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Morton v Rexel Electrical Supplies Pty Ltd[2015] QDC 49

Morton v Rexel Electrical Supplies Pty Ltd[2015] QDC 49

DISTRICT COURT OF QUEENSLAND

CITATION:

Morton & Anor v Rexel Electrical Supplies Pty Ltd [2015] QDC 49

PARTIES:

GAVIN MORTON AS LIQUIDATOR OF SOUTH EAST QUEENSLAND MACHINERY MANUFACTURING AND DISTRIBUTION (MINING) NUMBER 1 PTY LTD (IN LIQUIDATION)

ACN 050 414 483

(Plaintiff)

v

REXEL ELECTRICAL SUPPLIES PTY LTD

ACN 000 437 758

(Defendant)

FILE NO/S:

4660/12

DIVISION:

Civil

PROCEEDING:

Trial

ORIGINATING COURT:

Queensland District Court

DELIVERED ON:

5 March 2015

DELIVERED AT:

Brisbane

HEARING DATE:

28 August 2014

JUDGE:

Searles DCJ

ORDER:

The defendant pay the plaintiff:

1.the sum of $132,811.01 representing unfair preference transactions, voidable pursuant to section 588FE of the Corporations Act 2001 (Cth); and

2.interest pursuant to section 47 of the Supreme Court Act 1995 (Qld) at the rate of 10% per annum from the date of each relevant transaction to judgment.

I will hear the parties as to costs.

CATCHWORDS:

CORPORATIONS – INSOLVENCY – UNFAIR PREFERENCES – Corporations Act 2001 s 588FA - where the Liquidator claims that payments company made to creditor are unfair preference payments – whether creditor would receive more from payments than it would have received had it been required to prove its debt in company’s winding up – whether company was insolvent at time of payments.

CORPORATIONS – UNFAIR PREFERENCES – DEFENCE – GOOD FAITH – s 588FG - whether creditor who received payments had no reasonable grounds for suspecting insolvency at the time of payments or after – whether a reasonable person in creditor’s circumstances would have had no grounds for suspecting company was insolvent.

CORPORATIONS – UNFAIR PREFERENCES – DEFENCE – RUNNING ACCOUNT – s 588FA(3) - where creditor supplied goods to company while substantial debts were still outstanding – where creditor then put supply on hold when company ceased making payments – where creditor resumed supply after entering into repayment plan with company – whether supply of goods to company was done merely to reduce pre-existing debt – whether alleged unfair preference payments were an integral part of a continuing business relationship.

CORPORATIONS – UNFAIR PREFERENCES – DEFENCE – SET-OFF – s 553C - where creditor rendered eight invoices to company during relation back period – where creditor was frequently chasing payment – where company indicated its inability to pay – where parties entered into repayment plan – where company paid some instalments late, some on time, and some not all - whether, at each time an invoice was rendered, creditor had notice of facts that would have indicated to a reasonable person that the company was unable to pay its debts when due and payable.

Corporations Act 2001 (Cth) s 9, s 95A, s 286(1), s 459E(2)(e), s 553C, s 588FA(1), s 588FA(3), s 588FG, s 1305, s 1306(4)

Evidence Act 1977 (Qld) s 92(1)(b)

Airservices Australia v Ferrier (1996) 185 CLR 483; [1996] HCA 54

Buzzle Operations Pty Ltd (in liq.) v Apple Computers Australia (2011) 81 NSWLR 47; [2011] NSWCA 109

Duncan v Vinidex Tubemakers Pty Limited [1999] SASC 157

Emanuel Management Pty Ltd v Fosters’ Brewing Group [2003] QSC 205

Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89

Gye v McIntyre (1991) 171 CLR 609

Herbert v R (1941) 64 CLR 461

Jetaway Logistics Pty Ltd & Ors v The Deputy Commissioner of Taxation [2009] VSCA 319

McVeigh, in the Matter of JAG Plastering and Carpentry Pty Ltd (in liq) v Commissioner of Taxation [2004] FCA 653

