Jonas (as liquidator of MGT Samorr Knitting Mills Pty Ltd) (in liq) v Rocklea Spinning Mills Pty Ltd [2003] VSC 277

It is common ground that each of the payments was made during the six months ending on the relation-back day and that, on the date of each payment, Rocklea was a creditor of MGT.

7. Rocklea put in issue the following matters with respect to each of the payments:

(a) Were MGT and Rocklea parties to the payment?

(b) Was payment made by MGT as the debtor and received by Rocklea as creditor?

(c) Was the payment in respect of an unsecured debt owed by MGT to Rocklea?

(d) Did the payment have the result that Rocklea received from MGT in respect of the debt more than Rocklea would have received from MGT if the payment were set aside and Rocklea were to prove in the winding up of MGT?

(e) At the time of the payment was MGT insolvent?

Background

13. MGT was incorporated in 1971. It conducted a knitting mill under the name "Supreme Knitting Mills" as a member of the MGT group of companies which was generally engaged in the clothing industry. Its directors were Thomas Lipson, Bronia Lipson (until 1991), Maxymillian Frayman and Gizella Frayman (until 1991), Sabatino Spezza and Gloria Jean Spezza.

16. In early 1996, the ANZ Banking Group Ltd, the banker for the MGT Group, was becoming restive and steps were taken with a view to refinancing the activities of the companies and to releasing the securities held by the bank. For the purpose, the directors engaged the services of Michael Humphris, a member of the firm Arthur Andersen, Chartered Accountants. Mr Humphris liaised with the ANZ Bank, with Louise James, the in-house accountant of the MGT Group and its solicitors, Arnold Block Leibler. He also negotiated with the creditors of MGT.

19. The detail of the complicated negotiations with the bank and the incoming financier, Bank West, are of no particular relevance for my purposes. Insofar as they concern MGT, it was agreed that MGT would sell its business for $6M to a new company, Penburn Pty Ltd. This was a company incorporated in May 1996 as a member of the MGT Group.

22. The agreement of sale of the business is dated 24 July 1996. The subject matter of the sale is the assets of MGT as defined. These do not include the book debts of MGT which are dealt with under clause 6 as follows:

"6. BOOK DEBTS 6.1 The Book Debts shall be assigned to the Purchaser pursuant to the deed of assignment of the Book Debts and the Purchaser shall be entitled to require payment, and to institute proceedings for the recovery, of any Book Debts. 6.2 If, after the Completion Date, the Vendor receives any amount which is expressed to be made in payment of any Book Debts, the Vendor shall pay the same to the Purchaser immediately and in the meantime shall hold the same in trust for the Purchaser. 6.3 If requested by the Purchaser, the Vendor shall use reasonable endeavours to assist the Purchaser in the collection of the Book Debts."

The book debts dealt with in this way do not include certain excluded book debts which are set out in the 6th Schedule to the Sale Agreement. These excluded book debts were, predominantly, those considered to be uncollectable.

27. Under the Sale Agreement, Penburn assumed certain of MGT's liabilities including those to its employees and its trade liabilities. This assumption was dealt with in cl. 4 of the Sale Agreement:

"4. ASSUMPTION OF LIABILITIES 4.1 As part of the consideration of the sale and purchase, the Purchaser as and from the Completion Date shall assume all obligations in respect of the Assumed Liabilities and the Purchaser shall indemnify and hold the Vendor indemnified against the Assumed Liabilities. 4.2 Subject to Clause 4.3 but notwithstanding any other provision of this Agreement, liabilities of the Vendor in respect of the Business other than the Assumed Liabilities shall remain the sole responsibility of the Vendor and the Vendor shall indemnify and hold the Purchaser indemnified against those liabilities. 4.3 As part of the consideration for the sale and purchase, the Purchaser agrees to indemnify and hold the Vendor indemnified against any amount paid by the Vendor in satisfaction of the liabilities of the Vendor in respect of the Business (and certified by two directors of the Vendor as having been so paid by the Vendor) other than the Assumed Liabilities provided that: 4.3.1 this indemnity and the maximum amount the Purchaser can be required to pay pursuant to this indemnity shall be limited to a total amount in respect of all claims made of $3,200,000; 4.3.2 irrespective of whether any payment has previously been made pursuant to this indemnity, this indemnity shall only apply (and shall otherwise be of no force and effect) if:

4.3.2.1 an order has not been sought and an effective resolution has not been passed for the winding up of the Vendor;

4.3.2.2 a receiver, receiver and manager, liquidator, provisional liquidator, administrator or any similar official has not been appointed of, or over all or any part of the assets of the Vendor;

4.3.2.3 a mortgagee or other encumbrancer has not taken possession or assumed control, whether by an agent or howsoever otherwise, of all or any part of the assets of the Vendor;

4.3.2.4 the Vendor has not entered into any scheme, composition, arrangement or reconstruction with all or any of its creditors, and has not taken any proceedings or other step with a view to readjustment, rescheduling or deferral of all or any part of its indebtedness, other than with the prior consent in writing of the Purchaser.

4.3.3 if the Purchaser has made any payment pursuant to this indemnity and the indemnity subsequently ceases to apply and becomes of no force and effect pursuant to Clause 4.3.2, the Vendor shall pay to the Purchaser, an amount equal of the total of the payments made by the Purchaser pursuant to this indemnity, such payment by the Vendor to be made immediately upon the indemnity ceasing to apply."

36. One of the liabilities assumed by Penburn was the liability of MGT to its supplier, Rocklea. As at the date of the sale the amount of the debt to Rocklea was $766,488.24.

39. Following the sale of the MGT business, the business continued as before, conducted from the same premises and under the same name, Supreme Knitting Mills. But it was in fact conducted by the new company, Penburn. MGT ceased thereafter to trade. The directors of the new company were as before, Messrs Spezza, Frayman and Lipson. The business cheque account with the ANZ Bank, account number 8328 96452, in the name of MG Samorr Knitting Mills Pty Ltd and Subsidiaries, was closed on 6 August 1996 and a fresh account opened on 19 July 1996 with the National Australia Bank, account number 66 976-1573 in the name of MGT Samorr Knitting Mills Pty Ltd.

42. It seems that Rocklea was not told of the sale for on 22 August 1996 Mr Humphris had a meeting with Miles Harvey and Rob Rowe of that company. The purpose of the meeting was to inform Rocklea of the sale and of the reasons for it and to negotiate, if possible, a compromise of the debt owed to it. Rocklea, however, was resistant to this and on 5 September 1996 it served a statutory demand on MGT.

45. In the event, Rocklea agreed that the debt would be paid by Penburn by 20 monthly instalments each of $38,324.41. This agreement is contained in a deed dated 28 October 1996 entered into between Rocklea, MGT and Penburn as well as with Messrs Lipson, Frayman and Spezza as guarantors. By this Deed, each of MGT and Penburn acknowledged that MGT was indebted to Rocklea in the sum of $766,488.24 in relation to the supply of yarns prior to 24 July 1996 and Penburn further acknowledged its indebtedness in the sum of $76,372.58 in relation to supplies on and after that date.

