McCann, in the matter of Walton Construction (Qld) Pty Ltd (In Liq) v QHT Investments Pty Ltd - [2018] FCA 1986 - FCA 2018 case summary — Zoe

CTHFCA

McCann, in the matter of Walton Construction (Qld) Pty Ltd (In Liq) v QHT Investments Pty Ltd

[2018] FCA 1986

Federal Court of Australia|2018-12-13|Before: Mr P, Derrington J

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At a glance

Source facts

Court

Federal Court of Australia

Decision date

2018-12-13

Before

Mr P, Derrington J

Source

Original judgment source is linked above.

Judgment (57 paragraphs)

[1]

It is declared that the Deed of Assignment between Walton Construction (Qld) Pty Ltd and QHT Investments Pty Ltd dated 18 September 2013 is a voidable transaction within the meaning of s 588FF of the Corporations Act 2001 (Cth).
Pursuant to s 588FF(1) of the Corporations Act, QHT Investments Pty Ltd is to pay to the applicants the sum of $679,453.80.
The parties are to be heard on the question of interest and costs. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

[2]

Introduction 1 Walton Construction (Qld) Pty Ltd (in liq) (Walton Qld) was one of a number of companies in a group of nine called "The Walton Group". It was a subsidiary of Walton Construction Australia Pty Ltd as was the related company Walton Construction Pty Ltd (in liq) (Walton Construction). The group was controlled by a Mr Craig Walton. By April 2013, Walton Qld and Walton Construction were insolvent. At the time, an asset of Walton Qld was a debt owed to it by Walton Construction in the sum of approximately $18.8 million (the WC Debt), although the extent to which it was recoverable was uncertain. What was less uncertain was the liability of Mr Walton and others associated with him to the National Australia Bank (the NAB). That bank was the lead financier of the group and had provided performance guarantees on behalf of the companies in favour of their principals in respect of the performance of building contracts. The liability of the bank on those guarantees was secured by, inter alia, a personal guarantee from Mr Walton. The Bank also held security over Walton Construction's cash deposit accounts but, as at April 2013, that security did not cover the bank's exposure. 2 In April 2013, at the apparent encouragement of the NAB, Mr Walton and some of the companies in the group engaged the services of Mawson Restructure and Workouts Pty Ltd (Mawson) to assist it in restructuring and dealing with its creditors. Mawson received substantial sums for its "advice" and services, including fees and success fees. In the period from April to September 2013, through the services provided by Mawson, the exposure of the NAB was substantially reduced such that funds in the cash deposits over which it had security exceeded its exposure. That had the coincidental effect of effectively relieving Mr Walton of liability under the guarantee which he had provided to the bank. 3 Ultimately, certain companies controlled by Mawson or its directors entered into several arrangements with Walton Qld and Walton Construction. By one arrangement a company controlled by Mawson, Peloton Pty Ltd (Peloton), acquired certain assets of Walton Qld. Another company, Lewton Pty Ltd (Lewton), acquired substantial assets from Walton Construction, including the benefit and burden of certain building contracts. It also assumed the liability to pay the WC Debt. However, shortly prior to the assumption of that liability, an entity also connected with Mawson, QHT Investments Pty Ltd (QHT), took an assignment of the benefit of the WC Debt from Walton Qld in consideration for which it paid the sum of $30,000. In the result, Lewton became indebted to QHT in the amount of approximately $18.8 million. Through a further agreement QHT became the secured creditor of Lewton. 4 The assignment of the WC Debt to QHT occurred on 18 September 2013 (being less than a month before the relation back day in respect of Walton Qld's insolvency) and, so the liquidators say, when no reasonable person in the position of Walton Qld would have entered into it. 5 Shortly after the several transactions were entered into, Walton Qld and Walton Construction were put into administration. That was not mere happenstance, but had been arranged or organised by Mawson whose "restructuring" plan envisaged the administration and liquidation of those companies at that time. 6 The arrangements proved profitable for Mawson and QHT. Mawson received substantial fees for its services and QHT subsequently obtained the sum $709,453.80 as a result of its involvement in the "restructuring", but especially because it had become the owner of the WC Debt. 7 The plaintiffs, Messrs Michael McCann, Graham Killer and Stewart Hewitt are the liquidators of Walton Qld. They assert the transaction pursuant to which the WC Debt was assigned to QHT for $30,000 was an insolvent and uncommercial transaction and, therefore, voidable under ss 588FE and 588FF of the Corporations Act 2001 (Cth) (the Act). For its part QHT asserts the complex arrangements which were put in place benefitted Walton Qld and, taken as a whole, were not uncommercial. The liquidators seek declarations that the transaction whereby the $18.8m WC Debt was assigned to QHT for $30,000 was voidable and that they have avoided it. They seek a further order they be paid the sum of $709,453.80. 8 The so called restructuring arrangements put in place by Mawson were somewhat complex and that was probably no accident. Mr McCurry, who was a member of Mawson and director of QHT was unable to provide any adequate explanation as to their commercial operation and that was particularly so in relation to the Deed of Assignment. What emerged was that the "restructuring" services provided by Mawson were for the purposes of advancing the interests of the National Australia Bank, which was the major secured creditor, and limiting the exposure of Mr Walton and others associated with him pursuant to guarantees which had been provided to the Bank. The contracts entered into in September 2013 which effectively brought an end to the business of the Walton companies, further advanced those interests whilst also affording entities associated with Mawson and, particularly, QHT the opportunity to profit financially.

[4]

The defence 11 By its defence QHT asserted that the WC Debt had little or no actual value. It further asserted that the debt assignment transaction was part of a wider transaction or suite of transactions which were entered into to improve the financial circumstances of the companies in the Walton Group as a whole. 12 It also asserted that, for the purposes of s 588FF the relevant "transaction" was constituted by a number of agreements: (a) the Deed of Assignment; (b) an asset sale agreement dated 20 September 2013 between Walton Construction and Lewton (the WC/Lewton asset sale agreement); (c) an asset sale agreement dated 30 September 2013 between Walton Qld and Peloton (the WQ/Peloton asset sale agreement); (d) a facility agreement dated 19 September 2013 between QHT and Lewton pursuant to which QHT agreed to provide financial accommodation to Lewton (the QHT/Lewton Facility Agreement); and (e) a Deed of Variation of a facility agreement dated 12 November 2013 which varied the facility agreement by increasing the facility by $200,000 (the Facility Variation Agreement). By the conclusion of the hearing QHT eschewed reliance on this last agreement. In its pleading it referred to the suite of agreements or most of them by the obviously loaded nomenclature, the "Actual Transaction". In these reasons the four or five contracts are referred to collectively as the "Restructure Agreements". However, even that nomenclature is apt to mislead. Whilst the two asset sale agreements do have aspects of attempting to provide better outcomes in relation to the building contracts of the two construction companies, as is found later in these reasons, the Deed of Assignment and QHT/Lewton Facility Agreement were entered into primarily to allow QHT to profit from the reorganisation of the businesses. 13 Subparagraph 8(c) of the Defence contained, in narrative form, a number of allegations which identified the engagement of Mawson and the alleged benefits to the Walton companies consequent upon the entry into the Restructure Agreements. In relation to Walton Qld it was alleged that, under the WQ/Peloton Asset Sale Agreement, Peloton assumed a number of Walton Qld's liabilities including existing employee entitlement obligations, debts owed to subcontractors who had completed work in respect of the construction contracts to which Walton Qld was a party, and obligations under plant and equipment leases. It further alleged that Peloton "stepped into the shoes" of Walton Qld as a party to the construction contracts and assumed its liabilities for the debts thereunder with the consequence that Walton Qld received substantial benefits being: (a) 98 of the 150 projects were completed rather than being terminated and losses were avoided. (b) A substantial portion of the liabilities owed by Walton Qld to subcontractors in respect of projects assigned were paid. (c) As each project was completed clients returned performance bonds given by the Walton Group's financier and the bank deposits securing them were freed from encumbrance and released back to Walton Qld. (d) Debts owing to Walton Qld that were unlikely to have been paid if the group had gone into liquidation were paid. (e) 120 employees were transferred to Peloton with the benefit that those employees were not required to be paid their entitlements upon termination of their contract. 14 It was also alleged that other parties received substantial benefits as a result of the entry into the Restructure Agreements. 15 QHT alleged that the "transaction" for the purposes of ss 588FF and 588FE was the totality of the Restructure Agreements and the parties to it were Walton Qld and Walton Construction, Peloton, Lewton and QHT. 16 At paragraph 11 of the Defence, which immediately follows the heading "Commerciality of the alleged and the Actual Transaction", QHT asserts that "a reasonable person in Walton Qld's (WCQ) circumstances would have entered into the Actual Transaction". 17 QHT admitted that it received the sum of approximately $709,453 from Lewton in about August 2016. However, it claimed that on 10 October 2013, one of the administrators of Walton Qld, Mr Franklin, sought payment of the consideration payable to Walton Qld under the Deed of Assignment. It alleged that, by that act, Mr Franklin affirmed, ratified or consented to the transaction and/or the completion of the transaction, with the effect that, by operation of s 451C of the Act, the transaction was valid and effectual for the purposes of the Act and not liable to be set aside in the winding up of Walton Qld. An essential element of this defence is the assertion that at the time of the request for payment, performance of the Deed of Assignment was subject to a condition subsequent which Mr Franklin impliedly sought to be waived. In a similar way it was said that the completion of the various agreements occurred with the knowledge and express or implied consent of the administrators of Walton Qld and Walton Construction such that they were affirmed, ratified or consented to by them and s 451C rendered them valid and effectual and not liable to be set aside.

[5]

The Reply 18 At paragraph 6 of the Reply, the liquidators acknowledged that as at 18 September 2013, Walton Construction had no capacity in the short term to repay the $18.8 million owed to Walton Qld. They alleged that at the time of the assignment of WC Debt, its recoverable value was between $204,000 and $6.18 million. This was in answer to the defence that the debt which was assigned had no value. The liquidators also asserted that the WC Debt was assigned effectively upon the execution of the Deed of Assignment on 18 September 2013. This was in answer to the assertion that the request by the administrator for payment of the $30,000 consideration was in some way a transaction which would be preserved by s 451C. The argument advanced by the liquidators was that the obligations of the parties had become complete and nothing further was required in order for the consideration to be paid. 19 In subparagraph 8(b) of the Reply the liquidators denied the Deed of Assignment had to be considered as part of a broader transaction. In the alternative, they asserted that, if it is to be so regarded, it should also be considered in the context of the strategy devised and put in place by Mawson from April 2013 and the payments made to Mawson. 20 Section C of the Reply, which commenced with the heading, "Commerciality of the alleged and the actual transaction", answers the identically headed section in the Defence. In paragraph 11 the liquidators responded to the allegation as to the commerciality of the Restructure Agreements. They seek to include in that issue the involvement of Mawson from April 2013 and its actions in the alleged "restructure". Emphasis is placed upon the significant fees which were paid to Mawson for its involvement. That included substantial success fees in addition to monthly retainer fees. It was alleged that Mawson's success fees for work conducted to 19 September 2013 totalled $1.17 million. The Reply also alleged that as a result of the involvement of Mawson, the exposure of the NAB was reduced, as at 4 October 2013, to an amount less than the value of the cash deposits which were the security for the performance bonds. In other words, a suggestion that the strategy was directed to assisting the NAB. The liquidators also identified an unusual feature of the two purchase agreements being that the purchasers of the business were able to exclude assets from the scope of the agreement at their will. 21 By sub-paragraph 11(w) of the Reply it was alleged that a reasonable person would not have entered into the Deed of Assignment or the other agreements and strategies. A number of reasons are given as to why that is so, including by reference to their operative effects. In part, it is also alleged the only reasonable way to have dealt with the financial situation of Walton Qld and Walton Construction was to put them into immediate voluntary administration or to have them wound up. 22 In addition, the liquidators asserted that had the Walton companies not entered into the agreements, Walton Qld would have had an additional amount of $2,473,807.80 in funds to use to complete its projects. It is also alleged that if the various fees were not paid to Mawson, there would have been sufficient money to meet the payment of the priority employee entitlements. Otherwise, the liquidators deny that the transactions came within the scope of s 451C and asserted that there was no waiver of their right to avoid the agreements nor any assumption of them.

[6]

The legislation 23 The liquidators seek relief under s 588FF which relevantly provides: 588FF Courts may make orders about voidable transactions (1) Where, on the application of a company's liquidator, a court is satisfied that a transaction of the company is voidable because of section 588FE, the court may make one or more of the following orders: (a) an order directing a person to pay to the company an amount equal to some or all of the money that the company has paid under the transaction; … (c) an order requiring a person to pay to the company an amount that, in the court's opinion, fairly represents some or all of the benefits that the person has received because of the transaction; (d) an order requiring a person to transfer to the company property that, in the court's opinion, fairly represents the application of either or both of the following: (i) money that the company has paid under the transaction; (ii) proceeds of property that the company has transferred under the transaction; … (j) an order declaring such an agreement, or specified provisions of such an agreement, to be unenforceable. 24 Section 588FE identifies the circumstances in which a transaction is voidable. Relevant to the allegations in the present matter is subsection (3) which provides: (3) The transaction is voidable if: (a) it is an insolvent transaction, and also an uncommercial transaction, of the company; and (b) it was entered into, or an act was done for the purpose of giving effect to it, during the 2 years ending on the relation-back day. 25 The concept of an "insolvent transaction" is defined in s 588FC in the following manner: 588FC Insolvent transactions A transaction of a company is an insolvent transaction of the company if, and only if, it is an unfair preference given by the company, or an uncommercial transaction of the company, and: (a) any of the following happens at a time when the company is insolvent: (i) the transaction is entered into; or (ii) an act is done, or an omission is made, for the purpose of giving effect to the transaction; or (b) the company becomes insolvent because of, or because of matters including: (i) entering into the transaction; or (ii) a person doing an act, or making an omission, for the purpose of giving effect to the transaction. 26 For the purposes of s 588FF, s 588FB defines the circumstances in which a transaction is taken to be an "uncommercial transaction". The section provides: 588FB Uncommercial transactions (1) A transaction of a company is an uncommercial transaction of the company if, and only if, it may be expected that a reasonable person in the company's circumstances would not have entered into the transaction, having regard to: (a) the benefits (if any) to the company of entering into the transaction; and (b) the detriment to the company of entering into the transaction; and (c) the respective benefits to other parties to the transaction of entering into it; and (d) any other relevant matter. 27 The above sections use the word "transaction". For the purposes of Part 5.7B the Corporations Act that word is defined by s 9 in the following manner: 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 security interest granted by the body in its property (including a security interest in the body's PPSA retention of title property); 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.

[8]

The Walton companies encounter financial difficulties 29 Although there are numerous companies in what was referred to as the Walton Group, only three are relevant for the purposes of this matter. Walton Construction (Aust) Pty Ltd appears to have been the apical company in the operational group. Amongst other companies of which it was the sole or dominant shareholder were Walton Construction and Walton Qld. Those two appeared to be the only relevant operating entities. Walton Qld conducted the group's construction business in Queensland whilst Walton Construction conducted the business in both Victoria and in New South Wales. The ultimate directorial control of those two companies was vested in Mr Walton who was the managing director of each. The construction business of the Walton Group was substantial and, indeed, it often had a turnover of between $150 million and $500 million annually. 30 It is apparent that Walton Qld and Walton Construction traded as part of the group which had a common head office and cross-collateralised lending facilities with the NAB and Assetinsure. That said, the entities maintained separate businesses and separate accounts. It was not suggested that the operations of the companies was such that they had become mixed and indistinguishable or that there was doubt about whether creditors were of one company or the other. 31 An important aspect of the construction business of Walton Qld and Walton Construction was their usual obligation to provide security for the performance of their obligations under the contracts into which they entered. This often took the form of a bank guarantee or security bond worth 5% of the contract value. Again, in the ordinary course, half of the performance bond was returned to the company once the contract was completed whilst the other half was retained by the principal pending the expiration of the defects liability period. It is uncontroversial that, in the years leading up to October 2013, the NAB was the regular supplier of bank guarantees for Walton Qld and Walton Construction. It was the Walton Group's key financier and held security in respect of its liability pursuant to the bank guarantees over, inter alia, the property of Walton Construction and, in particular, over cash deposits held with it. 32 The two building companies also used security bonds provided by Assetinsure for the provision of security to principals in respect of some contracts. That fact becomes relevant for the period after about April 2013. 33 It is not in doubt that the Walton Group suffered financially in 2012. In particular, in the year ended 30 June 2012, Walton Construction sustained significant losses of $4.4 million adjusted net profit after tax and it exhausted its net assets base by early 2013. As Mr McCann deposed in his affidavit, this had the effect that it was reliant on Walton Qld for funding support. Walton Construction incurred a further loss of $9.5 million in the financial year ending 30 June 2013 which was funded by Walton Qld through an intercompany loan. Mr McCann further observed that when the impaired loan to Walton Construction was taken into account, from 31 December 2012 onwards, Walton Qld's liabilities exceeded the value of its assets. That deficit included significant exposure to the NAB and Assetinsure. 34 It was not in contention that from 1 January 2013, Walton Qld was unable to recover its financial position as the monthly cash requirements of Walton Construction were greater than the monthly profits (EBITDA) being earned by Walton Qld. The gap was approximately $450,000 per month. Mr McCann gave evidence which also was not contested that, from 31 March 2013 at the latest, the Walton Group did not have sufficient assets to continue funding Walton Construction's monthly losses. 35 It is apparent that the financial difficulties of the group did not go unnoticed by the NAB which, in around late 2012, appointed Deloittes to undertake an analysis of the group's business activities. From around that date financial support by the NAB was limited pending the outcome of the report. 36 In its report dated 25 March 2013, Deloittes recommended that, save in the short term, the NAB cease providing financial support to the Walton Group. It observed that if the bank enforced its securities at that point in time it would suffer a loss of approximately $8 million. Deloittes also recommended that Walton Qld be marketed for sale and sold by no later than August 2013. The NAB acted promptly on Deloittes advice and informed the Walton Group in March 2013 that it intended to terminate its relationship with it. On 3 April 2013, it formally withdrew its financial support for the group. That involved, amongst other things, immediately ceasing to provide any further bank guarantees for building contracts. 37 Mr McCann gave evidence that from, at least 31 March 2013, Walton Qld and Walton Construction were insolvent which is consistent with the circumstances described above. That is considered in more detail below.

