Campbell Street Theatre Pty Ltd (receiver and manager appointed) (in... [2012] NSWSC 669 | Case summary

Judgment 1By its Further Amended Originating Process filed in these proceedings, the Plaintiffs, Campbell Street Theatre Pty Ltd (receiver and manager appointed) (in liquidation) ("Campbell Street") and its liquidators, Mr John Sheahan and Mr Ian Lock ("Liquidators"), seek a declaration that a loan agreement, Deed of Mandate and Fixed and Floating Registered Charge dated 14 July 2009 purportedly granted by Campbell Street to the First Defendant, Commercial Mortgage Trade Pty Limited ("CMT") are invalid or void and of no effect. The Plaintiffs also seek a declaration that the purported appointment of the Second Defendant, Mr Robert Whitton, as receiver of Campbell Street under the charge is invalid. Mr Whitton has submitted to any order of the Court other than as to costs. Background 2Campbell Street and CMT entered into a Deed of Loan ("Loan Agreement") purportedly dated 14 July 2009 but which was not entered into until some time after 10 August 2009 when a draft of it was provided by CMT's solicitors to CMT. 3Clause 2.1 of the Loan Agreement provided for CMT, at Campbell Street's request, to provide the amount set out in Item 2 of Schedule 1, namely $1,200,000 to Campbell Street on the terms and conditions contained in the Agreement. Clause 2.2 provided that CMT was required to provide the Facility in a series of advances to be made in amounts at its discretion to CMT, Campbell Street and such third parties as CMT elected at its sole discretion in connection with services to be procured and provided by CMT under the terms of the Deed of Mandate also purportedly dated 14 July 2009 ("Mandate Agreement"). That provision had the effect that, first, the amount of any advance under the Facility was at CMT's discretion, so that CMT was only obliged to lend what it exercised its discretion to lend (possibly, subject to an obligation to act reasonably and in good faith) under the Loan Agreement and, second, that any payments would be made at CMT's discretion (and not Campbell Street's) to CMT, Campbell Street or third parties in connection with the relevant services. 4The Loan Agreement provided that interest was calculated on a daily basis applying an Interest Rate, or as applicable, a Default Rate to the Principal Balance and was to be capitalised by CMT at monthly intervals and become part of the Principal Balance and bear interest accordingly (clauses 4.1, 4.3). Campbell Street was required to repay the relevant loan to CMT on the Repayment Date, which was not later than the Termination Date (clause 5.1). It was common ground between the parties that no payments were made and no monies were advanced under the Loan Agreement by CMT to Campbell Street or any third party on its behalf. 5Campbell Street and CMT also entered into the Mandate Agreement, which was also dated 14 July 2009 but was also not executed until after 10 August 2009. The recitals to the Mandate Agreement indicated that Campbell Street and Mr Kevin Jacobsen had requested CMT to arrange and provide consultancy and other services to them relating to a registered charge granted to Campbell Street by Arena Management Pty Limited ("Arena"), the negotiation of and execution of a Deed of Company Arrangement by Arena and associated and related matters. The recitals also recorded that the parties had entered into a deed setting out the terms pursuant to which the services were to be provided on 7 August 2009. Neither party tendered a copy of such a deed and Campbell Street contended that it did not exist. 6The operative terms of the Mandate Agreement provided for CMT to provide or facilitate the provision of consultancy and other services to Campbell Street and Mr Jacobsen relating to a registered charge granted to Campbell Street by Arena and the recovery of the amount secured by it and the negotiation of and execution of a Deed of Company Arrangement by Arena and associated and related matters (clause 2.1). That clause referred to those matters as "the Work". The term of the arrangement set out in the Mandate Agreement was six months from execution of the Deed (clause 3). 7Clause 2.3 of the Mandate Agreement in turn provided that: "Provided always that the minimum amount due and payable by Jacobsen and Campbell Street to CMT shall be no less than $400,000 payable upon the execution of this Deed irrespective of the outcome and irrespective in particular of whether Arena and its creditors entered into a Deed of Company Arrangement, the total remuneration to be paid by Jacobsen and Campbell Street to CMT for the performance of the Work shall be as follows: (a) Campbell Street and Jacobsen are to pay CMT 3.3% of the total of all funds advanced to Campbell Street and Jacobsen pursuant to the Deed of Loan between Campbell Street and CMT of [sic] on or about the date of the Deed or otherwise as at the date of advance of funds; (b) Campbell Street and Jacobsen are to pay CMT forty (40)% of the total of the amount presently owed by Arena to all creditors that participate or are entitled to participate in any Deed of Company Arrangement of Arena less the total amount payable to creditors pursuant to any Deed of Company Arrangement executed by Arena. 