Noxequin Pty Ltd v Deputy Commissioner of Taxation (Unreported, Supreme Court of New South Wales, Barrett J, 16 February 2007)

Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355; [1998] HCA 28

R v Brown [1991] 1 Qd R 221

Re Action Waste Collections Pty Ltd (in liq); Crawford v O'Brien [1981] VR 691

Re Parker (1997) 150 ALR 92; 80 FCR 1

Williams v Peters [2010] 1 Qd R 475; [2009] QCA 180

Williams as Liquidator of Scholz Motor Group P/L (in liq) v Scholz & Anor [2008] QCA 94

COUNSEL:

V G Brennan – Plaintiff

R C Schulte – Defendant

SOLICITORS:

Taylor David Lawyers – Plaintiff

Polczynski Lawyers – Defendant

Contents

Introduction 4

Inaco’s Admissions 5

Issues 5

Inaco’s bases for resisting claim 6

Evidence called 6

Threshold evidentiary challenge by Inaco 6

Structure of the Group 11

Group Business 11

Inaco’s business 12

Liquidator’s Report to Creditors 7 May 2013 12

Liquidator’s Solvency Report 24 July 2013 14

Events leading up to the alleged Unfair Preference Payments 15

Management’s compliance with payment schedule 17

Inaco’s Creditor Statutory Demand for payment of debt 17

Was Management insolvent at the time the subject payments were made? 18

Plaintiff’s submissions re: Solvency of Management 20

Aged creditors at 1 March 2012 22

Conclusion re: Solvency 22

Consideration of Inaco’s bases of resistance to claim 23

Inaco’s First Defence - Good Faith – s 588FG 23

Inaco’s Second Defence - Running Account – s 588FA(3) 23

Defendant’s Submissions re: Running Account Defence 24

Plaintiff’s Submissions re: Running Account Defence 25

Consideration of Running Account Argument 26

Decision - Running Account Defence 29

Inaco’s Third Defence - Set-Off – s 553C 30

Defendant’s Submissions 33

Plaintiff’s Submissions 34

Consideration - Set-off 35

Orders 37

Introduction

  1. [1]
    The plaintiff was appointed Liquidator of the plaintiff company on 14 August 2012 pursuant to a Creditor’s Voluntary Liquidation under part 5.5 of the Corporations Act 2001 (Cth) (“the Act”).  Relevant provisions of the Act are set out in Schedule A.  He seeks recovery from the defendant of $197,469.16, the total of payments said to be unfair preferences within s 588FA.  It is common ground the payments were made between 26 March 2012 and 6 June 2012; that the plaintiff was appointed Liquidator on 14 August 2012; and that the relevant relation back period is 14 February 2012 to 14 August 2012.
  1. [2]
    The plaintiff company was previously named Aran Management Pty Ltd (“Management”).  The defendant, at all material times, traded as Inaco Automation Controls (“Inaco”).  Because the documentary evidence refers to those entities by those former names, I shall refer to the plaintiff company as Management and the defendant as Inaco. 
  1. [3]
    Payments sought to be recovered are:

Date of Payment

Payment amount

26/03/2012

$16,224.07

05/04/2012

$20,000.00

18/04/2012

$30,000.00

01/05/2012

$50,000.00

04/05/2012

$30,000.00

11/05/2012

$50,000.00

06/06/2014

$1,245.09

Total

$197,469.16

  1. [4]
    Section 588FA(1) provides:

588FAUnfair preferences

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

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

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

even if the transaction is entered into is given effect to, or is required to be given effect to, because of an order of an Australian court or a direction by an agency…

Inaco’s Admissions

  1. [5]
    The pleadings disclose the following admissions by Inaco:
  1. (a)
    that the asserted preference payments were ‘transactions’ within the meaning of s 9 of the Act;
  1. (b)
    that they were made during the relation back period, 14 February 2012 to 14 August 2012;
  1. (c)
    that Management and Inaco were parties to the transactions; and
  1. (d)
    that Inaco was an unsecured creditor of Management at all relevant times.

