Arena Management Pty Ltd (Admin App) (Rec & Mgrs App) & Anor v Campbell Street Theatre Pty Ltd

Supreme Court of NSW|2010-05-18|Before: Palmer J

CITATION : Arena Management Pty Ltd (Admin App) (Rec & Mgrs App) & Anor v Campbell Street Theatre Pty Ltd [2010] NSWSC 957

JURISDICTION : Equity Division Corporations List

DECISION : Amended Originating Process dismissed.

LEGISLATION CITED : - Corporations Act 2001 (Cth) - s 9, s 95A, s 135, s 141, s 191, s 194, s 263(1), s 266(3), s 268, s 588FB, s 588FC, s 588FDA, s 588FE, s 588FF - Uniform Civil Procedure Rules 2005 (NSW) - 14.14

Lewis v Doran (2004) 208 ALR 385 - Queensland Bacon Pty Ltd v Rees (1966) 115 CLR 266 CASES CITED : - Southern Cross Interiors Pty Ltd (in liq) v Deputy Commissioner of Taxation (2001) 53 NSWLR 213 - VTMVS v MREM [2009] QSC 393 - Woolworths Ltd v Kelly (1991) 22 NSWLR 189

TEXTS CITED : Halsbury's Laws of England (4th Ed), Vol 12, paras 1353, 1355

Arena Management Pty Ltd (Admin App) (Rec & Mgrs App) (First Plaintiff) PARTIES : Randall Joubert in his capacity as Administrator of Arena Management Pty Ltd (Admin App) (Second Plaintiff) Campbell Street Theatre Pty Ltd (Defendant)

COUNSEL : G.P. George (Plaintiffs) A.J. McInerney, D.J. Barnett (Defendant)

SOLICITORS : Pateman Legal (Plaintiffs) Piper Alderman Lawyers (Defendant)

2010/290258 Arena Management Pty Ltd (Admin App) (Rec & Mgrs App) & Anor v Campbell Street Theatre Pty Ltd

1 The First Plaintiff, Arena, was the lessee of the Sydney Entertainment Centre until the lease was terminated by the lessor, the Sydney Harbour Foreshore Authority, in August 2009. 2 The Second Plaintiff, Mr Joubert, is the liquidator of Arena. The Defendant, Campbell Street Theatre (CST), has appointed receivers and managers to Arena pursuant to a Deed of Charge dated 20 August 2008. 3 Mr Joubert seeks declarations that:

no money is owing by Arena to CST which is secured under the Charge;

alternatively, the Charge is unenforceable for want of consideration;

alternatively, the Charge is voidable under the general law or as an unfair preference or an uncommercial transaction or as a related entity transaction or as an unreasonable director-related transaction;

alternatively, the Charge secures no more than $500,000 because stamp duty only to that amount has been paid. 4 If any of the declarations sought are made, Mr Joubert seeks consequential relief. The Charge

5 Mr Kevin Jacobsen is the sole director of CST and was one of the directors of Arena. Messrs Joubert and Jacobsen are the only witnesses who have given evidence and been cross examined. 6 There is no dispute that in April 2008 CST lent to Arena the sum of $500,000. 7 On 20 August 2008, Arena executed a Deed whereby it gave a fixed and floating charge over its present and future assets in favour of CST in consideration of CST "forbearing to sue forthwith" in respect of the loan already provided. The Charge was an "all moneys charge" in respect of past and future advances from CST to Arena. 8 There is no dispute that Arena repaid CST $250,000 on 2 January 2009 and a further $240,000 on 17 February 2009, leaving a balance owing of $10,000. 9 CST asserts that, beginning on 11 May 2009 it advanced four further amounts to Arena, which are secured by the Charge. Mr Joubert denies this assertion. The principal ground upon which Mr Joubert relies is that the general ledger of Arena does not record these amounts as loans from CST. The first disputed loan

