Legal database - View: Cases: Re Western Port Holdings Pty Ltd (receivers and managers appointed) (in liq)

Western Port Holdings Pty Ltd v Commissioner of Taxation

(2021) 358 FLR 45

The impact of this case on ATO policy is discussed in Decision Impact Statement: In the matter of Western Port Holdings Pty Ltd (receivers and managers appointed) (in liq) (Published 26 August 2021).

(Judgment by: Rees J)

Richard Albarran and David Ross in their capacity as joint and several liquidators of Western Port Holdings Pty Ltd (receivers and managers appointed) (in liq) (First Plaintiff)
Western Port Holdings Pty Ltd (receivers and managers appointed) (in liq) (Second Plaintiff)
Commissioner of Taxation (Defendant)

Court:

Supreme Court of New South Wales

Judge:
Rees J

Legislative References:
Bankruptcy Act 1966 - The Act
Building and Construction Industry Security of Payment Act 1999 (NSW) - UNK
Corporations Act 2001 - 439A; 444G; 445HA; 588FA; 588FE; 588FF
Corporate Law Reform Act 1992 - The Act

Case References:
Airservices Australia v Ferrier - [1996] HCA 54; (1996) 185 CLR 483
Analogy Pty Ltd (Receiver and Manager Appointed) (in liq) v Bell Basics Industries Ltd - unreported BC9502636
BCI Finances Pty Ltd (In Liq) v Binetter - [2018] FCAFC 189; (2018) 132 ACSR 1
BCI Finances Pty Ltd (In Liq) v Binetter (No 4) - [2016] FCA 1351; (2016) 117 ACSR 18
Beveridge v Whitton - [2001] NSWCA 6
Burness v Supaproducts Pty Ltd - [2009] FCA 893; (2009) 74 ACSR 1
CAL No 14 Pty Ltd v Motor Accidents Insurance Board - (2009) 239 CLR 390; [2009] HCA 47
Cant v Mad Brothers Earthmoving Pty Ltd (in liq) - [2020] VSCA 198
Commissioner of Taxation v Kassem - (2012) 205 FCR 156; [2012] FCAFC 124
Commissioner of Taxation v Yeo as Liquidator of Ready Kit Cabinets Pty Ltd (in liq) - [2020] FCAFC 199
Farah Constructions Pty Ltd v Say-dee Pty Ltd - (2007) 230 CLR 89; [2007] HCA 22
Hosking v Extend N Build Pty Ltd - [2018] NSWCA 149; (2018) 128 ACSR 555
International Air Transport Association v Ansett Australian Holdings Ltd - (2008) 234 CLR 151; [2008] HCA 3
Mann v Sangria Pty Ltd - [2001] NSWSC 172; (2001) 38 ACSR 307
McKern v Minister Administering the Mining Act 1978 (WA) - (2010) 28 VR 1; [2010] VSCA 140
N & M Martin Holdings Pty Ltd v Commissioner of Taxation - [2020] FCA 1186
R v Commonwealth Conciliation and Arbitration Commission, Ex parte Association of Professional Engineers of Australia - (1959) 107 CLR 208
Re Discovery Books Pty Ltd - (1973) 20 FLR 470
Re Eliana Construction and Developing Group Pty Ltd (No 2) - [2019] VSC 546
Re Emanuel (No 14) Pty Ltd (in liq) - (1997) 24 ACSR 292
Re Evolvebuilt Pty Ltd - [2017] NSWSC 901
Re Ready Kit Cabinets Pty Ltd (in liq) - [2020] FCA 632
Sands & McDougall Wholesale Pty Ltd v Commissioner of Taxation (in liq) - [1999] 1 VR 489; [1998] VSCA 76
Sheldrake v Paltoglou - [2006] QCA 52
VR Dye & Co v Peninsula Hotels Pty Ltd (in liq) - [1999] 3 VR 201; [1999] VSCA 60
Walsh (as liq of Thompson Land Ltd) v Terranova Pty Ltd - (1994) 14 ACSR 432

Other References:
Hamilton, "Conflicting Intermediate Appellate Courts Decisions: Voidable Preferences, Third-Party Payments and the Relevance of Double-Entry Book-Keeping" (2020) 20 Insolvency Law Bulletin 207
Keay, "An Analysis of Unfair Preferences under the New Avoidance Regime" (1996) 24 Australian Business Law Review 39

Hearing date: 4, 6 and 7 August 2020; last submissions received 18 December 2020
Judgment date: 12 March 2021

Sydney
File reference: 2018/115544

Judgment by:
Rees J

ORDER

Creditor ordered to repay $2m in voidable transactions to liquidator, with costs.

JUDGMENT

1 HER HONOUR: This is an application by the liquidators of Western Port Holdings Pty Ltd (receivers and managers appointed) (in liquidation), Richard Albarran and David Ross, to recover some $2 million in voidable transactions under sections 588FA, 588FE and 588FF of the Corporations Act 2001 (Cth). The moneys were paid to the Commissioner of Taxation (ATO) in payment of Western Port Holdings' burgeoning tax debts, whilst the company was the subject of a deed of company arrangement (DOCA).

2 In total, 37 payments were made over an 18 month period, of which 26 payments were made by the company directly to the ATO (direct payments) and 11 payments were made by a third party to the ATO (third party payments). Two issues are in dispute:

(a): whether the third party payments were "receiv[ed] from the company" within the meaning of section 588FA(1)(b) of the Corporations Act, as recently considered in Cant v Mad Brothers Earthmoving Pty Ltd (in liq) [2020] VSCA 198; and
(b): whether the payments - both direct and third party payments - were made "by, or under the authority of the administrator of the deed" within the meaning of section 588FE(2B)(d)(i) of the Corporations Act, as recently considered in Commissioner of Taxation v Yeo as Liquidator of Ready Kit Cabinets Pty Ltd (in liq) [2020] FCAFC 199.

3 The parties made detailed written and oral submissions, including in respect of Cant v Mad Brothers, which was handed down mid-hearing. After the hearing, the liquidators sent an unsolicited aide memoir to my Chambers to which the ATO, understandably, objected and I have not considered. Ready Kit Cabinets was handed down after the hearing and the parties provided further submissions. Whilst the ATO's submissions - to some extent at least - went beyond the leave granted to make supplementary submissions, to which the liquidators understandably objected, the liquidators were able to, and did, respond and thus I have considered these additional submissions. The parties made several submissions which are not reproduced in this judgment but I nonetheless have considered them.

4 Before turning to the detailed facts, it is timely to review the relevant provisions of the Corporations Act in light of recent appellate authority.

"RECEIVED FROM" THE COMPANY

5 Section 588FA(1) of the Corporations Act provides: (emphasis added)

588FA Unfair preferences

(1) A transaction is an unfair preference given by a company to a creditor of the company if, and only if:

(a)
the company and the creditor are parties to the transaction (even if someone else is also a party); and

(b)
the transaction results in the creditor receiving from the company, in respect of an unsecured debt that the company owes to the creditor, more than the creditor would receive from the company in respect of the debt if the transaction were set aside and the creditor were to prove for the debt in a winding up of the company; ...

6 There was generally no dispute in this case that section 588FA(1)(a) was satisfied, including in respect of the payments made by third parties. (The ATO specifically disputed whether a third party payment funded by a loan from a family member, Ian Duthie, comprised a "transaction", which I have considered at [173]).

7 The problem arose in respect of section 588FA(1)(b), being whether the third party payments resulted in the ATO "receiving from the company" more than the ATO would receive if it had to prove in the winding up. In Cant v Mad Brothers, the Court of Appeal of the Supreme Court of Victoria recently considered what is meant by this phrase and concluded at [120]:

...

(c)
The words 'from the company' in s 588FA(1)(b) have the effect of retaining the requirement under the previous law that the preference be received from the company's own money, meaning money or assets to which the company is entitled.

(d)
It is necessary, in order for a preference to be 'from the company' that the receipt of it by the creditor has the effect of diminishing the assets of the company available to creditors.

(e)
On the other hand, a payment by a third party which does not have the effect of diminishing the assets of the company available to creditors is not a payment received 'from the company' and is therefore not an unfair preference.

8 The liquidators submitted that Cant v Mad Brothers is inconsistent with Hosking v Extend N Build Pty Ltd [2018] NSWCA 149; (2018) 128 ACSR 555, plainly wrong and should not be followed. Also of interest is how Cant v Mad Brothers stands with the decision of the Full Court of the Federal Court in Commissioner of Taxation v Kassem (2012) 205 FCR 156; [2012] FCAFC 124. As recently observed, the differences between these appellate decisions "will create difficulties for any primary court Judge who is in future required to consider whether a payment of a debtor's creditor by a third party constitutes a preference under s 588FA": Hamilton, "Conflicting Intermediate Appellate Courts Decisions: Voidable Preferences, Third-Party Payments and the Relevance of Double-Entry Book-Keeping" (2020) 20 Insolvency Law Bulletin 207 at 211. In light of the liquidators' submission, it is necessary to review the case law which, in any event, illustrates factual scenarios in which an unsecured creditor has been found to have received payment "from the company", and where it has not.

9 Section 588FA commenced on 23 June 1993 and the first appellate consideration of the requirements of section 588FA(1)(b) was by the Full Court of the Federal Court of Australia in Re Emanuel (No 14) Pty Ltd (in liq) (1997) 24 ACSR 292, where O'Loughlin, Branson and Finn JJ immediately observed the differences between section 588FA as enacted by the Corporate Law Reform Act 1992 (Cth) and its legislative predecessors, "bringing to an end the prior legislative practice of importing into the Corporations Law and its predecessors those provisions of the Bankruptcy Act 1966 (Cth) that enabled a trustee in bankruptcy, hence a liquidator, to attack certain preferential and other transactions ...": at 294. Whilst their Honours noted that decisions concerning the Bankruptcy Act would often provide useful guidance on interpretation of aspects of Part 5.7B, "Care, though, will need to be taken to ensure that proper account is taken of the significant textual differences between the old and the new regime": at 294.

10 In Re Emanuel, the company obtained finance to build a road and engaged Blacklaw to build it. Blacklaw issued progress claims and then a statutory demand. The company was also in default with its financier; litigation ensued but was settled upon the terms of a deed. Under the deed, the company agreed to transfer various properties to the financier; the financier agreed to pay various amounts to the company and also "to pay, at the direction of the Emanuel Group, to Blacklaw ... the sum of $322,313.54 for work performed for the Emanuel Group in relation to the construction of the ... Road ... ." The financier paid the money to Blacklaw. The company went into liquidation and the liquidators succeeded in recovering the funds from Blacklaw as an unfair preference.

11 The Full Court held that, notwithstanding that the financier paid the moneys directly to Blacklaw, the transaction resulted in the creditor "receiving from the company" more than it would have if Blacklaw had to prove in the winding up: at 301. Under the deed, the company had a chose in action against the financier, should it fail to pay the moneys to Blacklaw. What Blacklaw received from the company was the enjoyment of the benefit secured to the company by the deed; the benefit took the form of a monetary payment which partially discharged the company's debt: at 302. As Bathurst CJ later observed in Hosking, "Re Emanuel is essentially authority for [an] unsurprising proposition ... a payment to the creditor pursuant to a direction of the debtor company with which a third party is contractually bound to comply is a payment 'from' the debtor company for the purpose of s 588FA(1)(b) of the Act": at [31].

12 A different approach was taken by the Court of Appeal of the Supreme Court of Victoria in VR Dye & Co v Peninsula Hotels Pty Ltd (in liq) [1999] 3 VR 201; [1999] VSCA 60, where the wording of section 588FA(1) was the subject of some criticism (per Ormiston JA at 211). Although the provision was differently expressed to its statutory predecessors, his Honour considered it was not intended to make any significantly different provision for identifying an unfair preference except in a few minor respects: at 209. The "doctrine of ultimate effect" which applied under section 122 of the Bankruptcy Act continued to apply, a conclusion said to be supported by Re Emanuel and the Court of Appeal in Sands & McDougall Wholesale Pty Ltd v Commissioner of Taxation (in liq) [1999] 1 VR 489; [1998] VSCA 76: at 213-5 per Ormiston JA, Winneke P and Tadgell JA agreeing at 202. That is, a payment said to be a preference must be looked at in the context of the wider transaction of which it forms part. For example, a payment made in return for the receipt of goods of at least equal value secures the payee no advantage over other creditors and is therefore not a preference: Cant v Mad Brothers at [81] citing Airservices Australia v Ferrier [1996] HCA 54; (1996) 185 CLR 483 at 502. VR Dye concerned whether the pre-payment of money by a company on account of fees to be incurred by an accountant assisting in a creditors' voluntary winding up was an unfair preference and, having regard to the entire transaction under which the accountant was engaged, the preference was not unfair.

13 In Beveridge v Whitton [2001] NSWCA 6, Heydon JA, with whom Mason P and Powell JA agreed, was not convinced that VR Dye was plainly wrong: at [30]. Like VR Dye, the case concerned a company's payment to an accountant for extensive services rendered shortly before the company went into liquidation. Similarly, in Mann v Sangria Pty Ltd [2001] NSWSC 172; (2001) 38 ACSR 307, Bryson J followed VR Dye in a case where the company was a wholesale butcher and made a series of payments to a supplier. His Honour found that the payments were not an unfair preference where the company made arrangements to pay for goods substantially contemporaneously with receipt of value, and where the delivery of the goods and the payments were so closely bound together in event and time that they should be characterised as part of the same transaction: at [41]-[42]. It will be immediately observed that VR Dye, Beveridge v Whitton and Mann v Sangria did not involve third party payments.

14 Against this, in Sheldrake v Paltoglou [2006] QCA 52, the Court of Appeal of the Supreme Court of Queensland considered that the doctrine of ultimate effect had no role to play in the application of section 588FA. VR Dye was not cited. However, in respect of the authority relied upon by the creditor, Re Discovery Books Pty Ltd (1973) 20 FLR 470, de Jersey CJ (with whom McMurdo P and Muir J agreed) observed at [9]:

That case concerned the materially different s 122 Bankruptcy Act 1966 (Cth). In terms of s 588FA of this legislation, it sufficed, for there to be an unfair preference, that in respect of the unsecured debt, the respondent received more than she would receive were she left to prove in the winding up, and that was plainly the position here.

