Rex Developments Pty Limited and Companies Act 1981 William James Hamilton v Nzi Capital Corporation Limited [1993] ACTSC 67 (12 July 1993)

SUPREME COURT OF THE ACT

REX DEVELOPMENTS PTY LIMITED AND COMPANIES ACT 1981
WILLIAM JAMES HAMILTON v. NZI CAPITAL CORPORATION LIMITED
No. SC532 of 1987
Number of pages - 4
Personal Property

COURT

IN THE SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY
Master Hogan(1)

CATCHWORDS

Personal property - Choses in action - Book debts - Cheques proceeds of book - Debts distinguished - Property subject of charge over company assets - Book debts excluded from charge - Cheques in payment of debts indorsed to chargor - Cheques subject to charge.

Ferrier v Bottomer [1972] HCA 11; (1971-1972) 126 CLR 597

Companies Act 1981 S.200; S.368(1)

Cheques and Payment Orders Act 1986 Part III

Conveyancing Act 1919 (NSW) S.12 in its application in ACT by

Law of Property (Miscellaneous Provisions) Act 1958 (ACT) S.3

HEARING

CANBERRA, 25:3:1993
12:7:1993

Instructing Solicitors: Minter Ellison Morris Fletcher

Counsel for Defendant: M. Cashion

Instructing Solicitors: Snedden Hall and Gallop

Counsel for the Applicant: R.L. Crowe

ORDER

THE COURT ORDERS THAT:
1. The summons be dismissed.

2. The applicant to pay the respondent's costs.

DECISION

MASTER HOGAN On 25 May 1987 an Order was made in this Court that Rex Developments Pty Limited ("the Company") be wound up, and that William James Hamilton be appointed liquidator.

2. The Summons by which that Order was issued on 8 May 1987, on which date therefore the winding up commenced.

3. By a Summons dated 10 July 1991 in the liquidation, to which NZI Capital Corporation Limited ("NZI Capital") is respondent, the liquidator seeks an order that the proceeds of a number of cheques received by NZI Capital after 8 May 1987 be paid to the liquidator, together with interest.

4. The amounts involved, and the basic facts giving rise to the claim, are not in dispute.

5. On 6 September 1985 NZI Capital and a related company, NZI Finance (UK) Limited ("NZI (UK)"), had agreed to lend certain moneys to the Company, and on that same day the company executed in favour of NZI Capital and NZI (UK), jointly and severally, a fixed and floating charge over the Company's property.

6. Included in the description of the property subject to the fixed charge was, in clause 2.02(a):
"(iv) all book and other debts and other moneys now or in the

future owing to the chargor and the benefit of all rights,
securities, indemnities and guarantees now or in the future held by
the chargor in relation to those moneys."

7. The floating charge was expressed in clause 2.02(b) to be over the balance of the company's present and future property assets and undertaking not listed in clause 2.02(a). By clause 2.03 the floating charge was to be converted into a fixed charge, in respect of all property of the chargor, upon any action being taken by any person to appoint a liquidator of the company.

8. On 30 May 1986 NZI Capital and NZI (UK) released from the charge all book debts owing to the company. The document by which the release was effected is not in evidence, but there is agreement that the description of the property released is accurately set out in the memorandum of release dated 30 May 1986 that was lodged with the Commission. That description was, "All book debts now or in the future owing to the chargor."

9. On 16 April 1987 the Company sold its principal asset, the Rex Hotel in Canberra. The Company then remained indebted to NZI Capital in an amount exceeding $96,000.

10. Between 16 April 1987 and 29 June 1987 the Company received a number of cheques from various debtors of the Company. The directors of the Company did not deposit those cheques to the credit of the Company's bank account. As they received them they endorsed them in favour of the respondent, and forwarded them to the respondent, which appropriated them in reduction of the Company's debt to the respondent. The cheques so dealt with after 8 May 1987 totalled the sum claimed by this Summons.