10 CST's general ledger records a loan to Arena of $504,623 on 11 May 2009 and its bank statements show a payment out of that amount on that date. Arena's bank statements show receipt of that sum on that date. An acknowledgement of the loan, signed by Mr Jacobsen on behalf of Arena and dated 11 May 2009 is in evidence. The acknowledgement records that the loan is made by CST to Arena at a stated rate of interest and is secured by the Charge. 11 Mr Joubert does not assert that the acknowledgement signed by Mr Jacobsen is a recent fabrication, although Mr George, in his submissions, suggests that it may be. There is no evidence which supports a finding of recent fabrication. As I have said, the only real ground upon which Mr Joubert disputes the nature of the payment is that, although Arena had an accounting staff in its office and its financial records were well maintained, its general ledger does not record the transaction as a loan from CST. 12 As to this ground, I note that the evidence shows that the financial records of both Arena and CST include many active accounts and relate to numerous transactions. It would not be surprising if errors occurred now and then. Mr Joubert did not call any of Arena's accounting staff to prove that the omission of the transaction from Arena's general ledger was not an error but was for some other reason. 13 However, in the course of cross examining Mr Jacobsen, Mr George, Counsel for Mr Joubert, endeavoured to put forward a case that the payment of $504,623 from CST to Arena was designed to effect a fraudulent transaction. He endeavoured to suggest that the money coming from CST to Arena was in fact the money of Arena itself and that a round robin of cheques had been created to give the impression of a genuine loan from CST which could be secured by the Charge. He endeavoured to suggest that the money was, in fact, derived from the sale by Arena of its interest, through a shareholding in a subsidiary, in a lease of the Capitol Theatre and that that money had been paid by Arena for no consideration to an associated company, Sophie Jacobsen Pty Ltd, which in turn had paid it to CST, which in turn paid it back to Arena in the guise of a loan. 14 Mr McInerney of Counsel, who appears with Mr D.J. Barnett for CST, rightly objected to this line of cross examination on the ground that a case of fraud had never been pleaded by Mr Joubert. Mr Jacobsen was being confronted in the witness box for the first time, and without notice, with a series of transactions which had occurred five years ago. He began to explain in general terms that Arena's interest in the Capitol Theatre had been sold at the request of Arena's shareholders, one of which was Sophie Jacobsen Pty Ltd, which had preference shares and that that company wished to have some capital returned to it. 15 However, at this point, I ruled that I would not permit Mr George to continue with a line of cross examination designed to establish a fraudulent transaction when no fraud case had been pleaded by Mr Joubert. 16 Mr Joubert's Points of Claim had not referred in any way to Arena's payment to Sophie Jacobsen Pty Ltd, that company's payment to CST and CST's payment to Arena. CST's Points of Defence carefully detailed the steps in the loan transactions between CST and Arena. There was no Reply filed in answer to the Points of Defence. To permit Mr George, in the course of cross examination, to raise a case of fraud for the first time would not only contravene UCPR 14.14(2) and (3) but would work a grave injustice on CST, which could have adduced evidence to deal with the allegation if it had been properly pleaded. 17 As matters stand, therefore, the evidence clearly shows that CST paid $504,623 to Arena on 11 May 2009, which was acknowledged by Mr Jacobsen, as a director of Arena, on that date as a loan to Arena secured by the Charge. The only ground which Mr Joubert has for disputing the character of the payment is that while the general ledger of CST records it as a loan to Arena, Arena's general ledger does not. 18 I do not regard this circumstance as justifying the rejection of all of the other evidence which records the transaction as a loan to Arena from CST. I find that the payment was a loan secured by the Charge. The second disputed loan

19 The bank records of CST and Arena show that on 13 May 2009 CST paid out and Arena received $201,270.52. CST's general ledger shows the transaction as a loan to Arena. An acknowledgement of the loan signed by Mr Jacobsen on behalf of Arena and dated 13 May 2009, records the payment as a loan by CST to Arena secured by the Charge. 20 Mr Joubert denies the assertion. Again, the principal ground upon which Mr Joubert relies is that the general ledger of Arena does not record this amount as a loan from CST. In denying that the payment to Arena was a loan from CST, Mr Joubert gives evidence that CST received $200,000 on 13 May 2009 from what is said to be a related entity of CST, Leopard & Phoenix Pty Ltd, a shareholder of Arena, and that Leopard & Phoenix received a dividend of $100,000 declared by Arena on 14 April 2009. However, no case is pleaded by Mr Joubert that the dividend declared by Arena resulting in a payment to Leopard & Phoenix was invalid or improper in any way. No case is pleaded that the payment of $201,270.52 by CST to Arena was part of some fraudulent transaction. I am unable to see the relevance, therefore, of evidence as to how CST came to be in funds so as to make the loan to Arena on 13 May. 21 Nor, in the absence of a pleaded case of fraud or other vitiating factor, am I able to see the relevance of evidence, sought to be led by Mr George, as to what Arena did with the loan monies which it had received from CST. It may well be the case that shareholders of Arena were entitled to payments out of Arena and that Mr Jacobsen's family interests were prepared to provide some of that money to Arena for working capital but only by way of secured loan through the agency of CST. If that is what happened - and it is only one possibility emerging from the scant evidence on the subject - that does not in any way detract from the character of the payments from CST to Arena as loans secured by the Charge. 22 For the reasons given in relation to the first disputed loan, I find that the payment of $201,270.52 by CST to Arena was a loan secured by the Charge. The third disputed loan