[9]

The initial engagement of Mawson 38 Although in these reasons the name "Mawson" is used as a short-hand reference to Mawson Restructure and Workouts Pty Ltd, it is apparent that there were a number of related entities around that company and the precise entity that provided the services at any particular time was somewhat opaque. However, for the purposes of these reasons it is not necessary to distinguish between them. 39 It is not irrelevant that in around April 2013, Mr Kirkwood of the NAB approached Mr Patrick McCurry of Mawson in relation to the financial position of the Walton Group. Mawson, holds itself out as having expertise in, inter alia, corporate restructures and workouts although it should be noted that it eschews any suggestion that the advice or services it provides is legal or financial. Mr McCurry said in his affidavit that he was asked whether Mawson could assist Walton Construction to deal with the financial challenges it was experiencing. Although that evidence was not challenged in cross-examination, as the subsequent conduct of Mawson reveals, its activities were mostly directed to protecting and improving the position of the NAB and Mr Walton rather than advancing the interests of Walton Construction. In this respect it should be kept steadily in mind that Mr Walton had provided guarantees to the NAB in respect of the group's debts such that a reduction in the NAB's exposure also assisted Mr Walton's personal exposure. 40 At this stage, Walton Qld and Walton Construction were insolvent or near insolvent such that the interests of those companies included in the interests of the unsecured creditor: Kinsela v Russell Kinsela Pty Ltd (in liq) (1986) 4 NSWLR 722. That said, it is clear from the conduct of Mawson, the NAB and Mr Craig Walton that none of them sought to advance the interests of the companies and their unsecured creditors and if the companies received any advantage from their actions it was purely coincidental. 41 In around early April 2013, Mr Craig Walton met with Mr McCurry and Mr Julian Kirzner of Mawson. As a consequence of the meeting Walton Construction, Walton Construction Group and Mr Craig Walton engaged Mawson. The contract of engagement can be found in the first retainer letter of 4 April 2013. In that letter Mawson identified that it would provide assistance and advice as to how to: • Optimally preserve the "Queensland business" including the Services business [T/O circa $50M]) quarantined from the rest of group, to enable it to trade on free from the current bank pressure and/or be profitably sold. • Buy time with the bank to avoid enforcement action to enable either a refinance, restructure, merge and/or capital injection that maximises/preserves CW's value of the WCG Vic/NSW operation. • Create an outcome (where possible) that looks after the ½ dozen individuals referred to by CW. Under cross-examination Mr McCurry was asked to identify the half dozen persons referred to in the third dot point. He claimed that he could not recall who they were. Although, at the time of giving evidence, Mr McCurry was suffering the ill-effects of chemotherapy, there was much of his evidence which could not be accepted and, his assertion that he could not recall the identity of the persons for whose benefit he was working on this matter was unlikely to be true. It is passing credulity to believe that the opaque nature of the engagement letter in this third dot point in particular was not intentional. It would be naïve to believe other than that a letter of engagement purporting to set out the work to be performed would be identified with such obscurity, unless its purpose was to conceal the identity of the entities sought to be protected by Mawson's work. Nevertheless, it might be observed that the proposed beneficiary of the provision of the workout services did not appear to be, at least in the first instance, Walton Qld. 42 The letter of engagement also identified the "key deliverable" of the engagement as being to: • Provide alternative options to the shareholders and directors of WCG to maximise and preserve stakeholder value for each of the entities and sub-entities discussed, in line with CW's definition of success outlined above. To a person of ordinary intelligence, that gives a fairly clear indication of the identities of the persons who were to benefit from Mawson's involvement. 43 The agreement also identified the persons who were responsible for advancing the work of Mawson to achieve the so-called key deliverable. They were Mr McCurry and Mr Kirzner although they were entitled to draw upon other Mawson resources as required. 44 The agreement expressly eschewed the suggestion that Mawson would be providing legal or accounting advice. By that it is understood that Mawson might advise its clients to adopt particular strategies, but did not suggest they were lawful or financially efficacious. That being so, it is difficult to know why such significant fees were charged. 45 The general terms of business which were attached to the letter of engagement are remarkable. Although by cl 6.1 Mawson agrees to use its reasonable skill and care in providing services, any liability for failure to meet that level of skill and care is agreed to be limited to 20% of the fees payable for the service. Otherwise, the agreement purports to exclude all liability for loss caused by Mawson and the engaging party also agrees to indemnify Mawson in respect of any claims against it. By cl 15.3 the party engaging acknowledges and agrees that Mawson's role is one of an independent contractor and is not a partnership, joint venture, fiduciary or employment relationship. In effect, Mawson's general terms and conditions seek to exclude all liability for any failure to provide services (save to a minimal extent) and, further, they permit Mawson to act in its own interest when providing advice. This is significant in the present case where, in advising the Walton Group as to an appropriate workout strategy, Mawson "took a position" in the strategy through some of its associated companies, the effect of which was that they might profit handsomely. As it happened QHT did secure substantial profits (in addition to the fees paid to Mawson for its services) from "taking a position" in the workout strategy. 46 The fees charged by Mawson for the initial engagement, which was described as being for a diagnostic review, totalled $35,000 plus GST. Its subsequent fees were substantially greater.

[10]

The first report by Mawson 47 In a report dated 24 April 2013, Mawson reported on its initial assessment of the Walton Group. The focus of the report was the reduction of the exposure of the NAB to the Walton Group and an analysis of the benefits to the bank from the alternative strategies available to it. In effect it recommended that an orderly withdrawal of support, as opposed to an immediate one would improve the bank's position. In the section of the report headed "Action Plan and J.V and/or Sales Process - Timetable", Mawson identified the first "Desired Outcome" as being "Significantly reduce guarantee exposure for NAB". No doubt that referred to the performance guarantees which the NAB had provided to Walton Qld and Walton Construction in respect of its contractual obligations. In the summary Mawson asserted that a continuation of the guarantee facility would ultimately improve the bank's position. It also identified various options for the NAB which included temporarily continuing the guarantee facility to allow the Walton Group to replace them with Surety Bonds. 48 On its face, the report did not indicate to whom it was addressed. Nevertheless, on 24 April 2013, being the date on the report, Mr McCurry, Mr Kirzner and other Mawson representatives met with Mr Walton and representatives of the NAB. Mr McCurry gave evidence that he presented his report to the NAB which rejected the recommendations and indicated that it wished to immediately terminate its relationship with the Walton Group. However, in subsequent discussions the NAB said that whilst it would not continue support via the bank guarantee facilities, it would consider other proposals. 49 It is apparent that the NAB did not do as it said it would and immediately terminate all financial support. It did not withdraw its bank guarantees and they continued in place for some time. Although the evidence of the NAB's forbearance is generally inferential, in a report sent by Mawson to Assetinsure on 14 August 2013, Mawson recorded that it appeared that the bank was co-operating with the Walton Group to have the bank "exited" by September or October.

[12]

Mawson's activities between April and September 2013 52 In the period between April and September 2013, Mawson claimed to have engaged in two major aspects of the alleged reconstruction. The first was attempting to cause the sale of the Walton Construction business and/or the Walton Qld business as going concerns. Whilst there was some degree of work involved in this, the evidence does not suggest significant amounts of activity occurred. As it was, despite there being some discussions with various third parties, no sale was effected. 53 In early May 2013, Mawson made a further presentation to the NAB in relation to the position of the Walton Group. It proposed that the bill facilities provided by the bank would be repaid, the bank guarantee facility balance would be reduced over time, and a campaign would be put in place to sell Walton Qld. The evidence of Mr McCurry did not identify whether the NAB formally agreed to this proposal, but it is apparent it did not call on its facilities immediately. During the period between March and August 2013, Mawson reported to the NAB as to its progress as to its aim of having the bank paid back in full. In a letter of 6 June 2013, Mawson identified that it was seeking to ensure that the NAB's exposure to the Walton Group would be fully secured over term deposits and surplus cash. 54 In furtherance of the presentation, Mawson set about reducing the exposure of the NAB to the Walton businesses by pursuing a process of causing surety bonds issued by Assetinsure to replace the NAB's bank guarantees on existing projects. Mr McCurry said in evidence that some customers were less familiar with these forms of security and it took some time and effort to cajole them into changing. It appears that in relation to two major projects the principals would not agree to the exchange of the bank guarantees for surety bonds with the result that the building contracts were novated to different builders who presumably provided their own guarantees. Again, the effect of this was to reduce the NAB's exposure to the Walton Group. 55 By the time of the administration of the Walton companies the exposure of the NAB to loss by reason of it holding unsecured debt was removed. As Mr Jaski identified in his report, as at 3 October 2013, the balance of the cash deposits exceeded the NAB's debt by more than $1m.

[13]

The emergence of the restructuring concept 56 Mr McCurry gave evidence that in the period after about May 2013 it appeared to him that it would not be possible to sell the entirety of the Walton Construction business and, given some prospective purchasers were interested in purchasing various aspects of the business, he considered the possibility of a partial restructure of the business. None of the efforts by Mawson to sell any of the businesses of the Walton Group, or any part of those businesses, to independent third parties was successful. 57 In a report to the NAB of 24 July 2013, Mawson identified that it was proceeding to reduce the NAB's exposure. It noted that in order to further protect the recovery of the bank guarantees, it was necessary to establish a new division to manage defects and maintenance in respect of the various existing contracts. This, it subsequently appears, was the foundation of the asset sale agreements. In relation to the building contracts of Walton Construction it was proposed that a company be established to undertake the small works and maintenance obligations of several building contracts and that it be operated by Mr Daniel Casey who was a long term employee of Walton Construction. The company ultimately established to do this was Lewton Pty Ltd. 58 In the report of 14 August 2013, sent by Mawson to Assetinsure, Mawson identified that it proposed a process of seeking to minimise the Assetinsure exposure from its Surety Bonds given to Walton Construction's customers. Part of that strategy included the establishment of a new company for customer care and maintenance. It was also identified that with the proposed sales of the businesses of Walton Qld and Walton Construction, by October 2013, the NAB's position would be fully cash covered, meaning that its exposure would be fully secured against liquid assets. 59 An internal Mawson file note of 21 August 2013 reveals that consideration was given to the form of certain arrangements by which parts of the businesses of Walton Qld and Walton Construction would be assigned to other entities. In particular, the memo considered the creation of Lewton and the assignment to it of contracts from Walton Construction, as well as its assumption of the liability to pay the WC Debt. Lewton was proposed to be funded by QHT which would take security and, it is recorded that QHT is to take specific security over any and all GST refund payable to Lewton in respect of its acquisition of Walton Construction's business and the refund will be required to be deposited into an account under the control of QHT. This is the first indication of Mawson/QHT taking a position in the alleged "restructure" although there is no real evidence as to why that was necessary. 60 By a further report to Assetinsure of 22 August 2013, it was identified that Mr Casey would establish a company to undertake the maintenance and customer care work to secure the release of the remaining guarantees. Ultimately, Mr Casey did indeed become the director of Lewton. 61 Under cross-examination Mr McCurry acknowledged that the idea behind the restructure arrangement came from Mawson. There was no suggestion that any director of Walton Construction or Walton Qld had any input into the content of the Restructure Agreements.

[14]

The necessity for the assignment of the WC Debt 62 No clear evidence was given as to the origin of the idea that the WC Debt ought to be assigned to Lewton save that it was propounded by Mawson. Indeed, the claimed rationale for the assignment is not clear. It cannot immediately be seen that it furthered the objects of assigning the benefit of the construction contracts such that, on their completion, the performance guarantees might be released. One might have thought the assumption of such a significant debt by the new company designed to complete projects might be an onerous disability. In his affidavit Mr McCurry said that the assignment relieved Walton Construction of the obligation to pay the debt although, given that it was obviously anticipated that company would enter external administration once the Restructure Agreements were put in place, as in fact was the case, that was unlikely to be of any benefit to Walton Construction or Walton Qld. 63 Mr McCurry also said that QHT created a loan facility with the debt which had a three year term that gave the new company "breathing space to enable it to continue to trade". However, that does not explain why Lewton assumed the obligation to pay the debt in the first place when there was no apparent purpose for doing so. Moreover, to speak of the facility as a "finance facility" is to extend that concept well beyond its usual bounds. As will be seen, Lewton would only be advanced funds which it had previously paid to QHT. To that extent the so called "facility" provided was more or less a deposit account for Lewton where no interest was paid on the balance and no overdraft facility was attached. 64 In his affidavit, Mr McCurry asserted he believed the assignment of the intercompany debt and assumption by Lewton of the obligation to pay were commercially necessary for the restructure because the assumption of the debt would ensure the acquisition of the incomplete projects by Lewton from Walton Construction was for commercial consideration and, by assuming control of the WC Debt, QHT "maintained an interest over Lewton to ensure the objects of the restructure were carried out". Neither of those reasons ought to be accepted and it seems Mr McCurry was mistaken as to his recollection as to the reasons for the Deed of Assignment. 65 As is identified below, Mr McCurry asserted that the WC Debt was worthless and he valued it at nil and the consideration under the Deed of Assignment of $30,000 was merely chosen because it was greater than zero. If that were truly his belief, equally there was no advantage to Walton Construction for it to be assigned. Mr McCurry and QHT asserted in these proceedings that, as at 18 September 2013, the claims of the priority creditors overwhelmed the value of the company's assets (including trade receivables) and that is why the WC Debt was worthless. On QHT's hypothesis, the assumption by Lewton of a liability which Walton Construction was not able to pay, to any extent, and from which the unsecured creditors would not benefit, could hardly be said to improve the commerciality of the WC/Lewton Asset Sale Agreement. That was particularly so given that the parties obviously intended that Walton Construction would be placed into external administration once the Restructure Agreements were in place. That latter strategy is evidenced by emails from Mawson on 3 September 2013 attempting to identify the DOCAs which would be proposed to the creditors in the forthcoming administrations. Both Walton Construction and Walton Qld had been insolvent for about five months prior to the agreements and nothing in those agreements was likely to improve the solvency or asset position of the companies. It follows that the inclusion of the assumption of the WC Debt did not enhance the commerciality of the WC/Lewton Asset Sale Agreement. 66 It was also the case that no similar inclusion of an assumption of an onerous debt took place pursuant to the WQ/Peloton Asset Sale Agreement. In that agreement the construction contracts were assigned, or attempted to be assigned, and Peloton took the benefits of them and the obligations to complete them. Mr McCurry could give no explanation as to why the position was different in relation to that agreement. That was particularly relevant when it had been said by Mr McCurry in his affidavit that the transfer of the construction contracts to the new companies was financially neutral. He added to this under cross-examination when he said he thought the transfer of the construction contracts by themselves would not be uncommercial nor a reasonable commercial thing to do. This can be accepted in relation to the WC/Lewton Asset Sale Agreement where the total costs of the projects which were assigned exceeded the receivables and future revenues from them by $1,066,952. In this respect it is not surprising that Lewton subsequently "excluded" eight of the eleven building contracts such that the assignment of them did not occur. Similarly, it is apparent that the plant and equipment "sold" under that agreement was of very little benefit for Lewton which gave a notice of exclusion in respect of seven of the eight items of plant and equipment assigned. This renders the assumption of the WC Debt by Lewton even less necessary. 67 It follows that the assumption of the WC Debt be Lewton and the concomitant assignment of its benefit to QHT was not required to buttress the commerciality of the WC/Lewton Asset Sale Agreement. 68 The second reason advanced by Mr McCurry as supporting the assignment of the WC Debt is also not sustainable. The mere fact that QHT maintained a secured interest over Lewton did not have the consequence that it might control its activities. It put in place an alleged facility agreement (based on the assumption of the WC Debt) on which interest was not payable unless there was some default. Whether Lewton proceeded to undertake maintenance work or customer care work or complete the construction contracts was entirely up to it. Indeed, shortly after it entered into the WC/Lewton Asset Sale Agreement it excluded eight of the eleven building contracts which were available to it under the agreement. There is no suggestion that Mr McCurry or Mawson took any action to require Lewton to undertake work in relation to these contracts. There is nothing to suggest that the assumption of the WC Debt by Lewton was commercially necessary or appropriate in the circumstances so as to ensure the efficacy of the alleged restructure. 69 The above is confirmed by Mr McCurry admitting that the Deed of Assignment did not make sense as a standalone agreement. He seemed to suggest that it was only reasonable as part of a suite of transactions. One can accept that it does not make commercial sense as separate agreement, but neither did it make sense as part of the other agreements. It should be acknowledged at this point that Mr McCurry was initially evasive in giving his answers in relation to the utility of the Deed of Assignment, even though he finally acknowledged that it did not make sense in isolation. He was also evasive in relation to a number of other topics, especially as to his consideration of the solvency of the companies in the Walton Group. 70 As is identified below appears that the assumption of liability for the WC Debt as part of the WC/Lewton Asset Sale Agreement was so that it could be used to justify the amount of the consideration to be paid. As will be discussed later, the amount of consideration was a fictitious and arbitrary figure and not connected in any way with the value of anything transferred to Lewton. Its purpose was to increase the amount of the GST refund and the amount of the success fee which Mawson might charge and as a tool by which QHT would be a substantial creditor of Lewton and entitle it to take security over the GST refund.

