Tolcher v National Australia Bank

[2004] NSWSC 6

Reported Decision: 48 ACSR 741
(2004) 22 ACLC 397

Supreme Court

CITATION:	Tolcher v National Australia Bank [2004] NSWSC 6
HEARING DATE(S):	10/10/03 Written submissions: 20/10/03, 20/11/03, 28/11/03, 05/12/03, 10/12/03
JUDGMENT DATE:	3 February 2004
JURISDICTION:	Equity Division Corporations List
JUDGMENT OF:	Barrett J
DECISION:	Order for priority dividend in respect of debts of three creditors
CATCHWORDS:	CORPORATIONS - winding up - creditors providing financial support to liquidator to recover or protect property - whether support given during voluntary administration preceding winding up is within s.564 - whether liquidator's claims to recover unfair preference and on the basis of insolvent trading involve "property" for the purposes of s.564 - whether assistance given to receiver concurrently in office in connection with public examinations conducted by receiver in cooperation with liquidator qualifies under s.564 - determining appropriate relativities among creditors providing support
LEGISLATION CITED:	Corporations Act 2001 (Cth), s.564
CASES CITED:	Deputy Commissioner of Taxation v Currockbilly Pty Ltd (2002) 172 FLR 99 Re Home Corp Projects Pty Ltd (2002) 20 ACLC 1751 Household Financial Services Pty Ltd v Chase Medical Centre Pty Ltd (1995) 18 ACSR 294 Re Kyra Nominees Pty Ltd (1987) ACLR 767 N A Kratzmann Pty Ltd v Tucker (No 2) (1968) 123 CLR 295 Re Parkston Ltd (2000) 35 ACSR 114 Re Pinnacle Constructions Pty Ltd [2001] NSWSC 1210 Power Demolitions Pty Ltd v Tosich Constructions Pty Ltd (1998) 26 ACSR 22 State Bank of New South Wales v Brown (2001) 38 ACSR 715 Tolcher v National Australia Bank Limited (2003) 44 ACSR 727
PARTIES :	Raymond George Tolcher - Plaintiff National Australia Bank Limited - First Defendant Capital Finance Australia Finance Limited - Second Defendant Fuji-Xerox Australia Pty Limited - Third Defendant
FILE NUMBER(S):	SC 3259/03
COUNSEL:	Mr R R I Harper - Plaintiff Mr J Stoljar - First Defendant Mr M A Ashhurst - Second Defendant Mr J T Johnson - Third Defendant
SOLICITORS:	Piper Alderman - Plaintiff Mallesons Stephen Jaques - First Defendant Kemp Strang - Second Defendant Bartier Perry - Third Defendant

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
CORPORATIONS LIST

BARRETT J

TUESDAY, 3 FEBRUARY 2004

3259/03 – RAYMOND GEORGE TOLCHER v NATIONAL AUSTRALIA BANK LIMITED & ORS

JUDGMENT

1 The plaintiff, Mr Tolcher, is the liquidator of Lloyd Scott Enterprises (“LSE”). The winding up is a creditors voluntary winding up which arose as a sequel to voluntary administration under Part 5.3A of the Corporations Act 2001 (Cth). The voluntary administration began on 25 June 2001. Mr Tolcher was the administrator. He became the liquidator on 20 July 2001.

2 By his originating process filed on 12 June 2003, Mr Tolcher seeks orders under s.564 of the Act giving certain creditors an advantage over the remaining creditors in the distribution of LSE’s property. Section 564 appears in Part 5.6 of the Act headed “Winding up generally”. It therefore applies to this winding up. The three creditors for which the plaintiff as liquidator seeks preferred treatment are Fuji-Xerox Finance Australia Limited (“Fuji”), National Australia Bank Limited (“the National”) and Suncorp-Metway Limited (“Suncorp”). The order sought is an order that a total sum of $1 million be distributed as an interim dividend so that Fuji receives $470,000, the National receives $470,000 and Suncorp receives $60,000.

