CONSIDERATION
39 Mansa Sons and Tvesa each have potential claims against one another in respect of the transfers made on 2 July 2023. A legal question arises as to which entity has the better proprietary claim to the Remaining Funds in circumstances where both entities are now in liquidation and Westpac has frozen the Remaining Funds in the Tvesa Account and will not permit any withdrawal unless the liquidators of both Mansa Sons and Tvesa agree.
40 In addition, as Messrs Mansoor and Billingsley are liquidators of both Mansa Sons and Tvesa, in circumstances where Mansa Sons has no funds, and, where in their capacity as liquidators of Mansa Sons, Messrs Mansoor and Billingsley have outstanding remuneration and expenses, they are in a position of conflict.
41 Accordingly, Messrs Mansoor and Billingsley sought:
(1) the Court's guidance on a question of law, namely, whether Mansa Sons is entitled to the return of the Remaining Funds; and
(2) the Court's direction on a question of propriety, namely, whether they are justified in returning the Remaining Funds to Mansa Sons in circumstances where they are in a position of conflict.
42 Messrs Mansoor and Billingsley submitted that Mansa Sons has the superior claim to the Remaining Funds and on that basis, in their capacity as liquidators of Tvesa, they were justified in returning the Remaining Funds to Mansa Sons. For the following reasons I accepted that submission.
43 First, as explained below, Mansa Sons received legal and beneficial title to the funds transferred in the Morning Transaction.
44 Despite Tvesa's original contention that the transfer from Tvesa to Mansa Sons was made in "error", there was no evidence to support that contention. Rather, the evidence, which I summarise below, pointed to a contrary conclusion, namely that the transfer from Tvesa to Mansa Sons was not a mistake:
(1) that the Morning Transaction was made up of four separate transactions undertaken over a short period of time transferring funds into the Mansa Account suggested that the Transfer was voluntary and intentional;
(2) the descriptions used for the transfers that made up the Morning Transaction demonstrated that there was no mistake as to the identity of the recipient;
(3) there was no suggestion that the amounts transferred were a mistake in that there was an error in transcribing or inputting the digits or any error about the amount owing at the time the Morning Transaction was undertaken;
(4) Kris' explanation about "trades owing to SK Homes" was not supported by the investigations undertaken by Messrs Billingsley and Mansoor in relation to the accounts; and
(5) Kris otherwise provided no credible explanation about the alleged "error" or "mistake" which led to the making of the Morning Transaction.
45 As the plaintiffs submitted, the explanation Kris provided on 2 November 2023, that he wanted "to bring funds in one place" for the purpose of disseminating funds to creditors, seems to be, given the outcome of the plaintiffs' other investigations, the most credible explanation for the Morning Transaction.
46 That said, even if the Morning Transaction was a mistake at the time it was made, Tvesa could not recover from Mansa Sons any amounts owing to it which, at the time, was said to be $432,781.35 of the total that was transferred (see [5] above). In addition, assuming Tvesa was operating under a mistake at the time of the Morning Transaction, Tvesa would only have a personal claim against Mansa Sons for moneys had and received, provable in Mansa Sons' liquidation.
47 The plaintiffs have not been able to identify any further claim that would entitle Tvesa to a proprietary remedy in relation to the funds transferred in the Morning Transaction. They submitted that, subject to obtaining further evidence, they might be able to argue that the Morning Transaction was undertaken by Kris in breach of his fiduciary duty owed as a director because he was seeking to prefer the interests of other members of the SK Group and himself over the interests of Tvesa. However, as the plaintiffs pointed out, a payment made in breach of fiduciary duty only gives rise to a proprietary remedy against the recipient of the funds, that is, Mansa Sons, where the recipient has knowledge of the breach of duty: see Grimaldi v Chameleon Mining NL (No 2) [2012] 200 FCR 296 at [251]. That was not the case here.
48 At the time of the Morning Transaction, Mansa Sons was controlled by the Former Administrators who constituted its directing mind and will. They did not have knowledge of any breach of duty at the time of the Morning Transaction. In fact, the Former Administrators had no knowledge of the Morning Transaction until they obtained a copy of Mansa Sons' bank statements on 4 July 2023. Accordingly, it is difficult to see how Mansa Sons could be liable as a constructive trustee on the basis of knowing receipt.
49 I was therefore satisfied that Mansa Sons received the funds transferred by the Morning Transaction beneficially (and not as trustee) and those funds therefore became the property of Mansa Sons.
50 Secondly, given the operation of s 437D of the Corporations Act, the Evening Transaction was, in my opinion, void.
51 Section 437D provides:
Only administrator can deal with company's property
(1) This section applies where:
(a) a company under administration purports to enter into; or
(b) a person purports to enter into, on behalf of a company under administration;
a transaction or dealing affecting property of the company.
(2) The transaction or dealing is void unless:
(a) the administrator entered into it on the company's behalf; or
(b) the administrator consented to it in writing before it was entered into; or
(c) it was entered into under an order of the Court.
