International Skin Care Suppliers Pty Ltd v Whyte

Supreme Court of NSW|2011-05-13|Before: Barrett J, Mr J

Parties and claims 1Until about May 2010, the third plaintiff operated a skincare products wholesaling business under the name "Indio". It will be convenient to refer to the third plaintiff as "Indio". 2The first and second plaintiffs are receivers and managers of the assets and undertaking of Indio appointed out of court by the fourth plaintiff, Bank of Western Australia Ltd, in January 2011. I shall refer to the first and second plaintiffs as "the receivers" and to the fourth plaintiff as "the Bank". 3The defendant against whom the proceedings are pressed is Industry Only Pty Ltd ("Industry Only"). 4The plaintiffs allege that between about April 2010 and October 2010, the whole of the assets of Indio, including the goodwill of its business, was transferred, alienated or removed from Indio to Industry Only, that this did not occur in the ordinary course of business or with the knowledge and consent of the Bank and that the transfer was in breach of the terms of the Bank's security; also that Industry Only took with notice of the Bank's interest, so that Industry Only holds the transferred property on trust for Indio and subject to the Bank's charge. 5The plaintiffs further allege that the transfer was effected with the intention of defeating the rights of the Bank under its charge and defrauding creditors of Indio, including the Bank, so that any benefit (including profits) derived by Industry Only as a result of the transfer is held by it on trust for Indio. 6The plaintiffs seek relief accordingly. Specifically, they claim declaratory relief as to Indio's right to occupy relevant business premises as lessee and Indio's entitlement to the transferred property (as well as the Bank's entitlement as chargee), together with an order that Industry Only restore the property to Indio. There is a claim, in the alternative, by Indio for an order under s 37A of the Conveyancing Act 1919 setting aside the transfer.

The facts in outline 7Indio was established on 13 November 2008. On 3 February 2009, Indio acquired an exclusive right to operate a skin care products supply business owned by CPL Australasia Pty Ltd ("CPL"). Indio also acquired from CPL a right to use the trademark "Indio" and a right to use premises at 12 - 14 Macintosh Street, Mascot. CPL was, at the time, subject to voluntary administration under Part 5.3A of the Corporations Act 2001 (Cth). 8Also on 3 February 2009, Indio granted to the Bank the charge under which the receivers were eventually appointed. The charge supported a guarantee given by Indio of the indebtedness of CPL and several associated companies to the Bank. 9Indio's occupation of the Mascot premises was later formalised by two leases, one dated 1 May 2009 and the other dated 10 December 2009 granted by Sunlovers Partners Pty Ltd ("Sunlovers") and Eminence Pty Ltd ("Eminence"). Those companies were associates of CPL. 10Following transfer of the CPL business to Indio, a deed was entered into on 14 May 2009 among the Bank, CPL and Indio. The Bank agreed to forbear from taking enforcement action against Indio until 3 August 2009 and Indio acknowledged that any assets of CPL transferred to Indio were to remain subject to the charge held by the Bank from Indio. 11In October 2009, after the period of forbearance had expired, the Bank initiated recovery action against various entities in the CPL group, including Indio. Notices of demand were issued. Indio failed to comply. The floating charge given by Indio had crystallised in February 2009 as a result of the appointment of administrators to CPL. 12On 11 December 2009, the Bank appointed receivers of the Mascot reversions held by Sunlovers and Eminence. 13Having received the skincare products business from CPL in early 2009, Indio began, in March 2010, to take steps to arrange further transfer to another entity. An inoperative company changed its name to "Industry Only Pty Ltd" in early May 2010. Indio, at about the same time, changed its name from "Indio Skin Care Suppliers Pty Ltd" to "International Skin Care Suppliers Pty Ltd". From about the same time, Industry Only progressively took steps to establish relationships with Indio's customers, to operate from the Mascot premises, to use Indio's post office box, to employ virtually all of the employees of Indio and to sell products under the brand name Indio.

