Rodgers v Schmierer

Case •

[2003] FCA 386

•

30 APRIL 2003

FEDERAL COURT OF AUSTRALIA

Rodgers v Schmierer [2003] FCA 386

BANKRUPTCY – appointment of insolvency practitioners as administrators to family company engaged in transportation business – subsequent appointment of same practitioners as administrators pursuant to deed of company arrangement – insolvency practitioners provided with deeds of indemnity from directors of family company supported by second mortgage over directors’ home to secure practitioners’ remuneration and out-of-pocket expenses and exposure as administrators to claims of creditors – subsequent receipt by administrators of funds within scope of indemnities and second mortgage – whether transfers of property to insolvency practitioners at market value constituted by indemnities and second mortgage void – whether possible alternative claims properly conceived in law.

Bankrupt Act 1966 (Cth) ss 58, 120(1) and (7)
Corporations Act 2001 (Cth) s 471B
Corporations Law (NSW) Part 5.3A, ss 433A, 435A 436A(1), 437A, 438A-443C, 439A, 443A, 443D, 444E(3) and 448B
Income Tax Assessment Act 1936 (Cth) s 222AOE

J & H Just (Holdings) Pty Ltd v Bank of New South Wales (1971) 125 CLR 546 cited
Victorian Producer’s Co-Op Co Ltd v Kenneth [1999] CLR 546 FCA 1488 referred to
Australian Woollen Mills Pty Ltd v The Commonwealth (1953-1954) 92 CLR 424 applied
Re Barton; ex parte Official Trustee (1986) 192 CLR 592 referred to
Official Trustee in Bankruptcy v Arcadiou (1985-1986) 8 FCR 4 referred to
Pao On v Lau Yiu Long [1980] AC 614 applied
Barclays Bank Ltd v Quistclose Investments Ltd [1970] ACT 567 referred to
Re Australian Home Finance Pty Ltd [1956] VLR 1 referred to
Re Staff Benefits Pty Ltd [1979] 1 NSWLR 207 referred to
Carreras Rothmans Ltd v Freeman Mathews Treasure Ltd [1985] Ch 207 referred to
Sutherland v Brien & Anor 1999] 149 FLR 321 considered

Contract Law in Australia (3rd ed) Carter and Harland at [309]
Lewis’ Australian Bankruptcy Law (11th ed) Denis Rose at p 180

PETER DAVID RODGERS as Trustee of the Bankrupt Estate of Frederick Cecil Reader and Dianne Jean Reader v TREVOR JOHN SCHMIERER and ADRIAN STEWART DUNCAN

N 7312 OF 2001

CONTI J
30 APRIL 2003
SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

N 7312 OF 2001

BETWEEN:

PETER DAVID RODGERS as Trustee of the Bankrupt Estate of Frederick Cecil Reader and Dianne Jean Reader
APPLICANT

AND:

TREVOR JOHN SCHMIERER and ADRIAN STEWART DUNCAN
RESPONDENTS

JUDGE:

CONTI J

DATE OF ORDER:

30 APRIL 2003

WHERE MADE:

SYDNEY

THE COURT ORDERS THAT:

1.        The Application be dismissed.

2.        Costs of the proceedings reserved.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

N 7312 OF 2001

BETWEEN:

PETER DAVID RODGERS as Trustee of the Bankrupt Estate of Frederick Cecil Reader and Dianne Jean Reader
APPLICANT

AND:

TREVOR JOHN SCHMIERER and ADRIAN STEWART DUNCAN
RESPONDENTS

JUDGE:

CONTI J

DATE:

30 APRIL 2003

PLACE:

SYDNEY

REASONS FOR JUDGMENT

Introduction

  1. This is an application made on 4 July 2001, pursuant to s 120 of the Bankruptcy Act 1966 (Cth) (“the Bankruptcy Act”), for orders declaring void what are asserted to have constituted transfers of property for which no consideration was given. The application is made by Peter David Rodgers as trustee of the bankrupt estates of Frederick Cecil Reader (“Mr Reader”) and Dianne Jean Reader (“Mrs Reader”), who was appointed to those respective offices on 29 January 2001. The respondents are chartered accountants and the joint and several liquidators of Vokal Pty Limited (In Liquidation) (“Vokal”), having been so appointed on 16 November 2000. Prior to that appointment as liquidators, the respondents had been administrators of Vokal since 15 May 2000, initially at the request of Mr Reader on behalf of his family company Vokal, and subsequently since 16 June 2000 at the request of Vokal’s creditors under the auspices of a deed of company arrangement. Vokal is a family company in the sense that its two issued shares are held respectively by Mr and Mrs Reader.

  2. The applicant seeks declaratory relief specifically to the effect that the following transfers of property are void or, to use perhaps a more accurate expression, voidable at the trustee’s option (Lewis’ Australian Bankruptcy Law (11th ed) (Denis Rose) at p 180), as from the commencement of the bankruptcy of Mr and Mrs Reader:

    (i)deed of appointment and indemnity dated 15 May 2000 executed by Vokal and Mr Reader in favour of the respondents;

    (ii)deed of indemnity dated 17 May 2000 executed by Vokal and Mr Reader in favour of the respondents;

    (iii)unregistered second mortgage of real property dated 17 May 2000, comprised in Folio Identifier 100/15589 and known as 71 Lovell Road, Eastwood in the State of New South Wales (“the Eastwood property”), executed by Mr and Mrs Reader as registered proprietors and mortgagors in favour of the respondents as mortgagees, and to which Vokal was also privy as debtor; and

    (iv)payment made by Mr and Mrs Reader on or about 1 September 2000 of the sum of $118,360.72 to Mr Schmierer and Mr Duncan, being at a time when they held office as administrators of Vokal under the deed of company arrangement of 16 June 2000.

    The circumstances in which those “transfers of property” occurred allegedly within the terms of s 120 of the Bankruptcy Act, are later set out in more detail.

  3. It was contended by the applicant that the respondents provided no consideration for any of the above four transactions (s 120(1)(b)), and that the transfers of property the subject of those transactions “took place in the period beginning five years before the commencement of the bankruptcy and ending on the date of the bankruptcy” (s 120(1)(a)), with the consequence that the respondents should repay to the applicant the above sum of $118,360.72 with interest. It is the first of those contentions which is in issue between the parties.

  4. The applicant pleaded alternatively, in respect of the transaction involving the payment of the above sum of $118,360.72 made by Mr and Mrs Reader in favour of the respondents, that if the court was to find that the respondents received the same or any part thereof as agents for Vokal, then the payment so made to Vokal was void for want of consideration given by Vokal pursuant to s 120(1) of the Act. Vokal is not however a respondent to the proceedings, Moore J having declined on 7 June 2002 to grant leave to the applicants pursuant to s 471B of the Corporations Act 2001 (Cth) (“the Corporations Act”) to proceed against Vokal as an additional respondent to the proceedings.

  5. Apparently in order to circumvent the consequences of the decision of Moore J, the applicant thereafter pleaded by an amended statement of claim that by reason of the respondents having been put on notice by 1 February 2001 of the applicant’s claim upon such funds as were then under the control of the respondents as liquidators of Vokal, the respondents thereafter held those funds on trust for the applicant. Apparently by 1 February 2000 however, only about $42,000.00 (or perhaps some even lesser sum) was still held unappropriated by the respondents in their capacity as administrators of Vokal out of the original sum of $118,360.72, the difference having been by then applied in payment of the respondents’ fees and disbursements as administrators. Accordingly the applicant has purportedly pursued this alternative claim only to the extent of the first mentioned amount.