(3) Subsection (2) does not apply to a payment made:
(a) by an Australian ADI out of an account kept by the company with the ADI; and
(b) in good faith and in the ordinary course of the ADI's banking business; and
(c) after the administration began and on or before the day on which:
(i) the administrator gives to the ADI (under subsection 450A(3) or otherwise) written notice of the appointment that began the administration; or
(ii) the administrator complies with paragraph 450A(1)(b) in relation to that appointment;
whichever happens first.
(4) Subsection (2) has effect subject to an order that the Court makes after the purported transaction or dealing.
(5) If, because of subsection (2), the transaction or dealing is void, or would be void apart from subsection (4), an officer or employee of the company who:
(a) purported to enter into the transaction or dealing on the company's behalf; or
(b) was in any other way, by act or omission, directly or indirectly, knowingly concerned in, or party to, the transaction or dealing;
contravenes this subsection.
52 The question which arose was whether the payments made under the Evening Transaction were void ab initio by reason of s 437D.
53 There is limited case law on the operation of s 437D of the Corporations Act, including on whether a payment or transfer made contrary to it is void ab initio.
54 In Sev.en Gamma a.s v IG Energy Holdings (Australia) Pty Ltd [2023] NSWSC 1032 Ball J considered a defence based on s 437D of the Corporations Act. At [24] his Honour observed that:
It is common ground that the GSD, if executed, would be void under s 437D(2) unless it was entered into under an order of the Court made under s 437D(2)(c). There appears to be no authority dealing specifically with the circumstances in which the Court would make such an order. IEAH accepts that the provision confers a wide discretion on the Court. However, it submits, correctly in my view, that the power must be exercised consistently with the purpose of Part 5.3A of the Corporations Act, which is concerned with the administration of a company's affairs pending the possible execution of a deed of company arrangement: see s 435A of the Corporations Act. Commenting on a similar power conferred by s 227 of the Companies Act (NT) (a predecessor to s 468(1) of the Corporations Act) in relation to the disposition of the property of a company after the commencement of its winding up, the Full Court of the Federal Court in Jardio Holdings Pty Ltd v Dorcon Constructions Pty Ltd (1984) 3 FCR 311 at 316-7 said:
The object of s. 227 is to hold matters in statu quo during the pendency of the petition, while at the same time permitting those transactions to take place which the court thinks should be sanctioned … A transaction entered into in good faith which offers actual or prospective advantage to the company or its general body of creditors would, ordinarily, be sanctioned by the court even if an incidental advantage were obtained by one creditor or one class of creditors ….
Prima facie, an attempt by an unsecured creditor to gain security for a past debt is inimical to the interests of the general body of creditors of the debtor.
…
55 For the following reasons I accepted the plaintiff's submission that void in s 437D means void ab initio.
56 First, the text of the section suggests that is so. Section 437D(2) provides that a transaction or dealing affecting property of the company is "void" unless the exceptions set out therein apply. Section 437D(2) uses the present tense, is, and applies where a company is under administration. Further, s 437D(4) provides that subsection (2) has effect "subject to an order that the Court makes after the purported transaction or dealing". That is, it has effect in the absence of a court order.
57 In National Acceptance Corp Pty Ltd v Benson (1988) 12 NSWLR 213 the New South Wales Court of Appeal considered the construction of s 368(1) of the Companies (New South Wales) Code which provided that:
Any disposition of property of the company, other than an exempt disposition, and any transfer of shares or alteration in the status of the members of the company made after the commencement of the winding up by the court is, unless the court otherwise orders, void.
58 At 214 Kirby P observed that while the word "void" may, in particular contexts, have a more limited construction, normally "it should receive the meaning which ordinarily attaches to it in everyday speech, viz, having no legal effect for any purpose as against the world so that it is as if the transaction which is 'void' has not occurred, as least so far as the eye of the law is concerned". His Honour also noted that other considerations may require a more limited meaning to be given to the word "void" but that because Parliament from time to time uses "voidable" or expressions such as "void as against the liquidator" in legislation it should be presumed, at least as a preliminary matter, that where legislation refers to "void" it intends "a more radical consequence, both in terms of effect and in respect of the parties affected".
59 At 215 Kirby P said:
Moreover, as Priestley JA has pointed out, the very provision for the court otherwise to order that a transaction shall not be avoided assumes that, in default of such an order, that is the consequence of the statute. This is the reverse of what would be the situation if the transaction were voidable and not void.
60 Applying the reasoning of Kirby P in Benson, and by analogy, the word "void" as used in s 437D(2) of the Corporations Act, must, in my view, mean void ab initio.
61 Secondly, as the plaintiff submitted, such a construction is confirmed by the context and purpose of s 437D of the Corporations Act. That Act uses both the language of "void" and "voidable". Consistently with the presumption that different words in the same statute are intended to have different meanings, it can be assumed, as a matter of context, that a distinction between the two terms is intended and that the choice of the word "void" in s 437D was deliberate and intended to carry with it a particular meaning.