That case did not involve a third party payment either.

15 In Burness v Supaproducts Pty Ltd [2009] FCA 893; (2009) 74 ACSR 1, father and son ran a company called Denward Lane, which was a regular customer of Supaproducts. Denward Lane became insolvent. The son told Supaproducts that his father was retiring from business and the son had set up a new company, Pre Cast Panels, which would pay the balance of Denward Lane's account, which it did. The son was a director of both companies. Denward Lane went into liquidation. The liquidators sought to recover the payment made by Pre Cast Panels to Supaproducts for Denward Lane's outstanding account. Gordon J held that the payment by a third party (Pre Cast Panels) fell within section 588FA(1)(a). "Where a payment made by a third party to a creditor is authorised by the debtor, nothing more is required. The debt is discharged by the third party at the request of or with the acceptance of the debtor": at [45].

16 Her Honour then considered a potential restitutionary claim which a third party, who made a payment to the creditor of a company, may have against the company. If the third party payment were unauthorised, the debtor would have a choice whether to accept the payment or not. If the debtor accepted the unauthorised payment by the third party, then the debtor would be liable to the third party as either a claim for money paid for and at the request of the debtor or in restitution; if the debtor did not ratify the payment, then the debt owed to the creditor would remain outstanding: at [46]. On the evidence before Gordon J, the payment made by Pre Cast Panels was part of a course of conduct initiated by Denward Lane to discharge its debt to Supaproducts through payments made by a third party, Pre Cast Panels: Re Emanuel. Her Honour explained at [47]:

... However, even if this payment was not a "course of dealing initiated by a debtor that is intended to, and does, extinguish a creditor's debt" (and I find that it is), then by its conduct, Denward Lane acquiesced in the payment of its debt by the third party (Pre Cast Panels) on its behalf so that the debt is taken to be discharged (see Owen v Tate [1974] 1 QB 402 at 411 - 412 and Oakleigh Acquisitions Pty Ltd (in liq) v Steinochr [2005] WASCA 247 at [82]), possibly giving rise to a (restitutionary) right in Pre Cast Panels in the form of a claim against Denward Lane for money paid: see Lumbers (2008) 232 CLR 635 at [43], [47] - [54] and [77] - [80].

17 Her Honour appears to have assumed that, without specifically addressing whether, such a payment was received by the creditor "from the company". Her Honour stated at [49]:

Counsel for the defendant submitted that the preferential element of s 588FA was not satisfied by the liquidator. The basis for this submission was that "unless you have some diminution by the debtor, or of the debtor's assets, you [do not] have a preferential effect". There was no evidence of what, if any, consideration, was provided to Pre Cast Panels by Denward Lane in exchange for its payment of Denward Lane's debt ... In the end, whether Pre Cast Panels received consideration from Denward Lane, or even had that "restitutionary" right against Denward Lane, may be put to one side. ...

18 In McKern v Minister Administering the Mining Act 1978 (WA) (2010) 28 VR 1; [2010] VSCA 140, the Court of Appeal of the Supreme Court of Victoria disagreed with Sheldrake v Paltaglou, following VR Dye: at [14]-[27] and [114]-[118] per Nettle JA, with whom Mandie and Beech AJA agreed at [141]. However, Nettle JA observed at [24]:

Admittedly, not all of the reasoning in VR Dye is completely convincing. It does not deal squarely with the apparently plain and ordinary meaning of the legislation or the indications in the Harmer Report and Explanatory Memorandum that the new regime was intended to be a comprehensive statutory regime that avoids common law conceptions. It is also possible to envisage ways of accommodating COD transactions that may do less violence to the language of the section than the preservation of principles developed in the context of the previous regime. ...

19 As VR Dye had been followed in Victoria for ten years, and followed by Beveridge v Whitton, and having regard to the importance of intermediate appellate courts following each other in the interpretation of national legislation as emphasised in Farah Constructions Pty Ltd v Say-dee Pty Ltd (2007) 230 CLR 89; [2007] HCA 22 and CAL No 14 Pty Ltd v Motor Accidents Insurance Board (2009) 239 CLR 390; [2009] HCA 47, Nettle JA considered that it would be wrong for the Court to depart from VR Dye: at [27]. McKern was another case of payment being made in return for the receipt of goods of at least equal value, where a mining company had paid mining lease rents and royalties, which enabled the company to maintain the mining tenements.

20 In Kassem, the facts were more akin to those at hand. The liquidators of Mortlake Hire Pty Ltd brought proceedings against the ATO to recover payments made by a related company, Antqip Pty Ltd. Anthony Russell was the sole director and shareholder of Mortlake and Antqip. Mr Russell transferred $40,000 from Antqip's bank account to the integrated client account established by the ATO for Mortlake. The payments were loans made by Antqip to Mortlake, being funds advanced by Antqip to Mortlake that were paid to the ATO at Mortlake's direction. The Full Court agreed with the trial judge that this was a clear example of a lender paying moneys advanced to a creditor of the borrower in accordance with the borrower's directions: at [40]. Even if the transaction between Mortlake and Antqip was not a loan, the payment by Antqip to the ATO was a payment that was made by or on behalf of Mortlake: at [42]. The Full Court considered that the case was no different from that which would apply if Mortlake had borrowed the funds on overdraft from its bank and paid the creditor with those funds: at [62].

21 The Full Court, following Burness, held that section 588FA was satisfied but, again, did not specifically consider the requirements of section 588FA(1)(b): at [43]-[44]. In respect of VR Dye, the Full Court noted at [49]-[50]:

49 In McKern at [24], Nettle JA said that not all of the reasoning in Dye is completely convincing. This is because, as his Honour went on to observe, it does not grapple with the apparently plain meaning of the section and the indications in the Harmer Report ... and the Explanatory Memorandum, that the new regime was intended to be comprehensive and avoid common law conceptions. Also, in Re Emanuel (No 14) Pty Ltd; Macks v Blacklaw & Shadforth Pty Ltd (1997) 147 ALR 281 at 283, a Full Court of the Federal Court drew attention to the need to take into account textual differences in the new regime that was introduced by s 588FA of the Act in 1992.

50 However, as has been emphasised by appellate courts in Victoria and New South Wales, the decision in Dye is, at least, not plainly wrong. Indeed, it has been said on several occasions that the reasoning is very persuasive. We ought therefore not to depart from it. But, Dye was concerned with a very different type of transaction from the present and in our view the observations made by Ormiston JA, considered in their full context, support the conclusion that this transaction amounts to an unfair preference under s 588FA(1).

22 The ATO in Kassem submitted that the payments were not an unfair preference because the payments did not result in a decrease in the net value of assets that were available to meet the demands of other creditors, relying upon Airservices, Re Discovery Books at 475 and VR Dye. To this, the Full Court observed at [59]-[61]:

59 Airservices and Discovery Books dealt with the former statutory regime. There is nothing in s 588FA(1) which expressly incorporates as a requirement for an unfair preference that the transaction must result in a diminution of the debtor's assets. Gordon J appears to have rejected a submission that there is such a requirement: Burness at [49].

60 It is not necessary here to determine whether there must be a diminution in the value of the debtor's assets. The short answer is that there was a decrease in the value of Mortlake's net assets available to meet the demands of other creditors.

61 This is because the payments of $70,000 were made out of Mortlake's assets, thereby reducing the net value of its assets available to other creditors.

23 The Full Court also noted that VR Dye concerned the pre-payment of moneys to an accountant while Airservices was a running account case - where payment formed part of a unified course of payments in which the creditor provided goods or services to the debtor company - which would now be governed by section 588FA(3) of the Corporations Act: at [51], [53].

24 Kassem may be considered to have approached pre-section 588FA legislation and case law with caution, but nonetheless left open (as was noted in Hosking at [111] and Cant v Mad Brothers at [83]) the question whether it is necessary for there to be a diminution in the debtor company's assets.

25 The distinct statutory language of section 122 of the Bankruptcy Act and section 588FA of the Corporations Act was again emphasised by the Full Court of the Federal Court in Rambaldi (trustee) v Commissioner of Taxation [2017] FCAFC 217; (2017) 107 ATR 1, where the trustee in bankruptcy submitted that a Quistclose trust amounted to a transfer of property within the meaning of section 122, relying on Re Emanuel. The Court (Allsop CJ, Dowsett and Burley JJ) rejected this argument and explained at [33]:

[Re Emanuel] arose under the provisions of s 588FA of the Corporations Law then in force. That provision was in similar terms to those of s 588FA of the Corporations Act 2001 (Cth). Section 122 of the Bankruptcy Act is in quite different form. It focusses on a transfer of property by the insolvent debtor in favour of a creditor. On the other hand, s 588FA focusses on a "transaction" to which the insolvent company and a creditor are parties, with or without other parties. Clearly, the word "transaction" may include many contractual or other arrangements apart from transfers. Further, under s 588FA the benefit to the creditor may not necessarily be derived from any action by the insolvent company. The decision in Emanuel focussed on the wording of s 588FA.

Their Honours observed that, whilst the payment under consideration in that case "might well satisfy s 588FA. However that proposition says nothing about the application of s 122 to the present case": at [35].

26 The case law development then became more complex. In Re Evolvebuilt Pty Ltd [2017] NSWSC 901, Built NSW entered into a head contract with its builder, Evolvebuilt, in respect of a construction project in Sydney. Evolvebuilt entered into sub-contracts. The head contract provided that the head contractor could pay sub-contractors directly. A building dispute arose between Built NSW and Evolvebuilt. As Evolvebuilt was not being paid by the head contractor, it did not pay its sub-contractors, who ceased work. Evolvebuilt made a request under the head contract for Built NSW to pay the sub-contractors but Built NSW terminated the contract instead and, following negotiations with the trade union, paid the sub-contractors directly. Evolvebuilt served a payment claim on Built NSW under the Building and Construction Industry Security of Payment Act 1999 (NSW) but, on adjudication, the head contractor was determined to have no liability to Evolvebuilt.

27 The liquidators of Evolvebuilt sought to recover the moneys paid by the head contractor to the sub-contractors as unfair preferences. Brereton J considered that the critical question was whether the sub-contractors received the payments "from the company". His Honour reasoned at [21]: (emphasis in original)

That the section is concerned with payments made by and received from the company is plain from those words, but is confirmed by the terms of s 588FF(1)(a), which provides that, where, on the application of a company's liquidator, a court is satisfied that a transaction of the company is voidable because of section 588FE, the court may, inter alia, make an order directing a person to pay to the company an amount equal to some or all of the money that the company has paid under the transaction. It is also supported by the policy and purpose of provision for the recovery of unfair preferences, which is to ensure that unsecured creditors are not prejudiced by the disposition of assets in a period shortly before the commencement of a winding up which would have the effect of favouring certain creditors. A payment made by a third party which does not come out of the company's assets does not offend that policy.

28 Brereton J considered that, if Evolvebuilt had directed the head contractor to pay its creditors out of moneys otherwise payable to Evolvebuilt, then the position would be indistinguishable from Re Emanuel and the payments would have been received by the sub-contractors "from the company": at [47]. However, this did not happen. Although Evolvebuilt requested the head contractor to pay the sub-contractors, the head contractor simply terminated the contract; Evolvebuilt's request was irrelevant to what transpired: at [49]. There was no evidence that there were any moneys owed by the head contractor to Evolvebuilt out of which the payments could have been directed as the evidence was that Evolvebuilt was not owed any moneys by the head contractor. Thus, the sub-contractors did not receive the payments "from the company" under section 588FA(1)(b). His Honour stated at [51]-[53]:

51 In those circumstances, although it may well be that the payments by Built had the effect of discharging Evolvebuilt's indebtedness - either because Evolvebuilt assented to them, or because the liquidators subsequently did so - it does not follow that they were made by or received from Evolvebuilt. The payments were made out of Built's assets, and not out of any asset to the benefit of which Evolvebuilt was otherwise entitled. Thus they were made by, and received by the defendants from, Built and not Evolvebuilt. This is so, even if making the payment gave Built some right to restitution against Evolvebuilt. If it were otherwise, then the satisfaction of a creditor's debt by the debtor's guarantor would constitute a payment on behalf of the debtor and be liable to be avoided as a preference.

52 Such a result is entirely consistent with the policy and purpose of the preference provisions. The effect on Evolvebuilt's position - and that of the general body of its unsecured creditors - is at worst neutral. While it is known that Built has lodged a proof in the liquidation, the evidence does not reveal whether it includes the amounts paid to the defendants. At the highest, Built may have acquired a restitutionary claim against Evolvebuilt for the amount it paid to discharge Evolvebuilt's debts, but that claim would not exceed the debts which it discharged. If Built did not acquire a restitutionary claim, then the result is positive.

53 To set aside the impugned payments and order their "repayment" to the company, which had never been entitled to them, would confer on the company and the general body of unsecured creditors a windfall which they would not have received had Built not chosen - unconstrained by any legal obligation to do so - to make them. This feature is not present in any of the cases on which the liquidators rely.

29 On appeal in Hosking, Bathurst CJ, with whom Beazley P and Gleeson JA agreed, upheld Brereton J's finding that, on the evidence, Evolvebuilt was not a party to the transaction by which the payments were made by the head contractor to the sub-contractor. That is, section 588FA(1)(a) was not satisfied. His Honour observed at [111]:

In these circumstances, it is not necessary to consider whether a creditor receives "from the company" a payment in respect of an unsecured debt for the purposes of s 588FA(1)(b) where, as part of a "transaction", the payment is received from a third party and the debtor company authorised or acquiesced in the payment being made on its behalf so as to give rise to a "restitutionary" claim against it in favour of the third party. I am inclined to the view that, if the "restitutionary" claim resulted from a "transaction" to which the debtor company was a party, then the payment could be said to have been received "from the company". This is consistent with the reasoning of Gordon J expressed in Burness at [46]-[47]. However, it is unnecessary to reach a final conclusion on this issue or on whether Built [NSW] would have such a "restitutionary" claim in the present case. Nor is it necessary to determine the question left open by the Full Court in Kassem at [59] of whether it is necessary for there to be a diminution in the debtor company's assets for a transaction to constitute an "unfair preference" under s 588FA(1).