8The effect of this provision appears to be that, first, an unconditional obligation to pay no less than $400,000 ("Upfront Payment") arose on execution of the Mandate Agreement, irrespective of the outcome, irrespective of whether Arena and its creditors entered into a DOCA and irrespective of whether CMT performed any work under the Mandate Agreement. Second, CMT was entitled to a payment of $39,600 in addition to the interest payable under the Loan Agreement, which was payable on or about the date of the Mandate Agreement or otherwise when the funds were advanced. It appears that the obligation to make that payment was, however, referable to the amount of the funds advanced and did not arise where, as noted above, no funds were advanced. Third, Campbell Street and Mr Jacobsen were required to pay CMT a substantial portion of the amount by which the amount paid under a DOCA executed by Arena was less than the amount of creditors' claims on Arena, so the payment due to CMT would increase as the payment made to Arena's creditors under the DOCA was reduced. No DOCA was executed by Arena so no obligation to pay a percentage to CMT under that clause arose. 9Campbell Street also granted a Fixed and Floating Charge ("Charge") in favour of CMT, also dated 14 July 2009 but also not executed prior to 10 August 2009. The Charge recorded that Campbell Street had agreed to charge CMT all the Secured Assets (as defined) to secure the performance of its obligations under the Loan Agreement and Mandate Agreement. Clause 2.1(a) of the Charge provided that Campbell Street charged the Secured Assets (as defined) to CMT for payment of the Secured Money. 10On 31 January 2011, CMT made a demand on, inter alia, Campbell Street in the amount of $879,998. Mr Whitton was appointed as a receiver to Campbell Street under that Charge on 18 February 2011. Campbell Street contends that, at the date of Mr Whitton's appointment as receiver, CMT had not sent an invoice to Campbell Street or otherwise made a demand in respect of monies under the Mandate Agreement, including the Upfront Payment. Campbell Street contends that an invoice dated 14 July 2009 which claimed an amount of $400,000 under the Mandate Agreement was not sent to Campbell Street until after the purported appointment of the receiver. The evidence before me was not sufficient to allow me to determine that question. 11Mr Sheahan and Mr Lock were appointed as joint and several administrators of Campbell Street on 21 February 2011 and subsequently appointed as liquidators. 12The parties accepted that the judgment of Palmer J delivered on 2 September 2010 in Arena Management Pty Ltd (admin app) (rec & mgrs app) and Anor v Campbell Street Theatre Pty Ltd [2010] NSWSC 957 could be admitted in these proceedings as proof of the facts found in it, and I made a ruling by consent under s 190 of the Evidence Act 1995 (NSW) to achieve that result. Whether the entry into the Loan Agreement, Mandate Agreement and the Charge was an uncommercial transaction 13The entry into the Loan Agreement, Mandate Agreement and Charge was, in my view, a single transaction for the purposes of s 588FB of the Corporations Act. The definition of the term "transaction" in s 9 of the Corporations Act 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; 24 ACSR 292 at 299; 15 ACLC 1099; Wily v Bartercard Ltd [2000] NSWSC 372; (2000) 34 ACSR 186 at 195-6; 18 ACLC 448, aff'd Bartercard Ltd v Wily [2001] NSWCA 262; (2001) 39 ACSR 94; 19 ACLC 1461; New Cap Reinsurance Corp Ltd v Somerset Marine Inc [2003] NSWSC 540; Australian Kitchen Industries Pty Ltd v Albarran [2004] NSWSC 1047; (2004) 51 ACSR 604. 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: Re Emanuel (No 14) Pty Ltd (in liq); Macks v Blacklaw & Shadforth Pty Ltd above; Tosich Construction Pty Ltd (in liq) v Tosich (1997) 78 FCR 363; 15 ACLC 637. The characterisation of the entry into the Loan Agreement, Mandate Agreement and Charge as a single transaction is supported by the links between the relevant agreements, so that the Loan Agreement provided for advances in respect of services under the Mandate Agreement and the Charge secured the performance of Campbell Street's obligations under the Loan Agreement and the Mandate Agreement. No party contended to the contrary before me. 14The Liquidators contend that Campbell Street's entry into the Loan Agreement, Mandate Agreement and the Charge are an uncommercial transaction within the