[15]

The Worrells report 71 It is apparent that around this time Mawson became aware of the consequences of the assignment of the WC Debt to its related company QHT. It commissioned a valuation of the debt by the insolvency firm Worrells. A valuation report was provided on 5 September 2013. It identified its purpose as being to value the debt owed by Walton Construction to Walton Qld and to comment upon the prospects of recovery if the debt were to be assigned to QHT. As the report identified, it was based upon various spreadsheets and financial information provided by Mawson throughout the period from 20 August 2013 to the date of the report. That said, the caveats in the report indicated that there may have been further information which Mawson might have provided but did not. Relevantly, the Worrells' report also assumed that the liability to the NAB had been discharged and that no cross-collaterised security arrangements remained in place. Despite that, note 2 on page 13 of the report indicates that the author effectively assumed the existence of the NAB security over Walton Construction's cash deposits in calculating the worst case scenario. The report also proceeded on the conclusion reached by Worrells that Walton Construction was insolvent as at the date of the report. In considering the recoverability of the WC Debt it was determined that there was little short term prospect of the loan being recovered as part of ongoing trading or of Walton Construction being able to pay interest at any rate on the outstanding loan. The author then considered recoverability on the assumption that the companies were placed into external administration. In that respect the author calculated the amount which might be recovered by an external administrator of Walton Constructions was between $5,340,435 and $24,040,297. After accounting for priority claims and considering the totality of claims against Walton Construction it was concluded that, based on the $18.8 million loan balance, between $204,284 and $6.18 million might be recovered as a dividend from the debt owing by Walton Construction to Walton Qld. 72 Although this is considered in more detail below, Mr McCurry claimed in evidence that, despite the valuation by Worrells, he valued the WC Debt at nil. He said that he did so on the oral advice of a Mr Spry, an employee of Mawson, that the debt was worthless. No contemporaneous record of that advice was adduced in evidence. Somewhat astonishingly Mr McCurry did not ask for the Worrells report or look at it before discounting it.

[17]

The Deed of Assignment 76 By cl 3 of the Deed of Assignment Walton Qld, as the assignor, assigned absolutely to the assignee, QHT, all its right, title and interest in the assigned property. The assigned property was defined as the debts owed by Walton Construction to Walton Qld together with interest and all other amounts owing in respect of those debts being, at the date of the document, an amount in the sum of $18,876,385. That is the debt which is referred to in these reasons as the "WC Debt". By cl 4.1 of that deed QHT was required to pay, within 3 business days of the Completion Date, the consideration of $30,000 to the stakeholder, Nick Stretch Legal Pty Ltd. 77 Clause 4.2 of the agreement created what it said to be a condition subsequent in relation to the payment of consideration. The clause provides: The Consideration will be paid: (a) to the Secured Creditor or the Assignor, if the Condition Subsequent is fulfilled, satisfied or waived by the Assignee; (b) to the Assignor if this document is terminated pursuant to clause 2.3 or by the Assignee for any other reason following default by the Assignor. 78 The expression "Condition Subsequent" was defined in the schedule as being "The Assignee receiving a release satisfactory to the Assignee from all persons having a Perfected Security Interest over the Assigned Property". The applicants point out that although capitalisation is used for the expression "Perfected Security Interest" the term is not defined. Whilst one might perceive it to mean a security interest which is perfected under the Personal Property Security Act 2009 (Cth), it is not self-evident that such is the case. That, however, was the interpretation put on it by the respondent and, for present purposes, it might be assumed that was the case. 79 The liquidators submitted that, at the relevant time, neither the NAB nor anyone else held any perfected security interest over the debt owed by Walton Construction to Walton Construction Qld with the consequence that the debt was assigned immediately. Alternatively, if the words "Perfected Security Interest" has the meaning asserted by QHT, the liquidators submit that once administrators were appointed to Walton Qld the securities vested in the company and the administrator effectively released the security by requiring payment of the consideration. This issue is discussed in more detail below. In any event, the condition subsequent might have been waived by QHT and, if it had not been satisfied or fulfilled or waived within 90 business days after the agreement, QHT was entitled to terminate the deed.

[18]

The QHT/Lewton Facility Agreement 80 The second of the Restructure Agreements was the facility agreement between QHT and Lewton. This agreement (the QHT/Lewton Facility Agreement) was entered into on 19 September 2013, being the day after the execution of the Deed of Assignment. 81 Under the heading "Background" it recites that QHT had acquired by assignment from Walton Qld a liability of $18,876,385 previously owed by Walton Constructions, being the WC Debt, and that liability has been transferred to Lewton. In other words, the facility agreement proceeded upon the assumption that Lewton had assumed the obligation to pay the debt in the identified sum to QHT. As appears from the facts set out above, that assumption of liability by Lewton had not taken place as at the date of execution. The background statements then identified that QHT will provide and continue to provide financial accommodation to Lewton on the terms of the agreement. 82 Pursuant to cl 2 Lewton acknowledged that as at the date of the document, it was indebted to QHT in the sum of $18,876,385 consequent upon the existing liability. It also agreed that it would provide QHT with security in respect of the indebtedness in a form and substance satisfactory to the lender. Although the agreement permitted Lewton to draw a further advance under the facility agreement, that might only occur if the provision of the advance would not cause the aggregate of all advances to exceed the limit of $18,876,385. In other words, it appeared that in order for Lewton to draw on the alleged facility it was required to make "repayments" first and it was then only permitted to redraw up to the maximum being the amount of the repayments less, presumably, any accrued interest. In other words the facility operated so that Lewton could not draw on the facility until it paid money to QHT and then it could not "withdraw" more than it had previously paid. 83 The agreement required Lewton to repay the debt on the last day of the calendar month following the third anniversary of the date of the document. That would appear to be the last day of November in 2016. Payment of interest was required under the facility only in circumstances where there was a default in repayment. 84 The security required to be provided was defined in the agreement as being a "second ranking general security agreement registered under PPSA including specific security over Tax Refund". The expression "Tax Refund" was defined so as to include any GST credit or refund received from the Australian Taxation Office. As matters transpired, QHT took a registered security which gave it control of any GST return which was paid to Lewton. 85 Although Mr McCurry suggested that the subsequent repayment of the GST amount to QHT was, more or less, a fortunate happenstance, I do not accept his evidence in that respect. It was apparent that Mawson perceived Lewton would be likely to receive a substantial GST refund consequent upon its "purchase" of assets from Walton Constructions. On the basis of the obviously inflated price for the acquisition of those assets, Mawson, by Mr McCurry, was aware that this would be a significant sum. Indeed, the structure of the agreement was obviously designed to allow Lewton and QHT to assert to the Commissioner of Taxation an entitlement to a substantial GST refund despite the absence of any real consideration being provided. 86 Prior to the execution of this agreement, Mr McCurry and Mawson/QHT had sought and received advice about the likely GST refund which would be recovered by Lewton. A file note of the solicitors who were instructed to draw the facility agreement identified that: QHT will also take security over any and all GST refund payable to Lewton in respect of its acquisition of the Walton's (Vic) business and Lewton will be obliged to deposit it in a term deposit and give control of that term deposit to QHT. 87 As it happened, it does not appear that any security taken by QHT was enforced although there is no evidence as to why that is so. Nevertheless, the GST refund was an asset available in the winding up of Lewton and its disbursement in the liquidation had the consequence that QHT was paid the sum of $709,000. 88 From the above it is apparent that QHT had been acutely aware of the likelihood of the GST refund and it specifically took security and control over it which prevented Lewton from having recourse to it in the course of its business. Mr McCurry must have been aware that, at the worst for QHT, the refund would have been available for distribution on Lewton's winding up. Necessarily, in order for QHT to benefit from the winding up of Lewton to any great degree it was required to be a substantial creditor. That was arranged by the taking of the assignment by it of the WC Debt and Lewton's assumption of the obligation to pay it. There was no real need for the WC Debt to be used in that manner for the purposes of providing Lewton with financial support. If, as Mr McCurry said, QHT wished to provide support for Lewton it might have actually advanced money to it on commercial terms rather than burdening it with a substantial debt of $18.8m despite not advancing it any funds. As is identified below, there is no substance in the suggestion that it was commercially necessary or appropriate for Lewton to take an assignment of the WC Debt. The Deed of Assignment and the QHT/Lewton Facility Agreements were constructs designed to provide QHT with a substantial return.

[19]

The WC/Lewton Asset Sale Agreement 89 This agreement, which was entered into on 20 September 2013, concerned the sale to Lewton of certain assets with effect from the date defined as the Completion Date being the date of the agreement. The agreement operated as follows: (a) By cl 3.1 the seller agreed to sell to the buyer and the buyer agreed to buy the Assets for the purchase price. (b) The Assets were defined by cl 1.1 as being the plant and equipment, the Intellectual Property, the benefit of all Construction Contracts (including all Debts), the benefit of all subcontracts (including retention monies associated with the contracts), the Stock being the stock-in-trade, the benefit of all statutory licences and the records. An exception was made for "Excluded Assets". (c) The Construction Contracts which were "sold" under the agreement were those in respect of the 11 construction projects listed in Schedule 7 of the agreement. It appears the trade creditors for the 11 projects exceeded the receivables specific to the projects although the future revenues from the projects exceeded the future costs to complete. In this respect, Mr McCurry said in his affidavit that the projects transferred to Lewton under the agreement and novated were "financially neutral". By that he meant that their assumption by Lewton conferred no real benefit on it or loss to Walton Construction. (d) The Excluded Assets were defined as being any Assets (including the benefit (and burden) of any contracts) that the Buyer excludes from the Assets purchased under the Agreement. Pursuant to cl 4.1 the buyer was entitled to serve a notice excluding the assets identified in the notice from the sale with the effect that the asset will revert to the seller and the original transfer will be deemed void ab initio. The effect of this was that Lewton was entitled to exclude those assets which it determined that it did not wish to take on. No doubt that was especially relevant in relation to building contracts which, on examination may have turned out to be unprofitable. It is fair to say that it is an unusual agreement whereby after completion the purchaser can reject some or all of the subject matter sold. It is even more unusual where the exclusion of the assets does not affect the alleged consideration which is supposedly calculated on, inter alia, the value of the liabilities assumed. (e) The purchase price under the agreement and the obligation to pay it was identified by cll 3.2 and 3.3 in the following terms: 3.2 Purchase Price The Purchase Price is the greater of the amount of $18,876,385 (inclusive of GST) (Price A) on the one hand and the aggregate of the following (inclusive of GST) (Price B), on the other: 3.2.1 the amount equal to the Transferring Key Employee Entitlements specified in Part A of Schedule 9; 3.2.2 the amount equal to the aggregate of the QHT Debt specified in Part B of Schedule 9; 3.2.3 the amount equal to the aggregate value of the Seller's liability and/or outstanding obligations arising from the Projects specified in Part C of Schedule 9; plus 3.2.4 the amount equal to the aggregate value of the Seller's liability under the Plant and Equipment Leases specified in Part D of Schedule 9; (Aggregate Assumed Obligations and Liabilities). 3.3 Payment The Purchase Price will be paid by the Buyer to the Seller as follows on the Completion Date: 3.3.1 the Buyer assumes the Seller's obligations and liabilities for and to the Transferring Key Employee Entitlements; 3.3.2 the Buyer assumes the QHT Debt by taking a novation of the Seller's obligations in relation to the QHT Debt, and the Seller being released from its obligations in relation to the QHT Debt; 3.3.3 the Buyer assumes the obligations of the Seller in respect of the Projects (including under the Construction Contracts and Subcontracts); and 3.3.4 the Buyer assumes the obligations of the Seller under the Plant and Equipment Leases, and gives the Seller the indemnities contained in clause 3.5. (f) As can be seen, it did not appear that the parties intended any money to be paid by Lewton to Walton Construction and, it appears that no money was, in fact, paid by it. It would appear that the purchase price and the structure of the alleged payment was a contrivance or artifice designed to bolster the purchase price to increase the GST refund claim and the calculation of Mawson's success fee. The alleged purchase price was said to be inclusive of GST. There was no suggestion that the actual value of the assets transferred were worth $24 million or anything like it. A curiosity of the figure of $24 million is it is made up of the amount of liabilities being assumed by Lewton. In this way the contract is allegedly one by which the purchaser covenanted to pay to the seller the value of the liability which is being assumed by the purchaser regardless of the actual value of the benefits to be received under the agreement. It is then said that the price will be paid by the assumption of the liabilities. In that way, the figure of $24 million has no relationship to the value of the assets transferred by Walton Construction under the contract. This supports the conclusion that the agreement was a contrivance. Lewton did not actually pay the purchase price stipulated and it did not assume the obligations of the Seller in respect of the Projects as defined or the liabilities under the plant and equipment leases. It actually excluded eight of the 11 projects listed in the schedule and seven of the eight vehicles with the consequence that, by the terms of the contract, the "transfers" were void ab initio such that the obligations in relation to those items were not assumed. (g) By cl 4.1 the parties allegedly agreed to a price variation were there to be an exclusion of liabilities. 4.1 Due Diligence in respect of Assets 4.1.1 If the Buyer is not satisfied with its due diligence in respect of the Assets, then the Buyer may, at its sole discretion, choose to exclude in part or in its entirety, conditionally or unconditionally, any Asset (including the benefit (or burden) of any Construction Contract, Subcontract and Plant and Equipment Lease), from the Assets purchased under this Agreement by serving an Excluded Assets Notice on the Seller on or before the Satisfaction Date. 4.1.2 If the Buyer serves on Excluded Assets Notice under clause 4.1.1, then: 4.1.2.1 the Excluded Assets specified in the Excluded Assets Notice will revert to the Seller and any agreement as to the transfer of that Asset to the Buyer pursuant to this Agreement will be deemed void ab initio; and 4.1.2.2 if and to the extent that: (a) the Purchase Price was calculated on the Completion Date by reference to Price B; and (b) the Aggregate Assumed Obligations and Liabilities is reduced as a consequence of service of an Excluded Assets Notice to an amount below the Price A; the Buyer shall within 7 days after serving the Excluded Assets Notice pay the shortfall to the Seller. (h) However, that too was a contrivance. The way in which the clause operated was such that there could never be a refund by Lewton to Walton Construction. That would be so even if all the assumed liabilities were excluded. That was because the purchase price as recalculated after the exclusion of assets could never fall below the price identified as Price A. It followed that even if Lewton excluded all of the Assets and associated obligations, the so called purchase price would remain the same 90 Lewton entered into the WC/Lewton Asset Sale Agreement on 20 September 2013 and subsequently claimed a GST credit for that Business Activity period for the GST allegedly paid (said to be $2,193,241.56) even though no money actually changed hands.

[20]

The WQ/Peloton Asset Sale Agreement 91 This agreement was entered into on 30 September 2013, and by it, Walton Qld transferred certain assets to Peloton, being a company associated with Mawson and of which Mr Kirzner, a director of Mawson, was the director. The assets allegedly transferred were the plant and equipment, Intellectual Property, the benefit of Construction Contracts (including all debts), the Stock, the benefit of statutory licences and the records of the business save for Excluded Assets. As was the case in WC/Lewton Asset Sale Agreement, the purchaser was entitled to exclude any of the assets from the sale by way of a notice. The projects allegedly sold were identified in schedule 5 and totalled 19 in number. The schedule asserted that the cost to complete the projects was $48,557,563 and the expected revenue was $44,687,230. 92 Again, the purchase price was purely fictitious or a contrivance in that it was a figure which had no relevance to the value of any benefit transferred to the purchaser. It was a figure which was made up of the liabilities assumed in relation to the transferred key employee entitlements, Walton Qld's liabilities arising under the projects listed, Walton Qld's liabilities under the plant and equipment leases plus what was said to be "the aggregate value of the Assumed Liabilities, an estimate of which is specified in Part d of Schedule 8". No amount was specified in the schedule although, read literally it would seem that this clause would simply count the first three identified amounts twice. Again, the payment was not by the transfer of cash or value but was the assumption of the obligation to pay the liabilities. The unreality of the transfer can be seen in the manner in which plant and equipment was to be transferred. An item of leased plant may have been worth a large amount of money but the amount remaining due on the lease only $10.00. Under the agreement the purchaser might have obtained the item for assuming the liability to pay the $10.00. 93 Subsequent to entering into the agreement Peloton sent to Walton Qld an "excluded assets" notice dated 23 October 2013 which excluded nine of the 19 construction contracts listed in schedule 5. That had the effect of excluding them from the agreement and, as between the parties, their transfer was void ab initio. On 29 December 2013, Mr Kirzner sent a further excluded assets notice excluding from transfer under the agreement all plant and equipment, Intellectual Property, the Stock, the benefit of statutory licences, the records of the business, any other property of Walton Qld which was located at the properties where the business was formerly carried on, and all other items of dutiable property other than the Construction Contracts which had not been the subject of any other exclusion notice. The impact of the notice was that the transfer of all assets, save for certain identified Construction Contracts, was, as between the parties, void ab initio. As at that time the effect of the WQ/Peloton Asset Sale Agreement was that it transferred 10 building contracts subject to the acceptance of that transfer by the principals. 94 On 3 October 2013, being three days after it was entered into, Mr Spry made a request for payment to Peloton of the sum of $1,300,000 which was from Walton Qld. It was said that this sum represented the amount of the adjustment of the purchase price paid. Clause 4.2 of the agreement provided: 4.2 Compensating payment 4.2.1 On the Completion Date, the seller must pay to the Buyer $1,300,000 by way of compensation by reason that the Aggregate Assumed Obligations and Liabilities exceed the parties' estimate of the value of the Assets. 95 Again, this is a most curious clause as it required Walton Qld to pay to Peloton an amount of money for it to agree, subject to its right to exclude assets, to take the various construction projects and plant and equipment. The sum of $1.3 million represented the alleged difference between the value of the assets transferred and the liabilities attached to them. However, as Peloton was entitled to exclude assets, which it subsequently did to a significant degree, it is very difficult to ascertain why the payment was made. It does not appear that there was any right for Walton Qld to recover the payment or any part thereof on the exclusion of assets by Peloton.

[24]

"Transaction of the company" 102 Essential to the operation of s 588FF(1) and ss 588FE and 588FC is that there be a "transaction of the company". The application of that phrase necessitates the identification of something which is both a transaction and that it is "of the company" which is the subject of the liquidation. 103 As the above definition of "transaction" as found in s 9 of the Corporations Act shows, there is no clear meaning of that word. The section provides examples of what a transaction might be, but it is not exhaustive by any means. Nevertheless, the exemplars in the s 9 definition disclose the common attribute that the dealing by the company or its conduct effects a change or alteration in the company's rights, liabilities or property: see Capital Finance Australia Ltd v Tolcher (2007) 164 FCR 83, 97 at [73] per Lindgren J (Tolcher); Re Employ (No 96) Pty Ltd (in liq) (2013) 93 ACSR 48 at [15]. The only precise requirement is that the company is a party to the transaction but, as the Explanatory Memorandum at [371] explained, the definition of "transaction" is "sufficiently extensive as to embrace a wide range of means by which property may be disposed of". 104 In this case the difference between the parties is, in the first instance, whether the relevant transaction was the Deed of Assignment or the composite arrangement of the various agreements put in place to "restructure" the group. Necessarily, this requires the Court to look at the transactions in a manner which accords with "commercial reality" and ascertain whether any particular single transaction is whole of itself or part of a wider transaction "of the company": Cussen v Sultan (2009) 74 ACSR 496 at [21]. 105 In this context an important decision is that of Tolcher and, in particular, the careful analysis of Gordon J therein. Presently, it is not necessary to set out in detail the series of agreements which constituted the "transaction" in that case. However, it is important to identify that the insolvent company, LSE, was central to all of the agreements entered into and its property, rights or liabilities were affected by each of the payments made pursuant to them. LSE operated a business of leasing out equipment which was owned by a finance company, Capital Finance Australia (CFA). After a falling out between the two entities LSE entered into a deed with CFA to pay out the indebtedness under the existing finance arrangements. LSE proceeded to ensure that occurred and, in doing so, refinanced with the NAB which made a series of payments to CFA that had the consequence of reducing the latter's exposure to LSE. The primary judge determined that the deed and the various steps undertaken by the company to fulfil its terms, constituted the relevant transaction. On appeal, CFA sought to argue the payments from the NAB were payments made in the acquisition of the goods which were the subject of LSE's leasing business and were not part of any transaction of the company. That was rejected by the majority. In this respect, Gordon J said at 107-108 [120]: As the trial judge said (at [25] and [26]), the term "transaction" is a word of wide connotation. It may include a series of events in a course of dealings initiated by a debtor intended to extinguish a debt: Kalls Enterprises Pty Ltd (in liq) v Baloglow (2007) 63 ACSR 557 at [103], [211]; Australian Kitchen Industries Pty Ltd v Albarran (2004) 51 ACSR 604 at [24], [30] and Re Emanuel (No 14) 147 ALR at 287-289. The events can occur at different times and in different forms: Mann v Sangria Pty Ltd (2001) 38 ACSR 307 at [31], [41]. The categories are not closed. It is not confined to transactions that are lawful or enforceable. The complexity of modern business relations necessarily requires the court to look objectively at the totality of the relationship between the parties in identifying and characterising the "transaction" for the purposes of the relevant provisions of Pt 5.7B of the Corporations Act: Mulherin v Bank of Western Australia Ltd [2006] QCA 175 at [126]; VR Dye & Company v Peninsula Hotels Pty Ltd (in liq) [1993] 3 VR 201 at [39] and Airservices Australia v Ferrier (1996) 185 CLR 483 at 502. 106 Her Honour rejected the narrow characterisation of the arrangements and found that whilst the payments from the NAB to CFA constituted the payment of the purchase price of the goods, that only focused on one aspect of the transaction and ignored the terms of the deed between LSE and CFA as well as LSE's refinancing with the NAB and the allocation of payments to reduce CFA's exposure to LSE. The arrangement put in place by LSE for the NAB to reduce CFA's exposure to LSE was performance of LSE's obligations under the deed in that it discharged part of the debt which LSE had agreed to pay. It effected payment of LSE's debt, albeit through the conduct of the NAB. In this respect Gordon J accepted that the entry into the deed and the steps taken by LSE constituted the "transaction" for the purposes of Part 5.7B of the Act. 107 In Kalls Enterprises Pty Ltd (in liq) v Baloglow (2007) 63 ACSR 557, Ipp JA emphasised that s 588FF speaks of "a transaction of the company" (at [211]) and identified that a composite transaction, being a series of transactions, or events or acts or any combination of them, can comprise a transaction for the purposes of Part 5.7B. However, in ascertaining whether, in relation to a series of agreements, transactions or events, the composite whole is the "transaction" or the transaction is merely one of the single elements, it must be kept in mind the section focuses on a "transaction of the company". In this respect his Honour said at [212]-[213]: [212] As Giles JA observes, the question whether a transaction is a transaction of a company depends on the nature and extent of involvement of the company in the transaction. A transaction may be "of" more than one company or party. The mere fact that a company is a party to a contract or contracts that form part of the transaction does not necessarily make the transaction "of" that company. Whether a company is so bound up in the transaction that it is a transaction "of" the company is a question of judgment dependent on fact and degree. [213] As Giles JA observes, the transaction (being the transaction relied on by the appellants) comprised a succession of events directed to the satisfaction of the liability of Mr Kalls and others to pay a substantial sum of money to Mr Baloglow. The underlying purpose of the transaction was to enable the TQLS business to be used to pay a substantial sum of money to Mr Baloglow. Each event comprising the transaction had a common element, namely, the achievement of that purpose. This common purpose connects the events sufficiently to make them one transaction (comprising the transaction). 108 Basten JA (at [236]) made similar observations: Giles JA suggests that what is lacking in this case is the element connecting "the transaction" to KE and/or AA, so it can be said to be a transaction "of" that company: at [102] above. I agree that being a transaction "of" a particular company can be said to involve something more than the concept of a company being "party to" a transaction. It involves a different perspective. A sale may involve three companies, a vendor, a purchaser and a financier. Each is "party to" the transaction, but in order to characterise the transaction for the purposes of Pt 5.7B, one needs to identify "of" which company it is a transaction, so as to assess benefits for, detriments to, insolvency of and winding up of, that company. 109 Giles JA also identified the difficult factual evaluative judgment as to whether a "transaction of the company" consists of a composite arrangement on the one hand or one of the constituent agreements. His Honour said at [103]-[104]: …A composite transaction can be a transaction for the purposes of Pt 5.7B: Re Emanuel (No 14) Pty Ltd (in liq) Macks v Blacklaw & Shadforth Pty Ltd (1997) 147 ALR 281; 24 ACSR 292. But a composite transaction may include events or actors which are not dealings by the company or actors acting on behalf of the company, and the collection of dealings may not warrant the description of a transaction of the company. In the present case the composite transaction went beyond a single event, and included dealings not of KE or AA. Were KE or AA parties to the transaction, and was it a transaction of KE or AA? [104] In Re Emanuel (No 14) Pty Ltd (in liq) Macks v Blacklaw & Shadforth Pty Ltd the composite transaction was specifically the totality of dealings initiated by the company, intended to and in fact bringing about a result albeit with the participation of a third party: see at ALR 289-90 ; ACSR 299-300. In Wily v Bartercard Pty Ltd (2000) 34 ACSR 186; [2000] NSWSC 372 (Austin J); Bartercard Pty Ltd v Wily (2001) 39 ACSR 94; [2001] NSWCA 262 the transaction, not really a composite transaction, was found in the company's acquiescence in an arrangement giving rise to either a contract or an estoppel. Neither case supports that being involved in or part of a composite transaction is of itself sufficient for it to be a transaction of the company. It will be a question of fact, involving an evaluative judgment again having regard to the nature and extent of involvement, whether the particular composite transaction is a transaction of the company. 110 Whilst a number of the above statements identify the difficulties in ascertaining what is the "transaction of the company" in particular circumstances, assistance can be derived from the observation of Black J in Re Employ (No 96) Pty Ltd (in liq) (2013) 93 ASCR 48, 53 at [15] where his Honour said: …The identification of the relevant transaction must have reference to the totality of the relationship between the parties and a series of dealings may constitute a transaction if they are connected in being directed to bring about a change in the company's rights, liabilities or property: Mann v Sangria Pty Ltd (2001) 38 ACSR 307; [2001] NSWSC 172 at [31] (Mann); Tosich Construction Pty Ltd (in liq) v Tosich (1997) 78 FCR 363; Capital Finance Australia Ltd v Tolcher (2007) 164 FCR 83; 245 ALR 528; 64 ACSR 705; [2007] FCAFC 185 at [120] (Capital Finance). His Honour's identification of a series of dealings constituting a transaction if they are connected by all being directed to bring about a change in the company's rights, liabilities or property is poignant in the present case. 111 The above discussion makes it clear that a court ought to be astute to avoid isolating a single payment by the company and/or the obligation from which it springs and identify that as the "transaction" when, as a matter of commercial reality, the payment or obligation is part of a wider transaction which is directed to the alteration of the company's rights, liabilities or property. Such care was exhibited by Lehane J in Tosich Construction Pty Ltd v Tosich (1997) 23 ACSR 466 and by Bryson J in Mann v Sangria Pty Ltd (2001) 38 ASCR 307. On the other hand, the mere fact that the transaction in which the insolvent company is a party is an element of a wider transaction, does not make the wider transaction one "of" the insolvent company. In considering the nature of the wider transaction it is relevant to ascertain whether it was intended to bring about a particular change in the company's rights, liabilities or property. 112 In its written submissions QHT relied upon the observations of Ormiston JA in VR Dye & Co v Peninsula Hotels Pty Ltd [1999] 3 VR 201 where his Honour said at [36]: In each case the court is obliged to look at the transaction between the parties in a manner which accords with the commercial realities. It is not a matter of isolating particular individual steps in the course of a business relationship so as to give one element a different characteristic from that which the totality of that relationship would evidence. 113 That said, his Honour was considering this issue in the context of running account cases where it is imperative that the actual business character of the payment be considered and it must be ascertained whether the payment forms part of an entire and ongoing transaction of the company. In that latter respect, consideration has to be focussed upon the role of the company. That has little application in the present case where the debt assignment was the first and only transaction with QHT. 114 QHT also submitted the applicable test involved ascertaining whether discrete transactions are sufficiently connected, and sufficiently discrete from other events, as to constitute one transaction within the meaning and purpose of the Act. The decision of Bryson J in Mann v Sangria at [41] was relied upon in support of that proposition. However, the proposition as advanced by QHT fails to appreciate the context of Bryson J's observations. There, his Honour was speaking of transactions and series of events which were all those of the company in question. His Honour was not suggesting that if the company was party to an agreement which, of itself, was part of a much broader transaction, that broader transaction was necessarily a transaction of the company. 115 Here, the question is whether a particular agreement or conduct is the "transaction" rather than a series or group of agreements or conduct associated with the first-mentioned agreement. It was submitted by QHT that the Deed of Assignment was an integral part of a restructure of a number of companies within the group such that the whole alleged restructure was a transaction of the company. In this respect care must be taken not to allow the use of the nomenclatures "Restructure" or "Restructure Agreements" to overshadow the determination of the real issue. In reality, the Walton Group was not wholly restructured by these agreements. Moreover, the Asset Sale Agreements, although somewhat connected, were generally directed the release of the NAB's performance guarantees where possible. The Deed of Assignment was directed to affording QHT an ability to secure recovery of the GST refund generated from the sale.

[25]

What was the "transaction of the company" in the present matter 116 The liquidators asserted that the "transaction of the company" in issue is the Deed of Assignment and, by contrast, QHT submitted it is the totality of the Restructure Agreements. 117 The Deed of Assignment, of itself, is unquestionably an agreement which is whole and complete. The liquidators do not simply identify the assignment of the $18.8 million debt as the transaction. They rely upon all of the covenants granted and made inter se between the three parties to the deed: Walton Qld, Walton Construction and QHT. By one covenant Walton Qld assigned the $18.8 million debt to QHT which, for its part, agreed to pay the consideration of $30,000. Walton Qld also had a number of other obligations to fulfil. Walton Construction, as the debtor, consented to the assignment of the debt to QHT and released Walton Qld from all claims it might have against it. Additionally, the agreement contained various machinery provisions, including the granting of a power of attorney from Walton Qld to QHT, to ensure that the agreement contained in the deed was carried out. Quite clearly, on its face the deed of assignment was a complete transaction. 118 In the present context it is not insignificant that the parties to the deed recognised that its terms and conditions constituted a complete and entire agreement between them. Clause 11.3 provided: 11.3 Entire Agreement All the agreement and understandings between the parties or any of them in relation to the subject matter of this document are embodied in this document, which, as from the date of execution, supersedes all prior agreements and understandings. In the context of the present question, that is an important term as it has the consequence that no obligations arose implicitly from the Deed by reason of the subsequently executed agreements. By its terms, the Deed provided that all agreements and understandings between the parties in relation to the assignment of the WC Debt were contained in the document. There was no attempt by the respondent to diminish the import of the "entire agreement" clause. It was right not to do so. The clause is a part of the agreement and, it must be assumed, intended by the parties to have effect according to its terms. If it mattered, the agreement was bespoke and not of a pro forma type such that the parties must be taken as having the actual intention that all of the clauses were important. Although the Court is required to consider "commercial realities" it must nevertheless give effect to the terms of the agreements. 119 There are no grounds to suggest, as did QHT, that to focus upon the Deed of Assignment as being the "transaction" is to isolate particular individual steps in the course of a business relationship. Here, there was no prior business relationship between Walton Construction and QHT or between Walton Qld and QHT. The latter was merely a convenient vehicle utilised by Mawson to position itself in the reorganisation of the ownership of assets belonging to Walton Construction. As far as Walton Qld was concerned, the deed constituted the entirety of its relationship with QHT. Walton Qld was not a party to the QHT/Lewton Facility Agreement and nor was it a party to the WC/Lewton Asset Sale Agreement. It did not receive benefits under either of those contracts. Although Walton Qld was a party to the WQ/Peloton Asset Sale Agreement, that agreement was entirely separate to and independent of the Deed of Assignment and the other agreements. 120 QHT submitted the deed was "an integral part of a broader transaction to which [Walton Qld] was a party". It asserted that the transaction was comprised of the five "interconnected" documents being the documents identified as the Restructure Agreements. In the course of submissions, Mr Wise QC for the respondent acknowledged that the Facility Variation Agreement could not be properly considered as part of the "transaction". He sought to advance an alternative "transaction" consisting of the remaining four agreements.

[27]

