Allan Fitzgerald Pty Ltd, Re [1992] QSC 346

TRANSCRIPT OF PROCEEDINGS (Copyright in this transcript is vested in the Crown. Copies thereof must not be made or sold without the written authority of the Director, State Reporting Bureau.) SUPREME COURT OF QUEENSLAND CIVIL JURISDICTION RYAN J No 147 of 1987 fR~y~~'!-g_~;~~~-~~~?:~oj· LL?~~~( ~· '(:··~iG IN THE MATTER OF THE COMPANIES (QUEENSLAND) CODE and IN THE MATTER OF ALLAN FITZGERALD PTY LTD (In Liquidation) BRISBANE .. DATE 29\09\92 JUDGMENT 1 4th Floor, The Law Courts, George Street, Brisbane, Q. 4000 Telephone: (07) 227 4360. Facsimile: (07) 227 5532 -- 1 of 17 -- 290992 HIS HONOUR: I declare that pa~~ents in the sum of $23,869.95 during the period from 13 October 1986 to 13 April 1987 are void as against the applicant liquidator. I order the respondent forthwith to pay to the company, Allan 10 Fitzgerald Pty Ltd (in liquidation}, the sum of $23,869.95, together with interest therein at 12 per cent per anntoo from the date the liquidation commenced. That amounts to a total of $39,285. I order that the respondent pay the costs of and incidental to this application and any reserved costs to be taxed. I publish my reasons. JUDGMENT 2 20 30 40 50 60 -- 2 of 17 -- IN THE SUPREME COURT OF QUEENSLAND CIVIL JURISDICTION Application No. 147 of 1987 IN THE MATTER of the Companies (Queensland) Code - and - IN THE MATTER of ALLAN FITZGERALD PTY. LTD (In Liquidation) JUDGMENT - RYAN J. Delivered the Twenty-Ninth day of September, 1992 Counsel: Mr. P. Hastie for Applicant Mr. A.W. Stone for Respondent Solicitors: Messrs. Sly Weigall Cannan & Peterson for the ApplicantMessrs. MacGillivrays for the Respondent Hearing Date: 07.09.92 -- 3 of 17 -- IN THE SUPREME COURT OF QUEENSLAND CHAMBERS No. 147 of 1987 IN THE MATTER of the Companies (Queensland) Code - and - IN THE MATTER of ALLAN FITZGERALD PTY. LTD (In Liquidation) JUDGMENT - RYAN J. Delivered the Twenty-Ninth day of September, 1992 The applicant who is the liquidator of Allan Fitzgerald Pty. Ltd. (In Liquidation), referred to as "the company" seeks a declaration that payments made by the company to the respondent, National Westminster Finance Australia Ltd., during the period from 13 October, 1986 to 13 April, 1987 are void as against the liquidator pursuant to s. 451 of the Companies Code, and an order that the respondent pay a sum of money to the applicant together with interest. The application for the winding up of the company was filed on 13 April, 1987. An order for winding up was made on 23 June, 1987 and the applicant was appointed liquidator. It is alleged that during the period commencing six months before the date of the filing of the application to wind up payments were made by the company to the respondent totalling $44, 284.57. It is further alleged that at the time when each of these payments were made, the respondent was a creditor of the company, and the -- 4 of 17 -- 2 company was unable to pay its debts as they became due from its own resources. These allegations are admitted by the respondent. It is then alleged that at the time when each of the payments as made, the respondent knew or had reason to suspect that the company was unable to pay its debts as they became due from its own resources, and that the effect of the making of such payments by the company would be to give the respondent a preference, priority or advantage over the other unsecured creditors of the company. This is denied. A further allegation that each of the payments had the effect of conferring upon the respondent a preference, priority or advantage over the other creditors of the company for the purposes of s. 451 of the Companies Code was denied in the points of defence, but I was informed that the respondent was no longer challenging the evidence that the respondent was being paid in preference to the other creditors at the relevant time. It relied on s. 451 of the Companies Code and s. 122(2) of the Bankruptcy Act, and claimed that if the payments received from the company did constitute a preference, priority or advantage over the unsecured creditors of the company, by virtue of these provisions the payments were not void as against the liquidator. Eleven leases were tendered which were made by the company, or its predecessor Tomwin Pty. Ltd. and the respondent. These were:- (1) Lease No. CLP 45400183/02, made 2 March, 1984. This relates to the lease of a bulldozer. Monthly instalments of rent were $2,645.87. -- 5 of 17 -- 3 (2) Lease No. LM40400817-10, made 10 February, 1986, for the lease of a Ford Falcon Sedan. Monthly instalment of rent were $504.41. (3) Lease No. LM40400763-15, made on 15 January, 1986, for the lease of a Toyota Landcruiser. Monthly instalments of rent were $480.03. (4) Lease No. 92787-007MV 47, made on 15 August, 1986, for the lease of a Toyota Landcruiser diesel. Monthly instalments of rent were $555.17. (5) Lease No. 92787-008MV48, made 15 August, 1986, for the lease of a Toyota Diesel Landcruiser. Monthly instalments of rent were $555.17. (6) Lease No. 92787-009MV49 made on 15 August, 1986, for the lease of a Toyota Landcruiser diesel. Monthly instalments of rent were $555.17. (7) Lease No. 92787-010, made on 20 August, 1986, for the lease of a Toyota Landcruiser diesel. Monthly instalments of rent were $555.17. (8) Lease No. LM40400768-20, made on 20 January, 1986, for the lease of a Ford Falcon panel-van. Monthly instalments of rent were $381.71. (9) Lease No. LM40400785-20, made on 20 January, 1986, for the lease of a Toyota Landcruiser. Monthly instalments of rent were $480.03. (10) Lease No. 40400784-20 made on 30 January, 1986, for the lease of a Toyota Landcruiser. Monthly instalments of rent were $480.03. -- 6 of 17 -- 4 (11) Lease No. 40400797-30, made on 30 January, 1986, for the lease of a Ford Falcon utility. Monthly instalments of rent were $515.61. Mr. Peter Chalkley, the general manager of Don Stevens Finance, who are finance brokers, gave evidence that at some time in 1986 Allan Fitzgerald told him that he had a few problems in terms of cash flow at the time. Mr. Chalkley suggested as one possible solution to contact all the finance companies involved and ask for a moratorium of payments for a period of time. He wrote a letter to 22 companies, including the respondent. The letter to the respondent, dated 5 December, 1 9 8 6, (Ex. 1 9 ) attaches the latest financial figures provided by the company. Also attached is a list of current contract work and cash flow forecast prepared by Fitzgerald's accountant. Reference is made to certain matters relevant to the September quarter's figures. Included in these is reference to field overhead variance, which is stated to relate to an accident between two scrapers on 6 August 1986, in which damage to the extent of $500, 000 was caused. It is stated that repairs were not expected to be completed until April, 1987. It is stated that the overall result of the matters was a negative working capital position of the company, and that a working capital inflow of $900,000 was needed for the continued efficient operation of the company. The letter then set out three alternatives: (1) Continue "as is" in a tight liquidity situation; ( 2) Arrange working capital finance of $900,000; (3) Extend creditors from 30 days to 45 or 60 days and seek deferral of three months payments from all financiers. It recommended the third option, and stated that -- 7 of 17 -- 5 this was the only satisfactory solution. It stated that the letter was being sent to all 22 financiers with which the company was involved. It concludes that "to pursue a permanent solution, what is needed is a three month extension or rewrite of each and every leasing, hire purchase and bill of sale contract involved." A reply was sent to this letter on behalf of the respondent, dated 10 December, 1986, in which it is stated that it would communicate its response to its client when an appropriate decision had been made. On 8 December, 1986, a further letter had been sent by Mr. Chalkley to all 22 companies, including the respondent enclosing the cash flow forecast prepared by Fitzgerald's accountant which reflected the effect of the three month payment delay recommended in his previous letter. I was informed by counsel for the respondent that it was common ground that it said "no" in response to the company. Mr. Hawkes, a chartered accountant, was working for a firm of accountants which did work for the company. Over the period late December, 1986 until early February, 1987 he worked extensively on matters relating to the company, and in particular on the question as to what was causing a shortage in its cash flow. He said that he had seen ex. 19 (the letter of 5 December 1986 from Don Stevens Finance) and also the letter dated 1 0 December, 1986 (ex. 21) from the respondent to the company, in which it referred to the letter from Don Stevens Finance and stated that "the best and most obvious solution to the problem is per item 2 of Don Stevens three alternatives - temporary working capital