Hall (As Liquidator of Symtec Products P/L) v Kayon P/L
[2007] SADC 75
•12 July 2007
DISTRICT COURT OF SOUTH AUSTRALIA
(Civil)
HALL (AS LIQUIDATOR OF SYMTEC PRODUCTS P/L) v KAYON P/L
[2007] SADC 75
Judgment of Her Honour Judge Shaw
12 July 2007
CORPORATIONS
Liquidation - company insolvent at time of transaction - effect of transactions - unfair preferences - what payments constitute - whether ledger entries accurately record the nature of the receipt by the defendant of $160,000 from the debtor. Whether debt equitably assigned by the defendant - whether defendant a creditor of the company. Whether received by the defendant or creditor of or as agent for the debtor - payments not unfair preferences - action by Liquidator dismissed.
Corporations Act 2001 ss 588FA, 588FC, 588FE, 588FF; Bankruptcy Act 1924 (Cth) s.122, referred to.
Re: Emanuel (No. 14) Pty Ltd (In Liq); Macks v Blacklaw and Shadforth Pty Ltd (1997) 24 ACSR 292; Manzi v Smith (1975) 7 ALR 685; Angus Law Services Pty Ltd (In liq) v Carabelas (2005) 215 ALR 110; Airservices Australia v Ferrier and Anor (1995-1996) 185 CLR 483; V R Dye & Co (a firm) v Peninsula Hotels Pty Ltd (in liq) & Another [1999] VSCA 60, considered.
HALL (AS LIQUIDATOR OF SYMTEC PRODUCTS P/L) v KAYON P/L
[2007] SADC 75Introduction
This is a claim by the plaintiff, who is the liquidator of Symtec Pty Ltd (“the company”), that payments made by the company in the sum of $160,000.00 to a related company, Kayon Pty Ltd (“the defendant”) were voidable transactions pursuant to the provisions of section 588FA of the Corporations Act 2001 (“the Act”).
The plaintiff was appointed liquidator of the company by order of the Supreme Court made on 12 March 2002, based upon an application for the winding up of the company on the 18th of February 2002.
The defendant is the trustee company of the Les Geyer Family Trust and which, as at 30 June 2000, was an unsecured creditor of the company in respect of a loan in the sum of $113,926.89. A founding director of the company, Robert Horn was an unsecured creditor of the company in the sum of $63,540.21.
At all relevant times, namely for the four year period ending on 18 February 2002, Leslie John Geyer and Anna Zofia Geyer were the directors of both the company and the defendant.
On about 1 October 2000, the company sold its business assets for the sum of $200,000.00. From the proceeds of sale, the sum of $160,000.00 was paid to the defendant by part payment of $100,000.00 on 27 October 2000, and the balance of $60,000.00 on 1 November 2000.
The plaintiff says that the payments to the defendant discharged the unsecured loan from the defendant to the company. The Plaintiff says that these transactions constituted unfair preferences in that the defendant received more than it would have received if the debt to the defendant had been the subject of a proof of debt in a winding up. The plaintiff says that the payments were made at a time prior to liquidation when the company was insolvent.
The defendant says that the payments received by it did not discharge the defendant’s loan to the company. It asserts that the loan by the defendant to the company was equitably assigned by it to Mr and Mrs Geyer. In any event, it submits that the defendant received the payments as an agent of the company in order to raise funds and to arrange for the discharge of the liabilities of the company, including the company’s liability to the secured creditor, namely the Commonwealth Development Bank (“CDB”).
The total payments of $160,000.00 together with further borrowings by Mr and Mrs Geyer, enabled the eventual discharge of the company’s liabilities to the secured creditors in the sum of about $240,000.00.
In the result, the company remained indebted to Mr and Mrs Geyer for the loan in the sum of $113,926.89, which had been assigned by the defendant to them. It was also liable to them for the additional payments made by them to discharge the company’s liabilities to the secured creditors.
In effect, the creditors’ position had been markedly improved because secured creditors had been paid out and replaced by increased unsecured liabilities to Mr and Mrs Geyer.
In essence, the defendant submits that the plaintiff’s case rests upon a mistake in the preparation of the accounts of the company.