meaning of s 588FB of the Corporations Act, by reason that a reasonable person in Campbell Street's circumstances would not have entered into the Loan Agreement, Mandate Agreement and the Charge having regard to the matters specified in s 588FB of the Corporations Act. On the other hand, CMT denied that the relevant transaction constituted by the entry into the three agreements was an uncommercial transaction within the meaning of s 588FB and pleaded that Campbell Street obtained the benefit of the resolution of its litigation with Arena; obtained the benefit of the services of CMT and third parties engaged by CMT under the Mandate Agreement; and CMT provided extensive services to Campbell Street and outlaid significant funds in the provision of services to Campbell Street by third parties under the terms of the Mandate Agreement. CMT contends that there was a manifest benefit to Campbell Street in seeking to defend its interests in respect of its dispute with Arena and engaging CMT to organise and manage the dispute and its resolution. The first proposition has considerable weight, but the second does not necessarily follow from the first. 15A 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: Corporations Act 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 ss 588FB and 588FE 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 their 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, by reference to the explanatory memorandum, that a transaction is uncommercial, for the purposes of s 588FB, where there is a bargain "of such magnitude that it could not be explained by normal commercial practice: Demondrille Nominees Pty Ltd v Shirlaw at ACSR 548; see also McDonald v Hanselmann [1998] NSWSC 171; (1998) 28 ACSR 49 at 53. 16The purpose of the section includes preventing companies disposing of their assets or other resources through transactions that result in the recipient receiving a gift or obtaining a bargain of such commercial magnitude that it could not be explained by normal commercial practice: Skouloudis Group Pty Ltd (in liq) v Planet Enterprizes Pty Ltd [2002] NSWSC 239; (2002) 41 ACSR 369 at [14]-[15]. 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], where Giles JA observed that the description of an "uncommercial transaction" in s 588FB(1) is "directed primary attention to a balancing of benefit and detriment, only in the broadest sense involving undervalue. Whether 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): Tosich Construction Pty Ltd (in liq) v Tosich above at FCR 367; Old Kiama Wharf Company (in liq) v Betohuwisa Investments Pty Ltd [2011] NSWSC 823; (2011) 85 ACSR 87 at [35]. The possibility that this section may apply to an agreement under which excessive service fees were paid has been recognised in the academic literature: see A Keay, "Liquidators' Avoidance of Uncommercial Transactions" (1996) 70 ALJ 390 at 393. 17I am satisfied that the entry into the Loan Agreement, Mandate Agreement and Charge were an uncommercial transaction, in that a reasonable person would not have entered into the transaction having regard to the matters specified. The benefit of entry into the Loan Agreement, Mandate Agreement and associated Charge was, at best, highly doubtful. The Loan Agreement did not impose any obligation on CMT to advance any funds or give control of where any such funds were advanced to Campbell Street, or even require CMT to consult with Campbell Street in determining to whom such funds would be advanced. In the event, CMT did not make any advances to Campbell Street under the Loan Agreement. 18The Mandate Agreement did not identify the consultancy or other services to be provided with any specificity, and imposed no obligations on CMT as to the quality, quantity or outcome to be secured by those services and the need for such services was unclear where it would still be necessary for Campbell Street to be represented by legal representatives in its dispute with, and litigation against, Arena. It has also not been established that Mr Lazar, the sole director and principal of CMT, was qualified to provide the relevant services. The parties agreed certain facts as to his qualifications. He has a tertiary qualification as a gemmologist and an international accreditation in diamond grading and valuation of stones that he received from the Gemmological Institute of Australia in Sydney. He attended Macquarie University but did not complete his economics course; he has no other formal qualifications; and he is not a member of any professional organisation. It is not apparent from these matters or other evidence that Mr Lazar had any qualifications or experience relevant to the services to be provided under the Mandate Agreement. 