48. Clause 1 of the October Deed provides for the payment of the debt owed by MGT:

"1. PAYMENT OF THE MGT DEBT 1.1 MGT and Penburn acknowledge that MGT is indebted to Rocklea in the sum of $766,488.24 in relation to supply of yarns by Rocklea to MGT prior to 24 July 1996 (the 'MGT Debt'). 1.2 In consideration of Rocklea forbearing from winding up MGT at its request, Penburn hereby irrevocably undertakes to pay and discharge the MGT Debt to Rocklea in 20 monthly instalments of $38,324.41. The first instalment will be paid upon the execution of this deed and all further instalments will be paid on or before the same day of the month in the succeeding 19 calendar months until the MGT Debt is repaid in full. Payment of the further instalments will be made by direct deposit of the instalments into Rocklea's bank account no. 8330 37502 held at the corner Queen and Creek Street, Brisbane branch (BSB No. 014 002) of Australia & New Zealand Banking Group Ltd. 1.3 (a) Interest on the MGT Debt shall accrue at the rate of 18% per annum with monthly rests calculated from 24 July 1996 until payment of the MGT Debt is made in full. (b) Subject to paragraph (c) of this sub-clause, interest accrued under paragraph (a) of this sub-clause shall be paid by Penburn upon any default of the instalments payable under subclause 1.2 without further notice or demand by Rocklea. (c) In respect of no more than 5 of the further instalments to be paid under sub-clause 1.2, Penburn will upon written request made to Rocklea before the due date for payment of an instalment be entitled to an extension of 30 days from the due date for payment of that instalment provided that all other instalments then due and payable under sub-clause 1.2 have been paid. 1.4 Without limiting subclause 1.3, if Penburn fails to make any payment of the MGT Debt on the due date the then remaining balance of the MGT Debt and interest thereon shall become immediately due and payable by MGT and Penburn to Rocklea without further notice or demand and Rocklea will be entitled to serve a statutory demand against either or both of MGT and Penburn and produce this deed as conclusive evidence of MGT and Penburn's acknowledgment that the then outstanding amount of the MGT Debt and interest thereon is due and payable to Rocklea. 1.5 Where any obligation under this deed falls to be performed on a day other than a business day, that obligation may be performed on the next business day."

52. The following payments were made pursuant to cl. 1.1:

59. The amount of $76,372.58 payable by Penburn on 6 November 1996 in respect of the post sale supplies was paid by MGT from its National Australia Bank account on 1 November 1996. By entry in the MGT general journal in January 1997, this payment was transferred to the Penburn loan account.

63. Mr Humphris, who had advised the directors prior to the sale of the business, said that, by May 1996, he formed the view that MGT was insolvent since the ANZ Bank was pressing for repayment of the facilities granted to it and to the other companies in the Group and they were unable to pay.

66. Evidence was given by Andrew Reginald Yeo, the accountant in the office of the liquidator responsible for the day to day management of the liquidation, that MGT had no realisable assets with which to pay Rocklea or its other creditors in and after January 1997. He produced a summary of the MGT general ledger showing its position at various dates from 24 July 1996 to 30 July 1997. This shows a diminishing surplus of assets over liabilities, but nevertheless a surplus of assets on each of the seven selected dates. During this period the figures for trade creditors stood at $3.976M on 24 July 1996 (post sale); it was $1.447M on 31 January 1997 and thereafter it reduced slowly so that by 30 June 1997 it stood at $1.213M. During this period and on the same dates the current assets of MGT, not including intercompany debtors, were $451,531, $159,468 and $158,538 respectively. As to these asset figures, I accept the uncontradicted evidence of Mr Yeo that the figures for trade debtors being the excluded book debts were in fact worthless. I give no value to the inter-company debtors. It appears that the debtors were unable to pay so that this current asset was on each date valueless. I accept, too, his evidence that the remaining substantial items making up the current asset figures were not realisable to meet current liabilities, or at all. It follows from this that, following the sale in July 1996, MGT was left with virtually no current assets of value and this position did not improve in the year that followed since it was not trading.

69. With respect to the remaining assets shown on Schedule A to Mr Yeo's witness statement, they comprise shareholdings in associated companies and intercompany loans. Of the shareholdings, the sum of $100,000 is shown as the value of the holding of MGT in its wholly owned subsidiary, Radioactive Clothing Co Pty Ltd. Following the restructure in July 1996, this company on 16 August 1996 changed its name to Taoidar Pty Ltd and went into administration. On 2 October 1996, it entered into a Deed of Company Arrangement under which MGT was not to participate in any distribution. Mr Yeo attributes no realisable value to these shares and I agree. The remaining shareholdings are inconsequential and, in any event, do not represent a readily realisable asset for payment of overdue debts.