From the liquidator’s point of view, the defendant’s financial statements for the year ending 30 June 2000, showed that the company owed the defendant $113,926.89. However, according to the financial statements for the year ending 30 June 2001, namely after the payment of the sale proceeds to the defendant, the loan to the defendant had been discharged.
The financial statements for the year ended 2001 did not show a clearly identified assignment to the Geyers of the defendant’s loan to the company.
In the end, and notwithstanding the entries in those financial statements, it was necessary for the accountant for the company and for the defendant who was responsible for the preparation of those accounts, to give evidence before the court as to those accounts and the relevant transactions.
Chronology
On 20 November 1984, the company was registered.
The initial directors and shareholders of the company were Leslie John Geyer and Robert John Horn.
On 25 September 1992, Mr Horn resigned as a director of the company.
On 10 February 1993, Mr Horn asked the company for confirmation of the balance of his loan account.
On 19 June 2000, CDB wrote to the company seeking proposals for the clearance of its debt.
As at 30 June 2000, the company was indebted to the defendant in the sum of $113,926.89.
On 8 August 2000, the company wrote to the CDB setting out a proposal to wind down the company’s assets and discharge the liabilities of the company to the CDB.
On 14 August 2000, the CDB responded to the company’s proposal.
On 20 September 2000, a Creditor’s Statutory Demand in the sum of $63,540.21 issued by Mr Horn, was served upon the company.
On 1 October 2000, the company, by written agreement sold its business assets to Centennial Park Property Services Group Pty Ltd for a consideration of $200.000.00 (“the sale proceeds”)
On 23 October 2000, a Power State Credit Union account was opened in the name of the defendant.
On 27 October 2000, the sum of $100,000.00 from the sale proceeds, was paid into the defendant’s Power State Credit Union account (“the Credit Union account”).
On 1st November 2000, the sum of $60,000.00 from the sale proceeds, was paid into the defendant’s Credit Union account. The sum of $40,000.00 from the sale proceeds was paid into the company bank account.
Between 1 November 2000 and 17 November 2000, payments were made to certain creditors of the company from the defendant’s Credit Union account.
On 5 December 2000, CDB was paid a loan instalment owed by the company from the defendant’s Credit Union account.
During January 2001, a number of small amounts were paid from the Credit Union account to some company creditors.
On 18 January 2001, the Westpac Banking Corporation (“Westpac”) wrote to Leslie and Anne Geyer approving refinancing of the company’s CDB liability.
On 15 February 2001, there was a payment of $120,000.00 made to L and A Geyer from the defendant’s Credit Union account.
On 21 February 2001, the sum of $243,866.03 was paid from Westpac to CDB in discharge of loans of the company.
On 9 March 2001, Westpac wrote to Leslie Geyer confirming that a payment in the sum of $404,740.42 had been made in discharge of the company and the Geyer’s CDB loans.
On 3 April 2001, Mr Horn issued proceedings in the District Court of South Australia, against the company, for the sum of $63,540.21.
On 16 August 2001, judgment was entered against the company for the amount claimed by Mr Horn.
On 18 February 2002, Mr Horn made application to wind up the company.
On 12 March 2002, Mr Horn obtained an order for the winding up of the company.
The plaintiff was appointed as liquidator of the affairs of the company.
On 5 June 2002, the plaintiff demanded that the defendant repay the amount of $160,000.00 as an unfair preference.
On 17 February 2005, the plaintiff, in his capacity as liquidator of the company, issued these proceedings.
It is not disputed that the relevant backdate is 18 February 2002.
The Issues
The plaintiff says that the payment in the total sum of $160,000.00 to the defendant’s Credit Union account, discharged the defendant’s loan to the company. Another unsecured creditor, Mr Horn, was not paid the loan monies owed to him by the company.
The plaintiff asserts that the payments to the defendant were unfair preferences within the meaning of Section 588FA of the Act; were insolvent transactions within the meaning of Section 588FC of the Act; and were voidable transactions within the meaning of Section 588 FE of the Act. He seeks an order that the sum of $160,000 be paid to the company pursuant to Section 588FF(1)(a) of the Act. Alternatively, the plaintiff seeks an order directing the defendant to pay to the company, the sum of $113,926.89, being the amount of the unsecured debt that the company owed the defendant.
The defendant’s case is that although the company was indebted to the defendant, the payment of $160,000.00 to the defendant did not discharge the defendant’s loan to the company. The defendant says that the defendant’s loan to the company, was assigned to the directors, Mr and Mrs Geyer. The defendant says that it received the sale proceeds as agent for the company and disbursed the monies in accordance with the directions of the company.
The defendant says that the company was able to discharge its liabilities to secured creditors by raising the necessary funds with the support of the directors and of the defendant. The secured creditor, the CDB was owed in excess of $220,000.00.
The defendant denies that there were transactions between the company and the defendant which amounted to an unfair preference. Neither the unsecured loan by the defendant nor the unsecured loan by Mr Horn was able to be discharged from the proceeds of sale because the company used the sale proceeds to raise funds in order to meet its liabilities to the secured creditor.
Plaintiff’s Case
The plaintiff, Mr Hall gave evidence that having regard to the company records, information from Mr and Mrs Geyer and other documents provided to him, he was of the opinion that the company was unable to pay its debts as and when they fell due.
The plaintiff said that he adjudicated upon the proofs of debt. He decided to accept the proofs of debt of Mr Horn and of Maria Jacka.
The proceeds of the sale of the company in the sum of $160,000.00 were paid into a Power State Credit Union account that was set up by the defendant. The plaintiff said that the payment of $160,000.00 into that account, meant that the defendant became a debtor of the company in the sum of $46,073.11, instead of a creditor in the sum of $113,926.89.
According to the company balance sheet, as at 30 June 2000, the company owed the defendant the sum of $113,926.89. Mr Hall agreed that he was aware that the company had a substantial debt to CDB. Mr Hall accepted that shortly prior to 9 March 2001, Westpac discharged all the liabilities of the company and of the Geyers to CDB.
The plaintiff also relied upon documentary exhibits.
According to the plaintiff, the financial statements of the company for the year ended 30 June 2001 recorded that the defendant’s loan to the company had been discharged.
During cross examination, the plaintiff agreed that at a meeting on 3 July, 2002, Mrs Geyer told him that the sale proceeds “went from Kayon to Mr and Mrs Geyer”.[1]
[1] P100, L29
Mr Horn gave evidence of his loans to the company. Mr Horn had obtained a judgment on 16 August 2001 in respect of his unpaid loans.
Defendant’s Case
Mr and Mrs Geyer and Mr Ewen, the accountant for the defendant, gave evidence in the defendant’s case. Various documents were also tendered by the defendant.
Mr Geyer gave evidence that the defendant’s Credit Union account was opened for the purpose of receiving the sale proceeds of the company in order to disburse the monies to the company’s creditors. Mr Geyer said that it was known that the sale proceeds would not be sufficient to pay monies owed to the secured creditor and other creditors.
There is no dispute that the sum of $40,000.00 received by the company, from the sale, was paid into the company account and paid to creditors.
The balance of the sale proceeds together with funds contributed by Mr and Mrs Geyer, were used by the Geyers to obtain refinancing from Westpac in their personal capacity.
Whilst that refinancing application was pending, the Geyers used funds, which could be linked to the net proceeds of the sale of the company, for their personal expenses. Mrs Geyer gave evidence largely supporting her husband’s version of events.
Mr Ewen’s Evidence
Mr Ewen was a crucial witness for the defendant. He is a chartered accountant who provided accountancy services to Mr and Mrs Geyer from the early 1980’s.
Prior to the sale of the company, Mr Geyer had spoken to Mr Ewen about a possible sale of the company. Mr Geyer sought Mr Ewen’s specific advice in relation to the application of the sale proceeds.
From the outset, Mr Geyer told Mr Ewen that he intended to meet all of the company’s liabilities. Mr Geyer asked Mr Ewen for advice in relation to the sale proceeds. Mr Ewen advised Mr Geyer to place the proceeds into a separate account.
Mr Ewan prepared the financial accounts for the financial year ending 30 June 2000 for both the company and the defendant. At the time of the sale of the business, the defendant was an unsecured creditor of the company in the sum of $113,926.88.
Mr Ewan said that the defendant did not receive on its own account, any of the sale proceeds paid into the defendant’s Credit Union account. Although the sale proceeds of the company are recorded as having been received by the defendant, the proceeds were received in trust for the company.
He accepted that the defendant’s loan to the company appeared in the accounts for the year 2000 but that it did not appear in the accounts in 2001. However, the loan had not been discharged. The loan was transferred to Mr and Mrs Geyer in what he called a “cleanup exercise” because it was plain that the company would not be able to repay any of the defendant’s loan to the company. Therefore, it was transferred out of “one hole into another”.
The transfer to Mr Geyer of the defendant’s loan to the company was recorded in the ledger of the Les Geyer Family Trust of 2001, by a journal entry which recorded a sum of $99,387.93 “Taken over by Les Geyer”. He pointed out that the Balance Sheet also showed an unsecured loan from L & A Geyer of $9,098.88 which increased in the year 2001 to $229,712.13. This amount included the loan monies which were “taken over” by the Geyers.
He explained that insofar as the records showed that the payment of the sale proceeds into the defendant’s account had an effect on the loan account, this was an error by the staff member who prepared the ledger. Mr Ewen saw no reason to correct the error because ultimately, the loan monies obtained by the Geyers from Westpac, were expended for company purposes. The accounts had not been prepared for 2002. Therefore, the error had never been corrected.
The circumstances of the liquidation of the company were such that the loans to the company which remained unpaid, were the loan by Mr Horn and the loan by Mr and Mrs Geyer.
The Plaintiff’s Submissions
The plaintiff submitted that the main issue in the case, was whether the defendant received the sum of $160,000.00 from the company in respect of an unsecured debt that the company owed to the defendant, or whether the defendant received the money as an agent for the purpose of paying the company’s creditors.
This required a determination of whether the payment of $160,000.00 constituted a “transaction” between the company and the defendant which discharged the defendant’s loan to the company, or whether the defendant used the sum of $160,000.00 to pay the company’s secured creditors including the CDB.
The plaintiff contended that as at 1 November 2000, the company was insolvent.
Further, the plaintiff submitted that as at that date, the company was indebted to Mr Horn in the sum of $63,540.20 according to the balance sheet of the company.
The plaintiff submitted that the result of the transaction was that the defendant received the sum of $160,000.00. The intentions or purposes of the parties to that transaction were not relevant. The payment to the defendant had legal consequences, namely the extinguishment of the defendant’s loan. Therefore, the payment was an unfair preference within the meaning of section 588FA of the Act.
The plaintiff relied upon the definition of “transaction” in section 9 of the Act and the discussion of the meaning of that definition in Re: Emanuel (No 14) Pty Ltd (in liq); Macks and Another v Blacklaw & Shadforth Pty Ltd (1997) 24 ACSR 292.
The plaintiff submitted that the sum of $160,000.00 paid into the defendant’s Credit Union account, was not used for the sole purpose of paying the company’s creditors. Instead, the monies were used to pay personal expenses of the Geyers and to assist the Geyers personally to refinance with Westpac. This involved paying out both personal and company liabilities to CDB.
It was submitted that it was erroneous to consider the result of a series of transactions over a four month period to arrive at the relevant transaction.
The plaintiff submitted that the defendant had failed to establish that the defendant had not received the total sum of $160,000.00 in its capacity as an unsecured creditor, or that the payment was not made in respect of the unsecured debt of the company to the defendant.
In relation to the evidence of Mr Ewan that the company’s indebtedness to the defendant was recorded in the accounts as having been transferred to Mr Geyer, the plaintiff submitted that this was recorded only in a journal entry which was not completed until after 30 June 2001.
The plaintiff submitted that neither Mr or Mrs Geyer had given evidence specifically about this journal entry. The plaintiff referred to Manzi v Smith (1975) 7 ALR 685 and Angus Law Services Pty Ltd (In liq) v Carabelas (2005) 215 ALR 110.
The plaintiff submitted that the defendant had received 100 cents in the dollar with respect to its unsecured loan to the company. The company and the defendant were parties to a transaction. As a result of the transaction in relation to an unsecured debt that the company owed to the defendant, the defendant received more than it would have received from the company in respect of the debt than if the transaction was set aside and the defendant was to prove the debt in a winding up of the company[2].
[2] Section 588 FA(1)(b) of the Act
The company was insolvent at the time of the transaction or became insolvent as a result of entering the transaction[3].
[3] section 588 FC
The defendant was a related entity of the company[4].
[4] 588 FE (4)(b)
The transaction was entered into during the period referred to in section 588 FE (4)(c).
The transaction is voidable under section 588 FE (1) of the Act because the elements of section 588 FE (4) were satisfied.
Therefore, the transaction involving the payment of the total sum of $160,000.00 to the defendant ought to be set aside and the defendant ordered to repay that sum to the company.
Credibility Findings
I note the plaintiff’s criticisms of Mr Geyer’s evidence in relation to whether there was an agreement that the Horn loan would be discharged at the time of settlement of a debt to John Shearer. It is unnecessary to resolve the conflict between the defendant and Mr Horn in relation to the history of the Horn loan because of the finding I make later in these reasons in relation to the payments by the company into the defendant’s Credit Union account.
I note the plaintiff’s criticisms of the conduct of Mr and Mrs Geyer in relation to the opening of the defendant’s Credit Union account and the payment of the sale proceeds into that account.
I have had regard to all of the criticisms of Mr Geyer’s credibility. However, I was impressed by Mr Geyer’s evidence. I formed the opinion that Mr Geyer was credible and reliable. I consider that Mrs Geyer gave her evidence in a straightforward manner. I found her to be a credible and reliable witness.
Despite the plaintiff’s criticisms of the evidence of Mr Ewen, I am satisfied that Mr Ewen was an honest and reliable witness.
I find that Mr and Mrs Geyer acted upon Mr Ewen’s advice in relation to both the company and the defendant.
The Law
Section 588FA of the Act provides as follows:
(1)A transaction is an unfair preference given by a company to a creditor of the company if, and only if:
(a)the company and the creditor are parties to the transaction (even if someone else is also a party); and
(b)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;
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.
(2)For the purposes of subsection (1), a secured debt 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.
(3)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 (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) of this subsection, the single transaction referred to in the last-mentioned paragraph is taken to be such an unfair preference.
I refer to the judgment of the majority of the Court in Airservices Australia v Ferrier and Anor[5] where, in relation to the provisions of s.122 of the Bankruptcy Act 1924 (Cth), their Honours said:
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"[6].
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. 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 the other creditors[7].
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"[8].
[5] (1995-1996) 185 CLR 483, 502
[6] Rees v Bank of New South Wales (1964) 111 CLR 210 at 221 - 222
[7] cf Re Discovery Books Pty Ltd (1973) 20 FLR 470 at 475
[8] Richardson (1952) 85 CLR 110 at 132
It is important to consider the relevant payments in a business context.[9]
[9] Airservices supra at p506
It is necessary to look at the practical relationship between the payment made and “the ultimate effect of the dealings between the parties”.[10]
[10] Airservices supra at p509
It is also necessary to look at the transactions in their entirety and to consider whether the defendant, which is said to be the preferred creditor in the present instance, has received more from the company than it would receive if the transaction was set aside and it had to prove the debt in “a winding up of the company”.[11]
[11] Section 588FA(1)
In V R Dye & Co (a firm) v Peninsula Hotels Pty Ltd (in liq) & Another[12], Ormiston J A said:
“In each case the court is obliged to look at the transactions between the parties in a manner which accords with the commercial realities. It is not a matter of isolating 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.”
[12](1999) 150 FLR 307, 320 [36]
Findings
In this case there was barely any dispute that the company was insolvent as at the relevant times in October and November 2000. I accept entirely the opinion evidence of the liquidator Mr Hall upon that issue. Although the trading loss in the 2000 financial year had been reduced from the previous year, the company was trading well outside the terms of its suppliers’ terms. I find that the company was insolvent at the time of the payments, the subject of these proceedings.
The plaintiff’s case rested substantially upon the interpretation of the entries in the accounts of the company at the time that the plaintiff was appointed liquidator of the company. Although certain entries in the accounts might be construed as supporting the plaintiff’s case, I accept the evidence of the accountant Mr Ewen, as to the state of the accounts and the transactions therein recorded. I accept the “account of the underlying transaction”[13] given by Mr Ewen.
[13] Tosich Construction Pty Ltd (in liquidation) and Anor v Tosich Fed Ct NSW 22/9/1997; 345 of 1997 BC 9704566
I find that the defendant’s loan to the company was not discharged from the sale proceeds of the company’s assets.
I find that although an entry in the accounts of the defendant, might indicate that the defendant’s loan to the company had been paid off, this was an error by the staff member who prepared the accounts, and that is not what happened.
I am satisfied on the balance of probabilities that the Credit Union account was opened by the defendant in order to facilitate the disbursement of the sale proceeds to creditors and, in the first place, to raise funds to pay out the secured creditor.
The sale proceeds were dispersed at the direction of the Geyers in their capacity as directors of the company and in their personal capacity, in order to eventually achieve the payment of the company’s secured creditors.
I find that the sale proceeds assisted the Geyer’s to obtain finance in their personal capacity. As a result, the Geyers were able to pay the company’s creditors a total sum of $306,625.90.
I find that no part of the sale proceeds of the company was retained by the defendant. Rather, the defendant acted as an agent in relation to the dispersal of the sale proceeds.
I find that there was a record in the accounts of the defendant which showed that the loan of the defendant to the company was transferred to the Geyers.
I am satisfied that there was no receipt by the defendant as creditor “in respect of an unsecured debt”.[14]
[14] S.588FA(1)(b)
I find that the payment to the defendant did not have the effect of extinguishing the defendant’s loan to the company.
Conclusion
I am satisfied that the payment to the defendant did not constitute a payment or a partial payment of the debt owed by the company to the defendant.
The sale proceeds of the company were insufficient to meet the company’s indebtedness to the secured creditor. The payment was made with a view to raise funds in order to meet the demands of the secured creditor. The shortfall was funded by the directors of the defendant.
There were no funds available from the company to meet the demands of the unsecured creditors, including the defendant and Mr Horn.
The liquidator viewed the payment to the defendant and entries in certain accounts as showing, on their face, that the payment had resulted in a preference to a related company.
It is only when the payment to the defendant is viewed in the context of the totality of the company accounts and the evidence of the accountant, that the true nature and effect of the transaction is made clear. When one views the overall “business character” of the transaction, the payment does not leave the defendant with a preference over another unsecured creditor.
I find that the liquidator focussed on one payment in what was in fact a wider transaction, to conclude that there was a payment to an unsecured creditor, which constituted a preference.
The effect of the wider transaction was to discharge the company’s secured creditor and not the defendant, which was an unsecured creditor. At the conclusion of the wider transaction, the defendant was not better off as a result of the payment.
In any event, having regard to the provisions of section 588FA(3) of the Act, I am satisfied that the defendant has established that the mutual intention of the defendant, the company and the Geyers was to hold, disburse and borrow funds in order to pay the company’s creditors.
I find that the defendant, the company and the Geyers were in a “continuing business relationship” within section 588FA(3) of the Act[15].
[15] Airservices Australia v Ferrier & Anor (1995) 185 CLR 483 501 - 503
I note that the word ‘results’ appearing in section 588FA(1)(b) is defined in section 9 of the Act to include an “indirect result”.
I find that even if the defendant had received the sale proceeds of the company, as a creditor of the company, there was in place a commercial purpose which underpinned the result, namely the refinancing of the Geyer’s borrowings and the discharge of the company’s liabilities.
I have regard to all of the transactions from the time of the receipt of the sale proceeds by the defendant until the discharge of the debts of the company which were in excess of $200,000.00. Although the sale proceeds paid into the defendant’s Credit Union account and available to the creditors of the company were in the sum of $160,000.00, I find that the amount actually paid to creditors was in excess of $200,000.00.
Applying the “doctrine of ultimate effect”,[16] it is clear that the payment to the defendant did not result in a priority or advantage to the defendant over the other unsecured creditors. Rather, as a result of the payment to the defendant, the secured creditor was paid an amount in excess of the sale proceeds of the company.[17] This enabled the company’s indebtedness to the secured creditor to be satisfied.
[16] Airservices supra at p509
[17] cf Airservices supra at p509
I find that none of the sale proceeds was applied by the defendant for its own benefit. I find that, ultimately all of the sale proceeds have been accounted for and paid to creditors of the company, other than the defendant, together with further monies borrowed by the Geyers.
I find that the defendant is not liable to pay the plaintiff the sum of $160,000.00.
The plaintiff’s claim is dismissed. I will hear the parties as to costs.
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