HRNG ADELAIDE, 5 June 1995 #DATE 1:8:1995 #ADD 20:9:1995

Counsel for appellant Air Con: Mr D Clayton QC with Mr T Cogan

Counsel for appellant Carrier: Mr D Clayton QC with Mr N Kandelaars

Solicitors for appellant Carrier: Adams Kandelaars

Counsel for respondent Sheahan: Mr N Strawbridge with Mr D Pilkington

Solicitors for respondent Sheahan: Minter Ellison Baker O'Loughlin

Counsel for respondent/appellant: Mr A Besanko QC

Solicitors for respondent/appellant: Finlaysons Campbell and Schroder

JUDGE1 DOYLE CJ This is an appeal from a decision of a Master of this Court. The decision appealed against was given in respect of two actions tried jointly by the Master. In each action the plaintiff was the liquidator of TOC Pty Ltd ("the company"). A winding up order was made in respect of the company on 11 September 1991 on a summons filed on 27 May 1991.

In each case the defendant was a creditor of the company. In the first action the defendant was Air Con Serve Pty Ltd ("Air Con") and in the second action the defendant was Carrier Airconditioning Pty Ltd ("Carrier"). Each defendant was a creditor of the company as a result of work performed by the defendant for the company pursuant to a contract with the company made before the company went into liquidation.

Sometime prior to the relevant events the company had granted mortgage debentures ("the debenture") to the Australia and New Zealand Banking Group Limited ("the bank") to secure its indebtedness to the bank. On 29 April 1991 the bank, exercising its powers under the debenture, appointed Mr Campbell receiver and manager of the company (I will refer to him as the receiver). The contracts between the company and each defendant were entered into before the receiver was appointed.

In each action the liquidator sought to recover from the defendant the amount of payments made by the receiver in respect of moneys admittedly owed by the company to the relevant defendant. In each case the issue was whether the payment by the receiver was recoverable by the liquidator as a preferential payment pursuant to s565 of the Corporations Law.

The answer made by each defendant was twofold. First, each defendant argued that the payment was made by the receiver from moneys under his control by virtue of the debenture, and that accordingly the payment was not made from the company's money or was not a disposition of the property of the company and so the payment was not made by the company. Each defendant also argued that the receiver had, in the course of negotiations with each defendant, incurred a personal liability to that defendant to make the relevant payment, that the payment made was in discharge of that personal liability and again, for that reason, was not a payment by the company. The argument was that in agreeing to make the payments (and it was common ground that the receiver agreed with each defendant that payments would be made to it if it resumed work under the contracts) the receiver had not acted as agent for the company but had assumed a personal liability which was independent of the pre-existing liability of the company to make the relevant contractual payments. The amounts paid by the receiver were paid in respect of (to use a neutral term) moneys due by the company to each defendant.

The Master found in favour of the plaintiff. As to the first argument he held that although the floating charge granted by the debenture had crystallised, and accordingly the bank had an equitable interest in the assets of the company, nevertheless until the receiver paid over moneys to the bank they remained the moneys of the company. He held that in making the payments the receiver was acting as agent of the company, that moneys received by the receiver did not in any way reduce the indebtedness of the company to the bank, that the payment made by the receiver to the defendants was made in the course of carrying on the business of the company under the debenture, and accordingly the payment was, subject to the issue of personal liability, a payment by the company.

As to the second argument the Master found that the agreements for payment to be made to the defendants were made with the company and not with the receiver personally. He rejected the contention that the receiver had undertaken a personal liability.

Accordingly, the plaintiff succeeded in proving that the payments were made by the company. But there was a further issue to be resolved.

A payment was made by the receiver to Air Con in the sum of $30,000 on about 16 May 1991. A further payment of $49,600 was made to Air Con by a cheque dated and drawn on Friday 24 May 1991 by the receiver. That cheque was posted on Friday 24 May 1991. The Master found that it was received in the ordinary course of the post on Monday 27 May 1991 but after 10.10 am, at which time on that day the winding up commenced.

It appears to have been common ground that the winding up commenced then, presumably on the basis that that was when the application was filed. By virtue of section 1383 of the Corporation Law the provision to that effect made by section 465 of the Corporation Law continues to have effect for the purposes of this winding up.

The Master found that because the cheque was received after the commencement of the winding up it was a disposition of the property of the company made after the commencement of the winding up and, pursuant to s468 of the Corporations Law, was a void disposition recoverable if at all by the company and not by the liquidator as a preferential payment. The assumption that the payment was, in those circumstances, recoverable by the company and not by the liquidators was not challenged in this appeal.

Carrier received a payment of $30,000 on about 16 May 1991. The Master found that a cheque for a further $30,000 was drawn by the receiver and posted to Carrier, presumably also on Friday 24 May 1991. The Master found that this cheque came into the possession of the second defendant when it was collected from the Post Office by an employee of the second defendant before 10.10 am on Monday 27 May. Accordingly he found that that payment was made before the winding up began and was recoverable as a preference.

The Master found that each payment made before the commencement of the winding up had the effect of preferring the relevant defendant in its capacity as a creditor of the company.

In the result judgment was entered against Air Con for $30,000 and against Carrier for $60,000.

Each defendant claimed against the receiver, and against Mr Schroeder an employee of the firm of which the receiver was a member, that if the payments were recoverable from the defendant as a preference each defendant was entitled to a payment from the receiver or Mr Schroeder of an amount equal to the amount recovered from the defendant. Each defendant alleged that Mr Schroeder on behalf of the receiver had agreed to make the relevant payment to the defendant, and each defendant alleged an implied term or warranty to the effect that the payment would not be void as a preference and a further implied term or warranty that the receiver would pay an equivalent amount to the defendant if the payment was declared to be void. Each defendant also alleged misleading and deceptive conduct contrary to s52 of the Trade Practices Act (Cth), this allegation being based upon alleged representations that the payments would be made by the receiver and manager to the defendants and were not liable to be set aside as void preferences. Each defendant also alleged a contravention of s56 of the Fair Trading Act (SA). On the basis of these allegations each defendant claimed an entitlement to be paid the amount of any payment recoverable from it as a preference. Carrier also alleged an express representation and warranty that the payments would not be declared void as preferences and an express agreement that the receiver and manager would indemnify Carrier if any of the relevant payments was declared void.

The Master resolved this aspect of the dispute by finding that neither the receiver nor Mr Schroeder undertook any personal liability, that there was no agreement to indemnify, that there was no representation that the receiver would indemnify either defendant and that any representation was a representation as to a matter of law.

The defendants (I will continue to refer to the parties by their original designations) now challenge the Master's adverse findings and conclusions. They challenge the conclusion that the payment was made from the money of the company. They argue that the payment was made by the receiver in discharge of a personal obligation which he undertook to each defendant. They argue that if the payments are void as preferences they are entitled to be indemnified by the receiver or by Mr Schroeder.

The liquidator cross-appeals on the basis that the cheques posted on Friday 24 May 1991 were received as a matter of law when the cheques were posted, and that accordingly the second payment of $49,600 which the Master found was made to Air Con after the winding up commenced was in fact made before the winding up commenced. The defendants argued that the relevant payment was not made until each defendant had received the relevant cheque and acknowledged and appropriated it in some way, and accordingly that each of the cheques received on 27 May was a payment made after the commencement of the winding up.

The issues for determination in this appeal accordingly are as follows.

Does the fact that the payment to the defendant was made by the receiver from moneys held by him in that capacity, being moneys subject to the debenture under which he was appointed, mean that the payment is not a payment by the company and accordingly not recoverable as a preference?

Does the fact, if it be the case, that the receiver and manager of the company undertook a personal liability to the defendant to make payment mean that a payment made by the receiver from moneys held by him and subject to the debenture in discharge of that personal liability is not a payment made by the company?

Were the cheques posted on Friday 24 May and received on Monday 27 May a payment made (assuming it to be a payment by the company) after the commencement of the winding up?

Did the payments in any event have the effect of preferring a creditor of the company?

If any of the payments are recoverable by the liquidator from the defendants, does either defendant have a claim against the receiver or Mr Schroeder for the amount of the payment?

There is no significant dispute in relation to the primary facts, although the conclusions to be drawn from those facts are disputed.

The company granted a mortgage debenture to the bank to secure indebtedness to the bank. The debenture appears to be in a standard form. None of the parties suggested that there was anything out of the ordinary about the debenture. The debenture gave the bank a charge over the company's undertaking and all of its assets. There were in fact two debentures: one in respect of all assets other than those situate in the State of Western Australia, and another in respect of the assets situate in that State. Nothing seems to turn on this. The charge was a fixed charge in respect of certain specified assets and operated as a floating security as regards all other assets covered by the charge. Clause 19 of the debenture provided that the bank could appoint a receiver in respect of the mortgaged assets and, in the usual form, went on to provide that every such receiver would be the agent of the company and the company alone would be responsible for the acts and defaults of the receiver. The receiver had the usual powers. Clause 22 provided that all moneys received by the receiver should be applied in payment of claims having priority to the charge and then after meeting certain other costs, including all expenses and outgoings properly incurred in or incidental to the exercise of the powers conferred on the receiver in payment of the receiver's remuneration and then in payment to the bank of the money secured by the debenture. By Clause 24 the receiver and the bank were entitled to be indemnified out of the mortgaged premises in respect of all liabilities and expenses incurred by either of them in the execution of the powers vested in them by the debenture.

The floating charge crystallised no later than 29 April 1991. The receiver, after his appointment, opened a bank account with the Australia and New Zealand Banking Group Adelaide and into that account were paid moneys from the realisation of assets the subject of the debenture. The only moneys paid into that account were the proceeds of the realisation of charged assets.

The account was opened in the name of the receiver. The account name was "A R Campbell Receiver and Manager of T O'Connor and Sons Pty Ltd (Receiver And Manager Appointed)". In so acting the receiver complied with his duty under s421 of the Corporations Law.

The payments made to the defendants by the receiver were made from this account, and so the payments were made from moneys which were the proceeds of the realisation of charged assets and which were dealt with by the receiver in accordance with the debenture. Payments were made by the receiver to Air Con in the sum of $30,000 on 16 May 1991 and, as already mentioned, by a further cheque for $49,600 apparently drawn on Friday 24 May 1991, posted that day and received in the ordinary course of the post on Monday 27 May 1991 after 10.10 a.m.

Payments were made by the receiver to Carrier in the sum of $30,000 on 16 May 1991 and, once again, apparently by a cheque for $30,000 drawn on 24 May 1991 and posted to Carrier. This cheque also was received on Monday 27 May 1991 when it was collected by an employee of Carrier at a Post Office box at about 9.30 am on that day and so some 40 minutes before the winding up commenced.

The summons seeking a winding up order was filed at 10.10 am on Monday 27 May 1991.

At the time of each of the relevant payments the company was unable to pay its debts as they fell due from its own moneys.

At the time of each payment the assets of the company together with the moneys paid by the receiver to the defendants were insufficient to satisfy the amounts due and owing under the debentures.

There were creditors of the company who were owed money by the company prior to the appointment of the receiver and who had not been paid at the date of the disputed payments and remained unpaid at the time of appointment of the liquidator and at the time of the hearing before the Master.

It is now necessary to say a little more about the circumstances under which the payments were made, although it will be necessary later to return to this matter in some more detail.

The company had contracted with Jennings Industries Limited in respect of the provision and installation of airconditioning equipment at the Adelaide Entertainment Centre. The defendants were subcontractors to the company. When the receiver was appointed by the bank the defendants were owed money under those contracts. It appears that Air Con was owed a total of about $80,000 and Carrier was owed a total of about $220,000. This was for work already done. At or about the time of the appointment of the receiver both defendants declined to perform further work and apparently left the building site. It is implicit in what has transpired that the defendants were entitled to refuse to perform further work. The Master made no precise findings about this but the case appears to have been conducted upon that assumption. That is what one would expect to be the case. The receiver wanted both defendants to return to the site and to complete the contract works. The completion of those works would enable the receiver to claim from Jennings Industries Limited moneys due to the company under its contract with Jennings Industries Limited.

Prior to the negotiations each defendant had received a circular letter to creditors from the receiver on the letterhead of the receiver's firm in the following terms: "2nd May 1991

T. O'CONNOR and SONS PTY. LTD. (Receiver and Manager Appointed)

Creditors are advised that I was appointed Receiver and Manager of the above company on 29th April 1991. The appointment was made by creditors holding security in the nature of equitable charges.

I have assumed control of the company's affairs and have entered into possession of the company's assets. The company's financial position is presently being analysed.

It is my intention to continue the company's operations for the time being. Accordingly, I would appreciate your making goods and services available to the company upon your normal trading terms and conditions when so requested by us. In this regard, would you please adopt the following procedure with regard to the company's account:

1. Close your present account as at the close of business on 28th April 1991 and promptly render a statement of the account, as at that date, direct to the company; and

2. Open a new account styled "T. O'Connor and Sons Pty. Ltd. (Receiver and Manager Appointed)

• Receiver and Manager's Account" for all transactions occurring on and after 29th April 1991. Invoices and monthly statements in respect of this account should be rendered direct to my office.

Supplies and services upon this account will be treated as Receiver and Manager's liabilities and paid upon your usual trade terms provided they are supported by orders signed by either myself or Jim Martin of my office (specimen signatures below).

38. Negotiations took place between Mr Schroeder, an employee of the firm of which the receiver was a member, and representatives of each defendant. These negotiations took place in the first few days of May. As to Air Con these negotiations culminated in a letter of 6 May 1991 from Mr Schroeder to Air Con in the following terms: "This letter is to confirm our agreement reached during meetings and telephone discussions on 2nd and 3rd May, 1991.

1. The receiver and manager of T O'Connor and Sons will guarantee payment of outstanding invoices due to Air Con Serve against our contract with you for work on the Entertainment Centre to the value of $79,600.00.

2. We will also issue a Receivers order for work undertaken on this site from the date of our appointment, being Monday 29 April, 1991. The payment of this is guaranteed by the

3. Air Con Serve will return to site immediately and work with all dispatch to the successful completion of all O'Connor contracts at the Entertainment Centre.

Would you please confirm your agreement by fax today and also send a copy of the attached notification to Jennings today by fax (No. 232 0460).

(Receiver and Manager Appointed) (Signed) RE Schroeder for and on behalf of AR Campbell Receiver and Manager."

Air Con agreed to these terms and resumed work on the site.

40. The negotiations with Carrier led to a facsimile transmission from a Mr Leonard on behalf of Carrier to Mr Schroeder on 3 May 1991. The transmission was in the following terms: "In confirmation of our discussion at 12.10pm on 3rd May 1991.

Carrier Air Conditioning Pty Ltd accepts your offer of a payment in the sum of $139,332 conditional upon the following -

A. A written undertaking from KPMG Peat Marwick that this does not constitute a preferential payment and therefore cannot be subject to future recall.

B. A written undertaking from KPMG Peat Marwick that this payment in no way prejudices Carrier's rights with regard to settlement of the outstanding balance.

C. Payment, or an acceptable guarantee of payment, is received prior to the recommencement of work, i.e., a bank guarantee.

D. That the sum of $139,332 be paid against the following Carrier invoices ..."

41. Mr Schroeder responded by letter dated 6 May 1991 in the following terms: "We confirm our agreement reached on 3 May, 1991 with respect to Carrier's continuing work on T O'Connor contracts as expressed in your fax of 3 May, 1991 and offer this letter as a Receiver's Guarantee of payment so that work may recommence immediately on completion of the contracts that exist between Carrier and O'Connor.

We have attached a draft confirmatory letter for Jennings. Would you kindly send this,on your letterhead to Jennings by facsimile ...

T O'Connor and Sons Pty Ltd (Receiver and Manager Appointed) Signed RE Schroeder For and on behalf of AR Campbell Receiver and Manager."

42. As would be expected each letter from Mr Schroeder to the relevant defendant was on the letterhead of T O'Connor and Sons Pty Ltd (Receiver and Manager Appointed).

43. It is these negotiations which gave rise to the claim that the payments were made in discharge of a personal liability incurred by the receiver. They also gave rise to the claim by the defendants against the receiver and his representative, Mr Schroeder.

THE PRIMARY ISSUE FOR DECISION 44. Section 565(1) of the Corporations Law at the relevant time provided as follows: "A settlement, a conveyance or transfer of property, a charge on property, a payment made, or an obligation incurred, by a company that, if it had been made or incurred by a natural person, would, in the event of his or her becoming a bankrupt, be void as against the trustee in the bankruptcy, is, in the event of the company being wound up, void as against the liquidator."

45. It is well established that by that section s122(1) of the Bankruptcy Act is made applicable. The relevant parts of that section are as follows: "122(1) A conveyance or transfer of property, a charge on property, or a payment made, or an obligation incurred, by a person who is unable to pay his debts as they become due

from his own money (in this section referred to as 'the debtor'), in favour of a creditor, having the effect of giving that creditor a preference, priority or advantage over other creditors ... is void as against the trustee in the bankruptcy."

46. In the light of that the primary issue for determination is whether the payment by the receiver to each defendant is to be regarded as a payment by the company for the purposes of s122. It has been said on a number of occasions, and generally accepted, that the transactions identified by s122 are identified in words of wide significance; Re Hardman (1932) 4 ABC 207 at 210 and see other authorities referred to in McPherson, The Law of Company Liquidation (3rd ed) p315. Section 122 is clearly not to be interpreted in any narrow sense having regard to such statements in previous decisions and having regard to the evident purpose of the section.

47. Clearly enough the purpose of the section is to protect creditors generally against an attempt to give favourable treatment to a particular creditor in the relevant period of time preceding an order for winding up.

48. The primary issue is, therefore, whether the relevant payments can be regarded as payments by the company for the purposes of s122.

THE SOURCE OF THE PAYMENT 49. On appeal and before the Master the defendants argued that because the charge had crystallised and because the payment was made from moneys held in the receiver's bank account, being moneys subject to the charge, the money was no longer the property of the company and accordingly the payment could not be regarded as a payment by the company.

It is clear that upon crystallisation the debenture holder has an equitable interest in the property charged. For present purposes I do not consider it necessary to identify with any precision the nature of the equitable interest.

However, the money deposited in the bank is money the legal title to which is vested in the receiver and manager, and the chose in action represented by the moneys once deposited likewise is the legal property of the receiver. As the receiver is the agent for the company, he does not hold funds in the bank account for the debenture holder: O'Donovan, Company Receivers and Managers, para 11.110. The same applies to tangible assets of the company the subject of the charge. The title to such assets remains in the company after the appointment of a receiver, although the receiver is now empowered to deal with such assets: O'Donovan para 8.90. The effect of the debenture is that the receiver is the agent for the company, and ordinarily in making a payment he will do so as an agent for the company. Prima facie the making of a payment is the act of the company. It likewise seems to be clear law that a receipt of money by the receiver is not a receipt by the appointor of the receiver. The indebtedness of the companies to the bank was not reduced by the amount of the moneys received by the receiver: O'Donovan para 11.110. Indeed, interest on the moneys owed to the bank continues to run until a payment is made by the receiver to the bank: O'Donovan para 11.110. The entitlement of the bank to demand a payment depends upon the adequacy of the funds in the hands of the receiver to meet claims having priority to those of the bank: O'Donovan paras 11.600, 11.670.

All of this suggests that the fact that the payment is made by the receiver from moneys in his hand resulting from the realisation of assets covered by the debenture does not of itself mean that the payment is not a payment made by the company. The payment is made by the receiver as agent for the company, using funds to which he has the legal title, being funds in which the bank has an equitable interest but not an interest which gives it in any sense an unqualified power of control or disposition.

The appellant has relied upon a number of cases establishing that the bank as a secured creditor has an equitable interest of some kind in the charged assets while the charge created by the debenture is a floating charge, and an even clearer equitable interest (to use a term of no particular precision) after the charge crystallises. The appellant relies upon the decision in Re Margart Pty Ltd (In Liq); Hamilton v Westpac Banking Corporation (1984) 79 FLR 330; 9 ACLR 269 in particular.

In Re Margart a bank held an equitable charge over the assets of a company. It was a fixed and floating charge. After a summons to wind up the company was presented, the company paid money to the bank in reduction of its indebtedness. Later a winding up order was made. The issue was whether the payments constituted, for the purposes of s368 of the Companies (NSW) Code, a disposition of property made after the commencement of the winding up. Helsham CJ in Equity did not decide whether or not the charge had crystallised. He held that in any event the bank had an interest in the money, and that s368 did not apply to a disposition by which a person with a beneficial interest in property obtains that property at a time when he is entitled to have it.

I accept the correctness of that decision, but in my opinion it does not follow from it that a payment by the receiver to a creditor of the company is not a payment by the company. Any other view would have denied the effectiveness of the security held by the bank.

In my opinion the other cases relied upon by the appellant are equally distinguishable. In three of the cases the court was concerned to assert and protect the priority of a debenture holder over a rival claim made to property the subject of a charge, the rival claim being made by a creditor of the company which had given the charge. Each case give rise to some discussion of the interest of the debenture holder, the charging company and the creditor. But, to my mind, the conclusion that the equitable interest of the debenture holder meant that the property could not be taken by another creditor, does not lead to the conclusion for which the appellant argued in this case. In the interests of brevity I do not propose to discuss the cases. They are: N W Robbie and Co Ltd v Witney Warehouse Co Ltd (1963) 3 All ER 613; National Mutual Life Nominees Ltd v National Capital Development Commission (1975) 37 FLR 404; Re ELS Ltd (1994) 2 All ER 833. In my opinion the other case relied upon, Re Starkey (1994) 1 QdR 142, has no bearing upon the point now under discussion.

On the other hand, counsel for the receiver pointed to provisions of the Corporations Law which appear to treat property in the hands of the receiver as property of the company. These included sections 420, 421 and 433. I do not regard those provisions as decisive of the issue either. The context in which property is referred to a property of the corporation makes it natural to so describe it, without necessarily meaning or implying that it is for all purposes absolutely the property of the corporation. The cases just referred to, which assent for certain purposes the interest of a debenture holder in such property are not inconsistent, in my opinion, with the statutory language.

To my mind these cases and provisions are relevant, and contain or imply principles which are relevant to the issue, but they do not directly determine whether a payment such as that made here is to be regarded as a payment by the company.

In dealing with this issue it is necessary to pay careful attention to the issue produced by the statutory language and the context in which it arises. In considering relevant materials it is again necessary to consider the context. One cannot expect to find that a single factor, such as ownership of property or the existence of an interest in it, which will be a universal touchstone for the solution to different problems.

The equitable interest of the bank (and its priority over other claims in the property of the company) may be conceded, but it does not follow, for the reasons already indicated, that the payment is not a payment by the company. This is not to say that the question of the ownership of the fund from which the payment is made is irrelevant, merely to deny that the existence of the equitable interest of the bank in the fund is, in the circumstances of this case, decisive. Support for this conclusion is to be found in the decision of the High Court in Octavo Investments Pty Ltd v Knight and Anor [1979] HCA 61; (1979) 144 CLR 360. In that case the High Court was concerned with the applicability of s122(1) of the Bankruptcy Act to a payment made by Coastline Distributors Pty Ltd in its capacity as trustee of a trading trust, the payment being made from funds which were trust property. Coastline had been ordered to be wound up and the liquidator of Coastline sought to recover as preferences certain payments made by Coastline, on the basis that such payments were preferences. One of the arguments advanced was that because the payments to the creditor were made from Coastline's trust funds, it having no money of its own, it could not be said that the payments were made "from its own money." Implicit in that argument was the assumption that the source of the payment was decisive. In its judgment (at 368) the Court made the point that s122 only applies to a transaction engaged in by the debtor himself. The relevant payments would attract s122 only if they were made by Coastline. The Court said that the question that followed was whether, as the appellant contended, the payments must also have been made "from his (the debtor's) own money" to attract s122. The Court rejected the appellant's contention in the following terms: "Such a conclusion does not follow from a literal reading of the words of the provision. The phrase 'from his own money' forms part of the description of the person who makes the payment or engages in the transaction in question and who subsequently becomes bankrupt. The reference is to a person 'who is unable to pay his debts as they become due from his own money'. We are unable to see any merit in the submission that the phrase ' from his own money' qualifies the classes of transaction covered by s.122(1).

Even if we are mistaken in this conclusion, the words 'from his own money' may well be satisfied if a trustee makes payments to a creditor out of trust assets in respect of which he has not only the legal estate but also a beneficial interest to secure his right to an indemnity."

In short, the Court's view was that the critical issue was whether the payment is made by the debtor himself or by the bankrupt. It was not essential that the payment be made from the bankrupt's own money (although obviously the source of the payment may be relevant). The Court was further inclined to the view that the fact that the payment was made out of trust assets in respect of which the trustee had the legal interest, and also a beneficial interest to secure the trustee's right to an indemnity, meant that this may well have been a payment from the trustee's own money. The analogy to the present case is obvious. The legal ownership of the bank account is vested in the receiver, and the receiver has a right of indemnity from the funds in his possession: O'Donovan para 12.190.

If the appellant in this case is correct it would follow that the payment by a receiver from funds in his possession and subject to a debenture would never be recoverable as a preference. That is a somewhat surprising result, although obviously not an impossible result. It is contrary to the decision reached by O'Bryan J of the Supreme Court of Victoria in Australian and Overseas Telecommunications Corporation Limited v Russell Kumar and Sons Pty Ltd (In Liq) (1992) 10 ACSR 24 at 29. There his Honour held that payments by a receiver from the proceeds of the sale of assets subject to a charge were payments "made from the company's funds" and were recoverable as preferences. It is also contrary to the evident assumption of a number of writers in this area, including O'Donovan, Company Receivers and Managers (Law Book Company) p655 para 1.130. Not too much weight can be put upon such assumptions by textbook writers, but nor do I disregard them. The same assumption appears to have been made by Gibbs J in Re Keith Whites Development Pty Ltd (Receiver Appointed) (1967) QWN 1 at 2-3.

In my opinion a payment by a receiver may be a payment by the company for the purposes of s122, although the payment is made from funds in the hands of the receiver and subject to the debenture. In this respect it is my opinion that the Master's decision was correct.

I reach the conclusion for the reasons already indicated. The money is the legal property of the company or of the receiver, albeit subject to an equitable interest held by the bank. The receiver acts as agent of the company (or so I assume for present purposes). The payment is made because the receiver causes the company to meet its obligation to the creditor. It seems to me that such a payment is a payment by the company.

THE LIABILITY TO MAKE THE PAYMENT 65. The main argument for the appellants was that the payment by the receiver was made in satisfaction of a personal liability which the receiver had undertaken, and that accordingly the payment was not made by the company.

In my opinion the first issue which falls for consideration under this head is whether the fact that the payment is made by the receiver in satisfaction of a personal liability is capable in law of being an answer to the claim made by the liquidator. In my opinion it is. My reasons for so concluding are as follows.

The appointment of a receiver ordinarily has no effect upon pre-existing contracts with the company. The receiver may cause the company to carry them out, if the receiver sees fit. In that event it is the company which performs the contract and which discharges the relevant contractual obligation. The receiver acts as agent for the company in doing so or, and it makes no difference, causes the company to do so. On the other hand the receiver may decline to cause or enable the company to perform its obligations. In particular, he may decline to provide the company with the funds necessary to meet a monetary obligation. In that event the company is ordinarily liable in damages, and the receiver is not so liable. In these situations it is the company which makes any relevant payments.

But the receiver is given power to manage the business of the company in respect of which he was appointed. As well as performing existing contracts he can enter into new ones. Once again, he may do so as agent for the company, and in that event only the company will be liable. In the ordinary course of things if the receiver discloses the capacity in which he acts it would be assumed that he acts as agent for the company: O'Donovan para 11270; Ford's Principles of Corporation Law (6th ed) para 1259.

What I have just said is subject, of course, to the personal liability imposed upon a receiver by s419(1) of the Corporations Law.

It is also subject to the capacity of the receiver to undertake a personal obligation quite independently of the statutory provision. If the receiver undertakes a personal obligation then, to state the obvious, the obligation is incurred by the receiver and not by the company. Such an obligation will not give rise to a debt provable against the company in liquidation: Kelaw Pty Ltd v Catco Developments Pty Ltd (1989) 15 NSWLR 587 at 592; Ford para 1259. This is the case because the receiver is not then acting as agent for the company, and there is no basis upon which liability can be imposed on the company.

In such a case the receiver can indemnify himself from the charged assets and, if necessary, can resort to the receiver's right of indemnity from the appointor: National Australia Bank Ltd v Composite Buyers Ltd (1991) 6 ACSR 94 at 97-98; O'Donovan paras 12.190, 12.270.

At times there may be confusion between the case in which the receiver acts as agent for the company and the case in which the receiver undertakes a personal obligation, because the receiver may give some sort of assurance that the company will perform an existing obligation or will meet a new and prospective obligation. It is understandable that a person dealing with the company will look to the receiver for some sort of assurance, because the receiver will have control of the company's funds. It may be that in some such situations the true analysis is that the receiver has done no more than give a non-binding assurance that he will cause the company to perform an obligation. Alternatively, it is conceivable that as agent for the company he will be found to have entered into a new obligation on behalf of the company to perform an existing obligation. In either of those situations there is no new obligation imposed on anyone other than the company.

But, if the receiver accepts a personal liability, the position is different. The payment by the receiver in discharge of his personal obligation may, if there is a pre-existing obligation on the part of the company, also discharge that obligation of the company or reduce it. But when the receiver accepts a personal obligation the payment by the receiver is made in discharge of that obligation. In the present case if the receiver undertook a personal obligation a payment by the receiver in satisfaction of that obligation would also reduce by the relevant amount the debt of the company to Air Con or to Carrier as the case may be, but the payment would still be made by the receiver in respect of his personal obligation.

If that is the case here, in other words, if the receiver has undertaken a personal obligation to Air Con or to Carrier, is the payment make by the receiver in discharge of that obligation nevertheless to be regarded as a payment by the company for the purposes of s122 of the Bankruptcy Act?

In my opinion it is not to be so regarded. In that situation the new obligation undertaken by the receiver imposes no liability on the company. The payment made by the receiver is not made by him as agent for the company, nor does he cause the company to make the payment. The payment is made by the receiver in his own right. Granted, the payment is made from the receiver's bank account and the making of the payment reduces the prospect of any surplus for the general creditors. The account from which the payment is made is the same account to which the receiver resorts when he acts as agent for the company to discharge an obligation of the company. But in my opinion that does not alter the fact that the payment by the receiver of an amount owed by him personally is not the making of a payment by the company.

Some support for this conclusion is to be found in the decision of the Full Court of the Supreme Court of Victoria in Ramsay v National Australia Bank Ltd [1989] VicRp 7; (1989) VR 59. In that case the circumstances were that K and I Distributors Pty Ltd ("Distributors") was in financial difficulty. As part of a transaction intended to defeat the claim of a particular creditor Distributors sold to K and I Industries Pty Ltd ("Industries") the whole of its business for the sum of $1. Industries covenanted to take over the liabilities of Distributors and to indemnify the latter in respect of them. Distributors' bank account was overdrawn in a substantial amount. Industries drew a bill for $50,000. The bank discounted that for $47,000 and credited Distributors' account for that amount and further moneys amounting in all to $54,045.77. The bank debited the account of Industries with that amount. In this way the money owed by Distributors to the bank was repaid and the bank now stood as creditor of Industries. The liquidator of Distributors claimed that the payment by Distributors to the bank was void as a preference or alternatively a void disposition of property under s368.

It noted the fact that "payment" in s451 is a wide term. It distinguished cases in which a bankrupt debtor by agreement had procured a third person to pay moneys owed to the bankrupt to a creditor of the bankrupt. It made the point that in the present case there was never as such a debt due by Industries to Distributors. The latter merely had a right to be indemnified by Industries and Industries had a contractual obligation to pay Distributors' debt. It is important to note that there was no attack upon the validity of the transaction whereby Distributors sold its business to Industries.

Relying in part upon the High Court decision in Octavo (referred to above) the Court concluded that the payment was not made by Distributors. The Court remarked that it had seen "... no authority for the proposition that a payment out of his own moneys by B to C, pursuant to a contractual

obligation to discharge A's debt to C, an obligation imposed upon B by a contract between A and B, can be said to be a payment made by A to C."

In the present case if the receiver has undertaken a personal obligation then, using the same letters, there is a payment by B to C, pursuant to a contractual obligation between B and C, which also discharges A's debt to C, and which is made from moneys to which B is entitled to resort, although they are also moneys in respect of which A has an interest. It seems to me that the present case is, if anything, a little stronger than was the case before the Victorian Supreme Court. I recognise that the decision in Ramsay is not in any way decisive of the present case, but it seems to me to give some support for the view that there was not here a payment by the company, but rather a payment by the receiver. The decision indicates the importance of the issue of whether the payment can be said to be made by the company.

The importance of the obligation in discharge of which the payment is made is emphasised by the decision of the Court of Appeal in Expo International Pty Limited (In liq.) v Torma (1985) 3 NSWLR 225. In that case Expo International Pty Limited ("Expo") was wound up on a petition. Five days before the presentation of the petition one Torma presented for payment a cheque drawn by Expo in the sum of $15000. Expo had been indebted to Torma in the sum of $12000 for some years, arising from an advance made by Torma to Expo. But evidence which was accepted established that the $15000 was paid not in respect of the debt of $12000 but was paid by the person who controlled the affairs of Expo in respect of moneys owed by another company (in which that person had an interest) to yet another company (in which Torma had an interest). It was clearly a payment which should not have been made.

The Court of Appeal affirmed the trial judge's decision that under these circumstances the payment was not a preference within the meaning of section 122 of the Bankruptcy Act (Cth). The reasoning is encapsulated in the following passage from the judgment of the Court of Appeal (at 229 B-C): "In my opinion, a person to whom a payment has been made by a company within six months of its winding up does not obtain a preference merely by reason of the fact that he

happens to be a creditor of the company. In order for the payment to be a preference, it must be made to the payee in

his capacity as a creditor of the company and not otherwise."

Applying the same reasoning it would follow that if a payment is made by a receiver in discharge of a personal obligation undertaken by the receiver, not being an obligation of the company, then the payment is not made to the recipient in its capacity as a creditor of the company but in its capacity as a creditor of the receiver.

There are two obvious points of distinction between the present case and Expo International Pty Limited (In Liq.) v Torma. The first is that in the present case the payment by the receiver to the defendant will go in reduction of the moneys owed by the company to the defendant. The second is that the payment is properly made from assets of the company subject to the charge. However, in my opinion those distinctions do not alter the force or relevance of the point made.

Granted, the payment by the receiver materially advantaged each defendant in its capacity as a creditor of the company, because it goes in reduction of the existing indebtedness of the company to the defendant. This was an obvious consequence of the payment. But the consequences flowed because of the factual relationship between the receiver's obligation and that of the company. I do not consider it artificial to draw the distinctions which I have drawn. I respectfully agree with much of what was said on this topic by Hodgson J in Hamilton v Commonwealth Bank of Australia (1992) 10 ACLC 1,586 at 1,600-1,602, and with the approach taken by this Court in Matthews v Geraghty (1986) 43 SASR 576. But those cases concerned multiple transactions between a bank and its customer, and while different legal obligations were identified as between bank and customer, it was right in that situation to approach the position on a broader basis. In those cases a third party under a distinct legal obligation did not enter into the picture.

In my opinion the decisions in Ramsay and Expo support my conclusion that a payment by the receiver in discharge of a personal obligation, not an obligation of the company or provable against it, is not a payment by the company.

It may be said that there is a paradoxical aspect to this. If the receiver acts as agent for the company, he will resort to his bank account for payment. If he acts in his own capacity, to discharge a personal liability, he will resort to the same bank account. The potential impact on general creditors is the same regardless of the capacity in which the receiver acts. It might be said that this indicates that the approach which I have taken is too refined, and produces results which are unsound as a matter of policy. On the other hand, if the liquidator is correct it seems to follow that any payment by the receiver is vulnerable in the event of a bankruptcy. Only a payment by the secured debtor itself to the relevant creditor would be safe from impeachment as a preference, and yet it seems that if that was how the transaction was organised the secured creditor would in turn be able to recoup itself from the moneys in the hands of the receiver, assuming the debenture to be in the usual form and assuming the obligation to be properly incurred in the exercise of powers under the debenture.

Of course, ultimately the question is one of statutory construction, and these considerations of policy cannot be decisive. But what I have said indicates that there are policy arguments either way. The notion of a receiver's personal liability would be a limited one if it were the case that payments made in that capacity were liable to be set aside as preferences. The undertaking of a personal liability would, if that were so, amount to nothing more than an assurance by the receiver that payment would be made, from the receiver's own property if necessary, but provide no protection at all in the event of a liquidation.

For all those reasons I have come to the conclusion that if the receiver undertakes a personal obligation in the course of the receivership, a payment made by the receiver from moneys in the account kept by the receiver pursuant to s421 of the Corporations Law and in discharge of that obligation is not a payment by the company, even though the payment may incidentally operate to discharge or reduce a pre-existing liability of the company. It is surprising that there are no cases precisely in point, yet counsel were able to point to none nor have I been able to find any. The point is of some practical importance to receivers, and also of course to liquidators, and it is surprising that it has not fallen for express decision in the past.

DID THE RECEIVER UNDERTAKE A PERSONAL OBLIGATION? 90. The Master found that he did not. In my opinion the Master was wrong, and I now proceed to state my reasons for this conclusion.

I should say at the outset that in reaching his conclusions the Master did not find it necessary to reject the evidence of any witness. There were some disputes of fact between the evidence of Mr Leonard and the evidence of Mr Schroeder relating to dealings between the receiver and Carrier, but the Master did not find it necessary to resolve the conflict. This was not necessary because on his view the agreement for which Carrier contended was in any event legally ineffective. I likewise find it unnecessary to resolve the conflict. I say this because the matter of dispute was whether, upon receipt of the facsimile of 3 May 1991 set out earlier in this judgment, Mr Schroeder telephoned Mr Leonard and informed him that undertaking A would not be given (see trial transcript at 290 and at 320). In my opinion even if Mr Schroeder refused any such undertaking, which would not be surprising having regard to its terms, it does not follow that personal liability was not undertaken by the receiver.

My reasons for concluding that the receiver undertook a personal liability are the following. It is clear from the Master's judgment, and from the evidence which was given before him, that Air Con and Carrier were concerned to obtain payment of the moneys already owing to them. It is equally clear that the receiver had a real interest in getting them to return to the site. If the receiver could persuade them to perform the balance of the work under the contracts, the receiver would be entitled to substantial payments from Jennings Industries Limited. It was clear to all parties that there was a distinction between debts which had already accrued and debts which would accrue as a result of the performance of further work, were Air Con and Carrier to return to the site. As Mr Schroeder himself pointed out to the representatives of Carrier, there was little chance of pre- receivership debts being paid (285.19). In his dealings with the representative of Air Con Mr Schroeder gave evidence that, when Mr Ryan asked how he could be sure that he would get paid, Mr Schroeder "indicated to him that a receiver can make an undertaking to pay certain amounts and that then becomes the receiver's responsibility to ensure that he has funds available to make those payments." (308.12)

It was in that context that the letter of 6 May 1991, set out earlier in this judgment, was sent by Mr Schroeder to Air Con. It should be noted that in that letter Mr Schroeder speaks of the receiver guaranteeing payment of the outstanding invoices. The same term is used in relation to the order to be issued for work yet to be done.

The context is one in which, as I see it, the defendants' representatives were seeking certainty that they would be paid both for work to be done and the amounts under discussion for work already done. They were treating both amounts the same way. As to each amount they got a similar undertaking.

It is to be noted that in the letter which Mr Schroeder sent to Carrier there was again a reference to the receiver guaranteeing payment of the outstanding moneys. It seems to me that that, as between non-lawyers, is language which is quite consistent with the notion of the receiver undertaking a personal obligation. Indeed, in cross-examination (322.08) Mr Schroeder agreed that there may well have been discussion of a guarantee of payment, because he had discussed that matter with other subcontractors. Further evidence by Mr Schroeder (323.01) indicates that he probably used the word "guarantee" in the sense of an undertaking rather than in its strict legal sense. In my opinion that also is consistent with the notion of a personal undertaking.

It is important to remember that the receiver had, before reaching these agreements, made his calculations relating to the value of the work yet to be performed, and the amounts that would be payable by Jennings Industries Limited if the work was performed. It would not be surprising in that situation if, to ensure the return of Air Con and Carrier to the site, the receiver were prepared to give a personal undertaking because the performance of the work by Air Con and Carrier would assure the receiver of the receipt of substantial moneys with which the receiver would be able to meet the obligations undertaken.

In short, it seems to me that the objective observer would have reached the conclusion, having regard to the undisputed evidence of the conversations and having regard to the exchange of correspondence, that the receiver was treating the new work to be done and such amount as he might agree to pay to secure the return of Air Con and Carrier in the same way. Both were linked to the obtaining of moneys from Jennings Industries Limited. The context was one in which Air Con and Carrier sought from the receiver an assurance of payment, and it is my opinion that in that context the reasonable observer would have concluded that the receiver had undertaken a personal obligation. To my mind this conclusion accords with the business realities of the situation.

For that reason I have concluded that the Master's findings were wrong, that the receiver did undertake a personal obligation, and that because the payments which he made to Air Con and Carrier were in discharge of that personal obligation they were not, for the purposes of s122 of the Bankruptcy Act, payments by the company.

OTHER ISSUES 99. It is strictly unnecessary to deal with the other issues, but they were argued before us and it is convenient to do so, albeit briefly.

In my opinion the Master was correct to conclude that if the payment was made by the company and not in discharge of a personal obligation of the receiver it had the effect of preferring the relevant defendant in its capacity as a creditor of the company. On this hypothesis there were, at the time of each payment, other creditors of the company who were then unpaid and remained unpaid at the commencement of the winding up: see Spedley Securities Ltd (In Liq.) v Western United Ltd (In Liq.) (1992) 10 ACLC 357 at 360.

It is also my opinion that the Master's decision as to the time at which the payment was made is correct.

When a cheque is given in payment of a debt, it generally speaking operates as a conditional payment, the debt reviving if the cheque is dishonoured: National Australia Bank Ltd v K.D.S. Construction Services Pty Ltd [1987] HCA 65; (1987) 163 CLR 668 at 676; Tilley v Official Receiver In Bankruptcy [1960] HCA 86; (1960) 103 CLR 529. That being so, the time of payment is, I consider, the time when the cheque was given to the company. Was this the time at which the cheque was put in the post, the time at which it came into the possession of the company, or some later time such as the time when the company acquired knowledge of the receipt or the time when it paid the cheque into its bank?

I do not consider that decisions, such as that just cited, dealing with the time of payment as between customer and bank, are of much assistance on this point. Particular issues relevant to the banker customer relationship complicate that situation.

In my opinion the fact that the giving of a cheque is a conditional payment, the debt reviving if the cheque is dishonoured, indicates that the time of payment is the time of receipt, not the time at which the cheque is deposited for collection and payment. What, then, is to be regarded as the time of receipt?

There are well known cases which establish that, for certain purposes in the law of contract, an offer is accepted and a contract comes into being, at the time of posting of the acceptance. I do not consider these cases to be relevant. We are concerned here with the meaning of a word which is used in the statue in its ordinary non-technical sense. As a matter of ordinary language I think that payment is made by cheque when the cheque is received, just as payment is made in cash when the money is handed over or received. There might be particular situations in which the arrangements are such that the time of posting may become the time of payment, but I do not think that the mere fact that payment by post was expected is sufficient cf. Halsbury's Laws of England (4th ed) vol 9 para 498. I think that the time of physical receipt is the relevant time, not the time at which the employee responsible for handling payments became aware of the receipt.

I think that the Master's decision accords with the ordinary understanding of "payment", and with the circumstances of this particular case. On this point I would, were it necessary, dismiss the appeal and the cross appeal.

I do not think it necessary to deal with two other issues which were the subject of appeal, namely, the date from which interest should run and the Master's order as to costs. Nor is it necessary to deal with the issues raised by the third party proceedings and the Notice of Alternative Contention made by the third parties having regard to the decision which I have reached on the primary issue. As it happens, I have already rejected most of the arguments advanced by the third parties on the appeal. I do not propose to deal with the third parties' Notice of Alternative Contention. Suffice it to say, in passing, that I doubt whether the receiver's conduct was misleading or deceptive, even were the Master's decision about the arrangements between the receiver and the defendants correct. I would be loath to conclude, had there been no acceptance in fact of a personal obligation by the receiver, that the receiver became liable because the parties' expectations were defeated by operation of the Bankruptcy Act. I can see no indication that the receiver undertook responsibility for the status of the payments, nor do I think that the defendants were entitled to look to his statements (through Mr Schroeder) for comfort on that issue.

For these reasons it is my opinion that the appeal should be allowed, that the orders of the Master in each action dated 14 December 1994 should be set aside, and that in lieu thereof orders should be made in each action dismissing the claim made by the plaintiff against the defendant and in each action dismissing the claim made by each defendant against the third parties. The cross appeal in the action against Air Con should be dismissed.

The appellant has succeeded on the main issue argued, although not on all issues, and in the ultimate outcome. In that context I would wish to hear from the parties on the issue of costs.

JUDGE2 DUGGAN J I agree with the reasons of the Chief Justice and the orders which he proposes.

JUDGE3 NYLAND J In my opinion the appeal should be allowed for the reasons expressed by the Chief Justice and I agree with the orders he proposes.