Sheahan v Carrier Air Conditioning Pty Ltd & Others, Air Con Serve Pty Ltd & Others

(1997) 189 CLR 407

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(Judgment by: Dawson, Gaudron and Gummow JJ)

JOHN SHEAHAN v CARRIER AIR CONDITIONING PTY LTD, ANDREW RYRIE CAMPBELL & ANOTHER, AIR CON SERVE PTY LTD

Court:

Judges: Brennan CJ

Dawson, Gaudron and GummowKirby JJ

Subject References:
CORPORATIONS
Winding up
Preferences
Payments by receiver and manager to company's creditors from funds subject to debenture
Whether payments made by company or receiver
Effect of personal undertaking of liability by receiver
Nature of receiver's agency
Preferential effect where no unsecured creditors disadvantaged
Whether payments voidable preferences recoverable by liquidator.

Other References:
Corporations Law, ss 421(1), 565.
Bankruptcy Act 1966 (Cth), ss 122(1), 122(1A).

Judgment date: 12 AUGUST 1997

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Judgment by:
Dawson, Gaudron and Gummow JJ

By order of the Supreme Court of South Australia made 11 September 1991, the appellant in each of these appeals, Mr John Sheahan, was appointed liquidator of TOC Pty Ltd ("TOC"). This company was incorporated in South Australia and formerly had been named T O'Connor & Sons Pty Ltd. The orders for the winding up of TOC and the appointment of Mr Sheahan were made upon a summons filed 27 May 1991. Consequently, under the provisions of the Corporations Law (s 465(2)), as they then stood ^[F23] , the winding up was deemed to have commenced at the time of the filing on that date.

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

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

In two actions heard together by a Master of the Supreme Court of South Australia, the appellant, as liquidator of TOC, sought to recover from Carrier and Air Con respectively sums representing payments allegedly "made or caused to be made" by TOC to those companies and which were said to be void as against the liquidator. Carrier and Air Con each joined as third parties Mr Campbell and Mr Schroder. At first instance, the claims by the liquidator succeeded as to a payment of $30,000 made by the receiver to Air Con on about 16 May 1991 and as to two payments, each of $30,000, received by Carrier on about 16 May and 27 May 1991. The second payment was by cheque drawn by the receiver and posted on Friday, 24 May 1991. While the Master found that the winding up commenced at 10.10 am on 27 May 1991, the second payment to Carrier was received before 10.10 am and therefore before the winding up commenced. The Supreme Court ordered entry of judgment accordingly. The Full Court (Doyle CJ, Duggan and Nyland JJ) set aside those orders and entered judgment for Carrier and Air Con respectively ^[F24] . In the third party proceedings, there had been issues between Carrier and Air Con on the one hand and the receiver and Mr Schroder on the other as to whether Mr Schroder's conduct had been misleading or deceptive and whether the receiver had undertaken personal liability for the payments in question. In the circumstances, the Full Court found it unnecessary to deal with those proceedings ^[F25] .

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

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

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

The receivership of TOC

Upon his appointment as receiver on 29 April 1991, Mr Campbell was obliged to take the steps set out in s 421(1) of the Corporations Law as it then stood ^[F26] . This provided:

"A receiver of property of a corporation shall:

(a)

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

(b)

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

(c)

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

(d)

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

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

The Debenture created in favour of the Bank a charge as to present and future assets of TOC, fixed as to some and floating as to others, to secure a broadly defined class of moneys and other liabilities identified as "the moneys hereby secured". A floating charge over future assets operates upon assets acquired by the company after appointment of a receiver and conversion of the floating charge to a fixed charge ^[F27] . However, such a charge would not extend to payments of money recovered by the liquidator of TOC under the statute law proscribing preferences. The right to have such preferential dealings set aside, statutory in nature, is given for the benefit of the general body of creditors ^[F28] . Hence, the security would not attach to the proceeds of the judgments the appellant recovered at first instance in the present litigation.

The receiver was empowered by the Debenture (cl 19(a)) to take possession of and to get in the whole or any part of the mortgaged premises. The proceeds of realisation which were deposited in the receiver's bank account were required, by s 421(1)(c) of the Corporations Law, to be segregated by ensuring that the account did not contain any moneys other than those of TOC which came under his control. The relationship between the bank with which the receiver maintained the account and the receiver was essentially that of debtor and creditor, the account being in credit; such a debt constituted a chose in action, the title to which was vested in the receiver ^[F29] . The statutory requirement of segregation, duly observed by the receiver, may well have been indicative of the existence of a trust binding the receiver as holder of the legal title to that chose in action and as to dealings with the account ^[F30] . The obligations of the receiver with respect to the treatment of the moneys represented by the credit in the bank account were spelled out by cl 22 of the Debenture ^[F31] . This states:

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

(a)

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

(b)

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

(c)

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

(d)

in payment of the remuneration of the Receiver;

(e)

in payment to the Bank of the moneys hereby secured .