19Although CMT contended that Campbell Street obtained the benefit of the resolution of its litigation with Arena, no evidence was led before me to establish that CMT made any particular contribution to that result. Mr Lazar's affidavits (which were in large part inadmissible) were not read and Mr Lazar did not give evidence. The evidence did not establish CMT's contention that it had retained or paid third parties under the Mandate Agreement. Although a proof of debt lodged by CMT in the liquidation of Campbell Street claimed that it had paid Piper Alderman, the solicitors who acted in the litigation between Campbell Street and Arena, $199,160.66 on behalf of Campbell Street, that matter was not established by evidence led before me, and the liquidators have rejected that proof of debt in the liquidation. 20By contrast, the detriments imposed on Campbell Street by entry into the transaction were obvious and substantial, including most significantly that Campbell Street was obliged to pay the Upfront Payment to CMT on entry into the transaction, even if CMT did not provide any, or any worthwhile, services and did not achieve any useful outcome. That fee was payable notwithstanding that the term of the Mandate Agreement was only 6 months. The Mandate Agreement did not treat the upfront payment as an advance against the cost of services provided, and CMT ultimately invoiced Campbell Street a further amount of $439,000 in addition to the Upfront Fee for services that it claimed to have provided. There was no evidence before me that there was any significant negotiation in respect of the relevant documents, and correspondence between CMT's solicitors and CMT indicated the contrary. 21To use the language of Demondrille, above, CMT's bargain in securing a commitment to pay an upfront fee of $400,000 for services, without committing to provide any specified quantity or quality of services, without committing to achieve any particular result, and in circumstances that the principal of the entity which was to provide the services did not appear to have any particular qualifications to provide them, was a bargain of such magnitude that it is wholly inexplicable by normal commercial practice. I am satisfied that the transaction was therefore an uncommercial transaction. Whether the transaction was an insolvent transaction 22A transaction is an insolvent transaction of a company, as defined in s 588FC of the Corporations Act, if, relevantly, it is 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. The third requirement is satisfied if the transaction, or the act or omission which took place for the purpose of giving effect to it, is a cause of the company's insolvency: Lewis (as liq of Doran Constructions Pty Ltd (in liq)) v Doran above. 23Section 95A(1) of the Corporations Act has effect that, relevantly, Campbell Street was solvent if, and only if, it was 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. That definition adopts a "cashflow test" of insolvency which is directed to income sources that are available to the company and expenditure obligations it has to meet, rather than a balance sheet test which focuses on the value of the company's assets and liabilities reflected in the company's books, although a balance sheet test can provide context for the application of the cashflow test: Southern Cross Interiors Pty Ltd (in liq) v Deputy Commissioner of Taxation [2001] NSWSC 621; (2001) 53 NSWLR 213; 39 ACSR 305; Australian Securities and Investments Commission v Plymin (No 1) [2003] VSC 123; (2003) 46 ACSR 126; 21 ACLC 700 at [370]ff; Bell Group Ltd (in liq) v Westpac Banking Corporation (No 9) [2008] WASC 239; (2008) 39 WAR 1; 70 ACSR 1 at [1073]. Whether Campbell Street was able to pay its debts as and when they fall due and payable is a question of fact to be determined in all the circumstances, including the nature of its assets and business, and the court will have regard to commercial realities in that regard: Southern Cross Interiors Pty Ltd (in liq) v Deputy Commissioner of Taxation above at [54]; Bentley Smythe Pty Ltd v Anton Fabrications (NSW) Pty Ltd [2011] NSWSC 186; (2011) 248 FLR 384 at [48]-[49]. The present case does not raise difficult questions in this regard. 24The Liquidators rely, first, on a presumption of insolvency said to arise as a result of Campbell Street's failure to maintain proper books and records in accordance with ss 286 and 588E(4) and (9) of the Corporations Act. Section 286 of the Corporations Act requires a company to keep written records that correctly record and explain its transactions and financial position and performance and would enable true and fair financial statements to be prepared and audited. Section 588E(4) establishes a presumption of insolvency arising from a failure to keep and retain proper financial records under s 286 of the Corporations Act. In order to establish the presumption of insolvency for a particular period, the position must be separately and distinctly proved for that period; and it must be proved either that (1) no documents within the description of "financial records" were kept in that period or that (2) the documents which were kept were "deficient as to content", because they did not correctly record and explain the company's transactions and financial position and performance (for example, because they did not accurately record the matters purportedly recorded) or would not enable true and fair financial reports to be prepared and audited: Woodgate v Fawcett [2008] NSWSC 868; (2008) 67 ACSR 611; Re SSET Construction Pty Ltd (in liq); Sims v Khattar [2010] NSWSC 102; Fisher v Divine Homes Pty Ltd [2011] NSWSC 8; (2011) 85 ACSR 512 at [24]. 25Mr Lock, who is one of the joint and several liquidators of Campbell Street, gave evidence that the only financial records provided to him by any of Campbell Street's current or former officers were a general ledger printout in MYOB format containing only entries from 4 July 2008 to 23 July 2009 and bank statements for the period from 1 December 2007 to 25 February 2011, although there were no transactions of substance after July 2009. Mr Lock gave evidence that the general ledger printout did not record or explain any of the transactions entered into by Campbell Street prior to 4 July 2008 and did not provide sufficient information to enable true and fair financial statements to be prepared. Mr Lock gave evidence that he would have expected a company keeping proper financial records to maintain annual balance sheets and profit and loss statements; a detailed cashbook; creditor and debtor lists and related invoices; journal vouchers; a correspondence file sufficient to explain significant transactions; cheque book and deposit book; directors' minutes and tax returns and business activity statements and that those documents were not, with minor exceptions, available to him. Mr Lock noted that the books and records that were made available to him did not disclose the status of Campbell Street's dealings with many of its creditors or purported creditors, including Ticketmaster (from which it received $2.2 million on 14 January 2008), CMT, Kevin Jacobsen (the company's former director) or other persons and entities who have lodged proofs of debt in its liquidation. 26In response, CMT draws attention to a statement made by the administrators in their report to creditors dated 21 March 2011 that: "Pursuant to section 438B(2), the directors of a company to which administrators have been appointed must provide a statement about the company's business, property, affairs and financial circumstances within 5 business days of the administrators' appointment. I note that while this statement has not been formally provided, sufficient of the company's books and records have been provided to us to enable us to form an opinion as to the financial position of the company". The report goes on to set out liabilities of the company as at the date of the administrator's appointment, based on information provided by directors, review of the company's books and records and proofs lodged by creditors. That report also states that the administrators wrote to the company's director requesting a statement of the company's financial position and that: "I have since received sufficient information to make the inquiries into the company's financial position required for the purposes of expressing an opinion as required by section 439A of the Act". 27Mr Lock was cross-examined but his evidence as to the inadequacy of Campbell Street's financial records was not shaken. In particular, the absence of documentation which would disclose the details of dealings with significant creditors and explain significant transactions seems to me to establish that proper books and records were not retained. I do not consider the statements made in the administrators' initial reports established the contrary, since the level of information necessary to make a recommendation to a creditors' meeting may well be significantly less (particularly where the issues as to a company's solvency are obvious) than the level of information which would allow true and fair financial reports to be prepared and audited. Mr Fryer's evidence, to which I refer below, is consistent with this conclusion. 28The Liquidators rely on an expert report of Mr Nicholas Fryer to seek to establish the insolvency of Campbell Street as at specified dates. Mr Fryer expresses the view that Campbell Street has very few financial records available and none that will permit the identification of the company's working capital at particular dates with any confidence. Mr Fryer concludes that it is therefore not possible to determine that Campbell Street was insolvent on 13 July 2009 but that it was insolvent on 10 August 2009, as a result of the entry into the transaction with CMT, and remained so at all times until 21 February 2011. CMT denied that the transaction was an insolvent transaction but did not challenge Mr Fryer's conclusions by expert evidence. 29Mr Fryer notes that the brief provided to him by the Liquidators indicates that, on 14 January 2008, Campbell Street received what appeared to have been its first and only trading income, being the amount of $2.2 million from Ticketmaster. That brief was admitted, by agreement of the parties, as proof of the facts contained in it. Mr Fryer assumed, based on information provided to him by Mr Jacobsen, the sole director of Campbell Street, that the nature of the payment to Campbell Street by Ticketmaster was a loan which had subsequently been repaid and the balance compromised by negotiation. He concluded on that basis that the payment by Ticketmaster was irrelevant to his analysis. That assumption was neither proved nor disproved in the course of the proceedings; if it was incorrect, then Campbell Street may well have been insolvent from an earlier date. Mr Fryer noted that, whatever the nature of the payment by Ticketmaster, the relevant funds were substantially exhausted by April 2008. 30Mr Fryer proceeded on the basis that, consistent with his instructions (which, as noted above, were admitted by agreement of the parties as proof of the fact), the only asset of Campbell Street at 30 June 2008 was the debt owed by Arena which was secured by a Fixed and Floating Charge over the assets of Arena and Arena's only asset of significance was a claim against the Sydney Harbour Foreshore Authority relating to the termination of its lease of the Sydney Entertainment Centre. In his judgment in Arena Management Pty Ltd (admin apptd) (recs and mgrs apptd) v Campbell Street Theatre Pty Ltd [2010] NSWSC 957 (which was, as noted above, also admitted by agreement of the parties as proof of the facts contained in it), Palmer J concluded that Arena was indebted to Campbell Street in the amount of $655,883. 31Mr Fryer concluded that the documents available to him do not allow him to be satisfied as to the basis of claims against Campbell Street by Sophie Jacobsen Pty Limited, The Leopard and The Phoenix Pty Limited, Mr Michael Jacobsen or Jacobsen Presents Pty Limited and, on that basis, Mr Fryer was not able to determine whether the relevant loans were due and payable at that time and not able to conclude that Campbell Street was insolvent as at 13 July 2009. Mr Fryer's inability to reach a conclusion as to this matter is the product of the inadequacy of the financial records maintained by Campbell Street. To that extent, it supports the conclusion which I have expressed above in respect of the presumption of insolvency under s 588E(4) of the Corporations Act. 32As I noted above, the Liquidators also seek to establish that Campbell Street became insolvent by entering into the transaction. Mr Fryer notes that the Loan Agreement with CMT provided for a facility totalling $1.2 million to Campbell Street and Mr Jacobsen, but noted his instructions (which were admitted by consent as proof of the relevant facts) that no advances were made by CMT to Campbell Street or Mr Jacobsen pursuant to the Loan Agreement. The Loan Agreement also imposed no obligation on CMT to make such advances which, as I have noted above, would only be made in its discretion. 33The Mandate Agreement in turn imposed an obligation to pay the minimum amount of $400,000 payable on execution of the Mandate Agreement, as I have noted above. The Mandate Agreement provided that the obligations of Mr Jacobsen and Campbell Street to make any payments due under the Mandate Agreement were joint and several, so that obligation was binding upon CMT. Mr Fryer noted that CMT has lodged a proof of debt in the liquidation of Campbell Street for an amount of $1,079,158.66, including the amount of $400,000 referable to the Upfront Payment. Mr Fryer also noted that the relevant invoice is dated 14 July 2009 although, as I have noted above, the relevant contract was not formed until a date after 10 August 2009. Mr Fryer was instructed (and that instruction is also in evidence before me by the parties' agreement as proof of the facts contained in it) that the invoice for the Upfront Payment, although dated 14 July 2009, was not raised by CMT until after delivery of Palmer J's judgment in September 2010. 