The undisputed facts are that the company was in financial difficulties during 1996/7. In particular it owed money to the Deputy Commissioner of Taxation who was pressing for payment. Indeed, the Commissioner had issued a summons for winding up which was returnable on 5 December 1996 in this court. On 4 March 1997, the director of the company resolved that the present plaintiffs "be appointed as Administrators in accordance with s 448A of the Corporations Law and that they would act jointly and severally as Administrators." On 11 April 1997, at a meeting convened by the administrators under the appropriate provision of the Corporations Law, the meeting resolved that the company be placed into liquidation. This triggered the provisions of s 446A(4) under which the company is taken to have nominated the administrator of the company as liquidator.

The director of the company was Rudolf (sometimes known as Rudi) Hanselmann, who is the defendant's father.

On 2 December 1996 an agreement was entered into between the company and the defendant which read simply as follows:

This agreement is between the purchaser THOMAS HANSELMANN

It is agreed that the purchaser shall obtain from the vendor:-

1. all equipment required for the manufacture of sub-

2. ability to deal with existing customers with respect

for the payment of $46,000 (forty six thousand dollars)"

There was annexed to the agreement two pages of description of equipment. It is clear that with four exceptions, all of this property passed to the defendant. Of the property that did not pass to the defendant, two items, namely, a guillotine and a surface grinder, were sold by the liquidators. The surface grinder, which had an auction value of $1,000 and a going concern value of $3,000 on one of the valuer's estimates, was sold by the liquidators for $500. The total value of the four items which were not taken by the defendant were on the plaintiffs' valuer's valuation, $29,000 on a going concern basis, or $12,500 on an auction basis.

As to this, Mr Smith for the liquidators, says that one looks at the agreement and not what happened afterwards, so that one sees that the agreement was to sell the whole two pages worth of plant and equipment plus goodwill, and what I might call customer base, for a package price of $46,000 and it is quite irrelevant that after the agreement was made the purchaser did not receive all of the equipment he should have received. He also says it is completely irrelevant that the liquidators may have committed conversion by themselves selling some of the equipment, the subject of the agreement.

There are three answers to this submission. The first is that even though the liquidators are not court-appointed liquidators and so officers of the court, the court would still not permit them to behave in an unworthy fashion. There has not been in fact any conversion by the liquidators because property in goods only passes by transfer of possession and not by agreement, so the property in the goods was still in the company and was not delivered to the purchaser. Title was thus retained by the company. However, the court would still not permit the liquidators to take any shoddy approach to the merits of the case. Secondly, even if it be irrelevant for the purposes of

s 588FB that the purchaser did not get all the property that it was agreed that he should get, the matter is still relevant under s 588FF when the court is considering what benefit the purchaser in fact got. Thirdly, s 588FB does not merely look at the agreement, it looks at the whole transaction and in an agreement for sale of goods one looks both at the agreement and also the physical transfer of property. It is convenient to get this submission out of the way before dealing with the difficult parts of the case.

(1) Whether the plaintiffs are liquidators so that they can maintain this action;

(2) Whether, if there were a transaction at an undervalue, there is an uncommercial contract within the meaning of s 588FB of the Corporations Law; and

(3) The question of fact as to whether the agreement which I have set out was part of a transaction at an undervalue.

(1) Section 446A(4) of the Corporations Law operates so that the administrator of the company becomes its liquidator. Who, however, was the administrator? The company returns appear to suggest that the two plaintiffs were appointed joint and several administrators. If this was the appointment, then I have considerable doubts as to whether it was proper. Ordinarily, such an appointment must be joint, or at the very least, it must permit the operation of the administration by co-operation; see St George District Builders & Consultants Pty Ltd [1963] NSWR 1265 and Kendle v Melsom [1998] HCA 13; (1998) 72 ALJR 560; 151 ALR 740. Mr Smith endeavoured to distinguish Kendle's case on the basis that it referred to a receiver and manager appointed under a deed as opposed to an appointment of administrator, and also that what I have gleaned from the case comes from the judgments of the Chief Justice and McHugh, J which he says were not supported by the other three Justices. The first of these submissions is valid, the second is questionable. However, it really does not matter because the real question is what do the words "the administrator" mean in s 446A(4) of the Law?