That is, the Chief Justice determined the appeal by reference to section 588FA(1)(a). It was not necessary to consider section 588FA(1)(b) and thus the above observations were obiter. That said, Bathurst CJ was inclined to the view that, if a third party payment gave rise to a restitutionary claim by the third party against the company, then the creditor had received a benefit "from the company". 30 Which brings us to Cant v Mad Brothers, where the liquidators of Eliana sought to recover unfair preferences from an earthworks contractor, Mad Brothers. Eliana had owed Mad Brothers some $230,000. Mad Brothers had served a statutory demand and commenced winding up proceedings. Eliana entered into a settlement agreement with Mad Brothers pursuant to which Eliana agreed to pay $220,000 to Mad Brothers in full and final settlement of the winding up proceedings. The moneys were paid by a loan obtained by a related company, Rock Development, from Nationwide Credit. Eliana and Rock Development had the same sole director, who signed the settlement agreement on behalf of Eliana and applied for the finance necessary to perform the agreement. Eliana's accounts were in a "mess" but appeared to indicate that Rock Development was a creditor of Eliana at the time the $220,000 was paid. The transaction was recorded in Eliana's general ledger: an amount exceeding the payment was recorded as having been "paid off by Rock" to Mad Brothers.

31 Eliana was found to be a party to the transaction by which the financier paid $220,000 to Mad Brothers: given the common shareholding and directorship of Eliana and Rock Development and the interdependence of their financial arrangements, it was not difficult to infer that the common director acted on behalf of both companies in undertaking the transaction. He had Rock Development borrow the money. Thus, the requirements of section 588FA(1)(a) were satisfied.

32 The liquidators of Eliana contended that the trial judge erred in holding that the payment was not "from the company" within the meaning of section 588FA(1)(b) because it did not result in a diminution of Eliana's assets. In considering this question, the Court observed, "It is important to note at the outset that earlier forms of the provision contained language different to that of s 588FA": at [47]. In particular, until section 588FA was enacted, the Corporations Law and predecessor provisions had the effect of applying section 122 of the Bankruptcy Act, which made plain that the payment made to a creditor must be either out of the bankrupt's own moneys or out of moneys of the bankrupt and another person or persons, and there is no such stipulation expressed in section 588FA: at [51]. The Court then reviewed the authorities already canvassed and earlier case law under the Bankruptcy Act and the legislative predecessors of section 588FA. In doing so, the Court observed that section 588FA(1)(b) had not been specifically considered in Burness, and the question had been left open in Kasseem and Hosking.

33 Having regard to the text of section 588FA, the Court considered that the requirement that something be "receiv[ed] from the company" connotes a movement or transfer and involves identifying the source of the payment: at [108]. The Court explained at [109]:

This tends to suggest that s 588FA requires that the payment be received from the company's assets. But in any event, it is quite clear from the 'ultimate effect' doctrine and the authorities that the previous provisions were seen as requiring that a payment, in order to amount to a preference, be made from the company's own money, and not simply be 'made by' the company. So much was clear from Airservices even before it was expressly decided in Sheahan. In the light of that history, it would be surprising if the change in language from 'by' to 'from' were thought to have discarded the requirement that the payment be from the company's own money. To the contrary, this Court's decisions in VR Dye and McKern are authority for the proposition that the introduction of the present regime was not intended to effect fundamental change. This history strongly suggests that the words 'from the company' are intended to convey that the payment be made out of moneys or assets to which the company is entitled.

34 Further, if section 588FA permitted a payment made by a third person, other than from the company's assets, to be classed as an unfair preference, then an order that money belonging to a third person be paid to the company would provide a windfall to creditors at the expense of the third party: at [110]. The Court held, to the extent that Hosking considered, albeit tentatively, that Gordon J's reasoning in Burness supported a wider view of "from the company", it respectfully disagreed: at [119]. Thus, the Court followed Brereton J's approach in Evolvebuilt in respect of restitutionary claims. The Court did not consider Kassem, beyond simply noting that it had left the question open.

35 The liquidators argued in Cant v Mad Brothers that transactions that were plainly unfair preferences may involve no diminution in a company's net assets but merely substitute one creditor for another, such as drawing on the company's bank overdraft to pay a creditor. Of this, the Court observed at [112]:

... It is true that such a transaction may leave the company's balance sheet unchanged. At least where the overdraft is secured, however, the transaction will result in a diminution of the assets available to unsecured creditors, replacing an unsecured creditor with a secured one. In cases where the loan is not secured, it might be debated whether the payment is anything more than a rearrangement among creditors, whose treatment remains equal among themselves. After all, every payment by a company to a creditor has the effect of reducing the company's liabilities and can therefore be said to cause no net diminution in assets. Partial payment in return for forgiveness of a debt will cause an increase in net assets. Yet either could constitute a preference. Consideration of the net asset position is therefore a distraction. The more pertinent issue is whether the assets available for distribution among creditors have been reduced. It is unnecessary and undesirable to attempt to say more about hypothetical analogies.

36 That is, substitution of one unsecured creditor for another may constitute an unfair preference, depending on the wider transaction of which it forms part. In the classic case of a company paying for goods of at least equal value, or a running account case, there may be no unfair preference but where, for example, the company directs one creditor to pay moneys owed by the company to another creditor, the result may be different.

37 The Court noted that, where a company directs a third party to pay moneys to which the company is entitled, "Such moneys are plainly received from the company because they are moneys to which the company is entitled and the benefit of which is received by the creditor from the company, by its direction": at [115]. However, Eliana's general ledger showed Eliana as being indebted to Rock Development, not the other way around. As there was no diminution in Eliana's assets as a result of the transaction, there was no unfair preference.

38 I am left with some disquiet by the reasoning in Cant v Mad Brothers. The language of section 588FA(1)(b) does not readily permit a construction that it is necessary to demonstrate a diminution in the assets of a company for there to be an unfair preference. As the High Court observed in International Air Transport Association v Ansett Australian Holdings Ltd (2008) 234 CLR 151; [2008] HCA 3, "Insolvency law is statutory and primacy must be given to the relevant statutory text" as opposed to general principles developed from earlier case law or statutes: at [78] per Gummow, Hayne, Heydon, Crennan and Kiefel JJ. Statutes are to be construed and applied according to their terms, not under the influence of "muffled echoes of old arguments" concerning other legislation: R v Commonwealth Conciliation and Arbitration Commission; Ex parte Association of Professional Engineers of Australia (1959) 107 CLR 208 at 276 per Windeyer J. Further, the Court in Cant v Mad Brothers, in following VR Dye and McKern, has applied reasoning developed in cases which did not concern third party payments to a case which did.

39 Nonetheless, the Court's conclusion in Cant v Mad Brothers was open in circumstances where the question had been left open in Kassem and Hosking, there is no contrary binding appellate authority and three appellate courts have considered that VR Dye is not plainly wrong: Beveridge v Whitton; McKern and Kassem. I am not entitled to depart from a considered judgment of an intermediate appellate court simply because I might prefer a different view: N & M Martin Holdings Pty Ltd v Commissioner of Taxation [2020] FCA 1186 at [43]-[45] per Steward J. Ultimately, as Nettle JA observed in McKern, "If the reasoning in VR Dye is to be overturned, it is for the High Court to say so": at [27].

40 Drawing on the factual scenarios in which an unsecured creditor has been found to have received payment "from [a] company", and where it has not, the following matters are relevant:

(a): Was the benefit, which was conferred by the third party on the creditor, a benefit to which the company was otherwise entitled, for example, by reason of a contract between the company and the third party (Re Emanuel) or because the third party owed money to the company (Evolvebuilt; Cant v Mad Brothers)?
(b): Was the third party a related entity to the company, by reason of common directors or shareholders, or interdependence of financial arrangements, such that payment by the third party may be regarded as effectively payment by or at the direction of the company (Burness; Kassem; Cant v Mad Brothers)?
(c): Was the third party payment a loan to the company: Kassem? If it was recorded as a loan in the books of the company, this will obviously support such a finding: Cant v Mad Brothers.

41 The last factor raises a matter that should not be overlooked. Although the onus of proof is on the liquidator, it will commonly be the case that proof is not a straightforward exercise. The directors of the company may be unwilling to give evidence in support of the liquidator's claim. The books and records of the company may be sub-standard or incomplete. Transactions may have been entered into at a time of financial distress when proper documentation was overlooked. The company may have been poorly managed such that transactions were ill-considered or unconventional.

42 These difficulties do not shift the onus of proof. But, where there is a paucity of evidence, the Court may draw inferences in order to determine whether the transaction falls within section 588FA(1)(b). As Gleeson J explained in BCI Finances Pty Ltd (In Liq) v Binetter (No 4) [2016] FCA 1351; (2016) 117 ACSR 18 at [125]:

All evidence "is to be weighed according to the proof which it was in the power of one side to have produced, and in the power of the other to have contradicted": Coshott v Prentice (2014) 221 FCR 450; [2014] FCAFC 88 at [80], quoting Blatch v Archer (1774) 1 Cowp 63 at 65; 98 ER 969 at 970. This maxim also bears upon the appropriateness of deciding whether a fact has been proved when only limited evidence is available. In Ho v Powell (2001) 51 NSWLR 572; [2001] NSWCA 168 at [14], [15], Hodgson JA (with whom Beazley JA agreed) said:

[I]n deciding facts according to the civil standard of proof, the court is dealing with two questions: not just what are the probabilities on the limited material which the court has, but also whether that limited material is an appropriate basis on which to reach a reasonable decision ...

In considering the second question, it is important to have regard to the ability of parties, particularly parties bearing the onus of proof, to lead evidence on a particular matter, and the extent to which they have in fact done so ...

Gleeson J's judgment was relevantly affirmed on appeal in BCI Finances Pty Ltd (In Liq) v Binetter [2018] FCAFC 189; (2018) 132 ACSR 1.

"BY OR UNDER THE AUTHORITY OF THE ADMINISTRATOR"

43 Section 588FE(2B)(d)(i) of the Corporations Act provides: (emphasis added)

588FE Voidable transactions

(2B) The transaction is voidable if:

...

(d)
the transaction, or the act done for the purpose of giving effect to it, was not entered into, or done, on behalf of the company by, or under the authority of:

(i)
the administrator of the deed ...

44 That is, transactions entered into by a company subject to a DOCA under the authority of the deed administrator are exempt from being voidable transactions. The ATO contends that is what happened here. As the ATO's submissions in respect of the proper construction of section 588FE(2B)(d)(i) were dealt with in Ready Kit Cabinets, it is not necessary to repeat nor reconsider those submissions here. The facts of Ready Kit Cabinets, however, bear repetition as the ATO sought to distinguish the decision on this basis.

45 The facts are stated in the first instance judgment of Middleton J, Re Ready Kit Cabinets Pty Ltd (in liq) [2020] FCA 632. The ATO had commenced winding up proceedings against a company, which went into voluntary administration and executed a DOCA. The DOCA provided that management and control of the company's day to day business affairs would be returned to the director. The company and its director gave covenants and undertakings, including to comply with the company's tax obligations. The company continued to trade for three years under the DOCA, incurring further liabilities and making further payments to the ATO. The deed administrators did not make the payments, did not specifically instruct anyone to make the payments and did not know about the payments until after they were made: at [45] to [47]. Ultimately, the DOCA was terminated and the company wound up. The liquidators succeeded in its claim to recover the payments as unfair preferences under section 588FA of the Corporations Act.

46 In construing section 588FE(2B)(d)(i), Middleton J considered that the question was not whether the payments were made "under the DOCA" but whether the payments were made "under the authority of the deed administrators". His Honour explained at [51]:

The powers of directors of a company, which are suspended upon appointment of administrators, are revived upon the entering into of a deed of company arrangement: Deputy Commissioner of Taxation v Foodcorp Pty Ltd (1994) 13 ASCR 796, at 798; see also Cargill International s A. v Solid Energy New Zealand Limited (subject to deed of company arrangement) [1016] NZHC 1917 at [43] ('Cargill'). By contrast, the powers and obligations of a deed administrator are provided solely from the terms of the deed of company arrangement: Cargill at [43]. A deed administrator is not an administrator under Pt 5.3A of the Corporations Act. While it is open to the creditors to provide in a deed of company arrangement for the deed administrator to have managerial powers or assume managerial obligations, or to limit or exclude the reinstatement of a director's authority, they are not required to do so: Cargill at [41]-[44].

47 In that case, the DOCA did not empower the deed administrators to conduct managerial affairs of the company but expressly returned management to the director. Thus, the payments were made by the director from his own authority to manage the company: at [54]. His Honour explained at [56]: (emphasis that of Middleton J)

It cannot be the position that all transactions carried out (even by a director if permitted) during the operation of the DOCA are carried out by or under the authority of the Deed Administrators. In my view, even transactions contemplated or required to be undertaken by the DOCA cannot be necessarily said to be made on behalf of the Company under the authority of the Deed Administrators, when the DOCA contemplates and requires itself the entry into of some transactions on behalf of the Company by the Director with no involvement by the Deed Administrators.

48 His Honour's analysis was upheld by the Full Court. Jagot, Davies and Markovic JJ agreed that, once control and management of the company reverted back to the director by operation of the DOCA, the source of authority for making the payments to the ATO was the director exercising his powers of control and management conferred by the constitution of the company and re-enlivened by the terms of the DOCA. Thus, the source of authority for the payments made to the ATO was the director's re-instated powers under the company's constitution: at [21]. The payments were made under the authority of the director as the person with the control and management of the company at the time of the payments: at [22]. Their Honours explained at [23]:

... the fact that [the company] and the director covenanted with the deed administrators to make the payments under subcl 6.1(d), under pain of the sanction for breach in subcl 16.2(c), does not mean that the payments were made other than by or under the authority of the director of [the company], to whom control and management of the company had reverted.

49 The Full Court recognised that the outcome in any particular case would turn on the provisions of the DOCA and the particular factual circumstances: at [32]. The ATO submitted that the provisions of Western Port Holdings' DOCA and the facts at hand warrant a different result. I have considered this at [70] and [158] respectively.

FACTS

50 The liquidators read six affidavits by Mr Albarran and Mr Ross. Mr Ross was cross-examined. The liquidators tendered a large amount of documents. The ATO called no evidence.

51 Western Port Holdings was the main trading entity within the Westernport Group of Companies trading under the name "Makesafe Traffic Management (Vic)". Western Port Holdings was trustee of DOH Family Trust and provided traffic management services. It was a family business with which Kerry O'Hare and his three sons, David, Andrew (Drew) and Matthew, were engaged.

52 Mr Ross observed that the company was operated quite informally by members of the O'Hare family: Kerry O'Hare made the major decisions in relation to the company and the conduct of the business; Drew O'Hare was the chief executive officer; David O'Hare was the chief financial officer; and Matthew O'Hare was employed by the business, albeit not involved in management.

53 It is apparent from the company's balance sheets that the company borrowed money from, and extended loans to, related companies and family members. In particular, David O'Hare had a loan account with the company, as did two O'Hare family companies - SHA (Vic) Pty Ltd, trading as "Simple Hire" (SHA), and Services and Maintenance Group Pty Ltd (SMG) - being companies initially owned by David and Matthew O'Hare, then by Drew's wife, Amber, then by David O'Hare in respect of SMG only.

54 Western Port Holdings' general ledger for the loan accounts maintained in respect of David O'Hare, SHA and SMG indicate that frequent transactions occurred on these accounts, often several transactions a day. In respect of SHA and SMG, it appears that those companies' expenses, such as fuel and tolls, were paid by Western Port Holdings in the first instance and then reimbursed from time to time. Western Port Holdings appears to have effectively provided an overdraft account for these companies. The third party payments which David O'Hare, SHA and SMG made in due course to the ATO were accounted for in these loan accounts.

Voluntary administration

55 In 2013, the ATO served Director Penalty Notices on Kerry O'Hare as director of Western Port Holdings in respect of unpaid superannuation guarantee charges of some $165,000 and unpaid PAYG withholding amounts of some $550,000. According to Mr Ross, Western Port Holdings and related companies "had a history of not paying their statutory liabilities" including payroll tax, superannuation and Pay as you go (PAYG) instalments and withholding, with total statutory obligations owed by the group totalling some $12.5 million. The ATO's collection notes later observed:

The client is a high risk to revenue. The client recently liquidated multiple companies with large amounts of unpaid PAYG and SGC obligations. ... [T]he client's compliance history across the group is really poor.

56 By 2013, Western Port Holdings was insolvent. On 13 April 2015, Western Port Holdings went into voluntary administration. Mr Albarran and Mr Ross were appointed administrators. (As matters turned out, the "relation back" period also began.) The company then owed the ATO some $2.3 million and had failed to lodge a large numbers of Business Activity Statements (BAS); the ATO was the largest unsecured creditor of the company by far.

57 Whilst administrator, Mr Ross traded-on the business. He liaised with Kerry O'Hare and staff in relation to the day to day trading activity of the company. Mr Ross prepared cashflow projections, reviewed labour hire costs, devised strategies to reduce overhead and labour costs, organised and implemented control procedures to monitor ongoing trading operations, reviewed and reconciled wage payments, reviewed and prepared the company's BAS and paid the resulting tax liabilities, reviewed the company's contracts with third parties in respect of current works and projects, reviewed employee files and held staff meeting with employees. The company then employed some 160 staff.

The DOCA

58 On 8 May 2015, the administrators provided a report to creditors under section 439A of the Corporations Act, recommending that the company execute a DOCA proposed by Kerry O'Hare. Under the DOCA, control and management of the company would revert to Kerry O'Hare. The deed fund would be $1.09 million, comprising an initial lump sum payment of $250,000 followed by 24 monthly instalments of $35,000, with the last instalment to be paid on 1 May 2017. The administrators estimated that, if Western Port Holdings went into liquidation, unsecured creditors would receive nil return whilst, if the company executed the DOCA, unsecured creditors would receive between 5.13 cents and 8.36 cents in the dollar. Further, if the company went into liquidation, employee entitlements may be partly paid or unpaid whilst, if the company executed the DOCA, employee entitlements would be paid in full.

59 Mr Ross went to the business premises and addressed employees in relation to a DOCA proposal. The employee creditors agreed to accept the proposed DOCA. On 18 May 2015, the second meeting of creditors was held. Mr Ross chaired the meeting. At the request of the ATO's representative, a poll was taken in respect of the proposal that the company execute the DOCA: 68 creditors, collectively owed $1.855 million, voted in favour of the DOCA; the ATO, owed some $2.6 million, voted against the proposal. As no result was reached, Mr Ross used his casting vote to vote in favour of the resolution, which was carried. As recorded in the minutes, Mr Ross advised the meeting that he voted in favour of the DOCA as it would allow greater funds to become available for distribution to all creditors than if the company were liquidated. In cross examination, Mr Ross said:

A significant proportion of those [who voted in favour of the DOCA] were obviously employees as well and under the terms of the deed of company arrangement the company would continue an existence so effectively people would have jobs at the end of the day and I think that's also an important consideration.

60 On 22 May 2015, the DOCA was executed. Mr Albarran and Mr Ross became deed administrators. Kerry O'Hare signed the DOCA as "the Director", although the DOCA was drafted such as to encompass future directors: clauses 1.2.1 (singular includes plural), 1.2.11 (reference to party includes party's substitute) and 1.3.3 (DOCA also binds the company, its officers and members in accordance with section 444G of the Corporation Act).

61 Clause 4 of the DOCA conferred powers on the deed administrators to take possession of the company's property, to convert the property of the company into money, to administer the available assets to pay creditors, to borrow or raise money, including: (emphasis added)

For the purposes only of administering this Deed, the Deed Administrators have the following powers in addition to those powers conferred on the Administrators by the Act:

...

4.18 to permit any person authorised by the Deed Administrators to operate any account in the name of the Company;

...

4.33 to do anything else that is necessary or convenient for the purpose of administering this Deed.

62 Clause 7 of the DOCA provided: (emphasis added)

7. OPERATION OF COMPANY DURING DEED ADMINISTRATION

7.1 The Director will continue to carry on the Company's Business on such terms and conditions and in such manner as the Director thinks fit after the execution of this Deed.

...

7.3 Subject to clause 7.1, upon execution of this Deed the Director hereby covenants and agrees that he shall:

...

7.3.7 cause the Company to pay its debts as and when they fall due;

...

7.3.10 cause the Company to lodge all income tax, Pay As You Go, Superannuation, Fringe Benefits Tax and GST returns and pay any instalments or assessments promptly by the due date;

7.3.11 provide management reports on at least a monthly basis and/or at any time so requested to the Deed Administrators in relation to the financial position of the Company, such accounts having been verified by an independent external accountant, together with written confirmation that the Company has complied with all statutory obligations and paid all taxes during the operation of this Deed;

...

7.3.14 ensure the Company continues to carry on the Company's Business under the authority and control of the Director and will continue until the Termination Date to conduct the Company's Business and not materially alter the Company's commercial activities or operations;

7.3.15 immediately notify the Deed Administrators in writing of any matter which may affect or otherwise prejudice the Company's ability to comply with its obligations under this Deed;

...

63 Clause 9 provided: (emphasis added)

9. DIRECTORS' PROPOSAL

...

9.5 The Company must provide reports to the Deed Administrators in relation to the financial position of the Company on at least a monthly basis, to confirm that the Company has complied with all statutory obligations and paid all taxes during the Deed Administration period. The report must be prepared or verified by an independent external accountant.

...

9.7 Subject to the terms of this Deed, control and stewardship of the Company (and its business) will revert to the Director of the Company from the Commencement Date.

...

9.9 Additional to any power of the Deed Administrators at law, should the Company:

9.9.1 Default in its obligation to comply with any of the fundamental provisions of the Deed including payment of monies due pursuant to this Deed and the obligations conferred on the director at clauses 9.1 to 9.8; and/or,

9.9.2 Should the Deed Administrators form the view that the Company is unlikely to be able to comply with the terms of the Deed.

the Deed Administrators have the power under this Deed to:

9.9.3 Extend the time for the Company's compliance with any of its obligations under this Deed;

...

9.9.5 Terminate this Deed without convening a meeting of creditors;

9.9.6 Convene a meeting of the Company's creditors at which the creditors may resolve to terminate the Deed of Company Arrangement and wind up the company ...

64 Further, clause 25 provided that, in the event of any default by the company under the DOCA, the company irrevocably appointed the deed administrators as its attorneys, as follows:

25 POWER OF ATTORNEY

In the event of any default by the Company under this Deed, the Company hereby irrevocably appoints the Deed Administrators its attorneys to the exclusion of the Company:

25.1 to exercise, execute (either under seal or otherwise), sign and do all assurances, deeds, instruments, acts and things whatsoever which in the opinion of the Deed Administrators is necessary or expedient that the. Company execute, sign or do (whether under seal or otherwise) under this Deed or pursuant to the transactions contemplated in this. Deed; and

25.2 generally to use the name of the Company in the exercise of all or any of the powers conferred on the Deed Administrators by or under or as contemplated by this Deed or the transactions referred to in this Deed and the Company irrevocably undertakes to ratify and confirm all and whatever such attorney lawfully does or causes to be done under the power of attorney hereby created.

65 Unlike the DOCA considered in Ready Kit, the ATO submitted that Western Port Holdings' DOCA gave the deed administrators power to permit any person authorised by the deed administrators to operate any account in the name of the company: clause 4.18. Thus, the deed administrators retained the power to control the operation of the company's bank accounts and, it was submitted, all payments made from those accounts must be taken to have been made under the authority of the deed administrator for the purposes of s 588FE(2B)(d)(i). This was said to apply to all direct payments. Further, the ATO submitted that, unlike the DOCA considered in Ready Kit, the Western Port Holdings' DOCA gave the deed administrators power to do anything necessary or convenient for the purpose of administering the DOCA (clause 4.33).

66 To this, the liquidators submitted that the terms of the DOCA in Ready Kit Cabinets were not apparent from the judgments. As to clause 4.18 of the DOCA, the day-to-day management of the company was returned to the control of the director pursuant to clause 7.1 and 9.7. This necessarily entailed power to operate the company's bank account. Clause 4.18 gave the deed administrator power to authorise a person to operate any account in the name of the company "[f]or the purposes only of administering this Deed". It did not impose any limitation or constraint upon the director's powers of day-to-day management of the company. The deed administrators did not retain the power to control those who could operate on the accounts in the name of the company, namely, the Director. It is apparent that the deed administrators' power to permit operation of the company's accounts was not engaged. Nor were these matters put to Mr Ross in cross examination.

67 The ATO submitted that, in the event of default, the company irrevocably appointed the deed administrators as its attorneys to execute documents (clause 25.1) and to use the name of the company, and the company irrevocably undertook to ratify and confirm everything done by the attorney (clause 25.2). Once the director and company were in default under the DOCA, it was submitted that the deed administrators must necessarily be taken to have authorised or approved of any payments subsequently made by the company to the ATO. Following the default, it was said that the consequence of clause 25 was that the deed administrators were irrevocably appointed to do everything necessary to give effect to the transactions contemplated in the DOCA. These transactions included the payment of the statutory liabilities: clauses 7.3.10 and 9.5. Thus, it was said to follow that the payments were made under the authority of the deed administrators.

68 The liquidators submitted that the obligations cited as defaults in the "default notices" were obligations of the Director in clause 7.3 of the DOCA. A default by the Director did not engage clause 25. The DOCA obliged the Director to ensure that the company's taxes were paid. It did not oblige the company to pay its taxes. There was no default by the company under the DOCA to engage clause 25, and the power of the deed administrators pursuant to that clause did not arise. Further, the power of attorney contemplated by clause 25 was significantly limited in scope: clauses 25.1 and 25.2. Neither of those powers was enlivened. In addition, the Deed Administrators had power pursuant to clause 9.9.3 to extend the time for compliance with any of the company's obligations under the DOCA, and thereby to postpone any default. To the extent that the company was in default, the only sensible construction of the events which unfolded was that the deed administrators exercised this power and thereby avoided their own appointment as attorneys for the company pursuant to clause 25. Even in the event of default, the authority and power of the Director did not automatically become suspended but continued until the DOCA was terminated.

69 The ATO further submitted that section 588FE(2B)(d) referred to "the transaction, or the act done for the purpose of giving effect to it, was not entered into, or done...". The concept of "transaction" was sufficiently broad to include the very act of entering into the DOCA. By the DOCA, covenants and obligations were imposed in relation to the payment of future tax amounts. The ATO submitted that the subsequent act of making payments to the ATO should be seen as "the act done for the purpose of giving effect to" a transaction - being the execution of the DOCA - and thus were transactions "by, or under the authority of the administrator of the deed". The liquidator submitted that the ATO's attempt to characterise entry into the DOCA as the "genesis" of transactions in which the payments were made should be rejected. It was said to represent a variant of the level of abstraction the Full Federal Court ruled against in Ready Kit Cabinets.

Consideration

70 Whilst the ATO submitted that the particular provisions of this DOCA are distinguishable from those in Ready Kit Cabinets, the judgments of Middleton J and the Full Court are both admirably short and do not reveal all of the provisions of the DOCA in Ready Kit Cabinets. As the liquidators submitted, this necessarily limits the scope of the ATO's submissions as to the similarity or dissimilarity between the two DOCAs. To the extent that the provisions of the DOCA are described in their Honours' judgments, the provisions appear to have been similar to those at hand.

