Ingram v Y Twelve Pty Ltd

The "guillotine order" 10Y Twelve failed to comply with four orders made in these proceedings in relation to the service of its evidence. McDougall J made the last of those orders on 18 October 2013. That order was that Y Twelve serve its evidence by 24 October 2013 and that it be prevented from relying upon evidence not served by that date without the leave of the Court. 11On 12 and 13 November 2013, Y Twelve served affidavits sworn by its three directors, Mr Christopher Salmon, Mr Glenn Rufford and Mr Peter O'Shea. Messrs Salmon, Rufford and O'Shea, through various family trusts, are in substance the beneficial owners of the "York Group" in which HM&O, Y Twelve and Teach & Play (and other companies that I will describe below) are members. 12On 15 November 2013 (the last working day before the day on which the hearing of these proceedings was to commence) Y Twelve sought leave to rely on those affidavits, notwithstanding the guillotine order of 18 October 2013. I refused to grant such leave (Ingram v Y Twelve Pty Ltd [2013] NSWSC 1704). 13Accordingly, Messrs Salmon, Rufford and O'Shea did not give evidence in these proceedings. 14Y Twelve adduced evidence from its accountant, Mr Blagojce Petrovski, a partner of Hall Chadwick, and from Mr Dimitrios Koutsouklakis, a bank officer employed by the Australia and New Zealand Banking Group Ltd. 15Mr Petrovski's affidavit was sworn and served beyond the time limit in the guillotine order made by McDougall J on 18 October 2013. However, because it was served several weeks before the hearing, and because Mr Curtin SC, who appeared with Mr Bannan for Mr and Mrs Ingram, accepted he could meet it, I granted leave to Y Twelve to rely on it (Ingram v Y Twelve Pty Ltd [2013] NSWSC 1704 at [39] and [40]). 16Mr Koutsouklakis refused to provide Y Twelve with an affidavit (although he sent Messrs Salmon, Rufford and Petrovski an email on 31 May 2013 setting out his recollection of certain matters). He attended Court in response to a subpoena whereupon Mr Fernon, who appeared for Y Twelve, adduced his evidence in chief orally.

The competing contentions 17Prior to 30 August 2012 HM&O had the following assets: (a)56.52 per cent holding in K-Lite Pty Ltd, a holding company which owns all of the shares in York Precision Plastics Pty Ltd, a plastics manufacturing company; (b)all of the shares in YPP Properties Pty Ltd which, as trustee of the YPP Property Trust, owns real estate at Riverwood at which York Precision Plastics conducts its business; (c)all of the units in the YPP Property Trust (and thus, in effect, the beneficial interest in the Riverwood property); and (d)all of the shares in HM&O Finance Pty Ltd, a company established as the "treasury entity" of the York Group. 18In the final days of the hearing of the proceedings before McDougall J, it was, Mr and Mrs Ingram contend, clear to the directors of HM&O that the submissions made on their behalf to McDougall J were not being well received, and that HM&O (and Teach & Play) were at risk of losing the case against Mr and Mrs Ingram and being ordered to pay Mr and Mrs Ingram's costs of the proceedings. 19At the luncheon adjournment on 15 August 2012, Mr Salmon, a director of HM&O and Teach & Play was told of these problems by counsel and warned of the possibility that HM&O and Teach & Play would be ordered to pay Mr and Mrs Ingram's costs. 20Mr Salmon then enquired as to whether he could "disperse" or "dispose" of "some of the companies' assets" and was told by counsel that he could not do so. 21On Wednesday 29 August 2012, McDougall J's Associate informed the parties that judgment would be delivered two days later; on Friday 31 August 2012. 22Later that day Mr Salmon instructed Mr Petrovski to implement the transfer by HM&O to Y Twelve of its shares in K-Lite, YPP Properties and HM&O Finance and its units in the YPP Property Trust. 23Those transfers were prepared and executed the following day, Thursday 30 August 2012. 24McDougall J delivered his principal judgment the next day, Friday 31 August 2012 and, on 26 September 2012 ordered that HM&O and Teach & Play pay Mr and Mrs Ingram's costs of the proceedings. 25HM&O and Teach & Play were placed in liquidation on 30 October 2012. 26Nine days later, on 8 November 2012, a company called YPP Productions Pty Ltd was incorporated and now carries on the business formerly carried on by HM&O and Teach & Play using intellectual property licences from the liquidator of HM&O and assets and other stock purchased from the liquidator of Teach & Play. 27Mr Curtin submitted that the conclusion to be drawn from these circumstances was that the 30 August 2012 asset transfers were done with intent to defeat HM&O's creditors; in particular Mr and Mrs Ingram. 28On the other hand, Mr Fernon submitted: "The actual intent of HM&O Investments in transferring its assets on 30 August 2012 was to effect a restructure so as to improve its EBITDA by removing the common connection between York Precision Plastics... and Teach & Play." 29That "common connection" was said to be the shareholding of HM&O directly in Teach & Play and indirectly (through K-Lite) in York Precision Plastics. 30In order to consider these competing contentions, it is necessary to examine, in some detail, the events leading up to the 30 August 2012 transfers including the extent to which the "restructure" of the York Group evolved.

