Sheahan v Carrier Air Conditioning Pty Ltd

High Court of Australia|1997-08-12|Before: Brennan CJ, Kirby JJ

For the reasons stated, the appeals should be dismissed.

By order of the Supreme Court of South Australia made 11 September 1991, the appellant in each of these appeals, Mr John Sheahan, was appointed liquidator of TOC Pty Ltd (TOC). This company was incorporated in South Australia and formerly had been named T O'Connor & Sons Pty Ltd. The orders for the winding up of TOC and the appointment of Mr Sheahan were made upon a summons filed 27 May 1991. Consequently, under the provisions of the Corporations Law (s 465(2)), as they then stood [23] , the winding up was deemed to have commenced at the time of the filing on that date.

Section 465 was repealed by s 62 of the Corporate Law Reform Act 1992 Cth (the 1992 Act) and s 85 thereof inserted in the Corporations Law, s 513A to deal with the commencement of a court ordered winding up. Those changes took effect on 23 June 1993.

Shortly before that, on 29 April 1991, Australia & New Zealand Banking Group Ltd (the Bank), in exercise of powers conferred upon it by a mortgage debenture issued by TOC on 1 June 1990 (the debenture), had appointed Mr A R Campbell, the first of the second respondents to each appeal, receiver and manager of the property, assets and undertaking of TOC. That appointment was still in effect at the time of the winding-up order. The Bank also held a mortgage debenture issued by TOC on 1 June 1990 over the assets and undertaking of TOC in Western Australia. The terms of this instrument otherwise did not differ from those of the debenture. It is with the debenture itself that this litigation is principally concerned. The second of the second respondents, Mr R E Schroder, was an employee of the firm of chartered accountants of which Mr Campbell was a partner and performed work in relation to the receivership under the direction of Mr Campbell.

The appointment by the Bank of the receiver followed the failure by TOC to meet a demand for payment of an indebtedness of more than $4.5 million. Mindful of its parlous condition, the Board of TOC had resolved to invite the Bank to make the appointment. The business of TOC involved it in heavy engineering construction for projects in South Australia and elsewhere. Before the appointment of the receiver, TOC had been acting as sub-contractor to Jennings Industries Ltd in respect of the installation of air-conditioning equipment at the Adelaide Entertainment Centre. In turn, the first respondents, Carrier Air Conditioning Pty Ltd (Carrier) and Air Con Serve Pty Ltd (Air Con), were sub-contractors to TOC.

In two actions heard together by a Master of the Supreme Court of South Australia, the appellant, as liquidator of TOC, sought to recover from Carrier and Air Con respectively sums representing payments allegedly "made or caused to be made" by TOC to those companies and which were said to be void as against the liquidator. Carrier and Air Con each joined as third parties Mr Campbell and Mr Schroder. At first instance, the claims by the liquidator succeeded as to a payment of $30,000 made by the receiver to Air Con on about 16 May 1991 and as to two payments, each of $30,000, received by Carrier on about 16 May and 27 May 1991. The second payment was by cheque drawn by the receiver and posted on Friday, 24 May 1991. While the Master found that the winding up commenced at 10.10 am on 27 May 1991, the second payment to Carrier was received before 10.10 am and therefore before the winding up commenced. The Supreme Court ordered entry of judgment accordingly. The Full Court (Doyle CJ, Duggan and Nyland JJ) set aside those orders and entered judgment for Carrier and Air Con respectively [24] . In the third party proceedings, there had been issues between Carrier and Air Con on the one hand and the receiver and Mr Schroder on the other as to whether Mr Schroder's conduct had been misleading or deceptive and whether the receiver had undertaken personal liability for the payments in question. In the circumstances, the Full Court found it unnecessary to deal with those proceedings [25] .

Sheahan v Air Con Serve Pty Ltd (1995) 64 SASR 258. 2. Sheahan (1995) 64 SASR 258 at 278.

There are two appeals by the liquidator to this Court. To each appeal, in addition to the corporate respondents, the liquidator has joined the receiver and Mr Schroder. The liquidator seeks orders which would have the effect of reinstating the orders made at first instance in the Supreme Court. In respect of each appeal, there is also an application for special leave to cross-appeal by the corporate respondent. The primary relief which would be sought upon those cross-appeals would be that the third party proceedings be remitted for determination by the Full Court. The applications for special leave have been stood over pending the outcome of the principal appeals.

The issues to which the argument before this Court was directed were those arising on the appeals. These concerned the operation of the law as to preferences upon certain payments made in the course of a receivership appointed by a secured creditor but during the preference period.

Before turning to a fuller consideration of particular facts and to the law as to preferences, it is appropriate to refer to certain salient points concerning the receivership.

Upon his appointment as receiver on 29 April 1991, Mr Campbell was obliged to take the steps set out in s 421(1) of the Corporations Law as it then stood [26] . This provided:

(a) open and maintain a bank account bearing the receiver's own name, the title "receiver" and the name of the corporation;

(b) within 3 business days after money of the corporation comes under the receiver's control, pay that money into the account referred to in paragraph (a);

(c) ensure that the account referred to in paragraph (a) does not contain any moneys other than the moneys of the corporation that come under the receiver's control; and

(d) keep such accounting records as correctly record and explain all transactions entered into by the receiver as receiver.

At first instance, there were agreed facts that the floating charges conferred by the securities held by the Bank crystallised no later than the date of the appointment of the receiver, and that at the date of the payments in issue and at all material times thereafter the assets of TOC, together with the moneys received by Carrier and Air Con, were insufficient to satisfy the amounts due and owing to the Bank under those securities but unpaid. Further, the receiver opened and maintained a bank account as required by s 421(1)(a) and the only moneys paid to the credit of that account were from realisations of assets the subject of the two debentures held by the Bank. The three sums of $30,000 were paid by separate cheques drawn on the account by the receiver in favour of Carrier (two cheques) and Air Con (one cheque). It also was common ground that, at the time of those payments and pursuant to their engagements as sub-contractors of TOC, there was an indebtedness of TOC to Carrier and Air Con in those sums. 1. Section 421(1) has since been amended by s 42(a) of the 1992 Act.

The debenture created in favour of the Bank a charge as to present and future assets of TOC, fixed as to some and floating as to others, to secure a broadly defined class of moneys and other liabilities identified as "the moneys hereby secured". A floating charge over future assets operates upon assets acquired by the company after appointment of a receiver and conversion of the floating charge to a fixed charge [27] . However, such a charge would not extend to payments of money recovered by the liquidator of TOC under the statute law proscribing preferences. The right to have such preferential dealings set aside, statutory in nature, is given for the benefit of the general body of creditors [28] . Hence, the security would not attach to the proceeds of the judgments the appellant recovered at first instance in the present litigation.

Ferrier v Bottomer (1972) 126 CLR 597. 2. Willmott v London Celluloid Co (1886) 34 Ch D 147 at 149-150; In re Yagerphone Ltd [1935] Ch 392 at 395; N A Kratzmann Pty Ltd (In liq) v Tucker [No 2] (1968) 123 CLR 295 at 299-302.

The receiver was empowered by the debenture (cl 19(a)) to take possession of and to get in the whole or any part of the mortgaged premises. The proceeds of realisation which were deposited in the receiver's bank account were required, by s 421(1)(c) of the Corporations Law, to be segregated by ensuring that the account did not contain any moneys other than those of TOC which came under his control. The relationship between the bank with which the receiver maintained the account and the receiver was essentially that of debtor and creditor, the account being in credit; such a debt constituted a chose in action, the title to which was vested in the receiver [29] . The statutory requirement of segregation, duly observed by the receiver, may well have been indicative of the existence of a trust binding the receiver as holder of the legal title to that chose in action and as to dealings with the account [30] . The obligations of the receiver with respect to the treatment of the moneys represented by the credit in the bank account were spelled out by cl 22 of the debenture [31] . This states:

All moneys received by any such Receiver or by the Bank under or by virtue of these presents shall be applied in manner following namely -

(a) in payment of all rents rates taxes and other outgoings having priority to the charge hereby created or which such Receiver or the Bank shall think fit to pay;

(b) in keeping down all annual sums or other payments (if any) and the interest on all principal sums (if any) having priority to the charge hereby created;

(c) in payment of all costs charges expenses and outgoings properly incurred in or incidental to the exercise or performance or attempted exercise or performance of any of the powers or authorities hereby conferred such costs in the case of legal costs being charged as between solicitor and own client;

(d) in payment of the remuneration of the Receiver;

(e) in payment to the Bank of the moneys hereby secured.

The surplus (if any) shall belong to [TOC] but such surplus shall not carry interest. And the Receiver or the Bank shall be at liberty to pay the same to the credit of an account in the name of [TOC] in the books of the Bank and shall thereupon be under no further liability in respect thereof. (Emphasis added.) Clause 22 primarily imposed obligations to apply the moneys concerned by payment to particular persons or for particular purposes. It also (par (a)) conferred upon the receiver a power to decide which payments in a certain category were to be paid. 1. Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548 at 573-574. 2. Cohen v Cohen (1929) 42 CLR 91 at 100-102; Walker v Corboy (1990) 19 NSWLR 382 at 384-385, 392, 397. 3. Section 433 of the Corporations Law creates a statutory priority, in respect of payment of certain debts, over claims under the security. Nothing turns upon the operation of s 433 for the purposes of this appeal.

It is appropriate briefly to consider the extent to which the moneys in the s 421 account were trust moneys. Clause 21 authorised the Bank, after default by TOC, to exercise any of the powers conferred on a receiver by the debenture. If the Bank itself directly had realised the security, statute [32] would have obliged it to hold the proceeds "in trust" to be applied in payment of costs, charges and expenses properly incurred in relation to the exercise of the power of sale, in discharge of the moneys secured and, as to the residue, to pay it to the person entitled to the mortgaged property. Without such a provision, and in the absence of an express trust stipulation in the security itself [33] , the Bank would have been obliged to account as a constructive trustee for any surplus [34] .

