Sutherland v Brien

Introduction 1 The plaintiffs are Mr Sutherland and Australian Imaging Group Pty Ltd (In Liquidation) ('AIG'), a company which conducted a photo laboratory business. Mr Sutherland was the administrator of AIG under a deed of company arrangement. The plaintiffs' summons seeks a declaration that money held by Mr Sutherland in a trust account called the Jirsch Sutherland Trust Account, totalling $149,148, is held as to $58,354 for the Office of State Revenue and as to $90,794 for the Deputy Commissioner of Taxation. The Office of State Revenue and the Deputy Commissioner of Taxation are creditors of AIG. The plaintiffs also seek an order to pay out those amounts to the Office of State Revenue and the Deputy Commissioner of Taxation after deducting expenses. 2 The two defendants, Mr Brien and Mr Nicols, are the trustees of the estates of Harley and Deirdre Roberts respectively, appointed pursuant to deeds of assignment under Pt X and s 228 of the Bankruptcy Act. Mr Roberts was one of two directors of AIG. Mrs Roberts, his wife, was not a director. By their cross-claim against Mr Sutherland the defendants seek a declaration that the total amount of the fund in the Jirsch Sutherland Trust Account, plus interest, is payable to them and an order that payment be made. By his defence to the cross-claim, Mr Sutherland initially claimed that Mr Brien was invalidly appointed because either the meeting at which creditors resolved to appoint him was not held within the time prescribed by s 194 of the Bankruptcy Act, or the deed of assignment under Pt X was not executed within the time prescribed by s 216. However, this defence was abandoned at the hearing when the cross-claimants produced a minute of an order of the Federal Court of Australia which, it was conceded, overcame the timing problem. Therefore, what remains at issue in the cross-claim is, in substance, the converse of what is claimed in the summons. 3 Mr and Mrs Roberts entered into a deed of guarantee of AIG's debts incurred after the deed of company arrangement was executed (debts to 'post deed creditors') and a mortgage of their properties at Gymea and Surry Hills in favour of Mr Sutherland as administrator to secure their obligation under the deed of guarantee. The amounts in Mr Sutherland's trust account are the remaining proceeds of sale of the Surry Hills property and the Office of State Revenue and the Deputy Commissioner of Taxation are the only remaining post deed creditors. Some post deed creditors have already been paid out and the defendants do not seek in these proceedings to recover those payments. Essentially, Mr Sutherland wants to complete the administration of AIG by paying the remaining post deed creditors from a fund which results from realising a security given by Mr and Mrs Roberts, and the defendants want to divert that fund for the benefit of the personal creditors of Mr and Mrs Roberts. 4 Given that the question of timing has been resolved, the only issue for me to determine is whether the deed of guarantee and mortgage executed by Mr and Mrs Roberts, amended by their subsequent consents which increased the amount of guaranteed monies, are void as against the defendants under s 120 of the Bankruptcy Act. If they are, the defendants will substantially or wholly succeed on the cross-claim and the summons will be dismissed; if they are not, the plaintiffs are entitled to the relief sought in the summons and the cross-claim will fail. The parties have agreed that whatever be the outcome of the s 120 issue, they will invite me to order that the costs of the plaintiffs and the defendants be paid out of the fund held in Mr Sutherland's trust account. The Court's Jurisdiction 5 Before proceeding further I must deal with a preliminary point concerning this Court's jurisdiction. Section 27(1) of the Bankruptcy Act, as amended in 1996, says: 27(1) The Federal Court has jurisdiction in bankruptcy, and that jurisdiction is exclusive of the jurisdiction of all courts other than the jurisdiction of the High Court under section 75 of the Constitution. 6 According to s 5 'bankruptcy', in relation to jurisdiction or proceedings, means any jurisdiction or proceedings under or by virtue of the Bankruptcy Act. 