendering them liable to a penalty. That is the case even though s 597(12A)(c) and (d) refer only to the admissibility of the answer in a criminal proceeding or a proceeding for the imposition of a penalty. It is a consequence of the fact that the person did not generally waive privilege by their answer. A person who does not claim use immunity in examination proceedings cannot claim privilege in criminal proceedings, and proceedings for the enforcement of a penalty in relation to their answers and may be required to affirm answers in civil proceedings, in respect of particular questions asked and answers given (see (g) below). That is the significant difference between the position of those who do or do not claim use immunity in examination proceedings. A person who does not claim use immunity in examination proceedings is not necessarily to be taken as having waived common law privilege generally in civil proceedings. He or she cannot refuse to affirm answers given in examination proceedings by pleading or discovery. But he or she may be able to refuse to go outside those answers or questions if, by so doing there is a real and appreciable risk of criminal prosecution as a consequence of the answers given. 11.14 Section 597 has not abrogated legal professional privilege.37

Use of transcript of examination in later proceedings 11.15 Subject to subsection 597(12A), any written record of an examination signed by a person, or any transcript of an examination of a person that is authenticated as provided by the Corporations Rules,38 may be used in evidence in any legal proceedings against the person: s 597(14). The purpose of subs 597(14) was explained by Malcolm CJ in Douglas-Brown (official liquidator of Woomera Holdings Pty Ltd) v Furzer:

[page 606] In my opinion, when one reads subss 597(14) and (14a) in the context of the provisions as they now appear, the patent object is to enable the liquidator or any creditor of the corporation to have access to the written record or authenticated transcript of an examination and use it in evidence in any proceedings against the person being examined. Taking all the provisions together, the intention of the legislation appears to be that such examination should now be carried out in such a way which will facilitate not only investigations but also the prosecution of civil or criminal proceedings, whether contemplated or already commenced, including civil proceedings by individual creditors. The intention is that the persons who are eligible applicants and any other relevant persons are given a forensic advantage which the court can prevent being abused by its control over the conduct of the examination.39

Examinations under Part 5.9 are often used by liquidators to identify and refine claims and gain admissible evidence for use in recovery proceedings for the benefit of creditors.40 As a practical matter, creditors will often provide funding to a liquidator to conduct such examinations. Such funding creditors will usually enjoy a priority under s 564 of the Act with respect to the distribution of property in a winding up.41 Section 564 of the Corporations Act provides a Court42 with power to make orders regarding the distribution of property which has been recovered under an indemnity for costs of litigation that give the creditors providing the indemnity an advantage over others, in consideration of the risk assumed by them.43 In addition, each officer of a company that has been wound up has a statutory obligation to do whatever the liquidator reasonably requires the officer to do to help in the winding up.44 The duty to help the liquidator includes delivering to the liquidator all books in the officer’s possession that relate to the company and attending on the liquidator at such times as the liquidator reasonably requires.45 [page 607]

Section 68 of the Civil Procedure Act 2005 (NSW) 11.16 The provisions of Pt 5.9 do not form an exclusive code with respect to the production of documents.46 Examinations under these provisions are also proceedings of the relevant Court in which they are conducted and accordingly the whole range of provisions and procedures relevant to a proceeding of the Court will apply to an examination as to any other proceeding.47 In New South

Wales at least, one such provision commonly used by liquidators is s 68 of the Civil Procedure Act 2005 (NSW). Section 68 provides, relevantly, that subject to rules of court, the Court may, by subpoena or otherwise, order any person to attend Court to be examined as a witness or, either alternatively or additionally, to produce any document or thing to the Court. Accordingly, s 68 is available as a means of eliciting from a corporation (which, of its nature, cannot be examined under Pt 5.9) documents which, in the case of a natural person, could be obtained under Pt 5.9 provisions themselves, or by separate resort to s 68, in the context of a Pt 5.9 examination of the natural person.48 11.17 Section 68 may be used only for the purposes of a particular examination.49 The production of documents under s 68 can only be used where the production is required for the purpose of exercising the power to conduct an examination.50 As Austin J explained in Re Leisure Developments (Qld) Pty Ltd: … the standard of precision to be met by an order for production was considered by Bryson J in Re BPTC Ltd (No 5) (in liq) (1993) 10 ACSR 756. The practice is to require production of documents, by persons other than those who are the subjects of examination orders, under Pt 36 r 12 of the Supreme Court Rules. That power can only be exercised where the production of documents is required for the purpose of exercising the power to conduct an examination: at 762. While the power to compel production of documents is a wide one, it is ancillary to an examination order, and cannot require the production of documents

[page 608] independently of the examination of particular individuals. An order for production which had the effect of compelling production of documents which were not required for the examination would be oppressive and in excess of the power to make such an order: at 763. Where a call for production goes beyond these limits, it may not be possible to sever the call so far as it covers documents ancillary to the examination order from its coverage of other documents, and in such a case the whole order for production or notice to produce may need to be set aside: at 766.51

An order for production of documents under s 68 which has the effect of compelling a production of documents which are not required for an examination under Pt 5.9 of the Corporations Act, where no other proceedings are on foot, is oppressive and an order for production which had that purpose would be in excess of the power to make such an order.52

APPROPRIATE COURT

11.18 Most claims for recovery under s 588FF are commenced in either a State Supreme Court or the Federal Court. This is so notwithstanding that such claims may be brought in any court, including inferior courts53 (subject to jurisdictional limits relating to money).54 The reason most claims are brought in superior courts is an economic one — the cost of prosecuting a small claim is generally not vastly different to prosecuting a larger claim. Acting rationally, and prudently, a liquidator is more likely to spend scarce funds (assuming they are available) on legal costs where the amount to be recovered is substantial. Moreover, the superior courts typically have dedicated Corporations Lists comprising judges who have experience in Corporations Act matters. [page 609]

Distinction between ‘Court’ and ‘court’ 11.19 The Corporations Act draws a distinction between ‘court’ (with a lower case ‘c’) and ‘Court’ (with an upper case ‘C’).55 Section 58AA56 of the Act provides: (1) Subject to subsection (2), in this Act: court means any court. Court means any of the following courts: (a) the Federal Court; (b) the Supreme Court of a State or Territory; (c) the Family Court of Australia; (d) a court to which section 41 of the Family Law Act 1975 applies because of a Proclamation made under subsection 41(2) of that Act. (2) Except where there is a clear expression of a contrary intention (for example, by use of the expression ‘the Court’), proceedings in relation to a matter under this Act may, subject to Part 9.6A, be brought in any court.

Part 9.6A of the Act contains s 1337E, which deals with the jurisdiction of lower courts as follows: Jurisdiction of lower courts (1) Subject to section 9 of the Administrative Decisions (Judicial Review) Act 1977,57 jurisdiction is conferred on the lower courts of: (a) each State; and (b) the Capital Territory; and (c) the Northern Territory;

with respect to civil matters (other than superior court matters) arising under the Corporations legislation.

[page 610] (2) The jurisdiction conferred on a lower court by subsection (1): (a) is subject to the court’s general jurisdictional limits, so far as they relate to: (i)

the amounts; or

(ii) the value of property; with which the court may deal; but (b) is not subject to the court’s other jurisdictional limits.58

11.20 In deciding in which court to bring a claim under s 588FF, a liquidator will need to take into account the following considerations: the quantum of the claim and the monetary jurisdiction of the relevant court; the complexity of the claim and whether the claim warrants judicial scrutiny by a superior court; and whether the proposed court is the appropriate forum. 11.21 The quantum of the claim is likely to be the most significant determinative factor in a liquidator’s decision to commence proceedings under s 588FF. The monetary jurisdiction of the proposed court will need to be ascertained to ensure it is proper to bring such a claim in that particular court. The courts discourage the bringing of small claims in superior courts and adverse costs consequences may flow when a claim brought in a superior court could have been brought in a lower court.59 For example, in McDonald v Hanselmann Young J observed: The next question is the question of costs. These days, it is virtually unknown for the Supreme Court to make an order for payment of a sum as low as $12,000. Most cases involving a dispute of that order are dealt with in the civil claims jurisdiction of the local court. The word ‘court’ in s 588FF does not have a capital initial letter. That means that under s 58AA(1) actions are not restricted to the Federal Court or the Supreme Court of a state, but any court exercising jurisdiction is capable. Accordingly, this application could have been made in the Civil Claims Court … I believe the proper order for costs is that the

[page 611]

defendant pay the plaintiff the costs that would have been incurred had the matter been presented to the Civil Claims Court where the plaintiff recovered $12,000.60

Notwithstanding that the quantum of a claim may be within an inferior court’s jurisdiction, the complexity of a claim may warrant the claim being brought in a superior court. 11.22 Once a claim for relief under s 588FF is commenced in a particular court, the conduct of the litigation will be dictated by the respective rules of that court. As the High Court explained in Gordon v Tolcher in his capacity as liquidator of Senafield Pty Ltd (in liq): Accordingly, s 588FF is dealing, as an essential aspect of the regime it creates, with the period within which the application must be made. An application may be made only to a court invested with federal jurisdiction by one or other of the provisions of Pt 9.6A. Thereafter, and subject to any other relevant provision of the Corporations Act, the conduct of the litigation is left for the operation of the procedures of that court. These procedures will vary from one state or territory to another and within the court structures of those states and territories. The scheme of the Corporations Act is not to impose a direct federal and universal procedural regime. Rather, s 79 of the Judiciary Act is left to operate according to its terms in the particular state or territory concerned. Thus the relationship between s 588FF and s 79 (and between Pt 9.6A and s 79) is not one of which it may be said that the former provision is a law of the Commonwealth which ‘otherwise provides’ so as to deny the operation of s 79 in this case to pick up so much of the Rules as supported the orders made by the Court of Appeal.61

Conflict of law issues 11.23 Another factor to be taken into account by a liquidator is whether a particular court is the appropriate forum. It is beyond the scope of this text to discuss in detail issues of conflict of laws.62 Having said that, there is in place in Australia a cross-vesting scheme involving, inter alia, the Federal Court and the State Supreme Courts.63 The various federal and [page 612] State statutes are drafted in similar terms. For example, s 5(2)(b)(iii) of the Jurisdiction of Courts (Cross-Vesting) Act 1987 (NSW) relevantly provides as follows: 5 (2) Where: … (b) it appears to the … court that: (iii) it is otherwise in the interests of justice that the relevant proceedings be determined by the Supreme Court of another State or of a Territory; the … court shall transfer the relevant proceeding to that other Supreme Court.

The test that has been applied under this paragraph involves the determination of which forum is ‘more appropriate’: James Hardie & Coy Pty Ltd v Barry.64 In deciding what is the more appropriate forum the court is required to determine what is the ‘natural forum’ of the proceeding being ‘that with which the action has the most real and substantial connection’: BHP Billiton v Schultz.65 Accordingly, in deciding in which court to commence proceedings, a liquidator will need to take into account such practical matters as the location of the relevant company’s place of business, the location of the relevant transactions and those of likely witnesses.

Power to transfer proceedings under s 1317H 11.24 The court also has the power to transfer proceedings under s 1337H of the Corporations Act. That section allows the Federal Court or a State Supreme Court to transfer a proceeding with respect to a civil matter arising under the corporations legislation to another ‘court’ (lower case ‘c’). Sections 1337J and 1337K permit the Family Court and lower courts to transfer proceedings accordingly. In deciding whether to transfer a proceeding or application under ss 1337H, 1337J or 1337K, a court must have regard to the interests of justice66 as well as: (a) the principal place of business of any body corporate concerned in the proceeding or application; and (b) the place or places where the events that are the subject of the proceeding or application took place; and (c) the other courts that have jurisdiction to deal with the proceeding or application.67

[page 613] The power to transfer proceedings is plainly intended to ensure that matters arising under the Act are dealt with efficiently and sensibly. As Lockhart J observed in Acton Engineering Pty Ltd v Campbell: This wide power of transfer ensures that administration of matters arising out of the Corporations Law is conducted sensibly and that applications or proceedings are not brought in courts with which they have no real connection or which are otherwise inappropriate as the forum for the particular proceeding or application. In practice, of course, the good sense of parties and their advisers should ensure in the vast majority of cases that proceedings are commenced or continued in the appropriate court.68

In a similar vein, Barrett J observed in Global Realty Development

Corporation v Dominion Wines Ltd (in liq)69 that s 1317H: … represents a directive by the Parliament of the Commonwealth as to the approach to be taken if any question of forum non conveniens is raised in a matter within the jurisdiction of the several courts with which Pt 9.6A is concerned. According to that directive, the duty of the court seized of the matter is to undertake, in the first instance, an inquiry into the question whether it is ‘more appropriate’, having regard to the interests of justice, that another of the competent courts become seized of the matter in its place. If, having regard to considerations of the general kind with which cases such as Voth v Manildra Flour Mills (1990) 171 CLR 538; 97 ALR 124, are concerned and the requirements of justice generally, the first court considers itself to be an inappropriate forum, its task is not to vacate the field but rather to consider whether one of the other Pt 9.6A courts represents a ‘more appropriate’ forum. If, as a comparative matter, the other court is seen to be a more appropriate forum, having regard to the interests of justice, the duty of the court in question is to transfer the proceedings to that other court …70

11.25 In some cases, particularly those involving cross-border insolvencies, there may be debate as to precisely where the cause of action arose. This topic is discussed in Chapter 12.

LIQUIDATOR AS PROPER PLAINTIFF 11.26 The key provision in the Corporations Act empowering the court to make orders ‘about’ voidable transactions is s 588FF.71 It is clear [page 614] from the language of s 588FF(1) that the statutory jurisdiction it confers to make such orders72 is invoked ‘on the application of a company’s liquidator’ and hence it is the liquidator, and not the company, that is the proper plaintiff in an application for relief under s 588FF.73 As the High Court has observed: Section 588FF postulates the operation of s 588FE to render certain transactions voidable. The section deals with the consequences of that state of affairs by the making of court orders upon satisfaction that the transaction in question is voidable by operation of s 588FE. Section 588FF is enlivened only upon application by the liquidator of the company in question …74

This was the same position that pertained under the previous avoidance regime.75 11.27 The fact that it is the liquidator who is usually the proper plaintiff in recovery proceedings under s 588FF of the Corporations Act is so notwithstanding that the orders contemplated by s 588FF refer to orders for the

benefit of the company.76 Having said that, there is support for the view that the company should, in some cases, be joined to the [page 615] action as a party. One such case is where a legal relationship between the company and another person will be affected by the court’s orders. As Barrett J explained in New Cap Reinsurance Corp Ltd v AE Grant: Among the orders that s 588FF(1) empowers the court to make on the liquidator’s application are orders ‘directing’ or ‘requiring’ a person to pay money or transfer property to the company of which the applicant is liquidator: see s 588FF(1)(a), (b), (c) and (d) (as I have said, the order sought in this case is an order under s 588FF(1)(a) directing payment by the defendants to NCRA). Other orders may require persons to confer less direct financial benefits on the company, for example, by freeing the company from a debt, security or guarantee (s 588FF(1)(e)), by indemnifying the company (s 588FF(1)(f)) or by suffering avoidance, variation or unenforceability of an agreement (s 588FF(1)(h), (i) and (j)). In all these other cases, the court’s order will alter a legal relationship between the company and another person; and it will do so to the benefit of the company and to the detriment of the other person. It is for that reason that it will be appropriate for the company to be a party to the proceedings initiated by the liquidator. In a common law derivative action brought by a shareholder, the company is joined as a defendant so that it may be ‘bound by the result of the action’: Spokes v Grosvenor Hotel Co [1897] 2 QB 124 at 128. In the present context, where the liquidator, who is the only competent applicant, is able to control actions of the company, the appropriate course is for the company to be a co-plaintiff so that, if and when the court makes, on the liquidator’s application, an order within one of the classes mentioned, the company, as a party, will be ‘bound by the result of the action’ [emphasis added].77

Another type of case in which it will be necessary to join the company is where the particular right to relief belongs to the company alone. So in Park and McIntosh v Lanray Industries Pty Ltd,78 liquidators of a company brought a claim against various parties alleging that certain payments made by the company to those parties were voidable transactions under s 588FE of the Act. The liquidators also sought consequential orders under s 588FF(1) or, in the alternative, restitution for unjust enrichment. The relevant court proceeding named the liquidators as plaintiffs without reference to their capacity as liquidators and the company was not a party to the claim. The Queensland Court of Appeal79 accepted that the proper plaintiff in the unjust enrichment claim was the company, and not the liquidators. Although the unjust enrichment claim could be brought by the liquidators, it was necessary to bring the claim in a representative capacity of the company in liquidation [page 616]

under s 477 of the Act. However, the liquidators’ failure to include the company as a party originally and the delay in correcting the failure were a product of simple error and in the circumstances did not result in any prejudice to the other parties, and accordingly the Court of Appeal permitted the pleadings to be amended. These examples illustrate that in commencing proceedings, practitioners will need to exercise careful judgment in determining whether the company should be named as a party to proceedings. As mentioned above, ordinarily in claims under s 588FF a company will not usually be so named although each case will turn upon its own facts.

Substitution of liquidators as plaintiffs 11.28 Section 503 of the Act provides that the court may, on cause shown, remove a liquidator and appoint another liquidator.80 Ordinarily, once s 588FF proceedings have been commenced by one liquidator and the original liquidator is removed and replaced with another, court rules allow for the substitution of plaintiffs.81 In Dwyer v La Gender Pty Ltd,82 liquidators who had been removed continued to commence s 588FF proceedings against various defendants despite new liquidators having been appointed. The new liquidators sought to be substituted as plaintiffs to the actions commenced by the former liquidators under former r 31.0283 of the Supreme Court Rules 1987 (SA). Some of the defendants argued that the proceedings commenced by the former liquidators after they had been removed were a nullity. Lunn J disagreed on the basis that [page 617] a lack of proper parties does not defeat the action or cause it to abate. In any case, the new plaintiffs could readily be substituted: The plaintiffs by virtue of their office as liquidators of Harris Scarfe had an ‘interest’ for the purpose of this Rule. ‘Interest’ has not been defined in this context but it is similar to its use in R 27.05(a) where it has been defined in very broad terms: See Civil Procedure SA at [R 27.05.10]. While it is not a chose in action it is a special right of action conferred by s 588FF of the Act and constitutes an ‘interest’. This interest of the plaintiffs has ‘devolved’ on the new liquidators for the purposes of R 31.02. The leading authority on the meaning of ‘devolution’ is O’Brien v Komesaroff (1982) 150 CLR 31, and particularly at 319–22 per Mason J. At 321 Mason J said: The word ‘devolution’ therefore contemplates a legal consequence flowing from an involuntary act. The difference between a devolution and an assignment is that the latter is voluntary and operates by way of contract and the former is involuntary and

takes effect by operation of law. Here the devolution of the interest under s 588FF of the Act results from the order of this Court made on 21 January 2005 under s 503 of the Act. This was an involuntary act as its legal effect depended on an exercise of a discretion by the Court over which the parties had no control. While the plaintiffs and/or Nicol and Davies [the previous liquidators] may have precipitated that act of the Court by making an application to the Court and requesting the Master to make the order, it was always the order of the Court. (It is clear on the authorities that the estate of a person declared bankrupt devolves on the Trustee in Bankruptcy appointed by virtue of the order of the Court, although a bankrupt may have brought it about by presenting his own petition for bankruptcy.)84

Once substituted, the new liquidators may rely upon any orders made in favour of the previous liquidators, such as extensions of time made under s 588FF(3).85 The reason why was explained by Debelle J in Re Harris Scarfe Ltd (in liq): Where legal proceedings involve an application under s 588FF of the Corporations Act, the proceedings may only be instituted by the liquidator … where the liquidator makes an application under s 588FF(1), the liquidator institutes the proceedings only by virtue of holding the office of liquidator of the company and the proceeds are payable to the company for the ultimate benefit of the general body of unsecured creditors of the

[page 618] company and its contributories. For present purposes, what is important is the fact that the proceedings are instituted by the liquidator on behalf of the company. In addition to those considerations, there is the fact that the liquidator of a company is an officer of that company: s 9 of the Corporations Act. When a person is appointed liquidator of a company, that person is appointed to an office of the company. It is a statutory office … Where a liquidator brings proceedings by virtue of his office as liquidator to enforce a right of action vested in the liquidator, the party before the court is the liquidator. If the liquidator is, for any reason, replaced by another liquidator, the new liquidator is bound by any order made while the former liquidator held office as liquidator. … … The liquidator is the only person entitled to bring legal proceedings on behalf of a company in liquidation: s 477(2) of the Corporations Act. The statutory power vests in the person who holds office as the liquidator of the company and in no other. While the proceedings might as a matter of form be issued by a named person, that person does not issue them in his own name or for his own benefit but only by virtue of the fact that he holds office as liquidator and brings the proceedings for and on behalf of the company. At the risk of stating the obvious, once that person ceases to be liquidator, he cannot continue to prosecute the proceedings. Those proceedings can only be prosecuted by the person then holding office as liquidator.86

Can a cause of action under s 588FF be assigned? 11.29 It is well established that a liquidator has power pursuant to s 477(2)(c)

of the Corporations Act to assign all of a company’s rights or interests arising from an action. That section relevantly provides that ‘… a liquidator may … sell or otherwise dispose of, in any manner, all or any part of the property of the company’. Section 9 of the Act defines ‘property’ in s 477(2)(c) as a ‘thing in action’ which includes a cause of action.87 There is, however, a divergence of judicial opinion as to whether a cause of action under s 588FF may be assigned to a third party. In Movitor Pty Ltd (in liq) v Sims,88 Drummond J suggested that [page 619] the property of the company includes the expected fruits of an action brought under s 588M or s 588W. His Honour reasoned that: The right of the liquidator to recover damages created by each of these sections [ss 588M or 588W] is described as a right to recover from the director and the holding company an amount equal to the loss or damage suffered as a result of the company’s insolvent trading in which the director and the holding company were implicated ‘as a debt due to the company’. That ‘debt’ arises once the conditions of liability have been fulfilled, something that must occur prior to commencement of any action for recovery under either section. Such a ‘debt’ can properly be regarded as part of the property of the company which the liquidator is empowered to sell. Even if the rights to compensation created by ss 588M and 588W are not regarded as true debts but rights sui generis, Magor and St Mellons Rural District Council v Newport Corp [1950] 2 All ER 1226 at 1230–1 is authority for holding that they are still well capable of falling within the definition of ‘property of a company’ in the relevant provisions of the Corporations Law.89

Lindgren J reached a similar conclusion in Re Tosich Construction Pty Ltd and the Corporations Law.90 In that case, Lindgren J referred approvingly to Drummond J’s decision in Movitor Pty Ltd (in liq) v Sims and agreed with the proposition that prospective recoveries were ‘property of the company’ within s 477(2). According to Lindgren J, ‘it was not to the point that only the liquidator had standing to apply for the remedy which would give rise to those recoveries’.91 11.30 The contrary view was expressed by Hansen J in UTSA Pty Ltd (in liq) v Ultra Tune Australia Pty Ltd92 where it was held that claims under ss 588FB, 588FC and 588FF of the Corporations Act can only be brought by liquidators and are not assignable.93 This conclusion was confirmed by the Victorian Court of Appeal which upheld Hansen J’s decision.94 In Keith v Verge,95 Master Sanderson of the Supreme Court of Western Australia considered the better view was that a cause of action under s 588F cannot be assigned. As the learned Master explained: … The aim of the preference provision is for the preferred creditor to ‘put the company in the same

position as if the transaction had not been entered

[page 620] into’. That is clear from s 588FI(1)(b). Section 588FI(3) then entitles the preferred creditor to prove in the winding up as if the transaction had not been entered into. If a preference claim could be assigned by a liquidator to a third party and was successfully pursued by the third party, then the company will not have been put back in the same position as if the transaction had not been entered into. The preferred creditor will then have been compelled to pay under the preference claim but will be denied the benefit of proving in the liquidation under s 588FI. On this view, an assignment of a preference claim would be inconsistent with s 588FI. Further, s 588M(3) provides that a creditor aggrieved by alleged insolvent trading ‘may, as provided by Subdivision B but not otherwise, recover from the director, as a debt due to the creditor, an amount equal to the amount of the loss or damage’. Subdivision B then provides a procedure whereby the creditor may sue for compensation with the liquidator’s consent, following the creditor giving the liquidator notice of intention to sue for compensation. For a creditor to purchase from the liquidator an insolvent trading claim as ‘property of the company’ would be contrary to the words ‘but not otherwise’ in s 588M(3). The effect of s 588M(3) is to prevent the assignment of an insolvent trading claim by the liquidator to a creditor.96

TIME PERIODS FOR COMMENCING S 588FF ACTIONS 11.31 An application for relief under s 588FF(1) may, generally, only be made during the period beginning on the relation-back day97 and ending three years after the relation-back day or 12 months after the first appointment of a liquidator in relation to the winding up of the company, whichever is the later.98 Section 588FF(3) was amended by the Corporations Amendment (Insolvency) Act 2007 (Cth) to address the situation where there is a long time between the relation-back day and the termination of a deed of company arrangement, by allowing a liquidator either three years from the relation-back day, or one year from the date of the liquidator’s initial appointment, whichever is the later.99 11.32 It is also open to the court to extend the time for the making of an application under s 588FF(3)(b).100 Under the previous regime, the [page 621]

time for commencing such action was six years.101 The reduced time of three years follows recommendations made by the Harmer Commission which accepted submissions complaining about ‘inordinate delay’ in commencing proceedings in respect of voidable transactions.102 As the Harmer Report noted (at [688]): Actions by a liquidator to recover the proceeds of a void transaction, a preference, a transaction at an undervalue or a transaction with intent to defeat creditors should be commenced within a reasonable time. The Commission proposed in DP 32 (para 454) that a liquidator should have three years to commence such an action, although the Court might extend that time. Under the existing law the time period would be six years (for example, Bankruptcy Act s 127). Many submissions to the Commission complained about the sometimes inordinate delay in commencing proceedings in respect of voidable transactions. In addition there have been recent judicial observations critical of the general delays associated with the winding up of insolvent companies. It is therefore considered desirable to place liquidators under a more rigorous but, nonetheless, reasonable time limitation for taking action under these provisions. The Commission recommends accordingly.

In BP Australia Ltd v Brown,103 the New South Wales Court of Appeal recognised the importance of ensuring that recovery proceedings are commenced within a prompt time. As Spigelman CJ observed: The overriding principle in Pt 5.7B is one of fairness. Fairness is determined by what is, in substance, a legislative presumption of unfairness in identified circumstances. That presumption is a rebuttable one. A person who has received the benefit of a transaction being one of those identified by the legislature to be voidable should, in appropriate circumstances, disgorge the benefit so received. … The centrality of the principle of fairness is also apparent in the defences for which s 588FG provides. A person can resist an order prejudicing that person’s rights or interests, where a reasonable person would not have suspected that the company was insolvent and the person receiving the benefit did not in fact so suspect. (Note the further requirement of providing valuable consideration to mount a defence in the case of an alleged unfair loan in s 588FG(2)(c).) Where the underlying principle is one of fairness, it is easy to appreciate that the passage of time affects the balance of fairness. The range of pre-liquidation transactions which are subject to avoidance under the statutory regime clearly involve a process of balancing conflicting interests,

[page 622] relevantly, between the general body of creditors on the one hand and, on the other hand, others who have taken advantage of the company including, but not limited to, particular creditors. In some respects the legislative scheme balances these interests. In other respects it leaves the balancing, or rebalancing, of those interests to the courts. The passage of time affects the fairness of a court ordering that an advantage be surrendered, including the application, relevantly for the purposes of the present case, of the principle of equality among creditors. The longer a person has retained a particular benefit, the more disruptive it will be to that person to be forced to surrender it. The appropriate balance between these conflicting interests is affected by delay. The passage of time may, of itself, tilt the balance of fairness. It does not necessarily

do so and, accordingly, it is appropriate that there be a discretion to extend time.104

Extensions of time under s 588FF(3)(b) 11.33 Section 588FF(3)(b) confers upon a ‘Court’ (upper case ‘C’105) a discretion106 to extend the time period for making an application under s 588FF(1). The presence of the words ‘may only’ in s 588FF(3) indicates that the provision was intended to cover the field regarding extensions of time with respect to s 588FF(1) to the exclusion of a more general power such as s 1322(4) (d).107 Any application to extend time under s 588FF(3) may only be made during any extant s 588FF(3)(a) period.108 There is some inconsistency in the case law as to whether only a single application to extend the period may be made within the s 588FF(3)(a) period. In BP Australia Ltd v Brown Spigelman CJ observed: Section 588FF(3) does not have the effect of requiring all applications to be brought within a short period of time. It does, however, have the effect of requiring those who wish to keep open the option to do so, to determine that they do wish to do so within the 3 year period and to seek a determinate extension of the period. One thing that must be decided

[page 623] within the 3 year period is how long the process of deciding whether to pursue voidable transactions will take. Eventually, investigations to overcome deficiencies of information or the pursuit of funding must cease. Parliament has identified a reasonable time for such matters to occur, subject to a single determinate extension of time.109

It is not entirely clear whether Spigelman CJ meant that only one application could be made under s 588FF(3)(b) of the Act in respect of a particular windingup or was emphasising that any application had to be brought within the threeyear period.110 In the subsequent New South Wales Court of Appeal decision in JP Morgan Chase Bank, National Association v Fletcher (as liquidator of Octaviar Ltd) (recs and mgrs apptd) (in liq)111 Beazley P, with whom Macfarlan and Gleeson JJA agreed on this point, stated that the absolutism of the statement that there can only be a single determinative application may be debatable.112 The Court of Appeal in JP Morgan v Fletcher expressly concluded that more than one extension application under s 588FF(3) may be made provided it is made within the three-year period stipulated by the section.113 It is the application, rather than the order, that must be made within the period prescribed by s 588FF(3)(a): McGrath v National Indemnity Co;114 Onefone

Australia Pty Ltd v One.Tel Ltd.115 Provided that the [page 624] application for extension of time is made within the permissible period, an order extending the period after the period has expired will be effective: McGrath v National Indemnity Co.116 11.34 An application for extension under s 588FF(3) need not necessarily specify the claimed extension period in the application itself117 although the court is not authorised to grant an indeterminate extension but rather is obliged to fix a definite period for the making of the substantive applications contemplated by s 588FF(1) and to do so once only.118 As with applications under s 588FF(1), only the liquidator has standing for an application under s 588FF(3)(b).119 Procedurally, an application for extension of time under s 588FF(3) is made by the filing of an originating process. This is because of its ‘separateness’ from an application under s 588FF(1).120 In Onefone Australia Pty Ltd v One. Tel Ltd121 Barrett J explained: An application under s 588FF(3)(b) is not an interlocutory application in any proceeding. It is an application the object of which is to allow a liquidator more time within which to commence a proceeding. Once a proceeding has been initiated by the making of a s 588FF(1) application, there is no basis for the making of a s 588FF(3)(b) application in relation to the particular matter.

As with the case for applications made under s 588FF(1), only the liquidator has standing for an application under s 588FF(3)(b): Horne v Deputy Commissioner of Taxation.122 However, an order for extension under s 588FF(3) (b) is made in favour of the liquidator in his or her capacity as liquidator of the company in a winding up, not in his or her personal capacity. Therefore, if there is a change of liquidator a subsequent liquidator may rely on the extension order: Re Harris Scarfe Ltd (in liq),123 affirmed Gazal Apparel Pty Ltd v Davies.124 Alternatively, the successor liquidator’s ability to rely on an extension granted to a [page 625] predecessor can also be found in the rules of court regarding joinder and substitution of parties: see Ansell Ltd v Davies.125

As a practical matter, most applications for extensions of time are made ex parte.126 In such ex parte applications, an applicant for relief owes a duty of candour to the court.127 Further, the failure by an applicant to notify parties who may be affected by any extension order may make the order susceptible to being set aside. So, for example, in Re Octaviar Administration Pty Ltd (in liq),128 a liquidator sought an extension of time under s 588FF(3) on an ex parte basis to commence proceedings against the Deputy Commissioner of Taxation. The extensions were made and the liquidator commenced proceedings against the Deputy Commissioner of Taxation seeking recovery of alleged unfair preferences. In turn, the Deputy Commissioner then commenced proceedings against the directors of Octaviar seeking an indemnity under s 588FGA of the Act.129 The directors subsequently applied to have the ex parte orders extending the time under s 588FF(3) set aside on the basis, inter alia, that they had no notice of the application for extension. Young AJ acceded to the directors’ application. In his Honour’s view, wherever a liquidator is contemplating taking proceedings against the Commissioner of Taxation the directors are persons who are directly affected by that proposed action.130

The court’s approach to determining applications for extension of time under s 588FF(3) 11.35 In determining whether a limitation period is to be extended, the Court’s main task is to ascertain what is ‘fair and just in all the circumstances having regard to factors which include the plaintiff’s explanation for delay and whether the defendant would suffer prejudice as a result of the extension, other than the prejudice of being required to repay money if the proceedings succeed’.131 In Green v Chiswell Furniture [page 626] Pty Ltd (in liq)132 Austin J of the Supreme Court of New South Wales summarised the principles that are to be applied on an application for an extension of time under s 588FF(3)(b) as follows: (a) ordinarily, the issues raised on an extension application are threefold: (i)

the explanation for the delay in bringing the proceedings;

(ii) a preliminary review of merits of the foreshadowed proceedings — that is, an investigation as to whether such proceedings would be so devoid of prospects that it would be unfair, by

granting an extension, to expose the other party to the continuing prospect of suit; (iii) whether the likely actual prejudice resulting from the grant of an extension is sufficiently substantial to outweigh the case for granting an extension; (b) where the liquidator’s purpose in seeking the extension of time is simply to put himself into a position where he can properly decide whether or not to bring proceedings, a preliminary inquiry into the merits of any consequent proceedings may not always be necessary.133

11.36 In determining what is fair and just in all the circumstances, regard must be had to the reason for the imposition of the limitation period, both as applicable to limitation periods generally and those relevant to s 588FF(3)(b).134 In Brisbane South Regional Health Authority v Taylor,135 McHugh J explained the general policy behind the enactment of limitation periods, namely: First, as time goes by, relevant evidence is likely to be lost. Second, it is oppressive, even ‘cruel’, to a defendant to allow an action to be brought long after the circumstances which gave rise to it have passed. Third, people should be able to arrange their affairs and utilise their resources on the basis that claims can no longer be made against them. Insurers, public

[page 627] institutions and businesses, particularly limited liability companies, have a significant interest in knowing that they have no liabilities beyond a definite period. … The final rationale for limitation periods is that the public interest requires that disputes be settled as quickly as possible.136

As mentioned above, the policy behind the three-year limitation period contained in s 588FF(3) was to prevent the perceived ‘inordinate delay’ in commencing proceedings in respect of voidable transactions and the desirability of placing liquidators under a more rigorous but, nonetheless, reasonable time limitation for taking action under these provisions.137 The time limit in s 588FF(3) is principally concerned with the conduct of liquidators.138 The section regulates liquidators by instilling a sense of due dispatch in the pursuit of claims with a view to augmenting the pool of assets from which claims cognisable in the winding up will be satisfied.139 The extension power recognises that the rigour expected of liquidators, to identify transactions which might be challenged within the three year period under s 588FF(3)(a), may not always be achievable through no fault of his or her administration.140 As Barrett JA explained in Fortress Credit Corp (Australia) II Pty Ltd v Fletcher: Liquidators are told, in effect, that it is their duty, generally speaking, to initiate any voidable transaction proceedings within the specified 3-year period; and that, if there is good reason to think that further time is needed, they must, before the expiration of the 3 years, make an application to the

court with a view to persuading it that an extension should be granted. The clear expectation is that liquidators will, within the 3 years, do two relevant things: commence all such recovery actions as available evidence and resources make it feasible and sensible to pursue;

[page 628] and consider whether there are genuine prospects that pursuit of other recovery actions might prove to be feasible and sensible if further time is made available.141

11.37 The onus is on the liquidator to show why it is fair and just that the general rule established by s 588FF(3)(a) should not apply.142 Usually, a period of three years will be sufficient for a liquidator to at least form a preliminary view necessary to make an application under s 588FF(3)(b).143 One important factor is the liquidator’s explanation for delay.144 The Court will critically examine whether the liquidator has been diligent since his or her appointment and the reasons why proceedings have not been commenced within the requisite three-year period. In considering whether to exercise the discretion under s 588FF(3)(b), the Court will take into account whether the liquidators: have diligently pursued the object of disposing of the proceedings in a timely way; used, or could reasonably have used, available opportunities under the rules or otherwise, to avoid delay; and reasonably implemented the practice and procedure of the Court with the object of eliminating any lapse of time between the commencement of the proceedings and their final determination.145

The liquidator will need to adduce evidence of the reasons for delay. Typically, the reasons for delay in commencing actions under s 588FF include: the complexity of the affairs of the companies and the gross deficiencies in records; the lack of assets in the companies and hence lack of financial resources to fund an investigation; the need to obtain, and the time lag involved in obtaining funding for the investigation; [page 629] the impact of other proceedings that may have been commenced; the conduct of a s 596A examination for the purpose of obtaining further evidence.146

Consequences of non-commencement within the time period

11.38 A deliberate decision by the liquidator not to commence proceedings within the three-year period will usually be fatal to an application for extension.147 In Re Clarecastle Pty Ltd (in liq),148 Ward J refused an application for extension of time largely on the basis that the liquidators had made a deliberate decision not to pursue relevant investigations in a timely fashion: In [Arthur Andersen Corporate Finance Pty Ltd v Buzzle Operations Pty Ltd (in liq) [2009] NSWCA 104] Ipp JA expressed the view that a deliberate decision to allow a statutory limitation period to expire would be a powerful factor against the grant of leave, noting that any prejudice suffered in such circumstances, were the writ not to be extended, would be self-inflicted. Here, it is not suggested that there was a deliberate decision to allow the 3-year period to lapse without bringing particular voidable transaction claims (and, indeed, some voidable transaction claims have been brought within the relevant period). However, what has occurred is that there was a seemingly deliberate decision (or one made as part of the liquidators’ ordinary policy or practice in prioritisation of work) on the part of the liquidators not to pursue, in as timely a fashion as (with hindsight) it is clear that they could have done, the investigations for which an extension is now sought. That seems to me to be a deliberate decision of a similar kind to that considered in Buzzle, such that any prejudice occasioned by the making of that decision might be said to be self-inflicted.149

11.39 Another significant factor is the absence of any specific prejudice to the proposed defendant.150 Although the absence of prejudice is important, it is not in itself decisive but is one relevant factor to be taken [page 630] into account in the exercise of the general discretion.151 Prejudice may exist without its being able to be identified because facts which were once known may now be forgotten, or their significance may not now be appreciated.152 In order to establish specific prejudice the defendant will usually need to lead evidence as to its course of business, or change of personnel, or record keeping, which might bear on the probability of there being prejudice of that kind.153

‘Blanket’ or ‘shelf’ orders for extension of time under s 588FF(3) 11.40 In some liquidations, a liquidator may face difficulties in identifying with precision the identity of potential defendants during the three-year period prescribed by s 588FF(3). Where the liquidator is not able to identify with precision the possible defendants or likely transactions to be avoided under s 588FF, the Court may make orders in general terms extending the time period in s 588FF(3). Considerable judicial support exists for the view that such orders

may be made. In BP Australia Ltd v Brown,154 Spigelman CJ (with whom Mason P and Handley JA agreed) observed that an application under s 588FF(3) (b) seeking a general order for an extension of time to make an application under s 588FF(1) against any creditor is a valid application and an order in those terms is a valid order. As the Court explained: The power to extend the time limit for commencing proceedings is intended to provide for the circumstance in which a liquidator is not in a position to commence proceedings within 3 years of the relation-back day, for whatever reason, subject to the assessment of the court of all relevant circumstances, including the liquidator’s conduct. It is not difficult to envisage a circumstance in which a liquidator is still ascertaining the identity of the recipients of benefits under possible voidable transactions and cannot give the court an indication of the creditors to be targeted. The power should be broad enough to allow, in those circumstances, for an order granting an extension of time in general terms.155

[page 631] 11.41 Comments made by Williams and Jerrard JJA156 in the Queensland Court of Appeal decision of Greig v Australian Building Industries Pty Ltd (in liq)157 suggest, however, that the Court does not have power to make a shelf order.158 In the subsequent Queensland decision of Dalton J in Williams (as liquidator of Willahra Pty Ltd (in liq)) v Kim Management Pty Ltd159 her Honour observed that the majority in Greig nonetheless took the view that an ex parte order under s 588FF(3) would not be made as a general rule160 and that, accordingly, the majority decision in Greig was consistent with BP Australia Ltd v Brown albeit that some of the reasoning was perhaps not. Despite the Queensland Court of Appeal’s comments in Greig the weight of authority favours the view that s 588FF(3) allows the Court to make a shelf order consistent with BP Australia Ltd v Brown, a decision which has been followed at both first instance and appellate level.161 This position was confirmed by a fivemember Bench of the New South Wales Court of Appeal in Fortress Credit Corp (Australia) II Pty Ltd v Fletcher162 where [page 632] Bathurst CJ, Beazley P, Macfarlan, Barrett and Gleeson JJA found BP Australia Ltd v Brown to be correctly decided. 11.42 The discretion to extend time under s 588FF(3) is one to be exercised

judicially in the relevant circumstances.163 Typically, in cases in which ‘shelf’ orders are sought under s 588FF(3) the relevant circumstances will include the circumstances of the winding up and persons who may be affected by it will not have had the opportunity to be heard. It is unclear, however, whether it is a criterion of making ‘shelf’ orders that there be exceptional circumstances. In Australian Securities and Investments Commission v Karl Suleman Enterprizes Pty Ltd (in liq),164 Barrett J observed that an extension of time in general terms is possible and permissible but ‘must be regarded as exceptional’. In the subsequent case of Re Octaviar Ltd (recs and mgrs apptd) (in liq),165 Black J considered Barrett J’s observation not as identifying a criterion of ‘exceptional circumstances’ for the making of such an order but rather as observing that orders made in general terms are not the norm.166 Black J also rejected Dalton J’s comments in Williams (as liquidator of Willahra Pty Ltd (in liq)) v Kim Management Pty Ltd,167 that shelf orders should only be made in ‘extraordinary circumstances’ such as would warrant an interim injunction, and involved a duty of full and proper disclosure of any fact tending against the application applied. In the opinion of Black J: In my view, the discretion under s 588FF(3)(b) is a discretion to be exercised judicially in the relevant circumstances, and such an order is no doubt more likely to be made where ‘exceptional circumstances’ exist. However, I would not read that paragraph as circumscribed by any threshold requirement of ‘extraordinary circumstances’ which is not found in its terms, and I also find limited assistance in the application of a discretion created by statute in tests that are adopted at general law in matters such as an application for an interim injunction. While the applicant must satisfy the court that an extension order should be made, the object of the discretion is otherwise at large, to be exercised by reference to the relevant facts and circumstances relevant to the scope and purpose of the provision: Brisbane South Regional Health Authority v Taylor 186 CLR 541 at 554 per McHugh J; BP v Brown at [185], [187]

[page 633] per Spigelman CJ. The relevant circumstances will typically include at least the circumstances of the winding up and the fact that a ‘shelf’ order is sought where, by necessity, persons who may be affected by it will not have had the opportunity to be heard.168

Black J’s decision was upheld by a five-member Bench of the New South Wales Court of Appeal in Fortress Credit Corp (Australia) II Pty Ltd v Fletcher169 although the Court did not expressly turn its attention to the question of whether exceptional circumstances are required before a shelf order is made.