Law of Property Act 1936 SA, s 50; Property Law Act 1969 WA, s 61. The terms "mortgagee", "mortgage" and "property" are broadly defined in s 7 of each statute. 2. Examples of express provisions are found in Gouthwaite v Rippon (1839) 8 LJ Ch (NS) 139; In re Bell (1886) 34 Ch D 462 at 464. Clause 22 of the Debenture applied to moneys received by the Bank as well as to those received by the receiver, but did not use the term "trust". 3. Charles v Jones (1887) 35 Ch D 544 at 549; Lloyds Bank v National Safety Council [1993] 2 VR 506 at 511, 514; Fisher & Lightwood's Law of Mortgage, 10th ed Tyler (1988), p 399.

The effect of s 421, in combination with cl 22 of the debenture, at least goes so far as to oblige the receiver to account for and to apply the proceeds in the account in accordance with the terms of the debenture. It is unnecessary to determine whether the receiver held the chose in action represented by the s 421 account as a trustee, "in the full sense", for the Bank [35] . It is sufficient for the purposes of this case that the moneys in the account out of which the three payments in question were made were in no sense either the moneys of TOC or moneys held to the order or disposition of TOC.

cf Starkey v Deputy Commissioner of Taxation [1994] 1 Qd R 142 at 154; (1993) 115 ALR 305 at 315; 26 ATR 11 at 20-21.

Whilst the evidence is not fully explicit on the matter, it is to be inferred that at all material times there was little prospect of there being any surplus to "belong to [TOC]" in terms of cl 22. Cheques drawn by the receiver on the account, and the honouring thereof by the Bank with a reduction in the account, involved receipt, in the hands of the payee of the cheque, of a "product" of the chose in action vested in the receiver [36] . If the receiver decided to apply the account towards payment of an outstanding indebtedness of TOC to a third party, there would be payment of an outgoing which the receiver had thought fit to pay within the meaning of cl 22(a) of the debenture. In that provision the term "outgoing" is apt at least to include a payment or expenditure which in the opinion of the receiver ought to be made in order to facilitate achievement of the ends for which he or she was appointed by the secured creditor [37] .

The term "product" was used in this context by Lord Goff of Chieveley in Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548 at 574. 2. cf In re Bennett; Jones v Bennett [1896] 1 Ch 778 at 784.

The established pattern of English authority indicates that, at least as a "general rule", if a payment were so made by the receiver to a creditor of TOC and accepted by the creditor in satisfaction of the debt of TOC, nevertheless the payment would not discharge the liability of TOC to the creditor, unless made as agent for and on behalf of TOC and with the prior authority of or subsequent ratification by TOC [38] . The different treatment of contractual privity in many jurisdictions in the United States would lead to a different result, namely discharge of TOC [39] . In any event, it was the view of Willes J [40] and of Fletcher Moulton LJ and Farwell LJ [41] that the creditor could not later maintain an action for the debt. This was because a subsequent action by the creditor against the debtor would be classified as an abuse of the process of the court [42] . In the event of a liquidation of TOC, a proof by such a creditor might properly be rejected [43] . Accordingly, in the circumstances of the present case, even if the acts of the receiver in tendering amounts for payment of the debts of TOC to Carrier and Air Con are not to be classified as activities as agent of TOC, the practical effect of the working out of the legal relations between the parties, including the subsequently appointed liquidator of TOC, would produce a result equivalent to a discharge of TOC.

Simpson v Eggington (1855) 10 Ex 845 at 847 [156 ER 683 at 684], per Parke B. See also In re Rowe [1904] 2 KB 483; Smith v Cox [1940] 2 KB 558 at 560; cf as to the jurisdiction of equity, acting quia timet, to order an indemnifying party to pay direct to the creditor of the plaintiff, McIntosh v Dalwood [No 3] (1930) 30 SR (NSW) 332; McIntosh v Dalwood [No 4] (1930) 30 SR (NSW) 415; Newman v McNicol (1938) 38 SR (NSW) 609 at 626; Abigroup Ltd v Abignano (1992) 39 FCR 74 at 83. 2. Corbin on Contracts (1962), vol 6, s1285 states (omitting footnotes): "An accord may be an agreement between a claimant and a third person who is not the obligor; and a performance rendered by such third person and received by the claimant in satisfaction of the claim operates as a discharge of the obligor. It is not necessary that he should express his approval or ratification or that he should even have knowledge that the transaction has occurred. He is a donee beneficiary of the transaction Of course, if he is sued later by the claimant, judgment will go against him unless he alleges and proves the accord and satisfaction; but his discharge has already occurred before he makes this defense." See also Williston on Contracts, 4th ed Lord (1992), vol 3, s7.31. 3. Cook v Lister (1863) 13 CB (NS) 543 at 594 [143 ER 215 at 235]. 4. Hirachand Punamchand v Temple [1911] 2 KB 330 at 339-340, 341. See also In re L G Clarke; Ex parte The Debtor v S Aston & Son Ltd [1967] Ch 1121 at 1135-1136. 5. Hirachand Punamchand v Temple [1911] 2 KB 330 at 339-340; Goff and Jones, The Law of Restitution, 4th ed (1993), pp 17-18. 6. Tanning Research Laboratories Inc v O'Brien (1990) 169 CLR 332 at 339-340; Snelling v John G Snelling Ltd [1973] QB 87 at 98-99.

The debenture included a provision as to agency. Clause 19 provided for the Bank to appoint (and remove) a receiver and specified that, without any consent on the part of TOC, the receiver was to have power to take various steps and enter into a wide range of engagements. These included the power to carry on the business of TOC (cl 19(c)) and to carry out and enforce specific performance of, and obtain the benefit of, all contracts entered into or held by TOC (cl 19(j)). Section 420 of the Corporations Law also conferred upon such a receiver powers expressed in similar terms. Clause 19 further stated that:

Provided Always that every such Receiver shall be the agent of [TOC] and [TOC] alone shall be responsible for his acts and defaults

It is common ground that, upon the making of the winding-up order in respect of TOC, this agency ceased. That is to say, the receiver "could no longer pledge the credit of the company" [44] . Moreover, even when the agency was operative, it was one with "some peculiar incidents" [45] , the "control exercisable by the company as principal [being] circumscribed by the duty which the receiver owes to the debentureholders" [46] . In Visbord v Federal Commissioner of Taxation [47] , Williams J, after observing that the receiver as agent of the mortgagor "occupies a very special position" continued:

He is appointed to and may be removed from office by the mortgagee. He can demand and recover all the income of which he is appointed receiver by action distress or otherwise in the name either of the mortgagor [48] , or of the mortgagee. If the mortgagor has attorned tenant to the mortgagee, the receiver can therefore sue the mortgagor for the rent in the name of the mortgagee. He can only insure or do necessary or proper repairs to the mortgaged property to the extent to which he is directed to insure or do such repairs by the mortgagee in writing. The mortgagor is unable to instruct him to do anything contrary to his statutory duties or to dismiss him. If the mortgagor dies the appointment of the receiver is not terminated [49] . The compulsory winding up of a company operates as a dismissal of all the company's servants and agents. The company cannot authorise the receiver to do any act which it is unable to do itself, so that it cannot empower the receiver, after the date of the liquidation, to carry on its business so as to create debts provable against the unmortgaged assets of the company (Gosling v Gaskell [50] ; Thomas v Todd [51] ); but the receiver can still continue to exercise his powers in the name of the company although the company is no longer liable for any debts which he may incur in doing so [52] . See also In re Courts (Emergency Powers) Act 1939 and S Brown & Son (General Warehousemen) Ltd [53] ; In re Wood's Application [54] . 1. Gaskell v Gosling [1896] 1 QB 669 at 700; revd on other grounds [1897] AC 575. 2. Kerr on the Law and Practice as to Receivers and Administrators, 17th ed (1989), p 375. 3. Fletcher, Law of Insolvency, 2nd ed (1996), p 395. 4. (1943) 68 CLR 354 at 382. 5. M Wheeler & Co v Warren [1928] Ch 840. 6. In re Hale; Lilley v Foad [1899] 2 Ch 107. 7. [1897] AC 575. 8. [1926] 2 KB 511. 9. Gough's Garages Ltd v Pugsley [1930] 1 KB 615. 10. [1940] Ch 961. 11. [1941] Ch 112.

These peculiarities become less so upon consideration of the reasons for the inclusion of a provision such as cl 19. These concern the protection or advancement of the interests of the secured creditor and the receiver, not those of the borrower. What Williams J [55] described as this "well-established legal device" was designed for the secured creditor to obtain the benefits without being subject to the liabilities of a mortgagee in possession. The stipulation that in exercising the powers set out in cl 19 the receiver was to be agent of TOC assisted the receiver by imposing liability in respect of dealings by the receiver with third parties upon TOC rather than upon the receiver personally [56] . In addition, cl 24 of the debenture specified an entitlement of the Bank and the receiver to an indemnity out of the mortgaged premises in respect of all liabilities and expenses incurred in execution or purported execution of the powers and authorities vested in them by the debenture; it also empowered the Bank to retain out of any money in its hands all sums necessary to give effect to such indemnity [57] .

Visbord v Federal Commissioner of Taxation (1943) 68 CLR 354 at 381. 2. However, s 419 of the Corporations Law did in certain circumstances render a receiver, notwithstanding any agreement to the contrary, personally liable for certain debts incurred by the receiver in the course of the receivership for services rendered, goods purchased or property hired, leased, used or occupied. 3. It does not appear whether the terms of appointment of the receiver by the Bank included an indemnity by the Bank to the receiver.

It is appropriate now further to consider the facts. As we have indicated, Carrier and Air Con were sub-contractors to TOC which in turn was contracted with Jennings Industries Ltd for a project which was on foot when the receiver was appointed on 29 April 1991. On 2 May, the receiver issued a circular to creditors of TOC stating that it was his intention to continue for the time being the operations of TOC and that he would appreciate creditors making available their goods and services upon normal trading terms and conditions "when so requested by us". However, on the day before the issue of the circular, Air Con had indicated that it had withdrawn all its labour from the Adelaide Entertainment Centre and from another site and would only return "when outstanding monies are paid in full". This impasse was resolved in the manner appearing from a letter dated 6 May 1991 from Mr Schroder, writing on behalf of Mr Campbell, to Air Con as follows:

This letter is to confirm our agreement reached during meetings and telephone discussions on the 2nd and 3rd May, 1991.

The Receiver & Manager of T O'Connor & 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.

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 Receiver.