'Proceeding' means a proceeding under the Bankruptcy Act. 7 Neither party asserts that s 27(1) deprives this Court of jurisdiction to deal with the present proceedings. On the contrary, they have been anxious for me to hear and determine the matter. However, prior to the hearing counsel properly drew my attention to s 27(1) and invited me to satisfy myself on the question of jurisdiction before the commencement of the hearing. I did so. 8 In my opinion, s 27(1) does not have the effect of giving the Federal Court exclusive jurisdiction to hear and determine a matter such as the present case. Here, the proceedings arise out of claims to a fund held in a trust account. The proceedings have been brought for a determination of those claims and for orders as to the payment of the fund. Although the legal issue to be determined in the proceedings relates to the proper construction and application of a section of the Bankruptcy Act, the proceedings themselves are not 'proceedings under or by virtue of' the Bankruptcy Act. Rather, they are proceedings which invoke the Court's well-established jurisdiction to determine and declare rights to property and make orders as to its destination. Consequently, these proceedings do not fall within the definition of 'bankruptcy' in relation to jurisdiction or proceedings, and do not fall within the 'jurisdiction in bankruptcy' which s 27(1) vests exclusively in the Federal Court. Proceedings of the present kind may be contrasted, for example, with a petition by a creditor for a sequestration order against the estate of a debtor, where the Court exercises a statutory jurisdiction conferred by s 43 of the Bankruptcy Act. 9 My attention has been drawn to the statutory cross-vesting scheme provided for in the Jurisdiction of Courts (Cross-vesting) Acts 1987 (Commonwealth and NSW). The explanatory memorandum to the Bankruptcy Legislation Amendment Bill 1996, the enactment of which brought s 27(1) into the Act (the 'EM') said at par 81: 'Bankruptcy matters will still be able to be dealt with by Supreme Courts of the States and the Northern Territory under the Jurisdiction of Courts (Cross-Vesting) Act 1987 in appropriate cases. Further, provisions which enable trustees to take action in courts of competent jurisdiction for the recovery of debts from bankrupts and other persons, such as sections 139ZG, subsections 139ZL(10) and 139ZQ(8) and subsection 161B(2), will be unaffected, and actions pursuant to those sections will be able to be commenced, as at present in a magistrates court, District or County Court or Supreme Court as appropriate.' 10 It is unnecessary for me to resolve in these proceedings the precise division between bankruptcy proceedings within the exclusive jurisdiction of the Federal Court under s 27(1) and proceedings cross-vested to State courts under the cross-vesting legislation. This is because, in my view, s 27(1) does not apply at all to the present proceedings for the reasons already given. 11 Counsel also drew my attention to a decision of David Kirby J in A Mechtler v P & E Phontos Pty Ltd (unreported, Supreme Court of New South Wales, 23 September 1998). In that case the plaintiff had appointed a trustee under a deed of assignment pursuant to Pt X of the Bankruptcy Act after his common law action had commenced. The Court was invited by motion to grant the trustee an extension of time to make an election under s 60 of the Bankruptcy Act whether to prosecute the plaintiff's claim. The Court's jurisdiction to make the order was conferred by s 33 of the Bankruptcy Act. His Honour held that the Federal Court had exclusive jurisdiction to deal with such an application. It is not clear whether his Honour's attention was drawn to the EM but it is unnecessary for me to decide whether his reasoning is correct in light of the EM. That was a different case from the present because the Court was there invited to exercise a statutory jurisdiction conferred by the Bankruptcy Act, whereas here I am invited to exercise the Court's general jurisdiction with respect to rights to property, having regard to the provisions of the Bankruptcy Act which may invalidate rights which are asserted. 12 I therefore hold that s 27(1) of the Bankruptcy Act does not deprive this Court of jurisdiction to hear and determine the present proceedings. Chronology of Events 13 I have already sketched the principal events which give rise to this case but it is necessary to put them into temporal sequence. That sequence is: (1) 20 May 1996 Mr Sutherland was appointed administrator of AIG; (2) 17 June 1996 the creditors of AIG resolved to enter into a deed of company arrangement; (3) 21 June 1996 the deed of company arrangement ('DCA') was executed; (4) 18 December 1996 the committee of creditors of AIG resolved that Mr and Mrs Roberts should provide a mortgage over their property at Surry Hills to secure the debts of post deed creditors of AIG and deposit $130,000 in cash into the company by 21 January 1997; (5) 16 January 1997 the deed of guarantee and a supporting mortgage over the Gymea and Surry Hills properties were executed, securing payment of up to $180,000; (6) 21 January 1997 Mr Sutherland lodged a caveat over Mr and Mrs Roberts' Gymea and Surry Hills land; (7) 22 January 1997 a further meeting of the committee of creditors of AIG resolved that Mr Roberts should increase the guarantee and security to $250,000 (undated consents to this increase by Mr and Mrs Roberts were later signed); (8) 14 February 1997 a further meeting of the committee of creditors resolved to