Condev Construction Pty Ltd (in liquidation), Re [2025] QSC 173

SUPREME COURT OF QUEENSLAND CITATION: Re Condev Construction Pty Ltd (in liquidation) [2025] QSC 173 PARTIES: JASON BETTLES AND JAMES ROBBA AS LIQUIDATORS OF CONDEV CONSTRUCTION PTY LTD (IN LIQUIDATION) ACN 101 213 825 (applicants) v COMMONWEALTH OF AUSTRALIA (AS REPRESENTED BY THE DEPARTMENT OF EMPLOYMENT AND WORKPLACE RELATIONS) ABN 96 584 957 427 (first respondent) WESTPAC BANKING CORPORATION ABN 33 007 457 141 (second respondent) FILE NO/S: BS 16298 of 2022 DIVISION: Trial Division PROCEEDING: Application ORIGINATING COURT: Supreme Court of Queensland at Brisbane DELIVERED ON: 24 July 2025 DELIVERED AT: Brisbane HEARING DATES: 4 October 2023. The parties filed further written submissions on 15 January 2024, 31 January 2024 and 7 February 2024. JUDGE: Bradley J ORDERS: THE COURT ORDERS THAT: 1. Pursuant to s 90-15(1) of Schedule 2 to the Corporations Act 2001 (Cth), the applicants in their capacity as liquidators of Condev Construction Pty Ltd (In liquidation) ACN 101 213 825 (the “Company”) are advised in relation to the external administration of the Company that: (a) The applicants would be justified in not causing the Company to pursue the second respondent to recover debts which were owed by the second respondent to the Company immediately before the commencement of the winding up; and (b) The applicants would be justified in not treating money paid to the Company by the second -- 1 of 33 -- 2 respondent since the commencement of the winding up as property comprised in or subject to a circulating security interest of the second respondent as at the commencement of the winding up. 2. The applicants’ costs of the proceeding are part of their costs in the winding up of the Company. 3. The application filed on behalf of the first respondent on 12 April 2023 is dismissed. 4. The first respondent is to pay the applicants’ costs of the amended application filed on 21 February 2023 and the application filed on 12 April 2023. 5. The first respondent is to pay the second respondent’s costs of the amended application filed on 21 February 2023 and the application filed on 12 April 2023. CATCHWORDS: CORPORATIONS – WINDING UP – CONDUCT AND INCIDENTS OF WINDING UP – APPLICATIONS TO COURT FOR DIRECTIONS OR ADVICE – where the applicants were appointed as liquidators of the company on 16 March 2022 – where the liquidators seek orders that they would be justified in not causing the company to pursue the second respondent, as a secured creditor, to recover certain debts, being choses in action represented by the credit balances in bank accounts, owed to the company immediately before the commencement of the winding up – where the liquidators seek orders that they would be justified in not treating money the secured creditor paid to the company since the commencement of the winding up as property comprised in or subject to a circulating security interest of the secured creditor as at the commencement of the winding up, by reason of those debts being subject to a set-off and those payments being the balance of the account after the set-off, pursuant to section 553C of the Corporations Act 2001 (Cth) (the Act) – whether the liquidators would be justified in not causing the company to pursue the debts and in not treating the money paid since winding up commenced as subject to a circulating security interest – whether it is appropriate for the court to issue directions pursuant to s 90-15 of the Insolvency Practice Rules, schedule 2 of the Act CORPORATIONS – WINDING UP – LIQUIDATOR’S OBLIGATION TO DISTRIBUTE PROPERTY – APPLICATIONS FOR DECLARATIONS AND ORDERS IN AID OF DECLARATIONS – where the Commonwealth, as the first respondent, seeks declarations that the liquidators are required to distribute the property of the company comprised in or subject to a floating charge in accordance -- 2 of 33 -- 3 with s 561 of the Act – where the Commonwealth also seeks declarations that the secured creditor is not entitled to exercise or assert a right of set-off pursuant to s 553C of the Act or at general law in respect of debts owed by the second respondent to the company – where the Commonwealth seeks orders that the liquidators and the secured creditor repay or remit certain funds to the company so the sought declarations may be given effect – where the Commonwealth, as a priority creditor pursuant to s 561 of the Act, contends that s 553C of the Act does not operate in relation to secured debts – where the Commonwealth also contends that s 553C does not operate in relation to choses in action represented by the credit balances in a term deposit and in other bank accounts, because they were impressed with a trust in favour of the priority creditors as contingent beneficiaries – whether it is appropriate for the court to make the declarations and orders sought by the Commonwealth CORPORATIONS – WINDING UP – LIQUIDATOR’S OBLIGATION TO DISTRIBUTE PROPERTY – APPLICATIONS FOR DECLARATIONS AND ORDERS IN AID OF DECLARATIONS – where a Courier-Mail article was published on 12 March 2022 regarding the company’s possible financial troubles and was received by the secured creditor prior to the commencement of the winding up – where the Courier-Mail article attributed certain remarks to the company – where the journalist’s source was an email from an unnamed officer of the company to other employees of the company – where the Commonwealth contends the Courier-Mail article was notice that the company was insolvent – where the Commonwealth contends the Courier-Mail article was objective evidence of facts that gave the secured creditor notice of the company’s insolvency – where the secured creditor relied on the company’s audited financial report for the year to 30 June 2021, financial statements to 31 December 2021 and taxation statements to 8 February 2022 they had since 22 February 2022, and an Optimist Report, showing a liquidity ratio for the company above 1, they had since 28 February 2022 – whether the second respondent had relevant notice that the company was insolvent Corporations Act 2001 (Cth) s 553C, s 556, s 561, sch 2 s 90- 15 Fair Entitlements Guarantee Act 2012 (Cth) s 31 Buchler v Talbot [2004] 2 AC 298, cited Commissioner of Taxation v Linter Textiles Australia Ltd (in liq) (2005) 220 CLR 592, followed -- 3 of 33 -- 4 Commonwealth of Australia v Tonks [2023] NSWCA 285, followed Cook v Italiano Family Fruit Company Pty Ltd (in liq) (2010) 190 FCR 474, considered Day & Dent Constructions Pty Ltd (in liq) v North Australian Properties Pty Ltd (1982) 150 CLR 85, cited Franklin’s Selfserve Pty Ltd v Federal Commissioner of Taxation (1970) 125 CLR 52, cited Gye v McIntyre (1991) 171 CLR 609, cited In re Bank of Credit and Commerce International SA (No 8) [1998] AC 214, cited Jetaway Logistics Pty Ltd v Deputy Commissioner of Taxation (2009) 236 FLR 295, followed Metal Manufacturers Pty Ltd v Morton (2023) 275 CLR 100, followed MS Fashions Ltd v Bank of Credit and Commerce International SA [1993] Ch 425, cited Sandell v Porter (1966) 115 CLR 666, cited COUNSEL: C A Wilkins KC for the applicants J P Moore KC with C Conway and A Roe for the first respondents D M Turner with G A Feely for the second respondent SOLICITORS: Cronin Miller Litigation for the applicants Mills Oakley for the first respondent Minter Ellison for the second respondent [1] Condev Construction Pty Ltd (Condev) was incorporated on 2 July 2002. It carried on business in the building and construction industry in south-east Queensland. The applicants Jason Bettles and James Robba (the Liquidators) were appointed as liquidators of Condev on 16 March 2022 (the Appointment Date), following a special resolution of the company made pursuant to s 491(1) of the Corporations Act 2001 (Cth) (the Act). [2] Two relevant applications arose out of the liquidation. [3] First, by an amended originating application filed on 21 February 2023, the Liquidators sought judicial advice that they would be justified in not causing Condev to pursue the second respondent Westpac Banking Corporation (Westpac) to recover certain debts which were owed by Westpac to Condev immediately before the commencement of the winding up and in not treating money paid to Condev by Westpac since the commencement of the winding up as property comprised in or subject to a circulating security interest of Westpac as at the commencement of the winding up. [4] Second, by an application filed on 12 April 2023, the first respondent, the Commonwealth of Australia (as represented by the Department of Employment and Workplace Relations) (the Commonwealth), sought declarations that the Liquidators were required to distribute property of Condev comprised in or subject to a circulating security interest of Westpac (or other alleged secured creditors, see [37] to [40] below) -- 4 of 33 -- 5 in accordance with s 561 of the Act, and that Westpac was not entitled to exercise or assert a right of set-off pursuant to s 553C of the Act or at general law in respect of the debts owing by Westpac to Condev. The Commonwealth also sought orders that the Liquidators and Westpac repay or remit certain funds to Condev so that the declarations may be given effect. [5] The many facts relevant to the determination of whether the Court should give the Liquidators the judicial advice they seek are not disputed. It is convenient to set them out in two tranches. The first tranche comprises the facts that do not solely relate to the Commonwealth’s contention that Westpac had notice that Condev was insolvent before the Appointment Date. This first tranche is followed by consideration of the parties’ respective contentions about the legal effect of those facts. [6] The second tranche are the facts related to Westpac’s knowledge. This second trance is followed by consideration of the parties’ respective contentions about whether Westpac had notice that Condev was insolvent. First tranche of agreed facts Agreed facts about events prior to the Appointment Date [7] Between August 2002 and the Appointment Date, Westpac provided banking services to Condev. [8] On 7 March 2008, Condev granted Westpac a fixed and floating charge (the FFC). The FFC contained relevant terms to the following effect: (a) Condev charged to Westpac all Condev’s present and future assets and undertaking as set out in