Commissioner of Taxation v Kassem and Secatore

AND: OZEM KASSEM AND BRUNO SECATORE (IN THEIR CAPACITIES AS LIQUIDATORS OF 081 741 531 PTY LTD (IN LIQUIDATION) ACN 081 741 531 (FORMERLY MORTLAKE HIRE PTY LIMITED)

081 741 531 PTY LIMITED (IN LIQUIDATION) ACN 081 741 531 (FORMERLY MORTLAKE HIRE PTY LIMITED)

JUDGES: JACOBSON, SIOPIS AND MURPHY JJ DATE: 31 AUGUST 2012 PLACE: SYDNEY

Introduction and Background 1 The Respondents are the Liquidators of a company formerly known as Mortlake Hire Pty Limited (Mortlake). They brought proceedings under Division 2 of Part 5.7B of the Corporations Act 2001 (Cth) (the Act) against the Commissioner of Taxation (the Commissioner) to recover as an "unfair preference" two payments totalling $70,000 made to the Commissioner to reduce Mortlake's indebtedness. 2 The Liquidators succeeded before the primary judge (Nicholas J) who ordered the Commissioner to repay the sum of $70,000 with interest. The Commissioner appeals against the primary judge's order made on 14 March 2012. The appeal raises a number of questions of construction of the definition of an unfair preference in s 588FA of the Act. 3 The payments were made within the relation back period referred to in s 588FE(2) but they were not made, in the physical sense, by Mortlake itself. Rather, as the primary judge found, the payments were made to the Commissioner by Mortlake using funds provided to it by a related company, Antqip Pty Limited (Antqip). 4 The circumstances in which the payments were made give rise to the first substantial issue in the appeal which is partly an issue of fact and partly of law. The factual issue arises from the Commissioner's contention that what took place was a substitution of one creditor, namely Antqip, for the existing creditor, namely the Commissioner. The issue of law is whether the circumstances gave rise to any unfairness. 5 The Commissioner relied on a line of authorities commencing with the decision of the Victorian Court of Appeal in VR Dye & Co v Peninsula Hotels Pty Ltd [1999] 3 VR 201 (Dye) for the proposition that unfairness is a necessary element of the definition of a preference and that the present facts demonstrate no unfair advantage, priority or preference over other creditors. 6 The second substantial issue arises from the purported exercise of power by the Commissioner to allocate the payments received from, or on behalf of, Mortlake to an account other than that to which the funds were initially credited. The payments were made by electronic funds transfer into an account comprising Mortlake's indebtedness for its primary tax debts to the Commissioner which stood at an amount in excess of $600,000. The primary tax debts seem to have consisted of group tax, goods and services tax and other related liabilities. 7 The payments of $70,000 reduced Mortlake's indebtedness on this account but, approximately four months after the payments were made, the Commissioner purported to exercise his power under s 8AAZD of the Taxation Administration Act 1953 (Cth) (the Administration Act) to allocate the payments to an account comprising Mortlake's indebtedness for the superannuation guarantee charge. The allocation was made shortly before the commencement of the winding up of Mortlake. 8 The Commissioner contends that the effect of this was to elevate the priority of the debt in the winding up of Mortlake in accordance with the provisions of s 556 of the Act so as to give it priority over other unsecured debts. The Commissioner contends that this had the consequence that, the payments could not constitute unfair preferences because, at the time when they were made, and at the time of the allocation to the superannuation guarantee charge account, there were no other outstanding debts with priority equal to or higher than that which applies to the superannuation guarantee charge under s 556(1)(e) of the Act.

