Cussen & Ors v Sultan & Ors

LEGISLATION CITED : Acts Interpretation Act 1901 (Cth) Corporations Act 2001 (Cth)

Ali v Nationwide News [2008] NSWCA 183 Cashflow Finance v Westpac Banking Corporation [1999] NSWSC 671 Capital Finance Australia Ltd v Tolcher [2007] FCAFC 185; (2007) 165 FCR 83 Cussen as liquidator of Akai Pty Ltd (in liq) v Commissioner of Taxation [2004] NSWCA 383; (2004) 51 ACSR 530 D'Aloia v FCT (2004) 203 ALR 609 Downey v Aira Pty Ltd (1996) 14 ACLC 1068 Mann v Sangria Pty Ltd [2001] NSWSC 172; (2001) 38 ACSR 307 McDonald v Hanselmann (1998) 28 ACSR 49 Olifent v Australian Wine Industries Pty Ltd (1996) 130 FLR 195 Pegulan Floor Coverings Pty Ltd v Carter (1997) 24 ACSR 651 CASES CITED : Queensland Bacon Pty Ltd v Rees [1966] HCA 21; (1966) 115 CLR 266 Re Emanuel; Macks v Blacklaw & Shadforth Pty Ltd (1997) 147 ALR 281 Rothmans Exports Pty Ltd v Mistmorn Pty Ltd (in liq) (1994) 125 ALR 442 Sands & McDougall (Wholesale) Pty Ltd (in liq) v Commissioner of Taxation (1996) 22 ACSR 383 Sutherland v Eurolinx Pty Ltd [2001] NSWSC 230; (2001) 37 ACSR 477 Sheahan Pty Ltd v Murdock & Gediz Pty Ltd [2008] SADC 5 Smith v DCT (1997) 23 ACSR 611 Spedley Securities Ltd (in liq) v Western United Ltd (in liq) (1992) 27 NSWLR 111 Tosich Construction Pty Ltd (in liq) v Tosich (1997) 23 ACSR 466 VR Dye & Co v Peninsula Hotels Pty Ltd (in liq) [1999] VSCA 60; [1999] 3 VR 201 Welcome Homes Real Estate Pty Ltd v Ziade Investments Pty Ltd [2007] NSWCA 167

Neil Cussen - first plaintiff Paul Weston - second plaintiff Karl Suleman Enterprizes Pty Ltd (in liquidation) - third plaintiff Sam Sultan - first defendant John Sultan - second defendant Eddie Sultan - third defendant Robert Sultan - fourth defendant George Sultan - fifth defendant Peter Sultan - sixth defendant PARTIES : Elaine Sultan - seventh defendant Maureen Ashworth - eighth defendant Deborah Salafia - ninth defendant Linda Ashworth - tenth defendant David Ashworth - eleventh defendant Stephen Salafia - twelfth defendant Donna Sultan - thirteenth defendant Wendy Billington - fourteenth defendant Cedar House Alpaca Stud Pty Ltd - fifteenth defendant Sultan Group Pty Ltd - sixteenth defendant

M Speakman SC/S Duggan - plaintiffs COUNSEL : J T Johnson - first-ninth defendants, eleventh-sixteenth defendants No appearance - tenth defendant

Piper Alderman Solicitors - plaintiffs SOLICITORS : Proctor Phair Lawyers - first-ninth defendants, eleventh-sixteenth defendants No appearance - tenth defendant

Par no. Introduction 1-16 The legislation 17-41

1. The contract of 15 February 2000 with Karl Suleman 42-100
2. The contract of 13 March 2000 with Yasmin Trolley Services Pty Ltd 101-110
3. The contract of 24 March 2000 with KSE 111-122
4. The contract of 1 January 2001 with KSE 123-135
5. The contract of 18 June 2001 with KSE 136-150
6. The contract of 20 March 2000 with KSE 151-200
7. Miscellaneous claims (A) 5 March 2001: payments to Sam and Elaine of $80,000 201-208 (B) 14 August 2001: payment to John of $22,000 209-215 (C) 6 November 2001: payments to Robert of $43,200 216-226 (D) 29 November 2000, 4 December 2000, 18 April 2000: 227-228 payments to Sam of $1,750, $6,700 and $6,900 respectively
8. Conclusion 229-231

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

5819/05 Cussen & Ors v Sultan & Ors JUDGMENT Introduction 1 His Honour: The first and second plaintiffs, Mr Neil Cussen and Mr Paul Weston, are the liquidators of the third plaintiff Karl Suleman Enterprizes Pty Ltd (in liquidation) (KSE). They were appointed administrators of KSE on 12 November 2001, and liquidators on 7 December 2001. 2 The plaintiffs claim declarations that each of the transactions in which the defendants were involved was an uncommercial transaction under s 588FB Corporations Act 2001 (Cth) (the Act), an insolvent transaction under s 588FC, and a voidable transaction under s 588FE(3). Consequential orders are sought under s 588FF(1)(a) and (c) directing each defendant to pay KSE amounts of money equal to, or fairly representative of, the benefits received by that defendant under the relevant transaction. 3 KSE was incorporated on 17 December 1999. Its shareholders were Karl Suleman (KS) and his wife Vivian Suleman. It was controlled by KS, its sole director. Until it was halted by the Australian Securities and Investments Commission on 12 November 2001, KSE operated a supermarket trolley collection business, and an unregistered managed investment scheme under which it attracted investors to invest monies in its trolley business. In general terms, investors entered into a contract with KSE under which, in consideration for each investment, KSE agreed to pay a periodic return (bi-monthly or fortnightly) over a set term. Usually the rate of return on the investment was high, and terms were for a period of three, five, or ten years. During the period of operation of the scheme 2,164 contracts of this kind were entered into. 4 Background relevant to the issues in these proceedings is found in the solvency report of 29 November 2007. Save for monies actually invested with it under investment contracts, KSE had no available source of income sufficient to pay investors in accordance with its obligations under those contracts. As KSE had no underlying business capable of meeting the returns to investors they were paid mostly from funds received from new investors. Its books and records were insufficient to fully explain all of the transactions in which it was involved. Further, because KSE did not operate a bank account in its own name until March 2001, the personal bank accounts of KS and Vivian Suleman were used to operate the scheme. The trolley business was the only business which KSE operated. However, under the scheme the business was unsustainable, and its returns were insufficient to cover KSE's payment obligations to investors. 5 On 6 May 2002 the court declared, by consent, that KSE and KS had operated the scheme whilst unregistered in contravention of s 601ED(5) and, in relation to the scheme, had contravened s 780 and s 781 of the Act. 6 In the second further amended statement of claim the plaintiffs claim orders in respect of 13 contracts and miscellaneous transactions, made between early 2000 and late 2001, for the payment of a total sum of $2,498,550 as detailed in par 16 and schedule A. However, at the hearing, only the claims in relation to contract (as identified in par 16) numbers 1, 2, 3, 5, 10 and 13, in addition to the miscellaneous transactions, proceeded for determination. 7 Many of the defendants are related to each other. For convenience, I will refer to each by his or her first name. The first, second, third, fourth, fifth and sixth defendants (respectively Sam, John, Eddie, Robert, George and Peter) are brothers, all of whom, except Peter, are directors and shareholders of the sixteenth defendant, Sultan Group Pty Ltd. 8 The seventh defendant, Elaine is the wife of Sam. The eighth defendant, Maureen is the wife of the eleventh defendant, David. The ninth defendant Deborah is the wife of the twelfth defendant, Stephen. The tenth defendant, Linda, is the daughter-in-law of Maureen and David. The thirteenth defendant, Donna, is the wife of John. The fourteenth defendant, Wendy, is the partner of Peter and they are beneficiaries of the Billington Family Trust, and the directors and shareholders of the fifteenth defendant, Cedar House Alpaca Stud Pty Ltd (Cedar House). 9 No claim is now made in respect of the contract dated 1 January 2001 (contract 6) which was the only transaction to which Donna was a party. 10 Linda had not been served with the plaintiffs' pleadings and did not participate at the hearing. Accordingly the plaintiffs did not press claims against her under contracts 5 and 10. 11 The insolvency of KSE at all relevant times is not disputed. In any event, the plaintiffs are entitled to the presumption of insolvency under s 588E(4) by reason of KSE's failure to keep proper financial records. 12 By their defence the defendants have admitted that all of the payments in schedule A were (a) received by each defendant and, (b) were made by or on behalf of KSE. 13 It is accepted that the relation-back day for the purposes of s 588FE(3) is 12 November 2001. 14 The defendants deny the transactions were uncommercial. Alternatively, under s 588FG(2), they deny entitlement to any order under s 588FF on grounds that each became a party to the transaction in good faith, and that there were no grounds for suspecting that KSE was, or would become, insolvent. 15 In each case the principal issues are:

(i) the nature of the transaction; (ii) whether the transaction was an uncommercial transaction under s 588FB; (iii) whether, if the transaction was voidable, the defendants have established the cumulative requirements of good faith and lack of suspicion of insolvency under s 588FG(2), thereby precluding the making of an order under s 588FF(1); and (iv) whether, if the claim is established, the court should exercise any of its powers under s 588FF(1) and, if so, for what amount. 16 Although there are issues which are common to all claims, it is necessary to determine each claim separately. The legislation 17 Relevantly, the Act provides:

Section 9: "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."

Section 588FB(1): "588FB Uncommercial transactions (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."

Section 588FC(a): "588FC Insolvent transactions A transaction of a company is an insolvent transaction of the company if, and only if, it is an unfair preference given by the company, or an uncommercial transaction of the company, and: (a) any of the following happens at a time when the company is insolvent: (i) the transaction is entered into; or (ii) an act is done, or an omission is made, for the purpose of giving effect to the transaction; or"

Section 588FE(3) "588FE Voidable transactions … (3) The transaction is voidable if: (a) it is an insolvent transaction, and also an uncommercial transaction, of the company; and (b) it was entered into, or an act was done for the purpose of giving effect to it, during the 2 years ending on the relation-back day." … Section 588FF(1)(a), (c), (g): "588FF Courts may make orders about voidable transactions (1) Where, on the application of a company's liquidator, a court is satisfied that a transaction of the company is voidable because of section 588FE, the court may make one or more of the following orders: (a) an order directing a person to pay to the company an amount equal to some or all of the money that the company has paid under the transaction; … (c) an order requiring a person to pay to the company an amount that, in the court's opinion, fairly represents some or all of the benefits that the person has received because of the transaction; … (g) an order providing for the extent to which, and the terms on which, a debt that arose under, or was released or discharged to any extent by or under, the transaction may be proved in a winding up of the company;"

Section 588FG(2)(a), (b), (c): " 588FG Transaction not voidable as against certain persons … (2) A court is not to make under section 588FF an order materially prejudicing a right or interest of a person if the transaction is not an unfair loan to the company, or an unreasonable director-related transaction of the company, and it is proved that: (a) the person became a party to the transaction in good faith; and (b) at the time when the person became such a party: (i) the person had no reasonable grounds for suspecting that the company was insolvent at that time or would become insolvent as mentioned in paragraph 588FC(b); and (ii) a reasonable person in the person's circumstances would have had no such grounds for so suspecting; and (c) the person has provided valuable consideration under the transaction or has changed his, her or its position in reliance on the transaction." 18 For the purposes of Pt 5.7B, s 9 provides a non-definitive list of examples of the meaning of the term "transaction" to which the body is a party. 19 In Capital Finance Australia Ltd v Tolcher [2007] FCAFC 185; (2007) 165 FCR 83 Lindgren J said: "73. … 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." 20 In the same case, Gordon J observed: "120. … 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." 21 The court is obliged to look at the transactions between the parties in a manner which accords with commercial reality. It is not a matter of isolating particular individual steps in the course of a business relationship so as to give one element a different characteristic from that which the totality of that relationship would evidence, but of looking at the transaction as a whole (VR Dye & Co v Peninsula Hotels Pty Ltd (in liq) [1999] VSCA 60; [1999] 3 VR 201 per Ormiston JA par 37). Thus, a transaction may include a payment by the company which has the effect of extinguishing the debt of another (Re Emanuel; Macks v Blacklaw & Shadforth Pty Ltd (1997) 147 ALR 281), or it may consist of a series of events occurring at different points of time which are sufficiently connected together (Mann v Sangria Pty Ltd [2001] NSWSC 172; (2001) 38 ACSR 307). 22 Having identified the transaction, it becomes necessary to decide whether it is an uncommercial transaction of the company under s 588FB(1). The question to be asked is whether it was one which it may be expected that a reasonable person in the company's circumstances would not have entered into, having regard to the matters specified under this provision. The matter must be looked at from the point of view of the company (Tosich Construction Pty Ltd (in liq) v Tosich (1997) 23 ACSR 466 at 473). In Welcome Homes Real Estate Pty Ltd v Ziade Investments Pty Ltd [2007] NSWCA 167 Hodgson JA (Spigelman CJ, Santow JA agreeing) held that the test was not so high as to require that the transaction be so unreasonable that no reasonable person would enter into it. He said: "54 … The statutory language is that "it may be expected that a reasonable person in the company's circumstances would not have entered into the transaction". The word "may" is weaker than "must" or even "would"; and in my opinion one reason why something "may be expected" is that it is what normally happens. That is, it is not essential that it would always or necessarily happen. For that reason, what is normal commercial practice, while not decisive, is relevant to the question." 23 Accordingly, the court will look at the totality of the business relationship between the parties, and to what the parties under their relationship intended to effect, and how their intention was effected, in part or in whole, by the impugned transaction (VR Dye & Co par 40). 24 Under s 588FF(1) the court may make one or more of the orders therein specified on the application of the company's liquidator, where it is satisfied that a transaction is voidable under s 588FE. A question as to the proper construction of this provision became an issue in the proceedings. 25 The defendants contended that the use of the word "may" in the subsection meant that the court has a discretion whether or not to make an order although satisfied that the relevant transaction was voidable. On the other hand, the plaintiffs argued that, upon its proper construction "may" means "must", so that where there is a voidable transaction the court must make an order. 26 In support of their submission, the defendants relied upon the ruling of His Honour Judge Tilmouth of the District Court of South Australia in Sheahan Pty Ltd v Murdock & Gediz Pty Ltd [2008] SADC 5, par 62 that s 588FF(1) conferred the court with a discretion to decline making any order even though the transaction is otherwise voidable. His Honour noted (par 59) "… There is no case to which counsel could refer the court or in the court's own research, where the point has acutely arisen for judicial determination". He said: "61. The conclusion that the section as a whole is permissive so that a discretion remains to refuse an order, is consistent with the heading "court may make orders about voidable transactions", a heading forming part of the Act. It is also one consistent with the central concept of Division 2, that is voidable transactions. If it were otherwise, the nomenclature would be expressed in terms of "void transactions". In any case the court can direct "some or all of the money" be paid so that in otherwise appropriate cases, the court is empowered to order the payment of partial or nominal sums." 27 However, His Honour's conclusion is in direct conflict with the decision of Einstein J in this Court in Cashflow Finance v Westpac Banking Corporation [1999] NSWSC 671 that there was no discretion to decline to make an order. Einstein J reasoned as follows: "567 … The right to set aside the transaction is plainly a statutory one - see section 588FE. The consequences of a transaction being set aside are well established in the law. Under the law which applied before the commencement of Part 5.7B, there was no express conferral of a right of recovery of a preferential payment - the right to recover it arose as a matter of law. [Star v O'Brien (1996) 40 NSWLR 695 at 702 - 703 recounting the argument of counsel at 705B-D] 568 The consequences include that any person who has received money under the transaction which is avoided must repay it. I accept Cashflow's submission that there is no room for the Court to assert that it has a superior sense of justice to that which Parliament has enacted - see Commonwealth of Australia v SCI Operations Pty Ltd (1998) 72 ALRJ 687. 569 Cashflow submitted and I accept that the presence of the word 'may' in section 588FF does not mean that there is a discretion in the Court concerning whether to make an order in the circumstances of the present case. In this regard, I accept the following propositions which were put forward by way of Cashflow in its submissions as correct: (i) section 588FF more naturally reads as conferring a jurisdiction on the Court, rather than stating that there is a discretion in the Court. (ii) The jurisdiction that is conferred by section 588FF(1) is to make 'one or more of the following orders'. There is, I accept, clearly a choice to be made by the Court as to which of the orders, in the list set out in paragraphs (a) to (j) of section 588FF(1), is appropriate to be made. That does not mean that, once the Court is satisfied that the circumstances exist which make it appropriate for a preference or uncommercial transaction to be set aside, there is then some separate discretion which the Court can exercise on 'palm tree justice' grounds, in deciding whether to actually make the order. (iii) The power conferred by section 588FF is one where: 'The word 'may' is merely used to confer the authority: and the authority must be exercised, if the circumstances are such as to call for its exercise.' [Per Windeyer J Finance Facilities Pty Ltd v Federal Commissioner of Taxation (1971) 127 CLR 106 at 134-135 (with whom Barwick CJ agreed at 128). See also at 138-139 per Owen J.] (iv) The decision in Re Pacific Hardware Brokers (Qld) Pty Ltd (1997) 16 ACLC 442, concerns a different situation to the present. That was a case where company funds were used to purchase an asset (an engagement ring) which was given to an unsuspecting third party. The question was whether the third party should be ordered to pay the value of the asset to the company. It is understandable that there might be a discretion in such a case. In any event, the discretion was there exercised in favour of ordering the payment of the money. 570 If there was a discretion in the Court concerning the making of an order under CODFA, I accept Cashflow's submission that it would need to be exercised in light of the purpose of section 588FF. That purpose is, I accept, to ensure that a creditor did not receive a benefit over and above that received by other creditors - Pegulan Floor Coverings Pty Ltd v Carter (1997) 15 ACLR 1293 at 1301 column 1 per Doyle CJ. Once it is shown that CODFA has received a payment which is indeed an insolvent transaction, I accept that there is no room for operation of any discretion in the court." 28 With respect, I agree with the decision of Einstein J, and with his reasons. 29 Section 588FF(1) entitles the liquidator to apply to a court for an order for the recovery of monies paid under an uncommercial transaction or as an unfair preference. The provision is to be construed in the context of the other provisions of Pt 5.7B which is concerned with the recovery of property or compensation for the benefit of creditors of an insolvent company, and with regard to s 15AA Acts Interpretation Act 1901 (Cth) which requires preference for an interpretation which promotes the underlying purpose of the Act. As explained by Doyle CJ in Pegulan Floor Coverings Pty Ltd v Carter (1997) 24 ACSR 651, p 659 in rejecting a submission that the provision conferred a discretion on the court, the purpose of the contextual provisions is to avoid the conferring of preferential benefits, which is achieved by ordering repayment on the application of the liquidator. These considerations support the conclusion that the authority conferred by s 588FF(1) must be exercised when the liquidator seeks recovery in respect of a voidable transaction. It is in the exercise of that authority that the court has a wide discretion as to the form and terms of orders to be made in a particular case. 30 It follows that I respectfully disagree with the conclusion of His Honour Judge Tilmouth, and find it regrettable that His Honour was not referred to Cashflow Finance. 31 Section 588FG(2) protects a party to an unfair preference or an uncommercial transaction against the making of an order under s 588FF if it is proved that:

(a) the person became a party to the transaction in good faith (s 588FG(2)(a)); (b) at the time when the person became such a party the person had no reasonable grounds to suspect that the company was, or would become, insolvent, and whether a reasonable person in the person's circumstances would not have so suspected (s 588FG(2)(b)(i) and (ii)); and (c) the person provided valuable consideration under the transaction or has changed his, her or its position in reliance of that transaction. 32 It is unnecessary to refer to authority for the proposition that the onus of proving the defence is on those who rely on it. Its requirements are cumulative. 33 Section 588FG(2)(a) requires proof that a person became a party to the transaction in good faith. There is no presumption in the defendant's favour. The defendant must establish a positive. The plaintiff is not required to prove the absence of good faith. The term "good faith" is to be given its natural meaning, namely to act with propriety and honesty. This component of the defence imposes a subjective test (Sutherland v Eurolinx Pty Ltd [2001] NSWSC 230; (2001) 37 ACSR 477, par 39; Downey v Aira Pty Ltd (1996) 14 ACLC 1068, p 1075). The concept of good faith is a concept separate from the requirements of s 588FG(2)(b) (Olifent v Australian Wine Industries Pty Ltd (1996) 130 FLR 195, p 200). 34 The concept of "good faith" encompasses notions of honesty of purpose, motive, or intention which actuated the defendant to become a party to the impugned transaction. The concepts are interchangeable. To show that a person became a party to the transaction subjectively in good faith it is necessary to prove that the motive which actuated the person to do so was honest and proper. The inquiry, accordingly, is directed to the party's state of mind, with regard to his knowledge and belief about the nature of the transaction at the relevant time. 35 In cases concerning unfair preferences "good faith" has been held to relate to the preferential nature, or possible preferential nature, of the payment, and knowledge thereof (Rothmans Exports Pty Ltd v Mistmorn Pty Ltd (in liq) (1994) 125 ALR 442, p 455). In such a case Mansfield J in Smith v DCT (1997) 23 ACSR 611, p 621, 622) held: "…'Good faith' is not otherwise defined, but I think that it encompasses the state of mind of the creditor as to whether the transaction is to occur in circumstances which will, or may, advantage the creditor over other creditors of the company, so that the state of awareness of the creditor as to the company's solvency will be directly relevant to that question. My view on that issue is, I think, consistent with the conclusion of Ashley J. It accords with the legislative intent expressed in the explanatory statement supporting the Corporate Law Reform Act 1992 (Cth) (Act No 210 of 1992) which introduced Pt 5.7B of the Law generally. The question so posed will accommodate circumstances where the transaction may not be in the ordinary course of business, previously a disqualifying condition of the protection afforded by s 122(2)(a) of the Bankruptcy Act but no longer explicitly so. And it is also consistent with the balancing of the interests of the creditor and other creditors of the company, as any state of mind of the creditor which involved that creditor perceiving that it was, or may be, being advantaged over other creditors by the transaction would not warrant the protection which the balancing of interests in s 588FG is apparently designed to reflect. Nathan J in Sands & McDougall at 353; 134-135 discussed the same question. His Honour considered "as did Ashley J" that good faith should be read according to its ordinary meaning and that is by acting honestly and with propriety. I do not think that formulation in context can mean less than acting without an expectation that the creditor is being preferred over other creditors. Honesty and propriety, in context and particularly bearing in mind the purpose of the section, would not exist simply because a creditor, knowing or suspecting that it was being preferred over other creditors by the payment, might nevertheless honestly think that that course of action was somehow a proper one." 36 Consistently, in my opinion, in cases concerning an uncommercial transaction, "good faith" should be understood to relate to the uncommercial nature, or possible uncommercial nature, of the transaction, and knowledge thereof. A failure to make enquiries, in some cases, may well be of considerable significance when determining this element of the defence (Cussen as liquidator of Akai Pty Ltd (in liq) v Commissioner of Taxation [2004] NSWCA 383; (2004) 51 ACSR 530, par 123). 37 What is required to satisfy the onus will vary with the circumstances of the case. There is no set criteria. However, in my opinion, usually a defendant would need to have an understanding of the substance of the transaction sufficient to show that he became a party to it with an honest and proper motive or purpose. Adopting the words of Mansfield J in Smith (p 322) the defendant must demonstrate that in becoming a party to the transaction he acted without an expectation that the transaction was uncommercial. In my opinion, for the defendant to benefit from s 588FG(2)(a) it is necessary to prove that the motive and intention in becoming a party to the transaction was founded on a genuine belief, or knowledge, that the transaction was of an ordinary business kind or was not uncommercial. 38 Such belief or knowledge may well depend upon information obtained by making enquiries to ascertain the character of the transaction prior to becoming a party to it. However, evidence which shows only that the defendant, at the time of becoming a party, was aware that the transaction was, or possibly was, outside normal commercial experience would indicate a motive to profit from, or to take advantage of, an uncommercial transaction at the company's expense. Put another way, the defendant must show that the purpose or motive was not to receive a return or to obtain a bargain of such magnitude that it could not be explained by normal commercial practice (cf: Capital Finance Australia Ltd par 73). Thus the defendant would need to prove the probability that in becoming a party to an impugned transaction it was not his purpose to exploit its inherent uncommerciality. 39 The requirement to establish the negatives under s 588FG2(b)(i) and (ii) impose what is said to be a fairly demanding test (Pegulan Floor Covering Pty Ltd p 658 per Doyle CJ). The relevant tests were stated in D'Aloia v FCT (2004) 203 ALR 609 by Merkel J as follows: "18 Although differing views have been expressed as to the precise ambit of the tests in s 588FG(2)(b)(i) and (ii) it is clear that the test in para (b)(i) is essentially a subjective test (albeit based on objective criteria) in so far as it requires consideration of whether the person "had" any grounds for suspecting insolvency while the test in para (b)(ii) is an objective test, as it requires consideration of whether a reasonable person in the commissioner's circumstances had any reasonable grounds for suspecting insolvency. If the commissioner fails to establish his defence under para (b)(i) it would usually follow that he must also fail under para (b)(ii): see Sands & McDougall Wholesale Pty Ltd (in liq) v FCT [1999] 1 VR 489 at 515 ( Sands & McDougall )." 40 With respect to (2)(b)(i) a similar provision under the Companies Code, s 556(2) was examined in Metal Manufacturers v Lewis (1986) 11 ACLR 122 by Hodgson J who said (p 130): "It is best to approach the question of s 556(2)(b) to be as a single question, namely has the defendant proved that he did not have reasonable cause to expect that the company would be unable to pay its debts as they fell due. In considering that question, one must have regard to facts and circumstances known to the defendant and also facts and circumstances which by reason of the defendant's duties ought to have been known to the defendant." 41 As to par 2(b)(ii) the Court of Appeal in Cussen as liquidator of Akai Pty Ltd (in liq) v FCT ((2004) 51 ACSR 530 pars 31, 125, 126) held that the words "a reasonable person in the person's circumstances" in sub-par (2)(b)(ii) require an objective "reasonable business person" test to be applied, and do not require the court to take into account the acumen, perspicacity and resources of the particular creditor. The word "circumstances" does not refer to a characteristic of a person but to an external factor of some kind.

1. The contract of 15 February 2000 with Karl Suleman 42 In respect of this contract (contract 1) the plaintiffs claim $156,000 from Sam, John, Robert, Eddie and George jointly, of which the amount of $140,000 is also claimed from Sultan Group Pty Ltd. 43 Contract 1, made on 15 February 2000, was between KS as vendor and Sam, John, Eddie, Robert and George as purchasers for the sale and purchase of a trolley collection business located at the stores known as Coles, K-Mart, and Franklins, at Lismore, Queensland. The purchase price or investment amount was $160,000. By cl 2 of the deed of agreement KS agreed to pay to these defendants, from the business income, every fortnight a guaranteed net amount of $3,900 by cheque, guaranteed until 1 February 2015. On the face of the contract, total fortnightly payments for the term of 15 years would amount to $1,521,000 or 9.5 times the amount invested; the initial investment would be recovered in 20.5 months; and the internal rate of return was 63.33% per annum. 44 The investment amount of $160,000 was paid on or about 15 February 2000, although not to KSE. Although there was no evidence of an assignment of the contract to it, KSE made the payments to the defendants in accordance with the contract, which payments were deposited in a joint bank account in their names. The first payments, each of $3,900 were received on 29 February and 13 March 2000. On 24 March 2000 KSE paid the amount of $6,900 which was the combined amount of $3,900 under contract 1, and $3,000 which was payable fortnightly under the contract with Yasmin Trolley Services Pty Ltd (YTS) dated 13 March 2000 (contract 2). 45 On each of 11 April, 20 April, 2 May and 22 May 2000 KSE paid the amount of $15,000 into the joint bank account which was the combined amounts of $3,900 under contract 1, $3,000 under contract 2, and $8,000 which was payable fortnightly under the contract with KSE dated 24 March 2000 (contract 3), with the amount of $100 gratuitously made, apparently to round up the total. For convenience, the plaintiffs attributed the $100 to contract 1. 46 Between 5 June 2000 and 5 November 2001 the combined payments of $15,000 were made fortnightly by or on behalf of KSE to the bank account of Sultan Group Pty Ltd, which company was established on 23 May 2000 for the purpose of receiving these payments. Once these defendants had recouped the funds invested under contracts 1, 2 and 3 the monies received thereafter by the company were divided between them on an equal basis. 47 The total amount received by these defendants is disputed. The plaintiffs contend that the amount was $210,990 as evidenced by Sam's letter to the second plaintiff of 23 March 2002 (Ex L), whereas the defendants say the probable amount was $175,500 as evidenced by the records available to the liquidator. 48 The letter, in answer to the second plaintiff's request, was signed by Sam as director. The evidence was that the information it contained was obtained by Donna and provided to Elaine who typed it. The letter states the amounts received under each of contracts 1, 2 and 3. None of the defendants denied the accuracy of the amounts as stated. On the other hand, the amount calculated by the liquidator as shown in annexure 22 to the solvency report was based upon information obtained from the investigation of such records of KSE as were available but were accepted as incomplete. The paucity of financial records available for the purpose of ascertaining KSE's true financial position was referred to by Mr Weston (affidavit 24 February 2006, pars 25, 26). In my opinion, the letter should be taken as an admission of the amounts received and, in any event, is to be preferred, in the circumstances, as the best evidence of them. Accordingly I find the amount of $210,990 was received. 49 However, the amount claimed under contract 1 is $156,000. It is accepted that of this amount a total of $16,000 was paid directly to these defendants, and $140,000 to Sultan Group Pty Ltd. 50 KSE was not a party to contract 1 at the time it was made. There was no evidence that it subsequently became a party by way of assignment or otherwise. 51 It is admitted that all of the payments made under it were made by or on behalf of KSE. In the circumstances, it accords with commercial reality to take the admission as an acknowledgment that for all practical purposes KSE undertook, as a matter of fact, the obligations of KS to make the required payments. In any event there is ample evidence to support such a finding. The term "transaction" has a wide connotation, and is not confined to transactions which are lawful or enforceable (Capital Finance Australia Ltd par 120). In my opinion, for the purposes of Pt 5.7B, it is appropriate to regard KSE as having undertaken to make the payments required under contract 1 from the time the first payment was made. It follows that the payments may properly be regarded as parts of a single transaction evidenced by contract 1. 52 Alternatively, I also find, with regard to the meaning of the term in s 9, that each payment made by KSE referable to the contract was a separate transaction for relevant purposes. I find the date on which the parties entered into the transaction to be 29 February 2000, when the first payment was made. 53 The next issue is whether the transaction, taken either as a single transaction or as a separate transaction for each payment, was an uncommercial transaction of KSE under s 588FB(1). 54 Taken either way, in my opinion, the transaction was undoubtedly uncommercial. It was undertaken, and the payments continued to be made, whilst KSE was insolvent. The payments were made notwithstanding KSE was not a party to contract 1, and was under no liability to make them. It appears the payments were made in discharge of KS's liability under the contract, but in circumstances in which KSE derived no benefit. There was no evidence that KSE received any part of the investment amount, or had a right to recoup the amount paid from KS or anybody else. An additional factor was the unexplained gratuitous rounding up from 11 April 2000 of the fortnightly payments by $100. These considerations also support the finding that, from the viewpoint of KSE, the making of the payments was outside normal commercial practice. Having regard to the matters set out in s 588FB(1) and to the applicable principles, I find that it may be expected that a reasonable person in KSE's circumstances would not have made the payments. It follows that the payments in question constituted an uncommercial transaction. 55 The next issue is whether the defendants have established the matters under s 588FG(2) which would preclude the court from making an order under s 588FF(1). It necessitates separate consideration of the evidence of each defendant referable to the time he became a party to the transaction. In the circumstances, the relevant times are the dates on which he received a payment made by KSE, the first of which was on 29 February 2000. Sam 56 As at January 2000 Sam, with his wife Elaine, owned two rental properties in Queensland, and their home at Cecil Hills, all of which were under bank mortgages with interest rates of 8% - 10% per annum. He operated a credit card. With his brothers he had an interest in the family business, Sultan's Automotive Repairs Pty Ltd. He understood, as a matter of common sense, that interest rates for unsecured loans were generally less than 20% per annum, and said it would be unbelievable for a small business to pay an interest rate of 50% per annum or more on an unsecured loan. 57 He said that at the time of entering into contracts 1, 2 and 3, he could not believe the amount of returns he would obtain, a view shared in discussions with family members. With respect to each contract he knew the amounts payable fortnightly, the terms for which they were guaranteed, and that it would not take long to recoup the initial investment. He regarded the return as unbelievable because it was what he described to be way outside any normal commercial practice that he could understand. For some time before entering contract 1 he had conversations with KS, his brothers, and other family members about returns on investments in the trolley business which he said were far more generous than a normal business would provide, and too good to be true. He was not concerned with the identity of the vendor in each case, because he said he trusted KS, and assumed KS was running all the businesses. He said he did not consider it worthwhile to look at the businesses at the stores in Lismore. 58 He said, in effect, that he and his brothers kept on reinvesting because they could not believe the amount of returns. He agreed that he was told that the nature of the investment was extremely risky, advice which he passed on to his brothers and other family members. For example, he said (T p 340, l 45 - p 341, l 6): "Q. … You have been taken to the documents. Would you accept that had you read them at the time you signed them, you would have seen as they show that the vendor was different in each case? A. I might have glanced over them but we had our solicitor look at them, we had our accountant look at them, we had our bank manager look at them and they all seemed to agree with the fact that: "If you want to do this, go ahead but the more you invest, I mean there was an unbelievable thing, be prepared to fall if something went wrong" and we took that chance and whether or not we determined whether it was Yasmin or Karl Suleman Enterprizes or Karl himself, I never paid too much attention to that." 59 For the defendants it was submitted, essentially, that their awareness that the contracts generated "unbelievable" returns or was outside their commercial experience did not establish a lack of good faith in becoming a party to the transaction. The plaintiffs did not contend that the defendants lacked probity or honesty in relation to the transaction. Their submission was that good faith was not made out if it was known or realised that the transaction was uncommercial. It was put that, in this case, the transaction, and each payment, was so extraordinary that its uncommerciality could not have been ignored. 60 As those submissions were common to all defendants in respect of all of the claims it is unnecessary to repeat them when dealing with each separate claim in the proceedings. 61 The issue of good faith under contract 1 requires consideration of the evidence as to Sam's motive or purpose which actuated him in becoming a party to it. In this case the question is whether he became a recipient in good faith of the first payment made on 29 February 2000, alternatively, at the time each subsequent payment was made. This is to be determined with regard to his purpose or motive in entering contract 1 on 15 February 2000 because, in my opinion, it remained unchanged throughout. 62 There is ample evidence to support the findings, which I make, that Sam well understood that the payments to be received under the contract represented a return well beyond ordinary commercial experience. I am satisfied that his true motive in entering the contract was to benefit from an arrangement which would enable recovery of the investment amount within a relatively short time in addition to providing him with a return the scale of which was extraordinary. He knew that the arrangement was uncommercial and risky, but he willingly took the risk in order to reap the high returns. 63 The evidence indicates that the extent of his enquiries about, and understanding of, the business in which he was investing was limited to the magnitude of the benefits to be received. No attempt was made to show that he had a genuine belief or intention of becoming a party to an arrangement which by ordinary business standards was fair and commercial. 64 There was no evidence which indicated the existence of a different motive or purpose when Sam became a recipient of the payments by KSE. The only rational finding is that Sam continued to accept these payments knowing them to be the product of an uncommercial transaction, and was motivated to take advantage of it, necessarily at KSE's expense. 65 For Sam to succeed in establishing "good faith" it was necessary for him to negate the evidence that his purpose was to exploit an uncommercial transaction. This he failed to do. In general terms I accept the plaintiffs' submissions on this issue. Accordingly, I hold that Sam failed to prove that he became a party to the transaction in good faith under s 588FG(2)(a). John 66 At the beginning of 2000 with his wife Donna, John owned a rental property at Edensor Park and their home, both of which were under mortgages with an interest rate of 8% to 10% per annum. He was a director and shareholder of Sultan's Automotive Repairs Pty Ltd which had a bank overdraft at an interest rate no greater than 15% per annum. His experience was that the interest rate on borrowings by a small business was usually 10% per annum. 67 At the time he signed contracts 1, 2 and 3, although he probably did not read them, he understood the amounts payable fortnightly, the terms for which they were guaranteed, and that the investment would be recouped in less than two years. He did not know where the money for the fortnightly payments would come from, other than from a trolley business. He said Sam was a significant source of information about the contracts he signed. He could not recall whether Sam told him the contracts were extremely risky. Throughout 2000 and 2001 he thought the returns were "unbelievable", "spectacular" and "too good to be true". 68 The evidence shows that John's understanding of contract 1 extended to the magnitude of the returns on the investment which he described as "too good to be true". I find he was aware that the arrangement was beyond ordinary commercial experience, and he believed it to be uncommercially favourable to him. His evidence supports the finding, which I make, that his motive in entering the contract was to join with his brothers to take advantage of an extraordinary transaction. There was no evidence to the contrary. 69 There was no change when he became a recipient of the payments by KSE, and in continuing to accept them. 70 John's case on this issue is substantially similar to Sam's. It must suffer the same fate. Accordingly, I hold that John has failed to prove that he became a party to the transaction in good faith under s 588FG(2)(a). Eddie 71 At the beginning of 2000 Eddie owned rental properties at Hinchinbrook and Yorkeys Knob, Queensland, which were under bank mortgages with interest rates of 8% to 10%per annum. He regarded an interest rate of 50% per annum as absurd. He said that when considering whether to invest, he and his brothers considered the returns to be unbelievable, and other investors had expressed to him the same view. He left it to his brothers to obtain advice on the investments, and relied on their assessment. He did not read contracts 1, 2 and 3 before signing them. From talking to his brothers, particularly Sam, he was made aware of the amounts payable fortnightly, the terms for which they were guaranteed, that it would not take long to recoup the invested amounts, and that the amount of fortnightly payments was a multiple many times higher than the invested amount. In examination on 27 March 2003 before the Deputy Registrar he said (Ex N, p4665, l 16-l 34): "Q. Did you ever really think that he was getting this money from collecting trolleys in supermarkets? A. No. Q. You didn't find it believable that that activity could generate this sort of return, did you? A. No, I didn't, but it was there every fortnight and I couldn't argue with it. I wasn't going to question it. As long as it was there every fortnight. Q. As long as it was being paid you didn't think about it? A. That's right. Q. To the extent you did think about it, you didn't think it was being generated by trolley contracts, did you? A. That's right." 72 The evidence shows, and I find, that Eddie had no interest in, understanding of, or belief about, the contracts he entered into beyond the fact that he would receive returns which he regarded to be unbelievable. It supports the conclusion that he was well aware that the contracts were uncommercial by ordinary business standards. I find that his true intention was to join with his brothers to take advantage of extraordinary commercial arrangements. There was no other evidence relevant to the issue of good faith. 73 In substance, his case was the same as his brothers, and must be rejected for the same findings and reasons. Accordingly, I hold that Eddie has failed to prove that he became a party to the transaction in good faith under s 588FG(2)(a). Robert 74 At the beginning of 2000 Robert operated a video franchise through a company of which he and Sam were directors and shareholders. He understood that the standard interest rate for small business loans was less than 15% per annum. He thought it would be absurd for a bank to charge interest at 50% per annum on a loan for several years. He operated a bank account with his wife which earned interest at less than 10% per annum, and he held a credit card. 75 Sam was the main source of information about the contracts. Robert read contracts 1, 2 and 3 before signing them, knew the amounts payable fortnightly, the terms for which they were guaranteed, and that it would not take long to recoup the initial investment. Robert said that he did not think about the rates of return, and could not remember whether he had been advised about the contract by, for example, Mr Roger Hyde, his accountant. Robert's position was that he was content to follow his brothers into the contracts. He gave the following evidence (T p 466, l 5-l 30): "Q. Mr Sultan, can I take it just as fundamentals for a businessman such as yourself, going into quite a large transaction with other members of your family that you turned your mind at the time to what the nature of the agreement was; you didn't shut your eyes to it, did you? A. Your Honour, when my family says something to me about something like this, if they're happy to go with it, I'm happy to go with it. Q. What did they say to you? A. At the time the investments are all happening. Everybody was getting involved in the investments. We saw an opportunity for us to invest. We ask for finance from our bank managers. They said yes and we invested. Q. You saw there was an opportunity to invest? A. Yes. Q. I gather from what you say that the talk in the Syrian community was it was a pretty good investment to get into? A. That's right. Q. You're all pretty excited about it? A. Yes. Q. Did you all turn your minds to the amount of money that you could stump up to put in this arrangement? A. I'd be honest. I never looked that far. The returns were good. The investment was there. " 76 He said that his concern was to get his money back, and he did not look past that. He agreed that when he signed the contracts the rates of return were outside his experience. Robert said that, before signing, he had no information about the trolley collection business, and did not know how it could generate profits sufficient to enable KSE to pay the returns. 77 His evidence justifies the same findings for the same reasons made for the rejection of the other cases on good faith. Further support for this conclusion is found in Robert's evidence to the effect that he did not turn his mind to the underlying nature of the contracts, or of the related trolley businesses. In my opinion, this evidence is fatal to a defence which usually would require proof that a person knew enough about the transaction to support the claim that he became a party to it in good faith. The enquiry is directed to ascertain what was in the party's mind at the relevant time, rather than to hear about what was not. Accordingly, I hold that Robert has failed to prove that he became a party to the transaction in good faith under s 588FG(2)(a). George 78 At the beginning of 2000, George, and his wife, owned rental properties in Cairns under bank mortgages, but he said he did not know the applicable interest rate. He thought it would be absurd for a small business to pay interest of 50% per annum. 79 At the time of signing contracts 1, 2 and 3 he understood the amounts payable fortnightly, the terms for which they were guaranteed, and that the investment would be recouped before long. He knew that under contract 2 the total fortnightly payments amounted to about eight times the investment amount of $150,000, and under contract 3 they amounted to 12.5 times the investment amount of $250,000. Because he considered the rates of return under the contracts to be "quite extraordinary" and "incredible" he asked earlier investors "… if this was the real deal or if it was a bottomless pit" (T p 250). He said he heard nothing negative about KS who appeared to him to be a wealthy person. He understood the returns under the contracts would be in excess of 66%. George could think of no reason why someone in normal commercial practice would offer such high rates of return. He agreed that this state of mind did not change between the time he signed these contracts and October 2001. 80 The evidence supports the finding, which I make, that at the times he entered contracts 1, 2 and 3 George knew that each was, in the relevant sense, uncommercial. He knew that the payments to be received represented terms in excess of a rate which he believed to be absurd, and to be outside ordinary commercial experience. The only rational conclusion is that George's purpose in becoming a party to the contracts was to exploit their uncommerciality. No evidence was adduced to support a contrary finding. 81 In substance his case was the same as his brothers', and must be rejected for the same findings and reasons. Accordingly, I hold that George has failed to prove that he became a party to the transaction in good faith under s 588FG(2)(a). 82 With respect to each of these defendants I find that he understood that the payments payable by KSE over the term would vastly exceed the amount provided to KSE as an investment. It was his expectation that measured against the amount invested, KSE would pay returns which he thought was unbelievable. In my opinion his true purpose in becoming a party to the transaction was to obtain returns which he understood were uncommercial. This is enough to destroy his case on good faith. Sultan Group Pty Ltd 83 Sultan Group Pty Ltd became a recipient of the combined fortnightly payments of $15,000 under contracts 1, 2 and 3 between 5 June and 5 November 2001. I infer that this arrangement was at the behest of these defendants. Payments in the total amount of $525,000 made by or on behalf of KSE were paid into the company's account, of which $140,000 was referable to contract 1. 84 It is undisputed that the company was established and operated as the vehicle through which payments under the three contracts were made to these defendants. The funds received were applied initially to repay the investment amounts, and were then divided equally between these defendants. In my opinion, the fact that the company was the recipient of payments by KSE, although as agent for these defendants, is sufficient for it to be treated as a party to the transaction(s) evidenced by such payments. 85 As a party to the impugned transactions the question of a s 588FG(2) defence arises. Consistent with the conclusions in respect of the brothers, all of whom were directors, such a defence must fail. This is because it is their state of mind which is relevant to the question of the company's good faith, they being the officers concerned in the transactions whereby the payments were received (Spedley Securities Ltd (in liq) v Western United Ltd (in liq) (1992) 27 NSWLR 111, pp 118, 119). 86 In the circumstances, the fact that the company was interposed to receive the payments as an agent does not preclude appropriate relief being ordered against it under s 588FF(1). Section 588FG(2)(b): suspicion of insolvency 87 As I have held that these defendants failed to establish "good faith" it is unnecessary to deal with the issues as to suspicion of insolvency under s 588FG (2)(b)(i) and (ii). Nevertheless, it is appropriate to state the reasons for my conclusion that each failed to establish the component under (2)(b)(i). I have declined to undertake the same exercise for the issues under (2)(b)(ii). 88 The enquiry under (2)(b)(i), as it is under (2)(a), is directed to the defendant's state of mind. The test is subjective, and is demanding (Pegulan Floor Covering Pty Ltd p 658). To discharge the onus the defendant is required to establish a negative. He must prove that he had no grounds for suspecting the company was insolvent, or, if there were grounds then those grounds were not reasonable in the circumstances (Sands & McDougall (Wholesale) Pty Ltd (in liq) v Commissioner of Taxation (1996) 22 ACSR 383, p 406). 89 In Queensland Bacon Pty Ltd v Rees [1966] HCA 21; (1966) 115 CLR 266, p 303 Kitto J said: "A suspicion that something exists is more than a mere idle wondering whether it exists or not; it is a positive feeling of actual apprehension or mistrust … a reason to suspect that a fact exists is more than a reason to consider or look into the possibility of its existence." 90 Necessarily, in order to succeed the defendant must show that there was absent from his mind any suspicion that the company was insolvent at the time he became a party to the impugned transaction, and did not suspect, or did not have an actual apprehension of, insolvency and that such knowledge as he had would not, reasonably considered, have caused him to suspect insolvency. It is difficult to see how the onus could be discharged if the defendant's evidence does not extend to his state of mind on these matters specifically. 91 With respect to this claim, and to all the other claims considered below, the evidence of the individual defendants was in their affidavits and oral testimony. In my assessment it contained nothing which was capable of establishing a case under 2(b)(i). Indeed, there was nothing to indicate that any defendant turned his mind to the issue at all. These observations are applicable to the relevant defendant or defendants against whom a particular claim is made. Section 588FF(1): the order 92 The plaintiffs seek an order under s 588FF(1)(a) that Sam, John, Eddie, Robert, George, and Sultan Group Pty Ltd pay back to KSE all of the monies received by them referable to contract 1. I have found that the total amount received was $210,990. The order sought is for the payment of $156,000, of which $140,000 was paid to Sultan Group Pty Ltd. 93 Under s 588FF(1)(a) the court may make an order directing a person to pay to the company an amount equal to some or all of the money that the company has paid under the transaction. 94 The scope of the order requires the exercise of the court's discretion. 95 The defendants submitted that the amount to be paid should be limited to the amount received from KSE which was in excess of the amount invested. It was put that there was no provision for uncommercial transactions similar to s 588FI(3) which entitles a creditor who gives up the benefit of an unfair preference to prove in the winding up for the preferred debt. It was put that, in these circumstances, as there was no statutory entitlement to prove in the winding up the invested amount paid to KSE, the interests of justice required that an allowance in the defendants favour should be made for it so that, in effect, they would recover the amount invested. 96 The statute gives no guidance as to the approach to be taken in deciding, in a particular case, whether the amount should be equal to some or all of the money that the company has paid under the transaction. In McDonald v Hanselmann (1998) 28 ACSR 49, p 56 Young J (as he then was) was of the view that "… the words 'may' in the initial part of subsection (1) and the word 'some' indicate that the court has a discretion as to whether it is just and equitable to enforce the whole of the compensation against the (defendant)". 97 In my opinion, with regard to such considerations, the court's task under subs (1)(a) is to make an order which gives effect to the statutory scheme under Pt 5.7B which is concerned with the recovery of property or money for the benefit of creditors of an insolvent company. 98 The defendants' submission is tantamount to a claim of entitlement to the recovery of the investment amount from the assets of KSE in priority to the interests of other creditors, and in reduction of the fund from which they would be paid. In my opinion, to make the adjustment claimed by the defendants would be inconsistent with the basic principle that the available assets of an insolvent company are to be shared rateably amongst its creditors. Also, I am entirely unpersuaded that the absence of a statutory entitlement to prove in the winding up in respect of a payment made by a creditor under an uncommercial transaction is a relevant factor in the exercise of the discretion. The defendants' submissions are rejected. 99 Under contract 1, the investment amount of $160,000 was paid, apparently, to KS. It was not paid to KSE. In the circumstances of this case there is no principled or evidentiary justification for making a partial order. In my opinion, the proper order to be made is for the payment to KSE of the amount claimed in lieu of the amount equal to all of the money paid by KSE under the transaction. 100 Accordingly, I order Sam, John, Eddie, Robert, George and Sultan Group Pty Ltd to pay to KSE the sum of $156,000, subject to the liability of Sultan Group Pty Ltd being limited to the amount of $140,000.

And (p 4628, l 6-l 19): "Q With your first $1m investment, you said you heard about the scheme because your brothers had told you about it? A Well, everybody was talking about it. In the Assyrian community everybody was talking about. It was - like, it was the word - everyone sort of knew about him. Q When you heard these sort of investment returns were available, what did you think about that? A I though it was unbelievable, but I thought it can't last." 180 There are further examples (T pp 272, 273, l 36-l 1): "Q Was it a joint decision of Wendy and yourself that Cedar House would enter into that agreement? A Well, it was more my idea than hers, because she didn't know much about it at the time. I found out through my brothers and I went into it. Q Did you discuss the proposed investment with her? A I mentioned something to her about it, said about the returns that were coming in from it and that was it. Q Well, it was an investment of a million dollars; wasn't it? A Yes. Q And to make an investment of that size, you had a reasonably detailed discussion with Wendy about whether or not you should make that investment? A Oh yes, yes."

and (T p 286, 287, l 46 - l 10): "Q So, would it be fair to say, when you entered into this, you were consciously taking a risk in investing in a business about which you knew nothing? A Yeah. Yes, that's true. Q You recognised that the returns that you were getting were suggestive of the kind of risk that you were taking? A Yeah. Well, it was a bit risky, but I thought everybody else is in. Half of the Assyrian community was involved in it. Even the priests, and that, were involved in it. I thought this will be all right. Q You thought it would be a pretty good thing to get into because the returns were fantastic; is that right? A Yes." 181 The evidence to which I have referred is but a summary of that which was relevant to the good faith issue. It supports the finding, which I make, that the common intention of Wendy and Peter was for Cedar House to become a party to contract 13 in order to gain returns from an investment which were far beyond ordinary commercial experience. In my opinion, it is apparent that, although commercially experienced, neither Wendy nor Peter turned their minds to the nature of the business the subject of the transaction. I am satisfied that it was the magnitude of the benefits to be received which actuated Cedar House in becoming a party to the transaction. 182 That they committed Cedar House to put a substantial amount of money into a business about which they were ignorant and uninterested, in the teeth of advice that the investment was hazardous, compels the conclusion that the true motive was to benefit from a transaction which was uncommercial. There was no evidence to the contrary. Shortly stated, to avoid repetition, I find that Cedar House's case on this issue was substantially similar to the other defendants'. Accordingly, I hold that it has failed to prove that it became a party to the transaction in good faith under s 588FG(2)(a). 183 I also conclude for reasons given in respect of the other defendants that Cedar House failed to prove the matters required under subs (2)(b)(i). 184 The order to be made under s 588FF(1), for the reasons given in respect of the preceding claims, is for the payment to KSE of amount equal to the monies paid by KSE under the transaction. 185 The next task is to ascertain the amount proved to have been paid by KSE under the transaction. 186 The plaintiffs claim that $1,515,000 was paid under contract 13. Cedar House disputed that the whole of the amount was paid under the contract. Initially it contended that the amount so paid was $1,075,000 being the amount recorded in annexure 22 of the solvency report. However, in supplementary submissions (12 October 2009), Cedar House accepted that the amount paid under the contract was $1,165,000 which included the payments made on 16 May 2000, 4 December 2000, 23 March 2001, and 3 May 2001, each of $25,000. The amount in dispute is $350,000 made up as follows:

(i) a payment of $170,000 on 26 March 2001; and (ii) payments each of $30,000 on 17 July, 30 July, 14 August, 27 August, 10 September and 17 September 2001 totalling $180,000. 187 Evidence about these payments was given by Wendy and Peter. Wendy was unable to explain any of the payments beyond speculation. 188 With respect to the payment of $170,000, Peter was unable to identify the matter(s) for which it was made. There was no evidence which provided an explanation as to how the amount was calculated, or for what it was paid. The plaintiffs have not proved that this payment was made under contract 13. 189 With respect to the payments of $30,000, Peter said they were referable to Cedar House's investment in KS's business known as Froggy.com. He distinguished these payments from the regular payments of $25,000 referable to contract 13 which were made at about the same time. I accept Peter's evidence on this issue. There was nothing to contradict it. It is consistent with his evidence that there was a separate investment agreement with Froggy.com which returned fortnightly payments of $30,000. Prima facie, at least, it is unlikely that regular payments in this amount were referable to contract 13 under which payments usually of $25,000 were regularly made. Accordingly, I find on the probabilities that these payments were made by KSE for, or on behalf of Froggy.com and not under contract 13. 190 It follows that I find the amount shown to have been paid under contract 13 was $1,165,000. I propose to order, under s 588FF(1), Cedar House to pay this amount to KSE. 191 I turn now to other payments which total $350,000. It is realistic to treat the payment of $170,000, and the several payments of $30,000 referred to as separate transactions to which Cedar House became a party upon receipt of the payment in each case. 192 The next issue is whether these transactions were uncommercial under s 588FB. In my opinion each undoubtedly was. Each payment was made whilst KSE was insolvent. The payment of $170,000 was unexplained. KSE's payments for Froggy.com were also unexplained. There is no evidence of consideration or benefit to KSE, or that there was any arrangement whereby KSE had a right to recoup the amount paid from KS, Froggie.com, or anybody else. 193 Relevant also is Mr Weston's evidence (affidavit 11 November 2005) which included evidence of the investigations, with the assistance of staff, into the affairs of KSE whilst he was its administrator and liquidator. To the extent that the payments listed in schedule A were not made under an investment contract, he said (par 19) "… there is no reason for the payments having been made by or on behalf of KSE". This evidence was unchallenged. 194 The defendants submitted that Mr Weston's evidence should be given no weight as it was based on the product of investigations by his staff in which he had no direct involvement or of which he had no direct knowledge. The criticism appears to have been based on answers given in cross-examination to the effect that he was unable to recall specific details of matters concerning KSE's activities which had been investigated by his staff. It was also put that, absent documentary evidence such as vouchers and working papers, the plaintiffs had failed to prove that the impugned payment was not to KSE's benefit, and therefore failed to prove it evidenced an uncommercial transaction. 195 In my opinion, the defendants' submission lacks substance and must be rejected. Mr Weston's conclusion was not cross-examined upon, and there was nothing which contradicted it. Prima facie it should be accepted (Ali v Nationwide News [2008] NSWCA 183, par 112). Furthermore, with respect to these payments, his conclusion is consistent with the evidence of Wendy and Peter who could provide no reason for the payments being made by KSE. 196 I find, on the evidence, that KSE made these payments gratuitously, and outside normal commercial practice. Having regard to the matters set out in s 588FB(1) and to the applicable principles, I find that it may be expected that a reasonable person in KSE's circumstances would not have made the payments. It follows that each of these payments was an uncommercial transaction. 197 As Cedar House has failed to prove the provision of valuable consideration, or change of position, under s 588FG(2)(c) it is liable to an order for payment under s 588FF(1)(a) in respect of these transactions. Had it been necessary to do so, I would have also found that Cedar House has failed to prove the matters required under (2)(a) and (2)(b)(i) and had made no attempt to do so. 198 Accordingly, I propose to order that the amount of $350,000 be included as part of the amount Cedar House is to pay to KSE under s 588FF(1)(a). 199 The order to be made under s 588FF(1)(a), for the reasons given in respect of the preceding claims, is for the payment to KSE of the amount claimed in lieu of an amount equal to all of the monies paid by KSE under the relevant transactions. 200 Accordingly, I order Cedar House to pay to KSE the sum of $1,515,000. 7. Miscellaneous claims (A) 5 March 2001: payment to Sam and Elaine of $80,000 201 The plaintiffs claim $80,000 from Sam and Elaine jointly in respect of a payment made to them by KSE on 5 March 2001. 202 The payment was admitted. 203 Sam accepted the payment was made on 5 March 2001. He agreed it was made in relation to the sale of the Cecil Hills property to KS. He understood KS was buying the property for his own benefit. He said he did not then turn his mind to the question whether KSE would receive any benefit for the payment, but did not think it did. Elaine's evidence was to the same effect: the sale was to KS personally, and she was unaware of any benefit to KSE. 204 I find that KSE made this payment gratuitously, and for no benefit or consideration, and hold that the transaction was an uncommercial transaction under s 588FB(1). 205 As these defendants failed to prove the provision of valuable consideration, or change of position, under s 588FG(2)(c) they are liable to an order for payment under s 588FF(1)(a). 206 Had it been necessary to do so, I would also have found they had failed to prove the matters required under (2)(a) and (2)(b)(i), and had made no attempt to do so. Indeed, the awareness of each that the payment was in respect of the sale of the Cecil Hills property to KS personally would be sufficient, in my view, to negate good faith under (2)(a). 207 The order to be made under s 588FF(1)(a), for the reasons given in respect of the preceding claims, is for the payment to KSE of an amount equal to all of the monies paid by KSE under the transaction. 208 Accordingly, I order Sam and Elaine to pay to KSE the sum of $80,000. (B) 14 August 2001: payment to John of $22,000 209 The plaintiffs claim $22,000 from John in respect of a payment made to him by KSE on about 14 August 2001. 210 The payment was admitted. 211 John's evidence was that the payment was by cheque for $22,000 drawn on 14 August 2001 for the sale of his BMW 318 motor vehicle to KS who told him that he was acquiring it for one Rita Simon. He did not know who she was. He was unaware of any connection between her and KSE. Apart from Mr Weston's evidence referred to earlier (par 193) there was no other evidence about the transaction. 212 The totality of the evidence established, and I find, that the payment was a transaction of KSE for which it received neither benefit nor consideration. The only rational explanation for the payment is that KS procured it for his own purposes. Accordingly, I hold that the transaction was an uncommercial transaction under s 588FB(1). 213 In the circumstances, it follows that this defendant failed to prove, under s 588FG(2)(c) that he had provided valuable consideration under the transaction, or had changed his position in reliance on it. He is therefore liable to an order for payment under s 588FF(1)(a). Furthermore, there was no evidence capable of establishing the matters required to be proved by him under (2)(a) and (2)(b)(i). 214 The order to be made under s 588FF(1)(a), for the reasons given in respect of the preceding claims, is for the payment to KSE of an amount equal to all of the monies paid by KSE under the transaction. 215 Accordingly, I order John to pay to KSE the sum of $22,000. (C) 6 November 2001: payments to Robert of $43,200 216 The plaintiffs claim $43,200 from Robert, being the total of four payments made to him by cheque by KSE on 6 November 2001. 217 The payments were admitted. 218 The evidence is that on 5 November 2001 KSE wrote cash cheques for amounts of $2,200, $5,000, $12,000, and $24,000, totalling $43,200. Robert's evidence was that KS gave him these cheques at the premises at which the business known as Froggy operated. He presented them at a bank on 6 November 2001 and received payment in cash. He said that he then returned to the premises and handed over the proceeds to either KS or to Sam. He did not know for what purpose KS used the money. 219 Robert's evidence was to the effect that on occasions KS would tell him he needed some spending money, and would give him a cheque which Robert would cash. He would then return to Froggy's premises and give the money to KS or, sometimes, to Sam. 220 In the defence to the further amended statement of claim (par 19) Robert admitted the receipt by him, or on his behalf, of the payments. 221 In my opinion, the effect of the admission and of his evidence establishes that the relevant transactions were the payments made on presentation of the cheques, and that Robert became a party to them upon receiving these payments. 222 There was no evidence capable of supporting a finding that the proceeds of these cheques were repaid to KSE, and Robert did not assert that they were. The defendants' submission which invited speculation that this may have happened is rejected. 223 Having regard to Mr Weston's evidence (par 193), and there being no evidence otherwise, I find that the payments were transactions of KSE for which it received neither benefit nor consideration. It is highly probable that KS procured them for his personal use. Accordingly, I hold that the transactions were uncommercial transactions under s 588FB(1). 224 For the reasons referable to the preceding claim (par 213) I find Robert has failed to prove the matters required under s 588FG(2)(a), (b)(i) and (c). It follows that he is liable to an order for payment under s 588FF(1)(a). 225 The order to be made under s 588FF(1)(a) for the reasons given in respect of the preceding claims, is for the payment to KSE of an amount equal to all of the monies paid by KSE under the transactions. 226 Accordingly, I order Robert to pay to KSE the sum of $43,200. (D) 29 November 2000, 4 December 2000 and 18 April 2000: payments to Sam of $1,750, $6,700, and $6,900 respectively 227 The plaintiffs' claim against Sam for the total amount of $15,350 is accepted. 228 Accordingly, pursuant to s 588FF(1)(a), I order Sam to pay to KSE the sum of $15,350. 8. Conclusion 229 Pursuant to s 588FF(1)(a) I propose the following orders:

(1) Under contract 1, I order Sam, John, Eddie, Robert, George and Sultan Group Pty Ltd to pay to KSE the sum of $156,000 subject to the liability of Sultan Group Pty Ltd being limited to the amount of $140,000.

(2) Under contract 2, I order Sam, John, Eddie, Robert, George and Sultan Group Pty Ltd to pay to KSE the sum of $117,000, subject to the liability of Sultan Group Pty Ltd being limited to the amount of $105,000.

(3) Under contract 3, I order Sam, John, Eddie, Robert, George and Sultan Group Pty Ltd to pay to KSE the sum of $312,000 subject to the liability of Sultan Group Pty Ltd being limited to the amount of $280,000.

(4) Under contract 5, I order Elaine, Sam, Deborah, Stephen, David and Maureen to pay to KSE the sum of $78,000.

(5) Under contract 10, I order Elaine, Sam, Deborah, Stephen, David and Maureen to pay to KSE the sum of $150,000.

(6) Under contract 13, I order Cedar House to pay to KSE the sum of $1,515,000.

(7) Under miscellaneous claim (A), I order Sam and Elaine to pay to KSE the sum of $80,000.

(8) Under miscellaneous claim (B), I order John to pay to KSE the sum of $22,000.

(9) Under miscellaneous claim (C), I order Robert to pay to KSE the sum of $43,200.

(10) Under miscellaneous claim (D), I order Sam to pay to KSE the sum of $15,350. 230 It is appropriate to direct the plaintiffs to bring in short minutes to give effect to these reasons and to state precisely the orders to be made. 231 The question of costs remains outstanding. Failing agreement, I will afford the parties the opportunity to address me on this issue. Arrangements should be made with my associate by 23 October 2009 for the re-listing of the matter.

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