71 Turning to the particular provisions of Western Port Holdings' DOCA on which the ATO relies, there is no doubt that the deed administrators had the power - if they chose to exercise it - to permit someone to operate the company's bank accounts. But as will be seen, the evidence establishes that the deed administrators did not in fact exercise that power. The fact that the deed administrators had such a power, albeit unexercised, cannot have the consequence that any payments made by the company during the currency of the DOCA were done under the authority of the deed administrators. Similarly, the fact that clause 4.33 of the DOCA conferred a power on the deed administrators "to do anything else that is necessary or convenient for the purpose of administering this Deed" cannot, without more, convert payments to the ATO as being made under the authority of the deed administrators. Likewise, clause 25 does not have the consequence suggested by the ATO absent evidence that the deed administrators took steps as the company's attorney which resulted in payments being made to the ATO. There does not appear to be any provision in the DOCA which, in isolation from such evidence, would warrant a departure from the conclusions reached in Ready Kit Cabinets.

72 The ATO's submission that entry into the DOCA had the consequence that all transactions contemplated by the DOCA were done under the authority of the deed administrator is, with respect, an absurd construction of the statute. This would render section 588FE(2B) - which defines certain transactions of company subject to DOCA as voidable - otiose as, on the ATO's argument, everything done under the DOCA would be excluded from consideration as a voidable transaction. Ultimately, I do not consider that Ready Kit Cabinets can be distinguished by reference to the terms of the DOCA.

Life under the DOCA

73 David, Matthew and Amber O'Hare were appointed directors of Western Port Holdings shortly after execution of the DOCA. Kerry O'Hare ceased to be a director. (Directorships of Western Port Holdings, SHA and SMG changed with reasonably frequency between members of the O'Hare family.) DOCA contributions began, albeit not in strict alignment with the requirements of the DOCA. After a shaky start, the company began to provide monthly reports to the deed administrators, with the assistance of an accounting firm. The company also commenced lodging outstanding BAS, albeit often belatedly.

74 The company set up a new MYOB file to store and manage its financial information. Mr Ross did not have access to the MYOB file nor the company's bank accounts, invoices, bills, aged payables, aged debtors, cashflow statements or forecasts. Mr Ross was reliant on information provided by the company's accountant, solicitors or members of the O'Hare family to ascertain the company's financial position. Mr Ross instructed his staff to review the financial reports and information provided and seek clarification.

75 Mr Ross said his role as deed administrator was to monitor compliance with the DOCA. He disagreed with the proposition that he and his staff had a very "hands on" role beyond monitoring compliance with the DOCA. Mr Ross did not continue to perform the tasks he had undertaken whilst the company was in voluntary administration. Mr Ross was not involved in preparing the company's financial statements or records, reviewing or paying bills or paying wages and superannuation. Mr Ross and his staff were not involved in the day to day running or management of the business. To Mr Ross' observation, Kerry O'Hare was responsible for this, notwithstanding that he had ceased to be a director of the company.

76 So far as the company's existing and ongoing tax debts were concerned, Mr Ross was not involved in preparing and lodging tax returns or BAS. Mr Ross said he did not direct the company, or any officer of the company, to make payment in any particular amount to the ATO or by any particular date. Mr Ross did have access to the company's ATO portal and was able to view the company's RBA, to see whether the company was lodging its BAS and paying amounts owing. Mr Ross became aware that the company frequently lodged BAS late and payments did not generally correspond with the BAS or the RBA balance. Mr Ross formed the view that the company made payments to the ATO when the company's finances allowed.

77 From time to time during the DOCA period, Mr Ross and his staff liaised with the ATO with respect to the company's efforts to reduce its tax debt, including seeking information about any payment arrangements the company had entered into. Mr Ross did not contact the ATO and negotiate payment arrangements on behalf of the company, and was not consulted by the company or its directors in respect of the proposed payment arrangements. Initially, the ATO also provided information in respect of payment arrangements with the ATO but - as will be seen - this ceased after June 2016. Once the company entered into the payment plans, Mr Ross formed the view that the company was taking the necessary steps to ensure that the DOCA was being complied with. From time to time, Mr Ross sought confirmation as to whether the company had entered into a payment plan and whether it was being complied with. Mr Ross took the payment plans as an indication that the company's RBA balance as at the date of entering into each payment plan was not due and payable on that date but on the dates and in the amounts specified in the payment plans.

Payments to ATO begin

78 In August 2015, the first payment in respect of which relief is sought was made. It was a third party payment. On 7 August 2015, David O'Hare paid $81,830 from his bank account to the ATO, which was credited to the company's RBA. At that time, David O'Hare owed some $120,000 to the company. Soon after, a journal entry was made in the company's MYOB accounts, reducing the money which he owed to the company by $81,830. The company's liability to the ATO was reduced by a corresponding amount.

79 In September 2015, the second payment was made, being a direct payment of $31,344 from the company's bank account to the ATO. The ATO accepts that direct payments fall within section 588FA(1)(b) and are unfair preferences subject, of course, to whether the payments were made under the authority of the deed administrators.

80 On 7 October 2015, the deed administrators emailed Drew and David O'Hare, noting that some $116,000 remained outstanding for GST and PAYG withholding tax; two BAS's were overdue; and the monthly reports for July, August and September 2015 had yet to be supplied to the deed administrators. The deed administrators requested that the company's statutory liabilities and lodgements be brought up to date as a matter of urgency. (When referring to the company's statutory liabilities, Mr Ross had in mind the moneys owed to the ATO and the State Revenue Office of Victoria (SRO), as the company was also in default of its obligations to pay payroll tax.) The overdue BAS's were promptly lodged. The third 'direct' payment of $29,925 was made to the ATO. In the meantime, further tax liabilities had accrued such that the company owed the ATO some $478,000. Mr Ross was now concerned that the company would not rectify its breaches of the DOCA.

First default notice

81 On 12 October 2015, the deed administrators issued a notice of default to the directors of the company. The company was said to be in breach of clauses 7.3.10 and 7.3.11 of the DOCA, being to lodge tax returns and pay instalments and assessments promptly by the due date, and to provide monthly management reports. Mr Ross required the directors to rectify these breaches by 23 October 2015 by bringing the company's statutory liabilities and lodgements up to date and providing monthly management reports for July, August and September 2015 together with lodgement confirmation of BAS for July, August and September 2015 and confirmation of payment of ongoing liabilities to the ATO in respect of GST, PAYG, payroll tax and superannuation. On 16 October 2015, the fourth direct payment was made, being $25,670. The company's compliance with the terms of the DOCA was, by this point, not very encouraging.

82 On 20 October 2015, Kerry O'Hare called the deed administrators to arrange a meeting to discuss the notice of default. On 22 October 2015, Mr Ross and Kerry O'Hare met. Kerry O'Hare said that the statutory debt was only about $100,000 and he was going to try to sort out a payment plan with the ATO. After the meeting, Mr Ross' staff reviewed the company's RBA and found that the debt owed to the ATO was then some $452,000. This was a recurring theme in what followed: Kerry O'Hare consistently disclaimed the ATO's calculations of the tax owing and suggested that he was negotiating, or had successfully negotiated, a payment plan with the ATO. As often as not, the ATO's collection notes did not accord with Kerry O'Hare's description of the state of negotiations.

83 On 22 October 2015, the company retained an external accountant who began to provide monthly financial reports and answer the deed administrators' queries. It is apparent that the accountant thereafter endeavoured to reconcile and verify the company's MYOB accounts, which do not appear to have been in a satisfactory state.

84 On 23 October 2015, four direct payments were made by the company, totalling some $61,000. Kerry O'Hare also emailed Mr Ross' staff setting out a plan to complete all outstanding matters under the DOCA, including paying moneys owing to the ATO by the end of November 2015, "Going forward there should be never any more outstanding amounts owing outside of agreed terms". An extension of time was sought to comply with the notice of default, given slow trading conditions and unexpected expenses. Kerry O'Hare advised, "The above repayment plan has been carefully calculated and we believe that all objectives are achievable. We believe that come December 2015 our accounts will show good monies in the bank". Mr Ross was satisfied that the proposal was satisfactory.

85 On 26 October 2015, Mr Ross' staff requested a copy of the company's cashflow for the next six months to ascertain whether sufficient funds were expected to be available to pay existing and ongoing tax and trading liabilities. David O'Hare provided a cashflow. Mr Ross' staff raised various queries, as the cashflow did not appear to factor in payroll tax, superannuation, DOCA contributions and outstanding tax liabilities, "Can you please provide details as to how the Company is planning to pay approximately $892,000 to the ATO before end of November 2015" [emphasis in original]. The deed administrators followed up their request for information on 4 November 2015 and 10 November 2015; the management reports for October 2015 were also by then overdue.

86 On 6 November 2015, David and Amber O'Hare ceased to be directors of the company, leaving Matthew O'Hare at the helm, being a person whom, to Mr Ross' observation, was not in fact involved in the management of the company. Certainly, Matthew O'Hare does not feature in the large number of emails I have read, including emails from the company's accountant, who may be thought to have apprehended which members of the O'Hare family needed to be part of communications concerning the company's financial position. Matthew O'Hare ceased to be a director of SHA and SMG, leaving David O'Hare as sole director of those companies.

87 On 11 November 2015, Mr Ross' staff advised Kerry and David O'Hare that the company continued to be in breach under the DOCA, "We require to you to rectify the abovementioned breach and bring the Company's Statutory liabilities up to date as a matter of urgency. In the event the Company continues to default under the DOCA, steps will be taken to terminate the DOCA". Some $625,000 was then owing to the ATO.

88 On 13 November 2015, the company's accountant called the ATO to negotiate a payment plan. On 17 November 2015, the ATO advised that the proposed payment arrangement was not acceptable but, if the company could pay 50% of the amount owing by 30 November 2015, the ATO may consider a payment arrangement for the balance. The accountant indicated that the company may not be able to pay 50% of the debt by the end of November 2015. The company did, however, make a direct payment of $41,985.

89 On 18 November 2015, the accountant submitted a cashflow projection to Mr Ross. The ATO also enquired of the deed administrators whether the company was complying with the terms of the DOCA and up to date with payments. The deed administrators advised that DOCA payments were up to date but the company had failed to satisfy its statutory obligations with the ATO and other authorities for the payment of payroll taxes and superannuation; a default notice had been issued which had not been complied with, "Notwithstanding the above, the Deed Administrators are continuing to liaise with the Director of the Company regarding plans to satisfy the terms. I note that the Director has indicated that he will be in a position to rectify the breach". On 19 November 2015, the ATO sought a copy of the breach notice and advised that it had received a representation from the company for a payment arrangement.

90 The ATO then advised the company that it could not accept the proposed payment plan. The ATO's collections notes record the reasons for refusal, being the company's history of poor compliance and ongoing failure to pay taxation and superannuation obligations as they fell due. The ATO was also not satisfied that the company would comply with the payment proposal, including by reason of its failure to satisfy its obligations under the DOCA.

ATO garnishee notice

91 The company generated cashflow by entering into factoring arrangements with invoice financiers. On 20 November 2015, the ATO issued a garnishee notice to the company's invoice financier, requiring 50% to be deducted from any payments made to Western Port Holdings, up to $586,858.82. According to the ATO's collection notes, this percentage was selected "as the taxpayer is high risk to revenue and had a really bad compliance history with the ATO". Also on 20 November 2015, the company's accountant provided an updated cashflow to the deed administrators' offices "following the Garnishee Notice and subsequent change of priorities in debt repayments". The company also made a direct payment of $36,650.

92 On 24 November 2015, the company's accountant asked the ATO to withdraw the garnishee notice and accept a weekly payment of $50,000. The ATO revised the garnishee notice, requiring the company's invoice financier to withhold 17% of payments instead. The deed administrators asked the ATO for a copy of the garnishee order, which was provided. The ATO advised the deed administrators that the company had asked for the order to be varied to "enable them to meet their gross wages", as well as obligations under the DOCA and superannuation.

93 By late November 2015, Mr Ross' view - based on the RBA and his review of the books and records available to him at the time - was that the company would not be able to rectify the defaults under the DOCA. On 30 November 2015, Mr Ross met with the company's solicitors, who advised that it was essential for the garnishee order to be removed, even if the ATO needed to take security over various properties owned by the O'Hare family. In an email sent by the company's solicitor to Mr Ross after the meeting, the solicitor noted:

You have expressed concern about the credibility of my client as a result of past promises which have not been met. You have also expressed concern about a lack of co-operation in providing source documentation that supports the cash flow forecasts provided.

I have advised my client that it must be fully co-operative and be able to demonstrate that the cash flow forecast presented can be relied upon.

...

... The O'Hare family are well aware of the consequences of possible liquidation and have undertaken to me that they will co-operate in every way possible to give you, [the invoice financier] and the ATO confidence that the business has the ability to meet, and will meet, its past and future commitments and liabilities.

94 On 30 November 2015, the accountant provided a revised cashflow in respect of which the deed administrators sought supporting documentation and information noting, "We have serious concerns with the Company meeting it's ongoing trading liabilities whilst reducing it's old debt completely by the end of March/April 2016". Mr Ross said he then had very little faith in the cashflows that had been put forward.

Second default notice

95 On 1 December 2015, the company failed to make a deed fund contribution. On 2 December 2015, the deed administrators issued a second notice of default by reason of the company's failure to make the contribution. On 3 December 2015, the deed administrators sought further information in respect of the updated cashflow and requested a meeting with the directors. Mr Ross said that, as a result of the company's repeated failures to comply with the DOCA, he had formed the opinion that it was not viable to continue under the DOCA and the company should be wound up.

96 On 4 December 2015, the deed administrators' office called the ATO and advised that Western Port Holdings had defaulted again on the DOCA and a default notice had been issued. The deed administrators were concerned about the company's viability and wanted to know what the ATO's position would be if the deed administrators decided to terminate the DOCA. Further, the deed administrator wished to take control of the company and try to sell it, in which event, the deed administrators would request the ATO to withdraw the garnishee notice. The ATO advised the deed administrators that it was seriously concerned about the company's ability to satisfy the terms of the DOCA as well as pay ongoing obligations. However, the ATO was not in a position to say whether it supported Mr Ross' decision to terminate the DOCA; the ATO would give the matter serious consideration if a creditors' meeting was called.

