Airservices Australia v Ferrier

quidators of Employ (No 96) Pty Limited (in liquidation) (First Plaintiffs) Employ (No 96) Pty Limited (in liquidation) (Second Plaintiff) Anthony de Vries (First Defendant) Raid Tayeh (Second Defendant) DVT Services (NSW) Pty Limited (Third Defendant) Representation: Counsel: M.S. Henry (Plaintiffs) S. Golledge (Defendants) Solicitors: Polczynski Lawyers (Plaintiffs) Somerset Ryckmans (Defendants) File Number(s): 10/279623

Judgment 1The Plaintiffs, the liquidators ("Liquidators") of Employ (No 96) Pty Limited (in liq) ("Employ 96") and Employ 96 seek orders under s 588FF of the Corporations Act 2001 (Cth) in respect of certain transactions made by Employ 96. 2The First and Second Defendants, Mr de Vries and Mr Tayeh, are chartered accountants who conducted practice through a partnership known as de Vries Tayeh ("Partnership") (ABN 34 446 871 669) and associated entities including, at the relevant time, the Third Defendant DVT Services (NSW) Pty Limited ("DVT Services"). DVT Services was trustee of a trust, the DVT Services Trust (ABN 88 079 945 271) and Messrs de Vries and Tayeh were directors of DVT Services. A significant issue in these proceedings is whether the Partnership or DVT Services provided relevant services to Employ 96. I will use the term "DVT" in this judgment as a neutral term to refer to the Partnership or DVT Services as applicable, where I am not intending to distinguish between the two entities. Factual findings 3I should first set out my findings as to factual matters relevant to the determination of these proceedings. 4Prior to July 2007, Employ 96, formerly known as Advantage Recruitment Pty Limited, operated a recruitment and labour hire business in the Hunter, Central Coast, North Coast and Adelaide regions. The sole director of Employ 96 was Mr Walter Blaikie. 5DVT was retained by Employ 96 to provide accounting services in respect of a proposed accountant's report on or about 23 June 2006 (Ex P1, CB 70) and provided accounting services to Employ 96 from at least June 2006. DVT entered a further letter of engagement dated 25 September 2006 with Employ 96 (Ex P1, CB 82) relating to the provision of due diligence in relation to another entity. A further letter of engagement dated 10 January (Ex P1, CB 94) provided for DVT to undertake due diligence in respect of a proposed acquisition by Employ 96 of part of the Hudson Industrial Services business. As at 3 April 2007, Employ 96 was indebted to DVT in the amount of $221,681.11 arising from two invoices dated 6 February 2007 for $85,738.37 and $42,214.34; an invoice dated 21 March 2007 for $39,387.63; and an invoice dated 3 April 2007 for $54,340.77. Employ 96 made two payments to DVT of $20,000 each on 5 April and 1 May 2007. As at 1 May 2007, Employ 96 was indebted to DVT in relation to the accountancy services provided to it in the sum of $198,229.69 ("Initial Debt"). 6Another accounting firm, Bishop Collins, was retained by Employ 96, among other things, to provide services in relation to the acquisition of the Hudson Industrial Services business in early April 2007. On 30 April 2007, the Australian Tax Office informed Mr Blaikie that it would shortly commence enforcement action in respect of outstanding debts owed by Employ 96 including issuing director penalty notices (Ex D8). 7A meeting held on 1 May 2007 at Employ 96's offices near Newcastle was attended by Mr Blaikie, Employ 96's financial controller, Mr Rodriguez of Bishop Collins and Mr Tayeh. There was a discussion of matters including a possible sale of Employ 96's business, a possible means of repaying its tax debt or refinancing its existing secured debt (Rodriguez affidavit [7], T40). By about that time, it appears to have been anticipated that a liquidator would be appointed to Employ 96 between mid and late June 2007, but immediately if the Australian Tax Office served a penalty notice on Mr Blaikie at an earlier time. Employ 96 was also at that time seeking to obtain alternative finance for its debtors ledger. The Defendants contend, and I accept, that there was at least some value in Employ 96's debtors ledger at that time, since the debts recorded in that ledger significantly exceeded the amount of the debt owed to ANZ Bank for which it was security. 8A letter dated 1 May 2007 from DVT (whether the Partnership, DVT Services or both is a matter in issue) to Employ 96 ("1 May Letter") (Ex P1, CB 114) confirmed that the amount of $198,229.69 was then outstanding by Employ 96 to DVT and stated that future work for Employ 96 would only be carried out when fees had been prepaid and stated that work performed by partners and managers would be charged at "our special rates". It was common ground that the "special rates" referred to in the 1 May Letter were double the rates ordinarily charged by DVT for client work. There is no evidence as to whether the "special rates" of that character were charged by DVT to any other client than Employ 96. The 1 May Letter also requested that prepayments of $22,000 per week (including GST) be paid to DVT Services "in anticipation of the work required to provide Employ 96 with assistance". 9Mr Heesh, who was subsequently appointed as liquidator of Employ 96, was contacted by Bishop Collins in early May 2007 and was advised that Employ 96 had a large tax debt, that it had not been trading profitably and that the Mr Blaikie proposed a sale of its assets prior to any appointment of a liquidator in order to seek to restore profitability to the "underlying business". There was also discussion of the appointment of an appropriately qualified third party to provide a valuation of Employ 96's assets for the purposes of any sale (Heesh [22], Ex P1, CB 124; Heesh XX T55; Rodrigues XX T35-36). A valuation report was then prepared by a third party valuer dated 17 May 2007 (Ex P1, CB 128), which indicated that the value of the goodwill of the Advantage Recruitment business was nil; the value of the business if sold on a going concern basis was between $200,000 and $400,000; the value of its assets in a liquidation was in the order of $100,000; a trade sale of the existing business could not be undertaken with its existing liabilities; and a restructured business with normalised trading results would have a value of about $4.5 million. 10Discussions took place with a potential funder of the business, Oxford Funding Limited ("Oxford Funding"), which made an offer of debtor finance to Employ 96 on 8 June 2007 in an amount greater than funding previously provided by ANZ Bank (Ex D4, CB 440). The Defendants refer to a relationship between Mr Tayeh and Oxford Funding, which I will address below. Oxford Funding subsequently provided factoring finance to Employ 96 from 4 July 2007 to 17 July 2007, and thereafter to Ruby Investments Pty Limited ("Ruby Investments") as the purchaser of the business, after taking a fixed and floating charge over the assets of Ruby Investments on 5 July 2007 (Heesh [32]). 11The business of Employ 96 and the assets of two related companies were sold to Ruby Investments as trustee for the Adrec Discretionary Trust by agreement dated 17 July 2012, for a purchase price of $22,922, made up of an amount of approximately $100,000 for fixed assets and a security deposit of nearly $34,000, less an allowance for leave liabilities of $111,554. The sole director and shareholder of Ruby Investments was Mr Blaikie's wife. The sale agreement did not provide for the transfer of Employ 96's debtors ledger to Ruby Investments so some value was left in the Employ 96 business (Ex P1, CB 178). 12DVT provided accounting services to Employ 96 and DVT Services issued invoices to it calculated at the "special rates" provided under the 1 May Letter between May 2007 and July 2007 ("Special Rate Services"). Those invoices were dated 17 May, 22 and 29 May 2007, 5, 6, 25, 27-28 June 2007 and 9 August 2007. Eleven payments totalling $280,240 were made by Employ 96 to DVT Services between 5 April 2007 and 13 August 2007 in respect of accounting services. These included the payments made on 5 April 2007 and 1 May 2007 of $20,000 to which I have referred above and nine payments made between 8 May 2007 and 13 August 2007 totalling $240,240. 13At a meeting of its members held on 29 August 2007 under s 491 of the Corporations Act, Employ 96 resolved by special resolution that it be wound up voluntarily and that the Liquidators be appointed joint and several liquidators of the company. At the commencement of the winding up, the debt apparently due from Employ 96 to DVT Services was (subject to any issue arising from the provision of services at double rates over an extended period) $198,229.69. DVT Services lodged a proof of debt in the winding up in that amount and Mr Blaikie apparently acknowledged a debt to DVT in that amount in his capacity as director of Employ 96 (Ex P1, CB 110; Heesh XX, T46). Unfair preference claim - what was the relevant transaction and who were the parties to it? 14By paragraphs 15 and 16 of the Amended Points of Claim, the Plaintiffs advanced a claim that a wider transaction characterised as the Initial Debt, the 1 May Letter, the Special Rate Services, the "No Benefit Service" (as defined) and the Payments (as defined) jointly constitute a transaction of Employ 96 within the meaning of s 9 of the Corporations Act and an unfair preference for the purposes of s 588FA of the Corporations Act. The Plaintiffs seek a declaration that that wider transaction was an unfair preference made by Employ 96 to both the Partnership and DVT Services, or alternatively by Employ 96 to DVT Services, within the meaning of s 588FA of the Corporations Act. Alternatively, paragraph 17 of the Amended Points of Claim pleads a single transaction constituting the payments and collateral acts or dealings and paragraph 18 pleads, in the further alternative, transactions comprising each of the payments by Employ 96 and collateral acts or dealings. By amendments made to those paragraphs by leave at the commencement of the hearing, the Plaintiffs made clear that they advance alternative claims that both the Partnership and DVT Services, or alternatively DVT Services, were party to the transactions comprising the payments and collateral dealings or each of them. 15It is first necessary to determine, from the various alternatives propounded by the Plaintiffs, which events should be treated as the relevant transaction for the purposes of the unfair preference claim under s 588FA of the Corporations Act. The term "transaction" is relevantly defined, in relation to a body corporate, as a transaction to which the body is a party, including without limitation a payment made by the body or an obligation incurred by it. That definition gives several examples of transactions, which have the common characteristic that the conduct or dealing engaged in by debtor company has the consequence of affecting a change in its rights, liabilities or property: Re Emanuel (No 14) Pty Ltd (in liq); Macks v Blacklaw & Shadforth Pty Ltd (1997) 147 ALR 281; (1997) 24 ACSR 292 at 299; Wily v Bartercard Ltd [2000] NSWSC 372; (2000) 34 ACSR 186 at 195-6, aff'd Bartercard Ltd v Wily [2001] NSWCA 262; (2001) 39 ACSR 94. The identification of the relevant transaction must have reference to the totality of the relationship between the parties and a series of dealings may constitute a transaction if they are connected in being directed to bring about a change in the company's rights, liabilities or property: Mann v Sangria Pty Ltd [2001] NSWSC 172; (2001) 38 ACSR 307 at [31]; Tosich Construction Pty Ltd (in liq) v Tosich (1997) 78 FCR 363; Capital Finance Australia Ltd v Tolcher [2007] FCAFC 185; (2007) 164 FCR 83; (2007) 64 ACSR 705 at [120]. 