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. Air Con then wrote to Jennings confirming that it was prepared to return to the Entertainment Centre site "to continue work to the completion of our contract".

Similar arrangements were made between the receiver and Carrier, evidenced by a fax from Carrier to Mr Schroder of 3 May 1991 and a written response by Mr Schroder of 6 May. The latter contained the statement:

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 re-commence immediately on completion of the contracts that exist between Carrier and O'Connor.

The payments with which this case is concerned were then made in respect of the outstanding indebtedness referred to in the above correspondence by cheques drawn on 16 and 24 May 1991.

The construction placed at first instance upon these facts, as to which there was no relevant dispute, was that:

the payments made by Mr Campbell were payments made by him as agent for the company as an incident of carrying on the business of the company, and therefore must be treated as payments by the company. This is so even where the bank had the beneficial interest in the funds because that beneficial interest was subject to Mr Campbell's bona fide use of the funds.

The judgment of the Full Court was delivered by the Chief Justice. His Honour concluded that Mr Schroder probably employed the word "guarantee" in the sense of an undertaking rather than in its strict legal sense, the term having been used by non-lawyers [58] . However, his Honour went on to conclude that such usage was consistent with the notion of the receiver having undertaken "a personal obligation". After emphasising that the receiver had had a real interest in getting Carrier and Air Con to return to the Adelaide Entertainment Centre site and to perform the balance of the work of the contracts with TOC, his Honour concluded that the receiver had undertaken a personal obligation and it was in discharge of that obligation that the payments in question were made. This was so even though the payments might incidentally have operated to discharge or reduce pre-existing liabilities of TOC.

The character of the payments to Carrier and Air Con

In our view, in characterising the payments made to Carrier and Air Con, it is important to have regard to their source, namely the funds in the receiver's account established in conformity with the requirements of s 421(1) of the Corporations Law and to the control of those funds in the manner discussed earlier in these reasons, in particular by cl 22 of the debenture. It was in exercise of the authority conferred upon him by the debenture to deal with the moneys in this fashion that the receiver was enabled to make the payments. They were payments by cheques which could only be drawn upon the account by the receiver. It is, therefore, correct to characterise them as payments made by the receiver.

That does not cease to be so because of the additional circumstances that the payments had a significant effect upon other subsisting legal relationships. It may be accepted, in accordance with the conclusion reached in the Full Court, that the receiver, as the means of getting the contractors back to work, did enter into a personal engagement with them. The performance of that engagement required of the receiver a particular exercise of his authority to deal with the funds in the receiver's account. These funds, representing the proceeds of realisation of the security, were employed to advance the interests of the secured creditor by obtaining the provision of continued services by Carrier and Air Con, but under fresh receivership contracts. A requirement of Carrier and Air Con was the payment of the pre-receivership indebtedness.

The making of the payments had a significant present and prospective effect, in the manner indicated earlier in these reasons, upon the pre-existing contractual relationships between Carrier and Air Con on the one hand and TOC on the other. But that is not to say that the payments were made by TOC through the medium of its agent, the receiver. The agency created by cl 19 of the debenture had the special characteristics we have sought to indicate. When, for example, the receiver, in obedience to cl 22 of the debenture, applied the moneys received on realisation of the security in payment of his remuneration or in payment to the Bank or in payment of any surplus to TOC, it would be absurd in any of these instances to identify that activity as one performed as agent for TOC. Likewise when those moneys were applied by the receiver in payment of an outstanding obligation of TOC to a third party, the receiver having made a determination of the fitness to do so.

Reliance, in this question of characterisation, by the liquidator of TOC upon the particular agency created by the debenture as a step to controverting what otherwise would be the legal nature and practical effect of the steps involved, expands that notion of agency beyond its true character. That character is indicated in the following passage from the judgment of Sir Raymond Evershed MR in In re B Johnson & Co (Builders) Ltd [59] :

[A] person appointed as receiver and manager is concerned, not for the benefit of the company but for the benefit of the mortgagee bank, to realise the security; that is the whole purpose of his appointment; and the powers which are conferred upon him, and which I have to some extent recited, are really ancillary to the main purpose of the appointment, which is the realisation by the mortgagee of the security. More recently, in Gomba Holdings UK Ltd v Homan [60] , Hoffmann J, in referring to this passage, said that a receiver and manager "is no ordinary agent" and continued: Although nominally the agent of the company, his primary duty is to realise the assets in the interests of the debenture holder and his powers of management are really ancillary to that duty. 1. [1955] Ch 634 at 644-645. 2. [1986] 1 WLR 1301 at 1305; [1986] 3 All ER 94 at 97; affd [1988] 1 WLR 1231; [1989] 1 All ER 261.

It is upon that footing that we turn to consider the invocation by the appellant, as liquidator of TOC, of the law avoiding, as against him, payments having a preferential effect.

Section 565(1) of the Corporations Law provided, relevantly, that a payment made by a company that, if it had been made 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, if the company be wound up, void as against the liquidator [61] . Section 122(1) of the Bankruptcy Act 1966 Cth provided, so far as is material, as follows:

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, being a conveyance, transfer, charge, payment or obligation executed, made or incurred -

(a) within 6 months before the presentation of a petition on which, or by virtue of the presentation of which, the debtor becomes a bankrupt;

is void as against the trustee in the bankruptcy. (Emphasis added.) Sub-sections (2) and (3) of s 565 of the Corporations Law provided respectively for the date that, in the case of a winding up of a company, corresponded with the date of presentation of the petition in bankruptcy and to the date on which the person becomes bankrupt. For the present case that date was, in each instance, the date of the filing of the application for the winding-up order, namely 27 May 1991. Consequently, the three payments with which this case is concerned were received within the six months preferential period fixed by the interaction of s 565 of the Corporations Law and s 122(1) of the Bankruptcy Act. 1. A new treatment of unfair preferences was introduced by s 588FA of the Corporations Law, inserted by s 111 of the 1992 Act, with effect 23 June 1993. However, by dint of s 1383 of the Corporations Law, the previous provisions continue to have effect for the purposes of the winding up of TOC.

The text of s 122(1) would indicate that the first task of the liquidator in seeking to show its application to the three payments would be to establish that these were payments made by TOC as debtor in favour of Carrier and Air Con as creditors, TOC being unable to pay its debts as they became due from its own money. Here, the payments were made by cheques drawn by the receiver on his account established and maintained pursuant to s 421 of the Corporations Law out of the proceeds of realisation of the debenture held by the Bank.

No doubt, as the authorities indicate, there may be a payment made by the debtor within the meaning of s 122(1) where the debtor directs a third party who holds funds at the direction of the debtor or is otherwise obliged to the debtor to account to the debtor not by payment to the debtor but to a creditor of the debtor. Thus, in Re Stevens [62] , it was said that the debtor "parted with his assets, and the payment which he himself should have received he has authorised to be made to the creditor, and it is just the same as if he had received payment himself and had himself handed such payment to [the creditor]". The result in that case was that the third party was to be treated as having acted on behalf of the debtor. Again, payments made by the debtor to the bailiff to avoid levy of a judgment are treated for this purpose as payments by the debtor to the judgment creditor, the bailiff having authority from that creditor to receive the moneys and to give a discharge [63] .

(1929) 1 ABC 90 at 93. See also Re Smith (1933) 6 ABC 49 at 51; Re Hargreaves; Ex parte Official Receiver (1963) 20 ABC 94 at 95. 2. Rae v Samuel Taylor Pty Ltd (1963) 110 CLR 517 at 523, 527.

In Ramsay v National Australia Bank Ltd [64] , the Victorian Full Court, after reviewing the authorities, including passages in the judgments in this Court in Octavo Investments Pty Ltd v Knight [65] and Richardson v Commercial Banking Co of Sydney Ltd [66] , declared:

We have 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. The words of s 451 must be given their ordinary, natural meaning. [67] Their Honours were speaking of s 451 of the Companies (Victoria) Code which had no material differences from s 565 of the Corporations Law. 1. [1989] VR 59 at 63. 2. (1979) 144 CLR 360 at 368-369. 3. (1952) 85 CLR 110 at 136. 4. See also Re C G Monkhouse and the Companies Act (1968) 69 SR NSW 429 at 431-432; Craftsman Modern Constructions Pty Ltd (In liq) v National Bank of Australasia Ltd [1968] 2 NSWR 71 at 76; Gericevich Contracting Pty Ltd (In liq) v Sabemo (WA) Pty Ltd (1984) 3 ACLC 33 at 37.

The result, as applied to the present case, is that, even if the payments by the receiver out of the s 421 account are to be characterised as made pursuant to a contractual obligation of the receiver to Carrier and Air Con to discharge TOC's pre-receivership debts to them, there has been no payment, within the meaning of the preference provisions, made by TOC to Carrier and Air Con. The payments, to adapt the terms used by McLelland CJ in Eq in Craftsman Modern Constructions Pty Ltd (In liq) v National Bank of Australasia Ltd [68] , were not made from moneys belonging to TOC, nor in any relevant sense were they made by an agent of TOC.

Counsel for the liquidator submitted that payments were made by the receiver on behalf of TOC by reason of the existence of the agency provided for in the debenture. We have indicated why that submission should not be accepted. Counsel further submitted that, if he had made good the proposition that the payments were made by TOC for the purposes of s 565 of the Corporations Law and s 122(1) of the Bankruptcy Act, there could be no further objection that these provisions still were inapplicable because the payments were not made out of the property of TOC. He referred to payments made by a third party to the creditor at the direction of the debtor to pay the creditor out of moneys owed by the third party to the debtor. The same situation was said to arise where the debtor paid the creditor by order upon the bank of the debtor out of an account conducted by the debtor and in credit. However, in each of these cases, the payment received by the creditor is, in the sense indicated earlier in these reasons, the product of the chose in action, itself property, represented by the indebtedness of the third party or bank to the debtor.

Counsel then relied upon the apparently unrealised potential of s 122(1A) of the Bankruptcy Act. This was inserted by s 57(1) of the Bankruptcy Amendment Act 1980 Cth (the 1980 Act) [69] . The submission is that, upon its proper construction, sub-s (1A) removed any previous requirement that the payment be made out of the property of the debtor.