97 On 4 December 2015, the deed administrators met with Kerry, David and Drew O'Hare and their solicitor. Mr Ross advised that the deed administrators proposed to terminate the DOCA. Whilst an initial default notice was issued in September 2015, "It has become subsequently clear that the company had been in breach of the terms of the DOCA for some time prior to issuing the initial default notice". Further, Western Port Holdings and related parties "had a history of not paying their statutory liabilities". Non-payment of statutory debt was described by Mr Ross as a "major default"; the cashflows provided had "holes"; the company and its directors had "had plenty of chances" to rectify the breaches under the DOCA. Further time to rectify the breaches could not be provided. A decision needed to be made in order to advertise the company's business for sale.

98 Kerry and Drew O'Hare asked whether raising funds within 24 hours to pay outstanding statutory obligations and DOCA contributions would stop the deed administrators placing the company into liquidation. Mr Ross confirmed that the deed administrators would "reconsider their position" should funds be injected into the company to pay outstanding statutory liabilities and DOCA contributions.

99 Over the weekend, funding was raised from Drew O'Hare's father in law, Mr Duthie. According to the company's solicitor, Mr Duthie agreed to lend $600,000 if the deed administrators agreed not to terminate the DOCA. In response, Mr Ross enquired how the company proposed to deal with "its fundamental breach" of the DOCA given that outstanding statutory debts were some $1.1 million. Mr Ross also sought confirmation that the company was no longer in default with statutory authorities, "Without this, it is unlikely that our decision to terminate the DOCA (given the continued default) would change".

100 The company's solicitor requested Mr Ross' patience whilst further communications with the statutory creditors occurred and proposed that the $600,000 to be funded by Mr Duthie be disbursed immediately to pay the outstanding DOCA contribution, payroll tax, superannuation and the September BAS and PAYG obligations. This left the remaining ATO debt the subject of the garnishee notice, being some $590,000; it was hoped a payment arrangement or further funding would be raised to clear this debt. The solicitor requested Mr Ross' forbearance until 31 January 2016 and, "If you are prepared to support the above proposal, the above payments will be made today ...". Mr Ross replied:

Just to clarify - I requested confirmation from the statutory authorities that the Company is no longer in default of their obligations.

That is, Mr Ross readily perceived the company was ignoring his request.

101 The company's solicitor responded that the $600,000 would be paid directly from Mr Duthie's bank account once Mr Ross confirmed that he would not act to wind up the company and agreed to a period of forbearance, following which a payment arrangement would be put in place with the ATO in respect of the remaining tax debt. Mr Ross required confirmation from the relevant authorities that they had entered into a payment arrangement with the company and that the company was no longer in default of its statutory obligations. The company's solicitor advised that an 'in principle' agreement had been reached with the ATO to agree to a payment plan once the company had paid the September quarter superannuation and the October BAS. (The ATO's collection notes do not record such an agreement.)

102 On 7 December 2015, Mr Duthie transferred $600,000 to David O'Hare's bank account. In the company's accounts, a loan account was established in Mr Duthie's name in the amount of $600,000. A series of small payments were later also recorded, likely interest. The company's balance sheets thereafter recorded this liability, being a loan from Mr Duthie of $600,000.

103 On 8 December 2015, Mr Ross spoke to the ATO seeking to ascertain the ATO's attitude to the company's proposed payment plan. Whilst the company continued to be in breach of the DOCA, Mr Ross advised that, should the company rectify its breaches under the DOCA, it would provide the best opportunity for a return to creditors. According to the deed administrators' file note, the ATO asked Mr Ross to call a creditors' meeting; Mr Ross preferred not to call a creditors' meeting but wanted to take action without further delay. However, the deed administrators agreed to allow until 12 December 2015 to see if any arrangement could be made for the repayment of the debt; the ATO requested the administrator to allow further time to negotiate payments. The company's solicitor also contacted the ATO and advised that "the Administrator has given them [an] ultimatum to get an arrangement with us for Tax and State revenue for payroll tax. If they are not able to enter into an arrangement today the administrator will terminate the DOCA and take control of the Company".

104 Mr Ross says he formed the view that the ATO, as the major unsecured creditor of the company, did not want the DOCA to be terminated and thus the DOCA should not be terminated unilaterally without convening a meeting of creditors.

First ATO payment arrangement

105 On 11 December 2015, David O'Hare withdrew $400,000 from his bank account - being the account into which Mr Duthie had deposited $600,000 - from which a bank cheque was drawn payable to the ATO. The cheque was provided to the ATO and credited to the company's RBA. A general journal entry was made in the company's accounts on 11 December 2015, recording a loan from David O'Hare of $400,000. It is not entirely clear why Mr Duthie's loan resulted in the creation of two loan accounts, but it is tolerably clear, particularly by reason of the document referred to at [118], that it was Mr Duthie who lent $600,000 to the company and there was no loan by David O'Hare of $400,000.

106 On 11 December 2015, the ATO withdrew the garnishee notice in light of the bank cheque and the company's proposal to pay $60,000 a month until the debt was repaid in full. The company was also required to provide security to cover the liabilities of the company and associated Director Penalty liability. The same day, the deed administrators pressed the ATO for its decision in respect of the proposed payment arrangement and was informed that an 'in principle' agreement had been reached.

107 On 15 December 2015, the deed administrators sought confirmation from the ATO that a payment arrangement had been entered into and that the company was no longer in default under its statutory obligations. Confirmation was duly provided. After receiving confirmation that the ATO had agreed to a payment arrangement, Mr Ross did not consider the DOCA should be terminated as he believed the company was attempting to rectify the breaches under the DOCA. The deed administrators, however, moved to weekly reporting.

108 On 22 December 2015, the ATO advised the deed administrators that the company was no longer in default under its statutory obligations and the ATO was obtaining security to cover the liabilities of the company and associated Director Penalty liability. The deed administrators forwarded this letter to the invoice financier, who had been seeking assurance that the company's debts to the ATO and SRO had been satisfied. The deed administrators advised the invoice financier that, as long as the company complied with the payment plans with statutory bodies and with the DOCA, the deed administrators had no further concerns.

109 The company abided by the payment plan for several months. Four direct payments totalling some $397,000 were made. In January 2016, the deed administrators sought further information in respect of the weekly cashflow reports. In cross-examination, Mr Ross said he was not happy with the cashflows. Mr Ross also sought a copy of the payment plan entered into with the ATO and confirmation that the company had funds to make the next payment. The deed administrators also sought a copy of the payment plan from the ATO directly.

Refinance

110 In February 2016, Hermes Capital Australia Pty Ltd approached the deed administrators, seeking approval to refinance the company's invoice financier. Hermes Capital needed the deed administrators to give a release in respect of the company's book debts. The deed administrators sought details of the proposed facility and confirmed that the company was currently in default of the DOCA.

111 Further third party payments were made on 23 February 2016. Self-evidently, there was a correlation between Western Port Holdings' cashflow problems and third party payments.

(a): SMG paid $88,500 to the ATO, which was credited to the company's RBA. SMG's loan account with Western Port Holdings then stood at $69,611.48, that is, the company was in debt to SMG. In the company's MYOB accounts, the payment to the ATO was recorded as a further loan from SMG, increasing the balance of the loan account to $158,111.48.
(b): SHA paid $24,500 from its bank account to the ATO, which was credited to the company's RBA. At this time, SHA's loan account with Western Port Holdings stood at $17,704.37, being an amount owed by SHA. In SHA's MYOB accounts, the payment to the ATO was entered as a loan to Western Port Holdings. A corresponding loan from SHA was entered in the company's MYOB accounts, with the result that Western Port Holdings now owed SHA $6,795.63. Whilst, historically, SHA had always owed the company money, thereafter the balance of the loan account was the other way.

112 In March 2016, the company's accountant asked the ATO to defer payment of the January 2016 BAS, as the company was unable to pay. The invoice financier was said to have been slow to release funds; two weeks were sought to consolidate finances. The ATO advised that, if the company could not make the payment by 6 March 2016, then the ATO may have to contact the deed administrators to advise that the taxpayer had defaulted on their payment arrangement.

113 On 7 March 2016, the company's accountant provided the deed administrators with the weekly report, advising that there had been a significant injection of funds from the O'Hare family and related parties during the week, given drawdown problems with the invoice financier. On 8 March 2016, the company's solicitor advised the ATO that any recovery action would seriously jeopardise refinance. On 10 March 2016, the outgoing financier sought confirmation from the deed administrators that they approved the refinance and, on 11 March 2016, the deed administrators advised that they had not consented but were liaising with the directors and had requested further information in relation to defaults under the DOCA.

114 On 16 March 2016, the deed administrators sought confirmation from the company that specified statutory liabilities of the company would be met upon refinance. The company's solicitor confirmed this would occur, as did Hermes Capital. The deed administrators pressed for a more specific confirmation from Hermes Capital, "Provided that the points outlined in my email below will be paid out of the proceeds of settlement, we do not see any objection to this". The deed administrators provided a "Release (PPSA registered security interests)" to enable the refinance to occur.

115 On 21 March 2016, Hermes Capital's offer of finance to Western Port Holdings and SHA was accepted. As security for the facility, Western Port Holdings, SVA (Vic) and SMG gave security over all present and after-acquired property. In addition, registered mortgages were granted over real property being, it would appear, property owned by members of the O'Hare family. On 24 March 2016, the facility was drawn down. Hermes Capital made third party payments to the ATO totalling $289,386. Of the $2.5 million invoice finance facility, available credit of $642,711.38 remained.

116 The balance of the company's RBA was then $438,633.83. On 24 March 2016, the company's solicitor asked the ATO for an extension of time to pay the February BAS, advising that funds from the refinance would be used to pay particular outstanding ATO liabilities, albeit slightly different from those agreed with Mr Ross. The company's accountant pressed the ATO for confirmation of the extension to be provided to the deed administrators, as the company needed to pay wages that day. The ATO provided confirmation. According to Hermes Capital, Mr Ross agreed to defer payment of the February BAS, being something he had insisted upon when giving his consent to the refinance.

117 On 29 March 2016, the deed administrators sought confirmation from Hermes Capital that the refinance had occurred and that the moneys had been disbursed in accordance with Mr Ross' requirements. On 1 April 2016, the company's solicitor asked the ATO to give further time to pay the February BAS. On 6 April 2016, Hermes Capital responded to the deed administrators, confirming the refinance had settled. On 7 April 2016, the ATO refused the company's request for further time to pay the February BAS.

118 On 12 April 2016, Mr Duthie executed a Business Loan Agreement with Western Port Holdings and SMG. The parties agreed that, on 7 December 2015, Mr Duthie had lent $600,000 to Western Port Holdings, to be repaid at the earliest possible time together with interest payments of $3,000 per month. Further, as a form of security, a caveat would be placed over a property owned by SMG. Having regard to this document, together with the slightly confusing MYOB entries referred to [102] and [105], it is clear that Mr Duthie lent $600,000 to Western Port Holdings which, likely for practical convenience, was paid into David O'Hare's bank account in the first instance. That is, it does not appear that David O'Hare lent the $400,000 which funded the bank cheque to Western Port Holdings in addition to Mr Duthie's loan to Western Port Holdings of $600,000.

Third default notice

119 The deed administrators discovered that Western Port Holdings had lodged the BAS for February 2016 but $243,918 remained outstanding. On 13 April 2016, a third notice of default was issued for breach of clauses 7.3.7 and 7.3.10 of the DOCA. In respect of clause 7.3.7 ("cause the Company to pay its debts as and when they fall due"), the deed administrators had been contacted by an insurer's solicitors, who were instructed to commence proceedings against the company in respect of outstanding insurance premiums of some $164,000; Westpac had advised that the company was in arrears in respect of various finance agreements. In respect of clause 7.3.10, payment of the February BAS remained outstanding. The breach was to be remedied by 20 April 2016.

120 The company did not respond to the third notice of default but, on 20 April 2016, Hermes Capital made a third party payment to the ATO of $243,918 in respect of the February BAS. Of the $2.5 million invoice finance facility, available credit of $875,063.95 then remained.

121 On 3 May 2016, the deed administrators sought confirmation from the company's solicitor that the matters referred to in the third notice of default had been attended to and that the statutory liabilities of the company which had fallen due in April 2016 had been or would be paid. The company's solicitor advised that the company was liaising with the ATO and would be satisfying the statutory obligations from cashflow. There were said to have been delays due to refinancing several properties, and it was said that the ATO had allowed the company until 16 May 2016 to attend to outstanding payments and provide security. I have found no record of such an agreement in the ATO's collection notes.

Fourth default notice

122 On 9 May 2016, the deed administrators followed up the company's monthly accounts for March 2016. On 10 May 2016, the deed administrators issued a fourth notice of default. In addition to the matters in the third notice of default, the deed administrators noted that the March BAS had not been paid, with $267,424 outstanding. The company had also failed to make the fourth payment instalment due on 16 April 2016 and to supply monthly management account reports for March 2016. The breach was to be remedied by 17 May 2016.

123 On 17 May 2016, the ATO called the deed administrators and was informed of the fourth default notice, which expired that day. The deed administrators advised that they would contact the ATO before placing the company in liquidation. The ATO officer advised that the company had failed to comply with the terms of the 'in principle' agreement; "We have given them ample time to provide information regarding the security and to make all lodgements and payments up to date but they failed to do so". On 17 May 2016, the company's solicitor advised of its progress in paying the insurers, Westpac and the ATO, noting that it was in the progress of negotiating the payment of arrears of the April BAS by refinancing several properties. Again, I can find no record of these negotiations in the ATO collection notes.

124 On 19 May 2016, the ATO met with Kerry and David O'Hare, who proposed to enter into a payment plan to pay 30% of payments received each week and to pay at least $350,000 from the proceeds of a refinance. The ATO required the O'Hares to get back to them with a minimum amount that they would be paying each week. On 20 May 2016, the deed administrators advised Kerry, David and Drew O'Hare that the company's failure to pay statutory liabilities was a default under the DOCA and they were required to bring the company's liabilities up to date as a matter of urgency.

