Robert John Yeomans v Lease Industrial Finance Limited [1986] ACTSC 50 (19 June 1986)

SUPREME COURT OF THE ACT

ROBERT JOHN YEOMANS v. LEASE INDUSTRIAL FINANCE LIMITED
S.C. No. 982 of 1983
Company

COURT

IN THE SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY
Jenkinson J.(1)

CATCHWORDS

Company - winding up - chattels held on lease (bailment) from financier - payment of "pay-out figures" by company immediately before presentation of petition - preference - void as against liquidator.

Companies Act 1981 - ss. 364, 451

Bankruptcy Act 1966 - ss. 5, 122

In re Blackpool Motor Company Ltd. (1901) 1 Ch 77

Expo International Pty. Ltd. (in liquidation) v. Torma (1985) 3 ACLC 748

Burns v. Stapleton [1959] HCA 34; (1959) 102 CLR 97

Queensland Bacon Pty. Ltd. v. Rees [1966] HCA 21; (1966) 115 CLR 266

S. Richards & Co. Ltd. v. Lloyd [1933] HCA 26; (1933) 49 CLR 49

Burns v. McFarlane [1940] HCA 25; (1940) 64 CLR 108

Rees v. Bank of New South Wales [1964] HCA 47; (1964) 111 CLR 210

Re Weiss (1970) ALR 654

Re Bird [1979] FCA 97; (1979) 39 FLR 281

Re Castellucci (Fisher J.) unreported 11 Mar. 1983

Re Cooke (Smithers J.) unreported 18 Feb. 1983

Re Cummins (Spender J.) unreported 3 Jul. 1985

Re Security Provident Fund Ltd. (in liq.); Roger v. Gourlav (1964) 9 ACLR 56

Murdoch & Ors. v. Crawford & Anor. (1986) VR 97

Re Reid Murray Holdings Ltd. (in liq.) (1969) VR 315

Re Gapes Interstate Transport Pty. Ltd. and The Companies Act (1970) 92 WN (N.S.W.) 169

In re T.T.C. (S.A.) Pty. Ltd. (in liq.) (1983) 32 SASR 532

HEARING

CANBERRA
19:6:1986

DECISION

Liquidator's application for determination of questions arising in the winding up of S. & N. (Nominees) Pty. Limited.

2. On 31 March 1983 a petition that S. & N. (Nominees) Pty. Limited ("the company") be wound up was presented to this Court, by which an order for winding up was made on 13 May, 1983. The questions of which the liquidator seeks a determination arise out of transactions between the company and Lease Industrial Finance Limited in and after May 1982. At material times the company carried on a business of steel fabrication, in the course of which it made structures for construction companies which were carrying on business in the Australian Capital Territory. Lease Industrial Finance Limited carried on at material times the business of money lending, including the leasing of industrial and commercial plant and equipment. In May 1982 and again in June 1982 an agreement in writing was made for "lease", by Lease Industrial Finance Limited to the company, of a number of items of industrial plant, which were for use in the conduct of the company's business. On 29 March 1983 payment was made by the company to Lease Industrial Finance Limited of an amount somewhat greater than the aggregate of the two sums which Lease Industrial Finance Limited had specified as the "pay-out figures" in respect of those two agreements in writing. Lease Industrial Finance Limited had specified $24,744.33 in respect of the May agreement and $35,576.02 in respect of the June agreement. The payment by the company, of $61,478.21, exceeded the aggregate of those two pay-out figures by $1,157.86, but that latter sum was paid to the company by Lease Industrial Finance Limited on 11 April 1983. The balance, $60,320.35, which was retained by Lease Industrial Finance Limited, is claimed by the applicant liquidator to be a payment void against him by reason of the operation of s.451 of the Companies Act 1981. The relevant provisions of that section are -

"(1) A settlement, a conveyance or

transfer of property, a charge on
property, a payment made, or an
obligation incurred, by a company that,
if it had been made or incurred by a
natural person, would, in the event of
his 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.

(2) For the purposes of sub-section
(1), the date that corresponds with the
date of presentation of the petition in
bankruptcy in the case of a natural
person is -

. . . . . . . . . . . . . . . . . . . . .

(iii) in any other case - the date
of the filing of the
application for the winding
up;

. . . . . . . . . . . . . . . . . . . . . . . .

.