3 The National and Fuji are parties to the proceedings, being the first and third defendants. The second defendant is Capital Finance Australia Limited, another creditor of LSE. The defendants have differing attitudes to the plaintiff’s claims. The National (first defendant) supports those claims in the form in which they are advanced by the plaintiff. Capital (second defendant) supports the proposal that Suncorp be preferred as to $60,000 and is also content to see Fuji preferred to some extent, but not to the extent of $470,000 as proposed. Capital opposes any preference to the National. Fuji (third defendant) supports the proposal as it affects itself and Suncorp but is opposed to the grant of any preferred position to the National.

4 Suncorp is not a party to the proceedings but submissions prepared by its solicitors have been placed before the court by Mr Tolcher. I shall refer to them in due course.

5 At all material times, the National was a secured creditor of LSE, holding a fixed and floating charge dated 6 November 1998. the National appointed a receiver in 2001. That receiver caused certain persons to be examined under Part 5.9 of the Corporations Act in relation to the affairs of LSE. Mr Tolcher had his solicitor attend the examinations. Following the examinations and a subsequent mediation, Mr Tolcher, as liquidator, received $2.5 million upon settlement of an certain claims he had asserted against a company called Key Equipment Finance Australia Pty Ltd (“Key”). There were two such claims: first, a claim under s.588FF of the Corporations Act in respect of an unfair preference allegedly given to Key as a creditor; and, second, an insolvent trading claim asserted against Key under s.588M on the footing that Key was a “shadow director”. Proceedings to resolve the question whether the settlement sum was covered by the National’s charge were determined by Palmer J against the National: see Tolcher v National Australia Bank Ltd (2003) 44 ACSR 727. There was no appeal.

6 Each of Fuji, Suncorp and the National funded Mr Tolcher for the costs and expenses of the mediation. Each provided $8,800 which has been repaid (I formally record here a finding, based on the sworn evidence of Mr Tolcher which I accept, that the National did advance $8,800, that being a point on which submissions were made). Fuji made separate advances to Mr Tolcher, being $103,700 to enable him to continue the business of LSE while he was the Part 5.3A administrator, $35,407.79 in relation to the attendance of his solicitor at the Part 5.9 examinations initiated by the receiver appointed by the National and $21,818.18 in relation to the preparation of a solvency report. These advances have also been repaid. Fuji and Suncorp each contributed $10,000 to Mr Tolcher’s expenses in relation to the proceedings before Palmer J involving the National. Separately, the National funded the receiver appointed by it to the extent of $150,000 so that he might undertake Part 5.9 examinations from which Mr Tolcher was able to obtain information useful to him for the purposes of the winding up.

7 These financial outlays by Fuji, Suncorp and the National represent the basis on which it is contended by Mr Tolcher that the court should, pursuant to s.564, afford to those creditors an advantage over other creditors in the distribution of the property of LSE.

8 The circumstances of this case throw up two preliminary legal issues that must be addressed before it is possible to consider how the s.564 power should be exercised, if at all: first, whether sums outlaid by a creditor to enable a Part 5.3A administrator to carry on the business of the company in administration are of such a nature as to be within the contemplation of s.564; and, second, whether a liquidator’s claims under s.588FF and s.588M are or involve “property” within the contemplation of s.564.

9 In approaching these two issues, it is necessary to bear in mind the precise terms of the section:

“ Power of Court to make orders in favour of certain
creditors

Where in any winding up:
(a) property has been recovered under an indemnity for costs of litigation given by certain creditors, or has been protected or preserved by the payment of money or the giving of indemnity by creditors; or
(b) expenses in relation to which a creditor has indemnified a liquidator have been recovered;
the Court may make such orders, as it deems just with respect to the distribution of that property and the amount of those expenses so recovered with a view to giving those creditors an advantage over others in consideration of the risk assumed by them.”

10 The opening words are, “Where in any winding up”. The section goes on, in paragraph (a), to speak of a situation where “property has been recovered … or has been protected or preserved” in certain ways. Paragraph (b) refers to certain circumstances in which “a creditor has indemnified a liquidator”. Paragraph (a) is the provision upon which reliance is placed here. It allows the court to make an order only if a particular situation of recovery, protection or preservation of “property” has arisen “in any winding up”.

11 The first of the preliminary issues arises in relation to the sum of $103,700 outlaid by Fuji to enable Mr Tolcher, while administrator under Part 5.3A, to carry on the business of LSE. It may be accepted that that outlay by Fuji contributed, in a sense, to the protection or preservation of the assets of LSE, in that it saved them from the possibility of the immediate sale that may have occurred had Mr Tolcher not been able to carry on the business. That business was ultimately sold to Fuji itself by the receiver appointed by the National. But did any such protection or preservation of property occur “in” the winding up, given that Fuji’s expenditure and its effects occurred while Mr Tolcher was Part 5.3A administrator and before he became liquidator under the form of creditors voluntary winding up that arose via s.446A on 20 July 2001?

12 The view expressed on behalf of Suncorp in the written submissions to which I have referred is that, because of the timing factors, any relevant protection or preservation of property occurred not “in” the winding up but “in” the preceding Part 5.3A administration. The contrary view, advanced in particular by Fuji, is that, in construing the words “in any winding up”, regard must be had to the provisions of the Corporations Act concerning the point at which a winding up commences or begins. Those provisions are in Division 1A of Part 5.6 (ss.513A to 513D). In a case such as the present, the combined effect of ss.513B and 513C is that “the winding up is taken to have begun or commenced” on the day on which the preceding Part 5.3A administration began.

13 Section 564 itself provides no explicit guidance as to the scope and meaning of “in any winding up” in a case such as the present where there was a preceding Part 5.3A administration. There is, however, one element of s.564 that provides some assistance: s.564(b) deals with the possibility that, “in any winding up”, a creditor may have indemnified “a liquidator” in relation to expenses. This suggests that the period in contemplation cannot begin until there is “a liquidator”.

14 There is no such reference to “a liquidator” in s.564(a). There are, however, references to certain forms of activity in relation to the company’s property (recovery, protection and preservation) that are activities normally associated with a liquidator as such, rather than an administrator. In the case of a court ordered winding up, the liquidator is required by s.474(1) to take all the property of the company into his or her possession or under his or her control. There is no equivalent provision in relation to voluntary winding up but, as is noted at p.363 of McPherson’s “The Law of Company Liquidation” (4th edition, 1999, by Keay), it is implicit in the structure of the Corporations Act that the duty of collecting assets of the company is to be discharged by the liquidator in the case of voluntary winding up. Such a duty exists as part of the function of assembling a fund from which debts may be paid. Spigelman CJ observed in State Bank of New South Wales v Brown (2001) 38 ACSR 715 that it is in the public interest that all the assets of a company are available for creditors and that there is a public interest dimension in proceedings by a liquidator. Section 546 may be accepted as one of the means by which these public interests are promoted.

15 The duties and functions of an administrator under Part 5.3A differ significantly from those of a liquidator. Such an administrator has control of the company’s business, property and affairs (s.437A(1)(a)) and may carry on the business and manage the property and affairs (s.437A(1)(b)). But an administrator does these things only to facilitate the investigation required by s.438A(a) and the assessment required by s.438A(b) so that creditors, guided by the administrator, may make a decision as to the company’s fate. One such fate may be winding up. Recovery, protection and preservation of the company’s property are not of themselves the direct concern of an administrator even though they may be to some extent incidental to due performance under s.437A.

16 Section 564 is a provision of long standing in companies legislation. It existed in virtually identical form as s.450 of the Companies (New South Wales) Code and s.292(10) of the Companies Act 1961. Section 297(7) of the Companies Act 1936, inspired by s.84(2) of the Bankruptcy Act 1924 (Cth), made analogous provision where assets had been recovered by means of an indemnity for costs of litigation. Each such predecessor provision, like s.564 itself, employed the words “in any winding up”. The provision is thus one that has historically been confined to the regime of collection, realisation and application of assets presided over by a liquidator as such.

17 I consider that the words “in any winding up” in s.564 refer to a situation where a liquidator is in office for the purpose of performing the statutory functions that liquidators perform. While Division 1A of Part 5.6 fixes the point at which a winding up is to be regarded as having begun or commenced, it does so for the purposes of provisions employing “begin”, “commence” and “relevant date”, each of which is given by s.9 a meaning derived from Division 1A of Part 5.6. If every context in which “in” was used in relation to a winding up was regarded as including any antecedent Part 5.3A administration, anomalous results would emerge. Had there been, at the time of the introduction of Part 5.3A in 1993, a legislative intention to extend the established operation of the long standing provision that is now s.564 so as to make it apply, in a subsequent winding up, to assistance given to an administrator in recovering, protecting or preserving property, it is reasonable to think that the intention would have been manifested by some means more explicit than an arguable effect of provisions defining the point of commencement of a winding up following on from such administration.

18 I pass now to the second of the preliminary issues, namely, whether a liquidator’s claims of the kind asserted against Key may be regarded as “property” for the purposes of s.564. A starting point is the s.9 definition of “property”:

“property means any legal or equitable estate or interest (whether present or future and whether vested or contingent) in real or personal property of any description and includes a thing in action.”

This raises the question whether each claim of the kind under discussion is “a thing in action”, since it could not otherwise be regarded as “any legal or equitable estate or interest … in real or personal property …”.

19 I consider first the unfair preference claim. Division 2 of Part 5.7B is headed “Voidable transactions”. Section 588FE refers to certain transactions undertaken by a company as “voidable transactions”. Among these are certain “unfair preferences” within the meaning of s.588FA. Section 588FF empowers the court to make certain orders, on the application of a company’s liquidator, where it is satisfied that a transaction of the company is a “voidable transaction” within s.588FE. Among the orders that may be made is “an order directing a person to pay to the company an amount equal to some or all of the money that the company has paid under the transaction”. The provisions are constructed in such a way that the liquidator must be the plaintiff but that if the liquidator is successful in obtaining an order, the order affects the assets or liabilities of the company – so that if, for example, the order is an order directing that money be paid, it is the company that becomes the designated payee.

20 The other relevant claim was a claim to recover compensation for insolvent trading under s.588M. The nature of any recovery of that kind emerges from s.588M(2):

“The company's liquidator may recover from the director, as a debt due to the company, an amount equal to the amount of the loss or damage.”

21 In each of these cases, it is the liquidator as liquidator who initiates proceedings against another party. If the liquidator is successful in making out his or her case, the result is an order of the court that that other party pay money to the company. Palmer J held in Tolcher v National Australia Bank Ltd (above) that the particular recoveries with which I am presently concerned were “recovered in exercise of rights available only to the liquidator”. As a result, the money received by way of settlement of the claims under s.588FF and s.588M was not property of LSE subject to the charge in favour of the National but, as Palmer J put it, “property which is available for distribution to LSE’s unsecured creditors in the administration of the winding up”, this being a dichotomy which existed under previous legislation as shown by the High Court’s decision in N A Kratzmann Pty Ltd v Tucker (No 2) (1968) 123 CLR 295.

22 Section 564 is concerned with the recovery, protection or preservation of “property” at large. It does not speak of property of the company or of property available for distribution for the purposes of the particular winding up. Given the context, however, I consider it to be concerned with the latter (and wider) class of property. The preoccupation is with assistance to a liquidator in obtaining and securing resources for the benefit of creditors generally, it being recognised that some creditors might, by indemnity or payment, contribute to the enhancement of the fund applicable for the benefit of all creditors. “Property” should, in the context, be understood as referring to all property that the liquidator has, or can obtain, for the purposes of the winding up. On this basis, “property” includes both a right of action maintainable by the liquidator under s.588FF or s.588M and money received or receivable by the company by virtue of an order made under either section at the suit of the liquidator.

23 I pause at this point to note the implications of my conclusions on the two preliminary points with which I have now dealt. Because of the conclusion on the first point, Fuji’s claim to favourable consideration under s.564 must be addressed without reference to the advances of $103,700 made by it to Mr Tolcher to enable him to continue the business of LSE while he was Part 5.3A administrator. Because of the second conclusion, it is appropriate to take into account, as “property” relevant to the operation of s.564 in this case, the full $2.5 million proceeds of the compromise of the s.588FF and 588M claims made by Mr Tolcher as liquidator against Key.

24 I proceed now to consider a separate issue involved in the question whether the National should be granted an advantage under s.564, namely, the extent to which it is appropriate to take into account for s.564 purposes in this case sums the National outlaid in funding the Part 5.9 examinations undertaken by the receiver appointed by it under its security. If the Part 5.9 examinations had been undertaken by the liquidator himself with financial assistance from certain creditors, recovery, protection or preservation of property by means of information obtained in the examinations could properly be made the subject of s.564 orders in favour of the assisting creditors: see Deputy Commissioner of Taxation v Currockbilly Pty Ltd (2002) 172 FLR 99. The difference here is that the assistance was given by a secured creditor to a receiver appointed by that secured creditor. Whatever benefit the liquidator derived was less directly obtained by means of information brought to light by the receiver’s examinations.

25 Implicit in s.564 is a concept of reward to those creditors who are seen to have taken a financial risk with a view to enhancing the fund available for application by the liquidator for the benefit of all creditors. As Spigelman CJ said in State Bank v Brown (above):

“The prospect of reward is, of course, the incentive to give the indemnity which, potentially, will result in benefits to all creditors.”

26 The appointment of a receiver by a secured creditor (or mortgagee) is a means of realising that creditor’s security. The duties of a receiver so appointed are summarised as follows at paragraph 28-225 of Meagher, Gummow and Lehane’s “Equity Doctrines and Remedies” (4th edition, 2002, by Meagher, Heydon and Leeming):

“The relevant duties are a duty owed by the receiver to the mortgagee to collect and realise the assets in order to discharge the security; a duty owed to the mortgagor to hold in trust for the mortgagor any proceeds from the sale of assets after satisfaction of the claims by the mortgagee; and a duty, as donee for the power, to exercise the powers and duties granted in good faith and for proper purpose … Receivers also owe a fiduciary duty to their appointors to keep them informed about the progress of the receivership …” [citations omitted]

Such a receiver will normally be entitled to be indemnified by the appointing creditor and to remuneration out of the moneys received or from the appointor. Such a remuneration regime applied in the present case.

27 A receiver appointed by a mortgagee is not concerned to advance or protect the interests of the unsecured creditors. But, to the extent that such a receiver works to get in property for the benefit of the secured creditor, it may also benefit the general body of unsecured creditors who will derive advantages if the receiver’s recoveries cause to be available, in the aggregate, more than is required to cover the secured debt. The receiver’s primary duty is to serve the interests of the secured creditor alone and to see its debt paid. Thereafter, the receiver simply accounts to the mortgagor for any balance of funds in his or her hands and it is only at that point that the receiver’s efforts may be seen to have worked to the advantage of unsecured creditors.

28 The evidence before me shows clearly enough that the ability of Mr Tolcher, as liquidator, to achieve the outcome he did in relation to the s.588FF and s.588M claims against Key was enhanced by information elicited by the National’s receiver in the course of the Part 5.9 examinations conducted by him and that the receiver was cooperative in otherwise furnishing useful information to Mr Tolcher. It is true that Mr Tolcher obtained information from the Part 5.9 examinations by having his solicitor actually attend and listen while the examinations were in progress which is, of course, a right or ability enjoyed by the community at large, since such an examination is, under s.597(4), to be held in public except to the extent that the court may order that, because of special circumstances, it be held in private. But attendance by his solicitor at the public examinations was not the only benefit that Mr Tolcher, as liquidator, derived from the receiver’s decision to undertake those examinations. The cooperative basis on which the liquidator and the receiver worked was in accordance with arrangements mapped out between them in advance. Those arrangements are summarised in a letter written by the liquidator’s solicitors on 19 October 2001:

“The National Australia Bank will fund the receiver to conduct public examinations of officers of Leasetec Australia Pty Limited (Leasetec) and Capital Finance Australia Pty Limited (Capital) under the Corporations Act (Act), and possibility their solicitors. The receiver has applied to the Australian Securities & Investment Commission for authority to conduct the examinations. It is intended that 3 to 4 days be set aside for the examinations in December or January 2002.
The Bank is not prepared to fund the liquidator to prepare for and attend the examinations but has no objection to the liquidator attending conferences with Counsel briefed to conduct the examinations, providing Counsel with proposed questions and having access to any documents produced by all parties pursuant to orders for production. The Bank will also make the transcripts available to the liquidator. We have also sought that the Bank’s solicitors provide to us documents collected by them to date which includes police statements given by Scott, his solicitors files (at least more than those provided to the liquidator) to date and an internal investigation by the Bank (for which privilege will likely be claimed).
Mr P Wood of Counsel is proposed to be briefed.
The liquidator will need funding for his part in the examinations but, given that the Bank will be carrying out much preparation work and briefing Counsel, his costs and legal expenses will be significantly reduced. We estimate the liquidator’s legal costs to participate in the examinations (conferring with Counsel, reviewing documents produced and attending the examinations) should be no more than $10,000.
The Bank’s decision to fund the receiver to conduct examinations is motivated by its desire to investigate all possible causes of action it may have against the parties involved. We expect some overlap between the facts relating to proposed preference actions and the examinations. In essence the Bank is willing to allow the liquidator “a free ride” with the Bank to some extent. It is also possible at a public examination conducted by the Bank that reference will be made to various officers of the Bank involved in the subject transactions, from whom further enquiries (including public examinations) could be made by the liquidator.
The liquidator can also conduct his own public examinations at any time.
The Bank intends to reassess its position following the examinations and, at that stage, make a decision in relation to funding the preference actions.”

29 The evidence shows that such a cooperative approach was followed as envisaged. The liquidator had no funds with which to conduct Part 5.9 examinations of his own. He obtained useful information and other assistance from the receiver who, in turn, could make investigations, including by Part 5.9 examinations, only because funded by the National. The arrangement under which the receiver gave information and assistance to the liquidator was obviously sanctioned by the National and went substantially beyond merely the creation of an opportunity for the liquidator’s solicitor to hear what transpired at the receiver’s examinations.. The judgment of Palmer J on the question of the status of the recoveries from Key suggests that the National had an expectation that those recoveries would, contrary to his Honour’s ultimate finding, accrue to its benefit as secured creditor. But the National obviously knew that it was the liquidator alone who could institute the recovery action. The National must therefore be taken to have knowingly and actively assisted in the achieving of the outcome in the recovery proceedings which, in the final result (not being the result preferred by the National), yielded proceeds for the benefit of the general body of creditors, not for the National as secured creditor.

30 In the events which happened, it has been shown that the National’s funding of the receiver’s Part 5.9 examinations and the preparations and other activities associated with them played a direct role in enabling the liquidator to recover money by means of the compromise of the s.588FF and 588M claims that the liquidator alone was competent to pursue. The result to which the National thus contributed financially was a result that benefited the general body of creditors, not, as the National expected or hoped, the secured creditor alone. But the disappointed expectation or hope of the National in that respect does not detract from the outcome to which it in fact contributed, being an outcome which was to the benefit of the general body of creditors. While that was not the outcome the National sought, it was the outcome actually achieved. The court is entitled to look at matters with the benefit of hindsight in circumstances such as this: see observations to that effect by Hodgson JA (with whom Handley JA agreed) in State Bank v Brown (above). On that basis, the funds provided by the National to enable the receiver to undertake Part 5.9 examinations and related activities may properly be taken into account for the purposes of s.564.

31 It is now possible to quantify the extent of the financial assistance provided by each of Fuji, Suncorp and the National in connection with the series of allied events (consisting of the Part 5.9 examinations, the mediation and the proceedings to determine the status of the settlement sum) which culminated in the receipt by Mr Tolcher from Key of the sum of $2.5 million for the benefit of the general body of creditors. Leaving aside the sum provided to enable the business to be continued during the Part 5.3A administration, Fuji’s contributions were $8,800 towards the cost of the mediation, $10,000 towards the cost of the proceedings before Palmer J, $35,407.79 in relation to the attendance of the liquidator’s solicitor at the Part 5.9 examinations and $21,818.18 for a solvency report – a total of $76,025.97. I should deal here, by way of aside, with the question raised in submissions whether the cost of the solvency report is properly to be included when determining Fuji’s contribution to the events that culminated in the $2.5 million settlement. I am satisfied that, for reasons advanced in submissions made on Fuji’s behalf, this should be taken into account. A rational decision to make claims under s.588FF or s.588M can only be made in the light of an assessment of the company’s solvency at the relevant time. Unless the liquidator is confident that he or she can prove that the company was insolvent at that time, the claim cannot responsibly be advanced. The solvency report provided the necessary confidence.

32 Suncorp’s outlay was $8,800 in relation to the mediation and $10,000 for the proceedings before Palmer J – a total of $18,800.

33 In the case of the National, the contributions were $8,800 towards the cost of the mediation and the contribution by way of funding of the receiver in connection with the Part 5.9 examinations. I do not consider it appropriate to regard the whole of the $150,000 outlaid by the National in relation to the examinations as having had a relevant connection with the recovery, protection or preservation of property in the winding up by means of the s.588FF and 588M claims. The evidence shows that the examinations occupied four days and that persons associated with Key (the company against which the s.588FF and 588M claims were advanced by the liquidator) were examined for about three days. On that basis, three-quarters of the outlay of $150,000 (that is $112,500) should be regarded as having been hazarded for purposes relevant to s.564. The National’s contribution should therefore be taken to be $121,300 (being $8,800 plus $112,500).

34 With the contribution relativities thus set at $76,025.97 for Fuji, $18,800 for Suncorp and $121,300 for the National, it becomes necessary to decide how the power conferred by s.564 should be exercised, if it is to be exercised at all. In that connection, I first record my conclusion that the respective financial outlays are within the purview of s.564. It is now established that the actual outlay of funds leading to a relevant beneficial effect in relation to “property” with which the section is concerned represents an activity of the kind with which the section is concerned: see Re Kyra Nominees Pty Ltd (1987) 11 ACLR 767, Power Demolitions Pty Ltd v Tosich Constructions Pty Ltd (1998) 26 ACSR 22, Re Parkston Ltd (2000) 35 ACSR 114, Re Pinnacle Constructions Pty Ltd [2001] NSWSC 1210 and Re Home Corp Projects Pty Ltd (2002) 20 ACLC 1751. This, coupled with the conclusion, already expressed, that the claims under s.588FF and s.588M involved “property” of the kind with which the section is concerned, leads to the conclusion that the power conferred on the court by the section is available.

35 The factors that he court is to take into account in deciding whether it is just to give some creditors an advantage over other are not prescribed by the legislation. Some relevant factors were stated by Brownie J in Household Financial Services Pty Ltd v Chase Medical Centre Pty Ltd (1995) 18 ACSR 294 at 296:

“The last words of s 564 provide for, and the authorities accent the need to assess the risk run by the indemnifying creditors, for whose benefit an application is made, but the authorities show that it is also appropriate to look to the sum recovered (or the value of the property recovered), the failure of other creditors to provide the indemnity, the proportions between the debts of the indemnifying creditors and the other debts, the public interest in encouraging creditors to provide indemnities so as to enable assets to be recovered, and, generally, the totality of the circumstances; and there has been a tendency in recent times to adopt a more liberal approach, in favour of indemnifying creditors. See Re Bavistock (1946) 14 ABC 30; Re Ivermee; Ex parte Official Receiver (1974) 36 FLR 187; Re Passmore; Ex parte Official Receiver (in liq) (1984) 56 ALR 181 at 186; Re Kyra Nominees Pty Ltd (in liq) (1987) 11 ACLR 767; 5 ACLC 811 at 819; Re Ken Godfrey Pty Ltd (in liq) (1994) 14 ACSR 610; 12 ACLC 1071.”

36 This statement cannot be regarded as exhaustive and, in the present case, it is, I think, very important to recognise at once that two points are agreed (or, at least, not contested) by all of Fuji, Suncorp, the National, Capital and Mr Tolcher as liquidator: first, that financial contributions by creditors to the sequence of events that led to the $2.5 million settlement for the benefit of creditors generally warrant recognition in the form of the grant of advantage under s.564; and, second, that Suncorp deserves a priority dividend of $60,000 in respect of its debt. It is, to my mind, particularly significant that Capital, a creditor for whose benefit no order under s.564 is sought, does not seek to contest these two points, even though it argues that the advantage to be given to Fuji should be less than the liquidator proposes and that, for reasons I have considered but not accepted, the National should receive no priority. The attitude of Capital as to the two points I have mentioned may, it seems to me, be regarded as a proxy for the views of the general body of creditors, other than those to which the liquidator’s application relates. Capital does not have any interest, as regards those matters, distinct from the interests of any other non-participating creditor and its acceptance, after what has obviously been detailed consideration and legal advice, of the two basic matters mentioned is something to which the court should pay close attention. It is also significant, I think, that the liquidator sought financial assistance from all creditors, including Capital, and that, despite its decision (in common with all creditors except Fuji, Suncorp and the National) not to provide funding, Capital has the attitude of non-opposition it has expressed on the general issue of recognition of financial contributions actually made and on the specific matter of the amount of the recognition to be afforded to Suncorp.

37 All of Fuji, Suncorp, the National, Capital and Mr Tolcher may be taken to accept that Suncorp’s contribution amounting to $18,800 merits recognition in the form of a preferential dividend of $60,000, being 3.1915 times the contribution. There is no reason to question this unanimous view. The court should accept that it represents an appropriate basis for the making of an order under s564 in respect of Suncorp. Given that the financial contributions of the other parties, like the contribution of Suncorp, related to some part of the overall process which culminated in the receipt of $2.5 million from Key by way of settlement, it is appropriate, in my view, to apply the same multiplier to the contributions of those other parties to determine the amounts of preferential dividends to be ordered in their favour on the same basis. The appropriate preferential dividends are thus $76,025.97 x 3.1915 = $242,636.88 for Fuji and $121,300 x 3.1915 = $387,128.95 for the National.

38 The order of the court should accordingly be to the effect that there be distributed by the liquidator of Lloyd Scott Enterprises Pty Ltd, by way of interim dividend to creditors, an aggregate sum of $689,765.83 and that that sum be paid as to $60,000 to Suncorp-Metway Limited in respect of its debt, as to $242,636.88 to Fuji-Xerox Australia Limited in respect of its debt and as to $387,128.95 to National Australia Bank Limited in respect of its debt, such distribution to be the exclusion of any like payment to any other creditor and without prejudice to the right and ability of each payee to participate rateably with other creditors in the winding up in respect of the balance of its debt. I direct that the liquidator file, by delivery to my Associate within 21 days, a form of order agreed to by all parties as suitable to give effect to this.

39 I shall hear the parties on costs at a time to be fixed.

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Last Modified: 02/19/2004