the FFC and in a Memorandum of Common Provisions numbered 706487974 (the MCP). (b) The charge created by the FFC operated as a fixed charge in respect of all present and future property referred to in the MCP, and as a floating charge in respect of all assets not made subject to a fixed charge. [9] The MCP relevantly contained terms that secured all money Condev owed to Westpac for any reason, whether the money was owing, or became owing in the future, by Condev alone, or together with others, actually or contingently, and whether or not it was currently contemplated. [10] On 30 January 2012, the FCC was validly and effectively registered as an “All Present and After-acquired Property” security interest on the Personal Property Securities Register (PPSR), pursuant to the Personal Property Securities Act 2009 (Cth) (PPSA). [11] On 14 December 2015, Westpac and Condev entered into a business finance agreement providing for a “Revolving Limit GX” facility under which Westpac would issue bank guarantees (the GX Facility). The GX Facility had a maximum limit of $7,500,000. The agreement about the GX Facility contained terms, amongst others, that Condev comply with an “Interest Cover Ratio” (the ICR) and “Capital Ratio” covenant. On 19 June 2019, by agreement Westpac and Condev varied the ICR, and the “Capital Ratio” was varied and was renamed the “Equity Ratio” (Equity Ratio). -- 5 of 33 -- 6 [12] The business finance agreement about the GX Facility also incorporated General Conditions which provided: “4.4 Set-off If any one or more of you have any money in any account with the Lender or are owed money by the Lender, the Lender can use it to pay amounts payable or secured under this Agreement, but need not do so. If the Lender does this, the balance of your account will reduce by the amount used for this purpose. To the maximum extent allowed by law you give up any right to set off any amounts the Lender owes you against amounts you owe under the Lender Agreements. You will pay money you are required to pay under this document without deducting amounts you claim are owed to you by the Lender or any other person. 4.5 Combining Accounts If there is a Default Event under this Agreement or a Lender Arrangement, the Lender may use any money you have in another account with the Lender towards repaying any amount you owe to the Lender under this Agreement (this is known as ‘combining accounts’). The Lender may combine accounts without giving you any notice but the Lender will tell you promptly afterwards.” [13] On 15 July 2021, Westpac entered into a business finance agreement (the 2021 BFA) providing for a bank bill business loan facility with a maximum facility limit of $252,351.00 (BBBL649). The 2021 BFA contained terms, amongst others, that Condev comply with the following financial covenants: (a) Condev (as part of a reporting group) maintain an Equity Ratio that could not be less than 35% as at 30 June 2021, where: (i) the Equity Ratio was calculated by dividing the “total shareholder funds” less net intercompany loans by the “total assets”; (ii) “total assets” meant, at any time, the total assets appearing in Condev’s latest balance sheet (including future income tax benefits, goodwill, and trademarks), but adjusted where appropriate for intangible assets that were not quantifiable; and (iii) “total shareholder funds” meant, at any time, all paid up capital and reserves appearing in Condev’s latest balance sheet. (b) Condev maintain an ICR of not less than 3.00 times, where: (i) the ICR calculated by dividing (for the calculation period) “EBIT” by “gross interest expense”; (ii) “EBIT” meant, for the calculation period, earnings before interest and tax; and -- 6 of 33 -- 7 (iii) “gross interest expense” meant, for the calculation period, all gross interest expenses including any outgoings in the nature of interest. Agreed facts about events and circumstances on the Appointment Date [14] On 16 March 2022, the Liquidators were appointed to the company as voluntary liquidators, following a company special resolution by its sole shareholder D’Urban Holdings Pty Ltd, pursuant to s 491(1) of the Act. [15] The sole director of Condev, Stephanus Josiah Marais, informed the Liquidators that the failure of Condev was attributable to excessive increases in the price of materials and labour resulting from the COVID-19 pandemic, and flooding that caused construction delays and damage to materials purchased by Condev. During the winding up, the Liquidators formed the opinion that Condev was insolvent from at least November 2021. [16] The balances as at 17 March 2022 of the 16 accounts maintained by Westpac in Condev’s name are listed in the following table: BSB – Acc No Balance as at 17 March 2022 XXX279 – XXX169 $506,967.68 CR XXX279 – XXX454 $1,000,085.03 CR XXX279 – XXX024 $168,200.32 CR XXX279 – XXX946 $0.00 XXX279 – XXX758 $0.00 XXX279 – XXX105 $0.00 XXX279 – XXX111 $64,439.79 CR XXX279 – XXX649 $231,947.09 DR XXX279 – XXX657 $218,801.72 DR XXX279 – XXX065 $242.07 CR XXX279 – XXX073 $108,108.34 CR XXX279 – XXX081 $0.00 XXX279 – XXX076 $10,581.88 CR XXX279 – XXX084 $170,638.14 CR XXX279 – XXX092 $0.00 XXX279 – XXX016 $5,000,000.00 CR Total $6,578,514.44 CR [17] The accounts (ending 169, 454, 024, 946, 758, and 105) with a combined credit balance of $1,675,253.03 were general accounts (the General Accounts). -- 7 of 33 -- 8 [18] The account (ending 111) with a credit balance of $64,439.79 was in the joint name of Condev and Herculan BV (the Herculan Account). Condev and Herculan’s respective entitlements were $27,795.86 and $36,643.93. [19] The accounts (ending 649 and 657) with a combined debit balance of $450,748.81 were two bank bill business loan facilities, BBBL649, with a maximum facility limit of $252,351.00, and BBBL657 with a maximum facility limit of $238,127.00 (together, the BBBL Facilities). The FFC secured the debts Condev owed to Westpac under the BBBL Facilities. These debts were also secured by mortgages over Units 3111 and 3211 42 Laver Drive, Robina (the Robina Properties). [20] The accounts (ending 065, 073, 081, 076, 084, and 092) with a combined credit balance of $289,570.43 were project bank accounts (the Project Bank Accounts). [21] The account (ending 016) with a credit balance of $5,000,000.00 was a term deposit (the Term Deposit). [22] Before the Appointment Date, Condev had given Westpac a FFC against the Term Deposit as security for the GX Facility. At the Appointment Date, the Term Deposit was not property comprised in or subject to a circulating security interest for the purposes of s 561 of the Act. [23] The FFC also secured a debt Condev owed to Westpac under an equipment finance facility (the WEF Account), with a maximum facility limit of $50,000. [24] Condev also had a Business Card account with Westpac. [25] At the Appointment Date, the amounts Condev owed to Westpac under the relevant facilities and accounts were as detailed in the table below: Facility Balance owed as at Appointment date GX Facility $5,822,025.42 BBBL649 $231,947.00 BBBL657 $218,830.00 WEF Account $24,654.75 Business Card $348.60 TOTAL $6,297,805.771 Agreed facts about post-appointment transactions affecting the Westpac debts 1 On 13 April 2022, Westpac lodged a proof of debt in respect of a debt of $6,297,832.77 and voted on the whole of its debt without specifying its security. On this basis, the Liquidators formed the view that Westpac had surrendered its securities. On 24 March 2023, Westpac filed an originating application by which it sought an order that it be not taken to have surrendered its securities over the property of Condev. On 3 May 2023, the Court made orders accordingly, being satisfied that the omission of Westpac to value its security was inadvertent. -- 8 of 33 -- 9 [26] On 18 March 2022, the credit balances in the Project Bank Accounts and General Accounts (save for $967.68 for the account ending 169) were transferred to a separate account ending 713 (the Freeze Account) which held a balance of $1,963,855.78. [27] After the Appointment Date, the amounts owing to Westpac under the WEF Account and the BBBL Facilities were paid in full, from property subject to Westpac’s security: (a) On 26 April 2022, BBBL649 was paid in full ($235,185.24) from the proceeds of sale of Unit 3111 42 Laver Dr, Robina; (b) On 4 July 2022, BBBL657 was paid in full ($220,232.86) from the proceeds of sale of Unit 3211 42 Laver Dr, Robina; and (c) On 21 July 2022, the WEF Account was paid in full ($24,742.51) from the proceeds of sale of a 2019 Volkswagen Multivan. [28] The property of Condev from which the WEF Account and BBBL Facilities were paid was not property comprised in or subject to a circulating security interest for the purposes of s 561 of the Act. [29] Between 18 March 2022 and 27 May 2023, Westpac applied funds (totalling $5,000,070.43) in the Term Deposit to satisfy Condev liabilities to Westpac in respect of bank guarantees Westpac had issued under the GX Facility, which had been called upon. [30] On 28 April 2022, the Liquidators’ solicitors wrote to Westpac querying the basis on which Westpac asserted a set-off between the accounts and facilities. On 29 April 2022, Westpac’s solicitors replied: “5. In contract, equity and/or by reason of s 553C of the Corps Act, Westpac has a right to combine/set-off accounts/debts. It is uncontroversial that such rights exist in relation to contingent liabilities. Such rights are not security interests for the purposes of the PPSA and are not ‘claims in relation to a circulating security interest’ for the purposes of s561 of the Corps Act. 6. The Revolving Limit GX Facility: (a) has a debit balance of $1,098,754.40 as at [28] April 2022. That balance is a contingent liability, the contingency being the payment by Westpac of the guaranteed amounts; and (b) is secured (in part) by the Term Deposit, in respect of which Westpac holds security. As we understand it, your clients do not (quite properly) contend the Term Deposit to be a circulating asset. 