terminate the DCA and place AIG into liquidation and to appoint Mr Sutherland as liquidator; (9) April 1997 Mr Sutherland partially released the caveat to enable the proceeds of sale of the Gymea land to be paid to the prior ranking mortgagee; (10) 23 June 1997 Mr and Mrs Roberts' property at Surry Hills having been sold, Mr Sutherland received the balance of the proceeds of sale; (11) 5 November 1997 Mr and Mrs Roberts signed authorities under s 188 of the Bankruptcy Act appointing Mr Brien as controlling trustee; (12) 3 March 1998 the Federal Court made an order under s 188(4) granting leave to Mr Roberts to give an authority to Mr Brien to call a meeting of his creditors; (13) 19 March 1998 Mr Roberts signed a further authority under s 188; (14) 2 April 1998 a meeting of Mr Roberts' creditors was held and Mr Roberts signed a deed of assignment under Pt X of the Bankruptcy Act; (15) [uncertain date] Mr Sutherland, as liquidator of AIG, lodged a proof of debt in Mr Roberts' Pt X administration, claiming $1,034,703 for insolvent trading liability; (16) 28 October 1998 Mrs Roberts signed another authority under s 188 appointing Mr Nicols as the controlling trustee of her estate; (17) 13 November 1998 Mrs Roberts' creditors resolved that she execute a deed of assignment under Pt X and she did so. Section 120 of the Bankruptcy Act 14 The following provisions of s 120 are relevant in this case: (1) A transfer of property by a person who later becomes a bankrupt (the transferor) to another person (the transferee) is void against the trustee in the transferor's bankruptcy if: (a) the transfer took place in the period beginning 5 years before the commencement of the bankruptcy and ending on the date of the bankruptcy; and (b) the transferee gave no consideration for the transfer or gave consideration of less value than the market value of the property. (4) The trustee must pay to the transferee an amount equal to the value of any consideration that the transferee gave for a transfer that is void against the trustee. (7) For the purposes of this section: … (b) a person who does something that results in another person becoming the owner of property that did not previously exist is taken to have transferred the property to the other person; and (c) the market value of property transferred is its market value at the time of the transfer. 15 For the purposes of s 120 Mr and Mrs Roberts, having executed deeds of assignment under Pt X, are to be treated as having become bankrupts: s 31(2). Counsel for the defendant submits that the deed of guarantee and mortgage make transfers of property for the purposes of s 120(1), having regard to s 120(7)(b). I agree. 'Property' is broadly defined in s 5 and includes personal property such as a chose in action. The authorities on the meaning of the word 'property' when used in a statute were usefully reviewed by Gummow J in Hepples v Federal Commissioner of Taxation (1990) 21 ATR 42; on appeal 22 ATR 465. By executing the deed of guarantee, Mr and Mrs Roberts did something which resulted in Mr Sutherland becoming the owner, as administrator of AIG, of choses in action that did not previously exist. By executing the mortgage, they did something which resulted in Mr Sutherland as administrator becoming the owner of the bundle of choses in action and proprietary interests which arise in a mortgage of real property under the provisions of the Real Property Act 100 (NSW). Consequently, by virtue of s 120(7)(b), property of those various kinds was transferred to Mr Sutherland for the purposes of s 120(1) upon the execution of those instruments. That interpretation is confirmed, specifically as far as it relates to the mortgage and in principle as far as it relates to the choses in action, by par 84.10 of the EM, which says: 'Another important change is that provided for in proposed subsection 120(7), whereby when a person does something which results in another person becoming the owner of property whether or not it previously existed, the person as a result of whose actions property came into being is taken to have transferred the property to the person who owns it. Thus where a person creates an interest in property, for example by allowing a mortgage or charge to be created over it, the person will be taken to have transferred property, for the purposes of the section. Likewise, if Frank who subsequently became a bankrupt constructed a residence on a block of land owned by Eugenie, Frank would be taken to have transferred property to Eugenie. The transfer would be void against the trustee if the house was constructed within 2 years before the commencement of the bankruptcy and Eugenie had either not paid Frank, or if Frank's work in constructing the residence was worth $300,000, but Eugenie had only paid him $150,000. Another example might be a situation where 3 years before the commencement of her bankruptcy, Gertrude conferred a licence on Harold to use a trademark, or an Item the subject of a patent, where no licence to use the Item previously existed. Gertrude would be taken to be transferring property to Harold, and if this was done for less than what might be expected to be the market value of the rights conferred by the licence, the transfer would be void, unless Harold could prove that Gertrude was not insolvent at the time of giving the licence.' 