125 On 23 May 2016, the company made a direct payment of $37,023 to the ATO, leaving an amount owing of some $680,000. On 24 May 2016, the company's solicitor informed the deed administrators of the meeting with the ATO, where it was said that the ATO had agreed to receive weekly drawdown payments and was supportive of the company's offer to pay 30% of weekly drawdown until payments were up to date. The deed administrators were asked to liaise with the ATO to confirm that the company was not defaulting under its current payment arrangements. Ten further direct payments were made from the company's bank account from May to September 2016, totalling some $300,000.

126 On 1 June 2016, the deed administrators emailed the ATO noting that the company continued to breach the terms of the DOCA due to its failure to comply with its statutory obligations.

I understand that the ATO is currently reviewing a new payment arrangement put forward by the Company and its Directors in order to pay down the Company's outstanding statutory obligations.

Can you please provide further details in relation to the terms of the payment arrangement including confirmation that the Company is no longer in default under its statutory obligations.

However, the ATO advised the deed administrators that it was "not authorised to provide you with any information regarding the company's post-DOCA account". Such information needed to be obtained from the company.

127 The deed administrators promptly emailed the company's solicitors seeking details of the payment arrangement being negotiated with the ATO and confirmation from the ATO that the company was no longer in default under its statutory obligations. The deed administrators noted that the company was then in breach of the DOCA due to its failure to comply with its statutory obligations, failure to make a deed fund contribution on 1 June 2016 and failure to pay a supplier's account. The company was asked to bring the company's liabilities up to date as a matter of urgency.

128 The company's solicitor advised that the ATO had requested that no formal payment arrangement be entered into unless there were no defaults, and the ATO would confirm that the company was no longer in default. Of course, as the ATO had recently advised, the ATO was not prepared to provide such a confirmation to the deed administrators directly.

Fifth default notice

129 On 10 June 2016, the deed administrators issued a fifth notice of default to the company. The company had failed to pay a number of creditors. In addition, the company owed $717,302.90 to the ATO and the April 2016 BAS had not been lodged nor paid. The company had failed to meet its obligations under the payment arrangement with the ATO by failing to make two instalments; the deed administrators were yet to receive confirmation that payroll tax and superannuation was up to date. These breaches were to be remedied by 20 June 2016.

130 On 20 June 2016, the company's solicitor addressed the fifth notice of default, advising that, in respect of the ATO and the SRO, a payment plan had been agreed upon, and attached an email from the ATO. The ATO's email is not in evidence but, on 21 June 2016, the deed administrators sought further information from the company in respect of the payment proposal as the ATO's email did not provide sufficient detail in relation to the debt which the payment proposal would cover.

Second and third ATO payment arrangements

131 On 27 June 2016, the ATO consulted with Kerry O'Hare and agreed to accept a monthly payment of $120,000. The total amount of debts then stood at $1.5 million, including Directors Penalty Notice debt of $670,000. On 28 June 2016, the ATO sent a letter to the company confirming the agreed payment schedule. On 4 July 2016, the deed administrators requested a copy of the payment arrangement from the company's solicitors, together with confirmation that other matters in the fifth notice of default had been attended to. The company advised it would provide the formal payment arrangement when it was to hand.

132 In fact, it appears that the company was endeavouring to negotiate a revised payment arrangement with the ATO. The ATO's collection note records that, on 8 July 2016, Kerry O'Hare proposed that 30% of all invoices paid each week would be sufficient to cover the company's ongoing obligations. The company offered to pay $5,000 a week, paid monthly, to pay off existing debts. The company was said to be in the process of obtaining substantial finance. The ATO decided to accept the reviewed payment arrangement for six months to allow the company to refinance and to enable the ATO to monitor the company's compliance with its ongoing tax obligations. On 9 July 2016, the ATO issued a letter confirming the third payment plan.

A meeting of creditors to terminate the DOCA

133 On 19 July 2016, the deed administrators advised the company's solicitor that, if the directors did not provide the information sought by close of business, the deed administrators would send a report to creditors to convene a meeting. On 20 July 2016, the deed administrators wrote further noting that, in light of a revised proof of debt submitted by the ATO which increased the liability of the company by some $425,000, the DOCA would provide less than full payment to employee creditors and a nil return to unsecured creditors. The director was invited to put forward a proposal to vary the terms of the DOCA, failing which the deed administrators would be recommending that the DOCA be terminated. Mr Ross says he formed the view that the DOCA should be terminated due to the company's continued defaults in failing to meet its ATO liabilities and in failing to provide the deed administrators with financial management reports. Mr Ross was of the view that the company would not be able to rectify these defaults.

134 On 22 July 2016, the deed administrators issued a report to creditors, convening a meeting on 3 August 2016 to determine whether creditors wished to terminate the DOCA and wind up the company. The deed administrators expressed the opinion that the company was presently not in a financial position to satisfy the terms of the DOCA whilst meeting the ongoing requirements under payment plans with the ATO and creditors. The DOCA was unlikely to result in the previously anticipated return to unsecured creditors. The deed administrators recommended that the DOCA be terminated and the company be placed in liquidation.

135 The day before the meeting of creditors, Kerry O'Hare met with the ATO. According to the ATO's collection notes, "Kerry stated that the Administrator is pushing him to place the company into liquidation for their own benefits but the client doesn't want to place the company into liquidation". Mr O'Hare promised to lodge and pay all ongoing obligations by the due dates and to pay $20,000 a month for the next three months, to allow them to refinance. The ATO agreed to vote against the proposed termination of the DOCA at the creditors' meeting on the basis of this agreement.

136 On 3 August 2016, the meeting of creditors took place. Mr Ross outlined the history of defaults in respect of the DOCA and that, based on the current position, there may be no return to unsecured creditors of the company. Mr Ross advised that the DOCA contributions were up to date and generally paid on time and that the secured creditor, Hermes Capital, was not in favour of the company being placed into liquidation. After extensive discussion, the majority of creditors (both in value and number) - including the ATO - voted against terminating the DOCA.

137 On 23 September 2016, the deed administrators wrote to the company advising that it appeared to again be in breach of the DOCA as the June 2016 BAS had not been paid in full, the July and August 2016 BAS had yet to be paid and the company had failed to comply with the payment arrangement entered into with a creditor. Nor had the company's accounts been supplied for July 2016 or August 2016. Confirmation was sought that payroll tax and superannuation were up to date. There was no reply. David O'Hare also ceased to be a director of SMG. Richard Barclay (who had been appointed as director on 26 August 2016) became the sole director. There is no evidence as to who Mr Barclay was; he was not a director for long.

138 On 27 September 2016, the ATO contacted Kerry O'Hare and advised that the company's liabilities had escalated by a further $528,000 since their meeting in May 2016. Kerry O'Hare did not agree with this figure but advised that the August BAS of $158,000 would be paid by 5 October 2016. The ATO agreed to allow further time for the August BAS to be paid but advised that, if the liabilities were not paid in full on that date, the ATO may take further recovery action.

139 On 27 September 2016, SMG transferred a third party payment of $15,000 from its bank account to the ATO, which was credited to the company's RBA. An entry was made in the company's MYOB accounts, increasing SMG's loan account accordingly. This increased the balance of the loan account from $82,812.20 to $97,812.20, that is, the money which Western Port Holdings owed SMG increased by $15,000.

140 On 7 October 2016, the ATO met with Kerry O'Hare, who advised that business had been slow and they were unable to pay the August 2016 BAS. Attempts were being made to refinance to ensure sufficient funds were available to pay ATO debt.

141 On 21 October 2016, the deed administrators followed up their request for information from the company in respect of apparent breaches of the DOCA. The company had failed to lodge and pay its self-assessed amounts for September 2016, was in arrears of finance arrangements with Westpac and had yet to supply September 2016 accounts. The company advised that an arrangement to pay the September BAS had been agreed with the ATO and other creditors had been paid. The deed administrators requested confirmation from the ATO that the company was not currently defaulting under its payment arrangements and sought details in relation to the agreement with the ATO. There appears to have been no reply. On 26 October 2016, the company made a direct payment of $20,000 to the ATO.

Fourth ATO payment arrangement

142 On 14 November 2016, the deed administrators followed up their request for information from the company, which provided an update on its progress with paying payroll tax and superannuation but was silent in respect of its arrangements with the ATO. On 29 November 2016, the company made its last direct payment of $20,000 to the ATO, leaving an outstanding balance of $1,734,449.

143 On 2 December 2016, the ATO noted that the payment arrangements were in default. On 15 December 2016, Kerry O'Hare met with the ATO and requested additional time to pay outstanding tax liabilities. On 16 December 2016, the ATO agreed to a fourth payment plan, with instalments of $20,000 for three months, and instalments of $40,000 for a further three months after which time the arrangement would be reviewed. The tax debt then stood at some $1.8 million. Mr Ross says the deed administrators had no involvement in this payment arrangement nor knew of it at the time.

144 The first payment under the third ATO payment arrangement was made on 5 January 2017 by SHA, which transferred a third party payment of $20,000 from its bank account to the ATO. The company's MYOB accounts recorded a corresponding increase in its loan from SHA. David O'Hare was then the sole director of SHA.

145 On 12 January 2017 and 16 January 2017, the deed administrators sought information and confirmation from the company in respect of its increasing defaults in its obligations to pay the ATO, to provide accounts and attend to its statutory liabilities. The company's solicitors advised that the RBA was greatly inflated, the company was not defaulting under its current payment plan and other matters were generally 'in hand'.

146 The final third party payments were made on 31 January 2017, being a payment by SHA of $10,000 and a payment by SMG of $10,000. Accounting entries were made in the MYOB accounts of SHA and SMG recording loans to the company. The loan was not recorded in the company's MYOB records. As at 31 January 2017, the balance of those loan accounts was $160,170 for SHA and $77,560 for SMG, that is, Western Port Holdings owed both companies money.

Sixth default notice

147 On 7 March 2017, the deed administrators issued a final notice of default to the company for failure to pay its debts as and when they fell due, failing to pay its statutory liabilities by the due date (the balance of the company's RBA account then stood at some $1.9 million), failing to lodge the December 2016 and January 2017 BAS statements and provide confirmation that payroll tax and superannuation had been paid; failing to provide financial statements for the year ended 30 June 2016 or monthly management accounts from October 2016 on. The breaches were to be rectified by 10 March 2017. A response was provided on 10 March 2017, which it is not necessary to repeat. Further information was sought. Reminders were sent.

148 On 28 March 2017, the deed administrators wrote again, expressing serious concerns in relation to the company's financial position and ability to continue to fulfill the terms of the DOCA. Unless the breaches were remedied by 30 March 2017, the deed administrators proposed to notify creditors under section 445HA of the Corporations Act of a material contravention of the DOCA.

149 On 24 April 2017, the deed administrators participated in a telephone conference with Kerry and David O'Hare. It appears to have been agreed that the deed administrators would take possession of the company's premises and prepare to sell the business. On 5 May 2017, the deed administrators notified creditors that the deed administrators had taken possession of the business.

Termination of DOCA

150 On 9 May 2017, the deed administrators provided a report to creditors, convening a meeting on 24 May 2017 to determine whether creditors wished to terminate the DOCA and wind up the company. On 23 May 2017, the Supreme Court of Victoria appointed the deed administrators as receivers and managers of the business and assets of the DOH Family Trust. On 24 May 2017, the creditors resolved to terminate the DOCA and appointed the deed administrators as liquidators. The relation-back period for the purposes of section 588FE(2B) of the Corporations Act was, thus, from 13 April 2015 to 24 May 2017. The company then had 78 creditors whose claims totalled some $10.1 million. The ATO's proof of debt was for some $6.9 million, comprising $2.3 million in respect of unpaid superannuation and $4.6 million in respect of the company's RBA deficit debt.

151 The liquidators then sought documents from the ATO, the company's accountant and the O'Hares. The liquidators obtained backup MYOB files for the company and, it appears, gradually reconstructed the payments in respect of which relief is now sought. In December 2017, the liquidators sent a letter of demand to the ATO. These proceedings were commenced in April 2018.

Present position

152 There are insufficient funds remaining in the company to pay a dividend to any class of creditor. If the liquidators are successful in these proceedings, Mr Ross estimates that there will be a return of between 61 and 100 cents in the dollar for priority creditors in relation to superannuation, up to 100 cents in the dollar for other priority creditors in respect of unpaid wages, annual leave and redundancy, and up to 4 cents in the dollar to ordinary unsecured creditors.

153 As matters presently stand, the ATO has received approximately 31 cents in the dollar in relation to the RBA deficit debt compared with the 4 cents in the dollar which the ATO will receive if left to prove in the winding up. As a consequence of receiving payments during the DOCA period, the ATO has received more than it will if it has to prove for the debt in the liquidation of the company.

APPLICATION OF READY KIT CABINETS

154 Unlike Ready Kit Cabinets, the ATO submitted that the deed administrators took an active role in issuing directions to the company to make payment of the outstanding tax liabilities. In Ready Kit Cabinets, the deed administrators did not know about the payments to the ATO until after the payments had been made. Here, the deed administrators sought details and were informed about the company's compliance with tax liabilities, regularly followed up the company and the ATO in respect of unpaid amounts, sought confirmation that the tax liabilities were being paid, and issued five notices of default requiring the company to rectify its breaches of the DOCA and make payment of its outstanding tax liabilities. The deed administrators actively pressed the company and director to pay the company's outstanding liabilities and threatened termination of the DOCA should it fail to do so.

155 By reason of these matters, the ATO submitted that each of the payments were made under the authority of the deed administrators. By operation of section 444G of the Corporations Act, as noted in clause 1.3 of the DOCA, the DOCA bound the company, the director and the deed administrators. The express terms of the DOCA authorised and required the payments to be made, the deed administrators were parties to and bound by the terms of the DOCA, and the evidence was said to demonstrate that the deed administrators gave directions requiring that the payments be made. By continuing to trade, the company would incur further tax liabilities; a condition of control of the company being handed back to the director was that these tax liabilities would be paid in full as and when the liabilities fell due.