The "restructure" 31From July 2011 the structure of York Group was as depicted in the diagram annexed to these reasons (Annexure A). 32Mr Petrovski said that, during 2011, there were "2 distinct businesses" within the York Group, namely those of York Precision Plastics and Teach & Play. Mr Petrovski said that he considered York Precision Plastics to be the "main business" because in or around 2011 it had an annual turnover of approximately $20 million whereas Teach & Play had revenue of approximately $1.3 million and was "at best, only just breaking even". 33Mr Petrovski said that in about June 2011 he spoke to Mr Rufford and Mr Salmon and said: "The structure isn't ideal. The group currently has all of its eggs in one basket so to speak. I don't think the current structure provides any protection from investment risk, nor does it achieve the optimum tax position. Currently, the bank has security over the entire group. Again, that's not ideal." 34The "bank", ANZ, had a fixed and floating charge over the assets of all of the members of the York Group. 35The minutes of an extraordinary meeting of the directors of HM&O of 28 October 2011 record that Mr Petrovski: "... suggested we separate all assets relating to [York Precision Plastics] & land [presumably a reference to York Precision Plastics' Properties] to another entity. With the history of [Teach & Play] and its trading the ANZ would prefer it this way given the current economic climate. Agreed to separate all not relating to [Teach & Play]." 36Mr Petrovski said that in November or December 2011 he said to Mr Salmon and Mr Rufford words to the effect: "As the ANZ has not directly funded the Teach & Play business, it would be beneficial if this side of the business was separate and distinct from [York Precision Plastics], so that the ANZ had no recourse over it. At the same time, the current losses being incurred by Teach & Play would not be consolidated into the [York Precision Plastics'] EBITDA calculations." 37Although Mr Petrovski was recommending a "segregation" of HM&O's "passive investments" from its "active asset" it appears that some consideration was being given to a different course. 38York Precision Plastics, to a large extent, funded Teach & Play's costs in the litigation pending before McDougall J. Mr Petrovski said that York Precision Plastics had advanced something in the order of $1.4 million to Teach & Play in that regard. 39Minutes of a meeting of the directors of York Precision Plastics of 28 October 2011 (at which Messrs Salmon and Rufford were present) recorded: "[Teach & Play] case ongoing, PH [Mr Paul Higgins, a director of York Precision Plastics] questioned re the ability of [Teach & Play] to pay its debt to [York Precision Plastics]. [Mr Salmon] advised that at the HM&O level, directors had discussed that [York Precision Plastics] assume control of the business as a going concern in repayment of its debts. [York Precision Plastics] Directors agree." 40Thus, while some thought was evidently being given to "segregating" the Teach & Play business from that of York Precision Plastics, the "cash flow shortage" being suffered by York Precision Plastics arising from its funding of the legal costs generated in the proceedings before McDougall J was also giving rise to the thought that York Precision Plastics should "assume" the Teach & Play business. 41Mr Petrovski said that in mid April 2012 he "put forward a proposal" to Mr Rufford and Mr Salmon "in relation to the restructure" and said words to the following effect: "I am proposing that the unit-holders of HM&O Investments swap their units in HM&O Investments for a new holding trust. That is, we interpose a new unit trust between the 3 discretionary trusts and HM&O Investments. The 3 discretionary trusts would hold the units in the new unit trust in their existing proportions. Once the entity is interposed, I propose that the shares in K-Lite 2 and the units in [York Precision Plastics] Properties be transferred up from HM&O to the new unit trust. I believe we are able to access both CGT concessions and stamp duty concessions under the corporate reconstruction exemptions available under the Duties Act. This would give us the desired effect of holding the passive investments in the new unit trust, whilst HM&O Investments would continue to hold the active asset of the Teach and Play business and the shares in Teach and Play... So we need to set up a new trustee company and trust. The Directors and shareholders will be the same as HM&O Investments. I will start considering this and the stamp duty issues, and come back to you. In addition, considering we are a few months away from the financial year end, it may be best to proceed with these changes just after 1 July 2012. This may be easier and cleaner from an administrative perspective." 42A note of a "board meeting" of York Precision Plastics on 29 June 2012 included a note: "thinking of Y 12 as new Co to replace HM&O Invest. in [York Precision Plastics]". 43The question of York Precision Plastics "assuming" Teach & Play's business was again considered on 13 July 2012. 44The minutes of a meeting held on that date between Mr Salmon and Mr Rufford recorded: "[York Precision Plastics] directors increasingly agitated by cash flow shortage due to support from facilities for [Teach & Play] and its legal case... Watch [Teach & Play] closely as trading needs to generate c/flow to start paying back [York Precision Plastics]. If it can't - seriously think re allowing [York Precision Plastics]/shareholders to assume the business." 45On 20 July 2012 Mr Petrovski attended a meeting with Mr Rufford and Mr Salmon. In his affidavit he said that he believed that it was at this meeting that he "received instructions to proceed with the restructure". He said that, after that meeting, "there was some delay from my end in incorporating the new entity and finalising the restructure" because of "my concerns about capital gains tax and in particular, stamp duty implications flowing from the restructure".