16 The same reasoning applies to the consents which were subsequently executed by Mr and Mrs Roberts, having the effect of increasing the amount of the guaranteed monies from $180,000 to $250,000. 17 It is clear that these transfers occurred within two years of the commencement of bankruptcy of Mr and Mrs Roberts, an event which happened at the latest when they signed authorities under s 188 on 5 November 1996 and thereby committed acts of bankruptcy (see ss 40(1)(i) and 115(1)). The less stringent regime which applies under s 120(3) to transfers more than two but within five years before the commencement of bankruptcy is inapplicable here. The sole remaining question raised by s 120(1) is under s 120(1)(b), namely did the transferee, Mr Sutherland, give no consideration for the transfers or give consideration of less value than the market value of the property? 18 Section 120(1)(b) takes its present form as a result of the 1996 amendments. The previous section applied only to a 'settlement of property', but if the transaction was a settlement of property, it was necessarily void against the trustee in bankruptcy provided that it occurred no later than two years before the commencement of the bankruptcy. The EM explains (par 84.8) that case law in relation to the old s 120 had established that the term 'settlement' carries a connotation that the person who receives the property will retain it at least for some foreseeable time. The word 'transfer' as defined in s 120(7) is evidently intended to overcome that limitation in the old law, though it goes rather further than that, especially in view of s 120(7)(b). 19 As to the question of market value, s 120(7)(c) is not especially helpful but the EM says this: '84.13 The consideration given by a person for the transfer of property must be an amount which is equal to at least the market value of the property at the time of the transfer (see proposed paragraph 120(7)(c)). This requirement is intended to overcome the decision of the High Court in Barton v Official Receiver (1986) 161 CLR 75 that a person who claims to be a purchaser of the property need not show that he or she has given fully adequate consideration for the transfer, but nevertheless must have given real and substantial consideration, and not consideration which is merely nominal, trivial or colourable. The expression 'market value' is intended to refer to the value of the property concerned if it were disposed of to an unrelated purchaser bidding in a market on an ordinary commercial basis for property of the kind disposed of, without any sort of discount or incentive for purchase being offered. The expression is not intended to include a situation where the property was being disposed of at a 'fire sale', at discounted prices because of some immediate need on the part of the owner to liquidate his or her assets. Of course, there may be differing opinions as to the precise market value of some property, for example house properties, where valuers or real estate agents may give kerbside valuations which spread over a range of monetary values. However, if the property was transferred for an amount less than the lowest amount in the range, the transfer would be a transfer at undervalue, for the purposes of the section. 84.14 Forbearance to sue has always been regarded at law as good consideration. Such forbearance will, under the Act as proposed to be amended by the Bill, have to be looked at in the light of the likely value of the chose in action. If for example Arthur had refrained from taking an action against Beatrice, a bankrupt, where Arthur was likely on ordinary principles to recover damages of $100,000, in return for Beatrice transferring a property valued at $200,000 to Arthur, that would be a transaction at undervalue for the purpose of the section. In circumstances such as this, it may be relevant to consider the likely costs Beatrice would incur in unsuccessfully defending an action brought by Arthur in working out whether the transfer was for market value.' 20 It seems to me obvious that in applying these provisions to the present circumstances, the Court's task is two-fold: first, to identify as precisely as one can, the consideration (if any) which was in fact given by Mr Sutherland for the transfers constituted by the deed of guarantee, the mortgage and the subsequent consents to increases; and secondly, if consideration was given, to determine whether the value of the consideration at the time of the transfers (16 January and late January1997) was less than the market value of the property transferred. I turn to the first of those tasks. What consideration, if any, did Mr Sutherland give for the Deed of Guarantee, Mortgage and Consents? 