34Mr Fryer notes that the terms of the Mandate Agreement had the result that Campbell Street became liable for an amount of $400,000 immediately upon its execution and that, at that time, Campbell Street had no funds to make any such payment. There is also no evidence before me of the availability of other funds from third parties, on the basis of any long term loan arrangement, which might have put Campbell Street in funds to make that payment and it did not in fact make that payment. As I noted above, the Loan Agreement provided that the Facility contemplated would be paid in amounts at the Lender's discretion and did not impose any obligation on CMT to make such an advance available. Mr Fryer assumed that CMT elected not to make such payments. That assumption was not established by the evidence, but is not necessary to Mr Fryer's conclusion in circumstances where CMT made no such advance and was under no obligation to do so. 35I accept Mr Fryer's conclusion that, on that basis, Campbell Street became insolvent immediately on execution of the Mandate Agreement. The fact that further creditors made claims upon Campbell Street after that date, including the solicitors who acted for it in the proceedings before Palmer J, and that there is no evidence that Campbell Street had any funds available to meet those claims, also supports Mr Fryer's conclusion that Campbell Street remained insolvent after that date. Whether the transaction was a voidable transaction 36A transaction which is an uncommercial transaction within the scope of s 588FB of the Corporations Act is voidable if it was an insolvent transaction in that the company was insolvent or became insolvent as a result of entering into that transaction (s 588FC) and, relevantly, it took place during the two years ending on the relation-back day (s 588FE(3)). Campbell Street contends, and CMT accepts, that the entry into the relevant transaction occurred during the relation-back period under s 588FE(3) of the Corporations Act, so that it was a voidable transaction for the purposes of s 588FE of the Act, if the fact that it were an uncommercial transaction and an insolvent transaction were otherwise established. I have held above that those matters were established. 37Section 588FF of the Corporations Act allows the Court to make any one or more of the orders set out in the section on the application of a company's liquidator, where a transaction is voidable because of s 588FE, including an order declaring that an agreement constituting, forming part of, or relating to the transaction was void at and after the agreement was made. The Court has power under this section to set aside or discharge the Loan Agreement, Mandate Agreement and the Charge and I am satisfied that this is the appropriate relief given the findings which I have reached above. Whether Campbell Street was entitled to rescind the transaction under s 925A of the Corporations Act 38Alternatively, Campbell Street seeks a declaration that CMT provided a financial service to Campbell Street without holding a financial licence to deal in a financial product under s 911A of the Corporations Act and a declaration that the Loan Agreement, Mandate Agreement and/or Charge are unenforceable against CMT. By letter dated 13 July 2001, Campbell Street gave notice to CMT of rescission of the Loan Agreement, the Mandate Agreement and the Charge under s 925A of the Corporations Act, and it contends that each of those documents are unenforceable against it by reason of that notice and ss 925B and 925E of the Corporations Act. Campbell Street emphasised in submissions that this claim is a true alternative to its application under ss 588FB, 588FC and 588FE of the Corporations Act and would only arise if the Court had made findings which were inconsistent with the basis of that application. It is therefore not strictly necessary for me to determine this claim. 39A person who "deals in a financial product" provides a financial service: s 766A(1)(b). A person who issues a financial product deals in a financial product: s 766C(1)(b). The definition of financial product in s 763A(1) includes a facility through which, or through the acquisition of which, a person manages financial risk as defined in s 763C. Campbell Street contends that the entry into the Loan Agreement, the Mandate Agreement and the Charge involved the managing of financial risk within the meaning of s 763A(1)(b) and s 763C. Section 763C in turn provides that a person manages a financial risk if they manage the financial consequences to them of particular circumstances happening. The relevant risk is particularised by Campbell Street as: "The risk was the financial exposure which [Campbell Street] had to the proceedings with Arena Management and/or an outcome which could be achieved in favour of [Campbell Street] by the entry into a Deed of Company Arrangement as contemplated by the Mandate Agreement". In the alternative, Campbell Street contends that the Charge was a security within the meaning of s 761A of the Corporations Act. Campbell Street contends that CMT was therefore providing a financial service by dealing in a financial product within the meaning of s 766A(1)(b) of the Corporations Act and that it did not hold a licence to deal in financial products under s 911A of the Corporations Act. 40In my view, Campbell Street