Mawson's objective of assisting the NAB and Mr Walton 123 The evidence in this matter strongly indicated that a key objective of Mawson was to assist the NAB in exiting its position with the Walton Group. That had the concomitant benefit of extracting Mr Walton from his liability under a guarantee and indemnity he had given to the NAB in March 2011. That guarantee was also given by a number of the companies in the Walton Group. From about March 2013, it was apparent the NAB was concerned as to its security position with respect to the bank guarantee facility it had provided. In early 2013, it had appointed Deloitte's to undertake an investigative accountant's inspection of the Walton Group and in March of that year Deloitte's produced its report. That report identified the risks which the NAB faced in continuing to support the Walton Group and also identified the risks in immediately terminating its financial support. The importance to the Walton Group of its financier's concern resulted in its engagement of Mawson and, the objectives identified in the first engagement letter reveal that to be so. That letter disclosed that one of Mawson's objectives was to provide relief from the pressures being imposed by the NAB. In what appears to be Mawson's written assessment and recommendations to the Walton Group, dated 24 April 2013, it was identified the various options which might be acceptable to the NAB. Amongst them was the significant reduction of the performance guarantee exposure for the NAB. 124 That continuing concern to deal with the pressure being applied by the NAB is also apparent in the second letter of engagement of Mawson of 29 April 2013. The first issue identified was the need to address the Group's bank guarantee position with the NAB. In particular, the objective of replacing some or all of the bank guarantees was emphasised. Similarly, in a proposal to the NAB prepared by Mawson and dated 22 May 2013, almost identical objectives were mentioned. The proposal document specifically referred to Walton Constructions committing to a process of reducing the NAB bank guarantee facility. This same objective was further identified by Mawson in a letter to the NAB of 6 June 2013. In that letter Mawson noted that the sale of Walton Qld was viewed as "an important step in facilitating the bank's exit from the Group". In that letter Mawson identified the various objects of its proposed strategy as including the running down of the bank's guarantee exposure to a point where the balance of its exposure was covered by cash or cash equivalents over which the bank held security. It noted that the paying out of the NAB and the reduction of the bank guarantee exposure had been "ongoing since our engagement commenced". 125 Mawson's attempts to extricate the NAB from its exposure to the Walton Group and to relieve Mr Walton of liability under his guarantee, continued into September 2013. A document obviously prepared by Mawson headed "Walton Group NAB Update" dated 4 September 2013 clearly evidenced its intention and the purpose of entering into the Restructure Agreements. Under the heading "Walton Objective" was the statement, "Walton is committed to complying with the NAB's request to an orderly exit". Adjacent to that was an identification of the NAB objective which included removing any exposure or increased risk for the bank, reducing its exposure under the bank guarantee facility and limiting the risk associated with the bank guarantees being called upon, and crystallising NAB's exposure to the Walton Group. At page 4 of that document Mawson stated the following: Faced with the realities of the situation, the best approach to meet the objectives (NAB suffers no loss) is to, and continue to, carry out an orderly workout. The workout strategy and sale of Queensland due to the issues above, needs to be completed by no later than the end of September. That tends to emphasise the general objectives being pursued when the companies entered into the various agreements and that the sale of the Queensland business was part of the strategy to achieving that end. 126 On page 5 of the 4 September 2013 report to the NAB under the heading, "How we are facilitating the objectives?", Mawson identified its strategy of aggressively seeking the return of bank guarantees and establishing maintenance companies to manage the defects arising in any defect liability period of the extant building contracts so as to facilitate the return of bank guarantees. Included in that strategy was the engagement of key personnel from the Walton Group to manage the defect liability periods and to sell Walton Qld which would improve the bank's non-circulating security position. On page 9, Mawson identified that the sale of the Queensland business will free up cash flow to improve the NAB's security position. 127 There is a slightly revised edition of that document dated 23 September 2013. It is to be remembered that, by that time, the Deed of Assignment had been executed as had the QHT/Lewton Facility Agreement and the QHT/Lewton Asset Sale Agreement. 128 In his evidence Mr McCurry deposed that, during September 2013, Mawson sought the consent of the NAB to the assignment and novation of the various construction contracts to the new entities as part of the restructure transactions. The benefit of this was that the new companies would either replace the performance guarantees such that the NAB's guarantees would be released or would complete the contracts and see out the defect liability period so as to cause their release. It was identified that an important part of the Mawson strategy was to ensure that the new entities which took over the contracts had skilled personnel to complete the contracts. The entry into of the WC/Lewton Asset Sale Agreement was part of the carrying out of that strategy as it vested the building contracts under the control of Mr Casey who was an experienced and long term employee of the Walton Group. 129 The above strongly supports the conclusion that the strategies engaged in by Mawson from April through to September 2013, including the entry into of the asset sale agreements, were pursued to extricate the NAB from the Mawson Group and, thereby, relieving Mr Walton and his associated companies from liability under any guarantees securing the NAB debt. This was clearly the primary objective of Mawson's strategy and the restructuring was part of that. There is nothing in any of the documents which suggests that Mr Walton or Mawson had any consideration to the interests of Walton Qld or Walton Construction or their unsecured creditors, in particular. 130 Mr Wise QC for QHT made the general submission that what was good for the secured creditors would be good for the unsecured creditors in the long run. That is, by allowing the companies to continue to trade (albeit during their undoubted insolvency) and to discharge the secured debt, at the date of administration, the group would have less debt owing. Whilst it is possible that such an outcome might occur, Mr Wise QC did not point to any evidence that such was the case. As Mr McCann said in his evidence, by allowing the Group to trade on, new unsecured creditors, generally in the form of subcontractors, would be created whilst the cash flow was used to discharge the secured creditors' debts. Although the parties did not descend into detail in relation to this issue, the scenario postulated by Mr McCann was the most likely outcome. In order for cash flow to continue, the businesses would have to keep operating and that would necessarily require accruing further liabilities. 131 It was further submitted by QHT that the overall transaction was advanced for the benefit of both Walton Construction and Walton Qld. In this respect, it was said that because the companies were linked by the cross-collateralisation of their debt, their fortunes were inextricably merged and if one failed, both would fail. It was then said that a better result for the companies was reached by their entry into the Restructure Agreements rather than they being wound up in their absence. That latter submission was also mere assertion and the evidence did not support it particularly so because within a few weeks of the agreements being entered into, Walton Construction and Walton Qld were placed into administration and winding up followed shortly thereafter. There is little doubt that the administration and subsequent insolvency of the two companies shortly after the agreements were entered into was intended or inevitable. 132 Moreover, as is identified below, the Deed of Assignment was not inextricably linked with the asset sale agreements. The deed was not necessary to allow the WC/Lewton Asset Sale Agreement to be pursued. It had the separate and distinct purpose of facilitating Mawson and QHT's financial return from the "so called" restructure. The commercial reality is that it was used as an artifice for the purposes of maximising the GST refund, allowing QHT to be a substantial secured creditor and increasing Mawson's success fee on the sale of the business. Whilst there is no doubt that these objectives were also the rationale for Lewton's assumption of liability of the WC Debt via the WC/Lewton Asset Sale Agreement, that was quite a separate purpose to the attempt to reduce the NAB's exposure. 133 The fact that the Deed of Assignment was directed to a purpose different and separate to that of the asset sale agreements, supports the conclusion that it was not part of a wider transaction "of" Walton Qld.

[28]

Not an "arm's length transaction" 134 In considering the commerciality of the Restructure Agreements, it is relevant that they were not arm's length agreements. Although it was submitted on behalf of QHT that they were, there is no evidence that such was the case. The evidence identified above establishes, and I so find, that the strategies leading up to the entry into the Restructure Agreements and the entry into those agreements themselves were directed to the purposes of extricating the NAB and relieving Mr Walton and his associated companies from potential liability under guarantees to the NAB. There was no evidence which even hints at a suggestion that the agreements were negotiated between the various entities. They were devised by Mawson for the purposes of achieving the identified objectives. The evidence was that Mawson devised the Deed of Assignment. Moreover, the Restructure Agreements were transactions which were propounded by Mawson which, for the most part, was a party to the arrangements through companies associated with it. The reason for its involvement through related companies was, as Mr Wise QC acknowledged, so that it might "take a position" in the transactions which might generate a return. It is difficult to see how the transactions devised by Mawson which were partly for its benefit and acquiesced to by the Walton companies could be said to be "arm's length". 135 An arm's length transaction is necessarily one in which the parties are acting in their own interest both in terms of maximising the benefit of the transaction and minimising any possible detriment. Here, these were not matters which were relevant to Walton Qld entering into the Deed of Assignment. Indeed, no evidence was adduced which suggested that anyone, including its director, Mr Walton, paid any attention to the interests of that company when it executed the deed. The same can be said of Walton Constructions. The major purpose of the transaction was to advance the interests of the NAB and the individuals who had provided security in respect of debts owed to it, as well as the Mawson related entities. 136 Once the conclusion is reached that the various agreements were not at "arm's length", there is no imperative for reading them as if the clauses which they contained existed as a matter of commercial necessity. That being so, it is quite permissible to view the agreements and their terms for the real purposes which they sought to advance. Here, the various transactions said to make up the Restructure Agreements might, in that way, be connected, but that does not make them a transaction "of" Walton Construction. The deed was directed to a different purpose to that of the asset sale agreements and it was not an integral part of them. 137 Mr McCurry also claimed that because Lewton assumed the burden of the WC Debt it was necessary for QHT to take the benefit of it and to relieve Lewton from having to repay it for a number of years so that Lewton could continue to complete the building contracts. That too was mere assertion and although Mr McCurry's sought to link the Deed of Assignment to the WC/Lewton Asset Sale Agreement, that attempt must fail. Later in these reasons where the commerciality of the transactions is considered, the conclusion is reached that entry into the deed along with Lewton's assumption of liability of the WC Debt were part of a strategy by which QHT might profit from the purported transfer of assets from Walton Construction to Lewton. Neither the assignment of the debt by Walton Qld nor the assumption of its liability by Lewton were necessary or appropriate for the purposes of transferring assets to Lewton. The objective of having Walton Queensland assign its debt to QHT was to allow the latter company to interpose itself as Lewton's so called financier and to take advantage of the receipt by Lewton of the GST refund. Although Mr McCurry and QHT sought to portray the Deed as in some way being essential to the alleged restructure, it was not. It was really no more than an artifice used by QHT to secure a profit for itself.

[29]

Kazar v Kargarian 138 QHT relied upon the decision of Flick J in Kazar (in his capacity as the liquidator of Frontier Architects Pty Ltd) (in liq) (ACN 099 631 982) v Kargarian (2010) 81 ACSR 158 (Kazar) in support of its contention that the Restructure Agreements constituted the relevant "transaction". The reliance appears to be founded upon some factual similarities between that case and the present. However, given the ascertainment of the "transaction of a company" in any particular scenario is an idiosyncratic and factual exercise, such comparisons may prove to be illusory. In any event, the factual similarities were weak at best. In that case, a developer, Mr A, approached Mr and Mrs K to obtain funds to develop land in the ACT. A form of joint venture/partnership arrangement was entered into pursuant to which Mr and Mrs K would advance monies and Mr K's company would construct dwellings on land owned by another of his companies. The parties agreed the profits of the venture would be split equally between Mr A on the one hand and Mr and Mrs K on the other. The relationship continued for a few years until disputes arose between them. Mr A disclosed to Mr and Mrs K that he had inappropriately mortgaged a number of properties which were the subject of the joint venture. He proposed an arrangement which involved, inter alia, the land-owning company selling various parcels at a significant undervalue to Mr and Mrs K. Subsequently, that company was ordered to be wound up and the liquidators sought to avoid that transaction. Mr and Mrs K asserted that the transaction in question should be broadly defined as encompassing their agreement to enter into the joint venture/partnership for the construction and development of properties, the repayment of monies along the way and, finally, the sale and transfer of the remaining seven properties. Flick J accepted the submissions of Mr and Mrs K in this respect. His Honour said at [63]: It is considered that the "transaction" cannot be as narrowly defined as is sought by the plaintiff liquidator and that the transaction is more properly to be characterised as that advanced by the defendants. The sale and transfer of the remaining seven properties was but the last step in a "transaction" extending back to 2001: see Capital Finance; Cussen. That conclusion is supported by the period of time over which moneys were advanced and repaid, the terms of the discussions in 2001 and the terms of both the 5 March 2003 and 2 August 2005 letters. 139 It is beyond question, the approach of Flick J to the identification of the relevant "transaction" is a broad one. The necessary consequence of adopting such an approach is that any agreement entered into or payment made whilst the company is insolvent will be protected from Part 4A of the Corporations Act if it is in some way related to the broader business activities of the insolvent company. That would even be true of new agreements entered into for the purposes of resolving disputes or meeting demands made on the insolvent company. If the reasoning of Flick J in Kazar were applied to the factual situation in Capital Finance Australia v Tolcher, the conclusion of Gordon and Heerey JJ as to the existence of a transaction would necessarily be erroneous. The refinancing agreement in Tolcher was the working out of the erstwhile business relationship and, according to the approach of Flick J in Kazar, could not be described as, in itself, "a transaction". 140 Further, it is difficult to identify a transaction conceived and entered into some years after the parties had entered into the original arrangement, could be part of that original arrangement. That is particularly so when it was apparent that the new transaction was not contemplated at the time of the original arrangement. 141 In any event, even if one were to adopt the extremely broad approach of Flick J, it is doubtful that the "transaction" advanced by QHT in this case could amount to such. The arrangements between the various companies were not part of a continuing relationship. Peloton, Lewton and QHT had no prior business relationship with any of the Walton companies. The Deed of Assignment could not be seen as "the last step" in a hitherto agreed upon arrangement. It was not the performance of a long standing obligation or the alternative performance of such. The various agreements entered into were newly devised for either of two purposes being advancing the interests of the director of the holding company and the financier to whom he was exposed, and advancing QHT's/Mawson's interests.

[30]

Conclusion with respect to the "transaction of the company" 142 Whilst it is acknowledged that in some cases the identification of the relevant "transaction" is a matter upon which reasonable minds might differ, that is not so in the present case. The liquidator's submission that the relevant transaction is that contained in the Deed of Assignment as between Walton Qld and QHT should be accepted. In this respect a number of matters are pertinent: (a) In a general sense, the overall primary objective of some of the Restructure Agreements may have been the protection of the NAB, Mr Walton and others who would be exposed if the NAB suffered a shortfall in its security. The purpose of the overall scheme was to benefit those entities and not Walton Qld or its creditors. (b) The Deed of Assignment, however, was a standalone agreement. There is no explicit connection between it and any of the other agreements entered into. By its own terms it identified itself as containing the entirety of the agreement between the parties. Whilst under the WC/Lewton Asset Sale Agreement, Lewton agreed with Walton Construction that it would be responsible for paying the WC Debt, Walton Qld was not a party to that agreement. (c) Walton Qld was not a party to all of the individual agreements said to constitute the restructure agreements. It was not a party to the WC/Lewton Asset Sale Agreement or the QHT/Lewton Facility Agreement. (d) The WC/Lewton Asset Sale Agreement had the purpose of furthering the objective of causing the release of the NAB bank guarantees so as to limit the liability of Mr Walton and others, but it was not designed or intended to affect the rights, liabilities or property of Walton Qld. Although Mr McCurry asserted that in some way the sale agreements would assist Walton Construction and Walton Qld that was mere assertion and not established by the evidence. Moreover, even if they were, that would only be a tangential benefit from the several agreements put in place for the benefit of the NAB and Mr Walton. (e) The Deed of Assignment was obviously an uncommercial transaction. It lacked any commercial sense and Mr McCurry was unable to identify any. To the extent to which it had any purposes they were, firstly, to make QHT a substantial secured creditor of Lewton so that it could receive the benefit of the GST refund and, second, to artificially inflate the purchase price under the WC/Lewton Asset Sale Agreement which would inflate the GST refund and Mawson's success fee. This was a different purpose and objective to the Asset Sale Agreements. (f) The WQ/Peloton Asset Sale Agreement was a discrete and standalone contract. To the extent to which it figured in the overall strategy, its purpose was, apparently, to secure the release of the NAB performance guarantees. It had no real relevance to the WC/Lewton Asset Sale Agreement or the Deed of Assignment. 143 Given the above it necessarily follows that QHT's submission that the liquidators had wrongly identified the relevant "transaction" ought to be rejected. The relevant transaction of Walton Qld was that contained in the Deed of Assignment by which the WC Debt was assigned for the sum of $30,000.

[31]

An alternative case based on the allegedly wider transaction 144 The liquidators submitted that if they had wrongly identified the "transaction" in the pleading and that the transaction was, in truth, constituted by the Restructure Agreements, they relied upon two alternative arguments: (a) That the Court might determine that the wider transaction was voidable because of s 588FE, but only make orders in relation to the Deed of Assignment. (b) That the respondent put the commerciality of the wider transaction in issue by reason of its defence and that issue was joined by the liquidators in their reply and it can be legitimately argued that the whole agreement was uncommercial. 145 For its part QHT submitted that no determination might be made about the voidability of the wider transaction. It submitted the liquidators did not impugn or seek relief in respect of the wider transaction and that is fatal to the application. There are some difficulties in relation to this submission. First, by its defence, QHT quite clearly put in issue the voidability, and in particular the commerciality, of the wider transaction. The nature and extent of the Defence has been assayed above as was the liquidators' Reply in relation to those issues. It might also be said that the commerciality of the wider transaction was explored during the trial. That said, it is true that the relief sought in the proceedings does not seek to impugn this wider transaction. 146 Mr Wise QC also relied upon the observations of Gillard J in Yunghanns v Yunghanns [1999] VSC 254 where his Honour considered proper parties to proceedings in disputes about contracts. It was observed that where a person is a party to a contract in respect of which an order is sought with the intent that party will be bound by the order or the order would affect that person's interest, such a person is a necessary party to the action. It was submitted by QHT that the other parties to the Restructure Agreements are not parties to the proceedings and for that reason the liquidators cannot advance the wider case. 147 However, here the liquidators do not seek any declaratory relief in respect of the wider transaction. The only relief they seek is in relation to the Deed of Assignment. Any findings which might be made as to the commerciality or otherwise as to the wider arrangement will not bind those entities which are not parties to these proceedings. 148 One issue which is of concern is the absence of Walton Construction from the proceedings as it was a party to the deed. That said, it was apparently generally only a party to the deed for the purposes of being given notice of the transaction and, in any event, the liquidators of Walton Qld are also the liquidators of Walton Construction and they presumably do not oppose the making of the suggested orders. 149 Although it has been concluded that the Restructure Agreement was not the transaction "of" Walton Qld, the application of s 588FB to this alternative scenario will, nevertheless, be considered.

[32]

An uncommercial transaction 150 Section 588FB provides guidance in the process of ascertaining whether a transaction is or is not uncommercial. In essence, the transaction will be uncommercial if it may be expected that a reasonable person in the company's circumstances would not have entered into it. In reaching that conclusion regard is to be had to the benefits, if any, to the company, the detriment to the company, the respective benefits to other parties to the transaction and any other relevant matter. 151 In Tolcher Gordon J (with whom Heerey J agreed) identified a number of principles which are derivative upon the statutory instruction (at [129]): (1) as the express words of s 588FB make clear, it is an objective standard to determine if a transaction is uncommercial: see also Lewis (as liquidator of Doran Constructions Pty Ltd (in liq) v Doran (2005) 54 ACSR 410 at [156] and Tosich Construction Pty Ltd (in liq) v Tosich (1997) 78 FCR 363 at 366-367; (2) four criteria are to be considered - the benefits enjoyed by the company (s 588FB(1)(a)), the detriment to the company (s 588FB(1)(b)), the respective benefits others received (s 588FB(1)(c)) and any other relevant matters (s 588FB(1)(d)); (3) the objective criteria are not considered in some vacuum but by reference to "the company's circumstances" which must include the state of knowledge of those who were the directing mind of the company, such as its controlling director or directors: Tosich Construction at 367; and (4) for a transaction to be "uncommercial" it must result in "the recipient receiving a gift or obtaining a bargain of such magnitude that it [cannot] be explained by normal commercial practice" or where "the consideration … lacks a 'commercial quality'": see Peter Pan Management Pty Ltd v Capital Finance Corp (Aust) Pty Ltd (2001) 19 ACLC 1,392 at [43]; Lewis v Cook (2000) 18 ACLC 490at [45]-[46] and Demondrille Nominees Pty Ltd v Shirlaw (1997) 25 ACSR 535at 548 and the Explanatory Memorandum, Corporate Law Reform Bill 1992 at [1044].