(3) For the purposes of this section,
the date that corresponds with the date
on which a person becomes a bankrupt is
the date on which the winding up of the
company commences or is deemed to have
commenced."

Section 122 of the Bankruptcy Act, 1966 provides:

"(1) A conveyance or transfer of
property, a charge on property, or a
payment made, or an obligation incurred
by a person who is unable to pay his
debts as they become due from his own
money (in this section referred to as
'the debtor'), in favour of a creditor,
having the effect of giving that creditor
a preference, priority or advantage over
other creditors, 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; or

(b) on or after the day on which the
petition on which, or by virtue
of presentation of which, the
debtor becomes a bankrupt is
presented and before the day on
which the debtor becomes a
bankrupt.

is void as against the trustee in the
bankruptcy.

(1A) Sub-section (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

(b) whether or not -

(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.

as the case requires.

(2) Nothing in this section affects -

(a) the rights of a purchaser, payee
or encumbrancer in good faith and
for valuable consideration and in
the ordinary course of business;

(b) the rights of a person making
title in good faith and for
valuable consideration through or
under a creditor of the debtor;
or

(c) a conveyance, transfer, charge,
payment or obligation of the
debtor executed, made or incurred
under or in pursuance of a
maintenance agreement or
maintenance order.

(3) The burden of proving the matters
referred to in sub-section (2) lies upon
the person claiming to have the benefit
of that sub-section.

(4) For the purposes of this section -

(a) a conveyence, transfer, charge,
payment or obligation shall be
deemed to have been executed,
made or incurred in favour of a
creditor if it is executed, made
or incurred in favour of a person
in trust for that creditor;

(b) a payment of tax or municipal or
other local rates under an Act or
State Act or Ordinance of a
Territory of the Commonwealth
shall be deemed to be a payment
made for valuable consideration
and in the ordinary course of
business; and

(c) a creditor shall be deemed not to
be a purchaser, payee or
encumbrancer in good faith if the
conveyance, transfer, charge,
payment or obligation was
executed, made or incurred under
such circumstances as to lead to
the inference that the creditor
knew, or had reason to suspect -

(i) that the debtor was unable
to pay his debts as they
became due from his own
money; and

(ii)that the effect of the
conveyance, transfer,
charge, payment or
obligation would be to give
him a preference, priority
or advantage over other
creditors.

(4A) A reference in this section (other
than sub-section (5)) to a creditor of
the debtor shall be read as including a
reference to a person who would be a
creditor of the debtor in relation to a
contract, agreement, transaction or other
dealing if the contract, agreement,
transaction or other dealing were not, in
whole or in part, void or unenforceable,
or had not been voided in whole or in
part, by or under a law of the
Commonwealth or of a State or Territory
of the Commonwealth.

(5) Where -

(a) a conveyance, transfer or charge
is set aside, or a payment is
recovered, by the trustee in a
bankruptcy in consequence of the
operation of this section; or

(b) an obligation is void as against
the trustee in a bankruptcy by
force of this section,

the creditor in whose favour the
conveyance, transfer, charge, payment or
obligation was executed, made or incurred
may prove in the bankruptcy as if the
conveyance, transfer, charge, payment or
obligation had not been executed, made or
incurred.

(6) This section extends to
conveyances, transfers, charges, payments
and obligations executed, made or
incurred before the commencement of this
Act.

(7) In this section, 'tax' includes any
amount payable as provisional tax and
contribution, or as provisional tax, in
accordance with Division 3 of Part VI of
the Income Tax Assessment Act 1936."

3. Each of the agreements was for bailment to the company of the chattels to which the agreement related for a term of 48 months. Each also contemplated the possibility of renewal or extension at the end of that term, and neither agreement provided for the acquisition by the company of any larger interest in any of the chattels than the interest of a bailee. Each agreement included the following clause: "Nothing contained herein shall confer on the Lessee any right or property or interest in or to the goods and the Lessee shall be a bailee thereof only." On the other hand, each agreement included an undertaking by the company to indemnify Lease Industrial Finance Limited against deficiency of value of the chattels, at the expiration of the period of bailment, below a specified amount, in the agreement called "the residual value"; and counsel for the parties spoke of a general understanding that Lease Industrial Finance Limited and other money lenders who "lease" chattels habitually yield ownership of the bailed chattels to the bailee if "the residual value" of the chattels is paid by the bailee to the money lender at the expiration of the period of bailment. And Phillip John Pennington, who was at relevant times, and had for eleven years been, the manager of the Canberra branch of Lease Industrial Finance Limited, gave evidence, which I accept, that his employer habitually yielded ownership to bailees of chattels "leased" by his employer upon payment of an amount for which the evidence provided the name "pay-out figure".

