Capital Finance Australia Limited v Tolcher - [2007] FCAFC 185 - FCAFC 2007 case summary — Zoe

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Capital Finance Australia Limited v Tolcher

[2007] FCAFC 185

Federal Court of Australia (Full Court)|2007-07-01|Before: Gordon JJ

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Court

Federal Court of Australia (Full Court)

Decision date

2007-07-01

Before

Gordon JJ

Source

Original judgment source is linked above.

Judgment (30 paragraphs)

[1]

INTRODUCTION AND GENERAL CONSIDERATIONS 6 Gordon J has provided an outline of the facts, legislative provisions and the decision of the primary Judge which I gratefully adopt and, generally speaking, will not repeat. (I will use the abbreviations that appear in her Honour's Reasons for Judgment, but I will use "CFAL" to refer to the first appellant and "CCFL" to refer to the second appellant, and "Capital" or "Capital Company" to refer to CFAL or CCAL or to each of them as relevant from time to time, including when it is not necessary to distinguish between them.) The following Reasons assume a prior reading of her Honour's Reasons, in particular, at [86] to [118]. 7 On its face, the Second Deed was an uncommercial transaction: LSE promised to pay out the leases between Capital as undisclosed principal and the lessees, without any indication in the Second Deed of any consideration moving from Capital to LSE for that promise. Capital was not a creditor of LSE in respect of those leases. LSE had merely brought the leases into existence as agent for Capital. Not altogether inappropriately, LSE's role has been referred to as that of a "conduit". 8 It would be wrong, however, to confine attention to the Second Deed. In the first place, the "transaction" that was attacked by Mr Tolcher and LSE as being uncommercial and found by his Honour, the primary Judge, to be so, went far beyond the Second Deed. That transaction embraced, in particular, the making of the eight payments (listed at [87] of Gordon J's Reasons) to Capital. Mr Tolcher and LSE would not achieve their objective if they succeeded in having the Second Deed set aside while leaving the eight payments intact. 9 In the second place, and independently of the way in which Mr Tolcher and LSE framed their claim, the Second Deed was in fact partially overtaken by subsequent events, in particular, by the sale/purchase transaction between Capital and NAB. LSE did not simply pay to Capital the amounts required to pay out the leases, either out of its own ready resources or out of funds borrowed by it. 10 In the third place, it is obvious that even when viewed in isolation, the Second Deed leaves an important question unanswered. Let it be assumed that LSE somehow managed to pay the amounts required under the Second Deed out of its own ready resources or out of money borrowed by it. Who would then be entitled to receive the stream of rental payable by the lessees? Not Capital, because it would have been paid out, and would not be permitted, in effect, to receive the rental twice over. LSE would have been entitled to receive that stream of rental income, and on a liquidation of LSE, that right would have enured to the benefit of its creditors. A liquidator of LSE would, however, have been interested to check that the payout amounts that LSE had paid to Capital had indeed represented no more than the present day value of that stream of rental income. 11 The approach taken by the primary Judge and by the majority on the present appeal has not necessitated any investigation of this matter (there was evidence at trial that Capital calculated payout figures by allowing a "rebate" or "discount" of "interest" in respect of the unexpired term of the lease). 12 It is not necessary to consider further what the position would have been if LSE had performed the promises it made in the Second Deed from its own ready resources or from monies borrowed by it. It did not do so. 13 By 9 January 2001 Mr Scott was telling representatives of Capital and Leasetec that he had arranged a "deal" with NAB. He was told in response that Capital and Leasetec would need written confirmation of the deal from NAB. However, the details of the proposed "purchase by NAB and lease to LSE" transactions had not been settled by that time. 14 With respect, I suggest that the result at which his Honour arrived and which is to prevail on the appeal is anomalous. While the sales by Capital to NAB for amounts totalling $3,751,861.40 are not challenged, Capital is nonetheless required to disgorge that purchase money (plus interest) for the benefit of LSE's creditors without getting its property back. Similarly, in the winding up of LSE, LSE's creditors have the benefit of both the stream of future rental income from the lessees and the amount of Capital's payment of $3,751,861.40 (plus interest), although, the creditors do suffer the disadvantage of the rental obligation that LSE undertook to NAB. 15 A calculation of the net benefit to LSE's creditors would be complex and was not undertaken because of the way in which the case was conducted. The total amount of the rentals that LSE undertook to pay to NAB exceeded the aggregate of the eight payouts amounts that NAB paid to Capital. The difference represents NAB's "profit". It seems to follow that the total amount of the rentals that LSE undertook to pay to NAB also exceeded the total amount of the rentals LSE became entitled to receive from the lessees. It might be argued that, to the extent of this differential, there was an "uncommercial transaction" from LSE's viewpoint. That profit element enured, however, not to Capital, but to NAB. On a different approach to the case, it may have been appropriate to order Capital to disgorge the eight payments it received to the limited extent of the present day value of NAB's profit contained in the rental payments that LSE undertook to pay to NAB. 16 With respect, I do not think it permissible to identify a "transaction of" LSE in the way that was done at trial, and is to be sustained on appeal, so as to encompass the eight payments made by NAB to Capital while ignoring their nature as purchase money and the transfer of property in consideration of which they were made. It is beside the point that LSE "arranged" the sale/purchase transactions between NAB and Capital. 17 For these reasons, I would allow the appeal. If I had not been in dissent, I would have given the parties an opportunity to make submissions as to whether the Court could and should substitute for his Honour's order that Capital disgorge the whole of the eight payments an order along the lines referred to at [15] above or some other order. 18 My reasons are elaborated upon below.

[2]

The Master Lease Agreement between NAB and LSE 19 At the relevant time (from the discovery and the obtaining of the Mareva order in mid December 2000 to the making of the last of the eight payments on 25 May 2001) the standard form of Master Lease Agreement between NAB and LSE dated 9 April 1999 was in place. It was to come into play only if and when NAB and LSE agreed on the terms on which NAB was to purchase particular equipment identified by LSE and lease that equipment to LSE. The Master Lease Agreement obliged NAB to acquire equipment pursuant to an "Equipment Schedule" agreed to by LSE and NAB (cl 2 of the Master Lease Agreement). The Equipment Schedule was an offer by LSE to lease the equipment from NAB. If NAB accepted the offer, NAB would become the owner of the equipment, and LSE a bailee of it without any proprietary rights in it (cl 11.1); NAB had a right to terminate the lease early and to repossess upon repudiation or "default" (cll 4(c), 13), and to recover from LSE as liquidated damages an amount calculated in accordance with cl 13.3. Generally speaking, that amount was the present day value of the rentals that would have been payable if the lease had run its full course, less the amount of the proceeds of sale of the equipment. 20 If the lease ran its full course, LSE was to return the equipment to NAB. If the proceeds of sale that NAB received proved to be less than the amount that NAB and LSE had specified as the "Residual Value" of it in the Equipment Schedule, LSE was to pay the shortfall to NAB. 21 The Master Lease Agreement was unsuited to a sub-bailment by LSE to sub-bailees. For example, cl 11.3(a) provided that LSE was not to allow the equipment to be located elsewhere than on land or premises owned or occupied by LSE. The Master Lease Agreement contemplated a lease of goods by NAB's "customer" for use in its own business. No doubt, however, it was open to NAB and LSE to agree, expressly or by implication, to vary or acquiesce in departures from the Master Lease Agreement. They apparently did so, at least by implication, in early 2001, when, at LSE's request NAB bought items of equipment from Capital and leased it to LSE, well knowing that the equipment was subject to Equipment Rental Agreements that were already on foot between LSE and lessees and that the equipment was located at the premises of the lessees. 22 At the time of the events of December 2000, Mr Scott, LSE and other companies associated with Mr Scott already had various financial facilities in place with NAB. Indeed, NAB had a fixed and floating charge over the undertaking of LSE that had been created on 6 November 1998. There was a limit of $4 million on the Master Lease facility, which had been utilised to the extent of some $1 million.

[4]

The Equipment Rental Agreements 26 The terms of the Equipment Rental Agreements between LSE and the lessees were in a standard printed form on which details of the individual transaction were to be entered. 27 By the Equipment Rental Agreements, it was agreed that LSE remained the owner of the equipment (cl 1). We know, however, as the lessees did not, that Capital was the true owner of the equipment, and, as undisclosed principal, was lessor of it to the lessees on the terms of the Equipment Rental Agreements. Each of Capital and LSE was able to sue and be sued on the Equipment Rental Agreements (see the doctrine of the undisclosed principal expounded in any of the standard works on agency, such as Dal Pont GE, Law of Agency (Butterworths, 2001) at [19.26]-[19.30]). Of course, in order to sue the lessees, Capital would have to reveal that it had been the principal of LSE. Similarly, the lessees' right to sue Capital would be significant for them only once they came to know that Capital was LSE's principal. 28 Under the Equipment Rental Agreements, there was a "minimum period" of hiring, after which hiring continued for successive annual periods terminable on 90 days' notice by either party (cl 12). Generally speaking, neither party was entitled to terminate during the minimum period. Exceptionally, LSE (and therefore Capital as its undisclosed principal) was entitled to do so upon default by a lessee remaining unremedied after the lessee had been given 14 days' notice (cl 5). 29 Sometimes a lessee would wish to "pay out" and so terminate its Equipment Rental Agreement. It might, for example, wish to replace the existing equipment with a later model or to add further equipment to its Equipment Rental Agreement. In such a case, LSE would communicate the lessee's request to Capital which would calculate a "payout amount". It would issue a "payout quote - tax invoice" to LSE showing amounts for the "payout quote", "GST" and "total payout". 30 Only if a lessee requested early termination of an Equipment Rental Agreement would the occasion arise for Capital to determine a payout amount. A lessee did not have a contractual right to terminate early. It was Capital's practice, however, always to accede to a request for early termination. Moreover, in the case of the Second P&A Agreement, by cl 5.9 CFAL promised LSE that if a lessee wished to pay out its liability, CFAL would quote a payout amount, of which LSE was to inform the lessee. That was, of course, only a promise by CFAL to LSE - it was not a promise to the lessee. 31 By cl 6.2 of the First P&A Agreement LSE indemnified CCFL and undertook to pay if a lessee defaulted. The Second P&A Agreement did not contain such a provision. There was no suggestion of any actual or likely default by any of the lessees under the Equipment Rental Agreements with which the case was concerned.