The hearing before McDougall J resumes 46In the proceedings before McDougall J, cross-examination of expert witnesses took place on 13 August 2012. His Honour heard final submissions on 15 August 2012. 47The transcript before McDougall J reveals that, shortly before the luncheon adjournment on 15 August 2012, his Honour was expressing scepticism about aspects of HM&O's and Teach & Play's case on damages. 48His Honour said to Mr Loewenstein, who was appearing for HM&O and Teach & Play: "And I struggle to understand how his [the expert's] expertise as a valuer of businesses enables him to make any assessment on which the Court can rely as to those matters. And I struggle to understand that, in particular, when it is a view directly inconsistent with the view formed by the plaintiffs after close investigation of the business... But that's simply not an area in which [the expert] has any expertise. So far as I am aware, his expertise is as an accountant and business valuer. The Court needs evidence that... your clients made careful investigations of the prospects, including speaking to the major customers, and satisfied themselves that the business was on a roll." And: "His Honour: And to finish on this particular point, because it is important - Mr Loewenstein: It's very important. His Honour: It's important, because if I find against you... Mr Loewenstein: If you find against me, that's the end of my case. His Honour: Well, no, it's the end of your case in damages. Mr Loewenstein: Well, that's where we are going in this case." 49Shortly after that exchange Mr Loewenstein concluded his submissions and his Honour took the luncheon adjournment. 50During the luncheon adjournment Mr Salmon had a conversation with Mr Loewenstein and with Ms Christine Vrahas, a solicitor employed by Owen Hodge Lawyers, the solicitors for HM&O and Teach & Play. 51Ms Vrahas made a note of the conversation. 52On 12 July 2013, Hammerschlag J ruled that HM&O and Teach & Play had waived privilege in respect of this document (and others): Ingram v Y Twelve Pty Ltd [2013] NSWSC 928. 53The note read: "PRIVILEGED 15/8/12 Outside Court @ lunch Counsel explained to Chris [Salmon] - Judge may not accept [expert's] report. - Future Performance - or - value of Business If we don't win (prove damages) We pay their costs Counsel may have persuaded H/H on reliance Client (Chris [Salmon]) asked if he does not accept expert will he come to his own conclusion (middle ground)??? Counsel advised - No - if you have not made out your damages claim you lose. Client asked if he could ["disperse" or "dispose"] some of the companies' assets - Counsel advised that he could not do so. Strike off Role of Directors Advised client". (emphasis added)

Events thereafter 54The first entry in Mr Petrovski's time costing records that could be reasonably construed as being referrable to the "restructure" was six days after 15 August 2012: on 21 August 2012. On that date Mr Petrovski's time records read: "Meeting at [York Precision Plastics] re various matters unit trust setup". 55Mr Petrovski's records show that he spent three hours at that meeting (which included travelling time from the city to York Precision Plastics' premises at Riverwood). 56On 21 August 2012 Mr Salmon and Mr Rufford met. 57A handwritten document called "HM&O meeting notes" reads: "CS [Mr Salmon], GR [Mr Rufford], Apologies Pete [Mr O'Shea] Also in attendance Bill Petrovski, Hall Chadwick. K-Lite Pty Ltd, [York Precision Plastics] and anything to do with that side of the group to have "Y12" registered and replace HM&O Investments in all businesses except Teach and Play. This is to distance our "good" business with a pretty mediocre performer, per suggestions from [Mr Koutsouklakis]. [Mr Petrovski] to register this week." 58Mr Fernon relied upon this document as contemporaneous evidence of the actual intent of Mr Salmon and Mr Rufford (and thus HM&O) in the events of 30 August 2012. 59Two days later, on 23 August 2012, Y Twelve was incorporated. 60On 24 August 2012 Mr Petrovski prepared a draft letter to Dibbs Barker Solicitors headed "stamp duty advice". Mr Petrovski said that the letter was drafted with the intention of seeking advice from Dibbs Barker "in relation to stamp duty implications (if any) of the proposed restructure". 61The draft letter contained the following passage: "The trustee of the HM&O Unit Trust is involved in litigation, as well as one of its subsidiaries. It is intended to restructure the group in order to minimise risk in relation to holdings in passive versus active assets and have the interests in passive entities held directly by the three discretionary trusts rather than indirectly through an entity which holds investments in assets with different risk profiles due to their active nature". 