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The variously identified transactions 152 In the course of addresses the parties did not always maintain the distinction between the lack of commerciality of the transaction constituted by the Deed of Assignment on the one hand and as constituted by the Restructure Agreements on the other, although it can be accepted that the issue of the value of the WC Debt to Walton Qld was relevant to both. However, difficulties arose when ascertaining the benefit or otherwise of the alternative transactions to Walton Qld and, in particular, considering any counterfactual scenario. Mr Wise QC submitted that in ascertaining whether the transaction was uncommercial, the Court must consider what position the company would have been in had the agreement not been entered into. That submission should not be accepted. It is not necessary when proving that a transaction is commercially improvident to establish what the position would be if it were not entered into at all. Where an agreement by an insolvent company confers on the recipient benefits which cannot be explained by normal commercial practice that will generally go a long way to showing the agreement was uncommercial. It is not necessary to consider what the position would have been had the agreement not been concluded. Once the conclusion is reached that the transaction itself is uncommercial - it being necessarily implicit that a better agreement could have been reached - the requirement of s 588FB(1) is satisfied. To require the Court to consider in this context myriad alternative positions of a company long since insolvent is to add an unrequired and extraordinary layer of complexity to the determination. Indeed, to suggest that such is necessary is to assume that, if it was not executed as it was structured, the transaction would not have been entered into at all. That assumption is not warranted as it may be the parties would have entered into the agreement on reasonable commercial terms. 153 True it may be that a respondent might raise as a defence that if the "transaction" were not entered in the form in which it was, no agreement would have been entered into at all and the ensuing counter-factual scenario would be worse for the company. If so, that would need to be pleaded and proved. However, the liquidator is not required to identify every possible alternative scenario and establish the company is worse off as a result of entry into the agreement. Further, where the transaction in question is "arm's length", identifying the possible alternative scenario might have some relevance, however, where, as here, the transaction was not at arm's length and but a mere artifice to provide a benefit to QHT and Mawson, the consideration of counterfactuals would be inutile. It would be impossible to rationally ascertain what they may be. 154 In the matter before the Court, neither of the parties clearly articulated the alternative scenarios which arose in this respect and nor did they differentially direct their arguments to the two possibilities.

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Benefits and detriment 156 Although not always necessary, the identification of the benefits or detriment arising from the entry into the identified transaction may require a consideration of what the position would have been had it not been entered into. That counterfactual may not often be easy for a liquidator to identify, especially in those situations where the erstwhile directors are not willing to assist which is often the case. Here, there are particular difficulties in considering that assessment. It was not said that if the Deed of Assignment was not entered into none or not all of the other Restructure Agreements would have been entered into. However, it seems fairly clear that if the WC Debt remained owing to Walton Qld, that company would not have been able to "support" Lewton by giving it accommodation in respect of the debt for three years. On the other hand, it is also not clear that there was any other indebtedness of which QHT might have taken an assignment and of which Lewton might have assumed liability so as to manufacture the indebtedness inter se those two entities. It is also not clear why Lewton needed to assume the obligation to pay the debt in any event. It is possible that if the Deed of Assignment had not been entered into, Lewton may not have assumed the obligation to pay it. Whilst that seems most likely, little evidence was adduced as to this fact. 157 In its submissions QHT asserted that if the Restructure Agreements had not been entered into the various companies would have been placed into liquidation on 18 September 2013. That hypothesis was not supported by the evidence as is discussed later. Indeed, it was somewhat contrary to the strategy which had been pursued by Mawson since April 2013. As the liquidators submitted, there is nothing to suggest that the only option for the Walton companies was entry into the agreements or administration. The strategy which Mawson had been pursuing since April 2013 and for which they were being paid was to sell the businesses of Walton Constructions and Walton Queensland. There is nothing to suggest that this strategy would not have persisted. That may have been particularly attractive to the NAB which sought to ensure that the performance guarantees were returned. 158 This brief discussion exemplifies the difficulties which may arise where attention is directed away from the question of whether the relevant transaction was, in the companies' circumstances, uncommercial.

[36]

The "market value" of the WC Debt 159 The benefit for Walton Qld of entering into the Deed of Assignment was the eventual receipt of $30,000. Mr McCurry said there was no rationale for that amount of consideration and it was chosen, more or less at random, because it was more than nil. By that evidence he sought to convey that the benefit of the WC Debt was, in fact, nil but that some consideration needed to be given to afford it an appearance of commerciality. The second part of that evidence can be accepted, but not the former. 160 The detriment for Walton Qld from entering into the deed was the loss of the WC Debt which had been valued by Worrells at between $204,000 and $6.1 million. Although Mr McCurry disregarded that valuation, QHT did not produce any evidence which indicated that it was not a reasonable opinion. The attempted reliance on the unsworn and unverified comment of Mr Spry, who did not give evidence, did not diminish its veracity. Mr Spry's unexplained absence, given that he was in QHT's camp, permits the Court to assume that his evidence could not have assisted QHT on this topic: Jones v Dunkel (1959) 101 CLR 298. The report was prepared by Worrells, a firm of accountants, in the ordinary course of its business and there was nothing existing at the time of the entry into the Deed of Assignment known to the directors of Walton Qld or anyone else to suggest that it ought not to have been relied upon. 161 Mr Jaski, an expert called by QHT, provided a report in which he opined that as at 18 September 2013, the recoverable value of the WC Debt was nil. He also said that the deficiency in Walton Qld's net asset position would have been greater if the Restructure Agreements had not been entered into. In particular, he asserted that Walton Qld was in a better position because of the transfer of the 19 construction projects to Peloton under the WQ/Peloton Asset Sale Agreement. This latter evidence tended to conflict with Mr McCurry's evidence which suggested the transfer of the building contract was value neutral and with the fact that Peloton excluded nine of the contracts from the sale. 162 The liquidators' submission that, in his report and in his oral evidence, Mr Jaski strived to advance the interests of QHT where he could, ought to be accepted. It is apparent he took a somewhat overly pessimistic view of the likelihood of the recoveries which would have been available to Walton Construction had the Restructure Agreements not been entered into and the external administration of the companies commenced from about 18 September 2013. The relevance of the amount of recoveries available to Walton Construction was that the greater their value, the greater the dividend payable to Walton Qld on winding up. For the reasons which appear below the observations of Mr McCann as to the likely recovery from Walton Construction on a hypothetical liquidation commencing on 18 September 2013 should be preferred to that of Mr Jaski. 163 There were a number of significant issues between Mr McCann and Mr Jaski going to the value of the WC Debt as at 18 September 2013 which, itself, was dependent upon the amount recoverable on liquidation by the holder of the WC Debt. They were: (a) The value of the trade receivables owed to Walton Construction. In effect, that was a question of their recoverability. (b) The entitlement of Assestinsure to a security in respect of its debt. (c) The availability of a recoverable cost order made in favour of Walton Construction. (d) Other recoverable amounts. 164 Each of the above will be considered in turn.

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The value of trade receivables 165 In relation to the value of the WC Debt as at 18 September 2013, the main dispute between the parties was the value of the trade receivables of Walton Construction as at that time. 166 Mr Jaski expressed the opinion that as at 18 September 2013, the trade receivables were worth $816,570, although that was an unduly pessimistic view. His conclusion was shown to be inconsistent with the amounts actually received by Walton Constructions from trade debtors in the period after 18 September. In the period between 18 September and 3 October 2013, Walton Construction was paid the sum of $8,298,041.49 as progress payments and receivables. In the period during its administration and liquidation, after 3 October 2013, it was paid further amounts such that the total received was $9,115,450. 167 Mr McCann provided a calculation of the likely return based on the ownership of the WC Debt if Walton Construction was put into liquidation or administration on 18 September 2013 as reflected by the amounts actually received from trade creditors and identified the amount as being $2,355,625. That actual experience, although moderated by reason of the circumstances, provided a more sure guide to the likely recovery than did the approach of Mr Jaski which is not grounded in any identified actual experience. 168 In effect, Mr Jaski based his assessment on the assumption that only 7.4% of those trade receivables would have been recovered had the external administration commenced on 18 September 2013. His view was that once the external administration commenced the principals under the building contracts would trigger insolvency clauses rendering Walton Construction liable for damages and preventing the recovery of amounts owing. 169 Mr McCann cavilled with Mr Jaski's approach and identified that it did not take into account debtors not liable for progress payments and, for that reason, the amount recovered would be "much higher". He said that his initial use of the figure of $9,115,450, being the actual recoveries, was a "better guide" to the likely outcome. He supported that by reference to the fact that: (a) Most of the work under many building contracts had been completed, invoiced and certified as at the date of the assumed administration (being 18 September 2013); (b) With the exception of two projects, all of the other projects were more than 70% completed and supported by guarantees; and (c) Many of the payments were received the day immediately following 18 September or on 20 September. 170 Mr McCann acknowledged that an appointment of an administrator at 18 September 2013 would have meant that some of the money owing would not be received, however, he could not put a precise figure on it. In this respect he referred to the substantial point that a significant amount of money was received by Walton Construction on 19 and 20 September 2013, which came from debtors where payment of their debt had already been put in train. Mr McCann opined that because the debtors would not have been aware of the appointment of administrators for a few days it is likely that the payments would have been made because, as a matter of internal administration of the debtor entities or because they were unaware of the administration, they would have continued to be processed. He also identified that it was likely that there would have been principals who did not terminate the contract and claim offsetting damages and who would have made the outstanding payments to Walton Constructions even if they were aware of the appointment of an administrator. 171 In reaching the figure of 7.4% as being the rate at which the trade receivables would be recovered, Mr Jaski used as a comparator a figure which he said he had derived from the actual amounts received by the external administrators after 3 October 2013. Mr McCann pointed out that the figure used by Mr Jaski was derived by comparing the amount received, $816,570, with the value of trade debtors identified by the directors in their "Report As To Affairs" as being the book value of the debtors and work in progress. He identified that the better comparator would be the value of the trade debtors identified by the administrators in their Report to Creditors. He said, with some force, that figure would be more accurate as the administrators would have had the benefit of reviewing and investigating the books and records of Walton Construction as opposed to the estimates provided by the directors. On that basis the rate at which the trade receivables were recovered after 3 October 2013 was 25.6%. Under cross-examination Mr McCann's evidence in this respect was not damaged. He was prepared to make appropriate concessions especially as to the fact that the calculations which were made could not be entirely accurate. If the rate of 25% was applied to the amount actually received by Walton Construction in the period from 18 September to 3 October 2013 (notably not being only trade receivables), being $8,298,041.49, the amount recovered would equate to $2,074,510.25. That is substantially in excess of the total of $816,570 which was the value of the collections Mr Jaski suggested, even disregarding the further $670,000 received in the post-administration period in respect of pre-appointment debtors. That exercise merely demonstrates that Mr Jaski's figure is probably significantly below the amount that would have been recovered had Walton Construction's administration commenced on 18 September 2013. 172 It was put to Mr McCann that the comparison was not accurate as the actual recovery rate excluded consideration of the amount of work-in-progress. However, as Mr McCann responded, the essential question in issue was how much was likely to be recovered from the trade receivables which were the amounts which had been invoiced and that work-in-progress was not a trade receivable. Indeed, it was the amount of the expected recovery from the trade receivables in the period from 18 September to 3 October which was the issue under consideration. The question in issue was not how much might be recovered from the combination of trade receivables and work-in-progress. The point which Mr McCann made was that: (a) The actual rate of recovery of trade receivables excluding work-in-progress in the actual post-administration period, being after 3 October 2013, was 25.6%. (b) On a hypothetical scenario where administration occurred on 18 September 2013 the same rate of 25.6% should be applied to the amount of trade receivables actually received, being $8.298m. (c) Mr Jaski's rate of recovery of 7.4% was calculated on the rate of recovery from trade receivables and the work in progress. (d) By applying the 25.6% Mr McCann was comparing like with like. Ultimately Mr Jaski recognised this as an appropriate way of calculating the possible rate of recovery. 173 The effect of that was to show that when proper consideration is given to the likely recovery of trade receivables the expected rate of recovery was substantially higher than the 7.4% which was initially anticipated by Mr Jaski. That conclusion is reinforced by Deloittes' assumed rate of 50% and Worrells' assumed rate of between 20% and 80%.

[38]

The Assetinsure debt 174 Another point of difference between Mr Jaski and Mr McCann was that, in assessing the amount which might be available to Walton Construction's unsecured creditors if an administrator was appointed on 18 September 2013, Mr Jaski, in his "low value scenario", treated a debt of $4.48 million owing to Assetinsure as a secured debt. That being so, he excluded that sum from the amount available to unsecured creditors. Again, that was an unduly pessimistic approach by Mr Jaski. 175 Mr McCann included that sum in the amount which he considered would be available to unsecured creditors on the basis that the security taken by Assetinsure was invalid. The invalidity arose because it had not been registered on the Personal Property Security Register in sufficient time being 20 days after its delivery or by 17 April 2013. 176 There was, by the time of trial, no real dispute that the security was invalid and I accept Mr McCann's evidence to the effect that, on a reasonable investigation, it would have become apparent relatively quickly at what time the security was given by Walton Construction to Assetinsure. In the ordinary course of business that would have been prior to Assetinsure issuing any performance bonds in favour of the company's clients which first occurred on 22 March 2013. That being so, it would have become readily apparent that the security was invalid. In this respect there was no point in assuming that Assetinsure's security was valid as did Mr Jaski. The amount of $4.48 million should not have been deducted from the amount which would have been available to the claims of the unsecured creditors of Walton Construction. 177 It was put to Mr McCann that it did not matter whether the Assetinsure debt was secured or not as there were not sufficient funds to pay the priority creditors. That assertion came from the report of Mr Jaski where he said (at paragraph 103(g)): I've assessed it [the Assetinsure debt] as a secured claim in my low scenario and an unsecured claim in my high case scenario. In any event, as there are insufficient recoveries to repay priority claims in full, the question of the validity of the Assetinsure security does not impact my opinion of the recoverable value of the Walton's debts. 178 It was put to Mr McCann that this was a reasonable assessment. Mr McCann refuted that proposition and he was correct to do so. Whether the statement was correct depended upon the assessment of the amount of receivables which would be recovered. If the amount exceeded the value of priority creditors the contribution of the Assetinsure debt would make a difference. Indeed, to the extent the amount of assessed recoverable receivables was more than $4.48 million less than the claims of the priority creditors, how the debt was dealt with would impact upon the outcome. Mr McCann's explanation was not countered in any way.

[40]

Other recoverable amounts 182 Mr McCann also included in his assessment of the amount which would have been recovered by Walton Construction, had it been put into administration on 18 September 2013, a number of other payments. At paragraph 34 of his affidavit of 23 May 2018, he identified collections totalling $1,971,193 which were received from the Department of Defence, Alfred Health and Western Health between 18 September and the date of Walton Construction entering into voluntary administration on 3 October 2013. He said that, although the relevant construction contracts in respect of which these amounts were recovered were assigned to Lewton under the WC/Lewton Asset Sale Agreement, these amounts should have been included in the amount recoverable by Walton Construction. 183 A further payment of $192,500 from Alfred Health was also identified by Mr McCann. Mr Jaski did not include that amount in his assessment because it would have been paid to Lewton instead on the assumption that the asset sale agreements went ahead in any event. 184 It was put to Mr McCann that it was not possible to take into account these amounts because, on one counterfactual scenario, if Walton Construction was put into administration on 18 September 2013 the amounts would not have been paid or if paid, would have been paid to Lewton. However, whether that was so or not depended upon the time at which they were paid and other circumstances. 185 This line of questioning did expose the difficulty of an ill-defined counterfactual scenario in a case of this nature. As indicated previously, the counterfactual may merely have been that the Deed of Assignment would not have been entered into. If that were so, the amounts received by Lewton could not be taken into account because they would still have been paid to Lewton as the assignee of the building contracts. If, however, none of the agreements would have been entered into, it would have been accurate in assessing the value of the WC Debt not to exclude that amount. 186 Mr McCann also referred to an amount of $147,595 which was received by Walton Construction in the period from 18 September 2013 to the date of entering into voluntary administration which was paid in respect of "small works". It does not appear that this amount was taken into account by Mr Jaski. Nor did Mr Jaski take into account the receipt of a further $431,803 which was also apparently received by Walton Construction shortly prior to entering into voluntary administration. It is not clear whether Mr Jaski disputed these amounts should be included in the amounts recovered by Walton Construction if it had been put into administration on 18 September 2013 even though they were not included in his calculations.