[5]

The events leading to the Second Deed (of 12 January 2001) 32 (1) Leasetec obtained the Mareva order in the Supreme Court of New South Wales on 15 December 2000. Before this date, LSE had arranged at least three double financings (the lessees were University of New England, Newcastle City Council and Wyong Shire Council) and apparently some financing on equipment that did not exist. 33 (2) On 18 December 2000, CFAL was joined as third defendant (after LSE and Mr Scott) in the Supreme Court proceeding. At a meeting on that date, Mr Scott proposed to Leasetec and CFAL paying out particular transactions. CFAL and Leasetec thought it best that LSE be kept trading in the short term. They were concerned over the question which of the two of them had title to which equipment. 34 (3) On 19 December 2000 Mr Vendrell of Capital emailed Ms Foreman of Capital and other Capital staff: Well Lloyd-baby is in the poo ... in fact you could not get browner, deeper or smellier. If we play our cards right and with a bit of luck, CFAL can be fairly well out of the really smelly brown staff by the end of Feb. (Original emphasis.) Mr Vendrell asked Ms Foreman for "payouts on a list of deals" he had left on her desk. On the same day, Leasetec and Capital agreed on the terms of the appointment of Ferrier Hodgson (NSW) (Ferriers) as investigating accountants (the entity within the firm that was used for the purpose was National Consulting Group (NSW) Pty Limited). 35 (4) On 21 December 2000 Mr Vendrell sent a memo to Mr Campbell advising: It is apparent that LSE has double financed approximately $3.8 million of CFAL contracts with Leasetec. Further, some $500k of payouts on CFAL contracts had not been remitted to CFAL by LSE. All CFAL accounts are currently up to date and full payout of the $500k is expected this week. No new business is being transacted. CFAL and Leasetec are controlling cheques issued by LSE. Lloyd Scott returns from overseas on 5 January 2001. Ferriers will complete a detailed investigating accountants report by mid January and this will include a plan of action for CFAL and Leasetec to ensure that contracts funded by them will be collected in the event of LSE insolvency. NAB hold 1RMDC and are presently unaware of the depth of the problem. It is likely that they will appoint a receiver once the full details are known. This memo shows that Capital was an existing creditor of LSE to the extent of payout amounts of "some $500k" that lessees had paid to LSE but which LSE had failed to pay over to Capital. The precise amount was $523,745.54. LSE would have held this amount on trust for Capital (see [24] above). On 12 January 2001, LSE paid to Capital this amount less the amount of a setoff. This amount was not the concern of the proceeding before his Honour. 36 (5) On 2 January 2001 Ferriers reported to Capital and Leasetec. They referred to Mr Scott's "lack of credibility" and to their having been "frustrated by the lack of relevant information". 37 (6) On 10 January 2001 representatives of Capital and Leasetec met at Ferriers to discuss the outcome of a meeting between Capital and Lloyd Scott the preceding day. Mr Scott had said that he had told NAB he needed funds to pay out Leasetec and Capital. Mr Campbell reported that Mr Scott had said that he would be arranging the funds (through NAB) "on condition of no prosecution". 38 (7) On 11 January 2001, there was a further meeting between representatives of Capital, Leasetec and LSE. Capital's position as expressed at the meeting was recorded in a file note of that date. The note included: · If receiver appointed and dollars voidable preference; · Give LSE time to sort things out; · Capital want Mareva lifted; · Have turned their rentals into weekly. · LSE - says Mareva is jeopardising its business [...] · NAB funding of $750,000 is contingent on lifting the Mareva Capital argued that it did not wish to see the full Leasetec portfolio refinanced "without a considerable chunk of CFAL's portfolio taken out". Mr Vendrell's file note in relation to the meeting of 11 January stated: Leasetec advised that their LSE receivables book (minus Uni. New England) is some $7m with CFAL's book sitting at approx. (after payouts) $11m. Lloyd advised he should be able to organise & raise some $6.5m per month of refinancing over the next 3 months. CFAL will see approximately $3m per month. This will see Leasetec totally fee [sic - free] of LSE introduced deals within 60 days and majority of CFAL's risk paid out within 90 days. NOTE: CFAL concedes that due to the age and high run off of the LSE introduced book over the next 6 months, it was highly unlikely that the total CFAL book would be refinanced. (Emphasis added.) The expression "after payouts" apparently referred to the "some $500k of payouts" mentioned earlier which lessees had paid to LSE and for which LSE had not accounted to Capital. Mr Vendrell's note shows that Capital understood that in order to pay out all of the Equipment Rental Agreements, LSE would have to refinance, Agreement by Agreement. 39 (8) On 12 January 2001, the First Deed was entered into between the Capital Companies, Leasetec, LSE and Mr Scott. By cl 2, the parties agreed that CCFL owned the University of New England equipment and that Leasetec, LSE and Mr Scott had no interest in it, while Leasetec owned the Wyong Shire Council and Newcastle City Council equipment and that the Capital Companies, LSE and Mr Scott had no interest in it. In cl 3, it was acknowledged that LSE had that day (12 January 2001) paid · to CCFL $520,325.69 as the payout under the Wyong Shire Council Agreement (the Equipment Rental Agreement between CCFL as undisclosed principal of LSE and the Wyong Shire Council); · to CFAL $164,989.60 as the payout under the Newcastle City Council Agreement (the Equipment Rental Agreement between CFAL as undisclosed principal of LSE and the Newcastle City Council); and · to CCFL $238,291.14 as the payouts under certain other agreements. These payments and the First Deed generally are not of present concern.

[6]

The terms of the Second Deed 40 By the Second Deed (its terms are described by Gordon J at [100]-[103]) LSE undertook to pay two classes of amounts to CFAL which it had not previously been liable to pay to it. First, by cl 3, LSE undertook to pay to CFAL the rent under the Equipment Rental Agreements. Previously, LSE's liability had been more limited. It had been responsible under the P&A Agreements to remit to Capital rental received by LSE from the lessees, and under cl 6.2 of the First P&A Agreement it had indemnified CCFL in the event that a lessee defaulted (though not where the sole cause was that the lessee was in liquidation, in administration or insolvent). LSE had not previously, however, been subject to a direct personal liability to pay. Secondly, and importantly for the present case, by cl 4.1 of the Second Deed, LSE undertook to pay to CFAL the amount of "the Exposure" as defined in the Second Deed. This was defined as the aggregate at any given time of the amounts (approximately $11 million at the date of the Second Deed) required to pay out all of the Equipment Rental Agreements between Capital (as undisclosed principal) and the lessees, plus "all amounts otherwise owed by LSE or by [Mr] Scott" to the Capital Companies (cl 4.1 is set out in full by Gordon J at [103]). LSE undertook to pay this aggregate of the payout amounts by instalments over four months on or before 11 February, 11 March, 11 April and 11 May 2001. 41 In the ordinary course there would have been no payout amount determined unless and until a lessee expressed a wish to pay out its Equipment Rental Agreement. The payout amounts referred to in the definition of "the Exposure" were the amounts that Capital would have determined to be such if all of the lessees had expressed such a wish. In fact the lessees knew nothing of what was going on as between Capital and LSE (and NAB). So far as they knew, and as the Equipment Rental Agreements stated, LSE owned the equipment that was leased to them. The paying out of the Equipment Rental Agreements, being unauthorised by them, was not binding on them. The terms of the Equipment Rental Agreements sat well with the elimination of Capital as undisclosed principal, and did not need to be varied at all. 42 The circumstances leading to the execution of the Second Deed show that Capital's concern was not to recover a debt: in relation to the ongoing operation of the Equipment Rental Agreements, LSE was Capital's "conduit", not its debtor. Capital's concern was to be rid of LSE and the lessees because it had lost confidence in Mr Scott. Officers of Capital used the term "Exposure" to refer, not to a potential liability or loss of capital, but simply to the extent which Capital had an investment in the Equipment Rental Agreements. Capital officers used the notion of a payout amount as the measure of Capital's exposure in that sense. In order for Capital's exposure in that sense to be reduced to nil, the Equipment Rental Agreements had to be paid out.

[8]