4. There was no direct evidence of the principles or rules in accordance with which Lease Industrial Finance Limited had calculated the two pay-out figures which are the concern of this proceeding, or calculated pay-out figures generally. Mr. Pennington gave evidence that he was not able to state those rules, that pay-out figures were supplied on request to officers of the Canberra branch by "head office" in Brisbane, and that those figures were in Mr. Pennington's belief calculated by the use of a computer in the head office. Mr. Pennington said that records kept in the Canberra branch enabled officers of that branch to form a rough estimate of the pay-out figure at any particular time during the course of a lease. I was informed by counsel for the liquidator, without objection by counsel for Lease Industrial Finance Limited, that in the case of the earlier of the two "lease" agreements the pay-out figure was (if certain relatively small amounts apparently included as penalties were ignored) that which would be produced by aggregating the present value (at an interest rate of 21 per centum per annum) of each of the monthly instalments not then accrued due of the "rent" payable under the agreement during the term of 48 months and the present value (at the same interest rate) of the amount specified in that agreement as "the residual value" of the chattels. Counsel said that a similar calculation, but at an interest rate of 22 per centum per annum, produced the pay-out figure specified in respect of the later agreement.

5. As has been observed, nothing in either agreement contemplates acquisition by the bailee of ownership of the bailed chattels. No calculation of an amount in consideration of which ownership might be acquired is, therefore, to be found in either agreement. But Clause 6 of each agreement makes the following provision:

"If during the Lease the Lessor ascertains
that the Lessee has made a false statement in
or in relation to this Agreement or that the
Lessee has been or is hereafter convicted of
an indictable offence or sentenced to
imprisonment or if:-

(a) The Lessee shall make default in payment
on the due date of any rent instalment
from time to time payable hereunder and
such default shall continue for fourteen
days; or

(b) The Lessee shall commit an act of
bankruptcy or (being a company) shall
have a winding up petition presented
against it or a resolution for its
winding up passed or proposed or it shall
have an official manager or a receiver or
receiver and manager appointed in
relation to it or in relation to any part
of its assets or income; or

(c) Execution or distress be issued or levied
against the Lessee or his goods or land
or (the Lessee being a company) an act or
event referred to in Section 222(1)(a) to
(h) (both inclusive) of the Companies Act
of the State or Territory in which this
of the State or Territory in which this
Instrument is signed by the Lessee shall
happen in relation to the Lessee; or

(d) Any insurance proposal made by the Lessee
in respect of the goods be declined or
any insurance cover thereon be cancelled;
or

(e) The Lessee shall fail within fourteen
days after written notice from the Lessor
to make good any default by him in
payment of moneys (other than rent
instalments) from time to time payable by
him under; or

(f) The Lessee shall commit any breach of any
of sub-clauses (a) (b) (c) (d) (e) (f) or
(g) of Clause 3 or sub-clauses (a) (b)
(c) (d) (e) (h) (i) (m) or (o) of Clause
4; or

(g) The Lessee shall do or cause or permit or
suffer any other act or thing likely to
endanger the safety, condition or safe
keeping of the goods;

then there shall forthwith become due and
payable by the Lessee to the Lessor the total
(hereinafter called 'the recoverable amount')
of:-

(i) any rent instalments and any other moneys
then accrued due, but not paid, and

(ii)the aggregate of the rent instalments not
then accrued due, rebated to reflect
their then value ascertained by applying
an interest rate of 12% per annum to each
such instalment over the period by which
the date for payment thereof is by virtue
of this Clause brought forward (together
with an amount equal to any stamp duty
payable in respect of such rebated
total),

and the Lessor may at any time (unless in the
meantime:-

(a) The Lessee shall have paid to the Lessor

the recoverable amount;
(b) the safety condition safe keeping or
insurance of or over the goods is not in
jeopardy or likely to be so, and

(c) also the Lessee shall have paid to the
Lessor an amount equal to the residual
value stated in the Schedule which
security amount is to be held by the
Lessor as security for the indemnities of
the Lessee contained in the following
Clauses 7 and 8 hereof)

retake possession of the goods PROVIDED
HOWEVER that the Lessor may from time to time
and to such extent and on such conditions as
it thinks fit elect to waive its rights under
this Clause, but no such waiver shall affect
its rights under this Clause in respect of any
further or continuing or recurring breach or
event and PROVIDED FURTHER that no moneys
shall be payable by the Lessee under this
Clause when the Lessor has been paid the
measure of its loss under Clause 4 (f)
hereof."