Section 122(1A) has since been amended by s 3 of the Bankruptcy Legislation Amendment Act 1996 Cth which commenced on 16 December 1996.

However, upon its true construction, the new sub-section has a much narrower operation. This is to provide that the circumstance that another person or persons share with the debtor an interest in the property transferred or charged, or that payment is made from moneys owed by the debtor together with another, or that an obligation is incurred with another, does not prevent the transaction being a preference.

Subsection (1) applies in relation to a conveyance or transfer of property, a charge on property or a payment made, or an obligation incurred, by the debtor in favour of a creditor;

(a) whether or not the liability of the debtor to the creditor is his separate liability or is a liability with another person or other persons jointly; and

(i) the property conveyed, transferred or charged is his own property or is the property of the debtor and of another person or other persons;

(ii) the payment is made out of his own moneys or out of moneys of the debtor and another person or other persons; or

(iii) the obligation is incurred by the debtor on his own account only or on account of himself and another person or other persons;

The phrases "whether or not" and "as the case requires" indicate that the provision is to have an ambulatory operation. That is to say, there may be a preference, for example, not only where the liability is incurred by the debtor as a separate liability, but also where the debtor incurs jointly with others an obligation in favour of the creditor. Likewise, there may be a preference where the payment is made by the debtor out of the moneys of the debtor and other persons, for example, out of a joint account, or where the payment is made simply out of the debtor's own moneys.

Nevertheless, in Ramsey v National Commercial Banking Corporation of Australia Ltd [70] , Marks J held that the text of s 122(1A) was ambiguous, that it was not at all clear what the legislature had intended, but that the words "or not" indicated an operation beyond jointly owned moneys and the inclusion of payments out of moneys in which the debtor had no interest. The point was not pursued on appeal to the Full Court [71] . In this case, counsel for the liquidator relied strongly upon the judgment of Marks J. He did so to support the proposition that the preference provisions applied in the present case, notwithstanding that the source of the payments to TOC was the s 421 account of the receiver.

(1987) 5 ACLC 444 at 449. 2. Ramsay v National Australia Bank Ltd [1989] VR 59.

However, as indicated, there is no ambiguity in the terms of s 122(1A). Further, and in any event, the construction we would give the provision is consistent with removal of the mischief to which the legislature was directing its attention in passing the 1980 Act. That limited and particular mischief is disclosed in the following passage from the judgment of Smithers J in Re Cooke; Ex parte Official Trustee in Bankruptcy [72] . His Honour said:

If the money used to pay the debt in question is money not only of the person who becomes bankrupt but of him and another jointly and the payee is required to repay the amount received by him to the trustee, then, there has been an appropriation for the benefit of the creditors generally of an interest in property of a third person not connected with the financial relationship relevant to any question of preference between the creditors of the bankrupt and who had no intention of benefiting anybody other than the payee. In the absence of express statement one would not infer that the legislature intended such a result. In this connection it may be observed that the object of s 122, certainly as it stood before [the 1980 Act], is to preserve for the creditors generally the assets of the person who becomes bankrupt. If it had operated to incorporate into the estate of the bankrupt a property interest of a third person the section would have gone beyond this object.

Having regard to the foregoing I am led to the conclusion that, as at 18 November 1977, s 122(1) was not applicable to a payment of a joint debt by joint debtors who did not all become bankrupt or by a joint debtor who alone of the joint debtors subsequently became bankrupt, or to a payment made with money jointly owned by the payer and another who is not made bankrupt.

The Explanatory Memorandum for the Bill which became the 1980 Act stated of what is now s [73] : [I]t will apply to a payment or transfer of property by a joint debtor in favour of either a joint or a separate creditor This will enable the trustee to recover the money or property concerned and return it to the joint or separate estate from which it came. 1. (1985) 4 FCR 398 at 405. 2. Paragraph 140 of the Explanatory Memorandum.

In the result, the statutory provisions embodying the law as to recovery of payments having a preferential effect did not apply to the three payments with which this appeal is concerned. The appellant accepted that he had to show that, in the sense required by the relevant statute law, the three payments were made by TOC. He has not done so. Nor has the appellant made good the further proposition that s 122(1A) of the Bankruptcy Act operated upon the facts of these appeals to deny the necessity that the payments were made from the property of TOC. Accordingly, there do not arise the further issues concerning the existence of the requisite preferential effect of the payments.

Each appeal should be dismissed. The second respondents had a sufficient interest in supporting the orders made by the Full Court for them to be heard by this Court. The appellant should pay the costs of the appeals of all respondents.

These appeals from a decision of the Full Court of the Supreme Court of South Australia [74] concern the law of preferential payments in the context of the liquidation of a company. They involve the application to largely undisputed facts of the Corporations Law, s 565(1) as elaborated by the Bankruptcy Act 1966 Cth, s 122(1).

Sheahan v Air Con Serve Pty Ltd (1995) 64 SASR 258.

Two interpretations of the legislative provisions are available. One advances the general objects of the Corporations Law. It protects unsecured creditors of a company being wound up from preferential payments to some only of their number [75] . The other interpretation would effectively immunise the actions of the receiver, regard those actions as being personal and not those of the company in liquidation and treat the funds in the receiver's account as separate from the property of the company. Upon this interpretation the existence of a preference would be denied and the advantages secured by the specially benefited creditors left untouched.

See Willmott v London Celluloid Co (1886) 34 Ch D 147 at 149-150; In re Yagerphone Ltd [1935] Ch 392 at 395; N A Kratzmann Pty Ltd (In liq) v Tucker [No 2] (1968) 123 CLR 295 at 299.

Common sense, corporate realism and practicality favour the first interpretation. So, in my view, does the proper understanding of the Corporations Law. The contrary opinion of the Full Court of the Supreme Court of South Australia should be set aside. The decision at first instance should be restored.

Payments by a receiver to continuing sub-contractors

Mr John Sheahan (the appellant) is the liquidator of TOC Pty Ltd (TOC), formerly T O'Connor & Sons Pty Ltd. An order for the winding up of TOC was made on 11 September 1991. Before the summons giving rise to the order was filed on 27 May 1991, TOC had sub-contracted to Jennings Industries Ltd in relation to the installation of airconditioning equipment in the Adelaide Entertainment Centre. The first respondent in the first appeal, Carrier Air Conditioning Pty Ltd (Carrier), was a sub-contractor to TOC. The first respondent in the second appeal, Air Con Serve Pty Ltd (Air Con), was in the same position.

In June 1990 TOC had granted a mortgage debenture to the Australia & New Zealand Banking Group Ltd (the Bank) to secure TOC's indebtedness to the Bank. By the debenture, TOC granted the Bank a charge over its undertaking and all of its assets. The charge operated as a fixed charge over specified assets, and as a floating security over all of the other assets. Clause 19 of the debenture provided that the Bank would appoint a receiver in respect of the mortgaged assets, that the receiver was the agent of TOC and that TOC alone was responsible for the acts and defaults of the receiver. When, by a notice of demand dated 26 April 1991, the Bank required payment of over $4.5 million owed to it, TOC was unable to meet the demand. It invited the Bank to appoint a receiver and manager. On 29 April 1991, pursuant to powers provided in cl 19 of the deed, the Bank appointed Mr A R Campbell, then a partner of the firm of chartered accountants KPMG Peat Marwick, as receiver and manager of TOC (the receiver). Mr Campbell is the first of the second respondents to each appeal. The second of the second respondents is Mr R E Schroder, an employee of Mr Campbell's firm. He worked with, and under the direction of, the receiver in relation to the receivership.

At the date of the appointment of the receiver, TOC's sub-contract was only partly performed. For work already performed Air Con was owed about $80,000 under its sub-contract, while Carrier was owed about $220,000. Carrier and Air Con declined to perform further work and left the site. The proceedings have been conducted upon the assumption that, for default of payment, they were entitled to do so.

In early May 1991, soon after his appointment, the receiver entered into negotiations with both Carrier and Air Con, to encourage each of them to return to the site to complete their work. Both companies indicated that they would not do so until outstanding moneys, owed to them by TOC, were paid in full.

In a letter dated 6 May 1991, Mr Schroder wrote to Air Con on behalf of the receiver to confirm that the receiver would "guarantee payment of outstanding invoices", in return for Air Con's completion of its contract with TOC. On the same day a similar letter was sent to Carrier confirming an agreement evidenced by fax from Carrier to Mr Schroder dated 3 May 1991. This letter also guaranteed that the sub-contractor would be paid in return for the immediate recommencement of work. These terms were accepted by Carrier and Air Con. Each resumed work on the site.

The payments with which these appeals are concerned were made by the receiver following the foregoing correspondence. A payment of $30,000 was made to Air Con on or about 16 May 1991. Two payments, each of $30,000, were made to Carrier. The first was made on about 16 May 1991. The cheque for the second payment actually arrived on 27 May 1991, the very day the winding up took effect. However, the proceedings have been conducted upon the footing that all three payments were made before the commencement of the winding up of TOC [76] .

A further payment to Air Con of $49,600 was made by cheque received on 27 May 1991 after the commencement of the winding up of TOC. At first instance, the Master found that this payment was a disposition of the property of TOC made after the commencement of the winding up. Pursuant to s 468(1) of the Corporations Law, it was therefore a void disposition. This conclusion has not been challenged in these proceedings.

The payments were made from an account bearing the title "A R Campbell Receiver and Manager of T O'Connor & Sons Pty Ltd (Receiver And Manager Appointed)". That account was opened by the receiver upon his appointment, in compliance with s 421 of the Corporations Law as it then stood. It contained the proceeds of the realisation of the charged assets of TOC the subject of the debenture deed.

When the order for the winding up of TOC was made, the appellant commenced proceedings against Carrier and Air Con for recovery of the amounts paid to them by the receiver. The issue arising in each action was whether the law prohibiting payments having a preferential effect in favour of some unsecured creditors but not others applied in favour of the appellant, as liquidator of TOC, to enable him to recover such sums from Carrier and Air Con. To proceed, the appellant was required to show that the sums were "made or caused to be made" by TOC, having the effect of giving those companies a preference over other creditors. The appellant made his claim pursuant to s 565(1) of the Corporations Law.