Opportunity to be heard

11.43 Even so, the making of ‘shelf’ orders will in many respects be ‘exceptional’ or ‘extraordinary’. This is because, ordinarily, persons likely to be adversely affected by orders have a right to be heard: Cameron v Cole.170 Where an identified person is squarely contemplated by an application for an order for the extension of time under s 588FF(3)(b) that person should be made a defendant to the extension application and be served with the originating process accordingly.171 If such a right to be heard has not been afforded in circumstances where it could have, the affected person has a right to have the order set aside. As Dalton J explained in Williams (as liquidator of Willahra Pty Ltd (in liq)) v Kim Management Pty Ltd: Where a person is identified by a liquidator as someone who might be the target of a s 588FF(1) application, but is not given the opportunity to be heard on the s 588FF(3)(b) application, that person is entitled ex debitio justitiae to have the order set aside. It is not necessary to show anything more than that the applicant is affected by the order and was not given an opportunity to be heard before it was made.172

The question arises as to whether an affected defendant who has not been given notice of an application is entitled ex debitio justitiae to have a shelf order set aside where the defendant would have been identified by the liquidator as a potential s 588FF(1) target had the liquidator acted with reasonable diligence in all the circumstances. In Williams (as liquidator of [page 634] Willahra Pty Ltd (in liq)) v Kim Management Pty Ltd173 Dalton J accepted a submission that a potential defendant in such a case is entitled to an order ex debito justitiae setting the shelf order aside. In Re Octaviar Ltd (recs and mgrs apptd) (in liq)174 Black J warned against such an approach: … Fortress contends that it ought to have been given notice of the OA Extension Application, because it would have been identified by the Liquidators as a potential target of proceedings under s 588FF of the Corporations Act in respect of OA, had the Liquidators acted with reasonable diligence in all the circumstances, and that this is sufficient basis to set the order aside ex debito justitiae. This submission is founded in the approach adopted by Dalton J in Williams (as liquidator of Willahra Pty Ltd) (in liq)) v Kim Management Pty Ltd above at [33] where her Honour held that, if a person would have been identified by the liquidator as a potential target under s 588FF(1) had the liquidator acted with reasonable diligence in all the circumstances, then he or she is entitled to set aside the relevant order ex debito justitiae. I have reservations as to that approach, which would have the result that applications of this kind will require inquiries as to what liquidators did not, but allegedly should have, known. If such inquiries are to be made, courts will need to be very conscious of the risks of hindsight and of the fact that inquiries made by liquidators may well be affected by resource constraints and the need to prioritise tasks, particularly in complex liquidations. Given the findings

which I will make below, it is sufficient in this case for me to assume, without deciding, that the court has a discretion to set aside an application on the basis identified in Williams (as liquidator of Willahra Pty Ltd) (in liq)) v Kim Management Pty Ltd above.

Form of order extending time under s 588FF(3) 11.44 As a practical matter, the form of orders for extension of time under s 588FF(3) should follow the language of the Corporations Act. See, for example, the form of order in Arnautovic v Nichola [2009] NSWSC 831 per Macready AsJ and Re Clarecastle Pty Ltd (in liq) [2011] NSWSC 857 per Ward J.

Variation of an order extending time under s 588FF(3) 11.45 Court rules typically allow for orders to be set aside or varied prior to the order being entered.175 Once, however, an order has been [page 635] entered the Court’s power to vary the order is restricted. Under r 36.16 of the Uniform Civil Procedure Rules 2005 (NSW) (NSW UCPR), for example, an order may be varied if, relevantly, it has been given or made in the absence of a party, whether or not the absent party had notice of the relevant hearing or of the application for the judgment or order. A ‘party’ for the purposes of rule such as NSW UCPR 36.16 extends beyond persons actually joined in the proceedings to persons whose interests are directly affected by the order.176 The power of variation does not apply insofar as the order determines any claim for relief, or determines any question (whether of fact or law or both) arising on any claim for relief.177 11.46 There is uncertainty in the cases as to whether the court’s power to vary orders may be used to vary orders extending time made under s 588FF(3) once those orders have been entered. In Onefone Australia Pty Ltd v One.Tel Ltd178 Barrett J concluded that the power of variation contained in NSW UCPR r 36.16 did not apply: For all these reasons, it seems to me that an order under s 588FF(3)(b) is an order that determines ‘a claim for relief’ and is therefore beyond the power of variation created by r 36.16(3). But even if the order were of the kind referred to in the rule, the clear recognition in BP Australia Ltd v Brown that s

588FF(3)(b) covers the field, so far as extension of the s 588FF(3) period is concerned, would seem to preclude the applicability of the rule in a case of the kind under discussion. I refer, in that connection, to the valuable analysis by Debelle J in Davies v Chicago Boot Co Ltd (2006) 58 ACSR 505; [2006] SASC 241. As his Honour’s judgment shows, the approach taken in Rodgers v Commissioner of Taxation (1998) 88 FCR 61; 158 ALR 220; 29 ACSR 270 (a case on which Mr Bathurst expressly relied) has been overtaken by BP Australia Ltd v Brown. The subsequent endorsement of relevant aspects of the BP Australia decision by the High Court in Gordon v Tolcher seems to me to confirm the correctness of Debelle J’s approach.

[page 636] In Re Octaviar Ltd (recs and mgrs apptd) (in liq),179 however, Ward J utilised the power of variation under NSW UCPR r 36.16 to vary an earlier order made by the court extending time under s 588FF. The effect of the variation was to allow the liquidator a further six months in which to commence proceedings under s 588FF. In a subsequent decision in related proceedings, Black J agreed that the power of variation under NSW UCPR r 36.16 was applicable to orders made under s 588FF. In his Honour’s view: … I do not accept the applicants’ submission that s 588FF(3)(b) covers the field so as to excludes a subsequent variation under UCPR r 36.16 of an order properly made under s 588FF(3), where the original order was made within the time specified in that section. First, I do not think that it is open to me to accept that submission, so far as the plurality judgment in Gordon v Tolcher recognises the continued operation of the Court’s rules of procedure in this context. It seems to me the plurality’s reasoning cannot be limited only to the situation in which a power exercised under those rules will undo the extinction of an action previously commenced within time, as distinct from permitting the commencement of an application which could not otherwise be commenced. The position where the rules of the Court permit a variation of an order already made seems to me to be distinct from reliance on the general power of extension under s 1322 of the Corporations Act, considered in BP Australia Ltd v Brown. The approach adopted by Ward J can be reconciled with the policy factors and interests of certainty to which the Court of Appeal referred in BP Australia Ltd v Brown by recognising, as Ward J did, the significance of those factors for the exercise of the Court’s discretion. To that extent, I adopt the approach adopted in Scott v Casualife and followed by Ward J.180

In JP Morgan Chase Bank, National Association v Fletcher (as liquidator of Octaviar Ltd) (recs and mgrs apptd) (in liq),181 a majority of the New South Wales Court of Appeal comprising Macfarlan and Gleeson JJA upheld Black J’s decision. However, in a strong minority judgment, Beazley P concluded that NSW UCPR r 36.16(2)(b), to the extent that it permits a fresh or new or further application to be made for an extension of time, is inconsistent with s 588FF(3) (b) and is not picked up s 79 of the Judiciary Act 1903 (Cth).182 [page 637]

The effect of setting aside the extension order 11.47 The cases are divided as to the effect of an order setting aside an extension order made under s 588FF(3). The issue that arises when an order setting aside an extension order is made is whether the original application for extension of time remains on foot in respect of the creditor who obtained the setting aside order, or whether the application is spent so that the liquidator has to make a fresh application upon an extension order being set aside. In Greig v Australian Building Industries Pty Ltd (in liq)183 Williams and Gerrard JJA held that an order for extension finally disposes of the proceeding on the original application and the subsequent order to set aside the order did not alter that. On this view, the proceedings for an extension of time are therefore spent. In a minority judgment, Fryberg J, however, reached a different conclusion. His Honour observed that where a court makes an order granting less relief than was sought by the applicant, the question of whether the application has been finally disposed of can be resolved only by examining what occurred at the hearing. In BP Australia Ltd v Brown, Spigelman CJ,184 in obiter dicta at [207] saw ‘considerable force’ in Fryberg J’s comments.185 The matter arose for consideration in Wallman v Milestone Enterprises Pty Ltd186 where Master Newnes preferred the dissenting view of Fryberg J in Greig v Australian Building Industries Pty Ltd (in liq) which was in effect endorsed by the New South Wales Court of Appeal in BP Australia Ltd v Brown.187

AMENDMENT 11.48 Provided that the original proceedings have been commenced in time, most court rules allow for amendments to pleadings even where [page 638] such an amendment is to introduce a claim outside of the limitation period. In the leading decision of Rodgers v Federal Commissioner of Taxation188 the Full Court of the Federal Court after referring to the terms of the former O 13, r 2 of the Federal Court Rules 1979189 said: … [O 13, r 2] is to be contrasted with s 588FF(3), which is concerned with the making of an

application to the Court, that is, the commencement of the proceeding itself. Section 588FF(3) is not directed to an amendment of an existing claim, at least if that amendment does not involve a new cause of action: see Quick v Stoland Pty Ltd (1998) 157 ALR 615. There is no inconsistency between O 13, R 2 and s 588FF(3). One is concerned with making an amendment to a pleading in an existing proceeding; the other is concerned with the commencement of a proceeding.190

It is clear from the above comments that the amendment powers contained in the various rules of court have a different ‘sphere of operation’ from s 588FF(3).191 It is respectfully submitted that the matter was put beyond doubt by the High Court in Gordon v Tolcher in his capacity as liquidator of Senafield Pty Ltd (in liq).192

Joinder of defendant after expiry of time limit not permitted 11.49 The joinder of a new party to s 588FF proceedings outside the relevant limitation period will generally not be permitted. In Re Harris Scarfe Ltd (in liq) and Harris Scarfe Wholesale Pty Ltd (in liq) (No 3)193 Debelle J concluded: The power of the court to add a party is subject to the same limitations as to time as operate in the case of a fresh proceeding against a party. The court has no power to add a party against whom the relevant

[page 639] limitation period has expired: Davies v Elsby Bros Ltd [1960] 3 All ER 672; Stout v RA Wenham Builders Pty Ltd and Michilis Bros Pty Ltd [1980] 1 NSWLR 426. Expressed another way, an amendment will not be allowed to join an additional defendant where the relevant period of limitation has already expired in respect of the cause of action against that defendant: Ketteman v Hansel Properties Ltd [1987] AC 189 at 199–200; [1988] 1 All ER 38 at 46.194

Correcting the name of a defendant 11.50 An amendment to correct the name of a defendant outside of the limitation period may not necessarily involve the commencement of a new application.195 In Austin Australia Pty Ltd (in liq) v A & G Scaffolding and Rigging Service Pty Ltd;196 the statement of claim named as one of the defendants ‘Dean Mann t/as P K Ceilings’ where the party who ought to have been named was ‘Peter K Ceilings Pty Ltd’. After reviewing the authorities, White J concluded that an amendment to correct the name of the respondent was permissible. His Honour held that: … If the mistake as to the naming of the defendant was a mistake as to name only, and not a mistake as

to the identity of the party to be sued, such that a reasonable person in the position of Peter K Ceilings Pty Ltd receiving the document would say ‘of course it must mean me, but they have got my name wrong’, then the application was brought within time …197

COMMENCING PROCEEDINGS Pleadings 11.51 For proceedings in the Federal Court and each state Supreme Court, the Corporations Rules in those jurisdictions prescribe a uniform procedure for applications made under the Corporations Act.198 Under [page 640] Corporations Rules r 2.1(1), a liquidator seeking relief under s 588FF in a superior court is required to file an originating process. Corporations Rules r 2.2 provides: (1) Unless these Rules otherwise provide, a person must make an application required or permitted by the Corporations Act to be made to the Court: (a) if the application is not made in a proceeding already commenced in the Court — by filing an originating process, and (b) in any other case, and whether interlocutory relief or final relief is claimed — by filing an interlocutory process.

An originating process must be in accordance with Form 2 and state each section of the Corporations Act under which the proceeding is brought and also state the relief sought: r 2.2(3).199 Typically, an applicant seeking relief will also file Points of Claim setting out the material facts in support of the claim.200 A precedent originating process and Points of Claim are set out at Appendix A and B respectively. Appendix C contains a precedent defence. 11.52 Although not common, it is technically possible for a liquidator to seek relief under s 588FF in proceedings already commenced under the Corporations Rules in a superior Court by the filing of an interlocutory process. In Re Weston Application; Employers Mutual Indemnity (Workers Compensation) Ltd v Omni Corporation Pty Ltd,201 a creditor of a company filed an originating process in the Supreme Court of

[page 641] New South Wales seeking a winding up order. An order winding up the company was made on 10 March 2006. About three years later, the liquidator of the company filed an interlocutory process claiming relief under s 588FF(1) of the Act. Objection was taken to the liquidator seeking relief under s 588FF using an interlocutory, as opposed to an originating, process. Barrett J found that, although unusual, the proceedings were not a nullity. As his Honour explained: I accept that an application under s 588FF(1) is an application for final relief. Experience suggests that, as Mr Carolan indicated, such applications are usually initiated by originating process filed by way of a new proceeding distinct from the winding up proceeding in which the applicant liquidator was appointed. It may happen, of course, that a s 588FF(1) application is brought in a court other than that which made the winding up order. That section vests jurisdiction in a ‘court’ (with a small ‘c’), so that any one of a number of Australian courts in addition to those having jurisdiction to order winding up may be chosen by the applicant liquidator, subject to general limits on jurisdiction. I have not, however, been directed by counsel to any rule of court or any principle of law applying in a case such as the present (where the s 588FF(1) application is brought in the court that made the winding up order) that makes initiation of a s 588FF(1) application by originating process the exclusively available course. While I am of the opinion that, for the sake of good order, it is highly desirable that that course be followed, I cannot say that failure to follow it — and adoption of the course that Mr Weston has taken here — causes the application to be a nullity. No persuasive case has been made in support of that drastic proposition as the necessary consequence of choosing to use Form 3 (interlocutory process) rather than Form 2 (originating process) and intituling the application in the winding up proceeding rather than a new proceeding.202

In his Honour’s view it was not significant that neither the liquidator nor the defendant was a party to the original winding up proceeding.203 11.53 As mentioned above, it is possible for claims under s 588FF to be commenced in inferior courts. It is beyond the scope of this text to discuss the various requirements for commencing proceedings in lower courts. Having said that, most claims under s 588FF in lower courts will be commenced by the filing of a statement of claim. [page 642]

Notice to affected parties 11.54 In cases involving claims for recovery against the Deputy Commissioner of Taxation, the court may require notice of the proceedings to be given to potentially affected directors. As Austin J observed in Dean-Willcocks

Pty Ltd v Commissioner of Taxation (No 2): The directors of a company in liquidation may be prejudiced by an order for recovery of certain tax payments made against the Commissioner under s 588FF, because the making of the order imposes on them an obligation to indemnify the Commissioner under s 588FGA. Their position is governed by the observations of Dixon CJ and Webb J in Commissioner of Police v Tanos, at 395, where their Honours referred to the ‘deep-rooted principle of the law that before anyone can be punished or prejudiced in his person or property by any judicial or quasi-judicial proceedings he must be afforded an adequate opportunity of being heard’. Prima facie, therefore, the directors are entitled to be notified and given an opportunity to be heard before any recovery order is made against the Commissioner.204

Directors who are given such notice and choose to participate in proceedings may contest the liquidator’s claim even if the Deputy Commissioner has admitted liability. Where the Deputy Commissioner has sought relief under s 588FGA(4), the court will usually accept the directors as being parties to the proceedings brought by the liquidator against the Deputy Commissioner.205 In such a case, directors are afforded the right and ability to contest all matters relevant to the question of liability between the liquidators and the Deputy Commissioner and the liquidators can be put to proof of the matters in the statement of claim, despite the Deputy Commissioner’s admission.206

Court practice notes 11.55 Most superior courts have specialised corporations lists which deal with applications made under the Corporations Act and practitioners should familiarise themselves with the practice of that list and any relevant practice notes or practice directions. In the Federal Court, for example, an application for relief under s 588FF will usually [page 643] be allocated to a docket of a particular judge at the time of filing with the intention that it will remain with that judge for case management and disposition.207 In the Supreme Court of New South Wales, applications under the Corporations Act are usually placed in the Corporations List in the Equity Division and are first returnable before the registrar.208 It is unusual for the application to be dealt with upon the first return date although it is possible to have the matter referred to the corporations list judge for urgent determination. After the first return date, the matter is usually referred to the corporations list judge who will then case manage the application accordingly. In Victoria,

corporations proceedings are dealt with in the Commercial Court formerly known as the Commercial and Equity Division.209

Joining multiple defendants in a single s 588FF proceeding 11.56 Rules of court often allow multiple parties to be joined to a single proceeding where there is a good reason to do so. For example, under NSW UCPR r 6.19 of the: Two or more persons may be joined as plaintiffs or defendants in any originating process if: (a) separate proceedings by or against each of them would give rise to a common question of law or fact, and (b) all rights of relief claimed in the originating process are in respect of, or arise out of, the same transaction or series of transactions, or if the court gives leave for them to be joined.

In Dean-Willcocks v Air Transit International Pty Ltd,210 a liquidator sought to utilise the predecessor211 of the above rule to join multiple defendants to two unfair preference proceedings each involving the liquidation of a number of companies. During the course of judgment, Austin J described the usual practice in large liquidations: Until now the usual practice in this Court has been for the liquidator to commence a separate proceeding in respect of each impugned transaction, unless there obviously is a series of transactions involving a single defendant

[page 644] or group of defendants and raising the same issues. Typically, however, one of the proceedings is selected for early hearing, and in some recent large liquidations the Court has been able to case manage all of the proceedings together, to assist in their efficient determination. Once the first proceeding has been determined, the liquidator will have the benefit of certain presumptions arising under s 588E212 of the Corporations Act (Cth).213

The liquidator sought to abandon this traditional approach and instead proposed that one of the proceedings be a ‘mother proceeding’ in which multiple transactions by the insolvent company were challenged and the other party to each of those transactions was a defendant. The advantages to the liquidator were that: … All claims are pursued in the same court, regardless of the amounts involved. All parties to impugned transactions are bound by the decision of the court with respect to such matters as

insolvency, rather than being affected by presumptions which they may each rebut. There is a single filing fee (not an insubstantial consideration where a very large number of impugned transactions is involved).214

11.57 In order to rely upon a provision such as Uniform Civil Procedure Rules 2005 (NSW) r 6.19 it is necessary for the liquidator to identify, in each proceeding, a question of law or of fact common to all of the transactions encompassed by the proceeding. The liquidator also has to show that in each proceeding, all rights to relief were in respect of or arose out of ‘the same transaction or series of transactions’. In Dean-Willcocks v Air Transit International Pty Ltd Austin J rejected the liquidator’s argument that there was a series of transactions: The liquidator’s submission is that the rights to relief claimed in each proceeding arise out of the same series of transactions: namely either the series of payments made to the defendants and now said to be preferences, or the series of transactions which have led to the companies being solvent and winding up orders being made. In my view, the fact that various transactions are linked together by the liquidator’s allegation that each of them is an unfair preference is not enough to make those transactions the same series of transactions for the purposes of the rule, just as it was not enough in Payne v Young (1980) 145 CLR 609; 30 ALR 577 that the various exactions of fees were linked together by the plaintiffs’ allegation that the legislation authorising them was invalid. The same point was made by Hill J in Thai Silk Co Ltd v Aser Nominees Pty Ltd (FCA, Hill J, 31 May 1989, unreported). His Honour referred (at [22]) to a hypothetical case where a

[page 645] vendor sells a number of properties by auction one after the other, subject to a common misrepresentation by the vendor. As his Honour said, it would not be correct to describe each of the contracts negotiated at auction with different purchasers as being a series of transactions for the purposes of the rule. Nor can it be said that the rights to relief alleged to arise out of various preferential transactions are ‘in respect of or arise out of’ the course of transactions which led to the companies becoming insolvent, even if that course of transactions could be described as a ‘series’ — just as the exactions of fees in Payne v Young could not be said to be in respect of or to arise out of the events leading to the enactment of allegedly unconstitutional legislation.215

Despite the liquidator failing to convince the court that the defendants should be joined under paras (a) or (b) of the relevant rule, Austin J nonetheless granted leave to join the multiple defendants. In doing so, his Honour cited approvingly the decision of Wilcox J in Bishop v Bridgelands Securities216 where the court observed that the basic principle in granting leave under court provisions allowing the joinder of multiple defendants is that the court should take whatever course seems to be most conducive to a just resolution of the disputes between the parties, but having regard to the desirability of limiting, so far as practicable,

the costs and delay of the litigation. Having regard to that principle, Austin J concluded: Some special features of unfair preference proceedings may justify the granting of leave under subr (b), although leave would not be granted in similarly constituted proceedings with a different subject matter. First, since unfair preference proceedings arise under the Corporations Act (Cth), it is appropriate that any applications concerning them, and their case management, be allocated to the Corporations List. The significance of doing so is that the Corporations List is a regular weekly list, within which issues concerning the progression of an unfair preference proceeding against multiple defendants can be aired and resolved expeditiously. Secondly, the issue at stake in unfair preference proceedings is whether the liquidator of a failed company should recover assets for the benefit of unsecured creditors as a whole. The adoption of a procedure that is speedy, inexpensive and efficient from the point of view of liquidators should facilitate the commencement and maintenance

[page 646] of proceedings in cases where there appear to be reasonable prospects of success. That would be an important outcome in terms of public policy and the interests of the commercial community as a whole. Thirdly, a central ingredient of unfair preference proceedings is the establishment of the insolvency of the company at the relevant time: s 588FC. In the case of a company of any significant size, that question should where practicable be determined by this Court rather than the District Court or a Local Court. By granting leave to the liquidator to maintain a single proceeding in this Court, managed within the Corporations List, the Court can bring the matter to a point where the question of insolvency has been determined or it emerges from the defences that insolvency is not in issue, before deciding whether to make an order transferring the balance of the proceeding to another court, or to make an appropriate set of orders and directions under Pt 8, r 6, or to take other appropriate steps.217

This was so even if the multiple defendants were located around Australia: The fact that a person is located in another State should not necessarily lead the court to deny the liquidator’s application to join that person as a defendant in the proceeding. State borders ceased to have any substantial significance in Australian commercial life some decades ago. Company law now reflects commercial reality in this respect, for the Corporations Act (Cth) is a national statute, administered by a national commission, and by courts operating under rules of court harmonised on a national basis. Where the defendant in question is a corporation of reasonably substantial size, and the amount claimed against it is a substantial amount, it is not unreasonable to expect the defendant to respond to proceedings initiated in this court, even though its place of incorporation or registered office or principal place of business is in another State. Where the largest group of defendants comprises corporations whose principal places of business are New South Wales, or persons resident in this State, and the other defendants are scattered throughout other States (as in proceeding No 5662 of 2001), the considerations I have mentioned may well justify granting leave notwithstanding that some of the defendants are located interstate. On the other hand, where a single proceeding is instituted against defendants mostly located in one other State, and most of the witnesses reside in that other State, questions of cost and convenience may lead to denial of the application for leave.218

Austin J then summarised the approach of recovery proceedings brought by a liquidator involving multiple defendants as follows: In my opinion, if a liquidator of a company wishes to bring a single proceeding to recover unfair preferences from multiple defendants, it is

[page 647] open to him or her to file and serve the originating process, together with an interlocutory process seeking the court’s leave under Pt 8, r 2, and supporting affidavit evidence. Care should be taken to ensure that there is sufficient time to initiate separate proceedings within the three year time limit set by s 588FF(3) in the event that the application for leave is denied in respect of any defendant. The interlocutory process would normally be made returnable in the Corporations List. If leave is granted, the court is likely to make directions for the filing of a statement of claim and defences, and then bring the matter back for further consideration. If it appears from the defences that insolvency has been placed in issue, the court will endeavour to make arrangements for the determination of that question. It may do so by leaving the proceeding as a single proceeding against all defendants and making directions to bring it to hearing; or by ordering under Pt 8 r 6 that (having regard to such matters as the amounts of the respective claims) the claim against a particular defendant be heard before the other claims in the proceeding, causing the presumptions under s 588E to arise against the other defendants; or even by making an order for the determination of matters to do with insolvency as separate questions under Pt 31 (though the disadvantages which may arise from doing so must be borne in mind: see, for example, ABB Engineering Construction Pty Ltd v Freight Rail Corporation [1999] NSWSC 1037). If the defences show that the insolvency of the company at all relevant times is conceded, but separate issues are raised by the defendants as to such matters as the running account defence or the good faith defence, the court may make orders for separate hearings of the claims against individual defendants or groups of defendants under Pt 8 r 6, and/or in some cases it may transfer the proceeding to another court.219

11.58 Austin J’s approach in Air Transit has been followed in subsequent cases. For example, in Gloria Marshall Australia Pty Ltd (in liq) v Bell Press Pty Ltd,220 a liquidator applied to include various defendants in the one unfair preference action. One of the defendants sought to have its matter referred to the Magistrate’s Court at Southport Queensland. Young CJ in Eq did not determine all of the applications but made directions allowing the defendants to press their applications after the issues in the matter were identified. In the course of judgment his Honour noted: In my view, the best way of dealing with the matter is by common sense. The cross-vesting legislation does not apply to this sort of action. It is one that has to be determined in due course under s 1337H(2) of the Corporations Act. That sub-section gives the alternative of transferring an application, rather than the whole proceedings, to another court so that

[page 648] by judicious and separate questions one can send part of the proceedings involving local witnesses to a local court anywhere in the Commonwealth. However, at this stage, it is not at all clear what the issues are. They are probably: (a) solvency; (b) the facts of the claim; (c) the circumstances of payment; and (d) issues on which the defendants have the onus under the relevant section. That last matter, if it becomes the crucial point in the case, would very strongly suggest that matter be dealt with locally rather than in Sydney. However, the position is not at

all clear with respect to (b) and (c), and, almost certainly, (a) is a matter that should not be determined locally at all; indeed (a) probably needs to be the first question determined.221

Separate proceedings — multiple defendants 11.59 It may, however, be appropriate in some cases involving multiple defendants for there to be separate proceedings. In Dean-Willcocks v Commissioner of Taxation,222 a liquidator sued 14 defendants but only served the first defendant, the Deputy Commissioner of Taxation. The liquidator applied for an order under former Pt 31 r 2 of the Supreme Court Rules 1970 (NSW)223 that all issues between the liquidator and the Commissioner be tried separately and prior to any other issues in the proceeding. Austin J instead allowed a separate trial under the former Pt 8 r 6 of the Supreme Court Rules.224 According to his Honour there were a number of disadvantages in proceeding under Pt 31 r 2: In the present case I think there are several good reasons for not proceeding under Pt 31. One is that the Pt 31 procedure would entail that no steps would be taken against the other defendants until determination of the claim against the Commissioner. The other defendants would not even be served. That could mean a very substantial delay before any progress

[page 649] was made in the proceeding against the other defendants, especially when one allows for the possibility of appeal. In the meantime, the other defendants would be prejudiced, at least theoretically and perhaps in substance, by not being served and therefore informed of the claims against them, and consequently by not having the opportunity to take any interlocutory steps to protect their interests, should they be advised to do so. They would also be prejudiced, again at least theoretically, by not being able to manage their commercial affairs with any certainty as to the outcome of a preference claim in respect of transactions that occurred many years earlier, a disadvantage sought to be overcome by the enactment of s 588FF(3). It would be necessary for the court to grant a substantial extension of the time for serving the initiating process on the other defendants, possibly on more than one occasion.225

Another advantage to a separate trial being ordered under provisions such as Pt 8 r 6 as opposed to Pt 31 r 2 was that statutory presumptions that would arise out of such a trial could be used against the other defendants whereas those presumptions may arguably not be available in a separate trial under the equivalent of Pt 31 r 2.226

Default judgment

11.60 The Rules of Court in each jurisdiction allow for judgment to be entered on the default of a defendant, the most common of which is the failure by a defendant to file a defence or non-appearance. In that regard, the Corporations Rules provide no mechanism for what is often referred to as default judgment. In Engineered Thermal Systems Pty Ltd v Salmon; Re Salmon and Speck Pty Ltd (in liq)227 Foster J utilised r 5.23(c) of the Federal Court Rules 2011 to order default judgment in a claim made by a creditor under s 588M of the Act.228

COSTS ORDERS IN S 588FF PROCEEDINGS 11.61 As mentioned above, the proper plaintiff in an action for relief under s 588FF of the Corporations Act is the liquidator.229 That being so, and having regard to the well enshrined principle that costs follow [page 650] the event,230 a liquidator who is unsuccessful in prosecuting a claim for relief under s 588FF will usually be ordered to personally pay the costs of the successful parties.231 In that regard, the authorities draw a distinction between cases where the liquidator is sued and cases in which the liquidator is plaintiff. In the well-known case of Re Wilson Lovatt & Sons Ltd,232 Oliver J explained: I think that a review of the authorities does disclose that a clear dichotomy between the case where the liquidator is sued and the case where the liquidator initiates proceedings, is established, and indeed it seems me to be a perfectly reasonable one. I cannot at the moment see why it should be contended that a liquidator who takes it on himself to institute proceedings, to bring parties before the court, to subject them to costs, and as against whom it is quite clearly established that no order for security can be made, should then be entitled to plead that he is not responsible beyond the extent of the assets in his hands. I can see no reason at all why a liquidator should be entitled to an immunity which is not conferred on other litigants. A trustee or a personal representative who institutes proceedings no doubt has a right to indemnity out of the estate which he represents but, if he litigates, he litigates at his own risk and so, in my judgment, it should be with the liquidator, and the authorities which point that way seem to me, if I may say so respectfully, to be completely reasonable. I can quite see that there may be very powerful reasons of policy for a rule that a liquidator, when carrying out his functions and thus subjecting himself to the possibility of proceedings against him by parties who are discontented with the way in which he has carried out those functions, must be entitled

to defend himself without being subjected to the risk of having costs awarded against him personally, because of course he cannot protect himself against claims being made. Unless there were some

[page 651] such rule it might be very difficult to get persons to take on the heavy responsibility of the liquidation of companies. It seems to me that it is quite a different matter where the liquidator himself takes it on himself to institute proceedings, whether they be proceedings in the winding-up or otherwise.233

Conversely, where a liquidator is successful in bringing a s 588FF claim, he or she will be entitled to an order for costs.234 In some cases, an order for indemnity costs will be warranted.235 11.62 A liquidator will usually be entitled to an indemnity against any adverse costs order out of the assets of the company in liquidation although this may be denied if the liquidator has acted unreasonably.236 Usually, the assets of the company in liquidation will be applicable towards the liquidator’s liability for costs if those costs are ‘expenses (except deferred expenses) properly incurred by a relevant authority’ (which includes a liquidator)237 under s 556(1) (a) and (dd). Section 556(1)(a) and (dd) of the Act provide: [page 652] (1) Subject to this Division, in the winding up of a company the following debts and claims must be paid in priority to all other unsecured debts and claims: (a) first, expenses (except deferred expenses) properly incurred by a relevant authority in preserving, realising or getting in property of the company, or in carrying on the company’s business: … (dd) next, any other expenses (except deferred expenses) properly incurred by a relevant authority …

There is some uncertainty in the case law as to whether the costs incurred by a liquidator in pursuing a s 588FF claim are expenses incurred by a liquidator in ‘realising or getting in property of the company’ for the purposes of s 556(1)(a). This uncertainty stems from the United Kingdom decision of Re MC Bacon Ltd (No 2)238 where Millett J commented: An application to set aside a voidable preference can be made only by a liquidator or administrator and in the absence of a liquidation or administration order cannot be made at all: see section 239(1) of the Act of 1986 … It was thus established long before 1986 that any sum recovered from a creditor who

has been wrongly preferred enures for the benefit of the general body of creditors, not for the benefit of the company or the holder of a floating charge. It does not become part of the company’s assets but is received by the liquidator impressed with a trust in favour of those creditors amongst whom he has to distribute the assets of the company: see Re Yagerphone Ltd [1935] Ch 392 … It follows, in my judgment, that a claim to set aside a voidable preference is not a claim to realise or get in any asset of the company. That must be so whether the preference took the form of the payment of a debt or the grant of a security. The only difference is that in the latter case the claim wears a greater semblance of being a claim to get in the assets of the company because the assets comprised in the security belong to the company. But in truth the claim is not to get in the assets comprised in the security but to set aside the security.239

This view is based upon the decision of Bennett J in Re Yagerphone Ltd240 that amounts recovered by a liquidator as a preference were ‘not the property of [the company], nor property in respect of which it could … be said that [the company] had even a contingent interest’ and that when these amounts were recovered, ‘the money did not become part of the general assets of [the company], but was a sum recovered by [page 653] the liquidator impressed in their hands with a trust for [the unsecured] creditors’. If this view is correct then even if a liquidator is successful in recovering a preference under s 588FF the liquidator’s costs of prosecuting the action are not recoverable from the company’s assets.241 11.63 The decision in Re MC Bacon Ltd (No 2) has been criticised242 in the United Kingdom and has been overtaken by statute.243 In Australia, the balance of authority favours the view that the proceeds of preference claims are ‘property of the company’244 and that the assets of an insolvent company are not held on trust by the liquidator.245 For example, in Elfic v Macks,246 the Queensland Court of Appeal observed in relation to s 477(2)(c) of the Corporations Law247 that: There is nothing in the provisions of the Law to suggest that moneys recovered under s 565 of the Law are to be held by a liquidator on terms different to those on which the liquidator holds the general assets of the company … Such a conclusion is also supported by the terms of the order made by the High Court in Octavo Investments Pty Ltd v Knight (1979) 144 CLR 360; 27 ALR 129, which required that the moneys recovered on a voidable preference claim be paid to the company not the liquidators.248

In Australia, the balance of authority favours the view that subject to one exception the liquidator can claim the general costs and expenses of the winding up and his or her remuneration out of preference proceeds because they are property of the company.249

[page 654] 11.64 That exception is that it is well established that where a liquidator brings proceedings in his or her own name the courts may deprive the liquidator of access to a company’s funds in appropriate circumstances.250 In Re Silver Valley Mines251 Jessel MR said: … the Judge had an undoubted discretion to deprive him of his costs even if he had only made a mistake, and a fortiori if he had made a blunder, which, as I understand it, is a stronger term than mistake, and a fortiori if the words ‘improper and wrong’ applied by the Judge were deserved … My own view has been in favour of shewing indulgence to trustees in cases of innocent mistake, but undoubtedly there was jurisdiction to deprive them of costs for mistakes, and there might be a case of such a gross blunder which, though it might not amount to technical misconduct, might properly be visited with a deprivation of costs. But I by no means say that an official liquidator who (though no doubt in a sense he is a trustee) is a paid agent of the Court, is entitled to the same indulgence as an ordinary gratuitous trustee. I think that he is not. I think the cases in which he may properly be deprived of costs for a mistake, or a blunder, are more numerous than those in which any such order ought to be made as against a gratuitous trustee.252

Similarly, Cotton LJ said in Re Silver Valley Mines that a liquidator: … is a person appointed by the Court to do a certain class of things; he has some of the rights and some of the liabilities of a trustee, but is not in the position of an ordinary trustee. Being an agent employed to do business for a remuneration, he is bound to bring reasonable skill to its performance, and, though as a general rule he is entitled to his costs out of the estate, he may be deprived of them, not only on the grounds on which an ordinary trustee might be deprived of them, but on the ground that he has not exercised a reasonable amount of skill. He is not in my opinion entitled to costs which have been occasioned by his own want of reasonable skill.253

[page 655] In Kassem v Zhang,254 liquidators commenced proceedings seeking relief under s 588FF in circumstances where the three-year limitation period had expired and no extension of time was sought under s 588FF(3) and where the solicitors for the defendant pointed out the liquidators’ oversight. In the circumstances, Barrett J did not hesitate in making a personal costs order against the liquidators and denying the liquidators an indemnity out of the company’s assets255 on the basis that the expenses were not properly incurred within the meaning of s 556(1)(a) and (dd). Barrett J stated: The words ‘properly incurred’ no doubt exclude situations where a liquidator brings proceedings which are frivolous or patently hopeless and suffers a costs order when they are dismissed accordingly: see, for example, Re Silver Valley Mines (1882) 21 Ch D 381 cited with approval by Campbell J in Hypec Electronics Pty Ltd v Mead [2004] NSWSC 731; (2004) 61 NSWLR 169 and by Hodgson JA in Silvia v Brodyn Pty Ltd [2007] NSWCA 55; (2007) 25 ACLC 382. Jessel MR there said that the cases in

which a liquidator might be deprived of costs for misconduct are more numerous than those in which the same course may be taken against a gratuitous trustee. The description ‘blunder’ was applied to both. … I am of the opinion that, in commencing and continuing with the s 588FF proceedings, the liquidators engaged in conduct which involved a ‘blunder’ and a lack of a reasonable amount of skill, although I acknowledge that the deficiencies may, in an immediate sense, have been those of their lawyers rather than themselves. … From the outset, it seems, the liquidators worked according to a fundamental misunderstanding of a simple legal point that should have been readily appreciated by anyone with a grounding in the relevant principles. The case is one in which the costs incurred in pursuing proceedings that were (and should have been seen to be) doomed to fail from the outset were not ‘properly incurred’.256

[page 656]

Security for costs257 11.65 Historically, the courts have been loath to order security for costs against liquidators. In Re Strand Wood Co Ltd258 Romer LJ observed: The liquidator is coming here under a power expressly conferred upon him by Act of Parliament and in the exercise of his statutory duties. It is not suggested that these proceedings by the liquidator are frivolous or improperly taken, and in that state of things, according to the practice of this Court, the liquidator is not bound to give security for costs.259

In Re Pavelic Investments Pty Ltd260 Blackburn CJ echoed similar sentiments nearly a century later where his Honour opined that: The foundation of my decision on this application is that the Court should apply what appears to be a rule of practice so inveterate as to be almost a rule of law, namely that the liquidator of a company, appointed by the Court, is not required to give security for costs save in very exceptional circumstances. I need not set out all the authorities to support this: the leading case is Re Strand Wood Co Ltd [1904] 2 Ch 1. The rationale of the rule is partly that the liquidator is performing a public function on behalf of all the creditors and contributories of the company, and partly that it is within the competence of the Court, in an appropriate case, to award costs against the liquidator personally.261

As a practical matter, the judicial aversion to ordering security for costs against liquidators in recovery proceedings such as those under s 588FF continues — few cases exist where the courts have ordered security for costs against liquidators in such proceedings (discussed below).262 The rarity of these cases is a function of the principle expounded in Re Strand Wood Co Ltd, above, and also the reluctance of the law to make

[page 657] security for costs orders against natural persons generally. The general law rule is that a natural person who sues will not be ordered to give security for costs, however poor he or she is.263 Similarly, although court rules in some jurisdictions allow for the court to make security for costs orders against natural persons these too are not frequently applied.264 The same is true of the inherent power of state Supreme Courts to order security for costs.265 11.66 To the extent that Re Strand Wood Co Ltd266 may have established a ‘rule of law’ to the effect that a liquidator stood in a privileged position compared with other litigants regarding applications for security for costs, any such rule has been diluted. In Green (as liquidator of Arimco Mining Pty Ltd) v CGU Insurance Ltd,267 Hodgson JA of the New South Wales Court of Appeal suggested that a liquidator enjoyed no such privileged position. After reviewing the authorities, his Honour concluded: In my opinion, on the basis of this review of cases, and especially on the basis of the previous Court of Appeal decisions in Hession and Melville, a court considering applications for security for costs against liquidators should not treat the matter as being entirely at large, but should have regard to guidelines, which I would express as follows: (1) Liquidators suing personally are generally to be treated in the same way as natural persons, so that, on the one hand, costs orders will be made against them if proceedings fail, and, on the other hand, security for costs may be ordered against them when the conditions set out in r 42.21 of the UCPR are satisfied or (on appeal) there are ‘special circumstances’ within r 51.50 of the UCPR. Although security for costs can be ordered (at first instance only) in other circumstances, this is not the usual or normal course; and it is relevant that, in order that security for costs be ordered in other circumstances on an appeal, where at general law security was more

[page 658] readily granted, ‘special circumstances’ are required. It is to be noted also that mere inability to meet costs orders does not amount to special circumstances (Transglobal Capital Pty Ltd v Yolarno Pty Ltd (2004) 60 NSWLR 143; [2004] NSWCA 136) and thus does not of itself put an onus on an appellant to prove that an order for security would stultify the appeal. (2) Where the plaintiff is a company in liquidation, and not the liquidator, then security for costs will more readily be ordered, although the court’s discretion is unfettered (Bell No 2) and there is no presupposition in favour of granting security (Bryan E Fincott Pty Ltd v Eretta Pty Ltd (1987) 16 FCR 497 (Bryan)). However, the court will not refuse to order security on the ground that this will frustrate the litigation unless the company proves that those who stand behind the company and would benefit from the litigation are unable to provide security (Bell No 2). (3) Cases in which security for costs might be ordered against a natural person or a liquidator outside those provided for in r 42.21 of the UCPR268 include cases where (in addition to proof that there

is reason to believe the plaintiff will be unable to pay the defendant’s costs) the plaintiff has dissipated assets and/or has not paid previous costs orders (especially if those costs orders were in favour of the defendant) and/or brings a weak case to harass the defendant and/or brings a case for the benefit of others (albeit not solely for their benefit as apparently required by r 42.21(1)(e) of the UCPR). There is of course a sense in which a liquidator is suing for the benefit of others; but what was decided in Cowell and Strand was that this was not of itself sufficient to justify security for costs in relation to a person who has the statutory right and duty to do this.269

[page 659] 11.67 Even so, security for costs orders against natural person plaintiffs are rare.270 Some of the few cases in which security for costs orders have been made against natural persons include: Morris v Hanley271 per Young J where there were tremendous difficulties in the way of the case succeeding, and the action was brought partly to harass the defendants, was extremely expensive and may have bankrupted the defendants even if they won; Bhattacharya v Freedman272 per Badgery-Parker AJ where the plaintiff in that case was a prolific litigator, had many unsatisfied costs orders against him including costs orders in favour of the defendant, was not in a position to satisfy adverse costs orders, and had divested his major asset (his house) to his daughters in consideration of love and affection; and Byrnes v John Fairfax Publications Pty Ltd273 per Simpson J where there were outstanding costs orders in excess of $200,000 in favour of the defendant against the plaintiff arising from related proceedings. Simpson J did not in the event order security but stayed the proceedings until those costs had been paid.

