FEDERAL COURT OF AUSTRALIA Britax Childcare Pty Ltd, in the matter of Infa Products Pty Ltd v Infa Products Pty Ltd (Administrators Appointed) [2016] FCA 848 File number: NSD 410 of 2016 Judge: BURLEY J Date of judgment: 28 July 2016 Catchwords: CORPORATIONS – application to set aside Deed of Company Arrangement under s 445D of the Corporations Act 2001 (Cth) – whether creditors will suffer prejudice if Deed of Company Arrangement set aside – whether dominant creditor can set aside a Deed of Company Arrangement if it will not prejudice the other creditors – whether administrators failed to consider claims for breach of duty against director – whether administrators failed to consider claims against related parties – whether discretion should be exercised in setting aside the Deed of Company Arrangement – public interest in investigating company's transactions in liquidation CORPORATIONS – application to set aside resolution of creditors under s 600B of the Corporations Act 2001 (Cth) – whether casting vote in favour of resolution was made conscientiously and by reference to all relevant considerations Legislation: Conveyancing Act 1919 (NSW), s 37A Corporations Act 2001 (Cth), Pt 5.3A, ss 79, 181, 435A, 436E, 439A, 445D, 588FB, 588FC, 588FE, 600A, 600B Income Tax Assessment Act 1936 (Cth), Div 7A Corporations Regulations 2001 (Cth), 5.6.21 Corporate Law Reform Bill 1992 (Cth) Explanatory Memorandum, Corporate Law Reform Bill (Cth) 1992 Cases cited: Barnes v Addy (1874) LR 9 Ch App 244 Bidald Consulting v Miles Special Builders; Bidald Consulting v Miles Special Builders [2005] NSWSC 1235; (2005) 226 ALR 510 Cresvale Far East v Cresvale Securities [2001] NSWSC 89; (2001) 37 ACSR 394 DCT v Portinex/Silindale/Dalvale [2000] NSWSC 99; (2000) 34 ACSR 391 Deputy Commissioner of Taxation v Distinctive Enterprises Pty Ltd (in liq) [2007] FCA 2074 DSG Holdings Australia Pty Ltd v Helenic Pty Ltd (2014) 86 NSWLR 293; (2014) 307 ALR 143 Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89 Hamilton v National Australia Bank Ltd (1996) 66 FCR 12 In the matter of Mustang Marine Australia Services Pty Ltd (admin apptd) - Perpetual Trustee Company Ltd v Mustang Marine Australia Services Pty Ltd [2010] NSWSC 1429 In the matter of Recycling Holdings Pty Limited [2015] NSWSC 1016; (2015) 107 ACSR 406 In the Matter of Reed Constructions Australia Pty Ltd [2012] NSWSC 1045 Kinsela v Russell Kinsela Pty Ltd (in liq) (1986) 4 NSWLR 722 Mediterranean Olives Financial Pty Ltd v Loaders Traders Pty Ltd (Subject to Deed of Company Arrangement) (No 2) [2011] FCA 178; (2011) 82 ACSR 300 Molit (No. 55) Pty Ltd v Lam Soon Australia Pty Ltd (Administrator Appointed) [1997] FCA 395; (1997) 24 ACSR 47 Network Exchange Pty Ltd v MIG International Communications Pty Ltd (1994) 13 ACSR 544; (1994) 12 ACLC 594 Plumbers Supplies Co-operative Limited v Firedam Civil Engineering Pty Limited [2011] NSWSC 325 Promnitz v Indochine Mining Limited (Subject to a Deed of Company Arrangement); In the Matter of Indochine Mining Limited (Subject to a Deed of Company Arrangement) [2015] FCA 857; (2015) 108 ACSR 134 Re Duomatic Ltd [1969] 1 All ER 161; [1969] 2 Ch 365 Re Octaviar Ltd (No 8) [2009] QSC 202; (2009) 73 ACSR 139 TiVo, Inc v Vivo International Corporation Pty Ltd (subject to deed of company arrangement) [2014] FCA 789; (2014) 9 BFRA 583 Date of hearing: 7, 8, 9 and 10 June 2016 Registry: New South Wales Division: General Division National Practice Area: Commercial and Corporations Sub-area: Corporations and Corporate Insolvency Category: Catchwords Number of paragraphs: 247 Counsel for the Plaintiff: Mr A P Cheshire SC Solicitor for the Plaintiff: Norman Waterhouse Counsel for the First Defendant: Mr J Sexton SC and Ms V Whittaker Solicitor for the First Defendant: Colin Biggers & Paisley Counsel for the Second and Third Defendants: Mr D Stack Solicitor for the Second and Third Defendants: Hall & Wilcox ORDERS NSD 410 of 2016 IN THE MATTER OF INFA PRODUCTS PTY LTD (ADMINISTRATORS APPOINTED) ACN 092 222 994 BETWEEN: BRITAX CHILDCARE PTY LTD ACN 006 773 600 Plaintiff AND: INFA PRODUCTS PTY LTD (ADMINISTRATORS APPOINTED) ACN 092 222 994 First Defendant PETER KREJCI IN HIS CAPACITY AS JOINT AND SEVERAL VOLUNTARY ADMINISTRATOR OF INFA PRODUCTS PTY LTD (ADMINISTRATORS APPOINTED) ACN 092 222 994 Second Defendant ROBYN KARAM IN HER CAPACITY AS JOINT AND SEVERAL VOLUNTARY ADMINISTRATOR IN INFA PRODUCTS PTY LTD (ADMINISTRATORS APPOINTED) ACN 092 222 994 Third Defendant JUDGE: BURLEY J DATE OF ORDER: 28 JULY 2016 THE COURT ORDERS THAT: 1. The parties supply a draft form of orders implementing the conclusions contained in this judgment within 14 (fourteen) days from today's date. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT A. INTRODUCTION [1] B. THE ADMINISTRATION [7] The Administrators' Investigations [15] C. RELEVANT CORPORATE HISTORY OF INFA [27] D. THE ADMINISTRATORS' ESTIMATED RETURN TO CREDITORS AND THE CASTING VOTE [69] E. SUMMARY OF BRITAX'S POSITION [80] F. BACKGROUND LEGAL PRINCIPLES [85] G. SHOULD THE DEED BE SET ASIDE? [101] Britax's First Argument – No Prejudice to Other Creditors [101] Britax's Second and Third Arguments – Prospects of a Better Recovery in a Liquidation and Public Interest [125] The First Transaction: Sale of Business in 2011 [128] The Second, Third and Fourth Transactions: the Quota Transactions [171] The Fifth Transaction: Sale of Infa's IP to HBG [190] H. DISCRETION [234] I. DISPOSITION [247] BURLEY J: A. INTRODUCTION 1 The plaintiff, Britax Childcare Pty Ltd (Britax) and the first defendant, Infa Products Pty Ltd (Infa) were competitors in the market for producing baby products including child safety restraints and booster seats in Australia. From 2009 until 2015 Britax pursued patent infringement proceedings against Infa, alleging infringement of multiple patents. After complex and hard fought litigation, Infa lost the case and, as a direct consequence, on 23 December 2015 decided to appoint administrators (the second and third defendants) (Administrators) whose task was to determine whether Infa should be wound up in liquidation or enter into a Deed of Company Arrangement (Deed). After investigating Infa's affairs, the Administrators recommended to the creditors that they enter the Deed, whereby creditors are paid a proportionate share of about $800,000. 2 There was disagreement at the creditors' meeting as to whether or not to enter the Deed and ultimately one of the Administrators (Mr Krejci) exercised his casting vote as Chairman of the meeting to vote in favour of execution of the Deed. 3 Britax argues in this case that the Deed should not have been entered and that Mr Krejci wrongly exercised his casting vote. It contends that the Administrators wrongly concluded that the creditors were better off taking a dividend that was available under the Deed than they would have been if a liquidator undertook investigations into Infa and prosecuted actions for breach of duty against its director, Richard Horsfall, and related entities. In particular, Britax points to five transactions dated from 2011 to 2015 in which Infa sold its assets to related companies. It contends that in doing so Infa engaged in a systematic stripping of its assets for the purpose of defeating Britax's interests as a creditor and enabling Infa-Secure Pty Ltd (Infa-Secure) to continue, phoenix like, to carry on the business of selling child safety restraints and the like in Australia. It is to be noted that by 2010 Infa had ceased to sell equipment that was the subject of the patent infringement proceedings. 4 Britax commenced these proceedings on 24 March 2016 seeking orders under sections 445D and 600B of the Corporations Act, 2001 (Cth) (the Act) that the Deed be set aside and liquidators be appointed to Infa. On 29 March 2016 the Court ordered that the defendants be restrained from executing a Creditors' Trust Deed (under the Deed, once the Creditors' Trust Deed is executed by the Administrators the Deed will come to an end, and Infa will no longer be in administration) upon the provision by Britax of the usual undertaking as to damages and upon its undertaking to pay into Court the sum of $45,000, being the amount that Britax calculates that the remaining creditors would receive under the Deed. In this proceeding, Britax has offered that if the Deed is set aside, the sum of $45,000 will be made available to the other creditors. 5 Broadly speaking, the task of the Court in the present case is to determine whether there is a realistic prospect that there may be a better return to creditors on a winding up than under the Deed. Britax contended that there would be, if Richard Horsfall were pursued for breach of his duties owed to Infa as a result of permitting it to enter into the five transactions, and if the parties to those transactions (and their directors) were also pursued for accessorial liability. At trial Infa relied on the evidence of seven witnesses who explained their role in the transactions. The Administrators called two witnesses, who addressed the investigations that they conducted. 6 Having regard to the material presented, I am not satisfied that Britax has established its case to the requisite standard. Most relevantly, I am not satisfied that there is a realistic prospect that a case against Richard Horsfall for breach of directors' duties in respect of the five transactions would succeed. Nor do I consider that Mr Krejci was incorrect to exercise his casting vote in favour of the Deed. B. THE ADMINISTRATION 7 On 23 December 2015 the Administrators were appointed. On 29 December 2015 they issued a First Report to Creditors (First Report) and on 7 January 2016 the first meeting of creditors was held in accordance with section 436E of the Act. Between 5 January and 21 January 2016, the Administrators received Infa's Report As To Affairs and also were supplied with the books and records of Infa. On 1 February 2016, the Administrators issued their Second Report to Creditors pursuant to section 439A of the Act (Section 439A Report) which, inter alia, encouraged the creditors at the second meeting to consider adjourning that meeting for a short period to enable them to conduct further investigations into certain transactions, including the five transactions now identified by Britax. 8 The Section 439A Report identified the reasons for failure of Infa as follows: The Director advised that the Company failed because it lacked the financial resources to fund the ongoing litigation against Britax, which if remained uncontested, would inevitably lead to the insolvency of the Company. Whilst we agree with the above we note the following: • The revenue from the lease arrangements and contractor services were utilised to partially fund the ongoing Proceedings from 2011. By late 2015 all remaining assets had been disposed, leaving it no further means of generating income. • The Company could not secure further loans from related parties to continue to fund the litigation. 9 On 8 February 2016 the second meeting of creditors was held and the creditors resolved to adjourn the meeting for 20 business days to enable further investigations to be conducted. 10 On 26 February 2016 the Administrators issued a Supplementary Report to Creditors (Supplementary Report) which, inter alia, addressed a proposal made by Richard Horsfall and Mr Joyce for a Deed of Company Arrangement (Deed Proposal). The Supplementary Report considered the available information and ultimately recommended that the creditors resolve to enter into the Deed of Company Arrangement and a Creditors' Trust Deed to which the Deed referred. The Supplementary Report noted the Administrators' preliminary opinion that Infa had become insolvent on 30 June 2015. That date was accepted as correct by Mr Cheshire SC, senior counsel for Britax, for the purposes of the present hearing. Mr Sexton SC, senior counsel for Infa, contended at the hearing that the date of insolvency was later, although it is not presently necessary to address that contest. 11 On 7 March 2016 the second meeting of creditors was reconvened. Mr Krejci chaired the meeting and admitted all creditors present for the amounts of their debts as recorded in the attendance register of the meeting for the purpose of voting at the meeting and not for dividend purposes. Mr Krejci proposed a resolution that Infa execute the Deed of Company Arrangement. Britax voted against that resolution and all of the other creditors voted in favour of it. 12 The representatives of Britax requested that a poll be taken at the meeting pursuant to regulation 5.6.21 of the Corporations Regulations 2001 (Cth) (the Regulations). 13 The outcome of the voting was such that Mr Krejci had the option pursuant to regulation 5.6.21(4)(a) of the Regulations to exercise a casting vote in favour of the resolution. He had anticipated this outcome and gave a brief explanation for the reasons, summarised in the Supplementary Report, why he intended to cast his vote in favour of the resolution that Infa execute the Deed. He then proceeded to do so. 14 On 24 March 2016 Infa executed the Deed. The Administrators' Investigations 15 Mr Krejci was primarily responsible for carrying out the Administrators' investigations. He was assisted by Mr Keenan, a director in the employ of BRI Ferrier, as well as a number of other employees. About 30 boxes of material were sent to the Administrators by Infa including a hard drive of electronic records. The investigation began on 23 December 2015 and was completed immediately prior to the issue of the Supplementary Report. 16 The investigations commenced with obtaining and reviewing the books and records of Infa, which included the following: (a) financial statements and primary financial records; (b) bank statements; (c) files relating to the Federal Court of Australia patent proceedings with Britax; (d) insurance policies; (e) sale transaction documents; (f) valuation reports; (g) a creditor listing; (h) documents relating to intellectual property (IP); (i) electronic records received by email; and (j) a hard drive containing electronic records held in Infa's server. 17 Mr Krejci formed the view that these books and records were sufficient to satisfy the requirements of section 286 of the Act. He also formed the view that Infa had only ever operated as the Corporate Trustee for the Horsfall Family Trust. 18 Mr Krejci's review of the books and records of Infa were focussed on identifying the financial history of, and business conducted by Infa, its assets and liabilities, its revenue and income, its creditors and debtors, its secured creditors and the reasons for its failure. In addition, Mr Krecji focussed on identifying: (a) particular transactions which required further investigation; (b) the date when Infa became insolvent; (c) any voidable transactions; (d) any trading whilst insolvent; and (e) any claims for breach of directors' duties. 19 Prior to 1 February 2016, and based on the review of the books and records that Mr Krecji and his staff had conducted, Mr Krejci formed the view that several transactions conducted by Infa required further investigation, including the five transactions identified by Britax in the current proceedings. By 1 February 2016, Mr Krejci formed the view that the Administrators' investigations into these transactions were incomplete and required the following further matters to be done: (a) obtain financial information relevant to Infa-Secure and Quota Marketing Pty Ltd (Quota); (b) obtain financial information relevant to Infa Investments Pty Ltd (Infa Investments), which is the majority shareholder of Infa-Secure; (c) obtain financial information relevant to Richard Horsfall; (d) interview Mr Joyce, who was an adviser to Infa and its Director, Richard Horsfall, and related companies including Infa-Secure, Quota and Infa Investments; (e) interview Anthony Horsfall and Matthew Horsfall, who are the sons of Richard Horsfall and who are directors of Infa-Secure, Quota and Infa Investments; (f) interview Mr Harkin, of Colin Biggers & Paisley Lawyers (Colin Biggers & Paisley), who was the solicitor for Infa and its related companies including Infa-Secure, HBG IP Pty Ltd, Quota and Infa Investments; (g) interview relevant employees of Chrysiliou Lawyers, who acted for Infa in the Britax patent proceedings; (h) interview relevant employees of Norman Waterhouse, who were the solicitors for Britax in the patent proceedings; (i) make further inquiries as to whether Infa carried a directors' and officers' insurance policy; and (j) obtain a preliminary opinion from Hall & Wilcox lawyers (Hall & Wilcox) as to the potential recoverability arising from the transactions, should Infa be placed into liquidation. 20 On 1 February 2016, the Administrators issued the Section 439A Report which, amongst other things, recommended that the Second Meeting of Creditors be adjourned for a short period to enable the Administrators to conduct further investigations. As noted above, that meeting was adjourned for 20 business days to enable the Administrators to conduct further investigations pursuant to subsection 439A(5) of the Act. 21 Following the adjournment of the meeting, the Administrators conducted further investigations with the assistance of Mr Keenan and other staff of BRI Ferrier. Those investigations accorded with the matters identified at [19] above. 22 On 12 February 2016, Mr Krecji requested Mr Harkin to arrange for the provision of financial records necessary for the Administrators to undertake their investigations into the financial position of Richard Horsfall and relevant parties involved in the identified transactions being Infa-Secure, Quota and Infa Investments. Mr Krecji records in his affidavit that the financial records were provided only on the basis that the Administrators keep the information confidential. Accordingly, that material is referred to in these proceedings but has not been made available to the Court to consider. 23 Pursuant to the terms of the Confidentiality Agreement, Mr Krecji was provided with the following: (a) an undated letter from Richard Horsfall setting out his personal finances; (b) an unsigned, unaudited Special Purpose Financial Report of Infa Investments for the year ended 30 June 2015; (c) a balance sheet of Infa Investments as at 31 January 2016 as extracted from the unsigned, unaudited Special Purpose Financial Report for the period ended 31 January 2015; (d) an unsigned, unaudited Special Purpose Financial Report of Infa-Secure for the year ended 30 June 2015; (e) an unsigned, unaudited Special Purpose Financial Report of Quota for the period ended 31 January 2016; (f) the first three pages of the Master Asset Finance Agreement between the National Australia Bank Limited and Infa-Secure, which includes a guarantee from Richard Horsfall, unsigned and undated; (g) the management accounts of Infa-Secure for the period ended 31 January 2016, and an email from Mr Harkin on 19 February 2016 providing certain comments regarding the financial position of Infa-Secure; and (h) a further set of management accounts for Infa-Secure for the period ended 31 January 2016, and an email from Mr Joyce dated 23 February 2016 providing certain comments regarding the financial position of Infa-Secure. 