At first instance, in the Supreme Court of South Australia, the Master, Judge Burley, upheld the appellant's submissions. He found that each of the payments was made before the commencement of the winding up of TOC. Each was recoverable as a preference.

The Master noted that the receiver, having no property in the fund from which the payments were made, could only have made the payments as an agent for TOC as principal or the Bank as principal. The Bank could only be said to have made the payments if the funds in the receiver's account, once paid into the account, were taken by the Bank in discharge of the indebtedness arising under the debenture. This was not the case. Under the debenture, the receiver had control of the funds to meet, inter alia, the expenses of the receivership and the payment of preferential debts. Although the floating charge granted by the debenture had crystallised, and accordingly the Bank had an equitable interest in TOC's assets, until there was an appropriation of the funds to the Bank by the receiver, the indebtedness between the Bank and TOC remained undischarged. The Master therefore accepted the appellant's argument that the agreement to make the payments was that of TOC and that the payments should be taken to have been made by TOC through its agent, the receiver [77] . They were not made by the receiver in satisfaction of a personal liability. Furthermore, the payments had the effect of preferring the two sub-contractors, as creditors of TOC, over other unsecured creditors [78] .

Citing Visbord v Federal Commissioner of Taxation (1943) 68 CLR 354 at 368. 2. Referring to Spedley Securities Ltd v Western United Ltd (1992) 10 ACLC 357.

An appeal from this decision was upheld by the Full Court of the Supreme Court of South Australia [79] . That Court set aside the orders of the Master. It found in favour of the first respondents. It rejected the argument that the payments were void against the liquidator as a preference in the hands of the recipients.

Sheahan v Air Con Serve Pty Ltd (1995) 64 SASR 258, per Doyle CJ, Duggan and Nyland JJ concurring.

Doyle CJ delivered the judgment of the Full Court. He agreed with the Master that, if the payments were made by TOC and not in discharge of a personal obligation of the receiver, this had the effect of preferring Carrier and Air Con in their capacities as creditors of TOC, there being at the time of each payment other creditors of TOC who remained unpaid [80] . Likewise, Doyle CJ assumed, as had the Master, that upon crystallisation the debenture holder held an equitable interest in the property charged, but that legal title to the money in the Bank was vested in the receiver, who held the funds as agent of TOC, and not for the Bank [81] . The same applied to those tangible assets of TOC the subject of the charge. The effect of the debenture was that the receiver was an agent of TOC, and a payment by the receiver from moneys resulting from the realisation of assets covered by the debenture was prima facie made by TOC [82] . After considering the authorities relevant to the interests of debenture holders, charging companies and creditors in analogous contexts [83] and the statutory context in which s 565 of the Corporations Law appears, Doyle CJ emphasised that "[o]ne cannot expect to find that a single factor, such as ownership of property or the existence of an interest in it will be a universal touchstone for the solution to different problems" [84] . However, in the present case, the "statutory language and the context in which it arises" [85] , as elucidated by relevant authority [86] , led his Honour to agree with the Master's conclusion that the payments were payments by TOC through its agent the receiver [87] .

Sheahan v Air Con Serve Pty Ltd (1995) 64 SASR 258 at 277. 2. Sheahan v Air Con Serve Pty Ltd (1995) 64 SASR 258 at 268. 3. Sheahan v Air Con Serve Pty Ltd (1995) 64 SASR 258 at 268-269. 4. Re Margart Pty Ltd (In liq); Hamilton v Westpac Banking Corporation (1984) 79 FLR 330; N W Robbie & Co Ltd v Witney Warehouse Co Ltd [1963] 1 WLR 1324; [1963] 3 All ER 613; National Mutual Life Nominees Ltd v National Capital Development Commission (1975) 37 FLR 404; In re ELS Ltd [1995] Ch 11. 5. Sheahan v Air Con Serve Pty Ltd (1995) 64 SASR 258 at 270. 6. Sheahan v Air Con Serve Pty Ltd (1995) 64 SASR 258 at 270. 7. Especially Octavo Investments Pty Ltd v Knight (1979) 144 CLR 360; Australian & Overseas Telecommunications Corporation Ltd v Russell Kumar & Sons Pty Ltd (1992) 10 ACSR 24 at 29. 8. Sheahan v Air Con Serve Pty Ltd (1995) 64 SASR 258 at 271.

However, Doyle CJ rejected the Master's finding that the payments were not made in satisfaction of a personal liability. He could find no authority precisely on the point [88] . He was aware of the strong policy considerations involved in the conclusion that a payment by a receiver in discharge of a personal obligation, not being an obligation of the company in receivership, was not a payment by the company [89] . He remarked that there was a "paradoxical aspect" in so holding, when the same bank account was resorted to and the potential impact on general creditors would be the same regardless of the capacity in which the receiver acted [90] . Nevertheless, Doyle CJ concluded that when a receiver made a payment pursuant to a personal undertaking to meet a pre-receivership debt which the company has incurred, such a payment would not constitute a payment by the company, even if it were made out of the proceeds of the realisation of the charged assets of the company [91] . It would thus fall outside the terms of s 565(1) of the Corporations Law.

Sheahan v Air Con Serve Pty Ltd (1995) 64 SASR 258 at 275. 2. Sheahan v Air Con Serve Pty Ltd (1995) 64 SASR 258 at 275. 3. Sheahan v Air Con Serve Pty Ltd (1995) 64 SASR 258 at 275. 4. Relying on Expo International Pty Ltd v Torma (1985) 3 NSWLR 225; Ramsay v National Australia Bank Ltd [1989] VR 59.

Doyle CJ therefore found that it was the receiver personally, and not as agent of TOC, who undertook the obligation to pay Carrier and Air Con the pre-receivership debt conditional upon their return to the worksite. His Honour considered that it was clear that while Carrier and Air Con were concerned to obtain payment of the moneys owing to them, it was equally clear that the receiver had a personal interest in having them return to the site. If he could persuade them to do so he would receive substantial benefits from Jennings Industries Ltd. The evidence before the Master indicated that the negotiations between Mr Schroder, representing the receiver, and Carrier and Air Con progressed upon the assumption that the only way the two companies could be sure of payment was to obtain a guarantee from the receiver. The terminology employed in that correspondence (phrases such as "the Receiver & Manager will guarantee" and "Receiver's Guarantee"), used between non-lawyers, was consistent with the notion of the receiver's undertaking a personal obligation. The context was one in which Carrier and Air Con sought an assurance of payment and the receiver had personally offered one. To Doyle CJ's mind this interpretation "accords with the business realities of the situation" [92] . He therefore concluded that the payments made to Carrier and Air Con in discharge of a personal obligation undertaken by the receiver were not, for the purposes of s 122(1) of the Bankruptcy Act, preferential payments by TOC. The appellant challenges these conclusions.

Sheahan v Air Con Serve Pty Ltd (1995) 64 SASR 258 at 277.

As receivership quite frequently precedes the liquidation of companies, especially in the case of large companies which get into financial difficulties, the questions before this Court are of great significance for the law of company receivership, liquidation and preferences.

At the material time, s 565(1) of the Corporations Law provided, relevantly, as follows [93] :

A payment made 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. 1. From 23 June 1993, the new s 588FA of the Corporations Law provided for a new treatment of unfair preferences. However, for the purposes of this appeal, the previous provisions continue to have effect. See s 1383 of the Corporations Law.

By that sub-section, s 122(1) of the Bankruptcy Act was made applicable. It reads, relevantly:

A payment made 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, being a payment made or incurred -

(a) within 6 months before the presentation of a petition on which, or by virtue of the presentation of which, the debtor becomes a bankrupt

Section 122(1A) of the Bankruptcy Act, inserted by s 57(1) of the Bankruptcy Amendment Act 1980 Cth, should also be noticed. It provides:

Subsection (1) applies in relation to a conveyance or transfer of property, a charge on property or a payment made, or an obligation incurred, by the debtor in favour of a creditor:

(a) whether or not the liability of the debtor to the creditor is his separate liability or is a liability with another person or other persons jointly; and

(i) the property conveyed, transferred or charged is his own property or is the property of the debtor and of another person or other persons;

(ii) the payment is made out of his own moneys or out of moneys of the debtor and another person or other persons; or

(iii) the obligation is incurred by the debtor on his own account only or on account of himself and another person or other persons;

During the course of the trial the parties agreed on certain material facts:

At the time that the payments were made, the assets of TOC, combined with the moneys paid to Carrier and Air Con, were not sufficient to satisfy the amounts owing under the mortgage debentures.

The floating charge held by the Bank crystallised no later than 29 April 1991, the date on which the receiver was appointed pursuant to powers conferred on the Bank by the mortgage debenture.

The only moneys paid to the credit of the account maintained by the receiver were those secured from the realisation of assets of TOC the subject of the mortgage debentures.

Other creditors of TOC were owed money at the time of the appointment of the receiver. The debts to such creditors were outstanding at the time the payments were made to Carrier and Air Con and remained unpaid at the time that the present proceedings were brought by the appellant.

The appellant contended that all five of the elements in s 122(1) of the Bankruptcy Act, incorporated into s 565(1) of the Corporations Law, had been satisfied. Payment had been made. It had been made by a company unable to pay its debts as they fell due. It had been made within six months of the winding up. It had been made to a creditor. It had the effect of giving that creditor a preference, priority or advantage over other creditors. The payments were therefore void as against him.

The respondents accepted that the payments were made at a time when TOC was unable to pay its debts as they fell due. Similarly, they accepted that, following the application for winding up, the payments had been made to creditors of TOC, and within six months of the applicable date [94] .

The Corporations Law, s 565(2), as it stood at the relevant time.

Therefore, the issues remaining to be determined in these proceedings were:

Whether payments by the receiver from moneys held by him in that capacity and subject to the debenture under which he was appointed could be characterised as payments "by a company" for the purposes of s 565(1) of the Corporations Law read with s 122(1) of the Bankruptcy Act.

Whether the receiver undertook a personal liability to Carrier and Air Con to make the payments, and if he did, whether payment from moneys subject to the debenture in discharge of that personal liability could still be said to constitute a payment made by TOC.

Whether, in the circumstances, the payments had the effect of giving Carrier and Air Con "a preference, priority or advantage over other creditors" within the legislative provisions.