Save for the interest rate, the calculation of the pay-out figure specified in respect of each agreement seems to have proceeded in accordance with the mode of calculation, ordained by clause 6, of the amount upon payment of which a lessor must refrain, notwithstanding the occurrence of one of the events specified in the paragraphs first lettered (a) to (g) therein, from retaking possession of the goods.

6. There was no evidence of an express agreement that ownership of the chattels should pass, on payment of the amount of the pay-out figure, to the company, but I am persuaded that such was the agreement which by their conduct the company and Lease Industrial Finance Limited made in March 1983.

7. Mr. Golombek of counsel for Lease Industrial Finance Limited submitted that s.451 could not apply to either part of the payment of $60,320.35 to his client, because his client would not have been, at the time the payment was made, "a creditor", within the meaning of that expression in s.122(1) of the Bankruptcy Act 1966, in the event that the company by which the payment was made had been a natural person. No instalment of "rent", nor any other amount, was due and payable under either agreement at the time when the payment was made to Lease Industrial Finance Limited, it was said.

8. Each agreement stipulated for lease of the specified goods for "the whole of the period" of 48 months "at an entire rent equal to the total of the instalments provided in the Schedule, subject however to adjustment of such rent as provided in clause 6". In the schedule of each agreement an amount is stated opposite the phrase "rent instalments" and is followed by the words "per month payable in advance, the first payment to be made on" a specified date which was a few days after the date of the agreement "and the subsequent payments on the same date in each succeeding month".

9. I respectfully follow the decision of Buckley J. In re Blackpool Motor Company Ltd. (1901) 1 Ch 77 to hold that the word "creditor" in a section such as s.122(1) of the Bankruptcy Act 1966 is not confined in reference to a person who might at the time of the transaction to which the sub-section refers sue the debtor for a debt then due and payable, but comprehends also such a person as, having regard to s.82 of that Act, may prove for his debt if bankruptcy supervenes. Such a person Lease Industrial Finance Limited would have been at the time it received the payment of $60,320.35, in my opinion, if the company had been a natural person. In respect of each of the lease agreements the aggregate of the instalments of the "entire rent" which had not accrued due and payable at the time Lease Industrial Finance Limited received the payment of $60,320.35, "rebated" in accordance with the provisions of clause 6(ii) of the lease agreement, would have constituted a debt provable in any bankruptcy which might have supervened before any of those instalments fell due, if the company had been a natural person. The liability to make payment of an instalment in the future, or in certain events to make payment in accordance with the provisions of clause 6(ii) of the lease agreement, would have been from the time the lease agreement was made a liability provable in the bankruptcy of the lessee, if the lessee had been a natural person.

10. In February 1983 a demand of the kind for which s.364(2)(a) of the Companies Act 1981 makes provision had been served on the company and the company failed to pay the sum of which payment was demanded or to secure or compound for it. Accordingly the company was after the expiration of three weeks after service of the demand deemed, for the purposes of s.364(1), to be unable to pay its debts. The reference in clause 6(c) of each lease agreement to "Companies Act" is plainly a reference to legislation which preceded the 1981 Act. But it might be a permissible construction of that clause to read it as extending to an event referred to in s.364(1)(e) of the Companies Act 1981 - "the company is unable to pay its debts". No officer or servant of Lease Industrial Finance Limited was shown to have had any knowledge of the service of the demand until after payment of the $60,320.35 had been received by it. It was not submitted on behalf of the liquidator that upon, and in consequence merely of, the failure of the company to satisfy the demand, what is called in clause 6 "the recoverable amount" had become due and payable. In those circumstances I do not base my conclusion that Lease Industrial Finance Limited would have fallen within the meaning of the word "creditor" in s. 122(1) of the Bankruptcy Act 1966 upon any consequence of the service of the demand to which I have referred.