62Mr Petrovski gave this unchallenged evidence in respect of that draft: "Although [Mr Rufford] and [Mr Salmon] were aware that I intended to seek advice in relation to stamp duty implications of the proposed restructure, [they] were not aware whether I was to seek that advice in writing or orally. Neither [Mr Salmon or Mr Rufford] were aware of the language I would use in seeking that advice. Prior to preparing the letter to Dibbs Barker, I did not consult [Mr Rufford or Mr Salmon] in relation to the content of the letter, nor did I provide a copy of the letter to [them]. I believe the letter to Dibbs Barker, was in fact, never sent, to the intended recipient. I observe that [the first of the two paragraphs that I have set out above] refers to HM&O Investments and one of its subsidiaries being involved in litigation. I included that as background information together with other relevant matters. This information does not in the context of the letter serve any real purpose, and is not the main reason for seeking the advice". 63On or about 28 August 2012 someone (the time costing records of Hall Chadwick suggest it was an employee, Mr Meli James) drafted a document called "CGT Advice". 64The first paragraph of that document read: "The proprietors of the York Precision Plastics group wish to restructure their affairs. A group entities [sic] have been involved in prolonged litigation and by virtue of this experience, the proprietors wish to separate out those underlying assets that are passive in nature and/or have a different risk profile to other underlying assets." (emphasis added). 65Mr Petrovski said in cross-examination: "I would have provided the information for the letter. I don't recall who drafted or prepared the letter". 66However, Mr Petrovski said that he could not recall giving anyone an instruction that the wish of "the proprietors" to "separate out" passive assets was "by virtue of" the "experience" of the "prolonged litigation" referred to. 67The following exchange occurred between Mr Petrovski and me: "Q. I think Mr Curtin at the end of this case is going to submit that the reason the words "and by virtue of this experience" appear in that paragraph is that someone on Mr Fernon's side either instructed you or your firm that that was their motivation in engaging in this restructure. What do you say about that, if anything? A. I don't recall anyone giving me that instruction". 68I accept that Mr Petrovski does not now recall why the words "by virtue of this experience" appear in the draft letter. 69However, as Hall Chadwick's time costing records suggest that it was Mr James, rather than Mr Petrovski, who prepared the document, it appears likely that the words were included either because Mr Petrovski gave instructions to that effect to Mr James or because Mr James drew that conclusion from some communication he received from one or more of Messrs Salmon, Rufford or O'Shea.

29 August 2012 70As I have mentioned, on the following day, Wednesday 29 August 2012, McDougall J's Associate notified the parties that his Honour proposed to deliver judgment in the proceedings on Friday 31 August 2012. 71Later on 29 August 2012 Mr Salmon gave Mr Petrovski instructions to proceed with "the restructure". 72Mr Petrovski said that Mr Salmon telephoned him at home "late in the evening" of 29 August 2012 and that the following conversation took place: Mr Salmon: "Where are we up to with the restructure? Mr Petrovski: We are satisfied that there will be no capital gains tax implications, however I am about to seek advice in relation to the stamp duty implications. I'm reasonably confident that the restructure will be exempt, in which case there will be no stamp duty payable. That said, we are not lawyers and can't officially give that advice. I reckon the advice will take about 4 to 6 weeks to obtain, and likely cost somewhere between $10,000 to $15,000. Mr Salmon: Look if you are confident with the position, let's just proceed without the advice. We can save some money on legal fees that way as well. Mr Petrovski: I'm happy to do that on your instructions, but as I said we are not lawyers. There is the risk that it might be deemed to be a land rich transfer, in which case, stamp duty could be around $300,000. Mr Salmon: If you're confident Bill, then we're happy to proceed. If it ends up being dutiable, well then we'll pay the duty. Mr Petrovski: Okay no problem. Can you just send me a quick email for my records confirming that you are happy to proceed with the restructure without obtaining advice in relation to stamp duty? Mr Salmon: Sure, no problem. Mr Petrovski: I will have the documentation prepared tomorrow. When do you want to come in to sign them? Mr Salmon: Glenn [Rufford] and I are actually in the city tomorrow night for the ANZ training function around 5pm. Mr Petrovski: Well how about you just come to my office say half an hour before it starts to sign the necessary documents? Mr Salmon: Yes, okay, that will work out well. We're still on for dinner after the function too aren't we? Mr Petrovski: Yes." 73Mr Petrovski said that, after his conversation with Mr Salmon, he "review[ed] the files, and commenced work on the restructure". 74At 9.11pm on 29 August 2012 Mr Salmon sent Mr Petrovski the confirmatory email that Mr Petrovski requested as follows: "Further to our meeting on 17th of August where we outlined where we currently stood with the HM&O corporate restructure that began with the implementation of HM&O Finance in October 2011 and after advice from yourself and the ANZ, please proceed with the completion of the restructure as discussed. We understand that you will be proceeding with no advice as to the applicability of stamp duty but are happy to proceed irrespective." 