7. Westpac proposes to first apply the funds held in the Term Deposit to any crystallised liability under the Revolving Limit GX Facility. Given the balance of the Revolving Limit GX Facility exceeds the balance of the Term Deposit, it seems likely that after application of the Term Deposit, the facility will remain in debit. -- 9 of 33 -- 10 8. As previously advised, Westpac intends to exercise its rights to set- off the credit balances of the accounts you define as Cash, against any debit balance of the Revolving Limit GX Facility, not otherwise recoverable from the Term Deposit. Of course, once that process has completed, to the extent that there are surplus funds (that is, credit balances of the accounts you define as Cash), they will be remitted to your clients. 9. That said, Westpac reserves all of its rights under its facility agreement and security.” [31] On 12 May 2022, Westpac’s solicitors elaborated: 6. Accordingly, not only is Westpac entitled to rely upon its right of set off, your client liquidators are compelled by the Corps Act to take it into account when making demand, and can be compelled to repay sums mistakenly paid to them upon an erroneous demand. … 8. … (c) … This is not a question of priority. The asset in the liquidation (being a debt owed by Westpac to the Company) is the net position of all of the credit and debt accounts in question. … 10. … Westpac intends to shortly make an interim remission in the amount of $1,039,515.70.” [32] On 13 May 2022, Westpac remitted $1,056,655.50 to the Liquidators, which the Liquidators received on 16 May 2022. That amount comprised: (a) $289,570.43 in trust funds referrable to money transferred to the Freeze Account from the Project Bank Accounts; (b) $749,945.27 referrable to money transferred to the Freeze Account from the General Accounts; and (c) $17,139.80, the majority of which represented a refund of fees from Westpac credited to a General Account. [33] On 18 July 2022, Westpac remitted $27,795.86 to the Liquidators from the Herculan Account. [34] Westpac retained the balance of the Freeze Account ($907,200.28).2 Agreed facts about debts owed to the Commonwealth [35] Between 24 May 2022 and 17 December 2022, the Commonwealth made payments totalling $1,914,343.13 to former employees of Condev in respect of entitlements 2 This was the balance of the Freeze Account as at 18 March 2022 ($1,963,855.78) less the funds ($1,056,655.50) remitted on 13 May 2022. -- 10 of 33 -- 11 afforded priority under s 556(1)(e), (g), and (h) of the Act. These payments were made pursuant to the Fair Entitlements Guarantee Act 2012 (Cth) (FEG Act). [36] The Commonwealth is subrogated to the position of the former employees whom it paid and is a creditor of Condev.3 To date, none of the moneys paid to the former employees have been recovered by the Commonwealth. Agreed facts about other possible secured creditors [37] On the Appointment Date, the Liquidators identified the following persons (other than Westpac) with an “All Present and After-acquired Property” security interest registered on the PPSR: (a) Reece Australia Pty Ltd (Reece); (b) Actrol Parts Pty Ltd; (c) A.C. Components Pty Ltd; (d) Viadux Pty Ltd; (e) The trustee for the Kendall Family Trust (Kendall); (f) EARP Brothers Hardware Pty Ltd; (g) The trustee for the Bruce Earl Family Trust; (h) D&S Plumbing Group Pty Ltd; and (i) Gravity Rigging & Machinery Pty Ltd. [38] Except for Reece and Kendall, none of these creditors lodged a proof of debt in the liquidation. As such, they are not secured creditors. [39] Kendall lodged a proof of debt for $17,101.38 on 8 April 2022. However, it voted on the whole of its debt without specifying particulars of its security. Accordingly, by operation of s 554E of the Act and r 75-87(3) of the Insolvency Practice Rules, it has been an unsecured creditor since that time. [40] The secured interest owed to Reece of $44,508.56 was discharged on 4 July 2022 from non-circulating assets during the liquidation. Agreed summary of creditor claims in the liquidation [41] The parties summarised the creditor claims against Condev as follows: (a) Westpac in the amount of $6,297,805.77; (b) Claims falling within s 556(1)(e), (g), or (h) of the Act, comprising: (i) The Commonwealth in the amount of $1,914,343.13; (ii) Former employees of Condev in the amount of $707,074.00; 3 FEG Act, s 31. -- 11 of 33 -- 12 (iii) The Commissioner of Taxation in respect of superannuation contributions in the amount of $142,118 or $218,450; (c) Ordinary unsecured creditor claims in the amount of $25,081,461 (as at 16 June 2022); and (d) Claims of the following creditors, which were secured as at the Appointment Date: (i) Reece in the amount of $44,508.56, which was paid in full, from non- circulating assets during the liquidation; and (ii) Kendall in the amount of $17,101.38, which is now an unsecured creditor claim. Agreed facts about the asset position and realisations [42] As at 15 February 2023, the Liquidators had realised property of Condev as follows: (a) $1,342,829.48 in non-circulating assets; (b) $125,934.80 in general assets not subject to a security interest; and (c) $1,316,334.70 in circulating assets, including $1,084,451.36 remitted by Westpac referred to in [32] and [33] above. [43] As at 15 February 2023, the Liquidators retained the total amount of $1,055,079.65 from funds remitted to them by Westpac. [44] The agreed facts about whether Westpac had notice that Condev was insolvent before the Appointment Date are set out at Error! Reference source not found. to 0 below. The first group of issues – legal issues about set off by Westpac [45] The first group of issues concern Westpac’s ability to set off the credit balances of Condev accounts against the debts owed by Condev to Westpac. [46] The parties made extensive oral and written submissions on this group of issues. After the decision of the New South Wales Court of Appeal in Commonwealth of Australia v Tonks4 (Tonks), the Court invited any further written submissions. [47] In response to the Court’s invitation, the Commonwealth informed the Court that, subject to reserving “its right to challenge the correctness of [Tonks] in any appeal”, it “did not press a determination, or its submissions” on whether “mutuality was displaced by the interest of priority creditors, arising pursuant to s 561” in respect of credit balances in the Westpac accounts other than the Term Deposit and the BBBL Facilities, and did not press its submissions on the debt owed to Kendall. Whether s 553C operates in respect of secured debts [48] The Commonwealth did press its submissions that there was no set off in respect of the Term Deposit and the BBBL Facilities on the basis that “s 553C does not operate in 4 [2023] NSWCA 285. -- 12 of 33 -- 13 relation to secured debts”.5 For the Commonwealth it was submitted that “[t]his contention is not inconsistent with Tonks.” [49] Section 553C of the Act provides: “553C Insolvent companies—mutual credit and set-off (1) Subject to subsection (2), where there have been mutual credits, mutual debts or other mutual dealings between an insolvent company that is being wound up and a person who wants to have a debt or claim admitted against the company: (a) an account is to be taken of what is due from the one party to the other in respect of those mutual dealings; and (b) the sum due from the one party is to be set off against any sum due from the other party; and (c) only the balance of the account is admissible to proof against the company, or is payable to the company, as the case may be. (2) A person is not entitled under this section to claim the benefit of a set-off if, at the time of giving credit to the company, or at the time of receiving credit from the company, the person had notice of the fact that the company was insolvent.” [50] As the High Court explained in Metal Manufacturers Pty Ltd v Morton (Morton):6 “The purpose of s 553C is to ascertain what is available for distribution on a pari passu basis. It is only the balance of any set-off (when it favours the creditor) which is then admissible to proof against the company for the purposes of s 553. Before then, the law permits a set-off of mutually incurred credits, debts or dealings because that is a just outcome chosen by Parliament. As this Court observed in Gye v McIntyre, when considering the equivalent right of set-off conferred by s 86 of the Bankruptcy Act: ‘It has often been pointed out that the object of set-off in bankruptcy is, in the words of Parke B in Forster v Wilson, ‘to do substantial justice between the parties, where a debt is really due from the bankrupt to the debtor to his estate’. Where there are genuine mutual debts, credits or other dealings, it would be unjust if the trustee in bankruptcy could insist upon having 100 cents in the dollar upon the whole of the debt owed to the bankrupt but at the same time insist that the 5 The Commonwealth also pressed its submission that there was no set off because “Westpac had notice of the fact that Condev was insolvent at the time of receiving credit from Condev within the meaning of s 553C(2)”. That issue is dealt with later in these reasons. 6 (2023) 275 CLR 100. -- 13 of 33 -- 14 bankrupt’s debtor must be satisfied with a dividend of some few cents in the dollar on the whole of the debt owed by the bankrupt to him. It was to prevent such injustice that the ‘mutual credits’ and ‘mutual debts’, and later ‘mutual dealings’, provisions were introduced into bankruptcy legislation’. (Footnote omitted.) Two key features of the set-off provision should be noted at this point. First, s 553C has a temporal element. … The operation of s 553 informs the availability of set-off because after set-off under s 553C(1)(c) the balance of an account is admissible to proof – being proof admissible against the company under s 553. Accordingly, for the purposes of assessing whether there is mutuality, the rights of the parties are to be taken and ascertained as at the time of winding up; the important factor is whether there is an obligation or liability prior to liquidation which might mature into a debt owing. Thus, any acquisition by a liquidator of new claims on behalf of a company cannot vary the parties’ antecedent rights such as to be available for set-off. And, secondly, as this Court explained in Gye, there are three aspects to a ‘mutual dealing’: ‘The first is that the credits, the debts, or the claims arising from other dealings be between the same persons. The second is that the benefit or burden of them lie in the same interests. In determining whether credits, debts or claims arising from other dealings are between the same persons and in the same interests, it is the equitable or beneficial interests of the parties which must be considered: see, eg, Hiley. The third requirement of mutuality is that the credits, debts, or claims arising from other dealings must be commensurable for the purposes of set-off under the section. That means that they must ultimately sound in money.’” (citations omitted)7 [51] A set off pursuant to s 553C is “self-executing”.8 It occurs without a creditor needing to prove in the liquidation of the company. It applies to a debt that would have been provable, had the creditor done so.9 The section is to be given the “widest possible scope”.10 It applies to mutual credits, mutual debts, and mutual dealings 7 (2023) 275 CLR 100 at 109 [16] – 110 [19] (Kiefel CJ, Gordon, Edelman and Steward JJ). 