156 The deed administrators were said to have been supportive of the company arranging for further capital to be injected into the company so that it could make payments required under the DOCA and agreed not to terminate the DOCA on that basis. The invoice finance facility with Hermes Capital could not have been entered into had the deed administrators not provided their consent for security to be granted to Hermes Capital. During the DOCA period, Mr Ross and his staff regularly contacted the ATO to request confirmation as to whether the company had entered into payment plans and queried whether the company was complying with those payment plans.

157 The liquidators submitted that, consistently with Ready Kit Cabinets, control of the company was returned to the directors pursuant to the DOCA. The payments were made by the directors exercising that control. The payments were therefore made under the authority of the directors. There is no occasion in s 588FE(2B) to look behind the authority of the directors to ask how that authority came about. This case was not distinguishable. It was submitted that the state of the deed administrator's knowledge of the payments was a matter of no consequence in the reasoning of Middleton J or on appeal. The relevant inquiry was the source of authority for the relevant payment.

Conclusion

158 The evidence does not support the ATO's submission that the deed administrators issued directions to the company to pay tax debts. Indeed, the evidence is not dissimilar to that in Ready Kit Cabinets: Mr Ross did not make the payments, he did not specifically instruct anyone to make the payments, and he did not know about the payments until after they had been made. Mr Ross was aware that there were ongoing discussions between the company and the ATO about payment arrangements, but was not a party to those discussions. Mr Ross' description of his role and involvement in the payments (see [76] to [77]) was accurate.

159 It will be apparent from the correspondence and meetings (described from [80] on) that the lines of communication: between the company and the ATO; between the company and the deed administrators; and, between the deed administrators and the ATO were, on occasion, composite but, as often as not, were separate lines of communication. The deed administrators were generally not copied into communications between the company and the ATO; there was usually a delay between the company reaching an agreement with the ATO and the deed administrators being informed of this matter, or being provided with a confirmatory letter from the ATO.

160 There is no doubt that Mr Ross and his staff pressed the company to meet its statutory liabilities. The ATO was the biggest unsecured creditor of the company. Compliance with the company's obligation to meet its statutory obligations was a core obligation of the Director under the DOCA. It is apparent that Mr Ross saw the company's inability to meet this obligation as a key indicia as to whether, and when, the DOCA should be terminated. But that does not mean that the payments ultimately made by the company to the ATO were made under Mr Ross' authority as opposed to the Director's authority, to whom control and management of the company had be re-vested by the DOCA.

161 The facts do not warrant any departure from the conclusions reached in Ready Kit Cabinets. So far as can be seen, the deed administrators did not make the payments to the ATO nor direct the company to make the payments. Rather, the payments were made under the authority of the "Director", to whom management of the company had been returned on execution of the DOCA.

APPLICATION OF CANT v MAD BROTHERS

162 The ATO submitted that the third party payments were not unfair preferences as the ATO received nothing from the company: Evolvebuilt at [66], Cant v Mad Brothers; Ramsay v National Australia Bank Ltd [1989] VR 59. Other creditors may in fact receive a greater dividend as the result of the transaction because one of the creditors, who otherwise would have proved in the liquidation, has been paid out: Keay, "An Analysis of Unfair Preferences under the New Avoidance Regime" (1996) 24 Australian Business Law Review 39 at 43. This could be contrasted with cases such as Walsh (as liq of Thompson Land Ltd) v Terranova Pty Ltd (1994) 14 ACSR 432 and Analogy Pty Ltd (Receiver and Manager Appointed) (in liq) v Bell Basics Industries Ltd (Full Court of the Supreme Court of Western Australia, Malcolm CJ, Kennedy and Anderson JJ, 23 August 1995, unreported, BC9502636).

163 The ATO submitted that the third party payments were not unfair preferences as the ATO's receipt of the payments did not diminish the assets of the company otherwise available to creditors. In some cases, the payments may have resulted in the substitution of one creditor (the ATO) for another (the third party). Unfortunately, the ATO did not descend into the detail of each particular transaction and indicate why this was so.

164 In respect of Hermes Capital, the ATO also submitted that, although Western Port Holdings gave security over all present and after-acquired property of the company, the company likely had no assets. It was said that there was no evidence that the security was of any value. Rather, it was submitted:

The evidence does not explain what impact on the net assets of the company either the entries into the Hermes facility or the making of payments pursuant to it occasioned. That lack of evidence means that it has not been shown that even the payments made pursuant to the Hermes facility resulted in any reduction in the assets of the company such that there was a preference within the meaning of the authorities. If there is any doubt about the evidence, your Honour, and what occurred, you should find [the liquidators have not discharged their] onus.

165 The liquidators submitted that it is only necessary to establish that the third party payment was authorised by the debtor such that the payment in issue could be said to have been made "by or on behalf of" the debtor company: Burness per Gordon J at [45]; Kassem at [42]. Brereton J's differing approach in Evolvebuilt was not endorsed in Hosking at [31]. Here, the third party payments were clearly loans by third parties to the company and are not distinguishable from Kassem. Further, each of the third party payments would give rise to a restitutionary claim of the type contemplated by Gordon J in Burness. The Court of Appeal in Hosking was "inclined" to the view that the creation of such a claim in the debtor's favour would be sufficient to constitute a payment made by a third party a payment "received from" the company for the purposes of s 588FA(1)(b): Hosking at [111]. The liquidators submitted that the Court should follow the Court of Appeal's inclination. However, as already analysed at [9]-[39], I am bound to follow Cant v Mad Brothers.

166 The liquidators submitted that the conclusion in Cant - that "it is necessary, in order for a preference to be 'from the company' that the receipt of it by the creditor has the effect of diminishing the assets of the company available to the creditors" and that "a payment by a third party which does not have the effect of diminishing the assets of the company available to creditors is not a payment received 'from the company' and is therefore not an unfair preference" (at [120]) - was difficult to reconcile with the reasoning. That may be so, but Cant v Mad Brothers is not plainly wrong.

167 The liquidators also submitted that Cant v Mad Brothers largely supported their position in any event. The Court recognised that a payment may involve no net diminution of a company's assets and constitute an unfair preference: at [112]. Further, there was a diminution of assets of the company as a result of the payment of $81,830 being made by David O'Hare to the ATO as a corresponding change in the balance of his loan account with the company. This diminished the company's assets, being the loan account with David which had a balance in favour of the company: Re Eliana Construction and Developing Group Pty Ltd (No 2) [2019] VSC 546 at [79]. In respect of the $400,000 paid from David O'Hare's bank account to the ATO, this was said to be an example of a debtor company using borrowed funds to pay a creditor as was the position in Kassem. So too was the payment of moneys by SHA, Hermes Capital and SMG.

Conclusion

168 There were 11 third party payments in this case, being:

(a): one payment by David O'Hare, the circumstances of which are described at [78];
(b): one payment funded by a loan from Mr Duthie to the company, the circumstances of which are described at [99] to [102], [105] and [118];
(c): three payments by SHA, the circumstances of which are described at [111], [144] and [146];
(d): three payments by SMG, the circumstances of which are described at [111], [139] and [146]; and
(e): three payments by Hermes Capital, the circumstances of which are described at [115] and [120].

169 As already noted, none of the O'Hares gave evidence in this case as to the precise circumstances which gave rise to each payment, although one would not necessarily expect that they would be willing to assist either the liquidators or the ATO in this case. Nonetheless, in addition to Mr Ross' evidence of his dealings with the O'Hare family, there is a substantial body of records of contemporaneous communications and accounting records. Together, this evidence may enable inferences to be drawn as to the circumstances surrounding the payments to the ATO.

Payment by David O'Hare

170 At the time when David O'Hare paid $81,830 from his bank account to the ATO, he owed Western Port Holdings some $120,000. On making the payment to the ATO, David O'Hare loan account with the company was reduced by $81,830. The company could no longer demand payment of $81,830 from David O'Hare; that money or asset was no longer available for distribution to creditors. Thus, the payment was made out of moneys or assets to which the company was entitled: Cant v Mad Brothers at [109]. The fact that Western Port Holdings' tax debt also reduced, and thus the net assets were unchanged, is a distraction: Cant v Mad Brothers at [112].

171 Although it is not strictly necessary to consider this, there was no written direction by the company to David O'Hare to make the payment to the ATO, no contemporaneous email nor any evidence from David O'Hare. I infer, however, that such a direction was given having regard to the fact that David O'Hare was then a director of Western Port Holdings. He was also the company's chief financial officer. David O'Hare would have been aware of the company's financial circumstances, including the moneys which he owed to the company. Further, soon after the transaction, an accounting entry was made by the company recording a "payment to ATO from D O'Hare ...". The reduced balance of David O'Hare's loan account was thereafter reported in the company's balance sheet. Where a company directs a third party to pay moneys to which the company is entitled, "Such moneys are plainly received from the company because they are moneys to which the company is entitled and the benefit of which is received by the creditor from the company, by its direction": Cant v Mad Brothers at [115]. I find that is what occurred in respect of this payment. Consequently, the transaction resulted in the ATO "receiving [funds] from the company", within the meaning of section 588FA(1)(b) of the Corporations Act.

Mr Duthie's loan

172 As to Mr Duthie's loan of $600,000 to Western Port Holdings, of which $400,000 was on-paid to the ATO, the loan was obtained in circumstances where the deed administrators wished to terminate the DOCA and place the company into liquidation. Kerry and Drew O'Hare wished to prevent this occurring by raising funds within 24 hours to pay down tax debt and an outstanding DOCA contribution. The loan was obtained from Drew O'Hare's father in law. Although the moneys were paid into the bank account of David O'Hare and on-paid to the ATO, the company's records recognise that the moneys were lent by Mr Duthie to Western Port Holdings.

173 As was explained in Re Emanuel, the "transaction" referred to in section 588FA(1) is the totality of dealings through which a company effects a change in its rights, liabilities or property, irrespective of whether one or more of the dealings in the sequence involves a third party and not the company. "The transaction ... is the totality of the dealings initiated by the debtor [company] so as to achieve the intended purpose of extinguishing the debt": at 299-300. I am satisfied that Mr Duthie's loan is a "transaction" within the meaning of section 588FA(1). The company was in urgent need of finance. Mr Duthie agreed to provide finance. It was a simple loan transaction between the company and Mr Duthie. The fact that the funds were remitted, in the first instance, by Mr Duthie to David O'Hare, who drew on the funds to obtain a bank cheque which was delivered to the ATO, does not detract from the nature of the transaction. The loan was procured in haste, generated by Mr Ross' determination to terminate the DOCA and wind up the company if funding was not obtained within 24 hours. The true nature of the transaction was later documented in conventional terms. Thus, I find that section 588FA(1)(a) of the Corporations Act is satisfied.

174 As to whether the transaction resulted in the ATO receiving from the company more than it would in a winding up, the case is no different from that which would apply if Western Port Holdings had borrowed the money on overdraft from its bank and paid the ATO with those funds: Kassem at [62]. Thus, the funds were received by the ATO from the company within the meaning of section 588FA(1)(b) of the Corporations Act.

Payments by SHA and SMG

175 In respect of the payments made by SHA and SMG, on occasion these payments had the consequence of reducing the moneys which these companies owed Western Port Holdings. Insofar as these payments resulted in a reduction of the moneys owed by SHA and SMG to Western Port Holdings, then the principles in [171] apply equally here. On occasion, these payments were loans to Western Port Holdings. To the extent that the payments to the ATO had the consequence that SHA and SMG extended a loan to Western Port Holdings, then the principles described at [174] apply. Either way, the transactions resulted in the ATO "receiving [funds] from the company", within the meaning of section 588FA(1)(b) of the Corporations Act.

176 As mentioned at [146], the final third party payments made by SHA and SMG were recorded as loans in the accounting records of SHA and SMG but not in the accounting records of Western Port Holdings. The fact that the third party payments were not recorded in the company's MYOB accounts is consistent with these loans being made by SHA and SMG as 'volunteers', giving rise to a restitutionary claim only. However, given that the third party payments were recorded in the MYOB accounts of SHA and SMG as loans to Western Port Holdings, together with the history of loans made by SHA and SMG to the company, the fact that the company went into liquidation shortly thereafter, and the fact that the company's accounting records were less than perfect, is also consistent with a finding that Western Port Holdings called upon these companies to provide further loans to meet ATO debt, and those loans were provided but not recorded in the midst of the company's financial turmoil. I consider that the latter scenario is more likely, and I so find.

177 Although it is not strictly necessary to consider, I do not doubt that the payments were made by SHA and SMG at the direction of Western Port Holdings, given the relationship between the companies, the directors and shareholders of those companies, and inter-connected nature of their businesses having regard, in particular, to the day-to-day transactions on the inter-company loan accounts: see [53].

Payments by Hermes Capital

178 In respect of the payments made by Hermes Capital to the ATO, it is true that in March 2016 - when the Hermes Capital facility was drawn down - the net assets of the company were some -$362,000. However, the asset of prime importance to an invoice financier is outstanding invoices rendered by the company. It is against that asset that moneys are drawn down, as was apparent from a "Factoring Record" maintained by Hermes Capital. On each occasion when Hermes Capital made payments to the ATO, outstanding invoices exceeded $2 million. The payments made by Hermes Capital to the ATO were secured over those invoices.

179 Where a loan is drawn down in order to pay a company's debts, and where the loan is secured, "the transaction will result in a diminution of the assets available to unsecured creditors": Cant v Mad Brothers at [112]. The funds paid by Hermes Capital to the ATO were secured over the company's book debts. The third party payments by Hermes Capital resulted in a net diminution of these assets which were available to unsecured creditors. The funds were thus received by the ATO from the company within the meaning of section 588FA(1)(b) of the Corporations Act: see also Kassem at [62].

ORDERS

180 For the above reasons I make the following orders:

(1): Order pursuant to section 588FF(1)(a) of the Corporations Act 2001 (Cth) that the defendant pay to the second plaintiff the sum of $2,056,974.33 together with interest pursuant to section 100 of the Civil Procedure Act 2005 (NSW).
(2): Order the defendant to pay the plaintiffs' costs of the proceedings.

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