Security for costs when a litigation funder is involved 11.68 The decision of Green (as liquidator of Arimco Mining Pty Ltd) v CGU Insurance Ltd274 provides an example of a rare case in which security for costs orders have been made against a liquidator. In that case, a liquidator commenced proceedings against former directors of a company seeking compensation under s 588M of the Corporations Act. Proceedings were also commenced by the liquidator against the directors’ insurers seeking relief under s 6(4) of the Capital Reform (Miscellaneous Provisions) Act 1946 (NSW). The liquidator settled the

proceedings with the directors leaving the insurer as the remaining defendant. Several months before the scheduled hearing of the matter, the insurer applied for security for costs. At the time of the application for security for costs the liquidator had spent more than $1 million. The trial judge refused to order security for costs up to the date of the application but instead granted security of $450,000 [page 660] for reasonable anticipated costs up to and including the conclusion of the first instance trial. It was common ground that the litigation brought by the liquidator was funded by a third party commercial litigation funder. On appeal, the New South Wales Court of Appeal upheld the trial judge’s decision. The security for costs order was justified on the basis that such an order is appropriate where the plaintiff non-party who stands to benefit is a person whose interest is solely to make a commercial profit from funding the litigation. As Hodgson JA explained: However, in my opinion a court should be readier to order security for costs where the non-party who stands to benefit from the proceedings is not a person interested in having rights vindicated, as would be a shareholder or creditor of a plaintiff corporation, but rather is a person whose interest is solely to make a commercial profit from funding the litigation. Although litigation funding is not against public policy (Campbells Cash and Carry Pty Ltd v Fostif Pty Ltd (2006) 229 CLR 386; 229 ALR 58; [2006] HCA 41 at [87]–[95]), the court system is primarily there to enable rights to be vindicated rather than commercial profits to be made; and in my opinion, courts should be particularly concerned that persons whose involvement in litigation is purely for commercial profit should not avoid responsibility for costs if the litigation fails.275

Not all cases in which recovery proceedings are funded by a litigation funder warrant an order for security for costs against the liquidator. For example, in Australian Derivatives Exchange Ltd v Doubell,276 the defendants sought security against a liquidator who had brought proceedings under s 588M on the basis that the proceedings were being funded by a litigation funder. The funding agreement provided, however, that until termination or conclusion of the agreement, the liquidator would enjoy the benefit of a promise by the litigation funder not only to indemnify the liquidator against any adverse costs orders but also the benefit of a promise by the funder to provide on demand by the liquidator a bank guarantee to support the indemnity. The liquidator submitted that, given these protections there was no need for security to be ordered unless there was a risk of the funding agreement being terminated. Barrett J agreed and disposed of the security for costs application on the basis that the liquidator gave the court an undertaking to inform the defendants immediately if the funder

terminated the agreement and reserved the rights of the defendants to renew their application for security.277 [page 661]

Whether s 1335 is available to order security for costs against liquidators 11.69 There is inconsistency in the case law as to whether s 1335 of the Corporations Act provides a source of power to order security for costs against a liquidator in s 588FF actions. Section 1335(1) provides that: (1) Where a corporation is plaintiff in any action or other legal proceeding, the court having jurisdiction in the matter may, if it appears by credible testimony that there is reason to believe that the corporation will be unable to pay the costs of the defendant if successful in his, her or its defence, require sufficient security to be given for those costs and stay all proceedings until the security is given.

In Star v National Australia Bank Ltd,278 Rolfe J’s comments, on one view, appeared279 to suggest that the company itself was the proper plaintiff in proceedings brought under s 588FF and accordingly was susceptible to a security for costs order under s 1335. As mentioned above,280 the balance of authority favours the view that, generally, the proper plaintiff in bringing s 588FF proceedings is the liquidator. This was recognised by Mandie J in Jonas v Rocklea Spinning Mills Pty Ltd,281 who expressly disagreed with Rolfe J.282 Having regard to the authorities above confirming that the liquidator in bringing s 588FF actions is the proper plaintiff, it is plain that s 1335 would not usually apply in such proceedings. Having said that, where, as mentioned above, the company is the proper plaintiff, or joined as a co-plaintiff, then s 1335 is an appropriate mechanism to invoke the court’s jurisdiction to order security for costs.283

COMMISSIONER OF TAXATION’S STATUTORY RIGHT OF INDEMNITY UNDER S 588FGA

11.70 Section 588FGA of the Corporations Act gives the Commissioner of Taxation an express statutory right of indemnity against each person who [page 662] was a director of a company at the time certain payments were made by an insolvent company to the Commissioner which are subsequently avoided under s 588FF. For a discussion about s 588FGA generally see 10.118.

Procedural aspects of claims under s 588FGA 11.71 In recovery proceedings commenced by liquidators in State Supreme Courts or the Federal Court, the Commissioner will usually file an interlocutory process seeking indemnity under s 588FGA284 although s 588FGA(3) provides that an amount payable to the Commissioner under s 588FGA(2) is a debt due to the Commonwealth and payable to the Commissioner and may be recovered in a court (lower case ‘c’) of competent jurisdiction by the Commissioner, or a Deputy Commissioner of Taxation, suing in his or her official name. The Corporations Rules285 contain a lacuna with respect to cross-claims and accordingly, when the Commissioner of Taxation claims indemnity pursuant to s 588FGA(4) in the same proceedings in which the liquidator seeks a s 588FF order, the claim is made by interlocutory process pursuant to r 2.2(1)(b) of the Corporations Rules rather than by cross-claim.286 Notwithstanding that a liquidator may have filed a statement of claim or an originating process seeking relief under s 588FF in a superior court, an interlocutory process is technically required.287 Leave is not required to file the interlocutory process.288 The procedural gap so far as the applicability of cross-claim rules is concerned can be met by making directions pursuant to r 1.8 of the Corporations Rules importing, with appropriate modifications, provisions of the relevant court rules dealing with cross-claims. 289 The Commissioner however is not obliged to seek indemnity under s 588FGA as the main proceedings and can instead elect to suffer judgment at the suit of the liquidator and then sue the director in a separate proceeding to recover under the indemnity created by [page 663]

s 588FGA.290 A precedent for an interlocutory application seeking relief under s 588FGA is set out at Appendix D, a precedent Points of Claim in support of an application under s 588FGA is set out at Appendix E, and a precedent defence to such a Points of Claim is set out at Appendix F. 11.72 On the first return date of an interlocutory process in which an indemnity under s 588FGA is sought, the Commissioner will usually seek procedural orders along the lines described by Barrett J in Hall v Commissioner of Taxation,291 particularly to ensure that the respondent directors are treated as a party to the proceedings on any question of costs. Essentially the court will usually order that the directors as third parties have leave to defend the liquidator’s claim against the Commissioner on terms that: (a) they each be bound by all decisions made in those actions and (b) they each be treated as if parties to the action on any issue relating to costs.292

PROCEDURAL ASPECTS OF CLAIMS UNDER S 588M293 11.73 Claims under ss 588M(2) and 588M(3) are claims in debt.294 Such a ‘debt’ can properly be regarded as part of the property of the company which the liquidator is empowered to sell. Even if the rights to compensation created by ss 588M and 588W are not regarded as true debts but rights sui generis.295 A claim under either ss 588M(2) or 588M(3) may properly be determined upon admissions by the director regarding the several elements referred to in s 588M(1) and imported from s 588G.296 Because a claim under s 588M(2) must be commenced by originating process in Form 2, the procedure is not one that provides a basis for the creation of deemed admissions by virtue of the failure to traverse that is the product of failure to file a defence.297 [page 664]

Procedural aspects of claims under s 588T 11.74 An application for leave under s 588T(2)(b) must be made by originating process in accordance with r 2.2(1)(a) of the Corporations Rules. If

pleadings are required, there should be a specific order that the matter proceed on pleadings.298

FUNDING AVOIDANCE AND RECOVERY ACTIONS — LITIGATION FUNDING 11.75 The increase in the prevalence of commercial litigation funders and litigation funding has seen many recovery actions pursued by liquidators when in the past insufficient funds would have prevented such cases from being pursued. Despite early judicial antipathy towards such arrangements, litigation funding is now part and parcel of Australian litigation, particularly in the area of liquidation. 11.76 A liquidator will usually be required to seek approval of any litigation funding agreement under s 477(2B) of the Corporations Act on the basis that most agreements will require performance of obligations more than three months after the agreement is entered into. In Re Leigh; AP and PJ King Pty Ltd299 Austin J set out the following criteria the court will take into account in deciding whether or not to approve litigation funding agreements: the liquidator’s prospects of success in the litigation; the interests of creditors other than the proposed defendant; possible oppression in the bringing of the proceedings; the nature and complexity of the cause of action; the extent to which the liquidator has canvassed other funding options; the level of the funder’s premium; the liquidator’s consultations with creditors; and the risks involved in the claim (including the amount of costs likely be incurred in the proposed litigation, the extent to which the funder is to contribute to those costs, and the extent to which the funder is to contribute to the costs of the defendant in the event that the action is not successful, or towards any order for security for costs).300

[page 665]

Often litigation funding agreements are confidential and the court can make appropriate orders preserving confidentiality.301 Although not strictly necessary to do so,302 it may be prudent for liquidators to seek directions from the court under s 511 of the Act before entering into a funding agreement. Where a liquidator enters into a litigation funding agreement requiring approval under s 477(2B) without having obtained approval, the court has the power to grant approval nunc pro tunc.303

1.

This chapter focuses on practice and procedure relating to proceedings brought under s 588FF. For a discussion of the procedural aspects relating to ss 588FGA, 588J, 588K, 588M, 588R and 588T see 11.70ff.

2.

The main relief provisions contained in the Act that a liquidator may utilise in voidable transaction proceedings are ss 588FF, 588FH, 588J, 588K and 588M.

3.

See 1.4. See also Stewart v Atco Controls Pty Ltd (in liq) (2014) 307 ALR 562; 98 ACSR 601; [2014] HCA 15 at [59] per Crennan, Kiefel, Bell, Gageler and Keane JJ.

4.

See 1.4. See also Stewart v Atco Controls Pty Ltd (in liq) (2014) 307 ALR 562; 98 ACSR 601; [2014] HCA 15 at [59] per Crennan, Kiefel, Bell, Gageler and Keane JJ.

5.

For a discussion of the relevant limitation period, see 11.31.

6.

See the various chapters dealing with each particular type of voidable transaction.

7.

See 11.75ff.

8.

See 11.3.

9.

See 11.61ff.

10. See 11.19. 11. See especially s 596A and 11.10ff for a brief discussion. It is beyond the scope of this text to discuss these provisions in detail. See generally M Gronow & R Mason (eds), McPherson’s Law of Company Liquidation, (looseleaf) Lawbook Co. 12. Hall v Poolman (2009) 75 NSWLR 99; 71 ACSR 139 at [117] per Spigelman CJ, Hodgson JA and Austin J. 13. Civil Dispute Resolution Act 2011 (Cth) s 3. 14. Civil Dispute Resolution Act 2011 (Cth) s 6(3). 15. Civil Dispute Resolution Act 2011 (Cth) s 17; Civil Dispute Resolution Regulations 2011 (Cth) reg 4(b). 16. Civil Dispute Resolution Act 2011 (Cth) s 7. 17. Section 9 of the Civil Dispute Resolution Act 2011. 18. Civil Dispute Resolution Act 2001 (Cth) s 10(2). 19. Civil Dispute Resolution Act 2001 (Cth) s 12(2). 20. Civil Dispute Resolution Act 2001 (Cth) s 12(3). 21. See (now former) s 18C of the Civil Procedure Act 2005. 22. Civil proceedings in the Supreme Court of New South Wales were declared to be excluded

proceedings for the purposes of Pt 2A of the Act by Cl 16 of the Civil Procedure Regulation 2012, Which was repealed at the same time as Pt 2A. 23. Second Reading Speech, Courts and Other Legislation Further Amendment Bill 2012 (NSW), Legislative Assembly, 21 November 2012 (Greg Smith, Attorney-General of NSW). 24. Second Reading Speech, Courts and Other Legislation Further Amendment Bill 2012 (NSW), Legislative Assembly, 21 November 2012 (Greg Smith, Attorney-General of NSW). 25. Section 22 of the Civil Procedure Act 2010 (Vic) imposes an overarching obligation on parties to use reasonable endeavours to resolve a dispute, including if appropriate by ‘appropriate dispute resolution’. See also s 29 of that Act which sets out certain orders the court can make. In exercising its powers of active case management, the court may take into account any issues which have not been resolved in accordance with any mandatory or voluntary pre-litigation processes: s 47(3)(b). The court may also make rules with respect to specific protocols for civil proceedings or classes of civil proceeding including, but not limited to, mandatory or voluntary pre-litigation processes for specified civil proceedings or specified classes of civil proceeding: s 70(1)(c). 26. This is only a brief overview. For a more tailed discussion, see Australian Corporations Law Principles and Practice, LexisNexis looseleaf, at [5.7B.0005]ff. 27. Only a superior Court can make an order under s 596A or s 596B. See the definition of Court in s 58AA which includes the Federal Court and the Supreme Court of a State or Territory. 28. Such applications are made ex parte and accordingly there is a heavy obligation on a person seeking an examination summons to make full and frank disclosure of all relevant matters: see Sutherland v Pascoe (2013) 297 ALR 44; [2013] FCAFC 15 per Jagot, Griffiths and Farrell JJ. 29. Section 596A(b)(iii). 30. Saraceni v Australian Securities and Investments Commission (2012) 90 ACSR 618; [2012] FCA 688 at [73]. 31. Section 596B(1). For a useful summary of the legislative framework and scope of the examination powers, see the Supreme Court of Western Australia Court of Appeal decision in Saraceni v Jones [2012] WASCA 59 at [88] per Martin CJ with whom McLure P and Newnes JA agreed. For a more detailed discussion of a liquidator’s powers in this context, see McPherson’ Law of Company Liquidation, looseleaf, Lawbook Co. 32. Section 597(4). 33. Section 597(5A). 34. For a more detailed examination see Australian Corporations Law Principles and Practice, LexisNexis Butterworths, looseleaf at [5.7B.0035]ff. 35. Gemmell v Le Roi Homestyle Cookies Pty Ltd (in liq) [2014] VSCA 182 at [63] per Ashley JA, Neave JA and Almond AJA agreeing. 36. Gemmell v Le Roi Homestyle Cookies Pty Ltd (in liq) [2014] VSCA 182 at [63] per Ashley JA, Neave JA and Almond AJA agreeing. 37. Meteyard v Love (2005) 65 NSWLR 36; [2005] NSWCA 444. 38. See Corporations Rules rr 11.6, 11.7 and 11.9. The Corporations Rules at Federal and State level are generally uniform: see 11.51. 39. Douglas-Brown (official liquidator of Woomera Holdings Pty Ltd) v Furzer (1994) 13 ACSR 184 at 191 per Malcolm CJ with whom Ipp and Anderson JJ agreed. 40. Re AAMAC Warehousing and Transport Pty Ltd (in liq) [2014] NSWSC 834 at [46] per Brereton J. 41. See, for example, Re Shepherds Producers Co-operative Ltd (in liq) [2012] NSWSC 390 per Black

J. 42. This is a capital ‘C’ Court meaning relevantly the Federal Court or the Supreme Court of a State or Territory. 43. Stewart v Atco Controls Pty Ltd (in liq) (2014) 307 ALR 562; 98 ACSR 601; [2014] HCA 15 at [51] per Crennan, Kiefel, Bell, Gageler and Keane JJ. 44. Section 530A(3). 45. See subss 530A(1) and (2). 46. Re BPTC Ltd (in liq) (No 2) (1992) 29 NSWLR 713 at 718–19; 8 ACSR 533 at 537 per McLelland J applied by Bryson J in Re BPTC Ltd (in liq) (No 5) (1993) 10 ACSR 756 at 765. See also the comments of Barrett J in Re Chircan Holdings (2003) 21 ACLC 29; [2002] NSWSC 988 at [14] approved by the New South Wales Court of Appeal in Meteyard v Love (2005) 65 NSWLR 36; 56 ACSR 487; [2005] NSWCA 444 at [56]–[59]. See also Onefone Australia Pty Ltd v One.Tel Ltd [2007] NSWSC 1188 at [15]–[21] per Barrett J. 47. Re Chircan Holdings (2003) 21 ACLC 29; [2002] NSWSC 988 at [14] per Barrett J. 48. Onefone Australia Pty Ltd v One.Tel Ltd [2007] NSWSC 1188 at [16] per Barrett J. See also Re Teppanyakki Pty Ltd [2012] NSWSC 672. 49. Onefone Australia Pty Ltd v One.Tel Ltd [2007] NSWSC 1188 at [17] per Barrett J. 50. Re BPTC Ltd (No 5) (1993) 10 ACSR 756 at 762 per Bryson J. See also Onefone Australia Pty Ltd v One.Tel Ltd [2007] NSWSC 1188 at [17] per Barrett J. 51. Re Leisure Developments (Qld) Pty Ltd (2002) 41 ACSR 276 at 281–2. 52. Re BPTC Ltd (No 5) (1993) 10 ACSR 756 at 762 per Bryson J. 53. In s 588FF(1), the lower case ‘court’ is used which means ‘any court’: see s 58AA and Gordon v Tolcher in his capacity as liquidator of Senafield Pty Ltd (in liq) (2006) 231 CLR 334; 60 ACSR 522; [2006] HCA 62 at [15] per Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ. 54. Cases commenced in inferior courts are not usually reported or referred to in case reports but see, for example, Pegulan Floor Coverings Pty Ltd v Carter (1997) 24 ACSR 651; Australian Kitchen Industries Pty Ltd v Albarran (2004) 51 ACSR 604; [2004] NSWSC 1047; Wily (in his capacity as liquidator of Goltep Constructions (NSW) Pty Ltd (in liq)) v Eastern Elevators Pty Ltd (2003) 45 ACSR 261; [2003] NSWSC 377; Whitton v Konemann Australia Pty Ltd (2002) 43 ACSR 436; [2002] NSWSC 1137. 55. See ss 9 and 58AA. 56. Previously s 51B to the former Corporations Law inserted by the Corporations Legislation Amendment Act 1994 (Cth). 57. Section 9 of the Administrative Decisions (Judicial Review) Act 1977 (Cth) provides: Limitation of jurisdiction of State courts (1) Notwithstanding anything contained in any Act other than this Act, a court of a State does not have jurisdiction to review: (a) a decision to which this section applies that is made after the commencement of this Act; (b) conduct that has been, is being, or is proposed to be, engaged in for the purpose of making a decision to which this section applies; (c) a failure to make a decision to which this section applies; or (d) any other decision given, or any order made, by an officer of the Commonwealth or any

other conduct that has been, is being, or is proposed to be, engaged in by an officer of the Commonwealth, including a decision, order or conduct given, made or engaged in, as the case may be, in the exercise of judicial power. Note: This subsection has effect subject to the Jurisdiction of Courts (Cross-vesting) Act 1987 and to subsection 1337B(3) of the Corporations Act 2001. 58. For a discussion of this section see the High Court’s analysis in Gordon v Tolcher in his capacity as liquidator of Senafield Pty Ltd (in liq) (2006) 231 CLR 334; 60 ACSR 522; [2006] HCA 62. 59. See, for example, r 42.34 of the Uniform Civil Procedure Rules 2005 (NSW) which provides, relevantly, that where a plaintiff has obtained judgment in the Supreme Court for less than $500,000 an order for costs may be made, but will not ordinarily be made, unless the Supreme Court is satisfied the commencement and continuation of the proceedings in the Supreme Court, rather than the District Court, is warranted. 60. McDonald v Hanselmann (1998) 28 ACSR 49 at 57. 61. Gordon v Tolcher (in his capacity as liquidator of Senafield Pty Ltd (in liq)) (2006) 231 CLR 334; 60 ACSR 522; [2006] HCA 62 at [40]–[41]. 62. See, for example, Halsbury’s Laws of Australia, Ch 85, ‘Conflict of Laws’. 63. The cross-vesting legislation comprises: Jurisdiction of Courts (Cross-vesting) Act 1987 (Cth); Jurisdiction of Courts (Cross-vesting) Act 1993 (ACT); Jurisdiction of Courts (Cross-vesting) Act 1987 (NT); Jurisdiction of Courts (Cross-vesting) Act 1987 (NSW); Jurisdiction of Courts (Crossvesting) Act 1987 (Qld); Jurisdiction of Courts (Cross-vesting) Act 1987 (SA); Jurisdiction of Courts (Cross-vesting) Act 1987 (Tas); Jurisdiction of Courts (Cross-vesting) Act 1987 (Vic); Jurisdiction of Courts (Cross-vesting) Act 1987 (WA). In Re Wakim; Ex parte McNally (1999) 198 CLR 511; 163 ALR 270; [1999] HCA 27 the High Court held that the cross-vesting legislation is invalid insofar as it seeks to invest federal courts with State jurisdiction. 64. James Hardie & Coy Pty Ltd v Barry (2000) 50 NSWLR 357; [2000] NSWCA 353 at [4] per Spigelman CJ. 65. BHP Billiton v Schultz (2004) 221 CLR 400; 211 ALR 523; [2004] HCA 61 at [170] per Kirby J. 66. Section 1337H(2) of the Corporations Act. 67. Section 1337L of the Corporations Act. See, for example, Dwyer v Hindal Corporate Pty Ltd (2005) 52 ACSR 335; [2005] SASC 24. 68. Acton Engineering Pty Ltd v Campbell (1991) 31 FCR 1; 103 ALR 437 at 453. 69. Global Realty Development Corporation v Dominion Wines Ltd (in liq) (2005) 56 ACSR 474; [2005] NSWSC 1221 at [12]. 70. See also Resource Equities Ltd (subject to deed of company arrangement) v Carr [2007] WASC 246 and The Old Kiama Wharf Company Pty Ltd (in liq) v Betohuwisa Investments Pty Ltd [2010] FCA 1290. 71. Section 588FF. See Chapter 8 for a detailed discussion. 72. The types of orders are discussed at 8.24ff. 73. See Hession v Century 21 South Pacific Ltd (in liq) (1992) 28 NSWLR 120 at 123; Jonas v Rocklea Spinning Mills Pty Ltd (2000) 18 ACLC 333; [2000] VSC 93 at [5] per Mandie J; Tolcher v National Australia Bank Ltd (2003) 44 ACSR 727; [2003] NSWSC 207 per Palmer J; Dwyer v La Gender Pty Ltd (2005) 240 LSJS 308; [2005] SASC 213 at [7] per Lunn J; Gordon v Tolcher in his capacity as liquidator of Senafield Pty Ltd (in liq) (2006) 231 CLR 334; 60 ACSR 522; [2006] HCA 62 at [34] per Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ; Sibroll Pty Ltd v Mitch Properties Pty Ltd (2007) 212 FLR 1; [2007] NSWSC 579 at [11] per Young CJ in Eq; New Cap Reinsurance Corp

Ltd v AE Grant (2009) 72 ACSR 638; [2009] NSWSC 662 at [16] per Barrett J; Mitry v Business Australia Capital Finance Pty Ltd (in liq) [2010] NSWCA 360 at [46] per MacFarlan JA (Hodgson and Young JJA agreeing); Arena Management Pty Ltd (rec and mgr apptd) v Campbell Street Theatre Pty Ltd (2011) 80 NSWLR 652; 84 ACSR 33; [2011] NSWCA 128 at [18] per Campbell JA with whom McColl and MacFarlan JJA agreed. 74. Gordon v Tolcher in his capacity as liquidator of Senafield Pty Ltd (in liq) (2006) 231 CLR 334; 60 ACSR 522; [2006] HCA 62 at [34]. 75. See, for example, Bibra Lake Holdings Pty Ltd (in liq) v Firmadoor Australia Pty Ltd (1992) 7 WAR 1; 7 ACSR 380 especially at 386 per Ipp J. See, however, the comments of McLelland J in Horn v York Paper Co Ltd (No 2) (1991) 23 NSWLR 622 at 623; 5 ACSR 122 at 123, where his Honour suggested that it was appropriate ‘to join the company as a co-plaintiff with the liquidator, since the rights of the company will be directly affected by a judicial determination that the relevant transaction is avoided’. Despite this observation, a practice of routinely joining the company as coplaintiff did not evolve. 76. See, for example, s 588FF(1)(a) of the Corporations Act which refers to an order directing a person to pay to the company an amount equal to some or all of the money that the company has paid under the transaction. 77. New Cap Reinsurance Corp Ltd v AE Grant (2009) 72 ACSR 638; [2009] NSWSC 662 at [17]. 78. Park and McIntosh v Lanray Industries Pty Ltd (2010) 80 ACSR 186; [2010] QCA 257. 79. Per Holmes, Fraser and Chesterman JJA. 80. It is beyond the scope of this text to examine the circumstances in which the court will make such an order. See generally McPherson’s Law of Company Liquidation, looseleaf, Lawbook Co. 81. See, for example, Federal Court Rules 2011 r 9.05; Court Procedures Rules 2006 (ACT) Div 2.4.2 r 220; Supreme Court Rules (NT) r 9.06; Uniform Civil Procedure Rules 2005 (NSW) rr 6.24, 6.25, 6.27, 6.29; Uniform Civil Procedure Rules 1999 (Qld) rr 69, 74. As to amendments generally, see ibid r 375; Supreme Court Civil Rules 2006 (SA) rr 74, 75; Supreme Court Rules 2000 (Tas) r 184; Supreme Court (General Civil Procedure) Rules 2005 (Vic) r 9.06; Rules of the Supreme Court (WA) O 18 r 6. 82. Dwyer v La Gender Pty Ltd (2005) 240 LSJS 308; [2005] SASC 213. 83. Now r 75 of the Supreme Court Civil Rules 2006 (SA). Rule 31.02 provided that: Where the interest or liability of any party is assigned, transmitted or devolved upon some other person, an application may be made to the Court for an order: (a) that the other person be substituted as a party in the place of an existing party to the action; or (b) that the other person be added as an additional party and the proceedings be carried on thereafter with him as a party. Nothing in this Rule affects the operation of s 60 of the Bankruptcy Act 1996 of the Parliament of the Commonwealth. 84. Dwyer v La Gender Pty Ltd (2005) 240 LSJS 308; [2005] SASC 213 at [10]–[11] per Lunn J. See also Ansell Ltd v Davies (2008) 67 ACSR 356; [2008] SASC 203 at [37] per Doyle CJ, Anderson and David JJ agreeing. 85. Ansell Ltd v Davies (2008) 67 ACSR 356; [2008] SASC 203 at [31] per Doyle CJ, Anderson and David JJ agreeing. 86. Re Harris Scarfe Ltd (in liq) (2006) 203 FLR 46; 245 LSJS 424; [2006] SASC 277 at [27]–[28],

[31]–[32]. See also Re Harris Scarfe (in liq) and Harris Scarfe Wholesale Pty Ltd (in liq) (No 2) [2007] SASC 186 per Debelle J. 87. Grosvenor Hill (Qld) Pty Ltd v Barber (Interchase Corporation Case) (1994) 48 FCR 301; 120 ALR 262; 12 ACSR 646; Re Clutha Ltd (in liq) (2003) 44 ACSR 734; [2003] NSWSC 235; Re Chircan Holdings (2003) 21 ACLC 29; [2002] NSWSC 988. 88. Movitor Pty Ltd (in liq) v Sims (1996) 64 FCR 380; 136 ALR 643. 89. Movitor Pty Ltd (in liq) v Sims (1996) 64 FCR 380; 136 ALR 643 at 653. 90. Re Tosich Construction Pty Ltd and the Corporations Law (1997) 23 ACSR 126. 91. Re Tosich Construction Pty Ltd and the Corporations Law (1997) 23 ACSR 126 at 140. 92. UTSA Pty Ltd (in liq) v Ultra Tune Australia Pty Ltd [1997] 1 VR 667; 21 ACSR 251. 93. UTSA Pty Ltd (in liq) v Ultra Tune Australia Pty Ltd [1997] 1 VR 667 at 698; 21 ACSR 251. 94. UTSA Pty Ltd (in liq) v Ultra Tune Australia Pty Ltd (1996) 21 ACSR 457 at 464 per Hayne JA (Brookings and Phillips JJA agreeing). 95. Keith v Verge [2009] WASC 338. 96. Keith v Verge [2009] WASC 338 at [18]–[19] per Master Sanderson. 97. For a discussion regarding calculating the relation-back day, see 2.72ff. 98. Section 588FF(3)(a). 99. This amendment was consistent with recommendation 50 of the 2004 CAMAC Report Rehabilitation of large and complex enterprises and [7.204]–[7.207] of the EM to the Corporations Amendment (Insolvency) Bill. The amendment commenced on 31 December 2007. 100. See 11.33ff. 101. Bankruptcy Act 1966 (Cth) s 127. See BP Australia Ltd v Brown (2003) 58 NSWLR 322; 46 ACSR 677; [2003] NSWCA 216 at [105]. 102. Harmer Report at [688]. 103. BP Australia Ltd v Brown (2003) 58 NSWLR 322; 46 ACSR 677; [2003] NSWCA 216. 104. BP Australia Ltd v Brown (2003) 58 NSWLR 322; 46 ACSR 677; [2003] NSWCA 216 at [98] and [100]–[102] per Spigelman CJ. 105. ‘Court’ with upper case ‘C’ is defined in s 58AA to include a State Supreme Court and the Federal Court. 106. Fortress Credit Corp (Australia) II Pty Ltd v Fletcher (2014) 308 ALR 166; [2014] NSWCA 148 at [34] per Bathurst CJ, Beazley P, Macfarlan, Barrett and Gleeson JJA agreeing. The High Court has granted special leave: Fortress Credit Corporation (Australia) II Pty Ltd v Fletcher [2014] HCATrans 233 (17 October 2014). At the time of writing, the hearing of the appeal proper before the High Court was pending. 107. BP Australia Ltd v Brown (2003) 58 NSWLR 322; 46 ACSR 677 at [129]. See the comments of the Queensland Court of Appeal in Greig v Australian Building Industries [2004] 2 Qd R 17; see also Horne v Deputy Commissioner of Taxation [2005] VSC 409. 108. Section 588FF(3)(b). 109. BP Australia Ltd v Brown (2003) 58 NSWLR 322; 46 ACSR 677; [2003] NSWCA 216 at [118] per Spigelman CJ. See also Scott v Casualife Furniture Intl Ltd (Hong Kong) (2005) 56 ACSR 218; [2005] VSC 463 at [22] per Mandie J. 110. Fortress Credit Corp (Australia) II Pty Ltd v Fletcher (2014) 308 ALR 166; [2014] NSWCA 148 at

[29] per Bathurst CJ with whom Beazley P, Macfarlan, Barrett and Gleeson JJA agreed. The High Court has granted special leave: Fortress Credit Corporation (Australia) II Pty Ltd v Fletcher [2014] HCATrans 233 (17 October 2014). At the time of writing, the hearing of the appeal proper before the High Court was pending. 111. JP Morgan Chase Bank, National Association v Fletcher (as liquidator of Octaviar Ltd) (recs and mgrs apptd) (in liq) (2014) 306 ALR 224; [2014] NSWCA 31 (JP Morgan v Fletcher) at [84]. The High Court has granted special leave: see Grant Samuel Corporate Finance Pty Ltd v Fletcher; JP Morgan Chase Bank, National Association v Fletcher [2014] HCATrans 167. 112. See also Fortress Credit Corp (Australia) II Pty Ltd v Fletcher (2014) 308 ALR 166; [2014] NSWCA 148 at [29] per Bathurst CJ with whom Beazley P, Macfarlan, Barrett and Gleeson JJA agreed. The High Court has granted special leave: Fortress Credit Corporation (Australia) II Pty Ltd v Fletcher [2014] HCATrans 233 (17 October 2014). At the time of writing, the hearing of the appeal proper before the High Court was pending. 113. JP Morgan Chase Bank, National Association v Fletcher (as liquidators of Octaviar Ltd) (recs and mgrs apptd) (in liq) (2014) 306 ALR 224; [2014] NSWCA 31 at [84] Beazley P, with whom Macfarlan and Gleeson JJA agreed. The High Court has granted special leave: see Grant Samuel Corporate Finance Pty Ltd v Fletcher; JP Morgan Chase Bank, National Association v Fletcher [2014] HCATrans 167. 114. McGrath v National Indemnity Co (2004) 49 ACSR 403; [2004] NSWSC 391. 115. Onefone Australia Pty Ltd v One.Tel Ltd (2007) 61 ACSR 246; [2007] NSWSC 69. 116. McGrath v National Indemnity Co (2004) 49 ACSR 403; [2004] NSWSC 391. 117. Re Bowcher (liquidator); Meares Nominees Pty Ltd (in liq) (2013) 98 ACSR 1; [2013] FCA 631 at [94]–[96] per Foster J. 118. See Re Bowcher (liquidator); Meares Nominees Pty Ltd (in liq) (2013) 98 ACSR 1; [2013] FCA 631 at [94]–[96] per Foster J referring to the decision of Spigelman CJ in BP Australia Ltd v Brown (2003) 58 NSWLR 322; 46 ACSR 677; [2003] NSWCA 216. 119. Horne v Deputy Commissioner of Taxation [2005] VSC 409. 120. Onefone Australia Pty Ltd v One.Tel Ltd (2007) 61 ACSR 246; [2007] NSWSC 69 at [65]. 121. Onefone Australia Pty Ltd v One.Tel Ltd (2007) 61 ACSR 246; [2007] NSWSC 69 at [66]. 122. Horne v Deputy Commissioner of Taxation [2005] VSC 409. 123. Re Harris Scarfe Ltd (in liq) (2006) 203 FLR 46; [2006] SASC 277. 124. Gazal Apparel Pty Ltd v Davies (2007) 247 LSJS 391; [2007] SASC 91. 125. Ansell Ltd v Davies (2008) 67 ACSR 356; [2008] SASC 203. 126. Re Octaviar Administration Pty Ltd (in liq) (2013) 94 ACSR 612; [2013] NSWSC 786 at [4] per Young AJ. 127. See, for example, Streetscape Projects (Australia) Pty Ltd v City of Sydney [2012] NSWCA 63 at [21]; Re Imperial Continental Water Corporation (1886) 33 Ch D 314 at 317. 128. Re Octaviar Administration Pty Ltd (in liq) (2013) 94 ACSR 612; [2013] NSWSC 786. 129. For a discussion of this provision, see 10.118. 130. Re Octaviar Administration Pty Ltd (in liq) (2013) 99 ACSR 612; [2013] NSWSC 786 at [50]. 131. See BP Australia Ltd v Brown (2003) 58 NSWLR 322 at 356–8; 46 ACSR 677 at 707–10; [2003] NSWCA 216. See also New Cap Reinsurance v Reaseguros Alianza SA (2004) 186 FLR 175; [2004] NSWSC 787 at [53] per White J. See further Itek Graphix Pty Ltd v Elliott (2002) 54 NSWLR 207;

[2002] NSWCA 104 per Ipp AJA, with whom Spigelman CJ and Sheller JA agreed at [87]. See also Walker v CBA Corporate Services (NSW) Pty Ltd (2012) 88 ACSR 153; [2012] FCA 328 and Re AAMAC Warehousing and Transport Pty Ltd (in liq) [2014] NSWSC 834 per Brereton J. See also Fortress Credit Corp (Australia) II Pty Ltd v Fletcher (2014) 308 ALR 166; [2014] NSWCA 148. The High Court has granted special leave: Fortress Credit Corporation (Australia) II Pty Ltd v Fletcher [2014] HCATrans 233 (17 October 2014). At the time of writing, the hearing of the appeal proper before the High Court was pending. 132. Green v Chiswell Furniture Pty Ltd (in liq) [1999] NSWSC 608 at [15]. 133. See also New Cap Reinsurance v Reaseguros Alianza SA (2004) 186 FLR 175; [2004] NSWSC 787 at [52] per White J; Re Clarecastle Pty Ltd (in liq) (2011) 85 ACSR 260; [2011] NSWSC 857 per Ward J; Arnautovic v Nichola [2009] NSWSC 233 per Barrett J and Taylor v Woden Constructions Pty Ltd [1998] FCA 1228 per Finn J. 134. New Cap Reinsurance v Reaseguros Alianza SA (2004) 186 FLR 175; [2004] NSWSC 787 at [61] per White J. 135. Brisbane South Regional Health Authority v Taylor (1996) 186 CLR 541; 139 ALR 1. 136. Brisbane South Regional Health Authority v Taylor (1996) 186 CLR 541 at 552; 139 ALR 1 per McHugh J. 137. See 11.32. See also the comments of Austin J in Green v Chiswell [1999] NSWSC 608 at [14]; Spigelman CJ in BP Australia Pty Ltd v Brown (2003) 58 NSWLR 322; 46 ACSR 677; [2003] NSWCA 216 at [98], [100]–[102] and New Cap Reinsurance v Reaseguros Alianza SA (2004) 186 FLR 175; [2004] NSWSC 787 at [56] per White J. See also Fortress Credit Corp (Australia) II Pty Ltd v Fletcher (2014) 308 ALR 166; [2014] NSWCA 148 at [93] per Bathurst CJ, Beazley P, Macfarlan, Barrett and Gleeson JA agreeing. The High Court has granted special leave: Fortress Credit Corporation (Australia) II Pty Ltd v Fletcher [2014] HCATrans 233 (17 October 2014). At the time of writing, the hearing of the appeal proper before the High Court was pending. 138. Fortress Credit Corp (Australia) II Pty Ltd v Fletcher (2014) 308 ALR 166; [2014] NSWCA 148 at [129] per Barrett JA and [138] per Gleeson JA. 139. Fortress Credit Corp (Australia) II Pty Ltd v Fletcher (2014) 308 ALR 166; [2014] NSWCA 148 at [129] per Barrett JA. 140. Fortress Credit Corp (Australia) II Pty Ltd v Fletcher (2014) 308 ALR 166; [2014] NSWCA 148 at [93] per Bathurst CJ and at [139] per Gleeson JA. 141. Fortress Credit Corp (Australia) II Pty Ltd v Fletcher (2014) 308 ALR 166; [2014] NSWCA 148 at [129] per Barrett JA. 142. New Cap Reinsurance v Reaseguros Alianza SA (2004) 186 FLR 175; [2004] NSWSC 787 at [55] per White J. 143. Fortress Credit Corp (Australia) II Pty Ltd v Fletcher (2014) 308 ALR 166; [2014] NSWCA 148 at [95] per Bathurst CJ and at [139] per Gleeson JA. 144. See, for example, the discussion by Ward J in Re Clarecastle Pty Ltd (in liq) (2011) 85 ACSR 260; [2011] NSWSC 857 at [129]ff. 145. Re Clarecastle Pty Ltd (in liq) (2011) 85 ACSR 260; [2011] NSWSC 857 at [137] per Ward J. See also Arthur Andersen Corporate Finance Pty Ltd v Buzzle Operations Pty Ltd [2009] NSWCA 104 and Weston (in his capacity as special purpose liquidator of One.Tel Ltd (in liq)) v Publishing and Broadcasting Ltd (2012) 88 ACSR 80; [2012] NSWCA 79. 146. See Re Clarecastle Pty Ltd (in liq) (2011) 85 ACSR 260; [2011] NSWSC 857 at [134] per Ward J. 147. See Itek Graphix Pty Ltd v Elliott (2002) 54 NSWLR 207; [2002] NSWCA 104 at [91] per Ipp JA,

with whom Spigelman CJ and Sheller JA agreed; Arthur Andersen Corporate Finance Pty Ltd v Buzzle Operations Pty Ltd [2009] NSWCA 104 at [92] per Ipp JA. 148. Re Clarecastle Pty Ltd (in liq) (2011) 85 ACSR 260; [2011] NSWSC 857. 149. Re Clarecastle Pty Ltd (in liq) (2011) 85 ACSR 260; [2011] NSWSC 857 at [140] per Ward J. 150. New Cap Reinsurance v Reaseguros Alianza SA (2004) 186 FLR 175; [2004] NSWSC 787 at [71] per White J. 151. New Cap Reinsurance v Reaseguros Alianza SA (2004) 186 FLR 175; [2004] NSWSC 787 at [55] per White J; BP Australia Ltd v Brown (2003) 58 NSWLR 322 at 358; 46 ACSR 677; [2003] NSWCA 216. 152. New Cap Reinsurance v Reaseguros Alianza SA (2004) 186 FLR 175; [2004] NSWSC 787 at [71] citing Brisbane South Regional Health Authority v Taylor (1996) 186 CLR 541 at 551; 139 ALR 1. 153. New Cap Reinsurance v Reaseguros Alianza SA (2004) 186 FLR 175; [2004] NSWSC 787 at [71] per White J. 154. BP Australia Ltd v Brown (2003) 58 NSWLR 322; 46 ACSR 677; [2003] NSWCA 216 at [168]. 155. BP Australia Ltd v Brown (2003) 58 NSWLR 322; 46 ACSR 677; [2003] NSWCA 216 at [170]. See also Tolcher v Capital Finance Australia Ltd (2005) 143 FCR 300; 52 ACSR 328; [2005] FCA 108; HIH Insurance Ltd (in liq), Re McGrath (2004) 205 ALR 643; 48 ACSR 723 [2004] NSWSC 165; New Cap Reinsurance v Reaseguros Alianza SA (2004) 186 FLR 175; [2004] NSWSC 787 at [14]– [28]; Australian Securities and Investments Commission v Karl Suleman Enterprizes Pty Ltd (in liq) (2004) 52 ACSR 103; [2004] NSWSC 1244; Re Harris Scarfe Ltd (in liq) (2006) 203 FLR 46; [2006] SASC 277; Ansell v Davies (2008) 219 FLR 329; 67 ACSR 356; [2008] SASC 203; Re Clarecastle Pty Ltd (in liq) (2011) 255 FLR 435; 85 ACSR 260; [2011] NSWSC 857. 156. See, for example, Greig v Australian Building Industries Pty Ltd (in liq) [2004] 2 Qd R 17; [2003] QCA 298 at [111]. 157. Greig v Australian Building Industries Pty Ltd (in liq) [2004] 2 Qd R 17; [2003] QCA 298. 158. Greig v Australian Building Industries Pty Ltd (in liq) [2004] 2 Qd R 17; [2003] QCA 298 per Williams and Jerrard JJA. 159. Williams (as liquidator of Willahra Pty Ltd (in liq)) v Kim Management Pty Ltd (2012) 90 ACSR 539; [2012] QSC 143. 160. Williams (as liquidator of Willahra Pty Ltd (in liq)) v Kim Management Pty Ltd (2012) 90 ACSR 539; [2012] QSC 143 at [18] per Dalton J. 161. See the Full Court of South Australia decision in Ansell Ltd v Davies (2008) 67 ACSR 356; 219 FLR 329; [2008] SASC 203 and the first instance decisions of McGrath v National Indemnity Co (2004) 49 ACSR 403; [2004] NSWSC 391; Scott v Casualife Furniture Intl Ltd (Hong Kong) (2005) 56 ACSR 218; [2005] VSC 463; Australian Securities and Investments Commission v Karl Suleman Enterprizes Pty Ltd (in liq) (2004) 52 ACSR 103; [2004] NSWSC 1244; New Cap Reinsurance Corp (in liq) v Reaseguros Alianza SA (2004) 186 FLR 175; [2004] NSWSC 787; Tolcher v Capital Finance Australia Ltd (2005) 143 FCR 300; 52 ACSR 328; [2005] FCA 108; Onefone Australia Pty Ltd v One.Tel Ltd (2007) 61 ACSR 246; [2007] NSWSC 69; Re Clarecastle Pty Ltd (in liq) (2011) 85 ACSR 260; [2011] NSWSC 857; and Williams (as liquidator of Willahra Pty Ltd (in liq)) v Kim Management Pty Ltd (2012) 90 ACSR 539; [2012] QSC 143. 162. Fortress Credit Corp (Australia) II Pty Ltd v Fletcher (2014) 308 ALR 166; [2014] NSWCA 148. The High Court has granted special leave: Fortress Credit Corporation (Australia) II Pty Ltd v Fletcher [2014] HCATrans 233 (17 October 2014). At the time of writing, the hearing of the appeal proper before the High Court was pending.

