Reported Decision : (2000) 34 ACSR 186 (2000) 18 ACLC 448 New South Wales Supreme Court CITATION : Wily v Bartercard [2000] NSWSC 372 CURRENT JURISDICTION: Equity FILE NUMBER(S) : SC 3093/98 HEARING DATE(S) : 2 May 2000 JUDGMENT DATE : 9 May 2000 Andew Wily (P1) PARTIES : Business Barter Exchange (Australia) Pty Limited (In Liquidation) (P2) Bartercard Limited (D) JUDGMENT OF : Austin J COUNSEL : P Braham (P) M Jarrett (D) SOLICITORS : The Argyle Partnership (P) Deirdre Kirke Payne (D) CATCHWORDS : CORPORATIONS - winding up - voidable transaction - unfair preference - meaning of 'transaction' - whether creditor who terminates license agreement receives benefit LEGISLATION CITED : Corporations Law ss 9, 588FA, 588FC, 588FE, 588FF Commissioner of Taxation v Murry (1998) 72 ALJR 1065 CASES CITED : Re Emanuel (No 14) Pty Ltd (in liq) (1997) 24 ACSR 292 Yeomans v Lease Industrial Finance Ltd (1987) 5 ACLC 103 DECISION : Declaration and orders as sought by plaintiffs THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION AUSTIN J TUESDAY 9 MAY 2000 3093/98 . ANDREW WILY & ANOR V BARTERCARD LTD JUDGMENT 1 HIS HONOUR: The first plaintiff is the liquidator of the second plaintiff ('BBX'), having been appointed by an order of this Court made on 17 December 1996. By a statement of claim filed on 10 July 1998, the plaintiffs seek a declaration that the set-off by the defendant of its liability to BBX, against amounts owing by BBX to the defendant, is a voidable transaction pursuant to s 588 FE of the Corporations Law. They seek orders pursuant to s 588 FF of the Corporations Law, including an order that the defendant pay to the plaintiffs an amount representing the value of the goodwill of BBX's business as at 28 August 1996, together with interest. The business of Bartercard 2 Before dealing with the particular facts of this case, it is convenient that I give a brief description of the defendant's business. Bartercard operates a reciprocal trade exchange by which the members of its trading program exchange goods and services between themselves. The value of the exchange transactions is recorded in Bartercard Trade Dollars. Bartercard is the record-keeper of transactions and also directs members to each other in order to facilitate transactions. It receives a transaction fee calculated as a percentage of the value of the transaction, as well as membership fees. All the members of the trading program are contractually bound to the defendant and Bartercard Exchange Ltd. 3 Bartercard also operates as a franchisor, granting franchise licences to selected entities. Each franchisee (referred to as a 'broker') operates within a specified geographical locality, in which the broker's assigned members are located. The broker is licensed to use the name 'Bartercard' and to draw a commission based on the trading volume generated by the assigned members and the cash transaction fees collected. 4 Bartercard provides credit in Bartercard Trade Dollars to members and brokers. These credits encourage the brokers and members to trade with one another in their localities. By doing so they stimulate trading activity in their locality, since the member who has provided goods or services to the broker or another member in exchange for Bartercard Trade Dollars has an incentive to use the trade dollars to acquire other goods or services. The brokers endeavour to promote trade by conducting 'trade days' at which they bring the members in their locality together. The provision of credit by way of Bartercard Trade Dollars to brokers has the consequence that at any given time the broker is likely to be indebted to Bartercard. 5 When membership is terminated, the member is required to bring his trading account with Bartercard to a zero balance within 30 days, after which all trade debits become due and payable in cash. Any negative trade balance that cannot be met must ultimately be written off as a bad debt. Since defaults of this kind put the trading program at risk, Bartercard operates a debt reserve fund into which a percentage of the transaction fees and a monthly fee are paid. The debt reserve fund is used to inject trade dollars back into the trading program in the case of bad debts. The debt reserve fund was operated under an exemption from the prescribed interest provisions of the Corporations Law, which were in force prior to 1 July 1998. The terms of the exemption required that a trustee and an independent auditor monitor the fund. 6 Bartercard has some 25 or 30 domestic franchisees, and in some localities Bartercard itself acts as the broker. The evidence shows that Bartercard has purchased the businesses of brokers from time to time, either subsequently reselling the business or continuing the business on its own account. The facts 7 BBX was formed to purchase a barter exchange business in the Central Coast area north of Sydney from Bartercard Australia Pty Ltd in 1991. Its principal director and shareholder was Colin Butcher. From 1991 to 1994 BBX conducted that business as an independent barter exchange, operating in a broadly similar manner to the operations of Bartercard which I have described. During that time the business grew and extended into the Newcastle area. By June 1994 it had approximately 500 members. 