Were the eight payments also made pursuant to the Second Deed? 47 Capital submits that the purchases by NAB from CFAL supplanted the Second Deed. I accept that the Second Deed remained on foot although Capital and LSE recognised that LSE's capacity to perform its obligations under it depended on LSE's being able to refinance. 48 By cl 4.1 of the Second Deed LSE promised Capital that LSE would progressively pay to Capital, at the rates specified in the clause, the amounts that the lessees would have been required to pay to it if they had all requested a termination of their obligations under their Equipment Rental Agreements. The evidence shows that Capital regarded cl 4.1 as pro tanto complied with if, as happened, a financier paid out Equipment Rental Agreements in consideration of thereby acquiring the equipment. 49 The following circumstances show the ongoing recognition of the Second Deed. 50 (1) There was a general correspondence between the aggregate of the three amounts paid by NAB to CFAL on 14 February 2001 and the first payment that was to be made under cl 4.1 of the Second Deed on 11 February 2001, namely, $3 million. On 14 February 2001, the three amounts (identified at [87] of Gordon J's Reasons for Judgment) totalling $2,736,767.18, were paid by NAB to CFAL. (The amounts that fell due on 11 March, 11 April and 11 May 2001 were not paid, but NAB paid five further amounts totalling $1,015,094.22 to CFAL later in May 2001 - see [87] in Gordon J's Reasons for Judgment). 51 (2) There is no suggestion in the evidence that Capital and LSE gave any thought to terminating LSE's obligations under the Second Deed. 52 (3) By an internal email from Mr Vendrell to Mr Campbell dated 22 March 2001, Mr Vendrell noted that "CFAL did not receive any funds ($3m) on 11/03/01" and that Mr Scott's solicitor had contacted Leasetec and CFAL with a view to proposing "a new refinance arrangement" because Mr Scott was "finding it tough to refinance @ $6m per month ($3m to each CFAL and Leasetec)". 53 (4) On 3 May 2001, Henry Davis York, Capital's solicitors, wrote to LSE's solicitors referring to LSE's request for "an extension of time to procure the sale of the various leasing agreements arranged by LSE as agent for Leasetec and Capital". This recognised the existence of time stipulations (those in cl 4.1 of the Second Deed) that needed to be extended. 54 (5) On 15 June 2001, Mr Vendrell recorded as follows in an internal Capital file note: 1. Lloyd's initial arrangement (backed by a deed) with CFAL & Leasetec was to a) Remit monthly portfolio pmts monthly in advance & b) Refinance CFAL & Leasetec's portfolio to the tune of $3m each per month Initial funding for the refinance was principally via cash advances to LSE by the NAB. 2. The above arrangement was short lived as Lloyd has had immense trouble finding a new funder to either a) Buy new rental *paper (undisclosed + copy cost) that he is writing & b) Take over existing rental contracts (undisclosed + copy cost) with both CFAL & Leasetec. (Original emphasis.) It was immaterial to Capital whether the structure of the refinancing was to be by NAB making cash advances to LSE which would then pay the amounts to Capital (para 1 above), or by NAB's stepping into Capital's shoes as a lessor not disclosed to the lessees (para 2 above), provided that Capital was paid out according to the timetable fixed in cl 4.1 of the Second Deed. (In fact there would be no question of NAB actually stepping into Capital's shoes as undisclosed principal because the Master Leasing Agreement did not contemplate leases by NAB through LSE as its agent.) 55 (6) On 25 June 2001, Mr Vendrell recorded in an internal CFAL file note and annexed spreadsheet that the aggregate balance excluding GST on the "Lloyd Scott introduced Portfolio" was $7,162,151. This shows that CFAL had applied the payments made by LSE on 14 February 2001 and 18 and 31 May 2001 in reduction of the aggregate of all the payouts of some $11 million previously referred to. 56 (7) Finally, on an "informal proof of debt form" provided by CFAL to Mr Tolcher as voluntary administrator of LSE, CFAL recorded the amount of a debt claimed by it against LSE as $7,162,151.84 for "leasing finance". 57 I think it clear on the above evidence that both Capital and LSE regarded cl 4.1 of the Second Deed as continuing to have binding effect during and after the sales by CFAL to NAB, and that LSE procured NAB to make the payments to Capital because of LSE's obligations under the Second Deed.

[9]

The effect of events on the position of LSE's unsecured creditors and on Capital, NAB and LSE 58 I outlined my view on this matter at [6]-[17] above. 59 The lessees that LSE had procured for Capital were substantial institutions, none of which had defaulted or requested early termination of their Equipment Rental Agreements, or shown any sign of doing either of those things. The lessees involved in the eight payments were: Lemington Coal Mines Pty Limited, Central Coast Area Health Service, Gosford City Council, Hunter Institute of Technology, O'Neill and Associates Pty Ltd, Mater Dei College, and University of New England. 60 If the Second Deed and the sale/purchase transactions had not been entered into, upon the liquidation of LSE the Capital Companies would have disclosed their identity as LSE's principals and themselves enforced the Equipment Rental Agreements. 61 The P&A Agreements were terminable by the Capital Companies at will: by CCFL on giving 30 days' written notice of termination to LSE (cl 9.1 of the First P&A Agreement), and by CFAL on giving one month's written notice of termination to LSE (cl 11.2 of the Second P&A Agreement). The Capital Companies could terminate immediately upon default by LSE (cl 9.2 of the First P&A Agreement, cl 11.3 of the Second P&A Agreement), and LSE had defaulted, apart from any other way, by failing to make prompt remission of monies collected from lessees. In any event, the notion of default by LSE was defined to include the making of an application or order that LSE be wound up (or other similar relief) (cl 9.2(j) of the First P&A Agreement; cl 10(k) of the Second P&A Agreement). Termination of the P&A Agreements would not, of course, have operated retrospectively. 62 If the Second Deed and the sale/purchase transactions had not been entered into, it would have had to be accepted in the winding up of LSE that (1) the Equipment Rental Agreements remained on foot and effective as agreements between the relevant Capital Company and the lessees, (2) LSE was not beneficially entitled to the stream of rental income, and (3) any liability LSE had to the lessees attracted a right to be indemnified by its principal, Capital. The effect in the winding up would therefore have been neutral. 63 In substance, by cl 4.1 of the Second Deed Capital and LSE were agreeing to accelerate and modify CCFL's agreement to sell to LSE for the payout amount contained in cl 11 of the First P&A Agreement, and CFAL's agreement to sell to LSE contained in cl 16 of the Second P&A Agreement, in each case for the payout amount plus, in practice, one dollar. As noted earlier at [25], under cl 11 of the First P&A Agreement, CCFL undertook to sell to LSE "on the date of expiration or earlier termination of each [Equipment Rental Agreement]", and by cl 16 of the Second P&A Agreement, CFAL agreed to sell to LSE on the date the Equipment Rental Agreement expired "at the end of the completion of the contracted rental". 64 Capital and LSE knew that LSE would need to be refinanced, and, as events transpired, they knew that the form of refinancing arranged was a purchase by NAB from CFAL, a lease from NAB to LSE, and sub-leases (already in place in the form of the Equipment Rental Agreements) from LSE to the lessees. 65 LSE procured NAB to buy the equipment the subject of Equipment Rental Agreements from Capital. LSE incurred a liability as lessee from NAB under the Master Leasing Agreement, but enjoyed, now in its own right and not merely as a agent or trustee, the benefit of the stream of rental income from the lessees. (As noted earlier, Mr Tolcher and LSE did not approach the matter either at first instance or on the appeal by attempting to recover only the differential between the rental LSE undertook to pay to NAB and the rental it was to receive from the lessees.) 66 Since the purpose of the voidable transactions provisions may be generally described as being (1) to ensure that an insolvent company does not deplete its assets by entering into transactions to its disadvantage, and therefore to the disadvantage of its unsecured creditors, and (2) to ensure parity of treatment as between the insolvent company's unsecured creditors, the odd results for both Capital and LSE's creditors outlined at [6]-[17] above raise a question as to the correctness of the conclusion reached by his Honour the primary Judge, now to be upheld on appeal. Capital was not a creditor of LSE at all prior to the transaction posited, sold its property to NAB, and is now called upon to disgorge the whole of the purchase money for the benefit of LSE's creditors in the winding up.

[10]

Was the "transaction" an uncommercial transaction? 67 Subsections 588FB(1) and (2) are set out at [91] of Gordon J's Reasons. The inclusory exemplification of the term "transaction" in s 9 of the Act is set out at [73] below. 68 Paragraphs 24-26 of the Further Amended Statement of Claim were as follows: 24. Payments totalling $3,751,861.40 were made by LSE or at LSE's direction to Capital Finance as part of, and as a consequence of, a composite of dealings in relation to each payment ("the said transactions"), during the period 12 January 2001 to 21 June 2001, in discharge or partial discharge of the indebtedness of LSE to Capital Finance (or, in the alternative, Capital Finance and/or Capital Corporate) as described in paragraph 23 above. Particulars (i) The date and amount of each of the said payments are disclosed in the schedule which is annexed to this statement of claim and marked "A" ("the payments"). (ii) The said transactions in each case involved LSE, as lessee, entering into leases with NAB, as lessor, pursuant to a Master Leasing Agreement dated on or about 9 April 1999, and becoming liable to NAB to pay rent and thereby repay 5 Finance Lease debit accounts with NAB in the total amount of $4,799,389.78. (iii) The payments were made as part of the said transactions by National Australia Bank Limited to Capital Finance (or in the alternative, to Capital Finance and/or Capital Corporate) pursuant to the second 12 January deed. (iv) Each of the said payments was received by Capital Finance, or in the alternative, Capital Finance and Capital Corporate. 25. Each of the said transactions and the entry by LSE into the second 12 January Deed, was a transaction within the meaning of section 9 of the Act to which LSE was a party. 26. Each of the said transactions, and the entry by LSE into the second 12 January Deed was entered into during the six-month period ending on the relation back day being 25 June 2001. 69 The learned primary Judge accepted (at [27] and [39]) that the "transaction" with respect to each of the NAB payments involved the following six steps: · LSE entered into the Second Deed of 12 January 2001, creating a debtor creditor relationship between LSE and Capital Finance; · LSE approached NAB for the purpose of obtaining finance to pay out the Exposure of the Capital companies as contemplated by the terms of the Second Deed; · LSE entered into leases with NAB relating to specific equipment pursuant to a Master Lease Agreement; · LSE procured NAB to forward payments to [Capital] Corporate Finance in order to discharge the debt under the Second Deed; · LSE incurred liability to NAB under lease finance accounts which were opened and debited to effect the payments from NAB to [Capital] Corporate Finance through the NAB Office Suspense Account; · Each payment was initiated by LSE to satisfy the obligations imposed on and bestowed by LSE to Capital Finance under the Second Deed in order to reduce the "exposure" as referred to in Clause 4 of that Deed. 70 His Honour, the primary Judge, did not declare that the composite of circumstances particularised in the Further Amended Statement of Claim or as identified in the six steps set out above constituted an unfair preference, uncommercial transaction and voidable transaction. Rather, his Honour declared only the eight payments to do so - a declaration which a simple dismissal of the appeal would leave intact. But what ss 588FA and 588FB make "an unfair preference given by a company" and "an uncommercial transaction of [a] company", respectively, is the "transaction" in question. Accordingly, if anything, it is the entirety of the composite transaction (the six steps) identified by his Honour that should have been the subject of the declarations, including the third step, namely, LSE's having entered into the leases from NAB under the Master Lease Agreement. But NAB was not a party to the proceeding. 71 The meaning of the expression "transaction of the company" in s 588FB and other provisions of Pt 5.7B was considered by the New South Wales Court of Appeal in Kalls Enterprises Pty Ltd (in liquidation) v Baloglow (2007) 63 ACSR 557. Giles JA did not accept (at [102]) that all that was required for there to be a transaction of a company was that the transaction be one to which the company was a party (as had been accepted by Austin J in Prentice v St George Bank Ltd (2002) 20 ACLC 923 at [24]). Similarly, Ipp JA stated (at [212]) that the mere fact that a company is a party to a contract or contracts that form part of a transaction does not necessarily make the transaction a transaction "of" the company. His Honour said: "Whether a company is so bound up in the transaction that it is a transaction 'of' the company is a question of judgment dependent on fact and degree". Basten JA also said (at [236]) that being a transaction "of" a particular company can be said to involve something more than the concept of a company being "party to" a transaction. 72 The six steps identified at [69] above were all taken or initiated by LSE. On its face, a transaction so defined escapes the strictures referred to in the preceding paragraph. 73 Section 9 of the Corporations Act provides: transaction, in Part 5.7B, in relation to a body corporate or Part 5.7 body, means a transaction to which the body is a party, for example (but without limitation): (a) a conveyance, transfer or other disposition by the body of property of the body; and (b) a charge created by the body on property of the body; and (c) a guarantee given by the body; and (d) a payment made by the body; and (e) an obligation incurred by the body; and (f) a release or waiver by the body; and (g) a loan to the body; and includes such a transaction that has been completed or given effect to, or that has terminated. As can be seen, paras (a) to (g) all refer to changes in the body's property, rights or liabilities: Re Emanuel (No 14) Pty Ltd (in liq); Macks and Another v Blacklaw & Shadforth Pty Ltd (1997) 24 ACSR 292 at 299. Unless adequate consideration is received by the body in return, the transaction will be to its disadvantage. Similarly, the Explanatory Memorandum for the Corporate Law Reform Bill 1992 (Cth), which introduced s 588FB, stated (para 1,044) that the aim of the new uncommercial transactions provision was to prevent companies: disposing of assets or other resources through transactions which resulted in the recipient receiving a gift or obtaining a bargain of such magnitude that it could not be explained by normal commercial practice. In similar vein, under the heading "The heart of section 588FB", Professor Andrew Keay stated in "Liquidators' Avoidance of Uncommercial Transactions" (1996) 70 ALJ 390 at 397: While not dealing exclusively with undervalue, undervalue is at the heart of the section, that is, if the company received less than what is reasonable from the transaction the liquidator may attack it. It is likely that in many cases courts will be preoccupied with comparing the value of what the company received in exchange for what it gave or vice versa. 74 While I accept that a transaction within s 588FB may be composed of a series of steps, some or all of which may also be properly described individually as transactions (see, for example, Nilant v Plexipack Packaging Services Pty Ltd (1996) 21 ACSR 428; Tosich Construction Pty Ltd (in liq) v Tosich (1997) 23 ACSR 466 at 473) in my view the steps must be connected in a manner that is relevant for the purpose of s 588FB as indicated in the passages set out above. That is to say, they must be linked as showing that the company disposed of property or incurred an obligation in an "uncommercial" way to its disadvantage. 75 In my view, the primary Judge's identification of the transaction in the way in which he did was impermissible. With respect, it seems to me to involve a selective piecing together of the steps that were taken by LSE in an attempt to encompass the eight payments. 76 The primary Judge's six steps leave out of account the critical bona fide sale/purchase transaction between Capital and NAB, to which LSE was not a party, but which entirely explains what Capital gave up in exchange for the eight payments. With respect, it seems to me that this omission made his Honour's identification of the transaction in question artificial. To the extent of the sale/purchase transactions that LSE procured, Capital and LSE treated LSE's promise to pay contained in the Second Deed as pro tanto performed. That substitution for performance remained, however, in the nature of a series of independent transactions by which NAB, not LSE, purchased from Capital, and in my opinion it was no part of any transaction of LSE. 77 I accept that the Second Deed was a transaction of LSE, and, that on its face, it was an uncommercial one (see however, [10] above). I accept too that the leases by LSE from NAB under the Master Lease Agreement may have been an uncommercial transaction of LSE to the extent of the difference between the rent that LSE undertook to pay to NAB and the rent that LSE was entitled to receive from the lessees. I do not accept, however, that there was, as found, a transaction of the kind identified by his Honour, and, in particular, a transaction of LSE that included as an element the making of the eight payments by NAB to Capital. 78 I need not discuss further whether it would have been open to Mr Tolcher and LSE to have approached the case differently or defined the transaction differently, and sought to recover a lesser amount by reference to the extent to which the transaction, differently defined was uncommercial (see [15] and [17] above).

