Allan Fitzgerald Pty Ltd (in liq), Re v Sogelease Australia Ltd [1994] QSC 101

, .Q.) Bs£ se.. q4/1 o 1 JA• State Reporting Bureau TRANSCRIPT OF PROCEEDINGS (Copyright in this transcript is vested in the Crown. Copies thereof must not ·be made or sold withou.t the written authority of the Director, State Reporting Bu:-eau.) 1 REV~~~E~_,??~.~ESJSSUED, Stc.lc • .... ;.;v; •·•, 'l l:: ~rcau iData ( o I ~ I ~!}f..( (j . SUPREME COURT OF QUEENSLAND . ' £viL JURISDICTION ()"---·/ ./ WHITE J Application No 147 of 1987 IN THE MATTER OF THE COMPANIES (QUEENSLAND) CODE IN THE MATTER OF ALLAN FITZGERALD PTY LTD (IN LIQUIDATION) GRAHAM LINDSAY STARKEY AS LIQUIDATOR .··) OF ALLAN FITZGERALD PTY LTD (IN LIQUIDATION) Applicant \.__/ and SOGELEASE AUSTRALIA LIMITED Respondent BRISBANE . . DATE 0 5 I 0 5 I 9 4 JUDGMENT 1 4th Floor, The Law Courts, George Street, Brisbane, Q. 4000 Telephone: (07) 227 4360. Facsimile: (07) 227 5532 -- 1 of 25 -- 050594 mkg (White J) HER HONOUR: In this application I declare that the payments made by the company to the respondent Sogelease Australia Limited on 9 February 1987 and 31 March 1987 during the period 13 October 1986 to 23 June 1987 are void as against the liquidator of Allan Fitzgerald Pty Ltd (in liquidation) pursuant to section 45.1 of the Companies Code. I order that the respondent Sogelease Australia Limited pay to the applicant liquidator the sum of $24,194.50 forthwith. I order that the respondent Sogelease Australia Pty Ltd pay interest on the above amount from the date of the winding up to judgment pursuant to the Common Law Practice Act at the rate of 12 per cent per annum. I order that the respondent Sogelease Australia Limited pay the applicant liquidator's costs of and incidental to the application to be taxed on the appropriate District Court scale. I publish my reasons. HER HONOUR: It seems to me that if one looks at Order 26 rule 9 subrule 4 it is plain that the drafter has turned his or her mind to the question of excluding interest. One can unaerstand why that might occur because it is just an imprecise and incalculable amount at the time an offer might be made, calculating when the tria.l might be heard and perhaps even more JUDGMENT 2 10 30 40 0 50 60 -- 2 of 25 -- n 050594 mkq (White J) -unpredictable when the judgment might be delivered. It would have been extremely .easy to have dealt with costs in the same way had it been the intention that the costs issue should be excluded from the consideration of what a judgment no less favourable than the offer to settle might be. It seems to me that the offer was an offer to pay a certain amount plus costs. It would have to be understood that they would be costs on the Supreme Court scale, and it seems to me then In that circumstance, I would hold that the consequence of such an offer under Order 26 would not flow in this case and that the orders as to costs will stand on a party and party basis. JUDGMENT 3 10 20 30 40 50 60 -- 3 of 25 -- IN THE SUPREME COURT OF QUEENSLAND Application No. 147 of 1987 Brisbane Before Justice White [Re: Allan Fitzgerald Pty Ltd] IN THE MATTER of THE COMPANIES (QUEENSLAND) CODE - and - IN THE MATTER of ALLAN FITZGERALD PTY LTD (IN LIQUIDATION) BETWEEN: GRAHAM LINDSAY STARKEY as Liquidator of ALLAN FITZGERALD PTY LTD (IN LIQUIDATION) Applicant AND: SOGELEASE AUSTRALIA LIMITED Respondent REASONS FOR JUDGMENT- WHITE J . . . Judgment delivered 05/05/1994 CATCHWORDS: COMPANY - Preferences - Two cheques paid to creditor/respondent within 6 months of filing winding-up application- s.451 Code - Whether in ordinary course of business - Whether in good faith. Counsel: Mr P Hastie for applicant/liquidator Solicitors: Hearing Date: Mr P Hack for respondent/creditor Sly & Weigall Cannan & Peterson for applicant Clayton Utz for respondent 8 June 1993 -- 4 of 25 -- --- _____________________ j ---------~---- --------------------- ---- --------------~ IN THE SUPREME COURT OF QUEENSLAND Brisbane Before Justice White [Re: Allan Fitzgerald Pty Ltd] Application No. 147 of 1987 IN THE MATTER of THE COMPANIES (QUEENSLAND) CODE - and - IN THE MATTER of ALLAN FITZGERALD PTY LTD (IN LIQUIDATION) BETWEEN: GRAHAM LINDSAY STARKEY as Liquidator of ALLAN FITZGERALD PTY LTD (IN LIQUIDATION) Applicant AND: SOGELEASE AUSTRALIA LIMITED Respondent REASONS FOR JUDGMENT- WHITE J. Judgment delivered : 05/05/1994 The applicant is the liquidator of Allan Fitzgerald Pty Ltd (in 1 iquida tion) ( 11 the company 11 ) who seeks a declaration that certain payments made by the company to the respondent/creditor ( 11 Sogelease") during the period 13 October 1986 to 23 June 1987, are void against the liquidator pursuant to s.451 of the Companies Code ("the Code") and an order that Sogelease pay the sum of $24,194.80, together with interest from the date of the winding up. The dates of the payments sought to be declared void are 9 February and 31 March 1987. -- 5 of 25 -- 2 During 1985 and following, the company was engaged in a number of large construction contracts. It was a family company which, it seems to be agreed, had grown very rapidly from 1984. On 13 April 