did not establish that CMT was, at the relevant time, conducting a business of providing financial services, which is necessary to the application of the licensing requirement under s 911A of the Corporations Act. Campbell Street conceded that there was "scant evidence" to establish that the transaction between Campbell Street and CMT was anything other than a one-off transaction, but even that concession overstated the extent of that evidence. Although it is possible that a one-off transaction, which is undertaken as the first step in conducting a business, may amount to "carrying on a business" of providing financial services, there was no evidence that CMT in fact intended to carry on, or in fact carried on, such a business. Campbell Street also accepted that the nature and circumstances of the transaction was such that, if the Court found that the relevant transaction was a one-off transaction, it would not find that CMT was "carrying on a business" of providing financial services. 41In the present case, the evidence does not provide a proper basis for any finding that the transaction was anything other than a one-off transaction, so as to amount to carrying on a financial services business for the purposes of s 911A of the Corporations Act. I do not consider that Mr Lazar's failure to give evidence assists Campbell Street in this regard, since CMT had no need to respond to an allegation that it was carrying on a financial services business where no such evidence had been led. Where it has not been established that CMT was conducting a financial services business at the relevant time, then it has not been established that it was required to be licensed, notwithstanding its entry into the transaction with Campbell Street, and no question of a contravention of s 911A of the Corporations Act or a right of rescission under ss 925A-925E of the Corporations Act arises. 42For completeness, I should add that it is also by no means clear that the Loan Agreement or the Mandate Agreement can properly be characterised as agreements which manage financial risk, in the sense that a genuine litigation funding agreement might manage such risk: International Litigation Partners Pte Ltd v Chameleon Mining NL [2001] NSWCA 50; (2011) 276 ALR 138. It is difficult to see anything in either the Loan Agreement or the Mandate Agreement which could manage adverse financial consequences to Campbell Street of any particular event, including adverse costs orders, the incurring of its own costs, or the loss of the litigation. Orders and costs 43I have concluded that the entry into the Loan Agreement, Mandate Agreement and Charge was an uncommercial transaction for the purposes of s 588FB of the Corporations Act, an insolvent transaction for the purposes of s 588FC of the Corporations Act and a voidable transaction for the purposes of s 588FE of the Corporations Act and that the Court has, and should exercise, its jurisdiction to make orders releasing or discharging Campbell Street from any debt or security under the transaction. 44Accordingly I make the following declarations and orders, noting that the Second Defendant did not seek to be heard in opposition to the third order:

Declare that entry into the agreement styled "Deed of Mandate" bearing date 14 July 2009 (the Mandate), the loan agreement styled "Deed of Loan" bearing date 14 July 2009 (the Loan) and the fixed and floating registered charge bearing date 14 July 2009 with ASIC Charge Number 1864731 (the Charge) (together the Transaction) was: (a) an uncommercial transaction within the meaning of s 588FB of the Corporations Act 2001 (Cth); (b) an insolvent transaction within the meaning of s 588FB of the Corporations Act; (c) a voidable transaction within the meaning of s 588FE of the Corporations Act.
Order that the Mandate, the Loan and the Charge and any documents giving effect to them or the transaction: (a) be released or discharged insofar as it might require any payments by the First Plaintiff to the First Defendant; (b) be released or discharged insofar as it secures payments to the First Defendant.
Declare that the purported appointment of the Second Defendant as receiver of the First Plaintiff under the Charge is invalid. 45In the ordinary course, costs will follow the event and, subject to hearing from the parties, I would order CMT to pay Campbell Street's and the Liquidators' costs of the proceedings. I direct the parties to submit short minutes of order in respect of costs within 14 days, if agreement can be reached between them, or otherwise the respective orders for costs for which they each contend and short submissions in respect of any differences between them.

Campbell Street Theatre Pty Ltd (receiver and manager appointed) (in liquidation) & Ors v Commercial Mortgage Trade Pty Ltd & Anor

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