[11]

Was the transaction an unfair preference? 79 Section 588FA(1) is set out at [92] of Gordon J's Reasons. Unlike s 588FB(1), that provision does not use the expression "transaction of a company". It commences "A transaction is an unfair preference given by a company to a creditor of the company if, and only if: ...". In their Further Amended Statement of Claim Mr Tolcher and LSE posited for the purposes of s 588FA, the same transaction as that which they relied on for the purposes of s 588FB. For s 588FA(1) to operate, the creditor alleged to have been preferred must have been a creditor of the company when the creditor and the company entered into the transaction. The first element in the transaction posited is the entering into of the Second Deed on 12 January 2001. But Capital was not a creditor of LSE prior to that time (it was a creditor of LSE prior to that time in respect of payout monies that LSE had received and not paid over to Capital, but these are not of present concern. 80 Similarly, when s 588FA(1)(b) speaks of the transaction resulting in the creditor receiving from the company "in respect of an unsecured debt that the company owes to the creditor" more than a certain amount, its use of the present tense emphasises that the company must already owe the debt at the time when the transaction takes place. 81 His Honour the primary Judge took the view (at [34]) that debts were created by the Second Deed. However, the Second Deed was also characterised by his Honour as the first step in the transaction that was said to constitute the preference itself. 82 If the creditor/debtor relationship is to be regarded as having been brought into existence by cl 4.1 of the Second Deed, the relevant "transaction" would have to be differently identified, and it would be necessary, in particular, to embark upon an inquiry into that to which LSE became entitled as a result of having entered into the Second Deed - apparently the present day value of the future stream of rental income from the lessees. 83 For these reasons, I agree with Gordon J's conclusion (at [142]) that "[t]he 'transaction' was not an unfair preference".

[17]

Legislation 91 The relevant provisions of the Corporations Act are ss 588FA and 588FB. Uncommercial transactions are dealt with in s 588FB of the Corporations Act. It provides: "(1) A transaction of a company is an uncommercial transaction of the company if, and only if, it may be expected that a reasonable person in the company's circumstances would not have entered into the transaction, having regard to: (a) the benefits (if any) to the company of entering into the transaction; and (b) the detriment to the company of entering into the transaction; and (c) the respective benefits to other parties to the transaction of entering into it; and (d) any other relevant matter. (2) A transaction may be an uncommercial transaction of a company because of subsection (1): (a) whether or not a creditor of the company is a party to the transaction; and (b) even if the transaction is given effect to, or is required to be given effect to, because of an order of an Australian court or a direction by an agency." 92 Section 588FA of the Corporations Act deals with unfair preferences and provides, so far as is relevant, that: "(1) A transaction is an unfair preference given by a company to a creditor of the company if, and only if: (a) the company and the creditor are parties to the transaction (even if someone else is also a party); and (b) the transaction results in the creditor receiving from the company, in respect of an unsecured debt that the company owes to the creditor, more than the creditor would receive from the company in respect of the debt if the transaction were set aside and the creditor were to prove for the debt in a winding up of the company; even if the transaction is entered into, is given effect to, or is required to be given effect to, because of an order of an Australian court or a direction by an agency. …" 93 As is apparent, the first question under each section is to ascertain whether there is a 'transaction' and, if so, what is the 'transaction'. Before turning to consider that issue, it is necessary to outline the facts, the decision of the trial judge and the issues raised on appeal.

[18]