21 Section 120(1)(b) requires the Court to identify the consideration actually given by the transferee, not consideration which might have been given but was not in fact given. The first port of call in a voyage to identify the consideration for the transactions of 16 January 1997 and the subsequent consents to increase the amount of guaranteed monies is the documents themselves. 22 The mortgage is singularly unhelpful. It is an 'all monies' security in printed Real Property Act form with an associated long memorandum containing terms and conditions which were capable of applying to a broad range of transactions. 'Secured Money' is defined in clause 1.1.1 of the memorandum to mean (broadly speaking) any money which the borrower is actually or contingently liable to pay the mortgagee. There is no recital or other clause identifying any specific consideration for the mortgage. 23 The parties to the deed of guarantee are AIG, Mr and Mrs Roberts and Mr Sutherland. The subject matter is almost exclusively the obligations of the guarantors. The document contains the following recitals: 'A. Sutherland is the deed administrator of AIG under a deed of company arrangement executed on 21 June 1996. B. AIG continues to trade and incur debts. As deed administrator Sutherland wishes to ensure that the claims of creditors of AIG with claims which do not fall within the Deed of Company Arrangement will be paid by AIG. AIG has agreed to pay to Sutherland (as agent for AIG's creditors with claims for debts incurred on and from 22 June 1996) debts incurred by AIG after 21 June 1996 and the Guarantors have agreed to guarantee AIG's obligations to Sutherland on the terms and conditions set out below.' 24 It is evident that the recitals do not expressly identify any consideration, but recital B is consistent with the view that the consideration supplied for the guarantor's covenant is Mr Sutherland's forbearance, or promise to forebear, on behalf of the creditors, from immediately taking steps to terminate the DCA and place the company in liquidation. 25 In view of the lack of any specific provision about consideration in the documents (apart from the fact that the seal imports consideration), I must turn to the surrounding evidence. In circumstances such as the present, extrinsic evidence is admissible to determine the real consideration for a covenantor's promise: Cross On Evidence (Fifth Australian Edition, 1996, by JD Heydon), para [39180]. 26 In the present case the principal evidence is found in the minutes of the meetings of the creditors of AIG held on 18 December 1996, 22 January 1997 and 14 February 1997. The second meeting was after the execution of the initial documents but before the increase in the guaranteed monies. The third meeting was after the transactions. Evidence about the second and third meetings is admissible to prove the common intention which the parties held at the earlier time of the initial transaction: Spunwell Pty Ltd v BAB Pty Ltd (1994) 36 NSWLR 290. 27 The meeting of creditors held on 18 December 1996 was attended by Mr Roberts and the other director of AIG, Mr Jeff Nield. It was chaired by Mr Sutherland who reported that the company made a loss of $150,000 during the period from 1 July to 31 October 1996 whilst operating under the DCA. Mr Roberts 'had put approximately $60,000 cash into the company within the last 10 days for the purpose of reducing post deed creditors'. But, said Mr Sutherland, he would have to recommend that the company cease trading immediately unless there were a capital injection to cover anticipated losses over January and February 1997. However, if sufficient funding in the order of at least $130,000 was forthcoming then he would support the company's continued operation. 28 It is evident from those minutes that Mr Roberts felt personally responsible for the company's situation, but was optimistic about its future. He told the meeting that the funds which he had recently injected into the company had depleted his resources but he would approach his mortgagee to increase the borrowing on the Gymea and Surry Hills properties (which were owned by his wife and him). There was discussion as to whether this would be feasible, during which Mr Sutherland reiterated that he would close the company down unless it obtained cash or extended credit terms, and committee members expressed concern that they had extended their support when the company went into administration and were not willing to be 'bitten' again. Mr Sutherland suggested a mortgage could be granted in favour of post deed creditors provided an independent valuation confirmed Mr Roberts' estimate of the value of the properties. 