advance from your bankers". It ended by stating -- 8 of 17 -- 6 that "we look forward to the continuation of your repayments in the normal manner." He said that after 23 December, 1986, he developed a plan for payment of particular finance companies and set about putting it into action. The plan developed was that each finance company would be paid its normal payments for February and thenceforth normal payments on the due dates in the month, and each month would receive one-twelfth of the arrears outstanding. The extra payments were to take place for the first time in February, 1987. He said that the respondent had initially responded as in ex. 21, but by 3 February it had accepted the suggestion of accepting a normal payment plus arrears. He said that he was quite sure that he had telephone conversations about this arrangement with employees of the respondent, but admitted that he had no specific recollection of any conversation with anyone from the respondent. He was however shown a letter which he had written in which he listed the respondent as having accepted a deal to this effect: "Pay normal pays February and March on 8th and 23rd plus one-twelfth arrears and review system at or prior to end of March with view to resuming PDA's and/or raising arrears payment. Overdue interest to be paid as invoiced." A schedule was prepared from a book of the company (ex. 13) containing details of its leases, together with its plant list (ex. 17) and its bank statements (ex. 12). This is as follows (ex. 36) : -- 9 of 17 -- 1 ALLAN FITZGERALD PTY LTD (IN LIQUIDATION) - LIST OF PAYMENTS TO NATWEST EX NO. COMPANY LEASE LEASE NO. CO.PLANT MONTHLY MONTHLY OCT 86 NOV DEC 86 JAN REGISTER NO. INSTALMENT WITHDRAWAL 86 87 DUE DATE DUE BANK STATEMENT DATE DUE DATE DATE DATE DATE EACH PAID PAID PAID PAID MONTH PER LEASE Ex. 1 2 106069-002 06 2,645.87 2,647.37 02/03/84 27/10 CLP 45400183/2 Ex. 2 17 092787-6 MV 39 504.41 505.91 10/02/86 07/10 07/11 08/12 07/01 (AKA LM400817.10) Ex. 3 1 5 092787-1 MV 34 480.03 481.53 15/01/86 15/10 26/11 15/12 15/01 (AKA LM40400763.15) Ex. 4 15 092787-007 MV 47 555.17 556.67 15/08/86 15/10 26/11 15/12 15/01 Ex. 5 15 092787-008 MV 48 555. 17 556.67 15/08/86 15/10 26/11 15/12 15/01 Ex. 6 15 092787-009 MV 49 555. 1 7 556.67 15/08/86 15/10 26/11 15/12 15/01 Ex. 7 20 092787-010 MV 50 555.17 556.67 20/08/86 15/10 26/11 15/12 15/01 Ex. 8 20 092787-2 MV 33 381 . 71 383.21 20/01/86 16/10 26/11 16/12 16/01 (AKA LM40400768.20) Ex. 9 19 092787-3 MV 32 480.03 481.53 20/01/86 20/10 26/11 22/12 20/01 (AKA LM40400785.20) Ex. 10 19 092787-4 MV 35 480.03 (AKA LM40400784.20) 481.53 30/01/86 20/10 26/11 22/12 20/01 Ex. 11 17 092787-5 MV 36 515.61 (AKA LM40400797.30) 517.11 30/01/86 27/10 25/11 29/12 -- 10 of 17 -- 8 There was tendered a remittance advice (ex. 35) which was prepared by Mr. Hawkes to be attached to the cheque to be paid on 8 February 1987 for payment of normal lease payments due up to and including 15 February, plus one-twelfth of the arrears outstanding as at 26 January. details: This contains the following Natwest Prefix 092787 Unit. Due Normal Pay Arrears D6 2 2645.87 7937.61 MV39 17 504.41 MV34 15 480.03 MV47 15 555.17 MV48 15 555. 17 MV49 15 555. 1 7 5295.82 661.47 (one-twelfth arrear) 5957.29 Pay 8.2.87 Cheque No. 369620 Mr. Charlton, who was formerly the collections manager of the respondent, compiled from its ledger records a break-up of three repayments by the company which shows how sums received were allocated by the respondent to particular leases. The first repayment was in the sum of $5,957.29 on 8 February 1987. It is allocated to two leases, Ex. 1, in the amount of $5,291.74 which is twice the monthly instalment; and ex. 11 in the amount of $665.55. The second, in the sum of $10,204.30 received on 17 March, 1987 is allocated to all 11 leases, in the amount of twice the monthly instalment in respect of ex. 1, and the amount of the monthly instalment in all other instances except ex. 11, where -- 11 of 17 -- 9 the amount allocated is $365.67. The amounts allocated to ex. 11 combined equal twice the amount of the monthly instalments due in respect of it. The third, in the sum of $7,708.36 received on 10 April, 1987, is allocated to each of the leases, in the amount of the monthly instalment due on each lease. Mr. Charlton agreed that the April cheque could be for some payments made in February or March, and that the collection of two payments in February and March could be attributable to the payments being overdue. Mr. Charlton said that