11. It was further submitted by Mr. Golombek that, if his client were a creditor, no part of the payment made by the company to that creditor had the effect of giving the creditor a preference or a priority or an advantage over other creditors. Founding himself upon the reasoning of the members of the Court of Appeal of the Supreme Court of New South Wales in Expo International Pty. Ltd. (in liquidation) v. Torma (1985) 3 ACLC. 748 and upon the High Court authorities cited in that case, Mr. Golombek submitted that Lease Industrial Finance Limited received the payment, not in its character of creditor of the company, nor in respect of any indebtedness which arose from either of the lease agreements, but in performance of an agreement for sale of the chattels of which the company was bailee under the lease agreements. Each of the two components of the payment was simply the price of goods bargained and sold by Lease Industrial Finance Limited, according to Mr. Golombek's submission, and was received by Lease Industrial Finance Limited in its character of vendor, not as creditor. The agreement for assurance of ownership of the chattels in consideration of payment of the "pay-out figure" was simply a bargain and sale of the chattels, it was submitted.

12. It was not suggested, nor is there any basis for concluding, that there should be payable by the company, in addition to the pay-out figures, any of the instalments of rent as and when they should fall due: the agreements for the purposes of which the pay-out figures were calculated plainly substituted payment of those amounts for performance by the company of any previous obligation. It was in my opinion a term of each of those agreements that upon and in consideration of payment of the pay-out figure the parties should be discharged from any obligation further to perform the relevant lease agreement. The debts which would have fallen due for payment as "rent instalments" under those lease agreements were discharged in consideration of the payment of the pay-out figures. And that conclusion is not in my opinion inconsistent with a conclusion that in each case there was a bargain and sale of the chattels which had been the subject of the lease agreement and that the payment of the pay-out figure afforded the consideration for that sale as well as for the discharge of the company's indebtedness under the lease agreement. In respect of that discharge the payment was in my opinion received by Lease Industrial Finance Limited in its character of creditor. (Cf. Burns v. Stapleton [1959] HCA 34; (1959) 102 CLR 97.)

13. Mr. Golombek further submitted that, if Lease Industrial Finance Limited received the payments in its character of creditor, in discharge of the indebtedness of the company to it, the indebtedness was in reality secured, and that the transactions inpugned by the applicant liquidator, being designed to free the chattels of the encumbrance, should not be regarded as giving the encumbrancer a preference, priority or advantage over other creditors.

14. It is not easy to conceive of Lease Industrial Finance Limited as, in the words of the definition of "secured creditor in s. 5 of the Bankruptcy Act 1966, "a person holding a mortgage, charge or lien on property of" the company. But if Lease Industrial Finance Limited were regarded as a secured creditor in respect of each lease agreement, the amount of the debt secured, and the amount paid in discharge of the debt, greatly exceeded the value of the security, so that the payment in my opinion had the effect of giving Lease Industrial Finance Limited a preference and an advantage over other creditors to the extent to which the payment exceeded the value of what Mr. Golombek's submission constituted the security, namely the rights of Lease Industrial Finance Limited in the chattels the subjects of that lease agreement.

15. There was evidence that the chattels the subject of the first lease agreement had been purchased in or about May 1982 for prices aggregating $26,694.00, and evidence that the chattels the subject of the second lease agreement had been purchased in or about June 1982 for prices aggregating $38,048.49. The evidence affords only a brief description of the chattels. They consisted of an air compressor, a machine tracer, spray painting plant, a crane, hoists, and equipment for use in association with those items of plant. When the order for winding up of the company was made they were in a factory which was held by the company on lease and the freehold of which was held by the company's directors. Some of the chattels were so affixed to the building that removal was uneconomic. The directors were invited by the liquidator to make some payment to the company in consideration of their retention of those fixed chattels, but they have not done so. The other chattels were sold by the liquidator, either on 29 June 1983 at an auction sale or, shortly thereafter, by tender. The chattels had been identified by the directors to the liquidator as the unencumbered property of the company, and he had not found reason to doubt what the directors told him until after the sales of the chattels had been completed. The aggregate of the prices paid for chattels the subject of the first lease agreement which were sold by the liquidator was $6,350, and for chattels the subject of the second lease agreement $11,870. There was no evidence or submission that any of those sales was at an undervalue. The exiguous evidence suggested that the value of what was affixed to the factory and not sold was substantially less than the value of what was sold. Accordingly I find that in the case of each lease agreement the value of the chattels the subject of that agreement was, at the time when the company paid Lease Industrial Finance Limited $24,744.33, in the case of the first agreement, and $35,576.02, in the case of the second agreement, substantially less than half the amount paid. And I hold that each payment was one which, if it had been made by a natural person, would have answered the description in s. 122(1) of the Bankruptcy Act: "made. . . . . . by a person. . . . . . in favour of a creditor, having the effect of giving that creditor a preference, priority or advantage over other creditors."