24 Mr Krejci arranged for meetings to take place between his staff and various individuals who had roles within Infa or the companies with whom Infa had conducted the transactions of interest. He records in his affidavit that the interviews were conducted on the basis that they be maintained as confidential and, accordingly, his affidavit did not disclose directly what information was provided. Interviews were conducted with each of Mr Joyce, Anthony and Matthew Horsfall and Mr Harkin. 25 Based on the conduct of these interviews, and, no doubt, the further information provided in the documentation referred to above, Mr Krejci records that he formed the view that Infa's ability to recover monies from Richard Horsfall would be limited given the financial position of the companies in which he held shares, a lack of evidence to support any claim, the preliminary legal advice that he had received to date, and his experience in litigating recovery procedures generally. 26 In about mid February 2016, the Administrators retained Hall & Wilcox to provide a preliminary opinion as to the potential recoverability of assets, arising from the transactions under scrutiny, should Infa be placed into liquidation. Mr Krecji records receiving a letter of opinion from Hall & Wilcox which was apparently influential in his final opinions. That letter was not produced in evidence by Mr Krecji. Britax attaches some significance to that fact. C. RELEVANT CORPORATE HISTORY OF INFA 27 Infa was incorporated on 28 March 2000. Upon incorporation, the directors of Infa were Roslyn Horsfall, her husband Richard Horsfall, and their sons James and Michael Horsfall. On 10 May 2005 Michael Horsfall ceased to be a director and on 7 December 2010 James Horsfall and Roslyn Horsfall also ceased to be directors, thus leaving Richard Horsfall as the sole director and secretary. 28 Infa carried on business as a developer and wholesaler of baby products including child restraints and booster seats. It did so in its capacity as Trustee of the Horsfall Family Trust. Until it was restructured in 2011, the business was operated through Infa, with distributions being made to the beneficiaries which included a variety of people including, relevantly, members of the Horsfall Family and Quota. 29 The role of Quota was explained in the evidence of Mr Henderson, who was Infa's accountant and who, between 2007 and 2011, provided general accounting advice to Infa and the Horsfall Family including advice in relation to the business structure of Infa. Each year the Horsfall Family Trust distributed its income to its beneficiaries who paid tax on their distributions at their personal tax rate. Quota paid income tax at the corporate rate. Distributions made to Quota were mostly left unpaid and were used for the purpose of the Trust to ensure that it had enough cash to operate the business in the next financial year. 30 In mid 2007 Britax first threatened to bring patent infringement proceedings against Infa. It appears from correspondence tendered in these proceedings that at that time Infa received confident advice that it was not likely to infringe any valid claim of the patents then asserted. 31 In December 2007, Mr Henderson gave advice to Richard Horsfall by letter that recommended the restructuring of the business from one single discretionary trust into a number of discretionary trusts which "would allow each of the boys to build up capital in the business within their own discretionary trust". Mr Henderson also advised that another advantage of this restructure was that "the trusts could invest capital in the business… [which] would free up Richard's capital and allow him to withdraw it from the business to lend to the boys privately to repay their existing loans". Mr Henderson explained that this would allow the business to enjoy a tax deduction on its interest payments. No further steps were taken in 2007 or 2008 regarding any restructuring. 32 In March 2009 Britax commenced patent infringement proceedings against Infa. From the outset of the proceedings the advice given to Infa was that its prospects of success were robust. 33 Ms Chrysiliou, a solicitor and patent attorney, specialising in patents, acted for Infa from late 2008. She gave evidence that she provided Infa advice, in part on the basis of counsel's advice, that it had good prospects of defending the patent infringement proceedings brought by Britax and that any financial exposure was relatively contained. In particular, Ms Chrysiliou's advice to Richard Horsfall throughout the litigation was that Infa's costs exposure was limited, as any damages against Infa were likely to be minimal. In cross-examination Ms Chrysiliou accepted that she and counsel had advised Richard Horsfall that Infa was likely to achieve a result that was either a good outcome where any infringed claim was found to be invalid or a "mixed outcome", that involved some claims of the patents in suit being infringed by some or all of Infa products and some, but not all, of these patents being invalid. Ms Chrysiliou's written advice of 30 April 2015 was that, regardless of the outcome of the liability part of the trial "[i]t is likely the defence of innocent infringement would greatly narrow the scope of damages or account of profits, depending on the Infa versions which infringe". Her evidence was that Britax would be "unlikely" to obtain a full award of costs, as a formal offer of settlement had been made that may operate to increase the costs order in favour of Infa. Ms Chrysiliou confirmed that advice to this effect had been given by her to Richard Horsfall on multiple occasions. 34 It is relevant in these proceedings to consider Richard Horsfall's state of mind as to the prospects of success in the litigation. In this respect I agree with Infa's characterisation of his evidence which was that he was advised from about 2010 through to 2015 that the likely outcome of the patent infringement proceedings was a "mixed outcome" by which he understood that Infa might have to pay a little money to Britax. Furthermore he was advised of the possibility that each party would pay their own costs and that costs would never be 100% recoverable. 35 On 2 February 2011 the first substantive hearing of the patent case commenced (Construction Hearing). It was limited to the question of construction of the patents and infringement. The trial was completed on 17 February 2011 after 11 sitting days. Judgment was reserved. The First Transaction – 2011 Sale of Infa's Goodwill and Stock 36 On 7 February 2011 Infa entered into an agreement whereby it sold its stock and also its goodwill to Infa-Secure. This is identified in the plaintiff's Amended Points of Claim (Points of Claim) as the First Transaction out of five that it questions in this proceeding. 37 The Points of Claim relevantly contend that the First Transaction was: (1) entered into five days after the commencement of the Construction Hearing of the patent case, without being disclosed to Britax or to the Court; (2) made by Infa for the purpose of giving effect to its scheme to divest itself of assets and transfer them to related entities or close associates; (3) a breach of Richard Horsfall's fiduciary duties owed to Infa; (4) an uncommercial transaction within the meaning of section 588FB of the Act; (5) an insolvent transaction within the meaning of section 588FC of the Act; and (6) entered into for the purpose of defeating Britax's ability to enforce any judgment against Infa which would be awarded in its favour and therefore was a transaction to defeat creditors within the meaning of section 588FE(5) of the Act or section 37A of the Conveyancing Act 1919 (NSW) (Conveyancing Act). 38 In its First Report the Administrators noted that the First Transaction was a sale to a related party because Richard Horsfall was at the time the sole director of Infa and also the sole director of Infa-Secure. The Section 439A Report summarises the transaction as follows: The company profitably traded its business during the Proceedings through March 2011 when the company sold the business to Infa-Secure. We are advised that the sale was part of a family succession plan, whereby the control of the business was transferred to [Richard Horsfall's] son, Matthew Horsfall, the director of Infa-Secure. The Company transferred its goodwill and stock to Infa-Secure for $271K and $1.7M, respectively, the proceeds of which were paid over the 2 following years with the final payment being received in August 2012. The sale price was supported by a valuation report, which is discussed later. Having transferred the core business to Infa-Secure, the company retained ownership of the trading premises, the plant and equipment and the rights to the IP, where these assets were leased to Infa-Secure on commercial terms. 39 The Section 439A Report notes that the sale price had been based on an external valuation prepared by UBT Accountants and "[w]hilst the valuation report itself is not a comprehensive document in our experience, we do not have any evidence available to us that suggests that the value attributed and paid was inappropriate". Nevertheless, the Administrators intended to review the sale to test whether fair value had been given because the financial records indicated that the company was trading profitably at the time of sale. To this end, the Administrators state their intention to make inquiries with the valuer to test the methodology used and understand if any further supporting evidence exists. Alternatively, if this were not possible, and subject to the obtaining of funding, the Administrators observed that it may be relevant to seek a comparative valuation. They note, however, that "the lapse in time since the sale (being approximately 5 years ago) may prevent any meaningful critique of the transaction". 40 The Supplementary Report returned to the First Transaction. As the Administrators' views in this respect were the subject of criticism by Britax at the hearing, they are reproduced below (emphasis added): Our review focused on the value the Company obtained for its assets. If the transaction was deemed to be undervalued, a claim could be made for the difference between the sale price and true market value at the time. Our enquiries indicate that the transaction could not be challenged as an uncommercial transaction as it occurred when the company was likely solvent. Furthermore, it could not be pursued as an unreasonable director related a transaction since it occurred more than 4 years ago, and is therefore time barred. Accordingly, no voidable recoveries are available in a winding up. However, our enquiries indicate that the Director may have breached his director's duties under Section 181 by entering into the sale of goodwill and stock to Infa-Secure in 2011 if it could be established that the assets were sold for an improper purpose. In particular, a number of factors which considered as a whole, may infer that the Director entered into the transaction as a precautionary measure to strip the Company of an income stream that would otherwise be available to, partially or wholly, discharge any liability that may be made in favour of Britax as a result of the Proceedings. Upon interrogating the valuation upon which the sale was based, we are advised that the sale price for the goodwill component may have been undervalued by at least $1M, a claim for which may be capable of being brought against the Director. To determine whether the sale was at undervalue, a secondary valuation of the business will be required. We have received advice from an experienced valuer that indicates whilst it is possible to obtain a valuation it would have to be based on Company records and industry information that may be difficult to obtain or may no longer be available (as the transaction occurred over 5 years ago). As such significant funding would be required to undertake the exercise, which may ultimately result in a valuation that could be speculative and therefore open to challenge. Accordingly, it is our view that the Breach of Duty claim would be difficult to prove and, for the reasons set out later herein, would not be commercial to pursue in a winding up. 41 Mr Krejci, gave evidence in the proceedings. He explained that in preparing the Supplementary Report, the opinion of an experienced valuer had been sought. He also said that there was: (a) no evidence to suggest that the valuation was less than market value, (b) his team's investigations showed no evidence that Richard Horsfall had entered the transaction as part of a "scheme", (c) there was no direct evidence to support a claim that Richard Horsfall had breached its duties to Infa, (d) a liquidator would be without funds and no offers had been received by creditors to fund any liquidation. 42 The Supplementary Report also adverted to an absence of funds on the part of Richard Horsfall to warrant proceedings against him for the recovery of any substantial amount. 43 Britax submitted that the passage in the quotation above at [40] ("we are advised that the sale price for the goodwill component may have been undervalued by at least $1M") was an expression of opinion by the Administrator. Infa submitted that this was incorrect and that the Administrators had hypothesised that the transaction may have been at an undervalue, but absent a second valuation (which was unfunded) this could not be determined. Infa also submitted that such a valuation may in any event be inconclusive given the effluxion of time. I agree in this respect with Infa's submission. It is apparent to me from the full passage quoted above that the Administrators considered that, whilst there was a possibility that the sale was at an undervalue, any conclusion to that effect would require a secondary valuation which would require funding and may, in any event, be speculative. 44 Further, Mr Krejci explained in his affidavit that the $1,000,000 figure was given for illustrative purposes for the sake of testing the likelihood of a commercial recovery value of any claim. His investigations did not reveal any evidence to suggest that the valuation prepared by UBT Accountants was at an undervalue. It was (and remains) his view that in the absence of a second valuation to the contrary, the valuation of $271,000 for goodwill represented fair value. The Second Transaction – Grant of Security to Quota 45 On 21 December 2011 Quota was granted a second ranking fixed and floating charge over the assets of Infa and was also registered as a second mortgagee of property owned by Infa at 110-114 Old Bathurst Road, Emu Plains (Property) ranking behind the National Australia Bank. The charge was registered on 17 January 2012. The grant of the security to Quota is identified in the Points of Claim as the Second Transaction. 46 The plaintiff alleged in the Points of Claim that the Second Transaction was: (a) made by Infa for the purpose of elevating the status of Quota from an unsecured creditor to a secured creditor; (b) not disclosed to Britax or the Court; (c) made by Infa for the purpose of giving effect to its scheme to divest itself of its assets and transfer them to related entities or close associates; (d) in breach of Richard Horsfall's fiduciary duties owed to Infa; (e) an uncommercial transaction within the meaning of section 588FB of the Act; (f) an insolvent transaction within the meaning of section 588FC of the Act; and (g) entered into for the purpose of defeating Britax's ability to enforce any judgment against Infa which would be awarded in its favour and therefore was a transaction to defeat creditors within the meaning of section 588FE(5) of the Act or section 37A of the Conveyancing Act. 47 Since February 2005 the directors of Quota have been Richard Horsfall's sons, Steven and Anthony Horsfall. 48 Both the Section 439A Report and the Supplementary Report address the Second Transaction. The latter observed that it was unclear how Infa had benefitted from the granting of security, other than potential, albeit undocumented, forbearance in respect of the debts owed to Quota by Infa. Quota received payments totalling $1,800,000 between the date the security was granted and the commencement of the administration. 49 The Supplementary Report also recorded that the Administrators had been advised that the security registration could not be challenged as an uncommercial transaction on the basis that it occurred when Infa was solvent. Further, it could not be challenged as an unreasonable director-related transaction since it was granted four years and two days prior to the appointment of the Administrators and therefore was time barred. 50 The Supplementary Report then indicated that Richard Horsfall may have breached his duties to Infa by granting Quota the security, given that Quota was a related party (Richard Horsfall and his wife, Roslyn, had a combined 60% direct interest in Quota). Richard Horsfall might therefore have promoted his own interests and Quota's ahead of those of ordinary unsecured creditors, including Britax. The Supplementary Report notes that in this context the security was granted two years after the commencement of the proceedings and the benefit to the company is "questionable" where no Deed of Forbearance was entered into. 51 Finally, the Supplementary Report observed that if the security was not granted in good faith, the director could be pursued for breach of directors' duties where a claim totalling $892,000 could be made against him. The Third Transaction and events leading to 21 December 2015 52 The Points of Claim identify that between December 2011 and December 2015, Quota received payments of approximately $908,000 from Infa. Those payments are described as the Third Transaction. 