1987 Kenneth William Hayward and Donald Charles Hayward trading as Ken and Don Hayward, Chartered Accountants, filed an application in the Supreme Court of Queensland at Brisbane for the winding up of the company. On 29 May 1987, Kimela Pty Ltd was substituted as the applicant in the application for winding up of the company by order of Senior Master Lee Q.C. (as his Honour then was). On 23 June 1987, the company was ordered to be wound up and the applicant was appointed to be liquidator. Payments on 9 February 1987 in the sum of $13,027.81 and on 31 March 1987 in the sum of $11,166.69 were made by cheque to Sogelease drawn on the account of the company. These sums were payments arising under two leases entered into in 1986 between the company and Sogelease for the provision to the company of a Caterpillar 815B compactor and a Caterpillar 631D scraper. Sogelease admits that at the time when the two payments were made: (a) it was a creditor of the company; and (b) the company was unable to pay its debts as they became due from its own money; and (c) those payments were made in the period six months immediately.preceding the commencement of the winding up. The issues to be resolved on this application are: ( i) were .those payments received. in the ordinary course of business; .and ( ( -- 6 of 25 -- ---- -~--· ·---~~·--------·--··---- )' 3 (ii) were they received in good faith. The operation of s.451 of the Code involves consideration of s.122 of the Bankruptcy Act.1966 (C/w). It ·is convenient to set out the relevant aspects of those provisions: "451 ( 1) A settlement, a conveyance or transfer of property, a charge on property, a payment made, or an obligation incurred, by a company that, if it had been made or incurred by a natural person, would, in the event of his becoming a bankrupt, be void as against the trustee in the bankruptcy, is, in the event of the company being wound up, void as against the liquidator. (2) For the purposes of sub-section (1), the date that corresponds with the date of presentation of the petition in bankruptcy in ihe case of a natural person is - (a) in the case of a winding up by the Court·~ ( iii) the date of the filing of the application for the winding up (3) For the purposes of this section, the date that corresponds with the dat.e on which a person becomes a bankrupt is the date on which the winding up of the company commences or is deemed to have commenced." Section 122 of the Bankruptcy Act provides: "122 ( 1 ) A conveyance or transfer of property,. a charge on property, or a payment made, or an obligation incurred, by a person who is unable to pay his debts as they become due from his own money (in this section referred to as 'the debtor'), in favour of a creditor, having the effect of giving that creditor a. preference, priority or advantage over other creditors, being a conveyance, transfer, charge, payment or obligation executed, made or incurred - (a) within 6 months before the presentation of a petition .on which, or by virtue. of. the presentation of which, the debtor becomes a bankrupt; or (b) on or after the day on which the petition on which, or by virtue of presentation of which, the debtor becomes a bank:J;:"upt is -- 7 of 25 -- -"----- 4 presented and before the day on which the debtor becomes a bankrupt, is void as against the trustee in the bankruptcy. (2) Nothing in this section affects - ;, (a) the rights of a purchaser, payee or .encumbrancer in good faith and for valuable consideration and in the ordinary course of business; (3) The burden or proving the matters referred to in sub~section (2) lies upon the person claiming to have the benefit of that sub-section. (4). For the purposes of this section (c) a creditor shall be deemed not to be a purchaser, payee or encumbrancer in good faith if the conveyance, transfer, charge or payment or obligation was executed, made or incurred under such circumstances as to lead to the inference that the creditor knew, or had reason to suspect - (i) that the debtor was unable to pay his debts as they became due from his own money; and (ii) that the effect of the conveyance, transfer, charge, payment or obligation would be to give him a preference, priority or advantage over other creditors." In 1986 finance brokers, Don Stevens Finance, approached Sogelease on behalf of the company" in order to arrange the leasing of some heavy construction equipment on two occasions. The Brisbane- office of Sogelease, by mid 1986, was quite small and consisted of three people - the manager, Mr Michael Ovens, a credit· analyst,. Ms Lynne Wicks and a secretary. Mr Ovens investigated the credit worthiness of the company and the results ( ( -- 8 of 25 -- 5 of the investigations were sent td head office in Sydney. Each facility was for approximately $200,000. The documents (in ex.1) show that detailed investigations by Sogelease had been undertaken, including an understanding of the current work on \ hand showing contracts of approximately $27 million with $22 million yet to come. Many of those contracts were with State government departments or instrumentalities or