8 Gye v McIntyre (1991) 171 CLR 609 at 622 (Mason CJ, Brennan, Deane, Dawson, Toohey, Gaudron and McHugh JJ). See also: Metal Manufacturers Pty Ltd v Morton (2023) 275 CLR 100 at 125[65] (Gageler J). 9 In re Bank of Credit and Commerce International SA (No 8) [1998] AC 214 at 228F (Lord Hoffman; Lord Goff of Chieveley, Lord Nicholls of Birkenhead, Lord Hope of Craighead and Lord Hutton agreeing). 10 Day & Dent Constructions Pty Ltd (in liq) v North Australian Properties Pty Ltd (1982) 150 CLR 85 at 108 (Mason J). -- 14 of 33 -- 15 “notwithstanding that one or other of the debts or credits may be secured.”11 Its operation was not altered by the commencement of the PPSA. The contrary submissions put for the Commonwealth are illogical, and contrary to well-established authority. Whether a liquidator holds assets as trustee for possible priority creditors as contingent beneficiaries [52] To avoid the apparent operation of s 553C, the Commonwealth relied on the analysis in Cook v Italiano Family Fruit Company Pty Ltd (in liq) (Cook)12 of the relationship between a liquidator and a priority creditor in respect of assets realised by the liquidator that were the subject of a floating charge. There Finkelstein J considered it to be like the relationship of trustee and (contingent) beneficiary. If that were so, as the Commonwealth contended, then the burden of the debts Condev owed to Westpac would remain with Condev and the benefit of the bank accounts in credit would be held by the Liquidators on trust for the priority creditors. The debts and credits would not be mutual and the set-off of the accounts would not occur under s 553C(1). [53] This part of the Commonwealth’s case seems to be among the submissions no longer pressed. If that is not so, and the Commonwealth does press it in respect of any of the relevant accounts, then it is rejected for the following reasons. [54] The trustee and (contingent) beneficiary analysis in Cook was contrary to the earlier decision the High Court in Commissioner of Taxation v Linter Textiles Australia Ltd (in liq) (Linter Textiles).13 There, the majority had approved as the “proper conclusion”14 the longstanding view of Menzies J in Franklin’s Selfserve Pty Ltd v Federal Commissioner of Taxation (Franklin’s)15 that: “Even if a company, being insolvent, goes into liquidation, I find difficulty in regarding the company itself as trustee for anybody, notwithstanding that it can no longer employ its assets in its business, nor dispose of them. The assets must be held for the purpose of its own liquidation in accordance with statute. Of course its assets have to be realised by the liquidator and distributed among the company’s creditors but this is done in accordance with elaborate statutory provisions for bringing about the result for which the statute provides. The matter is not left to the application of general law relating to trustees and cestuis que trust.”16 [55] The trustee/beneficiary analysis in Cook is also inconsistent with the more recent decision of the High Court in Morton, in which the majority also approved the reasoning of Menzies J in Franklin’s and that of the majority in Linter Textiles, in finding: “The company, whilst being wound up, does not hold its property on trust for creditors and members. The statutory regime for the administration of a company in liquidation is both an exhaustive and sufficient measure for 11 MS Fashions Ltd v Bank of Credit and Commerce International SA [1993] Ch 425 at 446B (Dillon LJ; Nolan and Steyn LJJ agreeing). 12 (2010) 190 FCR 474 (Finkelstein J). 13 (2005) 220 CLR 592. 14 At 611 [49] (Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ). 15 (1970) 125 CLR 52. 16 (1970) 125 CLR 52 at 69-70. -- 15 of 33 -- 16 the distribution of the company’s property which does not necessitate or justify the intervention of equity. … It follows from acceptance of the proposition that the company remains the beneficial owner of all the property gathered in and controlled by the liquidator that it also is the beneficial owner of all payments received by it during the course of the winding up. … That is not to deny, however, that the property of the company and any payments or transfers of property made to the company during the process of winding up are subject to the ‘statutory scheme of liquidation’.” (citations omitted)17 [56] The Commonwealth’s reliance on the trustee/beneficiary analysis in Cook was erroneous. The submission based upon it is rejected, namely, that the choses in action represented by the credit balances in the Term Deposit and the BBBL Facilities were impressed with a trust in favour of the priority creditors. Whether set-off under s 553C occurs subject to any right created by s 561 [57] The Commonwealth’s submission that s 553C “ought to be construed as enacting a process that occurs subject to the rights created under s 561 of the Act” is also contrary to Morton. The “pool of claims … provable in a winding up” is confined to “debts payable by and claims against the company” that arose from circumstances occurring before the winding up.18 [58] To the extent that the Commonwealth presses its submission in respect of the Term Deposit or the BBBL Facilities, it is rejected. [59] In short, as the decision in Tonks confirms, s 561 operates to give a priority unsecured creditor a right to be paid from the circulating assets of a company that are subject to a circulating security interest in priority to the claim of the secured creditor with that interest. The amount that may be paid to the priority unsecured creditor from the circulating assets in priority to the secured creditor is limited to the amount of the secured creditor’s claim against the circulating assets. The priority unsecured creditor has no right to be paid in priority from any circulating assets that are not the subject of the secured creditor’s claim. To use Lord Hoffman’s descriptor in Buchler v Talbot, the secured creditor has priority in payment from the debenture-holder’s fund, but not from the company’s fund.19 [60] If there is no contest between the claim of a secured creditor against circulating assets and the claim of a priority unsecured creditor, then s 561 does not operate. Contractual and equitable set-off matters [61] As the Commonwealth’s case on statutory set-off fails, it is not necessary to consider Westpac’s alternative claim for a contractual set-off, under cll 4.4 and 4.5 of the General Conditions. Nor is it necessary to consider an equitable set-off. So, it is also necessary to consider the Commonwealth’s submissions challenging Westpac’s contractual or equitable rights in those respects. 17 (2023) 275 CLR 100 at 107 [6]-[10]. 18 Ibid at 110 [18]. 19 [2004] 2 AC 298 at [26]-[31]. -- 16 of 33 -- 17 Whether the Commonwealth has priority over the Liquidators’ right to be paid general remuneration and expenses [62] The Commonwealth did not dispute that the Liquidators were entitled to an equitable lien over the circulating assets for “costs, expenses and remuneration incurred in the care, preservation and realisation” of those assets. The Commonwealth’s submission that its claim as a priority creditor ranked ahead of the Liquidators’ right to be paid any other general remuneration and expenses was based on two contentions. (a) The first was that “Westpac required payment from the circulating assets of Condev” because Westpac was not entitled to a set-off under s 553C. (b) The second was that Kendall was a secured creditor with a claim against the circulating assets. [63] The first contention has failed. The second is no longer pursued. So, the Commonwealth’s case for priority over the Liquidators’ right to be paid their general remuneration and expenses also fails. Second group of issues: timing of an assessment by the Liquidators under s 561 [64] It was common ground that there are two “preconditions” for the operation of s 561. First, property of the company available for payment of creditors other than secured creditors must be insufficient to meet payment of s 561 priority creditors. Second, there must be a secured party with a circulating security interest created by the company. [65] The Commonwealth contended that both preconditions were to be assessed on and as at the Appointment Date. [66] The Commonwealth advanced the same submission in Tonks. There the New South Wales Court of Appeal concluded: “[T]he insufficiency threshold in the prefatory words to s 561 will almost inevitably only be able to be assessed well after the liquidator’s appointment when the liquidator is in a position to ascertain the precise amount of the secured creditor’s debt, the net amount recovered from non-circulating and circulating assets, the recoveries from voidable transactions and the extent of the liquidator’s costs and remuneration. At the time of that assessment, the liquidator will also usually be in a position to know whether a secured creditor has made or will be making a claim against circulating assets, so as to make s 561 applicable. If, as here, no such claim can be made at that time (whatever might have been the situation at the time at which the liquidator was appointed), s 561 does not apply. Section 561 neither requires nor authorises the liquidator to turn a blind eye to the actual situation at the time of the assessment for the purposes of s 561. Indeed, such assessment can only be made when sufficient facts are known to make the assessment.”20 [67] The Court of Appeal’s reasons follow the conclusion in Cook on this point, which Adamson JA summarised in this way: 20 (2023) 383 FLR 297 at 308 [57] (Adamson JA; Bell CJ and Griffiths AJA agreeing). -- 17 of 33 -- 18 “the question of sufficiency is to be determined at the time when the controller (liquidator or receiver) has enough information to determine whether the free assets will be sufficient to pay non-secured creditors. That determination will inevitably be as at the date it is made.”21 [68] In the later written submissions, the Commonwealth did not press its submissions on “whether the conditions to engage the application of s 561 of the Act are to be assessed at the Appointment Date” and “whether the operation of s 561 is affected by the secured party’s debt having been discharged in full during the winding up.” This seems to encompass the whole of the Commonwealth’s case in these respects. [69] To the extent that any of the Commonwealth’s submissions on this topic are pressed, they are rejected. There are no grounds to doubt the correctness of the conclusion in Tonks. The Commonwealth conceded that the Liquidators could not have assessed the sufficiency of funds available to meet the claims of secured creditors and priority creditors before 19 August 2022. By then, Westpac had transferred the credit balances to the Freeze Account and remitted to the Liquidators the balance of funds after the set- off, Kendall had surrendered its security and become an unsecured creditor, and the debt owed to Reece had been discharged from the sale of non-circulating assets. [70] By 19 August 2022, there were no amounts owing to secured creditors, and no contest between the claim of a secured creditor against circulating assets and the claim of a priority unsecured creditor, such as the Commonwealth. So, s 561 did not operate. Third group of issues: Notice that Condev was insolvent [71] The Commonwealth contended that Westpac was not entitled to claim the benefit of a set-off by reason of s 553C(2) of the Act. That subsection provides: “A person is not entitled under this section to claim the benefit of a set- off if, at the time of giving credit to the company, or at the time of receiving credit from the company, the person had notice of the fact that the company was insolvent.” [72] The Commonwealth contended that Westpac had notice of the fact that Condev was insolvent by 13 March 2022. This date, three days before the Appointment Date, is important because between 13 and 15 March 2022 Westpac credited nine amounts to the General Account ending 169. They total $4,740,222.62.22 Second tranche of agreed facts [73] It is convenient to set them out in chronological order. 14 January 2022 [74] Westpac commenced its Annual Financial Review for the “Condev Group” and requested financial documents for Condev for the financial year ended 30 June 2021 and six-month period ending 31 December 2021 (2022 Review). 21 At 308 [56]. 22 In this period, another five amounts, totalling $9,002,094.90 transferred from one General Account to another General Account. At the hearing, Counsel for the Commonwealth conceded that the transfer of funds from one account to another was not giving or receiving credit for the purposes of s 553C(2). -- 18 of 33 -- 19 22 February 2022 [75] Westpac received the following documents from Condev (together, the Annual Review Documents) in relation to the 2022 Review: (a) a taxation activity statement for PAYG and GST for the period 8 February 2020 to 8 February 2022; (b) a taxation statement for income tax for the period 8 February 2020 to 8 February 2022; (c) a balance sheet report as at 31 December 2021; (d) a current workload document dated February 2022; (e) a profit and loss report for the six months ending 31 December 2021; (f) an audited financial report for the financial year ended 30 June 2021; and (g) a working asset statement as at 30 June 2021. [76] The Annual Review Documents record that: (a) Condev incurred a net loss before tax of $497,786 for the financial year ended 30 June 2021; (b) Condev incurred a gross operating loss of $902,914.88, and a net loss of $3,770,462.28 before tax, in the six months ending 31 December 2021; (c) Condev had total equity of $11,143,795 as at 30 June 2021; (d) Condev’s assets were greater than its liabilities, with net assets to the value of $8,450,608.61, and an excess of assets over liabilities of $1,825,992.02; (e) Condev’s trade and other receivables increased by $9,990,080 between 30 June 2020 to 30 June 2021, to $26,243,991; (f) Condev’s cash at bank reduced by $10,004,123 over the financial year ended 30 June 2021, to $1,565,694 as at 30 June 2021; (g) for the financial year ended 30 June 2021, Condev reported total expenses of $181,812,841 including: (i) changes in inventories of $43,266,078; (ii) raw materials and consumables used of $131,941,078; (iii) other expenses of $5,083,361; and (iv) finance costs of $266,536. (h) Condev’s cash at bank increased from $1,565,694 as at 30 June 2021 to $2,942,071.26 as at 31 December 2021; (i) as at 27 October 2021, the Director expressed the opinion that “there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable”; -- 19 of 33 -- 20 (j) for the six months ending 31 December 2021, Condev reported indirect expenses of $2,948,396.11 and direct expenses of $112,719,213.56, comprising: (i) labour of $11,081,388.40; (ii) materials of $7,166,270.22; (iii) plant of $4,030,693.21; (iv) subcontractors of $82,837,451.45; (v) consultants of $1,703,218.20; (vi) provisional sums of $193,674.04; (vii) other costs of sales of $5,206,240.72; (viii) tender costs of $500,277.32; and (k) as at 8 February 2022, Condev did not have outstanding liabilities to the Commonwealth and had met its obligations to the Australian Tax Office. 28 February 2022 [77] Westpac generated a report from a covenant-testing program it maintained known as “Optimist”, based on Condev’s financial reports for the financial year ended 30 June 2021 (Optimist Report). [78] The Optimist Report records that: (a) Condev had a liquidity ratio above 1; (b) the ICR and Equity Ratio had been breached; (c) there were increases in Condev’s accounts payable, decreases in accounts receivable and the cash available from operating activities, and decreased cash available for “debt service” and “debt reduction”; and (d) there was a negative return on tangible assets, decrease in gross margin, negative ratios for interest cover, increases in accounts receivable and payable days, and negative debt service cover. 7 March 2022 [79] Westpac’s Regional General Manager, Property QLD, Faine Bayvel sent an email to Westpac’s Manager, Construction Risk, Luke Collins regarding a project that Westpac wished to be involved in. The email stated: “Hi Luke, ...I will be in Melbourne at the Property Leadership Offsite 22-23 so I will be available to take you around brissy on the 24 but otherwise available. I have suggested other bankers that will be able to assist and if you are hiring a car that will make movements easier. The asset in [redacted] there was a requirement for MCR or the [redacted] to attend. -- 20 of 33 -- 21 The asset in [redacted], Id [sic] like you to meet the sponsor and potentially the builder. This is a Brisbane project we would like to win. As you can see, most of what we are doing is on the coasts. This is strategically important to the Brisbane business. There are also deeper issues whereby Tompkin, McNAB, Hutchies, Condev are not tendering and have long wait times for building. We need to try and find ways through with builders that are available. I thought it was worth meeting and discussing this builder and should you not be comfortable, at least we can communicate this to the customer, who is a long term and valuable customer to [redacted].” 8 March 2022 [80] Westpac Senior Relationship Manager, Property QLD, Michael Wood requested a copy of the 2021 BFA with Condev from Westpac’s “legal area” and referred Condev to the Equity Covenant and Interest Cover Covenant in the 2021 BFA. [81] Westpac formally issued covenant breach data for Condev, and by 14 March 2022, Mr Wood was to issue a covenant breach letter and complete a report with “detailed commentary on the breach to justify the position and the proposed remediation strategy”. 11 March 2022 [82] Mr Wood sent an email to Ms Bayvel stating, “Concerns. Focus is on Condev, [redacted]”. [83] The email stated that a “Complex Annual Review” was underway and that Condev had “[f]ailed covenant testing”. That email was forwarded to Westpac Senior Manager, Commercial Credit, QLD Credit Risk, Jeffrey Moore, with the covering message, “Jeff, just fyi”. 12 March 2022 [84] An employee of Condev sent the following email to its builders and developers: “Further to our various conversations in the last two days we thank you sincerely for your availability to meet on Monday to discuss the attached docs with the view to working to a mutually viable solution in the best interests of all parties involved in your two projects. We have not had time to insert the required figures into section 3 of the Deed of Variation and think it more expedient to get the information to you as a priority to allow you time to forward to your clients for them to consider their risks and personal circumstances. We will include the figures in the Deed of Variation and resend prior to the meeting but in the meantime the attached pdf will give you the required information to review. We sincerely regret this most unfortunate situation and truly believe the extenuating circumstances have been out of our control. Time is critical in mitigating all our risks and we look forward to concluding this on Monday no matter which way you and your clients decide to go. …” -- 21 of 33 -- 22 [85] At 7.45pm and 11.16pm, Westpac Head of Property Finance QLD Neil McAllister, Mr Wood, Ms Bayvel, and Westpac Commercial Credit Manager, Property, Greg Keth received a media article published in The Courier-Mail that day (Courier Mail Article). Mr Wood stated the article was “regarding our client Condev potentially being in trouble”. The Courier Mail Article was titled “Condev calls emergency meeting as COVID-19, floods hit giant” and stated: “Queensland construction giant Condev says the Probuild collapse has put some suppliers and subcontractors in financial distress. Condev is holding a meeting on Monday with developers to work out a plan for its own future. Condev said it had also been hit by a perfect storm of labour shortages due to Covid-19, price hikes and flood damage. ‘We have prepared financial projections in order to understand our current and future cashflow, and on the basis of those projections have sought legal advice’, the company said in an email to staff and clients, seen by the Courier-Mail. ‘We cannot do this alone and we need the support of all stakeholders’”. 13 March 2022 [86] At 7.30am, Mr McAllister sent the Courier Mail Article as an extract to Ms Bayvel, Mr Moore, Westpac National Manager, Construction Risk, John Dempsey, and Westpac National General Manager, Property Finance and Business, Martin Green. At 11.17pm, Mr Wood sent the article as a link to Mr Keth. [87] At 9.59am, Westpac (through Senior Relationship Manager, Commercial Banking, Philip Tibbits) received a copy of an email from a developer to Condev. The developer’s email also forwarded the email extracted in [84] above. The developer’s email read: “I refer to the email I received from Condev last night at 10.57pm putting forward a proposal to keep them afloat on all 14 projects and arranged an urgent meeting with all Developers at 2.30pm on Monday which I will attend but not speak. I have a lot of questions how this works and what happens if we decline and what it means. I will need to share with Westpac as an obligation of our loan agreement. In short Condev are seeking a Variation of $574,149 to enable them to continue on [redacted] but would need I suggest all Developers to agree on all projects. Some Projects (Such as [redacted] they have sought on that project $2.3m) I cant [sic] make any recommendation today as need a lot of answers first and I am sure both [redacted] and Westpac will have questions for me to pose. -- 22 of 33 -- 23 Obviously they are looking for everyone to define their position by Monday night. Let me know your thoughts and I will send more detail later today and in the morning”. [88] At 7.44pm, Mr Wood sent an email to Ms Bayvel and Mr Keth containing the following table (Facilities Summary): Condev Construction Pty Ltd Working account No overdraft facility Term Loan $232,000 Secured by property (residential unit MV $378) Term Loan $219,000 Secured by property (residential unit MV $380 GX facility $7,500,000 Secured by GSA, Charge over TD $5,000,000 and Directors Guarantee (limited to $2,500,000) Car loan $24,000 Secured by vehicle Business Credit Card $10,000 Term Deposit $5,000,000 (held as security) Deposits $5,800,000 14 March 2022 [89] At 8.15am, Mr Moore received the Courier Mail Article and Facilities Summary from Mr Keth under cover of the following email: “Annual review currently underway with Mike visiting client Wed to gauge position. B/sheet is still reasonably strong and clients are conservative by nature, so may not be such an issue. Main risk is the $7.5m GX secured by $5m IBD i.e. $2.5m GSA reliance. Still hold $13.5m credit funds (including above IBD) and $k redraw in facilities with us.” [90] At 8.28am, Mr Moore sent an email to Acting Executive Manager – Property Credit, Credit Risk (St George) Stuart Milburn forwarding other media articles reporting on Condev. The email stated: “Thanks Greg Stuart - Information below has been issued by several media outlets with the latest below being from Subbies United site. Greg Keth has detailed WBC account position Exposure $15m -- 23 of 33 -- 24 Will keep you informed”. [91] At 8.45am, Mr Moore stated in an email to Mr Milburn: “Will be looking at mitigation for approval 2021 financials have only been received and meeting set up this week to discuss first historical losses – SRM will contacting client today I will do a sanity check today on financials but have requested a RG reassessment by Friday at the latest via an FMR / review process”. [92] By 8.52am, Mr Wood had spoken to Mr Moore, and Mr Wood was to contact Condev. [93] At 8.54am, Moore forwarded extracts from media articles to Mr McAllister with a covering message stating that the “email engine is in overdrive already”. [94] At 8.58am, Mr McAllister sent an email to Mr Moore stating, “I can imagine and for the record, we don’t have any exposure”. [95] At 9.58am, Westpac Director – National Head of Construction Risk, Construction Risk, Lee Singleton sent an email to Westpac Executive Director – National Head of Property Risk/Real estate, Peter Spiller, which stated: “The only exposure we have is a BD transaction in Robina on the Gold Coast. It was originated at the start of last year 2021. TCE is $19m and the project is well advanced with PC due in a few months (end June 22). Cost to complete as of last month's (Feb) Drawdown was only $7.4m. There has been little use of contingency with approx. 80% or almost $1m remaining. We also have a healthy sunset buffer of around 40 months (15/11/25).” [96] By 10.01am, Mr Moore requested Mr Wood to complete “review figures” by the end of the week and stated that “TAE is $16m although Condev Construction component is $7.5m”. [97] At 11.06am, Mr Moore sent an email to Mr Milburn stating: “Brief initial report: $1m in GX’s held and SRM is picking them up today Another circa $1m in retention GX’s is likely to come back with next few weeks Building company account does not run an OD and has $5m in available funds. Trading losses have increased from circa $300k to 6/21 to $3m 12/2021 Breaches of ICR and equity covenants now evident RG reassessment submission by end of week and [sic].” [98] At 12.26pm, Mr Tibbits sent an email to Mr Moore, Mr Keth, Mr Collins, and Ms Bayvel reporting on the email received by him (extracted at [87] above). The email stated: -- 24 of 33 -- 25 “Please see attached the info that Condev sent to the developer. They are proposing a variation of $574,149.00. They have requested this variation on Separable Portion one which was the basement and civils. This was completed well before our first draw. Effectively CONDEV are asking for an immediate cash injection. [redacted] advises that he will be advising Condev that he can not sign the variation as he needs approval from Westpac and he feels that will be the response from the majority of the developers at today's meeting that they need consent from funders under the Tripartite agreement or the parties will be in breach of the terms of that agreement. [redacted] has also advised that he has already put in place negotiations with another large building firm to take over the project in need with a cost plus scenario. They will takeover all subcontractors on site and is prepared for the negotiations with the Subbies if the matters with Condev are not satisfied.” [99] At 1.42pm, Ms Bayvel sent an email to Mr Singleton, Mr Spiller, and Westpac Head of Institutional and Corporate Risk, Credit Risk, Jody Mitchelmore (so, the National Heads of Risk for Construction, Property, and Credit, respectively). The email stated: “Condev is banked by Mike Wood, relevant information is as follows: • Group TAE is $16m, well secured with the exception of $2.5m in GX lines, secured against a GSA and directors PG's. Mike is out collecting ~$lm in GX's from the customer (completed projects) this afternoon which will reduce our partially secured exposure, • Current cash balances for Condev as at this morning are $8.4m + $5m cash securing additional $5m in GX lines • Customer was issued a breach letter for ICR and equity breaches this month • Mike is due to meet with the customer this Wednesday to discuss financials ahead of AR. It is proposed that credit also attend this meeting. • Annual review for this connection is due this month, all information is held and will be carried out this week given current circumstances As you pointed our [sic], we currently only have 1 x project exposure in the QLD business to Condev, the [redacted] project. Metrics on this are as follows: • TAE $19.04m drawn to $8.2m-D57/FS • $962k of $1.198m in contingency remains available • CTC Is 9.17m of which $5.7m is attributed to the builder • Condev has requested $574k in contributions to allow them to complete the project • Forecast date for completion 28/06/2022 -- 25 of 33 -- 26 Condev have called a meeting with 12 developers this at 2.30pm (QLD time) at their solicitors offices. The essence of the meeting it to request variances on contracts with each developer. Condev have committed to Mike to provide him an update post this meeting. [redacted] project manager [redacted] is attending this meeting so we will have feedback from both parties to cross check. Should we require a new builder on the [redacted] site, [redacted] is confident that he has a capable builder that could step in. Attached for your reference is: • A full breakdown of our [C]ondev exposures provided by Mike Wood • An update on the project status (incl. QS report) provided by Phil Tibbits Condev have committed to Mike to provide him an update pos parties to cross check. Should we require a new builder on the We will update all as information becomes available. Any questions, please let me know.” [100] At 2.01pm, Mr Moore sent an email attaching the Annual Review Documents to Mr Milburn. The email stated: “Please see attached email report to Peter Gray which you were not copied in on. And • Trading losses have increased from circa $300k to 6/21 to $3m 12/2021 • Breaches of ICR and equity covenants now evident • RG reassessment submission by end of week - likely to be a closer to F than E35 based on trading to 31/12/2021 alone - worse if descends to insolvency. SRM is aware not to issue any further GX's under revolving GX limit with SMC approval and until a full understanding of Condev position is held.” [101] At 2.23pm, Westpac (through Mr Millburn) directed its staff not to issue any guarantees without SMC approval. [102] Mr Green sent emails to Ms Bryden, Ms Motton, and Mr Milburn at: (a) 4.05pm, stating that Westpac was “well secured with the exception of $2.5m of GX’s (reducing to $1.5m today), secured by the GSA and PG’s”; and (b) 7.37pm, stating “[n]othing further to report tonight, we are awaiting to be briefed from the client post commencing discussions on variation requests on projects.” 15 March 2022 [103] At 7.50am, Mr Wood received an email from an employee of Condev stating: -- 26 of 33 -- 27 “To keep you in the loop... and we’ll update again mid morning... the meeting was really respectful on all sides. We tried to convey, first and foremost, the urgency of the situation in the interests of our staff and subcontractors. All clients have undertaken to advise us first up this morning of their decision. We have so far received almost equal numbers of IN/OUT. We meet with our solicitors at 7.30am for advice and will keep you posted. So far, without exception, developers who are leaning towards OUT have also advised they wish to take over the contract in its entirety with all staff and subcontractors intact. Please treat business as usual today and tomorrow and advise your team and subcontractors to do the same. We are working with [our] clients in your and their and our subbies/suppliers’ best interests. For continuity of employment please work as usual and we will be in contact again later today to update.” [104] At 8.57am, Westpac referred its account with Condev to its Credit Restructuring division. [105] At 12.24pm, Ms Bayvel followed up the 2022 Review stating, “this needs to be completed urgently before Friday given current concerns around the builder and breach of covenants”. [106] At 2.50pm, Westpac had notice of two further media articles stating that Condev “faces COLLAPSE” and that Condev said that “it needs sympathetic developers to help stump up an eye-watering sum of money for it to survive”. [107] At 9.49pm, Ms Bayvel sent an email to Mr Green, Mr Moore, Mr Tibbits, Mr Wood, and Mr Keth stating: “Evening All, Apologies for the late email. We have been advised this evening by text that Condev was unable to come to a resolution with their developers and will appoint administrators in the morning. We understand that all developers and staff have also been advised this evening and all benefits paid. We have a meeting scheduled with the Condev tomorrow, will arrange similar with [redacted] and provide an update post these meetings. Damian – thank you for reaching out to Mike today. are you available for a call with credit in the am?” [108] An email from Mr Wood at 11.10pm stated, “You may have heard that Condev Construction has moved into Administration over night”. 16 March 2022 [109] In the morning, Ms Bayvel received a “Daily Briefing” which stated: “Major Queensland builder Condev will call in liquidators, after crisis meetings on Tuesday between the firm and its developer clients proved unsuccessful …” -- 27 of 33 -- 28 [110] At 9.18am, Westpac Credit Analyst, Credit Restructuring, Damien Hutton sent an email to Westpac Group Head, Credit Restructuring, Assurance and Model, Ross McNaughton stating that “Condev was unable to come to a resolution with the developers and will appoint administrators this morning”, and at 9.28am received an email stating the appointees would partners of the firm Worrells. [111] At 3.36pm, Westpac caused searches to be conducted of ASIC’s records. An instruction was given to “lock down” Condev’s accounts if it had been placed in administration, and that they would “need to wait for formal notification by Worrells and act accordingly”. [112] At 4.37pm, the Liquidators lodged a Form 505 recording their appointment as voluntary liquidators of Condev. The Form 505 was received by Westpac at 4.58pm, from which time Westpac was aware that Condev had been placed in liquidation. 17 March 2022 [113] Mr McNaughton sent an email to Neena Vajani stating: “For example Condev wasn’t on a watch list and wasn’t with Credit Restructuring prior to Liquidators being appointed so this is more a question for Tamara’s team”. Did Westpac have notice that Condev was insolvent? [114] A company is insolvent if it is not solvent. It is solvent only if able to pay all its debts, as and when they become payable.23 The “classic statement” of Barwick CJ about what is required to demonstrate insolvency is found in Sandell v Porter: “The conclusion of insolvency ought to be clear from a consideration of the debtor’s financial position in its entirety and generally speaking ought not to be drawn simply from evidence of a temporary lack of liquidity. It is the debtor’s inability, utilizing such cash resources as he has or can command through the use of his assets, to meet his debts as they fall due which indicates insolvency.”24 [115] The test for what amounts to notice that a company is insolvent was not in dispute. [116] In Jetaway Logistics Pty Ltd v Deputy Commissioner of Taxation,25 the Victorian Court of Appeal explained that: “there is no basis for reading the word ‘notice’ in s 553C(2) as meaning anything other than actual notice. As Palmer J said in Lewis v Doran in relation to s 95A, the words must be construed ‘as they stand, without addition or subtraction’. When Parliament intends that ‘notice’ should include both actual notice and constructive notice, express provision to that effect is made, as might be expected. … … the matters set out in s 459C(2) are the company law equivalent of the acts of bankruptcy set out in s 80(1) of the Bankruptcy Act 1966 (Cth). Each of them establishes only a presumption of insolvency, and only for 23 s 95A of the Act. 24 (1966) 115 CLR 666 at 670. 25 (2009) 236 FLR 295. -- 28 of 33 -- 29 the purposes listed in s 459C(1). Section 553C(2) is concerned with the fact of insolvency, which is quite different. … It is also clear, as [the primary judge] Robson J held, that s 553C(2) requires more than ‘reasonable grounds for suspecting’ insolvency. … A test of that kind was adopted in s 588FG(2)(b), but what must be proved under s 553C(2) is that the creditor had notice of the fact of insolvency. The section requires proof, not that the creditor at the relevant time knew the company to be insolvent, but that the creditor had notice of that fact. As to what constitutes such notice, in our view Robson J was correct when he said: … the test that the liquidators have to establish is that the Commissioner notice of facts that would have indicated to a reasonable person the fact that Jetaway was insolvent. A person will have “notice of the fact” that a company is insolvent if the person has actual notice of facts which disclose that the company lacks the ability to pay its debts when they fall due, within the meaning of s 95. It is unnecessary to show that the person actually formed the view that the company lacked that ability. As the New South Wales Court of Appeal said in Hathaway Shirt Co Pty Ltd v B Rawe GmbH Co, it is ‘well established that there is a difference in law between receiving notice of a fact and being made fully and subjectively aware of the fact’. What is required is proof of facts known to the creditor which warranted the conclusion of insolvency. Since ‘grounds for suspecting’ insolvency will not suffice, it is not enough that insolvency is a possible inference from the known facts. Whether it must be the only reasonable inference open is a question we need not decide. … It must be doubted whether a creditor could be said to have had ‘notice of the fact’ of insolvency if another inference, consistent with solvency, was also reasonably open on the known facts. But consideration of that question should await a case where it falls for determination.”26 (citations omitted) [117] The Commonwealth submitted that the Courier Mail Article, received by Westpac on the evening of 12 March 2022 (7:45pm and 11:16pm), was notice that Condev was insolvent because it provided “objective evidence of facts that gave Westpac notice of the company’s insolvency.” [118] The Courier Mail Article attributed certain remarks to Condev. Those remarks were that the “collapse” of another building company (“Probuild”) had “put some suppliers and subcontractors in financial distress.” It may be assumed these included suppliers to Condev and subcontractors engaged by Condev. It referred to Condev saying it had “prepared financial projections” to understand its “current and future cashflow” and had “sought legal advice” based on the financial projections. It quoted Condev as having expressed a view that, “We cannot do this alone and we need the support of all stakeholders”. 26 (2009) 236 FLR at 299-300 [18]-[22]. -- 29 of 33 -- 30 [119] The journalist’s stated source was an email from an unnamed Condev officer to Condev’s own staff. The Condev officer was seeking the support of Condev staff (as “stakeholders”) through a period that would require cashflow control, likely through restraint on expenditure and attention to the recovery of sums owed and becoming owing to Condev. The cashflow control would need to be applied in circumstances where some suppliers and subcontractors were in financial distress due to the failure of another construction company. [120] This information was added to all that was known to Westpac before then (noted at [73] to 0 above). Since 22 February 2022, Westpac had had the Condev audited financial report for the year to 30 June 2021, financial statements to 31 December 2021 and taxation statements to 8 February 2022. Since 28 February 2022, Westpac had had the Optimist Report showing a liquidity ratio above 1, but a tightening of cash flow, and breaches of the ICR and Equity Ratio covenants. Westpac had notified Condev of the covenant breaches on 8 March 2022. Westpac also knew the funds Condev had in Westpac accounts. Of course, Westpac knew the debts Condev owed to Westpac and when those debts were due. [121] At least by 9.59am on 13 March 2022, Westpac was aware that Condev was seeking increased revenue from existing developers for its construction work. This was when Mr Tibbits was told by an unnamed developer that Condev was “seeking a Variation of $574,149 to enable them to continue on” with the developer’s project, as well as variation amounts on other projects, including perhaps $2.3 million on one project. This was evidence of a likely lack of liquidity. [122] On the morning of 14 March 2022, the internal Westpac view was that Condev’s balance sheet was “still reasonably strong” and the assessment of Condev’s management was that they were “conservative by nature”. These assessments were made with the benefit of information that Condev’s cash at bank (excluding the Term Deposit) had risen from $1,565,694 (30 June 2021) to $2,942,071 (31 December 2021) and to $5,800,000 (13 March 2022).27 The cash at bank formed part of Westpac’s assessment of the available information, including from the Courier Mail Article, made on the morning of 14 March 