62 In addition, s 437D is within Pt 5.3A of Ch 5 of the Corporations Act which concerns company administrations. The object of Pt 5.3A is to provide for the business, property and affairs of an insolvent company to be administered in a way that maximises the chances of the company, or as much of its business as possible, continuing in existence or, if that is not possible, that results in a better return for the company's creditors and members than would result from an immediate winding up: see s 435A of the Corporations Act. In other words, its purpose is to provide for a limited period in which there is a standstill in the affairs of the company so as to maximise its chance of survival. In International Air and Transport Association v Ansett Australia Holdings Limited (2008) 234 CLR 151 at [81] the High Court (Gummow, Hayne, Heydon, Crennan and Kiefel JJ) observed that s 437D of the Corporations Act is one of the provisions found in Pt 5.3A which is intended to protect the company's property during administration.
63 As the plaintiffs submitted, a construction of s 437D(2) that renders a transaction or dealing void ab initio is consistent with the purpose of Pt 5.3A. That is, to provide a company with time to consider its position and maximise return to creditors by freezing the company's title to property. An interpretation of s 437D(2) otherwise would be less likely to fulfill that legislative purpose.
64 It follows that the Evening Transaction, which was made without meeting any of the conditions in s 437D(2) of the Corporations Act, was void ab initio.
65 Thirdly, there is the question of what, if any, remedy is available to Mansa Sons in relation to the breach of s 473D of the Corporations Act. There is no power under the Corporations Act to grant relief against a breach of s 437D. The plaintiffs informed me that they had been unable to identify any case law which considered the remedies available to an administrator in circumstances such as these. That being so, the plaintiffs submitted that Mansa Sons would need to seek relief in equity by way of restitution.
66 In Australian Motor Homes Pty Limited v Maria's Farm Veggies Pty Limited [2018] NSWSC 216 the Supreme Court found that a contract for sale of a motor vehicle was void because of the operation of s 437D of the Corporations Act and that the defendant, Maria's Farm Veggies Pty Limited, was entitled to recover the value of the goods from either or both of the parties to the unauthorised sale, noting that the obligation to make a payment for consideration given or received under an unenforceable contract lays in restitution: at [43]-[44]. The administrators elected to seek recovery of the value of the property disposed of under the unauthorised transaction rather than recovery of the property in specie. Accordingly, the question of the nature of the remedies available in restitution and, in particular, whether an equitable proprietary remedy in aid of the administrators' restitutionary claim was available did not arise.
67 Before me the plaintiffs submitted that Mansa Sons would be entitled to an equitable proprietary remedy in aid of its restitutionary claim for the following reasons:
(1) s 473D of the Corporations Act deems the transfer of funds void ab initio, i.e., from the moment of the purported transfer, so that there is no time period during which a transferee may be entitled to deal with the property beneficially; and
(2) notwithstanding that the property transferred in contravention of s 437D was fungible and placed into a mixed account, so that it is no longer identifiable, the principles in Brady v Stapleton (1952) 88 CLR 322 apply so that the beneficiary of the funds is entitled to treat the relevant proportion of the account as trust money or is otherwise entitled to a charge over the indistinguishable mass equal to the amount transferred.
68 By way of analogy, in Great Investments Limited v Warner (2016) 243 FCR 516 at [60] a Full Court of this Court (Jagot, Edelman and Moshinsky JJ) considered a scenario where a benefit was transferred to a recipient without the authority of the transferring company and without a contract. At [60] their Honours noted that in such a scenario "the company may be entitled, subject to defences, to a proprietary claim if the recipient still has the specific benefit".
69 Having regard to s 437D(4) of the Corporations Act, the defences which might be available to a proprietary restitutionary claim include where there has been a change in position or bona fide purchaser for value without notice. However, those defences could not apply here. It is apparent: first, that Tvesa took the funds with notice of Mansa Sons' lack of authority; and secondly, that the funds remain in Tvesa's account.
70 Fourthly, and finally, having regard to s 90-15(4) of the IPS, there were in my view no discretionary factors that would operate to prevent a grant of the relief sought:
(1) there is no disentitling conduct on the part of Mansa Sons;
(2) the proprietary remedy sought would not give Mansa Sons unfair priority over other equally deserving creditors of Tvesa. It is not in an equivalent position to Tvesa's unsecured creditors who, in any event, save for one, are related entities of Tvesa;
(3) in any event, Tvesa's creditors had the opportunity to be heard on the application and to make any submissions on prejudice. Despite the application being served upon them and the matter being called three times outside the court room there was no appearance by or any behalf of any interested party including any creditor; and
(4) this is not a case where an equitable remedy will be disproportionate or where some lesser remedy is capable of doing "full justice": see Bathurst City Council v PWC Properties Pty Limited (1998) 195 CLR 566 at [42]. The operation of s 437D means that a disposition of property is void. Mansa Sons would be entitled to trace its property at common law. However, because the money has entered a mixed fund, tracing is unavailable. That being so, as the plaintiffs submitted, the common law is "insufficient" and equity is required to intervene.
71 As a final matter I note that the issues raised by Williams J on the application before her Honour have, in my view, been addressed in the evidence before me. Each of the matters raised by her Honour has been appropriately considered, investigated, and addressed.