16I do not consider that the characterisation of the dealings between DVT and Employ 96 as a single wider transaction (as described in paragraph 15 above) should be accepted. The first two payments made on 5 April and 1 May 2007 paid down the amount owing to DVT but had no obvious connection with the 1 May Letter and its provision for payment for services at double rates. The 1 May Letter acknowledges the existence of the Initial Debt but, at least on its face, deals with the provision of the subsequent services at double rates. Several payments under the 1 May Letter were made partly in advance of services and partly in arrears whereas the final payment was made after the provision of the services was complete. I also do not consider that all the payments, or those payments together with the work performed for them, should be characterised as a single transaction for the same reasons. In my view, the proper characterisation of the relevant transaction is as separate payments and associated dealings as pleaded in paragraph 18 of the Amended Points of Claim, but recognising (as the Plaintiffs did in submissions) that those payments may be further divided into categories with common features, being the first two payments prior to the 1 May Letter; the payments made after the 1 May Letter and in connection with the provision of the Special Rate Services; and the final payment made after the services provided by DVT were complete. 17A further issue arises as to which of the Partnership, DVT Services or both were party to the relevant transactions. The Plaintiffs' primary contention is that the parties to the relevant transactions were Employ 96, the Partnership and DVT Services, although they alternatively contended that Employ 96 and DVT Services were party to the transactions. The Defendants contend that the monies paid by Employ 96 were paid to DVT Services which conducted a business of providing consultancy services and employed staff including Messrs de Vries and Tayeh and others and that the Partnership was not party to the transactions (Tayeh [7]). 18The determination of the parties to the transaction was made more difficult, and the hearing lengthened, by significant deficiencies with the form in which documents were produced by the Defendants in the proceedings. The Defendants did not produce the originals or contemporaneous copies of the retainer letters in issue in the proceedings and instead printed those letters in November 2009, up to three years after the dates of the original retainer letters (Tayeh XX, T138). The unsigned copies of the letters that were produced did not disclose the letterheads that would have been apparent from the original signed retainer letters and may have been apparent from contemporaneous copies of them had they been produced. Mr Tayeh was unable to indicate what would have been shown on the letterhead of the original retainer letters (Tayeh XX, T139). 19There was a further difficulty with the form in which invoices addressed to Employ 96 after 1 May 2007, which were apparently issued on DVT letterhead with a DVT footer, were produced by DVT. Mr Tayeh's evidence was initially that the invoices were true copies of invoices issued by DVT to Employ 96 in 2007 (Tayeh [51]-[68]). It emerged in Mr Tayeh's cross-examination that, in fact, he had caused those invoices to be printed when his affidavit was sworn (Tayeh XX, T177-178). Possibly as a result of a change in software systems used by DVT, those invoices were then printed on the letterhead of DVT Services, in a different form from that in which they previously existed. The importance of the production of invoices on incorrect letterhead is emphasised by Mr Tayeh's concession at one point in his cross-examination that a principal indicator of who issued an invoice was the name of the person or persons identified on the letterhead of that invoice (Tayeh XX, T110-111) (a proposition which he later denied at T125-126). A further difficulty arose by reason of the fact that the Defendants did not give discovery of emails relating to the identification of the services provided to Employ 96 during the relevant period when they were required to do so and later could not do so after a failure of their computer system (Tayeh XX, T199-203). 20An employee of DVT Services, Ms McCallum, gave further evidence as to the circumstances in which the invoices exhibited to Mr Tayeh's affidavit were printed. Those invoices were printed by another person at Ms McCallum's request, on pre-printed letterheads selected by that other person (T229-230) and Ms McCallum reviewed them before Mr Tayeh swore his affidavit (T 227). There was a degree of inconsistency in Ms McCallum's evidence as to when those invoices were printed, although I do not consider it necessary to resolve that question for the purposes of these proceedings. Ms McCallum also gave evidence as to the circumstances in which an ABN number appears on invoices printed from DVT's computer system. Aspects of that evidence are difficult to reconcile with the ABN numbers that appear on the invoices produced and with Ms McCallum's evidence as to when those invoices were printed, but I again do not consider it necessary to seek to resolve those difficulties in order to determine these proceedings. 21Ultimately, in my view, it was not established whether, had DVT Services made adequate searches, the contemporaneous copies of the relevant letters and invoices would have been available to be produced. The Defendants accepted in submissions that there was a regrettable lack of care devoted to the task of recovering the documents addressed in Mr Tayeh's evidence. The Defendants also accept that Mr Tayeh's evidence in respect of the documents produced by them has been shown to be in error and, to the extent that he had verified that evidence as correct, this must impact on the Court's assessment of the reliability of his evidence (except where corroborated by contemporaneous documents or other satisfactory evidence) but contend that this should not cause the Court to draw any adverse view as to his honesty. The Defendants submit that the significant issues in the case do not need to be resolved solely by reference to Mr Tayeh's evidence. There are, however, aspects of the case to which that evidence is significant, to which I will refer below. 22At the least, the reference in Mr Tayeh's affidavits to the copies of invoices being "true copies" of the invoices issued by DVT to Employ 96 was seriously incomplete, by omitting reference to the fact that they had been printed from computer records at a substantially later date. That evidence had a real capacity to mislead the Court and would have done so but for the exposure of this matter in Mr Tayeh's cross-examination. The Plaintiffs contend that the Court should infer that Mr Tayeh's conduct was deliberate and that he intended to persuade the Court that he personally (as a partner in the Partnership) was not a party to the transaction or transactions in issue by causing documents to be created for the purpose of advancing that defence. I do not consider that I should draw that inference, given the seriousness of such a finding and the fact that it is not necessary to the determination of this case. 23Turning now to other evidence relevant to the identification of the parties to the transactions, Mr Tayeh gave evidence of a conversation with Mr Blaikie "in or about 2003", nearly 10 years ago, when he first dealt with the Advantage Recruitment Group, in which there was a discussion of the then cashflow problems and viability of the Group. Mr Tayeh's evidence of that conversation was as follows: "In or about 2003, Walter [Blaikie] and his finance manager, Renee Bryant and I had a conversation during which words to the following effect were said: Walter: "We [Advantage Group] have substantial cash flow problems and I am concerned about the viability of the business." [Tayeh] "We can look at some forms of restructuring the operation and see if we can fix your cash flow." Walter: "I want to get some advice with respect to a possible turnaround of the business. Is that something that you can help with." [Tayeh]: "Yes we can do this work. This type of work is done by our service company as all consulting assignments are." Walter: "Great. I look forward to hearing from you." (emphasis added) This conversation is, as I noted above, said to have taken place nearly ten years ago. After careful consideration, and also bearing in mind other aspects of Mr Tayeh's evidence to which I refer in this judgment, I am unable to accept Mr Tayeh's evidence that the italicised words in this conversation were said. Those words would have advanced the Defendants' case that DVT Services rather than the Partnership provided services to Employ 96 in 2006-2007. I can accept that Mr Tayeh has a general recollection of being retained, ten years ago, to provide restructuring advice in the context of the then financial difficulties of the Advantage Recruitment Group. I find it impossible to go further to accept that Mr Tayeh has a specific recollection of a specific conversation ten years ago in which he informed Mr Blaikie that that work would be done by the consulting company and, implicitly, not by the Partnership. 24Both parties recognised that the terms of the retainer letters were relevant to the identification of the parties to the transactions. Mr Tayeh's evidence was to the effect that he signed the retainer letters on behalf of DVT Services, as distinct from the Partnership. I place little weight on that evidence, because the question of the entity that was party to the arrangement does not depend upon Mr Tayeh's subjective intention when he applied his signature to the letter, as distinct from the terms of the arrangement objectively construed. On the other hand, the Plaintiffs contend that the fact that the Partnership was party to the relevant transactions is evidenced by reference in DVT's retainer letters with Employ 96 (including the 1 May Letter) to "our firm", to the work being performed by "partners and staff" and the signature of the letters by Mr Tayeh as "partner" on behalf of "de Vries Tayeh". In my view, the use of the language "partner" and "firm" in the retainer letters is not inconsistent with a retainer of DVT Services rather than the Partnership. There is evidence that other firms, including the Liquidators' practice and Bishop Collins, a partner of whom gave evidence in the proceedings, also use those terms in respect of incorporated entities The Plaintiffs also point out that the letters do not expressly refer to DVT Services. 25The Plaintiffs also refer to the first sentence of the 1 May Letter, which acknowledges the debt as owing "to the firm of de Vries Tayeh (including DVT Services (NSW) Pty Ltd)". The Plaintiffs submit that acknowledgement is consistent with a retainer of the Partnership since January 2007 and inconsistent with a case that DVT Services alone was retained. On the other hand, as the Defendants point out, the reference to "firm" in the first sentence of the 1 May Letter can reasonably be understood as referring to the accounting practice as a whole rather than the Partnership which (as I will note below) acts in insolvency engagements; and, in any event, there is no inconsistency between that sentence and the Defendants' case, where a debt owed to DVT Services can reasonably be understood as a debt owed to the accounting business as a whole. I also consider that acknowledgement has limited weight, in circumstances that the letter was drafted by Ms McCallum rather than a solicitor, particularly given the evidence as to the structure of the firm to which I refer below. 