75Based on Mr Salmon's instructions that he was prepared to take the risk that $300,000 stamp duty might arise by reason of the restructure, Mr Petrovski did not send the draft letter, referred to at [60] above, to Dibbs Barker. 76It is clear that Mr Petrovski considered it necessary to give effect to Mr Salmon's instructions urgently. 77Thus, at 11.03pm on 29 August 2012 Mr Petrovski sent an email to his assistant, Mr Kieran Bowden: "Kieran, need to do following first thing in the morning for me pls 1. Docs to Tfr the units in HM&O Unit Trust (all 5.7 m units) held by the 3 family trusts (Salmon Family Trust, Rufford Family Trust, and O'Shea Family Trust) to Y Twelve Pty Ltd ATF Y Twelve Unit Trust. I will advise consideration later in $, but it will be for additional unit capital to be issued in Y Twelve Unit Trust (ie, a scrip for scrip). Need all trust rsltns and unit tfr docs, may need to review deed to see how it needs to be done. 2. i have y twelve unit trust deed. anna has details of y twelve p/l, the trustee. 3. then need to tfr shares in K-Lite P/L from HM&O Inv Trust to Y Twelve rustTrust. I will tell you consideration later. Need all resolutions and share tfr docs pls." 78At 11.27pm on the same evening Mr Petrovski sent a further email to Mr Bowden, and to Ms Anna Zhilina and Mr Jack Wang, also employees of Hall Chadwick: "Pls see me first thing Kieran. Anna and Jack may have info you need about the entities too." 79Mr Petrovski's time records showed that he spent four hours on the matter on 29 August 2012. The description in the time costing records for the work is "discuss lawyers, restructure docs".

30 August 2012 80On the following day, Thursday 30 August 2012, documents, including shareholding transfer forms, unit holding transfer forms, minutes and other documents were prepared and executed which had the effect that HM&O transferred to Y Twelve: (a)its 100 per cent shareholding in HM&O Finance Pty Ltd; (b)its 56.52 per cent shareholding in K-Lite Pty Ltd; (c)its 100 per cent shareholding in YPP Properties Pty Ltd; and (d)its 100 per cent unit holding in the YPP Property Trust. 81The objective circumstances suggest that the exercise was carried out in haste. Mr O'Shea did not attend Hall Chadwick's office on 30 August 2012, and yet his signature appears on some of the documents created to record the transactions of 30 August 2012. Some of the minutes and share certificates relevant to the transfers were not prepared until 13 September 2012. 82Mr Petrovski gave this evidence: "Q. What was the rush between the events of the evening of 29th and getting them signed on the 30th, Mr Petrovski? A. We agreed that they were going to attend my office in the afternoon of that 30th. Q. What was the rush, why the urgency? A. Because they were coming into the office the next day at or around 4pm. I knew they would take some time to prepare so I asked them to commence first thing... Q. That is, you told Salmon that you have the documents prepared tomorrow without knowing at this point in time in the conversation when you would be coming in, correct? A. Yes. Q. So why the rush in your mind, Mr Petrovski, to have the documentation prepared tomorrow before knowing when Salmon and Rufford and anybody else was coming in? A. I don't recall. I just - I don't recall. Q. I noticed you paused before giving that answer. You knew on 29 August that judgment in the proceedings was to be delivered on 31st, correct? A. I don't recall that I knew it was the next or the 31st". 83Later, I reminded Mr Petrovski of the evidence I have just set out and Mr Petrovski gave this evidence: "Q. My question of you is what was your state of mind on the evening of 29 August as to when judgment was to be handed down, if you had any state of mind? A. At that time I wasn't aware of the exact date. I knew it was in the ensuing period. From earlier discussions I think I made reference to the final hearing was in the middle of July, middle of August, but no indication had been given to me as to when final judgment would be handed down. So in my mind it was due in the near future, but I didn't know exactly the date it would be handed down." 84On the evening of Thursday 30 August 2012 Mr Petrovski, Mr Rufford and Mr Salmon attended a dinner with Mr Koutsouklakis and another, more senior, officer of the ANZ, Mr Steve Bynon. 85Mr Koutsouklakis's 31 May 2013 email recorded that: "During this meeting, ANZ was advised that the restructure had occurred. To this point, Steve [Bynon] and I requested that we are formally advised of the restructure and details of the new securities agreed between the parties (including but not limited to Y Twelve) so that ANZ could prepare the requisite security documents." 86Mr Salmon sent formal advice of the restructure to Mr Koutsouklakis on 22 October 2012. 87Mr Petrovski gave this evidence: "Q. In your mind, Mr Petrovski, it may be one of many purposes, one purpose of the restructure was to remove assets from HM&O Investments otherwise available to an unsecured creditor of that company. That is just obvious and correct, isn't it? A. Yes."