Natural persons 14The steps in May 2010 to use the inoperative company and to change its name to "Industry Only Pty Ltd" were initiated by Stephen Ruskin. He is a director and (through a company) a shareholder of CPL. He is also a shareholder in Indio (through the same company) and was a director of Indio between November 2008 and November 2009. He is a former employee of Indio and a current employee of Industry Only. 15Scott Michaelson was formerly a director and (through a company) a shareholder of CPL. He is a shareholder of Indio and was a director of Indio in the period November - December 2009. He is a former employee of Indio and a current employee of Industry Only. 16The other shareholders of CPL are Gay Daly and Kimberley Whyte. They are also shareholders of Indio. Each is a former employee of Indio and current employee of Industry Only. 17It can thus be seen that, disregarding interposed companies, the same four persons are the shareholder of CPL and of Indio, former employees of Indio and current employees of Industry Only. 18Eileen Whyte became the sole director of Indio in December 2009. 19The sole shareholder of Industry Only is Steven Whyte. He is also the sole director of Industry Only. 20Scott Michaelson and Kimberley Whyte are the son and daughter of Gay Daly. Seven Whyte is the son of Eileen Whyte. Steven Whyte and Kimberley Whyte are husband and wife. There is thus a family relationship of one kind or another between each of these persons and each of the others of them. Stephen Ruskin has no family relationship with any of them.