16. The demand of the kind for which s. 364(2)(a) of the Companies Act 1981 makes provision, to which reference has been made, was served on the company on 5 February 1983. The debt for payment of which demand was made was a judgment debt of more than $59,000. The company paid a little over $12,000 in reduction of the debt shortly after 18 February 1983, but no more. On 31 March 1983 the judgment creditor by which the demand had been made presented the petition on which the winding up order made on 13 May was based. The monthly instalment, $772.68, of the "rent" under the first lease agreement was payable on the 15th day of each month. The date for payment of the monthly instalment, $1,128.00, of the "rent" under the second lease agreement was the 28th day of the month. The instalments in respect of both agreements due in November and December 1982 and January 1983 were not paid until the beginning of February 1983. The February 1983 instalment in respect of the first agreement was not paid until 16 March 1983 and the March instalment was unpaid on 29 March 1983, when the payment of $61,478.21 was made. My conclusion is that when the impugned payment was made by the company it was unable to pay its debts as they became due from its own money.

17. It was submitted by Mr. Golombek that, if the payment had been made by a natural person, s. 122(2)(a) of the Bankruptcy Act 1966 would have been satisfied, so that the payment would not have been void against the trustee in that person's bankruptcy. It was not submitted by Mr. Jacobson, of counsel for the applicant liquidator, that there had not been valuable consideration for the payment to Lease Industrial Finance Limited, but he did deny that the payee had received the payment "in good faith. . . . . . and in the ordinary course of business", within the meaning of those expressions in s. 122(2)(a).

18. Phillip John Pennington was the manager of the Canberra branch of Lease Industrial Finance Limited from 1972 until after the conclusion of that finance company's dealings with S. & N. Nominees Pty. Ltd.. He knew the two directors of the latter company, Jozsef Szell and Malcolm Anglo Negri, who had guaranteed the company's due performance of each of the lease agreements and who signed the cheque by means of which $61,478.21 was paid to Lease Industrial Finance on 29 March 1983. The cheque was dated 17 March 1983 and had been drawn by Citra Constructions Limited, a company engaged in construction work in the Australian Capital Territory, and was payable to S. & N. Nominees Pty. Ltd.. The directors' signatures were on the back of the cheque, authenticating a direction thereon to pay Lease Industrial Finance Limited. It would be natural that Mr. Pennington should infer that the cheque had been given to the company named as payee in the ordinary course of business and in payment for steel structures sold by the payee to the drawer, and I find that Mr. Pennington did draw that inference.

19. There was no express evidence that the "pay-out figure" of $60,320.35, or any other pay-out figure, had been specified to any officer or servant of S. & N. Nominees Pty. Ltd. before the cheque was delivered to Lease Industrial Finance Limited. There was evidence to support an inference that that pay-out figure had not been calculated until 31 March, 1983. But I am persuaded, on the whole of the evidence, to infer that a pay-out figure of that amount had been specified by a servant of Lease Industrial Finance Limited to an officer or servant of S. & N. Nominees Pty. Ltd. shortly before the cheque was delivered to the former company.

20. Mr. Pennington gave evidence that Mr. Negri handed the cheque to Pennington's secretary in Lease Industrial Finance Limited's Canberra office on 28 or 29 March 1983. Mr. Pennington swore that he "knew it was there". I am persuaded that he knew also, before the cheque was lodged with Lease Industrial Finance Limited's bank for collection, that it was drawn, not by the company, but by Citra Constructions Ltd. . No evidence was adduced of any enquiry by Mr. Pennington or by any other person on behalf of Lease Industrial Finance Limited as to why the company did not give its own cheque in payment of the "pay-out figure", notwithstanding that the endorsed cheque was for an amount exceeding that figure by more than $1,000 and that it was dated more than ten days earlier than the date on which it was offered to Lease Industrial Finance Limited. Mr. Pennington gave evidence that he had been made aware of the defaults in payments of instalments due in the November, the December and the January preceding March 1983, to which reference has been made, but he gave no evidence of having made enquiry to discover the cause of the defaults, nor any evidence as to what he believed the cause to have been. Upon a consideration of those circumstances I should fail, it was submitted by Mr. Jacobson, of persuasion that the cheque was received in good faith and in the ordinary course of business.