"451A(1) Where a provision of this Law provides for an

administrator of a company to be appointed, 2 or more persons

(2) Where, because of subsection (1), there are 2 or

The section is curiously worded. The initial words of s 451A(2) before subclause (a) would appear to be otiose because subsection (1) is not an empowering subsection, it just recognizes what is the situation under the general law. However, it is s 451A(2)(b) that one must focus upon in the instant case. That says that a reference in the Law including of course s 446A to an administrator is a reference to one or more of the administrators whichever the case requires. If there is a joint and several administration, do these words pick up the two joint administrators or each of the several administrators or only one of the several administrators, and if so, which one?

The expression "as the case may be" has been analysed in the authorities on a few occasions. In Bluston & Bramley Ltd v Leigh [1950] 2 KB 548 at 557, Morris, J said that the construction of these words is by no means easy. However, in most situations the words will have the effect of meaning whichever alternative is applicable; see eg Hooker v Foster 1 SW (2d) 276 (1928) (Texas). The trouble about the instant case is that it is not clear which of the alternatives is applicable.

However, I believe that Mr Smith is right when he submits that one then has to resort to s 109H of the Corporations Law. It being recognized that there may be two administrators and that the administrators should become liquidators, the sensible construction is to treat the application of

s 451A(2)(b) to s 446A(4) as meaning that where there is one administrator that administrator becomes the liquidator and where there are two administrators they both become the liquidator.

Part of the problem actually disappears when one realizes that the administrators were not appointed joint and several administrators at all. They were appointed administrators simpliciter. The appointment then went on to say that they might exercise their powers jointly and severally so far as the law allows. This was complementary to s 451A which allows two administrators to exercise powers severally even though they might be appointed jointly.

Accordingly, in my view the liquidators were validly appointed.

(2) As Mr Robson remarks in his Annotated Corporations Law (LBC 1997) p 677, prior to the coming into force of s 588FB, the liquidator had to prove that a sale at an undervalue was made with intent to defraud creditors. The present section makes the liquidator's task far less onerous. Indeed, there is some authority for the proposition that not only is such task less onerous, but also the court should incline in construing the section to favour that construction which benefits the unsecured creditors in whose interest the liquidator acts.

One gets to this position by looking at the decision of the Full Federal Court in Demondrille Nominees Pty Ltd v Shirlaw [1997] FCA 1220; (1997) 25 ACSR 535, particularly at pp 547-548. The reasoning of the Full Court there was first to go to the explanatory memorandum to the Corporate Reform Bill 1992 paras 1034-5 that the purpose is to ensure unsecured creditors are not prejudiced by disposition of assets in a period shortly before the winding up especially where the transferees are related entities. Clause 1044 of the memorandum in relation to s 588FB says, "The provision is specifically aimed at preventing companies disposing of assets or other resources through transactions which resulted in the recipient receiving a gift or obtaining a bargain of such magnitude that it could not be explained by normal commercial practice." When one takes into account s 109H of the Corporations Law, one can thus see the purpose for which the Division was inserted and must construe it accordingly. I accept the submission that I should adopt this approach.

However, at least at first sight, there seem to be some inconsistencies in the approach of the Division which need to be examined bearing in mind its object. Section 588B focuses on the company. The prime thrust is that one takes a reasonable person in the company's circumstances and asks whether that person would have entered into the transaction. To do this, one focuses on the benefits and detriment to the company in entering into the transaction. However, one then has to focus as well on the benefits to the other parties to the transaction. It is not completely clear why one does this as a matter of logic, but the purpose behind the Division was mainly to stop transactions to related entities or to relatives. Then, if an order is to be made, under s 588FF(1)(c) one does not look to the detriment suffered by the company at all, but rather "some or all of the benefits" that the purchaser has received. Why the words "some or all" appear is unclear. Mr Smith submitted that they show that the court has a discretion. Although this is odd when one is really making someone atone for an uncommercial transaction, it may well be the case because s 588FF(1) of the Law does use the word "may".