The facts 9 The facts are largely uncontroversial. They are to be found, for the most part, in the findings made by the primary judge but we were taken to some items of evidence to which we will refer later. 10 Mortlake entered voluntary administration on 28 August 2007. The administrators were appointed liquidators on 19 September 2007 when the creditors resolved that Mortlake be wound up. 11 Prior to the administration, Mortlake was indebted to the Commissioner for primary tax debts, as defined in s 8AAZA of the Administration Act. Those debts consisted of amounts due for tax liabilities of the types described above. 12 The debts, and the balance outstanding from time to time, were recorded by the Commissioner in an integrated client account which bore the number 5408 174 1531 (the integrated client account). On 26 March 2007, immediately before the first of the payments in question in the present case, there was a debit balance in the integrated client account of $649,699.53. That is to say, Mortlake was then indebted to the Commissioner in that amount for primary tax debts consisting of income tax and GST. 13 Mortlake's integrated client account was a Running Balance Account (or RBA) which the Commissioner established under s 8AAZC of the Administration Act. That section authorises the Commissioner to establish one or more systems of account for a taxpayer's primary tax debts. In accordance with that power, the Commissioner also established a second RBA for Mortlake's liabilities for superannuation guarantee charges arising under the Superannuation Guarantee (Administration) Act 1992 (Cth). 14 The RBA established by the Commissioner for the superannuation guarantee charge was described in the Commissioner's submissions as the SGER Account. It was established some time before March 2007 and was apparently in deficit at all times relevant to the present case. Mortlake's indebtedness to the Commissioner under the SGER account was additional to its indebtedness of approximately $649,000 on the integrated client account. 15 On 26 March 2007, Mr Anthony Hugh Russell, the sole director and shareholder of Mortlake, and the sole director and shareholder of Antqip, made an electronic transfer of $40,000 out of Antqip's funds to the integrated client account established by the Commissioner for Mortlake. 16 The primary judge found that the payment to the Commissioner (as well as the other payment of $30,000 to which we will refer below) were loans made by Antqip to Mortlake. He said at [23]: Even though the funds were physically transferred to the Running Balance Account by Antqip, they were still funds advanced by Antqip to Mortlake that were paid to the Commissioner at Mortlake's direction. 17 The payment of $40,000 remitted by electronic funds transfer on 26 March 2007 was received by the Australian Taxation Office on the same day and recorded on the integrated client account the following day as a credit amount received which reduced the balance outstanding to $609,699.53. 18 The same sequence of events occurred on 13 April 2007 when a payment of $30,000 was received by the Commissioner. It was recorded on 16 April 2007 as a credit amount which reduced the outstanding debt to $579,699.53. 19 On 28 April 2007, the Commissioner raised a general interest charge, as he was entitled to do, on the outstanding debt due in respect of the integrated client account. The charge was calculated for the period 24 March 2007 to 27 July 2007. It therefore took into account and was calculated upon the reduced balance owing as a result of the payments of $70,000 made in March and April. 20 The question of whether there was an allocation of the $70,000 payments to the integrated client account in March and April 2007 is one that was debated between the parties in oral argument on the appeal. We will refer to it again later. It is sufficient to say, in dealing with the factual narrative, that the question of how the funds came to be remitted to the integrated client account in March and April 2007, rather than to the SGER account, is not entirely clear. We were taken to some evidence which was not discussed in the primary judgment and we will consider the effect of it when we address the allocation question. 21 The sum of $70,000 remained in the integrated client account, in the sense that it was recorded as a credit against the outstanding debit balance, until 1 August 2007. 22 On 1 August 2007 the Commissioner purported to allocate (or perhaps to reallocate) the two payments of $70,000 from the integrated client account to the SGER account in reduction of the superannuation guarantee charges owing by Mortlake to the Commissioner. The allocation had the effect of increasing the balance recorded in the integrated client account and reducing the balance owing for the superannuation guarantee charge recorded in the SGER account. 23 The event which brought about the step that took place on 1 August 2007 was recorded in a file note dated 31 July 2007 made by an employee of the Australian Taxation Office. The employee telephoned the Supreme Court of New South Wales to ascertain the hearing date for a winding up application filed by Allianz Australia Workers' Compensation (NSW) Limited (Allianz). The employee was told that the hearing date was set for 23 August 2007. She said that she therefore: "… completed the Legal Screen & referral to LSB to appear as a supporting creitor [sic]". 24 The winding up application brought by Allianz against Mortlake did not proceed on 23 August 2007, apparently because two days earlier, on 21 August 2007, Antqip, at the direction of Mortlake, paid the amount outstanding to Allianz. The liquidators were successful before the primary judge in recovering that payment as an unfair preference. Allianz has not appealed against that order.

The primary judge's reasons 25 The primary judge made a number of critical factual findings which had the effect that the questions of construction that he addressed fell within a very narrow compass. 26 First, as stated above, his Honour found at [23] that although the funds were physically transferred to the integrated client account by Antqip, they were funds that were lent by Antqip to Mortlake and paid to the Commissioner at Mortlake's direction. 27 His Honour reiterated that finding at [27] and [44]. He said at [44] that what happened in the present case was that Mortlake borrowed from one creditor, that is to say Antqip, to pay another creditor, namely the Commissioner. 28 Second, his Honour found that the moneys borrowed by Mortlake were applied by it in payment of a pre-existing debt. This finding is clearly expressed at [8] and [44] of the primary judgment. 29 Third, his Honour found that the relevant transaction for the purposes of s 588FA of the Act was a bipartite transaction between Mortlake and the Commissioner, not a tripartite transaction which included Antqip. This is clear from what his Honour said at [36]. 30 Fourth, the primary judge stated at [9] that on 1 August 2007 the Commissioner purported to "reallocate" the payments totalling $70,000 from the integrated client account to the SGER account. His Honour went on to say that the "reallocation" had the effect of increasing the amount outstanding in the integrated client account and reducing by a corresponding amount, the debt due in respect of the SGER account. 31 The use of the word "reallocate" suggests that his Honour was of the view that the funds were initially allocated to the integrated client account and subsequently reallocated to the SGER account. 32 Fifth, his Honour found at [45] that the evidence established that there is little prospect of the Commissioner receiving any dividend out of the winding up. 33 In light of the findings to which we have referred, his Honour approached the question of whether the transaction constituted an unfair preference as a relatively straightforward one. He said at [46] that once it was accepted that the Commissioner received $70,000 which he would not have received if he were to prove in the winding up of Mortlake, it must follow that the Commissioner received an unfair preference. 34 The primary judge rejected the Commissioner's submission that as a result of the allocation or reallocation to the SGER account, he would have been entitled to priority over unsecured creditors. 35 In coming to that view, his Honour applied the decision of the Victorian Court of Appeal in Walsh v Natra Pty Limited (2000) 1 VR 523. His Honour held at [41] that this case was authority for the proposition that the question of an unsecured creditor's likelihood of receiving a distribution in a winding up is to be determined in the context of the actual winding up rather than at the time of a hypothetical winding up occurring when the impugned transaction took place. 36 It followed, on that approach, that it was unnecessary for his Honour to consider whether the Commissioner was entitled to priority under s 556(1)(e) of the Act. This was because there was evidence to demonstrate that any funds realised by the Liquidators would be used to meet the costs and expenses of the winding up, those claims being entitled to priority over superannuation guarantee charge debts: see s 556(1)(db) of the Act. 37 That is to say, after payment of the Liquidators' costs and expenses, there will be no funds available to meet the claims of any other unsecured creditors.

The first issue - "substitution" and "unfairness" 38 Notwithstanding the factual finding made by the primary judge as to the nature of the relevant transaction, Mr Brabazon SC, who appeared for the Commissioner, submitted that Antqip was substituted for the Commissioner because it stepped into the Commissioner's shoes by paying Mortlake's debt. 39 We were not taken to any authority in support of the submission. In any event, it seems to us that we should reject it as contrary to the proper characterisation of the transaction in question. 40 It is clear, as the primary judge found, that the originating source of the payments to the Commissioner was, on each occasion, the bank account of Mortlake's related entity, Antqip. But, as the primary judge found, this was a clear example of a lender paying moneys advanced to a creditor of the borrower in accordance with the borrower's directions. 41 The position as between Mortlake and Antquip was no different from a drawing by Mortlake on an overdraft from its bank with a direction to the bank to pay the creditor directly. Such a payment constitutes a loan by the bank to its customer: see eg Andrews v ANZ Banking Group Ltd (2011) 86 ACSR 292 at [82] per Gordon J. 42 Moreover, even if it is not correct to describe the transaction between Mortlake and Antqip as a loan, what is important is the finding that the payment by Antqip to the Commissioner was a payment that was made by or on behalf of Mortlake. So much is plain from the evidence to which we were taken. 43 The transaction which s 588FA of the Act then looks at is the transaction between Mortlake and the Commissioner, that is to say, the payments totalling $70,000 made in March and April 2007. That was the approach taken by Gordon J in Burness v Supaproducts Pty Ltd (2009) 259 ALR 339 where payments were made to a creditor by a related company of the insolvent debtor. We see no reason why a different approach is required in the present case. 44 Once it is accepted that the relevant transaction is the payment made by Mortlake to the Commissioner, the transaction is one which falls squarely within the language of s 588FA(1). The transaction constituted an unfair preference because it fell within the conditions required by the prefatory wording that characterises a transaction "if and only if" the two specified conditions are satisfied. 45 Here, the conditions were satisfied. First, the company, namely Mortlake, and the creditor, that is to say the Commissioner, were parties to the transaction. Second, the transaction resulted in the Commissioner receiving from Mortlake more than the Commissioner would receive if the transaction were set aside and the Commissioner were to prove in the winding up. 46 The second of those two requirements is plainly satisfied because the Commissioner received full payment of the $70,000 owed to it whereas he will receive nothing from the winding up if the transaction is set aside. 47 Nevertheless, Mr Brabazon submitted that the payments do not fall within the definition of an unfair preference in s 588FA(1) because unfairness is a necessary element of the definition and, in his submission, there was nothing in the payments that satisfied this requirement. 48 It is true that the weight of judicial authority favours the view that the legislative definition in s 588FA is to be treated as purposive and that it is directed against unfair preferences. These propositions are supported by the observations of Ormiston JA in Dye at [33], [36] - [41]. That decision has been followed by a differently constituted Victorian Court of Appeal and by the Court of Appeal of New South Wales, as well as at first instance in this State: McKern v Minister Administrating the Mining Act 1978 (WA) (2010) 28 VR 1; Beveridge v Whitton [2001] NSWCA 6; Mann v Sangria Pty Ltd (2001) 38 ACSR 307. 49 In McKern at [24], Nettle JA said that not all of the reasoning in Dye is completely convincing. This is because, as his Honour went on to observe, it does not grapple with the apparently plain meaning of the section and the indications in the Harmer Report and the Explanatory Memorandum, that the new regime was intended to be comprehensive and avoid common law conceptions. Also, in Re Emanuel (No 14) Pty Ltd; Macks v Blacklaw & Shadforth Pty Ltd (1997) 147 ALR 281 at 283, a Full Court of the Federal Court drew attention to the need to take into account textual differences in the new regime that was introduced by s 588FA of the Act in 1992. 50 However, as has been emphasised by appellate courts in Victoria and New South Wales, the decision in Dye is, at least, not plainly wrong. Indeed, it has been said on several occasions that the reasoning is very persuasive. We ought therefore not to depart from it. But, Dye was concerned with a very different type of transaction from the present and in our view the observations made by Ormiston JA, considered in their full context, support the conclusion that this transaction amounts to an unfair preference under s 588FA(1). 51 Dye was concerned with a prepayment of money by a company on account of fees to be incurred by the performance of work by a firm of accountants. The detailed reasoning of Ormiston JA emphasises the need to look at the entire transaction under which the engagement was made and the need to look at the ultimate effect of the transaction: see Dye at [38] - [39]. 52 This approach was in accordance with well-established authorities that addressed the construction of the previous regime that applied s 122 of the Bankruptcy Act 1966 (Cth): see Airservices Australia v Ferrier (1996) 185 CLR 483 at 505 and 509. 53 Airservices was a running account case. It would now be governed by s 588FA(3) of the Act. The present case is not concerned with a running account because the payment did not form part of a unified course of payments in which the creditor provided goods or services to the debtor: see Airservices at 502; Rees v Bank of New South Wales (1964) 111 CLR 210 at 222. 54 But the observations made by the plurality in Airservices and the doctrine of ultimate effect, as applied by Ormiston JA to the present statutory regime, provide a short answer to Mr Brabazon's submissions. This is because in the present case there were only two transactions between the debtor and the creditor, each of which consisted of a payment which had the ultimate effect of extinguishing the indebtedness of Mortlake to its creditor. That is to say, each transaction had the effect of paying the Commissioner 100c in the dollar in respect of Mortlake's indebtedness of $70,000. 55 Consistently with the "broad policy", that was evident in the Bankruptcy Act, and the plain language of s 588FA(1) which replaces it, the payments constituted an unfair preference because the Commissioner received full payment of the debt whereas other creditors would receive nothing in the winding up. As Ormiston JA explained in Dye at [39], s 588FA was intended to strike down transactions that would dislocate the statutory order of priorities amongst creditors; see also Burns v Stapleton (1959) 102 CLR 97 at 104. That is what happened in the present case. 56 Moreover, as Ormiston JA said in Dye at [41], in each case the court must look at the transactions between parties in a way which accords with the commercial realities. The observations of the plurality in Airservices at 502 are to the same effect. It is necessary to look at the business purpose and context of the payment to determine whether it gives the creditor a preference over other creditors; it is the objective purpose, in a business sense, of the whole transaction that must be considered: Airservices at 502; Dye at [41]. 57 Here, the practical commercial reality in the sense explained above, was that during the relation back period, throughout which Mortlake is presumed to have been insolvent, it made payments totalling $70,000 to the Commissioner, the purpose and effect of which was to fully discharge its indebtedness for that amount. The effect of this was to prefer the Commissioner to other creditors. 58 Mr Brabazon sought to meet this conclusion by submitting that there was no unfairness because the payments did not result in a decrease in the net value of assets that are available to meet the demands of other creditors. Support for the proposition that, in order to constitute an unfair preference, there must be a diminution in the value of assets available to the general body of creditors is to be found in the reasons of the plurality in Airservices at 502. See also the remarks of Fox J in Re Discovery Books Pty Limited (1973) 20 FLR 470 at 475 to which their Honours referred. The relevant passage from Airservices was cited with approval in Dye at [37]. 59 Airservices and Discovery Books dealt with the former statutory regime. There is nothing in s 588FA(1) which expressly incorporates as a requirement for an unfair preference that the transaction must result in a diminution of the debtor's assets. Gordon J appears to have rejected a submission that there is such a requirement: Burness at [49]. 60 It is not necessary here to determine whether there must be a diminution in the value of the debtor's assets. The short answer is that there was a decrease in the value of Mortlake's net assets available to meet the demands of other creditors. 61 This is because the payments of $70,000 were made out of Mortlake's assets, thereby reducing the net value of its assets available to other creditors. 62 If unfairness is an element of the statutory definition in s 588FA(1), it is plain that, consistently with the authorities to which we have referred, the payments to the Commissioner gave him preference over other creditors because he obtained full payment of the debt whereas other unsecured creditors were left to prove in the winding up. Unsurprisingly, this result is in conformity with the definition in s 588FA(1) because both paragraphs (a) and (b) of that subsection are satisfied. 63 In summary, as we have already said, the position in the present case is no different from that which would apply if Mortlake were to have borrowed the funds on overdraft from its bank and paid the creditor with those funds. Where an insolvent company makes such a payment to fully discharge an existing creditor during the relation back period the creditor cannot be heard to argue that the payment was not an unfair preference.

The second issue - allocation 64 The Commissioner's allocation argument rests on a number of separate propositions or steps, each of which must be established in order for him to succeed on this issue. 65 The first is that at the time of the payments by Mortlake to the Commissioner on 26 March 2007 and 13 April 2007, Mortlake was indebted to the Commissioner on two separate accounts, the integrated client account and the SGER account, with the debt due under each of the integrated client account and under the SGER account exceeding the amounts of the impugned payments. These facts are not in dispute. 66 The second is that on the dates when the impugned payments were made, Mortlake had no other creditors with a claim ranking equally to or higher than the priority conferred on the Commissioner for the superannuation guarantee charge, represented by the SGER account, under s 556(1)(e) of the Act. 67 It is not in dispute that there were no other claims falling within, or ranking higher than the priority accorded to the SGER account at the dates of payment or at least that the Liquidators did not show that there were no such claims. However, Mr Golledge, who appeared for the Liquidators, submitted that this is irrelevant to the exercise required by s 588FA(1)(b) because that subsection requires the comparison to be made between the amount the creditor actually received and the amount it would receive in the actual winding up. 68 The third proposition relies upon the Commissioner's power to allocate the payments to the SGER account by virtue of the provisions of Div 2 of Part IIB of the Administration Act. Section 8AAZD confers power on the Commissioner to allocate a primary tax debt to an RBA, such as the SGER account, which had been established for that type of tax debt. In exercising the power of allocation, the Commissioner is not required to take account of any instructions from an entity, that is to say, in the present case, Mortlake: see s 8AAZLE of the Administration Act. 69 Mr Golledge makes a number of submissions in answer to the steps which underlie the Commissioner's third proposition. Most importantly, Mr Golledge submits that the payments made in March and April 2007 were allocated to the integrated client account. He submits that once the payments were allocated to that account, they constituted the relevant transaction for the purposes of ss 588FA(1)(a) and 588FA(1)(b). On this approach, the Commissioner's subsequent reallocation on 1 August 2008 is irrelevant to the question of whether the transactions fell within s 588FA. 70 It is implicit in Mr Golledge's submissions that on the proper construction of s 8AAZD of the Administration Act, the power of allocation does not extend to a power to reallocate to another RBA. Thus, on this approach, if the Commissioner allocated the payments to the integrated client account in March and April, he had no power to reallocate them to the SGER on 1 August 2007. 71 The primary judge made no express finding as to whether the payments made in March or April were allocated to the integrated account. As we said earlier, his description of the step taken by the Commissioner on 1 August 2007 as a "reallocation" suggests that he was of the view that the earlier payments were allocated to the pre-existing debt represented by the balance outstanding on the integrated client account. 72 Mr Golledge fairly conceded that he could not point to a particular administrative act on the part of the Commissioner to allocate the March and April payments to the integrated client account. However, he pointed to the crediting of the payments of $40,000 and $30,000 to the integrated client account as a function of the administrative system that the Commissioner had put in place. He also relied on the fact that interest was charged on the outstanding balance of the integrated client account, with the calculation being based upon the $70,000 reduction of the outstanding balance, as evidence of an allocation to the account. 73 Thus, the essential proposition for which Mr Golledge contended was that once the payments were allocated, they constituted the transaction for the purposes of s 588FA(1)(a). On that approach, no question of the priority of the superannuation guarantee charge debts arose because the transaction occurred before the Commissioner purported to allocate the payments to that debt. 74 Unless there is a contrary agreement between the parties, a creditor having a right to appropriate moneys paid to it will be taken to have made the appropriation in accordance with the rule in Devaynes v Noble; Baring v Bole; Clayton's Case (1816) 1 Mer 572; 35 ER 781; see Deeley v Lloyds Bank Ltd (1912) AC 756 at 770 - 771 citing Sherry's Case (1884) 25 Ch D 692 at 702. 75 Mr Golledge took us to some evidence of an agreement entered into between Mortlake and the Commissioner in May 2006 when Mortlake was in arrears under the integrated client account. The agreement provided for payments to be made by Mortlake by instalments to be remitted to the integrated client account. As part of the arrangement, the Commissioner provided the electronic funds transfer code for that account together with payment slips to permit the transfer to be made directly to the integrated client account. 76 However, Mortlake defaulted under the abovementioned arrangement and so the payments of $70,000 cannot be characterised as payments under the agreement made in May 2006. Moreover, in late 2006 there was a subsequent instalment arrangement between the Commissioner and Mortlake which contemplated payments by Mortlake into the integrated client account and the SGER account. 77 It follows in our view that the Liquidators obtain no assistance from the common law principles which govern the sequence of appropriations. This is because we cannot, on the evidence to which we were taken, determine whether there was an agreement between the parties to appropriate the $70,000 payments to the integrated client account. The rule in Clayton's Case would therefore apply and the payments are presumed to be appropriated to the debts in the order in which the debts were incurred. We were not taken to anything which would enable us to determine that sequence. 78 Nevertheless, it seems to us that there is considerable force in the submission made by Mr Golledge that the ATO Tax Agent Portal, which records the payments and interest charge described in [17] - [19] above, gives rise to a strong inference that the payments were allocated to the integrated client account in March and April 2007. This inference is reinforced by the fact that the payments remained credited to that account, in full satisfaction of the pre-existing debt of $70,000 until the reversal on 1 August 2007. 79 Accordingly, it seems to us that the better view is that the transactions which fall to be considered under s 588FA(1) are the two payments totalling $70,000 made in March and April 2007. For reasons set out above, those payments were transactions each of which constituted an unfair preference under that subsection. 80 But even if we are wrong in reaching that conclusion, the allocation or reallocation on 1 August 2007 does not bring about a different result. This is because the short answer to the Commissioner's contention is that s 588FA(1)(b) does not require consideration of a hypothetical winding up at the date of the impugned payment. It requires a comparison between the amount the creditor actually received and what it would receive in the actual winding up: see Walsh at [31]. 81 In Walsh at [34], Phillips JA explained why the notion of a hypothetical winding up at the time of the impugned transaction is not applicable to the statutory regime contained in Part 5.7B of the Act. It was applicable to the former statutory regime because under s 122 of the Bankruptcy Act, and its predecessor in s 95 of the Bankruptcy Act 1924 (Cth), the question to be determined was whether the transaction had the effect of giving the creditor a preference, priority or advantage over other creditors. 82 By contrast, the comparison required by s 588FA(1)(b) of the Act is between the amount the creditor receives under the impugned payment and the probable return to the creditor if the transaction were set aside and the creditor were to prove for the debt in "a winding up": see Walsh at [31]. 83 It is true that the subsection speaks of "a winding up" rather than "the winding up" but as Phillips JA said in Walsh at [31], the best evidence of what a creditor would receive is what unsecured creditors would receive (or are likely to receive) in the actual winding up. 84 Here, it is common ground that the unsecured creditors would receive nothing, although the Liquidators will receive some or all of their costs and expenses by virtue of the priority accorded to them under s 556(1)(db) of the Act. 85 It is no answer to this to contend, as was submitted by the Commissioner, that the Liquidators are not creditors, and that Mortlake was not in insolvent administration at the time of the impugned payments. 86 A similar submission was put to Doyle CJ in Pegulan Floor Coverings Pty Ltd v Carter (1997) 24 ACSR 651. His Honour rejected the submission at 658-659. The effect of what his Honour said was that the underlying purpose of the statutory regime for the avoidance of unfair preferences takes into account the need for the affairs of an insolvent company to be properly investigated and administered. Thus, unsecured creditors (including those who received an unfair preference in the relation back period) should bear the costs and expenses of the liquidation before payment to them of any dividend payable in the winding up. 87 It follows that even if the position in the insolvency of a company is that all funds recovered by the liquidators will be absorbed in meeting their costs and other expenses of the liquidation, those costs and expenses will be met, leaving nothing for the unsecured creditors: see Pegulan at 658-659. 88 This result follows regardless of whether the payments of $70,000 were allocated in March and April 2007 or in accordance with the powers of the Commissioner to allocate or reallocate the payments on 1 August 2007. It is therefore unnecessary to determine whether the Commissioner's power of allocation was spent, upon the assumption that the funds were allocated when they were originally paid. 89 We should add that if the payments were allocated to the integrated client account in March and April, the question of whether the Commissioner had power to reallocate them and the exercise of that power are not relevant to the question of whether the payments constituted an unfair preference. This is because the payments in March and April and their immediate allocation to the integrated client account constituted the "transaction" for the purposes of s 588FA(1). 90 In any event, there is a further answer to the Commissioner's claim to be able to rely on the allocation which took place on 1 August 2007. The circumstances in which the purported allocation took place are set out at [23] above. It is plain that Commissioner took that step with a view to obtaining a priority over other unsecured creditors in the event that Allianz obtained a winding up order when the matter was due to come before the Supreme Court on 23 August 2007. 91 It is a fundamental principle of the law of unfair preferences that the present statutory regime, and its predecessors, are (and were) intended to render void any transaction which, if allowed to stand, would dislocate the statutory order of priorities amongst creditors: see Dye at [39]; Burns v Stapleton at 104. Yet that is precisely what the Commissioner intended to achieve by the step which he took on 1 August 2007. We do not consider this consequence can be overcome by pointing to the fact that Allianz's winding up petition did not proceed and that the present winding up is one that is different from the winding up which was in contemplation on 1 August 2007.

Conclusion and Orders 92 The appeal must be dismissed with costs. I certify that the preceding ninety-two (92) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Jacobson, Siopis and Murphy.