    Circumstances leading to the initial statutory administration of Vokal’s affairs, the initial appointment of the respondents as administrators and the obtaining by the respondents of the “transfers of property” now sought to be set aside for want of consideration equal to market value

  6. It is necessary to outline in more detail the material events which gave rise to the appointment of the respondents as administrators of Vokal under Part 5.3A of the Corporations Law (as then in force), and to the allegedly voidable transfers of property which took place during the period of that administration, prior to the subsequent appointment of the respondents as administrators pursuant to the deed of company arrangement.

  7. Vokal was incorporated as a proprietary limited company on 17 June 1996 for the purpose of carrying on the business of providing transportation services. From the time of commencement of that business, the directors of Vokal were Mr and Mrs Reader, until Mrs Reader resigned her directorship on 10 February 2000, being at a time prior to the making of the four transactions identified in [2] above. Thereafter, Mr Reader remained in office as sole director until the ultimate winding up of Vokal in insolvency.

  8. On 2 May 2000, Mr Reader received a penalty notice from the Australian Taxation Office upon the basis of Vokal having failed to remit to the Commissioner of Taxation outstanding tax of $135,704.87, Mr Reader by then being of course the sole director of Vokal. Mr Reader became liable for payment of that assessment in accordance with s 222AOE of the Income Tax Assessment Act 1936 (Cth). The penalty notice stated however, in accordance with the legislation, that the amount of tax so claimed, if paid, would be remitted, if Vokal was placed in administration under the provisions of the Corporations Law within 14 days.

  9. On 15 May 2000, Mr Reader as sole and remaining director of Vokal, resolved on behalf of Vokal to appoint the respondents as joint and several administrators of Vokal pursuant to s 436A(1) of the Corporations Law. The adoption of that course, for what it may matter for present purposes, thus relieved Mr Reader of personal liability for that tax debt of Vokal. The sole director’s minute recorded the opinion of Mr Reader that Vokal was insolvent or likely to become insolvent at some future time. Consequently, the respondents obtained control of Vokal’s business, property and affairs, along with the authority to carry on that business, and to manage that property and those affairs, pursuant to s 437A of the Corporations Law. The appointment was formalised by the deed of appointment and indemnity dated 15 May 2000 referred to in [2(i)] above. The respondents were thereafter obliged to continue to be registered as liquidators (s 448B of the Corporations Law), so long as they remained in office as administrators.

  10. The deed of appointment and indemnity of 15 May 2000 recited that having regard to the onerous obligations imposed on the respondents by Part 5.3A of the Corporations Law, including that of personal liability, the consent of the respondents to their appointment as administrators was conditional upon Vokal and Mr Reader giving the indemnity and mortgage security thereafter stipulated. The indemnity was expressed to relate to the respondents’ “professional remuneration, as well as costs, disbursements and expenses rendered by or incurred by the Administrators or to which the Administrators are otherwise entitled before and by virtue of their appointment as administrators of the Company, or as subsequent liquidators of [Vokal] or as subsequent administrators of a Deed of Company Arrangement…”. The respondents’ professional remuneration and that of “their staff” was to be calculated in accordance with the rates recommended from time to time by the Insolvency Practitioners’ Association of Australia. Also pursuant to the deed of appointment and indemnity of 15 May 2000, Mr Reader agreed to provide a mortgage in favour of the respondents over the Eastwood property, said therein to be “owned by him”, to secure all moneys thereafter to become owing or payable to the respondents by Vokal and Mr Reader, as set out in annexure “A” to the deed of appointment and indemnity of 15 May 2000.

  11. On 17 May 2000, Mr Reader entered into the further deed of indemnity abovementioned, which similarly indemnified the respondents, though in more comprehensive terms to that of the earlier deed of appointment and indemnity of 15 May 2000. By clause 8 of that later deed, Mr Reader agreed “to give a mortgage over the property owned by him and known as 71 Lovell Road Eastwood… which mortgage shall be in the form annexed hereto…”. Those more comprehensive terms included the following:

    “Indemnity

    2.The Company and the Director, jointly and severally, indemnify and agree to keep indemnified the Administrators in respect of all Administrator’s Costs, Administrator’s Disbursements, Administrators’ Trading Expenses and all Liabilities incurred by the administrators with respect to their appointment as Administrators of the Company, or as subsequent liquidators of the Company, or subsequent Administrators of a Deed of Company Arrangement.

    3.The Company and the Director acknowledge that notwithstanding this or any other deed, the Administrators expressly do not waive or abandon their rights to a lien and indemnity over the Company’s assets in respect of, inter alia, the Administrator’s costs, the Administrator’s disbursements and the Administrator’s Trading Expenses and the Liabilities.

    …

    5.Continuing Indemnity

    This indemnity shall be continuing and irrevocable and the obligations of the Company and the Director shall be absolute and unconditional in all circumstances and in addition to the Administrators’ right of indemnity and lien under the Corporations Law. The indemnity shall apply even if the Administrators elect to retire or their appointment is subsequently determined by a court of law to be invalid or they are removed for any reason other than gross misconduct.”

  12. Apparently it became realised at some time on that day that Mrs Reader was a joint owner with Mr Reader of the Eastwood property. Consequently the form of mortgage annexed to the deed of indemnity of 17 May 2000 was altered to include Mrs Reader as an additional mortgagor. That second mortgage purportedly secured, as an “all moneys” security, the liabilities of Mr and Mrs Reader as mortgagors, and Vokal as debtor, including liabilities arising under the deed of indemnity of 17 May 2000. Though it matters not for present purposes, most of the paragraphs of this mortgage were irrelevant to the circumstances and purport thereof. Although prepared in apparently registrable form, the mortgage instrument was never registered, but would nevertheless have operated as an equitable mortgage to the extent that the same was otherwise effective (J & H Just (Holdings) Pty Ltd v Bank or New South Wales (1971) 125 CLR 546). It appears that a caveat was entered on the certificate of title to the Eastwood property to protect that equitable interest.

  13. At the time of execution of the second mortgage, both Mr and Mrs Reader made written declarations to the effect that each of them had received independent legal advice in relation to the abovementioned deed of indemnity and second mortgage entered into on 17 May 2000. Mr Duncan gave evidence to the effect that it was the usual practice for his firm (whereof Mr Schmierer was of course also a member) to obtain security “… to cover any trading losses incurred by the company during the administration period as well as the administrator and disbursements”.

    Subsequent execution of Deed of Company Arrangement and the continuation thereunder of the administration activities of the respondents

  14. About one month later on 16 June 2000, the creditors of Vokal resolved that the company enter into a deed of company arrangement between Messrs Schmierer and Duncan in their capacity as administrators of Vokal, Mr Reader in his capacity as director of Vokal, and Vokal (Administrators Appointed) in its corporate capacity. The course so taken followed upon the respondents’ investigation of Vokal’s affairs, as required by s 438A of the Corporations Law. The minutes of this second meeting of creditors, convened pursuant to s 439A of the Corporations Law, recorded that resolutions were passed without dissent in respect of, inter alia, the “administrator’s remuneration” as follows:

    “IT WAS RESOLVED that the Administrator’s remuneration for the period 15 May 2000 to 8 June 2000 be approved and paid in the sum of $33,883.30 + GST (if applicable) and from 9 June 2000 to the conclusion of this administration be approved and paid in the sum of $5,000.00 and GST (if applicable) on a time basis in accordance with the guide to fees set by the Insolvency Practitioners’ Association of Australia from time to time…

    IT WAS RESOLVED that the remuneration of the Deed Administrator from 9 June 2000 to the completion of the administration be approved in the sum of $10,000.00 and GST (if applicable) and such remuneration being calculated on a time basis in accordance with the guide set by the Insolvency Practitioners’ Association of Australia and that the Deed Administrator be authorised to make payment on account of such remuneration.”