53 The Points of Claim allege that the Third Transaction was: (a) not disclosed to Britax or to the Court; (b) made by Infa for the purpose of giving effect to its scheme to divest itself of its assets and transfer them to related entities or close associates; (c) in breach of Richard Horsfall's fiduciary duties owed to Infa; (d) an uncommercial transaction within the meaning of section 588FB of the Act; (e) an insolvent transaction within the meaning of section 588FC of the Act; and (f) entered into for the purpose of defeating Britax's ability to enforce any judgment against Infa which would be awarded in its favour, or the judgment against Infa which had been awarded in its favour and therefore was a transaction to defeat creditors within the meaning of section 588FE(5) of the Act or section 37A of the Conveyancing Act. 54 The evidence given by Ms Seeder (Infa's accountant at the time, who had provided accounting services to Infa since 2000), indicates that on occasions in both 2013 and 2014, Infa made repayments of the secured loan (that is, the loan arising from the Second Transaction) of $350,000 to Quota, totalling $700,000. Ms Seeder's evidence also indicated that in 2013 Infa paid an amount of at least $148,288 to Quota for the tax due on the interest earned from its loan to Infa Products. 55 In other words, Ms Seeder's evidence was that the criticised payments that comprise the Third Transaction were attributable to payments made by Infa pursuant to the secured loan entered as the Second Transaction. 56 In the period following the Third Transaction, the following relevant events took place: (a) 9 May 2012 – Middleton J delivers his decision in relation to the question of the construction of the patents – (2012) 290 ALR 47 (Construction Judgment); (b) 13 August 2013 to 21 February 2014 – the patent infringement hearing resumes (spread over 8 hearing days) addressing issues concerning the validity of the claims of the patents in suit and an issue relating to infringement (Validity Hearing); (c) 23 March 2015 – the parties are notified that Middleton J intends to deliver judgment in the Validity Hearing; (d) 11 June 2015 – HBG IP Holding Pty Ltd is incorporated with its directors being Richard Horsfall and his sons, Steven and Anthony; (e) 30 June 2015 – Middleton J gives judgment in the Validity Hearing – [2015] FCA 651 (Validity Judgment); (f) 10 August 2015 – Infa obtains Raine & Horne valuation of the Property which estimates its value to be in the range from $4,270,000 to $4,611,600; (g) 19 August 2015 – Middleton J makes orders that Infa has infringed the Britax patents, certifies the validity of those patents, gives directions for discovery by Infa relevant to the assessment of damages or on account of profits and orders that Infa pay Britax's costs. The costs order was stayed pending appeal; (h) 9 September 2015 – Infa files a Notice of Appeal from the Validity Judgment; (i) 16 September 2015 – a valuation of Infa's IP is conducted by PKF (NS) Pty Limited giving an estimated value of $524,401 (PKF valuation); (j) October 2015 – Infa lists the Property for sale; (k) 17 November 2015 – the Property is sold at auction to Crofur Pty Ltd for $4,550,000. The proceeds of the sale are paid as follows: (i) $1,722.09 to Sydney Water; (ii) $550,000 to Quota; (iii) $9,500 for solicitors' fees; and (iv) $3,493,981.11 to the first mortgagee, the National Australia Bank (l) 10 December 2015 – Jessup J orders that Infa give security for costs in relation to its appeal of $330,000 with $230,000 payable by 24 December 2015. The Fourth Transaction – Sale of the Property and Distribution to Quota 57 On 17 December 2015, Infa sold the Property to a third party for $4,550,000 and $550,000 was paid to Quota from the proceeds. That payment is identified in the Points of Claim as the Fourth Transaction. 58 Britax alleges in its Points of Claim that the Fourth Transaction was: (a) not disclosed to Britax or to the Court; (b) made by Infa for the purpose of giving effect to its scheme to divest itself of its assets and transfer them to related entities or close associates; (c) in breach of Richard Horsfall's fiduciary duties owed to Infa; (d) an uncommercial transaction within the meaning of section 588FB of the Act; (e) an insolvent transaction within the meaning of section 588FC of the Act; and (f) entered into for the purpose of defeating Britax's ability to enforce any judgment against Infa which would be awarded in its favour, or the judgment against Infa which had been awarded in its favour and therefore was a transaction to defeat creditors within the meaning of section 588FE(5) of the Act or section 37A of the Conveyancing Act. 59 The sale of the Property was conducted by public auction, and the price received fell within the upper part of the range estimated in the Raine & Horne valuation. In the Supplementary Report the Administrators expressed the preliminary view that the transaction was valid and would not be subject to any voidable recovery in the case of a winding up. 60 The complaint that Britax makes about the sale is, in essence, that the payment of proceeds to Quota should be investigated and set aside. 61 The evidence of Kunal Shah, Infa's bookkeeper since 2012, indicates that on 17 December 2015 Quota received payments of $550,000 from the proceeds of the settlement and $384,000 from Infa, which payments were made based on Nirav Shah's (Infa-Secure's commercial financial manager) calculation of Infa's indebtedness to Quota under the Second Transaction. 62 The evidence also indicates that from these funds, Quota lent $500,000 to Richard Horsfall, which was then transferred to the trust account of Colin Biggers & Paisley to be utilised for a fund to be set up in accordance with the Deed (further details of the fund are set out below at [75]). The Fifth Transaction – Sale of Intellectual Property to HBG IP Holding Pty Ltd (HBG) 63 On 22 December 2015, the day before the Administrators were appointed, Infa sold its last remaining asset, being its IP, for $524,000 to HBG, a company owned in equal parts by Richard Horsfall's four sons, Steven, Anthony, Matthew and James. HBG was a corporation formed for the purpose of licensing Infa-Secure to use the IP in relation to products that it sold. This is referred to in the Points of Claim as the Fifth Transaction. 64 Britax alleges in its Points of Claim that the Fifth Transaction was: (a) made by Infa for the purpose of giving effect to its scheme to divest itself of its assets and transfer them to related entities or close associates; (b) not disclosed to Britax or to the Court; (c) an uncommercial transaction within the meaning of section 588FB of the Act; (d) an insolvent transaction within the meaning of section 588FC of the Act; and (e) entered into for the purpose of defeating Britax's ability to enforce any judgment against Infa which would be awarded in its favour, or the judgment against Infa which had been awarded in its favour and therefore was a transaction to defeat creditors within the meaning of section 588FE(5) of the Act or section 37A of the Conveyancing Act. 65 The Points of Claim also alleged that the Administrators had estimated that the Fifth Transaction may have been at an undervalue of up to $1,000,000. 66 The evidence adduced at trial indicated that the Administrators were informed of the proposed Fifth Transaction prior to their appointment and identified it as a transaction warranting scrutiny in each of the First Report, Section 439A Report and Supplementary Report. The latter relevantly reported as follows (emphasis added): … our enquiries of this transaction focussed on whether the sale price of $524K represented fair value, in circumstances where the IP was not taken to market and the transaction was entered into the day prior to our appointment. We made further enquiries of PKF, who prepared the valuation report on which the sale price is based. The valuers responses were reasonable, and we have not been able to locate any evidence that suggests the IP was sold undervalue. However, we have received advice that a breach of duties claim could potentially be made against the Director on the basis that he caused detriment to the Company by entering into the transaction in the midst of the ongoing Proceedings and with the knowledge of the imminent appointment of Voluntary Administrators, causing those assets to be out of the control of creditors. The claim would be based on the loss suffered, should it be proven that the sale price was undervalue, by virtue of engaging an alternate valuer. In this regard, unless a secondary valuation provides a compelling case to have the sale set aside, there will be no reason to pursue the Breach of Duty claim. Further, it will be difficult to prove the intent on [sic] the Director based on the evidence currently available and hence the prospects of successfully proving this claim are remote. Regardless, for the purposes of our analysis of potential recoveries in winding up we have assumed that there may be a claim of up to $1M against the Director for a Breach of Duty. However, based on the Director's personal financial circumstances, a meaningful return is not anticipated. Should creditors resolve to accept the DOCA [Deed of Company Arrangement] proposal, the IP sale will complete on execution of the DOCA and the proceeds will be paid into the Deed Fund. 67 Evidence was adduced at trial from Mr Immerman, a chartered accountant, who was engaged by Infa-Secure in late 2014 to provide financial modelling services. Mr Immerman was unaware of the Britax litigation when he gave general advice at a "pitch" presentation to Richard Horsfall, Anthony Horsfall, Michael Horsfall and Mr Joyce to the effect that a trading company such as Infa-Secure should not hold valuable assets such as IP and real estate in its own name. He suggested that a new entity be established to hold assets owned by Infa-Secure, subject to the costs of transferring the assets at market value. Subsequently HBG was formed. 68 Richard Horsfall explained: In or around August 2015 I made the decision to sell the intellectual property held by Infa Products to HBG. I wanted to wind back Infa Products further, it wasn't of vital importance to Infa Products to hold the intellectual property because it wasn't trading and I figured that this was one avenue to finance the appeal in the Britax Court Proceedings. My understanding was that this sale would occur at fair value and the sale proceeds would be available as an asset for Infa Products. D. THE ADMINISTRATORS' ESTIMATED RETURN TO CREDITORS AND THE CASTING VOTE 69 The Supplementary Report reviewed the prospects of a liquidator being able successfully to conduct investigations against the sole director of Infa (Richard Horsfall) and then pursue claims for breach against him. As set out above at [25], the Supplementary Report was, for a variety of reasons, pessimistic of a liquidator successfully pursuing Richard Horsfall. 70 The Supplementary Report considered the value of pursuing claims against Richard Horsfall in respect of the transactions of interest, given the costs of any investigations and subsequent proceedings. It noted at page 5, in the Executive Summary (emphasis added): As you will note from the above, all recovery actions would be against the Director, Richard Horsfall, where the gross value of the claims may be in excess of $2.8M (estimates only). Any claims would require fairly involved litigation to be brought by a Liquidator, for which our preliminary legal advice puts the prospects at "fair to reasonable". It would be necessary to conduct public examinations of the Directors and related persons in order to gather further evidence. The liquidator would need sufficient funding to run the proceedings, and protect his exposure to adverse costs, where no offers have been forthcoming to date. Finally, where we are advised that the Director would defend such actions with the support of his family, and therefore it is our expectation that any claims would need to be successfully prosecuted through judgement [sic], enforcement and the likely bankruptcy of the Director, in order for any value to be extracted. Putting aside the legal rights, it is essential to consider the commercial value of such claims. 71 It is to be noted that whilst legal advice may have put the prospects at "fair to reasonable" it is apparent from the more detailed review of the transactions reported in the Supplementary Report – some of which is quoted above – that the Administrators considered the prospects of success in recovery against Richard Horsfall to be somewhat lower than that. At the Second Creditors' Meeting Mr Krejci, as Chairman of the meeting, gave his opinion in explaining his casting vote that "[t]here is considerable doubt about whether the transactions can in fact be impugned". This view was reinforced and amplified by Mr Krejci in his oral evidence: --- you say there was no direct evidence to support a claim that Richard Horsfall had breached his duties to Infa in relation to the transaction in 2011?--- Yes. Do you maintain your opinion that there is no such direct evidence?--- Yes. You have seen the evidence of professional advisers concerning the advice they gave about the restructure of what might be described as a family business?--- Yes. And in relation to the transactions involving Quota, you've seen the professional advice that was given about 7A loans?--- Yes. And having regard to all of that evidence as well as the material that Mr Cheshire took you to this morning, assuming unlimited funds to investigate, if you, for example, were the liquidator, what is it precisely that you think might have to be investigated?--- I think a forensic exercise would need to be undertaken of all the – all the documentation to understand whether there is any evidence of parties aiding and abetting or somehow facilitating a director's breach of duty. So it would be a forensic exercise of going through all the material to see what exists. And from the 30 boxes plus the hard drive that you've already received---?--- Yes. --- there's nothing to suggest such a thing, is there?--- No, not in that material. 72 In relation to the commercial value of the claims, the Supplementary Report considered Richard Horsfall's personal financial position and estimated that in a bankruptcy situation his assets may amount to $550,000. This was based on a confidential disclosure by Richard Horsfall of his asset position to the Administrators. At trial, further information was provided by Richard Horsfall as his assets – Exhibit B. In light of this further information, no suggestion was made by Britax in closing submissions that the Administrators' estimate in the Supplementary Report was inaccurate. The potential to recover this amount was balanced against the Administrators' estimate that the liquidators' costs of examining Richard Horsfall and then prosecuting an action against him would be at least $450,000, resulting in a net recovery of about $100,000. 73 In fact, the evidence adduced at trial as to Richard Horsfall's assets indicated a high probability that even a successful action against Richard Horsfall would yield a nil return. 74 The Supplementary Report sets out the following table, providing the Return to Creditors under both a Deed of Company Arrangement scenario and a winding up scenario: 75 The Supplementary Report then provided a summary of aspects of the Deed Proposal, some of which are as follows: The Deed will incorporate the formation of a Creditors' Trust which will govern the distribution of assets to creditors. The Administrators will become the Deed Administrators and the Trustees of the Creditors' Trust. Control of Infa will revert to the Director, Richard Horsfall, upon execution of the Deed. Upon acceptance of the Deed Proposal, Infa will complete the IP Sale Agreement with HBG within 10 days of the resumption meeting and HBG will pay the outstanding balance of $524,000 to Infa. Infa's only unrelated employee, Mr Wainohu, will be transferred to HBG along with his unpaid employee entitlements, including unpaid superannuation. Accordingly, Mr Wainohu will not have a claim under the Deed or Creditors' Trust. The Deed will be executed within 15 days of the resolution passing it (by the time of the commencement of these proceedings, that had taken place). A fund will be established which will include the Deed Administrator transferring the cash balance from the voluntary administration into the fund, including the proceeds from the completion of the IP Sale Agreement (Deed Fund). The Deed Fund will also include the sum of $600,000 deposited by the Deed Proponants, Richard Horsfall and Mr Joyce. The Administrators estimated that the Deed Fund would hold approximately $1,200,000. The Creditors' Trust will be formed shortly after all contributions are received into the Deed Fund which will then become the Creditors' Trust Fund. Upon the formation of the Creditors' Trust, the Deed will be effectuated and all creditors' claims against Infa will be extinguished and transferred to the Creditors' Trust. Creditors will then become beneficiaries of the Creditors' Trust and any distribution of dividends will be paid to creditors as beneficiaries under it. The Creditors' Trust Fund will be distributed in the following manner: first, payment of the costs, liabilities, remuneration and disbursements of the Administrators; secondly, payment of priority creditors' claims to the extent they are not excluded claims of a related party; thirdly, payment of admitted unsecured creditors on a pari passu basis excluding all related parties (and, specifically, Infa-Secure, Richard Horsfall, Roslyn Horsfall and Quota Marketing) which means that claims of approximately $655,000 will not participate in the distribution. Dividends will be paid in a manner similar to that in a liquidation. 76 On 7 March 2016 the Second Creditors' Meeting was conducted in accordance with section 439A of the Act and the Supplementary Report was presented to creditors. At the meeting, a representative of Britax indicated that they "had concerns" about the sale by Infa of the Property and the IP, and specifically, were concerned that the Administrators had not obtained a second valuation for the IP. Mr Keenan explained that the Administrators had investigated the Property sale transaction and found it to be reasonable and at arm's length, and had made investigations of the PKF valuation of the IP. He noted that the Administrators had found that the IP sale was reasonable and there was no basis to have it set aside. Britax's representative stated at the meeting that his clients had a number of concerns remaining with the Supplementary Report but indicated that they did not wish to particularise those concerns any further at the meeting. 