26The Plaintiffs also rely on letters dated 31 May 2007 and 6 June 2007 to Employ 96 that respectively enclosed invoices to it for work performed between 22 May 2007 and 31 May 2007 and between 31 May 2007 and 6 June 2007, which was work referable to the 1 May 2007 retainer. Each of those letters is on the letterhead of the Partnership and the Plaintiffs contend that the Court should infer that the 1 May 2007 Letter was also on the Partnership letterhead. The Plaintiffs also rely on an apparent acceptance by an employee of DVT, Ms McCallum, in cross-examination that the 1 May Letter was likely on the same letterhead and had the same footer as the later invoices issued by DVT for the services. A letter dated 28 August 2009 from DVT to the Liquidators, again on the letterhead of the Partnership, also referred to payments made to "our firm", however, that use of the phrase "our firm" is likely to refer to DVT Services which received the relevant payment. By letter dated 18 November 2009 (Ex P1, CB 275), also on the Partnership letterhead, DVT Services claimed that all work done for Employ 96 was carried out by DVT Services. 27The Plaintiffs also rely on the fact that the business name extract for "de Vries Tayeh" indicates that the only persons who carried on business under that name during 2006-2007 were Messrs de Vries and Tayeh. However, it appears that DVT Services also carried on its business under the business name "de Vries Tayeh" or at least there was no systematic attempt to brand the business conducted by DVT Services other than as de Vries Tayeh, although different letterheads were used by the two entities, again not in a wholly consistent or systematic manner. Mr Tayeh's evidence was that the business name "de Vries Tayeh" that was registered to the Partnership was used by DVT Services and another entity, DVT Services Pty Limited ("Old DVT"). 28There was largely uncontested evidence as to the structure of the DVT business that provides greater assistance in resolving the question of the parties to the transactions. Messrs de Vries and Tayeh give evidence that the Partnership undertook only formal insolvency administrations to which Messrs Tayeh or de Vries were appointed in their personal capacity, for example as liquidator, administrator or receiver (de Vries [10], Tayeh [14]). Mr Tayeh's evidence was that the Partnership had no employees and owned no operating assets; time charges for insolvency personal appointment work undertaken by the partners in the Partnership were invoiced by it and payment of those invoices and banked into its bank account; and DVT Services was retained by the Partnership to provide resources and services. Mr Tayeh's evidence as to the structure of the DVT business was supported by Mr de Vries' evidence that the business of the Partnership was the conduct of formal insolvency administrations to which he or Mr Tayeh were personally appointed and he was not cross-examined on that evidence. 29Mr de Vries and Mr Tayeh also give evidence that consulting and advisory services were provided to clients by DVT Services in its capacity as trustee of the DVT Services Trust and DVT Services in that capacity also provided employees, office equipment and staff to the Partnership to be used in connection with formal administrations to which Messrs de Vries and Tayeh were appointed (Tayeh [5], de Vries [6]-[7]). Mr Tayeh's evidence as to the business of DVT Services was that: "During the period 20 February 2006 when it was registered and until about March 2008, DVT provided advice and services with respect to corporate strategy, litigation support, due diligence, equity capital, solvency management and business succession (the "consulting services"). I was employed by DVT as "partner" along with other individuals to provide the Consulting Services." Mr Tayeh's evidence was that DVT Services employed 15 members of staff ranging from administrative staff to senior members of staff and that time charges relating to work done by DVT Services were invoiced by it and payment of those invoices were banked into the DVT Services bank account. Mr Tayeh's evidence was that, between 2003 and 2006, those services had been provided by Old DVT. His evidence is that, from 2008, consulting services have been provided through a third entity, DVT Consulting Pty Limited. While Mr Tayeh was cross-examined and indicated some uncertainty as to which service entity did the work for Employ 96 after 1 May 2007 (Tayeh XX, T187), it was not put to him and he did not accept, that there was any uncertainty that the Partnership had not done that work. Mr de Vries also gave evidence that the business of DVT Services and the DVT Services Trust was the provision of business of business consulting and advisory services to third party clients and the provision of employees, office equipment and staff to the Partnership. 30The Defendants' submission that the relevant work was done by DVT Services rather than the Partnership also finds support from undisputed invoices that were issued by DVT Services and received by Employ 96, on which DVT Services' ABN was used, and entries corresponding to those invoices in DVT Services' debtor ledger (Ex P1, CB 1351). The conclusion that services were provided by DVT Services also finds support in the fact that a large part of the relevant work was done by persons who were employees of DVT Services, primarily by Ms McCallum (who was employed by Old DVT and subsequently DVT Services as a senior manager in the area of corporate strategy and business valuation) although supervised by Mr Tayeh. Payments made by Employ 96 were also made by direct deposit into the bank account of DVT Services. There is uncontradicted evidence that the Partnership maintained its own bank account into which monies paid for work by that Partnership were received (Tayeh affidavit [14]) and there is no reason shown by the evidence as to why a different practice would have been adopted in respect of payments made by Employ 96 had they been due to the Partnership. While the Defendants submit that DVT Services was the payee nominated by the DVT Partnership to receive the relevant payments, there is no direct evidence of such a direction; the evidence of the structure of the business to which I have referred above does not support an inference of such a direction; and the evidence is consistent with the simpler explanation that DVT Services was receiving payment for services that it itself provided. 31Having regard to the evidence of the structure of the DVT business to which I have referred, I find that Employ 96 and DVT Services were parties to the relevant transactions and the Partnership was not party to those transactions. Whether the transactions as pleaded were unfair preferences 32Section 588FA(1) of the Corporations Act provides that a transaction is an unfair preference if: "(a) The company and the creditor are parties to the transaction (even if someone else is also a party); and (b) The transaction results in the creditor receiving from the company, in respect of an unsecured debt that the company owes to the creditor, more than the creditor would receive from the company in respect of the debt if the transaction were set aside and the creditor were to prove for the debt in a winding up of the company." 33As I noted above, the Plaintiffs seek a declaration that that wider transaction (as described in paragraph 14 above) was an unfair preference made by Employ 96 to the Partnership and DVT Services within the meaning of s 588FA of the Corporations Act, or alternatively, on the basis the transaction took place between Employ 96 and DVT Services. The Defendants contend that the pleaded reference to "all acts or dealings collateral or incidental to" any of those matters must be taken to incorporate the work done by DVT that gave rise to the Initial Debt. On that basis, the Defendants contend that the wider transaction is not an unfair preference because the ultimate effect of the transaction was that Employ 96 was provided with services with a greater value than the total sum of all payments made by it, so the Partnership or DVT Services received no benefit under the transaction and it did not confer any preference. It is not necessary to determine these matters given that I have not accepted the wider characterisation of the transaction. 34Alternatively, the Plaintiffs contend that the payments made by Employ 96 and collateral or incidental acts or dealings together constitute a transaction of Employ 96 to which it and the Partnership and DVT Services, or alternatively DVT Services, were party (Amended Points of Claim paragraph 17). As I noted above, I do not consider that the payments as a whole should be characterised as the relevant transaction without distinguishing between those made before and after the 1 May Letter. Whether the first two payments were a preference 35I turn now to the Plaintiffs' claim in respect of the transactions characterised as individual payments and the acts or dealings collateral to or incidental to them. The Plaintiffs contend that the two payments made on 5 April 2007 and 1 May 2007 were individually or collectively a transaction, being part payment of Employ 96's indebtedness to the Partnership and/or DVT Services incurred prior to 5 April 2007. It is common ground that the two payments of $20,000 each made on 5 April 2007 and 1 May 2007 were not prepayments for accounting services. The Defendants contend that the character and effect of the first two payments are to be assessed by taking into account not only the transfer of money from Employ 96 to DVT but also the provision of value in the form of services from DVT to Employ 96. The Defendants contend that the total value of the services previously provided by DVT was $238,229.69 and, even if the services were narrowed to focus only on those relating to the payments of $40,000, these payments conferred no preferential effect. 36There is also an issue as to the potential application of s 588FA(3) of the Corporations Act to the first two payments. The Defendants contend that the first two payments were made as part of a running account, comprising accounting services rendered from January 2007 to at least 1 May 2007, and the value of the services exceeded, by $198,229.69, the value of the payments including those payments. The Plaintiffs contend that a running account could only have existed from 1 May 2007 because the purpose of the first two payments was to discharge a pre-existing debt. 37I should first note the applicable principles which are well-established. Where a payment forms an integral or inseparable part of an entire transaction, its effect as a preference involves a consideration of the whole transaction: Richardson v Commercial Banking Co of Sydney Ltd (1952) 85 CLR 110 at 129. A transaction is not an unfair preference if the company receives equivalent economic value to any payment, and a genuine prepayment to a person who is not a creditor of the company is not an unfair preference: V R Dye & Co v Peninsula Hotels Pty Ltd (in liq), [1999] 3 VR 201; (1999) 32 ACSR 27; Mann v Sangria Pty Ltd above at [34]-[37]; Beveridge v Whitton [2001] NSWCA 6. The "ultimate effect" principle requires the question whether payment to a creditor to secure ongoing services from it is a preference to be determined by whether it results in a decrease of net value of the other assets available for creditors, and that principle has continuing operation after the introduction of this section in its present form: Airservices Australia v Ferrier (1996) 185 CLR 483; McKern v Minister Administering the Mining Act 1978 (WA) [2010] VSCA 140; (2010) 28 VR 1. 