Judgment: 31 August 2012 88The following day, Friday 31 August 2012, McDougall J delivered the judgment and, as I have said, expressed the view that, in substance, HM&O and Teach & Play had failed in the proceedings.

Events thereafter 89On 26 September 2012 McDougall J made an order that HM&O and Teach & Play pay Mr and Mrs Ingram's costs of the proceedings. 90On 24 October 2012, on the application of Mr and Mrs Ingram, McDougall J granted a freezing order against HM&O, Teach & Play, York Precision Plastics, HM&O Finance, K-Lite, Y Twelve and YPP Properties with effect up to and including 30 October 2012. 91On 30 October 2012 HM&O and Teach & Play were placed into liquidation. 92Nine days later, Mr Salmon and Mr Rufford caused the incorporation of YPP Productions. 93Mr Petrovski agreed that YPP Productions undertakes the same business as that formerly conducted by Teach & Play using intellectual property licences from the liquidator of HM&O and stock purchased from the liquidator of Teach & Play. 94I accept Mr Curtin's submission that YPP Productions is, in effect, a "phoenix company" incorporated with the intention of undertaking the same business as was formerly conducted by Teach & Play.

Principles concerning s 37A 95Relevantly, s 37A(1) of the Conveyancing Act provides that: "... every alienation of property... with intent to defraud creditors, shall be voidable at the instance of any person thereby prejudiced." 96With one exception, there was no controversy before me as to the principles to be applied. 97The following summary is drawn largely from Mr Curtin's submissions. 98The High Court has determined that s 37A is not limited to common law or equity notions of fraud. 99In Marcolongo v Chen [2011] HCA 3; (2011) 242 CLR 546, French CJ, Gummow, Crennan and Bell JJ cited, with approval, statements made by Blanchard and Wilson JJ, when considering the comparable New Zealand legislation in Regal Castings Ltd v Lightbody [2009] 2 NZLR 433 and said (at [32]): "Their Honours said that it was unnecessary to show that the debtor wanted creditors to suffer a loss or that the debtor had a purpose of causing loss: it was necessary to show the existence of an intention to hinder, delay or defeat creditors and in that sense to show that accordingly the debtor had acted dishonestly." (emphasis in original). 100Their Honours also cited with approval the observations of Russell LJ in Lloyds Bank Ltd v Marcan [1973] 1 WLR 1387 at 1390 - 1391: "I am not sure what is meant by a perfectly innocent defeat, hindrance or delay. It must be remembered that in every case under this section the debtor has done something which in law he has power and is entitled to do: otherwise it would never reach the section. If he disposes of an asset which would be available to his creditors with the intention of prejudicing them by putting it, or its worth, beyond their reach, he is in the ordinary case acting in a fashion not honest in the context of the relationship of debtor and creditor." 101Russell LJ referred to assets "which would be available" to creditors. 102Similarly in Cannane v J Cannane Pty Ltd (in liq) [1998] HCA 26; 192 CLR 557, Brennan CJ and McHugh J referred to the necessity to show a deprivation of assets against which creditors "would otherwise be entitled to prove their debts" (at [14]). 103In the decision of the Court of Appeal in Chen v Marcolongo; Chen v Lym International Pty Ltd [2009] NSWCA 326, Young JA said (at [214]): "The intention must be to deprive the creditors of something to which they would otherwise be entitled." 104Mr Fernon relied upon those statements in support of the proposition that there could not be the requisite intention under s 37A if, as a matter of fact, the assets transferred would not have been available to the relevant creditor in any event (because, for example, it was certain that a secured creditor would have a superior claim to such assets). 105I do not read the authorities as leading to this conclusion. In my opinion, reference to assets "which would be available" to creditors is a reference to assets which, as a matter of law, would be available to creditors so as to exclude only assets which would not be available to any creditor from the insolvent estate of the party who has disposed of the asset (for example, property of the kind referred to in s 116(2) of the Bankruptcy Act 1966 (Cth)). 