72. There was some debate about the value of the intercompany loans. Again, it is necessary to bear in mind that, for the purposes of determining insolvency, the asset in question must be shown not to be an asset which may be applied to meet liabilities as and when they fall due. Mr Yeo in his witness statement expressed the view that the amounts shown as owing to MGT are not recoverable. I accept his evidence.

75. Counsel for Rocklea suggested in cross-examination of Mr Yeo that his conclusion as to insolvency might be affected if more was known of the destination of the $6M paid by Bank West to the ANZ Bank upon the sale of MGT's business in July. It appeared from the accounts of MGT that the intercompany loans were reconciled prior to the sale and that the Bank West funds were applied in the books of MGT to the balance owing. Mr Yeo agreed that he had no detail of the application of these funds by the ANZ Bank other than that they were applied against the group facilities and that, after this, there remained some $400,000 outstanding. This lack of information appeared to lay the foundation for a suggestion that the liquidator had not excluded the possibility that the Bank West money had been applied to discharge some other liability. My task, however, is not to engage in speculation but to determine whether, on the balance of probabilities, MGT was at the relevant time insolvent. This suggestion, if correct, does not bear upon the issue whether in 1997 MGT was unable to pay its debts as they fell due out of its own money or from funds available to it.

78. Next, it was put that the liquidator had ignored the right of MGT to seek contribution from the numerous co-sureties for the debt owed to the ANZ Bank. Again, this is an interesting question but it does not bear upon the present matter. Such claims for contribution are not readily realisable assets. Moreover, the evidence leads to the conclusion that the transactions of July 1996 were directed by those in control of the MGT Group of companies to strip those companies of valuable assets which were then transferred to a new company within their control and to pay out the ANZ Bank in order to protect the sureties and their personal assets. In these circumstances, such right that MGT might have to pursue the co-sureties would in all probability be resisted and, in any event, would be unlikely to yield funds to pay its liabilities as and when they fell due.

81. Finally, it was put that the October 1996 Deed had an affect upon the solvency of MGT. Under this Deed, Penburn agreed to pay MGT's debt to Rocklea by instalments. To the extent that it did so, the amount of each instalment paid became a liability owing by MGT to Penburn. Although it does not deal with this in express terms, the effect of the Deed upon the liability of MGT to Rocklea appears to be that the debt remained due but that it was not payable so long as Penburn observed the instalment payment regime. Under the Sale Agreement, the debt to Rocklea was a liability which remained owing by MGT, but, if MGT paid the debt, cl. 4.3 provided machinery whereby Penburn would indemnify it; it did not relieve MGT of its obligation to pay its creditors as and when the debts fell due. In any event, if the October 1996 Deed were construed to defer the liability of MGT to pay the Rocklea debt then due, it is clear enough that it did not affect the liability of MGT to pay its other creditors which stood at nearly $750,000 in January 1997. It had no assets with which to do this.

84. I conclude that, at all material times, MGT was insolvent.

89. The payments of 24 February 1997 and 29 April 1997 were made by Penburn from its own bank account. Section 588FA(1) provides as follows:

"588FA(1) ['unfair preference'] A transaction is an unfair preference given by a company to a creditor of the company if, and only if: (a) the company and the creditor are parties to the transaction (even if someone else is also a party); and (b) the transaction results in the creditor receiving from the company, in respect of an unsecured debt that the company owes to the creditor, more than the creditor would receive from the company in respect of the debt if the transaction were set aside and the creditor were to prove for the debt in a winding up of the company; even if the transaction is entered into, is given effect to, or is required to be given effect to, because of an order of an Australian court or a direction by an agency."

93. By s. 9, "transaction" is defined in the following terms:

"'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."

It was contended on behalf of Rocklea that MGT was not a party to the transaction and that the payments in question were not made by MGT and further that the payments were not made in respect of an unsecured debt that MGT owes to Rocklea.

