Solicitors for appellant: Esau Meister and Associates

JUDGE1 KING CJ The second appellant (Acarau Pty Ltd) is a company in liquidation. The first appellant is the liquidator. They seek to recover from the respondent the sum of $10,490.59 being the total of seven payments made to the respondent between 4 December 1991 and 14 February 1992 by cheques drawn on an account at the ANZ Bank in the name of the second appellant. The appellants rely upon section 468(1) of the Corporations Law which is as follows:- "Any disposition of property of the company other than an exempt disposition, and any transfer of shares or alteration in the status of the members of the company made after the commencement of the winding up by the Court is, unless the Court otherwise orders, void."

An order for the winding up of the second appellant was made by the Supreme Court on 22 March 1992 on an application dated 2 December 1991. The impugned payments were made therefore after the commencement of the winding up.

The second appellant and another company Morven Pty Ltd were associated companies with common directors and shareholders. There was another company, Terrera Pty Ltd, in the group. The second appellant was a furniture retailer. Morven was a supplier of furniture to the second appellant and, in addition, engaged in limited retail selling activity.

Prior to September 1991 the three companies operated separate bank accounts. Cheques in payment of their debts were drawn on their respective accounts. The second appellant was Morven's principal customer and debtor. When Morven's bank account needed to be replenished in order to pay accounts, a cheque was drawn on Acarau's bank account and paid into Morven's bank account in reduction of Acarau's debt to Morven.

In August 1991 it was decided to "amalgamate" the bank account in order to save duties and fees. The overdraft on the Morven bank account was paid out by means of a cheque on the Acarau bank account and the Morven account was closed. Presumably the same was done with the Terrera bank account. Thereafter receipts from Morven's customers were banked in the Acarau account and Morven's accounts were paid by cheques drawn on that account. This arrangement commenced on 2nd September 1991.

The seven cheques in question in this case were drawn pursuant to that arrangement in discharge of Morven's indebtedness to the respondent.

The contention for the appellants was that the payments were dispositions of monies which were the property of Acarau and were void by virtue of section 468(1). The contention for the respondent was that they were payments out of a joint bank account of monies which were the property of Morven. The action was tried by a Master (Judge Kelly). He held that the payments "emanated from the company Morven Pty Ltd and not the second plaintiff or, in other words, these were Morven's monies being used not the second plaintiff's." He gave judgment in favour of the respondent. This is an appeal against that judgment.

Evidence was given by Wendy Wotton, who was a director of and the bookkeeper administrator of the three companies, and bank statements and copies of journals were in evidence. There are gaps in the evidence but the picture as to what occurred after the beginning of September 1991 emerges with reasonable clarity.

At that time the bank accounts of Morven and Terrera were closed. Terrera need not be further considered. Morven's debt to the bank was discharged by a cheque drawn on the Acarau account. The Acarau bank account was in overdraft at all material times. As receipts of Morven were banked in the account the overdraft was thereby reduced and as payments were made to Morven's creditors the overdraft was thereby increased. Internally the affairs of Acarau and Morven were adjusted by journal entries.

Acarau was Morven's principal customer and was in debt to Morven at all material times. The effect of the journal entries was that when monies received by Morven were deposited in the Acarau account the amount of that indebtedness was shown as increasing and when debts of Morven were paid out of the Acarau account, the indebtedness to Morven was shown as increasing. The seven payments in question were treated in that way. The actual bookkeeping procedure was to offset the Morven receipts against the Morven payments on a monthly basis to arrive at the figure by which the Acarau debt to Morven arising from purchases, was reduced.

It was argued that the inference from the evidence was that the three companies were joint holders of the bank account or at least that that analysis had not been excluded on the probabilities. I cannot agree. There was no documentary or other direct evidence as to the contract with the bank. It is apparent, however, that the Acarau account simply continued after 2 September 1991. The bank statements which are in evidence show the bank's customer as "Acarau Pty Ltd trading as Waterbed Warehouse Pooraka." Plainly Acarau was the customer of the bank. There is no evidence of any contractual relationship between Morven and the bank after 2 September 1991. It follows that when Morven receipts were deposited in the account they reduced Acarau's indebtedness to the bank and that when Acarau paid out monies to satisfy Morven's debts those payments increased Acarau's indebtedness to the bank.

As between the companies, there is no indication that Morven was treated as a debtor of the bank. The total of payments out of the account in satisfaction of Morven debts less the total of receipts into account from Morven debtors were journalized on a monthly basis as reducing Acarau's indebtedness to Morven.

I think that it is clear on the evidence that the payments were made by Acarau to the respondent to discharge Morven's debt to the respondent. The learned Master reached his conclusion by regarding "the direct payment by Acarau to the defendant ... as involving two transactions."

He said: "The first transaction is the journal entry whereby Morven acknowledges having received payment of part of Acarau's debt to it. The second transaction is the payment by Acarau of Morven's money to the defendant direct."

I do not think, however, that that analysis provides the answer to the question which arises under section 468(1) of the Corporations Law.

It is true that the payments made by Acarau to the respondent had the effect of reducing Acarau's debt to Morven. The question under section 468(1), however, is whether there was a disposition of property by Acarau to the respondent. The payments out of the Acarau bank account were plainly dispositions of property consisting of the proceeds of the cheques. Those dispositions were made to the respondent. It is not to the point that if relations between Acarau and Morven had been conducted differently the payments to the respondent might have been made by Morven and the disposition of property by Acarau might have been made to Morven. In the event, the property of Acarau was disposed of to the respondent. That disposition is void by virtue of section 468(1). The liquidator of Acarau is entitled to recover the monies paid, from the respondent, and Morven's debt to the respondent remains undischarged.

In my opinion the appeal should be allowed and the judgment of the master should be set aside. There should be judgment for the plaintiffs declaring that the impugned payments are void dispositions by virtue of section 468(1) of the Corporations Law and that the appellants recover from the respondent the sum of $10 490.58 with interest at the rate of six per cent per annum calculated in respect of each payment from the dates of payment specified in paragraph 4 of the Statement of Claim.

JUDGE2 BOLLEN J I agree with the reasoning of the Chief Justice and with the order which he proposes.

JUDGE3 MULLIGHAN J I agree that the appeal should be allowed and that orders should be made as proposed by the Chief Justice for the reasons expressed by him.