Issues

  1. [6]
    As against those admissions, Inaco does not admit that Management was insolvent at the time of the payments or that it received, by way of unfair preference payments, more than it would have received in the event those payments were set aside and it proved in the winding up.

Inaco’s bases for resisting claim

  1. [7]
    Inaco relies on three defences to resist the claim:
  1. (a)
    Good Faith under s 588FG;
  1. (b)
    that during the relevant period, Inaco and Management maintained a running account so as to trigger the operation of s 588FA(3); and
  1. (c)
    in the event that any unfair preference payments are found, the sum of $92,323.88 should be set off against those payments pursuant to             s 553C, being monies owed to it by Management.

Evidence called

  1. [8]
    Both Mr Morton, the plaintiff and Ms Spicer, Management’s internal accountant at the relevant time, gave evidence. Ms Spicer’s role included taking care of all money, income and expenditure for Management.[1]  Inaco cross-examined both witnesses but offered no evidence.

Threshold evidentiary challenge by Inaco

  1. [9]
    At the hearing, the plaintiff tendered Exhibit 3, a bundle of documents containing Management documents and various emails between the parties and other documents disclosed by both parties. Inaco initially objected to the admission of all evidence of the plaintiff where it relied on information gleaned from Exhibit 3. The objection was framed in these terms:

“Certainly he (Mr Morton) can give evidence of what's happened after his appointment (as Liquidator) and what is the consequence of his investigation, but those things are not proof of the truth of those particular matters having happened. So, for example, when the investigation, or the relationship between Aran International, for example, and Aran Management, that's purely hearsay.  It's a – it’s not evidence of the truth of those facts.”[2] (Notes in parenthesis added)

  1. [10]
    The hearing proceeded on the basis that the impugned evidence was received subject to the right of both parties to address the admissibility issue in their closing written submissions. As will be seen later, Inaco’s objection was subsequently withdrawn. Notwithstanding that, I intend to deal with it as it raises an important point in relation to claims of this nature.
  1. [11]
    In response to Inaco’s objection, the plaintiff relied upon McVeigh, in the Matter of JAG Plastering and Carpentry Pty Ltd (in liq) v Commissioner of Taxation,[3]  particularly on the following remarks of Finkelstein J:

“The directors submit that the documents upon which the Liquidator seeks to rely have not been proved to be the company’s records and it is simply hearsay to suggest that they are. Accordingly, the directors say, in substance, that there is no admissible evidence which will establish insolvency.

…

Secondly, in relation to the Liquidator’s evidence, I will follow what was said by Tadgell J in Re Action Waste Collections Pty Ltd (in liq); Crawford v O'Brien [1981] VR 691. In that case Tadgell J both considered and rejected an argument similar to that which was argued by the cross defendants. There the judge noted that upon the winding up of a company the Liquidator: (1) assumes the functions of the directors; (2) becomes subject to a statutory duty to take custody and control of all the company’s property and choses in action; (3) must comply with the winding up provisions of the legislation and (4) must discharge his duty of collecting the company’s assets and applying them in discharge of its liabilities and distributing any surplus to those entitled to it. In order to carry out these duties, the Liquidator is required to take possession of the company’s accounting books and other records and papers and correspondingly has an obligation to examine them for evidence of liability incurred by the company. The judge said (at 700) that in those circumstances “it would be contrary to common sense not to presume now that [the Liquidator] had complied with such of his obligations as required him to obtain the company’s financial records and examine them. He should be presumed to have done so as a matter of duty.” On this basis the judge said that where the Liquidator has sworn that he has the company’s records and indeed exhibited them, then until the contrary is shown “[h]e should be presumed to have done so as a matter of duty.” Accordingly, the documents can be relied upon as proof of the facts recorded in them according to the documents provisions in Pt 2.2 of the Evidence Act 1995 (Cth).”