98. Counsel on behalf of the liquidator sought to meet these submissions by characterising the transaction as embracing matters other than the payments themselves. He relied upon authorities which have pointed out that, in such cases, the court should look to the totality of the dealings between the parties which led to the payments in question[3]. It was put that the transactions comprised the following dealings: the Sale Agreement from MGT to Penburn of 24 July 1996, the October Deed between those parties and Rocklea and the payments presently under consideration.

101. To my mind the transaction properly understood includes the October Deed and the payments in question; it does not include the Sale Agreement. Rocklea was not a party to or aware of this agreement and its rights were unaffected by it. Nor were the obligations of MGT to pay the Rocklea debt affected by the Sale Agreement. By cl. 4.3, MGT received an indemnity once the debt was paid.

104. The affect of the dealings between the parties following the entering into of the October Deed was that MGT remained liable to pay the full amount of the debt to Rocklea. By cl. 1.2, in consideration of Rocklea agreeing to stay its process of winding up MGT, Penburn agreed itself to pay the debt by instalments. At its highest, the Deed relieves MGT of the obligation to make payment so long as Penburn paid the agreed instalments. Following the Deed, Rocklea had two debtors to whom it might look for payment, but with a constraint upon enforcing payment from MGT.

107. So understood, it is clear that the payments made by Penburn out of its own money discharged pro tanto its own liability under cl. 1.2 of the October Deed. These payments had the incidental consequence of discharging MGT to the same extent and creating a liability in MGT to pay the sum to Penburn. This liability might in turn be discharged if the indemnity provisions of cl. 3 of the Sale Agreement were invoked. This result follows notwithstanding that Penburn may have defaulted in its payment schedule so that, under cl. 1.4 of the October Deed, the whole of MGT's unpaid debt became immediately due and payable.

110. I return to the submission put on behalf of Rocklea. Given my characterisation of the transaction as including the October Deed, I reject the contention that MGT was not a party to the transaction.

113. I accept the submission that each of the payments in question was not made by MGT. The fact that MGT derived a benefit from the payment does not lead to the contrary conclusion. I mention, too, that this is not a case of the kind contemplated in Ramsey v National Australia Bank Ltd[4]. It is not a case of a payment by B out of his own moneys to C pursuant to a contract made between A and B whereby B agreed to discharge A's debt to C. The Full Court in Ramsay's case held that such a payment is not a payment by A to C for the purposes of the then current preference legislation[5]. In the present case, Rocklea was a party to the agreement and the party to whom Penburn agreed to make the payments in discharge of MGT's debt.

116. I accept, too, the submission that the Penburn payments were not made in respect of MGT's debt; they were made by Penburn to discharge its own debt.

119. It follows that the liquidator fails with respect to these four payments.

123. What was put on behalf of Rocklea with respect to these two payments is that the MGT bank account was in fact the account of Penburn into which Penburn's money was received and from which its trading expenses were paid.

126. In support of this, the evidence of Mr Yeo was that, prior to the sale of the business, the MGT account with the ANZ Bank was used for moneys of companies other than MGT within the MGT Group.

129. It was also suggested that it was convenient for Penburn to use the MGT account so as to ensure a smooth transition between the old business and the new after the July 1996 sale. It is true that Mr Humphris agreed with this suggestion, but this must be supposition on his part. It might equally be supposed that for Penburn to use the MGT account after the sale in this way was entirely unnecessary. At the time of the sale the business changed its bankers. It was therefore necessary to inform those customers who paid by direct deposit about the new arrangements. In these circumstances, it was entirely unnecessary to conceal from them that the old business conducted by the old management under the old business name was in fact being conducted by a different entity within the MGT Group. I am not prepared to act upon either supposition.