The Corporations Law obliges a receiver to establish and maintain a bank account. At the time of Mr Campbell's appointment as receiver, s 421(1) of the Corporations Law was the applicable section. Its terms are set out in the reasons of Dawson, Gaudron and Gummow JJ.

In accordance with s 421(1), the receiver opened and maintained such a bank account. The parties agree that it was from that account that the receiver drew the funds by which he paid Carrier and Air Con the sums in dispute. In accordance with s 421(1)(c), the only moneys paid into that account were funds received from the realisation of the assets of TOC, the subject of the debentures held by the Bank.

Clause 22 of the debenture deed specifies the obligations of the receiver in dealing with the bank account. That clause is set out in the reasons of Brennan CJ. I will not repeat it.

Certain fundamental propositions of law were not disputed by the parties. When, in accordance with the statutory requirements, the receiver opened the bank account, legal title to the money in that account vested in the receiver. The receiver held a legal chose in action [95] . An equitable interest in the account vested in the Bank as secured creditor [96] . In the Court below [97] , it was considered unnecessary to define the precise nature of this interest. So it is here. If the receiver had reached a stage where there was a surplus available, this would have been held for the benefit of TOC [98] . But no such situation arose.

See Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548 at 573. 2. In re B Johnson & Co (Builders) Ltd [1955] Ch 634 at 644-645; N W Robbie & Co Ltd v Witney Warehouse Co Ltd [1963] 1 WLR 1324 at 1337; [1963] 3 All ER 613 at 621; George Barker (Transport) Ltd v Eynon [1974] 1 WLR 462 at 467, 471, 475; [1974] 1 All ER 900 at 905, 908-909, 912; In re ELS Ltd [1995] Ch 11 at 17-18. 3. Sheahan v Air Con Serve Pty Ltd (1995) 64 SASR 258 at 268. 4. Visbord v Federal Commissioner of Taxation (1943) 68 CLR 354 at 384, 385, 386.

The consequences of the application of these propositions to the present facts were disputed. The appellant argued that the receiver was acting as an agent for TOC while utilising funds provided by the Bank as mortgagee. The debenture deed envisaged that the receiver would carry on the business of TOC, as he had done in this case. Carrying on that business necessarily required the expenditure of moneys. A receiver was appointed as an agent to expend such moneys as required. He did so solely for those purposes. It would follow, so it was argued, that the payments were made "by a company" within the meaning of s 565(1) of the Corporations Law. The receiver submitted that, because the moneys in his account did not belong to TOC, it followed that the payments to the first respondents could not have been made "by a company". They were made by him.

The authority of this Court makes it clear that in ascertaining who made a "payment" for the purposes of s 122(1) of the Bankruptcy Act, ownership of the money from which the payment was made is not determinative. It was held in Octavo Investments Pty Ltd v Knight [99] that the phrase "from his own money" forms part of the description of the person who makes the payment in question and later becomes bankrupt. It does not operate to qualify the classes of transaction covered by s [100] . The Court held that in any case [101] :

[T]he 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. The correctness of this interpretation of s 122(1) was confirmed by the insertion of s 122(1A) by the Parliament the following year [102] . The meaning of that sub-section was discussed by Marks J in Ramsey v National Commercial Banking Corporation of Australia Ltd [103] in the following passage [104] : [T]he clear legislative intent reflected by the words of sub (1A) is to widen the ambit of "payment" to include not only one which is, but also one which is not, made out of the debtor's own money. The words suggest greater width of application than merely to jointly owned moneys. In their reasons, the majority demonstrate that the meaning of s 122(1A) is not beyond doubt. However, I agree in the reasoning of Marks J. It may more readily be embraced because the sub-section was inserted so soon after the decision in Octavo . It is also an interpretation which gives effect to the apparent purpose of the words employed by the legislature. 1. (1979) 144 CLR 360. 2. Octavo (1979) 144 CLR 360 at 368-369. 3. Octavo (1979) 144 CLR 360 at 369. 4. By Bankruptcy Amendment Act, s 57(1). 5. (1987) 5 ACLC 444. 6. Ramsey (1987) 5 ACLC 444 at 449.

The foregoing considerations lead me to the conclusion that the correct application of s 122(1) to the payments to Carrier and Air Con requires no inquiry into the ownership of the funds in the receiver's account from which those payments were made. The sole inquiry to be made is whether the payments can be said to have been made by TOC.

Much authority stands against the proposition that the relevant payments were made by the receiver to settle a personal obligation. One of the earliest expressions to this effect may be found in In re Sartoris's Estate; Sartoris v Sartoris [105] where Chitty J said:

It being plain that there is no vesting of the debtor's property in the receiver, it follows, and has been decided, that notwithstanding the receiving order the bankrupt alone can bring actions for the recovery of property not in his possession, as for instance a debt due to him at law A receiver appointed in an action, is to take care of, and receive the property which is put under his charge. He is not at liberty, and is not entitled, to bring an action in his own name; the reason being, that he has no property vested in him. 1. [1892] 1 Ch 11 at 14. See also In re Sacker; Ex parte Sacker (1888) 22 QBD 179 at 183; M Wheeler & Co v Warren [1928] Ch 840 at 844; West Street Properties Pty Ltd v Jamison [1974] 2 NSWLR 435 at 439.

A line of authority to the same effect was discussed by Needham J in Re Scottish Properties Pty Ltd [106] . His Honour there concluded that the receiver "is not entitled, merely by virtue of his appointment, to have the property of the company transferred into his own name".

The most recent authority supporting this conclusion appears in the opinion of O'Bryan J in Telecom v Russell Kumar & Sons [107] . In that case, the liquidator succeeded in recovering from the creditor preferential payments made by a receiver in respect of telephone accounts. The creditor had asserted, unsuccessfully, that two preferential payments did not come within the statutory provision, since the payments were not made by the company but by the receiver out of particular funds received from the sale of company assets. O'Bryan J accepted that the relevant principle was stated in Re Margart [108] . He cited that decision as authority for the proposition that [109] :

When the receivers were appointed by the chargee the floating charge over the assets and undertaking of the company crystallised and an equitable interest in the assets and undertaking passed to the chargee. On the question of the ownership of the assets of the company, O'Bryan J said [110] : Upon appointment the receivers became the agents of the company but the assets and undertaking of the company did not vest in the receivers. [111] He went on [112] : The first proceeds of the sale of assets enabled the receivers to make two payments to Telecom. In my view the money raised by the receivers from the first sale of assets belonged to the company and had not been transferred to the chargee before the two payments were made to Telecom. O'Bryan J was therefore of the view that the moneys in the receiver's account, obtained from the sale of company assets, belonged to the company until the receiver had paid them to the mortgagee. He did not see any conflict between that finding and the actual decision in Re Margart . Nor do I. 1. (1992) 10 ACSR 24. 2. Re Margart Pty Ltd; Hamilton v Westpac Banking Corporation (1984) 2 ACLC 709 at 712. 3. Australian & Overseas Telecommunications Corporation Ltd v Russell Kumar & Sons (1992) 10 ACSR 24 at 29. 4. Australian & Overseas Telecommunications Corporation Ltd v Russell Kumar & Sons (1992) 10 ACSR 24 at 29. 5. cf O'Donovan, Company Receivers and Managers, 2nd ed (1992) par 8.90, at 2827; In re Sartoris's Estate [1892] 1 Ch 11; Re Scottish Properties Pty Ltd (1977) 2 ACLR 264. 6. Australian & Overseas Telecommunications Corporation Ltd v Russell Kumar & Sons (1992) 10 ACSR 24 at 29.

Nor could the payments be said to have been made by the Bank. The Bank itself could only have made the payments if, after the funds had been paid into the receiver's account, the Bank received them pro tanto in discharge of the indebtedness that existed under the debenture. That was not the present case. The Bank did not have an unfettered power to use the funds. Rather, the indebtedness between TOC and the Bank remained until such time as there was an appropriation of the funds to the Bank by the receiver from his account [113] . That had not occurred.

See Visbord v Federal Commissioner of Taxation (1943) 68 CLR 354 at 368.

The terms of the debenture deed under which the receiver was empowered to deal with the funds support no other conclusion than that the relevant payments were made "by [TOC]" through its agent the receiver. The common law presumption that the receiver would be the agent of the debenture holder [114] was expressly displaced by the debenture deed itself. Clause 19 of the debenture deed provided for the appointment of a receiver " Provided Always that every such Receiver shall be the agent of [TOC] and [TOC] alone shall be responsible for his acts and defaults".

In re Vimbos Ltd [1900] 1 Ch 470 at 473; Peat Marwick Ltd v Consumers' Gas Co (1980) 113 DLR (3d) 754 at 755-756.

I accept that in acting as an agent for a mortgagor a receiver may occupy "a very special position" [115] . The nature of the agency has been described as "logically untidy" [116] . The use of the device of agency in this context was developed originally to ensure that no liability was imposed upon the mortgagee for the acts of the receiver whom the mortgagee appointed under the contract between the mortgagor and the mortgagee [117] :

For valuable consideration [the mortgagor] has committed the management of his property to an attorney whose appointment he cannot interfere with. The appointment so made will stand good against himself and all persons claiming through him, except incumbrancers having priority to the mortgagee who appoints the receiver. 1. Visbord v Federal Commissioner of Taxation (1943) 68 CLR 354 at 382. 2. Sowman v David Samuel Trust Ltd [1978] 1 WLR 22 at 29; [1978] 1 All ER 616 at 622. 3. Gaskell v Gosling [1896] 1 QB 669 at 692, per Rigby LJ. The statement in dissent was approved in Gosling v Gaskell [1897] AC 575. See also Visbord v Federal Commissioner of Taxation (1943) 68 CLR 354 at 381-382.

Whilst a receiver acts as agent for the mortgagor, the reason for this is ultimately the law's concern for the protection of the secured creditor. It has even been suggested that for some limited purposes, in particular "realising the security of the debenture holder", the receiver, while acting generally as agent of the mortgagor, may also "notwithstanding the language of the debenture", act as the agent of the debenture holder [118] .

See Peat Marwick Ltd v Consumers' Gas Co (1980) 113 DLR (3d) 754 at 762.