38In Airservices Australia v Ferrier above, the majority observed that the effect of a payment is to give a creditor a preference over other creditors if its objective purpose is to discharge an existing debt and, on the other hand, if its purpose is to induce the creditor to buy further goods and services as well as to discharge an existing debt, the payment will not be a preference unless it exceeds the value of the goods; and, if the creditor has not supplied goods to a greater value than the payments made in respect of a series of transactions, the general body of creditors are not disadvantaged by the transaction including the payment. Toohey J (dissenting, but not as to matters of principle) observed (at 517-518) that pre-payments had traditionally been excluded from the scope of voidable preference legislation. 39In V R Dye & Co v Peninsula Holdings Pty Ltd (in liq) above, which concerned payments made to an accountancy firm that provided assistance in the conduct of a creditors' voluntary winding up, the Court of Appeal of the Supreme Court of Victoria held that prepayments and payments in the course of a running account were not voidable as unfair preferences both because they did not constitute a payment to an existing creditor and because the company obtained an effective corresponding advantage, being services to a broadly equivalent value, such that existing creditors could not be prejudiced by the payments. Both Ormiston JA (with whom Winneke P agreed) and Tadgell JA took the view that s 588FA of the then Corporations Law, although differently expressed from its predecessor in the Bankruptcy Act 1966 (Cth), was not intended to be significantly different in its operation. Tadgell JA noted at [4] that: "It was and remains a quintessential pre-requisite of a transaction to be avoided by any of those statutory provisions that it should operate to give a preference to a creditor in respect of an existing debt." 40Ormiston JA observed (at [34]) that: "... There has been recognised the necessity that a company facing winding up must have some capacity to live out and possibly survive its feared fate. It is in the interests of the body of unsecured creditors that there should remain a business which can be sold as a running concern, so long as its liabilities are not increased in the meantime. So it has been accepted for many years that, as long as the company does not pay out existing creditors without obtaining an effective corresponding advantage, then it should be allowed to acquire goods and services by pre-payment or on cash on delivery terms. The rationale behind the 'exception' (more precisely the non-inclusion within the general rule) is that the company gains goods and services to an equivalent value (in broad terms) to that which it pays out to obtain them, so that the existing creditors cannot in theory cannot be prejudiced by the payment." His Honour also observed that the Court should look at the "ultimate effect" of the "entire transaction" before determining whether it has worked an unfair preference within the meaning of s 588FA and (at [39]) that even in a transaction other than a cash on delivery or running account transaction: "... It is still necessary, in order properly to characterise any transaction, to look at the totality of the business relationship between the parties so as to see whether there is a true preferring of a creditor by the insolvent company." 41In Mann v Sangria Pty Ltd above, Bryson J had to determine the question whether a series of payments for the sale and delivery of meat in May and June 1998 constituted unfair preferences, for the purposes of s 588FA(1). His Honour characterised the relevant transaction as the events including the order for supply of the meat, its delivery and the payment for it. His Honour found that the transactions could not be treated as an unfair preference where there was no preferential element in them. His Honour noted (at [32]) that the purpose of the section would not be served if it applied to: "A transaction in the course of which a person dealing with the company supplied value, became a creditor and received payment in a series of events so closely connected as to be one transaction." His Honour also noted (at [33]) that he could not see any legislative purpose that would be served by an application of the section which arose out of a person dealing with the company having already been a creditor in some other transaction, where the debts that existed before the transaction were unaffected by it and continued to exist after the debt arising in the transaction had been discharged. His Honour also observed (at [37]) that he found Ormiston JA's judgment in V R Dye & Co v Peninsula Holdings Pty Ltd (in liq) highly persuasive and noted that: "Unless the purposive approach taken by Ormiston JA is correct I am unable to see what unfairness would be corrected and what advantage there might be in laying hands on all dealings with an insolvent company and retrospectively invalidating all payments of money for money's worth; that would make an insolvent company an economic pariah and ensure its failure. Considerations related to the purpose of the provision appear to me to support indications in the text of subs588FA(1) which seem to pick up a transaction which already has at its opening a creditor, a company and a debt and applies its comparison to a receipt which is a result of the transaction." 42In McKern v Minister Administering the Mining Act 1978 (WA) above, the Victorian Court of Appeal rejected a submission that V R Dye & Co v Peninsula Holdings Pty Ltd (in liq) was wrongly decided and observed that decision had been applied for more than ten years and that only the High Court could overrule it. That decision was also followed by the Full Court of the Federal Court in Commissioner of Taxation v Kassem (2012) 205 FCR 156; [2012] FCAFC 124 at [48]-[50]. 43Section 588FA(3) in turn provides that transactions that are an integral part of a continuing business relationship between the company and a creditor, such as a running account, are treated as a single transaction; whether an unfair preference is being given is determined by reference to that single transaction; and the amount of any unfair preference is limited to the difference between the highest amount owing during the relevant period and the amount owing on the last day of the period. This subsection codifies the general law position as to treatment of a running account and also corresponds to the "running account" principle adopted under Bankruptcy Act s 122: V R Dye & Co v Peninsula Holdings Pty Ltd (in liq) above per Ormiston JA (with whom Winneke P agreed) at [26]; Cashflow Finance Pty Ltd (in liq) v Westpac Banking Corp [1999] NSWSC 671 at [507]; Sutherland (as liquidator of Sydney Appliances Pty Ltd (in liq) v Eurolinx Pty Ltd [2001] NSWSC 230; (2001) 37 ACSR 477. This subsection may apply despite the presence of a suspicion of insolvency: Sutherland v Eurolinx above at [163]; Clifton (as liquidator of Adelaide Fibrous Plasterboard Linings Pty Ltd (in liq)) v CSR Building Products Pty Ltd [2011] SASC 103 at [69]. However, this subsection ceases to apply when the mutual purpose of inducing further supply is subordinated to a predominant purpose of recovering past indebtedness: Sutherland v Eurolinx above at [147]-[148]; Clifton v CSR Building Products Pty Ltd above at [73]. 44There is no clear link between the first two payments and the provision of future or contemporaneous services. Rather, those payments appear to have been made simply to pay down the debt arising from the provision of earlier services, prior to the discussion at the 1 May meeting and the arrangement set out in the 1 May Letter for provision of future services at double rates. These two transactions, taken as a whole, seem to me to be a payment to DVT Services against a prior debt, not linked with the provision of further services, and allowing a preference to DVT Services which thereby required more than it would receive in respect of the debt in a winding up. Mr Heesh's evidence is that, even if the Liquidators were successful in the proceedings and recovered an amount of $280,240 with interest and legal fees, Employ 96's creditors would not receive a dividend of 100¢ in the dollar (Heesh [48]). In my view, the first two payments were not part of a continuing business relationship involving the provision of the earlier and later services, as distinct from payments made for the dominant purpose of repaying the debt then outstanding in respect of the provision of the earlier services, and s 588FA(3) is not applicable to them. In my view, these two payments were unfair preferences for the purposes of s 588FA of the Corporations Act. Whether the payments between 8 May and 13 August 2007 were an unfair preference 45The Plaintiffs contend that the nine payments made between 8 May 2007 and 13 August 2007, totalling $240,240, constituted a transaction involving entry into the 1 May Letter, the provision of accountancy services and the payment partly for those services and partly in repayment of the outstanding $198,229.69 owed by Employ 96 to Partnership and/or DVT Services as at 1 May 2007. By paragraph 14 of their Points of Defence, the Defendants contend that each of those payments was a prepayment for accounting services yet to be provided. The Defendants contend that these payments are not unfair preferences because they were not made in reduction of an existing debt and are beyond the reach of the preference regime. 46The evidence does not establish that these payments were wholly prepayments so as to fall outside the scope of the preference regime. It appears that approximately $48,500 of the amount paid in this period was paid in arrears for work performed during the period rather than constituting prepayments for that work. While Mr Tayeh referred in cross-examination to a possible time lag within banking transfers as a possible explanation of this matter, there is no evidence of the extent of any such time lag in respect of payments made by electronic funds transfers. 47A particular issue arises as to whether the payments made in this period, at the double rates provided under the 1 May Letter, can be treated as preferences, at least in part, on the basis that the rates paid substantially exceeded the rates that would be reasonably charged by DVT or paid by Employ 96 for the services provided. The Defendants submit that, even if the rate charged for services provided under the 1 May Letter was excessive, the corresponding payments cannot be treated as a payment of the prior debt and do not constitute a preference unless the 1 May Letter or the relevant transactions were dishonest or a sham, a matter which the Plaintiffs did not seek to establish. 