Facts 94 From at least 1995, LSE had supplied office equipment to a range of customers in Newcastle and the region north of Newcastle in New South Wales. 95 On 7 July 1995, Capital Corporate entered into a "Principal and Agency Agreement" with LSE ("the First P&A Agreement"). Under the terms of the First P&A Agreement, LSE undertook to submit various leasing proposals to Capital Corporate from customers of LSE who were interested in leasing office equipment: cll 3.1 and 3.2. If Capital Corporate accepted the proposal, it would purchase the equipment and then lease the equipment to the customer. LSE would enter into the lease with the customer as the undisclosed agent of Capital Corporate: recital B and cl 5. The customer was not aware that Capital Corporate was the actual owner and lessor of the equipment. LSE would collect the rents from the customers on behalf of Capital Corporate and subsequently pay the rents to Capital Corporate: cll 3.3-3.4. Except in the case of insolvency of any lessee, LSE indemnified the relevant Capital Company against "any loss, cost or expense incurred by [Capital] directly as a result of the failure by any Lessee to pay any Moneys owing on the due date for payment": cll 6.2 and 6.6. 96 At the termination of each equipment lease, LSE or its customer would purchase the equipment from Capital Corporate for the previously agreed "residual amount" which was usually $1.00. The purchase was effected by payment of the residual amount: cll 11.1 and 16.1-16.4. If LSE or the customer elected to terminate the equipment lease and purchase the equipment before the lease term expired, LSE would obtain a "payout quote" from Capital Corporate. The payout amount was the sum Capital Corporate would accept for early termination of the equipment lease. The payout amount was the sum of the remaining lease payments and the residual payment discounted for early payment. Upon expiry or termination of an equipment lease in the manner outlined, ownership of the equipment would pass to the entity that had made the necessary payment - LSE or the customer, as the case may be: cll 5.9 and 11.3. 97 On 1 July 2000, Capital Finance entered into a second Principal and Agency Agreement with LSE ("the Second P&A Agreement"). It was in similar terms to the First P&A Agreement. 98 In mid December 2000, Capital Finance was advised that LSE had purported to sell to Leasetec Australia Pty Ltd ("Leasetec") photocopy equipment that was in fact owned by the Capital Companies and was the subject of the First and Second P&A Agreements. On 15 December 2000, Leasetec obtained preservation of assets orders against LSE and its principal, Mr Lloyd Scott. Subsequently, Capital Finance was joined as a defendant to those proceedings. 99 On 12 January 2001, a meeting was held with representatives of LSE, Leasetec and the Capital Companies. Two deeds were executed on that day. The First Deed was between the Capital Companies, Leasetec, LSE and Mr Scott. As the recitals to the First Deed record, it was to resolve the dispute between the Capital Companies and Leasetec in relation to the title to certain equipment, equipment that LSE had sold to both the Capital Companies and Leasetec. 100 The other deed executed on 12 January 2001 was the Second Deed between the Capital Companies, LSE and Mr Scott. The terms of the Second Deed are central to the issues on appeal. The recitals to the Second Deed recorded that: (1) pursuant to the First and Second P&A Agreements, LSE acted as the agent of the Capital Companies on an undisclosed basis to acquire and to lease or rent equipment to persons throughout Australia requiring leasing or renting of certain equipment: recitals A and B; (2) pursuant to the First and Second P&A Agreements, LSE collected any money it was obliged to collect from any lessee on behalf of the Capital Companies ("the Rent"), held that Rent on trust for the Capital Companies and remitted it to them: recital C; and (3) the Capital Companies no longer wished to provide finance to the lessees under any Leasing agreement entered into by LSE as agent for one of the Capital Companies under the First or Second P&A Agreement and "wish[ed] to reduce the Exposure to nil": recital D. 101 The phrase "wish[ed] to reduce the Exposure to nil" is important. The word "Exposure" was defined in the Second Deed to mean: "the aggregate at any given time of the Payouts under all the Leasing Agreements plus all amounts otherwise owed by LSE or Scott to [the Capital Companies] pursuant to this deed or any other agreement or deed between the parties (including any amount owing in respect of legal costs)." "Payout" was defined to mean "the sum of money required to be paid by a Lessee under a Leasing Agreement to terminate the obligations of that Lessee under that Leasing Agreement." 102 The Second Deed achieved a number of purposes. First, it contained the acknowledgement by LSE and Mr Scott that LSE was bound and continued to be bound by the First and Second P&A Agreements and that, under those agreements, one of the Capital Companies was the legal and beneficial owner of all the equipment leased under those agreements: cl 2.1 of the Second Deed. Secondly, the Second Deed constituted the agreement by LSE that it would make certain payments to the Capital Companies including: (1) on or before 15 January 2001 (3 days after execution of the Deed), the sum of $318,053.09 as the Monthly Rent for December 2000. The term "Monthly Rent" was defined to mean that portion of the Rent apart from what was described as "D-D Rent" which LSE was obliged to collect and remit to the Capital Companies in any given month: cll 1.1 and 3.1. (The "D-D Rent" was defined to mean that portion of the Rent which LSE was obliged to collect from lessees and remit to the Capital Companies on a daily basis: cl 1.1); (2) on or before 24 January 2001 (some 12 days after execution of the Deed), the sum of $298,487.32 as the Monthly Rent for January 2001: cl 3.2; (3) the D-D Rent on a daily basis: cl 3.3; (4) until the Exposure was reduced to zero, LSE would remit the Monthly Rent in advance on the first day of each month commencing on 1 February 2001 and, on or before the 28th day of each month, the Capital Companies would notify LSE of the Rent to be remitted on the first day of the next month: cl 3.4; and (5) reduction of the Exposure to zero: cl 4.1. 103 The last item, reduction of the Exposure to zero, was dealt with in cl 4.1 of the Second Deed. It provided: "LSE shall reduce the Exposure and payout the LSE Leases by payment to [Capital Finance] in cleared funds, of the following amounts on the following dates: (a) the sum of $3,000,000.00 plus the amount required to be paid by LSE to terminate its obligations to [Capital Finance] under the LSE Leases (which as at 12 January 2001 totalled $323,032.17) on or before 11 February 2001; (b) the sum of $3,000,000.00 on or before 11 March 2001; (c) the sum of $4,000,000.00 on or before 11 April 2001; (d) the balance of the Exposure on or before 11 May 2001." 104 The payments in issue are those listed in [87] above: payments made on 14 February, 18 May and 31 May 2001. As this clause makes plain, those monthly payments were intended to reduce the "Exposure". The method by which, and the circumstances in which, these payments were made is also relevant to the issues on appeal. As these reasons will later show, the payments were not in satisfaction of any debt then owing whether by LSE or by any lessee who had dealt with LSE as undisclosed agent of one of the Capital Companies. The obligation to make the payments was created by the Deed and was neither a recording of any then existing obligation nor an acceleration of any future obligation of LSE. 105 In late December 2000 and early January 2001, LSE had sought to refinance the equipment leases it had proposed with both Leasetec and the Capital Companies. It approached the National Australia Bank Limited ("NAB"). Initially a form of "Sale Hireback" was proposed whereby NAB would lend the money to LSE who would pay out the equipment leases and purchase the equipment from Capital Finance. NAB was then to purchase the equipment from LSE and hire it back to LSE. That initial proposal was not adopted. Ultimately, NAB decided to purchase the equipment from Capital Finance and then lease it to LSE. To give effect to that arrangement, NAB organised for Capital Finance to prepare "Payout Quotes/Tax Invoices" for the relevant equipment rental agreements addressed to NAB. 106 On 14 February 2001, upon receipt of a "Payout Quote/Tax Invoice" addressed to it for each lease, NAB paid to Capital Finance: (1) $837,986.18 in respect of the Capital Finance - Central Coast Area Health Service Rental Agreement; (2) $929,927.17 in respect of the Capital Finance - Lemington Coal Mines Pty Ltd Rental Agreement; and (3) $968,853.83 in respect of the Capital Finance - Gosford City Council Rental Agreement. The total paid to Capital Finance by NAB was $2,736,767.18. These payments were made to Capital Finance three days after LSE was obliged to pay Capital Finance $3,000,000 under cl 4.1 of the Second Deed. 107 On 18 May 2001, again upon receipt of a "Payout Quote/Tax Invoice" addressed to it, NAB paid to Capital Finance $420,768.52 in respect of the Capital Finance - Hunter Institute of Technology Rental Agreement. Finally, on 31 May 2001, after receipt of a "Payout Quote/Tax Invoice" addressed to it for each lease, NAB paid to Capital Finance the following sums: (1) $62,742.70 in respect of the Capital Finance - Mater Dei College Rental Agreement; (2) $148,494.29 in respect of the Capital Finance - O'Neill and Associates Pty Ltd Rental Agreement; (3) $74,911.78 in respect of the Capital Finance - Lemington Coal Mines Pty Ltd Rental Agreement; and (4) $308,176.93 in respect of the Capital Finance - University of New England Rental Agreement. By the time the payments were made by NAB to Capital Finance on 18 and 31 May 2001, the whole of the amount due under cl 4.1 of the Second Deed (namely, $10,000,000), had fallen due for payment by LSE to Capital Finance. The payments made by NAB on 18 and 31 May totalled $1,015,094.22. The total of the payments made by NAB to Capital Finance in February and May 2001 was $3,751,861.40. 108 The equipment that NAB purchased from Capital Finance was then leased to LSE subject to a Master Lease Agreement between NAB and LSE and Mr Scott dated 9 April 1999 and a Master Lease Purchase Agreement. LSE's obligations under both those agreements were secured by a registered charge in favour of NAB over all the assets and undertakings of LSE. 109 The payments made by NAB to Capital Finance under the "Payout Quotes/Tax Invoices" were described by the trial judge (at [44]) as being recorded by NAB in the following terms: "The payments under challenge were made by arrangement with NAB through an Office Suspense Account on and after 14 February 2001 as outlined in the table reproduced above. Payments were made to Capital Finance from the Office Suspense Account which was credited with the eight payments in the period of February - May 2001. Credit was created by drawing down the lease finance account of LSE for the full amount of the lease finance, which equated to the value of the lease over its full term. The credit amount in the Office Suspense Account was then electronically transferred to Capital Finance. NAB opened a number of lease finance accounts with debit balances in the name of LSE as customer in respect of each lease, from which the amounts to be paid to Capital Finance were drawn down and credited to the Office Suspense Account. The statements indicate that NAB treated the each lease finance account as a form of borrowing. In my view, the NAB Office Suspense Account was simply a conduit through which money borrowed by LSE from NAB was paid to Capital Finance with the authority of and by arrangement between NAB and LSE. I am satisfied on the evidence that LSE authorised or directed NAB to make the challenged payments. Therefore, these payments must be treated as having been paid, not by NAB on its own account as purchaser, but under the authorisation of LSE." (Emphasis added.) 110 The allocation by Capital Finance of the NAB payments to the "Exposure" (as that term was defined in the Second Deed) was recorded in an internal memorandum dated 15 June 2001, some 10 days before LSE was placed into administration, which recorded that the "[i]nitial funding for the refinance was principally via cash advances to LSE by the NAB". Moreover, the informal proof of debt lodged by Capital Finance for "leasing finance" was only in the sum of $7,162,151.84. That proof of debt did not include any of the amounts listed in [106] and [107] above which Capital Finance applied in satisfaction of part of LSE's obligations under the Second Deed. 111 It was common ground that: (1) LSE was insolvent on the date of execution of the Second Deed (12 January 2001) and on the date of each payment; and (2) immediately prior to each NAB payment and the subsequent lease to LSE, the then existing liabilities of LSE to NAB secured by the charge already exceeded the realisable value of all assets owned by LSE at that date.

[19]

Decision of the trial Judge and issues on appeal 112 The trial judge was satisfied that each of the payments was voidable and that the respondents had made out a case for relief under s 588FF of the Corporations Act. In particular, his Honour was satisfied that: (1) the Second Deed created a debtor-creditor relationship between LSE and Capital Finance [39]; (2) for the purposes of s 9 of the Corporations Act, the Second Deed was a transaction or formed part of a transaction [23] - [38]; (3) for the purposes of s 588FA of the Corporations Act, the payments by NAB to Capital Finance were payments made by NAB under the authorisation of LSE and were therefore a payment by LSE [44]. Moreover, the payments were an unfair preference because they resulted in Capital Finance being less exposed to LSE in respect of its unsecured debts than other creditors who were required to prove in the winding up [40]-[43]; and (4) for the purposes of s 588FB of the Corporations Act, the payments were uncommercial transactions [50]. 113 His Honour was not satisfied that Capital Finance had discharged the statutory onus to establish the defence provided by s 588FG of the Corporations Act. His Honour was not persuaded that Capital Finance had no reasonable grounds to suspect that LSE was not insolvent at the time the payments were made [51]-[56]. There was no appeal in relation to this aspect of his Honour's reasons for decision. 114 On appeal, the Capital Companies contended that there was no debtor-creditor relationship between LSE and Capital Finance, the Second Deed did not constitute a 'transaction' for the purposes of s 9 of the Corporations Act and neither the Second Deed nor the payments made under it were an unfair preference under s 588FA of the Corporations Act or an uncommercial transaction under s 588FB of the Corporations Act. 115 The balance of these reasons for judgment is structured as follows: (1) identification of the transaction and whether it created a debtor-creditor relationship between LSE and Capital Finance; (2) consideration of whether the transaction was an uncommercial transaction under s 588FB of the Corporations Act; and (3) consideration of whether each of the payments the subject of the appeal was an unfair preference under s 588FA of the Corporations Act.