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The result of the comparison between McCann and Jaski 187 The result of the above discussion is that Mr McCann's assessment of the likely receipts by Walton Construction, were it to have been placed in administration on 18 September 2013, is closer to the actual position than that suggested by Mr Jaski. Relevantly: (a) Mr Jaski's assessment of recoverable trade receivables of $816,570 was well below the amount of $9,115,450 actually received by Walton Construction after 18 September 2013 of which $817,408 was received after the company was placed under external administration. Even 25% of the amount actually received in the period between 18 September 2013 and 3 October 2013, was $2,074,510.25. (b) Mr Jaski did not include in the amount of receivables used to calculate his "low valuation" the amount of $4.48m in respect of the Assetinsure debt which ought to have been included; (c) Mr Jaski did not include, at least in his low value, the amount of $820,000 actually recovered in respect of the Illawarra Hotel cost payment which ought to have been included. (d) Mr Jaski admitted in cross-examination that about a further $580,000 ought to have been included in the trade receivables which were not included in his assessment. Indeed, the other amount of $1,971,193 should probably also have been taken into account. 188 Unfortunately, there remained some doubt in the evidence before the Court on this issue. It is not clear that the $580,000 identified above was not included in the figure of $817,408 which was actually received after administration commenced. More importantly, however, was that Mr McCann admitted that once the company was placed in administration there would be a drop off in the rate at which the trade receivables were recovered. He was not able say how much that would be. Nevertheless, on that basis the rate of recovery was 25%, and making a rough calculation, the amount which was likely to be recovered by Walton Construction was $3,474,510. Applying the method of calculation used by the experts the amount of that recoverable by the holder of the WC Debt on Walton Construction's liquidation would have been approximately $434,313.75. 189 It should be mentioned that the above is a broad-brush approach to assessing the lower end of the likely recovery from Walton Constructions by the owner of the WC Debt were it to have been placed into liquidation on 18 September 2013. It is not intended to be an actual assessment but an indicator which shows, from the evidence available and findings made, the probable worst case scenario. Its importance is that it demonstrates that the value of the WC Debt was substantially in excess of the consideration paid for it by QHT. 190 Although in its submissions QHT identified that there was much doubt as to the value of the WC Debt at the time due to the position of the priority creditors, the reasonable analysis adopted by Mr McCann took into account the risks and uncertainty.

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The special value of the debt to QHT 192 It should not be forgotten that the value of the WC Debt must be considered in the context of its assignment. That context includes the various arrangements which Mawson constructed so that its related entities would benefit from the performance of the Restructure Agreements. 193 Here, Mawson had established a scheme which was assumed to generate a substantial GST refund in Lewton which would be subject to a specific security in favour of QHT in respect of the indebtedness founded upon the assigned WC Debt. In order for QHT to secure the benefit of the GST refund, it needed Lewton to be substantially indebted to it. That position was arranged by the assumption of liability for the WC Debt by Lewton and the assignment by Walton Qld of the benefit of the debt to QHT. It is probably unlikely that any other debt owed by Walton would have sufficed for this purpose as it would require a willing creditor to agree to the transfer of a significant debt. It was not suggested that any other creditor was prepared to assign to Lewton any debt owing by Walton Constructions. It can be assumed, therefore, that as far as QHT was concerned, it was the only debt which could have been assigned to it so that it could create a substantial indebtedness by Lewton to it. 194 QHT was also in the position such that under the QHT/Lewton Facility Agreement, Lewton would agree to provide security over any GST refund received in respect of its indebtedness under the facility. The entitlement to the WC Debt made Lewton sufficiently indebted to it to ensure the refund would be fully recoverable under the security and, in the case of Lewton's insolvency, QHT would be Lewton's major creditor. 195 In effect the WC Debt was required to put in place the scheme which, it was anticipated, would return about $2 million to QHT in relatively quick time. That did not occur because the ATO was concerned with the transaction, and rightly so. Nevertheless, after some cogitation, it acquiesced in the transaction and accepted that the GST refund was payable. The risks for QHT which attended the transaction with Lewton were any delay from the ATO in accepting the claim for a refund and the possibility of Lewton failing with the risk that the security held by it might not be enforceable or might, arguably, not be enforceable. In this sense the potential benefit for QHT from taking the assignment of the debt was significant but the risks were relatively low. 196 As it transpired, Mr McCurry did not suggest that there was a great deal of risk in the transaction for QHT. It had ascertained that Lewton would receive a substantial GST refund and by creating an indebtedness between it and QHT, which was secured and not able to be used by Lewton, the refund would most likely be received by QHT. 197 The consequence of the above is that, apart from the value of the WC Debt as at 18 September 2013 derived from the assumed liquidation of Walton Construction, the debt held substantially greater value for QHT, it being an essential element for securing the amount of the GST refund which Lewton was expected to receive in respect of its acquisition of assets under the WC/Lewton Asset Sale Agreement. Whilst, QHT acquired for $30,000 a debt which had the real prospect of returning $434,000 or more from the debtor, it also acquired a debt which could be used to secure the payment to it of substantial further amounts, some of which were almost assured. It follows that even if the benefit of being the owner of the WC Debt flowing from Walton Construction's liquidation were put to one side, the special value of the WC Debt to QHT was substantial because it offered what was perceived to be a significant and almost certain return. Although that turned out to be $709,000, at the time the potential existed for recovery of an even greater amount. In comparison, $30,000 was a small sum to pay for the accruing benefit. In this respect it should not be forgotten that Mr McCurry set the amount of consideration and it was not the result of any bargaining process.

[44]

Other factors which were said to have affected the value of the WC Debt 198 Although QHT submitted that the Deed of Assignment was commercial because Walton Construction had no ability to repay the WC Debt, that was not to the point. At all times it was accepted that it would not be repaid, however, the real question was how much might be recovered by the holder of the debt on Walton Construction's winding up. 199 QHT also submitted that the liquidation of Walton Construction and Walton Qld would necessarily occur simultaneously and result in the prospects of a pooling order being made such that the indebtedness of Walton Construction to Walton Qld would be nullified. However, there was nothing to support the suggestion that a pooling order would be made. Mr McCann, the liquidator of both Walton Qld and Walton Construction, had not considered seeking such an order and had never sought such an order in any winding up. He did not see it as being appropriate in this case. He said: I'm not an expert on pooling. I can't say I've actually availed those provisions. However, my understanding is that pooling is often used as a tool where there's confusion as to which entity creditors are truly a creditor of and therefore it's difficult to separate the two groups of creditors because of that. And I don't see that's the case in this instance. 200 Mr McCann was correct in his assessment of the circumstances in which a pooling order is appropriate; namely, where the affairs of the companies in a group are so inextricably mixed that there will be problems in identifying which company is indebted to the various creditors: Ford, Austin & Ramsay's Principles of Corporations Law, Lexis Nexis online edition [27.531]. That did not appear to be the position in the present case or, at least, there was no evidence of it. Moreover, an essential element in ascertaining whether a pooling order would be made is that it is just and equitable for it to be made. That would include identifying that there would be no relevant detriment to the creditors of any of the entities in question. In this case it is unlikely that could be demonstrated. Walton Qld had lent in excess of $18 million to Walton Construction over a number of years and, to the extent to which that debt might have given rise to a return on Walton Construction's winding up, the creditors of Walton Qld should not be denied that opportunity unless some good reason was shown. None was identified by QHT. 201 No substantial attempt was made by QHT to demonstrate that a pooling order might have been made in this case. It is very improbable that such an order would have been made in this case and it is not a consideration which ought to be given any weight. 202 QHT also asserted that one of the relevant circumstances of Walton Qld was that the NAB held a security over the book debts of, inter alia, Walton Qld which would have included the WC Debt. Whilst that may be true, the above discussion concerning the value of the WC Debt proceeded upon the basis the NAB would not be interested in the book debts of the companies. Indeed, it is more likely that the NAB would have had recourse to the cash deposits rather than seeking to enforce an inter-company debt. It had valid securities over those cash deposits which exceeded the amount of its debt. The suggestion that the NAB would not enforce its security over the cash deposits and, instead, pursue the recovery of book debts is spurious. The fact that the NAB was aware of the Restructure Agreements and did not interfere is indicative of its lack of interest in the WC Debt. 203 It is also to be noted that, by reason of the appointment of administrators to Walton Qld on 3 October 2013, the NAB's security, which had been registered under the PPSA within the previous six months, vested in Walton Qld: s 588FL of the Act. Although there was the possibility of the bank making an application under s 558FM for an order validating the security, nothing was shown to suggest that such an application would have been made or would have been successful. Indeed, it appears that, by October 2013, the NAB was otherwise fully secured by the existing security held over the cash deposits.

[46]

The existence of the Worrells' Report 205 Of particular relevance in the present context is subparagraph 3 of Gordon J's observations in Tolcher which has been set out above. There, her Honour emphasised that, in assessing the commercial reasonableness of the transaction, consideration must be given to the circumstances of the company existing at the time of the entry into it. Her Honour held that included the "state of knowledge of those who were the directing mind of the company, such as its controlling director or directors". In this case, it is apparent that Mr Walton was relying upon the advice of Mawson as to the direction which the companies in the Walton Group should adopt. It can be inferred that Mr Walton was advised on the matters relevant to the implementation of the strategy being pursued and the rationale for the Restructure Agreements. This is supported by the various reports of Mawson to the NAB and Assetinsure where reference is made to meetings concerning the restructure and it is identified that Mr Walton attended these meetings. That being so it is appropriate to consider the information available to Mawson as the advisor of Walton Queensland, in ascertaining whether the transaction entered into was reasonable. 206 Of significant importance in the contemporaneous circumstances of the company was that Mawson and QHT had obtained an expert's valuation of the WC Debt as between $204,284 and $6.8 million. It is apparent that QHT commissioned and paid for the valuation dated 5 September 2013 for the purposes of ascertaining the value were the debt to be assigned to it or to a third party. It would be surprising were Mawson or QHT to have sought the advice from Worrells without providing it with all of the information they considered was necessary for the valuation to be carried out. The extensive list of material which was given to Worrells by Mawson (which was annexed to the report) included many internal documents of the Walton Group. It is also apparent that Worrells undertook their own investigations in relation to other aspects of the Walton companies, including conducting a search of the Personal Properties and Securities Register. In short, the report was professionally prepared and there is no obvious reason to believe other than that it contained the reasonably expressed view of the author as the value of the WC Debt. 207 The Worrells' valuation was disregarded by Mr McCurry. He did not read it, but discounted it because a fellow director of Mawson, Mr Phillip Spry, whom Mr McCurry described as "an excellent insolvency practitioner", said that he thought the appropriate value of the WC Debt was nil. He apparently gave no explanation for that opinion. Mr Spry did not give evidence although it can be assumed he was in the camp of QHT. It is somewhat strange that QHT relied on the hearsay evidence of Mr Spry's opinion as attempting to support its argument that the WC Debt was worthless without seeking to call him to give evidence. In the consideration of the circumstances of Walton Qld at the time of the impugned transaction, the dismissal of the Worrells report without any real consideration is indicative of a lack of reasonableness. 208 It is obviously not commercially reasonable to settle on a price for the WC Debt which was well below that calculated by insolvency professionals whom had been engaged to provide a report, and based on the apparently uninformed and unexplained opinion of Mr Spry. One might wonder at the prudence of seeking the production of the report, with all of the time, cost and effort required, if its conclusion was to be merely ignored. It must be kept in mind that it was in Mr McCurry's and QHT's financial interest that the Worrells' valuation be disregarded. The greater the value of the WC Debt, the greater the amount of money would be required to acquire it. 209 In this litigation QHT sought to advance a case based upon ex post facto reasoning as to the value of the WC Debt. To some extent that is permissible because it was in partly founded on circumstances which would have existed at the time that the transaction was entered into. Nevertheless, in that process care must be taken not to apply the wisdom of hindsight. 210 In any event QHT's attempts to undermine the value of the WC Debt failed as the matters referred to in the Jaski report do not, on analysis, discredit the Worrells report. The evaluation of those issues in the manner identified by Mr McCann, tends to support, rather than undermine, its conclusion. 211 Mr McCurry identified a number of factors as to why he is now of the opinion the Worrells report, which he subsequently saw, was likely to have overstated the value of the debt. He said that it had been prepared quickly and at a high level and, further, was highly qualified; it assumed that the cash term deposits (which supported the bank guarantees) were assets of WC; and it did not appear to take into account that some of the building contracts contained "insolvency event" clauses which would trigger damages upon an insolvency appointment. He did not, however, seek to demonstrate how these matters, if they were all established, would have affected the quantum of the valuation achieved. In the absence of any demonstration as to the impact on the valuation by these matters it is not possible to identify that they could have formed a reasonable basis for discounting its conclusion. 212 It ought to be observed that the manner in which Mc McCurry attempted to dismiss the Worrells report was somewhat disingenuous. It was he or his firm who had commissioned it and in the circumstances of which he must have been aware, he would have appreciated that any report produced would have been prepared quickly, at a high level and qualified. He could not have expected otherwise. Moreover, it was based on the information his firm had provided. Mr McCurry's proffered assertion that he now disregards the Worrells report because it did not take into account that the cash deposits of Walton Construction were secured was also disingenuous. At page 13 of the Worrells report the author identified that cash deposits of building companies are usually secured, that he had not been informed of whether this was the case with Walton Construction and, therefore, on the worst case scenario, he assumed that they were. As it was, as Mr Jaski identified in his report, the value of the term deposits at 18 September 2013 exceeded the NAB's security by more than $1 million. 213 It necessarily follows that the existence of the Worrells report valuing the WC Debt as it did, made it unreasonable for Walton Qld to assign it for minimal consideration. Even assuming that there might be some risk in recovering the debt and some delay, the consideration was obviously woefully inadequate. This consideration weighs heavily in the conclusion the transaction was uncommercial.

[47]

Knowledge that the other "Restructure Agreements" would be put in place 214 Mr Wise QC submitted that if the Deed of Assignment was regarded as the transaction then, in assessing the commerciality of the transfer, one must ignore the arrangements around Lewton and in particular the generation of a GST refund which inured for the benefit of QHT. That submission should not be accepted. The preparation of those agreements and the knowledge that the parties would enter into them were part of the circumstances existing at the time. At the time of the execution of the Deed of Assignment, Walton Qld was aware that it was likely the other agreements constituting the Restructure Agreements would be entered into. They had been put forward by Mawson as a suite of agreements and Mr Walton, the director of Walton Qld, would have been conscious of that and, in particular, that QHT was desirous of acquiring the WC Debt. The parties would also have been aware that Lewton would be assuming liability for that debt under the WC/Lewton Asset Sale Agreement and that the amount of the debt would be used to artificially inflate the alleged purchase price under that sale agreement. The Deed of Assignment was intended to be used for the creation of Lewton's liability to QHT which would provide the justification for the taking of security over the GST refund. For those reasons, the acquisition of the WC Debt was extremely valuable to QHT as it had the potential to secure to payment to it of the full amount of the GST refund in an amount of $2.2m. 215 Although the benefit actually received by QHT from the GST refund was probably towards the lower end of the perceived benefits it hoped to obtain from the transactions, it was nevertheless substantial and the taking of an assignment of the WC Debt was integral to achieving it. It follows that the surrounding circumstances show that, given the substantial benefits to QHT which it could derive from being the holder of the WC Debt, the consideration received by Walton Qld for its assignment was somewhat trivial. Necessarily, this tends to support the argument that the transaction was uncommercial. 216 A further aspect of the fact of Walton Qld's awareness that the other Restructure Agreements were being put in place is that it would have assumed that there were improved prospects of recovery in respect of the WC Debt. If, as QHT asserted, the asset sale agreements were bona fide, Lewton would take over the Walton Construction contracts or many of them and see them through to completion thereby causing the release of the NAB's guarantees and the Assetinsure bonds. Necessarily, that would reduce the indebtedness of Walton Construction to both of those financial institutions which were secured in respect of their debt and have generated an even greater return for the unsecured creditors. 217 Alternatively, in the circumstances of this case, even if the probability of the Restructure Agreements being entered into was ignored and thus the special value of the WC Debt put to one side, the value of the debt ascertained by the probable dividend from Walton Construction's liquidation meant that its assignment for $30,000 was commercially unreasonable.

[49]

Alleged counterfactual scenarios 219 As advanced during the course of the trial, QHT asserted that part of the relevant circumstances to take into account when considering the commerciality of the transactions are the possible counterfactuals to the agreement actually entered into. This has been referred to above and it can be expected that there may be occasions where a reasonable person in determining whether to dispose of an asset and at what price, will consider the alternative options available and what the position would be if the transaction did not take place. But as mentioned, this should not distract from the real question, being whether the agreement actually entered into was uncommercial. 220 QHT submitted that if the transactions were not entered into, and in particular the Deed of Assignment, administrators would have been appointed on 18 September 2013 and consideration should be taken of that scenario. There are three difficulties with this submission. The first is that the "transaction of the company" was the Deed of Assignment and not the suite of agreements referred to as the Restructure Agreements. The second is that there was no evidence that if the agreements were not then entered into the immediate administration or liquidation of Walton Queensland or Walton Construction would have occurred. The third is that, even if this counterfactual were viable, the above discussion as to the views held by Mr Jaski and Mr McCann, demonstrate that it is likely that Walton Qld would have achieved a far better financial outcome had it not assigned the WC Debt for $30,000. 221 In relation to the second difficulty, it is to be kept in mind that the strategy adopted by Mawson involved reducing the NAB's exposure prior to the commencement of external administration which entailed causing the bank guarantees to be released and unsecured exposure to be reduced. In turn, that process involved the assignment of building contracts to third party builders who would have replaced the bank guarantees for guarantees from their own financiers, as well as the formation of new companies which were to take an assignment of building contracts and complete them to secure the release of the guarantees. Other action included the substituting of bank guarantees for bonds issued by Assetinsure. Whilst this occurred it appeared that the NAB held off taking action to appoint receivers or to force the appointment of administrators. There is nothing in the evidence which necessitates the conclusion that, absent the entry into of the Deed of Assignment and/or other agreements in the Restructure Agreements, administrators would have been appointed immediately. Indeed, as the liquidators submitted, much energy was devoted to securing the sale of the business of Walton Qld or, at least, parts of its operation. Mawson was motivated to secure this by reason of the success fees which flowed from entry into such agreements. Necessarily, if the companies were to be put into administration such sales would not have taken place or the likelihood of that occurring would have been diminished.