21. Mr. Pennington gave evidence that it was commonplace for the lessee of chattels from Lease Industrial Finance Limited to "pay-out" the lease during its currency. I accept that evidence and conclude that the paying out of these leases was not in itself out of the ordinary course of business. But the use of a cheque payable to the company in a sum more than $1,000 greater than the pay-out figure was, unless explained as a natural solution of some unusual exigency, out of the ordinary course of business. Why should a trader use such a cheque, rather than the company's cheque, in settlement of a transaction which might have been as conveniently settled the next day or the day after that? (The "pay-out figure" was constant for the whole of April 1983.) The use of such a cheque was so unusual as to call for explanation by the company. But, according to the evidence of Mr.Pennington, no explanation was sought, or given. Those are circumstances which lead me to infer that Mr. Pennington had reason to suspect that the cheque had not been banked by the payee, S. & N. Nominees Pty. Ltd., because the payee's directors expected the payee's bank to apply the proceeds of the cheque in discharge of liabilities which they preferred that the payee not discharge by that means. Mr. Pennington knew, as I infer, that the due performance of the lease agreements was guaranteed by directors of the payee company, and that the company had recently been in default in payment of rent instalments. When those circumstances are taken into consideration with the circumstances to which I have previously referred, I am persuaded that the payment to Lease Industrial Finance Limited of $60,320.23 was made under such circumstances as to lead to the inference that Mr. Pennington had reason to suspect that the company was unable to pay its debts as they became due from its own money. Kitto J. has insisted, in Queensland Bacon Pty. Ltd. v. Rees [1966] HCA 21; (1966) 115 CLR 266 at 303, that s. 122(4)(c) of the Bankruptcy Act 1966 requires "more than a reason to consider or look into the possibility" that the person making a payment of the kind which s. 122(1) describes is unable to pay his debts as they become due from his own money: there must be "something which in all the circumstances would create in the mind of a reasonable person in the position of the payee an actual apprehension or fear that the situation of the payer is in actual fact that which the sub-section describes". The circumstances which attended delivery of the cheque for $61,478.21 to Lease Industrial Finance Limited gave Mr. Pennington reason to consider, and to look into, the possibility of the company's insolvency, as I think, and reason to commence his enquiry by asking why the company did not offer its own cheque. That question not having been asked, "the mind of a reasonable person in the position of the payee", which is to be considered in application of the test proposed by Kitto J., is the mind of a person who has eschewed enquiry. Such a mind would, as I find, have been oppressed by an actual apprehension that the payer was unable to pay its debts as they became due from its own money.

22. Knowing that the chattels which were the subjects of the lease agreements had been purchased in about May and June 1982 for prices aggregating $64,742.49, Mr. Pennington had good reason to suspect that in March 1983 the market value of the chattels, having been in use for the greater part of a year and being then installed in the company's premises, was substantially less than $60,320.23, and that therefore the effect of the payment of that sum would be to give Lease Industrial Finance Limited an advantage over other creditors.

23. What Mr. Pennington had reason to suspect is, in the circumstances of this case, what Lease Industrial Finance Limited had reason to suspect.

24. Being persuaded that the condition specified in s. 122(4)(c) is fulfilled, there is no need, in my opinion, to reach a conclusion as to what Mr. Pennington's beliefs or suspicions actually were, nor as to what onus of proof may apply in respect of s. 122(4)(c). (See S. Richards & Co. Ltd. v. Lloyd [1933] HCA 26; (1933) 49 CLR 49; Burns v. McFarlane [1940] HCA 25; (1940) 64 CLR 108, Rees v. Bank of New South Wales [1964] HCA 47; (1964) 111 CLR 210; Queensland Bacon Pty. Ltd. v. Rees, supra; Re Weiss (1970) ALR 654; Re Bird [1979] FCA 97; (1979) 39 FLR 281; Re Castellucci (Fisher J.; unreported; judgment 11 March 1983); Re Cooke (Smithers J.; unreported; judgment 18 February 1985); Re Cummins (Spender J.; unreported; judgment 3 July 1985).) Lest I be mistaken in the first of those two opinions, I state my finding that I am persuaded that Mr. Pennington in fact suspected, when he decided that Lease Industrial Finance Limited would accept the cheque for $61,478.21, that S. & N. Nominees Pty. Ltd. was unable to pay its debts as they became due from its own money, and believed that the effect of the proposed payment would be to give Lease Industrial Finance Limited an advantage over other creditors.