11. The liquidator alleges that the endorsement and delivery of the cheques to the respondent by the directors of the Company was a disposition of the property of the Company made after the commencement of the winding up, and is therefore void by the operation of S.368(1) of the Companies Act 1981.

12. The respondent's answer to that claim is that upon receipt by the company of the cheques, the cheques became the property of the company which was subject to the charge in favour of the respondent.

13. The liquidator does not dispute that if the cheques were subject to the charge then the respondent was entitled to receive and negotiate them, and is not obliged to refund the proceeds. What counsel for the liquidator argued was that the cheques were proceeds of the book debts, and therefore were excluded from the charge by the terms of the release effected on 30 May 1986. It was put that it would be contrary to the statutory scheme for the fair and proper sharing of the assets of the company among its creditors if the only unencumbered property available for that purpose, namely the book debts, changed their character and became some other sort of property, encumbered by the charge, upon receipt by the Company of the cheques which were the very proceeds of the book debts.

14. The respondent's answer to that proposition was that all that was released from the charge were the book debts themselves, and that the cheques received in payment of the book debts were, upon receipt by the company, property of the company of a different nature from book debts, and therefore immediately subject to the charge.

15. I agree with that proposition. The distinction between book debts and cheques as forms of property is clear. It is made clearer upon consideration of the method by which ownership of each of those two forms of property is transferred.

16. A cheque is a legal chose in action of a particular type. It is an unconditional order to a banker to pay money to the bearer or named payee. If payable to bearer it is transferred simply by delivery. If payable to order it is transferred by endorsement and delivery. The persons involved in the legal relationship constituted by the transfer of the cheque are the banker, the drawer, the payee or bearer, and the transferee. See, for example, Cheques and Payment Orders Act 1986 Part III.

17. A book debt is a different kind of legal chose in action. It may be transferred only by statute, which in the Australian Capital Territory is S.12 of the NSW Conveyancing Act 1919, applied in the Territory by the Law of Property (Miscellaneous Provisions) Act 1958 S.3.

18. If, for example, in order to raise money in mid May 1987, the Company had factored its book debts to some other financier, the transaction would have had to be in writing, and express notice of the transfer to the Company's debtors would have been necessary. That would indeed have been a disposition of the Company's property, which property would not have been subject to the charge, and which would have been made void by S.368.

19. But what in fact happened was that as each cheque was received by the Company it was accepted in satisfaction of the relevant debt. The total balance sheet position of the company did not change. The form in which it held its assets did change. Whereas before it had an asset called a book debt worth $X, now it held a cheque worth the same amount of money. While the asset was a book debt it was excluded from the charge. Once it was a cheque accepted in discharge of the debt the asset was the cheque itself, which was subject to the charge, and the respondent was entitled to receive it and negotiate it.

20. As counsel for the respondent pointed out, the distinction between book debts and negotiable instruments is recognised in the Companies Act 1981 itself.

21. By subs.200(1) the provisions of Pt.IV Div.9 of the Act apply to certain charges listed in that subsection. Para.200(1)(f) refers to a charge on a book debt. Para.200(1)(j) refers to a charge on a negotiable instrument other than a marketable security. And para.200(2)(c) excludes from the operation of those provisions a charge created in relation to a negotiable instrument by certain methods, such as pledge or deposit. Subs.200(4) expressly excludes from the meaning of a book debt in para.200(1)(f) a charge on a negotiable instrument.

22. The fact that the cheques were the proceeds of the book debts does not alter the position. It was the book debts which were excluded from the charge. Just as in Ferrier v Bottomer [1972] HCA 11; (1971-1972) 126 CLR 597, the proceeds of the realization of property outside Queensland, when brought into Queensland, became assets situated in Queensland and therefore came within the terms of the charge being dealt with in that case (see, for example, per Menzies J at 605), by the very terms of the charge and the release in this case all that was excluded from the charge was property described as "book debts", not "book debts or the proceeds thereof" or any other description.

23. The summons is dismissed.

24. I order the applicant to pay the respondent's costs.