The transactions 21There is in evidence a copy of an agreement dated 13 April 2010 between Indio as "vendor" and Industry Only (under its former name, Mayo Skin Care Pty Ltd) as "purchaser". The subject matter of the agreement is "the Business", being "the business of a skin care product wholesaler". By the agreement, Indio agreed to sell and Industry Only agreed to purchase "the Business" (free from encumbrance) for "the Purchase Price", being $100. 22Also in evidence is a copy of a "sub-licence deed" dated 13 April 2010 between Indio as "licensor" and Industry Only (under its present name) as "licensee" by which Indio apparently granted to Industry Only a sub-licence in respect of a licence held by Indio from CPL and its administrators. 23The third document to which reference should be made is an "assignment of lease deed" dated 18 October 2010. It purported to effect a transfer of Indio's lease of the Mascot premises to Industry Only. 24As counsel for the plaintiffs pointed out, aspects of these documents compel the conclusion that none of them was effective. 25The business sale deed contemplated completion of the sale and purchase on "the date at which the sub-licence deed is satisfied". The obligations of the parties to complete were obligations to complete on that day. The expression "sub-licence deed" is not defined but is used in one other part of the document: it is said that the purchase price of $100 is "in addition to the payment as set out in the sub-licence deed between the vendor and the purchaser". But even if the reference is a reference to the sub-licence document of the same date (13 April 2010), the definition of "completion" remains meaningless since there is nothing in the sub-licence that could be construed as its being "satisfied". 26The purported sub-licence deed suffers from the significant defect that it has not been executed by the supposed sub-licensee, Industry Only. Steven Whyte purported to execute as a director of that company but he was not a director until 5 May 2010. In addition, he expressly rejected in cross-examination the possibility that he had in fact signed after he became a director and had backdated the document to 13 April 2010. 27There are several problems with the assignment of lease deed - not the least of them that the party which is "the landlord" was not at the time the lessor under the lease and was therefore incapable of giving the consent to assignment supposedly effected by the deed. 28The plaintiffs submit and I accept that none of the documents is of any legal consequence as a means of formally vesting property of Indio in Industry Only. 29It is nevertheless clear that Indio did relinquish its business in favour of Industry Only. Several aspects of the evidence combine to produce this conclusion. 30Steven Whyte, the sole shareholder and director of Industry Only, confirmed in the witness box that that company now carries on the business that was formerly carried on by Indio and that this has been the position since about 5 May 2010. He explained that this had happened following a "massive falling out" between himself and his brother-in-law Scott Michaelson. Steven Whyte had "invested" $175,000 in CPL in a way that his evidence does not explain. The "massive falling out" followed the financial collapse of CPL. Steven Whyte explained the plan that was developed with a view to his recovering his "investment". At his request, Scott Michaelson stood down as a director of Indio and installed in his place Eileen Whyte, Steven Whyte's mother, a woman aged about 75 who lives in Albury and has no commercial experience. By that time, according to Steven Whyte, Indio was in financial difficulties. Steven Whyte considered that the business had potential, based on its past performance. He knew that his prospects of somehow recovering $175,000 would evaporate if Indio went into receivership or liquidation. He therefore decided to set up a new company. 31Having reached that point, Steven Whyte's cross-examination continued: "Q. And it was for the purpose of saving the business and therefore ensuring so far as possible you and your wife got your advance repaid that you participated in this process of transferring the business to Industry Only, wasn't it? A. That is the reason I took over Industry Only or started up my own company Industry Only, yes, was correct, to retrieve my $175,000 to get my money back and my wifes money. Q. And that business, your business Industry Only? A. Yes. " 32And later: "COLES: Q. Indeed it has two leases, you know this, don't you? A. I know they had two leases. Q. You know it has got leasehold interests in the Mascot premises? A. Right. Q. And it, that is to say Indio Skin Care traded from those premises up to and including at least 6 May? A. Right. Q. Industry Only trades from there now? A. Do now, yes, correct. Q. In whatever time there may have been in the middle no one else has ever occupied those premises, have they? A. Not that I am aware of, no. Q. Indio Skin Care has always had so far as you have been working there or have been working there a set of regular customers and clients? A. Yeah, correct. Q. It has had a website? A. Yes. Q. With a domain name? A. Yes, that would be correct. Q. And Industry Only has the benefit of those connections and facilities under your control, doesn't it? A. Yes, that's correct. Q. Before 6 May or whatever the date might have been, Indio Skin Care enjoyed the use under a licence of the trademark of the word Indio? A. Yes, that would be correct. Q. And Industry Only also apparently enjoys the exploitation of the trademark Indio under a licence, is that right? A. Yes I do. Q. Indio Skin Care had some plant, equipment, machinery and the like which was transferred to it when it acquired the business from CPL Administrators, didn't it? A. I didn't take any plant and equipment, no. Q. Indio Skin Care had some plant and machinery and equipment and so forth, didn't it? A. Yes that's correct, sorry. Q. That remained on the premises after Industry Only started to operate? A. That's correct. Q. Of course while Indio Skin Care was conducting and operating the business it generated and retained lots of books and records? A. Yes, their records were there. Q. And invoices and statements and ledger cards and computer printouts and all that sort of-- A. Yeah, everything that has to be there. Q. That remained on the premises after your company commenced to carry on the business there, didn't it? A. It did, yes." 33At a later point in his cross-examination, Steven Whyte was shown a purported letter of 16 February 2010 from Indio to the Bank (signed by Mr Ruskin) as follows: "Dear Ms. McEniery, This letter serves to inform you that as a result of Bankwest no longer supporting the banking arrangement of overdraft and other facilities, previously in place with Indio Skin Care Pty. Ltd, the company is now facing financial difficulty, and we are now in discussion with Mr. Steven Whyte with a view to disposing of the business. Please confirm within seven days (7) of receipt of this letter that you have no objection to this proposal and consent to the transfer of the business. We await your early response and advise that if we do not receive a response from you within fourteen (14) days we will assume that consent has been granted. Please do not hesitate to contact me with any questions you my have. Yours sincerely, Steven [sic] Ruskin GENERAL MANAGER (sgd) S Ruskin" 34The cross-examination was as follows: " Q. What I want to suggest to you Mr Whyte is that you do not disagree factually with the proposition asserted to have been made in February 2010 that Indio Skin Care was at that time facing financial difficulty and was then in discussion with you about disposing of the business? A. In 2010, yes, it was in strife and that's why I had to take measures to recoup my money and that's what I have done." 35Reference should also be made to an affidavit sworn by Steven Whyte on 21 January 2011 for the purposes of an interlocutory aspect of these proceedings. He there deposed: (a) that in 2005, he was employed by CPL which was "the head of several companies including" Indio; (b) he was so impressed with CPL that he invested $250,000 in it; (c) after CPL executed a deed of company arrangement in February 2008, he discovered, through unspecified inquiries, that the administrator had "sold certain rights to a third party" and he "took advantage of this opportunity and purchased those rights including the trade mark 'Indio'" under an agreement which is "confidential in nature"; (d) he then contacted suppliers of beauty products and "commenced trading under the name 'Industry Only'." 36It is clear that some of the things Steven Whyte here attributes to himself should in reality be attributed to Industry Only. It is also clear that Indio, formed in 2008, was not, in 2005, a company of which CPL was the "head company". Furthermore, the investment of $250,000 does not fit with his later statement about an investment of $175,000. It can nevertheless be said that the basic account in the affidavit reflects what Steven Whyte later said in the witness box, even though it obscures the point that the "third party" with which the "confidential" agreement was entered into was in fact Indio itself. 37The whole of Steven Whyte's evidence shows that his purpose in causing Industry Only to acquire Indio's business was a purpose of protecting the business from the consequences of Indio's financial difficulties and causing it to be placed in new control under his ownership in a way that would enhance his prospects of recouping from the business the funds "invested" by him that would otherwise have been lost.

The position after the transactions 38Ms Dickerson, one of the receivers, referred in her evidence to financial statements of Indio indicating the following: (a) for the three months ending 30 September 2009, Indio had product sales of $860,959.19, gross profit of $511,133.75 and net profit of $154,143.65; (b) as at 30 September 2009, Indio had trade debtors of $229,979.63, stock on hand of $255,240.30, plant and equipment of $167,127.29 and total assets of $662,050.73; (c) forecast estimates indicated, for the year 2009/10, gross profit of $2,464,200 and net trading profit of $1,257,838; (d) for the year ended 30 June 2010, Indio had product sales of $2,310,786.17, gross profit of $1,373,715.53 and a net loss of $192,613.17; (e) as at 30 June 2010, Indio had trade debtors of $21,448.72, stock on hand of $51,533.68, plant and equipment of $20,810.63 and total assets of $71,238.52; and (f) the total equity in Indio appears to have decreased from $505,392 at 30 September 2009 to negative $427,724.32 at 30 June 2010. 39Ms Dickerson also referred in her evidence to letters she had received from solicitors for Industry Only in January 2011 stating that Indio "ceased operations" on 5 May 2010 and, as at the time the letters were sent, had no connection with the Mascot premises. 40Mr Edghill, an employee of the receivers, exhibited to his affidavit more than 120 invoices rendered by Indio to customers in the period June 2009 to April 2010, together with a receivables reconciliation summary of Industry Only dated 23 February 2011. All of the customers appearing in the Indio invoices also appear in the Industry Only summary. 41There is also ample evidence that from about May 2010, Industry Only's business address was the Mascot premises. This includes a deed dated 18 October 2010 by which Indio (by then called International Skin Care Suppliers Pty Ltd), with the consent of the landlords, ostensibly assigned the lease to Industry Only. In addition, Industry Only used Indio's post office box address, as is shown by bank statements addressed to that company. 42There is evidence of website content indicating that Industry Only had become the supplier of "Indio" brand skin products and gave its address as the Mascot address; and that Steven Whyte himself, in the affidavit of 21 January 2011, refers to the trade mark "Indio" having been acquired. 43Scott Michaelson played an active part in the process of shifting assets. While Ms Dickerson went to the Mascot premises on 18 January 2011 after the Bank had appointed receivers under the charge given by Indio, it was Michaelson who refused her entry.

Directorships 44Brief reference has already been made to the times at which relevant individuals were directors of relevant companies. Now that the sequence of events has been traced, the respective tenures should be restated. 45Stephen Ruskin became a director of Indio when it was formed in November 2008. Another director (one Harold) took office at the same time but ceased to be a director less than three months later. 46From February 2009, Stephen Ruskin was the sole director of Indio. He continued as such until November 2009 when he was replaced by Scott Michaelson. 47Scott Michaelson remained in office for less than a month. He was replaced as sole director by Eileen Whyte on 1 December 2009. 48From that date, therefore, the sole director of Indio has been the mother of the person (Steven Whyte) who became the sole director of Industry Only on 5 May 2010 and continued in that office thereafter. 49It is clear that, although Eileen Whyte was the sole director of Indio from December 2009, Scott Michaelson and Stephen Ruskin were active in Indio's affairs thereafter. For example, it is Ruskin's signature that appears on the purported letter of 18 February 2010. He is there described as "General Manager".

The Bank's interest 50The Bank has held, at all material times, a charge over the whole of the assets and undertaking of Indio, operating as a fixed charge in respect of capital, goodwill, plant, machinery and interests in land (including, of course, the Mascot leaseholds) and certain other specific items and a floating charge over the balance of the assets and undertaking. 51The Bank had from inception an obvious equitable interest in the items in relation to which the charge operated as a fixed charge. 52The Bank also had from inception an equitable interest in the items in relation to which the charge operated as a floating charge but that interest was liable to be lost, in respect of particular property, if, in accordance with the licence in that respect specifically reserved by (and inherent in the floating nature of) the security, there was a disposal of that property in the ordinary course of business. 53Under the terms of the charge, there were specific prohibitions upon disposal of any property in respect of which the charge was fixed and upon ceasing to carry on business, in each case without the Bank's consent. It was also provided that the floating charge would automatically become fixed if Indio ceased carrying on business. 54A transaction or series of transactions by which a company conducting a skincare products supply business vacates that field of activity, does not commence any other profitable activity and allows another company to occupy the vacated field, including by taking on the same business premises and customs is not something done in the ordinary course of business.

The purported letter of 16 February 2010 55Set out at paragraph [33] above is what I have there described as a "purported letter" of 16 February 2010 from Indio to the Bank signed by Mr Ruskin. I have called it a "purported letter" since there is no evidence from anyone that it was delivered to the Bank at or around the date it bears (or at all) and there is evidence from Ms McEniery, the officer of the Bank to whom it is addressed, that she did not receive it on or about the date it bears or at all. 56With the evidence in that state, there is simply no basis for a finding that the Bank consented to transfer by Indio of its business to Mr Whyte or his nominee. And even if it had been proved that the Bank had received the letter, the fact that it may not have responded within seven days (or at all) would obviously not justify a finding of consent on its part.

Conclusions to this point 57The evidence to which I have referred leaves no real doubt that, in about May 2010, Indio, having become the successor in business to CPL, had encountered severe financial difficulties (such that the Bank had served formal demand) in circumstances where Scott Michaelson who, along with Stephen Ruskin, exercised de facto control over Indio, had had a "massive falling out" with his brother-in-law, Steven Whyte, over the apparent loss of funds invested by Steven Whyte and his wife (Michaelson's sister) in CPL. 58I readily infer that, because of demands made by Steven Whyte and feeling some sense of obligation to him, Scott Michaelson, with the concurrence of Stephen Ruskin, decided to put the profit making apparatus and goodwill of Indio's business into the effective ownership of Steven Whyte so that he might have some means of generating funds to replace the lost "investment". 59There were several elements to the plan of implementation. Steven Whyte's mother, Eileen Whyte, became the sole director of Indio in December 2009. Although her signature appears on some documents. She does not appear to have played any active role in the events that happened afterwards. Steven Whyte confirmed that she lived a long way from the scene of activities, is elderly and has no commercial skills. Steps were taken principally by Stephen Ruskin - in concert with Scott Michaelson - to have Indio vacate its field of business in favour of Industry Only. This was achieved by allowing Industry Only to have Indio's stock on hand, to receive and fill customers' orders, to invoice those customers (and receive payment from them), to obtain the services of persons who had been Indio's employees and to occupy the business premises of which Indio was the lessee, to use the trade mark and to take over the website. 60Stephen Ruskin and Scott Michaelson also came to play within Industry Only, as employees, roles they had previously played within Indio. Steven Whyte, while referring in the witness box to his decision making role as sole director of Industry Only, accepted that, at a day-to-day level, he continues to be the chief storeman working in the warehouse. 61There is a close family relationship among Eileen Whyte, Steven Whyte and Scott Michaelson (whose wife is the daughter of Eileen Whyte and the sister of Steven Whyte). This warrants an inference that Eileen Whyte and Steven Whyte were sufficiently aware of the circumstances of Indio to know of the charge to the Bank. Eileen Whyte, as a director of Indio from late 2009 (replacing Scott Michaelson), should be assumed, as an incident of her duties, have been aware of the charge. And the discussions between Scott Michaelson and Steven Whyte, following the "massive falling out", in the context of which Steven Whyte acknowledges having been aware of Indio's financial difficulties, must have made Steven Whyte aware of the charge. 62The inference is irresistible (and I find) that Scott Michaelson, Stephen Ruskin and Steven Whyte conceived and implemented a plan which saw, first, Eileen Whyte installed as a puppet director of Indio and, second, relinquishment by Indio in favour of Industry Only (and, therefore, for the sole and separate benefit of Steven Whyte) of the whole of Indio's property, including the goodwill and all other aspects of its profit-making apparatus, with a view to enjoyment of that whole by Industry Only not only to the exclusion of Indio but also so that Industry Only should have the ability to deploy these resources wholly to its own benefit without any need to acknowledge or be concerned by financial claims by Indio's creditors and the Bank's rights as secured creditor. 63It is significant that Steven Whyte confirmed in cross-examination that each of Stephen Ruskin and Scott Michaelson was readily available to give evidence yet neither did so. They were the people who orchestrated all relevant actions within Indio. The absence of evidence from them serves to strengthen the inference just mentioned. 64The actions of Indio in making over to Industry Only the whole of its undertaking entailed no benefit whatsoever to Indio. That company remained liable for its debts but simply surrendered whatever capacity it may have had to generate funds to pay them.

Section 37A of the Conveyancing Act 65Section 37A of the Conveyancing Act is in these terms: "(1) Save as provided in this section, every alienation of property, made whether before or after the commencement of the Conveyancing (Amendment) Act 1930 , with intent to defraud creditors, shall be voidable at the instance of any person thereby prejudiced. (2) This section does not affect the law of bankruptcy for the time being in force. (3) This section does not extend to any estate or interest in property alienated to a purchaser in good faith not having, at the time of the alienation, notice of the intent to defraud creditors." 66Section 37A is a descendant of an enactment of 1571 (13 Eliz I, c 5). The meaning and effect of s 37A were the subject of recent authoritative exposition in Marcolongo v Chen [2011] HCA 3; (2011) 85 ALJR 380. French CJ, Gummow J, Crennan J and Bell J (at [20]) regarded two things as clear from the legislative history discussed by them: first, that an understanding of the meaning of the present provision is assisted by consideration of case law on the original enactment; and, second, that that enactment and its modern equivalents should receive "a liberal construction in effecting their purpose of suppressing fraud". Their Honours also said that the term "defraud" should accordingly be read as "delay, hinder or otherwise defraud". There was express approval of the following observation 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. And in cases of voluntary disposition that intention may be inferred. ... The intention of Mr Marcan is perfectly plain: the lease to his wife was designed expressly to deprive the bank of the ability to obtain the vacant possession to which the bank plainly attributed value, and to diminish to that extent the strength of the bank's position as creditor. To take that action at that juncture, in my judgment, was, in the context of relationship of debtor and creditor, less than honest: it was sharp practice, and not the less so because he was advised that he had power to grant the lease. It was, in my judgment, a transaction made with intent to defraud the bank within section 172, and would have been within the [Elizabethan Statute]." 67Also relevant, their Honours said, is the following passage in Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22; (2007) 230 CLR 89 at [173]: "As a matter of ordinary understanding, and as reflected in the criminal law in Australia, a person may have acted dishonestly, judged by the standards of ordinary, decent people, without appreciating that the act in question was dishonest by those standards. Further, as early as 1801, Sir William Grant MR stigmatised those who 'shut their eyes' against the receipt of unwelcome information." 68The onus of proving that an alienation was made with the relevant intent rests with the person challenging the alienation. But as Clyne J observed in Re Trautwein; Richardson v Trautwein (1944) 14 ABC 61, it is not necessary that that person "bring actual proof that the alienor had in his mind an intention to defraud creditors; for if it appears from the evidence that the effect might be expected to be and has been to do so, the court will attribute the fraudulent intention to the alienor." It is also pertinent to refer to what was said by Lord Hatherley LC in Freeman v Pope (1870) 5 Ch App 538 at 541: "But it is established by the authorities that in the absence of any such direct proof of intention, if a person owing debts makes a settlement which subtracts from the property which is the proper fund for the payment of those debts, an amount without which the debts cannot be paid, then, since it is the necessary consequence of the settlement (supposing it effectual) that some creditors must remain unpaid, it would be the duty of the judge to direct the jury that they must infer the intent of the settlor to have been to defeat or delay his creditors, and that the case is within the Statute." 69In Marcolongo v Chen (above), it was said (at [25]), by reference to Freeman v Pope , as footnoted to a passage in the first edition of Halsbury's Laws of England: "The point sought to be made . . . may be expressed by saying that it would be the duty of the judge to direct a jury that they might infer an intention by the settlor to defeat or delay creditors, even in the absence of direct evidence of that intention, where this outcome was the necessary consequence of a voluntary settlement. In this way, it was easier to infer a dishonest intention if the conveyance were voluntary than if it were made for consideration. Evidence that the conveyance was voluntary does not replace the requirement of proof of intent by a distinct category where constructive fraud, with notions of constructive knowledge or notice as understood in equity, would suffice for the application of s 37A. Rather, the evidence is that species which has sufficient weight to entitle the fact finder to decide an issue (here the necessary intent) in favour of the moving party, although the fact finder is not obliged to do so and other evidence given may be decisive to the contrary. " 70The expression "alienation" has, in this context, the same meaning as "disposition" in s 121 of the Bankruptcy Act 1966 (Cth), another descendant of the statute of Elizabeth I. It is therefore to be understood in the sense stated by Drummond J in Official Trustee in Bankruptcy v Baker (unreported, FCA, 5 August 1994) in the following passage approved by the Full Court of the Federal Court in Caddy v McInnes (1995) 131 ALR 277: "[W]hen one person intends to pass his property to another in order to deprive actual creditors or identifiable potential creditors of timely recourse to the property and he does that in what, as a matter of fact, can be identified as a single transaction, it does not matter whether the transaction comprises a single step, e.g., an assignment of the property directly from disponor to disponee or whether, as here, a number of steps involving persons additional to the original disponor and the person he intends to be the ultimate recipient of his property are involved: the term 'disposition' is wide enough to cover both kinds of transaction. It is true that a disposition of property will occur immediately the owner divests himself of a right in that property by transferring it or by diminishing hisinterest in the property, e.g. by encumbering it. But the ordinary meaning of 'disposition' is, according to the Shorter Oxford English Dictionary, 'arrangement (of affairs, measures etc.), especially for the accomplishment of a purpose or plan'. The term used in its ordinary sense is apt to describe the accomplishment of a plan by the implementation of a number of separate steps all taken to achieve the planned objective."

Applying the law in this case 71It is plain that Indio vacated its field of commercial endeavour in favour of Industry Only and made available its profit making apparatus to Industry Only. The findings I have made and recorded indicate a threefold conclusion: first, that there was, in the s 37A sense an "alienation" by Indio of the whole of its assets and undertaking (in the form of implementation of a "plan" of the kind referred to by Drummond J); second, that Industry Only was the recipient or beneficiary of the alienation; and, third, that the mental state of the individuals actively involved in the alienation (Stephen Ruskin, Scott Michaelson and Steven Whyte - plus, in a puppet role, Eileen Whyte) was, particularly in light of the interpretation of Russell LJ (at paragraph [66] above) accepted and endorsed by the members of the High Court, such as to fix Indio with an "intent to defraud creditors" within the meaning of s 37A. 72I merely note, in relation to the last point, that the Bank had served demand on Indio in October 2009, with the result that Stephen Ruskin (who was the sole director at that time) and Scott Michaelson (who became the sole director soon afterwards) were obviously aware of the possibility that the Bank would at some time move to enforce its charge. Steven Whyte, when he caused Industry Only to take over the business through a process starting in or about March 2010 knew that Indio was then in financial difficulties. The inescapable conclusion is that he was told that by Ruskin or Michaelson or both. 73Acquisition of the goodwill and business by Industry Only presented Steven Whyte with a chance of recouping some of his lost investment of $175,000. But an essential element of his success in doing so would be that the business was not, in his hands, burdened by the debt - including the secured contingent liabilities owed to the Bank - that affected the business while owned by Indio. Ruskin and Michaelson must therefore be taken to have intended that Steven Whyte would enjoy the business free from those burdens and Eileen Whyte must be regarded as having merely cooperated in the realisation of their plans, including by accepting the role of sole director of Indio from December 2009. 74I find therefore that there was an alienation by Indio to Industry Only and that was made "with intent to defraud creditors" in the s 37A sense. The plaintiffs (Indio itself, the Bank and the receivers who assert the Bank's rights) are persons prejudiced and therefore entitled to bring proceedings. 75The whole of the composite "alienation" is, by force of the section, "voidable" at the instance of any person thereby prejudiced. 76In addition, Industry Only received the property concerned knowing of the Bank's equitable interest and that the transfer by Indio was in breach of the Bank's charge. The knowledge of Steven Whyte in that respect must be attributed to Industry Only.

The trade mark 77It is necessary to make special reference to the trade mark, given the submission of counsel for Industry Only that that company does not hold any property right by virtue of any alienation by Indio, so that any concept of reversion to Indio as a result of avoidance of alienation will not extend to the trade mark. 78The submission is based on the fact that Indio's right under licence granted by CML is a mere right on non-exclusive user. 79This is beside the point. The right is a chose in action. To the extent that it has come to be enjoyed by Industry Only, that company must relinquish it in favour of Indio. If it has not, in reality, come to be enjoyed by Industry Only and is retained intact by Indio, the intent of the avoidance of the alienation of the profit-making apparatus to Industry Only will be fulfilled in any event.

Disposition 80The plaintiffs have made out their claim. The declarations and orders are as follows:

Declare that the plaintiffs are entitled to possession of the property located at 12-14 Macintosh Street, Mascot in the State of New South Wales pursuant to the terms of the Commercial Lease Agreements dated 1 May 2009 and 10 December 2009.
Declare that the second defendant (Industry Only Pty Ltd) holds all of the assets, undertaking, fittings, fixtures, plant and equipment, intellectual property, goodwill and stock in trade relating to or used in connection with the skin care product wholesaling business known as "Indio" on trust for International Skin Care Suppliers Pty Limited (receivers and managers appointed) ('Indio').
Order pursuant to section 37A of the Conveyancing Act 1919 that every transfer or disposition of the assets, undertaking, fittings, fixtures, plant and equipment, intellectual property, goodwill and stock in trade relating to or used in connection with the skin care product wholesaling business known as "Indio" to the second defendant (industry Only Pty Ltd) is void and of no effect.
Order that the second defendant (Industry Only Pty Ltd) do all things as may be necessary to restore and re-vest in Indio all of the assets, undertakings, fittings, fixtures, plant and equipment, intellectual property, goodwill and stock in trade relating to or used in connection with the skin care product wholesaling business known as "Indio".
Order the second defendant, its agents and employees, be restrained from hindering or interfering with the exercise of the plaintiffs or their employees or agents from entering, remaining or taking possession of 12-14 Macintosh Street, Mascot New South Wales.
Order that the defendants pay the plaintiffs' costs of the proceedings.

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: 24 May 2011

Eliz 1, c5) Corporations Act 2011(Cth)

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