Relying on such reasoning, it was submitted by the receiver that he was acting in this case for the mortgagee, strictly in accordance with the mortgagee's interests. However, it is artificial to suggest that this Court should draw a distinction between those acts in which the receiver is acting as an agent of the company (where the agent binds the company), and those where the receiver is dealing with the proceeds of realisation of the company's assets and there is no need for him to act as an agent. Even if that were so it does not mean that the receiver ceases to act as an agent for the company at such times. The receiver's agency is undoubtedly "real" [119] .

Ratford v Northavon District Council [1987] QB 357 at 372, citing Australian Mutual Provident Society v Geo Myers & Co Ltd (1931) 47 CLR 65 at 82.

In ascertaining the scope and nature of the receiver's powers as agent it is necessary to refer to the terms of the debenture deed. When this is done, it is clear that, in making the relevant payments, the receiver was acting within the powers conferred by that document. Clause 19 granted the receiver power "without any consent on the part of [TOC]" to "carry on the business of [TOC]" (cl 19(c)); "to carry out and enforce specific performance of or otherwise obtain the benefit of all contracts entered into or held by [TOC] or entered into in exercise of the powers or authorities hereby conferred" (cl 19(j)); and "to exercise all the powers of [TOC]" (cl 19(o)). Clause 22(c) of the deed gave the receiver authority to apply the fund for certain purposes, including "in payment of all costs charges expenses and outgoings properly incurred in or incidental to the exercise or performance of any of the powers or authorities hereby conferred". There could therefore be no doubt that the receiver was authorised to act as an agent for TOC in securing an arrangement with Carrier and Air Con for the completion of the sub-contracting work through an agreement to pay debts owed by TOC to those companies [120] . In order to secure payment from Jennings Industries Ltd to TOC, the receiver decided to allow continued trading by TOC. For that purpose he agreed to make the payments to the two sub-contractors to cover pre-receivership debts which had been incurred to them by TOC. The payments were drawn by the receiver on the statutory bank account. They were necessary incidents of carrying on the business of TOC.

But cf Sun-Life Properties Ltd v Chellaston Pty Ltd (1993) 10 ACSR 476.

The first respondents, sensibly, did not dispute that the receiver might be an agent for TOC for the purposes set out in cll 19 to 22 of the debenture deed. However, they submitted an alternative proposition which rested on the assertion that any attempt to analyse the payments from the bank account by reference to the law of agency was unhelpful. It was the effective control of the moneys which was determinative. Moneys which were in the receiver's account were subject to the rights of the secured creditor to have the fund applied in accordance with its security. The respondents argued that it followed that TOC itself could not deal with, and did not control, such moneys. As there were insufficient funds in the account to satisfy the debt owing to the secured creditors, there could be no surplus, and none of the moneys in the account could ever be paid to TOC or be under the control of TOC. Since TOC would not have the power to control or operate the fund and make the payment, the payment could not be a payment "by a company".

This argument has a superficial attractiveness. However, when the correct characterisation of the receiver's agency, described above, is understood, it is evident that the Bank's equitable interest in the funds held by the receiver did not alter the control over the funds which the receiver exercised as agent for TOC. The control and employment of such moneys was determined solely by the debenture document and relevant statutory provisions [121] . That document vested power to control the moneys in the receiver and no one else. The Bank could not unilaterally alter the rules set out in the document or override its provisions. The Bank's sole measure of control at the time of the payments was the right to dismiss the receiver and substitute another in his place (cl 19). Nor was the position of the Bank altered by the statutory provisions in question in this case. The language of those provisions does not invite an immediate inquiry into which creditors should have priority of interest in the funds in the receiver's account as a means of determining whether certain payments were made "by a company". The purpose of the provisions is to prevent preferential payments being made to some creditors at the expense of others where the interests of the paid creditors in the receiver's fund may have no greater legal or equitable priority over those of other unpaid creditors.

It follows that the authorities upholding the priority of the equitable interests of debenture holders in receivers' funds over other claims in the property of companies [122] are not in point for the task of applying the legislation against preferences. Reliance was placed on the decision in Re Margart [123] , in which a bank held an equitable charge over the assets of a company. After a summons to wind up the company was presented, the company paid money to the bank in reduction of its indebtedness, after which the winding up order was made. Helsham CJ in Eq concluded that the bank held a beneficial interest in the money and that s 368 of the Companies (New South Wales) Code, prohibiting dispositions of property made after the commencement of winding up, did not apply to a disposition by which a creditor, with a beneficial interest in the property, obtained that property at a time when it was entitled to it [124] .

See, eg, N W Robbie & Co Ltd v Witney Warehouse (Transport) Co Ltd [1963] 1 WLR 1324; [1963] 3 All ER 613; National Mutual Life Nominees Ltd v National Capital Development Commission (1975) 37 FLR 404; In re ELS Ltd [1995] Ch 11. 2. (1984) 2 ACLC 709. 3. Re Margart (1984) 2 ACLC 709 at 714.

That decision is not analogous to the present case. Here the receiver was acting on behalf of the company in continuing to carry on the business of that company. He was utilising money from his separate bank account for that purpose to pay some unsecured creditors but not others. The beneficial interest of the Bank gives it priority of payment over unsecured creditors. However, it does not bestow upon it power of control over the way in which account moneys are distributed between unsecured creditors. By the debenture deed, that power descended upon the receiver. It was defined and limited by the terms of the deed and the applicable legislative provisions.

The correctness of this analysis may be tested against the effect which the payments to the unsecured creditors had upon the respective debts owed by TOC to the Bank and Carrier and Air Con. As the agent for TOC, the receiver did not hold the funds in the bank account for the debenture holder. The fact that the receiver had access to fund moneys could have no impact on the indebtedness between TOC and the Bank. Interest would continue to accrue on the secured debt until it was discharged by payment by the receiver to the Bank [125] . The making of the payments in question did, however, have the result of discharging some of TOC's past debts. This is a most powerful reason for characterising the payments as payments "by a company" for the relevant purposes within the scope of the agency [126] . This is so regardless of any equitable interest which the Bank held in the moneys in the receiver's account.

Visbord v Federal Commissioner of Taxation (1943) 68 CLR 354 at 368. 2. See Simpson v Eggington (1885) 10 Ex 845 at 847 [156 ER 683 at 684]; cf In re Rowe; Ex parte Derenburg & Co [1904] 2 KB 483 at 488; Smith v Cox [1940] 2 KB 558 at 560.

There is another good reason for finding that, in such a case, the receiver made the payments as agent for TOC. If it were otherwise, there would be circumstances where the indebtedness between the Bank and the company was discharged by a significant payment of funds into the receiver's account. If those funds were then utilised to discharge a pre-receivership liability of the company, the Bank could be left with no secured recourse to the company for reimbursement.

The payments were not for the receiver's personal obligations

The Master gave short shrift to the receiver's argument that his payments to Carrier and Air Con were to be regarded as made pursuant to a personal obligation and not as agent for TOC. However, the respondents asked this Court to accept the finding of the Full Court that the payments to Carrier and Air Con were payments made by the receiver in satisfaction of a personal liability which he had chosen to incur in order to ensure that the sub-contractors would complete their work.

The respondents submitted that, in fact, the receiver had no power to make payments to unsecured creditors on behalf of TOC. His powers were those, and only those, prescribed in the debenture deed. Whilst the receiver was authorised to carry on the business of TOC, he did not have the power that a liquidator had to deal with the general body of unsecured creditors. This Court was asked to accept that, although the receiver could be described in an imprecise way as an agent of TOC, it was a relationship of limited agency. Since the powers of the receiver were limited, relevantly, to those prescribed by cl 19 of the debenture deed, he had no power to make payments to unsecured creditors on behalf of TOC. Any payments by the receiver were therefore necessarily made pursuant to a personal obligation.

I would reject these arguments for reasons already stated. The receiver did have the power to act for TOC. He exercised that power in making the payments to Carrier and Air Con. The power of the receiver to make payments to unsecured creditors may be found under par (c) of cl 19 of the debenture deed conferring the power to carry on business. However, the power of the receiver to act as an agent for TOC was not confined to par (c) of cl 19. It also lay in pars (n), (o) and (p). These were general powers, the scope of which leaves no doubt that the receiver, in making the challenged payments, was acting within his powers under the debenture deed.

The respondents next suggested that the basis for the receiver's personal obligation was to be found in the letters written by Mr Schroder, on behalf of the receiver, to both Carrier and Air Con in an attempt to persuade them to complete their work for TOC. Those letters are extracted in the reasons of the majority.

In the Full Court, Doyle CJ cited a number of arguments to support his conclusion that the receiver had undertaken a personal obligation when he arranged for the payments to be made to Carrier and Air Con. In dealing with the sub-contractors on behalf of the receiver, the evidence showed that Mr Schroder had spoken (and written) of the receiver's "guaranteeing" payment of the amounts owing to Carrier and Air Con. Mr Schroder gave evidence in which he suggested that he had used the term "guarantee" in the sense of an undertaking rather than in its strict legal sense. Doyle CJ held that such words, used in such a context, suggested that the receiver had undertaken a personal obligation. His Honour's view was that non-lawyers would understand that language as consistent with a personal obligation assumed by the receiver. So far as this reasoning goes, I agree.

Doyle CJ then pointed out that it was necessary to secure the agreement with sub-contractors for them to resume work in order that the receiver should recover from Jennings Industries Ltd substantial payments owing to TOC. Thus, it was clear that the receiver was seeking to persuade Carrier and Air Con to return to the site and perform the balance of the work under their contracts with TOC where otherwise they would not have done so. In such a context, so it was argued, it would be reasonable for Carrier and Air Con to seek a personal guarantee of payment. Similarly, it would be for the receiver to undertake a personal obligation to meet that payment. Payments in discharge of such a personal obligation would not be payments "by a company".

With respect, these arguments do not determine the issue. Other powerful considerations convince me that the payments could not be characterised as having been made by the receiver in a personal capacity:

Nothing in the facts referred to by Doyle CJ is inconsistent with the payments having been made by the receiver on behalf of TOC. The agreements and the wording used in the letters reflect the clear intention of the parties that the receiver would pay and discharge the debts on behalf of TOC. The parties did not distinguish between payment for work already done and payment for the work still to be done. The receiver, acting as an agent of TOC, gave a similar undertaking in respect of both kinds of payment.