local government authorities. Sogelease was in receipt of the audited accounts of ·the company for the previous 2~ years. The · company' :s net profit before tax to 31 March 1986 was $1,723,923 and the company's accountants told Mr Ovens that the trend was expected to continue. Mr Ovens advised approval to head office because of the company's continuing profitability, its cash flow capacity to meet· repayments, the substantial current work on hand, a proposed large first rental, and the company's bank's opinion that the directors were considered honest and reliable and their accounts conducted on a satisfactory basis~ Head office raised some queries which were satisfactorily answered and approval was given. The terms of. the two leases dated 7 July and 11 August 1986 respectively were similar with a high first rental of respectively $30,000 and $40,800 followed by 35 monthly rentals in advance of $5,920.83 and $5,245.86 respectively which were met satisfactorily by bank transfer uritil the December payment. In a lette~ dated 28 November 1986 from Don Stevens Finance on behalf of the company, Sogelease was informed that costs associated with reconditioning the equipment which it had on lease from Sogelease and other equipment financed elsewhere had far exceeded expectations and it was proposed that -- 9 of 25 -- -------- -··-----· --------------- 6 the leases be re-written to include the cost of reconditioning the- equipment. The lette.r concluded: "We a:te proposing that the relevant pieces of equipment be re-written to include the cost incurred to bring th~t equipment up to ~ts present standard. The additional funds generated will then flow back to the client and·overcome the current liquidity problem. You will appreciate that this action is essential to · ensure the on-going efficient operation of the company. In our opinion, it is a measure of the management capability of the directors that this situation has not caused a severe disruption to operations. ·However, if the suggested proposal is not adopted, it would appear that difficulties could eventuate." A schedule of financiers was included, together with a record of the original cost plus repair costs of the equipment. On receipt of this proposal Mr Ovens contacted Brian Hawkes, the accountant in Don and Ken Hayward's office who handled the company's work. Don Stevens Finance again wrote to Sogelease and 21 other financiers by letter dated 4 December 1986 setting out the latest figures for the company, a list of current contracts and a cash flow forecast for the period December 1986 to March 1987, should a three months deferral of lease payments be granted. The writer sought to explain the negative working capital position of the company, contrary to earlier indications, by referring to wages variance caused by development work. on a quarry necessary on a contract at Callide; fuel variance due to price increases in fuel and transportation costs; repairs variance spent on upgrading items of used equipment; consumable supplies variance due to the timing of purchases; field overhead variance relating_ to a serious accident involving construction equipment. It was '. indicated that a working capital inflow of $900,000 was needed for the continued efficient operation of the company. The writer ( ( -- 10 of 25 -- ---------- ~~~~~- 7 set forth three alternatives, (i) to continue "as is" in a tight liquidity situation, the consequence of which ·would be slow payment of creditors and finance companies which would lead to rumours in the earthmoving industry and which would be disadvantageous for the company; (ii) to arrange working capital finance of $900,000 which would be difficult "if notimpossible" to do; (iii) to extend creditors from 30 days to 45 or 60 days and seek deferral for three months' payments from all financiers. The writer went on to conclude th~t this latter option was the only satisfactory solution for the company because it had no further borrowing capacity. The recommendations were justified by setting out numbers of positive aspects about the company and concluded that there was a responsibility to maintain an ongoing commitment to clients' businesses in bad times as well as good, and that the company had been successful in the past and would no doubt continue to be so in the future. The cash flow forecast was qualified by the company's accountants that it had been prepared relying on director's information, had not been audited and the accountants could not express any opinion as to its accuracy. It showed the company moving from a deficit of $343,768 in December 1986 to a positive balance of $819,973 in March 1987. Mr Hawkes, the accountant, who had provided the figures for Don Stevens Finance, gave oral evidence that in the period December to February he had almost daily contact with the major fin·anciers of the company and could recall speaking to Mr Ovens. He was asked at t/s p.41 et seq: "What was your opinion of the position of the company that you expressed at this time to people who asked?