[20]

"Transaction" 116 Identification of the "transaction" is the first question. The term "transaction" is addressed in s 9 of the Corporations Act. In relation to a body corporate, it: "means a transaction to which the body is a party, for example (but without limitation): (a) a conveyance, transfer or other disposition by the body of property of the body; and (b) a charge created by the body on property of the body; and (c) a guarantee given by the body; and (d) a payment made by the body; and (e) an obligation incurred by the body; and (f) a release or waiver by the body; and (g) a loan to the body; and includes such a transaction that has been completed or given effect to, or that has terminated." 117 The language is broad. It is not a definition: Re Emanuel (No 14) Pty Ltd (in liq); Macks v Blacklaw & Shadforth Pty Ltd (1997) 24 ACSR 292 at 299. There are, however, two matters to be noted. First, the company must be a party to the transaction: see ss 9 and 588FA to 588FE of the Corporations Act and Re Emanuel (No 14) Pty Ltd at 293-294. Secondly, there are differences in the concept of a "transaction" between the unfair preference provision (s 588FA) and the uncommercial transaction provision (s 588FB). For the transaction to be uncommercial under s 588FB of the Corporations Act, the company is required to be a party but no other person is specified. Any other person can be a party. However, for the unfair preference provision to apply, both the company and the creditor must be a party to the transaction even if someone else is also a party: s 588FA(1)(a). A debtor-creditor relationship must exist. 118 In the present matter, the trial judge held that the transaction was a composite series of arrangements between LSE, NAB and Capital Finance involving 6 steps which he described (at [27] and [39]) in the following terms: · LSE entered into the Second Deed of 12 January 2001, creating a debtor creditor relationship between LSE and Capital Finance; · LSE approached NAB for the purpose of obtaining finance to pay out the Exposure of the Capital Companies as contemplated by the terms of the Second Deed; · LSE entered into leases with NAB relating to specific equipment pursuant to a Master Lease Agreement; · LSE procured NAB to forward payments to [Capital Corporate] in order to discharge the debt under the Second Deed; · LSE incurred liability to NAB under lease finance accounts which were opened and debited to effect the payments from NAB to [Capital Corporate] through the NAB Office Suspense Account; · Each payment was initiated by LSE to satisfy the obligations imposed on and bestowed by LSE to Capital Finance under the Second Deed in order to reduce the "exposure" as referred to in Clause 4 of that Deed. That is, the 'transaction' identified by the trial judge was constituted by the agreement between LSE and the Capital Companies recorded in the Second Deed, the steps taken by LSE with the concurrence of the Capital Companies to procure funds (through the lease finance arrangements with NAB) to satisfy the obligations LSE had undertaken to the Capital Companies, and the application by the Capital Companies of those funds in satisfaction of LSE's obligations under the Second Deed. 119 On appeal, the Capital Companies sought to characterise the relevant transaction as simply the payment by NAB to Capital Finance to pay out the equipment leases to which LSE was not a party. The payments were, according to the Capital Companies, part of the purchase price and were made by NAB on its own account as purchaser of the leased equipment from Capital Finance. That characterisation is correct so far as it goes. However, the question is whether those payments were also the payment of a debt by LSE to Capital Finance. 120 As the trial judge said (at [25] and [26]), the term "transaction" is a word of wide connotation. It may include a series of events in a course of dealings initiated by a debtor intended to extinguish a debt: Kalls Enterprises Pty Ltd (in liq) v Baloglow (2007) 63 ACSR 557 at [103] and [211]; Australian Kitchen Industries Pty Ltd v Albarran (2004) 51 ACSR 604 at [24] and [30] and Re Emanuel (No 14) at 299-300. The events can occur at different times and in different forms: Mann v Sangria Pty Ltd (2001) 38 ACSR 307 at [31] and [41]. The categories are not closed. It is not confined to transactions that are lawful or enforceable. The complexity of modern business relations necessarily requires the court to look objectively at the totality of the relationship between the parties in identifying and characterising the "transaction" for the purposes of the relevant provisions of Part 5.7B of the Corporations Act: Mulherin v Bank of Western Australia Ltd; McCann v Bank of Western Australia Ltd [2006] QCA 175 at [126]; VR Dye & Co v Peninsula Hotels Pty Ltd (in liq) [1999] 3 VR 201 at [39] and Airservices Australia v Ferrier (1996) 185 CLR 483 at 502. 121 I reject the narrow characterisation of the arrangements contended for by the Capital Companies. It is true that the payments were payments of purchase money by NAB to Capital Finance for the equipment identified in the "Payout Quote/Tax Invoice". However, that description focussed attention on only one aspect of the transaction (the sale and purchase) and ignored the express terms of the Second Deed, LSE's refinancing with NAB and the allocation of the NAB payments by Capital Finance in reduction of the "Exposure" under the Second Deed. 122 The Second Deed, in its terms, imposed an obligation on LSE to make certain payments to Capital Finance on specific dates: see [102] and [103] above. It specified a liquidated sum in money as presently due and owing on a particular date - by LSE to the Capital Companies. "Creditor" is not defined in the Corporations Act. Its meaning is flexible and varies according to its context: see, by way of example, Environmental & Earth Sciences Pty Ltd v Vouris (2006) 152 FCR 510 at [40]-[41] and Dimos v Willetts (2000) 2 VR 170 at [106]-[108]. In the present context, it can be taken to include persons who had existing rights in relation to monetary claims against LSE and who would be entitled to prove in a winding up of LSE under s 553 of the Corporations Act. The relevant date for ascertaining which persons or entities were creditors who might prove in the winding up was the date the administration commenced: Re Crawford House Press Pty Ltd (1995) 17 ACSR 295 at 298 and Environmental & Earth Sciences at [41]. 123 When each of the payments fell due under the Second Deed, LSE was indebted to Capital Finance for the amount then due. After each of the dates specified in the Second Deed, Capital Finance could have sued LSE to seek to recover any amount that remained unpaid and, further, could have proved as a creditor under the Second Deed in the winding up of LSE for the amount of the unpaid debt. 124 As the trial judge said (at [37]), "[h]aving regard to the clear language of the Second Deed, I am satisfied that the arrangements in place for payment of the obligations under that Deed resulted in LSE approaching the NAB in January-February 2001 to obtain funds necessary for it to meet the obligations of LSE as specified under the Deed." That characterisation of the events by the trial judge should be accepted. And it follows from this identification of the connection between the obtaining of funds and the undertaking of obligations under Second Deed that no error is shown in the trial judge identifying all of the 6 steps previously described as constituting a "transaction". The question which then arises is what, under Part 5.7B of Corporations Act, are the consequences of identifying such a transaction? 125 As explained earlier (at [117]), it is necessary to consider the uncommercial transaction provision (s 588FB) separately from the unfair preference provision (s 588FA). I will deal with each in turn.

[21]