As the Master found, the respondents were fully aware that Mr Campbell had been appointed the receiver and manager of TOC. They were aware of the connection between the receiver and Mr Schroder. The letters dated 6 May 1991 were on the letterhead of TOC. Mr Schroder signed the letters on behalf of the receiver under that company's name. The respondents were aware that Mr Schroder was acting with Mr Campbell in administering the receivership. This undisputed evidence reinforces the conclusion that the payments by the receiver were far from personal. They were for and by TOC.

Even if it could be said that, in one sense, the receiver had undertaken a "personal obligation" to Carrier and Air Con, that would not, for all purposes, fix the character of the payments made by the receiver pursuant to that obligation. For the purposes of s 565(1) of the Corporations Law, read with s 122(1) of the Bankruptcy Act, they would still, in my view, be regarded as payments made "by a company".

The sub-contractors suggested that the fact that the payments operated to discharge the obligations of the company was merely coincidental. It did not alter the fact that the payments were made by the receiver to discharge a personal obligation which he had assumed. This argument is absurd. The fact that the payments operated to discharge TOC's liability goes to the heart of characterisation of the payments as payments by the company. It is that fact which distinguishes the present case from Expo International Pty Ltd v Torma [127] . In that case it was said that [128] : [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. That condition could logically only be fulfilled where the payment is not made by the receiver in discharge of a personal obligation but in discharge of an obligation of the company. That was precisely the effect of the payments in the present case.

The contrary finding produces the "paradoxical" result, acknowledged by Doyle CJ [129] , that if the receiver acted as agent for the company he would resort to the same bank account for payment where he acted in his own capacity in discharge of a personal obligation. The potential impact upon general creditors is precisely the same regardless of the capacity in which the receiver acts. As a matter of statutory construction, such an illogical outcome argues strongly that the artificial distinctions upon which the interpretation preferred by the Court below was based was never intended by the Parliament.

(1985) 3 NSWLR 225. 2. Expo International (1985) 3 NSWLR 225 at 229. 3. Sheahan v Air Con Serve Pty Ltd (1995) 64 SASR 258 at 275.

The correct view is that the payments were made by the receiver acting as an agent on behalf of TOC and as an incident of carrying on the business of that company as he was entitled to do. The receiver was acting in accordance with the agency relationship envisaged by the debenture deed. For the purposes of s 565(1) of the Corporations Law, read with s 122(1) of the Bankruptcy Act, the payments were made by TOC. The Full Court erred in holding otherwise.

The Master found that, there being other unsecured creditors at the time the payments to Carrier and Air Con were made, who remained unpaid at the time of the winding up, the impugned payments were preferential. The Full Court, having decided that the payments were not made by TOC, did not need to decide whether they were preferential. It is necessary for me to consider this question. The receiver submitted that, even if the Court found that the payments to Carrier and Air Con were payments made "by TOC", such payments did not constitute preferences in the circumstances. He claimed that two conditions were necessary for a preference to be found, namely that a creditor had received an advantage and that other creditors had suffered a disadvantage.

In this case, so it was put, it could not be said that both of these conditions had been satisfied. True enough, the payments made by the receiver were made from a fund not available to the general body of unsecured creditors. The moneys in the hands of the receiver were insufficient to discharge the Bank's secured debt. Therefore, the receiver's choice, in paying one or more general creditors from that fund could not operate to the disadvantage of other unsecured creditors who did not have access to the fund. If it was to the disadvantage of any creditor, it was only to the disadvantage of the secured creditor, the Bank.

There is no binding authority on this question. Nor does the available case law provide convincing guidance about what constitutes a "preference, priority or advantage" in a particular case. Two approaches are available. The first, broader, approach is that applied by the Supreme Court of South Australia in Matthews v Geraghty [130] . That approach was expressed by King CJ as follows [131] :

To say that a disposition of property confers a preference upon a creditor in a liquidation conveys no more than that the disposition of property has placed the creditor in a position of advantage with respect to the general body of creditors. A more recent interpretation of the intended operation of s 122(1) was expressed by Young J, in narrower terms, in James v Commonwealth Bank of Australia [132] : Although there appears to be a dearth of authority on the point, section 122(1) is directed at a situation of the pool of assets being available to creditors generally, being detrimentally affected by a transaction in favour of one creditor. Accordingly, in my view, what one has to do is to consider the situation of the creditors generally before the transaction, and then look at the situation afterwards and see whether the other creditors, that is the general creditors, have been disadvantaged. Young J continued [133] : [I]f one can see that the position of the general creditors after the transaction was no worse than it was before the transaction then the transaction does not have the effect of giving a preference to one creditor over the others. 1. (1986) 43 SASR 576. 2. Matthews v Geraghty (1986) 43 SASR 576 at 578. 3. (1995) 13 ACLC 1604 at 1607. 4. James (1995) 13 ACLC 1604 at 1608.

The receiver urged that this Court should follow the narrower approach. I cannot agree. It represents a considerable qualification upon the plain words of s 122(1). However, upon one view, both approaches can be accommodated by the terms of the section. Each focuses upon a particular manifestation of a preferential payment. Where a payment to one secured creditor imposes a manifest disadvantage to the general body of unsecured creditors, such disadvantage would clearly constitute strong evidence that the payment was preferential. However, it is not the only permissible manifestation of a "preference, priority or advantage". If it were, it would have been very easy for the legislature to make this clear by express language limiting the application of the section to such a case.

Section 122(1) is expressed in broad and ample terms. The challenged payments must have "the effect of giving that creditor a preference, priority or advantage over other creditors". The word "preference" is nowhere defined. It must therefore be given its ordinary meaning. Any thought that the word should be given a narrow construction is dispelled by the context in which it appears. A payment will offend the section not only if it has a preferential effect, but also if it has the effect of giving the payee a "priority" or "advantage". The use of the three concepts makes abundantly clear the broad ambit they are intended to cover.

Even if the words "preference, priority or advantage" could be read as being somehow more limited in scope than their ordinary meaning would suggest, such a construction would be displaced by the requirement in s 122(1) that the payments have the "effect of" bestowing such a "preference, priority or advantage". No intention to effect a preference is necessary [134] . Nor does the preference need to be direct or obvious. The words "effect of" require this Court to look beyond form to the substance of the consequences arising as a result of the payment in question. When this approach is adopted, it is very difficult to justify reading down the scope of the provision by narrowly confining the words "preference, priority or advantage". Such an approach would subvert the intention of the Parliament that the legislation should cast a wide net protective of manifest equity and fairness as between all unsecured creditors.

S Richards & Co Ltd v Lloyd (1933) 49 CLR 49 at 62; Richardson v Commercial Banking Co of Sydney Ltd (1952) 85 CLR 110 at 129.

Once the words of s 122(1) are given this meaning, it is clear that the fact that the receiver's account held insufficient funds to discharge TOC's secured debt to the Bank and to retain a surplus for distribution to unsecured creditors is not determinative. In the present case, the payments made to Carrier and Air Con had the "effect of" preferring them over the Bank. However, they also had the "effect of" preferring them over the other unsecured creditors. The two effects are not mutually exclusive.

It is no answer for the receiver to suggest that the payments to the creditors could not amount to preferences, since the debts were effectively "guaranteed" by the Bank. That is, if the sub-contractors had not been paid by the receiver, they would have had a claim against the Bank which appointed the receiver. The mere fact that there is a "guarantor" does not mean that a payment by the debtor is not a "preference". One creditor, by its private dealings, cannot escape the provisions of the Corporations Law, designed to protect all other creditors against preferences. There may still be a preference where the company pays the debt, regardless of whether it has been guaranteed by a bank from which the creditor could later have sought payment. Even where a receiver has chosen to undertake a "personal liability" to make a payment, this would not alter the preferential character of a payment to the unsecured creditor. In this respect, the Full Court failed to distinguish between the post-receivership obligation, which is incurred by a receiver personally and is independent of any pre-existing liability of the company, and the situation which existed in this case. Here, the receiver assumed a personal liability to meet pre-receivership debts for which TOC remained liable.

The appellant drew a helpful analogy between this situation and that which exists when a third party guarantees a particular debt owed by a company. When the third party pays the debt pursuant to that personal guarantee, there has been no payment by the company and hence no preference. However, that situation is to be contrasted with the payment of a debt by the company itself, where that debt is guaranteed by a third party. In such circumstances, there has been a preference. The company's assets are thereby depleted. The particular creditor is benefited. This is what the Corporations Law is expressed to remedy by affording a liquidator the power to unravel such preferential payments, out of equity to all creditors. This Court should adopt a construction of the Corporations Law which furthers the achievement of that purpose.

Two further arguments were advanced to repel the assertion that a "preference, priority or advantage" was enjoyed by the sub-contractors in this case. The first rested on the existence of the right of indemnity ordinarily enjoyed by a receiver over secured assets when the receiver undertakes a personal obligation. Octavo [135] is authority for the proposition that the right of indemnity is a property right. The receiver's position is no different from that of an ordinary trustee in that the creditors of the receiver are entitled, in equity, to be subrogated to the rights of the receiver in respect to his right of indemnity [136] . Having regard to the "right of subrogation", the creditors of the receiver are effectively secured creditors, not in the strict sense of having a direct right to legal access to property, but in an indirect sense where the receiver assumes an obligation to them as "quasi-secured" creditors so that they rank above unsecured creditors. Those remaining unsecured creditors could not be adversely affected in the relevant sense since they "do not stand equally" with creditors of a trustee or creditors of a receiver who have a right of subrogation. In short, it is only possible to "prefer" one creditor over another where they rank in equal degree in relation to their respective debts.

(1979) 144 CLR 360. 2. Vacuum Oil Co Pty Ltd v Wiltshire (1945) 72 CLR 319 at 335.

I cannot accept that this is the way in which to construe s 122(1) of the Bankruptcy Act. If the overall transaction is considered in this case, it is clear that the payments made to Carrier and Air Con elevated and advanced the rights of those unsecured creditors in preference to other unsecured creditors. In effect, the chosen creditors were, for the purpose of the payment of the particular unsecured debts, elevated to the position of a secured creditor. They became "quasi-secured" creditors (to adapt the respondents' terminology).

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Cases Cited (24)