163. Re Octaviar Ltd (recs and mgrs apptd) (in liq) (2012) 271 FLR 413; [2012] NSWSC 1460 at [24] per Black J. 164. Australian Securities and Investments Commission v Karl Suleman Enterprizes Pty Ltd (in liq) (2004) 52 ACSR 103; [2004] NSWSC 1244 at [6]. 165. Re Octaviar Ltd (recs and mgrs apptd) (in liq) (2012) 271 FLR 413; [2012] NSWSC 1460. 166. Australian Securities and Investments Commission v Karl Suleman Enterprizes Pty Ltd (in liq) (2004) 52 ACSR 103; [2004] NSWSC 1244 at [22]. 167. Williams (as liquidator of Willahra Pty Ltd (in liq)) v Kim Management Pty Ltd [2013] 1 Qd R 387; 90 ACSR 539; [2012] QSC 143 at [21]. 168. Re Octaviar Ltd (recs and mgrs appted) (in liq) (2012) 271 FLR 413; [2012] NSWSC 1460 at [24] per Black J. 169. Fortress Credit Corp (Australia) II Pty Ltd v Fletcher (2014) 308 ALR 166; [2014] NSWCA 148. The High Court has granted special leave: Fortress Credit Corporation (Australia) II Pty Ltd v Fletcher [2014] HCATrans 233 (17 October 2014). At the time of writing, the hearing of the appeal proper before the High Court was pending. 170. Cameron v Cole (1944) 68 CLR 571 at 589; [1944] ALR 130. 171. McGrath v National Indemnity Co [2004] NSWSC 391 at [5] per Barrett J. 172. Williams (as liquidator of Willahra Pty Ltd (in liq)) v Kim Management Pty Ltd [2013] 1 Qd R 387; 90 ACSR 539; [2012] QSC 143 at [22]. 173. Williams (as liquidator of Willahra Pty Ltd (in liq)) v Kim Management Pty Ltd [2013] 1 Qd R 387; 90 ACSR 539; [2012] QSC 143 at [33]. 174. Re Octaviar Ltd (recs and mgrs apptd) (in liq) (2012) 271 FLR 413; [2012] NSWSC 1460 at [46]– [47]. 175. See, for example, NSW UCPR r 36.16(1). 176. Fortress Credit Corp (Australia) II Pty Ltd v Fletcher (2014) 308 ALR 166; [2014] NSWCA 148 at [103] per Bathurst CJ, Beazley P and Macfarlan, Bathurst and Gleeson JJA agreeing. The High Court has granted special leave: Fortress Credit Corporation (Australia) II Pty Ltd v Fletcher [2014] HCATrans 233 (17 October 2014). At the time of writing, the hearing of the appeal proper before the High Court was pending. See also JP Morgan Chase Bank, National Association v Fletcher (as liquidator of Octaviar Ltd) (recs and mgrs apptd) (in liq) (2014) 306 ALR 224; 97 ACSR 638; [2014] NSWCA 31 at [147], [163]–[164] and [166]. The High Court has granted special leave: see Grant Samuel Corporate Finance Pty Ltd v Fletcher; JP Morgan Chase Bank, National Association v Fletcher [2014] HCATrans 167. 177. See NSW UCPR r 36.16(3). 178. Onefone Australia Pty Ltd v One.Tel Ltd (2007) 61 ACSR 246; [2007] NSWSC 69 at [69]. 179. Re Octaviar Ltd (recs and mgrs apptd) (in liq) [2011] NSWSC 1691. 180. Re Octaviar Ltd (recs and mgrs apptd) (in liq) (2013) 93 ACSR 316; [2013] NSWSC 62 at [40]. 181. JP Morgan Chase Bank, National Association v Fletcher (as liquidator of Octaviar Ltd) (recs and mgrs apptd) (in liq) (2014) 306 ALR 224; 97 ACSR 638; [2014] NSWCA 31. The High Court has granted special leave: see Grant Samuel Corporate Finance Pty Ltd v Fletcher; JP Morgan Chase Bank, National Association v Fletcher [2014] HCATrans 167. At the time of writing, the hearing of the appeal proper is pending. 182. JP Morgan Chase Bank, National Association v Fletcher (as liquidator of Octaviar Ltd) (recs and mgrs apptd) (in liq) (2014) 306 ALR 224; 97 ACSR 638; [2014] NSWCA 31 at [89]. The High

Court has granted special leave: see Grant Samuel Corporate Finance Pty Ltd v Fletcher; JP Morgan Chase Bank, National Association v Fletcher [2014] HCATrans 167. 183. Greig v Australian Building Industries Pty Ltd (in liq) [2004] 2 Qd R 17; [2003] QCA 298. 184. Mason P and Handley JA agreed with Spigelman CJ’s judgment. 185. See also Fortress Credit Corp (Australia) II Pty Ltd v Fletcher (2014) 308 ALR 166; [2014] NSWCA 148 at [41] per Bathurst CJ however at [102] his Honour noted that this issue did not arise in the appeal before him. The High Court has granted special leave: Fortress Credit Corporation (Australia) II Pty Ltd v Fletcher [2014] HCATrans 233 (17 October 2014). At the time of writing, the hearing of the appeal proper before the High Court was pending. 186. Wallman v Milestone Enterprises Pty Ltd [2006] WASC 260. 187. See also Re Harris Scarfe Ltd (in liq) (No 3) (2008) 65 ACSR 616; [2008] SASC 74, affirmed sub nom Ansell Ltd v Davies (2008) 67 ACSR 356; [2008] SASC 203 where the court held that a fresh application was not necessary. Special leave to appeal was granted in these proceedings on 13 November 2008, but the parties did not proceed to hearing before the High Court. 188. Rodgers v Federal Commissioner of Taxation (1998) 88 FCR 61; 158 ALR 220; 29 ACSR 270. 189. This rule concerned amendment. The current rule regarding amendment is r 8.21 of the Federal Court Rules 2011. 190. Rodgers v Federal Commissioner of Taxation (1998) 88 FCR 61; 158 ALR 220 at 226. See also New Cap Reinsurance v Reaseguros Alianza SA (2004) 186 FLR 175; [2004] NSWSC 787 at [41]ff; Star v National Australia Bank Ltd (1999) 30 ACSR 583; [1999] NSWSC 305; and Rambaldi v Dallbrook Pty Ltd (2003) 21 ACLC 1190; [2003] VSC 163 and Carter, Re Spec FS NSW Pty Ltd (in liq) [2013] FCA 1027. 191. See Air Link Pty Ltd v Paterson (No 2) (2003) 58 NSWLR 388; [2003] NSWCA 251 at 423–5; Australia and New Zealand Banking Group Ltd v Larcos (1987) 13 NSWLR 286; Rodgers v Federal Commissioner of Taxation (1998) 88 FCR 61; 158 ALR 220 at 226–7; New Cap Reinsurance v Reaseguros Alianza SA (2004) 186 FLR 175; [2004] NSWSC 787 at [41]ff. 192. Gordon v Tolcher in his capacity as liquidator of Senafield Pty Ltd (in liq) (2006) 231 CLR 334; 60 ACSR 522; [2006] HCA 62 at [40]. 193. Re Harris Scarfe Ltd (in liq) and Harris Scarfe Wholesale Pty Ltd (in liq) (No 3) (2008) 65 ACSR 616; [2008] SASC 74. 194. Re Harris Scarfe Ltd (in liq) and Harris Scarfe Wholesale Pty Ltd (in liq) (No 3) (2008) 65 ACSR 616; [2008] SASC 74 at [24] per Debelle J. See also Tagoori Pty Ltd (in liq) v Lee [2001] 2 Qd R 98; approved in Greig v Australian Building Industries Pty Ltd (in liq) [2004] 2 Qd R 17; [2003] QCA 298. See further BP Australia Ltd v Brown (2003) 58 NSWLR 322; 46 ACSR 677; [2003] NSWCA 216 for a discussion of joinder in the context of s 588FF. 195. Austin Australia Pty Ltd (in liq) v A & G Scaffolding and Rigging Service Pty Ltd (2007) 25 ACLC 1363; [2007] NSWSC 1077 at [33]. 196. Austin Australia Pty Ltd (in liq) v A & G Scaffolding and Rigging Service Pty Ltd (2007) 25 ACLC 1363; [2007] NSWSC 1077. 197. Austin Australia Pty Ltd (in liq) v A & G Scaffolding and Rigging Service Pty Ltd (2007) 25 ACLC 1363; [2007] NSWSC 1077 at [33]. 198. The Corporations Rules in each jurisdiction are essentially the same with minor variations: Federal Court (Corporations) Rules 2000 (Cth); Corporations Rules (ACT) (located in Sch 6 to the Court Procedures Rules 2006 (ACT)); Supreme Court (Corporations) Rules 1999 (NSW); Corporations Law Rules 2000 (NT); Rules for Proceedings under Corporations Act or ASIC Act (cited as the

Corporations Proceedings Rules and located in Sch 1A to the Uniform Civil Procedure Rules 1999 (Qld)); Corporations Rules 2003 (SA); Supreme Court (Corporations) Rules 2000 (Tas); Supreme Court (Corporations) Rules 2003 (Vic); Supreme Court (Corporations) (WA) Rules 2004. In Tasmania, the Supreme Court (Corporations) Rules 2000 use a different numbering system from those in other jurisdictions but the substantive provisions are otherwise the same. 199. The originating process must also be in accordance with Form 1. A precedent originating process is set out in Appendix A. 200. It is important for such a claim to be properly particularised, especially when seeking to invoke s 588FE(5). See, for example, the decision of Austin J in Rodgers v Berchtold Pacific [2006] NSWSC 462 where his Honour struck out the statement of claim on the basis that insufficient particulars had been provided. In the Supreme Court of New South Wales at least, because proceedings for recovery under s 588FF are required to be commenced by originating process under the Corporations Rules, there can be no deemed admission of matters even when the proceedings have been commenced by statement of claim: see the decision of Barrett J in Wily v King [2010] NSWSC 352. 201. Re Weston Application; Employers Mutual Indemnity (Workers Compensation) Ltd v Omni Corporation Pty Ltd (2009) 255 ALR 362; [2009] NSWSC 264. 202. Re Weston Application; Employers Mutual Indemnity (Workers Compensation) Ltd v Omni Corp Pty Ltd (2009) 255 ALR 362; [2009] NSWSC 264 at [23]–[24] per Barrett J. 203. Re Weston Application; Employers Mutual Indemnity (Workers Compensation) Ltd v Omni Corp Pty Ltd (2009) 255 ALR 362; [2009] NSWSC 264 at [19]. 204. Dean-Willcocks Pty Ltd v Commissioner of Taxation (No 2) (2004) 49 ACSR 325; [2004] NSWSC 286 at [40]. See also Cooper as liquidator of Wanted World Wide (Australia) Ltd (in liq) v Commissioner of Taxation (2004) 139 FCR 205; 210 ALR 635; [2004] FCA 1063. 205. Hall (as liquidators of Reynolds Wines Ltd) v Commissioner of Taxation (2004) 186 FLR 111; 51 ACSR 173; [2004] NSWSC 985 at [15] per Barrett J. 206. See the decision of Barrett J in Hall (as liquidators of Reynolds Wines Ltd) v Commissioner of Taxation (2004) 186 FLR 111; 51 ACSR 173; [2004] NSWSC 985. 207. See Federal Court of Australia Practice Note CM 1 ‘Case Management and the Individual Docket System’ dated 1 August 2011 and Practice Note CORP 1 ‘Interlocutory Process and Pleadings in Corporations Matters’ dated 1 August 2011. 208. Practitioners should familiarise themselves with Supreme Court of New South Wales Practice Note ‘SC Eq 4 Supreme Court Equity Division — Corporations List’. 209. Practitioners should refer to Supreme Court of Victoria Practice Note No 4 of 2014, ‘New Structure of Trial Division’. 210. Dean-Willcocks v Air Transit International Pty Ltd (2002) 55 NSWLR 64; 42 ACSR 328; [2002] NSWSC 525. 211. Supreme Court Rules 1970 (NSW) Pt 8 r 2. 212. For a discussion of the presumptions under s 588E, see 2.63ff. 213. Dean-Willcocks v Air Transit International Pty Ltd (2002) 55 NSWLR 64; 42 ACSR 328; [2002] NSWSC 525 at [12] per Austin J. 214. Dean-Willcocks v Air Transit International Pty Ltd (2002) 55 NSWLR 64; 42 ACSR 328; [2002] NSWSC 525 at [15]. 215. Dean-Willcocks v Air Transit International Pty Ltd (2002) 55 NSWLR 64; 42 ACSR 328; [2002] NSWSC 525 at [23]–[24] per Austin J. See similarly the comments of Tadgell J in Marino v Esanda Ltd [1986] VR 735 at 740 dealing with a similar Victorian provision.

216. Bishop v Bridgelands Securities (1990) 25 FCR 311. See also the decision of Goldberg J in Carter v Commissioner of Taxation (2001) 109 FCR 215 at 221; [2001] FCA 575 at [23], where his Honour said that the court should also be concerned to determine what is the most efficient use of the resources of the parties and also of the court. 217. Dean-Willcocks v Air Transit International Pty Ltd (2002) 55 NSWLR 64; 42 ACSR 328; [2002] NSWSC 525 at [35] per Austin J. 218. Dean-Willcocks v Air Transit International Pty Ltd (2002) 55 NSWLR 64; 42 ACSR 328; [2002] NSWSC 525 at [37] per Austin J. 219. Dean-Willcocks v Air Transit International Pty Ltd (2002) 55 NSWLR 64; 42 ACSR 328; [2002] NSWSC 525 at [38] per Austin J. 220. Gloria Marshall Australia Pty Ltd (in liq) v Bell Press Pty Ltd [2002] NSWSC 1191. 221. Gloria Marshall Australia Pty Ltd (in liq) v Bell Press Pty Ltd [2002] NSWSC 1191 at [6]–[7] per Young CJ in Eq. See also Lord v Agreserves Australia Ltd [2006] FCA 598 per Jacobson J. 222. Dean-Willcocks v Commissioner of Taxation (2003) 45 ACSR 298; [2003] NSWSC 355 at [17] per Austin J. 223. Part 31 r 2 provided: The Court may make orders for — (a) the decision of any question separately from any other question, whether before or after any trial or further trial in the proceedings; and (b) the statement of a case and the question for decision. The equivalent rule is now found in NSW UCPR r 28.2 which provides: The court may make orders for the decision of any question separately from any other question, whether before, at or after any trial or further trial in the proceedings. 224. Part 8 r 6 of the Supreme Court Rules provided that: Where any joinder of parties or causes of action may embarrass or delay trial of an action or is otherwise inconvenient, the Court may order separate trials or make such other order as the Court thinks fit. The equivalent provision is now found in NSW UCPR r 6.22. 225. Dean-Willcocks v Commissioner of Taxation (2003) 45 ACSR 298; [2003] NSWSC 355 at [17] per Austin J. 226. Dean-Willcocks v Commissioner of Taxation (2003) 45 ACSR 298; [2003] NSWSC 355 at [19]– [20]. 227. Engineered Thermal Systems Pty Ltd v Salmon; Re Salmon and Speck Pty Ltd (in liq) [2012] FCA 1159. 228. See also the decision of Emmett J in Hutchison v MS Wulguru Steel Pty Ltd [2012] FCA 272 where default judgment was entered on behalf of a liquidator under s 588FF. 229. See 11.26. 230. This principle is well enshrined: see, for example, Milne v Attorney-General (Tas) (1956) 95 CLR 460 at 477 where Dixon CJ, McTiernan, Williams, Fullagar and Taylor JJ observed that: ‘It is a general rule that a wholly successful defendant should receive his costs unless good reason is shown to the contrary …’. Court rules in most jurisdictions in any event adopt this principle. See, for example, Court Procedures Rules 2006 (ACT) r 1721 Uniform Civil Procedure Rules 2005 (NSW) r 42.1; Uniform Civil Procedure Rules 1999 (Qld) r 681(1); Supreme Court Civil Rules 2006 (SA) r

263(1); Rules of the Supreme Court (WA) O 66 r 1(1). 231. Re Wilson Lovatt & Sons Ltd [1977] 1 All ER 274 at 285. See also Jonas v Rocklea Spinning Mills Pty Ltd (2000) 18 ACLC 333; [2000] VSC 93 at [5] referring to Romer J in Re W Powell & Sons [1896] 1 Ch 681; Shirlaw v Associated Alloys Pty Ltd (2000) 18 ACLC 763; [2000] NSWCA 224 at [52]–[54]; Dwyer v La Gender Pty Ltd [2005] SASC 213 at [7] per Lunn J; Silvia v Brodyn Pty Ltd [2007] NSWCA 55 at [50] per Hodgson JA, Ipp and Basten JJA agreeing; Arena Management Pty Ltd (rec & mgr apptd) v Campbell St Theatre Pty Ltd (2011) 80 NSWLR 652; 84 ACSR 33; [2011] NSWCA 128 at [18] per Campbell JA, McColl and Macfarlan JJA agreeing. 232. Re Wilson Lovatt & Sons Ltd [1977] 1 All ER 274. 233. Re Wilson Lovatt & Sons Ltd [1977] 1 All ER 274 at 285 per Oliver J. 234. For examples of the costs follow the event rule being applied in s 588FF proceedings, see, Kassem v Zhang [2008] NSWSC 1287 per Barrett J (liquidator unsuccessful, costs not ‘properly incurred’ and accordingly denied indemnity under s 556(1)(a) and (1)(dd)); Australian Combined Financial Services Pty Ltd v Fusion Realty Pty Ltd [2008] NSWSC 1258 per Barrett J (liquidator unsuccessful); New Cap Reinsurance Corp Ltd v AE Grant (2009) 72 ACSR 638; [2009] NSWSC 662 per Barrett J (liquidator successful); Re Locktronic Systems Pty Ltd (No 2) [2009] VSC 523 (Deputy Commissioner consented to orders under s 588FF but court made no order as to costs); Investwell Pty Ltd (in liq) v Roberts [2011] NSWSC 784 per Hammerschlag J (liquidator successful, upheld on appeal in Roberts v Investwell Pty Ltd (in liq) (2012) 88 ACSR 689; [2012] NSWCA 134); Re NEPV Solar [2012] QSC 323 (liquidator successful). See also the Full Federal Court decision of Re Kazar (liquidator) v Kargarian; Frontier Architects Pty Ltd (in liq) (2011) 197 FCR 113; 284 ALR 237; [2011] FCAFC 136 for a discussion of the factors informing the exercise of the discretion as to costs conferred under s 43 of the Federal Court of Australia Act 1976 in the context of two sets of proceedings heard together as a joint hearing in which evidence in one was treated as evidence in the other. 235. Investwell Pty Ltd (in liq) v Roberts [2011] NSWSC 784 per Hammerschlag J (indemnity costs ordered in favour of liquidator, upheld on appeal in Roberts v Investwell Pty Ltd (in liq) (2012) 88 ACSR 689; [2012] NSWCA 134); Utsa Pty Ltd (in liq) v Ultratune Australia Pty Ltd (VSC, Chernov J, 20 May 1998, unreported) (indemnity costs orders made against liquidators). 236. Re Silver Valley Mines (1882) 21 Ch D 381; Silvia v Brodyn Pty Ltd [2007] NSWCA 55 at [51]. See also Re Dominion of Canada Plumbago Co (1884) 27 Ch D 33; Re Bonang Gold Mining Co Ltd (1893) 14 LR (NSW) (Eq) 262; Re Beni-Felkai Mining Co [1934] Ch 406 at 418–19; Re Buena Vista Motors Pty Ltd (in liq) [1971] 1 NSWLR 72; Ferrier & Knight v Civil Aviation Authority (FCA, Lockhart J, 24 March 1994, unreported); Re Mesco Properties Ltd [1979] 1 All ER 307; [1979] 1 WLR 588. 237. Section 556(2) defines relevant authority as including, inter alia, a liquidator. 238. Re MC Bacon Ltd (No 2) [1991] Ch 127; [1990] BCLC 607. 239. Re MC Bacon Ltd (No 2) [1991] Ch 127 at 137; [1990] BCLC 607. See similarly the reasoning of Peter Gibson LJ in Re Oasis Merchandising Ltd [1998] Ch 170; [1997] 1 All ER 1009. 240. Re Yagerphone Ltd [1935] Ch 392. 241. Lewis v Commissioner of Inland Revenue [2001] 3 All ER 499. 242. Re Exchange Travel (Holdings) Ltd (No 3) [1997] 2 BCLC 579. 243. Under the Insolvency Rules 1986 (UK) a liquidator may claim expenses incurred in ‘the preparation or conduct of any legal proceeding’ (r 4.218(3)(a)(ii)) and a liquidator’s expenses are payable out of the assets of the company available for the payment of general creditors, which are taken to include the proceeds of any legal action, compromise, settlement, etc: r 4.218(2)(a)(i).

244. Movitor Pty Ltd (in liq) v Sims (1996) 64 FCR 380; 136 ALR 643; 19 ACSR 440 per Drummond J; Re Tosich Construction Pty Ltd (1997) 73 FCR 219 at 235; 143 ALR 18 at 32; 23 ACSR 126 at 140 per Lindgren J; Re Starkey [1994] 1 Qd R 142; 115 ALR 305; Elfic v Macks [2003] 2 Qd R 125; 181 ALR 1; [2001] QCA 219. 245. See Mineral & Chemical Traders Pty Ltd v T Tymczyszyn Pty Ltd (in liq) (1994) 15 ACSR 398 per Santow J and Commissioner of Taxation v Linter Textiles Australia Ltd (in liq) (2005) 220 CLR 592; 215 ALR 1; [2005] HCA 20 per McHugh J. Contrast, however, the comments of Finkelstein J in Re Cook; Italiano Family Fruit Co Pty Ltd (in liq) (2010) 190 FCR 474; 80 ACSR 680; [2010] FCA 1355 at [39]. 246. Elfic v Macks [2003] 2 Qd R 125; (2001) 181 ALR 1; [2001] QCA 219 at [93]. 247. That section provided that ‘a liquidator of a company may sell or otherwise dispose of, in any manner, all or any part of the property of the company’ and remains the same under the Corporations Act 2001. 248. Elfic v Macks [2003] 2 Qd R 125; (2001) 181 ALR 1; [2001] QCA 219 at [93]. 249. See the review of the authorities by Finkelstein J in Re Cook; Italiano Family Fruit Co Pty Ltd (in liq) (2010) 190 FCR 474; 80 ACSR 680; [2010] FCA 1355 and his Honour’s conclusion on the Australian authorities at [42]. See, for example, the decision of Barrett J in Kassem v Zhang [2008] NSWSC 1287, where his Honour accepted that in a s 588FF action the assets of the company in liquidation will be applicable towards the liquidators’ liability for costs if those costs are ‘expenses (except deferred expenses) properly incurred by a relevant authority’: see s 556(1)(a) and (1)(dd): at [26]. 250. Hypec Electronics Pty Ltd (in liq) v Mead (2004) 61 NSWLR 169; 50 ACSR 448; [2004] NSWSC 731 at [82] per Campbell J. See also the Court of Appeal decision in Mead v Watson [2005] NSWCA 133 where the court overturned Campbell J’s decision but did not question the recital of the legal principles expounded by his Honour (see Arena Management Pty Ltd (rec and mgr apptd) v Campbell Street Theatre Pty Ltd (2011) 80 NSWLR 652; 84 ACSR 33; [2011] NSWCA 128 at 37). 251. Re Silver Valley Mines (1882) 21 Ch 381. 252. Re Silver Valley Mines (1882) 21 Ch 381 at 385–6 per Cotton LJ. 253. Re Silver Valley Mines (1882) 21 Ch 381 at 392. See also Arena Management Pty Ltd (rec and mgr apptd) v Campbell Street Theatre Pty Ltd (2011) 80 NSWLR 652; 84 ACSR 33; [2011] NSWCA 128. 254. Kassem v Zhang [2008] NSWSC 1287. 255. Barrett J’s order was an ‘[O]rder that the plaintiffs not treat as within ss 556(1)(a) or 556(1)(dd) of the Corporations Act 2001 (Cth) costs for which they are liable under order 3 [which provided that the liquidator pay the defendant’s costs]’. 256. Kassem v Zhang [2008] NSWSC 1287 at [26], [28] and [31]–[32] per Barrett J. 257. An exhaustive review of the circumstances in which a court will order security for costs is beyond the scope of this work. See, for example, the leading decision KP Cable Investments Pty Ltd v Meltglow Pty Ltd (1995) 56 FCR 189 where Beazley J explained that the discretion to order security for costs is unfettered and should be exercised having regard to all the circumstances of the case without any predisposition in favour of the award of the security. 258. Re Strand Wood Co Ltd [1904] 2 Ch 1. 259. Re Strand Wood Co Ltd [1904] 2 Ch 1 at 3 Vaughan-Williams LJ and Cozens-Hardy LJ agreeing. Cited with approval by Meagher JA in Hession v Century 21 South Pacific Ltd (in liq) (1992) 28 NSWLR 120 at 123 with whom Kirby P and Cripps JA agreed.

260. Re Pavelic Investments Pty Ltd (1983) 8 ACLR 417. 261. Re Pavelic Investments Pty Ltd (1983) 8 ACLR 417 at 417. In Re Strand Wood Co Ltd [1904] 2 Ch 1 it was held that a court will not ordinarily make an order for security for costs against a liquidator. See similarly John Arnold’s Surf Shop Pty Ltd (in liq) v Heller Factors Pty Ltd (1979) 4 ACLR 26 and Eddy v Mac Audio & Acoustic Consultants Pty Ltd [2000] SASC 145. 262. For examples of the court’s reluctance in ordering security, see Williamson v Soil & Garden Suppliers Pty Ltd (WASC, Sanderson J, 2 June 1998, unreported); Dwyer and Maxted v Canning Vale [2005] SASC 80. 263. Jeffry & Katauskas Pty Ltd v SST Consulting Pty Ltd (2009) 239 CLR 75; 260 ALR 34; [2009] HCA 43 at [38] where the majority of the High Court observed that ‘[i]n general, the bare fact of impecuniosity is not of itself reason to order a plaintiff who is a natural person to provide security for costs …’; Green (as liquidator of Arimco Mining Pty Ltd) v CGU Insurance Ltd (2008) 67 ACSR 105; [2008] NSWCA 148 at [29]; Pearson v Naydler [1977] 3 All ER 531 at 533; [1977] 1 WLR 899 at 902 per Megarry VC. 264. See, for example, NSW UCPR r 42.21. 265. See J H Billington Ltd v Billington [1907] 2 KB 106 at 109. See also Green (as liquidator of Arimco Mining Pty Ltd) v CGU Insurance Ltd (2008) 67 ACSR 105; [2008] NSWCA 148. 266. Re Strand Wood Co Ltd [1904] 2 Ch 1. 267. Green (as liquidator of Arimco Mining Pty Ltd) v CGU Insurance Ltd (2008) 67 ACSR 105; [2008] NSWCA 148. 268. Under NSW UCPR r 42.21 the court may order a natural person defendant to provide security where: (a) a plaintiff is ordinarily resident outside New South Wales; (b) the address of a plaintiff is not stated or is mis-stated in his or her originating process, and there is reason to believe that the failure to state an address or the mis-statement of the address was made with intention to deceive; (c) after the commencement of the proceedings, a plaintiff has changed his or her address, and there is reason to believe that the change was made by the plaintiff with a view to avoiding the consequences of the proceedings, or (d) there is reason to believe that a plaintiff being, a corporation, will be unable to pay the costs of the defendant if ordered t do so, or (e) a plaintiff is suing, not for his or her own benefit, but for the benefit of some other person and there is reason to believe that the plaintiff will be unable to pay the costs of the defendant if ordered to do so, or (f)

there is reason to believe that the plaintiff has divested assets with the intention of avoiding the consequences of the proceedings …

269. Green (as liquidator of Arimco Mining Pty Ltd) v CGU Insurance Ltd (2008) 67 ACSR 105; [2008] NSWCA 148 at [45] per Hodgson JA, Campbell and Basten JJA agreeing. 270. See, for example, Timbertown Community Enterprises Ltd v Holiday Coast Credit Union Ltd (1997) 15 ACLC 1679 and Eddy v Mac Audio & Acoustical Consultants Pty Ltd (in liq) [2000] SASC 145 where the court refused to order security in both cases. 271. Morris v Hanley [2000] NSWSC 957. 272. Bhattacharya v Freedman [2001] NSWSC 498. 273. Byrnes v John Fairfax Publications Pty Ltd [2006] NSWSC 251.

274. Green (as liquidator of Arimco Mining Pty Ltd) v CGU Insurance Ltd (2008) 67 ACSR 105; [2008] NSWCA 148. 275. Green (as liquidator of Arimco Mining Pty Ltd) v CGU Insurance Ltd (2008) 67 ACSR 105; [2008] NSWCA 148 at [51]. See likewise Bufalo Corporation Pty Ltd (recs and mgrs appt) (in liq) v Lendlease Primelife Ltd (No 3) [2010] VSC 263. 276. Australian Derivatives Exchange Ltd v Doubell [2008] NSWSC 1174. 277. See similarly Re Imobridge Pty Ltd (in liq) (No 2) [2000] 2 Qd R 280. 278. Star v National Australia Bank Ltd [1999] NSWSC 353. 279. See, however, the decision of Campbell J in Hellen v Alex G Grivas Pty Ltd [2002] NSWSC 1019 where his Honour expressed the view that Rolfe J was not suggesting the company was the proper plaintiff in bringing s 588FF proceedings. 280. See 11.26. 281. Jonas v Rocklea Spinning Mills Pty Ltd (2000) 18 ACLC 333; [2000] VSC 93. 282. Jonas v Rocklea Spinning Mills Pty Ltd (2000) 18 ACLC 333; [2000] VSC 93 at [7] referring to the decision of Meagher JA in Hession v Century 21 South Pacific Ltd (in liq) [1992] 28 NSWLR 120 at 123. A closer reading, however, of Rolfe J’s comments suggests that Mandie J’s criticisms may not necessarily be correct: see, however, the decision of Campbell J in Hellen v Alex G Grivas Pty Ltd [2002] NSWSC 1019. 283. For a discussion about s 1335, see the Victorian Court of Appeal decisions in Ariss v Express Interiors Pty Ltd (in liq) [1996] 2 VR 507 and Living Spring Pty Ltd v Kliger Partners (2008) 20 VR 377; 66 ACSR 455; [2008] VSCA 93. 284. Only a ‘Court’ (upper case ‘C’) may make an order against the Commissioner under s 588FF: see s 58AA. 285. See 11.51. 286. Condon v Commissioner of Taxation (2004) 207 ALR 676; 49 ACSR 681; [2004] NSWSC 481 at [7]–[8] and [20]–[21] per Barrett J. See also Commissioner of Taxation v Moodie (2014) 98 ACSR 274 at [53] per McColl JA with whom Meagher and Barrett JJA agreed. 287. Rule 2.2(1)(b) of the Corporations Rules; Condon v Commissioner of Taxation (2004) 49 ACSR 681; [2004] NSWLR 481 at [8] and [19]–[21] per Barrett J. 288. Condon v Commissioner of Taxation (2004) 49 ACSR 681; [2004] NSWLR 481 at [21] and [28]. See also Hall (as liquidators of Reynolds Wines Ltd) v Commissioner of Taxation (2004) 51 ACSR 173; [2004] NSWSC 985 at [8] per Barrett J. 289. For example Pt 6 of the Supreme Court Rules 1970 (NSW). See Hall (as liquidators of Reynolds Wines Ltd) v Commissioner of Taxation (2004) 51 ACSR 173; 186 FLR 111; [2004] NSWSC 985 at [23] and [25]. See also Commissioner of Taxation v Moodie (2014) 98 ACSR 274 at [53] per McColl JA with whom Meagher and Barrett JJA agreed. 290. Commissioner of Taxation v Moodie (2014) 98 ACSR 274 at [129] per Barrett JA. 291. Hall (as liquidators of Reynolds Wines Ltd) v Commissioner of Taxation (2004) 51 ACSR 173; [2004] NSWSC 985 at [25]. 292. See, for example, Duncan v Commissioner of Taxation; Re Trader Systems International Pty Ltd (in liq) (2006) 58 ACSR 555 at [24] following Finkelstein J’s approach in Crosbie v Commissioner of Taxation (2003) 130 FCR 275; 21 ACLC 1659. 293. This section deals with procedural aspects of claims made under ss 588J, 588K, 588M, 588FGA. 294. Engineered Thermal Systems Pty Ltd v Salmon; Re Salmon and Speck Pty Ltd (in liq) [2012] FCA

1159 at [32] per Foster J. 295. Movitor Pty Ltd (in liq) v Sims (1996) 19 ACSR 440 at 450 per Lockhart J referring to Magor & St Mellons Rural District Council v Newport Corp [1950] 2 All ER 1226 at 1230–1. 296. Wily v King [2010] NSWSC 352 per Barrett J. 297. Wily v King [2010] NSWSC 352 per Barrett J at [30] referring to Termijtelen v Van Arkel [1974] 1 NSWLR 525. 298. Edenden v Bignell [2008] NSWSC 666 at [32] per Barrett J. 299. Re Leigh; AP and PJ King Pty Ltd (in liq) [2006] NSWSC 315. 300. Re Leigh; AP and PJ King Pty Ltd (in liq) [2006] NSWSC 315 at [25]. See also In the Matter of Addstone Pty Ltd (in liq); Macks (1998) 83 FCR 583; Re ACN 076 673 875 Ltd (2002) 42 ACSR 296; [2002] NSWSC 578; Chartspike Pty Ltd v Chahoud [2001] NSWSC 585; and Re Harris Scarfe Ltd (in liq) [2007] SASC 209, where Debelle J approved liquidators entering into a litigation funding agreement. 301. See, for example, Re Harris Scarfe Ltd (in liq) [2007] SASC 209 at [10] where the court ordered that the litigation funding agreement ‘be placed in a sealed envelope which shall not be opened except by order of a judge of this court’. 302. See the comments of the New South Wales Court of Appeal in Hall v Poolman (2009) 75 NSWLR 99; 71 ACSR 139; [2009] NSWCA 64 at [176]ff. 303. It is established that approval may be granted nunc pro tunc: see Empire (Aust) Nominees Pty Ltd v Vince (2000) 35 ACSR 167; [2000] VSC 324; Re Stewart; Newtronics Pty Ltd [2007] FCA 1375. Section 1322(4) is not applicable in such applications: Australian Securities and Investments Commission v Forestview Nominees Pty Ltd (2007) 164 FCR 327; 243 ALR 532; [2007] FCA 1985.

[page 666]

12 Cross-Border Insolvency Aspects of Voidable Transactions INTRODUCTION 12.1 The rapid growth in global commerce has made it increasingly likely that proceedings involving voidable transactions will have an international, or cross-border, dimension. International, or cross-border insolvency as it has come to be known,1 generally refers to insolvencies which arise from cross-border trading or which involve the application, or possible application, of the insolvency laws of two or more jurisdictions.2 As will be seen below, the phenomenon is not new with English law having developed sophisticated crossborder insolvency law principles since at least the 19th century. The principles of cross-border insolvency seek to resolve a fundamental issue in cross-border insolvency; namely, what is the most appropriate way in which the insolvent’s assets are realised and distributed in an insolvency spanning multiple jurisdictions with multiple and often inconsistent rules? At its core, the main issue in an international insolvency is the same as in any private international law dispute — jurisdiction. The complex issues that arise were recognised and described in the Harmer Report as follows: Complex problems arise where there are concurrent insolvency proceedings in different jurisdictions or where the debtor … against whom proceedings have been taken in (the debtor’s) own country has foreign assets or foreign creditors … (R)ules differ widely as to the

[page 667]

extent to which a State’s insolvency law applies to foreign assets and the circumstances in which the claims of foreign creditors and the title of foreign trustees, receivers and liquidators will be recognised.3

In such cross-border insolvencies, the aim of insolvency law in that context is not dissimilar to the aims of domestic Anglo-Australian insolvency law.4 As was explained in the Harmer Report: The aim of insolvency law in this context should be to avoid the cost and inefficiency of two or more competing administrations and to promote an administration that seeks the ideal of a single insolvency administration in which the claims of all creditors are marshalled and all the property of the insolvent, wherever situated, is dealt with and distributed by the one administrator. This is sometimes referred to as the concept of ‘unity of bankruptcy’.5

Where there is similarity between the insolvency law of the place in which the insolvency administration originates and that of the place in which the administration is sought to be enforced, the most suitable solution would be a system of full recognition and enforcement which promotes the ideal of ‘unity of bankruptcy’. A single administration would enable, for example, an insolvency administrator appointed in the place where the bankruptcy or winding up originated to restrain dealings with, be vested with and thereafter deal with and realise, the insolvent’s property which is located in a foreign place without the necessity for a separate bankruptcy or winding up in that place. There would be one pool of property to be distributed between all creditors wherever located. All unsecured creditors (wherever situated) would be subject to the same restraints and, according to their particular class, treated equally.

Universalist versus territorialist approach 12.2 The above observations allude to the main competing approaches to jurisdiction in cross-border insolvency, namely, a universal as opposed to territorial approach and a unitary as opposed to a plural, approach. A unitary approach to jurisdiction in cross-border insolvency involves a single insolvency spanning multiple jurisdictions to which a single jurisdiction has exclusivity (usually the place of the company’s incorporation), whereas a pluralist approach entails multiple proceedings in multiple jurisdictions. The universalist/territorialist dichotomy focuses upon the location of an insolvent company’s assets with the universalist ideal involving a single insolvency proceeding in one jurisdiction [page 668]

encompassing all of the insolvent company’s assets, regardless of where they may be located around the globe. A territorialist approach on the other hand entails multiple insolvencies based upon the location of a company’s assets with little or no coordination among jurisdictions. Although there have been moves towards the universalist ideal, in practice, what has emerged is a ‘modified universalism’6 essentially involving a compromise between the competing approaches. As Lord Hoffmann explained in Re HIH Casualty and General Insurance: Despite the absence of statutory provision, some degree of international cooperation in corporate insolvency had been achieved by judicial practice. This was based upon what English judges have for many years regarded as a general principle of private international law, namely that bankruptcy (whether personal or corporate) should be unitary and universal. There should be a unitary bankruptcy proceeding in the court of the bankrupt’s domicile which receives world-wide recognition and it should apply universally to all the bankrupt’s assets. This … [unitary and universal insolvency] … is very much a principle rather than a rule. It is heavily qualified by exceptions on pragmatic grounds; elsewhere I have described it as an aspiration: see [Cambridge Gas Transport Corp v Official Committee of Unsecured Creditors of Navigator Holdings plc [2006] UKPC 26; [2007] 2 BCLC 141; [2007] 1 AC 508 at [17]. Professor Jay Westbrook, a distinguished American writer on international insolvency has called it a principle of ‘modified universalism’: see also Professor Ian Fletcher Insolvency in Private International Law (2nd ed, 2005) at pp 15–17. Full universalism can be attained only by international treaty. Nevertheless, even in its modified and pragmatic form, the principle is a potent one.7

The ‘aspiration’ towards universality in cross-border insolvency has been assisted by recent international co-operation.8 In May 1997, for example, [page 669] the United Nations Commission on International Trade Law (UNCITRAL) adopted the Model Law on Cross-Border Insolvency (the Model Law). A ‘model law’ is a legislative text recommended to states for enactment as part of national law, with or without modification.9 The purpose of the Model Law is to provide effective mechanisms for dealing with cases of cross-border insolvency.10 In 2008, the Australian Parliament adopted the Model Law with minor variations by enacting the Cross-Border Insolvency Act 2008 (Cth) (Cross-Border Insolvency Act). Other nations11 have adopted the Model Law to varying degrees including Great Britain12 and the United States of America.13 Although the Model Law is a move towards the ideal of universality, the Model Law nonetheless contains certain elements of territorialism which still remains a powerful force. True universality will only ever be achieved by international treaty as observed by Lord Hoffman.

VOIDABLE TRANSACTIONS IN CROSSBORDER INSOLVENCY 12.3 The voidable transactions provisions contained in Pt 5.7B of the Corporations Act apply only to transactions of companies14 registered under the Corporations Act and Pt 5.7 bodies.15 That is not to say, however, that those provisions may not, in some cases, involve issues of an international nature. In the context of voidable transactions, the issues that may arise in a cross-border insolvency can, for present purposes, be divided into two broad contexts. First, in the context of a domestic winding up of an Australian company involving cross-border elements; for example, where the defendant of a voidable transaction proceeding is overseas. Second, in the context of a winding up of a foreign company with some Australian connection. [page 670]

Statutory regulation of cross-border insolvency 12.4 In both contexts, one of the key challenges is ensuring cooperation and coordination of the insolvency spanning multiple jurisdictions. As will be seen below, such challenges are not new, with the common law having developed a number of principles dealing with the above issues. While these principles persist to varying degrees, there is now in place a number of statutory mechanisms regulating cross-border insolvency that need to be taken into account. These mechanisms are: Pt 5.6 Div 9 of the Corporations Act, which deals with cooperation between Australian and foreign courts in external administration matters; the Cross Border Insolvency Act 2008, which applies the Model Law; provisions dealing with foreign companies operating within Australia namely Pt 5B.2 Div 2 of the Act and s 583 of the Act which deals with winding up of Pt 5.7 bodies. A detailed examination of these issues and cross-border insolvency law in general is beyond the scope of this work.16 Instead, the purpose of this chapter is

to set out, in summary form, some aspects of cross-border insolvency law that may interact with proceedings involving voidable transactions and identify some of the practical issues that may arise. Prior to dealing with these specific practical issues, it is necessary to provide an overview of the legal framework that presently exists relating to the regulation of cross-border insolvency. As with domestic insolvency law, that framework is now largely statutory albeit infused with principles derived from the common law. However, unlike domestic insolvency law, those principles are not necessarily as evolved and in some cases can be considered to be in a state of flux.