25. Mr. Golombek submitted that the sale by the liquidator of chattels the subjects of the agreements constituted conduct representing ownership of those chattels to be in the company in liquidation and therefore, it was submitted, representing the transaction in which payment was made of $60,320.35 to Lease Industrial Finance Limited as a sale of those chattels to the company. The company and the liquidator were estopped, according to the submission, from now inpugning the transaction. It is sufficient to say that there was no evidence of the representee's having acted upon the suggested representation.

26. It is, I think, plain that any curial order for payment of money to the company in consequence of the conclusion that the payment of $60,320.35 was void as against the applicant liquidator must make allowance in favour of Lease Industrial Finance Limited in respect of the value, at the time the latter payment was made, of the chattels sold by the liquidator. The other chattels which were the subjects of the agreements and which were left in the factory of which the company has yielded possession to its directors must also be either restored to Lease Industrial Finance Limited or be brought into account in some other way in the framing of any order. The question as to what orders should be made was not the subject of any detailed submission during the hearing of the application. I will receive submissions, in the first instance in writing, as to what orders ought to be made. In that regard counsel for both parties are invited to give consideration to the question whether the present proceeding is one in which any order should be made, having regard to the observations of Blackburn C.J. in Re Security Provident Fund Ltd. (in liq.); Rodger v. Gourlay (1984) 9 ACLR 56.

27. The liquidator's application is by summons claiming "the following relief:

1. A declaration that the payment of
$60,575.25 made on 5 April, 1983 by
the abovenamed company to Lease
Industrial Finance Limited
constituted a preference by the said
S & N (Nominees) Pty. Limited (in
liquidation) and is void
accordingly.

2. An Order that the said Lease
Industrial Finance Limited do repay
to the Applicant as such liquidator,
the said sum of $60,575.25.

3. An Order that the said Lease
Industrial Finance Limited pay the
costs of and incidental to this
application.

4. Such further or other order or
orders as shall to this Honourable
Court seem meet."

28. I was informed that the jurisdiction invoked was that conferred by s. 413 of the Companies Act 1981. But that section, falling as it does in Subdivision D of Division 3 of Part XII of that Act, applies to voluntary winding up. That slip was unremarked by counsel and by me during the hearing. Section 379(3) which authorises application to the Court by the liquidator in a winding up by the Court "for directions in relation to any particular matter arising under the winding up", was regarded by Blackburn C.J. in Re Security Provident Fund Ltd. (in liq.), supra as not enabling "the court to make binding orders in the nature of judgments". A Full Court of the Supreme Court of Victoria was disposed to take the same view, in Murdoch and Others v. Crawford and Anor. (1986) VR 97. Neither the Full Court nor Blackburn C.J. referred to Re Reid Murray Holdings Ltd. (in liq.) (1969) VR 315, or to Re Gapes Interstate Transport Pty. Ltd. and the Companies Act (1970) 92 WN (NSW) 169, in which the jurisdiction was affirmed of the Supreme Court of Victoria and of New South Wales respectively to determine questions, concerning payments alleged to be preferential, raised by the liquidator in summary proceedings instituted by motion or summons. (See also In re T.TC (S.A) Pty. Ltd. (in liq.) (1983) 32 SASR 532.)

29. If satisfied that the questions sought by the applicant to be raised for determination ought to be determined in this proceeding, I would propose to make the following declarations: 1.Declare that the payment of $24,744.33 by the company to Lease Industrial Finance Limited in respect of the agreement in writing which is exhibit "A" herein was a payment void as against the applicant by virtue of the operation of section 451 of the Companies Act 1981. 2.Declare that the payment of $35,576.02 by the company to Lease Industrial Finance Limited in respect of the agreement in writing which is exhibit "B" herein was a payment void as against the applicant by virtue of the operation of section 451 of the Companies Act 1981.

30. As I have indicated, further consideration of the terms of further orders will be adjourned until the parties have had an opportunity to make further submissions.

31. The parties are directed to deliver to the Registrar on or before 18 July 1986 such further written submissions as they may be advised to make and any request for further oral hearing of the application.

32. The order I will make today is that further consideration of the application be adjourned to a date to be fixed.