So far as transactions at an undervalue are concerned, the few cases that have been decided on these amended provisions of the Law show that the test when dealing with situations where there is a sale at an undervalue by a company about to be wound up is whether there was "a bargain of such magnitude that it could not be explained by normal commercial practice". (Demondrille at p 548 picking up the words of para 1044 of the explanatory memorandum).

These remarks are necessary because I have to deal with the questions of value. Value is not a matter which is to be decided in a vacuum. Value usually is associated with a person. The pure concept of value is, of course, what a reasonable objective person would pay for the property rather than lose it, but very often property will have a special value to a person because of factors unique to that person. For instance, a particular copy of a book may have special value because the inscription once showed it belonged to the intending purchaser's grandfather. If that special fact is known to the vendor and to other persons, it may be a matter to take into account when working out what the hypothetical objective purchaser would pay rather than lose it, but very often the special feature will not be known to the vendor or to the general market.

Again, when one is looking at a company on the verge of liquidation, one bears in mind the words Shakespeare attributed to Richard the Third "A horse! A horse! My kingdom for a horse!". Because of the company's need for current liquid funds, the value of its assets to it may be affected. Normally one does not involve such exigencies in the valuation question and it may be here that it is better to deal with them in seeing whether there is any proper explanation for the transaction, but strictly speaking, such matters do have an effect on the value of the asset to the company.

The problem of transactions at an undervalue just before bankruptcy or winding up has been addressed by various legislatures over the last ten years or so. Sections 238 to 243 of the English Insolvency Act 1986 cover the situation and s 238(4) provides a statutory test for a transaction at an undervalue essentially that the consideration in moneys worth to the company is significantly less than the value in moneys worth of the consideration provided by the company. However, other parts of the statute make it clear that a transaction taken in good faith in the reasonable belief that it will benefit the company may prevail even though at an undervalue. I have looked through all the decisions on the sections referred to in Butterworths Company Law Cases (UK) and with the exception of Re MC Bacon Ltd [1990] BCLC 324 at 340-1, they do not assist on the present problem. Bacon's case is interesting because it lends some support to the proposition that one looks at the financial stringencies in which the company is placed at the time when it makes the transaction when evaluating the transaction. Likewise, s 322 of the English Companies Act 1985 permits recovery from a director to whom property has been sold at an undervalue. Again, there does not appear to be any decision which assists in the present case decided under that section, though see In re Duckwari PLC [1997] Ch 201.

(3) I now return to the question as to whether the sale was at an undervalue. In Spencer v The Commonwealth [1907] HCA 82; (1907) 5 CLR 418, 431, Griffith, CJ said, "In the case of chattels it is often, though not always, easy to ascertain the value. In order that any article may have an exchange value, there must be presupposed a person willing to give the article in exchange for money and another willing to give money in exchange for the article. Where there is a large or considerable number of articles of the same kind which are the subject of daily or frequent sale and purchase, the value of the articles is taken to be their current price."

In the instant case, we are not dealing with chattels which can just be got on the open market at a standard price. We are dealing with equipment which was used in a specialized business.

The evidence is that the goods could not have remained on the premises which the company had because it had to vacate the site. It also did not appear to have the wherewithal to lease a suitable alternative site.

The purchaser is the son of the controller of the company at the relevant time. He did have a business in which he could use most of the equipment and he was thoroughly familiar with the equipment having worked in his father's business.

Both sides have provided evidence from a valuer and it is quite obvious that both valuers respect each other as competent professional experts in their field. Both valuers gave two sets of figures, one on a "going concern" basis, and the other on an "auction" basis. However, both acknowledged that there was some artificiality about the former because the going concern basis usually involved a purchaser coming in and acquiring the business including the plant so that the purchaser would keep producing the product on the premises with the machinery. Both valuers acknowledge that in the instant case the majority (but not all) of the machinery would be removed to another site so that there needed to be some discount from the going concern basis for the fact of transportation and the fact of delay in recommencing production.

The valuers seem to have different concepts of what is an auction value. The defendant's valuer seemed to suggest that the auction value was what an experienced auctioneer would expect the property to bring if auctioned on the site after proper advertisement. The plaintiffs' valuer made it clear that the value was at an auction of which not only had there been proper advertisement, but also there had been professional attention directed to how the property could best be marketed and who might be interested in acquiring it and those persons specially notified.

Assuming that one forgets, at least for the moment, that one must look at not only value in a vacuum but value to the company, it is strange indeed that there be two "values" for property. At any particular time property can only have one value and if different methods of arriving at value produce widely different results, then there is fault in applying one or other of them if not both.

It seems to me that in the instant case one can take neither the going concern value nor the auction value as being the true value. The truth is that the controller of the company knew that his son was interested and that his son was willing to take virtually the whole of the plant and equipment for his new business.

The authorities show that where one has such a situation even if there are no other potential buyers, the value of the property is the amount which the only purchaser would be prepared to pay for it rather than to lose the property; see eg Mordecai v Mordecai (1988) 12 NSWLR 58, 70. However, when one makes adjustments one can see that there is really little difference in the two approaches.

If one starts with the auction value, one has a figure of $51,425 given by the plaintiffs' valuer Mr Jeffery. However, one needs to take $12,500 off this for the items which were never delivered which gives a total of $38,925. Mr Dunsford takes a figure of $42,000. It is a little odd that Mr Dunsford comes under Mr Jeffery because, as I understand it, Mr Jeffery's auction value is based on a proper market survey first, whereas Mr Dunsford's may not be. It is probably safer to take Mr Dunsford's value. However, one would then have to add on a figure for goodwill and customer base, and I would think that somewhere about 30% is the right figure for that. This really is a pure jury figure, but I need to do the best I can on the material I have in all the circumstances. This would increase the property's value to $54,600.

If on the other hand one starts with the going concern figure, one must discount it. The figure given by Mr Jeffery is $121,000 which must be reduced by $30,000 to $91,000 because of the items never delivered. The figure given by Mr Dunsford is $89,000, so I will take the medium figure of $90,000. One must discount this by, I would think, 25%, because of the fact that it is not a true sale of a going concern and there are difficulties in removing equipment, expenses in transportation and demurrage. This reduces the figure to $67,500. I think it is also valid to reduce that figure a further 12% for contingencies which brings in a figure of $59,000.

Mr Smith pointed to some of the evidence given by Mr Dunsford in cross examination where Mr Dunsford is said to have admitted that the proper approach was the going concern value. There are some indications in the cross examination in that direction, but I do not consider that they are as definite as Mr Smith would have me put them. The overview of Mr Dunsford's evidence was that in the peculiar circumstances neither method of valuation was completely appropriate. The flavour of the evidence also was, I think, that the going concern basis was of the two the better indicator.

Accordingly, I think that I should take a figure nearer the adjusted going concern value than the adjusted auction value as the proper valuation.

Accordingly, doing the best I can I find that the proper value of the property was $58,000.

Had the property then any special value to the company which would affect its worth to the company? It is clear that the company needed to clear the equipment and the company needed ready money. These would be factors which could induce a reasonable person in the position of the company to let the property go for less than its proper value. A sale at a slight discount would thus be expected even if only commercial factors were involved.

It can be seen from the calculations, and indeed, from the evidence of the valuers, that the fixing of the value of the property is not a matter of precise scientific calculation. This being so, I would think that had the difference between what was paid and the value of the property been less than 15% of the value of the property, I would have been justified in holding that there was not such a magnitude of discrepancy in value as would make the transaction uncommercial. However, in the present case on my calculations there was a 21% discrepancy so that I cannot finalise the case that easily.

The section indicates that I am to take into account not only the position of the company, but also the significant matter of the relationship of the purchaser to the people who control the company. Where, it would seem to me, the purchaser is a related entity in the corporate sense, or a relation by blood or by law in the individual sense, then the court should look at the transaction far more closely and be less inclined to excuse a sale at an undervalue because of some commercial factor.

In the instant case, I cannot see any sufficient reason why the company would sell the property to a relative of the controller for an undervalue of 21% rather than sell it by auction or in some other way. This conclusion is reinforced by the fact that there does not appear to have been any attempt by the company to explore any other avenue by which it might realize the property.

Furthermore, there is precious little evidence as to what was the process by which the parties to the transaction negotiated the price of $46,000. It would seem from what evidence I have that the amount was more likely worked out because it was what was required to keep the petitioning creditor, the Deputy Commissioner of Taxation, quiet, rather than what was the value of the property.

Accordingly, I cannot see any other circumstances which would make me come to a conclusion other than that the transaction was an uncommercial transaction within the meaning of s 588FB of the Law.

I now must turn to s 588FF. As I have said before, that section permits the court to order compensation in respect of "some or all of the benefit" received by the purchaser under the transaction. Again as I said earlier, the word "may" in the initial part of subsection (1) and the word "some" indicate that the court has a discretion as to whether it is just and equitable to enforce the whole of the compensation against the purchaser.

There is, again, another question. I said earlier that had the discrepancy in value been somewhere between 10 and 15 percent I might have been able to say that the transaction could not be classed as uncommercial because the valuation is imprecise and there are other factors that need to be taken into account. Thus to take a round figure between 10 and 15 percent had the purchase price been $52,000 it may have passed muster. Should then the compensation be only the difference between $46,000 and $52,000 rather than the difference between $46,000 and $58,000?

Although I toyed with this idea for a while, it seems to me it is not what the section requires. Although my rule of thumb about 10 to 15 percent is relevant in working out whether there is an uncommercial transaction within s 588FB, once one has made that determination, then the range of possible values is irrelevant with two exceptions. First, the court may consider that because of the imprecision in the valuation, it might discount the apparent benefit, and secondly, the court may consider that the value to the purchaser was in fact greater than the market value and increase the benefit figure. This is because just as one may adjust the market value to find the value to the company under s 588FB, so one may adjust the market value to what is the value and benefit to the purchaser under s 588FF. This is irrelevant in the instant case because there is insufficient material to enable me to find that there was any special extra benefit to the purchaser.

Accordingly, the benefit to the purchaser through this transaction was $12,000 and I order, under s 588FF of the Law that the defendant pay to the company $12,000.

I should add that although there was a brief consideration of the remedial smorgasboard available under s 588FF(1) of the Law, both parties were of the view that the appropriate order, if I should find for the plaintiff, was an order for payment.

The next question is the question of costs. These days, it is virtually unknown for the Supreme Court to make an order for payment of a sum as low as $12,000. Most cases involving a dispute of that order are dealt with in the Civil Claims jurisdiction of the local court. The word "court" in s 588FF does not have a capital initial letter. That means that under s 58AA(1) actions are not restricted to the Federal Court or the Supreme Court of a State, but any court exercising jurisdiction is capable. Accordingly, this application could have been made in the Civil Claims Court.

It is proper that in some of the early cases under this Division, liquidators approach the Supreme Court, but the cost of that should not be borne by the defendant.

I should note here that at the commencement of the proceedings a folder of working papers was handed up. I did not request this and I got the impression that the folder was being handed to me because the affidavits had not been properly paginated under the rules. I declined to accept this folder for two reasons, first, because I was not happy that the costs of this small claim should be increased by the generation of phototstat copies, which as I understand it under the rules, would entitle a solicitor to $2 for each page photostatted. Although the gesture was meant to assist, in small cases like this, costs must be kept to a minimum so I would not allow any costs for that folder.

I believe the proper order for costs is that the defendant pay the plaintiff the costs that would have been incurred had the matter been presented to the Civil Claims Court where the plaintiff recovered $12,000. However, as to their own risk as to costs, I will hear the parties on costs should they apply within 14 days of the delivery of these reasons. Otherwise that order for costs will stand. The exhibits may be returned after 28 days.