132. An examination of the operation of the MGT National Australia Bank account shows that, although it was opened on 19 July 1996, it was inactive until 25 July 1996, the day after the sale. On this date a number of cheques were deposited, details of which appear in the cashbook as trade debtors, presumably trade debtors of MGT for sales made prior to the sale of the business. Under cl. 6.2 of the Sale Agreement these moneys were to be held in trust for Penburn and were to be paid to that company immediately. Other deposits in the first few weeks after the sale of the business included, not only trade debtors which were the subject of the sale, but a few which were exempted. This practice of receiving income from the business into this account appears to have continued until the end of December 1996. It may be that this practice was followed in order to provide funds for the expenses of the business to be paid out of the same account. Payments from the account after the sale of the business and up to 16 September 1996 included wages paid to the staff of the business notwithstanding that these were the responsibility of Penburn.

135. A good deal of time at the trial was directed to showing how these payments were dealt with by journal entries in the books of MGT. To my mind little benefit can be obtained from such an examination in this case. The entries were made some time after the transactions in question. Those responsible for the entries were not called. In many respects the entries were confusing and even erroneous. I would prefer to act upon the contemporaneous records of MGT and Penburn as showing how moneys received and paid through the MGT bank account were seen by those entities.

138. The first payment with which I am concerned is dated 31 January 1997. The instalment was in fact due on 28 December 1996, but by letter dated 24 December 1996 the financial controller of Supreme Knitting Mills sought an extension of time for payment of 30 days pursuant to cl. 1.3(c) of the October Deed. At the foot of this letter the owner of the business name is identified as Penburn although the subject matter of the letter is entitled "MGT Samorr Knitting Mills P/L - Debt". Under cl. 1.3(c), Penburn was entitled to request an extension of time for payment of an instalment payable by it. In this case the period of extension expired on 27 January 1997. By letter bearing that date Ms James advised that the payment would be deposited on the following Friday, 31 January. In the same letter she made a request for a like extension for the January instalment. For some reason this letter which was sent by fax was not received until 29 January. This fact and the fact that the request for the extension of time for the payment of the January instalment was late, was drawn to the attention of Penburn by a fax from Rocklea of 30 January 1997.

141. The December payment was in fact made from the MGT National Australia Bank account on 31 January 1997. The fact of the deposit in the Rocklea account was confirmed by fax that date from Penburn. This describes the payment as "instalment of the MGT Samorr Knitting Mills Pty Ltd creditors balance". The payment was late so that on 28 January 1997 the balance owing by MGT was due and payable in terms of cl. 1.4 of the October Deed. The reason that the payment was made from the MGT account was not disclosed. The National Australia Bank statement shows that there were insufficient funds to cover the payment had not a deposit of $43,000 on the same day been made. The cash receipts book shows that the deposit came from Penburn. It is entered there as a sundry item. In the cash payments book the payment to Rocklea is shown as a payment of creditors.

144. The position, then, on 31 January 1997 was that Penburn was late in making the December instalment and, accordingly, MGT's obligation was to make immediate payment of the balance of the whole debt. I am satisfied that, on the balance of probabilities, the proper analysis of the position as between Penburn and MGT is that, for some reason, Penburn advanced to MGT funds sufficient for it to make the payment in reduction of the amount which was then due and payable by it to Rocklea. The payment, therefore, was a payment by MGT out of its own funds and for which it might have sought indemnity under cl. 4.3 of the Sale Agreement.

147. Payments in respect of the January, February, March and April instalments were made by Penburn - all but one of them late.

150. A second payment with which I am concerned was that made on 29 May 1997. Under the October Deed this instalment was payable by Penburn on 28 May 1997. On 29 May the sum of $38,324.41 was drawn from the MGT National Australia Bank account and deposited in the Rocklea account. As was the case in January, there were insufficient funds to meet this payment, and on the same day $55,000 was deposited in the National Australia Bank account. The cash receipts book shows that this sum was provided by Penburn and it may be that it is recorded as a receipt from debtors. This was not the first such deposit since the $43,000 was deposited on 31 January. The cash receipts book shows a receipt from Penburn of $5,000 in February and $10,000 on 7 March. The cash payments book shows the payment to Rocklea as a payment to creditors. For some reason this cash book also shows a number of payments to creditors, presumably creditors of the business, in February and March and May. Again, there is no explanation for this. Indeed, it is surprising because Mr Humphris notes in his May report to Bank West that Penburn had opened its own bank account and that deposits were passing through this account in the first quarter of the calendar year 1997. Little else is known of the circumstances of this May payment.