  15. The deed of company arrangement, approved by the meeting of creditors on 16 June 2000 as above stated, was executed on 23 June 2000. By reason of s 444E(3) of the Corporations Law, persons could not thereafter begin or continue with a proceeding against Vokal or in relation to any of Vokal’s property, or begin or proceed with any enforcement process in relation to Vokal’s property, except with the leave of the court, and in accordance with terms imposed by the court. The deed of company arrangement established a so-called “Administration Fund” of $113,501 to be paid by Vokal, whereof $10,000 was to be paid upon the execution of the deed and $103,501 within 3 months thereafter. It also established a “Deed Fund” of $53,850, being part of the Administration Fund, the proceeds whereof to be paid to ordinary unsecured creditors pro rata according to value. Set out below are other material provisions of the deed of company arrangement:

    “1.2In exercising the powers conferred by this Deed and carrying out the duties arising under this Deed, the Administrators are taken to act as agents for and on behalf of the company.

    …

    11.1This Deed is to operate for a moratorium period of 12 months, or such further period of time as approved by creditors, to enable the terms of the Deed to be complied with.

    …

    12.1As at the date of execution of this Deed the total funds to be contributed by the company to satisfy the Deed are estimated to be as follows:

    (a)Estimated Administrators disbursements/trading loses and GST $13,200.00.

    (b)Estimated Administrators/Deed Administrators Fees and GST $30,000.00.

    (c)Known priority Employee Claims (est.) and GST $16,451.00.

    (d)Contribution to ordinary unsecured creditor’s claims $53,850.00.

    Total $113,501.00

    12.2The Administrators are to establish a consolidated bank account to be conducted by the Administrators and styled “The Vokal Pty Limited (Administrators Appointed) Account” into which is to be paid the contributions by the company referred to in clause 12.4 below.

    …

    12.4Contributions are to be paid by the company in respect of its obligations under the Deed as follows:

    (i)Execution of Deed - $10,000.00 – 9 June 2000

    (ii)One (1) Instalment $103,510.00 within 3 months

    Total $113,501.00 of the Deed.

    12.5Should any further amounts be required to satisfy the requirements of the Deed, then such further or other amounts as are required are to be paid by the company.

    12.6The Administrators shall pay from the Administration Fund the Administrators disbursements and/or trading losses if any (estimated to be approximately $13,329.00) plus GST, upon demand.

    12.7The Administrators shall pay from the Administration Fund the Administrators fees both in relation to the administration of this Deed and the voluntary administration (estimated to be approximately $30,000.00) plus GST, upon demand.

    12.8The Administrators shall pay from the Administration Fund all admitted accrued statement superannuation estimated to be $13,295.00 owed to current and former employees.

    12.9The Administrators shall pay from the Administration Fund the accrued wages and annual leave estimated to be $3,156.00 which is owed to a former employee once admitted.

    2.10The company shall pay all other priority employee entitlements in the ordinary course of business.

    13.1The amount of $53,850.00 specified as the contribution to ordinary creditors in clause 12.1(d) above shall comprise the Deed Fund.

    13.2The Administrators shall pay from the Deed Fund to ordinary unsecured creditors who have an admitted claim the sum of $53,850.00 in full and final settlement of their claims, which sum shall be paid pro rata between the ordinary unsecured creditors according to value.

    14.1The Director is to provide the second mortgage over his residential property to the Administrators to secure the company’s obligations under the Deed Fund.”

    14.2The company is to provide a fixed and floating charge over the assets of the company in favour of the Administrators to secure the company’s obligations under the Deed.

    The reference to “his residential property” in clause 14.1 above was of course an error, the Eastwood property being owned by Mr and Mrs Reader, as confirmed by the preceding unregistered second mortgage of 17 May 2000 earlier described in these reasons for judgment, which apparently continued on foot and was not replaced by the second mortgage contemplated by clause 14.1.

  1. On 29 June 2000, Mr and Mrs Reader obtained approval of replacement funding from Provident Capital Limited in the sum of $310,000.00 on the security of a first mortgage over the Eastwood property. In their application for that mortgage funding made on 23 June 2000, the purpose of the loan was stated as “to repay the deed of arrangement for Vokal Pty Limited”, referring thereby to the above deed of company arrangement executed on 23 June 2000. The major part of the new advance was required to discharge the existing first mortgage from Mr and Mrs Reader to the ANZ Bank to enable the increased funding to Provident Capital to be obtained. The amount required to “repay the deed of arrangement for Vokal Pty Limited” was the sum of $103,510.00 referred to in clause 12.4(ii) of the deed of company arrangement of 23 June 2000 above extracted.

  2. On 14 July 2000, the respondents in their capacity as administrators pursuant to the deed of company arrangement of 23 June 2000 caused a caveat to be lodged over the Eastwood property. The caveatable interest was specified to exist by virtue of the equitable second mortgage in their favour referred to in [12] above.

  3. On 18 August 2000, Messrs Schmierer and Duncan in their capacity as administrators of Vokal caused a letter to be sent to Mr Reader, which advised “that the amount required to discharge the caveat lodged over the property located at 71 Lovell Road Eastwood and satisfy the obligations of Vokal pursuant to the terms of the Deed of Company Arrangement is approximately $145,182.66”. Without the withdrawal of the respondents’ caveat, the intended new mortgagee could not of course secure registration of its intended replacement first mortgage to Provident Capital.

  4. On 1 September 2000, Mr and Mrs Reader completed formalities for implementation of the replacement security over the Eastwood property by way of the new first mortgage in favour of Provident Capital, and thereby borrowed the principal sum of $310,000.00 from that replacement mortgagee. Of that amount of $310,000.00, $161,996.00 was paid to the ANZ Bank to redeem its existing first mortgage, and $118,360.72 was paid to Vokal in reduction to the second (unregistered) mortgage (see [2(iv)] above), though not apparently (for what it may presently matter) by way of discharge of the second (unregistered) mortgage. How the difference between the aggregate of those latter two sums, and the total amount of $310,000.00 lent by Provident Capital, was applied does not appear, but would doubtless have included legal costs and loan security duty. The two payments of $161,996.00 and $118,360.72 thus resulted in the ANZ Bank’s first mortgage being discharged, and the caveat entered by the respondents upon the certificate of title to the Eastwood property in relation to the second mortgage entered into on 17 May 2000 being withdrawn, and Provident Capital becoming the first mortgagee of the Eastwood property. That sum of $118,360.72 was paid directly into Vokal’s bank account, and not to the respondents personally in their capacity as administrators of Vokal, though of course the respondents operated that bank account pursuant to their powers and functions as administrators. An entry on the Vokal bank statement for the period 23 August 2000 to 22 September 2000 records that the payment of $118,360.72 was credited to the Vokal Deed Fund on 5 September 2000.

  5. The abovementioned sum of $118,360.72 was disbursed in payment of “rents, expenses and costs incurred during the administration and liquidation of Vokal”, to cite Mr Duncan’s description. That sum of $118,360.72 appears in Schedule 1 attached hereto, which records details of the subsequent disbursement thereof.