48A number of the authorities in this area refer to the equivalency of the value of the goods or services provided and the amount paid for them in supporting a conclusion that an unfair preference was not established. In Airservices Australia v Ferrier above at 502, the majority qualified the observation that a payment made to induce a creditor to provide further goods or services as well as discharge an existing indebtedness will not be a preference by adding "unless the payment exceeds the value of the goods or services acquired" and, similarly, observed that: "[I]f the purpose of a payment is to secure an asset or assets of equal or greater value, the payee receives no advantage over other creditors" (emphasis added). 49In V R Dye v Peninsula Hotels Pty Ltd (in liq) above at [24], [30], Ormiston JA observed that the fact that prepayments are generally not treated as voidable preferences reflects the usual position that they involve a mechanism for payment for a new obligation, to be incurred for services yet to be provided and for an equivalent value. His Honour there added a "qualification" to the observations of the majority in the High Court in Airservices by observing (at [36]) that: "A precise evaluation of services and goods provided can never be made satisfactorily and, unless there be some dishonest attempt to overvalue the particular goods or services, they ought for practical purposes to be taken as having been received at face value, that is, at the value at which the company agreed to acquire them." In Beveridge v Whitton above, Heydon JA (with whom Mason P and Powell JA agreed) referred to the observation of Ormiston J in V R Dye v Peninsula Hotels Pty Ltd (in liq) as to the assessment of the value of the relevant goods or services; observed that there had not in Beveridge v Whitton been any attempt to establish that there was any dishonest attempt to over-value particular services and held that there was there no other reason to conclude that the services were not worth what was paid for them in that case. 50In the present case, I do not understand the Plaintiffs to contend that there was a dishonest attempt by DVT Services to overvalue the particular services, although there is a substantial contention that the rates charged were uncommercial for the purposes of s 588FB of the Corporations Act that I will address below. I understand the observation of Ormiston JA in V R Dye v Peninsula Hotels Pty Ltd (in liq), as approved in Beveridge v Whitton, to indicate that the value of the relevant services, for the purposes of s 588FA(1), is to be treated as equivalent to the amount paid for them unless there was a dishonest attempt to overvalue them, even if, for example, the amount paid was shown to be objectively unreasonable in the circumstances. One possible rationale for that approach is that an objectively unreasonable arrangement is nonetheless binding on a party to it and should determine the value of the relevant services as the price agreed to be paid for them, unless set aside as a sham or by statute or avoided under the regime dealing with uncommercial transactions in s 588FB of the Corporations Act. A second is that the question of the objective value of services is open to dispute, may (as Ormiston JA noted) be difficult to determine, and is a matter that may be vulnerable to judgments made in hindsight, although the same might equally be said of many other factual issues that are regularly determined by Courts. 51I do not consider that, as a Judge sitting at first instance, I should depart from the approach indicated in the passage in V R Dye v Peninsula Hotels Pty Ltd (in liq) that I have quoted in paragraph 49 above. Accordingly, I do not consider that I can treat the services provided by DVT under the 1 May Letter as having a value other than the amount paid for them (calculated at double rates under the 1 May Letter) for the purposes of s 588FA(1) of the Corporations Act. I will address the potential application of s 588FB of the Corporations Act below. Accordingly, no preference is established in respect of these payments for the purposes of s 588FA of the Corporations Act, because the relevant payments were made for services that should under these principles be treated as having the same value. 52I would reach the same result by the application of s 588FA(3) of the Corporations Act in respect of the payments made under the 1 May Letter (excluding the final payment) and the corresponding services. The Plaintiffs contend that s 588FA(3) of the Corporations Act does not apply to the payments made after 1 May 2007 because they were not made in the mutual expectation that DVT would continue to supply services to Employ 96, or alternatively because the payments made exceeded the value of the relevant services. The Plaintiffs also contend that the terms of the 1 May 2007 Letter and the Defendants' contention that the payments after 1 May 2007 were prepayments is inconsistent with the application of s 588FA(3). 53In my view, on the basis that the amount paid for the services must be treated as their value absent dishonesty, then the elements of s 588FA(3) of the Corporations Act are satisfied in respect of the payments and services governed by the 1 May Letter (other than the last payment to which I refer below). There was a continuing business relationship between Employ 96 and DVT Services on the terms of that letter and, in the course of that relationship, the level of Employ 96's net indebtedness to DVT Services was increased and reduced from time to time as the result of the transactions forming part of the relationship. In the present case, it seems to me that a running account existed, notwithstanding the requirements for regular payments in the 1 May Letter, and that conclusion is reinforced by the fact that DVT supplied services to Employ 96 notwithstanding that some payments were in fact made in arrears. Although DVT had sought to agree a basis on which it would undertake work only in consideration of payments made in advance, it ultimately received payments partly in advance and partly in arrears, and to that extent shifted to an arrangement that partly involved the making of payments in arrears in the expectation that further work would in fact be performed. It appears that, of the amount of $137,500 paid between 8 May 2007 and 20 June 2007, $48,501.43 was paid in arrears for work already performed rather than being prepayments (Ex D3, T15, CB 1306-1308; Tayeh XX, T169-174). It has not been established in respect of these payments that the mutual purpose of inducing further supply of services (albeit at double rates for those services) had been subordinated to a predominant purpose of recovering past indebtedness so as to exclude the application of s 588FA(3) of the Corporations Act. The final payment 54The final payment made by Employ 96 to DVT of $80,740.83 was made on 13 August 2007 and related to an invoice issued on 9 August 2007 in respect of services provided to Employ 96 between 27 June 2007 and 9 August 2007. That payment was made in arrears and after Employ 96's business had been sold (Ex P1, CB 123; Ex D3, CB 1320; see also Debtors Ledger Ex D3, CB 1353; Time and Disbursement Ledger, Ex D3, CB 1310). The Plaintiffs submit that the sole purpose of this payment was to discharge existing debts and no running account defence is available with respect to this payment. 55The Defendants accept that, if the Court rejects the proposition that all of the payments should be treated as part of a single running account, then the final payment conferred an unfair preference. I do not accept that proposition, since there seems to me to have been no expectation of the provision of future services to Employ 96 by the time of the final payment and the only purpose of this payment was to repay past indebtedness. Having regard to the Defendants' concession, I find that the final payment was an unfair preference for the purposes of s 588FA of the Corporations Act. 56The Plaintiffs also submit that, even if a running account existed, a preference of $80,740.83 is established in respect of the post 1 May 2007 payments (including the final payment) being the difference between the highest amount owing ($278,970.52) during the relevant period and the amount owing at the end of the relation-back period ($198,229.69): Clifton v CSR Building Products Pty Ltd above at [84]; Ex D3, Tab 26, CB 1353. Had I not held that the final payment was a preference treated as a separate transaction, I would have accepted that submission. Whether the transactions as pleaded were uncommercial transactions 57The Plaintiffs initially sought a declaration that that the wider transaction (as described in paragraph 14 above) was an uncommercial transaction made by Employ 96 on the one hand and the Partnership and DVT Services within the meaning of s 588FB of the Corporations Act, or alternatively a declaration to that effect on the basis the transaction took place between Employ 96 and DVT Services. I do not understand the Plaintiffs to have pressed that claim in closing submissions. In any event, I have not accepted the wider characterisation of the transaction. 58Alternatively, the Plaintiffs contended that each of the payments made after 1 May 2007, or each such payment with the work performed for it, were uncommercial transactions within the meaning of s 588FB of the Corporations Act. The Plaintiffs contend that between 8 May 2007 and 13 August 2007 Employ 96 paid DVT Services the amount of $240,240 for accounting services representing at least approximately twice the value of those services. The Plaintiffs identified several other factors that supported a finding that the payments made following the entry into the 1 May Letter were uncommercial, to which I will refer below. The Defendants contend that none of the payments are uncommercial transactions because they were made for the purpose of discharging an existing liability in circumstances where that was necessary to ensure the ongoing assistance of DVT for Employ 96's efforts to effect a restructure. The Defendants also contend that the fact that DVT: "... negotiated for and the director agreed to pay for services provided at that time of crisis at double the rate charged for more mundane consultancy work is not indicative of a bargain 'of such magnitude that it could not be explained by normal commercial practice'". 59Section 588FB(1) of the Corporations Act provides that a transaction is an uncommercial transaction if it may be expected that a reasonable person in the company's circumstances would not have entered into the transaction, having regard to the benefit or detriment to the company in entering the transaction, the benefit to other parties to the transaction and any other relevant matter. The Explanatory Memorandum to the Corporate Law Reform Bill 1992 noted that: "The provision is specifically aimed at preventing companies disposing of their assets or other resources through transactions which resulted in the recipient receiving a gift or obtaining a bargain of such commercial magnitude that it could not be explained by normal commercial practice." 