The surplus (if any) shall belong to [TOC] but such surplus shall not carry interest. And the Receiver or the Bank shall be at liberty to pay the same to the credit of an account in the name of [TOC] in the books of the Bank and shall thereupon be under no further liability in respect thereof." (emphasis added)

Clause 22 primarily imposed obligations to apply the moneys concerned by payment to particular persons or for particular purposes. It also (par (a)) conferred upon the receiver a power to decide which payments in a certain category were to be paid.

The s 421 account

It is appropriate briefly to consider the extent to which the moneys in the s 421 account were trust moneys. Clause 21 authorised the Bank, after default by TOC, to exercise any of the powers conferred on a receiver by the Debenture. If the Bank itself directly had realised the security, statute ^[F32] would have obliged it to hold the proceeds "in trust" to be applied in payment of costs, charges and expenses properly incurred in relation to the exercise of the power of sale, in discharge of the moneys secured and, as to the residue, to pay it to the person entitled to the mortgaged property. Without such a provision, and in the absence of an express trust stipulation in the security itself ^[F33] , the Bank would have been obliged to account as a constructive trustee for any surplus ^[F34] .

The effect of s 421, in combination with cl 22 of the Debenture, at least goes so far as to oblige the receiver to account for and to apply the proceeds in the account in accordance with the terms of the Debenture. It is unnecessary to determine whether the receiver held the chose in action represented by the s 421 account as a trustee, "in the full sense", for the Bank ^[F35] . It is sufficient for the purposes of this case that the moneys in the account out of which the three payments in question were made were in no sense either the moneys of TOC or moneys held to the order or disposition of TOC.

Whilst the evidence is not fully explicit on the matter, it is to be inferred that at all material times there was little prospect of there being any surplus to "belong to [TOC]" in terms of cl 22. Cheques drawn by the receiver on the account, and the honouring thereof by the Bank with a reduction in the account, involved receipt, in the hands of the payee of the cheque, of a "product" of the chose in action vested in the receiver ^[F36] . If the receiver decided to apply the account towards payment of an outstanding indebtedness of TOC to a third party, there would be payment of an outgoing which the receiver had thought fit to pay within the meaning of cl 22(a) of the Debenture. In that provision the term "outgoing" is apt at least to include a payment or expenditure which in the opinion of the receiver ought to be made in order to facilitate achievement of the ends for which he or she was appointed by the secured creditor ^[F37] .

The established pattern of English authority indicates that, at least as a "general rule", if a payment were so made by the receiver to a creditor of TOC and accepted by the creditor in satisfaction of the debt of TOC, nevertheless the payment would not discharge the liability of TOC to the creditor, unless made as agent for and on behalf of TOC and with the prior authority of or subsequent ratification by TOC ^[F38] . The different treatment of contractual privity in many jurisdictions in the United States would lead to a different result, namely discharge of TOC ^[F39] . In any event, it was the view of Willes J ^[F40] and of Fletcher Moulton LJ and Farwell LJ ^[F41] that the creditor could not later maintain an action for the debt. This was because a subsequent action by the creditor against the debtor would be classified as an abuse of the process of the court ^[F42] . In the event of a liquidation of TOC, a proof by such a creditor might properly be rejected ^[F43] . Accordingly, in the circumstances of the present case, even if the acts of the receiver in tendering amounts for payment of the debts of TOC to Carrier and Air Con are not to be classified as activities as agent of TOC, the practical effect of the working out of the legal relations between the parties, including the subsequently appointed liquidator of TOC, would produce a result equivalent to a discharge of TOC.

The agency of the receiver

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

"PROVIDED ALWAYS that every such Receiver shall be the agent of [TOC] and [TOC] alone shall be responsible for his acts and defaults ...".

It is common ground that, upon the making of the winding-up order in respect of TOC, this agency ceased. That is to say, the receiver "could no longer pledge the credit of the company" ^[F44] . Moreover, even when the agency was operative, it was one with "some peculiar incidents" ^[F45] , the "control exercisable by the company as principal [being] circumscribed by the duty which the receiver owes to the debentureholders" ^[F46] . In Visbord v. Federal Commissioner of Taxation ^[F47] , Williams J, after observing that the receiver as agent of the mortgagor "occupies a very special position" continued:

"He is appointed to and may be removed from office by the mortgagee. He can demand and recover all the income of which he is appointed receiver by action distress or otherwise in the name either of the mortgagor ( M Wheeler & Co v. Warren ^[F48] ), or of the mortgagee. If the mortgagor has attorned tenant to the mortgagee, the receiver can therefore sue the mortgagor for the rent in the name of the mortgagee. He can only insure or do necessary or proper repairs to the mortgaged property to the extent to which he is directed to insure or do such repairs by the mortgagee in writing. The mortgagor is unable to instruct him to do anything contrary to his statutory duties or to dismiss him. If the mortgagor dies the appointment of the receiver is not terminated ( In re Hale; Lilley v. Foad ^[F49] ). The compulsory winding up of a company operates as a dismissal of all the company's servants and agents. The company cannot authorize the receiver to do any act which it is unable to do itself, so that it cannot empower the receiver, after the date of the liquidation, to carry on its business so as to create debts provable against the unmortgaged assets of the company ( Gosling v. Gaskell ^[F50] ; Thomas v. Todd ^[F51] ); but the receiver can still continue to exercise his powers in the name of the company although the company is no longer liable for any debts which he may incur in doing so ( Gough's Garages Ltd v. Pugsley ^[F52] ). See also In re Courts (Emergency Powers) Act 1939 and S Brown & Son (General Warehousemen) Ltd ^[F53] ; In re Wood's Application ^[F54] ."

These peculiarities become less so upon consideration of the reasons for the inclusion of a provision such as cl 19. These concern the protection or advancement of the interests of the secured creditor and the receiver, not those of the borrower. What Williams J ^[F55] described as this "well-established legal device" was designed for the secured creditor to obtain the benefits without being subject to the liabilities of a mortgagee in possession. The stipulation that in exercising the powers set out in cl 19 the receiver was to be agent of TOC assisted the receiver by imposing liability in respect of dealings by the receiver with third parties upon TOC rather than upon the receiver personally ^[F56] . In addition, cl 24 of the Debenture specified an entitlement of the Bank and the receiver to an indemnity out of the mortgaged premises in respect of all liabilities and expenses incurred in execution or purported execution of the powers and authorities vested in them by the Debenture; it also empowered the Bank to retain out of any money in its hands all sums necessary to give effect to such indemnity ^[F57] .

Further facts

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

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

1.

The Receiver & Manager of T O'Connor & Sons will guarantee payment of outstanding invoices due to Air Con Serve against our contract with you for work on the Entertainment Centre to the value of $79,600.00.

2.

We will also issue a Receivers order for work undertaken on this site from the date of our appointment, being Monday 29 April, 1991. The payment of this is guaranteed by the Receiver.

3.

Air Con Serve will return to site immediately and work with all dispatch to the successful completion of all O'Connor contracts at the Entertainment Centre.

Would you please confirm your agreement by fax today and also send a copy of the attached notification to Jennings today by fax".

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

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

"We confirm our agreement reached on 3 May, 1991 with respect to Carrier's continuing work on T O'Connor contracts as expressed in your fax of 3 May, 1991 and offer this letter as a Receiver's Guarantee of payment so that work may re-commence immediately on completion of the contracts that exist between Carrier and O'Connor."

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

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

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

The judgment of the Full Court was delivered by the Chief Justice. His Honour concluded that Mr Schroder probably employed the word "guarantee" in the sense of an undertaking rather than in its strict legal sense, the term having been used by non-lawyers ^[F58] . However, his Honour went on to conclude that such usage was consistent with the notion of the receiver having undertaken "a personal obligation". After emphasising that the receiver had had a real interest in getting Carrier and Air Con to return to the Adelaide Entertainment Centre site and to perform the balance of the work of the contracts with TOC, his Honour concluded that the receiver had undertaken a personal obligation and it was in discharge of that obligation that the payments in question were made. This was so even though the payments might incidentally have operated to discharge or reduce pre-existing liabilities of TOC.

The character of the payments to Carrier and Air Con

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

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

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

Reliance, in this question of characterisation, by the liquidator of TOC upon the particular agency created by the Debenture as a step to controverting what otherwise would be the legal nature and practical effect of the steps involved, expands that notion of agency beyond its true character. That character is indicated in the following passage from the judgment of Sir Raymond Evershed MR in In re B Johnson & Co (Builders) ^[F59] :

"[A] person appointed as receiver and manager is concerned, not for the benefit of the company but for the benefit of the mortgagee bank, to realize the security; that is the whole purpose of his appointment; and the powers which are conferred upon him, and which I have to some extent recited, are ... really ancillary to the main purpose of the appointment, which is the realization by the mortgagee of the security".

More recently, in Gomba Holdings v. Homan ^[F60] , Hoffmann J, in referring to this passage, said that a receiver and manager "is no ordinary agent" and continued:

"Although nominally the agent of the company, his primary duty is to realise the assets in the interests of the debenture holder and his powers of management are really ancillary to that duty."