Uncommercial transactions 126 For a transaction to be voidable on account of being uncommercial: (1) it must be entered into, or an act must be done giving effect to it, during the relation back period: s 588FE(3)(b). In the present case, ss 588FE(2)(b)(ii) and 588FE(4) were not relevant; (2) at the time of the transaction or when something was done to give effect to it, LSE must have been insolvent (s 588FC(a)); and (3) it may be expected that a reasonable person in LSE's circumstances would not have entered into the transaction taking into account the benefits for LSE, the detriment to LSE, the respective benefits to other parties to the transaction and any other relevant matters: s 588FB(1). 127 The Second Deed (to which LSE was a party) was entered into, and each of the payments the subject of appeal was made, during the relation back period. Further, it was common ground that at the time of each of those events, LSE was insolvent. 128 Two important steps in the "transaction" earlier described; the making of the Second Deed and using the payments made by NAB to Capital Finance as payments made under or in discharge of the obligations under that Deed, satisfied the first and second requirements for an uncommercial transaction. The focus is therefore on the third requirement - whether it may be expected that a reasonable person in LSE's circumstances would not have entered into the transaction taking into account the benefits for LSE, the detriment to LSE, the respective benefits to other parties to the transaction and any other relevant matters. 129 In seeking to address the third of the requirements, the principles to be applied may be summarised as follows: (1) as the express words of s 588FB make clear, it is an objective standard to determine if a transaction is uncommercial: see also Lewis (as liquidator of Doran Constructions Pty Ltd (in liq) v Doran (2005) 54 ACSR 410 at [156] and Tosich Construction Pty Ltd (in liq) v Tosich (1997) 78 FCR 363 at 366-367; (2) four criteria are to be considered - the benefits enjoyed by the company (s 588FB(1)(a)), the detriment to the company (s 588FB(1)(b)), the respective benefits others received (s 588FB(1)(c)) and any other relevant matters (s 588FB(1)(d)); (3) the objective criteria are not considered in some vacuum but by reference to "the company's circumstances" which must include the state of knowledge of those who were the directing mind of the company, such as its controlling director or directors: Tosich Construction at 367; and (4) for a transaction to be "uncommercial" it must result in "the recipient receiving a gift or obtaining a bargain of such magnitude that it [cannot] be explained by normal commercial practice" or where "the consideration … lacks a 'commercial quality'": see Peter Pan Management Pty Ltd v Capital Finance Corp (Aust) Pty Ltd (2001) 19 ACLC 1,392 at [43]; Lewis v Cook (2000) 18 ACLC 490 at [45]-[46] and Demondrille Nominees Pty Ltd v Shirlaw (1997) 25 ACSR 535 at 548 and the Explanatory Memorandum, Corporate Law Reform Bill 1992 at [1044]. 130 Applying those principles to the facts in the present appeal, LSE's undertaking of the obligations it did under the Second Deed was uncommercial. Prior to its execution, the liability of LSE to the Capital Companies was contained in the First and Second P&A Agreements. Under those agreements, LSE's liability was limited to two matters: collecting the rents from the customers on behalf of the respective Capital Companies and remitting those rents to them (see [95] above and cll 3.3-3.4 of the First P&A Agreement) and except in the case of insolvency of any lessee, indemnifying the relevant Capital Company against "any loss, cost or expense incurred by [Capital] directly as a result of the failure by any lessee to pay any moneys owing on the due date for payment": see [95] above and cll 6.2 and 6.6 of the First P&A Agreement. The obligation of LSE to indemnify the Capital Companies only arose on default of payment by any lessee of an amount then owing and was limited in amount to "any loss, cost or expense incurred by [Capital] directly ...". Moreover, LSE retained the right to recover the payment from the lessee which, by hypothesis, was a solvent party. 131 Upon execution of the Second Deed, those obligations under the First and Second P&A Agreements were said to continue. As recorded in [102] above, the Second Deed contained the acknowledgement by LSE and Mr Scott that LSE was bound and continued to be bound by the First and Second P&A Agreements and that, under those agreements, one of the Capital Companies was the legal and beneficial owner of all the equipment leased under those agreements: cl 2.1 of the Second Deed. However, the Second Deed also changed significantly the nature and extent of the relationship between LSE and Capital Finance. The Second Deed constituted the agreement by LSE that it would make payments to Capital Finance totalling at least $10 million as follows: (1) $3,000,000 on or before 11 February 2001; (2) $3,000,000 on or before 11 March 2001; (3) $4,000,000 on or before 11 April 2001; (4) the balance of the Exposure on or before 11 May 2001. 132 But for cl 4.1 of the Second Deed, LSE was not liable to make such payments to Capital Finance. Moreover, the term "Exposure" was defined to mean "the aggregate at any given time of the Payouts under all the Leasing Agreements plus all amounts otherwise owed by LSE or Scott to [the Capital Companies] pursuant to this deed or any other agreement or deed between the parties (including any amount owing in respect of legal costs)". In other words, the "Exposure" not only included the whole of the amounts necessary at any given time to pay out the leasing agreements, it included all other amounts owed by LSE and Mr Scott to the Capital Companies pursuant to any other agreement or deed including legal costs. Those liabilities were not specified or explained in the Second Deed. The detriment to LSE was, on any view, significant. 133 What did LSE get in return for undertaking that obligation? What were the respective benefits others received and what were the other relevant matters, if any, by reference to "the company's circumstances"?: ss 588FB(1)(a), (c) and (d). 134 There was no benefit to LSE or any other matter sufficient to suggest that LSE undertaking the obligations it did under the Second Deed was commercial. Only one benefit was suggested by the Capital Companies: that LSE was entitled to retain for itself any rental payments by the end users whereas it previously had to account to the Capital Companies for these amounts. That so called "benefit" was to receive instalments of rent over the balance of each lease period. That "benefit" was worth far less than LSE's obligation imposed by the Second Deed to pay Capital Finance (in effect) the whole of the amounts that lessees would ultimately pay over the life of the leases but do so in four instalments over four months. That "benefit" did not justify or explain the liability that was imposed on LSE by cl 4.1 of the Second Deed. 135 Moreover, consideration of the benefits obtained by persons and entities other than LSE from execution of the Second Deed supports the view that the Deed was an uncommercial transaction. At the time that LSE executed the Second Deed, LSE and Mr Scott were subject to preservation of asset orders obtained by Leasetec in December 2000 and the Capital Companies were aware that LSE had purported to sell to Leasetec photocopy equipment that was in fact owned by the Capital Companies and was the subject of the First and Second P&A Agreements. The benefits to those parties from execution of the Second Deed were significant. For example, Capital Finance secured receipt of the payments the subject of the appeal in circumstances where it was otherwise not only not entitled to receive them but had little or no expectation that it would receive them under the P&A Agreements, especially given the conduct of LSE. That was not the only benefit. In addition, the Second Deed constituted the agreement of LSE to be liable for any debt Mr Scott owed to both Capital Companies. What that liability comprised was never explained. In relation to Mr Scott, the benefits to him from execution of the Second Deed by LSE were best summarised by the trial judge (at [33] and [34]) in the following terms: "However, the evidence indicates that in the period leading up to execution of the Second Deed there were strong indications of mismanagement on the part of Mr Scott in relation to "duplicated" transactions and "non-existent" equipment. As early as 19 December 2000, Mr Vendrell [of Capital Finance] refers in an email to Ms Foreman [also of Capital Finance] that Mr Scott was "in the poo." It became apparent at approximately this time that Mr Scott had been involved in the double-financing of $3.8 million of LSE contracts. In a Memorandum of 21 December 2001 addressed to Mr Bernie Campbell [the Business Finance Director of Capital Finance], Mr Vendrell refers to actions that will be taken "in the event of LSE insolvency." In another Memorandum from Mr Vendrell dated 12 January 2001, there is reference to a proposed plan put forward by Mr Scott on 9 January 2001 seeking to hold back an investigation by Ferrier's Investigating Accountants so that he could do some necessary deals to ensure that himself and LSE would be immune from criminal prosecution. This Memo also notes that at meeting of 11 January 2001, a final deal was brokered where a verbal undertaking was given by Capital Finance and Leasetec that they would not pursue prosecution of LSE or Mr Scott if the arrangements relating to the payouts were adhered to. They did not agree, however, to grant LSE and Mr Scott immunity from prosecution. In addition, there is a reference in a Leasetec File Note dated 10 January 2001 that Mr Campbell had discussions with Mr Scott during which Mr Campbell mentioned that the research of Capital Finance indicated that LSE had possibly engaged in more double-financed deals. It is noted that Mr Campbell used the words "embezzled" and "fraud" in these discussions and Mr Scott had not disagreed. In my view, Mr Scott's fear and the threat of prosecution provides an explanation for why Mr Scott committed LSE to the payment obligations under the Second Deed of 12 January 2001. …" 136 The Second Deed was itself an uncommercial transaction. But so too was the series of steps identified by the trial judge as the "transaction". That series of steps was critically interconnected. And the series of steps itself was uncommercial because the Second Deed was uncommercial. The consequence is that the "transaction" identified by the trial judge should have been declared voidable and orders made under s 588FF in respect of the payments made to Capital Finance, which it applied, in reduction of LSE's liability under the Second Deed. 137 In deciding whether making those orders leads to any result properly described as "anomalous" or "odd", it is necessary to recall that: (1) LSE undertook liabilities under the Second Deed which it previously did not have; (2) LSE got no countervailing benefit for doing that; (3) Capital applied monies it received in reduction of the LSE's liability identified in (1); and (4) in LSE's liquidation, it is unsurprising that the ultimate financial consequence of these events is adverse to Capital. 138 Subject to the issue raised in the cross appeal, that is sufficient to dispose of the appeal.

[22]

UNFAIR PREFERENCES 139 Given the view I have formed that there was an uncommercial transaction, it is unnecessary to resolve whether the "transaction" was also properly characterised as an unfair preference within the meaning of s 588FA of the Corporations Act. I do not consider, however, there was an unfair preference. 140 As noted earlier, two elements must exist before a transaction constitutes an unfair preference. First, LSE and the Capital Companies must be parties to the transaction (even if someone else is also a party): s 588FA(1)(a). That element was satisfied. The Second Deed and each of the payments made under it was a transaction and it created the necessary debtor-creditor relationship in the manner described above ([122]). 141 The second element is that the transaction had to result in the Capital Companies receiving from LSE in respect of an unsecured debt that LSE owed to the Capital Companies, more than the Capital Companies would receive from LSE in respect of the debt if the Second Deed were set aside and the Capital Companies were to prove for the debt in the winding up of LSE: s 588FB(1)(b). This element was not satisfied. 142 The position of the Capital Companies as creditor of LSE was not preferred. By the transaction earlier identified and held to be uncommercial (see [118] above), Capital Finance obtained an economic benefit not offset by equivalent obligations. It was the disparity between what LSE received and what it gave under the Second Deed that made the transaction uncommercial. The fact that the Capital Companies were a party to that uncommercial transaction does not mean that they received any preference, priority or advantage in respect of a debt which LSE owed to the Capital Companies prior to their entry into the transaction. As set out in para [130] above, prior to the execution of the Second Deed, the liability of LSE to the Capital Companies was limited. Whether, prior to the execution of the Second Deed, LSE was in fact indebted to the Capital Companies and if so, the size and nature of any debt owed by LSE to the Capital Companies was not established. There was no preference given to the Capital Companies in respect of the debt or debts owed by LSE recorded in the Second Deed (see [121] above). The "transaction" was not an unfair preference.

[23]