29 The meeting then resolved, inter alia, that: '1. Harley and Deirdre Roberts provide security as soon as possible by way of a second or third mortgage over the property at 67 Fitzroy Street, Surry Hills and 6 Nowra Place, Gymea Bay to secure the position of post deed creditors and to allow continued trading. 2. Provided security by way of mortgage is given the company would be allowed to continue trading until 21 January 1997. 3. The directors would obtain at least $130,000 cash to inject into the company by 21 January 1996 by raising the majority of funds from the property at 67 Fitzroy Street, Surry Hills and at 6 Nowra Place, Gymea Bay. 4. Once the directors have injected at least $130,000 cash into the company then the mortgage will be released. 5. If funds of at least $130,000 are not forthcoming by 21 January 1996, then the Deed Administrator will close the company down and terminate all employees on that day. 6. If funds are not forthcoming then the mortgage will be enforced for the benefit of post deed creditors.' 30 The meeting of the committee of creditors held on 22 January 1997 was also chaired by Mr Sutherland and attended by Mr Roberts and Mr Nield. Mr Sutherland told the meeting that Mr and Mrs Roberts had provided a second mortgage over the Gymea and Surry Hills properties as arranged, but a cash injection of at least $130,000 had not been forthcoming by 21 January 1997. He said that the company would run out of cash within three to four weeks and the first mortgagee would not lend more money to Mr and Mrs Roberts. Mr Roberts said the two properties would be sold and he was negotiating for bridging finance. Several times he said it would be a disaster if the company was closed down. He was, he said, 'hell bent on survival' and would do everything in his power to keep the company going. In contrast, his fellow director, Mr Nield, said he had no money to put into the company and if the committee wanted to close the business down, then so be it. The view was expressed that the company was surviving only by not paying tax. Mr Roberts asked for two more weeks to obtain funding. The meeting resolved, in effect, to give Mr Roberts a last chance to inject cash into the company by 31 January 1997 provided Mr and Mrs Roberts raised the amount of the guarantee and mortgage from $180,000 to $250,000. 31 The meeting of creditors of 14 February 1997 was chaired by Mr Sutherland and attended by Mr Nield but not Mr Roberts. Mr Sutherland reported that a cash injection of $130,000 had not been received by 31 January 1997 and consequently he had taken control of the company under the DCA. The meeting resolved to terminate the DCA and wind the company up. 32 The question is, what was the consideration actually given by Mr Sutherland on behalf of the post deed creditors for the execution by Mr and Mrs Roberts of the deed of guarantee and mortgage on 16 January 1997 and for their subsequent consents to increase the amount guaranteed from $180,000 to $250,000, given later in January 1997? That question must be answered as a question of fact and that is why I have set out the evidence in such detail. The question is to be assessed at the times of the 'transfers' to which s 120 refers, which (as I have explained) is the time when the various transactions were entered into rather than the time of payment of the proceeds of sale of the Surry Hills property pursuant to those transactions. 33 The plaintiffs submit that the consideration for entering into the deed of guarantee and mortgage was the continuation of the DCA and minimisation of potential claims against Mr Roberts as a director for breach of director's duties and insolvent trading. Mr Sutherland's evidence is that, if he could not procure guarantees from Mr and Mrs Roberts, secured by mortgage, to support AIG's post deed trading indebtedness, he would have convened a meeting of creditors with a view to passing resolutions which would put AIG into liquidation. Then as liquidator he would have been likely to institute proceedings against Mr Roberts as a director for insolvent trading and potentially for breach of duty funded by the creditors or by insurance. If he obtained the judgment against Mr Roberts he would have made Mr Roberts bankrupt and then the property jointly owned by him and Mrs Roberts would have vested in his trustee in bankruptcy, who would have sought the appointment of trustees for sale. Eventually that process would have deprived Mrs Roberts of her rights to the properties, although she would have been entitled to her share of the net proceeds of sale of the properties. Thus, according to Mr Sutherland, the consideration given to Mrs Roberts was that continuation of the DCA made it possible that she would be able to preserve her interests in the properties jointly owned by her and her husband. 