8 By letter dated 1 June 1993 Mr Wayne Sharpe, then the managing director of Bartercard, put a proposal to Mr Butcher which he described as 'a multi-point plan'. Evidently the aim of the proposal was to establish a national network within which BBX's members would trade. BBX would cease to be an independent barter exchange, and would become a franchisee of Bartercard. Bartercard would assist it with staff training and systems. According to the letter, one of the benefits of the change could be to 'ensure a full sale value, as a Bartercard brokerage of approximately $150-200,000 net', compared with an estimated $120-150,000 as a separate exchange. 9 Mr Butcher and Mr Sharpe engaged in negotiations in the first half of 1994, resulting in the execution of agreements on 1 July 1994. One of those agreements was for the 'conversion' of BBX's members to Bartercard membership. Two other agreements were licence agreements with respect to the Central Coast and Newcastle areas respectively. 10 Each agreement was a licence for a term of five years, with a right of renewal for another five years. The licence could not be assigned without the prior written consent of Bartercard, but Bartercard's consent could not be unreasonably withheld (clause 17). The agreement conferred on BBX the non-exclusive licence to operate the business of providing and facilitating trade for Bartercard members in the designated locality. BBX was to receive 70 percent of the 'cash transaction net fees' applicable to trade by the members assigned to the designated locality. 11 BBX covenanted, inter alia, that it would not 'cash for deposit in a personal or business account clients' cheques, cash or money orders for any client fees, excluding membership fees' (clause 9.1 (c)), and that it would not 'in transactions and dealings of any kind with [Bartercard] clients, licensees and brokers, fail to honour all commitments and all obligations, cash and/or trade, in a timely manner' (clause 9.1 (e)). BBX also covenanted not to sell membership in any other barter organisation to the Bartercard members (clause 9.3). 12 Bartercard could terminate the licence agreement on various grounds, including: · if BBX committed 'repeated and persistent breaches of any duties, obligations and responsibilities required to be performed or observed' by it under the agreement (clause 14.3 (a)); · if BBX passed a resolution to wind up voluntarily; or it suffered a winding up petition or order to be presented or made against it, or a receiver of its undertaking to be appointed or proposed; or it entered into any arrangement, reconstruction or composition with its creditors or was otherwise unable to pay its debts (clause 14.3 (b)). 13 Separate licence agreements were made for the Central Coast and Newcastle areas because BBX contemplated selling the Newcastle franchise. In June 1995 BBX sold the assets of the Newcastle business (comprising the licence, goodwill, plant and equipment and debts of the business) to a subsidiary of Bartercard for $107,828.67. The purchase price was apportioned as follows: licence fee and training $70,000; goodwill $29,828.67; plant, fittings and chattels $3000; and debtors $5000. 14 According to Mr Butcher, BBX suffered a downturn in trade as a result of the changeover to Bartercard. Some of the existing members declined to join Bartercard because they would be required to pay a joining fee. Staff were diverted from promoting the business by being required to undertake training programs in Bartercard procedures and systems. In early 1996 he decided to end his involvement in the barter industry, and to sell the Central Coast licence. On 18 March 1996 he wrote to Bartercard saying it was time for him to move on because he had 'run out of steam'. His letter clearly envisaged that there would be an amount of money payable to him (more precisely, to BBX) upon the sale of the Central Coast licence, although he acknowledged that a substantial debt was owing by BBX to Bartercard. 15 After writing that letter, Mr Butcher advertised the Central Coast licence for sale. He has given evidence of negotiations with two potential purchasers. In a letter to one of them on 28 May 1996, Mr Butcher set out three alternative methods of valuing an existing brokerage, producing valuations for goodwill of $397,184, $225,000 and $232,500 respectively. The potential purchaser replied on 3 June 1996, expressing the view that $90,000 was a more appropriate value of the business and rejecting Mr Butcher's proposal. The other potential purchaser was Mr John Palmer, who had in the meantime purchased the Newcastle licence from Bartercard Australia. Mr Palmer made an offer to purchase the Central Coast licence, but Bartercard rejected him as a licensee, evidently because he was already the Newcastle licensee. 