notices were sent with respect to ex. 1 on 9 December, 1986 and 16 December, 1986, the latter being a final notice. Another notice and final notice were sent in February. A first notice was sent on 23 November 1989 in respect to ex. 3 and thereafter on 22 February, 1987, with a final notice in March, 1989. In respect to ex. 4, notices were sent on 23 November, 1986, and further notices were sent in February and March. In respect to ex. 5, a notice was sent on 23 November, in February, in March and 22 April, 1987. In respect to ex. 6, notices were sent on 23 November, 1986 and in February and March, 1987. In respect to ex. 7, notices were sent on 27 November, 1986 and in February and March, 1987. In respect to ex. 8, notices were sent on 27 November, and in February and March, 1987. In respect to ex. 9, notices were sent on 27 November, 1986, 28 December and February and March, 1987. In respect to ex. 10, notices were sent in November, December, February and March. In respect to ex. 11, the first notice was sent on 8 February, 1987 and the other notices on 15 February, 1987 and in March, 1987. -- 12 of 17 -- 10 Mr. Edwards, who was a credit officer with the respondent at the relevant time, had responsibility for the Allan Fitzgerald accounts. He said that the first occasion upon which he had need to attend to them would have been about March, 1987. He said that a computer in Sydney generated notices when accounts were seven days and 14 days overdue. It also generated a letter, and a print out stating what letters were going out that day. This was signed by two officers in Sydney, to verify that the letter had been sent in the mail. He said that the first time he would become aware of an account would be when it was at least 14 days overdue, when a computer report would have to be manually actioned. The first and second notice was sent out automatically by the computer. Mr. Edwards said that on 10 March, 1987 he spoke to Mr. Fitzgerald's secretary and told her that the total arrears of the account was $10,204.30. She told him that they did not have sufficient funds to pay all the arrears, but that she would work out how much she would have and she would phone back later that day and the cheque would be delivered later that day. Next day he went and collected a cheque for the full arrears and banked it. That covered the arrears up to and including the month of February. Mr. Edwards said that he knew prior to the phone call there had been a post-dated cheque on one of the other accounts. He said that it was not unusual to go and collect a cheque when an account was overdue. The post-dated cheque was dated February, 1987, and was received on 5 February in respect of a machine (ex. 1) for payments for December and January. He said that a post-dated cheque was not unusual in the normal -- 13 of 17 -- 11 course of business. On 3rd April, he spoke again to Mr. Fitzgerald's secretary. She told him that the company would make a payment on all the accounts by 10 April at the latest. He told her that the respondent wanted the full funds before that, but he did not follow up the matter until 9 April, and on 10 April, he collected a cheque and banked it. Mr. Edwards gave evidence, subject to objection, that it was not unusual for finance companies to have the payments due under a lease overdue a few days. He said that in the case of the respondent company a late payment would not come to the attention of anybody until it was 14 days overdue. It is convenient to consider the position over three periods (a) Prior to 5 December, 1986; (b) Between 5 December, 1986 and 8 February, 1987; (c) After 8 February, 1987. During the first of these periods, that is, prior to the receipt of the letter from Don Stevens Finance, the only matter which requires consideration is the sending of notices in November for late payments in respect to eight leases (exs 3 to 10). These notices were computer generated. I do not consider that the fact that notices were sent out as a result of a computer programme instituted by the respondent rather than as the result of a decision made by a credit officer after reviewing a file is of any significance in determining whether there was reason to think that the company was unable to pay its debts as they became due. A respondent is unable to shield itself from knowledge of facts by the use of an automatically operated process. At the same time, I consider that knowledge that some accounts were overdue by a few days would not reasonably lead the -- 14 of 17 -- 12 creditor to suspect that the debtor was unable to pay its debts from its own money as they became due. I admit and accept the evidence of Mr. Edwards that it was not unusual for finance companies to have payments due under a lease overdue a few days. I am satisfied in respect to payments made prior to 5 December, 1986 that they were received by the payee in good faith and for valuable consideration and in the ordinary course of business. On 5 December, 1986, the respondent received the letter from Don Stevens Finance. This indicated that the respondent was at the time in a tight liquidity situation due to exceptional circumstances including damage to a scraper, but the attachments to the letter indicated it had assets in excess of $2 million, that it had adequate work on hand, and that its budgeted income for 1986-87 was almost $3.5 million. I do not regard receipt of this letter alone as being "something which in all the circumstances would create 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 s. 95(4} of the Bankruptcy Act (now s. 122(4} of that Act} describes- a mistrust of the payer's ability to pay his debts as they became due and of the effect which acceptance of the payment would have as between the payee and the other creditors": Queensland Bacon Pty. Ltd. v. Rees (1966} 115 CLR 266 at p. 303. But it did not stand alone. Before turning to matters which lead me to conclude that certain payments are void as against the liquidator, I should refer to the evidence of Mr. Hawkes. I am satisfied that -- 15 of 17 -- 13 Mr. Hawkes worked out the plan to which I have referred and received acceptance of his proposals from a number of finance companies. I am not however satisfied that it was accepted by the respondent. Mr. Hawkes admitted that he was unable to say who was the representative of the respondent to whom he spoke. Miss Kolb, the company's secretary, could say only that she believed that the remittance advice (ex. 35) would have gone out with the cheque. In view of this and the fact that a different allocation of the amount received was made by the respondent, I am not prepared to conclude that it received the remittance advice. In relation to payments made after 5 December, I note that notices were sent in respect to ex. 1 on 9 and 16 December, and in respect of exs. 9 and 10 in December. Payments continued to be made by bank transfer, as they had been before 5 December. I am satisfied that these were received by the respondent in good faith and for valuable consideration and in the ordinary course of business as they had been prior to 5 December. But I consider that the position was different in respect to the cheque for $5,957.29 which was received on 8 February, 1987. By that time the respondent was or should have been aware that the company was falling into arrears in payment, and this fact together with the letter of 5 December, 1986 should have led the respondent to infer that the company was unable to pay its debts as they became due from its own money and that, as it had been advised in the letter of 5 December that there were twenty-two financiers with which the Fitzgerald Family Trust was involved, the effect of the -- 16 of 17 -- 14 payment would be to give the company a preference over other creditors. Events after 8 February, 1987, including the notices sent in February and March, 1987, the physical collection of the cheques dated 11 March, 1987 and 10 April 1987, and the fact that it was necessary to make allocations of amounts received, point strongly to the conclusion that the payee had reason to suspect that the debtor was unable to pay its debts as they became due from its own money, and that the effect of the payments would be to give it a preference over other creditors. The onus of proving matters referred to ins. 122(2) of the Bankruptcy Act is upon the respondent: s. 122(3). It has not satisfied that onus in respect to the payments made on 8 February, 11 March and 10 April, 1987. I declare that payments in the sum of $23,869.95 during the period from 13 October, 1986 to 1 3 April, 1987 are void as against the applicant liquidator. I order the respondent forthwith to pay to the company Allan Fi tzgerald Pty. Ltd. (In Liquidation) the sum of $23, 869.95 together with interest thereon at 12 per cent per annum from the date the liquidation commenced. That amounts in total to $39,285. I order that the respondent pay the costs of and incidental to this application including any reserved costs to be taxed. -- 17 of 17 --