-- In December the opinion - in the latter half of December wh~t was offered was virtualli a n~ opinion. -- 11 of 25 -- ~~~~~~~~~-----~--~- --- ------ ---- 8 We were in the situation where we didn't want to - well, let me start again. We were in the situation · where we knew that the company. was having problems. We didn' t know whether those problems could be solved. If the auditors and accountants say to people the company has problems which can't be solved, then that in itself creates a problem for . the company. So, therefore, the position that we adopted, at least - until late January '87, .was that we gave no opinion on the state of the company. We confirmed in a small number of cases that there were cash flow difficulties which we were working on and investigating. Certainly to the finance companies we confirmed that. there were cash flow difficulties because a moratorium was being sought. 11 He formed this view after the company.accounts to 30 September 1986 were prepared on about 7 October. ( Mr Ovens prepared a recommendation for head office in Sydney ( dated 16 December 1986 in which he proposed that a rental holiday be provided by forgoing the December 1986 and the January 1987 rentals to-. alleviate the company's cash flow crisis and to increase the residual values in order to recoup the rentals foregone.· He concluded that the company was trading strongly and pfbfitably except for abnormal items during the first half of 1986 afid- that it had an excellent .credit reputation with trade creditors. and other financiers, . but had requested. the instalment holiday from 22 existing lenders rather than allowing arrears to develop. Three other financiers had by then agreed to this course.. Mr Ovens concluded. that this was preferable 11 to the appointment of a Receiver by the financiers at- this stage as customer confidence in the: borrowers could be impaired. 11 In fact the situation was that most of the .contracts would have been terminated upon the appointment of a- Receiver and performance deposits· ·forfeited, as Mr Ovens_ learnt . in· due course during a conversation in March with Hastings Deering, another financier. -- 12 of 25 -- ! ----·---~-. ---···~·----- ·--···---··--~-----------·----------·-·------ ____ ____j 9 Mr Ovens was comfortable with the value of the equipment, its ready saleability and the large first rental-so that Sogelease's exposure was reduced in the. event of collapse by the comp~ny. Whilst Mr Ovens, in oral e~idence, said that head office, via Mr Clarke, his immediate superior, :agreed with the recommendation, the actual response suggests that it was a reluctant agreement. Mr Clarke wrote: "There is considerable concern that a transaction is proposed just four months ago for a borrower who is now apparently close to receivership. It seems that we have no option but to . grant an.· extension of the two rentals. I am not keen that we increase the residual value to adjust the foregone rentals and would prefer qn extension of two months upon immediate payment of an appropriate interest charge. Would you please negotiate on this basis and at the· same time by physical inspection verify the existence of our security." The com~any was notified on 2 January 1987 that. Sogeleas~. would waive ~ayment of the rentals due in December and·January 1987 until August 1989 to-be paid with the residual value at the end of the lease period and in consideration fees-of ,$3.,865 and $4,150 respectively wer~ to be paid by 15 January 1987 .. That- consideration was the actuarial amount required to maintain' the same yield from the transaction. In· the letter to Don Stevens Finance of the same date Mr Ovens concluded: "We mention that considerable concern was expressed by our Senior Management that a transaction proposed less than six months ago should now be in jeopardy." It is uriclear what then occurred. Mr Ovens believes that he went on his annual holidays for several-weeks. Mr' Hawkes said that he was endeavouring to bring all the finance companies into line -- 13 of 25 -- - ---------- 10 at about this- time, whereby- each would _be paid in full the amounts due -for February .plus 1 I 12 of the amounts in arrears. He hoped by this strategy·to clear the arrears in a year. If the payments fell due before up to the 15th of the month they would be paid on the 8th and after that date the payment would be paid on the 23rd of the month. The Sogelease proposal fell outside those arrangements and it seems· likely, _as best as can be concluded after- such a long period, that Mr Hawkes spoke by telephone to Lynne Wicks when. Mr Ovens-was on holidays to get Sogeleas~'s agreement to his proposal. This is supported by Mr Hawkes' 'letter of 4 February 1987 to Allan Fitzgerald (ex.10) wherein Sogelease is listed along with six other financiers as having- agreed to this proposal whilst other financiers as said to require special terms. A file note by Mr Ovens to Ms Wicks undated, but probably after his return from holidays in the later part of January, suggests that she had made some oral arrangement with Mr Hawkes - with - respect. to the arrears. A _letter from Mr Ovens to the company dated .2 February 1987 after -the first impugned cheque-was received suggests that Mr Ovens still was not ad idem with the arrangements of which Mr Hawkes wrote on 4 February . - A cheque was received by Sogelease from the company on 30 January 19S7 for $13,027.81 with a remittance advice which reflected the arrangement.explained by Mr Hawkes -payment for February and 1 I 12 of the two months arrears. The cheque was dated 8 February 198~ and the advice was to bank it on that date. -Mr Ovens wrote to the companyon 2F'_ebruary 1987 mentioning that the offer in the earlieF Sogelease letter of 2 January.1987 -- 14 of 25 -- -------~ -~---~ --~--~~- -~~---~~---~ ~---- --~~----~-~--~-~~-~-~~----~--· 11 should be regarded as lapsed in view of the receipt of the cheque for December rentals plus interest on arrears and requesting that the account be regularised. On the 1 0 February Mr Ovens telephoned Mr Hawkes who advised him that his firm~s arrangement with the company had been terminated, that he·shoul~ contact Mr Fitzgerald directly and that the cheque banked on 9 February should clear. At the same time Mr Clarke in Sydney advised discussions with Mr Fitzgerald before issuing default notices. Mr Ovens spoke with Mr Fitzgerald.on 11 February 1987 who said that his aim was to pay "everybody some funds" in January 198.7, but that the 6ompany still required a rental holiday for two months to enable its cash·flow to pick up and pref~rred to "catch up" the payments at ·the end of 12 months because of the cost of deferring for a longer period. Mr Oven.s prepared a further credit facility submission d}:tteq .. 13 February ~987 for Sydney which included the following: "We have been discussing the matter direct with Allan Fitzgerald who is confident that the rescheduling of finance company commitments has averted a collapse and that current cash flow is sufficient t6 meet commitments on a monthly basis . - · postponed rentals will be met from the orderly sale of surplus equipment. A precautionary Murrays Credit Bureau Report , (attached) reveals some recent trade creditor action, but no finance company collection activity." The Murrays Credit Bureau report showed a number of actions commenced in the Supreme and District Courts, but Mr Ovens tended to dismiss those in oral evidence as "normal trade disputes". Sydney ·agreed to rewrite the ~eases to allow a two month instalment holiday and the terms.were.conveyed to the company on 11 March 1987. Mr Ovens contacted a representative of Hastings -- 15 of 25 -- 12 Deering,· a Mr Godfrey Wilden, whose company had supplied significant finance to the company. Mr Ovens explained in his evidence that the· company was exposed to some 20 or more financiers all of whom had agreed to the rent holiday - itself regarded as something of a feat- and· it was essential that none 11 broke ranks 11 if the arrangement was to · succeed. It was therefore essentiaL for Sogelease ·to know the attitude of a major financier like Hastings Deering. It appears that_Mr Wilden told Mr Ovens that no funds were presently available from the company because· some - financiers who were owed arrears had taken possession of their goods and· when funds had come in from progress. payments the company had to _utilise those funds to satisfy them completely. He said that $2 million had come in but all funds had been utilised and the next receipt of moneys would berequired to pay wages. Mr Wilden indicated that the company was losing money on some contracts. He also told him that Hungerford~·were the new accountants for the company and that there was some suggestion that they should_ act as 11 quasi 11 re-ceivers because the government contracts would be lost if a receiver-were appointed, and the performance deposits would be forfeited. Mr.Ovens-was informed that about $2.5 million was coming .in per month .which would be directed to creditors. As the company·completed its jobs it was selling off its equipment and utilising those funds for creditors. Mr Ovens was _told that the company expected to be out_ o·f _its financial cash flow problems within 10 months. In his oral evidence Mr Ovens said that after this conversation he was st_ill of the view that the company was trading strongly and profitably. ( -- 16 of 25 -- --- -" "~---" ---""""""""---"""--"------ ----- 13 ' On 20 March 1987 Mr Ovens telephoned Mrs Margaret Fitzgerald, a director o£ the company, to discuss the new lease arrangements and requested that lease rentals that were then due in early March be paid. She referred him toMs Gail Kolb, in the company's accounts department. Mr.Ovens had a" diary memo made at the time that Sogelease required the rental "as" a sign of good. faith before the agreements" could be processed but could not recall if he actually said this to_Ms Kolb. On 27 March, a Friday, Ms Kolb telephoned Mr Ovens to say that .a cheque was being posted that day for banking on the following Tuesday·but that he should check with her that there was sufficient funds to meet the cheque. Mr Ovens said in oral evidence that this was not unusual when a company was waiting for progress claims to be received- in this case a government cheque .. The cheque from the company was .received in the sum of $11,166.99 forward dated to 31 March 1987 and with a "with compliments" slip dated 27 .March_ 1987 asking Mr Ovens to contact Ms Kolb before presenting the cheque for clearance. Mr Ovens now believes that he would have telephoned her. He· said that his state of mind was not greatly different then at the end of March as it had been in Decemper as to the company's solvency. - He said that Sogelease was continuing to receive rentals, albeit with a certain amount of £ollow up, but that, as far as he knew, na other financiers had taken any action against the company and he believed, after constant conversations with the firm's accountants, that the company would trade out of this crisis. in 10 months. He said he had no information that anybody else's accounts were any worse than Sogelease's and that all were beiDg treated reasonably equally. -- 17 of 25 -- 14 By the end of April .1987 the Brisbane of:fice of Sogelease was to close and all accounts were transfe~red to Sydney. Mr Overis says that he left Sogelease_ feeling that all accounts were in reasonable order. Mr David Peek took over the Brisane accounts in the Sydney office and perused the files in April 1987. There was evidence from Mr Ovens that some of his diary notes were missing from the company's file with Sogelease which might have been of -assistance on the present hearing. The file was sent from Brisbane to Sydney and brought to the oral examination in the District Court and was moved about thereafter. No inferences adverse to either-· party can be drawn from the failure to produce those notes. Ordinary. Course of Business The test generally preferred. as to what constitutes ''the ord'inary · course of business" as found in s. 122 ( 2) (a) of the Bankruptcy Act is that of Rich J in Dowling Distributing Co Pty Ltd v. ·Associated Blue Star Stores Pty Ltd (in Liquidation) (1948) 76 CLR 463 -at p.477: 11 The provision. does not· require that the transaction shall be in the course of any particular trade, vocation or business. It speaks of. the course of business in general. But it does suppose that according to the ordinary and common flow of transactions in affairs of business there is a course, an ordinary course.· It means that the· transaction must fall into place as part of the undistinguished common flow of business done; that_it should form part of the ordinary course of business as carried on, · callin~ for no remark and arising out of no special or particular situation." See also, Re Cummins (t/a Nam Constructions): Ex parte Harris & Another v. ARC Engineering Pty Ltd (1985), 62' ALR 129 per Pincus. . J at pp.135-7 and Re Toowong Trading Pty L£d (in Liquidation) ' (1988) 13 ACLR 121 at p.127 per Ryan J. -- 18 of 25 -- ! -- ·-------~----------·- ------- ~--- ··-------------~---·---- _____________________j 15 Mr Ovens sought to maintain that there was nothing unusual in his business about arrears for a month or so 4 .or of post-dated cheques being held pending a progress payment being made. Just because these things occur from time to time. in -th~ world of financial institutions hardly makes them fit to be described as 11 in the ordinary course of business" as expressed in s. 122. The arrangement in place immediatel~ up6n the leases being executed was that the rentals were to be made by automatic bank transfer. That authority was either revoked or the bank declined to make any further payments because no payment was received in December or January on the due date and the cheque received on 30 January 1987 was post-dated and did not bring the arrears up to. date. The same is true for the cheque dated 31 March 1987._ I conplude that neither the cheque presented on 9 February 1987 nor that of 31 March 1987 was received in the ordinary course of business. ) Good Faith Pursuarit to-s.122(4) of the·Bankruptcy Act, a creditor shall be deemed not to be a payee in good faith if the payment was made under such circumstances-as to lead to the inference that the creditor had reason to suspect: (a) that the debtor was unable to pay his debts as-·they became due from his own money; and (b) that the effect of the payment would be to give him a preference, priority or advantage over other creditors. The test as to whether it could be inferred that a cr~ditor knew or had reason to suspect that a debtor could not pay it~ debts as they fell due from its moneys is generally accepted to be that -- 19 of 25 -- ------------- --------- 16 enunciated by.Kitto J. in Queensland Bacon Pty Ltd-v. Rees (1966) 115 CLR 266 ;:at p.303,· whe:ce hi's Honour said: "A suspicion that-something exists is more than a mere idle wondering whether it exists or not; it is a positive feeling of actual apprehension or mistrust, amounting to "a slight opinion, but without sufficient evidence~, 'as Chamber's dictionary expresses it. Consequently, a reason to suspect that a fact exists is more than a reason to consider or look into the possibility of its existence. The notion which ·"reason to suspect" 'expresses in sub-s.