16 On 27 August 1996 Mr Butcher was contacted by telephone by Mr Trevor Dietz, the general manager of Bartercard. Mr Dietz said that BBX's trade debt had reached 650,000 trade dollars and that it would be 'mission impossible to fix it from there'. Mr Butcher said he had a 'cash flow problem' on the following weekend for payment of wages, and Mr Dietz asked him to send a facsimile detailing his requirements. Subsequently Mr Butcher sent a facsimile outlining cash requirements for wages, commission and rent of $6,519.48. A meeting was arranged for the following day. 17 On 28 August 1996 Mr Butcher met with Mr Dietz. The meeting was tape-recorded, though the tape recording is not in evidence. Mr Dietz gave Mr Butcher a bundle of draft documents and asked him to sign where appropriate. The draft documents were the following: (a) a deed of release between BBX and Mr and Mrs Butcher, of the one part, and Bartercard of the other part, reciting that Bartercard terminated the licence agreement on that day and releasing Bartercard from any future liability that may arise under the licence; (b) a memorandum from Mr Butcher to Bartercard by which he acknowledged and undertook that he would not compete and would keep certain information confidential; (c) a memorandum to Bartercard from BBX and Mr Butcher by which they made various acknowledgments and undertakings, which I shall describe later; (d) a page headed 'Central Coast Brokerage' which purported to value the brokerage at $110,020, in a manner which I shall describe later; (e) a fee payment report for the Central Coast brokerage; (f) a statement for BBX's scrip account; (g) a statement for BBX's brokerage account; (h) a statement for BBX's debt recovery account; (i) a page headed 'Trade Exchange Account Balances', containing a settlement calculation which I shall describe later; (j) a page headed 'Debtors Calculation as at 28/8/96'; (k) a letter from Bartercard to Mr and Mrs Butcher enclosing a notice of termination and stating that Bartercard would hold them jointly and severally liable under their guarantee of BBX's obligations under the licence agreement; and (l) a page headed 'Termination Notice' directed to BBX, which I shall now describe. 18 The Termination Notice purported to terminate the Central Coast licence agreement pursuant to clauses 9.1 (c), 9.1 (b), 14.3 (a) and 14.3 (b). I have set out the effect of those clauses. The notice did not give any particulars of the breaches of those provisions, although it was expressed to be based on them, and there is no evidence that any breaches were particularised in any other way. Nevertheless, the plaintiffs made it clear at the hearing before me that they did not challenge the validity of the termination. 19 The acknowledgment and undertaking (paragraph (c) above) was a centrally important document. By that document, if it had been signed, Mr Butcher would have acknowledged and agreed for himself and on behalf of his wife and BBX that: (1) the Central Coast licence agreement had been properly terminated, effective from 28 August 1996; (2) BBX's trade dollar debt stood at a stated amount; (3) BBX was obliged to reduce the account to nil within 60 days and pay any outstanding balance at that time; (4) payment to BBX by Bartercard 'as per attached formula' (the attached formula being the document described in paragraph (d) above) would be 'a fair and equitable sum attributable to the value of the brokerage and shall offset the debt owed by BBX to [Bartercard]'; (5) entitlements of employees would be paid, and the company would indemnify Bartercard with respect to employee entitlements; (6) commissions due to the company would be forfeited; (7) the termination of the licence agreement would confer no liability on Bartercard with respect to the debts of BBX; (8) various documents and files would be delivered to Bartercard; (9) all necessary steps would be taken to effect an assignment of the lease for the business; and (10) the terms of settlement would be kept confidential. 20 The plaintiffs draw attention to paragraph (4), submitting that it is evidence of an agreement or arrangement, as I shall explain. 21 Annexed to the form of acknowledgment and undertaking was a page of calculations headed 'Central Coast Brokerage' (paragraph (d) in my list). The document presented a formula to ascertain the value of the Central Coast brokerage. The value was calculated by taking the average trading volume and cash fee collection for the three months preceding 28 August 1996, and then extrapolating that figure over a 12 month period. The document was prepared by Bartercard's financial controller, Mr Stephen Harris. 22 The page headed 'Trade Exchange Account Balances' (paragraph (i) in my list) showed the credit or debit balances in the brokerage, scrip and debt recovery accounts for the Central Coast brokerage, and then set out a settlement calculation. The settlement calculation began with Bartercard's valuation of the brokerage at $110,020, adding the value of debtors of the business ($4427) and subtracting amounts outstanding to Bartercard for trade account balances and other matters (the total debt being $656,292), leaving a negative net sum of $541,845 owing by Mr Butcher (in fact the principal debtor was BBX). 23 Mr Butcher says that he does not have a clear recollection of exactly what was said at his meeting with Mr Dietz on 28 August 1996. He says that the failure of BBX led to his personal bankruptcy and that of his wife, and the events of that time were very traumatic for him. Nevertheless, his evidence is that he told Mr Dietz that he would need to take the documents away and have a look at them, before signing. In fact he and his wife did not sign any of the documents which required their signatures. 24 Later on 28 August 1996 he returned to BBX's business premises. When he arrived there Mr Dietz was present, with some other Bartercard personnel. A locksmith was in the process of changing all locks to the office doors. Mr Butcher had not made arrangements for that to happen. He met with Mr Dietz and the others for about an hour, and in the course of the meeting he handed up his mobile phone and his Bartercard membership card, and arranged to return to the premises to collect BBX's records. He agreed to the transfer of the lease of the premises to Bartercard, and the transfer of the plant and equipment of the business. He thinks he must also have agreed to the transfer of the business telephone number and the registered business name. 25 Subsequently Bartercard was able to continue operating the business from the existing premises, with the existing staff in place, and with the benefit of the existing infrastructure. Bartercard paid no money to Mr Butcher or BBX to acquire the business. Shortly after 28 August 1996 Mr Harris, the financial controller, decided that the proposed set-off of the estimated value of the Central Coast brokerage against BBX's debt to Bartercard would not be 'an acceptable accounting practice', and therefore he decided not to proceed with it. On 3 October 1996 Bartercard sent to Mr Butcher a termination notice for various Bartercard accounts, in which the total amount of the debt was claimed without any set-off. 26 By an agreement dated 24 March 1997, Barter North Pty Ltd, a subsidiary in the Bartercard group, sold the assets of the Central Coast brokerage to Tuggerah Straight Auto Electrical Pty Ltd, a company associated with Mr Palmer, the person previously proposed by Mr Butcher as a purchaser and at that time rejected by Bartercard. The purchase price was $21,799 for the plant and equipment. Liquidation of BBX 27 As I have mentioned, BBX was placed in liquidation by order of this Court on 17 December 1996, and the first plaintiff, Mr Wily, was appointed the liquidator. The winding up proceedings were instituted by the Deputy Commissioner of Taxation. The report as to affairs by Mr and Mrs Butcher as the directors of BBX, dated 18 December 1996, shows an estimated deficiency of $1,170,856. The Bartercard debt is listed at the full amount without any set-off. The report lists goodwill of $110,000 as a contingent asset. 28 On 23 May 1997 Bartercard lodged a proof of debt for the full amount of the debt, which by that time had increased by several thousands of dollars for interest claimed. In his report as to solvency of April 1999, Mr Wily expressed the opinion that BBX was insolvent from at least 28 August 1996 due to the cancellation of its licence agreement. On the question of goodwill, Mr Wily said: 'The transaction [the 'payment' of goodwill to Bartercard] resulted in Bartercard receiving from BBX, in respect of its debt of $656,292 a credit of $110,020, which is more than Bartercard would receive from BBX in respect of the outstanding debts if the transaction was set aside and Bartercard were to prove for that debt in the winding up of BBX. As a result of terminating the licence, Bartercard became liable to pay BBX an amount representing the goodwill value of the business operated by BBX. The business operated pursuant to that licence agreement by BBX had a value for goodwill of not less than $110,020 as determined by Bartercard. It is arguable the value of the business is considerably higher. The transaction: (a) was entered into at a time when BBX was insolvent; and (b) was entered into within six months of the relation back day. In the circumstances, the transaction by which Bartercard set off its liability to pay BBX for the goodwill of BBX's business appears to be void pursuant to section 588FE of the Corporations law'. 29 Mr Wily obtained a valuation report by Mr Neil Singleton, a chartered accountant, for the purpose of the present proceedings. Mr Singleton valued the goodwill of BBX as at 28 August 1996. After reviewing the alternative methods of valuation, Mr Singleton expressed the view that BBX's goodwill was the value of its customer base. He estimated the value of the customer base and therefore the goodwill of the business at approximately $180,000. Was there an agreement for the termination of the Central Coast licence? 30 The plaintiffs submit that on 28 August 1996 Mr Dietz on behalf of Bartercard made an offer to Mr Butcher on behalf of BBX, to the effect that the Central Coast licence would be terminated and the business assets transferred to Bartercard with the consent of Mr Butcher and BBX. The plaintiffs say that Mr Butcher, on behalf of BBX, acquiesced in and co-operated with the termination of the licence in the transfer of the business and other assets, and thereby accepted Bartercard's offer. 31 The plaintiffs invite the Court to infer that there was an agreement or arrangement between BBX and Bartercard. They say that this is an appropriate case to infer an agreement, drawing an analogy with Yeomans v Lease Industrial Finance Ltd (1987) 5 ACLC 103, 108. 32 The plaintiffs draw attention to three aspects of the context in which the events of 28 August 1996 occurred. First, there were the prior negotiations between BBX and Bartercard, described above, from which there emerges an understanding between the parties that the licence agreement constituted an investment creating an asset of value, which would not be destroyed unless other avenues had been exhausted. Secondly, the plaintiffs submit that in another case where Bartercard brought a licence to an end, it did so in a way that preserved some value for the business. This submission refers to the negotiated termination of the Sunshine Coast licence. Thirdly, the plaintiffs refer to the behaviour of the parties after the documents were handed over. They say that Mr Butcher's conduct later in the day was consistent with an arrangement going beyond the termination of the licence, and that the conduct of the parties implied that the business, including plant and equipment, was to be transferred to Bartercard. 33 Bartercard denies that there was any such offer, acquiescence or agreement. Bartercard submits that the documents which attributed a value to the Central Coast brokerage of $110,020, and purported to set that amount off against BBX's debt to Bartercard, were prepared for internal accounting purposes in order to reduce the amount of the bad debt which it would eventually be required to write off. Bartercard says that at no time was it contemplated that any amount would actually be due or payable to BBX. 34 I have decided to accept the plaintiffs' submissions on this point. The evidence implies that before 28 August 1996 Bartercard had decided to terminate the Central Coast licence and take control of BBX's business, because of the mounting trade debt. The volume and complexity of the documentation handed to Mr Butcher on that day implies substantial preparation on Bartercard's part. Bartercard might have acted by exercising what it conceived to be its right of termination of the licence agreement, without more. But instead, it chose to present to Mr Butcher a package of documents, some of which required his signature and therefore his consent. As the plaintiffs submit, if Bartercard sought to obtain an accounting benefit by reducing the amount of BBX's debt to be written off, there was no need for it to give anything to Mr Butcher, let alone documents suggesting that he was being given value for termination of the licence. 35 The package of documents reflected a transaction containing several components, only one of which was the termination of the licence. The transaction included an agreed valuation of the Central Coast brokerage, acknowledged to be fair by Mr Butcher, and the setting off of that agreed value against the debt owed by BBX to Bartercard. 36 Although Mr Butcher did not sign the documents, events proceeded on 28 August on the basis that the documents reflected a consensual arrangement between the parties. Mr Dietz authorised his colleagues at Bartercard to proceed to the Central Coast office after Mr Butcher arrived for their meeting. When Mr Butcher arrived at the Central Coast office, the officers of Bartercard were already in the course of replacing BBX there, without Mr Butcher's previous authority. He acquiesced in and co-operated with that process. If Bartercard's conduct at the Central Coast office had been referable to their prior unilateral termination of the licence, it is unlikely that Mr Butcher would have conducted himself in the way he did. His co-operative conduct confirms that the parties were proceeding under an arrangement for the amicable replacement of Mr Butcher and BBX. 37 Additionally, a letter by Bartercard's managing director to Ms Nea Roberts, an employee of BBX, dated 28 August 1996 tends to confirm that the replacement of Mr Butcher was pursuant to an arrangement. The letter referred to the meeting earlier that day between Mr Dietz and Mr Butcher, and said that 'as a result of that meeting Colin has relinquished his role as a Bartercard broker and his company's licence has been withdrawn'. Moreover, on 30 August 1996 Mr Dietz wrote to all staff saying that Mr Butcher was co-operating fully with the actions of Bartercard to secure the future of the Central Coast brokerage. 38 It is reasonable to infer, and I do infer, that the consensual arrangement implied by this evidence was the arrangement presented to Mr Butcher in the documents handed to him on 28 August 1996, which included the valuation and setting off of the goodwill of the Central Coast business. 39 Bartercard submits that the documents handed to Mr Butcher on 28 August 1996 were inconsistent, and so they cannot be used as the basis for inferring an arrangement. Paragraph (6) of the document identified in paragraph (d) above provides that commission will be forfeited, but the settlement sheet (paragraph (i)) set out an accounting to BBX for commissions. In my opinion, however, there is no inconsistency between the documents, since the settlement sheet refers to commissions that have already become due, while the other document refers to forfeiture of the right to future commissions. 40 I shall now turn to the legal significance of these findings of fact. The statutory provisions 41 Section 588 FE (2) states (as far as relevant) that a transaction is voidable if it is an 'insolvent transaction' of a company and was entered into during the six months ending on the relation-back day. In the present case the relation-back day is 14 November 1996, the day upon which the application for winding-up of the second plaintiff was filed (see definition of 'relation-back day' in s 9, and s 513 A (e)). The events relevant to this case occurred on 28 August 1996, and therefore during the six months ending on the relation-back day. 42 The question is whether the events of 28 August 1996 amounted to or included an insolvent transaction of BBX. By s 588 FC a transaction of a company is an insolvent transaction if, and only if, it is (relevantly) an unfair preference given by the company and (again, relevantly) the transaction was entered into at a time when the company was insolvent. There can be no dispute that on 28 August 1996 BBX was insolvent. It owed the defendant over $600,000. It was having difficulty in meeting its routine commitments for wages and expenses. Its only assets were the assets of the business, comprising its goodwill/customer base, lease, furnishings and fittings. Even on the most optimistic assessment, the realisation of the business assets would have produced much less than was owed to Bartercard. Mr Wily's report as to solvency confirms this conclusion. Since the company was insolvent at that time, any transaction entered into by it on 28 August 1996 would be an insolvent transaction if it was an 'unfair preference'. 43 By s 588 FA (1) a transaction is an unfair preference given by a company to a creditor of the company if, and only if: (a) the company and the creditor are parties to the transaction (as would be the case here, if there is a transaction); and (b) the transaction results in the creditor receiving from the company, in respect of an unsecured debt that the company owes to the creditor, more than the creditor would receive from the company in respect of the debt if the transaction were set aside and the creditor were to prove for the debt in the winding up of the company. 44 Section 588 FA is concerned with the result of the impugned transaction, rather than the intentions or purposes of the parties to it. The question raised by subparagraph 588 FA (1) (b) is whether in fact the transaction results in the creditor receiving more than it would have received by lodging a proof of debt. 45 In the present case the application of these provisions raises two critical issues: first, whether there was any 'transaction'; and secondly, if there was a transaction, whether the ingredients of subparagraph 588 FA (1) (b) have been satisfied with respect to that transaction. Was there a 'transaction' for the purposes of s 588 FA? 46 I have found that there was an arrangement between BBX (through Mr Butcher) and Bartercard, reflected in the documents handed by Mr Dietz to Mr Butcher on 28 August 1996. One of the components of that arrangement was that Bartercard would forthwith exercise its contractual right to terminate the Central Coast licence. Another was that Bartercard would set off against the debt owed to it by BBX an amount of $110,020 acknowledged by Mr Butcher to be a fair and equitable amount. That arrangement was acted upon by the parties later on the same day. 47 I hesitate to say that the arrangement amounted to a binding contract, since Mr Butcher did not sign the documents but merely acquiesced in the implementation steps that Bartercard took after handing the documents over. However, in my view there was either a binding contract or else Bartercard's conduct and Mr Butcher's acquiescence gave rise to an equitable estoppel binding Bartercard in favour of BBX not to resile from the arrangement. 48 In my opinion, an arrangement between two parties which produces legal consequences under either the law of contract or the law of equitable estoppel is a 'transaction' for the purposes of s 588 FA. The word 'transaction' is defined in s 9, but not exhaustively. Having regard to the legislative policy with respect to voidable transactions, an arrangement having legal consequences and giving one of the parties to it a benefit of the kind described in s 588 FA should, as a matter of legislative policy, be amenable to the application of that section. In Re Emanuel (No 14) Pty Ltd (in liq) (1997) 24 ACSR 292, the Full Federal Court referred to the definition of 'transaction' in s 9 and said (at 299): 'Common to the examples is the characteristic that the conduct or dealing engaged in by the debtor company has the consequence of effecting a change in the rights, liabilities or property of the company itself'. On this principle, the arrangement in the present case is a transaction whether it operates by way of contract or estoppel. 49 The plaintiffs submitted that even if the Court were to find that there was no such arrangement as alleged, there was nevertheless a 'transaction' constituted by the receipt of benefits by Bartercard upon termination of the licence. I do not accept this submission. The 'transaction' to which s 588 FA refers is a transaction to which the company and the creditor are parties. If there was no arrangement between Bartercard and BBX, all that happened was that Bartercard terminated the licence and received the benefits of doing so. On that hypothesis, there would be nothing capable of being described as a transaction to which BBX was a party. Did Bartercard receive any benefit on 28 August 1996? 50 On 28 August 1996 Bartercard took over the business of the Central Coast brokerage, pursuant to a transaction in which it terminated BBX's licence. In the same transaction Mr Butcher and BBX acknowledged that $110,020 would be a fair and equitable sum attributable to the value of the brokerage, and that this amount would be set off against the debt owed by BBX to Bartercard. The benefit which it thereby obtained was the business, including its goodwill, customers, plant and equipment and the licence. Consequently, it was no longer under any obligation to pay any licensee a share of the transaction fees received from members. 51 Bartercard submits that it obtained nothing of value. Bartercard says that it was entitled to terminate the licence on that day and had it done so without more, it would have become entitled to take over the customers allocated to the Central Coast brokerage. Bartercard notes that the customers were members of the Bartercard program. Termination had the effect that any asset or value with respect to the business, disappeared. There was no goodwill (citing Commissioner of Taxation v Murry (1998) 72 ALJR 1065). 52 Bartercard submits that Mr Singleton's valuation, which equates the goodwill of the Central Coast brokerage with the customer base, is unhelpful because the customer base always belonged to Bartercard. It says that BBX's entitlement to use any part of the customer base came to an end when the licence was terminated. 53 In my opinion Bartercard's submission is beside the point. The question is not whether the business had any value after the licence was terminated. The question is whether, termination having occurred by arrangement between the parties, Bartercard received a benefit under terms of the arrangement. Mr Singleton's evidence shows that the goodwill of the business had a value prior to the termination, a conclusion which is supported by other evidence, as I have shown. The arrangement between the parties assigned a value to the business of $110,020. By carrying out the arrangement, Bartercard received leased premises and plant and equipment, while also undertaking liabilities for rent and wages and other matters. It was relieved of the obligation to share members' transaction fees with BBX. In these circumstances it received a benefit. 54 The statutory question is whether the creditor received, in respect of the debt, more than it would receive if the transaction were set aside and the creditor were to prove for the debt in the winding up. If the transaction that I have described was set aside, the licence would be restored and the full debt would be owing. If, in those circumstances, Bartercard had lodged a proof of debt in the winding up of BBX, it would not have had the benefit of the set-off which the documents purported to confer, nor the value which it received when the transaction was implemented. 55 It cannot be doubted that the transaction resulted in the benefits to Bartercard which I have described, and also resulted in Bartercard receiving more than it would have received if the transaction were set aside and it proved in the winding up. It is unnecessary, given my findings of fact, to investigate the breadth of the words 'in respect of' in s 588 FA, having regard to the case law on analogous provisions to which counsel for the plaintiffs has referred. 56 It follows, in my view, that there was a transaction in the present case which was an 'unfair preference' falling within s 588 FA of the Corporations Law. Having regard to my findings of fact, there is no relevant defence. Remedies 57 I propose to make a declaration along the lines sought by the plaintiffs. My declaratory order will be that the transaction by which the defendant set off an estimate of the value of the second plaintiff's business against amounts owing by the second plaintiff to the defendant, is a voidable transaction for the purposes of s 588 FE of the Corporations Law. 58 It would be inappropriate to set aside the whole of the transaction of 28 August 1996. Part of that transaction was the termination of the licence, and consequently the taking over of BBX's business by Bartercard. Later, Bartercard sold the business and consequently the third party rights have intervened. The plaintiffs say that I should make an order that the defendant pay them an amount representing the value of the goodwill of the business as at 28 August 1996. That would be an order pursuant to s 588 FF (1) (c). That sub-paragraph provides that if the Court is satisfied that a transaction of the company is voidable because of s 588 FA, the Court may make an order requiring a person to pay to the company an amount that, in the Court's opinion, fairly represents some or all of the benefits that the person has received because of the transaction. 59 I have decided that it is appropriate to make the order sought by the plaintiffs (except that in my view, the money should be paid to BBX in liquidation, rather than to BBX and Mr Wily). The arrangement which arose on 28 August 1996 was one by which Bartercard acknowledged that BBX's business had a value, and purported to set off an amount corresponding to that value against the amount then owing by BBX. Inherent in the arrangement was an acknowledgment by Bartercard that it thereby received something of value for which it was liable to recompense BBX. By purporting to set that liability off against the debt, Bartercard endeavoured to obtain more in respect of the debt than it would have received, in the absence of the transaction, by proving for the whole debt in the winding up of BBX. Part 5.7B of the Corporations Law (and especially s 588 FA) sets itself against that outcome. Subsequently Bartercard has purported to retain the value of the business and prove for the whole debt, thereby seeking an even greater advantage. 60 Under s 588 FF (1) (c) the Court is required to form an opinion as to the amount which fairly represents some or all of the benefits that the person has received because of the transaction. In this case the amount should represent all of the benefits, rather than only some of them. Having considered the valuation of Mr Singleton, and the submissions by Bartercard, my view is that the appropriate amount is the amount selected by Bartercard in the documents handed to Mr Butcher on 28 August 1996, namely $110,020. 61 Since Bartercard will be required to pay BBX an amount equivalent to the amount which it set off under the transaction, it should not be prevented from proving for the gross debt in BBX's winding up. To achieve this outcome, I propose to make an order under s 588 FF (1) (g), to the effect that the whole of the debt owing by the second plaintiff to the defendant may be proved in the winding up of the second plaintiff, notwithstanding that it was partly discharged by set-off pursuant to the transaction. 62 I shall direct the plaintiffs to bring in short minutes of orders to reflect these reasons for judgment. I shall hear the parties on the question of costs, though I see no reason at this stage for departing from the normal rule that costs should follow the event. * * * * * * * * * * Last Modified: 09/25/2000 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.