34 In my opinion the plaintiffs' contentions about the consideration for the deed of guarantee, the mortgage and the consents are not wholly supported by the evidence. The minutes of the meeting of 18 December 1996 show that Mr Roberts and Mr Sutherland, as administrator on behalf of the post deed creditors, made a bargain under which Mr Sutherland allowed AIG to continue trading until 21 January 1997. In my opinion Mr Sutherland impliedly promised by that bargain that prior to 21 January 1997 he would not exercise his powers as administrator to take any step towards causing AIG to cease trading, such as reclaiming control of management or convening a meeting of creditors to terminate the DCA and cause AIG to be wound up. 35 However, the evidence does not support the contention that a promise not to take proceedings against Mr Roberts for insolvent trading or breach of duty, or forbearance from taking such proceedings, was any part of the actual consideration given by Mr Sutherland at that time. The minutes of the meeting of 18 December 1996 make no mention of any such proceedings. The creditors' decision was to allow AIG to continue trading under the DCA until 21 January 1997. The question of suing for insolvent trading would not arise unless the conditions set out in the creditors' resolution were not met and they then decided to place the company in liquidation, since an administrator has no standing to take such proceedings. It is true that the decision of 18 December 1996 gave Mr Roberts a reprieve from any potential proceedings on that ground, but that was merely a consequence of the bargain, rather than part of the consideration actually supplied by Mr Sutherland. 36 Although the evidence is skimpy, I find that the bargain made on 18 December 1996 was made by Mr Roberts on behalf of Mrs Roberts as well as on his own behalf. It is most unlikely that she was unaware of the difficulties of AIG and her husband. I infer from the minutes that he was desperate to secure time to find further funds for the company and he must surely have conveyed that feeling and at least the broad shape of his proposals to her. She signed the documents after a solicitor explained their effect to her. In her statement of affairs made under the Bankruptcy Act on 12 October 1998, she said that the cause of her insolvency was 'obeying the request to sign everything put in front of me' and she added, 'I had nothing to do with anything in the business except signing the forms'. Far from implying that she gave no authority to her husband to make on her behalf a bargain such as was made on 18 December 1996, these statements suggest to me in their context that she left her affairs to him and he had her authority to bind her to the arrangement he made with the company's creditors. It follows that the consideration given for her execution of the deed of guarantee, the mortgage and the consent was given jointly to her and her husband. That consideration was Mr Sutherland's promise to allow AIG to continue trading until 21 January 1997. 37 In my opinion the minutes of the meeting of 22 January 1997 imply that a supplementary bargain was made by Mr Roberts on behalf of his wife and himself with Mr Sutherland as administrator on behalf of the post deed creditors, whereby Mr Sutherland promised not to exercise any powers as administrator towards causing AIG to cease trading until 31 January 1997 if certain conditions, including an increase in the guaranteed amount to $250,000, were met. The minutes do not refer to the possibility of action against Mr Roberts for insolvent trading and I find that Mr Sutherland made no promise about any such proceedings. The market value of the property and the value of the consideration 38 In my opinion, the market value of the property transferred by the deed of guarantee and the mortgage was initially approximately $180,000 and became approximately $250,000. This is because the guarantors' obligations were secured over property which, on the evidence, had a total realisable value, after discharging a prior ranking security, in excess of the maximum amount secured, which was initially $180,000 and was increased to $250,000. It may be necessary to deduct some costs of recovery to the extent that any such costs may not have been covered by the security, and to apply a discount for the time value of money given that the security was not immediately realised. Subject to such relatively minor adjustments, however, in my opinion an unrelated purchaser bidding in a market on an ordinary commercial basis for the right acquired by Mr Sutherland under the deed of guarantee, the mortgage and the consents, would have paid in the vicinity of $180,000 before the increase and $250,000 after the increase. 39 What is the value of the consideration actually given by Mr Sutherland for these rights? In my opinion the value of the consideration at the time it was given was less than the market value of the property acquired by Mr Sutherland. In my opinion, on balance, the value was merely nominal. 