153. By this time, May 1997, the financial position of the business appears again to have worsened. An extension of the time for payment of the June instalment was sought and granted but neither this nor any further payment was made to Rocklea. Mr Humphris was acting as investigating accountant of Penburn on behalf of Bank West. On 19 May 1997 Fabric Dye Works served a statutory demand on MGT. On 18 July Mr Jonas was appointed administrator of MGT and on 14 July receivers and managers were appointed over the assets of Penburn. The resolution of the creditors to appoint Mr Jonas as liquidator of MGT was passed on 13 August 1997.

156. The precarious financial position of MGT and Penburn in May 1997 sheds no light on the reason for the payment by MGT of the May instalment. For reasons already mentioned, I do not place reliance on later journal entries in preference to contemporaneous accounting records. In the event I conclude that the payments should be understood as it was recorded at the time. As with the January payment, Penburn advanced money to MGT who then used this as part of its own funds to make the May payment.

159. With respect to the specific submissions made as to the characterisation of these two payments by MGT I am satisfied that MGT was a party to the transaction and that each of the payments was made by MGT. I reject the submission that the payments were not made in respect of MGT's liability to Rocklea. It follows that the liquidator has established these parts of its claims with respect to these two payments.

163. The final issue is as to the advantage which Rocklea obtained by receipt of the payments made by MGT.

166. It is clear enough that Rocklea has received 100 cents in the dollar with respect to that part of its debt for which it received payment. It is equally clear that, had it been required to prove for the sum received in the winding up it would have received from MGT very much less, if anything at all. Notwithstanding this, counsel for Rocklea put this aspect of the case in issue. Two points were taken and I shall deal with them shortly.

169. First it was said that the advantage to Rocklea came not from the receipt of the payment made by MGT but by its entitlement under the October Deed to receive payment from Penburn. To my mind there is no substance in this submission. It would of course be correct to say this in respect of the payments made by Penburn itself out of its own money. But in the case of payments by MGT the benefit to Rocklea has been that it has received from the insolvent debtor more than other creditors will receive from that insolvent debtor. It is beside the point that Rocklea might have obtained this money from Penburn.

172. The second point is that the sureties who were liable to make contribution to MGT for their share of the debts which it paid might well have supplied sufficient funds eventually to pay 100 cents in the dollar to unsecured creditors of MGT. It seems that the liquidator never sought this. To my mind this is mere speculation. The fact remains that if the MGT payments were set aside and Rocklea was obliged to prove for these amounts in the winding up of MGT it would not receive 100 cents in the dollar.

176. I conclude from this that of the five payments two payments each of $38,324.41 cents are voidable pursuant to s. 588FA as an insolvent transaction of MGT.

179. I will hear counsel further as to the orders which should be made to give effect to this conclusion.

[1] Date extended pursuant to cl. 1.3(c).

[2] Date extended pursuant to cl. 1.3(c).

[3] Re Emanuel (No 14) Pty Ltd (in liq); Macks v Blacklaw & Shadforth Pty Ltd (1997) 147 ALR 281 at 288, per O'Loughlin, Branson and Finn JJ; VR Dye & Co v Peninsula Hotels Pty Ltd (in liquidation) [1999] VSCA 60; [1999] 3 VR 201 at 214-5, [38]- [39], per Ormiston JA (Winneke P and Tadgell JA concurring).

[4] [1989] VicRp 7; [1989] VR 59.

[5] I note in passing the reservations expressed as to this proposition by the Full Federal Court in Re Emanuel (No 14) Pty Ltd (in liq); Macks v Blacklaw & Shadforth Pty Ltd (1997) 147 ALR 281 at 287.