    Subsequent winding –up of Vokal

  6. On 16 November 2000, the creditors of Vokal resolved that the deed of company arrangement be terminated and Vokal be wound up. That course of action was precipitated, inter alia, by the failure of Vokal to pay in full the sum of $145,182.66 referred to in [18] above. Although the first contribution of $118,360.72 was duly made out of the proceeds of the refinancing of the Eastwood property, as above indicated, the balance payable to satisfy the commitments the subject of the deed of company arrangement in the amount of $26,821.94 was not paid, notwithstanding that Messrs Schmierer and Duncan in their capacity as administrators allowed Vokal a “further short period of time to secure the funds”. Resolutions of the creditors in respect of “the administrators and liquidators remuneration” were also carried, and Messrs Schmierer and Duncan became the liquidators of Vokal, by way of succession, as it were, to their office as administrators of Vokal. That sum of $118,360.72 is of course sought to be recovered by the applicant from the respondents, as set out in [2(iv)] above.

    The statutory scheme for avoidance of transfers of property for want of consideration

  7. S 120 of the Bankruptcy Act provides as follows:

    “Transfers that are void against trustee

    (1)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:

    (a)the transfer took place in the period beginning 5 years before the commencement of the bankruptcy and ending on the date of the bankruptcy; and

    (b)the transferee gave no consideration for that transfer or gave consideration of less value than the market value of the property.

    …

    Refund of consideration

    (4)The trustee must pay to the transferee an amount equal to the value of any consideration that the transferee gave for a transfer that is void against the trustee.

    …

    Meaning of ‘transfer of property’ and ‘market value’

    (7)For the purposes of this section:

    (a)‘transfer of property’ includes a payment of money;

    (b)a person who does something that results in another person becoming the owner of property that did not previously exist is taken to have transferred the property to the other person; and

    (c)the ‘market value’ of property transferred is its market value at the time of the transfer.”

  8. The meaning of “property” is defined in s 5 of the Bankruptcy Act to mean “real or personal property of every description, whether situate in Australia or elsewhere, and includes any estate, interest or profit, whether present or future, vested or contingent, arising out of or incident to any such real or personal property”. The meaning of “market value” is not defined. It replaces the previous statutory notion of “valuable consideration”, which was construed by the High Court in Re Barton; ex parte Official Trustee (1986) 161 CLR 75 to mean consideration having a real and substantial value, in contrast to consideration which was merely nominal, trivial or colourable. That notion of “real and substantial” value had been earlier used by Woodward and Northrop JJ in Official Trustee in Bankruptcy v Arcadiou (1985-1986) 8 FCR 4 at 12.

  9. In Sutherland v Brien (1999) 149 FLR 321, Austin J made the following observations upon the operation of s 120 of the Bankruptcy Act in its present form, that is to say, pursuant to the 1996 amendments to the Bankruptcy Act, upon a guarantee and “supporting mortgage” given by a company subject to a deed of company arrangement to secure the debts of post deed creditors:

    •“… the Court’s task is twofold: first to identify as precisely as one can, the consideration if any which was in fact given by [the administrators] for the transfers constituted by the deed of guarantee, the mortgage and the subsequent consents to increases; and secondly, if consideration was given, to determine whether the value of the consideration at the time of the transfers… was less than the market value of the property transferred” (at 327);

    •“Section 120(1)(b) requires the Court to identify the consideration actually given by the transferee, not consideration which might have been given but was not in fact given” (at 327);

    •“[The Court] must compare the market value of the property with the ‘value’ – not necessarily… the market value – of the consideration given by [the administrators]” (at 332);

    •Under the new s 120 the Court is required to make an assessment of the objective value of the consideration if it can, on the basis of such evidence as is available.” (at 332).

  10. The effect of the legislative change from the previous notion of real and substantial value to market value, as described by Austin J in Sutherland, was cited with approval by Merkel J in Victorian Producer’s Co-Op Co Ltd v Kenneth [1999] FCA 1488; see in particular [12] and [18] of the reasons for judgment of his Honour, where he adverted in particular to the distinction between the current s 120 and its predecessor, as follows:

    “The current form of s 120 is intended to overcome the decision in Barton v Official Receiver (1986) 161 CLR 75, that a transaction is not void under the section if the person who claims to be the purchaser of property shows that the consideration given is real and substantial even if it is not fully adequate consideration. Unlike its predecessor, under the current form of s 120 the Court is required to assess the value of the consideration given.”

  11. The central issue arising in the present proceedings relates to the assessment of the market value of the indemnities given by Mr Reader and Vokal to the respondents, and the second mortgage over the Eastwood property provided by the Readers as mortgagors to the respondents as mortgagees pursuant to those indemnities, and thus whether the subsequent payment of $118,360.72 made by or on behalf of the Readers, to the respondents, in return for the discharge by the respondents of the second mortgage and the withdrawal of the caveat relating thereto, represented market value in the hands of the respondents for “the transfers of property” in their favour constituted by the indemnity agreements and second mortgage. Those instruments are said by the applicant to fall within par (b) of subs 120(1), and to have produced no value, or insignificant value, to the Readers. Also, recovery is sought by the applicant as trustee in bankruptcy of the Readers of the sum of $118,360.72 which was paid “allegedly” to the respondents pursuant to the deed of company arrangement.

    The resolution of the issues arising

  12. Material to the resolution of the s 120 issues arising is the legislative scheme of Part 5.3A of the Corporations Law, as in force during the time of the administration of Vokal from about 15 May 2000 until the creditors’ resolution to wind-up Vokal made on 16 November 2000. Though the operation of the deed of indemnity of 17 May 2000 purportedly extended to liabilities of the respondents as liquidators as well as administrators (see again clause 2 thereof cited in [11] above), it would appear that the moneys the subject of the principal claim in the proceedings, namely $118,360.72, have been at least predominantly applied by the respondents to expenses outlaid in the course of the respondents’ administration, that is to say, prior to the liquidation of Vokal. The scheme of Part 5.3A of the Corporations Law may be summarised, so far as is presently material, as follows (omitting reference to the operation of ss 436A, 437A, 438A, 439A, 444E and 448B of Part 5.3A which have been already mentioned):

    (i)the respondents became liable personally for debts incurred, in the performance or exercise of their functions and powers as administrators, for services rendered, goods bought and property hired, leased or occupied (s 443A);

    (ii)the respondents became liable to remit to the Commissioner of Taxation taxation deductions made by them from payments made to third parties, subject to rights of indemnity out of Vokal’s property (ss 443BA(1), 443D and 443E); and

    (iii)the respondents became entitled to such remuneration as might be fixed by resolution of Vokal’s creditors, and if no remuneration would be so fixed, then to such remuneration as the court might fix on the administrator’s application, pursuant to s 449E, to be calculated in accordance with the rates last recommended by the Insolvency Practitioners’ Association of Australia.

  13. Payment of the contentious sum of $118,360.72 on or about 1 September 2000, which the applicant has primarily claimed from the respondents in the present proceedings, appears to have been made directly into the bank account of Vokal, by then being operated by the respondents as administrators to the exclusion of Mr and Mrs Reader, from the proceeds of the refinancing of the mortgage securities over the Readers’ Eastwood property (see [19] above). The Readers as mortgagors of the Eastwood property were inherently involved in the re-financing transactions, and in that sense were involved in or participated in the making of that payment. It may be accepted that in those circumstances, there took place a “transfer of property” by virtue of that payment of $118,360.72 within s 120 of the Bankruptcy Act. The applicant contended that the transfer of property thereby involved constituted an “undervalued transaction”, to adopt the statutory expression. I put aside an arguable view of the payment that it did not constitute a transfer of property in such funds to the respondents, since although they effectively controlled the bank account of Vokal at that time, they did so as agents for Vokal pursuant to the deed of company arrangement.

  14. The payment of $118,360,72 took place in the context of the deed of appointment and indemnity of 15 May 2000, the deed of indemnity of 17 May 2000 and the second mortgage also of 17 May 2000, each made in favour of the respondents in the context and to the effect described in [8-13] above. Those instruments were executed, in the case of the indemnities, by Mr Reader and Vokal, and in the case of the second mortgage, by Mr and Mrs Reader, in return for the respondents agreeing to undertake the office of administrators of Vokal, initially pursuant to s 436A(1) of the Corporations Law, and thereafter pursuant to a foreshadowed Part 5.3A deed of company arrangement, if Vokal’s creditors should resolve to continue the Part 5.3A administration under the auspices of a deed of company arrangement. It was necessarily envisaged that the ultimate outcome of the administration might be the winding-up of Vokal, if the subsequent administration pursuant to a deed of company arrangement, following upon the initial Part 5.3A administration, was not sufficiently effective to financially rescue Vokal. It may be reasonably inferred that as at 15-17 May 2000, the respondents would have had minimal insight into the financial affairs of Vokal, yet would be exposing themselves to personal liability, though only in return for the protection of the indemnity deeds and second mortgage in their favour. Mr Duncan’s evidence, which I would accept, was to the effect that he and Mr Schmierer would not have undertaken the office of administrators, in the absence of that security. Though Mrs Reader was not privy to the indemnity deeds and thus was not an indemnifier, her financial interests also depended upon a successful administration of Vokal, as will be evident from these reasons for judgment.

  15. In my view it was therefore appropriate, and to be reasonably expected, that the respondents sought and obtained the indemnities and second mortgage security in question, as a condition of the respondents agreeing to undertake control for the time being of Vokal’s business, property and affairs as administrators, and to pursue the conduct and management of that business and those administrative affairs as administrators, and in that context to undertake the functions of investigation and of forming opinions in relation thereto. As I have earlier inferred, it would have been unlikely that any insolvent practitioners would have committed themselves to undertaking any Part 5.3A administration of Vokal, without the protection and the benefit of the security conferred by the instruments now sought to be vitiated by the applicants for their own benefit. So much may be inferred, inter alia, from the text of the recitals to the deed of appointment and indemnity of 15 May 2000, and the deed of indemnity of 17 May 2000, earlier extracted in [11] above.

  16. Clearly enough, and putting aside the issue as to “market value”, the initial question arises as to whether at least valuable consideration was furnished by the respondents for the “transfers of property” within s 120 of the Bankruptcy Act. Those “transfers of property” were constituted by the indemnity deeds, or at least the later and more comprehensive deed of indemnity of 17 May 2000, and the second mortgage provided over the Eastwood property. The consequence was that the respondents became entitled, as a condition of withdrawing their caveat over the title to the Eastwood property, to receive that part of the proceeds of the refinancing thereof, namely $118,360.72. That sum represented moneys which the respondents were entitled to receive for remuneration and expenses as administrators accrued to date, and other moneys of the kind and specification referred to in the deed of company arrangement (see [15] hereof) material to their administration and its accomplishment. If the Readers had sold the Eastwood property instead of refinancing the same, similar financial consequences would doubtless have followed as a condition of the respondents agreeing to discharge the second mortgage in their favour. I may assume, in relation to the subsequent disbursement of the sum of $118,360.72 by the respondents that their professional fees were appropriately assessed, and their disbursements properly made, and that the administrative decisions and courses of action undertaken by the respondents in the course of their administration of Vokal were appropriate, no issue to the contrary having been raised in the proceedings by the applicant. What the applicant primarily claims is in effect that there was no entitlement of the respondents in law to receive that sum of $118,360.72. The respondents seemed to submit that the kind of issues which I have outlined above did not arise, because the sum of $118,360.72 was in fact paid to Vokal. However although that was probably literally true, I have doubt as to the substantive merit of that proposition.

  17. It is first appropriate for me to consider whether consideration was provided. I would first refer to the principle of consideration shortly enunciated in Contract Law in Australia (Carter and Harland) (3rd ed) at [309], as follows:

    “Sir Frederick Pollock put forward the following definition: ‘An act or forbearance of the one party or the promise thereof is the price for which the promise is bought’. Its elegance and approval by the House of Lords in Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd [1915] AC 847 at 855, assured this definition of a very prominent place in the modern law of contract.”

    The relevant promises of the respondents involved were implicitly to undertake the duties of their respective appointments as administrators under Part 5.3A of the Corporations Law.

  18. Another well known description of the meaning of consideration may be found in the judgment of the Full Bench of the High Court in Australian Woollen Mills Pty Ltd v The Commonwealth (1954) 92 CLR 424, where it was held that the expenditure of money, in reliance upon an announcement by the Government that it would pay a subsidy to a manufacturer on wool purchased and used for local manufacture, was not itself sufficient to create a contract to pay the subsidy to a particular manufacturer. At 456-457, the following passage appears:

    “In cases of this class it is necessary, in order that a contract may be established, that it should be made to appear that the statement or announcement which is relied on as a promise was really offered as consideration for the doing of the act, and that the act was really done in consideration of a potential promise inherent in the statement or announcement. Between the statement or announcement, which is put forward as an offer capable of acceptance by the doing of an act, and the act which is put forward as the executed consideration for the alleged promise, there must subsist, so to speak, the relation of a quid pro quo.”

    Whether the respondents furnished nor merely valuable consideration according to law, but “market value” within s 120(7)(b) of the Bankruptcy Act, in return for the promises and conditions in their favour provided by the two deeds of indemnity and the second mortgage, and not merely consideration in the contractual sense, raises a more complex issue in the circumstances of this case, in relation to which there is apparently no authority directly on point. I should add that where I refer in this judgment to the two deeds of indemnity, it may be borne in mind that it is immaterial to the outcome of the proceedings that both deeds of indemnity took relevant effect, so long as the later deed of indemnity of 17 May 2000 did so, it being of course contemporaneous with and thus more closely connected to the second mortgage.

  1. The consideration which Mr Reader and Vokal furnished to the respondents, in return for the respondents accepting appointment as administrators of Vokal, was the promise to remunerate the respondents for their future work and endeavours as administrators, and to pay their costs and disbursements, being work and endeavours contemplated and regulated by Part 5.3A of the Corporations Law, and to indemnify the respondents in their capacity as administrators from the adverse consequences of their personal exposure to the incidents of performance of those duties and commitments, and in particular exposure to the claims of creditors arising after the commencement of their administration. So much is evident, both explicitly and implicitly, from the respective provisions of, including the preambles to, the deed of appointment and indemnity of 15 May 2000 and of the deed of indemnity of 17 May 2000, which I have respectively summarised and partly extracted in [10] and [11] above. Moreover, as joint owner of the Eastwood property, and as equal shareholder of Vokal, and also as a former director of Vokal, whose conduct in office as a director might equally be anticipated to have fallen for adverse scrutiny along with that of her husband, Mrs Reader was implicitly advantaged by the second respondents’ acceptance of office as administrators, and the prospect thereby that liquidation might be avoided. In that latter regard, the existence of valuable consideration extrinsic to the indemnity deeds may be additionally taken into account, in circumstances for instance where it has not been wholly stated(see Pao On v Lau Yiu Long [1980] AC 614 at 631; Official Trustee in Bankruptcy v Arcadiou & Anor (1985) 8 FCR 4 at 6). I will later refer to certain personal exposures of Mrs Reader as well as Mr Reader to creditors of Vokal.

  2. The security for the performance by Mr Reader and Vokal of the respective deeds of indemnity, or at least that of 17 May 2000, was the grant of the second mortgage of 17 May 2000 in favour of the respondents over the Eastwood property by Mr and Mrs Reader as owners, which was explicitly expressed to secure to the respondents the payment and satisfaction of the liabilities and obligations the subject of the 17 May 2000 deed of indemnity, and for what it may matter, conceivably or implicitly those the subject of the 15 May 2000 deed of appointment and indemnity as well. It has not been contended that the scope of the 17 May 2000 deed of indemnity is any narrower or more limited than that of the 15 May 2000 appointment and indemnity, and if anything, the converse is the case. By joining with Mr Reader in the grant of the second mortgage over their Eastwood property, Mrs Reader implicitly confirmed for her part the entitlements of the respondents arising pursuant to at least the 17 May 2000 deed of indemnity.

  3. It may be assumed, for the purposes of this litigation, that performance duly occurred of the professional work for which the respondents have been remunerated to the extent of that part of $118,360.72 which the respondents subsequently received, and that the disbursements outlaid and recouped were properly incurred by the respondents in the context of their performance of that professional work. There has been no assertion in the proceedings of charges made by the respondents for work not having been performed or properly performed, or charges made in excess of the Insolvency Practitioners’ Association rates, or of reimbursement of the respondents for out-of-pocket expenses not properly incurred in the first place by the respondents. As to the provision of the second mortgage security over the Eastwood property, there has also been no assertion that the same did not purport to advantage the respondents to any monetary extent in excess of what would have been their remuneration entitlements professionally as administrators, and their entitlements to reimbursement for out-of-pocket expenses incurred, and thus in excess of their statutory entitlements to indemnity in relation to such remuneration and out-of-pocket expenses pursuant to s 443D of the Corporations Law.

  4. In my opinion therefore, it cannot rightly be contended that the respondents have not provided “market value” within s 120(1)(b) of the Bankruptcy Act, as distinct from merely valuable consideration in the contractual sense, by virtue of their assumption of the duties of administrators in relation to Vokal pursuant to the indemnity deeds. Nor can it rightly be contended that the circumstance that the respondents were personally indemnified against third party claims pursuant to the indemnity deeds was unreasonable, given their exposure otherwise to personal liability, pursuant at least to s 443A of the Corporations Law, inherent in their appointment to office as administrators. The test as to the provision of consideration equal to market value should be determined as at the date of the “transfer of property”, upon the true construction of s 120, and that date was of course 17 May 2000 in relation to the second indemnity (and the accompanying second mortgage), and 15 May 2000 in relation to the preceding indemnity. As I have earlier inferred, the description of the transactions comprising the two deeds of indemnity and the second mortgage each fulfil the s 120 expression “transfer of property”. To adopt the description of Austin J in Sutherland at 325 (after referring to the definition of “property” in s 5 of the Bankruptcy Act), the execution of the indemnities and mortgage involved in the subject insolvency context constituted the respondents as the owners of a bundle of choses in action and proprietary interests that did not previously exist (s 120(7)(b)).

  5. If corporations subjected to insolvency or likely insolvency, and their corporators, seek to invoke the administration provisions of Part 5.3A of the Corporations Law, such as here occurred at the instance of Mr Reader and Vokal, and implicitly albeit indirectly in my opinion at the instance of Mrs Reader as well, it should therefore follow in principle that the administrators so appointed are not vulnerable to that appointment being subsequently set aside pursuant to s 120 of the Act, upon the basis of continuing loss or denial of entitlement to remuneration for work already undertaken, and to reimbursement for out-of-pocket expenses already outlaid, and upon the further basis of personal exposure to third party claims for the recovery of such remuneration and out-of-pocket expenses already outlaid. The exception to those consequences would occur in circumstances where it can be demonstrated that any such payments involved the giving of “less value than market value”, for instance, by overcharging, or wrongful charging of fees and wrongful reimbursement of purported out-of-pocket expenses per se. It follows that in circumstances such as the present, where administrators become entitled to receive no more than professional fees according to Insolvency Practitioners’ Association rates, and no more than reimbursement of out-of-pocket expenses properly incurred, and are provided with security against their personal exposure as administrators to creditors of the company, there would need to be present the kind of most unusual circumstances, such as those found by the Supreme Court of New South Wales to be present in Sutherland, in order to attract an adverse application to an administrator (or liquidator) of s 120 of the Bankruptcy Act. In Sutherland, the unusual circumstances there involved were described by Austin J in the following terms (at 332):

    “ Only someone who shared Mr Roberts’ enormous optimism, quite unfounded as it happened, could even begin to contemplate such a transaction. Mr and Mrs Roberts gave a great deal to secure very little. This is the kind of ‘undervalued transaction’ from which the Bankruptcy Act seeks to protect the bankrupt’s creditors.”

    No similar conclusion can be drawn in relation to the circumstances in this case, for reasons already explained.

  6. I infer that both Mr and Mrs Reader had much to lose personally from Vokal’s potential insolvency, at least as at 15-17 May 2000, and conversely much to gain from the respondents’ achievement of a successful administration of Vokal. For instance, both Mr and Mrs Reader were guarantors to equipment financiers in respect of four hire-purchase agreements and one leasing agreement, each undertaken by Vokal as hirer or lessee in relation to heavy vehicles, two of which agreements were entered into as late as 10 January 2000 and 13 May 2000. By the appointment of the respondents as administrators, Mr and Mrs Reader were afforded the prospect during the period from 15 May 2000 to about 16 November 2000, not just of substantial reduction in, and possible extinguishment of, their personal exposures under those guarantees to the equipment financiers involved, but also of a return to what was presumably a financially viable Vokal undertaking at a much earlier point in time.

  7. In relation to the equitable second mortgage granted by Mr and Mrs Reader to Messrs Schmierer and Duncan, (summarised in [12] above), the printed annexure “A” attachment thereto specified various species of consideration for that transaction. The applicants contended that such species of consideration were “unconnected to any transaction reality, were illusory, bore no relationship to the activities of the respondents as administrators, and could not objectively be said to involve anything more than nominal value” to the now bankrupt Readers. So much may well be true, save as to the critical category “entering into a Deed of Indemnity with the Mortgagor and the Debtor”, for reasons implicit in the findings which I have already made. In any event, as I have earlier pointed out, the extrinsic evidence demonstrates the existence of valuable consideration moving from the respondents being consideration equal to market value, as that statutory concept has been identified as fulfilled in the circumstances of the case.

  8. It is not necessary to resolve the question whether the consideration provided by the administrators in respect of the indemnities and the mortgage actually “came home” to Mr and/or Mrs Reader in the traditional sense of the use of that expression. That is because it is not a requirement of the law of consideration that the valuable consideration bargained for must “reach” the promisor, so long as the consideration moves from the promisee (Arcadiou at 12). I would observe nevertheless that real and significant benefits in fact may be inferred to have moved to Mr and Mrs Reader as a result of the administrators being appointed to Vokal, in consideration, inter alia, of the provision of the indemnities and grant of the equitable second mortgage of real property, being consideration equal to “market value” for reasons already explained.

  9. I may further add for completeness that in the context of s 120 of the Bankruptcy Act, the expression “market value” was explained in par 84.13 of the Explanatory Memorandum as follows:

    “The expression ‘market value’ is intended to refer to the value of the property concerned if it were disposed of to an unrelated purchaser bidding in a market on an ordinary commercial basis for property of the kind disposed of, without any sort of discount or incentive for purchase being offered… of course, there may be differing opinions as to the precise market value of some property, for example, house properties where valuers or real estate agents may give kerbside valuations which spread over a range of monetary values. However, if the property was transferred for an amount less than the lowest amount in the range, the transfer would be a transfer at undervalue for the purposes of the section.”

    It is not essential however that in all cases or circumstances, “market value” must be translated or capable of translation into an ascertainable or calculable monetary equivalence, and the present circumstances serve to illustrate that observation.

  10. I should yet further add that the circumstances involved in this matter were quite unlike those involved in Sutherland. In that case, the directors of a company subject to a company administration deed entered into a deed of guarantee to support the company’s subsequent trading indebtedness. The obligations under the guarantee were secured by a mortgage of real property in favour of the administrators. Both the mortgage and guarantee were executed six months after the deed of company arrangement had been made. The amount of the guarantee and mortgage had been initially stated to be $180,000, but this amount was subsequently increased to $250,000. The creditors, for various reasons, elected to terminate the deed and place the company in liquidation. Thereafter, the mortgagee’s powers of sale on default conferred by the mortgage crystallised and were exercised. Direct evidence was placed before the court concerning the market value of the property transferred. Austin J summarised his finding at 331 as follows:

    “In my opinion, the market value of the property transferred by the deed of guarantee and the mortgage was initially approximately $180,000 and became approximately $250,000. This is because the guarantors’ obligations were secured over property, which on the evidence, had a total realisable value, after discharging a prior ranking security, in excess of the maximum amount secured, which was initially $180,000 and was increased to $250,000…”

    I have earlier referred to the critical observation further made by his Honour at 332 extracted in [39] above.

  11. Although unnecessary to the resolution of these proceedings, I would wish to add two further observations. Firstly, there is an atmosphere of commercial unreality which transcends the applicant’s case. Although an administrator is normally entitled to an indemnity out of the administered company’s assets (see s 443D of the Corporations Law), the fact that an administrator has been appointed to a company provides some degree of implicit indication to the effect that the company is conceivably insolvent already, or is likely to become insolvent at some future time (see s 436A of the Corporations Law). Messrs Schmierer and Duncan were required at least at the outset of their appointment as administrators to carry on the business and affairs of Vokal. Under s 443A of the Corporations Law, the respondents became personally liable for the debts incurred “in the performance or exercise, or purported performance or exercise, of any of [their] functions and powers as administrators for (a) services rendered, or (b) goods bought; or (c) property hired, leased, used or occupied”.

  12. In the course of the present proceedings, Mr Duncan testified in relation to the nature of his liabilities as an administrator, as set out below, the theme of which I have already foreshadowed in [13] above:

    “HIS HONOUR:       Mr Duncan, leaving aside your personal exposure to the Commissioner arising by virtue of the arrangement in force did your partners incur any other debt or obligation personally besides your fees… Did you incur any obligation personally and if so what obligation and in favour of which creditors?

    [MR DUNCAN]        As voluntary administrator, your Honour, we incur personal obligations to every creditor, that is the employees. If I employ staff I’m required to pay them their nominal entitlements on a just basis. With Vokal which is a freight company we had a fuel account because I was liable to the fuel supplier, any maintenance on the trucks to mechanics, tyres, those types of things. There was premises. There was a lot of leasing agreements for the trucking companies to various financiers. Whilst I used their goods I am personally liable for paying those amounts, you know, right down the line to the stationary order, the milk supply, who supplies the coffee, every obligation.

    HIS HONOUR:          You were maintaining the payroll were you and actually deducting the tax instalments and remitting them to the Commissioner?

    [MR DUNCAN]:      I paid the net pay to the employees, I pay the group tax to the Commissioner, I have a personal liability for that. Superannuation, you know, union dues… I have indemnity against the company’s assets but if there’s not sufficient company assets… well then I have to pay it on my own account because I am personally liable.”

  13. As there may well occur a shortfall of assets below liabilities of a company subject to administration, it is plainly appropriate in principle for administrators to be reasonably protected from the outset of their appointment in relation to accrued and potential liabilities by the provision of security in their favour, notwithstanding that the need for ultimate recourse to that security on the part of the administrators cannot be foretold. To set aside transactions involving the provision of security in circumstances which reasonably protect administrators from personal exposure to such liabilities, at least without default on their part, would tend to frustrate the objectives of Part 5.3A of the Corporations Law, and its present equivalent in the Corporations Act. It is no exaggeration to point out that the statutory scheme of administration might otherwise become unworkable, and creditors and members of corporations might otherwise be denied the advantages and benefits which administration may prospectively offer, namely a more favourable financial return than what would otherwise result from an immediate winding up of the company (see in that regard s 435A of the Corporations Law).

    The applicant’s alternative case

  14. An alternative case pleaded by the applicant is in the following terms:

    “18.Alternatively, if it be found that the Respondents received the payment, or any part thereof, as agents of Vokal, the payment, or such part thereof, constituted a transfer to Vokal for purposes of s 120 of the Bankruptcy Act 1966, as amended.

    19.Vokal gave no consideration for the payment.

    20.Pursuant to s 120(1) of the Bankruptcy Act 1966, the payment, or such part thereof as the Court may determine, to Vokal is void.

    21.On or about 1 February 2001 the applicant gave the Respondents notice of his claim upon such funds under the control of the Respondents as constituted the payment or part thereof (“the Relevant Funds”).

    22.In the premises, the Respondents held the Relevant Funds on trust for the Applicant.

    23.Further or in the alternative, the Relevant Funds were money had and received to the use of the Applicant.

    24.The Respondents have wrongfully failed to account to the applicant for the Relevant Funds and have dealt with the Relevant Funds.

    25.The Applicant claims the relief specified in the application.”

  15. The causes of action of the alternative case are misconceived. The payment made into Vokal’s bank account was mutually intended by the Readers and the respondents as administrators of Vokal to be held and applied for the purposes of the deed of company arrangement. Otherwise the respondents would not have withdrawn the caveat which they had earlier placed on the title to the Eastwood property at or about the time of their appointment, and they would have continued to enjoy the protection in their favour as equitable mortgagees pursuant to their exposures as administrators contemplated by the indemnity deeds.

  16. It was plainly the mutual intention of the Readers and the respondents as administrators of Vokal that the funds in question would be applied for the purposes of the administration of Vokal, and in that context for the purposes of Vokal’s administration pursuant to Part 5.3A of the Corporations Law. It follows that no equity can be imposed upon the respondents as administrators of Vokal in favour of the Readers, or upon Vokal itself (even if it had been joined as a respondent), within the scope for instance of the doctrines enunciated in Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567 and Re Vandervell’s Trusts (No 2) [1974] CR 269. It cannot sensibly be said that in the circumstances in which the funds in question were paid to Vokal, the same reflected any beneficial entitlement of the Readers continuing in respect thereof, except possibly as to any surplus that might have emerged as a consequence of an ultimately favourable completion of the respondents’ administration (cf Re Australian Home Finance Pty Ltd [1956] VLR 1; Re Staff Benefits Pty Ltd [1979] 1 NSWLR 207; Carreras Rothmans Ltd v Freeman Matthews Treasure Ltd [1985] Ch 207). It may well be that Moore J had in mind considerations of those kinds when he declined the applicant’s application to join Vokal as an additional respondent to the proceedings (see [4] above).