23 On 21 May 2009, a firm of solicitors acting for Ticketmaster7, Herbert Greer Rundle, received a cheque for $250,000 drawn on the account of Tea & Coffee Traders Pty Ltd in favour of Arena, which, upon instructions, Herbert Greer Rundle deposited in its trust account to the credit of Arena. The payment was applied in satisfaction of a debt owed by Arena to Tickmaster7. The instructions for receipt and application of these funds were confirmed by e-mails between the parties on 21 October 2009. 24 By letter dated 21 May 2009 to the Secretary of CST, Mr Kevin Jacobsen, on behalf of Arena, acknowledged that Arena had received the money by way of loan from CST secured under the Charge. The general ledger of CST records the making of a loan by Tea & Coffee Traders to CST on 21 May 2009, and the making a loan of the same amount by CST to Arena on the same day. A loan acknowledgment dated 21 May 2009, signed by Mr Kevin Jacobsen on behalf of Arena, also acknowledges the loan as made on that day by CST to Arena, secured by the Charge. 25 The general ledger of Arena does not record the transaction. That is the only ground upon which Mr Joubert disputes that CST lent $250,000 to Arena on 21 May 2009. 26 I am satisfied that on 21 May 2009, Tea & Coffee Traders, at the direction of CST, paid $250,000 to Herbert Greer Rundle to be applied for the benefit of Arena. The transaction was structured as a loan by Tea & Coffee Traders to CST, and a loan by CST to Arena secured by the Charge. It may be that documentation evidencing this transaction was, at least in part, completed some time after 21 May 2009 but that does not prove that the intention of all parties as at the date of the transaction was other than as evidenced by the documents. 27 I am satisfied that CST lent $250,000 to Arena on 21 May 2009 and that the loan is secured by the Charge. The fourth disputed loan

28 The bank records of CST show that on 27 July 2009 CST received $34,375 and on the same day transferred that amount out to another account. The general ledger of CST shows the transaction as a loan to Arena. 29 However, there is no evidence that the money was received into Arena's bank account. Nor is there any acknowledgement of the transaction, signed by Mr Jacobsen, as a loan from CST to Arena. In short, the only evidence in support of the assertion that the payment was a loan to Arena is the general ledger of CST. 30 In the absence of evidence that the payment was actually received by Arena, or applied for its benefit, I am not prepared to find that it was a loan to Arena secured under the Charge. The absence of evidence showing receipt of the money by, or for the benefit of, Arena suggests that the entry in CST's general ledger may be mistaken. The amount secured by the Charge

31 It is not in dispute that Arena repaid $200,000 to CST on 15 June 2009 and $100,000 the next day. CST treats these payments as reductions of Arena's loan account in its general ledger. There is no reason to differ from this characterisation. 32 The CST general ledger also records a further payment by Arena to CST of $30,000 on 17 June 2009 in reduction of the loan account. However, Mr Joubert does not admit this transaction and there is no evidence showing payment of this amount out of Arena's bank account or receipt of that amount into CST's bank account. As neither party asserts that Arena's loan account was reduced by $30,000 by a payment on 17 June 2009, I disregard this entry in CST's general ledger for the purpose of ascertaining the amount of CST's loans to Arena secured by the Charge. 33 Having regard to the findings made above, I am satisfied that, in accordance with the calculation proffered by CST, the total amount owing to it by Arena secured under the Charge is $665,883. Whether Charge unenforceable for want of consideration

34 Mr George submits that the Charge is unsupported by consideration because:

the original loan of $500,000 which it secured had been made four months before execution of the Charge and could not, therefore, constitute sufficient consideration for the Charge;

no demand for repayment of the loan of $500,000 had been made or could be made, so that forbearance to sue could not constitute consideration;

by the Charge, CST did not promise to lend further monies to Arena, whereby such a promise could be good consideration. 35 I am unable to accept the submission that the Charge is unenforceable for want of consideration, essentially for the reasons given by Mr McInerney:

the Charge is created by a Deed so that further consideration is not required: see Halsbury's Laws of England (4 th Ed), Vol 12, para 1355;

Arena is estopped from denying the Recitals in the Deed as to the giving of consideration: Halsbury (ibid) para 1353; VTMVS v MREM [2009] QSC 393, at [33]-[34];

consideration was given by way of the loans made subsequently, upon the terms of the Charge. Whether Charge voidable for "conflict of interest"

at all relevant times Mr Kevin Jacobsen was a director of both Arena and CST;

at all relevant times Mr Michael Jacobsen was a director of Arena and a substantial shareholder of CST;

at the time of creation of the Charge, there were two other directors of Arena, namely Ms Mather and Mr Brown;

the Charge was executed on behalf of Arena by Messrs K. and M. Jacobsen and on behalf of CST by Mr Kevin Jacobsen as its sole director;

by reason of these circumstances, Messrs K. and M. Jacobsen had material personal interests in the granting of the Charge by Arena to CST, within the meaning of s 191(1) Corporations Act ;

Messrs K. and M. Jacobsen, as directors of Arena, failed to give any notice of their material personal interests in the proposed Charge to Ms Mather and Mr Brown as the other directors of Arena, in the manner required by s 191(3);

"in the premises, the Charge is voidable at the election of [Arena] at law or pursuant to s 194" . 37 Section 191(1) provides: " Director's duty to notify other directors of material personal interest when conflict arises A director of a company who has a material personal interest in a matter that relates to the affairs of the company must give the other directors notice of the interest unless subsection (2) says otherwise." 38 Section 191(2)(b) relevantly provides that a director does not need to give a notice of an interest under subsection (1) if the company is a proprietary company (as Arena is) and the other directors are aware of the nature and extent of the director's interest and its relation to the affairs of the company. 39 In order to establish that, in executing the Charge on behalf of Arena, Messrs K. and M. Jacobsen committed a breach of s 191(1), Mr Joubert would have to prove that Ms Mather and Mr Brown were unaware of the material personal interests of Messrs K. and M. Jacobsen in the transaction through their respective interests in CST. Mr Joubert has not sought to do so. In view of the close and continuing working relationship between CST and Arena, as revealed in CST's accounts, it would be somewhat surprising if Arena's other directors were unaware of the identity of the controllers of CST. 40 In any event, even if Mr Joubert had been able to prove that in executing the Charge Messrs K. and M. Jacobsen had committed a breach of s 191(1), it could not have availed him. Section 191(4) provides: " Effect of contravention by director A contravention of this section by a director does not affect the validity of any act, transaction, agreement, instrument, resolution or other thing." 41 As to whether the Charge is voidable under the general law, the principles are succinctly summarised by Samuels JA in Woolworths Ltd v Kelly (1991) 22 NSWLR 189, at 207D-F, as follows: "Unless the articles of the company otherwise provide, a contract made in breach of this fiduciary duty will be voidable at the option of the company unless the director makes a full disclosure of the nature of his interest in the contract to the members of the company in general meeting, who must approve the contract by ordinary resolution. Disclosure to the company's directors, even if the interested director does not attend the board meeting or vote on the contract, will be ineffective to validate the contract at general law since the company has a right to the unbiased views and advice of all its directors. A provision in the articles may validate a contract which would otherwise be voidable under the general law, but to obtain its protection the director must strictly comply with any conditions laid down in the provision. The director bears the onus of proving that he has complied with the provision." (citations omitted) 42 As this passage expressly recognises, the principles of the general law as to directors' conflicts of interests are subject to the provisions of the company's constitution. 43 In this case, clause 16 of Arena's constitution expressly deals with the consequences of a director having an "Extraneous Interest" in a transaction, such as would be the case where Messrs K. and M. Jacobsen, as directors of Arena, had interests as a director or shareholder of CST at the time of execution of the Charge. 44 The relevant provisions of clause 16 are as follows: "16.2 Scope of Directors' duties A Director may, without breaching his duty to the Company: (a) have any Extraneous Interest; and (b) hold any office, place of profit or employment, or be a member or creditor of any corporation or partnership, which in any case does or could give rise to an Extraneous Interest in the Director.

16.3 Transactions not vitiated No Transactions in which the Company is interested or to which the Company is a party is vitiated, avoided or voidable merely because a Director has an Extraneous Interest in or in relation to that Trans-action.

16.4 No liability for Extraneous Interest No Director nor any other person is, merely by reason of a Director having an Extraneous Interest liable to account for any profit or benefit received by the Director or any other person or to hold any property on any trust for the Company or to compensate the Company for any loss suffered by it.

16.10 Execution of Instruments A Director may, notwithstanding any Extraneous Interest or other interest and regardless of whether that Extraneous Interest or other interest has been declared as required by the Law, participate in the execution of any instrument by or on behalf of the Company and whether by signing or by affixing or witnessing the affixing of a seal or otherwise.

16.5 Declaration of interests A Director need not declare any interest (including, without limitation, any Extraneous Interest) unless required to do so by the Law." 45 I do not read clause 16.5 as having the effect of invalidating a transaction entered into by Arena where a director has failed to disclose an Extraneous Interest, if required by the Corporations Act to do so. Such an intention is contrary to the permissive and validating effect of Clause 16.10. 46 In any event, as I have said, Mr Joubert has not proved failure by Messrs K. and M. Jacobsen to comply with s 191(1) because he has not proved that that subsection applies in the circumstances envisaged by s 191(2)(b). 47 For these reasons I conclude that the Charge is not voidable by Arena under the general law. 48 As to the relief claimed under s 194, I cannot see how that section affects the matter but, in any event, being a replaceable rule, it does not apply in the present case by operation of s 141 and s 135(1) as Arena was registered before 1 July 1998 and did not repeal its constitution after that date. Whether the Charge was an insolvent transaction

49 Arena seeks to set aside the Charge as an unfair preference, or an uncommercial transaction or a related entity transaction. A necessary element in each of those grounds for relief is that the Charge is shown to be an insolvent transaction: s 588FC, s 588FE(3)(a), s 588FE(4)(a). That means that Mr Joubert must prove that Arena was insolvent at the time that the Charge was entered into or that it became insolvent because of entering into the Charge. There is no issue that the Charge was entered into within all relevant relation back periods. 50 Mr Joubert seeks to prove only that Arena was insolvent at the time that the Charge was entered into. Insolvency is, of course, a question of fact. Mr Joubert must satisfy the Court that, applying the cash flow test, not the balance sheet test, and having regard to the company's financial position as a whole, Arena was at August 2008 unable to pay its as they fell due for payment: s 95A Corporations Act; Southern Cross Interiors Pty Ltd (in liq) v Deputy Commissioner of Taxation (2001) 53 NSWLR 213. 51 Mr Joubert has conducted no analysis of Arena's financial position as at August 2008 in his affidavit evidence. He has nowhere expressed the view, based upon any analysis of Arena's accounts, that as at August 2008 the company was unable to pay its debts as they fell due. As an expert insolvency practitioner, Mr Joubert would have been entitled to give such opinion evidence and, if properly supported by factual analysis, it would have carried weight. 52 In the absence of analysis by Mr Joubert, Mr George has had to approach the task of proving insolvency on a piecemeal basis, urging that the Court draw inferences in that process. 53 Mr George points to the fact that Arena incurred a trading loss of $3.299M in the 2006 financial year. However, the evidence also shows that support for Arena was forthcoming from Ticketmaster7 Pty Ltd, which lent Arena $4M, that loan later being converted to a "prepayment" in respect of ticket sales. 54 The audited accounts of Arena for the year ended 30 April 2007 showed, in round figures, current assets of $7,672,000, non-current assets of $9,107,000, current liabilities of $9,177,000, non-current liabilities of $4,766,000 and net assets and net equity of $2,836,000. The company made a profit that year of $888,500, as opposed to the loss in the 2006 financial year of $3.299M. 55 The notes to Arena's financial accounts for the 2007 year show that Arena had an overdraft facility of $100,000 with its bank, which was un-drawn as at balance date. The accounts contained the usual declaration, dated 22 August 2007, that in the directors' opinion there were reasonable grounds to believe that Arena would be pay its debts as and when they became due and payable. The auditors' opinion on the financial accounts contained no qualification. 56 Mr George refers to the minutes of three meetings of directors of Arena. The minutes of the first meeting, held on 6 August 2007, refer to discussions about the possibility of the company selling its interest in the Capitol Theatre, using the proceeds "to clear debts" so that the rest of the business could be put on a more sound financial footing. "This may also provide the opportunity for a return to shareholders as well". 57 The minutes of the second meeting, held on 22 February 2008, note discussions which Messrs K. and M. Jacobsen had been having "with parties regarding the group's future and ownership". The minutes also note that the secretary is to keep the Board regularly informed on the company's cash position and "if it appears necessary, to seek further shareholder assistance to support the cash flow". 58 The third minute, dated 17 March 2008, notes discussions about the latest cash flow forecast for Arena. It was said that Mr K. Jacobsen was endeavouring to negotiate the terms of Arena's lease of the Sydney Entertainment Centre with the lessor. The minute recorded that "the cash flow forecast indicated that if the company had a concession on the maintenance fund contributions (in respect of the Sydney Entertainment Centre lease) it could live within its overdraft facilities until such time as the percentage rent had to be paid. Even without this it could draw on the remaining $500,000 available under the Palm Beach Marine facility". 59 Mr George submits that these minutes, coupled with Arena's financial accounts for the year ended April 2007, show that by March 2008 the company was, by reason of substantial trading losses, insolvent and on the verge of collapse. I am unable to agree. 60 The picture of Arena's position which emerges is certainly that it was experiencing difficult trading conditions and that the directors were monitoring its cash flow position. However, the situation was, clearly enough, still fluid and asset sales and further finance resources were actively discussed. There is no admission in these minutes that Arena is presently unable to pay its debts and nothing from which such an inference could be drawn. 61 Minutes of a meeting of the Board held on 9 April 2008 show that Mr Michael Jacobsen was then negotiating the sale of Arena's interest in the Capitol Theatre. It was noted that if those discussions came to fruition the transaction "would not be finalised in time to alleviate the company's impending cash shortfall". It is notable that the cash shortfall is referred to as "impending" rather than "present". The minutes also referred to discussions between Mr Kevin Jacobsen and financiers as to short term financing for Arena. 62 Minutes of a Board meeting on 24 April 2008 show that an agreement had been reached for the sale of Arena's interest in the Capitol Theatre and that the proceeds of sale would be available to pay liabilities. 63 Mr Kevin Jacobsen asserted in cross examination that he endeavoured to renegotiate the rental for the Sydney Entertainment Centre because he thought that it was unjustifiably high, having regard to market conditions and what was being paid for other venues. He denied that he was attempting to renegotiate the rental because Arena was unable to pay it. Further, he said that while the Board kept a close watch on cash flow in 2008, that was in accordance with normal and prudent practice at all times. He said that if it became necessary to seek assistance from shareholders for cash flow requirements, he had "$25M on offer". That assertion was not challenged. 64 I should note that Mr George tendered what were said to be financial statement for Arena as at April, July and August 2008. The accounts for the financial year ended 30 April 2008 had not been signed by the directors and Mr Kevin Jacobsen said that the accounts for that financial year had not been accepted by the Board as correct and had never been signed. Accordingly, I did not accept those accounts. They are incorporated in volume 2 of the Court Book which is Exhibit P1 but they should not, by reason of that fact, be taken to be in evidence. 65 Mr George places strong reliance on documents described by Mr Joubert in his affidavit of 15 October 2009 as "Aged Payables" as at 31 July, 31 August and 30 September 2008. Mr Joubert says that he found those documents in the records of Arena after his appointment as Administrator. 66 "Payables" doubtless means "debts payable by Arena". However, Mr Joubert gives no further information as to the meaning and content of these documents in his affidavit. In cross examination, he conceded that he had not examined any source materials which these documents purported to summarise. He had conducted no analysis at all of "aged payables" or outstanding creditors. He had not ascertained whether any of the "payables" had in fact been paid by Arena, whether any were disputed, what were the terms of payment of any of the debts and whether any of the creditors had lodged proofs of debt. 67 To compound these difficulties, the documents themselves contain almost no information which would enable their sensible interpretation. They contain some percentage figures at the bottom of various columns but those columns do not contain any information showing how the percentages were calculated. 68 Confronted with these circumstances, Mr Joubert conceded in cross examination that one could not properly draw from the documents the inferences as to insolvency which he sought to draw: T57.21-.48. 69 Mr Joubert did not give evidence that any of the usual indicia of insolvency had manifested by the time Arena came to execute the Charge on 20 August 2008, namely, a history of dishonoured cheques, suppliers insisting on c.o.d. terms, the issue of post-dated or "rounded sum" cheques to creditors, special arrangements with creditors for payment, inability to produce timely, audited accounts, unpaid group tax, payroll tax, workers compensation premiums or superannuation contributions, demands from bankers to reduce overdrafts, and other evidence of deteriorating relations with bankers, receipt of letters of demand, statutory demands and Court processes for debt: see e.g. Lewis v Doran (2004) 208 ALR 385 at [75]. 70 The evidence suggests that it was not until mid-November 2008 that certain creditors of Arena began making efforts to procure payment of their debts, but not to the point of serving statutory demands. 71 I need only mention briefly two further circumstances relied upon by Mr Joubert to show insolvency. One is the assertion is that as at August 2008 Arena was indebted to Ticketmaster7 in a sum of $4M, pursuant to a Deed dated 31 October 2003 and Deeds of Variation dated 27 January 2006 and 22 October 2007. Mr Joubert says that is clear that Arena had insufficient funds to repay that debt. However, Mr Jacobsen disputes the assertion that the Deeds, on their proper construction, created any liability on the part of Arena to pay any sum to Ticketmaster7. Having regard to the Deed of Variation of 27 January 2006 there is substance in that argument. There is a real issue to be determined as to whether Ticketmaster7 is entitled to prove in Arena's winding up. 72 The second assertion made by Mr Joubert is that Arena continued trading until July 2009 only because it improperly used funds in an account which Mr Joubert styled "the Events Account". Mr Kevin Jacobsen strongly disputes that the use of these monies was improper. Mr Joubert has demonstrated no basis in law or in fact for his assertion that the money in the Events Account was not properly available for use by Arena in the payment of its ordinary trade debts. 73 There is, of course, a real difference between a company's temporary illiquidity and an endemic shortage of working capital constituting insolvency. There is certainly evidence that, by 20 August 2008, Arena was facing the growing prospect of temporary illiquidity. However, Mr Joubert must go further in order to succeed. It is for him, as Arena's liquidator, to place before the Court a clear, comprehensive and documented analysis of Arena's financial position as at the date of execution of the Charge in order to prove endemic shortage of working capital constituting insolvency to the Court's satisfaction. Mr Joubert has not done so. 74 Because Mr Joubert has failed to prove that execution of the Charge was an insolvent transaction, it must follow that he fails in his claims to set aside the Charge as an unfair preference, an uncommercial transaction or a related entity transaction. Other issues

75 In case I am wrong in my determination as to Arena's solvency, I will state briefly my conclusions as to the other issues arising in the claims founded on an alleged insolvent transaction. 76 The following conclusions assume that I had found that Arena was insolvent at the time that it executed the Charge. 77 I would have held that the Charge conferred an unfair preference on CST to the extent only of $10,000, which was the outstanding balance of the previously unsecured debt. The further advances by CST after 20 August 2008 were clearly made in contemplation of the Charge and Arena would not have received the benefit of them but for the fact that they were secured under the Charge: see e.g. Queensland Bacon Pty Ltd v Rees (1966) 115 CLR 266, at 283. 78 I would not have found the Charge to be an uncommercial transaction within the meaning of s 588FB. I would not have found that a reasonable person in Arena's circumstances would not have entered into the Charge. The relevant circumstances are that:

in August 2008 Arena needed to raise additional working capital by way of a borrowing;

it is highly probable that an arm's length lender would have required security in the same general terms as the Charge;

the rates of interest for the further secured advances were, under the terms of the Charge, to be agreed between the parties at the time of the further advances so that if Arena were dissatisfied with the interest sought by CST, a further advance would not have been drawn down;

the rates of interest actually agreed between CST and Arena for the further advances, as set out in the acknowledgements signed by Mr Kevin Jacobsen, were not shown by the evidence to be unfair or unreasonable in the circumstances. 79 I would have found that the Charge was a related entity transaction because Mr Kevin Jacobsen was a common director of Arena and CST at the time: see definition "Related Entity", s 9 para (k). I would have made an order under s 588FF(1)(e) releasing the Charge as a security and I would have made an order under subsection (1)(g) providing that the total amount of the loans made by CST after 20 August 2008 be provable in Arena's winding up. 80 If the Charge was a director related transaction within the meaning of s 588FDA(1) - an issue between the parties which I do not need to resolve - I would not have found the transaction to be unreasonable for the reasons given in paragraph [78]. Section 266(3) Notice

81 Paragraph 9 of the Amended Originating Process seeks the following relief: "if the Charge is found to be valid, [Arena] claims a declaration that because of s 266(3) Corporations Act the Charge is void to the extent that it secures any amount that is not the subject of a notice given in accordance with s 266(3)". 82 Section 266(3) is in the following terms: "Where, after there has been a variation in the terms of a registrable charge on property of a company having the effect of increasing the amount of the debt or increasing the liabilities (whether present or prospective) secured by the charge:

(a) an order is made, or a resolution is passed, for the winding up of the company; or

(b) an administrator of a company is appointed under section 436A, 436B or 436C; or

(ba) a company executes a deed of company arrangement;

the registrable charge is void as a security on that property to the extent that it secures the amount of the increase in that debt or liability unless:

(i) within the period of 45 days specified in subsection 268(2) or that period as extended by the Court under subsection (4) of this section; or

(ii) not later than 6 months before the critical day; or

(d) the period of 45 days specified in subsection 268(2), or that period as extended by the Court under subsection (4) of this section, has not ended at the start of the critical day and the notice is lodged before the end of that period." 83 The facts pleaded in the Points of Claim in support of the declaration sought are: "56. In the alternative, the Charge has stamp duty paid to the amount of $500,000.

The Charge can only secure indebtedness to up to the amount of this sum."

There are no other facts pleaded or particulars given. The Points of Claim does not seek any relief to the effect of paragraph 9 of the Amended Originating Process. 84 The Points of Defence simply denies paragraphs 56 and 57 of the Points of Claim. 85 Mr George's written submissions on this issue are: "If the Court finds that the charge is valid, the charge appears on its face to have stamp duty paid to the amount of $500,000. Accordingly, pursuant to sec 266(3) of the Act, the charge only secures indebtedness to this sum.

The Court is requested to make a declaration to this effect." 86 Mr McInerney, in his written submissions, says: "The plaintiffs refer in their submissions (paragraph [47]) to 's 266(3) of the Act'. The argument appears to be that because stamp duty appears only to have been paid on $500,000, s266(3) of the Corporations Act operates to limit the amount secured by the Charge. Nothing in s266(3) has the effect contended for. That subsection is concerned with a variation in the terms of a registrable charge that has the effect of increasing the amount of the debt or liabilities secured by the Charge.

The payment or non-payment of stamp duty does not affect the amount secured by the Charge, it only affects the extent to which the Charge can be enforced at any given time: see s211 of the Duties Act 1997 (NSW).

To the extent necessary, Campbell Street Theatre, through its Counsel, gives the usual undertaking in respect of the Charge: UCPR 31.13." 87 Neither party referred to stamp duty or to s 266(3) in their opening or closing submissions. 88 As Mr McInerney says, s 266(3) says nothing about stamp duty. No one has referred me to any evidence as to whether a notice under s 263(1) was lodged with ASIC by Arena, or whether any later notice under s 268 was lodged. 89 From the Points of Claim and the Points of Defence it seems to be in issue as to whether the Charge has been stamped with duty for an amount of $500,000. No one has referred me to any evidence to enable me to decide that factual issue if, indeed, it is an issue. The photocopy of the Charge in the Court Book bears no discernable stamp but there are smudges which could possibly be the imprint of a stamp. 90 If a party wishes to have an issue in proceedings determined by the Court in its favour, it has the duty of presenting that issue to the Court in an intelligible way, in pleadings, evidence and submissions. I cannot understand what case under s 266(3) Mr Joubert wishes to make. Accordingly, I decline to make the declaration which he seeks. Orders

91 The Amended Originating Process is dismissed. I will hear the parties as to costs.

oOo -

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