The law as to preferences

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

Section 565(1) of the Corporations Law provided, relevantly, that a payment made by a company that, if it had been made by a natural person, would, in the event of his or her becoming a bankrupt, be void as against the trustee in the bankruptcy, is, if the company be wound up, void as against the liquidator ^[F61] . Section 122(1) of the Bankruptcy Act 1966 (Cth) ("the Bankruptcy Act") provided, so far as is material, as follows:

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

(a)

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

is void as against the trustee in the bankruptcy." (emphasis added)

Sub-sections (2) and (3) of s 565 of the Corporations Law provided respectively for the date that, in the case of a winding up of a company, corresponded with the date of presentation of the petition in bankruptcy and to the date on which the person becomes bankrupt. For the present case that date was, in each instance, the date of the filing of the application for the winding-up order, namely 27 May 1991. Consequently, the three payments with which this case is concerned were received within the six months preferential period fixed by the interaction of s 565 of the Corporations Law and s 122(1) of the Bankruptcy Act.

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

No doubt, as the authorities indicate, there may be a payment made by the debtor within the meaning of s 122(1) where the debtor directs a third party who holds funds at the direction of the debtor or is otherwise obliged to the debtor to account to the debtor not by payment to the debtor but to a creditor of the debtor. Thus, in Re Stevens ^[F62] , it was said that the debtor "parted with his assets, and the payment which he himself should have received he has authorised to be made to the creditor, and it is just the same as if he had received payment himself and had himself handed such payment to [the creditor]". The result in that case was that the third party was to be treated as having acted on behalf of the debtor. Again, payments made by the debtor to the bailiff to avoid levy of a judgment are treated for this purpose as payments by the debtor to the judgment creditor, the bailiff having authority from that creditor to receive the moneys and to give a discharge ^[F63] .

In Ramsay v. National Australia Bank Ltd ^[F64] , the Victorian Full Court, after reviewing the authorities, including passages in the judgments in this Court in Octavo Investments Pty Ltd v Knight ^[F65] and Richardson v. The Commercial Banking Co of Sydney Ltd ^[F66] , declared:

"We have seen no authority for the proposition that a payment out of his own moneys by B to C, pursuant to a contractual obligation to discharge A's debt to C, an obligation imposed upon B by a contract between A and B, can be said to be a payment made by A to C. The words of s 451 must be given their ordinary, natural meaning." ^[F67]

Their Honours were speaking of s 451 of the Companies (Victoria) Code which had no material differences from s 565 of the Corporations Law.

The result, as applied to the present case, is that, even if the payments by the receiver out of the s 421 account are to be characterised as made pursuant to a contractual obligation of the receiver to Carrier and Air Con to discharge TOC's pre-receivership debts to them, there has been no payment, within the meaning of the preference provisions, made by TOC to Carrier and Air Con. The payments, to adapt the terms used by McLelland CJ in Eq in Craftsman Modern Constructions Pty Ltd (in liq) v. National Bank of Australasia Ltd ^[F68] , were not made from moneys belonging to TOC, nor in any relevant sense were they made by an agent of TOC.

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

Counsel then relied upon the apparently unrealised potential of s 122(1A) of the Bankruptcy Act. This was inserted by s 57(1) of the Bankruptcy Amendment Act 1980 (Cth) ("the 1980 Act") ^[F69] . The submission is that, upon its proper construction, sub-s (1A) removed any previous requirement that the payment be made out of the property of the debtor.

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

At the relevant time, s 122(1A) stated:

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

(a)

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

(b)

whether or not:

(i)

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

(ii)

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

(iii)

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

as the case requires."

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

Nevertheless, in Ramsey v. National Commercial Banking Corporation of Australia Ltd ^[F70] , Marks J held that the text of s 122(1A) was ambiguous, that it was not at all clear what the legislature had intended, but that the words "or not" indicated an operation beyond jointly owned moneys and the inclusion of payments out of moneys in which the debtor had no interest. The point was not pursued on appeal to the Full Court ^[F71] . In this case, counsel for the liquidator relied strongly upon the judgment of Marks J. He did so to support the proposition that the preference provisions applied in the present case, notwithstanding that the source of the payments to TOC was the s 421 account of the receiver.

However, as indicated, there is no ambiguity in the terms of s 122(1A). Further, and in any event, the construction we would give the provision is consistent with removal of the mischief to which the legislature was directing its attention in passing the 1980 Act. That limited and particular mischief is disclosed in the following passage from the judgment of Smithers J in Re Cook; Ex parte Official Trustee in Bankruptcy ^[F72] . His Honour said:

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

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

The Explanatory Memorandum for the Bill which became the 1980 Act stated of what is now s 122(1A) ^[F73] :

"[I]t will apply to a payment or transfer of property by a joint debtor in favour of either a joint or a separate creditor ... This will enable the trustee to recover the money or property concerned and return it to the joint or separate estate from which it came."

Conclusions

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

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