40 I must compare the market value of the property with the 'value' - not necessarily, one notes, the market value - of the consideration given by Mr Sutherland. It is plain that the value of the consideration must be assessed on an objective basis not dependent on any special value which the transferor may have subjectively placed on the consideration. This is an important point in the present case because the evidence suggests that Mr Roberts had a totally unrealistic sense of optimism about the future of the company and therefore placed an unrealistically high value on securing a short extension of time. The EM indicates that the present wording of s 120(1) is intended to overcome the decision in Barton v Official Receiver (1986) 161 CLR 75, that a person who claims to be a purchaser of property need not show that he or she has given fully adequate consideration for the transfer as long as the consideration is real and substantial. Under the new s 120 the Court is required to make an assessment of the objective value of the consideration if it can, on the basis of such evidence as is available. 41 It seems to me that if one puts aside the hopes, expectations and commitments of Mr Roberts about the future of AIG, all one has by way of consideration are the two promises to forebear from taking various steps for two very short periods of time which can have had very little, if any, value at all, given that after the expiration of that extended time those very steps were promptly taken. The value of the promises is severely affected by the conditions upon which they were given, especially the conditions requiring a cash injection of $130,000 and the meeting of corporate budgets. Looking at the matter otherwise than through the eyes of Mr Roberts, the arrangement which led to the execution of the deed of guarantee and mortgage and the subsequent increase of the secured amount were very one sided. Only someone who shared Mr Roberts' enormous optimism, quite unfounded as it happened, could even begin to contemplate such a transaction. Mr and Mrs Roberts gave a great deal to secure very little. This is the kind of 'under-valued transaction' from which the Bankruptcy Act seeks to protect the bankrupt's creditors. 42 Counsel for the plaintiff submitted that I should infer that the value of the consideration was equivalent to the value of the property transferred. He relied on AAT Case 8493 (1993) 25 ATR 1027. In that case it was necessary to calculate the amount of a capital loss alleged to have arisen from an agreement, by which (to simplify) a party was relieved from paying $40,000 to the taxpayer, which had been part of the purchase price for property, in consideration of its promise not to sue the taxpayer for breach of contract. Section 160ZD(1) stated that the consideration in respect of disposal of an asset was, relevantly, the market value of the property received by the taxpayer. The task of the Administrative Appeal Tribunal was therefore to determine the market value of the consideration for the taxpayer's $40,000 loss - in this case the market value of the injured party's promise not to sue. Dr Gerber held that the market value of the consideration was the value which the parties put on it, namely $40,000, given that there had undoubtedly been a breach of contract for which damages would probably have been awarded with costs if the breach had been litigated rather than settled. 43 Putting aside the obvious differences in the statutory wording and statutory context of the Income Assessment Act and the Bankruptcy Act, the case before Dr Gerber is manifestly distinguishable from the case before me. Here there is no evidence that Mr and Mrs Roberts would have been in any different position after the period of forbearance expired, were it not for the bargain they made. In fact, the correct inference is that if they had not made the bargain, AIG would have gone into liquidation a little earlier, but by mid February 1997 it would have been in liquidation in any case. In the tax case the bargain gave the taxpayer something it would not otherwise have received, namely immunity from litigation which would probably have led to a verdict against it for damages and costs. 44 I therefore conclude on the evidence before me that the consideration given by Mr Sutherland for the property transferred by the deed of guarantee and mortgage, as increased, was of nominal or no value except in the subjective assessment of Mr Roberts, and therefore the consideration had nominal or no value for the purposes of s 120(1)(b). Conclusions and Orders 45 Consequently the plaintiffs have failed on the summons and the defendants as cross-claimants have succeeded on the cross-claim. I propose to make the following orders: