Frederick Charles Perkins v the State Bank of South Australia No. SCGRG92/1581 Judgment No. 4320 Number of Pages 14 Companies Winding up (1993) 61 Sasr 246

[1993] SASC 4320

COURT IN THE SUPREME COURT OF SOUTH AUSTRALIA PERRY J

CWDS
Companies - winding up - preferential payment - the liquidator of a company claimed that the payment by the company of a cheque to the credit of its overdraft account with the defendant bank four months before a winding up order was a preference and should be declared void - history of trading in excess of the company's overdraft limit for a considerable period beforehand - on a number of occasions cheques had not been met on presentation - held that at the relevant time the company was unable to pay its debts as they became due from its own money - held further that the plaintiff's claim that the payment should properly be considered in isolation was misconceived, and that as the payment was made on a true running account, the question whether there was a preference, and its extent, should be considered by reference to the state of the account at the time of the payment compared with the indebtedness due on the overdraft when the company ceased trading - however, even dealing with the case on the basis presented, and assuming the particular payment to be a preference, the payment was made in good faith and for valuable consideration and in the ordinary course of business so that the defendant was entitled to the benefit of s.122(2) of the Bankruptcy Act, and further that good faith was not negatived by reason of the application of s.122(4)(c)(ii), notwithstanding the fact that the defendant knew or had reason to suspect the insolvency of the company. The Corporations Law s.565 and Bankruptcy Act 1966 (Commonwealth) s.122. Norfolk Plumbing Supplies v Commonwealth Bank of Australia (1992) 6 ACSR 601; Richardson v The Commercial Banking Co of Sydney Ltd (1952) 85 CLR 110; Oueensland Bacon Pty Ltd v Rees (1966) 115 CLR 266; Rees v Bank of New South Wales (1964) 111 CLR 210 and National Australia Bank Ltd v KDS Construction Services Pty Ltd (1987) 163 CLR 668, considered.

HRNG ADELAIDE, 22 July 1993 #DATE 13:12:1993
Counsel for plaintiff:     Mr T. Mellor with him
   Mr A. Claire
Solicitors for plaintiff:    Mellor Olsson
Counsel for defendant:     Dr R. Baxter with him
   Mr S. Christie
Solicitors for defendant:    Finlaysons

ORDER
Plaintiff's claim dismissed.

JUDGE1 PERRY J The plaintiff was appointed the liquidator of I and B Clarke Transport Pty Ltd ("the company") by order of this Court made on 27 February 1991. Before the order for its winding up, the company operated a fleet of trucks engaged in haulage, including interstate transport. In the proceedings, the plaintiff claims an order pursuant to s.565 of the Corporations Law declaring a certain payment, namely, payment of the sum of $64,882.74, made by the company on 2 October 1990, to the credit of a bank account which it held with the defendant, to be void, together with an order that the defendant repay that amount to the plaintiff. 2. Evidence was called on both sides as to the circumstances in which the payment was made. The plaintiff, who is a qualified accountant, and an independent accountant, a Mr Olifent, both gave evidence as to the financial state of the company at the time the payment was made. The only other evidence called by the plaintiff was given by Mr Ian Clarke, the managing director of the company. 3. Evidence was given on behalf of the defendant by another accountant, a Mr Ross Haslam, and by the then manager of the Orroroo branch of the defendant bank, one David Parker. 4. No issue arose as to the credit of any of the witnesses. The relevant facts fall into a small compass, and fall to be determined by largely uncontested testimony. However, there was a difference of opinion between the accountants, as to which I have preferred the evidence of Mr Perkins and Mr Olifent to that of Mr Haslam, to the extent that they differ. 5. Mr Clarke and his wife, then carrying on business in partnership, commenced the transport business in Adelaide. In 1985, they moved to Orroroo and continued to conduct the business from there. In 1988, the business of the partnership was taken over by the company. At that stage, the operating account of the partnership was with the Orroroo branch of the defendant, and after it took over the business, the company continued to bank with the defendant. 6. At the time when Mr Parker became manager of the Orroroo branch, that is, in October 1986, the account then operated by the partnership, had what he described as a "temporary overdraft". Sometime after the company took over the business, namely in July 1988, the defendant approved an overdraft limit of $40,000. After that limit was set, from time to time it was exceeded. Occasions when it did so would usually provoke some contact between Mr or Mrs Clarke and Mr Parker, during the course of which Mr Parker would satisfy himself that the need for the over-run was temporary, and was likely to be corrected shortly. 7. For a time, the company enjoyed an exclusive right to carry goods for a company known as Email, out of the latter's plant at Orange, New South Wales. Indeed, most of the company's work, accounting for approximately 80% of its turnover, was in carrying for Email. However, during 1988 and into 1989, competitors made inroads into the business. Eventually, from about mid-1989, the company stopped carrying for Email. Following in the wake of the loss of the Email business, and as the recession took hold on the economy, payment of accounts due to the company slowed down, with a consequent reduction in cash flow. The company was able to secure another major contract to carry for a company called Proctor and Gamble, but the work from that company was nowhere near so profitable as the work which had been performed for Email. 8. In 1989, the company attempted to sell some of its trucks. But recessionary conditions had created a glut in the market for second-hand trucks, and no sales eventuated. 9. In August 1989, the company secured a temporary increase in the overdraft limit for two months, to $60,000. When that increase expired, the company still found it difficult to contain the account within the limit of $40,000, and eventually, in August 1990, the limit was increased to $75,000. This followed a discussion between the Clarkes and Mr Parker during which it was suggested that the company had a need for further capital to allow it to open up what Mr Parker described as "warehousing operations in Perth and either Sydney or Melbourne". 10. The increase limit of $75,000 was insufficient to sustain the company's operations, and by the end of August 1990 the overdraft stood at an amount in excess of $100,000. 11. In late August 1990, the manager of the bank spoke to Mr or Mrs Clarke to express concern at the state of the account, and to warn them of the possibility of payment being stopped on cheques. 12. On 19 September 1990, when the account was in excess of $145,000 overdrawn, the defendant refused to meet on presentation a number of cheques totalling about $26,000. Mr Parker, together with the regional manager of the bank, made the decision to dishonour the cheques. Mr Parker's note in the bank records for 19 September reads:
    "Facility FOD $75,000. Balance $146,700 Dr approx security to
    $120,000 by guarantee. Remarks:- Mrs Clarke contacted.
    $17,000 will be here on Tuesday from Proctor and Gamble in
    Sydney. $5,000 is due p.m. when truck driver from Perth
    arrives. Regional office contacted. It was suggested to see if
    Clarkes could get Proctor and Gamble to T/T money through. Not
    successful. So cheques for approx $26,000 dishonoured p/a in
    five days. Truck is in process of being re-financed. This will
    hopefully net $70/65,000, which will be credited FOD by end of
    this week or early next week. Mrs Clarke informed of
    dishonours." As the words "p/a in five days" were intended to convey, the dishonour was marked on the cheques by an endorsement to present again in five days. When Mr Parker was asked whether there were any other reasons discussed for the dishonour of the cheques besides those appearing in the diary note, he said in evidence: "I guess the only other reason is that they were in excess of their overdraft limit, outside of their arrangements that they had with the bank." 13. When he was asked why he had permitted long periods of trading outside the overdraft limit, Mr Parker said that financial statements of the company, which had obviously been supplied to the bank, indicated that it had previously recorded what he described as "good trading profits". 14. Furthermore, he observed: "The turnover of the account, the cheques you would see coming in for work done were always quite large and used to come on a regular basis, and normally when it came to December or thereabouts when they shut down for Christmas, they had quite a healthy credit balance in their account." He said elsewhere in evidence:
    "A. ... I guess I always expected the money to come in.
     They had good contracts. I was always told they had good
    contracts with Proctor and Gamble. We did a credit check on
    Proctor and Gamble to check out that they were good for the
    amounts the Clarkes said they would be receiving from them on a
    weekly basis. Those checks proved to be correct or confirmed so
    we always thought, or I always thought that the funds would
    always come." 15. There is no evidence, however, that Mr Parker had access during the second half of 1990 to the trading figures of the company for the year ended 30 June 1990. In fact, when those accounts came to be drawn up, they indicated that whereas the company had made an operating profit before income tax for the financial year ended 30 June 1989 of approximately $125,000, this was converted to a loss of approximately $4,000 in the following financial year. 16. The dishonour of the cheques did not restrain the drift of the account beyond the authorised overdraft limit, that is, the increased limit of $75,000. Immediately after the dishonour, the overdraft stood at approximately $120,000 in debit. By 1 October 1990, it was overdrawn to approximately $146,000. 17. It was on 2 October 1990 that the payment in question in the action, that is, a payment of $64,882.74 was credited to the account. Even that payment did not restore the account to an amount within the authorised limit. Following that payment, the account remained in debit to the extent of approximately $81,600. 18. On 12 October 1990, the defendant approved an increase in the overdraft limit to $100,000. At that stage, Mr Parker was satisfied that the income which was expected to come in from the expansion of the company's operations in Perth and Melbourne had not resulted in such a prompt increase in turnover as had been hoped. I accept the evidence of Mr Parker that when he approved the increase to $100,000, he was persuaded that the company needed the extra facility "to carry on until that money (from the expanded operations) started to come in". 19. The money never came in. At the end of October when the overdrawn account stood at a little more than $117,000, the company ceased to operate it, and opened another account with the National Bank. 20. By the end of 1990 the company had lost the Proctor and Gamble contract, and in January 1991 it ceased trading. On 30 January 1991, it filed a summons on its own behalf seeking an order for its winding up. 21. I come now to the circumstances immediately surrounding the impugned payment to the bank. 22. The pay-in slip was tendered in evidence. It is dated 2 October 1990 and bears the stamp of the defendant bank, indicating that it was presented to the Unley branch of the bank on the same day. Although the deposit slip identifies the account name as "I.D. and B.M. Clarke", it bears an account number corresponding with an account at the Orroroo branch of the bank in the name of the company. The amount of the deposit is shown as $64,882.74 which is identified on the pay-in slip as the amount of a cheque drawn by "Perpetual Finance" on the Grenfell Street branch of the State Bank. 23. The cheque itself was not tendered in evidence. Mr Clarke's evidence, however, was that a truck which had previously been financed through Esanda (which I assume means taken on lease from Esanda) was re-financed with Perpetual Finance. Again, I assume that means that Perpetual Finance bought the truck, and that the payment in question represented the amount payable to the company on termination of the lease agreement. Mr Clarke did not recognise the signature on the pay-in slip. Nor did he give evidence as to how the payment in came to be made at the Unley branch of the defendant, although he said that he was not certain whether it had been paid in by Perpetual, or someone else. But there can be no doubt that the payment in, or more accurately, the deposit of the cheque with the defendant, was at the direction of the company. 24. Before the deposit, the account stood in debit to the extent of $146,410.40. The deposit therefore had the effect of reducing the account to $81,527.66 overdrawn. In fact, there was another debit of $104.73 shown in the account before a balance was indicated in the bank statement. That balance, after allowing for the other debit, was $81,632.39 overdrawn. 25. The last contact disclosed in the evidence between either Mr or Mrs Clarke and the bank was a conversation during the week before 3 October 1990 between Mr Clarke and Mr Parker. Mr Clarke's evidence, given during the course of his examination in chief, was:
    "Q. Do you recall a conversation with Mr Parker in the
    week prior to 3 October 1990 when you indicated that you would
    collect your money, pay off the bank, and then park the trucks
    and let the finance companies come and get them.
     A. Yes, I did, yes." 26. He was not cross examined as to that passage of evidence. In the bank records, there is an entry by Mr Parker dated 3 October 1990 which reads as follows:
    "Facility $75,000 limit. Balance $87,766.
     Remarks: Regional Office phoned and informed at 3.20 pm A.B.
    Gladigan. Clarkes have not been able to be contacted today.
    Cheques for $6,238. They will be dishonoured. Mr Clarke
    commented to me last week that he would collect his money, pay
    off the bank and then park his trucks and let the finance
    companies come and get them." Counsel for the plaintiff submitted that the statement recorded in that note as having emanated from Mr Clarke, the substance of which I am satisfied was made in the terms recorded in the note, was "an indication of Mr Clarke's very specific intention to defeat creditors of the company, to collect his money, pay off the bank, but in disregard of the other creditors". 27. However, I am not persuaded that the making of the particular payment in question should be regarded as the result of an implementation by Mr Clarke of his intentions as revealed in the noted comment. 28. Mr Parker's evidence was that is was not the first time that Mr Clarke had said something to the effect of the passage noted in the bank records. He said in his evidence:
    "On more than one occasion Mr Clarke had told me he would
    be better off, instead of working his butt off and earning money
    paying taxes for the unemployed to sit on the beach and bum
    around, he said he would be better off parking his trucks,
    collecting the money that was due to him, pay the banks off, pay
    the bank off the overdraft, and let the finance company come and
get his trucks. He said it on more than one occasion to me." 29. While I accept Mr Parker's evidence in that regard, as I have said, I have difficulty in relating the payment in question to any such statement by Mr Clarke, whether it be the statement recorded as having been made during the preceding week, or any of his other statements to much the same effect. Rather, it seems to me that the deposit of the cheque was the outcome of the transaction foreshadowed by Mrs Clarke during the course of her conversation with Mr Parker to which I have already referred, which occurred on 19 September 1990, and in particular when she indicated that a truck was "in the process of being re-financed" which would result in a payment in of $65,000-$70,000 by the end of that week or early the following week. The matter is put beyond doubt by Mr Clarke's evidence that the re-financing of the truck gave rise to the monies the subject of the payment in question. 30. As to whether the payment in question resulted from any particular pressure by the defendant, it does not seem to me to be possible on the evidence to conclude that there was anything specific which passed from the defendant which prompted the payment in. It is true that throughout the whole of the time when the company was trading in excess of the overdraft limit, the bank expressed concern, and from time to time dishonoured cheques. But it does not seem to me that there is any basis in the evidence for finding that the defendant was party to any particular arrangement or transaction which resulted in the impugned payment to it. 31. The fact that the defendant later on 15 October 1990 authorised an increase in the overdraft limit to $100,000 tells strongly against the suggestion that the bank should have understood the payment in to be a prelude to the company closing down its business. Rather, I think that the action of the bank in extending the overdraft facility was an expression of a degree of confidence in the ability of the company eventually to bring the account into order, as it had commonly done in the past, before the end of the year. 32. Against that background, it is necessary to deal with the contention of the plaintiff that the receipt by the defendant of the cheque in question, or more accurately, its receipt of the proceeds of the cheque following its presentation by the defendant to the paying bank for payment, which I assume occurred the next day on 3 October 1990, is void as a preference under s.565(1) of the Corporations Law. 33. S.565(1) has the effect of rendering void as against the liquidator, inter alia, any payment made 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...." 34. The effect of the section is to render applicable within the winding up of a company, s.122 of the Bankruptcy Act, which deals with the avoidance of preferences. 35. In the case of bankruptcy, s.122 is applicable, for present purposes, to payments made "within six months before the presentation of a petition" pursuant to which the debtor becomes bankrupt. S.565(2) of the Corporations Law provides, inter alia, that for the purposes of the application of that section, the date corresponding with the date of the presentation of the petition in bankruptcy is, in the case of the filing of an application for the winding up of a company pursuant to a resolution passed by the company that it be wound up voluntarily, the date upon which the resolution was passed (s.565(2)(a)(i)) or in any other case the date of the filing of the application for the winding up. 36. The case was argued on the footing that the relevant date was the date of filing of the application for winding up, which as I have said, was 30 January 1991. It seems to me, however, that that submission overlooks the fact that the winding up proceeded pursuant to s.565(2)(a)(i). The relevant date is the date upon which the resolution was passed which led to the company filing the application that it be wound up. The date of that meeting was the day before the application was filed, that is, 29 January 1991, so that for the purpose of this case, there is no material difference as to that aspect of the matter, however it is approached. Furthermore, the payment of the cheque in question was clearly made within six months preceding either date. 37. It is convenient at this stage to set out the relevant parts of s.122 of the Bankruptcy Act. They are as follows:

    "(1) 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; or
     (b) ....... is void as against the trustee in the bankruptcy.
     (1A) ......
     (2) Nothing in this section affects-
     (a) the rights of a purchaser, payee or encumbrancer in good
    faith and for valuable consideration and in the ordinary course
    of business:
     (b) .......
     (c) .......
     (3) The burden of proving the matters referred to in
    sub-section (2) lies upon the person claiming to have the benefit
    of that sub-section.
     (4) For the purposes of this section-
     (a) ......
     (b) ......
     (c) a creditor shall be deemed not to be a purchaser, payee or
    encumbrancer in good faith if the conveyance, transfer, charge,
    payment or obligation was executed, made or incurred under such
    circumstances as to lead to the inference that the creditor knew,
    or had reason to suspect-
        (i) that the debtor was unable to pay his debts as they
    became due from his own money; and
        (ii) that the effect of the conveyance, transfer, charge,
    payment or obligation would be to give him a preference, priority
    or advantage over other creditors." 38. In this case the defendant argues that although its receipt of the proceeds of the cheque in question represented a payment made within the period of six months referred to in s.122(1), the company was not insolvent at the time, and furthermore, even if it was, the payment did not have the effect of giving to it a preference, priority or advantage over other creditors. It further contended that it is a payee who received the payment in "good faith and for valuable consideration and in the ordinary course of business" within the meaning of s.122(2), and that ss.(4)(c) is not of application to negative good faith. I address first the question whether or not at the relevant time the company was insolvent in the sense postulated by s.122(1), namely, that it was unable to pay its debts as they became due from its own money. As to that, I accept the evidence of the plaintiff, and that of Mr Olifent who both answered that question in the affirmative. In reaching that view, both witnesses drew heavily upon the fact that both before and after that date the bank from time to time dishonoured cheques, and that the company was consistently trading outside the agreed overdraft limits. 39. As at 13 June 1990, a reconstructed balance sheet prepared by Mr Olifent, which I accept as accurate, indicated an excess of current liabilities over current assets of $434,066. An estimated balance sheet prepared by Mr Olifent on the same basis but as at the date of liquidation, namely 27 February 1991, indicated that the excess of current liabilities over current assets had by then grown to $539,954. I accept that it is the balance of current assets which is important in determining insolvency. 40. However, if goodwill of $250,000 which appears in the company's balance sheet was to be removed, as I think it should be, there would also be a substantial deficiency in non-current assets as against non-current liabilities as at both of the dates to which I have referred. 41. Mr Olifent concluded that the company was insolvent as at both 30 June 1990 and as at the date of liquidation. Given that the company incurred a trading loss between the two dates, Mr Olifent reached the view:
    "It is difficult to conclude that the company could have
    been sufficiently profitable between 30 June 1990 and 2 October
    1990 so that it was solvent on 2 October 1990. To have achieved
    this, the company would have had to have made a profit in the
    order of $203,000 in the three months to 2 October 1990. Given
    the estimated loss for the period 1 July 1990 to 27 February 1991
    is $152,000, this would have meant the company then made a loss
    of $355,000 in the period 3 October 1990 to 27 February 1991. I
    therefore believe the company was insolvent at 30 June 1990 and 2
    October 1990 and 27 February 1991." 42. He further concluded that the company lacked the ability to raise further funds from its own resources to alleviate any short term cash crisis. I accept his evidence in that regard, which seems to me to be supported by the evidence of Mr Clarke. 43. Even if the plaintiff had been trading within its overdraft limits, in my opinion, the money available by way of an overdraft facility did not qualify as the company's own money within the meaning of s.122(1); see Norfolk Plumbing Supplies v Commonwealth Bank of Australia (1992) 6 ACSR 601 at 615 and the cases their cited. There can be no argument as to that where the company is, as was the case here, trading substantially in excess of its approved overdraft facility. Furthermore, it is proper to draw the inference that the company depended upon support from its bankers in order to continue to trade. When the defendant bank continued to fail to meet cheques on presentation, the company opened an account with another bank, and ceased trading on the defendant's overdraft. 44. Mr Olifent's evidence was supported by that of the plaintiff. Mr Perkins, like Mr Olifent, considered that the goodwill of the company was worthless. He also laid stress on the deficiency of current assets against current liabilities. He too formed the view that as at 2 October 1990 the company could not pay its debts as they fell due from its own monies. Importantly, his investigations indicated that there were creditors whose debts were due as at 2 October 1993 who remained unpaid as at the date of the winding up order. 45. I do not pause to consider Mr Haslam's evidence as to the solvency of the company as at 2 October 1993, which was contrary to the evidence of the plaintiff and of Mr Olifent, as I prefer their evidence, and the view which I have reached, independently of the accountants, of the state of the plaintiff's financial affairs. 46. On the whole of the evidence, I conclude that for some time beforehand, and as at 3 October 1990, and between that date and until the date upon which the winding up order was pronounced, that is, 27 February 1991, the company was, within the meaning of s.122(1), unable to pay its debts as they became due from its own money. 47. I turn then to the questions of preference, ordinary course of business, and good faith. 48. Consideration of those questions is complicated by reason of the fact that the company's overdraft account with the defendant was a running account. As was observed by the High Court (Dixon, Williams and Fullagar JJ) in Richardson v The Commercial Banking Co of Sydney Ltd (1952) 85 CLR 110 at 133 by reference to s.95 of the 1924 Act, which was in substantially similar terms to s.122 of the 1966 Act: "A running account of any debtor who has reached insolvency must present difficulties under s.95." 49. One of the difficulties in such a case is as to the correct treatment of a particular impugned payment to the credit of a running account, and whether or not it is proper to regard the payment in isolation, or to have regard to the state of the account between the payment in and the date upon which bankruptcy supervenes; see Queensland Bacon Pty Ltd v Rees (1966) 115 CLR 266 per Barwick CJ at 283: "....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." 50. However, this case was not argued on the basis that in determining whether there was a preference, a comparison should be made between the state of the account at the date of liquidation and the state of the account at the time the impugned payment was received (see Queensland Bacon Pty Ltd v Rees (supra) per Barwick CJ at 284). Rather, the plaintiff has confined his attack to the immediate effect of the payment considered in isolation, and contends that the amount of the preference is the amount of that payment. I must say that I am not at all sure that the manner in which the case has been presented reflects the approach which ought to be adopted. The payment received by the defendant when it presented the cheque in question for payment, could hardly be distinguished from the other payments and receipts recorded in the account between 2 October 1993 and the date when the company ceased to operate the account. It seems to me that where one has, as is the case here, a true running account, the mere fact that one payment was more substantial than others does not entitle the Court to have regard to its effect in isolation. I incline to the view that this is one of the class of cases where, for the purposes of determining whether there was a preference, one should have regard to the question whether the debit level of the overdraft was reduced between the two dates, and if so, the extent of the preference should be measured by the difference. 51. But it should be noted that even if the case is one of that class of case where that process should be followed, to the extent that it may be necessary to have regard to the application of ss.(4) of s.122, it is the particular individual payment to which regard must nonetheless be had, and its immediate effect: see Rees v Bank of New South Wales (1964) 111 CLR 210 per Kitto J at 222:
"Richardson's Case (1952) 85 CLR 110 having decided that
    the effect referred to in sub-s.(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 sub-s.(4). It if
    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 sub- s.(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-a-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 sub-s.(1) as having
in fact the effect of giving a preference." 52. As to the expression "in the ordinary course of business", I agree with the observations of Kearney J in Norfolk Plumbing Supplies Pty Ltd v Commonwealth Bank of Australia (supra) (1992) 6 ACSR at 618 where he observed:
    "As to whether the payments were received in the ordinary
    course of business there has been some difference in judicial
    formulations of the test to be applied. I agree with McGarvie J
in Taylor v ANZ Banking Group (1988) 13 ACLR 780 and with Hodgson
    J in Maurice Dry Cleaners Pty Ltd v National Australia Bank Ltd
    (12 July 1990, unreported) that the appropriate test is as stated
    by Rich J in Downs Distributing Co Pty Ltd v Associated Blue Star
Stores Pty Ltd (in liq) (1948) 76 CLR 463 at 476-7 to the effect
    'that the transaction must fall into place as part of the
    undistinguished common flow of business done, that it should form
    part of the ordinary course of business as carried on, calling
    for no remark and arising out of no special or particular
    situation'. This approach is echoed in the statement of Dixon CJ
in Taylor v White (1963-64) 110 CLR 129 at 136 that 'the time
    honoured phase "in the ordinary course of business" is meant to
    refer to transactions regularly taking place in a sustained
    course of activity or some usual process naturally passing
    without examination'. (See also Re Cummins; Ex parte Harris
(1985) 62 ALR 129 per Pincus J)." 53. In this case, although there was a credit passed in the account of the company on the day upon which the bank received the cheque, the pay-in slip was marked with the words "cheques etc not available until collected". In those circumstances, the defendant received the cheque as an agent for collection and not as a holder for value (see National Australia Bank Ltd v KDS Construction Services Pty Ltd (1987) 163 CLR 668 per Mason CJ and Brennan, Deane, Dawson and Toohey JJ at 676:
    "The effect of the receipt by a bank of a cheque deposited
    by a customer to the credit of his current account turns upon the
    terms of the contract between the bank and its customer. In the
    ordinary course of business when a customer deposits a cheque to
    the credit of his account, the bank becomes his agent for
    collection of the cheque from the paying bank and, if the
    customer's account is in credit, the collecting bank borrows the
    proceeds from the customer when collected: Joachimson v Swiss
Bank Corporation (1921) 3 KB 110 at 127; A.L. Underwood Ltd v
Bank of Liverpool (1924) 1 KB 775 at 791. If the customer's
    account is in debit, the proceeds are applied in reduction of the
    overdraft. In either situation the collecting bank does not
    become a holder for value of the cheque at any time before it is
cleared: A.L. Underwood Ltd v Barclays Bank (1924) 1 KB 799 at
    804, 805; National Commercial Banking Corporation of Australia
Ltd v Batty (1986) 160 CLR 251 at 273. In collecting the
    proceeds the collecting bank exhausts the operation of the cheque
(A.L. Underwood Ltd v Bank of Liverpool (1924) 1 KB 791),
    notwithstanding that the paying bank holds it thereafter as a
    voucher on account of its customer the drawer; Midland Bank Ltd v
Reckitt (1933) AC 1 at 14. If, however, in the absence of any
    other arrangement, the bank credits the proceeds of the cheque to
    the customer's account upon receiving it, before it has been
    cleared, the bank then becomes the borrower of the proceeds of
    the cheque and the customer is entitled to draw against them, the
    bank being a holder for value of the cheque and not a mere agent
for collection: Capital and Counties Bank v Gordon (1903) AC 240
    at 245, 248- 249. If, on the other hand, the bank makes it
    clear, as, eg, by notation on the deposit slip and in the bank
    statements, that the crediting of a cheque to the customer's
    account is subject to clearance of the cheque, the bank remains
    an agent for collection: Bank of New South Wales v Barlex
Investments Pty Ltd (1964-5) NSWR 546 at 549-550; A.L. Underwood
    Ltd v Barclays Bank (1924) 1 KB at p.806." 54. Where the bank is an agent for the collection of the cheque, the relevant payment is the payment to it by the bank against which the cheque is drawn when it is presented for clearance. It is the receipt of the moneys from the paying bank which is the relevant payment for the purposes of s.122. However, although that is a payment by a third party, it must be regarded in circumstances such as this as a payment on behalf of the customer of the bank who has deposited the cheque for collection. (In making those observations, I do not overlook that the cheque was drawn on another branch of the defendant bank.) 55. In my opinion, this particular payment was a payment "in the ordinary course of business" for the purposes of the section. The payment was not engineered by reference to any particular transaction between the company and the defendant. While it is true that it represented "the re- financing" of one of the company's trucks, its deposit with the defendant for collection and crediting to the account of the company occurred in circumstances indistinguishable from the ordinary day-to-day activities of the defendant. 56. The receipt by the defendant of the proceeds of the cheque upon its presentation for collection was a payment "for valuable consideration". In this context, the words "valuable consideration" include past consideration such as, in this case, the indebtedness on an overdraft account. 57. It remains necessary to consider whether, within the meaning of s.122(1), the payment should be construed as having the effect of giving to the defendant a preference, priority or advantage over other creditors, and that the defendant knew or had reason to suspect that the company was at the time unable to pay its debts as they became due from its own money, and further whether the defendant knew or had reason to suspect that the effect of the payment would be to give to the defendant a "preference, priority or advantage over other creditors" within the meaning of s.122(4)(c)(ii). 58. As to the question whether the payment should be construed as a preference for the purposes of s.122(1), I have already indicated that I do not think that it is proper to consider the payment in isolation. However, as, for reasons which I will come to, I am of the view that good faith is not, in this case, negatived by reason of the application of s.122(4)(c)(ii), even assuming that in the terms in which the case was presented, the particular payment in question should be regarded as a preference, the plaintiff must nonetheless fail. For that reason, it is not necessary to come to a concluded view on the question whether, given the manner in which the plaintiff has presented his case, the payment in question should be regarded as a preference. 59. As to s.122(4)(c)(i), I am satisfied that at the time of collection of the cheque in question the defendant was aware that the company was unable to pay its debts as they became due from its own money. The history of operation of the account alone speaks strongly in favour of such a finding. There can be no doubt that the bank must be taken to have realised that the cheques presented to it for payment drawn by the company were in favour of creditors of the company, and the dishonour of a number of cheques, including those dishonoured on 19 September 1990, indicated that the company was unable to pay the debts which were the subject of the transactions to which the dishonoured cheques relate. Furthermore, the bank's notes of its conversations with Mrs Clarke and Mr Clarke in the preceding months indicate that the bank was well aware that the company was having difficulty in meeting the payments due to its creditors. It must have been obvious to the bank, speaking generally, that the fact that the account was so regularly drawn past the overdraft limit, was a clear indication that the company was relying on the good will of the bank to sustain its operation. 60. However, the plaintiff has more difficulty in pointing to evidence which would satisfy the requirements of s.122(4)(c)(ii). As to that, while there is no onus upon the defendant to adduce evidence to satisfy the requirements of the sub-section (see Queensland Bacon Pty Ltd v Rees (supra, 115 CLR per Barwick CJ at 287), before the section is of application, the Court must nonetheless be satisfied that on the whole of the evidence those requirements have been met. The difficulty for the plaintiff arises principally by reason of the fact that it was clearly envisaged by the defendant that the company would continue to operate the account. Indeed, the increase in the overdraft limit to $100,000 on 15 October 1990 tells against the view that the bank should be held to have known or had reason to suspect that the payment in question would have the effect of giving it a preference, priority or advantage over other creditors. 61. In this context, I do not understand the passage which I have cited from the judgment of Kitto J in Rees v Bank of New South Wales (supra) as compelling the Court to ignore the defendant's belief as to the likely ultimate result of the impugned payment. In particular, I do not consider that the defendant should be taken to have known, or be regarded as having reason to suspect, that the effect of the payment would be to give it a preference, priority or advantage over other creditors, if it had, as in my view it did have, a genuine and reasonable belief (having regard to the information available to it at the time) that the company would bring the account,and its trading operation, into order by the end of the year. 62. In those circumstances, the defendant is entitled to the protection of s.122(2)(a). 63. The plaintiff's claim must be dismissed.