106I accept that, as Mr Curtin submitted, the other critical aspects of s 37A are as follows (they were recently succinctly summarised by Kunc J in Chan v Acres [2013] NSWSC 1597 at [72]). 107First, the reference to "creditor" in s 37A extends to future creditors, and to prospective or contingent creditors: Trustees of Cummins v Cummins (2006) 227 CLR 278 at 291 (referring to s 121 of the Bankruptcy Act but equally applicable to s 37A). 108Second, the relevant intent of hindering, delaying or defeating creditors will be made out where that is an intention of the transferor. It is not necessary to demonstrate that the proscribed intention is the sole intention or even a predominant or substantial intention: Marcolongo at [57]. 109Third, the relevant intention may be established by inference. In Cannane, Brennan CJ and McHugh J held (at [12]): "Although the party impugning the disposition of property must show an actual intent to defraud creditors at the time of the disposition, the intent may be inferred from the making of a disposition which, to adopt the words of Lord Hatherley LC in Freeman v Pope [(1870) 5 Ch App 538 at 541], 'subtracts from the property which is the proper fund for the payment of [the] debts, an amount without which the debts cannot be paid'." 110Similarly, in Bell Group Ltd (In liq) v Westpac Banking Corporation (No 9) [2008] WASC 239; (2008) 70 ACSR 1, Owen J held "that an intention to defraud creditors may be inferred where this is a necessary consequence of a disposition" (at [9109]; emphasis in original). 111Fourth, whenever the circumstances are such that the transferor knew that they were exposing creditors to a significantly enhanced risk of not recovering amounts owing, the Court will infer that the transferor acted with the relevant intent. 112In Cannane, Kirby J explained (at [92]): "Proof of the intention of a person presents notorious difficulties in every area of the law where it is encountered. Even when the distinction between intention and motive is kept in mind, knowledge of subjective intention will ordinarily, or often, be reserved to the person whose interests may be so affected that an assertion, one way or the other, cannot necessarily be accepted at face value. That is why, at least in a provision such as s 121, it is not necessary to establish that the transferor of the property in question actually had in mind an intention to defraud creditors if the effect of what that person did would reasonably be expected to have such a consequence. Courts will therefore infer the intention in issue, deciding it as a question of fact. This does not mean that the intention so derived is one imputed by the law. It is not a fiction. It is the real intention of the transferor decided objectively rather than upon protestations of innocence on the part of the debtor or outraged accusations on the part of suspicious creditors." (citations omitted). 113In Langdon v Gruber [2001] NSWSC 276, Austin J held (at [54]): "But in Australia, at least, it is not necessary for the plaintiff to bring actual proof that the debtor had in his or her mind an intention to defraud creditors; if it appears from evidence of all the circumstances that the transfer might be expected to have that effect, and has had that effect, the Court will attribute fraudulent intention to the debtor ...". 114In Regal Castings, in the passage immediately following the one referred to by the High Court in Marcolongo at [32], Blanchard and Wilson JJ explained (at [54]): "Whenever the circumstances are such that the debtor must have known that in alienating property, and thereby hindering, delaying or defeating creditors' recourse to that property, he or she was exposing them to a significantly enhanced risk of not recovering the amounts owing to them, then the debtor must be taken to have intended this consequence, even if it was not actually the debtor's wish to cause them loss." 115Fifth, all that is required for creditors to establish prejudice is that: (a)the debtor is "putting [an asset], or its worth, beyond their reach" (per Russell LJ when considering s 172 of the 1925 Act in Lloyds Bank Ltd at 1390 - 1391 and approved by French CJ, Gummow, Crennan and Bell JJ in Marcolongo at [32]); or (b)there would be "an increase in the assets available for the benefit of creditors" (Griffiths v Falck [2008] NSWSC 998 at [16] - [17] per Young CJ in Eq (as his Honour then was)) if the transfer were to be avoided.