77 A poll was taken at the meeting pursuant to regulation 5.6.21 of the Regulations and voting was as follows: Poll Results Number Value In Favour 12 $1,114,529.17 Against 1 $8,593,500.00 78 Mr Krejci advised that professional standards required him to exercise his casting vote unless there was good reason not to. He then explained his reasons for exercising a casting vote in favour of the Deed being to the effect that certainty of recovery, the availability of the Deed Fund and the non-participation of related creditors outweighed the potential benefits of a liquidation. In this regard he was doubtful of the commercial value of claims against Richard Horsfall, noting that there was "considerable doubt" whether the transactions can be impugned and that it is not clear whether sufficient evidence could be obtained against Richard Horsfall, and further, it is not clear that the relevant transactions were in a period that would permit recovery. 79 Having regard to the fact that Infa had no business to be preserved and the objectives set out in section 435A of the Act, he considered that there was a need to exercise his casting vote in favour of the Deed. E. SUMMARY OF BRITAX'S POSITION 80 In closing submissions Britax ultimately argued that the Deed should be set aside for the following reasons. 81 First, it contended that because it is the only creditor with a valid interest in whether the Deed is set aside, it is "entitled to decide whether it wishes to accept its entitlement under the Deed or have the Deed terminated and Infa placed into liquidation". No creditor other than Britax might suffer prejudice if the Deed is terminated. Accordingly, under section 445D(1)(e), (f) or (g) and section 600B the Court must set the Deed aside. 82 Secondly, the Deed should be set aside pursuant to section 445D(1)(c), (e), (f) and (g) and section 600B because there are prospects of a better recovery for creditors in a liquidation than under the Deed because of available claims against Richard Horsfall for breaches of duties and third party accessories to these breaches. Consideration of this argument involves consideration of each of the five transactions. 83 Thirdly, there is a public interest in investigating the five transactions under a liquidation pursuant to section 445D(1)(e), and (g) and s 600B. 84 Before considering these arguments, it is convenient briefly to summarise some of the relevant legal principles that are relevant. F. BACKGROUND LEGAL PRINCIPLES 85 The administration of a company's affairs is provided for in Part 5.3A of the Act. That Part commences with section 435A which provides that its Object is to provide for the business, property and affairs of an insolvent company to be administered in a way that either maximises the chances of the company, or as much as possible of its business, continuing in existence or, if it is not possible for the company or its business to continue in existence, results in a better return for the company's creditors and members than would result from an immediate winding up of the company. 86 Part 5.3A of the Act was introduced into the Corporations Law in 1992 as a result of the recommendation of the Harmer Committee in 1988 (Australian Law Reform Commission, General Insolvency Inquiry, Report No 45 (Canberra, 1988) (Harmer Report)). The Harmer Report reviewed the existing processes for dealing with company insolvencies on a voluntary basis and noted, at 26 [46], that: The procedure for a scheme of arrangement is cumbersome, slow and costly and is particularly unsuited to the average private company which is in financial difficulty. The time taken to implement a scheme varies but in general is at least two to three months. The legal and accountancy costs of even a relatively straightforward scheme are substantial. 87 When the Corporate Law Reform Bill 1992 (Cth) was introduced, the Explanatory Memorandum (Explanatory Memorandum, Corporate Law Reform Bill (Cth) 1992) stated (at [449]) that the new Part was intended to provide for speed and ease of commencement of administration, minimisation of expensive and time-consuming court involvement and formal meeting procedures, flexibility of action and ease of transition to other insolvency solutions where an administration does not by itself offer all of the answers. 88 It is with these objectives in mind that section 435A was introduced. The administration process operates in circumstances where those controlling the relevant company have accepted that it is insolvent. It has been accepted that the investigation conducted in the administration process is intended by Parliament to be a "swift and practical" one; In the matter of Mustang Marine Australia Services Pty Ltd (admin apptd) - Perpetual Trustee Company Ltd v Mustang Marine Australia Services Pty Ltd [2010] NSWSC 1429 (Mustang Marine) at [109]. Consistent with this, the administrator's investigation is necessarily a preliminary investigation which involves the administrator carrying out his or her investigations in a manner which is modified in light of the tight timeframe and associated constraints provided for by Part 5.3A. An administrator, so constrained, cannot carry out a detailed investigation of at company in the same way as can a liquidator, and accordingly the administrator's actions must be looked at in the light of that more restricted range of activities which are available to him or her; Mediterranean Olives Financial Pty Ltd v Loaders Traders Pty Ltd (Subject to Deed of Company Arrangement) (No 2) [2011] FCA 178; (2011) 82 ACSR 300 (Mediterranean Olives) at [61] – [62]. 89 Section 445D(1) of the Act empowers the Court to order that a Deed of Company Arrangement be terminated. That subsection provides: (1) The Court may make an order terminating a deed of company arrangement if satisfied that: (a) information about the company's business, property, affairs or financial circumstances that: (i) was false or misleading; and (ii) can reasonably be expected to have been material to creditors of the company in deciding whether to vote in favour of the resolution that the company execute the deed; was given to the administrator of the company or to such creditors; or (b) such information was contained in a report or statement under subsection 439A(4) that accompanied a notice of the meeting at which the resolution was passed; or (c) there was an omission from such a report or statement and the omission can reasonably be expected to have been material to such creditors in so deciding; or (d) there has been a material contravention of the deed by a person bound by the deed; or (e) effect cannot be given to the deed without injustice or undue delay; or (f) the deed or a provision of it is, an act or omission done or made under the deed was, or an act or omission proposed to be so done or made would be; (i) oppressive or unfairly prejudicial to, or unfairly discriminatory against, one or more such creditors; or (ii) contrary to the interests of the creditors of the company as a whole; or (g) the deed should be terminated for some other reason. 90 The inquiry under section 445D involves two stages, although they are related. The first is whether one of the grounds referred to in subsection (1) is established. The second, which arises only if the first is established, is whether as a matter of discretion, the deed should be terminated; In the matter of Recycling Holdings Pty Limited [2015] NSWSC 1016; (2015) 107 ACSR 406 (Recycling Holdings) at [29]. 91 The plaintiff bears the onus of establishing that each of the stages have been satisfied; Mediterranean Olives at [179]. 92 In the present case, subsections (c), (e), (f) and (g) of section 445D(1) are said to be relevant and it is contended that these subsections are activated by reason of an analysis which would yield a greater return to creditors upon a liquidation (and prosecution following a liquidator's investigation) than is currently available under the Deed Fund. 93 The analysis required under section 445D(1) does not require the Court to determine whether the proposed courses of action identified by Britax as potentially available are made out on the balance of probabilities. It is sufficient if the Court is satisfied that there is a "not unrealistic prospect that there may be a return to creditors on a winding up that is better than under the [Deed]"; Mustang Marine at [136]. Put another way, the plaintiff must establish a "serious case for the recovery of assets in a liquidation"; Re Octaviar Ltd (No 8) [2009] QSC 202; (2009) 73 ACSR 139. 94 In Molit (No. 55) Pty Ltd v Lam Soon Australia Pty Ltd (Administrator Appointed) [1997] FCA 395; (1997) 24 ACSR 47 at 51, Branson J adopted the following test set out by Lehane J in Hamilton v National Australia Bank Ltd (1996) 66 FCR 12 at 34) (emphasis added): In my view the task of the Court in a case such as this is to form a view, on all the material before it, as to whether there is a real prospect that in [sic] a liquidation claim in which (or in the fruits of which) the second secured creditor has an interest could and would be pursued so as to afford to the second secured creditor recovery of more of the debt owed to it than it would obtain under the proposed deed of company arrangement. 95 It has been said that a primary consideration in the exercise of the Court's discretion under section 445D(1) is the interest of the creditors, indeed, the fact that a majority of creditors favour the Deed is in itself a factor in favour of not terminating it under section 445D; Bidald Consulting v Miles Special Builders; Bidald Consulting v Miles Special Builders [2005] NSWSC 1235; (2005) 226 ALR 510 (Bidald) at [272] (per Campbell J). However, the discretion is to be exercised having regard not only to the interests of creditors as a whole but also to the public interest, an interest that includes considerations of commercial morality and the interests of the public at large; Bidald at [287]. In this regard, Campbell J in Bidald made the following observations (emphasis added): [290] For a director to avoid public examination about the affairs of the corporation, and the possibility of the type of clawback litigation which is possible in a winding up, by making a payment to creditors, can also be a factor in favour of termination: cf Paton v Campbell Capital Ltd at 32. It is in a relevant sense "detrimental to commercial morality" to dispense with the opportunity which the winding up law provides for the investigation of the affairs of a failed company: Re Data Homes Pty Ltd (in liq) [1972] 2 NSWLR 22 at 26; Emanuele v Australian Securities Commission at FCR 69; ALR 520; ACSR 15. [291] How much weight is given to the fact that the affairs of the company will not be investigated depends upon whether there are circumstances which suggest that investigation is called for. Sometimes, the fact that only a small dividend will be paid to creditors is itself such a circumstance: Lancaster v NZI Capital Corporation Ltd (Sheppard J, Federal Court of Australia, 3 September 1991 unreported, but quoted and approved in Paton v Campbell Capital Ltd at 32). Sometimes, the fact that it appears that there may be prospects of preference or uncommercial transaction or insolvent trading recoveries can be such a circumstance. In the present case, it is clear that only a small dividend will be paid to creditors, if any dividend at all. There is some basis for believing that insolvent trading recoveries might be possible, but the evidence concerning that topic is fairly slight, and any actual recoveries would depend on a liquidator obtaining the funding to sue. 96 Britax alleges that Mr Krejci did not exercise his casting vote at the creditors' meeting in accordance with section 600B of the Act. 97 Section 600B provides: (1) This section applies if, because the person presiding at the meeting exercises a casting vote, a resolution is passed at a meeting of creditors of a company held: (a) under Part 5.3A or a deed of company arrangement executed by the company; or (b) in connection with winding up the company. (2) A person may apply to the Court for an order setting aside or varying the resolution, but only if: (a) the person voted against the resolution in some capacity (even if the person voted for the resolution in another capacity); or (b) a person voted against the resolution on the first-mentioned person's behalf. (3) On an application, the Court may: (a) by order set aside or vary the resolution; and (b) if it does so – make such further orders, and give such directions, as it thinks necessary. (4) On and after the making of an order varying the resolution, the resolution has effect as varied by the order. 98 In Plumbers Supplies Co-operative Limited v Firedam Civil Engineering Pty Limited [2011] NSWSC 325 Barrett J stated: [41] The function of the court under s 600B is not simply to come to a decision of its own as to how the casting vote should have been exercised and, if that decision differs from that made by the chairperson, to set aside the resolution and make orders implementing the decision that it thinks should have been made. [42] The function of the court is, rather, to evaluate the decision-making process in which the chairperson engaged with a view to determining whether the decision was conscientiously made by reference to all relevant considerations appropriately identified and weighed by him or her. 99 Britax also submitted that a number of third parties (such as Infa-Secure, Quota, HBG and their directors) were potentially liable as accessories to breaches of duty by Richard Horsfall. 100 In order to establish accessorial liability, it must be shown that the alleged accessory assisted a fiduciary "with knowledge of a dishonest and fraudulent design on the part of the … fiduciary": Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89 at [160]; Barnes v Addy (1874) LR 9 Ch App 244 (Barnes v Addy) at 251-252. Section 79 of the Act also provides that a person is involved in a contravention if, and only if, the person has aided, abetted, counselled or procured the contravention, or has been in any way, by act or omission, directly or indirectly, knowingly concerned in, or party to, the contravention, or has conspired with others to effect the contravention. G. SHOULD THE DEED BE SET ASIDE? Britax's First Argument – No Prejudice to Other Creditors 101 Britax contends that it is the only creditor that will be prejudiced if the Deed is set aside. It submits that the Administrators have estimated that there will be about $800,000 available to unsecured creditors pursuant to the Deed. Britax is likely to be overwhelmingly the largest creditor, with its debt accepted (for voting purposes only) at $8,593,500 as against all other creditors combined which have their debts admitted (similarly for voting purposes only) at $1,114,529.17. On the basis of the debts admitted for voting purposes, Britax submits that the entitlement of the other creditors under the Deed and Creditors' Trust will be about $45,000, and $755,000 (or 9% of its entire debt admitted for voting purposes) would be available to Britax. Britax has, in the course of these proceedings, lodged $45,000 into Court on the basis that if these proceedings are successful, the interested unsecured creditors will be paid. Further, Britax has offered an undertaking to pay $200,000 as a contribution to fund any inquiries that the liquidators consider necessary in order to ascertain whether there are any claims to pursue against relevant parties. Accordingly, Britax reasons, it is the only party adversely affected by the setting aside of the Deed. There is no doubt that Infa, having sold all of its assets, can no longer trade and so it has no relevant interest. As a consequence, if Britax considers that there is a likelihood of a better return in a liquidation scenario, then its wishes must be respected and the Court must set aside the Deed. 102 Senior counsel for Britax frankly conceded during argument that he was unable to draw attention to any authority in support of this proposition. 103 Infa disputed this proposition, citing three authorities. 104 In Mediterranean Olives, Dodds-Streeton J noted (at [192]) that the plaintiffs could not establish viable causes of action or negative the administrators' estimates of the probable nil return to the unsecured creditors on winding up. The plaintiffs submitted, however, that as the administrators' investigations were inadequate and the Deed of Company Arrangement depended on the support of related creditors, the Court should, if outstanding issues reasonably called for further investigation, "readily uphold their bona fide preference, as the major independent creditors, for liquidation", at [192]. Her Honour, at [193], said: As Network and Portinex make clear, however, unless the outcome of the relevant resolution is contrary to the interests of the creditors as a whole, the defeat of a major creditor's preference by the votes of related creditors is irrelevant. 105 In DCT v Portinex/Silindale/Dalvale [2000] NSWSC 99; (2000) 34 ACSR 391 (Portinex) ACSR 391 Austin J at [137] summarised the position as follows: This is a case where by far the most substantial unrelated creditor has been outvoted by related creditors and now finds himself bound to arrangements to which he objects. He objects broadly on the grounds that the arrangement unduly benefit the director of the companies and that the administrator has made inadequate investigations. If there were nothing more to the case than this, the creditor may have at least a sound moral case for assistance. But Pt 5.3A clearly contemplates that the wishes of an individual creditor may be overridden, and permits related creditors to take part in the decision to do so, subject to s 600A. 106 In Network Exchange Pty Ltd v MIG International Communications Pty Ltd (1994) 13 ACSR 544; (1994) 12 ACLC 594 (Network Exchange), Hayne J also considered an application by the majority creditor of a company to have the administrator removed. The applicant identified the prejudice to creditors as being the inability of the biggest bona fide creditor to seek appointment of its own choice as administrator to preserve the undertaking of the company (at 549). His Honour found that it was insufficient to demonstrate, for the purposes of section 600A, that the major creditor had a strong and decided preference to have a person of its nomination as administrator of the company (at 550). Infa submitted that that reasoning applied equally to section 445D of the Act. 107 I agree with Infa's submissions. In particular I conclude that there is no basis for Britax's argument to apply such that the dominant position of one creditor, if thwarted, would necessarily prevail for the reason only that it is the only party likely to suffer prejudice if the Deed is set aside. I agree that the authorities cited support the proposition that the scheme of Part 5.3A of the Act does not permit the individual will of one creditor, even a creditor entitled to claim a most significant sum in the administration, to set aside the Deed without first establishing that the conditions of one or other of the sub-paragraphs of subsection 445D(1) have been satisfied. Whilst the role within section 445D(1) of the exercise of discretion ("the Court may make an order") and the grounds identified in the subsections are interrelated, it is clear that the Court must first be satisfied that the requirements of one of the grounds be met: Recycling Holdings at [29]. Britax's submission fails to take this legislative requirement into account. 108 I am reinforced in this view by examination of the subsections upon which Britax relies being subsection 445D(1)(e), (f) and (g) and section 600B. 109 Section 445D(1)(e) provides that the Court must be satisfied that "effect cannot be given to the Deed without injustice or undue delay". 110 The subsection draws attention to the effect of the Deed rather than its purpose; Cresvale Far East v Cresvale Securities [2001] NSWSC 89; (2001) 37 ACSR 394 (Cresvale) per Austin J at [188]. The subsection may operate to enable relief where the Deed denied creditors the opportunity for the company to be wound up and voidable transactions investigated and pursued; Cresvale at [190] – [191]. 111 In Cresvale, Austin J found (at [136]) that: … facts would suggest to a reasonable person the real possibility, worthy of further inquiry, that Mr Kirwan may have breached his fiduciary duties or his statutory duties in respect of related party transactions and insider trading 112 On the basis of that finding, his Honour found that the Deed had the effect of foreclosing inquiry into Mr Kirwan's conduct because, on the facts of that case, it prevented the winding up of the company which sold the assets to Mr Kirwan. 113 The "no prejudice to creditors" argument advanced by Britax does not sit conformably with the language of subsection (e). The desire of one substantial creditor to investigate, without first establishing (as noted by Austin J in Cresvale) a real possibility, worthy of further inquiry, of breach, is not sufficient. 114 Subsection 445D(1)(f) relevantly requires that the Deed or a provision of the Deed is, or would be, oppressive or unfairly prejudicial to one or more creditors or contrary to the interests of the creditors as a whole. 115 In deciding whether a deed is oppressive or unfairly prejudicial within the subsection, the Court will have regard to the following factors: (1) the objects of Part 5.3A; (2) the interests of other creditors, the company and the public; (3) the comparable position of the creditor on a winding up compared with their position under the deed; and (4) other relevant facts such as the relative position of all creditors under the Deed (that is, whether they are better off), the existence of a collateral benefit to the shareholders and the whole of the effect of the Deed; TiVo, Inc v Vivo International Corporation Pty Ltd (subject to deed of company arrangement) [2014] FCA 789; (2014) 9 BFRA 583 (TiVo) at [54], per Gordon J. 116 In the context of the present argument, subsection 445D(1)(f) is of no assistance to Britax. The subsection is prescriptive and, as the above authority indicates, requires at least a comparative analysis of the relative positions of the creditors under the Deed as opposed to a winding up. In this context it is to be noted that Britax's submission somewhat overemphasises its role in the context of the creditors of the company. Whilst Britax has a dollar value dominance over the other creditors, it was one of 13 creditors who voted at the creditors' meeting. It would not lightly be assumed that the 12 creditors who voted in favour of the Deed were behaving commercially irrationally or otherwise to protect interests other than their own. 117 Britax's submission is that by reason of the payments it has offered to the remaining creditors, it is the only party who might be prejudiced if the Deed is set aside. Subsection 445D(1)(f) calls for consideration of whether or not, by entry into the Deed, the plaintiff would be prejudiced. In this argument, Britax points to no specific prejudice, but an absence of prejudice for the other creditors. Paradoxically, Britax relies on potential prejudice to it, not by reason of the Deed, but by reason of setting it aside because of the unknown effect of a liquidation. Put another way, Britax contends that it is prejudiced by not being able to enjoy the unquantifiable opportunity to benefit from a liquidation, which it contends is worth more to it as a creditor than the amount of $755,000 that it estimates that it would be likely to receive under the Deed. 118 Subsection 445D(1)(g) provides that the Deed may be terminated for "some other reason". 119 This may be available "where the proposal for the [Deed of Company Arrangement] has a fraudulent or wrongful purpose or the [Deed of Company Arrangement] offers an unconscionable premium, contrary to public policy, as a bribe to creditors to support an arrangement under which the conduct of the directors will not be investigated"; TiVo at [58]. 120 TiVo (at [59], citing Mediterranean Olives at [197]) also states that "[t]he circumstances in which a [deed] may be terminated are not closed. Each case will depend on its own facts and combination of circumstances, which must be mutually balanced". 121 Senior counsel for Britax relied heavily upon TiVo, but I do not think that it assists its case. In TiVo the Court found that the public interest demanded that the deed of company arrangement be terminated under section 445D(1)(g) so that an independent third party, namely a liquidator, could conduct an inquiry into what counsel for the company conceded were the "legitimate concerns" (at [65]) raised by the administrator concerning four identified transactions. The facts of that case were significantly different to the present. In particular, the administrator in TiVo had reported no fewer than ten instances of failure by the company to provide information or records relevant to the four identified transactions. Further, the administrator had received no information to assess the asset position of the proposed target of the investigations to ascertain what value may be achieved by the company in the event that they were pursued (at [69], [71] and [72]). As a consequence, Gordon J found that the public interest demanded that the deed be terminated and an independent third party conduct an inquiry in respect of the conceded "legitimate concerns" (at [69]). 122 The argument advanced by Britax is that it would not be necessary to establish any "legitimate concerns" for the interest and desire of Britax as the dominant creditor by value to prevail. For the reasons identified that submission cannot be sustained. 123 Section 600B also provides no support for Britax's submission. The approach to section 600B mandated by the case law is to weigh up all relevant factors to the casting of the vote, including whether any particular class of creditors will be unfairly prejudiced by the proposal, whether the meeting has been given all relevant information and whether the directors stood to gain an unfair advantage; Cresvale at [109] – [118] esp [117]. 124 Importantly, the task under section 600B is to consider the exercise by the chairman of his casting vote as at the time that it was cast, on 7 March 2016. At that date Britax had made no offer to pay the other creditors any portion of the amounts that they claimed from Infa. The 12 other creditors claimed to be owed a total of $1,114,529. Accordingly, at the relevant date Britax could not contend that it was the only creditor with an interest in the Deed. Britax's Second and Third Arguments – Prospects of a Better Recovery in a Liquidation and Public Interest 125 Britax's second argument as set out in its closing submissions is that there are prospects of a better recovery (for the benefit of all creditors) in a liquidation, in particular by reference to claims arising in respect of the five pleaded transactions: (a) for breaches by Richard Horsfall of his fiduciary duties as a director of Infa. Britax contends that liability for these breaches may extend to recipients of the benefit of the transactions (identified as Infa-Secure, Quota and HBG) and their directors and officers who "knowingly assisted" with those transactions, or "knowingly received" company property as a result of those transactions, within the two limbs of Barnes v Addy; (b) for breaches by Richard Horsfall of duties as a director of Infa arising pursuant to section 181 of the Act. Britax contends that liability for these breaches may extend to recipients of the benefit of the transactions who were "involved" within section 79 of the Act; and (c) for the transactions to be avoided pursuant to section 37A of the Conveyancing Act on the basis that they were entered into with the intent (even if not the sole or predominant intent) to hinder, delay or defeat creditors. 126 It is necessary to consider these arguments in the context of each of the five transactions that Britax has identified as questionable and in the context of sub-sections 445D(1)(c), (e), (f) and (g) and section 600B of the Act. In this context I also consider Britax's third argument (public interest). 127 Britax has not in these proceedings articulated with any specificity the breaches that it alleges against Richard Horsfall (in relation to any of the five transactions) beyond the broad assertion of breach of directors' duties. On the pleaded case, as noted above at [36] to [68] in the summary of the five transactions, fiduciary duties in a broad sense are alleged to have been breached. Britax also contends that section 181 of the Act is the subject of breach by Richard Horsfall. In neither case are clear particulars provided of the asserted breaches. No submission was made in closing identifying any particular conduct (beyond the broad transactions identified) as a breach. Nor was any submission made that directed attention to section 37A of the Conveyancing Act. Nevertheless the analysis that follows endeavours to encapsulate the allegations that it is understood Britax advances in relation to each of the transactions. The First Transaction: Sale of Business in 2011 128 Britax alleges that it is arguably the case that Richard Horsfall acted in breach of his duties by facilitating the sale by Infa in 2011 to Infa-Secure of its business. That sale involved the assignment of goodwill and stock in trade. 129 It is said that the transaction was conducted for an improper purpose, namely, to strip Infa of its assets and thereby deprive Britax of potential recoveries in the event that its patent litigation succeeded, and also to deprive other creditors of assets. 130 Intrinsic to Britax's case is the allegation that the sale of goodwill for $271,000 was at an undervalue (there is no suggestion in this case that the sale of stock in trade was at an undervalue). 131 Britax's case in relation to the first transaction focussed on a number of circumstantial factors which it contended favoured its position. These included: (a) the chronology of events leading up to the sale in 2011, including the commencement of the Construction Hearing immediately prior to completion of the transaction; (b) the common directorship of Richard Horsfall in both Infa and Infa-Secure at the time of the transaction; (c) the fact that Infa ceased to trade in its own right after the sale and thereafter was confined to be a licensee of its IP and lessor of the premises to Infa-Secure; (d) the likely motivation of Richard Horsfall being to defeat the prospects of future creditors, including Britax, in obtaining a dividend from Infa; and (e) problems that Britax contended arose from the valuation report conducted prior to the sale. 132 At the hearing, Britax relied on the contents of the Supplementary Report and the cross-examination of each of Richard Horsfall and Mr Krejci to support its contentions. It adduced no affirmative evidence that the sale of the goodwill was at an undervalue. 133 Infa contested Britax's contentions. Affidavit evidence was read by Richard Horsfall, his son, Anthony Horsfall, Ms Chrysiliou, Ms Seeder, Mr Immerman, Mr Henderson, and Kunal Shah. Only Richard Horsfall and Ms Chrysiliou were required for cross-examination. 134 Broadly speaking, Infa's answer to the allegations was that the evidence demonstrated that Infa had set out to change the ownership of its business as part of a succession plan between family members where the business was conducted by Infa as a corporate trustee. The transaction was entered on the advice of Mr Henderson given in 2011 which followed earlier advice to similar effect given by Mr Henderson in 2007 (see [31] above). An independent valuation had been provided by Mr Henderson which showed that the sale was for fair value. No factual basis gave rise to impugn the transaction. It had been conducted for fair value and with no improper purpose. 135 The following factors are relevant to considering Britax's contentions. 136 First, the genesis of the sale of business in 2011 appears to lie in Mr Henderson's December 2007 advice, given to Infa, that it transfer all of its assets to another entity. This advice was given well before the commencement of the patent infringement proceedings and after only early letters of demand were sent by Britax in respect of those proceedings. 137 Secondly, Richard Horsfall's evidence was that his health deteriorated from 2011, and in the same year he decided to step back from the business. In 2011 he sought and obtained advice from Mr Henderson to the effect that the restructure would permit the succession from him to his sons to take place and enable his sons to have direct share ownership in the business. The restructure would also allow the entity conducting the business, which was to be Infa-Secure, to build up equity in its own right, rather than the business (then Infa) being required to distribute all income to beneficiaries and rely on loans. No suggestion was made by Britax to suggest that the restructure that was so advised and carried out did not operate to achieve those objectives. 138 Thirdly, at the time that the First Transaction was entered into, on 7 February 2011, the first trial in the Britax patent proceedings had recently commenced. That trial related to the question of construction of the patents and infringement (not the validity of the Patents). At that time Richard Horsfall had received positive advice as to the prospects of ultimate success in the proceedings. He understood that whilst a "mixed outcome" was possible, ultimately he did not consider that there was significant exposure either as to costs or damages. The evidence given by Ms Chrysiliou tended to confirm that Richard Horsfall had received such advice. In this context, Richard Horsfall adhered in cross-examination to his evidence in chief that it was his desire to retire and make arrangements for the succession of his sons into the business that was the purpose of the restructure. The evidence of Mr Henderson and Ms Seeder, both in the form of contemporaneous documents that they had composed in 2011 and also in their affidavits, provides corroboration of their understanding of Richard Horsfall's motives. 139 Fourthly, the sale in 2011 did not have the effect of divesting Infa of all of its assets. In fact, Infa retained an income stream from Infa-Secure of $348,000 per annum from a patent licence agreement, and also rental income from the lease of the Property. No pleading or argument has been put by Britax to contend that the IP licence or rental agreement were not for fair market value. In this context the retention by Infa of those assets, and the continued receipt by Infa of an income stream from them, might be regarded as inconsistent with an intention to strip Infa of its assets as a result of the on-going patent infringement proceedings. 140 Fifthly, in cross-examination Richard Horsfall explained that the income stream generated from these two sources was intended to provide funding for the litigation. This suggested a desire to fight the litigation, and optimism as to its outcome. 141 Sixthly, the First Transaction was conducted at a time when Infa was solvent. 142 Taken together, these factors suggest that it would be extremely difficult to impugn the intention of Richard Horsfall in entering into the First Transaction as being for the purpose of defeating the claims of potential future creditors, including Britax, as opposed to the intention that is manifest on the face of the documents created in 2011, namely, to effect a restructure of the business of Infa. Richard Horsfall was cross-examined at length by senior counsel for Britax. He did not accept that the First Transaction was entered to thwart Infa's creditors. It seems to me unlikely that further cross-examination of Richard Horsfall in an examination by a liquidator or in subsequent proceedings would yield a different answer. 143 Britax then contends that the First Transaction was at an undervalue. Its challenge arises first, from a forensic challenge to the detail of the valuation, relying on answers given in cross-examination by Mr Krejci. Secondly, Britax relied on the following passage in the Supplementary Report: Upon interrogating the valuation upon which the sale was based, we are advised that the sale price for the goodwill component may have been undervalued by at least $1M, a claim for which may be capable of being brought against the Director. To determine whether the sale was at undervalue, a secondary valuation of the business will be required. 144 Thirdly, Britax relied on a complaint that there was an absence of relevant records in relation to the 2011 sale which, if investigated by a liquidator, would be likely to shed further light on the transaction. 145 In relation to the first point, Mr Henderson gave affidavit evidence in these proceedings that the valuation was to ensure that the consideration for the transfer of the business was able to be quantified for the purpose of the payment of any stamp duty on the transfer. The valuation records Infa's instructions as follows: You have requested that we determine the fair market value of the assets of the business of Infa Products Pty Ltd as at 31 January 2011... For the purposes of this valuation opinion, the fair market value is the price that would be negotiated in an open market between a knowledgeable, willing but not anxious buyer and a knowledgeable, willing but not anxious seller dealing at arm's length within a reasonable time frame. 146 Mr Henderson was not cross-examined. 147 The forensic challenge to the valuation substantively involved senior counsel for Britax pointing to the three year average of the adjusted annual earnings before interest, tax, depreciation and amortisation (EBITDA) which was $872,107 and noting that this sum was several times more than the ultimate sale price of the goodwill which was valued at $271,595. Britax contended that this valuation was intrinsically controversial as it valued the goodwill for a fraction of the annual value of the adjusted earnings of the business. 148 However, Britax's analysis fails to take account of the fact that the sale of the business did not involve the sale of the IP and real estate, which Infa continued to own. Merely pointing to the discrepancy between the valuation of goodwill and of EBITDA did not self-evidently demonstrate a sale at an undervalue. 149 Mr Krejci was cross-examined on the subject and expressed the view that the fact that the IP remained in the ownership of Infa was influential in considering the sale price. He expressed the view, having regard to all of the evidence in these proceedings, that he regarded the sale price to be a fair one. 150 In closing submissions Britax contended that sufficient doubt had been cast over the valuation for the Court to conclude that further investigations should be conducted by a liquidator. It sought to rebut suggestions that it was incumbent upon Britax to demonstrate a sale at an undervalue. I disagree. In my view, the evidentiary onus lies on Britax (see Mediterranean Olives at [209]) to provide a sufficient basis for a finding that there is at least a "realistic prospect" of a finding of breach of duty. The matters relied upon by Britax do not do so. In the absence of a competing valuation report that suggests (at least arguably) an undervalue, Britax has not established its case. 151 Britax's next argument relies on an interpretation of the Supplementary Report to the effect that the Administrators themselves expressed reservations about the valuation. As I have noted in [43] above, that view is not, in my respectful opinion, supported by the language of the Supplementary Report read as a whole. As noted, the Supplementary Report indicates that a secondary valuation of the business would be required in order to determine whether the sale was at an undervalue. Further, as I have noted earlier in these reasons, the Administrators had received advice from an experienced valuer that indicated that, whilst it was possible to obtain a valuation, it would have to be based upon company records and industry information that may be difficult to obtain or may no longer be available, as the transaction occurred over five years ago. As such, the Supplementary Report notes that significant funding would be required to undertake the exercise, which may ultimately result in a valuation that could be speculative and therefore open to challenge. 152 In the context of the section 600B claim by Britax, it is to be noted that Britax did not in response to the Supplementary Report offer to provide any funding for the secondary valuation. This is a material factor to consider in taking into account whether or not Mr Krejci's casting vote should be set aside (see Portinex at [131]). 153 On the basis of the matters that I have identified above, I am not satisfied that there is a realistic prospect that a liquidator would successfully prosecute Richard Horsfall for breach of directors' duties in respect of the First Transaction. I am also not satisfied that the facts would suggest to a reasonable person that the investigation of the affairs of Infa in liquidation is worthy of further inquiry in the circumstances of this case. 154 I am fortified in this view, in relation to the First Transaction by two further points. First, by my agreement with the submission made by Infa that Richard Horsfall would not have breached his fiduciary duty owed to Infa because a company director does not owe a fiduciary duty to creditors unless and until insolvency is imminent: Kinsela v Russell Kinsela Pty Ltd (in liq) (1986) 4 NSWLR 722 at 732-733. Secondly, by my agreement with Infa's submission that Richard Horsfall would also not have breached his fiduciary duty to the company (and, by analogy, his duties owed under section 181 of the Act) if the members of the company approved of the conduct: Re Duomatic Ltd [1969] 1 All ER 161; [1969] 2 Ch 365, 370-371 and 374. In the present instance, Infa at the time of the sale was owned by Richard and Roslyn Horsfall. The restructure was conducted upon advice given to them in a manner in which it is likely, in defence to any breach of fiduciary duty claimed, would be not considered a decision of Richard Horsfall but rather as a decision of the members of the company to sell its assets. It seems highly unlikely to me that in proceedings conducted by a liquidator it would be established that the company had not endorsed the sale as part of its restructure. 155 In closing submissions Britax relied on subsections 445D(1)(c), (e), (f) and (g) as well as section 600B as the basis for setting aside the Deed (or resolution approving the Deed). 156 For completeness I set out below my conclusions, based on the above analysis, in relation to each of these subsections. 157 Subsection 445D(1)(c) requires that there be an omission in the report given under section 439A(4), and that the omission can reasonably be expected to have been material to the creditors in deciding to vote in favour of a resolution to execute the Deed. 158 In assessing this complaint, the Court will consider whether there has been an omission which, when viewed objectively, could potentially rationally influence the decision of a hypothetical reasonable creditor – Recycling Holdings at [31]. Broadly speaking, the administrator's investigation is, as noted above, to be "swift and practical" in accordance with the objectives set out in section 435A of the Act. Where an administrator, after proper preliminary investigations, reports that there is no real likelihood of a successful recovery on any of the potential claims identified, a challenge to the administrator's conclusions requires evidence as to the validity or strength of the identified claims and their potential for successful recovery on liquidation – Mediterranean Olives at [209]. A deed will not be terminated because of a material omission if the information that was not disclosed would be unlikely to affect the decision of the majority of the creditors who voted for the deed – Recycling Holdings at [72] – [73]. 159 The omission relied upon by Britax in closing submissions is the failure of the Administrators to consider and investigate claims against Infa-Secure and its directors and officers for being accessories to the breaches allegedly committed by Richard Horsfall. 160 It is true that the Supplementary Report did not advert to such claims. This is explained by the Administrators on the basis that they had considered that there was no viable claim against Richard Horsfall. For the reasons indicated above, I do not consider that that was a material omission. A critical component to the analysis is the identification that the sale of Infa's business to Infa-Secure was conducted at an undervalue (as alleged by Britax). The Administrators specifically requested funding for a second valuation, but that was not supplied by Britax. At the hearing Britax did not advance any second valuation to undermine that which had been provided in 2011 by Mr Henderson. 161 In Mediterranean Olives, Dodds-Streeton J observed at [209]: The plaintiffs did not lead evidence in relation to the validity or strength of the identified claims and their potential for successful recovery on liquidation. They relied on the alleged inadequacy of the administrators' preliminary investigations. As stated above, materially inadequate investigation may justify termination of a DOCA even if winding up is unlikely to produce a better return or other specific benefits. In my opinion, however, the plaintiffs did not establish that the administrators' preliminary investigation, including of the potential claims, was deficient or defective, or that there were related material omissions from the s 439A reports or statements within the meaning of s 445D(1)(c). The potential impediments to effective recovery on liquidation include the legal weakness or uncertainty of a relevant claim, possible defences to it, the complexity and costs of the litigation or other necessary steps to prosecute the claim, and the capacity of any liable parties to satisfy it. 162 Those observations are apposite in the present case. It has not been demonstrated that there was a materially inadequate investigation. Nor has it been established that there was sufficient validity or strength in the identified claims to warrant their pursuit against Infa-Secure. Ultimately, on the material available, I am unable to conclude that there was an omission that was material. It appears to me that the Administrators conducted a careful and thorough investigation of the affairs of Infa and concluded that there was no viable cause of action against Richard Horsfall in respect of the First Transaction. The evidence before the Court in these proceedings tends to confirm that conclusion. In these circumstances the threshold question of the applicability of subsection 445(1)(c) is not made out. 163 I also do not consider that section 445D(1)(e) is satisfied. To paraphrase Austin J in Cresvale at [136], the facts do not suggest to a reasonable person the real possibility, worthy of further inquiry, that Richard Horsfall may have breached his fiduciary duties. Accordingly, the Deed did not have the effect of foreclosing a reasonable inquiry. 164 Section 445D(1)(f) requires consideration of the matters identified by Gordon J in TiVo identified in [115] above. They include the objects of Part 5.3A, the interests of other creditors, the company and the public, and the comparable position of the creditor on the winding up compared with their position under the Deed. 165 Here, Britax points to the fact that the comparable position of the creditors other than Britax can be no worse off if the Deed is set aside, because of its undertaking to pay $45,000 ([101] above). Having neutralised the effect of prejudice to the other creditors, Britax contends that its own wishes should prevail, especially where the effect of the First Transaction is to remove the business from Infa and enable Infa-Secure to conduct it, free of the shadow of the Britax patent infringement claim. 166 Although this argument has a seductive simplicity to it, I do not think that it conforms with a correct approach to subsection 445D(1)(f). The relevant "comparative interest" is of the creditors' qua creditors – DSG Holdings Australia Pty Ltd v Helenic Pty Ltd (2014) 86 NSWLR 293; (2014) 307 ALR 143 at [93] – [96]. Britax must demonstrate a likelihood of a higher return to the creditors as a class, which includes Britax itself. The question of this type of prejudice is to be objectively determined. A subjective belief or suspicion on the part of one creditor that it may be entitled to a better return upon a liquidation, would not of itself be sufficient to satisfy the purposes of Part 5.3A. That position is not altered by the fact that Britax has offered to "pay out" the other creditors. 167 For the reasons identified, I do not consider that, objectively reviewed, it is likely that further investigation by a liquidator will yield additional information that will result in a successful claim against Richard Horsfall for a breach of his duties. It would not accord with the policy or purpose of Part 5.3A to supplant an objective analysis of the materials with Britax's subjective suspicions, merely because of its offer to pay the other creditors the amount that they may would receive under the Deed. 168 Britax at this juncture would point to its offer to fund a liquidator's investigations up to the amount of $200,000 in the event that the Deed is set aside. However, in my opinion, this does not alter the calculus. If there is, on the basis of the material now available to the Court, considered to be insufficient prospects that there will be a successful prosecution of the identified claims against Richard Horsfall in respect of the First Transaction, then the fact that Britax has offered to fund that investigation simply means that it is prepared to undertake speculative litigation in the hope of a higher return. The structure of section 445D does not countenance that approach, but requires that specific thresholds be satisfied. Whilst in some cases it might be regarded that the absence of sufficient funding of a liquidator could tell against the setting aside of the Deed (such argument was advanced in TiVo), where the evidence points against the setting aside of the Deed, an offer to fund the liquidator is unlikely to be determinative. 169 In relation to section 445D(1)(g) – that the Deed should be terminated for some other reason – I am not satisfied that Britax has made out such a reason. Unlike the facts in TiVo, in the present case the Administrators identified no inadequacies in the provision of documents by Infa and the public interest does not demand that an independent third party conduct an inquiry into Infa. 170 Britax finally relies on section 600B in the event that section 445D is not satisfied. However, for the reasons advanced above, in my view Britax has not demonstrated that Mr Krejci was incorrect in his assessment of the strength of a claim available against Richard Horsfall. In addition, Britax had the opportunity to fund the Administrator in conducting a second valuation, but failed to do so. Accordingly, I consider that it has not established that the resolution entering into the Deed should be set aside by reason of the matters raised in relation to the First Transaction. The Second, Third and Fourth Transactions: the Quota Transactions 171 The case ultimately advanced by Britax concerning the Second, Third and Fourth Transactions, is that by permitting Infa to: (a) enter into the Second Transaction (granting security to Quota over an existing loan); (b) make repayments of the secured loan (the Third Transaction); and (c) pay $550,000 from the proceeds of the sale of the property to Quota (the Fourth Transaction); Richard Horsfall engaged in conduct in breach of his fiduciary duties owed to Infa and duties owed pursuant to section 181 of the Act and section 588FE(5) of the Act. In the course of argument, senior counsel for Britax accepted that the fate of these transactions turned on whether or not the grant of the security in the Second Transaction could be impugned. If it could, then the later distributions represented in the Third and Fourth Transactions might be challenged and the subject of claims in a liquidation. If it could not, then payments to Quota as a secured creditor could not properly be challenged. 172 In essence, Britax submitted that the provision of security to Quota was a transaction conducted without valuable consideration which was entered for the purpose of stripping assets from Infa. By December 2011, Infa had been a creditor of Quota for several years. Britax contended that the Administrators correctly expressed suspicion in the Supplementary Report about the timing and purpose of the transaction. An inference arises, it submitted, that in the absence of any deed of forbearance or other documentation contemporaneous with the transaction, that it was entered into without consideration and for the improper purpose identified above. Britax further contended that in the absence of documentation indicating the motive for the loan, the transaction should be further investigated under the umbrella of a liquidation. Such investigations may yield evidence supporting a claim against Richard Horsfall and derivative claims against Quota and its directors for their involvement in the transactions. 173 The additional material available to the Court in relation to these transactions includes the affidavit evidence of Richard Horsfall, Mr Henderson, Ms Seeder, Kunal Shah and Anthony Horsfall. From their affidavits and the documentation to which they refer, the following matters may be observed. 174 First, the contemporaneous documents suggest that the Quota security was intended to form part of the First Transaction, but was overlooked. In an email from Mr Wiseman (Infa's then solicitor) to Mr Henderson dated 14 December 2011 and headed "Infa secure restructure 2nd Mortgage to NAB" Mr Wiseman enquired about whether it was "still intended to register the 2nd Mortgage over the property" after noting that after 8 months he thought that the matter had "died or was concluded". He was advised that the matter was not dead and was given the amounts to be inserted in the second mortgage that make up the Quota Security. 175 Secondly, as noted in relation to the First Transaction, the evidence points to the motivation for that transaction being to effect a restructure of the family business arrangements. In cross-examination Richard Horsfall adhered to his position that the restructure was done in order to assist in his retirement from the business. When the Second Transaction is seen as a delayed part of the First Transaction, it is difficult to consider it likely that the prospect of impugning Richard Horsfall's motivation for entering into the Second Transaction is any greater than that for the First Transaction, which I have considered in [137] and [138] above. 176 Thirdly, this view is reinforced when one considers the history of the role of Quota within the structure of the business. Until it was restructured in 2011, the business was operated through Infa, with distributions being made to the beneficiaries which included Quota. Each year, the Horsfall Family Trust distributed its income to its beneficiaries, who paid tax on their distributions at their personal rate. Quota paid income tax at the corporate rate. Distributions made to Quota were mostly unpaid and were used for the purpose of the Trust to ensure that it had enough cash to operate in the next financial year. Ms Seeder gave evidence that Quota was set up as what is sometimes referred to by accountants as a "bucket company" for the purpose of ensuring that the business had sufficient cash for the next financial year. The purpose of Quota was to take advantage of the lower tax rate which applies to companies. 177 Prior to the Second Transaction, Infa made distributions to Quota by book entry which, on the advice of Infa's advisers, were identified by Quota and Infa as a Division 7A loan pursuant to the Income Tax Assessment Act 1936 (Cth). 178 Fourthly, the effect of the Second Transaction was to provide consideration for Quota to continue to permit Infa to utilise the funds lent to it on terms that it was not due to be repaid for five years from the date of the initial loan agreement, rather than on demand, as Quota was entitled to direct. 179 This arises from the terms of the Loan Agreement. The relevant loan amount was calculated on the basis of documented advances (by way of unpaid dividends that had been recorded by Ms Seeder from 2007 to 2011) plus interest. 180 The Loan Agreement relevantly included the following terms: 2.1 Advance The Lender will provide, and the Borrower will accept, the Principal Sum by way of cash advance on the Drawdown Date on the terms and conditions set out in this Agreement. The advance will be provided to the Borrower by way of cheque drawn by the Lender payable to the Borrower or as the Borrower directs in writing. 2.2 Repayment Subject to Clause 5.2, the Borrower must repay the Principal Sum and all other moneys then outstanding under this Agreement on the Repayment Date. All moneys paid under this Agreement will be applied firstly in payment of interest, secondly in payment of other moneys owing under this Agreement and thirdly in repayment of the Principal Sum. 181 The plain reading of these provisions is that Quota will continue to permit Infa to utilise the funds already advanced on the basis of the security entered into at the same time as this loan until the "Repayment Date" which was five years from the date the agreement was executed. 182 In my view, the above factors indicate that it would be to draw a long bow to conclude that there is a realistic prospect that proceedings would be likely to succeed against Richard Horsfall in respect of this transaction. There appears to be evidence of consideration for the grant of the security in the form of a continued promise to extend the facility to Infa for a fixed period which, whilst not a deed of forbearance, is nevertheless a promise to forbear from calling on the loan. In this connection it appears that the Administrators' comment Supplementary Report overstated the likelihood that there may be a cause of action available because it had not considered the terms of the loan agreement quoted above. 183 I accept that any liquidator's investigation is likely to yield further documents to shed light on the transaction, as would examinations of the individuals involved; but where, as here, Infa has adduced additional material not only from Richard Horsfall but also from Ms Seeder and Mr Henderson, together with supporting contemporaneous documents, it is difficult to conclude other than that it would be highly speculative to search for additional materials in the hope that they may yield a case for the prosecution of Richard Horsfall. The same applies, necessarily, for the derivative actions against Quota and its directors for accessorial liability under the Act or applying the principles in Barnes v Addy. 184 Britax again relies on subsections 445D(1)(c), (e), (f) and (g) as well as section 600B of the Act. 185 In relation to subsection 445D(1)(c) (material omission from the reports) my conclusion that there are insufficient prospects of a successful claim against Richard Horsfall demonstrates that it was not a material omission to not refer to derivative claims against Quota or its directors or officers in the Supplementary Report. In the case of the Second Transaction the Supplementary Report tended to overstate those prospects. 186 In relation to subsection 445D(1)(e), similar reasoning to that set out above in [163], in relation to the First Transaction, applies in relation to the Second to Fourth Transactions. Namely, the Deed did not have the effect of foreclosing a reasonable inquiry. 187 In relation to section 445D(1)(f), in light of my conclusions set out above, it cannot reasonably be said on the basis of the material before me that Britax was unfairly prejudiced or oppressed in a relevant manner. My explanation set out in relation to the relevant principles in [114] to [117] also apply. 188 Further, I do not consider that, in light of my findings in relation to the Second, Third and Fourth Transactions, that section 445D(1)(g) (Deed terminated for "some other reason") applies. 189 Finally, in relation to section 600B, in this proceeding Britax has not demonstrated that there was a sufficiently material omission from the Administrators' reports to justify a conclusion that the decision to exercise the casting vote in favour of the resolution approving entry into the Deed was not made conscientiously and by reference to all relevant considerations appropriately identified and weighed. The Fifth Transaction: Sale of Infa's IP to HBG 190 In broad terms, Britax submitted that by permitting the sale by Infa of its IP to HBG for $524,000, Richard Horsfall acted in breach of his duties owed to Infa as a director pursuant to section 181 of the Act and section 588FE of the Act because it was a sale made for the purpose of stripping Infa of its assets in order to defeat its creditors and a sale that was made at an undervalue. Richard Horsfall's sons, Steven, James and Anthony and Matthew Horsfall, each own 25% of HBG, and Britax submitted that if Richard Horsfall was in breach, then HBG and its directors and officers were also liable to be pursued in a liquidation for accessorial liability under the Act and pursuant to the principles in Barnes v Addy. Further liability might be traced back to Infa-Secure and its officers. 191 The specifics of Britax's allegations may be summarised as follows. 192 First, the timing of the sale is suspicious. It was entered into the day before the appointment of the Administrators. By then, the Britax patent proceedings had been lost by Infa and Infa was insolvent. Secondly, Richard Horsfall's evidence as to the reason for the sale and its timing were suspiciously vague. An "obvious inference" could be drawn that the true purpose of the transaction was to strip Infa of assets. Anthony Horsfall filed an affidavit in the proceeding but gave no evidence as to how the transaction came about. Thirdly, Infa received no advice as to whether it should carry out the transaction but instead relied on the advice of Mr Immerman, who was advising Infa-Secure. Fourthly, there were manifest problems with the valuation of the IP. The PKF valuation displayed confusing and inadequate methodology which warranted more careful scrutiny than the Administrators had given it. 193 It is understandable that Britax places particular emphasis on the chronology associated with the Fifth Transaction. It was entered at a time which was not propitious and it might well be thought that the sale would be more properly conducted by the Administrators. Richard Horsfall's evidence was vague about the reason for the timing of the sale transaction, which did not assist in clarifying how the transaction came about at that time. However, the following factors are, in my view, influential in the consideration of this transaction. 194 First, Infa-Secure had an obvious interest in the acquisition of the IP. Infa had licensed its patents to Infa-Secure for $348,000 per annum over a five year term since the 2011 sale of its business. That license was due to expire on 1 March 2016. Clause 2 of the Patent License Agreement gave Infa-Secure or its nominee an option to purchase the patents at the conclusion of the license term. There is no dispute that HBG is a nominee of Infa-Secure. Significantly, there has been no suggestion by Britax in this case that the Patent License Agreement was entered improperly, or at an undervalue. 195 Secondly, Mr Immerman had given advice to Infa-Secure in May 2015 that the sale would be beneficial to Infa-Secure. He advised that the acquisition should be undertaken by a nominee of Infa-Secure. The PKF valuation was provided on 16 September 2015. This suggests that the transaction had been in contemplation long before the appointment of the Administrators. This chain of events does not answer criticisms levelled at Mr Horsfall that he might have been acting more in the interests of Infa-Secure than the interests of Infa, but it does tend to dispel the suggestion that the sale was a last minute concoction devised to take matters out of the hands of the Administrators. 196 Thirdly, I do think that Richard Horsfall provided vague and somewhat unsatisfactory answers to questions concerning the precise reasons for the sale on the day before the administration. He could not recall who had suggested the sale, where the documentation had come from or why it had been decided upon at that particular time. The transaction took place in December 2015 and his evidence was given in June 2016. It may be that Richard Horsfall had a genuine basis for not recalling these matters. His uncontested evidence was that he was suffering poor health and there was undoubtedly much going on at the time in the affairs of Infa. Whilst Britax urged upon me that there was an obvious inference to be drawn from his answers that he was being deliberately evasive on the subject, that proposition was not squarely put to him. Accordingly, I regard Richard Horsfall's answers as being a neutral factor in the evaluation of the circumstances of the sale. 197 Fourthly, whilst the sale of IP was entered into prior to the appointment of the Administrators, there was a disclosure of the fact of the sale to Mr Krejci prior to his appointment and the sale was expressed to be conditional upon the approval of the Administrators. As noted above, after investigating the sale thoroughly, the Administrators decided that it could proceed and it has now been completed. 198 Fifthly, in considering the purpose of the sale of IP it is relevant to note that the entire proceeds of the sale of $524,000 were placed into the accounts of Infa and remain there, available to form part of the fund available to creditors. That fact tells against the notion that the sale was conducted in order to strip Infa of assets and defeat the interests of creditors. 199 In my view, the most important aspect of consideration of this transaction is whether or not I can conclude the sale to HBG may have been at an undervalue. I address that in the following paragraphs. 200 The PKF valuation recorded that it was a report providing an estimation of the market value of the patents, trademarks and registered designs owned by Infa. The report notes that Infa was considering transferring its patents to a related party, and for this reason an arm's-length valuation was required. The report also proposed to value the patents collectively for this purpose. The author reports that the valuation was prepared for the directors of Infa to assist in establishing a taxable value of the assets. It relied on information provided by the directors and Infa's accounting staff. 201 In a section entitled "Business Overview" the report observes that Infa owns patents which are used in the Infa-Secure range of child restraints. It records that Infa had previously been the trading entity of the group and that the business has operated over a number of years developing strong relationships with customers and suppliers which have helped the business maintain a competitive advantage, despite the highly competitive nature of the industry. Infa has secured patents over key products and product components. The PKF report goes on to say: 6. Incorporated in December 2008 the company owns patents which are used in the Infa Secure range of child restraints. 7. Infa Secure has four distinct groups of products; (a) Care Safety (b) Prams and Strollers (c) Baby Products (d) Manchester 8. The business owns the premises from which the Infa Secure business operates at Emu Plains. 9. The company had previously been the trading entity for the group. 10. The business has operated for a number of years. Strong relationships with customers and suppliers have helped the business maintain a competitive advantage despite the highly competitive nature of the industry. 11. They have also been able to secure patents over key products and product components. 12. However, it is understood that one of their key competitors (Britax) has plans to acquire a key supplier (MaxInf). If the supplier is acquired, it is highly unlikely that they will continue to supply the company. The key implications of changing supplier include; 13. An expected cost of approximately $USD600,000 for acquiring tooling which would be required and related compliance testing. 14. Audits would need to be completed on the proposed new suppliers to meet the requirements of the Australian Standards. 15. The company senior executives and staff will need to travel to China to put in place the formal contracts but also develop the systems, processes and relationships required to ensure the appropriate quality is consistently produced by the new supplier. 16. Mandatory compliance testing will need to be done. 17. Contracts will need to be reviewed to ensure the current supplier continues to provide the product as expected for the duration of that contract. 18. The product cost is critical in the marketing equation and maintaining the current cost during any transition to a new supplier is important. 19. Being able to maintain the trading terms currently enjoyed with the supplier is critical when negotiating a deal with the new supplier. 20. Having less effective control over the new supplier, and needing to build the deep understanding that comes with a long established partnership, will increase the risk of product recall. 202 The above information is relevant to the discount rate that the PKF valuation applied. It is apparent from the foregoing that the author of the PKF valuation was aware that Infa-Secure conducted the business of selling the products and used the patents in doing so. 203 In the section entitled "Valuation Methodology" the PKF report observes that there are a number of widely accepted methods for valuing patents and that its preferred method is based on the cash flows expected to be derived from products utilising the patents. It identifies that this method is generally referred to as the "Discounted Cash Flow" method, and is appropriate because the cash flow anticipated from the asset can be predicted with a certain degree of accuracy. 204 The PKF valuation then states: Several elements need to be included in this calculation; (a) The revenue expected to be earned from the products using the patents; (b) The portion of the income which can be rightly attributed to the patents; (c) The number of years that the income can be expected to be earned for; and (d) The appropriate discount rate to bring the income earned back to today's value. 205 Under the following heading, "Assumptions", the report says: In this valuation of Products, the following has been assumed when estimating the value: (a) The income expected to be derived from the products is provided by the company and we have no reason to believe that it is not accurate; (b) In our letter dated 19th May 2015 we recommend that a royalty rate of 6% of the gross profits is appropriate for utilising the patents. In this valuation we ascribe 6% of the value from the gross margin on product sales to the patent. (c) Based on all information provided to us and available in the public domain we believe that a discount rate of 30% is appropriate. (d) The patents will continue to be valuable to the sale of the products for 10 years. After that time they will have no residual value. 206 After explaining the discount rate in more detail, the PKF valuation gives an opinion based on figures set out in Appendix 2 of the report. The estimated value of the patents is $524,401. Appendix 2 is reproduced below: 207 Britax points out that nowhere in the report is the origin of Appendix 2 explained. In the body of the report, under the heading "Financial Overview", figures for the years 2014, 2013 and 2012 reflecting gross revenue from sales, gross profit on trading and profit before income tax are set out as is the EBITDA figure for each of these years. However, none of the figures identified in the report, or, indeed in the financial records of Infa, reflect those set out in Appendix 2. 208 Britax contends that an essential confusion appeared to have infected the PKF report, namely, that Infa was the producer of the products rather than Infa-Secure. That would be the only rational basis, it submits, for PKF to refer to the financial figures of Infa (as it did in under the heading "Financial Overview") in the valuation. 209 Further, Britax submitted that the methodology described in the PKF report reflected a misunderstanding on the part of the valuer that the revenue expected to be earned from the products was revenue earned by Infa using the patents. That suggestion was accepted by Mr Krejci in cross-examination. 210 An explanation for the figures was subsequently furnished by Infa when it tendered confidential Exhibit D1-1, which is a spreadsheet identifying the gross profit Infa-Secure earned from the sale of products by reference to each of the Infa patents which are the subject of the proposed sale. The spreadsheet was apparently a document that was provided to the Administrators either by PKF or from the company director or Mr Joyce. 211 The tender of confidential Exhibit D1-1 cleared up the confusion caused by the content of the PKF report, which was otherwise silent as to the source of the figures. 212 On the basis of the above matters it might be seen that there is some foundation for the criticism advanced by Britax. The PKF report did not appear to be as rigorous as it could have been in its explanation of the valuation that was given. However, the methodology in the report was applied to the figures set out in Appendix 2. That is, in arriving at the figure of $524,000 a 6% royalty rate was applied to the annual gross profits derived from the sale of the products by Infa-Secure with a 30% discount rate to take account of the assessment of risk applicable to the business. 213 Notably, neither the Administrators in any of their reports, nor Britax, levelled any criticism at the methodology employed to arrive at the figure of $524,000. The criticism made, after the tender of Exhibit D1-1, was that investigations should be made in order to ascertain whether the figures set out in Appendix 2 were a fair reflection of the actual figures of sales of Infa-Secure. Britax pointed out that there was no indication as to the provenance of these figures or any explanation as to how the gross profit figures in Appendix 2 were determined. 214 It is true that the detail of Infa-Secure's accounts were not exposed in the Supplementary Report, or in evidence in these proceedings. Britax's ultimate submission was that, when this fact is taken into consideration together with the unsatisfactory chronology of the sale and the surrounding circumstances, the Court should be sufficiently suspicious of the Fifth Transaction to insist that further investigation is conducted. 215 It is not altogether clear to me that this conclusion is warranted. The following factors are influential in my consideration of this matter. 216 First, as noted above, in the period from 2011, Infa-Secure had paid $348,000 per annum to Infa as a licence fee for the Patents. The term of a standard patent is 20 years and an innovation patent 8 years. Taking into account the diminished remaining life of each of the patents, the attribution of $169,560 per annum for the next ten years was considered not to be an undervalue by Richard Horsfall. This is in circumstances where the existing five year licence agreement between Infa and Infa-Secure was drawing to a close after four further years of the term of the patents had run. 217 Secondly, Mr Krejci agreed with the proposition in cross-examination that by the time the PKF report was prepared, the figure of $348,000, arrived at nearly five years before in respect of the licence fee for the IP, may well represent an overvalue of the current market value of the IP. 218 Thirdly, the evidence before the Court indicated that in Australia there is likely to be a limited market for the products the subject of the Infa IP. Infa-Secure had two competitors in the market, Britax and one other supplier. 219 Documents tendered at trial indicated that the ultimate parent company of Britax (Nordic Capital Fund VII) had acquired a substantial interest in another of its competitors (Max-Inf) which, as the PKF report noted at [12], is the manufacturer for Infa-Secure of children's car seats based in China. In an Informal Review, the Australian Competition and Consumer Commission said the following in relation to the acquisition: Market definition The ACCC considered the competitive effects of the proposed acquisition in the context of the market for the wholesale supply of child restraint systems in Australia. Competition analysis Nordic has indirect downstream interests in Britax Childcare Pty Ltd, which is one of the largest wholesale suppliers of child car restraint systems in Australia with brands including Safe-n-Sound. Nordic is proposing to acquire a controlling interest in Max-Inf which is a Chinese manufacturer of child restraint systems. Max-Inf currently supplies products to Infa-Secure Pty Ltd which is one of the three main suppliers of these products in Australia. Britax is a close competitor of Infa-Secure. The ACCC considered that in the absence of the s87B undertaking, the proposed acquisition was likely to raise competition concerns in the market for the wholesale supply of child restraint systems in Australia. By acquiring an interest in the supplier to one of its key competitors in Australia, concerns were raised that the proposed acquisition would be likely to provide Nordic and Max-Inf with the ability and incentive to foreclose supply of child restraint systems to Infa-Secure. While it is possible to source supply from alternative suppliers of child restraint systems, the ACCC was aware that the transition to a new supplier can take some time to ensure the security and quality of supply necessary to compete in Australia. The s87B undertaking requires the parties to continue to supply Infa-Secure with child restraint systems while it establishes alternative supply arrangements. 220 The undertaking to the Australian Consumer and Competition Commission was tendered in evidence. Relevantly the undertaking included the following: 2.9 The ACCC considers that: (a) [Infa-Secure] needs continuity of supply of CRS Products on suitable terms from Max-Inf in the transitional period to switch manufacturers; (b) [Infa-Secure] needs access to intellectual property rights and critical tooling in order to be able to secure supply of CRS Products from a new manufacturer; (c) It will take some time for a new manufacturer to meet the applicable Australian standard and Infa's requirements in terms of both the quality of its systems and the quality of CRS Products it manufactures for Infa; and (d) Britax may be able to gain a competitive advantage through access to commercially and competitively sensitive information about Infa's business. 2.10 The ACCC is concerned that, in the absence of the Undertaking, the Proposed Acquisition may have the effect, or be likely to have the effect, of substantially lessening competition in the Australian for the wholesale supply of CRS products. 221 In considering the ability of Infa to sell its IP, whether by itself or when under the control of the Administrators, it is necessary to consider whether or not there is likely to be a willing buyer of the asset. In the circumstances outlined above one may consider that it is highly unlikely that Britax would be an eligible or willing purchaser. In these proceedings it has offered no amount for the acquisition of Infa's IP. There is no evidence to suggest that the other major competitor mentioned by the ACCC is interested in the acquisition of the IP. This is a material factor in considering whether a liquidator would ultimately be able to achieve a higher value for the sale of the IP than that which has been paid by HBG. There is some merit, in my opinion, in this submission made by Infa that it is indeed possible that the amount of $524,000 paid by Infa-Secure was a higher price than that that which could be obtained by a liquidator on a forced sale. 222 Fourthly, the method applied to reaching the figure of $524,000 which involved discounting the gross profits by 6% and offering what it considered to be a "suitable" discount rate which was 30%. The manner in which the discount was determined was explained in the PKF valuation as being an assessment of risk based on the nature of the business and the expectation of return compared to other investments. Key considerations included risk or uncertainty of future cash flows including company specific risks, industry specific risks and national economic risks. Some of these were set out in [12] to [20] of the PKF valuation set out above at [201]. In closing submissions Britax made no criticism of this methodology. 223 Fifthly, Britax adduced no affirmative evidence to suggest that the value of $524,000 was an undervalue. Whilst, given the late tender of Confidential Exhibit D1-1, it was not in a position to criticise the new figures which must ultimately have come from Infa-Secure, it was open to it to adduce valuation evidence critical of the methodology. In this regard I refer again to Mediterranean Olives at [209] in relation to the question of onus. 224 Finally, I note that the Administrators in their investigations did obtain financial information about Infa-Secure, including unsigned, unaudited Special Purpose Financial Reports of Infa-Secure for the year ended 30 June 2015. They had also received and reviewed management accounts of Infa-Secure for the period ended 31 January 2016 and received emailed comments from Infa's solicitors and Mr Joyce in relation to those accounts. 225 It appears that Mr Keenan was aware of the source of Appendix 2 being Confidential Exhibit D1-1 to the report. It was sent to the Administrators in the context of their investigations of the supporting documents to the PKF valuation. Accordingly, the statement in the Supplementary Report carries some weight: The valuers [sic] responses were reasonable, and we have not been able to locate any evidence that suggests the IP was sold undervalue. 226 On the basis of the matters that I have identified above, I am not satisfied that there is a realistic prospect that a liquidator would successfully prosecute Richard Horsfall for breach of directors' duties in respect of the Fifth Transaction. I am also not satisfied that the facts would suggest to a reasonable person that the investigation of the affairs of Infa is worthy of further inquiry in the circumstances of this case. There does not appear to me to be a real prospect that the sale of the IP to HBG was at an undervalue. 227 Britax relies, in relation to the Fifth Transaction, on subsections 445D(1)(c), (e), (f) and (g) as well as section 600B of the Act. 228 In relation to subsection 445D(1)(c) (material omission from the reports) my conclusion, set out above, that there are insufficient prospects of a successful claim against Richard Horsfall demonstrate that it was not a material omission to fail to refer to derivative claims against Infa-Secure and its directors and officers. 229 In relation to subsection 445D(1)(e) similar reasoning to that is set out in [163] and [186] above. Namely, the Deed does not have the effect of foreclosing a reasonable inquiry. 230 In relation to subsection 445D(1)(f), in light of my conclusions set out above, it cannot reasonably be said on the basis of the material before me that Britax was prejudiced or oppressed in a relevant manner (see, mutatis mutandis, the reasoning set out in [164] to [168] above). 231 Further, I do not think that, in light of my reasons in relation to the Fifth Transaction that section 445D(1)(g) (Deed terminated for "some other reason") applies. 232 Finally, in relation to section 600B, it appears unlikely that notification to the creditors of a potential claim against HBG and perhaps also Infa-Secure would have been influential in the passing of the resolution to approve the Deed in circumstances where, as I have found above, there is not a realistic prospect of a claim against Richard Horsfall for breach of his directors' duties being successful. In this regard it is also significant to note that the Supplementary Report said "unless a secondary valuation provides a compelling case to have the sale set aside, there will be no reason to pursue the Breach of Duty claim". Britax did not offer to fund a secondary valuation, which is material: see Portinex at [131]. 233 Taking into account these matters, I am not satisfied on the evidence before me that there is a realistic prospect that a liquidation claim in which Britax has an interest could and would be pursued were Infa to go into liquidation so as to afford Britax's recovery of more of the debt owed to it than it would obtain under the Deed. H. DISCRETION 234 In the analysis set out above, I have considered each of the five transactions in the light of the allegations that Britax has advanced and formed the view that for none of them is there sufficient material to suggest that further investigation by a liquidator would yield sufficient prospects of success in litigation against Richard Horsfall (and, a fortiori, accessories to breaches by Richard Horsfall) to warrant setting aside the Deed. A further factor arises in the context of the exercise of discretion under section 445D(1) and section 600B of the Act. In the event that I am incorrect that none of the subsections identified by Britax within section 445D apply, then it becomes relevant to consider whether a discretion should be exercised in favour of setting aside the Deed. This involves consideration of the objects and purposes of Part 5.3A and section 435A of the Act, as summarised in Part F above. It is of particular relevance to consider the prospects of a better recovery by the creditors under a winding up and the public interest in enabling a liquidator to investigate the affairs of Infa. 235 I have noted that the information supplied to the Administrators indicated that Richard Horsfall's personal assets on a bankruptcy would be about $550,000. In the Supplementary Report, the Administrators (who are also experienced liquidators) estimated the costs of a public examination and litigation conducted in relation only to proceedings for breach against Richard Horsfall would be about $450,000 giving a net return of $100,000 after investigating and prosecuting Richard Horsfall for breach of duties. 236 Evidence adduced at the current hearing indicates that the cost of investigating any of the five transactions would be considerably more, were the investigations to stretch beyond examining Richard Horsfall alone. 237 In order to investigate the First Transaction, it is likely that it would be necessary for a liquidator to examine not only Richard Horsfall but also the accountants, Mr Henderson and Ms Seeder and the solicitor, Mr Wiseman. To investigate accessorial ability of others it would be necessary to examine the current director of Infa-Secure, Matthew Horsfall. The costs of such expanded investigations were estimated at trial by Mr Krejci to range from $1,000,000 to $1,200,000, being approximately double his current estimates (see schedule of estimated Return to Creditors in [74] above). 238 There is no evidence before me that provides a basis for considering that the valuation of $271,000 for goodwill in the First Transaction was at an undervalue, let alone at a significant undervalue. If, for the sake of the argument, I were to assume that the sale was at an undervalue by $750,000 (a proposition which, I emphasise, has not been made out) then, taking into account the costs of recovery, there would still be no improved return to creditors, and the conduct of the proceedings would be time-consuming and fraught with uncertainty. 239 Nor, on the basis of the materials before me, does it appear that the public interest requires that a liquidator investigate the transactions. Contrary to Britax's submission, this is not a case like TiVo where, despite some uncertainty of yielding a return, there were clear potential breaches ("legitimate concerns") that required investigation. 240 The position in relation to the Second, Third and Fourth Transactions is similar. Britax's pleaded case was that between December 2011 and December 2015 Quota received payments of approximately $908,000 from Infa. On completion of the sale of the Property, Quota received, as a second ranking secured creditor, a portion of the proceeds. However, in his affidavit of 24 May 2016, Anthony Horsfall, a director of Quota, notes that of the sum Quota received, $500,000 was transferred to the Colin Biggers & Paisley trust account to be utilised for the Deed, and the remaining $300,000 was lent to Infa-Secure. Accepting, as I do, Mr Krejci's estimate that expanded investigations would cost between $1,000,000 and $1,200,000, this suggests that even if the claims against Quota were successful (and as noted above, such proceedings are time-consuming and fraught with uncertainty), the costs of investigating the potential claims would be greater than the amount that may be recovered from Quota. The present position is that $500,000 of the proceeds of sale, which Quota has lent to Richard Horsfall, is available under the Creditors' Trust Deed. 241 In other words, if a liquidator were to investigate the Quota security, the cost benefit analysis suggests a negative or marginal return compared to that available under the Deed. 242 In circumstances where there appears on the current materials to be little likelihood of successfully setting aside the Quota security represented in the Second Transaction, and little prospect of a material return upon successful prosecution of any proceedings, my view would be that the discretion ought not to be exercised in favour of setting aside the Deed. In forming this view I have regard also to the question of the public interest of a liquidator investigating the transaction and, as for the First Transaction, conclude that there is insufficient material to suggest wrong doing to warrant such investigation. 243 In relation to the Fifth Transaction, the exercise of discretion again tends against setting aside the Deed. 244 The entirety of the value of the sale of IP to HBG has been made available to the creditors under the Deed. The costs of conducting investigations into the liability of HBG and potentially the subsequent liability of a third party such as Infa-Secure would be in the same order as noted above, namely between $1,000,000 and $1,200,000. Even assuming the sale was conducted at an undervalue of 100%, the costs of recovery of an additional $524,000 would absorb the value of the return to creditors (assuming, as to which there is no evidence, that a target for a claim of accessorial liability had assets that could be identified and that there was a viable cause of action). 245 In considering the exercise of discretion above, I have assumed that there are sufficient funds available to a creditor to conduct investigations and litigation. That is by no means clear. Britax has made an offer to fund a liquidator of up to the amount of $200,000 but (sensibly enough) it has not made an open offer of funding. The calculations above suggest that it is unlikely that Britax, acting rationally, would consider it worthwhile to fund a liquidator in those amounts. 246 I have also taken into account the fact that Britax has lodged $45,000 into Court to meet the benefits available to the other creditors under the Deed. This means that the creditors other than Britax may have had their interests addressed. However, ultimately the exercise of discretion under the Act involves a balance taking into consideration the policies and purposes of Part 5.3A and section 435A. An aspect of that discretion concerns the public interest in ensuring that public resources in the conduct of the affairs of a company which is no longer solvent are used efficiently. I do not think that in circumstances where the prospects of recovery on any of the five transactions are as I have assessed them to be, it is in the public interest for the desire of Britax to investigate the claims further in a liquidation to prevail. I. DISPOSITION 247 In my opinion, the application brought by Britax should be dismissed, the Order made by the Court on 29 March 2016 restraining the defendants from executing the Creditors' Trust Deed should be discharged and the plaintiff should pay the defendants' costs. There may be other consequential orders that should be made. Accordingly I direct that the parties supply a draft form of orders implementing my conclusions within 14 (fourteen) days. I certify that the preceding two hundred and forty-seven (247) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Burley. Associate: Dated: 28 July 2016