Cross-border insolvency at common law 12.5 As explained by Lord Hoffman in Re HIH Casualty and General Insurance, even prior to the current statutory provisions dealing with crossborder insolvency17 some degree of international cooperation in corporate insolvency was achieved in common law by way of judicial practice.18 For example, in Solomons v Ross19 Dutch merchants were declared bankrupt in [page 671] the Netherlands and the Dutch bankruptcy trustee appointed to administer the bankruptcy was held entitled to recover an English debt in priority to an English creditor.20 Central to this cooperation was the principle of comity. The principle entails that one country will respect and recognise the laws and institutions of another.21 This recognition extends to the recognition of the status of companies incorporated outside of Australia22 as well as a foreign company’s final dissolution in its country of origin.23

Principal and ancillary windings up By the late 19th century, there developed what Lord Hoffman has described as a ‘judicial practice’ based upon the principle of universalism, that an English winding up of a foreign company was treated as ‘ancillary’ to a winding up by the court of its domicile.24 That is to say where a foreign company is being wound up in the jurisdiction of its incorporation (or the company’s domicile),25 that winding up is often described as the ‘principal’ winding up.26 Any other winding up is described as ‘ancillary’ to the principal winding up. For example,

in Re English Scottish and Australian Chartered Bank27 Vaughan Williams J considered whether a scheme of arrangement should be sanctioned in respect of an English bank whose business was principally in Australia, in circumstances where a winding-up order had been made against the bank in England. His Honour observed: … in construing the statute [Joint Stock Companies Arrangement Act 1870] one must bear in mind the principles upon which liquidations are conducted, in different countries and in different Courts, of one concern. One knows that where there is a liquidation of one concern the general principle is — ascertain what is the domicil of the company in liquidation; let the Court of the country of domicil act as the principal

[page 672] Court to govern the liquidation; and let the other Courts act as ancillary, as far as they can, to the principal liquidation. But although that is so, it has always been held that the desire to assist in the main liquidation — the desire to act as ancillary to the Court where the main liquidation is going on — will not ever make the Court give up the forensic rules which govern the conduct of its own liquidation.28

At common law, the English courts had jurisdiction to wind up a foreign company provided there were assets in the domestic jurisdiction or there was some other sufficient connection with England.29 In theory, a winding-up order by an English or Australian court operates universally, applies to all the foreign company’s assets and brings into play the full panoply of powers and duties under the relevant domestic insolvency legislation like any other winding-up order.30 As Millett J observed in Re International Tin Council: … the statutory obligation to collect and realise [assets extends to foreign assets] and to deal with their proceeds in accordance with the statutory scheme.31

Although a winding up may be ancillary to a principal winding up, it is not, by the terms of the winding-up order (or any legislative provision), made subsidiary to the principal administration.32 The liquidator appointed by the court in an ancillary winding up, for example, is subject to the full range of duties and responsibilities attaching to the office of liquidator, subject to any direction that the court itself may see fit to make.33 Generally, a local [page 673] liquidator in an ancillary winding up is to proceed in the manner described by

Lowe J in Re Australian Federal Life and General Assurance Co Ltd: The purpose of the ancillary winding up is to secure the local assets, and the rights of the local creditors; and the duties of the liquidators accordingly are to collect the local asset, to settle a list of the local contributories and also, it would seem, to determine the claims of local creditors.34

A number of rules have evolved concerning the interaction of the principal and ancillary windings up.35 One such rule was that the judicial practice which developed regarding an ancillary winding up was to limit the powers and duties of the liquidator to collecting domestic assets and settling a list of creditors who sent in proofs.36 Lord Hoffman has observed that such a practice was based upon the principle of universalism.37

All creditors to be treated equally 12.6 Another such principle is that all creditors of the insolvent company are as far as possible to be treated equally regardless of the creditor’s location. For example, in Re Matheson Brothers Ltd,38 a New Zealand registered company had a branch office in Basinghall Street, London, where it had contracted liabilities in England of about £5000. The company’s assets in England consisted of about £150 at its bankers, and certain office furniture and fittings in Basinghall Street. On a creditors’ petition to wind up the company in England, the court instead accepted an undertaking from the solicitor for the English agent of the company that the English assets should remain in status quo until the further order of the court. As Kay J explained: This being the case, what is the effect of the winding-up order which it is said has been made in New Zealand? This Court upon principles of international comity, would no doubt have great regard to that winding-up order and would be influenced thereby, but the question of jurisdiction is a different question, and the mere existence of a winding-up order made by a foreign Court does not take away the right of the Courts of this country to make a winding-up order here, though it would no doubt exercise an influence upon this Court in making the order. Now at this moment there are no proceedings pending to secure the assets here, nor has any application been made to the Courts of this country for that

[page 674] purpose, and in the meantime, however ready this Court may be to shew courtesy to the Courts of New Zealand, it does seem proper to interfere, and that sufficient reason exists for taking proceedings in order to secure the English assets. Having, therefore, jurisdiction to make a winding-up order I feel myself at liberty to sanction the acceptance of the undertaking offered by [the company’s English agent]. I have said thus much as to my own opinion upon the effect of the Act … I shall accordingly hold that the Court has sufficient jurisdiction to sanction the acceptance of the undertaking, and if the

undertaking had not been given that it had sufficient jurisdiction to appoint a provisional liquidator; for I consider that I am justified in taking steps to secure the English assets until I see that proceedings are taken in the New Zealand liquidation to make the English assets available for the English creditors pari passu with the creditors in New Zealand [emphasis added].39

The principle was adopted in Australia relatively early. In the 1931 decision of Re Australian Federal Life and General Assurance Co Ltd, Lowe J of the Supreme Court of Victoria explained the position: There is authority for the view that in these cases [of cross-border insolvencies] the Court of the situs of the ancillary winding up has control of the assets in that winding up, and will secure the local assets until it is clear that they will be made available to local creditors pari passu with other creditors of the same class — see Re Matheson Brothers Ltd.40

Similarly, in Re Standard Insurance Company Limited,41 Lucas J of the Supreme Court of Queensland observed: It is clear that when a winding up is proceeding in different jurisdictions, the principle to be applied is that, subject to priorities secured by local law, all creditors of the company are as far as possible to be treated equally wherever they are and wherever there debts were contracted.

Likewise, in Re HIH Casualty and General Insurance Ltd; McGrath v Riddell,42 Lord Neuberger observed that: In all those cases [in which courts were invited to remit to foreign liquidators local assets of a foreign company which was being wound up], it was

[page 675] made clear that the court had to be satisfied that the foreign liquidators would distribute pari passu, in accordance with the domestic insolvency regime. Of course, it can be said that those cases merely emphasise the importance of the pari passu principle, but they appear to me to indicate that the courts concerned were seeking to ensure that the principles of their local insolvency regime were honoured.43

12.7 In Re HIH Casualty and General Insurance Ltd; McGrath v Riddell, the Supreme Court of New South Wales made winding up orders against four of the HIH group of insurance companies which owned assets in England with liquidators in Australia being appointed and provisional liquidators being appointed in England. Subsequently, the Supreme Court of New South Wales issued a letter of request to the High Court in England pursuant to s 426(4) of the Insolvency Act 1986 (UK) requesting the English court to assist the Australian liquidators by hearing and determining an application to direct the provisional liquidators in England to pay over to the Australian liquidators ‘all sums collected, or to be collected, by them in their capacity as English Provisional liquidators, after paying or providing for all proper costs, charges and expenses of the English Provisional Liquidators’. Section 426(4) of the Insolvency Act

1986 provided as follows: The courts having jurisdiction in relation to insolvency law in any part of the United Kingdom shall assist the courts having the corresponding jurisdiction in … any relevant country …

It was common ground that Australia was a relevant country within the meaning of s 426(4). Section 426(5) of the Insolvency Act 1986 provided that, relevantly: For the purposes of subsection [426] (4) a request made to a court in any part of the United Kingdom by a court … in a relevant country or territory is authority for the court to which the request is made to apply, in relation to any matters specified in the request, the insolvency law which is applicable by either court in relation to comparable matters falling within its jurisdiction. In exercising its discretion under this subsection, a court shall have regard in particular to the rules of private international law.

Under Australian insolvency law, creditors having insurance claims have a prior claim on the proceeds of reinsurance policies taken out by an insolvent insurance company but under English insolvency law the assets of any insolvency company are to be distributed pari passu among each class of creditors.44 At first instance, David Richards J refused to direct [page 676] the provisional liquidators to remit the English assets to the Australian liquidators on the basis that the court had no jurisdiction to authorise remittal of English assets to principal liquidators where such distribution would result in assets not being distributed pari passu.45 The English Court of Appeal dismissed the subsequent appeal.46 On appeal to the House of Lords, the House allowed the appeal but gave various reasons.47 12.8 In the leading judgment of Lord Hoffman, his Lordship found that the court did in fact have jurisdiction and, having regard to the principle of universalism, the court would permit the assets to be remitted notwithstanding that the distribution of those assets would be different to that under English law. Such a jurisdiction was derived from an inherent power of the court.48 As Lord Hoffman observed: In my opinion, however, the judicial practice to which I have referred … is inconsistent with the broad proposition that creditors cannot be deprived of their statutory rights under the English scheme of liquidation. The whole doctrine of ancillary winding up is based upon the premise that in such cases the English court may ‘disapply’ parts of the statutory scheme by authorising the English liquidator to allow actions which he is obliged by statute to perform according to English law to be performed instead by the foreign liquidator according to the foreign law (including its rules of the conflict of

laws). These may or may not be the same as English law. Thus the ancillary liquidator is invariably authorised to leave the collection and distribution of foreign assets to the principal liquidator, notwithstanding that the statute requires him to perform these functions. Furthermore, the process of collection of assets will include, for example, the use of powers to set aside voidable dispositions, which may differ very considerably from those in the English statutory scheme. Once one accepts … that the logic of the ancillary liquidation doctrine requires that the court should have power to relieve an English ancillary liquidator from the duty of distributing the assets himself but can direct him to remit them for distribution by the principal liquidator, I think it must follow that those assets need not be distributed according to English law. The principal liquidator would have no power to distribute them according to English law any more than the English liquidator, if he were doing the distribution, would have power to distribute them according to the foreign law.49

[page 677] In Lord Hoffman’s view, where a court is directing remittal of assets in an ancillary liquidation, it is exercising its power under the law of the ancillary liquidation and leaving distribution of the assets to the law of the principal liquidation.50 This power of the ancillary court to remit assets is exercised when the ancillary court decides that there is a foreign jurisdiction more appropriate than the ancillary jurisdiction for the purpose of dealing with all outstanding questions on the winding up.51 That was not a decision on the choice of law to be applied to those questions.52 Lord Hoffman considered this approach to be consistent with the principle of (modified) universalism: … The primary rule of private international law which seems to me applicable to this case is the principle of (modified) universalism, which has been the golden thread running through English crossborder insolvency law since the eighteenth century. That principle requires that English courts should, so far as is consistent with justice and United Kingdom public policy, co-operate with the courts in the country of the principal liquidation to ensure that all the company’s assets are distributed to its creditors under a single system of distribution. That is the purpose of the power to direct remittal.53

The qualification mentioned by Lord Hoffman in the passage above is a recognition by the courts that the ancillary court in a cross-border insolvency retains a discretion as to whether assist with the principal winding up and in any event, may ensure that, where necessary, orders or conditions are imposed to protect the interests of domestic creditors. In such a case, the ancillary court need not necessarily abide by any request made in respect of the foreign liquidation. As Lord Scott observed in Re Bank of Credit & Commerce International SA (No 10): … the ancillary character of an English winding up does not relieve an English court of the obligation to apply English law, including English insolvency law, to the resolution of any issue arising in the winding up which is brought before the court.54

The United States courts have taken a similar approach. For example, in Re Maxwell Communication Corp55 the court explained: [page 678] … the United States in ancillary bankruptcy cases has embraced an approach to international insolvency which is a modified form of universalism accepting the central premise of universalism, that is, that assets should be collected and distributed on a worldwide basis, but reserving to local courts discretion to evaluate the fairness of home country procedures and to protect the interests of local creditors.

For Lord Hoffman in HIH, one relevant consideration was the expectation of Australian creditors of the HIH companies. As his Lordship explained: Furthermore, it seems to me that the application of Australian law to the distribution of all the assets is more likely to give effect to the expectations of creditors as a whole than the distribution of some of the assets according to English law. Policy holders and other creditors dealing with an Australian insurance company are likely, so far as they think about the matter at all to expect that in the event of insolvency their rights will be determined by Australian law. Indeed, the preference given to insurance creditors may have been seen as an advantage of a policy with an Australian company.56

12.9 Lords Scott and Neuberger, while agreeing with Lord Hoffman’s conclusion, disagreed that the court had some inherent power to provide the directions sought and instead found that the power of the court to accede to the Australian liquidators’ request stemmed solely from s 426 of the Insolvency Act 1986 (UK).57 Lord Neuberger, although recognising the same judicial practice identified by Lord Hoffman, stated that while a court may remit assets pursuant to such judicial practice, the power to do so where the distribution will not be in accordance with English insolvency law derived from s 426.58

PT 5.6 DIV 9 OF THE CORPORATIONS ACT — COOPERATION BETWEEN AUSTRALIAN AND FOREIGN COURTS IN EXTERNAL ADMINISTRATION MATTERS (S 581)

12.10 Even before the adoption of the Model Law by Australia in 2008,59 a statutory regime for cross-border cooperation among courts [page 679] was (and is) contained in s 58160 of the Corporations Act in relation to ‘external administration matters’.61 Section 581 reflects a long line of statutory provisions found in bankruptcy statutes throughout the British Commonwealth62 to allow courts to ‘act in aid of and be auxiliary to each other in all matters of bankruptcy’.63 An external administration matter is one relating to: winding up, under Ch 5 of the Act, a company or a Pt 5.7 body; or winding up, outside Australia, a body corporate or a Pt 5.7 body; or the insolvency of a body corporate or a Pt 5.7 body. Provisions such as s 581 do not in themselves have any extraterritorial effect.64 The aim of provisions such as s 581(2)(a) and (3) is to provide a basis for the exercise of the domestic court’s jurisdiction where such a basis does not already exist and such provisions do not augment the court’s jurisdiction except in a geographic sense.65

Court must act in aid of, and be auxiliary to, the courts of prescribed countries (s 581(2)) 12.11 Under s 581(2)(a) a Court66 ‘must’67 act in aid of, and be auxiliary to, the courts of prescribed countries68 in all external administration matters69 and ‘may’ act in aid of non-prescribed countries under [page 680] s 581(2)(b).70 The significance of the distinction was explained by Northrop J in Ayres v Evans71 in relation to the relevantly identical provision found in s 29 of the Bankruptcy Act 1966 (Cth): In the present case, the request in aid comes within s 29(2)(a): see subs (5). In this respect, the use of the word ‘shall’ is to be contrasted with the use of the word ‘may’ in s 29(2)(b). The word ‘shall’ is

used in s 122 of the Imperial Bankruptcy Act. Speaking of that section, in a case where a court in the Isle of Man exercising jurisdiction in bankruptcy requested the aid of the High Court in England in a matter of bankruptcy, Farwell J, in Re Osborn72 said: I think it is clear that I am bound in a proper case, under s 122, to assist the court in the Isle of Man in the bankruptcy which is the bankruptcy under that jurisdiction. I think under the section it is plain that this court must give such assistance as it can, but subject, of course, to the considerations which would arise if there was also a bankruptcy in this country, as to the rights of the creditors and other persons in this country. There not being any such conflict, I think this court is bound to give all the assistance that it can. On the other hand, it is, in my judgment, a matter of discretion in this court as to what assistance it ought to give in each case, and I think I am therefore certainly entitled to impose conditions in any order which I think it right to make in aid of the bankruptcy in the Isle of Man.73

The mandatory nature of s 581(2)(a) was explained by Barrett J in Re Chow Cho Poon (Private) Ltd74 as follows: … To ‘act in aid’ is to assist; to ‘be auxiliary’ is to provide support. The court’s duty under s 581(2)(a) is therefore to deploy its own general jurisdiction so as to assist and support the foreign court by causing its orders to have effect and the objectives of those orders to be achieved. The compulsory nature of s 581(2)(a) leaves no room for the court to take the view that some aspect of the legal system under which the orders were made is at odds with a like aspect of Australia’s legal system and that, as a matter of discretion, assistance should therefore be denied.

[page 681] In the present case, the Singapore liquidator asks that this court act in aid of the Singapore court by taking steps to facilitate the liquidator’s obtaining possession of assets in Australia of the Singapore company …

Letters of request from a foreign court to an Australian court (s 581(3)) 12.12 The mechanism by which a foreign court requests the aid of an Australian court is by letter of request which is expressly contemplated by s 581(3).75 Once a letter of request requesting aid in an external administration matter is filed in the Court, the Court ‘may’ exercise such powers with respect to the matter as it could exercise if the matter had arisen in its own jurisdiction.76 The effect of s 581(3) is to confer a discretion upon the Court rather than directing it to act.77 The practical operation of s 581 was considered by Barrett J in Re Independent Insurance Company Ltd where his Honour observed: The effect of analogous United Kingdom provisions in s 426 of the Insolvency Act 1986 (UK), from

the perspective of a court receiving a letter of request, was considered by the English Court of Appeal in England v Smith [2001] 1 Ch 419. It was there observed, following Hughes v Hannover Ruckversicherungs AG [1997] 1 BCLC 497, that the task of the receiving court is to apply either its own insolvency law or the insolvency law of the requesting country and, in either case, its own general jurisdiction and powers. Under s 581, the position is somewhat different. Section 581(3) enables an Australian court having jurisdiction under the Corporations Act 2001 (Cth) which receives a letter of request issued by an English court invested with jurisdiction in respect of companies under the Insolvency Act 1986 (UK) to exercise, in respect of matters relating to the United Kingdom insolvency, powers that the Australian court could have exercised if the matters had arisen in Australia. Section 581(2)(a) requires the Australian court, by exercise of those powers or other aspects of its own jurisdiction, to act in aid of the English court. But the Australian court is not expressly permitted or required by the Australian legislation to exercise the statutory powers that the English court itself may exercise; nor, of course, can the United Kingdom legislation be the source of any direct power of the Australian court to do so.78

In Re Independent Insurance Company Ltd79 the provisional liquidators of an insurance company incorporated in England and Wales [page 682] (who had been appointed by the High Court of Justice of England and Wales under the Insolvency Act 1986 (UK)) sought declaratory relief from the Supreme Court of New South Wales recognising the foreign provisional liquidation and also a restraint on all proceedings against the company or its property within Australia. The insurance company carried on business mainly in the United Kingdom but also wrote policies in Australia. In addition to Australian policy holders, there were also assets in Australia in the form of reinsurance receivables and a minority shareholding in an Australian company. Barrett J granted the relief sought. In respect of the claim for injunctive relief his Honour observed: I am satisfied that such an [injunctive] order would be an order made in aid of the English court in the matter of the provisional liquidation ordered by it in respect of [the insurance company]. I say this because s 130(2) of the Insolvency Act 1986 (UK), a provision very similar to s 471B of the Corporations Act 2001 (Cth), provides that, where a provisional liquidator has been appointed, no action or proceeding shall be proceeded with or commenced against the company or its property except with the leave of the English court and subject to such terms as it may impose. A like embargo applies after a winding up order has been made. The plaintiffs have put into evidence an opinion of an English solicitor, Mr Elliott of Herbert Smith, in which it is stated that, if a person sought to commence or maintain an action against Independent Insurance in a court in England, the question whether the High Court of Justice had jurisdiction to order that the action be stayed or that the person be restrained from pursuing it would not, in practice, arise. This is because the court before which the purported action came would recognise and give effect to the statutory stay. Mr Elliott says, however, that, in principle, the High Court would have jurisdiction to enjoin the commencement of the proceeding unless the plaintiff could make out a case for the grant of leave.80

Requests for assistance by Australian courts (s 581(4)) 12.13 Under s 581(4) of the Corporations Act a Court81 may request a court of an external territory, or of a country other than Australia, that has jurisdiction in external administration matters to act in aid of, and be auxiliary to, it in an external administration matter. In Re Dallhold Estates (UK) Pty Ltd,82 for example, a provisional liquidator was appointed in Australia to Dallhold Estates (UK) Pty Ltd a company incorporated in Western Australia. Its sole valuable asset was a leasehold [page 683] interest in England. A provisional liquidator had also been appointed in England. Dallhold Estates was the wholly owned subsidiary of Dallhold Investments Pty Ltd. Dallhold Investments sought from the Federal Court of Australia the issue of a letter of request addressed to the High Court of Justice seeking assistance by the making of an administration order in respect of Dallhold Estates under Part II of the Insolvency Act (UK). Various creditors of Dallhold Estates opposed this and sought a winding up order. Gummow J (as his Honour then was), granted the application for a letter of request. As his Honour observed: I have reached the conclusion that it is desirable that the best possible realisation of the assets of Dallhold Estates be achieved for the benefit of all its unsecured creditors. I will make a declaration that it is desirable to request the assistance of the English courts. That assistance may be provided by the making of an administration order, if the English court having charge of the matter thinks it fit to so order, or by the making of such further order or other order as it may consider appropriate. I will order that a Letter of Request issue accordingly.83

In deciding whether to accede to an application to issue a letter of request, two conditions must be satisfied.84 First, whether there is some good substantive reason for the s 581(4) request. Second, whether there is utility in the request in the sense that the foreign court is likely to accept and act upon the request if it is made. So, in Re HIH Insurance Ltd (in liq)85 the liquidators of the HIH group of companies sought relief in the Supreme Court of New South Wales seeking to issue a summons under s 596B of the Act, requiring a named person resident in the United Kingdom to appear for public examination. The liquidators also sought a letter of request seeking the assistance of the High Court of Justice of England and Wales in connection with the conduct of the examination of the named person in London or elsewhere in England and Wales. In support of the

application, the liquidators placed before the Court a letter from English lawyers explaining whether the High Court of Justice of England and Wales has jurisdiction to receive and was likely to respond to a letter of request of the kind the liquidators asked the Supreme Court to issue. The letter from the English lawyers drew heavily upon the reasoning of the English Court of Appeal in England v Smith,86 where the court decided that, in the absence of any compelling reason to the contrary, the High Court of Justice should act upon a letter of request [page 684] from the Supreme Court of South Australia seeking assistance, by way of examination, of a person in England under s 596B of the Corporations Law. In so doing, the English court would appropriately apply the law and procedure of the requesting court. In granting the relief sought in Re HIH Insurance Ltd (in liq),87 Barrett J took a similar approach: The draft letter of request proposed by the liquidators is framed on the basis, consistent with England v Smith, that the examination should be in accordance with Australian law and procedure which now, so far as its statutory form is concerned, is to be found in Div 1 of Pt 5.9 of the Corporations Act 2001 (Cth). The liquidators seek to include in the letter of request certain guidance concerning Australian law and procedure. I consider that to be appropriate but only up to a point. The general approach, in my view, should be that if, as here, the request is that the English Court proceed in accordance with Australian law and practice, guidance should be given only to such an extent as is not to be found easily on the face of the statute and then, of course, in a form which is consistent with the statutory scheme.88

For a precedent letter of request see Appendix G.

THE MODEL LAW AND THE CROSSBORDER INSOLVENCY ACT 12.14 On 30 May 1997, the UNCITRAL adopted the Model Law by consensus.89 As mentioned above, a model law is a legislative text that is recommended to states for incorporation into their national law.90 Unlike an international convention however, a model law does not require the state enacting it to notify the United Nations or other states that may have also enacted it.91 Australia adopted the Model Law on 1 July 2008 with the

commencement of the Cross-Border Insolvency Act92 in which the Model Law is set out as Sch 1. The main objectives of the Cross-Border Insolvency Act are explained in the Explanatory Memorandum to the Cross-Border Insolvency Bill 2008: [page 685] An important objective of the Bill is to provide access for the person administering a foreign insolvency proceeding (the foreign representative) to Australian courts to seek a temporary stay of proceedings against the assets of an insolvent debtor. This stay will allow the foreign representative and the courts to determine any relief or coordination that may assist in the administration of the affairs of the insolvent debtor. This stay will have the same scope and effect as if the stay arose under Chapter 5 of the Corporations Act (for a corporate debtor) or under the Bankruptcy Act 1966 (for an debtor that is a natural person). The Bill will provide for a foreign representative commencing an insolvency proceeding in Australia in relation to a debtor that is subject to a foreign proceeding and will provide for a foreign representative participating in an Australian insolvency proceeding in relation to that debtor. The Bill will also provide that foreign creditors have the same rights regarding the commencement of, and participation in, insolvency proceedings occurring in Australia as creditors domiciled in Australia.93

The Model Law has the force of law in Australia by virtue of s 6 of the CrossBorder Insolvency Act and has been adopted with only minor variations.94 Section 8 of the Cross-Border Insolvency Act provides that: 8. The Model Law has the force of law in Australia as if the Model Law referred to: (a) the Bankruptcy Act 1966; and (b) Chapter 595 and section 601CL of the Corporations Act 2001; wherever the Model Law provides that the laws of the enacting state relating to insolvency are to be identified.

Only the Federal Court of Australia and the State or Territory Supreme Courts are courts competent to perform functions under the Model Law.96 The Model Law comprises five chapters divided into 32 articles. In addition, the preamble of the Model Law sets out the following lofty objectives: (a) Cooperation between the courts and other competent authorities of this State and foreign States involved in cases of cross-border insolvency; (b) Greater legal certainty for trade and investment; (c) Fair and efficient administration of cross-border insolvencies that protects the interests of all creditors and other interested persons, including the debtor;

[page 686]

(d) Protection and maximisation of the value of the debtor’s assets; and (e) Facilitation of the rescue of financially troubled businesses, thereby protecting investment and preserving employment.

Applications for recognition 12.15 Under Art 15(1) of the Model Law a ‘foreign representative’ may apply to the court for recognition of the ‘foreign proceeding’ in which the foreign representative has been appointed.97 A foreign proceeding is defined in Art 2(a) of the Model Law as including a judicial proceeding in a foreign state pursuant to a law relating to insolvency in which the assets and affairs of the debtor are subject to control or supervision of the foreign court for the purpose of reorganisation or liquidation. A foreign representative is defined in Art 2(d) to include a person or body, authorised in a foreign proceeding to administer the reorganisation or liquidation of the debtor’s assets or affairs. A foreign representative is entitled to apply directly to the Federal Court (and also, in cases of corporate and non-individual insolvencies, to a Supreme Court of a State or Territory): s 10 of the Cross-Border Insolvency Act; Art 9 of the Model Law.

Two types of foreign proceedings 12.16 There are two species of ‘foreign proceeding’ referred to in the Model Law, namely a ‘foreign main proceeding’ and a ‘foreign non-main proceeding.’ Article 2 of the Model Law defines a ‘foreign main proceeding’ as a foreign proceeding taking place in the state where the debtor has the centre of its main interests and a ‘foreign non-main proceeding’ as a foreign proceeding, other than a foreign main proceeding, taking place in a state where the debtor has an ‘establishment’. ‘Establishment’ is in turn defined as any place of operations where the debtor carries out a non-transitory economic activity with human means and goods or services.98 In the absence of proof to the contrary, the debtor’s registered office, or habitual residence in the case of an individual, is presumed to be the centre of the debtor’s main interests.99 Article 17 sets out the rules regarding recognition of a foreign proceeding,100 a foreign main [page 687] proceeding101 and a foreign non-main proceeding.102 A foreign proceeding shall

be recognised as a foreign main proceeding if it takes place in the state where the debtor has the ‘centre of its main interests’.103 Otherwise, it is to be recognised as a foreign non-main proceeding if the debtor has an establishment within the meaning of Art 2(f).104

‘Centre of Main Interest’ 12.17 The Model Law contains no definition of ‘centre of main interest’ (COMI).105 However Art 16(3) provides that in the absence of proof to the contrary, the debtor’s registered office or habitual residence, in the case of an individual, is presumed to be the centre of the debtor’s main interests. The purpose of such a rebuttable presumption is to provide a ready means of dispensing with formal proof but to leave the way open for the court to find that, on the evidence, the contrary is the case.106 In Re Eurofood IFSC Ltd107 the European Court of Justice considered the formulation of the test for ascertaining the COMI.108 Article 3(1) of Regulation (EC) No 1346/2000 provided, relevantly, the same presumption as that found in Art 16(3). The court referred to a recital to the regulation that stated ‘the “centre of main interests” should correspond to the place where the debtor conducts the administration of his interests on a regular basis and is therefore ascertainable by third parties’. The court observed: That definition shows that the [COMI] must be identified by reference to criteria that are both objective and ascertainable by third parties. That objectivity and that possibility of ascertainment by third parties are necessary in order to ensure legal certainty and foreseeability concerning the determination of the court with jurisdiction to open main insolvency proceedings. That legal certainty and that foreseeability are all the more important in that, in accordance with article 4(1) of the Regulation, determination of the court with jurisdiction entails determination of the law which is to apply. It follows that, in determining the [COMI] of a debtor company, the simple presumption laid down by the Community legislature in favour

[page 688] of the registered office of that company can be rebutted only if factors which are both objective and ascertainable by third parties enable it to be established that an actual situation exists which is different from that which locating it at that registered office is deemed to reflect.109

12.18 In Akers (as joint foreign representative) v Saad Investments Co Ltd (in official liquidation) (a Co Registered in the Cayman Islands)110 Rares J of the Federal Court followed the European Court of Justice’s approach. In that case,

the joint official liquidators of a Cayman Islands registered company in liquidation sought recognition of the Cayman Islands insolvency as a foreign main proceeding. The company in question was a holding company of some 80 companies in a group scattered throughout the world. In granting the application, his Honour was not convinced that the presumption in Art 16(3) had been displaced: The interpretation of an international convention, even though it is given the force of domestic law, such as a Model Law, should be approached in accordance with the principles in the Vienna Convention on the Law of Treaties 1969 done at Vienna on 23 May 1969 [1974] ATS 2. That is an authoritative statement of customary international law for the purposes of construing a convention: Victrawl Pty Ltd v Telstra Corporation (1995) 183 CLR 595; Strong Wise Ltd v Esso Australia Resources Ltd (2010) 185 FCR 149 at 163–164 [46]–[47] … The purpose of a rebuttable presumption, such as that contained in Art 16(3), is to provide a ready means of dispensing with formal proof but to leave the way open for the court to find that, on the evidence, the contrary is the case. The reason why the drafters of the Model Law adopted the device of providing for rebuttable presumptions in Art 16, clearly enough, was to assist in achieving the imperative requirement in Art 17(3) … If the court permitted recognition proceedings under the Model Law to descend into interminable debates as to where a company’s centre of main interests might be, a situation could arise where the assets of the debtor were under the control of its insolvent principals or not otherwise administered consistently with the objectives of the Model Law while the debates raged. Often in insolvencies, there are suggestions of fraud and threats to the preservation of the assets in order that they might be available for a fair and equal distribution among the creditors wherever they may be. For this reason, speed and the resolution of who should be in control of the assets of the debtor, in a particular jurisdiction, and in all others in which the Model Law or an analogue is in force, are essential.

[page 689] Given the importance to international commerce and, to third parties, of having an objective ascertainable basis upon which to commence and decide proceedings that will govern winding up an insolvency of a debtor under the Model Law, in my opinion, the approach adopted in Eurofood [2006] Ch 508 and Stanford Bank [2010] 3 WLR 941 should be followed here (and see too Betcorp 400 BR 260 and Art 8 of the Model Law itself). That approach leads to a more predictable and orderly international outcome than the less certain approach adopted by some of the Bankruptcy District Courts in the United States, perhaps because of the different wording of s 1516(c) of Ch 15 of that nation’s Bankruptcy Code.111

Stay of individual actions or proceedings 12.19 Pursuant to Art 20(1) of the Model Law, upon recognition of a foreign main proceeding the commencement or continuation of individual actions or individual proceedings concerning the debtor’s assets, rights, obligations or liabilities is stayed and the right to transfer, encumber or otherwise dispose of

any assets of the debtor is suspended.112 However, any such stay or suspension can be modified. Section 16 of the Cross-Border Insolvency Act provides that the scope and the modification or termination of the stay or suspension in Art 20(1) are the same as would apply if the stay or suspension arose under, relevantly, Ch 5 (other than Pts 5.2 and 5.4A) of the Corporations Act.113

Relief that may be granted upon recognition 12.20 Article 21 of the Model Law allows the foreign representative, upon recognition of a foreign proceeding, whether main or non-main, to apply for a wide variety of relief ‘where necessary to protect the assets of the debtor or the interests of the creditors’ including: staying the commencement or continuation of individual actions or individual proceedings concerning the debtor’s assets, rights, obligations or liabilities, to the extent they have not been stayed under para 1(a) of Art 20; staying execution against the debtor’s assets to the extent it has not been stayed under paragraph 1(b) of Article 20; [page 690] suspending the right to transfer, encumber or otherwise dispose of any assets of the debtor to the extent this right has not been suspended under paragraph 1(c) of Article 20; providing for the examination of witnesses, the taking of evidence or the delivery of information concerning the debtor’s assets, affairs, rights, obligations or liabilities; entrusting the administration or realisation of all or part of the debtor’s assets located in this state to the foreign representative or another person designated by the court. Articles 22.2 and 22.3 of the Model Law provide a basis for the court to impose conditions or modify any of its previous orders. Article 22.1 provides that in granting or denying relief under Art 19 (which provides for interim relief)114 or Art 21, or in modifying or terminating relief under Art 22.3 the court must be satisfied that the interests of the creditors and other interested persons,

including the debtor, are adequately protected. These provisions make it clear that in granting relief, the interests of creditors are a key consideration. As explained in the UNCITRAL Model Law on Cross-Border Insolvency with Guide to Enactment (1997): Protection of creditors and other interested persons 35. The Model Law contains provisions such as the following to protect the interests of the creditors (in particular local creditors), the debtor and other affected persons: the availability of temporary relief upon application for recognition of a foreign proceeding or upon recognition is subject to the discretion of the court; it is expressly stated that in granting such relief the court must be satisfied that the interests of the creditors and other interested persons, including the debtor, are adequately protected (article 22, paragraph 1); the court may subject the relief it grants to conditions it considers appropriate; and the court may modify or terminate the relief granted, if so requested by a person affected thereby (article 22, paragraphs 2 and 3). 36. In addition to those specific provisions, the Model Law in a general way provides that the court may refuse to take an action governed by the Model Law if the action would be manifestly contrary to the public policy of the enacting State (article 6).

In the commentary on Article 22, the Guide to Enactment further notes: 161. The idea underlying article 22 is that there should be a balance between relief that may be granted to the foreign representative and the interests of the persons that may be affected by such relief. This balance is essential to achieve the objectives of cross-border insolvency legislation.

[page 691] 162. The reference to the interests of creditors, the debtor and other interested parties in article 22, paragraph 1, provides useful elements to guide the court in exercising its powers under article 19 or 21. In order to allow the court to tailor the relief better, the court is clearly authorized to subject the relief to Conditions (paragraph 2) and to modify or terminate the relief granted (paragraph 3). An additional feature of paragraph 3 is that it expressly gives standing to the parties who may be affected by the consequences of articles 19 and 21 to petition the court to modify and terminate those consequences. Apart from that, article 22 is intended to operate in the context of the procedural system of the enacting State. 163. In many cases the affected creditors will be ‘local’ creditors. Nevertheless, in enacting article 22, it is not advisable to attempt to limit it to local creditors. Any express reference to local creditors in paragraph 1 would require a definition of those creditors. An attempt to draft such a definition (and to establish criteria according to which a particular category of creditors might receive special treatment) would not only show the difficulty of crafting such a definition but would also reveal that there is no justification for discriminating creditors on the basis of criteria such as place of business or nationality.115

An example of the Model Law in practice: Akers v Saad Investments Co Ltd

12.21 The position of an Australian unsecured creditor’s claim in a foreign insolvency arose in Akers (as joint foreign representative) v Saad Investments Co Ltd; Re Saad Investments Co Ltd (in official liquidation).116 In that case, Saad Investments Company Limited (Saad Investments) was a company incorporated in the Cayman Islands that carried on the business of a holding company of a group of some 80 companies. Its global operations were intricate and expansive, with equity holdings alone comprising about US$1.4 billion. Of these equities, approximately US$13 million were recorded as equities listed on the Australian Stock Exchange. The only Australian-based creditor was the Deputy Commissioner of Taxation who sought to prove a debt of AU$83,271,545.70 in the liquidation in the Cayman Islands. That debt comprised income tax in the sum of AU$47,583,740.40 together with a penalty for failure to lodge a tax return in the sum of AU$35,687,805.30. On 18 September 2009, the Grand Court of the Cayman Islands appointed Messrs Akers Dickson and Byers as joint official liquidators of Saad Investments (the JOLs). On 22 October 2010, upon application by the JOLs, the Federal Court made orders under Art 17 of the Model [page 692] Law recognising the Cayman Islands as Saad Investments’ COMI, the proceedings in the Grand Court of the Cayman Islands as a foreign main proceeding and the JOLs as foreign representatives: Akers v Saad Investments Company Ltd (in official liquidation) (a Co Registered in the Cayman Islands) (the 2010 orders).117 The JOLs were accordingly entrusted with the administration, realisation and distribution of all of Saad Investments’ assets in Australia.118 12.22 The 2010 orders provided that, except with leave of the court or the written consent of the JOLs, no legal or administrative proceedings could be taken against Saad Investments or its assets. In addition to the 2010 orders, the JOLs and the Deputy Commissioner gave cross-undertakings to the court. The Deputy Commissioner undertook not to issue any further notices under Div 260 of Sch 1 of the Taxation Administration Act 1953 (Cth) without giving 14 days’ written notice to the foreign representatives and Saad Investments. Similarly, the foreign representatives and Saad Investments undertook not to remit outside of Australia the proceeds of any realisation or sale of Saad Investments’ assets located in this country without giving the Deputy Commissioner 14 days’ written

notice. Under Cayman Islands law119 the Australian taxation debts could not be admitted as proof in the liquidation of Saad Investments in the Cayman Islands. This prohibition reflects a rule of private international law that foreign revenue claims are not enforceable. The rule provides that domestic courts will not enforce a foreign penal or public law120 and is a rule well entrenched in AngloAustralian private international law. Any attempts by the Deputy Commissioner to pursue the taxation debts in the Cayman Islands were accordingly likely to be futile. The only available course was to try and pursue recovery action in Australia against Saad Investments’ local assets. Accordingly, the Deputy Commissioner sought modification of the 2010 orders seeking leave to take action against Saad Investments and its assets in order to recover the taxation debts. The JOLs resisted the Deputy Commissioner’s application. [page 693] 12.23 The Deputy Commissioner argued that the court should modify the ordinary operation of the Model Law so as to put the Commissioner in the same position as an unsecured creditor in a liquidation as the Commissioner would be under Australian law in respect of the liabilities that Saad Investments incurred in Australia under Australian taxation laws. The Deputy Commissioner urged the court not to allow the JOLs to ‘turn over’ the company’s Australian assets without first protecting the interests of the Deputy Commissioner. The Deputy Commissioner claimed entitlement, like any unsecured creditor, to a pari passu distribution of Saad Investments’ available assets in discharge of such taxation debts. It was also argued that allowing the JOLs to remit the Australian assets to the Cayman Islands without first paying any outstanding taxation liabilities would be ‘manifestly contrary’ to public policy within the meaning of Art 6 of the Model Law. The JOLs argued that the Deputy Commissioner’s application for a modification of the 2010 orders should be refused because it had no legitimate purpose or, if it did, that if the orders sought were made, the interests of creditors and Saad Investments would not be adequately protected for the purposes of Art 22(1). Justice Rares of the Federal Court found in favour of the Deputy Commissioner and permitted the Deputy Commissioner to take action to recover an amount equivalent to the pari passu amount he would be entitled to receive as a dividend if his proof of debt was successfully admitted in the Cayman Islands. His Honour held that the interests of the Deputy Commissioner, as an unsecured

creditor of Saad Investments, were not adequately protected by the 2010 orders because those orders would allow the entirety of Saad Investments’ Australian assets to be remitted to the Cayman Islands where the Deputy Commissioner could not prove in relation to the debt.121 His Honour also observed that if the Australian assets were remitted to the Cayman Islands without the Deputy Commissioner being allowed to prove in the insolvency proceedings, the other unsecured creditors would receive a windfall gain.122 Such a result would be contrary to the fair or efficient administration of Saad Investments. 12.24 In reaching his decision, his Honour held that Art 22(1) of the Model Law gave the Federal Court jurisdiction to make orders enabling the payment of taxation and penalty liabilities to be made from a debtor’s assets, held by it or its foreign main representative, before those assets are removed from the local forum and sent to the debtor’s centre of main [page 694] interests.123 In doing so, his Honour relied upon the principle of ‘modified universalism’124 as so described by Lord Hoffman in Re HIH Casualty and General Insurance Ltd; McGrath v Riddell.125 As mentioned above, in HIH, Lord Hoffman expressed the view that the application of Australian law to the distribution of all of the assets was more likely to give effect to the expectations of the creditors as a whole, rather than the distribution of some of the assets according to English law.126 Similarly, Rares J found that creditors of Saad Investments would be likely, if they thought about it, to expect that the company would meet its local tax obligations, in accordance with local law, in each jurisdiction in which it had earned income or made taxable gains or profits before its creditors were entitled to receive dividends in the Cayman Islands: … It is highly unlikely that [the creditors] would expect that a local sovereign could not, let alone should not, be able to collect the tax due, or any of it, before funds were remitted from its jurisdiction to the Cayman Islands where the tax would be irrecoverable. If a foreigner trades or makes profits or gains in a local jurisdiction, he, she or it must obey the laws of general application in that forum, including its taxation and criminal laws. The insolvency of the foreigner should not be a reason to exclude him, her or it from an accrued liability to pay tax or a penalty in circumstances where a local person who became insolvent would remain liable to pay the tax or penalty.127

Rares J emphasised that the purpose behind the principle of modified universalism is the achievement of a proper and fair distribution to creditors of a

cross-border insolvent, echoing the sentiments of Lord Collins of Mapesbury in Rubin v Eurofinance SA; New Cap Reinsurance Corp (in liq) v Grant128 who observed, that in order to achieve a proper and fair distribution of assets between creditors, it will often be necessary to adjust prior transactions and to recover previous dispositions of property so as to constitute the estate which is available for distribution.129 On Rares J’s reading of the Model Law, there was nothing that suggested [page 695] a domestic revenue authority should be limited in its ability to enforce local revenue laws: … there is nothing in the Model Law to suggest that domestic legislation should be construed to deny or diminish the rights of the local sovereign power to collect its taxation and social security (or other monetary) claims from an insolvent debtor’s estate before that estate is remitted to the debtor’s centre of main interests for distribution to creditors under that jurisdiction’s laws. … there is nothing in the Model Law that seeks to discriminate against the operation of domestic laws imposing tax and penalties, as laws of general application, on the debtor’s estate before it is remitted to the debtor’s centre of main interests. It would not be fair to a domestic sovereign, its taxpayers or others doing business in its territory, or to the international body of the debtor’s creditors, for a debtor’s estate to be freed of any taxation obligation except in the debtor’s centre of main interests, merely because the debtor was subject to a cross-border insolvency governed in another jurisdiction wholly or principally by the Model Law where, conformably with the rule of public (or private) international law, foreign taxes and penalties could not be recovered or admitted to proof …130

In Akers (as joint foreign representative of Saad Investments Company Ltd) (in official liquidation) (a company registered in the Cayman Islands) v Deputy Commissioner of Taxation, the Full Federal Court upheld Justice Rares’ decision.131 Allsop CJ, with whom Robertson and Griffiths JJ agreed, accepted that universalism underpinned the Model Law. However, that did not necessarily mean that a domestic creditor had to be disadvantaged by a recognition order made under the Model Law. As his Honour explained: Whilst the Model Law reflects universalism, there is nothing in the Model Law or the UNCITRAL Working Papers prior to its formulation, or in the CBI Act, which would justify the stripping of rights of a local creditor by reason of recognition. The universalism that underpins the Model Law and CBI Act is one for the benefit of all creditors, and the protection of

[page 696]

local creditors is expressly recognised. It is not inappropriate to call it ‘modified universalism’ for what such an appellation is worth.’132

Allsop CJ also justified the outcome before Rares J by reference to the principle of hotchpot. The equitable doctrine of hotchpot in the context of crossborder insolvency requires a creditor who has received a distribution in a foreign liquidation to bring that share into account before the creditor can claim a dividend in a local liquidation.133 As the learned Chief Justice opined: The DCT is not entitled to prove in the Cayman Islands winding up. All other creditors are entitled to prove in the posited local (ancillary) winding up, but are also entitled to prove in the Cayman Islands winding up (assuming they not to be other foreign revenue creditors). The DCT has, therefore, one fund of the company (the hypothesised local administration) in which to prove; all other creditors have two funds of the company (the hypothesised local administration and the Cayman Islands administration) in which to prove. A creditor who seeks to share in the assets of a debtor in an administration must bring to account the benefits of recovery from other assets of the debtor, whether by execution, self-help or through participating in a second administration134 … In these circumstances, the local liquidator would be entitled to require the foreign creditors to bring to account in the nature of hotchpot the value of their participation in the Cayman Islands winding up (or indeed any other foreign winding up) in the equal distribution of the assets of the company, and in the overall equal distribution of the local assets. An illustration of the approach is Re Oriental Inland Steam Co. There, the execution creditor in India was required to bring to account in England the value of the execution in India based on the fairness of bringing to account in the English winding up the access to the company’s property that the creditor had achieved in India … Hotchpot (like marshalling) is an illustration of the maxim that equity is equality. The nature of the ancillary winding up, as a winding up of the company for the benefit of all its creditors, under local (here, Australian) law would permit (quaere require) an Australian

[page 697] liquidator to require foreign creditors to bring to account the value of their participation (or expected participation) in the other assets of the company (including through participation in another administration of the company’s assets) before they obtained any benefit from the Australian assets. This would vindicate the equality of the local creditor and also vindicate the ancillary winding up as being one for all creditors. This would also reflect the operation of Art 32 of the Model Law.135

Treatment of voidable transactions under the Model Law 12.25 Upon recognition of a foreign proceeding, the foreign representative has standing under Art 23 to initiate actions arising under or because of the voidable transaction provisions found in Pt 5.7B Div 2 of the Corporations Act.136 Provisions of Pt 5.7B Div 2 apply, with appropriate changes, in relation to an action for the purposes of a foreign proceeding in the same way it would

apply if the action were for the purposes of a proceeding in relation to a company (within the meaning of s 9 of the Act) as the case requires.137 The scope and operation of Art 23 of the Model Law was explained in the Explanatory Memorandum to the Cross-Border Insolvency Bill 2008 as follows: The procedural standing conferred by article 23 extends only to actions that are available to the local insolvency administrator in the context of an insolvency proceeding, and the article does not equate the foreign representative with individual creditors who may have similar under a different set of conditions. Such actions of individual creditors fall outside the scope of article 23. The Model Law expressly provides that a foreign representative has standing to initiate actions to avoid or otherwise render ineffective legal acts detrimental to creditors. The provision is drafted narrowly in that it does not create any substantive right regarding such actions and also does not provide any solution involving conflict of laws. The effect of the provision is that a foreign representative is not prevented from initiating such actions by the sole fact that the foreign representative is not the insolvency administrator appointed in Australia.138

Article 23 does not create any substantive rights regarding actions for voidable transactions and also does not provide any solution involving conflict of laws.139 The effect of the provision is to confer standing only so that a foreign representative is not prevented from initiating such actions [page 698] by the sole fact that the foreign representative is not the insolvency administrator appointed in the enacting state.140

Procedural aspects of applying for recognition under the Model Law 12.26 Specific procedural rules for applications under the Model Law are found in the Corporations Rules.141 An application for recognition of a foreign proceeding under Art 15 of the Model Law must be made by filing an originating process in accordance with Form 2.142 The originating process must: be accompanied by the statements referred to in Art 15 of the Model Law143 and in s 13 of the Cross-Border Insolvency Act;144 and name the foreign representative as the plaintiff and the debtor as the defendant; and be accompanied by an affidavit verifying the matters mentioned in paras 2145

and 3 of Art 15 of the Model Law and in s 13 of the Cross-Border Insolvency Act. [page 699] Unless the court otherwise orders, the plaintiff in an application for recognition must send a notice146 of the filing of the application to each person whose claim to be a creditor of the defendant is known to the plaintiff and publish a notice of the filing of the application for recognition of a foreign proceeding is in accordance with r 2.11 of the Corporations Rules.147

Service of documents 12.27 When filing the originating process, the foreign representative must file, but need not serve, an interlocutory process seeking directions as to service, and the court may give any directions about service, and make any incidental order, that it thinks just.148 The plaintiff must serve a copy of the originating process and the other documents mentioned in subr (2) unless the court otherwise orders, in accordance with Corporations Rules r 2.7(1)149 and on any other persons the court may direct at the hearing of the interlocutory process.150 An application by the plaintiff for provisional relief under Art 19 of the Model Law must be made by filing an interlocutory process in accordance with Form 3.151 Where an application is made for an order to entrust the administration, realisation or distribution of all or part of a debtor’s assets to a person designated by the court (apart from the representative) then that person must be an official liquidator and have filed a Consent to Act that specifies an address for service for the person within Australia.152 In the event that the court makes an order for recognition of a foreign proceeding under Art 17 of the Model Law or any order under Art 19 or Art 21 of the Model Law then the plaintiff must as soon as practicable after the making of the order: (a) have the order entered; (b) serve a copy of the entered order on the defendant;

[page 700]

(c) send a notice of the making of the order in accordance with Form 21 to each person whose claim to be a creditor of the defendant is known to the plaintiff; (d) publish a notice of the making of the order in accordance with Form 21, in a daily newspaper circulating generally in the State or Territory where the defendant has its principal, or last known, place of business.153

Any applications for relief under Art 21(1) of the Model Law made subsequent to the court making an order for recognition of a foreign main proceeding must be made by way of interlocutory process and supporting affidavit.154 Unless the court otherwise orders, the interlocutory process must be served on the defendant and any other person the court directs.155 Similarly, any application under Art 17(4) of the Model Law for an order modifying or terminating an order for recognition of a foreign proceeding or any application for relief under Art 22(3) of the Model Law seeking to modify or terminate relief granted under Art 19 or Art 21 of the Model Law is to be made by way of interlocutory process.156

WINDING UP OF FOREIGN COMPANIES UNDER PT 5B.2 DIV 2 AND WINDING UP OF PT 5.7 BODIES UNDER S 583 12.28 Under Pt 5B.2 Div 2 of the Corporations Act a foreign company must not carry on business in Australia unless it is registered under that Division.157 A registered foreign company can be wound up by an Australian court under s 583 on the basis it is a Pt 5.7 body.158 Chapter 5 of the Corporations Act applies to the winding up of a Pt 5.7 body with such adaptations as are necessary, including those specified in s 583. 12.29 Under s 601CL(14) of the Corporations Act, where a registered foreign company commences to be wound up, or is dissolved or deregistered, in its place of origin, notice159 of the appointment must [page 701]

be lodged and the court must, on application by the person who is the liquidator for the foreign company’s place of origin, or by ASIC, appoint a liquidator of the foreign company. A liquidator of a registered foreign company who is appointed by the court must: (a) before any distribution of the foreign company’s property is made, by advertisement in a daily newspaper circulating generally in each State or Territory where the foreign company carried on business at any time during the 6 years before the liquidation, invite all creditors to make their claims against the foreign company within a reasonable time before the distribution; and (b) must, not, without obtaining an order of the Court, pay out a creditor of the foreign company to the exclusion of another creditor of the foreign company; and (c) must, unless the Court otherwise orders, recover and realise the property of the foreign company in this jurisdiction and must pay the net amount so recovered and realised to the liquidator of the foreign company for its place of origin.160

Where a registered foreign company has been wound up so far as its property in Australia is concerned and there is no liquidator for its place of origin, the liquidator may apply to the court for directions about the disposal of the net amount recovered under s 601CL(15).161

APPLICABILITY OF PT 5.7B TO FOREIGN DEFENDANTS AND FOREIGN ASSETS 12.30 Although it is clear that s 588FF applies to transactions of a ‘company’162 the section contains no requirement that the recipient of any transaction be physically present within Australia at the time of the transaction. As mentioned in 8.22, any attack on a potentially voidable transaction is always an attack on the giver and the giving, not on the recipient and the receipt.163 Accordingly, any analysis of the place where an action under s 588FF arises must take into account this principle. For example, in New Cap Reinsurance Corp Ltd (in liq) [page 702] v Renaissance Reinsurance Ltd164 a liquidator sought to recover an unfair

preference against a defendant company registered and resident in Bermuda. In January 1999, the insolvent company made a payment to the defendant company from a branch of the Commonwealth Bank in New South Wales. Under the former Pt 10 r 1A(a) of the Supreme Court Rules 1970 (NSW), a defendant could be served outside Australia ‘where the proceedings are founded on a cause of action arising in New South Wales’.165 The defendant company argued that the only complaint the liquidator could have against the defendant is that it received a payment from the insolvent company and that the only relevant act on the defendant’s part was an act of receiving payment which was an act occurring outside New South Wales. Barrett J rejected the argument and held that the cause of action arose in New South Wales. In doing so, his Honour approved the following passage from the decision of Cohen J in Staff Engineered Membranes Pty Lyd (in liq) v Synflex Industries (International) Inc166 who considered the operation of s 122 of the Bankruptcy Act 1966 as applied by former s 451 of the then Companies (New South Wales) Code: What s 122 is attacking is the transaction of the giving by the company of a preference, priority or advantage followed by its winding up. The effect of s 95 of the Bankruptcy Act 1924 (the predecessor of s 122) was discussed by the High Court in Burns v Stapleton (1959) 102 CLR 97 at 164: It is necessary to observe that s 95(1) avoids, not instruments but certain kinds of changes in the legal situation of the person unable to pay his debts. What the subsection clearly intends to make void, where it applies, is the change which, if allowed to be effectual, would dislocate the statutory order of priorities amongst creditors. So ‘every conveyance or transfer of property by any person unable’ etc must refer to every passing of property by some act of his, and not to the means by which this result is brought about; ‘every charge thereon made by’ the person must refer to every creation by him of an interest in property by way of security, and not to what he does in order to create it; ‘every payment made by’ the person refers to every passing by him of the ownership of money, and not to the mechanics of the transaction, ‘every obligation incurred by’ the person refers to every arising of an obligation on his part rather than to the event which its binding upon him; and ‘every judicial proceeding taken or suffered by’ the person refers to every alteration which a step taken by or in a court brings about in a

[page 703] legal relationship between the person and others, and not to the taking of the step.167

In the present case, the dislocation of the statutory order of priorities, if it was established, was brought about by the change effected by the company in causing a payment to be sent to a creditor. Upon winding up commencing, that change is what is to be avoided. It will be noted that s 122 deals with the acts of

the debtor and in this case those acts were apparently carried out in New South Wales, as was the winding up.168 12.31 The reasoning in New Cap was applied in Woodgate v Network Associates International BV169 where a liquidator commenced proceedings against a Netherlands corporation seeking recovery of alleged unfair preferences under s 588FF. Barrett J found that the relevant cause of action arose in New South Wales because: the administrative and financial affairs of the insolvent companies were centered upon an office or offices in Sydney; each item of correspondence from the insolvent companies to the defendant emanated from an office in Sydney and that acts involved in the remittance of funds to the defendant were performed at such a location; the winding up of each of insolvent companies was being conducted in New South Wales. 12.32 The position is similar in England. In Re Paramount Airways Ltd;170 Re Maxwell Communications Corporation (No 2);171 Barclays Bank v Homan172 the administrators of an English company commenced proceedings against a bank registered in Jersey seeking orders that a particular transaction be avoided under s 238 of the Insolvency Act (UK) 1986. That section provides relevantly as follows: (2) Where the company has at a relevant time … entered into a transaction with any person at an undervalue, the [administrator or liquidator] may apply to the court for an order under this section. (3) … the court shall, on such an application, make such order as it thinks fit for restoring the position to what it would have been if the company had not entered into that transaction.

[page 704] Section 423(2) of the Insolvency Act (UK) 1986 provides that the court ‘may’ make such order as it thinks fit for restoring the position and protecting victims of transactions intended to defraud creditors. A question arose as to whether the expression ‘any person’ in s 238(2) included a person resident outside the United Kingdom. The English Court of Appeal observed that on its face, s 238 is of unlimited territorial scope.173 On a proper reading of the section the physical absence or presence of the other party to the transaction within the United

Kingdom was not necessary.174 The Jersey Bank argued that the well-established principle in Re Sawers; Ex parte Blain175 applied such that on a proper reading of s 238 the provision applied only to British subjects. The Court of Appeal rejected the argument: It will have been seen from the above summary that, on its face, the legislation is of unlimited territorial scope. To be within the sections a transaction must possess certain features. For instance, it must be at an undervalue and made at a time when the company was unable to pay its debts, the company must be in the course of being wound up in England or subject to an administration order, and so on. If a transaction satisfies these requirements, the section applies, irrespective of the situation of the property, irrespective of the nationality or residence of the other party, and irrespective of the law which governs the transaction. In this respect the sections purport to be of universal application. The expression ‘with any person’ merely serves to underline this universality … In the first place, to treat presence of the other party within England and Wales as the factor which determines whether a transaction is within the ambit of the sections would be to adopt a criterion which would be capricious in the extreme. A transaction with a foreigner who is resident here would be outside the embrace of the legislation if he happened to be abroad, or chose to be abroad, at the time the transaction was effected. Conversely, a foreign national resident abroad would find that the transaction with him was within the Act if, but only if, he was physically present in this country at the time of the transaction. Secondly, this criterion would leave outside the scope of the legislation a transaction by a debtor with an overseas company wholly controlled by him. Siphoning money abroad in this way is a typical case to which the new legislation must have been intended to apply. Thirdly, this test would draw a distinction between the position of British subjects and others on a matter of substantive law affecting property transactions. It would be surprising if Parliament had such an intention today. Fourthly, this test would mean that there was no remedy under the Act in respect of a transaction with

[page 705] an overseas company, or a foreigner living here but abroad at the crucial moment, even if the subject matter was English land.176

In the result, the Court of Appeal held that the discretion contained in s 423(2) was wide enough to enable the court, if justice required, to make no order against the other party to the transaction or the person to whom the preference was given.177

Service outside of Australia 12.33 The various court rules in each jurisdiction allow for service of originating process outside of Australia.178 In the Federal Court, leave is usually required179 although service outside of Australia without first obtaining leave will not render service a nullity.180 Under the Federal Court Rules r 10.43(2) a party may apply to the Federal Court for leave to serve an originating application

on a person in a foreign country in accordance with a convention, the Hague Convention or the law of the foreign country. In the Supreme Court of Western Australia,181 leave to serve a defendant outside of Australia must be obtained prior to service. In the Supreme Courts of New South Wales,182 Victoria,183 South Australia184 and the Northern Territory,185 no leave is required prior to the service of originating process outside Australia; however, leave to proceed must be obtained if the defendant fails to appear. In the Australian Capital Territory no leave is required if the proceeding is based on a cause of action arising in the Australian Capital Territory.186 In Queensland there is no requirement for leave to serve or for leave to proceed. [page 706] 12.34 At common law, the court’s jurisdiction in actions in personam187 depends on the defendant’s presence in the geographical jurisdiction of the court or the defendant’s submission to the court’s jurisdiction.188 The statutory extensions to this jurisdiction mentioned above provide for the service of process outside of the jurisdiction where, generally, there is some link between the forum and the subject matter involved. As Barrett J explained in McGrath v National Indemnity Co: In a case such as the present involving, as I shall explain in greater detail presently, a foreign corporation having no presence here, the matter of service may not be just a point of technicality. The jurisdiction of a superior court such as the Supreme Court of New South Wales, being without territorial limit, is exercisable against or in respect of persons outside the jurisdiction only on the basis of service. Two conditions must be satisfied for the court to be in a position regularly to make an order binding on a person beyond its territorial jurisdiction: the person must be duly served; and some appropriate connection must exist between the forum and the claim against the person. These matters are reflected in Pt 10 of the Supreme Court Rules. If a person outside the jurisdiction is subjected to a claim of a relevant kind and is served, but enters no appearance, the person seeking the order cannot proceed further without the court’s leave. This is provided by Pt 10 r 2. Proof of proper service is essential if such leave is to be granted.189

In Singleton v Deputy Commissioner of Taxation,190 the Commissioner sought relief under s 588FGA against directors of a company resident in New Zealand. As is common in those kinds of application, the relief sought was by way of interlocutory process.191 Under r 11.5 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR) service outside Australia of a document other than originating process is valid only if it is effected pursuant to the leave of the Supreme Court or is subsequently confirmed by the Supreme Court. In confirming service, Austin J was satisfied that if the application had been by

originating process, service would have been permitted under r 11.2 of the UCPR. [page 707]

Enforcement of judgment overseas 12.35 In the event that a judgment against a foreign defendant is obtained, problems often arise with enforcement. These problems were highlighted in the United Kingdom Supreme Court decision of Rubin v Eurofinance SA; New Cap Reinsurance Corp (in liq) v Grant.192 The decision in Rubin comprised two appeals: Rubin v Eurofinance SA (Rubin) and New Cap Reinsurance Corp Ltd v Grant (New Cap). The issue raised in both appeals was whether, and if so, in what circumstances, an order or judgment of a foreign court in proceedings to set aside voidable transactions will be recognised and enforced in England. The appeals also raised the question whether enforcement of such judgments could be effected under the Model Law. In the Rubin appeal, a default judgment of the United States Federal Bankruptcy Court for about US$10 million in respect of fraudulent conveyances and transfers was sought to be enforced in England at common law. In New Cap a default judgment of Barrett J of the New South Wales Supreme Court193 for about US$8 million in respect of unfair preferences was sought to be enforced under the Foreign Judgments (Reciprocal Enforcement) Act 1933 (UK) and, alternatively, pursuant to powers under s 426 of the Insolvency Act 1986 (UK). The defendants in each of the appeals were neither present nor resident of the relevant country in which judgment was entered. Nor did the respective defendants submit to the jurisdiction of the relevant foreign court. At common law, a court of a foreign country has jurisdiction to give a judgment in personam capable of enforcement against a defendant provided, relevantly, the defendant is either present in the foreign country or the defendant submitted to the jurisdiction of the foreign court.194 During the course of both appeals, this rule was referred to as the ‘Dicey Rule’ as set out in The Conflict of Laws.195

Rubin v Eurofinance SA 12.36 In the Rubin appeal, Eurofinance SA settled ‘The Consumers Trust’ (TCT) under a deed of trust made in 2002 under English law, with trustees

resident in England. Under United States law such a trust was considered a separate legal entity. In November 2005, TCT was placed into Chapter 11196 proceedings in New York. In September 2007 Lewison J of the High Court of Justice of England and Wales ordered that [page 708] the receivers of TCT be at liberty to seek approval of a plan of liquidation for TCT from the United States Bankruptcy Court. The United States Bankruptcy Court approved the plan in October 2007, and appointed the receivers as ‘foreign representatives’ of TCT. In December 2007, the receivers commenced proceedings in the United States Bankruptcy Court against a number of defendants claiming that various transactions were liable to be set aside as fraudulent conveyances. The defendants were served personally with the relevant originating process but did not defend or participate in the proceedings. On 22 July 2008, default judgment was entered against the defendants in the United States Bankruptcy Court. In November 2008, the receivers of TCT applied as foreign representatives to the Chancery Division for, inter alia: an order that the Chapter 11 proceedings be recognised as a ‘foreign main proceeding’ under the Model Law; an order that the receivers be recognised as ‘foreign representatives’ within the meaning of article 2(j) of the Model Law in relation to those proceedings; and an order that the United States Bankruptcy Court’s judgment be enforced as a judgment of the English court in accordance with English Civil Procedure Rules. At first instance, Nicholas Strauss QC, sitting as a deputy judge of the Chancery Division,197 made orders recognising the Chapter 11 proceedings as foreign main proceedings, and the receivers as foreign representatives, but refused to enforce the United States judgments. This was because at common law an English court will not enforce a judgment in personam contrary to the normal jurisdictional rules for foreign judgments; and there was nothing in the Model Law which justified the enforcement of judgments in insolvency proceedings. The Court of Appeal198 allowed an appeal, and held that the United States judgment was enforceable. The court held that a foreign insolvency judgment could be enforced in England and Wales at common law against a

defendant not subject to the jurisdiction of the foreign court under the traditional common law rules.

New Cap Reinsurance Corp Ltd 12.37 Likewise, in the New Cap appeal the liquidator of New Cap Reinsurance Corporation Ltd commenced proceedings against a Lloyd’s syndicate in the Supreme Court of New South Wales seeking recovery of alleged unfair preferences as voidable transactions under Pt 5.7B of the Act. New Cap was an Australian insurance company who conducted [page 709] business exclusively in Australia and the majority of New Cap’s business was generated through reinsurance brokers conducting business in Australia. New Cap reinsured the Lloyd’s syndicate in relation to losses occurring on risks attaching during the 1997 and 1998 years of account under reinsurance contracts which were subject to English law. The syndicate refused to accept service of the Australian proceedings. The liquidator obtained leave from the Supreme Court of New South Wales to serve the Australian proceedings on the syndicate’s English solicitors in London. The syndicate did not enter an appearance in the Australian proceedings. In 2009, Barrett J entered default judgment against the syndicate in favour of the liquidators under s 588FF of the Act.199 In October 2009, the Supreme Court of New South Wales issued a letter of request to the High Court in England and Wales, requesting that the court ‘act in aid of and assist’ the Australian court and exercise jurisdiction under s 426 of the Insolvency Act 1986 (UK) by ordering the syndicate to pay the sums specified in the Australian judgment; alternatively allowing the liquidator to commence fresh proceedings under the Australian Corporations Act in the English court; granting such further and other relief as the High Court may consider just; and making such further or other orders as may, in the opinion of the High Court, be necessary or appropriate to give effect to the foregoing orders. At first instance before Lewison J, his Honour held that the 588FF judgment was not enforceable under the Foreign Judgments (Reciprocal Enforcement) Act 1933 (UK) because, although that Act applied to Australian judgments, it did not apply to orders made in insolvency proceedings. However, his Honour found that the judgment was enforceable under the

assistance provision of s 426 of the Insolvency Act 1986 (UK) and also at common law. On appeal, the Court of Appeal affirmed Lewison J’s judgment.200

Rubin appeal 12.38 In the Rubin appeal, the Supreme Court of the United Kingdom, comprising Lord Walker of Gestingthorpe, Lord Mance, Lord Clarke of Stonecum-Ebony, Lord Sumption and Lord Collins of Mapesbury, overturned the Court of Appeal’s decision. One of the key issues that arose for determination included whether the judgments in each case were to be regarded as a judgment in personam within the scope of the traditional rules embodied in the Dicey rule, or were they to be characterised as an insolvency order which is part of the bankruptcy [page 710] proceedings, that is part of the collective proceeding to enforce rights and not to establish them? Further, as a matter of policy, should the court, in the interests of universality of insolvency proceedings, devise a rule for the recognition and enforcement of judgments in foreign insolvency proceedings which is more expansive, and more favourable to liquidators, trustees in bankruptcy, receivers and other office-holders, than the traditional common law rule embodied in the Dicey rule? The court found that judgments in both the Rubin appeal and the New Cap appeal were judgments in personam: There can be no doubt that the avoidance orders in the present appeals are in personam. In Re Paramount Airways Ltd [1993] Ch 223 at 238 Nicholls LJ said that the remedies under s 238 of the Insolvency Act 1986 (transactions at an undervalue) were ‘primarily of an in personam character’, and that accords with the nature of the orders in these appeals. The form of judgment of the US Bankruptcy Court in the Rubin case was that ‘plaintiffs have judgment … against the defendants’ in the sums awarded, and the orders of the New South Wales Supreme Court in the New Cap case included orders that ‘the defendants … pay to the first plaintiff’ the sums due under s 588FF(1) of the Australian Corporations Act.201

On that basis, the Dicey rule prevented the judgment in Rubin from being enforced in England. The Supreme Court nonetheless considered whether, as a matter of policy, there is, or should be, a separate rule for judgments in personam in insolvency proceedings, where those judgments are not designed to establish the existence of rights, but are central to the purpose of the insolvency proceedings or part of the mechanism of collective execution.202 The court held

that no such rule existed nor should such a rule be developed at common law. Instead: A change in the settled law of the recognition and enforcement of judgments, and in particular the formulation of a rule for the identification of those courts which are to be regarded as courts of competent jurisdiction (such as the country where the insolvent entity has its centre of interests and the country with which the judgment debtor has a sufficient or substantial connection), has all the hallmarks of legislation, and is a matter for the legislature and not for judicial innovation. The law relating to the

[page 711] enforcement of foreign judgments and the law relating to international insolvency are not areas of law which have in recent times been left to be developed by judge-made law. As Lord Bridge of Harwich put it in relation to a proposed change in the common law rule relating to fraud as a defence to the enforcement of a foreign judgment, ‘if the law is now in need of reform, it is for the legislature, not the judiciary, to effect it’: Owens Bank Ltd v Bracco [1992] 2 AC 443 at 489.203

By contrast, in the New Cap appeal, the Supreme Court of the United Kingdom found that the defendants in that case had submitted to the jurisdiction of the Australian court because the syndicate had participated in the Australian liquidation by submitting proofs of debt and receiving dividends. The Supreme Court of the United Kingdom accordingly found that the judgment could be enforced under the Foreign Judgments (Reciprocal Enforcement) Act 1933 (UK).

Non-enforceability under Model Law 12.39 The Supreme Court of the United Kingdom also found that neither of the judgments could be enforced under the Model Law. This is because the Model Law is silent as to the enforcement of judgments: But the … Model Law say[s] nothing about the enforcement of foreign judgments against third parties. As Lord Mance JSC pointed out in argument, recognition and enforcement are fundamental in international cases. Recognition and enforcement of judgments in civil and commercial matters (but not in insolvency matters) have been the subject of intense international negotiations at the Hague Conference on Private International Law, which ultimately failed because of inability to agree on recognised international bases of jurisdiction. It would be surprising if the Model Law was intended to deal with judgments in insolvency matters by implication. Articles 21, 25 and 27 are concerned with procedural matters. No doubt they should be given a purposive interpretation and should be widely construed in the light of the objects of the Model Law, but there is nothing to suggest that they apply to the recognition and enforcement of foreign judgments against third parties. … … In my judgment the Model Law is not designed to provide for the reciprocal enforcement of

judgments.204

1.

One of the leading insolvency academics, Professor R M Goode of Oxford University points out that ‘international insolvency’ and ‘cross-border insolvency’ have no defined meaning: R M Goode, Principles of Corporate Insolvency Law, 3rd ed, Sweet & Maxwell London, 2011, at [16-03].

2.

R M Goode, Principles of Corporate Insolvency Law, 3rd ed, Sweet & Maxwell London, 2011 at [16-03].

3.

Harmer Report at [958]. The quote is from Professor R M Goode from a paper given to the British Institute of International and Comparative Law, April 1986. The Harmer Report dedicated Ch 19 to ‘cross-frontier insolvency’.

4.

See Chapter 1 for a discussion of the aims of Anglo-Australian insolvency law.

5.

Harmer Report at [960].

6.

Re HIH Casualty and General Insurance Ltd; McGrath v Riddell [2008] 3 All ER 869; [2008] UKHL 21 at [7], [30] per Lord Hoffman; Akers (as a joint foreign representative of Saad Investments Company Ltd) (in official liquidation) (a company registered in the Cayman Islands) v Deputy Commissioner of Taxation (2014) 100 ACSR 287; [2014] FCAFC 57 at [28] per Allsop CJ, Robertson and Griffiths JJ agreeing. The High Court has refused special leave: Akers, Stephen John as a joint foreign representative of SAAD Investments Company Limited (in Official Liquidation) (A Company registered in the Cayman Islands) v Deputy Commissioner of Taxation [2014] HCATrans 231 (17 October 2014) per Crennan and Gageler JJ. In refusing special leave, Crennan J commented that ‘we are not persuaded that there are sufficient reasons to doubt the correctness of the decision of the Full Court of the Federal Court of Australia to warrant a grant of special leave to appeal’.

7.

Re HIH Casualty and General Insurance Ltd; McGrath v Riddell [2008] 3 All ER 869; [2008] UKHL 21 at [6]–[7].

8.

In the subsequent United Kingdom Supreme Court decision of Rubin v Eurofinance SA; New Cap Reinsurance Corp (in liq) v Grant [2013] 1 All ER 521; [2013] 1 AC 236 at [16] per Lord Collins SCJ, with whom Lord Walker and Lord Sumption agreed the Supreme Court observed there was a trend, but only a trend, towards universalism.

9.

UNCITRAL, Legislative Guide on Insolvency Law, 2005, at [2].

10. UNCITRAL Model Law on Cross-Border Insolvency, Preamble. 11. Including Canada, Japan and New Zealand. 12. Adopted on 4 April 2006 by virtue of the Cross-Border Insolvency Regulations 2006. Northern Ireland has adopted its own legislation in the form of the Cross-Border Insolvency Regulations (Northern Ireland) 2007. In Scotland, the Cross-Border Insolvency Regulations 2006 apply with the agreement of Scottish ministers but with minor differences to take into account idiosyncrasies of Scots insolvency law. 13. Effective on 17 October 2005 by virtue of Ch 15 of the United States Bankruptcy Code. 14. Section 588FE refers to the circumstance of a ‘company’ being wound up. The definition of ‘company’ in s 9 relevantly provides that the expression ‘means a company registered under this Act and … in Pts 5.7B and 5.8 ... , includes a Pt 5.7 body’. 15. For a detailed discussion of Pt 5.7 bodies see 3.24ff. In relation to the applicability of the voidable transactions provisions to Pt 5.7 bodies see Titchfield Management Ltd v Vaccinoma Inc (2008) 68 ACSR 448; [2008] NSWSC 1196 at [32]ff per Barrett J. For an English perspective on cross-border insolvency, see Rebecca Parry, James Ayliffe QC and Sharif Shivji, Transaction Avoidance in

Insolvencies, OUP, 2nd ed, 2011, Chapter 21. 16. For more specialised texts, see P Smart, Cross-Border Insolvency, 3rd revised ed, Butterworths, 2005 and Sheldon et al, Cross-Border Insolvency, 3rd ed, Bloomsbury Professional, 2011. For commentary on the Model Law see Look Chan Ho (ed), Cross-Border Insolvency: A Commentary on the UNCITRAL Model Law, 3rd ed, London, 2012. 17. See 12.14. 18. Re HIH Casualty and General Insurance Ltd; McGrath v Riddell [2008] 3 All ER 869; [2008] 1 WLR 852 at [6] per Lord Hoffman. 19. Solomons v Ross (1764) 1 H Bl 131n. 20. As explained in Rubin v Eurofinance SA; New Cap Reinsurance Corp (in liq) v Grant [2013] 1 All ER 521; [2013] 1 AC 236 at [11] the Supreme Court observed there was a trend, but only a trend, towards univerisalism. See also the examples given by the United Kingdom Supreme Court at [14] of that decision. 21. See, for example, the High Court’s comments in Attorney-General (UK) v Heinemann Publishers Australia Pty Ltd (1988) 165 CLR 30 at 40–1; 78 ALR 449. 22. Banque Internationale de Commerce de Petrograd v Goukassow [1923] 2 KB 682 at 691 per Scrutton LJ. See also Lazard Bros v Midland Bank [1933] AC 289 at 297. 23. Lazard Bros v Midland Bank [1933] AC 289 at 297 per Lord Wright, with whom Lord Buckmaster, Lord Blanesburgh, Lord Warrington of Cluffe and Lord Russell of Killowen agreed. 24. Re HIH Casualty and General Insurance Ltd; McGrath v Riddell [2008] 3 All ER 869; [2008] 1 WLR 852 at [8] per Lord Hoffman. 25. This is now an ‘old-fashioned’ way of referring to a company’s place of incorporation: Re HIH Casualty and General Insurance Ltd; McGrath v Riddell [2008] 3 All ER 869 at [30] per Lord Hoffman. The more modern expression is ‘Centre of Main Interests’ which is used in the Model Law. See 12.17. 26. Re English, Scottish and Australian Chartered Bank [1893] 3 Ch 385. 27. Re English Scottish and Australian Chartered Bank [1893] 3 Ch 385. 28. Re English Scottish and Australian Chartered Bank [1893] 3 Ch 385 at 394. See also Re Commercial Bank of South Australia (1886) 33 Ch D 174 at 178 per North J; Re Bank of Credit and Commerce International SA [1996] 4 All ER 796 at 818–21 per Sir Richard Scott VC; Felixstowe Dock & Railway Co v United States Lines Inc; Freightliners Ltd v United States Lines Inc [1988] 2 All ER 77; [1989] QB 360 at 376–9 per Hirst J; Re Wayland as liquidator of ABC Containerline NV (2005) 52 ACSR 750; [2005] NSWSC 1 at [16] per Barrett J. 29. Re Drax Holdings Ltd; Re InPower Ltd [2004] 1 All ER 903; [2004] 1 WLR 1049. See also Re HIH Casualty and General Insurance Ltd; McGrath v Riddell [2008] 3 All ER 869; [2008] 1 WLR 852 at [8] per Lord Hoffman. See also Stocznia Gdanska SA v Latreefers Inc [2000] All ER (D) 148; [2001] 2 BCLC 116. 30. Re HIH Casualty and General Insurance Ltd; McGrath v Riddell [2008] 3 All ER 869; [2008] 1 WLR 852 at [8] per Lord Hoffman. 31. Re International Tin Council [1987] 1 All ER 890 at 899; [1987] Ch 419 at 446–7 per Millett J. See also Akers (as joint foreign representative of Saad Investments Company Ltd) (in official liquidation) (a company registered in the Cayman Islands) v Deputy Commissioner of Taxation (2014) 100 ACSR 287; [2014] FCAFC 57 at [132]–[133] per Allsop CJ, Robertson and Griffiths JJ agreeing. 32. Re Wayland as liquidator of ABC Containerline NV (2005) 52 ACSR 750; [2005] NSWSC 1 at [17] per Barrett J.

33. Re Wayland as liquidator of ABC Containerline NV (2005) 52 ACSR 750; [2005] NSWSC 1 at [17] per Barrett J citing Re Hibernian Merchants Ltd [1958] Ch 76; [1957] 3 All ER 97. 34. Re Australian Federal Life and General Assurance Co Ltd [1931] VLR 317 at 320; 37 ALR 291 per Lowe J. 35. For a useful summary see, for example, Re Bank of Credit and Commerce International SA [1996] 4 All ER 796 at 818–21; [1997] Ch 213 per Sir Richard Scott VC. 36. Re HIH Casualty and General Insurance Ltd; McGrath v Riddell [2008] 3 All ER 869; [2008] 1 WLR 852 at [9] per Lord Hoffman. 37. Re HIH Casualty and General Insurance Ltd; McGrath v Riddell [2008] 3 All ER 869; [2008] 1 WLR 852 at [9] per Lord Hoffman. 38. Re Matheson Brothers Ltd (1884) 27 Ch D 225. 39. Re Matheson Brothers Ltd (1884) 27 Ch D 225 at 230. See also Re Australian Federal Life and General Assurance Co Ltd [1931] VLR 317 at 320; 37 ALR 291 per Lowe J; Re Standard Insurance Company Limited [1968] Qd R 118 per Lucas J; Re HIH Casualty and General Insurance Ltd; McGrath v Riddell [2006] 2 All ER 671 per David Richards J. 40. Re Australian Federal Life and General Assurance Co Ltd [1931] VLR 317 at 320; 37 ALR 291 per Lowe J. See also Akers (as joint foreign representative of Saad Investments Company Ltd) (in official liquidation) (a company registered in the Cayman Islands) v Deputy Commissioner of Taxation (2014) 100 ACSR 287; [2014] FCAFC 57 at [103] per Allsop CJ, Robertson and Griffiths JJ agreeing. 41. Re Standard Insurance Company Limited [1968] Qd R 118. 42. Re HIH Casualty and General Insurance Ltd; McGrath v Riddell [2008] 3 All ER 869; [2008] 1 WLR 852. 43. Re HIH Casualty and General Insurance Ltd; McGrath v Riddell [2008] 3 All ER 869; [2008] 1 WLR 852 at [73]. 44. The pari passu principle is enshrined in in the Corporations Act unless otherwise provided: s 555. Sections 562 and 562A, however, have the effect of giving priority to creditors having claims against an insolvent insurer. 45. Re HIH Casualty and General Insurance Ltd and other companies [2006] 2 All ER 671; [2005] EWHC 2125 (Ch). 46. Re HIH Casualty and General Insurance Ltd and other companies [2007] 1 All ER 177; [2006] EWCA Civ 732. 47. Re HIH Casualty & General Insurance Ltd; McGrath v Riddell [2008] 3 All ER 869; [2008] 1 WLR 852. 48. Lord Philips reached the same view: Re HIH Casualty and General Insurance Ltd; McGrath v Riddell [2008] 3 All ER 869; [2008] 1 WLR 852 at [44]. 49. Re HIH Casualty and General Insurance Ltd; McGrath v Riddell [2008] 3 All ER 869; [2008] 1 WLR 852 at [19]–[20] per Lord Hoffman. 50. Re HIH Casualty and General Insurance Ltd; McGrath v Riddell [2008] 3 All ER 869; [2008]1 WLR 852 at [26] per Lord Hoffman. 51. Re HIH Casualty and General Insurance Ltd; McGrath v Riddell [2008] 3 All ER 869; [2008] 1 WLR 852 at [28] per Lord Hoffman. 52. Re HIH Casualty and General Insurance Ltd; McGrath v Riddell [2008] 3 All ER 869; [2008] 1 WLR 852 at [28] per Lord Hoffman.

53. Re HIH Casualty and General Insurance Ltd; McGrath v Riddell [2008] 3 All ER 869; [2008] 1 WLR 852 at [30] per Lord Hoffman. 54. Re Bank of Credit & Commerce International SA (No 10) [1996] 4 All ER 796 at 821 per Sir Richard Scott VC. 55. Re Maxwell Communication Corp (1994) 170 Bankr R 800 at 816. 56. Re HIH Casualty and General Insurance Ltd; McGrath v Riddell [2008] 3 All ER 869; [2008] 1 WLR 852 at [33] per Lord Hoffman. 57. Re HIH Casualty and General Insurance Ltd; McGrath v Riddell [2008] 3 All ER 869; [2008] 1 WLR 852 at [62] per Lord Scott and at [77] per Lord Neuberger. 58. Re HIH Casualty and General Insurance Ltd, Re; McGrath v Riddell [2008] 3 All ER 869; [2008] 1 WLR 852 at [66]. For an example of a case where the administrators had available to them alternative causes of action under different voidable transactions legislation see Barclays Bank plc v Homan [1993] BCLC 680. 59. See 12.14. 60. Found in Pt 5.6 Div 9 of the Corporations Act. 61. As defined by s 580 of the Corporations Act. 62. Commencing with s 74 of the Bankruptcy Act 1869 (UK). 63. Re Chow Cho Poon (Private) Ltd (2011) 80 NSWLR 507; 249 FLR 315; [2011] NSWSC 300 at [14] per Barrett J. A detailed examination of the history of these provisions is found in the Privy Council decision in Al-Sabah v Grupo Torras SA [2005] 2 AC 333; [2005] UKPC 1. 64. Al-Sabah v Grupo Torras SA [2005] 2 AC 333 at [17]; [2005] UKPC 1. 65. Re Independent Insurance Co Ltd (in liq) (2005) 193 FLR 43; [2005] NSWSC 587; at [16] per Barrett J. 66. This is Court with a capital ‘C’ and includes the Federal Court and State Supreme Courts. See s 58AA. 67. The presence of the word ‘must’ connotes obligation: Re Independent Insurance Company Ltd (2005) 193 FLR 43; 23 ACLC 1337; [2005] NSWSC 587 at [9] per Barrett J. 68. Section 581(2)(a)(iii). ‘Prescribed country’ is defined in s 580 as meaning, relevantly, ‘a country prescribed for the purposes of this definition’. Corporations Regulations reg 5.6.74 prescribes the countries for the purposes of s 580 as (a) the Bailiwick of Jersey; (b) Canada; (c) the Independent State of Papua New Guinea; (d) Malaysia; (e) New Zealand; (f) the Republic of Singapore; (g) Switzerland; (h) the United Kingdom; (i) the United States of America. 69. Section 581 continues the well established arrangement in British courts whereby countries act in aid and are auxiliary to each other in connection with bankruptcy and insolvency administration: Ayres v Evans (1981) 39 ALR 129 at 132; 56 FLR 235 per Fox J. There must, however, be an external administration matter: compare ML Ubase Holdings Co Ltd v Trigem Computer Inc (2007) 69 NSWLR 577; [2007] NSWSC 859 at [52]–[53] per Brereton J. For a discussion of the scope of ‘external administration matter’ and ‘winding up’ see the Full Federal Court decision in Joye v Beach Petroleum NL & Cortaus Ltd (in liq) (1996) 67 FCR 275; 137 ALR 506; 20 ACSR 525. 70. Section 581(2)(b). Rolfe v Transworld Marine Agency Co NV (1998) 83 FCR 323; 28 ACSR 117; Re New Cap Reinsurance Corp Holdings Ltd (1999) 32 ACSR 234; 17 ACLC 1024; [1999] NSWSC 536. 71. Ayres v Evans (1981) 39 ALR 129 at 138; 56 FLR 235 per Northrop J. 72. Re Osborn (1932) 15 B & CR 189.

73. Re Osborn (1932) 15 B & CR 189 at 194. See also Re Jackson [1973] NILR 67 and Re a Debtor [1980] 3 All ER 665; [1980] 3 WLR 758 at 771 per Goulding J. 74. Re Chow Cho Poon (Private) Ltd (2011) 80 NSWLR 507; 249 FLR 315; [2011] NSWSC 300 at [20]–[21]. 75. Section 581(3). 76. Section 581(3). 77. Re Independent Insurance Company Ltd (2005) 193 FLR 43; 23 ACLC 1337; [2005] NSWSC 587 at [13] per Barrett J. 78. Re Independent Insurance Company Ltd (2005) 193 FLR 43; 23 ACLC 1337; [2005] NSWSC 587 at [15]. 79. Re Independent Insurance Company Ltd (2005) 193 FLR 43; 23 ACLC 1337; [2005] NSWSC 587. 80. Re Independent Insurance Company Ltd (2005) 193 FLR 43; 23 ACLC 1337; [2005] NSWSC 587 at [27]. See also Ayres v Evans (1981) 39 ALR 129 where the Full Federal Court discussed the equivalent provision in s 29 of the Bankruptcy Act 1966. 81. Section 58(4) refers to Court with uppercase ‘C’ as defined in s 58AA to mean relevantly the Federal Court and a State Supreme Court. 82. Re Dallhold Estates (UK) Pty Ltd (1991) 6 ACSR 378. 83. Re Dallhold Estates (UK) Pty Ltd (1991) 6 ACSR 378 at 383; 10 ACLC 1374 per Gummow J. See also Beach Petroleum NL v Cortaus Ltd (1995) 19 ACSR 24; 14 ACLC 236; Joye v Beach Petroleum NL (1996) 67 FCR 275; 137 ALR 506; 20 ACSR 525; Re AFG Insurances Ltd (2002) 43 ACSR 60; [2002] NSWSC 844. 84. Re HIH Insurance Ltd (in liq) [2004] NSWSC 454 at [7] per Barrett J. 85. Re HIH Insurance Ltd (in liq) [2004] NSWSC 454. 86. England v Smith [2001] Ch 419; [2000] 2 WLR 1141. 87. Re HIH Insurance Ltd (in liq) [2004] NSWSC 454. 88. Re HIH Insurance Ltd (in liq) [2004] NSWSC 454 at [14]. For appropriate procedures to be followed in transmission of a letter of request see Hardie Rubber Company Pty Ltd v General Tire & Rubber Company (1973) 129 CLR 521 at 525. And see generally, Parsons v Martin (1984) 5 FCR 235; Pearce v Button (1985) 8 FCR 40; Elna Australia Pty Ltd v International Computer (Aust) Pty Ltd (1987) 14 FCR 461. See also Re Federation Group Ltd (CAN 001 532 827)(in liq) [2005] FCA 900; Re Donnelly (as liquidator); Advance Finances Pty Ltd (in liq) [2013] FCA 514. 89. See Official Records of the United Nations General Assembly, 52nd Session, Supplement No 17 (A/52/17), [17]–[22]. 90. UNCITRAL Model Law on Cross-Border Insolvency with Guide to Enactment at [11]. 91. UNCITRAL Model Law on Cross-Border Insolvency with Guide to Enactment at [11]. 92. Section 2 of the Cross-Border Insolvency Act 2008. 93. Explanatory Memorandum to the Cross-Border Insolvency Bill 2008 at [5]–[6]. 94. Explanatory Memorandum to the Cross-Border Insolvency Bill 2008 at [4]. 95. With the exception of Pts 5.2 and 5.4A. 96. Section 10 of the Cross-Border Insolvency Act. 97. See, for example, Hur v Samsun Logix Corp [2009] FCA 372; Re Gainsford; Tannenbaum v Tannenbaum (2012) 293 ALR 699; [2012] FCA 904; Akers (as joint foreign representative) v Saad

Investments Co Ltd (in official liquidation) (a Co Registered in the Cayman Islands) (2010) 190 FCR 285; 276 ALR 508; [2010] FCA 1221; Katayama v Japan Airlines Corp (2010) 79 ACSR 286; [2010] FCA 794. 98. Article 2(f) of the Model Law. 99. Article 16(3). 100. Article 17(1). 101. Article 17(2)(a). 102. Article 17(2)(b). 103. Article 17(2)(a). 104. See the definition of establishment at 12.16. 105. This was a deliberate choice of Parliament as explained at in the Explanatory Memorandum to the Model Law at [1.7]. 106. Akers (as joint foreign representative) v Saad Investments Co Ltd (in official liquidation) (a Co Registered in the Cayman Islands) (2010) 190 FCR 285; 276 ALR 508; [2010] FCA 1221 at [46] per Rares J. 107. Re Eurofood IFSC Ltd [2006] Ch 508. 108. The presumption in Art 16(3) of the Model Law is the same as that found in Art 3(1) of the European Regulation. 109. Re Eurofood IFSC Ltd [2006] Ch 508 at 541–2. 110. Akers (as joint foreign representative) v Saad Investments Co Ltd (in official liquidation) (a Co Registered in the Cayman Islands) (2010) 190 FCR 285; 276 ALR 508; [2010] FCA 1221. 111. Akers (as joint foreign representative) v Saad Investments Co Ltd (in official liquidation) (a Co Registered in the Cayman Islands) (2010) 190 FCR 285; 276 ALR 508; [2010] FCA 1221 at [45]– [46], [48]–[49]. See also Re Gainsford; Tannenbaum v Tannenbaum (2012) 216 FCR 543; 293 ALR 699; Re Appleyard; Crawford Farms Ltd [2012] FCA 1373. 112. Article 20 of the Model Law. 113. For example, s 471B. 114. See, for example, Re Tucker; Aero Inventory (UK) Ltd v Aero Inventory (UK) Ltd (2009) 76 ACSR 19; [2009] FCA 1354. 115. See also Explanatory Memorandum to the Cross-Border Insolvency Bill 2008 at [64]ff. 116. Akers (as joint foreign representative) v Saad Investments Co Ltd (in official liquidation) [2013] FCA 738. 117. Akers v Saad Investments Company Ltd (in official liquidation) (a Co Registered in the Cayman Islands) (2010) 190 FCR 285; 276 ALR 508; [2010] FCA 1221. 118. See 12.18. 119. Section 139(2) of the Companies Law (2011 Revision) together with s 3(2)(b) of the Foreign Judgments Reciprocal Enforcement Law (1996 Revision). See the analysis of the Federal Court in Akers (as joint foreign representative) v Saad Investments Co Ltd; Re Saad Investments Co Ltd (in official liquidation) [2013] FCA 738 at [14]–[15]. 120. Government of India v Taylor [1955] AC 491 at 504, 506–8; Attorney-General (United Kingdom) v Heinemann Publishers Australia Pty Ltd (1988) 165 CLR 30 at 40–2 per Mason CJ, Wilson, Deane, Dawson, Toohey and Gaudron JJ.

121. Akers (as joint foreign representative) v Saad Investments Co Ltd; Re Saad Investments Co Ltd (in official liquidation) [2013] FCA 738 at [39]. 122. Akers (as joint foreign representative) v Saad Investments Co Ltd; Re Saad Investments Co Ltd (in official liquidation) [2013] FCA 738 at [40]. 123. Akers (as joint foreign representative) v Saad Investments Co Ltd; Re Saad Investments Co Ltd (in official liquidation) [2013] FCA 738 at [42]. 124. Re HIH Casualty and General Insurance Ltd; McGrath v Riddell [2008] 3 All ER 869; [2008] 1 WLR 852 at [7] and [30] per Lord Hoffman. 125. Re HIH Casualty and General Insurance Ltd; McGrath v Riddell [2008] 3 All ER 869; [2008] 1 WLR 852 at [6] per Lord Hoffman. 126. See 12.8. 127. Akers (as joint foreign representative) v Saad Investments Co Ltd; Re Saad Investments Co Ltd (in official liquidation) [2013] FCA 738 at [29]. 128. New Cap Reinsurance Corp (in liq) v Grant [2013] 1 AC 236 at 269 [94]–[95] per Lord Collins of Mapesbury with whom Lords Walker of Gestingthorpe and Sumption JJSC agreed. 129. Rubin v Eurofinance SA; New Cap Reinsurance Corp (in liq) v Grant [2013] 1 AC 236 at [94]–[95]. 130. Akers (as joint foreign representative) v Saad Investments Co Ltd; Re Saad Investments Co Ltd (in official liquidation) [2013] FCA 738 at [37]–[38]. 131. Akers (as joint foreign representative of Saad Investments Company Ltd) (in official liquidation) (a company registered in the Cayman Islands) v Deputy Commissioner of Taxation (2014) 100 ACSR 287; [2014] FCAFC 57. The High Court has refused special leave: Akers, Stephen John as a joint foreign representative of SAAD Investments Company Limited (in Official Liquidation) (A Company registered in the Cayman Islands) v Deputy Commissioner of Taxation [2014] HCATrans 231 (17 October 2014) per Crennan and Gageler JJ. In refusing special leave, Crennan J commented that ‘we are not persuaded that there are sufficient reasons to doubt the correctness of the decision of the Full Court of the Federal Court of Australia to warrant a grant of special leave to appeal’. 132. Akers (as joint foreign representative of Saad Investments Company Ltd) (in official liquidation) (a company registered in the Cayman Islands) v Deputy Commissioner of Taxation (2014) 100 ACSR 287; [2014] FCAFC 57 at [120]. 133. Cleaver v Delta American Reinsurance Co (in liq) [2001] 2 AC 328; [2001] UKPC 6; New Cap Reinsurance Ltd (in liq) v Faraday Underwriting Ltd (2003) 47 ACSR 306; 177 FLR 52; [2003] NSWSC 842 at [44]; Re HIH Casualty and General Insurance Ltd (2005) 215 ALR 562; 53 ACSR 12; [2005] NSWSC 240 at [96]. 134. Referring to Selkrig v Davies (1814) 2 Dow 230; 3 ER 848 per Lord Eldon; Banco de Portugal v Waddell (1880) 5 App Cas 161 at 167–8 and 170 and 175–6 per Earl Cairns LC, Lord Selborne and Lord Blackburn, respectively; Ex parte Wilson (1872) 7 Ch App 490 at 492–3 and 493–4 per James LJ and Mellish LJ; Re Harris, Goodwin & Co Re Standard Insurance Co Ltd [1968] Qd R 118 at 127–8 per Lucas J; Re National Employers’ Mutual General Insurance Assn Ltd (1995) 15 ACSR 624 at 626 per McLelland CJ in Eq; Cleaver v Delta American Reinsurance Co (in liq) [2001] 2 AC 328 at 337–41; [2001] UKPC 6 at [16]–[29]; and Re HIH Casualty and General Insurance Co (2005) 215 ALR 562; 53 ACSR 12; [2005] NSWSC 240 at [96]. 135. Akers (as joint foreign representative of Saad Investments Company Ltd) (in official liquidation) (a company registered in the Cayman Islands) v Deputy Commissioner of Taxation (2014) 100 ACSR 287; [2014] FCAFC 57 at [134]. 136. Section 17(1) of the Cross-Border Insolvency Act 2008.

137. Section 17(2). 138. Explanatory Memorandum to the Cross-Border Insolvency Bill 2008 at [66]–[67]. 139. UNCITRAL Model Law on Cross-Border Insolvency with Guide to Enactment at [165]. 140. UNCITRAL Model Law on Cross-Border Insolvency with Guide to Enactment at [165]. 141. The Corporations Rules in each jurisdiction are generally uniform: see 11.51. Practitioners should also be mindful of Court Practice Notes dealing with Corporations Act matters generally (see 11.55) and Court Practice Notes dealing specifically with proceedings under the Model Law: see, for example, Federal Court Practice Note Corp 2, ‘Cross-border Insolvency — Cooperation with Foreign Courts or Foreign Representatives’ and Supreme Court of New South Wales Practice Note SC Eq 6, ‘Cross-Border Insolvency: Cooperation with Foreign Courts or Foreign Representatives’. 142. Corporations Rules r 15A.3(1). 143. Article 15 r 3 of the Model Law provides that an application for recognition shall also be accompanied by a statement identifying all foreign proceedings in respect of the debtor that are known to the foreign representative. 144. Section 13 of the Cross-Border Insolvency Act provides that in addition to the requirement in para 3 of Art 15 of the Model Law that an application for recognition is to be accompanied by a statement identifying all foreign proceedings in respect of the debtor that are known to the foreign representative, the application must be accompanied by a statement identifying: (a) all proceedings under the Bankruptcy Act 1966 in respect of the debtor; and (b) any appointment of a receiver (within the meaning of section 416 of the Corporations Act 2001), or a controller or a managing controller (both within the meaning of section 9 of that Act), in relation to the property of the debtor; and (c) all proceedings under Chapter 5, or section 601CL, of the Corporations Act 2001 in respect of the debtor; that are known to the foreign representative. 145. Article 15 r 2 of the Model Law provides that: An application for recognition shall be accompanied by: (a) A certified copy of the decision commencing the foreign proceeding and appointing the foreign representative; or (b) A certificate from the foreign court affirming the existence of the foreign proceeding and of the appointment of the foreign representative; or (c) In the absence of evidence referred to in subparagraphs (a) and (b), any other evidence acceptable to the court of the existence of the foreign proceeding and of the appointment of the foreign representative. 146. The notice must be in accordance with Form 20: Corporations Rules r 15A.6. 147. Corporations Rules r 2.11 provides that: If a rule requires a notice in relation to a body to be published in accordance with this rule, the notice must be published once in a daily newspaper circulating generally in the State or Territory where the body has its principal, or last known, place of business. 148. Corporations Rules r 15A.3(3). 149. Corporations Rules r 2.7(1) provides that: (1) As soon as practicable after filing an originating process and, in any case, at least 5 days before the date fixed for hearing, the plaintiff must serve a copy of the originating process and any supporting affidavit on:

(a) each defendant (if any) to the proceeding, and (b) if the corporation to which the proceeding relates is not a party to the proceeding — the corporation. 150. Corporations Rules r 15A.3(4). 151. Corporations Rules r 15A.4. 152. The consent must be in accordance with Form 19: Corporations Rules r 15A.5. 153. Corporations Rules r 15A.7(1). Corporations Rules r 2.11 provides that: If a rule requires a notice in relation to a body to be published in accordance with this rule, the notice must be published once in a daily newspaper circulating generally in the State or Territory where the body has its principal, or last known, place of business. 154. Corporations Rules r 15A.8(1). The interlocutory process must be in accordance with Form 3. 155. Corporations Rules r 15A.8(2). 156. Corporations Rules r 15A.9. 157. Section 601CD. 158. See 3.24ff for a discussion of what is a Pt 5.7 body. See, for example, Trans Pacific Insurance Corp v Douglas (2009) 71 ACSR 569; [2009] NSWSC 308. 159. Section 601CL(14)(a) provides that each person who, on the day when the winding-up proceedings began, was a local agent of the foreign company must, within the period of one month after that day or within that period as extended by ASIC in special circumstances, lodge or cause to be lodged notice of that fact and, when a liquidator is appointed, notice of the appointment. 160. Section 601CL(15). 161. Section 601CL(16). See, for example, Re Banque des Marchands de Moscou (Koupetschesky) [1958] Ch 182 and Re Oygevault International BV (in liq) (1994) 14 ACSR 245 per McLelland CJ in Eq. 162. Defined in s 9 to include a company registered under the Corporations Act and a Pt 5.7 body. 163. See 8.22 and New Cap Reinsurance Corp Ltd (in liq) v Renaissance Reinsurance Ltd (2002) 43 ACSR 65; [2002] NSWSC 856 at [24] per Barrett J. 164. New Cap Reinsurance Corp Ltd (in liq) v Renaissance Reinsurance Ltd (2002) 43 ACSR 65; [2002] NSWSC 856. 165. See now r 11.2(1) of the Uniform Civil Procedure Rules 2005 (NSW) and Sch 6 thereto. 166. Staff Engineered Membranes Pty Lyd (in liq) v Synflex Industries (International) Inc [1984] 2 NSWLR 116; 8 ACLR 962. 167. Staff Membranes Pty Lyd (in liq) v Synflex Industries (International) Inc [1984] 2 NSWLR 116; 8 ACLR 962 at 964. 168. See also Horn v York Paper Co Ltd (1990) 3 ACSR 417. See, similarly, Re Mustang Marine Australia Services Pty Ltd (in liq) (2013) 94 ACSR 601; [2013] NSWSC 360. 169. Woodgate (as liquidator of Marketing Results Pty Ltd) v Network Associates International BV [2007] NSWSC 1260. 170. Re Paramount Airways Ltd [1993] Ch 223; [1992] 3 WLR 690. 171. Re Maxwell Communications Corporation (No 2) [1994] 1 BCLC 1. 172. Barclays Bank v Homan [1992] BCC 757.

173. Re Paramount Airways Ltd [1993] Ch 223 at 235; [1992] 3 WLR 690. 174. Re Paramount Airways Ltd [1993] Ch 223 at 236; [1992] 3 WLR 690. 175. Re Sawers; Ex parte Blain (1879) 12 Ch D 522. 176. Re Paramount Airways Ltd [1993] Ch 223 at 236–7; [1992] 3 WLR 690. 177. Re Paramount Airways Ltd [1993] Ch 223 at at 239; [1992] 3 WLR 690. 178. Federal Court Rules 2011 r 10.42; Court Procedures Rules 2006 (ACT) r 6501; Supreme Court Rules (NT) O 7; Uniform Civil Procedure Rules 2005 (NSW) Pt 11, Sch 6; Uniform Civil Procedure Rules 1999 (Qld) Pt 7 Div 1; Supreme Court Civil Rules 2006 (SA) r 40; Supreme Court Rules 2000 (Tas) Pt 7 Div 10; Supreme Court (General Civil Procedure) Rules 2005 (Vic) O 7; Rules of the Supreme Court 1971 (WA) O 10. 179. Federal Court Rules r 10.43(1) and (2). 180. A party may apply to the court for an order confirming service without leave: Federal Court Rules r 10.43(6). 181. Rules of the Supreme Court 1971 (WA) O 10. See ANZ Grindlays Bank Plc v Fattah (1991) 4 WAR 296; BCBC Singapore Pte Ltd v PT Bayan Resources TBK [2012] WASC 170 (service of application for freezing order requires leave). 182. Uniform Civil Procedure Rules 2005 (NSW) r 11.4(1). See Agar v Hyde (2000) 201 CLR 552; 173 ALR 665 at [54]ff per Gaudron, McHugh, Gummow and Hayne JJ. For an example of where originating process seeking relief under s 588FF was served outside of Australia see New Cap Reinsurance Corp Ltd v AE Grant (2009) 72 ACSR 638; 207 ALR 676; [2009] NSWSC 662 at [23]. 183. Supreme Court (General Civil Procedure) Rules 2005 (Vic) r 7.04. 184. Supreme Court Civil Rules 2006 (SA) r 40(2). 185. Supreme Court Rules (NT) r 7.04. 186. Court Procedures Rules 2006 (ACT) r 6501(1)(a). 187. Barrett J has observed that a claim under s 588FF(1) is, or is sufficiently akin to, a claim in personam: McGrath v National Indemnity Co (2004) 49 ACSR 403; [2004] NSWSC 391 at [7]. See also the United Kingdom Supreme Court’s decision in Rubin v Eurofinance SA; New Cap Reinsurance Corp (in liq) v Grant [2013] 1 AC 236; [2013] 1 All ER 521 at [105] where the court expressed the view that there could be ‘no doubt’ that orders under s 588FF were orders in personam. 188. Laurie v Carroll (1958) 98 CLR 310. 189. McGrath v National Indemnity Co (2004) 182 FLR 309; 49 ACSR 403 at [6]. 190. Singleton v Deputy Commissioner of Taxation [2007] NSWSC 1327. 191. See 11.71. See, for example, Condon v Commissioner of Taxation (2004) 49 ACSR 681; [2004] NSWSC 481. 192. New Cap Reinsurance Corp (in liq) v Grant [2013] 1 AC 236; [2013] 1 All ER 521. 193. New Cap Reinsurance Corp Ltd v AE Grant (2009) 72 ACSR 638; 207 ALR 676; [2009] NSWSC 662. 194. Rubin v Eurofinance SA; New Cap Reinsurance Corp (in liq) v Grant [2013] 1 AC 236; [2013] 1 All ER 521 at [7]. 195. Dicey, Morris and Collins, The Conflict of Laws, 14th ed, Sweet & Maxwell Ltd, 2006. 196. Chapter 11 of Title 11 of the United States Bankruptcy Code.

197. Rubin v Eurofinance SA [2011] Ch 133; [2010] 1 All ER (Comm) 81. 198. Rubin v Eurofinance SA [2011] Ch 133; [2010] 1 All ER (Comm) 81. 199. See New Cap Reinsurance Corporation Ltd v AE Grant (2009) 72 ACSR 638; 207 ALR 676; [2009] NSWSC 662. 200. Re New Cap Reinsurance Corp Ltd [2012] Ch 538. 201. Rubin v Eurofinance SA; New Cap Reinsurance Corp (in liq) v Grant [2013] 1 AC 236; [2013] 1 All ER 521 at [105]. In so deciding the Supreme Court expressly found that the decision of Lord Hoffman in Cambridge Gas Transport Corp v Official Committee of Unsecured Creditors of Navigator Holdings [2006] UKPC 26; [2007] 1 AC 508; [2006] 3 All ER 829 to the effect that insolvency proceedings were neither in personam nor in rem was wrong: Rubin v Eurofinance SA; New Cap Reinsurance Corp (in liq) v Grant [2013] 1 AC 236; [2013] 1 All ER 521 at [132]. 202. Rubin v Eurofinance SA; New Cap Reinsurance Corp (in liq) v Grant [2013] 1 AC 236; [2013] 1 All ER 521 at [106]. 203. Rubin v Eurofinance SA; New Cap Reinsurance Corp (in liq) v Grant [2013] 1 AC 236; [2013] 1 All ER 521 at [129]. 204. Rubin v Eurofinance SA; New Cap Reinsurance Corp (in liq) v Grant [2013] 1 AC 236; [2013] 1 All ER 521 at [142]–[144]; [2012] UKSC 46. See also Akers (as joint foreign representative) v Saad Investments Co Ltd; Re Saad Investments Co Ltd (in official liquidation) [2013] FCA 738 at [33].

[page 713]

Appendix A Precedent Originating Process Seeking Relief Under s 588FF1 [omitting formal parts]

A. DETAILS OF APPLICATION This application is made under s 588FF(1) of the Corporations Act 2001 (Cth) (the ‘Act’). The application is for an order that the defendant pay to the second plaintiff2 the amount which it has received as unfair preferences and voidable transactions (as defined under s 588FA of the Act). On the facts stated in the supporting affidavit, the plaintiffs claim: 1.

An order declaring that [specify transactions]: (a) are insolvent transactions within the meaning of s 588FC of the Act; (b) are unfair preferences within the meaning of s 588FA of the Act; and (c) are voidable transactions within the meaning of s 588FE(2) of the Act.

2.

An order under s 588FF of the Act that the defendant pay the second plaintiff the sum of $9,999,999 or such other sum as the court may order under s 588FF(1) of the Act.

3.

In respect of each and any sum ordered to be paid, interest up to judgment as the Court may direct pursuant to s 100 of the Civil Procedure Act 2005 (NSW) and thereafter pursuant to s 101 of the Civil Procedure Act 2005 (NSW).

4.

Costs.

5.

Further or other declarations or orders as the court deems fit.

1.

See Appendix B for the accompanying Points of Claim to this precedent. For a discussion of the orders available under s 588FF, see 8.24ff.

2.

The second plaintiff in this precedent is the company in liquidation. Although a liquidator will be the proper plaintiff (see 11.26), the beneficiary of any orders made for the payment of moneys is the company itself: see 8.26ff.

[page 714]

Appendix B Precedent Points of Claim in Support of Claim for Relief Under s 588FF (Unfair Preference)1 [omitting formal parts] 1.

The first plaintiff (the Liquidator) is the liquidator of the second plaintiff XYZ Pty Ltd (XYZ).

2.

The second plaintiff, XYZ: (a) was incorporated on 1 January 1901; (b) is and was at all material times a company duly incorporated in the State of Victoria; (c) is and was able to sue and be sued in its corporate name and style; (d) is now being wound up.

3.

On [date], Messrs Smith and Wang were appointed provisional liquidators of XYZ.

4.

On [date], the Supreme Court of Victoria made orders appointing the plaintiff as liquidator of XYZ.

5.

In accordance with the provisions of Pt 5.6 Div 1A of the Corporations Act 2001 (the ‘Act’), the winding up of XYZ began on [date].

6.

The relation-back day for XYZ for the purposes of a claim under s 588FE(2) of the Act is [date].

7.

From time to time, XYZ incurred ongoing obligations for which it became

indebted to the Australian Taxation Office (ATO) for: (a) Goods and Services Tax (GST); and (b) Pay As You Go Withholding Tax (PAYGWT) (Statutory Obligations). [page 715] Particulars 1.

A New Tax System (Goods and Services Tax) Act 1999 (Cth).

2.

A New Tax System (Pay As You Go) Act 1999 (Cth).

8.

XYZ paid salaries to employees fortnightly and to directors monthly.

9.

XYZ paid the corresponding PAYGWT to the ATO fortnightly for employees and monthly for directors.

10. The ATO held no security in relation to these Statutory Obligations. 11. Between [date] and [date] XYZ made the following payments to the ATO on or about the dates indicated below, together totalling [amount] (Payments) in satisfaction of its Statutory Obligations: [set out particulars of payments] 12. Each of the Payments were transactions within the meaning of ‘transaction’ in s 9 of the Act. 13. Each of XYZ and the ATO were parties to each of the Payments. 14. Each of the Payments were made in payment of an unsecured debt owed by XYZ to the ATO. 15. Each of the Payments were made by XYZ during the 6 months ending on the relation-back day for XYZ as defined by s 9 of the Act. 16. Each of the Payments were entered into at a time when XYZ was insolvent. 17. Each of the Payments resulted in the ATO receiving from XYZ, in respect of indebtedness to the ATO referred to in paragraph 11, more than the ATO would have received from XYZ in respect of such indebtedness if each of the Payments were set aside and the ATO was to prove for the indebtedness in the winding up of XYZ.

18. Each of the Payments are insolvent transactions within the meaning of s 588FC of the Act. 19. Each of the Payments are unfair preferences within the meaning of s 588FA of the Act. 20. Each of the Payments are voidable under s 588FE(2) of the Act.

1.

See Appendix C for the precedent defence to this Points of Claim. For a discussion of unfair preferences, see Chapter 4.

[page 716]

Appendix C Precedent Defence to Points of Claim in Support of Application for Relief Under s 588FF1 [omitting formal parts] 1.

The defendant admits the allegations pleaded in paragraphs [specify admissions] of the Points of Claim.

2.

The defendant states that it does not know and cannot admit the allegations pleaded in paragraph [specify paragraphs] of the Points of Claim.

3.

The defendant admits the allegations contained in paragraph [specify paragraph] save that the defendant denies receiving payment in the amount of $9,999.00 on or around 9 May 2008 in respect of GST.

4.

The defendant admits the allegations contained in paragraphs [specify paragraphs] save that it denies receiving payment in the amount of $9,999.00 on or about 9 May 2008 in respect of GST.

5.

In answer to paragraph [specify paragraph] of the Points of Claim, the Defendant: (a) denies each of the Payments were entered into at a time when XYZ Pty Ltd was insolvent; (b) denies that XYZ Pty Ltd was insolvent during the period [date]–[date] (inclusive); (c) further, denies receiving payment in the amount of $9,999.00 on or about 9 May 2008 in respect of GST.

6.

In answer to paragraphs [specify paragraphs] of the Points of Claim, the defendant: (a) admits receiving each of the Payments as defined save for the amount of $9,999.00 alleged to have been received on or about 9 May 2008 in respect of GST; [page 717] (b) denies that each of the Payments admitted to have been received are insolvent transactions within the meaning of s 588FC of the Act; (c) denies that each of the Payments admitted to have been received are unfair preferences within the meaning of s 588FA of the Act; (d) denies that each of the Payments admitted to have been received are voidable under s 588FE(2) of the Act.

7.

In answer to the whole of the Points of Claim, the defendant says that: (a) at the time the Payments admitted to have been received by the Defendant were received, the said payments were received by the Defendant in good faith within the meaning of s 588FG(1)(b)(i) of the Act; (b) at the time the Payments admitted to have been received by the Defendant were received, the defendant had no reasonable grounds for suspecting that XYZ Pty Ltd was insolvent at that time or would become insolvent within the meaning of s 588FG(1)(b)(ii)(A) of the Act; (c) a reasonable person in the defendant’s circumstances would have had no such grounds for so suspecting.

8.

1.

The defendant denies that the plaintiffs are entitled to the relief claimed in the Points of Claim and the Originating Process as alleged or at all.

See Appendix B for a precedent points of claim in support of application for relief under s 588F. For a discussion of the various defences to a s 588FF claim, see 8.51ff.

[page 718]

Appendix D Precedent Interlocutory Application Seeking Relief Under s 588FGA1 [omitting formal parts]

A. DETAILS OF INTERLOCUTORY APPLICATION This interlocutory application is made under s 588FGA of the Corporations Act 2001 (the ‘Act’). On the facts stated in the supporting affidavit, together with the Points of Claim filed by the Commissioner of Taxation, the Applicant applies for the following interlocutory relief: 1.

A declaration that the Respondent2 is liable to indemnify the Applicant pursuant to s 588FGA(2) of the Act.

2.

An order that the Respondent pay to the Applicant any sum or sums payable by the Applicant to the Plaintiffs as a result of an order under s 588FF of the Act being made against the Applicant in consequence of some or all of the matters alleged in the Plaintiffs’ Points of Claim or such other or further sum, including interest and costs that the Applicant is found liable to pay to the Plaintiffs.

3.

An order that the Respondent pay to the Applicant interest pursuant to s 51A of the Federal Court Act 1976 (Cth) on any sum or sums payable by the Applicant to the Plaintiffs as a result of an order under s 588FF of the Act being made against the Applicant in consequence of some or all of matters alleged in the Plaintiffs’ Points of Claim

[page 719] from the date of the judgment by the Plaintiffs against the Applicant in these proceedings to the date of judgment against the Respondent at the rate of 10% per annum. 4.

Costs.

5.

Such further or other orders as the Court deems fit.

1.

Because of the statutory lacuna in the Corporations Rules, claims for relief under s 588FGA are commenced by the interlocutory process: see 11.71. Appendix E is the accompanying Points of Claim to this precedent. For a discussion of s 588FGA, see 10.118ff.

2.

The Respondent in such a claim will be a director of the insolvent company: see 10.118.

[page 720]

Appendix E Precedent Points of Claim in Support of Application for Relief Under s 588FGA1 [omitting formal parts] 1.

The Defendant/Applicant is the Commissioner of Taxation of the Commonwealth of Australia and in his official name is entitled to recover debts due to the Commonwealth and payable to the Commissioner of Taxation.

2.

The Plaintiffs in their Points of Claim filed on [date] (‘Plaintiffs’ Claim’) seek an order against the Applicant under s 588FF of the Corporations Act 2001 (‘the Act’) that the Applicant pay to the Plaintiffs the sum of $9,999,999.

3.

Pursuant to s 588FGA of the Act, if the Court makes an order under s 588FF of the Act against the Commissioner of Taxation (‘Commissioner’) because of the payment of an amount in respect of a liability under inter alia Subdiv 16-B in Sch 1 to the Taxation Administration Act 1953 [commonly known as ‘group tax’, ‘PAYG Withholding’, ‘PAYG Instalments’ or ‘ITW liabilities’] each person who was a director of the company when payment was made is liable to indemnify the Commissioner in respect of any loss or damage resulting from the order.

4.

In the event the Court orders the Applicant to repay any of the amounts referred to in the Plaintiffs’ Claim, under s 588FF of the Act, then upon the grounds pleaded below, the Commissioner claims to be indemnified by the Respondents in respect of any loss or damage to the Applicant resulting from the order.

5.

At all material times, the First Respondent was a Director of the Companies named in the Plaintiff’s claim (‘the Companies’). [page 721]

6.

Out of the total amount of $9,999,999 referred to in the Plaintiffs’ Claim, the sum of $5,555,555 was in respect of liabilities of the company under a provision of Subdiv 16-B of Sch 1 to the Taxation Administration Act 1953 as particularised in the tables below:

PARTICULARS [set out particulars of payments] 7.

8.

In the event that an order is made against the Applicant by the Court under s 588FF of the Act in respect of some or all of the amounts specified in the Plaintiffs’ Claim, relevantly the Applicant will suffer loss or damage consisting of: a.

such part of the sum as the Applicant is ordered to pay to the Plaintiffs in respect of the amounts specified in paragraph 7 of the affidavit filed in support of the Plaintiffs’ claim, as comprises amounts that were paid by the Company to the Commissioner in respect of liabilities of the company under a provision of Subdiv 16-B of Sch 1 to the Taxation Administration Act 1953;

b.

such proportion of the amount of interest that the Applicant is ordered to pay to the Plaintiffs pursuant to s 51A of the Federal Court Act 1976 (Cth) as the sum referred to in (a) bears to the total amount payable; and

c.

such proportion of the amount of costs that the Applicant is ordered to pay to the First Plaintiff as the sum referred to in (a) bears to the total amount payable.

In the premises, by reason of s 588FGA(2) of the Act, the Respondent is liable to indemnify the Applicant in respect of the loss or damage referred to in the Plaintiffs’ Claim in the event that an order is made against the Commissioner pursuant to s 588FF of the Act in respect of some or all of the amounts specified in the Plaintiff’s Claim.

AND THE APPLICANT CLAIMS: 1.

An order that the Respondent indemnify the Applicant in respect of: (a) such part of the sum as the Applicant is ordered to pay to the Plaintiffs in respect of the amounts specified in the Plaintiffs’ Claim, as comprises amounts that were paid by the Companies to the Commissioner in respect of liabilities of the companies under a provision of Subdiv 16-B of Sch 1 to the Taxation Administration Act 1953; [page 722] (b) such proportion of the amount of interest that the Applicant is ordered to pay to the Plaintiffs pursuant to s 51A of the Federal Court Act 1976 (Cth) as the sum referred to in (a) bears to the total amount payable; and (c) such proportion of the amount of costs that the Applicant is ordered to pay to the Plaintiffs as the sum referred to in (a) bears to the total amount payable.

2.

Costs.

3.

Such further or other orders as the Court thinks fit.

1.

See Appendix F for a precedent defence. For a discussion of s 588FGA, see 10.118ff.

[page 723]

Appendix F Precedent Defence to Points of Claim in Support of Application for Relief Under s 588FGA1 [omitting formal parts] 1.

The Respondent to the Interlocutory Application admits paragraph 1 of the Points of Claim.

2.

In answer to paragraph 2 of the Points of Claim, the Respondent: (a) admits that the Plaintiffs’ Claim seeks an order against the Applicant; (b) denies that the Respondent is liable to the Applicant as the Companies were not insolvent at the time that the benefit of any transaction was received by the Applicant; and (c) denies the balance of the allegations made in that paragraph.

3.

In answer to paragraph 3 of the Points of Claim, the Respondent: (a) denies the allegations made in paragraph 3; (b) will rely upon the terms of s 588FGA of the Corporations Act 2001 (the ‘Act’) as if that section were fully set out in this defence; (c) denies that any of the transactions referred to in the Plaintiffs’ Claim were entered into at a time when any of the Companies were insolvent; and (d) is entitled to defences under s 588FGB of the Act to be excused under s 1318 of the Act (see paragraph 10 below) as pleaded in paragraphs 8

and 10 herein. 4.

In answer to paragraph 4 of the Points of Claim, the Respondent: (a) denies that the Applicant is liable to make any payment under s 588FF of the Act; [page 724] (b) will rely upon the terms of s 588FGA of the Act as if that section were fully set out in this defence; (c) denies that any of the transactions referred to in the Plaintiffs’ Claim were entered into at a time when the Companies were insolvent; and (d) is entitled to defences under s 588FGB of the Act and to be excused under s 1318 of the Act as pleaded in paragraphs 8 and 10 herein.

5.

The Respondent admits paragraph 5 of the Points of Claim, so far as that paragraph concerns the First Respondent.

6.

The Respondent admits the allegations made in paragraph 6 of the Points of Claim.

7.

In answer to paragraphs 7 and 8 of the Points of Claim, the Respondent: (a) denies that the Applicant is liable to make any payment under s 588FF of the Act; (b) will rely upon the terms of s 588FGA of the Act as if that section were fully set out in this defence; (c) denies that any of the transactions referred to in the Plaintiffs’ Claim were entered into at a time when any of the Companies were insolvent; and (d) is entitled to defences under s 588FGB of the Act and to be excused under s 1318 of the Act as pleaded in paragraphs 8 and 10 herein.

8.

Further, and in answer to the whole of the Points of Claim, the First Respondent relies upon s 588FGB of the Act and says: (a) at all material times he or she had reasonable grounds to expect, and did expect, that the Companies were solvent at that time and would remain solvent even if they made the payments alleged;2

(b) at the time the alleged payments were made, he or she had reasonable grounds to believe and did believe that a competent and reliable person was responsible for providing to him or her adequate information about whether each of the Companies were solvent and that that person was fulfilling that responsibility; and (c) the First Respondent expected on the basis of information provided to her by that competent and reliable person that each of the Companies were solvent at all relevant times and would remain solvent even if they made the alleged payments. [page 725]

PARTICULARS [set out particulars of competent and reasonable person and information provided] 9.

In further answer to the whole of the Points of Claim, the First Respondent says that: (a) the Applicant is not entitled, pursuant to any order made under s 588FGA(2) of the Act, to any costs, loss or damage which did not arise as a result of an order of the Court against it; and (b) any liability of the First Respondent pursuant to that section (which is denied) does not extend to a liability to indemnify the Applicant for any costs incurred by the Applicant in defence of the proceedings or any other loss or damage sustained by it other than in the orders sought against it by the Plaintiff.

10. Further, or in the alternative, and in answer to the whole of the Points of Claim, the First Respondent says that if, which is denied, she is liable to indemnify the Applicant pursuant to s 588FGA of the Act and by reason of any default or breach of her duty as an officer of the Companies from making the relevant payments: (a) she at all times acted honestly; (b) having regard to all the circumstances of the case, she ought fairly be excused for that default or breach of duty; and

(c) the Court should, pursuant to s 1318(1)3 of the Act, relieve her wholly, or in the alternative partly, from any liability to which she would otherwise be subject, or that might be imposed on her, because of the default or breach of duty.

1.

This is a precedent defence in response to the precedent Points of Claim in support of application for relief under s 588FGA in Appendix E.

2.

See 10.124ff for a discussion of the various defences to a claim under s 588FGA.

3.

See 10.132.

[page 726]

Appendix G Precedent Letter of Request1 LETTER OF REQUEST The Honourable Judge [Name] [Court name] [Court address] Dear Judge Re: ABC XYZ Pty Ltd (ACN 123 456 789) (in liq) Case Number [specify foreign case number if appropriate] The Federal Court of Australia hereby requests the [name of foreign court] to assist this court and to act in aid of and to be auxiliary to this court in respect of the winding up of ABC XYZ Pty Ltd (ACN 123 456 789) (hereinafter ‘the Company’) by making orders, to the extent it has jurisdiction to do so, as follows: 1.

Orders recognising and giving effect to the attached Orders made by the Federal Court of Australia pursuant to s 459A of the Corporations Act 2001 (Cth) on 16 December 2010: (a) That ABC XYZ Pty Ltd (ACN 123 456 789) be wound up. (b) That [name of liquidator], an Official Liquidator, be appointed Liquidator of ABC XYZ Pty Ltd (ACN 123 456 789).

2.

Subject to Order 5 below, Orders recognising and giving effect to the attached orders to produce documents made by the Federal Court of Australia pursuant to r 30.03 of the Federal Court Rules 2011 on 9 May 2013:

(a)

That ABC Bank Ltd produce the documents specified in the order to produce documents addressed to it. [page 727]

(b) That XYZ Bank Ltd produce the documents specified in the order to produce documents addressed to it. 3.

Such Orders as it would be open to: (a) the Federal Court of Australia to make if the persons referred to in paragraph 2 above had been within the territorial jurisdiction of the Federal Court of Australia; and (b) the [foreign court] to make if each of the aforesaid companies had been a company formed and incorporated in Israel and was being wound up in Israel, by way of assisting the Liquidator in the exercise of his powers and the discharge of his duties and functions as Liquidator of the Companies.

4.

Without limiting the generality of the above, Orders for the production before the [foreign court] by each of ABC Bank Ltd and XYZ Bank Ltd of the documents sought in the Motion for Provisions and Recognition of Liquidation Orders issued outside of [foreign state] filed by [the Liquidator] (‘the Applicant’) at the [foreign court] in Civil Case [foreign court file number].

5.

Each of ABC Bank Ltd and XYZ Bank Ltd be excused from complying with the order to produce documents addressed to it referred to in paragraph 2 above it if complies with any orders made by the [foreign court] under paragraph 4 above.

6.

Such further Orders as the [foreign court] may consider just and appropriate.

1.

Adapted from Re Donnelly (as liquidator); Advance Finances Pty Ltd (in liq) [2013] FCA 514. See 12.13.

Index References are to paragraphs

A Accounting records as evidence in insolvency …. 2.45–2.49 Acts Interpretation Act ‘transaction’ term extrinsic material, use of …. 3.17 purpose or object of provisions, to achieve …. 3.16, 3.19 Admissions to insolvency ….2.61–2.62 Akers v Saad Investments Co Ltd, 12.18, 12.21 2010 orders …. 12.22 decision of Rares J, modified universalism principle …. 12.24 Deputy Commissioner’s arguments …. 12.23 Alternate directors …. 10.20 Anti-deprivation rule …. 1.12 Asset distribution, winding up companies …. 1.5 equality …. 1.16 pari passu rule see Pari passu rule Asset liquidity ratio …. 2.42 Australian Register of Company Charges …. 9.110 Australian Securities and Investments Commission (ASIC) key indicators of insolvency …. 2.41 Avoidance provisions Corporate Law Reform Act 1992 (Cth) …. 1.45–1.53

history …. 1.19 American law Bankruptcy Act 1841 (US) …. 1.30 ancient law …. 1.20 Australian bankruptcy law …. 1.32–1.34 Harmer Report …. 1.37–1.44 prior to Pt 5.7B …. 1.35 provisions prior to 23 June 1993 …. 1.36 English law bankruptcy statutes …. 1.24 early corporate insolvency …. 1.31 Insolvent Debtor’s Court …. 1.26 Jacobean period …. 1.25 Joint Stock Companies Act 1856 (UK) …. 1.29 preference law, origins …. 1.28 Victorian reformation …. 1.27 middle ages and Law Merchant …. 1.22–1.23 Paulian action …. 1.21 policy and purpose of Pt 5.7B …. 1.15–1.17 prior to Pt 5.7B …. 1.18 rationale in insolvency law …. 1.14

B Balance of authority …. 2.62 Balance sheet test …. 2.4, 2.14 Bankruptcy Act 1924 (Cth) …. 1.33 Bankruptcy Act 1966 (Cth) …. 1.34 Benefits concept …. 5.18, 5.19

meaning …. 5.18, 7.7 unreasonable director-related transactions …. 7.18 Bill of costs …. 2.9 Body meaning …. 3.24 Body corporate …. 3.22–3.23 By the body …. 3.38 composite transactions …. 3.70–3.71

C Cash flow test …. 2.4, 2.15–2.17 Centre of main interest (COMI) …. 12.17 Charges extortionate …. 6.14 Circulating security interests PPSA …. 9.6 Civil Dispute Resolution Act 2011 genuine steps statement …. 11.5 Civil Procedure Act 2005 (NSW) corporations, eliciting information from …. 11.16 Civil Procedure Act 2010 (Vic) pre-litigation process …. 11.8 Claims distinguished from ‘debts’ …. 2.24 Close associates meaning …. 7.16 Clyne Report …. 1.34 Comity principle …. 12.5

Commercial insolvency see Cash flow test Commercial reality …. 2.26–2.27 payment terms evidence …. 2.33 variation …. 2.30–2.32 resources of company to pay …. 2.34 resources of director to pay …. 2.35 support of related company …. 2.36 substitution of one obligation for another …. 2.37 Companies able but unwilling to pay debts …. 2.39 asset rich and insolvent …. 2.17 balance sheet test …. 2.4, 2.14 corporate group support to pay debts …. 2.36 creditors’ latitude towards …. 2.26 determining insolvency …. 2.14 directors, debt payments …. 2.35 financial position analysis at given time …. 2.57 indicia of insolvency …. 2.40–2.41 liquidity temporary lack of …. 2.38 viability and …. 2.16 resources to pay debts …. 2.34 corporate group support …. 2.36 loans from related companies …. 2.36 separate entry doctrine …. 10.1 transaction of a company concept …. 3.2

Company charges avoiding use as security interest …. 9.2 Composite transactions …. 3.70 elements and limits …. 3.73 existence a question of law …. 3.77 limits, difficulties defining …. 3.74, 3.75 not transaction of company …. 3.71, 3.73 ‘of a company’ and ‘of the company’ …. 3.78 steps must be linked in some way …. 3.72 third parties …. 3.76 Compulsory winding up …. 2.74 Consent judgment balance of authority …. 2.62 voidable transactions …. 2.61 balance of authority …. 2.62 Contingent and prospective liabilities …. 2.20–2.25 Contingent debt …. 2.20 case law …. 2.21–2.25 Conveyance meaning …. 3.33 Corporate group relevancy of solvency position …. 2.36 support to, by paying company’s debts …. 2.36 Corporate Law Reform Act 1992 (Cth) …. 1.45–1.53 Corporations as de facto/shadow directors …. 10.28 Corporations Act

certain lessors, bailors and consignors entitled to damages …. 9.92 court orders, voidable transactions, s 588FF …. 11.29 Ultra Tune case …. 11.30 debt, meaning …. 2.7 ‘director of a company’ definition …. 10.18 ‘director of company,’ definition …. 10.14 external administration matters …. 12.8–12.10 courts in aid of prescribed and non-prescribed countries, s 581(2)(a) …. 12.11 letters of request, s 581(3) …. 12.12 request for assistance …. 12.13 limitation period blanket or shelf orders, extension of time, s 588FF(3) …. 11.40–11.41 discretion to extend time under s 588FF(3) …. 11.42 joinder of new party to s 588FF proceedings …. 11.49 order setting aside extension order …. 11.47 order, form of, extending time, s 588FF(3) …. 11.44 variation of order extending time, s 588FF(3) …. 11.45 Court’s power to extend time on orders …. 11.46 presumptions, recovery proceedings …. 2.65 recovery proceedings claims against Deputy Commissioner of Taxation …. 11.54 commencing proceedings claims against Deputy Commissioner of Taxation …. 11.54 Court practice notes …. 11.55 specialised corporations lists …. 11.55 Commissioner of Taxation file interlocutory process seeking indemnity …. 11.71–11.73

procedural aspects, s 588T …. 11.74 statutory right of indemnity …. 11.63 Court practice notes …. 11.55 extensions of time under s 588FF(3)(b) …. 11.33 limitation period for commencing s 588FF actions …. 11.31 specialised corporations lists …. 11.55 uniform procedure for applications …. 11.51–11.53 registration, extension of time, s 588FM application in Re Cardinia Nominees …. 9.79, 9.81 court orders, conditions imposed …. 9.87 court orders, made unconditionally …. 9.86 Court’s discretion …. 9.85 delay factor …. 9.85 order reserving liberty to apply …. 9.90 order reserving liberty to discharge or vary if insolvency within six months of registration …. 9.88 order without prejudice to person subsequently obtaining security …. 9.89 solvency threshold …. 9.74 repealed provisions, Ch 2K ‘associate,’ charge avoided …. 9.162 ‘in favour of,’ charge avoided …. 9.160 accidental (human error), grounds for order …. 9.138 assignment to relevant persons within six-month period …. 9.167 associate, acting in concert …. 9.163 charge definition, purposes of PPSA …. 9.122 charge, invalidity under s 267 …. 9.171

charges in favour of certain persons void …. 9.156–9.157 charges void against liquidator or administrator …. 9.133 chargor/chargee definitions …. 9.123 circumstances within former s 266(4)(a) …. 9.141 court order, conditions …. 9.152–9.153 court’s discretion, factors relevant to exercise …. 9.148–9.151 crystallisation …. 9.126 determining fixed or floating charges …. 9.127 employees, debts to, priority over claims …. 9.131 enforcement not established …. 9.165 enforcement, creditor appoints administrator …. 9.166 enforcement, meaning …. 9.164 evidence for application, default in lodgment …. 9.135 evidence for application, solvency …. 9.136 fixed charges …. 9.125 floating charge definition, s 9 …. 9.121 floating charges …. 9.124 grounds for order …. 9.137 inadvertence as grounds for order …. 9.139 inadvertence, failure to register …. 9.143 leave granted for charge to be enforced …. 9.168 not of nature to prejudice creditors or shareholders …. 9.144–9.145 officer, definition …. 9.161 on other grounds it is just and equitable to grant relief …. 9.146–9.147 payment, priority claims …. 9.130 registration of charge, extension of period …. 9.134 registration of charges …. 9.132

relevant person, charge avoided …. 9.159 retrospective leave may not be granted under s 267 …. 9.169–9.170 s 267 …. 9.158 successive charges …. 9.154 sufficient cause as grounds for order …. 9.140 third parties title, acquiring property for value unaffected …. 9.155, 9.172 time limit for lodgment error …. 9.142 transitional provisions, ss 1499- 1510 …. 9.120 voidable charges, how? …. 9.129 voidable charges, why? …. 9.128 rights of secured creditors, s 471C …. 9.1 security interests definition within s 51 …. 3.47 security interests in favour of officer of company …. 9.93–9.94 leave for enforcement …. 9.100–9.101 other ways to avoid …. 9.103–9.104 persons covered by s 588FP …. 9.95–9.96 taking steps to enforce …. 9.97–9.99 third parties title, acquiring property unaffected …. 9.102 ‘transaction’ provisions …. 3.9–3.13 purposive approach to construction …. 3.16–3.21 ‘transactions’ s 588FDA restrictions …. 3.14–3.15 unfair preferences ‘company and creditor parties to transaction’ …. 4.27 discharge of debt owed to two creditors by payment to one …. 4.33 debtor-creditor relationship …. 4.34

elements of …. 4.22–4.24 pre-payment of goods or services genuine …. 4.35–4.36 transaction ‘given’ by a company itself directors of insolvent company establish new company …. 4.26 payment sourced other than by company …. 4.25 voidable transactions avoiding transactions, statutory mechanism, s 588FF …. 8.1 concept, within s 588FE …. 8.1 provisions …. 12.3 purpose of Part 5.7B provisions …. 8.2 Corporations Rules cross-border insolvency procedural rules, applications of Model Law …. 12.26 recovery proceedings uniform procedure, pleadings …. 11.71–11.73 Court orders, Pt 5.7B …. 1.52 Credit transactions not loans …. 6.15 Creditors anti-deprivation rule …. 1.12 class of, distribution to same …. 1.14 debt subordination agreements …. 1.12, 1.12–1.13 latitude …. 2.29 pari passu rule see Pari passu rule payment terms …. 2.30 variations …. 2.31

right to winding up order …. 1.2 statutory construction, distribution to all …. 1.13 total recovery …. 11.3 Cross-border insolvency aim of insolvency law …. 12.1 Australian courts request for assistance ‘act in aid …. ’ request …. 12.13 cooperation between Australian and foreign courts …. 12.10 Corporations Act see Corporations Act Cross-Border Insolvency Act 2008 (Cth) …. 12.14 extern administration matters letters of request, s 581(3) …. 12.12 external administration matters …. 12.10 courts in aid of prescribed and non-prescribed countries, s 581(2)(a) …. 12.11 request for assistance …. 12.13 Model Law on Cross-Border Insolvency …. 12.2 adoption …. 12.14 Akers v Saad Investments Co Ltd …. 12.18, 12.22–12.24 applications for registration …. 12.15 Centre of Main Interest …. 12.17 non-enforceability under …. 12.39 two types of foreign proceedings …. 12.16 treatment of voidable transactions …. 12.25 enforcement of judgment overseas …. 12.35 foreign defendants and foreign assets, Pt 5.7B …. 12.30–12.32 New Cap appeal, s 588FF judgment held not enforceable …. 12.37 non-enforceability under Model Law …. 12.39

procedural rules, applying for recognition …. 12.26 Rubin appeal Dicey Rule applied …. 12.38 enforceability of American judgment …. 12.36 service of documents …. 12.27 service of originating process outside Australia …. 12.33–12.34 winding up of foreign companies, Pt 5B Div 2 …. 12.28–12.29 winding up of Pt 5.7 bodies under s 583 …. 12.28–12.29 universalist versus territorialist approach …. 12.2 voidable transactions …. 12.3 at common law …. 12.5 creditors treated equally regardless of location …. 12.6 HIH case …. 12.7–12.9 statutory regulation …. 12.4 Cross-Border Insolvency Act 2008 (Cth) …. 12.14 Cross-vesting scheme recovery proceedings Federal Court …. 11.18 Current asset ratio …. 2.42

D Dalhold Estates case …. 12.13 De facto directors concepts of …. 10.21, 10.23 corporations as …. 10.28 definition under s 9 …. 10.18, 10.29 liable pursuant to s 588G …. 10.24 Debt subordination agreements …. 1.12–1.13 Debtors

unwilling to pay debts …. 2.39 Debts claim in quantum meruit …. 10.30 contingent …. 10.34 case law …. 2.20–2.25 damages, entitlement to claim not a debt …. 10.35–10.36 due and payable see Due and payable debts ‘incurs a debt’ first use in Australia …. 10.31 a priori rule, meaning …. 10.31 variation to concept …. 10.33 lease, obligations under …. 10.42–10.43 meaning …. 2.5 Queensland act …. 2.34 prospective case law …. 2.21–2.25 purpose of s 588G(1)(b) debts immediately due and payable …. 10.45 purpose of s 588G(1A) table …. 10.44 statutory imposts …. 10.37 supply of goods and services …. 10.38–10.41 taxes …. 10.37 unwillingness of debtor to pay …. 2.39 writ of …. 2.6 Detriment meaning …. 5.18 unreasonable director-related transactions …. 7.35

Dicey Rule …. 12.38 Dictionary s 9 acting directors …. 10.21 alternate directors …. 10.20 body …. 3.38 body corporate …. 3.22–3.23 close associate …. 7.16 de facto director …. 10.18 directors …. 10.18 floating charge …. 9.23 issue …. 7.12 Part 5.7 body …. 3.24 party …. 3.28 place of origin …. 3.24 property …. 3.45 referring state …. 3.24 registrable Australian body …. 3.25 registrable body …. 3.25 shadow directors …. 10.16 spouse …. 7.16 this jurisdiction …. 3.24 transaction …. 3.9, 3.11, 3.12, 5.4 Directors compensation court orders application for civil penalty order …. 10.98–10.100 criminal courts 588K …. 10.101

double recovery, avoiding, s 588N …. 10.105 recovery for loss due to insolvency, s 588M …. 10.102 amount of creditor’s debt …. 10.103 equitable contribution claim by sued director …. 10.104 defences to claims under s 588FGA (s 588FGB) …. 10.124–10.125 all reasonable steps to prevent company incurring debt …. 10.131 availability of set-off under s 553C …. 10.135–10.138 claims brought by Commissioner of Taxation …. 10.132 costs in proceedings …. 10.133–10.134 director’s reliance on information …. 10.127–10.129 illness or some other good reasons …. 10.130 reasonable grounds to expect solvency …. 10.126 defences to insolvent trading claims, s 588H Harmer Commission …. 10.72 illness or other good reason …. 10.83–10.91 deceived and excluded from management …. 10.89 director wife left business to husband to run …. 10.84 overseas …. 10.90 reasonable grounds to expect solvency …. 10.74, 10.79 ‘expect’ meaning …. 10.75 assets to pay debts …. 10.76 Hall v Poolman case …. 10.77 Quarry Quip Engineering Pty Ltd v Starr case …. 10.78 reliance on information …. 10.80–10.82 relief from liability for contravention of civil penalty provision …. 10.92, 10.97 discretion within s 1317S …. 10.94

Hall v Poolman …. 10.96 lack of honesty …. 10.95 person has acted honestly …. 10.93 disqualified …. 10.116–10.117 duty to prevent insolvent trading elements of s 588G …. 10.13 person is director when debt incurred …. 10.14 failure to prevent insolvent trading contravention certificates evidencing, s 588Q …. 10.107 creditor, proceedings by notice under s 588S …. 10.108 sue for compensation, s 588T …. 10.109 unable to sue for compensation, s 588U(1) …. 10.110 duty or liability of person, under multiple statutes, s 588P …. 10.106 fraudulent conduct, incurring debts …. 10.141–10.142 holding company liable for, s 588V …. 10.111 application of amount paid as compensation, s 588Y …. 10.114–10.115 defences to proceedings under s 588W …. 10.113 relief for contravention …. 10.112 failure to prevent insolvent trading, consequences accustomed to act in accordance with person’s instructions …. 10.25–10.27 acting as …. 10.23 alternate …. 10.20 civil and criminal …. 10.15 civil penalties, s 588G …. 10.70 Commissioner of Taxation, indemnification of, s 588FGA …. 10.118–10.120

contravention of s 588G …. 10.49–10.50 awareness of company’s insolvency …. 10.51–10.52 reasonable person would be aware …. 10.53–10.55 corporations as de facto/shadow directors …. 10.28 de facto …. 10.21, 10.23, 10.24 debt incurred at time company is insolvent ‘incurs a debt,’ general principles …. 10.31 ‘incurs a debt,’ meaning, in case law …. 10.32 ‘incurs’ variation to concept …. 10.33 quantum meruit …. 10.30 debt is incurred, purpose of s 588G contingent debts …. 10.34 damages, entitlement to claim not a debt …. 10.35–10.36 lease, obligations under …. 10.42–10.43 supply of goods and services …. 10.38–10.41 taxes and statutory imposts …. 10.37 debt is incurred, purpose of s 588G(1A) ‘reasonable,’ meaning …. 10.46–10.47 debts incurred makes company insolvent …. 10.45 table …. 10.44 time of debt after 1 July 2001 …. 10.48 ‘directors’, meaning …. 10.18 offences, contravention of s 588G …. 10.59–10.64 dishonesty, failure to prevent …. 10.66 dishonesty, proper test …. 10.67 dishonesty, textual and contextual differences …. 10.68 person suspected of insolvency …. 10.65

publicly recorded conviction …. 10.69 onus and standard of proof, establishing …. 10.56–10.57 person a director at time company incurs debt …. 10.14–10.15 persons validly appointed …. 10.19 professional advisors …. 10.29 shadow directors …. 10.16–10.17 fraudulent conduct, incurring debts …. 10.141–10.142 insolvent trading Corporate Law Reform Act 1992 …. 10.10 failure to prevent and evolution of s 558G …. 10.2 Harmer Commission …. 10.8–10.9, 10.11 liabilities history Australian provisions …. 10.3 UK statutes …. 10.2–10.3 indemnify Commissioner of Taxation under s 588FGA …. 10.118–10.120 limited liability …. 10.1 offences under Companies Code …. 10.4 contracting of a debt knowingly …. 10.3 fraudulent trading under Corporations Act …. 10.5 rights benefit of s 588FGA(5) …. 10.123 claim by Commissioner of Taxation …. 10.121 third party status …. 10.122 s 588G application …. 10.12

purpose …. 10.6 separate entity doctrine …. 10.1 Disposition of property …. 3.37, 8.75–8.77 Disposition, meaning …. 3.36 Disqualified directors …. 10.116–10.117 Due and payable debts commercial reality see Commercial reality competing evidence …. 2.29 conflicting evidence …. 2.11 Elgar Heights case …. 2.9 Main Camp Tea Tree case …. 2.10 meaning …. 2.7 payment terms evidence …. 2.33 variation …. 2.30–2.32 Southern Cross Interiors case …. 2.8, 2.28 time for payment …. 2.18 unwillingness of debtor to pay …. 2.39 Due, meaning …. 2.8

E Economic duress …. 6.17 Employee entitlements protections …. 10.142 English law history bankruptcy statutes, early …. 1.6, 1.24, 3.6–3.8 early corporate insolvency …. 1.31

fraudulent preferences …. 4.3–4.5 Insolvent Debtor’s Court …. 1.26 Jacobean period …. 1.25 Joint Stock Companies Act 1856 (UK) …. 1.29 preference law, origins …. 1.28 Victorian reformation …. 1.27 European Court of Justice Approach insolvency approach in Australian courts …. 12.18 Evidence of insolvency admissible books and records body corporate …. 2.45 courts’ assessment of …. 2.48 documents as prima facie evidence …. 2.46 documents not prima facie evidence …. 2.46 hearsay rule exceptions …. 2.50 minutes recorded …. 2.49 documents not admissible …. 2.46 expert opinion admissibility of expert report …. 2.54 legal arguments …. 2.55–2.56 courts’ use of …. 2.53 and Uniform Evidence Act …. 2.54 financial position analysis at a given time …. 2.57 cases finding insolvency …. 2.58 cases finding solvency …. 2.59–2.60 hearsay …. 2.50

onus of proof of liquidator …. 2.44 prima facie …. 2.46–2.47 reports by liquidators …. 2.48 types of evidence used by liquidators …. 2.44 Exchange value test …. 9.47 Expert evidence admissibility of expert report …. 2.54 legal arguments …. 2.55–2.56 courts’ use of …. 2.53 and Uniform Evidence Act …. 2.54 External administration matters Corporations Act …. 12.10 courts in aid of prescribed and non-prescribed countries, s 581(2)(a) …. 12.11 letters of request, s 581(3) …. 12.12 request for assistance …. 12.13 Extortionate meaning …. 6.16 Extortionate credit transactions …. 6.14 meaning …. 6.16 test stringent in commercial context …. 6.18

F Federal Court cross-border insolvency service outside Australia …. 12.33 Model Law applications for recognition …. 12.15 European Court of Justice Approach …. 12.18

functions …. 12.14 recovery proceedings application, extension of time, approach …. 11.35 Civil Dispute Resolution Act 2011 …. 11.4–11.6 cross-vesting scheme …. 11.18 effect of statutory requirement on s 588FF application …. 11.7 examination summons …. 11.10 Financial records proving deficient …. 2.47 requirement to keep …. 2.46 Floating charge crystallisation …. 9.126 determination …. 9.127 meaning …. 9.23 references to …. 9.27 Foreign main proceeding …. 12.16 Foreign non-main proceeding …. 12.16 Fraudulent Conveyances Act 1571 …. 1.24, 1.25, 4.3, 8.4

G Guarantee, meaning …. 3.48

H Harmer Commission …. 1.37–1.44 emphasis of pari passu rule …. 1.7 insolvent trading …. 10.8–10.9, 10.11 uncommercial transactions …. 5.2 underlying policy of avoidance provisions …. 1.15

unfair loans …. 6.10–6.11 unfair preferences …. 4.19–4.21 winding up in insolvency …. 1.3 Harmer Report …. 1.37–1.44 defences to insolvent trading claims, s 588H …. 10.72 Hearsay evidence admissibility of company books/records …. 2.50 HIH case …. 12.7–12.9

I Illiquidity temporary, distinction between insolvency …. 2.38 Indicia of insolvency …. 2.40 ASIC key …. 2.41 Insolvency cash flow test …. 2.4, 2.15–2.17 Court approach …. 2.12 commercial reality …. 2.26–2.37 contingent and prospective liabilities …. 2.20–2.25 general approach …. 2.14 looking into future …. 2.18–2.19 objective test …. 2.13 determining …. 2.4 impact of Pt 5.7B …. 2.1–2.3 inability to pay distinguished from unwillingness to pay …. 2.39 proving admissible evidence …. 2.45–2.49 onus of proof of liquidator …. 2.44

types of evidence used by liquidator …. 2.44 rationale of avoidance provisions …. 1.14 set-off …. 1.11 temporary lack of liquidity and …. 2.38 winding up companies …. 1.3 Insolvency law avoidance proceedings …. 1.14 challenge …. 1.6 Insolvent companies …. 1.6 Insolvent transactions defence provisions, s 588FG(2) …. 8.53 elements under s 588FC …. 8.9–8.11 s 588FE(2) …. 8.8 meaning …. 2.2 types …. 2.3 uncommercial transactions as …. 5.28 Interest on loans early history …. 6.2 English history …. 6.3–6.6 extortionate …. 6.14 meaning …. 6.16 test stringent in commercial context …. 6.18 Harmer Report …. 6.10–6.11 high rates not prima facie extortionate …. 6.17 modern UK legislation Consumer Credit Act 1974 …. 6.7

Insolvency Act 1986 …. 6.8–6.9 Parliament’s response …. 6.12 International insolvency see Cross-border insolvency

J Justinian law interest rates payable …. 6.2

L Law Merchant …. 1.22–1.23 Liquidators application period commencing s 588FF actions …. 11.31 consequences of non-commencement …. 11.38–11.39 defendant, opportunity to be heard …. 11.43 extensions of time under s 588FF(3)(b) standing for application …. 11.34 identity of potential defendants delays proceedings …. 11.40–11.41 onus on …. 11.36–11.37 appropriate court …. 11.18 assets not held in trusts by …. 11.63 compulsory examination powers …. 11.3 cost orders indemnity against …. 11.62 unsuccessful claim …. 11.61 decision to commence recovery proceedings …. 11.2 deprived of access to company funds …. 11.64 information gathering under Pt 5.9 …. 11.9–11.11

litigation funding …. 11.76 multiple defendants rights for same or series of transactions, Air Transit case …. 11.57 onus of proof establishing insolvency …. 2.44 plaintiff, substitution as …. 11.28 privileges at examinations under Pt 5.9 …. 11.12–11.14 proceedings in his or her own name …. 11.64 proper plaintiff, as …. 11.26–11.27 requirements of Civil Dispute Resolution Act 2011(Cth) effect of statutory requirement on s 588FF applications …. 11.7 State legislation …. 11.8 security for costs applications for …. 11.65 Corporations Act, power to order …. 11.69 litigation founder is involved …. 11.68 against natural person plaintiffs …. 11.66–11.67 use of examination transcript in later proceedings …. 11.15 s 68 of Civil Procedure Act 2005 (NSW) …. 11.16–11.17 winding up companies …. 1.4 Liquidity ratios significance at trial …. 2.43 types …. 2.42 temporary lack of …. 2.38 Loans bill facility, distinction …. 3.63

credit transactions not loans …. 6.15 history see Interest on loans meaning …. 3.62

M Method of disposition approach …. 1.44 Model Law on Cross-Border Insolvency …. 12.2 adoption …. 12.14 Akers v Saad Investments Co Ltd …. 12.18, 12.22–12.24 applications for registration …. 12.15 Centre of Main Interest …. 12.17 functions performed by Supreme Courts …. 12.14 treatment of voidable transactions, non-enforceability …. 12.39 two types of foreign proceedings …. 12.16

N New South Wales Civil Procedure Act 2005 corporations, eliciting information from …. 11.16 liquidators, use of examination transcript in later proceedings …. 11.16–11.17 Uniform Civil Procedure Rules 2005 recovery proceedings, Air Transit case …. 11.57 winding up orders in cross-border insolvency creditors treated equally re cross-border insolvency HIH case …. 12.7–12.9

O Obligations

meaning …. 3.55–3.56 nature of …. 3.56–3.57 other than legal obligation …. 3.58 Own money …. 2.15

P Pari passu rule development …. 1.6 exceptions to distribution …. 1.10 debt subordination agreements …. 1.12–1.13 insolvency set-off …. 1.11 principle of distribution …. 1.7–1.9 Part 5.7B court orders …. 1.52 cross-border insolvency treatment of voidable transactions …. 12.28–12.29 winding up of Pt 5.7 bodies under s 583 …. 12.28–12.29 features …. 1.46–1.47 impact on insolvency …. 2.1–2.3 purpose …. 1.15, 1.17, 1.45 relation-back day …. 1.48 structure …. 1.49–1.50 theme …. 1.16 transaction in context of insolvency …. 1.51 ‘voidable’ meaning …. 8.20 voidable transactions, purpose …. 8.2 Part 5.7B body avoidance provisions

prior to Part 5.7B …. 1.18 purpose, Part 5.7B …. 1.18 theme, Part 5.7B …. 1.16 Party active party requirement in transaction …. 3.29 body does not participate …. 3.30 illustrative case …. 3.31 s 9 definition …. 3.28 Paulian action …. 1.21 Personal property circulating asset …. 9.24 current asset …. 9.25 current asset not circulating asset …. 9.26 Personal Property Securities (Corporations and Other Amendments) Act 2010 security interests transitional provisions …. 9.116 registrable charges priority, s 1506 …. 9.119 registrable charges, Ch 2K application …. 9.117 registrable charges, s 266 application …. 9.118 Personal Property Securities Act 2009 (Cth) application …. 9.7 exclusions …. 9.21–9.22 knowledge under …. 9.55 actual …. 9.56 constructive …. 9.57 effect of availability of data for search on PPS register …. 9.60

proof of reversed for certain insider transactions …. 9.59 when a party will be taken to have actual or constructive …. 9.58 nomenclature …. 9.8 overhaul …. 9.5 overview …. 9.6 ‘personal property’ …. 9.9 registration, extension of time …. 9.77 ‘accidental or due to inadvertence or some other sufficient cause’ Re Apex Gold Pty Ltd …. 9.80 Re Cardinia Nominees Pty Ltd …. 9.79 conditions on order …. 9.86–9.90 delay …. 9.85 factors relevant to exercise of Court’s discretion …. 9.83–9.84 ‘not of such a nature as to prejudice the position of creditors or shareholders’ …. 9.81 ‘on other grounds, it is just and equitable to grant relief’ …. 9.82 saving provisions …. 9.21–9.22 security interests circulating …. 9.23 created within 6 months before relation-back day …. 9.28–9.33 exceptions to s 588FJ …. 9.34–9.49 circulating asset …. 9.24 collateral …. 9.13 continuously perfected …. 9.52–9.54 current asset …. 9.25 current asset not a circulating asset …. 9.26 definition …. 9.10

enforceability against grantor …. 9.14 third parties, by agreement …. 9.17 third parties, collateral possessed by secured party …. 9.15 third parties, interest perfected by control …. 9.16 grantor …. 9.12 perfection effect of …. 9.18 particular collateral …. 9.19 registration on PPS Register …. 9.20 PPS lease …. 9.11 references to charges …. 9.27 vesting of …. 9.50–9.51 security interests, unaffected by s 588FL …. 9.91 transitional provisions …. 9.105 effect of insolvency on priorities …. 9.113 ‘migrated security interest’ …. 9.107–9.112 priorities other than in insolvency …. 9.114–9.115 ‘transitional security interest’ …. 9.106 vesting of PPSA security interests, collateral registration timeout, s 588FL application …. 9.62 company, meaning …. 9.64 conditions for coverage …. 9.63 late registration, cured …. 9.65 operation …. 9.62 PPSA security interest vests in company …. 9.67 relationship between s 588FL and s 266 …. 9.66

replacing former s 266 of Corporations Act …. 9.61 third parties title acquiring property, unaffected …. 9.68 vesting unperfected security interests under PPSA complementary operation of PPSA …. 9.73 criteria for vesting …. 9.69 s 267 …. 9.70 s 267, vesting in grantor …. 9.71 s 267A …. 9.72 statutory rights to damages, s 269 …. 9.75 third party title unaffected …. 9.76 unaffected by ss 267 and 267A …. 9.74 PPS register data availability, effect on knowledge …. 9.60 registration …. 9.20 Preference provisions fraudulent …. 4.2 High Court development of …. 4.9–4.18 Prima facie evidence documents admissible books and records …. 2.46 documents not admissible books and records …. 2.46 status of books and records …. 2.49 Property, definitions of …. 3.45–3.47 Prospective debt …. 2.20 case law …. 2.21–2.25

Q Queensland debts, legislative meaning …. 2.34

Quick asset ratio …. 2.42

R Recovery proceedings application period amendments to pleadings …. 11.48 amendments, correct name of defendant …. 11.50 consequences of non-commencement …. 11.38–11.39 exceptional circumstances …. 11.42 extension of time, Federal Court approach …. 11.35 extensions of time …. 11.33 joinder of defendant after expiry of time limit not permitted …. 11.49 order setting aside extension order …. 11.47 order, form of, extending time, s 588FF(3) …. 11.44 time periods for commencing s 588FF actions …. 11.32 variation of order extending time, s 588FF(3) …. 11.45 Court’s power to extend time on orders …. 11.46 appropriate court …. 11.18 conduct dictated by rules …. 11.22 conflict of law issues …. 11.23–11.25 considerations to be taken into account …. 11.20 distinction between ‘Court’ and ‘court’ …. 11.19 quantum of claim …. 11.21 avoidance and recovery actions, funding …. 11.76 commencing proceedings large liquidations …. 11.56 multiple defendants default judgment …. 11.60

joining in single s 588FF proceeding …. 11.56 separate proceedings …. 11.59 subsequent cases following Air Transit case …. 11.58 pleadings …. 11.51–11.53 Commissioner of Taxation, statutory right of indemnity …. 11.70 court orders, voidable transactions, s 588FF …. 11.29 Ultra Tune case …. 11.30 fairness principle …. 11.32 Registrable Australian body, meaning …. 3.24 Registrable body, meaning …. 3.24 Relation-back day …. 1.48, 1.50 Release, meaning …. 3.59

S Scope of book …. 1.53 Security interests avoidance provisions in law regarding company charges …. 9.2 personal property, reform of regulation …. 9.4 secured creditors …. 9.1 taking security, definition …. 9.3 Set off, insolvency exception to pari passu rule under s 553C …. 1.11 Settlement first appearance of term …. 3.7 use of term …. 5.1 Shadow directors …. 9.96, 10.16 concepts of …. 10.26–10.27 corporations as …. 10.28

giving advice …. 10.29 Sleeping (or inactive) directors …. 10.91 Solvency balance sheet test …. 2.15 retrospective nature …. 2.19 Statute of Bankrupts …. 1.6 Statute of Elizabeth …. 1.6, 1.24, 4.3, 8.4 Substance of transaction …. 9.37 Supreme Courts (states) cross-border insolvency Model Law functions performed by courts …. 12.14 recovery proceedings Corporations Rule, uniform procedure …. 11.51–11.53

T The body in transaction definition …. 3.38–3.44 ‘property’ of …. 3.45–3.47 Third parties avoidance provisions …. 1.14 Transactions active party requirement …. 3.29 classes of …. 3.4 ‘commercial reality’ assessment …. 3.64 composite see Composite transactions concept question of fact …. 3.77

question of law …. 3.77 early history of bankruptcy provisions (UK/USA) …. 3.6–3.8 elements of s 9 definition body corporate …. 3.22–3.23 ‘by the body’ …. 3.38–3.44 corresponding transaction …. 3.71 credit transactions not loans …. 6.15 inclusive nature …. 3.63 language …. 3.40 Part 5.7 body …. 3.24–3.27 ‘to which the body is a party,’ …. 3.28–3.31 unilateral act …. 3.66 Harmer Commission …. 3.4–3.5 importance of term, Pt 5.7B …. 3.2 ‘settlement’ first appearance of term …. 3.7 uncommercial see Uncommercial transactions Transfer acts constituting, in bankruptcy …. 3.35 meaning …. 3.34

U Ultimate effect doctrine …. 4.42 conflicting interpretation, s 588FA …. 4.41 Sheldrake v Paltogou …. 4.43 use by Courts …. 4.44, 4.45 pre-payment of services …. 4.36 Uncommercial transactions cases …. 5.24

concept, statutory …. 5.1 determination of ‘uncommercial’ …. 5.11 benefit and detriment …. 5.18 Buzzle Operations Pty Ltd (in liq) v Apple Computer Australia Pty Ltd …. 5.20–5.21 D’Aloia v Commissioner of Taxation …. 5.23 determining …. 5.19 Skouloudis Group Pty Ltd (in liq) v Planet Enterprises Pty Ltd …. 5.22 core principles …. 5.14 insolvency alone is not sufficient …. 5.15 ‘normal commercial practice’ …. 5.17 onus and proof …. 5.16 transactions, full value …. 5.13 transactions, undervalued …. 5.12 elements of s 588FB …. 5.3 ‘if and only if’ …. 5.6 objective nature …. 5.9 objective test …. 5.8 purposive approach …. 5.10 relevant matters to be considered …. 5.7 ‘transaction of a company,’ …. 5.4–5.5 Harmer Commission’s recommendations …. 5.2 insolvent transactions …. 5.25 voidable transactions …. 5.26–5.30 Unconscionability concept Trade Practices Act …. 6.10 Unfair loans

case law judicial guidance of s 588FD …. 6.19 Re Essendon Apartment Developments Pty Ltd (in liq) (No 2) …. 6.21 Re Octaviar (No 8) …. 6.20 lack of …. 6.1 other than s 588FD …. 6.22 concept, statutory …. 6.1 Consumer Credit Act 1974 (UK) …. 6.7 defences under s 588FG …. 6.25 early regulation of interest rates …. 6.3 extortionate charges …. 6.13–6.14, 6.16 Harmer Report …. 6.10–6.11 history …. 6.2 Insolvency Act 1986 (UK) …. 6.8–6.9 interest high rates not prima facie extortionate …. 6.17 meaning …. 6.14 testing for ‘extortionate’ …. 6.18 liquidators may apply for relevant orders …. 6.24 meaning …. 6.15 Money-Lenders Act 1900 (UK) …. 6.4–6.5 Moneylenders Act 1927 (UK) …. 6.6 Parliament’s response …. 6.12 voidable …. 6.23 Unfair preferences …. 4.1 ‘company and creditor parties to transaction’ …. 4.27 discharge of debt owed to two creditors by payment to one …. 4.33

debtor-creditor relationship …. 4.34 determination of preferential result …. 4.46, 4.46–4.47 Walsh v Natra …. 4.47–4.49, 4.51 Williams (as liquidator of Scholz Motor Group Pty Ltd) (in liq) v Peters …. 4.50 elements of …. 4.22–4.24 English bankrupt law …. 4.3–4.5 Harmer Report and Parliament response …. 4.19–4.21 High Court …. 4.9 Airservices Australia v Ferrier …. 4.16 Queensland Bacon v Rees …. 4.15 Rees v Bank of NSW …. 4.14 Richardson v Commercial Banking …. 4.10–4.13 Sheahan v Carrier Air Conditioning …. 4.17–4.19 history Bankruptcy Act 1924 …. 4.2, 4.7 Bankruptcy Act 1966 …. 4.8 interpretation of s 588FA conflicting …. 4.41 doctrine of ‘ultimate effect’ …. 4.41–4.45 notion of preferential effect …. 4.40 paucity of language …. 4.39 New South Wales …. 4.6 pre-payment of goods or services genuine …. 4.35–4.36 Minister for Transport (WA) v Francis …. 4.37 preferential effect, previous legislation ‘preference, priority or advantage over other creditors’ …. 4.38

‘subsequent winding up’ …. 4.38 running account continuing business relationship, s 588FA(3) …. 4.57 concept …. 4.59–4.60 Queensland Bacon Pty Ltd v Rees …. 4.58 ultimate effect …. 4.61 defence, modern application …. 4.62 Re Employ (No 96) Pty Ltd (in liq) …. 4.64 Sutherland v Lofthouse …. 4.63 need not exist for entire relation back period …. 4.65–4.66 secured debts …. 4.54–4.56 set-off under s 553C …. 4.52–4.53 transaction ‘given’ by a company itself directors of insolvent company establish new company …. 4.26 payment sourced other than by company …. 4.25 voidable …. 4.67 Uniform Civil Procedure Rules 2005 (NSW) recovery proceedings, Air Transit case …. 11.57 United States history Bankruptcy Act 1841 …. 1.30 Unreasonable director-related transactions after 11 April 2003 …. 7.1 defences …. 7.37–7.38 elements of s 588FDA broad elements to be satisfied …. 7.6–7.8

competing approaches of benefit …. 7.24–7.28 conveyance, transfer or other disposition …. 7.11 direct benefit …. 7.23 incurring of an obligation …. 7.14 issue of securities …. 7.12–7.13 narrower interpretation …. 7.29, 7.34–7.36 payment made for the benefit of …. 7.22 payment made on behalf of …. 7.20–7.21 payment made to close associate …. 7.16, 7.18 payment made to director …. 7.15 payment made to person …. 7.19 reasonable person not entering into transaction …. 7.30–7.32 registered relationship …. 7.17 time at which reasonableness is to be assessed …. 7.33 transaction ‘by the company’ …. 7.10 ‘transaction of a company’ …. 7.9 object of legislation …. 7.2 remedies …. 7.39–7.40 scope of s 588FDA …. 7.3–7.4 similarities and differences between s 588FB and s 588FD …. 7.5 Unsecured creditors avoidance proceedings …. 1.14 Unwillingness to pay debts …. 2.39 Usury see Interest on loans

V Victoria Civil Procedure Act 2010 pre-litigation processes …. 11.8

Voidable transactions claims for interest in s 588FF applications …. 8.45 concept within s 588FE …. 8.1 creditor who gives up benefit of unfair preference may prove for preferred debt …. 8.42 cross-border insolvency see Cross-border insolvency date for calculating interest …. 8.46 defence to recovery under s 588FG ‘good faith,’ …. 8.54–8.57 disposition of property …. 8.75–8.77 knowledge of creditor is sum total of officer’s knowledge …. 8.72 taxation debts indemnity against directors …. 8.74 s 588GG(3)-(6) …. 8.73 valuable consideration …. 8.67 change of position …. 8.66 lack of judicial guidance …. 8.69 ‘past consideration’ …. 8.68 taxation debts, s 588FG(3)-(6) …. 8.73 elements criteria under s 588FE(2A) …. 8.12, 8.13 s 588FE(2B) …. 8.12, 8.13, 8.14 s 588FE(3) …. 8.15 s 588FE(4) …. 8.16 s 588FE(5) …. 8.17 s 588FE(6) …. 8.18

s 588FE(6A) …. 8.19 insolvent transactions under s 588FC …. 8.9–8.11 transaction not voidable, general law sense …. 8.20–8.22 unreasonable director-related transaction, s 588FE(2) …. 8.8 ‘voidable,’ quality of being s 588FE …. 8.7 evidentiary challenges, proving insolvency …. 2.44 history …. 8.4–8.6 liquidator may recover from related entity benefit resulting from insolvent transaction …. 8.41 meaning …. 1.1, 8.5–8.6 no reasonable grounds for insolvency …. 8.58–8.61 court’s approach to examining …. 8.64–8.65 ‘reasonable person in person’s circumstances’ …. 8.62 relationship between s 588FG(2)(b)(i) and (ii) …. 8.63 reliance on s 588FG seldom successful …. 8.70–8.71 not in general law sense …. 8.20 orders not made under s 588FG classes of persons …. 8.52 defence provisions …. 8.51 orders under s 588FF …. 8.24 benefits …. 8.26–8.28 court discretion to make …. 8.43–8.44 examples discharge of debt, s 588FF(1)(e) …. 8.36 form of propriety remedy, s 588FF(1)(d) …. 8.35 indemnification of liability to assignee, s 588FF(1)(f) …. 8.37 payment of benefits, s 588FF(1)(c) …. 8.33–8.34 payment of money, s 588FF(1)(a) …. 8.29–8.30

transfer of property, s 588FF(1)(b) …. 8.31–8.32 varying agreements, s 588FF(1)(h)-(i) …. 8.39 winding up, s 588FF(1)(g) …. 8.38 making under consent or by admission …. 8.48–8.50 only available where transaction of company …. 8.23 relief where court finds unreasonable director-related transactions …. 8.40 purpose …. 1.1 purpose of Pt 5.7B provisions …. 8.2 set-off generally not available under s 553C …. 8.47 ‘voidable,’ meaning …. 8.21 Voluntary winding up …. 2.74, 2.75

W Waiver in contract …. 3.60 in equity …. 3.61 meaning …. 3.59 Walsh v Natra …. 4.47–4.49 Winding up …. 12.5 Winding up companies asset distribution …. 1.5 pari passu rule see Pari passu rule as collective enforcement of company’s debts …. 1.2 disposition of property, meaning …. 3.66 in insolvency …. 1.3 meaning …. 1.1 order …. 1.2 relevant date, definition …. 1.9

role of liquidator …. 1.4 Taxation Commissioner’s priority …. 1.7 Winding up orders purpose …. 1.2 Working capital ratio …. 2.42 Writ of debt …. 2.6