Were the transfers made with intent to defraud creditors? 116I am satisfied on the evidence that, prior to 30 August 2012, Mr Petrovski had advised Messrs Salmon, Rufford and O'Shea that there should be a "restructure" of the York Group with the view to separating "active assets" from "passive investments". 117I also accept that Mr Petrovski advised that the restructure should comprise the interposition of a "new unit trust" between the three discretionary trusts associated with Messrs Salmon, Rufford and O'Shea, and HM&O and that the shares in K-Lite and YPP Properties "be transferred up from HM&O to the new unit trust". 118The effect of the transfers of 30 August 2012 was to change the structure of the York Group from that set out in Annexure A to that set out in the diagram annexed to these reasons (Annexure B). 119Thus, the 30 August 2012 changes did have the effect of interposing a new unit trust (the "Y Twelve Unit Trust") between the discretionary trusts associated with the O'Shea, Salmon and Rufford interests and HM&O (as trustee for the HM&O Investment Unit Trust). 120They also had the effect of transferring HM&O's shareholding in K-Lite and in YPP Properties "up... to the new unit trust". 121I am not, however, able to see how the effect of the changes was to segregate the "active" investments in Teach & Play from the "passive" investments in York Precision Plastics. 122Under the structure I have set forth in Annexure B, both those investments remained owned, in substance, by the one entity (Y Twelve as trustee for the Y Twelve Unit Trust). 123The "segregation" of the active and passive investments occurred only after Teach & Play was wound up on 30 October 2012 and YPP Productions incorporated to, in substance, take over Teach & Play's business. 124However, despite Mr Petrovski's evidence to the contrary, I am not satisfied that any final decision had been made to effect the restructure by 15 August 2012. 125That is, in my opinion, made clear by the contemplation revealed in the minutes of 28 October 2011 and 13 July 2012 (see [39] and [44] above) that York Precision Plastics might "assume" the Teach & Play business if it did not start to generate cash flow sufficient to repay the monies advanced by York Precision Plastics for the funding of the litigation before McDougall J. 126Thus, on the one hand, Mr Petrovski was advising the "segregation" of the Teach & Play business from that of York Precision Plastics. On the other, the directors of York Precision Plastics (including Messrs Salmon and Rufford) were contemplating the possible "assumption" by York Precision Plastics of the Teach & Play Business. 127In my opinion, the evidence points overwhelmingly to the conclusion that what prompted Mr Salmon, in particular, thereafter to revive and accelerate the restructure proposal was the revelation to him, during the luncheon adjournment on 15 August 2012, that HM&O's and Teach & Play's case against Mr and Mrs Ingram was not going well and that McDougall J "may not accept" the expert evidence relied upon in the proceedings; and: "If we don't win (prove damages) we pay their costs". (see Ms Vrahas's note of 15 August 2012 at [53] above) 128Thereafter: (a)Mr Salmon asked Mr Loewenstein and Ms Vrahas whether he could dispose of some of the company's assets; (b)he was (quite properly) advised that "he could not do so"; (c)something was said to either Mr Petrovski or Mr James at Hall Chadwick which led one of them to conclude that "by virtue" of the "experience" that "the proprietors of the York Precision Plastics group" had by "being involved in prolonged litigation" they wished to effect the restructure; (d)Mr Salmon gave Mr Petrovski instructions to effect the restructure on the evening of the day on which McDougall J's Associate notified that judgment would be delivered in two days' time; (e)that, to use his own language, Mr Petrovski then "commenced work on the restructure" (see [73] above); and (f)the restructure was effected the following day; the day before judgment was to be delivered. 129These circumstances point, ineluctably, in my opinion, to the conclusion that HM&O's intention in effecting the transfers was, at least in part (and I would conclude predominantly) to place beyond the reach of Mr and Mrs Ingram assets which might have been available to them were they to succeed in the proceedings and obtain a favourable costs order. 130Indeed, as I have set out above (see [87] above) Mr Petrovski said as much in cross-examination. 131In coming to this conclusion, and because of the evidence of Mr Petrovski to which I have referred at [62] above, I do not place any weight on Mr Petrovski's draft letter to Dibbs Barker referred to at [61] above. 132I do not accept that the minutes of 21 August 2012 referred to at [57] above compel a contrary conclusion. In the circumstances I have described, I do not accept that those minutes reflect the true, or at least the only, purpose behind the 30 August 2012 transfers. 133The conduct of those in control of the York Group after McDougall J's judgements (referred to at [91] to [94] above) although not determinative of my conclusion as to the events of 30 August 2012, is, to my mind, confirmatory of it. 134As I have mentioned, Mr Fernon submitted that there could have been no intention to deprive creditors' claims in this case because the property transferred was not property to which Mr and Mrs Ingram would "otherwise have been entitled". 135The principal basis for this submission was that the assets of all members of the York Group were the subject of a charge to the ANZ which would, as a practical matter, have a superior claim to the transferred assets to that of Mr and Mrs Ingram, as unsecured creditors of HM&O. 136However, as I have said (see [105] above) my opinion is that the reference in the authorities to the need for an intention to deprive creditors "of something to which they would otherwise be entitled" is a reference to legal entitlement.

Conclusion 137Mr and Mrs Ingram are entitled to the relief they seek. 138I invite the parties to bring in short minutes to give effect to these reasons.

Annexure A Annexure B DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 03 December 2013