[51]

Conclusion as to the commerciality of the deed of assignment 223 As Gordon J said in Tolcher, for a transaction to be "uncommercial" it must result in "the recipient receiving a gift or obtaining a bargain of such magnitude that it [cannot] be explained by normal commercial practice" or where "the consideration … lacks a 'commercial quality'" (at [129]). 224 As has been identified, Mr McCurry indicated that the Deed did not make sense when considered in isolation. In that, he was correct. The assignment of the $18.8 million debt had the consequence that Walton Qld surrendered any entitlement to participate in the liquidation of Walton Construction and, in return, it received the sum of $30,000. Mr McCurry gave evidence that the figure of $30,000 had no underlying rationale to it other than it was a sum greater than nil. It bore no relationship to the value of the debt which, at around that time, an expert had valued it at between $204,284 and $6.18 million. Whilst it is possible in hindsight to question aspects of that valuation, it is also possible to identify matters which would give rise to an expectation that the lower end of the range identified by Worrells may have been too pessimistic. In all probability the value of the debt at that time was much greater. 225 In addition, the surrounding circumstances showed that the WC Debt had a greater value to QHT than the amount which might be received on liquidation of Walton Construction. On one scenario the parties were aware that liability for the payment of the debt would be assumed by Lewton which, so it was said, was to be a new building company which would carry on business and would, in the near future, be the recipient of a substantial GST refund payment from the Commissioner of Taxation. The benefit of that amount would most likely inure for the holder of the WC Debt. Although Mr McCann claimed the Deed of Assignment was an "arms' length" transaction, it clearly was not. No attempt was made to suggest that a price was struck between Walton Qld and QHT after any bargaining process which took into account the importance of the WC Debt to the latter. There were no negotiations between the vendor and the purchaser and the price was merely set by Mr McCurry. 226 In securing the assignment of the WC Debt for $30,000, QHT obtained a bargain of such magnitude that it cannot be explained by normal commercial practice. It is not necessary to identify its actual value, but from the findings above, it was somewhere in excess of $430,000 and, quite possibly substantially greater. Even if the value ascribed to it by the Worrells report at $204,000 were adopted, the bargain obtained by QHT is not explicable by normal commercial practice and lacked any commercial quality. When the special value of the debt to QHT is taken into account, the price paid by QHT for it was trifling.

[52]

The counterfactual as propounded by QHT 227 As mentioned, QHT submitted that the Restructure Agreements were the "transaction of the company", for the purposes of s 588FF. That has been rejected. However, it also submitted that consideration ought to be given to the position which, hypothetically would exist, if all of the constituent agreements were not entered into. Given the conclusions reached above, it is not necessary to undertake that task. Indeed, contrary to the submission of Mr Wise QC it is not a necessary requirement of s 588FB(1) that consideration be given to what the position would be if the relevant "transaction" were not entered into. If it is shown that an agreement is uncommercial because the consideration provided was inadequate, that is sufficient for the terms of the section. If a respondent sought to assert that an agreement which, on its face and operation was uncommercial was, in fact, not uncommercial because, if it was not struck on its terms it would not have been entered into at all, it would be necessary for the respondent to plead and establish the same. 228 In any event, even if the relevant "transaction" was comprised of the Restructure Agreements, the evidence suggests that Walton Qld would have been better off if they had not been entered into. 229 Firstly, it denied Walton Qld the opportunity to recover the value of the WC Debt in Walton Construction's liquidation. It has been shown that the value of the debt was substantially in excess of the consideration paid. The value of that debt was supported by the substantial amount of money which was received by Walton Construction in the period between 18 September 2013 and 3 October 2013. The amount of the recoveries would have increased in the absence of the Restructure Agreements because, as the analysis of Mr McCann demonstrated, there were substantial payments received by Lewton after the WC/Lewton Asset Sale Agreement which would have otherwise inured for the benefit of Walton Construction. 230 Second, the entry into of the Restructure Agreements came at a significant cost to the Walton companies. The companies in the Walton Group were required to pay substantial success fees to Mawson which were calculated at 5% of the artificially inflated consideration. Additionally, Walton Qld was required to pay $1.3 million to Peloton in order for it to take an assignment of the building contracts and leased equipment even though Peloton subsequently excluded most of that property from the sale. 231 Third, neither Lewton nor Peloton had any real prospects of successfully trading for very long after the agreements were entered into. Each had a substantial deficiency of working capital with the result that they were unable to win new work. Lewton, which had a working capital deficiency of $1.6 million, would not have had access to the substantial GST refund which was secured to and controlled by QHT. Peloton had insufficient working capital and the suggestion that a third party, a Mr Pellicano, would inject capital into the business was not supported by the evidence. Whilst Mr McCurry claimed that a deal was struck in principle with Mr Pellicano, that does not appear to have been the case. The correspondence between the parties and their respective solicitors show that, by November 2013, no agreement had been reached. These documents evidence that an agreement was a significant way off and, as events turned out, Mr Pellicano did not ever agree to invest in Peloton. It appears that another Mawson entity, RZL Holdings (Qld) Pty Ltd, subsequently made an equity contribution to Peloton. This provided it with working capital along with the $1.3 million paid by Walton Qld, however, despite this Peloton nevertheless had an immediate working capital deficiency of $1.394 million and it could not be expected that it had any ability to attract new work. It is not surprising that not long after the Restructure Agreements were entered into both Peloton and Lewton were wound up. 232 Fourth, no discernible benefits flowed to Walton Qld and Walton Construction from the entry into the Restructure Agreements. QHT submitted that entry into the agreements had the effect of minimising the liabilities of Walton Construction and Walton Qld because it would transfer to the new companies several building contracts, the default of which would not be triggered by insolvency clauses. However, it is not possible to conclude that such benefits did necessarily flow from the asset sale agreements. The evidence around this issue was, at best, vague and no attention was given to specifying what actual benefits were ultimately said to be gained by the Walton companies. The WQ/Peloton Asset Sale Agreement permitted Peloton to exclude certain assets from the sale. Indeed, it did this and most of the building contracts were excluded as was much of the plant and equipment. Peloton only retained a few of the building contracts although not all of the principals agreed to their novation which would have rendered the purported novation ineffective. It might also be reasonably assumed that Peloton attempted to retain the profitable contracts. Pursuant to the WC/Lewton Asset Sale Agreement, Lewton similarly excluded eight of the ten purportedly assigned contracts. Further, the evidence before the Court suggested that on the administration of Walton Qld and Walton Construction many of their building contracts were terminated. It follows that, in relation to most of the building contracts, it is not possible to conclude that any benefit was obtained by the possibility of them being continued because, apparently, they were not. 233 At paragraph 87 of QHT's written submissions it is said that entry into the Restructure Agreements was for the benefit of Walton Qld and Walton Construction because the NAB give its consent to the orderly sale processes to occur resulting in the Restructure Agreements and, if that consent was not given the liquidation of the companies would have occurred much earlier. It was also said that until the NAB as a secured creditor was satisfied it would take in priority to the unsecured creditors in the liquidations. However, that submission seems to relate to the period prior to the entering into of the Restructure Agreements and those matters were not the result of the agreements themselves. 234 It was most unfortunate that there was little or no evidence adduced by QHT as to the actual, as opposed to asserted, benefits which were claimed to flow to Walton Qld from the Reconstruction Agreements. The tactic adopted by QHT was to submit that the liquidators carried the onus of identifying every possible counterfactual scenario and establishing that Walton Qld was not better off as a result of entering into the Restructure Agreements. As concluded above, it was not necessary for the liquidators in this case to undertake that task.

[54]

The defence founded upon s 451C and the condition subsequent 236 QHT raised a defence to the plaintiff's claim founded upon s 451C of the Act which provides: SECTION 451C Effect of things done during administration of company 451C A payment made, transaction entered into, or any other act or thing done, in good faith, by or with the consent of, the administrator of a company under administration: (a) is valid and effectual for the purposes of this Act; and (b) is not liable to be set aside in a winding up of the company. 237 QHT submitted that the administrator of Walton Qld, a Mr Franklin, received from the stakeholder under the Deed of Assignment the sum of $30,000 which had been provided by QHT as consideration for the WC Debt. It was submitted the payment of that sum was subject to the satisfaction or waiver of a "Condition Subsequent" within the "Condition Period" as those terms are defined in the deed. The argument advanced was that on the occasion when the administrator, Mr Franklin requested the stakeholder, Nick Stretch Legal, transfer the consideration, the condition subsequent had not been fulfilled such that the request amounted to a request to QHT to waive the condition subsequent. It is then said that the waiver had the effect of causing the WC Debt to be assigned under the Deed of Assignment with the consequence that, by his conduct, Mr Franklin "facilitated the completion of the deed" and caused the WC Debt to become the unconditional property of QHT. So the submission went, this facilitation was a "payment made, transaction entered into, or any other act or thing done" within s 451C and that is not liable to be set aside in Walton Qld's liquidation. Mr Wise QC argued that, given the above, if an order was made under s 588FF setting aside the Deed of Assignment, that would necessarily contravene s 451C because it will have the effect of rendering the administrator's conduct ineffectual and, in effect, cause it to be set aside. 238 The first difficulty with QHT's argument is that the setting aside of the Deed of Assignment is not setting aside or nullifying any payment, transaction or other act done by Mr Franklin as administrator or any such activity done with his consent. Even if the nature of his request was as described by QHT, it had no transactional effect. It was no more than a mere request that payment be made to the company. It had no contractual consequence and was not the exercise of any contractual right. If it was a request for QHT to waive its rights under the deed as was submitted, it was no more than an entreaty to QHT to voluntarily complete the contract. It, of itself, made no relevant alteration to the rights, property or interests of any party. In terms of s 451C(a) the request could not be said to be valid or effectual because it has no consequence. Similarly, it could never be "set aside" as there is no operative act to set aside. 239 Section 451C is concerned with the validity of the payments, transactions and acts done which, themselves, might be found to be void or voidable because they were entered into or engaged in after the company had become insolvent. Absent the section it might have been argued that transactions entered into by the administrator were vulnerable because they were entered into after the company had become insolvent. This tends to confirm that the conduct in s 451C is conduct which, of itself, affects the rights, interests or property of the company in administration. There is nothing in the terms of s 451C which suggests that it was intended to have the effect of validating conduct occurring prior to the administration which would otherwise be voidable under the Act. 240 In this case, no attempt is sought to be made to set aside or make ineffectual any act of the administrator or any act done with his consent. The target of the provision is the pre-administration Deed of Assignment which was a voidable transaction. It is that transaction which is sought to be set aside in the winding up proceedings. It may be that the consequence of the setting aside of that deed is that any acts taken pursuant to it cease to have the legal effect intended pursuant to the vitiated agreement. However, that is not the setting aside of those acts or rendering them ineffectual. 241 It follows that the request of the administrator for payment was not an act or conduct which is the subject of s 451C, as was submitted by QHT. 242 A second insurmountable problem for QHT is that, even if the suppositions underpinning the submission were accepted, at the time of the making of the request, the NAB was not the holder of Perfected Security Interests within the meaning of the Condition Subsequent. By s 588FL the securities which were registered within six months of the appointment of the administrator, vested in Walton Qld. The result was that from the date of the appointment there was no need for the consent of any Perfected Security Holder as none existed and there was no operative condition subsequent. It followed that, even on QHT's proffered analysis, the obligations under the deed had become unconditional and the request of the administrator for payment was irrelevant to the obligation of QHT to pay it. In that sense there was nothing done by or with the consent of the administrator which had or could have had any operative effect in relation to the obligation to pay the debt. 243 In answer to this Mr Wise QC relied upon the decision in Re Kaizen Global Investments Ltd [2017] FCA 431 at [64], [75] and [87] for the proposition that the vesting of the securities in Walton Qld was conditional upon no remedial order being made under s 588FL. No such proposition arises from the paragraphs referred to or from the decision generally. In any event, even if the vesting was conditional, it nevertheless was effective by and at the time Mr Franklin made the request. 244 Mr Wise QC also submitted that the Court might have made an order under s 588FL retrospectively validating the security interests held by the NAB and that the bank was considering making such an application. Even if that were a possibility, it is irrelevant because no such application was ever made and the securities remained with Walton Qld. 245 Mr Wise QC made the final submission that s 451C could apply to the act of the administrator which was described as the omission to refuse to accept payment of the $30,000. For the reasons referred to above that is not conduct within the scope of s 451C. Taken to its logical conclusion this argument advanced by QHT would have the consequence that if any agreement which might be vitiated as a voidable transaction was continued or any step was taken under it or, indeed, the agreement not disavowed by the administrator, it would cease to be subject to the possibility of being set aside on any application by a liquidator. QHT's submission would have that effect even if the administrator was unaware of the circumstances which might have rendered the transaction voidable, a step taken in relation to it would validate it. That would be a rather unusual operation of this miscellaneous provision and it cannot be expected that the Legislature intended it to have that unreasonable operation.

[55]

Ratification or affirmation 246 In its defence, QHT relied upon Mr Franklin's conduct as establishing some form of ratification, election or affirmation of the Deed of Assignment and the other agreements although that argument was not elaborated upon in submissions to any great extent. The basis of the argument is difficult to discern and that is particularly so because, at the relevant time, Mr Franklin was not aware of the circumstances surrounding the entry into of the Restructure Agreements. In any event, as was submitted by the plaintiffs, even if the agreements were ratified or affirmed that would not render them immune from an order under s 588FF. 247 The written submissions of the respondent on the issue of ratification or affirmation of the Deed of Assignment were minimal. The proposition was to the effect that Mr Franklin was aware that the agreement between the parties was executory only and then acted to cause it to be completed. However, it is apparent from the correspondence that Mr Franklin was told that the Deed of Assignment had been fully executed. In an email from Mr Spry of Mawson to Mr Franklin of 8 October 2013, Mr Spry responded to a question from Mr Franklin as to how it was that the WC Debt was part of the purchase price in the WC/Lewton Asset Sale Agreement. Mr Spry said in his email: The 18 million was a loan from WCQ and WCPL. Hence, as you rightly point out, an asset of WCQ … this is the funding from QLD for the poor performance in NSW/Vic. Prior to the Lewton ASA, QHT acquired the WCQ loan via a deed of assignment. Lewton has assumed the QHT liability. 248 Far from Mawson and Mr Spry giving an accurate answer as to the state of the contractual arrangements between the parties, at least on the case propounded by QHT, Mr Franklin was told that the debt had been assigned. On the basis of the argument now being advanced by QHT, Mr Spry would have been wrong to assert that the assignment had been completed. It was not suggested that the information provided to Mr Franklin was corrected. It seems that a few days later a conversation occurred between Mr Franklin and Mr Spry after which Mr Franklin sent an email to Mr Spry stating: Further to our discussion today, I would be grateful if you could arrange for the transfer of company fund held in Stretch Legal's trust account to the following bank account: Account Name: Walton Construction (Qld) Pty Ltd (Administrators Appointed) BSB: 083-155 Account No. 39-281-2672 249 The reference to "company fund" appears to indicate that Mr Franklin was of the view that the fund belonged to Walton Qld. It is apparent that he did not know that the Deed of Assignment was not fully executed and performance by QHT was subject to a condition subsequent. There is no suggestion that he was aware that he had a right not to proceed with the Deed, if such a right existed. Indeed, it was not even put to Mr Franklin that such was the case. Generally, an act of ratification, affirmation or election requires that the person acting has knowledge of the alternative rights available to them, that is knowledge of the facts giving rise to the right and the existence of the right: Sargent v ASL Developments Ltd (1974) 131 CLR 634. 250 In a footnote to its written submissions QHT sought to rely on the obiter comment of Mandi J in Natarajan v ACIB Accumulus Pty Ltd (in liq) (2006) 56 ACSR 356 where his Honour said of the ratification by an administrator of an agreement of the company (at 372 [68]): Further, it is possible that the administrators had no power to "reserve" the right of a future liquidator to avoid the Sale Agreement as an uncommercial and insolvent transaction. Rather, the ratification of the sale agreement may have precluded that possibility. 251 In the absence of any argument about the point in that case it is of the slenderest authority. Moreover, there the question was as to the validity of the agreement and whether it had been authorised by the company. The ratification and adoption of it by the administrator had removed the possibility of there being any such defect. The decision is of no assistance in the present matter. 252 There is nothing on the evidence which suggested that Mr Franklin ratified the Deed of Assignment even if it operated in the manner submitted by QHT.

[57]

Remedy 254 The liquidators seek the recovery of the benefit obtained by QHT as a result of obtaining ownership of the WC Debt from Walton Qld. Such relief is specifically provided for in s 588FF(1)(c) and (d). The existence of those provisions evidence a legislative intent to require a party entering into a voidable transaction with an insolvent company to disgorge the benefits obtained. There is, no doubt, good reason why this is so as such transactions necessarily undermine the orderly winding up of insolvent companies. There is nothing in the legislation to suggest that an order requiring disgorgement of benefits received might only be made where those benefits might have been obtained by the company itself. 255 In the present matter, in considering the appropriate relief it is not inappropriate to take into account that the benefit obtained by QHT was part of a calculated course of conduct whereby the rearrangements of the assets of the insolvent companies were deliberately manipulated to extract the benefit gained. That orchestration was done by Mawson and QHT with the compliance of Mr Walton in disregard of the interests of the unsecured creditors of either of the Walton Companies. They secured those benefits through entry into, inter alia, the Deed of Assignment. 256 QHT did not advance any substantive reason as to why its enrichment, gained through the entering into of a voidable transaction, should not be disgorged. However, the benefits obtained must necessarily take into account the consideration paid by QHT to secure to itself the WC Debt, being the amount of $30,000. 257 That being so, it should be declared that the Deed of Assignment was a voidable transaction and it should be ordered that pursuant to s 588FF(1) of the Corporations Act, QHT is to pay to the applicants the sum of $679,453.80. 258 The parties are to be given an opportunity to make submissions on interest and costs. I certify that the preceding two hundred and fifty-eight (258) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Derrington.

McCann, in the matter of Walton Construction (Qld) Pty Ltd (In Liq) v QHT Investments Pty Ltd

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