  1. The application must be dismissed with costs.

I certify that the preceding fifty (50) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Conti.

Associate:

Dated:             30 April 2003

Counsel for the Applicant: R Harper
Solicitor for the Applicant: Gray & Perkins
Counsel for the Respondent: B Coles QC and P Newton
Solicitor for the Respondent: Kemp Strang
Date of Hearing: 11 March 2003
Date of Judgment: 30 April 2003
SCHEDULE 1
VOKAL PTY LTD
ACN 074 315 389
Date Payee Description Amount Running Balance
05-09-00 Deed Contribution Received 118,360.72 118,360.72
Less:
05-09-00 Knights Insolvency Admin Administrators Disbursements 2,693.37 115,667.35
05-09-00 Knights Insolvency Admin Remuneration of Administrator 7,449.44 108,217.91
05-09-00 Knights Insolvency Admin Administrators Disbursements 39.20 108,178.71
05-09-00 Knights Insolvency Admin Deed Admin Remuneration 1,425.54 106,753.17
05-09-00 Knights Insolvency Admin Deed Admin Disbursements 2,430.95 104,322.22
05-09-00 Knights Insolvency Admin Deed Admin Remuneration 550.00 103,772.22
05-09-00 Knights Insolvency Admin Deed Admin Disbursements 47.41 103,724.81
05-09-00 Knights Insolvency Admin Deed Admin Remuneration 8,881.91 94,842.90
05-09-00 Knights Insolvency Admin Deed Admin Disbursements 338.80 94,504.10
08-09-00 Duffield & Duffield Solicitors Costs 1,199.60 93,304.50
08-09-00 WT Corkill Assoc Searches 23.00 93,281.50
08-09-00 Kemp Strang Solicitors Costs 3,000.00 90,281.50
08-09-00 Dominion Valuations Valuation Fees 1,300.00 88,981.50
18-09-00 Telstra Telephone & Fax 4,891.94 84,089.56
18-09-00 Telstra Telephone & Fax 320.19 83,769.37
02-10-00 BNZ Bank Charges 7.10 83,762.27
02-10-00 BNZ Bank Charges 13.10 83,749.17
17-10-00 ATO Group Tax for VA Period 12,232.32 71,516.85
01-11-00 BNZ Bank Charges 5.60 71,511.25
01-11-00 BNZ Bank Charges 7.30 71,503.95
15-11-00 Integrated Trailer Technology Hire & Leasing Costs 5,000.00 66,503.95
16-11-00 Knights Insolvency Admin Deed Admin Remuneration 29,480.00 37,023.95
16-11-00 Knights Insolvency Admin Deed Admin Remuneration 520.00 36,503.95
16-11-00 Knights Insolvency Admin Deed Admin Disbursements 209.50 36,294.45
27-11-00 BNZ Bank Charges 4.16 36,290.29
29-11-00 BNZ Bank Charges 0.86 36,289.43
01-12-00 BNZ Bank Charges 5.90 36,283.53
01-12-00 BNZ Bank Charges 11.30 36,272.23
01-12-00 BNZ Bank Charges 1.20 36,271.03
08-12-00 BNZ Bank Charges 1.37 36,269.66
11-12-00 Knights Insolvency Admin Remuneration of Liquidators 4,125.00 32,144.66
19-12-00 BNZ Bank Charges 0.32 32,144.34
22-12-00 Mirror Australian Telegraph Advertising 855.36 31,288.98
27-12-00 BNZ Bank Charges 0.63 31,288.35
02-01-01 BNZ Bank Charges 7.70 31,280.65
02-01-01 BNZ Bank Charges 5.00 31,275.65
03-01-01 Kemp Strang Solicitors Costs 444.04 30,831.61
05-01-01 BNZ Bank Charges 11.61 30,820.00
19-01-01 Knights Insolvency Admin Liquidators Disbursements 663.30 30,156.70
19-01-01 Knights Insolvency Admin Remuneration of Liquidators 10,441.10 19,715.60
19-01-01 Knights Insolvency Admin Liquidators Disbursements 7.37 19,708.23
19-01-01 Knights Insolvency Admin Remuneration of Liquidators 877.16 18,831.07
01-02-01 BNZ Bank Charges 5.00 18,826.07
01-02-01 BNZ Bank Charges 6.20 18,819.87
01-02-01 BNZ Bank Charges 9.80 18,810.07
07-02-01 Knights Insolvency Admin Remuneration of Liquidators 11,318.26 7,491.81
07-02-01 Knights Insolvency Admin Liquidators Disbursements 18.59 7,473.22
07-02-01 Knights Insolvency Admin Remuneration of Liquidators 698.01 6,775.21
07-02-01 Knights Insolvency Admin Liquidators Disbursements 1.32 6,773.89
07-02-01 Knights Insolvency Admin Deed Admin Remuneration 342.34 6,431.55
08-02-01 BNZ Bank Charges 6.40 6,425.15
09-02-01 Toll Australia Motor Vehicle Expenses 580.00 5,845.15
20-02-01 BNZ Bank Charges 0.36 5,844.79
26-02-01 BNZ Bank Charges 0.06 5,844.73
01-03-01 BNZ Bank Charges 6.20 5,838.53
01-03-01 BNZ Bank Charges 5.80 5,832.73
05-03-01 BNZ Bank Charges 2.09 5,830.64
13-03-01 Australia Post Postal Redirection 66.00 5,764.64
14-03-01 Australia Post Postal Redirection 33.00 5,731.64
02-04-01 BNZ Bank Charges 6.50 5,725.14
01-05-01 BNZ Bank Charges 5.00 5,720.14
01-06-01 BNZ Bank Charges 5.00 5,715.14
04-06-01 BNZ Bank Charges 0.25 5,714.89
07-06-01 BNZ Bank Charges 0.17 5,714.72
02-07-01 BNZ Bank Charges 6.20 5,708.52
01-08-01 BNZ Bank Charges 5.00 5,703.52
20-08-01 Knights Insolvency Admin Liquidators Disbursements 184.50 5,519.02
20-08-01 Knights Insolvency Admin Deed Admin Disbursements 1,159.73 4,359.29
03-09-01 BNZ Bank Charges 5.00 4,354.29
03-09-01 BNZ Bank Charges 6.90 4,347.39
21-09-01 Knights Insolvency Admin Deed Admin Remuneration 990.00 3,357.39
21-09-01 Knights Insolvency Admin Liquidators Disbursements 11.61 3,345.78
21-09-01 Knights Insolvency Admin Deed Admin Disbursements 10.89 3,334.89
01-10-01 BNZ Bank Charges 5.00 3,329.89
15-10-01 Knights Insolvency Admin Remuneration of Liquidators 1,100.00 2,229.89
18-10-01 Knights Insolvency Admin Liquidators Disbursements 258.87 1,971.02
18-10-01 Knights Insolvency Admin Remuneration of Liquidators 7,150.00 -5,178.98
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Most Recent Citation
Macks v Morris [2003] FMCA 208
Cases Citing This Decision

2

Schmierer v SMITH (No.2) [2004] FMCA 856
Macks v Morris [2003] FMCA 208
Cases Cited

6

Statutory Material Cited

0

J & H Just (Holdings) Pty Ltd v Bank of New South Wales [1971] HCA 57
Barton v Official Receiver [1986] HCA 44
Denby (as T’ee in Bankruptcy of the Estate of S S Wing Tam) [2002] QSC 117