(4) is, I think, of something which in all the circumstances would c.reate in the mind of a reasonable person in the position of the payee an actual apprehension or fear that.the situation of the payer is in actual fact that which the sub-section describes - a mistrust of the payer's ability to pay his ·debts as they become due and of the effect which acceptance of the payment would have ~s between the payee and the other creditors." Notwithstanding that Mr Ovens maintained that he had a belief that the company was trading profitably in January/Febru~ry and at the end of March and that his memoranda to headquarters were optimistic, the test is objective, Queensland Bacon v. Rees. The letters from Don Stevens Finance dated 28 November 1986, 4 December 1986 and 8 December 1986 plainly stated that the _, company was in financial difficulties and in fact in a negative cash flow situation. The inference was clearly able to be drawn that unless the 22 financiers agreed to a rent free period, the company could not meet its debts. In order for that plan to . . -; succeed all or in any event, most of the financiers had to agree and maintain that agreement. Whatever the state of agree~ent between Sogelease and the company as to the rent free holiday, when the cheque dated 8 February 1987 was sent to Sogelease, it was post-dated and was not for all of the arrears and Mr Ovens sought to have the account regularised. Mr Clarke in Sydney ( -- 20 of 25 -- -------- ---------- --- ---- ---------- -------------- 17 clearly had some serious misgivings about the financial health of the company which were more than "an idle wondering". In March there were discussions with Mr Fitzg~rald in ~hich he virtually admitted that without a fresh arrangement for a rent free period the company could not make its due payments under the leases. He said that he was hoping to pay all of the creditors something. The discussion with Mr Wilden of Hastings Deering informed Mr Ovens that some financiers had taken possession of their goods and tha~ there were losses on some contracts; Those revelations would lead to a reasonable person in the position of Sogelease to have an actual apprehension that- the Company could not pay its due debts without special arrangement. I accept that in the construction industry, where pay~ent is made progressively, a certain commercial latitude is allowed when the owner is recognised as financially reliable, for payments to get behind occasionally. That is not the case here. There were a host of explanations offered to Sogelease in December 1986 as to why the company was in financial difficulty and matters had objectively deteriorated by January and in February and March. Sogelease could have repossessed their equipment but default notices had to be issued and a decision was taken to "stay with" the company. Contrary to Mr Ovens' own view, that decision does not demonstrate that Sogelease did not have reason to suspect that the company could not pay its debts from its own money when they fell due. There could be no other conclusion than that the company was insolvent at the relevant times. --~ -- 21 of 25 -- 18 Sogelease ~as aware that the company had many creditors, bot~.numerous financiers and suppliers, from the letters of Don Stevens Finance, which it clearly accepted. Mr Oven~ was in communication with Don Stevens Finance and with Mr Hawkes. He was well aware that ''deals" were being sought to be done with the creditors of the company. He was aware that writs or plaints had issued in relation to disputes. Mr Hawkes said in evidence that during the relevant period creditors were being paid selectively according to their value to the .company and its continuing operations. Against the background of what was going on and the discussions that were being held, in my view, it could reasonably be inferred that a payment in February to Sogelease would be under$tood as a preference as against those creditors with whom an arrangement had not been made. By the time the 31 March cheque was presented, Mr Ovens knew that certain creditors had repossessed their goods and had been paid out so that the work could~keep ~oing. Sogelease would have understood, or could reasonably have inferred, that the payment to it_ of the cheque of 31 March.would be to its advantage as against other creditors of the company. Accordingly, I conclude that payments in the sum of $24,194.80 made to Sogelease. Australia Limited by Allan Fitzgerald.Pty _Ltd between 13 October 1986 and 23 June 1987 are void as.against the applicant/liquidator. Interest The applicant seeks interest from the date of the winding up to the date of judgment consistently with decisions such as Re Mike Electric (Aust) Pty Ltd (in lig) (1984) 71 FLR 117 and Re Toowong Trading Pty Ltd, supra. Mr Hack, for Sogelease, -- 22 of 25 -- 19 submits that since the liquidator has taken a long time to bring this matter on that interest ought not to be granted over the whole period. There were no features of inordinate delay pointed to on the part of the liquidator and Sogelease has had the benefit of the payment