60Whether a reasonable person in the company's circumstances would not have entered into the transaction is determined by an objective inquiry, by reference to the factors specified in s 588FB(1). In Demondrille Nominees Pty Ltd v Shirlaw [1997] FCA 1220; (1997) 25 ACSR 535 at 548; 15 ACLC 1716, Foster, Lindgren and Madgwick JJ observed that s 588FB of the then Corporations Law sought to balance the interests of the unsecured creditors of a company being wound up and those who would otherwise be the beneficiaries of pre-winding up transactions entered into by the company and its purpose was: "To prevent a depletion of the assets of a company which is being wound up by, relevantly, "transactions at an under-value" entered into within a specified limited time prior to the commencement of the winding up: see explanatory memorandum, para 1014." Their Honours also observed (at ACSR 548), by reference to the Explanatory Memorandum, that a transaction is uncommercial for the purposes of this section where there is a bargain "of such magnitude that it could not be explained by normal commercial practice". That formulation was also adopted in Skouloudis Group Pty Ltd (in liq) v Planet Enterprizes Pty Ltd [2002] NSWSC 239; (2002) 41 ACSR 369 at [14]-[15] and in Capital Finance Australia Ltd v Tolcher above at [129], where Gordon J also noted that the categories of "uncommercial transaction" are not closed; that the standard to be applied is an objective one, to be assessed by reference to the company's circumstances, including the knowledge of those who were directing the company, such as its controlling director; and that a transaction will be "uncommercial" where the consideration lacks a commercial quality. 61In Cussen v Sultan [2009] NSWSC 1114; (2009) 74 ACSR 496, Nicholas J observed (at [22]-[23]) that, in determining whether a transaction of a company is an uncommercial transaction: "Having identified the transaction, it becomes necessary to decide whether it is an uncommercial transaction of the company under s 588FB(1). The question to be asked is whether it was one which it may be expected that a reasonable person in the company's circumstances would not have entered into, having regard to the matters specified under this provision. The matter must be looked at from the point of view of the company (Tosich Construction Pty Ltd (in liq) v Tosich (1997) 23 ACSR 466 at 473). In Welcome Homes Real Estate Pty Ltd v Ziade Investments Pty Ltd [2007] NSWCA 167 Hodgson JA (Spigelman CJ, Santow JA agreeing) held that the test was not so high as to require that the transaction be so unreasonable that no reasonable person would enter into it. He said: The statutory language is that "it may be expected that a reasonable person in the company's circumstances would not have entered into the transaction". The word "may" is weaker than "must" or even "would"; and in my opinion one reason why something "may be expected" is that it is what normally happens. That is, it is not essential that it would always or necessarily happen. For that reason, what is normal commercial practice, while not decisive, is relevant to the question. Accordingly, the court will look at the totality of the business relationship between the parties, and to what the parties under their relationship intended to effect, and how their intention was effected, in part or in whole, by the impugned transaction (VR Dye & Co para 40)." 62I am conscious that, in Lewis (as liq of Doran Constructions Pty Ltd (in liq)) v Doran [2005] NSWCA 243; (2005) 219 ALR 555; 54 ACSR 410 at [136], Giles JA (with whom Hodgson and McColl JJA agreed) observed that the description of an "uncommercial transaction" in s 588FB(1) directed primary attention to a balancing of benefit and detriment and only in the broadest sense involved undervalue and (at [154]) that a Court should be slow to pronounce upon the commercial justification of particular executive decisions. That observation appears to be directed particularly to the context where no straightforward comparison of the value of an asset and the consideration received can be undertaken. On the other hand, in Capital Finance v Tolcher above at [73], Lindgren J quoted Professor Andrew Keay's observations as to the importance of undervalue in determining whether a transaction is an uncommercial transaction for the purposes of s 588FB in his article "Liquidators' Avoidance of Uncommercial Transactions" (1996) 70 ALJ 390 at 397, as follows: "While not dealing exclusively with undervalue, undervalue is at the heart of the section [s 588FB], that is, if the company received less than what is reasonable from the transaction the liquidator may attack it. It is likely that in many cases Courts will be pre-occupied with comparing the value of what the company received in exchange for what it gave or vice a versa." That passage was in turn cited by Nicholas J in Cussen v Sultan above at [19]. In Buzzle Operations Pty Ltd (in liq) v Apple Computer Australia Pty Ltd [2011] NSWCA 109; (2011) 82 ACSR 703 at [82], Young JA also recognised the relevance of the consideration received by the company in a transaction, albeit also observing that an assessment of the adequacy of consideration for the purposes of this section does did not require "exact equivalence" but only a fair equivalence between what is given and what is received. 63The matters to which the Court is to have regard in determining whether a transaction is an uncommercial transaction, in the requisite sense that a reasonable person in the company's circumstances would not have entered into the transaction, are specified in sub-paragraphs 588FB(1)(a)-(d) as any benefits to the company of entering into the transaction; the detriment to the company of entering into the transaction; the respective benefits to other parties to the transaction of entering into it; and any other relevant matter. In the present case, Employ 96 received the benefit of obtaining professional services from DVT. On the other hand, it suffered the detriment of obtaining those services at double the usual rate that would be charged by DVT for the provision of those services. For the reasons set out below, in my view, the relevant circumstances were not of such a character that an agreement to pay double rates could be explained by normal commercial practice. 64The Plaintiffs point to several objective factors which, in my view, create a strong basis for a finding that the basis on which DVT provided services to Employ 96 under the 1 May letter involved a bargain of a magnitude that cannot be explained by normal commercial practices and that the transaction was therefore an uncommercial transaction for the purposes of s 588FB of the Corporations Act. First, the Liquidator's evidence, which I accept, is that the "special rates" were exceptional although the services to be provided were not unique, and that accountants and insolvency practitioners did not ordinarily charge double their ordinary rates for performing work. Second, the amount of $240,240 was paid after 1 May 2007 despite Employ 96's insolvency (now admitted by the Defendants) and the fact that its only assets were sold for substantially less than that amount. Third, services (recorded at a value of $46,142.23) were provided after the date of sale of Employ 96's business to the purchaser of that business, Ruby Investments, an entity whose sole director and shareholder was Mr Blaikie's wife (Ex D3, CB 1309-1310). 65The Defendants rely on a conversation between Mr Blaikie and Mr Tayeh set out in paragraph 42 of Tayeh's affidavit dated 19 April 2012 to rebut the suggestion that the payment of double rates for the services provided under the 1 May Letter gave rise to an uncommercial transaction. I should first set out that conversation and then address its admissibility and the weight to be given to it. Mr Tayeh's evidence of that conversation is as follows (recalling that Advantage Recruitment later changed its name to Employ 96): "On or about early May 2007 I had a conversation with Walter [Blaikie] where words to the following effect were said: Walter: "The guy I've left in charge while I have concentrated on the Hudson acquisition has made a mess of things. The expense side has gotten way out of hand and there is a big tax debt due. You've helped me through this sort of cash flow mess before and we really need your assistance again." [Tayeh]: "We'll need to have a look at it and see if we can help. The work for Advantage has gone on a long time and we have had to keep a team on your work at the expense of other clients who give us repeat referral business." Walter: "Advantage has had a long relationship with DVT and you already know our business. Getting someone else involved will take time and I want to move quickly on this. Your assistance would be of great value. This advice is crucial for the business." [Tayeh]: "Oh. Well, we have had a long relationship and it is certainly something we have the expertise to do but Advantage owes DVT about $198,000 relating to the Hudson work. I'd be willing to put that to the side on the understanding that it will be paid out of the financing if the Hudson deal goes forward. Considering the $198,000 owing, the fact that this is very specialised work, we're a small firm and you want this all done quickly and we will have to put a team on this and ignore other work, any other work going forward will have to be charged at about double what we have been charging you in the past to make the sacrifice make sense for us and pre-paid at the rate of $22,000 per week with an initial pre-payment of $5,500. Walter: "That seems fair. We need the work done and you're better value at those rates than getting someone new in that doesn't know that business or have your expertise." [Tayeh]: "Yes. As always, the work will be done by DVT and DVT will invoice you and payment should be made to DVT. I'll send you a letter confirming this pre-payment arrangement." Walter: "Yes. I understand."" 66I initially ruled that that conversation was admissible against both Plaintiffs so far as words were attributed to Mr Tayeh who was giving evidence, and that the words attributed to Mr Blaikie were admissible without limitation against Employ 96 (so far as he was a director of that company), but that an order should be made under s 136 of the Evidence Act 1995 (Cth) limiting their admission as against the Liquidator to establishing the matters said to Mr Tayeh rather than the truth of those matters. I reserved the parties' ability to revisit that ruling, and Mr Golledge, who appears for the Defendants, submitted in closing submissions that it should be varied. Mr Golledge submitted that, once the relevant statements had been admitted without limitation against Employ 96, they were admissible for all purposes by reason of s 60 of the Evidence Act, and also that the Liquidator should be treated as privy of Employ 96 and a statement that would be admissible against Employ 96 should be equally admissible against the Liquidator for all purposes, although the weight to be given to it would be a question for the Court. Mr Golledge referred to the High Court's decision in Partridge v McIntosh (1933) 49 CLR 453 at 462-463 in that regard, although there is a distinction between a liquidator and a trustee in bankruptcy (whose position was considered by the High Court in that case) since the assets of a company in liquidation do not vest in the liquidator. On balance, I am satisfied that the statements attributed to Mr Blaikie in paragraph 42 of Mr Tayeh's affidavit are admissible as against Employ 96; that the Liquidator should be treated as relevantly in privity with Employ 96; and that it is not necessary to make a limiting order in respect of that statement under s 136 of the Evidence Act, since there will be no unfair prejudice by the admission of that evidence where the Court may assess the weight to be given to it. However, I give little weight to the acknowledgement of DVT's value at double its usual rate attributed to Mr Blaikie in paragraph 42 of Mr Tayeh's affidavit for the reasons set out in paragraphs 67-68 below. 67It will be noted that, as Mr Tayeh recalls the conversation, he suggested that the amount of $198,000 then unpaid in relation to the Hudson work be "put aside"; Mr Blaikie is in turn said to have acknowledged the fairness of the arrangement (although Mr Tayeh himself characterised that arrangement in cross-examination as "opportunistic" on DVT's part); and Mr Blaikie volunteered the observation that DVT were "better value" at double their usual rates than another accountant who did not know the business or have DVT's expertise. I have substantial difficulty with Mr Tayeh's evidence in respect of this conversation, which took place over five years ago, and having regard to other aspects of Mr Tayeh's evidence to which I refer below. 68There were also difficulties with other aspects of Mr Tayeh's evidence. Mr Tayeh initially gave evidence that he expected the amount owing at 1 May 2007 to be paid if a transaction between Employ 96 and Hudson proceeded, an expectation that would have avoided any need for DVT to rely on the "special rates" to reduce the outstanding amount referred to in the 1 May Letter; however, that evidence was undermined by his cross-examination (T160-161). Mr Tayeh expressly denied that the "special rates" were charged in order to seek to recover the amount outstanding prior to the 1 May Letter (Tayeh XX T168-169). In my view, the necessary and obvious consequence of DVT charging for its services at double its usual rate, where there is no suggestion that its costs of providing the relevant service had increased, was that it would, in substance, partly recover (or at least mitigate the loss otherwise arising from) the outstanding debt. I find it impossible to accept that Mr Tayeh did not intend that necessary and obvious consequence of that course. Mr Tayeh also initially gave evidence that he did not suspect that Employ 96 was insolvent and that, prior to 1 May 2007, he was unaware of its large tax debt (Tayeh [45], [43]), but conceded in cross-examination that he was aware of the Company's large tax debt as early as 20 March 2007 (Tayeh XX, T151-152) and suspected that the Company was insolvent on 1 May 2007 (Tayeh XX, T110-111). I have also referred to difficulties with Mr Tayeh's evidence as to a conversation with Mr Blaikie in 2003 in paragraph 23 above. 69Mr Tayeh's evidence was that the "special rates" were reasonable because the transaction involving Employ 96 was a "complex transaction" (Tayeh XX, T168-169). I have not reached that view, having regard to the objective evidence as to the nature of the transaction and the evidence given by, the Liquidator, Mr Heesh, that the work performed after 1 May 2007 was not of that character. Mr Heesh also gave evidence, which I accept, that the "special rates" were particularly unusual and Mr Heesh could not recall any instance in which an insolvency practitioner or accountant had charged double their ordinary rates in his experience (Heesh XX, T85-86, 89). 70The Defendants also submitted that the rates charged under the 1 May Letter were reasonable on the basis that Mr Tayeh had a special relationship with a potential funder to Employ 96, Oxford Funding. However, Oxford Funding's internal analysis of the debtor finance proposal in respect of Employ 96 (and Ruby Investments as the purchaser of its business) (Ex P2) demonstrates that it undertook an objective analysis of the business; placed particular emphasis on the fact that Employ 96 had previously been a customer of Oxford Funding between 2004 and 2006, during which its account operated as a low risk account, within arrangements and with little administration and that Oxford Funding had remained in contact with Mr Blaikie in the hope that it could win Employ 96's business back; and analysed the reason for Employ 96's losses and how the business could be restructured going forward. The ultimate recommendation recorded in that proposal refers to the confidence of external advisers, directors and the company's financial controller in the turnaround plan and indicates that "[t]he debtors' ledger and strong security position make this a deal worth pursuing". While that document refers to a discussions with Mr Tayeh as to the proposed restructuring strategy, and also with Mr Heesh (who was proposed to be and ultimately was appointed as liquidator of Employ 96), it does not support a finding that DVT's involvement provided any substantive advantage to Employ 96 (or Ruby Investments as purchaser of the business) in obtaining funding for the business. I do not regard any advantage delivered by Mr Tayeh's relationship with Oxford Funding as providing a commercial basis for Employ 96's agreement to pay double DVT's usual rates, particularly in Employ 96's then circumstances. 71The Defendants also submit that it would involve an illegitimate use of hindsight to characterise the transaction arising under the 1 May Letter as "uncommercial" having regard to the total value transfer from Employ 96 to DVT which occurred by reason of the 1 May Letter. I accept that it is not appropriate to look at the amount of the money that was paid, applying hindsight from the end of the period, to reach that conclusion. However, without the application of hindsight, it was apparent from the entry into the arrangement that the charging of double rates, if a significant amount of work was done, would provide a significant benefit to DVT Services and impose a corresponding detriment on other creditors of Employ 96 in the event of its subsequent insolvency. The Defendants also submit that the retention of an alternative professional firm, although theoretically possible, would have disrupted the "turnaround" proposal at a time when Employ 96's circumstances did not allow for such a luxury. I accept that, all things being equal, it would have been advantageous to Employ 96 to retain DVT so as to take advantage of its existing knowledge rather than not to do so. However, I cannot find that the advantage of DVT's familiarity was such that the transactions undertaken under the 1 May Letter were not of an uncommercial character having regard to the doubling of DVT's usual rates, the then circumstances of Employ 96 and the other factors to which I have referred. 72The Defendants submit that the Plaintiffs have made no attempt to adduce evidence that the tasks taken on by DVT after 1 May 2007 could easily have been carried out by a different firm without risk or damage to Employ 96, or what practical issues would have arisen for Employ 96 had it rejected DVT's demands for an increased hourly rate, or what another firm would have charged for the work required, and that the Court is being asked "to speculate about such matters and double-guess the directors' decision that even with the [1 May] Letter, Employ 96's interests were best served by the ongoing retention of DVT Services". I do not accept this submission. The first difficulty with it is that, as I noted above, DVT did not produce documents that would have been relevant to such an exercise, and specifically emails relating to the identification of the services provided by it to Employ 96 during the period which would have allowed the Plaintiffs to undertake such an analysis. Second, Mr Heesh has given evidence as to the extent to which the rates charged by DVT were out of market and that the services provided by DVT were not particularly unique in character, and the Court is otherwise in a position to assess the director's decision having regard to the then circumstances of Employ 96. The Defendants also submit that a requirement for a "special rate" for particular types of work or for work required to be carried out in difficult circumstances is commercially commonplace and unobjectionable, and that may or may not be the case. However, the Defendants led no evidence as to the use of "special rates" of double the usual rate in other circumstances, by DVT itself or by other accounting firms or insolvency practitioners, and the only evidence before me in that regard is Mr Heesh's evidence to the contrary. 73Evidence was also led as to the terms of the transaction by which Employ 96 disposed of its business to Ruby Investments and there was some cross-examination as to that transaction. The Defendants contend that the legitimacy of the sale transaction supports a finding that Employ 96 benefited from DVT's work and that work had value from Employ 96's perspective. I do not consider that it is necessary to form any view as to the legitimacy of that transaction in order to resolve the matters in issue in this case. I recognise that Mr Heesh had at one point expressed a view that the transaction offered creditors of Employ 96, including the Australian Tax Office, their best likely outcome. Accepting the legitimacy of the transaction in delivering the best outcome for creditors, it does not seem to me that that would avoid a conclusion that the payments made at the rates specified in the 1 May Letter were uncommercial in the circumstances to which I have referred above. 74I also accept that, as Young J noted in McDonald v Hanselmann [1998] NSWSC 171; (1998) 28 ACSR 49 at 53, property may have a special value to a person because of factors unique to that person, and that such matters have an effect on the value of the assets to Employ 96. However, the proposition the Plaintiffs need to establish in order to establish an uncommercial transaction is not that the services of DVT Services may not have had some additional value to Employ 96 in its particular circumstances, but that the payment of double DVT's usual rate was, in all the circumstances, uncommercial in the relevant sense, notwithstanding any such additional value. The only evidence of Employ 96's thinking in that regard is the conversation with Mr Blaikie as set out in Mr Tayeh's evidence to which I have referred above. Other matters put by DVT Services, such as the value of the special relationship said to exist between Mr Tayeh and Oxford Funding, were not shown to have been taken into account by Mr Blaikie in determining to pay double DVT Services' usual rate. The conclusion that the transaction was uncommercial is also reinforced by the absence of any attempt by Employ 96, through Mr Blaikie, to explore any other avenue by which it might obtain corresponding services and the absence of any negotiation as to DVT's demand for payment at double its usual rate. 75For these reasons, I find that the transaction constituted by the payments made after 1 May 2007 and associated dealings was an uncommercial transaction for the purposes of s 588FB of the Corporations Act. Work done after 23 July 2007 76The Plaintiffs also contend that the Special Rate Services were provided at least in part not for the benefit of Employ 96, in that they included work relating to cashflows of the business of Advantage Recruitment during the period 23 July 2007 to 14 August 2007 when Employ 96 had transferred that business to Ruby Investments by the sale agreement dated 17 July 2007. The Plaintiffs contend that there is no commercially rational explanation for the payment by Employ 96 for services totalling $46,142.23 provided by DVT during the period between the date of the Sale Agreement on 17 July 2007 and 9 August 2007. 77The relevant invoice, dated 9 August 2007, indicates the services provided related to the preparation of revised management reports, cashflow projections and projected financial statements and the preparations of reports to management on forecasts and projections. Mr Heesh's evidence is that the relevant work included preparation of cash flows and reconstruction of accounts of the business between 23 July 2007 and 14 August 2007, although discussions with other parties about the transfer of the business to a new entity had commenced in early May 2007 (as I noted above) Employ 96 had transferred the business to Ruby Investments on 17 July 2011 (Heesh [43]). Mr Heesh expressed the view, which I consider to be well-founded, that such revised cashflow projections and projected financial statements would be of benefit to Ruby Investments rather than to Employ 96. Mr Tayeh gives evidence of a conversation with Mr Blaikie in June 2007 where Mr Blaikie required additional work after the sale of the assets of Employ 96 to Ruby Investments on the basis that Employ 96 had "post completion responsibilities to Ruby Investments in respect of the handover" and that, although the assets of the business had been sold, the incorporated entities had ongoing issues that continued to require DVT Services' assistance. I am unable to accept that work to a value exceeding $46,000, of the kind to which I have referred, could be for the benefit of Employ 96 on that basis. 78For these reasons, the payment of this amount was an uncommercial transaction for the purposes of s 588FB of the Corporations Act. Whether the transactions were voidable as insolvent transactions 79A transaction is an insolvent transaction of a company, as defined in s 588FC of the Corporations Act, if, relevantly, it is an unfair preference or an uncommercial transaction of the company and the transaction is entered into or an act or omission takes place for the purposes of giving effect to the transaction at a time the company is insolvent or the company becomes insolvent because of matters including entry into the transaction. Section 95A(1) of the Corporations Act has effect that, relevantly, a company is solvent if, and only if, it is able to pay all its debts, as and when they became due and payable. Section 95A(2) has effect that a person who is not solvent is insolvent. 80The Plaintiffs contend, and the Defendants do not now contest, that each of the alleged transactions, if established, were entered into at a time when Employ 96 was insolvent. An insolvent transaction is voidable if it was entered into, or an act was done for the purpose of giving effect to it, during the six months ending on the relation-back day: s 588FE(2)(b) of the Corporations Act. The relevant transactions were undertaken within that period. Claim under s 588FF of the Corporations Act 81The Plaintiffs seek an order under s 588FF of the Corporations Act that the Defendants, or alternatively DVT Services, pay to Employ 96 the amount of $280,240 and interest under s 100 of the Civil Procedure Act 2005 (NSW). 82Subject to any application of s 588FG of the Corporations Act, the findings that I have reached above would support an order under s 588FF that DVT Services (but not the other defendants) pay Employ 96 the amount of the first and second and final payments and interest, on the basis that the amount of $40,000 paid on and prior to 1 May 2007 and the final payment made on 13 August 2007 were voidable preferences for the purposes of s 588FA of the Corporations Act. 83I have also held that the payments made at the rates provided under the 1 May Letter were uncommercial transactions for the purpose of s 588FB of the Corporations Act. The form of order that should be made under s 588FF of the Corporations Act in respect of that finding raises more complex issues. As Nicholas J observed in Cussen v Sultan at [96], the statute gives no guidance as to the approach to be taken in deciding, in a particular case, whether the amount recoverable under s 588FF in respect of an uncommercial transaction should be equal to some or all of the money that the company has paid under the transaction. In McDonald v Hanselmann above (at 56), Young J observed that "... the words 'may' in the initial part of subsection (1) and the word 'some' indicate that the court has a discretion as to whether it is just and equitable to enforce the whole of the compensation against the [defendant]". In Cussen v Sultan at [97], Nicholas J observed, and I agree, that "... with regard to such considerations, the court's task under s 588FF(1)(a) is to make an order which gives effect to the statutory scheme under Pt 5.7B which is concerned with the recovery of property or money for the benefit of creditors of an insolvent company." 84A particular difficulty arises because there is no corresponding provision to s 588FI(3) (which allows a creditor who gives up the benefit of an unfair preference to prove in the company's winding up for the relevant debt) if an order is made against DVT Services under s 588FF for recovery of the amount of an uncommercial transaction. It seems to follow that, if DVT Services were ordered to repay the whole of the amounts paid under the 1 May Letter as an uncommercial transaction, it could not then prove in Employ 96's winding up for the value of the services that it had in fact provided pursuant to letter and other creditors of Employ 96 would be advantaged at its expense. My preliminary view is that DVT Services should therefore be ordered to repay half the amount it received in respect of services provided pursuant to the 1 May Letter, so that it and Employ 96 are placed in the position that would have been had services been provided to Employ 96 on DVT's usual commercial terms and under a running account. However, these complexities were not fully addressed in submissions and as to which I should allow the parties an opportunity for further submissions as to this issue. Defences under s 588FG of the Corporations Act 85The Defendants did not maintain a defence under s 588FG(2) at the hearing. However, Messrs de Vries and Tayeh rely on a defence under s 588G(1)(a) of the Corporations Act, and bear the onus of establishing that defence: Cussen v Sultan above at [32]. Section 588FG(1)(a) provides that a Court is not to make an order under s 588FF materially prejudicing a right or interest of a person other than a party to the transaction if it is proved that the person received no benefit because of the transaction. 86I have held above that the Partnership was not party to the transactions and the findings that I have made above do not support a conclusion that Messrs de Vries and Tayeh, in their personal capacities or as the partners in the Partnership, were sufficiently connected with or impacted by the transactions so as to be treated as party to them; compare Cashflow Finance Pty Ltd (in liq) v Westpac Banking Corp above at [519]-[521]; Buzzle Operations Pty Ltd (in liq) v Apple Computer Australia Pty Ltd above per Young JA at [142]. The first element of the defence under s 588FG(1)(a) is therefore established in respect of Messrs de Vries and Tayeh. 87The second element of that defence requires Messrs de Vries and Tayeh to prove that they received no benefit by reason of the transactions. The term "benefit" is defined in s 9 of the Corporations Act as "any benefit, whether by payment of cash or otherwise". The Plaintiffs contend that benefit to Messrs de Vries and Tayeh is sufficiently established by the fact that DVT Services was the trustee of the DVT Services Trust; the payments in issue were deposited into a bank account of DVT Services as trustee for that Trust and the adjustable taxable income of the DVT Services Trust in the years ended 30 June 2007 and 30 June 2008 was distributed to trusts associated with Messrs de Vries and Tayeh. The Defendants contend that monies received by DVT Services in discharge of amounts owing to it were not received by Messrs de Vries and Tayeh as a matter of fact and they did not benefit from those payments other than in the same indirect way that all employees or creditors benefit when a company receives funds and is better able to discharge its obligations. They contend that the voidable transaction provisions do not extend to expose persons such as company directors, employee or shareholders in respect of monies paid to a company. The Defendants also contend that, if the Court were to find that Messrs de Vries and Tayeh were to receive a "benefit" from the transaction, any order under s 588FF should be limited so that they are only required to pay the amount actually received by each of them, by a process akin to a tracing exercise. The Plaintiffs concede that they could not establish that a benefit was received on that basis. 88Subsection 588FG(1)(a) refers to a benefit received "because of" the transaction, and that term appears to contemplate a direct causative relationship. As the Defendants point out, the monies paid by Employ 96 to DVT Services were paid into an operating account from which numerous expenses and payments were made. While Messrs de Vries and Tayeh are potential beneficiaries of other trusts that are in turn beneficiaries of the DVT Services Trust, of which DVT Services is trustee, I accept that it cannot be said that this is sufficient to give rise to a benefit to them received because of any particular transaction undertaken by DVT Services, including the particular transactions undertaken between DVT Services and Employ 96. It seems unlikely that the intent of the sections is to expose each shareholder in a company which receives, for example, a preference to personal liability, and the relationship between DVT Services and Messrs de Vries and Tayeh is significantly more remote than that of, for example, a shareholder of a company which receives a preference. As the Defendants point out: "If it was the case that the section could operate in this fashion then directors, shareholders, employees and even creditors could be rendered liable to repay amounts received as unfair preferences if it could be shown that in some indirect way the prior receipt of those monies enabled or even assisted the recipient creditor to make payments to those parties or to entities with which they were associated. Such would constitute a very significant enlargement of the reach of the law as it existed before 1993 in respect of void transactions." I accept that, as the Defendants point out, there is no indication of any intention to expand the voidable transaction regime by this means in the Explanatory Memorandum in respect of the introduction of Part 5.7B into the Corporations Act; to the contrary, the amendments substantially continued the pre-1992 law: Re Emanuel (No 14) Pty Ltd; Macks & Anor v Blacklaw and Chadforth Pty Ltd above at 294. 89For these reasons, I consider that, were it necessary for them to do so, Messrs de Vries and Tayeh would have established defences under s 588FG(1)(a) of the Corporations Act so as to avoid orders being made against them personally under s 588FF of the Corporations Act. Orders and costs 90I will hear the parties as to the orders to be made to give effect to this judgment and as to costs. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 21 February 2013