Cross appeal 143 The issue on cross appeal was the date from which interest was to be calculated on amounts recovered by the liquidator. The trial judge ordered Capital Finance to repay the amounts it received in discharge of LSE's obligations under the Second Deed with interest from the date on which the demand was made for the return of those monies. The liquidator cross appealed submitting that, pursuant to s 588FF(1)(c) of the Corporations Act, Capital Finance should have been ordered to repay the amounts it received in discharge of LSE's obligations under the Second Deed with interest from the date of receipt of each payment or from the date on which the liquidator was appointed. I would dismiss the cross appeal. 144 The issue about the date from which interest is to be calculated on amounts recovered by a liquidator was considered by the Full Court of the Federal Court in Ferrier and Knight (as liquidators of Compass Airlines Pty Ltd) v Civil Aviation Authority (1994) 55 FCR 28 at 91 - 93 (per Beaumont, Gummow and Lindgren JJ). In that case, the Full Court considered a preference claim under the previous legislation (s 565 of the Corporations Law) and included an order for interest, under s 51A of the Federal Court of Australia Act 1976 (Cth), from the date of demand by the liquidator. 145 In the present appeal, the liquidator submitted that the decision in Ferrier and the decision of the Queensland Court of Appeal which followed it, Sheldrake v Paltoglou [2006] QCA 400, should be put to one side in the context of an uncommercial transaction under s 588FB of the Act. That submission should be rejected. 146 Contrary to the liquidator's submissions, the decision in Ferrier is not plainly wrong. Consistent with the remarks of the High Court in Australian Securities Commission v Marlborough Gold Mines Ltd (1993) 177 CLR 485 at 492 (see also Transurban City Link Ltd v Allan (1999) 95 FCR 553 at 560-561 (per Black CJ, Hill, Sundberg, Marshall and Kenny JJ) and the authorities referred to therein) this court should not be quick in declining to follow that decision, especially since the decision has been subsequently followed by the New South Wales Court of Appeal in Star v O'Brien (1996) 40 NSWLR 695, by the Queensland Court of Appeal in Sheldrake (which concerned an uncommercial transaction under s 588FB of the Act) and by other courts in other jurisdictions: see for example, Pegulan Floor Coverings Pty Ltd v Carter (1997) 15 ACLC 1,293 at 1,302. 147 In substance, the liquidator contended that because s 588FF(1)(c) of the Corporations Act permits a court to make an order for repayment of an amount that "fairly represents some or all of the benefits that the person has received because of the transaction", then it was appropriate for there to be an order for interest from the date of payment, being a date prior to the appointment of the liquidator or the date of the appointment of the liquidator. 148 That contention ignores the fact that at the time of the transaction or payment there was nothing inherently wrong with it. Adopting what Cole JA said in Star at 705 in relation to preference payments under s 451 of the Companies Act 1981 (Cth), the Second Deed when executed was not made under mistake, nor was it then illegal. Each payment made under the Second Deed was payment of a debt due and it was effective and capable of discharging the debt at that time. Until the transaction was rendered void by the Corporations Act, which date cannot pre-date the appointment of the liquidator, the Second Deed remained valid and thereafter was void only against the liquidator: s 588FF(1). The language of s 588FF(1)(c) does not alter that conclusion. The benefits the Capital Companies obtained from the transaction were the payments Capital Finance received, being amounts which that company was ordered to repay to LSE, and the other benefits earlier described (see [137] above). Further, to order interest from the date of payment would be contrary to the object of interest which is to compensate a plaintiff for having been kept out of money due to it. At the time the payment was made, the money was not due to the liquidator or, for that matter, to LSE: Star at 706 (per Cole JA) and 707 (per Beazley JA) citing Haines v Bendall (1991) 172 CLR 60 at 66-67 and 69. The money only became due much later upon the court upholding the election by the liquidator to seek to challenge the transaction. 149 The liquidator's alternative submission, that there should be an order for interest from the date of appointment of the liquidator, was also considered and rejected by both the Full Court of the Federal Court in Ferrier (at 91-93) and by the New South Wales Court of Appeal in Star at 706 (per Cole JA) and 707 (per Beazley JA). Those decisions are not plainly wrong. 150 In the ordinary course, interest is and should only be allowed from the date of demand. That proposition is self evident. As noted by both the Full Federal Court and the New South Wales Court of Appeal in the context of a preference, until a demand is made, it cannot be said that the payments made were a preference or, in the present case, the transaction was uncommercial. As Cole JA said in Star (at 706): "[t]o select as the date of commencement for the payment of interest the date of appointment of the liquidator presumes that demand for recovery will successfully be made." No presumption can be or should be made that there will be a demand and that the demand will be successful. 151 If, in any case, the facts suggested that the conduct of the parties was exceptional in the manner described by the Full Court in Ferrier (at 93) (for example there were attempts by one or more of the parties the subject of the uncommercial transaction to conceal the true nature of the transaction that delayed the liquidator making the demand) then it would be open to the Court to consider departing from the usual rule: see Ferrier (at 93). In the present appeal, it was not submitted that there was any particular fact or matter which justified such a departure. 152 Finally, in support of his contention that he was entitled to interest from the date the cause of action accrued (the appointment of the liquidator), the liquidator referred to the decision in Alati v Kruger (1955) 94 CLR 216. That decision may be put to one side. It concerned an action to rescind a contract for misrepresentation for fraud where interest was awarded from the date the cause of action accrued, namely the date of payment. 153 The trial judge was correct to order Capital Finance to repay the amounts received in discharge of LSE's obligations under the Second Deed with interest from the date on which the demand was made for the return of those monies. The cross appeal should be dismissed.

[24]

CONCLUSION 154 The declarations and orders made by the trial judge were granted by reference only to the payments identified in the pleadings and declared those payments unfair preferences within s 588FA, uncommercial transactions within s 588FB and voidable transactions under s 588FE of the Corporations Act. As is implicit in the form and declaration made in relation to s 588FB, the Court's power, so far as relevant, is first to declare a "transaction" uncommercial and voidable (s 588FE(3)) and then to make orders under s 588FF(1)(a) directing a person to pay the company an amount equal to some or all of the money that the company has paid under the transaction. Here the relevant transaction was that identified earlier in these reasons (see [118]). The amounts of money in issue are the sums applied by Capital Finance in satisfaction of LSE's obligations under the Second Deed. 155 I would therefore allow the appeal to the extent necessary to reframe the declaratory orders made by the trial judge. For the reasons given earlier, I would make no declaration about unfair preferences. I would set aside orders [1], [2] and [3] of the orders of the trial judge made on 31 January 2007 and in their place declare that the transaction constituted by the agreements between Capital Finance Australia Pty Limited ("Capital Finance") and Capital Corporate Finance Limited (together "the Capital Companies"), Lloyd Scott Enterprises Pty Limited ("LSE") and Lloyd John Scott recorded in the Deed dated 12 January 2001 ("the Second Deed"), the steps taken by LSE with the concurrence of the Capital Companies to procure funds through lease finance with National Australia Bank Limited to satisfy the obligations LSE had undertaken to the Capital Companies under the Second Deed and the application by Capital Finance of those funds in satisfaction of part of LSE's obligations under the Second Deed was for the purposes of Pt 5.7B of the Corporations Act 2001 (Cth) an uncommercial transaction. 156 I would otherwise dismiss the appeal and order the appellants to pay the respondents' costs of the appeal. I would also dismiss the cross appeal and order the cross appellants to pay the cross respondents' costs on the cross appeal. I certify that the preceding seventy-one (71) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gordon.

Parties

Applicant/Plaintiff:

Capital Finance Australia Limited

Respondent/Defendant:

Tolcher

Legislation Cited (3)

Corporations Act 2001(Cth)ss 9, 553, 588FA, 588FB, 588FE, 588FF, 588FG, Pt

Federal Court of Australia Act 1976(Cth)s 51A

Companies Act 1981(Cth)

Cases Cited (13)

Capital Finance Australia Limited v Tolcher [2007] FCAFC 185 CORPORATIONS - winding up - attempt by liquidator and company in liquidation to recover payments under the "unfair preferences" and "uncommercial transactions" provisions of the Corporations Act 2001 (Cth) - finance companies had, acting as undisclosed principals through a corporate agent, leased out photocopying equipment to substantial hirers - discovery that agent guilty of duplicative leasing of some of the same equipment as agent for another finance company as undisclosed principal, and, in some instances of effecting leases of non-existent equipment - finance companies insisting that agent cause all of the Equipment Rental Agreements to be paid out - agent executed deed promising finance companies that it would pay them all out - agent arranges for bank to "refinance" - bank purchases particular equipment from the finance companies for prices equal to the payout figures on the Equipment Rental Agreements, then leases that equipment to the agent - the leases from the agent to the end hirers remain in place throughout and, so far as end hirers concerned, agent has been the owner of the equipment throughout because existence of the finance companies as undisclosed principals and of the bank as refinancier never disclosed to them - question whether the payout amounts paid by bank to finance companies recoverable by liquidator and company in liquidation as unfair preferences (s 588FA of Act) or under uncommercial transactions provision (s 588FB of Act) - meaning of "transaction" - transaction constituted by composite of circumstances. Held: (1) there was a composite of circumstances constituting a transaction of the agency company, and the primary judge's order that the finance companies should disgorge the amounts paid to them by the bank should stand; (2) the transactions were not unfair preferences because at the time when the transactions were entered into the finance companies were not creditors of the company.

Airservices Australia v Ferrier (1996) 185 CLR 483 cited Alati v Kruger (1955) 94 CLR 216 distinguished Australian Kitchen Industries Pty Ltd v Albarran (2004) 51 ACSR 604 cited Australian Securities Commission v Marlborough Gold Mines Ltd (1993) 177 CLR 485 cited Demondrille Nominees Pty Ltd v Shirlaw (1997) 25 ACSR 535 cited Dimos v Willetts (2000) 2 VR 170 referred to Environmental & Earth Sciences Pty Ltd v Vouris (2006) 152 FCR 510 referred to Ferrier and Knight (as liquidators of Compass Airlines Pty Ltd) v Civil Aviation Authority (1994) 55 FCR 28 applied Haines v Bendall (1991) 172 CLR 60 cited Kalls Enterprises Pty Ltd (in liq) v Baloglow (2007) 63 ACSR 557 discussed Lewis (as liquidator of Doran Constructions Pty Ltd (in liq) v Doran (2005) 54 ACSR 410 cited Lewis v Cook (2000) 18 ACLC 490 cited Mann v Sangria Pty Ltd (2001) 38 ACSR 307 cited Mulherin v Bank of Western Australia Ltd; McCann v Bank of Western Australia Ltd [2006] QCA 175 cited Pegulan Floor Coverings Pty Ltd v Carter (1997) 15 ACLC 1,293 cited Peter Pan Management Pty Ltd v Capital Finance Corp (Aust) Pty Ltd (2001) 19 ACLC 1,392 cited Re Crawford House Press Pty Ltd (1995) 17 ACSR 295 cited Re Emanuel (No 14) Pty Ltd (in liq); Macks v Blacklaw & Shadforth Pty Ltd (1997) 24 ACSR 292 cited Sheldrake v Paltoglou [2006] QCA 400referred to Star v O'Brien (1996) 40 NSWLR 695referred to Tosich Construction Pty Ltd (in liq) v Tosich (1997) 78 FCR 363 cited Transurban City Link Ltd v Allan (1999) 95 FCR 553 cited VR Dye & Co v Peninsula Hotels Pty Ltd (in liq) [1999] 3 VR 201 cited

[2006] QCA 400

(1996) 185 CLR 483

(1955) 94 CLR 216

(1993) 177 CLR 485

(2000) 2 VR 170

(2006) 152 FCR 510

(1994) 55 FCR 28

(1991) 172 CLR 60

(1996) 40 NSWLR 695

(1997) 78 FCR 363

(1999) 95 FCR 553