throughout the entire period. There is nothing to persuade me that interest is not payable pursuant to the Common Law Practice Act over the whole period from the date of winding up to judgment and I so order. Costs The total claim made by the liquidator against the company in its points of claim dated 18 June 1991 pursuant to ss.368(1) and 451 of the Code wa~ $46,530.88. Mr Hack has submitt~d that the appropriate Court in which to bring the claim was in the District Court and the costs should be awarded on the· appr.opriate scale for that Court. Mr Hastie, for the liquidator, referred to Re Satellite Productions Pty Ltd (in Liquidation); Sky Channel Pty Ltd v. Gray · (1992) 9 ACSR 519 and Churcher v. Edwa~ds To0n Carpets (Reg) (1993) 11 ACLC 393. Both cases concerned s.592· of the Corporations Law and involved attempts to have ihferior·state courts hear civil actions for the recovery of damages against former directors of an insolvent company. Those decisions concerned the Law and the national scheme which seeks to bring . . . the State and Territory Supreme Courts and Federal Court together in a common jurisdictional framework and they are of ·little relevance to the matters arising under the Code. The District Court has jurisdiction to hear and determine all personal actions where the amount sought to be recovered does not exceed $200,000 (see s.66 District Court Act 1989). -- 23 of 25 -- 20' It is settled that a payment of the kind contemplated by s.451 of the Code is not void by: force of the insolvency itself, but only void or voidable at the election of the liquidator. In Federal Commissioner of Taxation v. Jagues, (1956) 95 CLR 223, Dixon CJ, Fullagar, Kitto and Taylor JJ, referring to s.95 of the then Bankruptcy Act· 1924- 50, which was- the equivalent to s.122 of·the present Act, considered the effect of such a section at p.229: "It simply · renders certain ·transactions void as against the trustee, leaving the general law or other statutory provisions to supply appropriate remedies for the situations thus created. Its operation in respect of a payment to a creditor (and for present purposes the other kinds of transactions to which it applies may be ignored) is to make the payment, as against the trustee, void as a payment, so that, in favour of the trustee, the creditor must be considered to have received money which belongs to the bankrupt's est~te,· and his debt must be consid~red not to have been paid. The trustee's remedies are to sue for the recovery of the money as money had and received to his use, which is a remedy provided by the common law: ·Marks v. Feldman (1870) LR 5 QB 275, at pp. 281, 282, 284; Bowling v. Cox (1926) AC 751, at p.754; Re an Intended Action; Trustee of Rousou v. Rousou (1955) 2 All ER 1 6 9 ; 1 WLR 5 4 5 ; 11 There is thus force in the submission that the liquidator is enforci~g a debt when seeking to have a payment declared void pursuant to s.451 of the Code. It might thus be brought in the District Court. Mr Hastie submitted that it was more convenient to have all matters pertaining to the winding up of the company . . ;. , heard in this Court. That seems to be no answer to the submission. Oral examinations of person into the affairs of a company pursuant to s.541 of the Code are frequently undertaken in the District or Magistrat~s Courts and documents from a file held in another court are regularly required at no great inconvenience in some other court. The question of costs is however a significant one, and in the absence of a more ( -- 24 of 25 -- ' - _______________ ___J 21 compelling submission there is no other reason advanced for the initiating of recovery proceedings in the Supreme Court where the amounts claimed at the time fell well below the jurisdiction o£ this Court. The original claim was for $46,530.88. Accordingly, although the liquidator has been successful, I consider that there was no reason not to commence the action in the District Court, it having power to grant all of the remedies sought by the liquidator, (see s. 67 of the District Court Act 1989). I order that Sogelease pay the liquidator's costs of and incidental to the application to be taxed on the appropriate District Court scale. The orders are: 1 . Declaration that the payments made by the company to the respondent Sogelease Australia - Limited; on 9 February 1987 and 31 March 1987 during the period 13 October 1986 to 23 June 1987 are void as against the liquidator of Allan Fitzgerald Pty Ltd (in Liquidation) pursuant to s.451 of the Companies Code. 2. Order that the respondent Sogelease Australia Limited pay to the applicant liquidator the sum of twenty-four thousand one hundred and ninety-four dollars and eighty cents ($24,194.80) forthwith. 3. Order that the respondent Sogelease Australia Limited pay interest on the above amount from the date of the winding up to judgment pursuant to the Common Law Practice Act. 4~ Order that the respondent Sogelease Australia Limited pay the applicant liquidator's costs of and incidental to the application to be taxed on the appropriate District Court scale. -- 25 of 25 --