2022. Objectively considered, it indicated Condev had been addressing its cashflow concerns over nine months, with apparently marked recent improvement. To adopt the language of Mr Moore, Westpac sought to apply a “sanity check” on the media reports, based on the financial information it had from Condev and other reliable information from internal assessments of that information. [123] The meeting between Condev and its developer clients was scheduled for 2:30pm that day. Late that day (7:37pm) Westpac was “awaiting to be briefed” by Condev about “discussions on variation requests on projects”. If any developer did agree to a variation Condev sought, this ought to have improved Condev’s current assets and so its liquidity. Apart from a briefing that evening, Westpac was content to wait until a planned meeting with Condev on 16 March 2022 to obtain further direct information from Condev about its position. Westpac’s lack of urgent concern may, in part, be attributed to its internal view that its lending to Condev was secured by fixed charges over available assets. That view, which proved to be accurate, was supported by an objective assessment of the evidence known by Westpac at that time. 27 By 17 March 2022, this would reduce to $2,029,263; being $6,578,514.44 (agreed total balance of the 16 Westpac accounts), less $5 million (Term Deposit), plus $450,748.81 (BBBL Facilities debt). -- 30 of 33 -- 31 [124] Early on 15 March 2022 (7:50am), Condev told Westpac that the previous day’s meeting with developers was “really respectful” and that “so far … almost equal numbers” of developers had advised Condev that they were “IN” and “OUT” of the proposal put at the meeting. Condev also told Westpac that, “So far, without exception, developers who are leaning towards OUT have advised they wish to take over the contract in its entirety with all staff and subcontractors intact.” Westpac referred Condev’s account to its Credit Restructuring division. It received no further material information about Condev during business hours that day. [125] Late on 15 March 2022 (9:49pm), Westpac was advised that Condev intended to appoint administrators in the morning. When morning came, Westpac received news reports that Condev may be appointing liquidators. With no further information, at 3:26pm, Westpac instructed staff to be ready to “lock down” the Condev accounts if the company was placed in administration, but to “wait for formal notification” from the external administrators “and act accordingly”. The Liquidators lodged their notice of appointment later that afternoon (4:37pm) and notified Westpac (at 4:58pm). [126] According to Mr McNaughton, Westpac did not have Condev on a “watch list” before the Liquidators were appointed. Conclusion on notice of insolvency [127] The test for notice is objective. The subjective view of any Westpac officer is irrelevant. However, the transfer of information to and among the Westpac officers assists in an objective assessment of the ability of an entity in Westpac’s position to reach a conclusion of insolvency about Condev before the relevant credits to the General Accounts were received between 13 and 15 March 2022. [128] The Courier Mail Article, added to what Westpac knew by then,28 could not have permitted Westpac, through its officers, based on a consideration of what was known about Condev’s financial position in its entirety, to reach a conclusion that utilising such cash resources as Condev then had, or could command through the use of its assets, Condev was unable to meet its debts then due or would not be able to pay all its debts, as and when they would become due and payable. [129] Nor did the further information known to Westpac after the Courier Mail Article satisfy the test for notice of insolvency, prior to 9:49pm on 15 March 2022, when Westpac received information that Condev intended to appoint administrators the following morning. [130] In the circumstances, the information then known to Westpac does not satisfy the test for notice of insolvency under s 553C(2). Whether to provide judicial advice [131] The Liquidators sought advice under section 90-15(1) of Schedule 2 to the Act. They also sought ancillary orders, including an order for costs. Section 90-15(1) provides: 28 Seven Westpac officers received the Courier Mail Article between 7:45pm on 12 March 2022 and 7:30am on 13 March 2022. -- 31 of 33 -- 32 “The Court may make such orders as it thinks fit in relation to the external administration of a company.” [132] Some relevant amplification is found in s 90-15(3)(a): “Without limiting subsection (1), those orders may include any one or more of the following: (a) an order determining any question arising in the external administration of the company”. [133] Section 90-15 authorises a court to exercise the power when it is “just and beneficial” to do so and where it is “of advantage in the liquidation”.29 The provision stands in a line of statutes traced to s 34 of the Joint Stock Companies Winding Up Act 1848 (UK),30 which in turn reflects the practice of the Court of Chancery in giving directions to those entrusted with the administration of property under the control of the court. The approach to the exercise of the power is informed by similar considerations to those applied by the Court to advice to trustees. [134] The Court’s power to give judicial advice is confined only by the subject matter, scope and purpose of the statutory provision conferring the power. Section 90-15(1) contains no express words of limitation. It is not appropriate to read it down or imply any limitation on the power or the discretionary factors relevant to its exercise.31 Its purpose, as part of regulating the external administration of companies consistently, is to facilitate officers of those companies (such as liquidators) performing their functions. It should be interpreted widely to give effect to that intention; so, the Court may give advice where it is in the interests of the liquidation to do so.32 [135] There is no question about the appropriateness of the Liquidators’ request.33 The existence of a legal controversy, as there is here, shows how the Liquidators may well be assisted by judicial advice. There is additional utility in granting the Liquidators’ application because, having made a full and fair disclosure of the material facts to the Court, the Liquidators can act in accordance with the Court’s advice without incurring personal liability. [136] There were some other relevant circumstances. [137] Ordinarily, the Court seeks to be satisfied that the external administrators have taken counsel’s advice on appropriate material, in order to conclude that a liquidator (or other officer) would be justified in acting on counsel’s advice.34 Here, the Liquidators had limited funds. Their application for advice was not ex parte. It is not the purpose of 29 Dean-Willcocks v Soluble Solution Hydroponics Pty Ltd (1997) 42 NSWLR 209 at 212 (Young J); Handberg v MIG Property Services Pty Ltd (2010) 79 ACSR 373 at 377 [7] (Warren CJ). 30 (11 & 12 Vict, c 45). See Re GB Nathan & Co Pty Ltd (in liq) (1991) 24 NSWLR 674 at 677A-D (McLelland J). 31 Macedonian Orthodox Community Church St Petka Inc v Petar (2008) 237 CLR 66 at 89 [55] – 90 [59] (Gummow A-CJ, Kirby, Hayne and Heydon JJ). 32 Re Octaviar Administration Pty Ltd (in liq) [2017] NSWSC 1556 at [9] (Black J). 33 Re Ansett Australia Ltd (No 3) (2002) 115 FCR 409 at 428 [65] (Goldberg J); Handberg v MIG Property Services Pty Ltd (2010) 79 ACSR 373 at 380 [19] (Warren CJ). 34 (2015) 106 ACSR 583 at [7]. -- 32 of 33 -- 33 judicial advice to determine substantive rights in contested proceedings.35 However, by its own application for declarations and other relief, the Commonwealth raised specific issues for determination, which concerned substantive rights. The Commonwealth and Westpac actively participated in the proceeding. The relevant facts were agreed by the interested parties. The Court had competing submissions from those well-resourced parties on the legal issues. The Liquidators focused their submissions on issues that were not of importance to Westpac. There was a contradictor for all the remaining matters in issue. Those issues were contested more actively than would ordinarily occur in an application for judicial advice. [138] In the circumstances, it is appropriate to provide advice to the Liquidators pursuant to s 90-15. For the purpose of providing that advice and to determine the Commonwealth’s application, it is necessary to decide the remaining matters in issue. Final disposition [139] The Commonwealth has not pressed some of its contentions and has failed to persuade the Court that there is merit in its other contentions. Westpac has succeeded in its contentions that support the advice sought by the Liquidators and refute the basis for the declarations and orders sought by the Commonwealth. [140] The Court should make an order to the following effect: 1. Pursuant to s 90-15 of Schedule 2 to the Corporations Act 2001 (Cth), the applicants in their capacity as liquidators of Condev Construction Pty Ltd (In liquidation) ACN 101 213 825 (the “Company”) are advised in relation to the external administration of the Company that: a. The applicants would be justified in not causing the Company to pursue the second respondent to recover debts which were owed by the second respondent to the Company immediately before the commencement of the winding up; and b. The applicants would be justified in not treating money paid to the Company by the second respondent since the commencement of the winding up as property comprised in or subject to a circulating security interest of the second respondent as at the commencement of the winding up. 2. The applicants’ costs of the proceeding are part of their costs in the winding up of the Company. 3. The application filed on behalf of the first respondent on 12 April 2023 is dismissed. 4. The first respondent is to pay the applicants’ costs of the amended application filed on 21 February 2023 and the application filed on 12 April 2023. 5. The first respondent is to pay the second respondent’s costs of the amended application filed on 21 February 2023 and the application filed on12 April 2023. 35 Re Westnet WA Infrastructure Holdings Limited (2015) 106 ACSR 583 at [7] (Young AJA). -- 33 of 33 --