  1. [12]
    The statement by Tagdell J in Re Action Waste Collections Pty Ltd (in liq); Crawford v O'Brien[4] was in these terms:

“The relevant winding up order was made some two and a half years or more before the Liquidator issued these summonses and swore affidavits in support. Having regard to the statutory obligations which went with his appointment and the consequences of a failure to observe them, I think it would be contrary to common sense not to presume now that he had complied with such of his obligations as required him to obtain the company's financial records and examine them. He should be presumed to have done so as a matter of duty. He has in fact sworn that the records he has seen are those of the company; and indeed the exhibited documents to which I have so far referred are entirely consistent with that assertion. Why should not that evidence be receivable and probative, until the contrary is shown, of the fact that the records the Liquidator has examined are those of the company? It is no doubt true that the Liquidator's sworn statements that the records are those of the company depend partly on what he was told, or what he inferred, when he received and examined them. But that will not necessarily make his statements inadmissible. In my opinion the initial evidentiary question which arises in the circumstances is one of authentication of documents. In resolving that question I must consider whether a proper foundation has been laid for regarding the material on which the Liquidator wishes to rely as the material which he claims it to be: Holland v Halpin, [1939] VLR 253; R v Keely (unreported, Victorian Court of Criminal Appeal, 21 November 1980). According to Wigmore on Evidence, 1940, 3rd ed., vol.vii, para.2160:

"For any kind of [private] document whatever, particularly records and files, their presence in a natural place ought often to be sufficient evidence that the document is one of those regularly kept there".

Whether or not a doctrine of authentication of private documents by reference to their custody may be treated as of general application in this State, one cannot doubt that the records of a company in liquidation would naturally be presumed to be in the custody of its Liquidator. If the Liquidator were to swear that he has them and has examined them I would take him, if uncontradicted, to be stating no more than the obvious.

I have no hesitation in concluding that the records on which the Liquidator has based his statements of the company's indebtedness to the Broadmeadows Corporation and the company's payments to it are to be regarded as having been authenticated as such--that they are records of the company. That conclusion, however, does not remove the Liquidator's difficulty that the documents amount to no more than hearsay evidence of the facts which he seeks to prove by reference to them, namely the fact of the company's indebtedness and the fact of the payments to the Broadmeadows Corporation and the times at which they were made. This is so whether the Liquidator relies on the documents as speaking for themselves or whether he relies for evidence on the conclusions he swore that he drew from them. Counsel for the Liquidator conceded as much and he conceded further that the documents could not be used as direct or indirect proof of the relevant facts of indebtedness and payment unless a statutory exception to the rule against hearsay could be invoked. Pt III, Divs. 3 and 3A of the Evidence Act 1958 were invoked. In my opinion the entries in the documents relied on by the Liquidator to which I have so far referred afford prima facie evidence by virtue of the provisions of Pt III, Div. 3A of the Evidence Act s 58A-58J of the matters transactions and accounts they record. S 58A defines "book of account" for the purposes of Div. 3A to include "ledger, day book, cash book, account book and any other document used in the ordinary business of a bank, or in the ordinary course of any other business for recording the financial transactions of the business...".

S58B provides that "Subject to the provisions of this Division in all legal proceedings--(a) an entry in a book of account shall be prima facie evidence of the matters transactions and accounts therein recorded..."[5] (Citations omitted)

  1. [13]
    Other similar relevant statutory hearsay exceptions are to be found in the following legislation:

12.1Corporations Act 2001(Cth)

Section 1305 – Admissibility of books in evidence

(1)A book kept by a body corporate under a requirement of this Act is admissible in evidence in any proceeding and is prima facie evidence of any matter stated or recorded in the book.

(2)A document purporting to be a book kept by a body corporate is, unless the contrary is proved, taken to be a book kept as mentioned in subsection (1).

Section 1306 – Form and evidentiary value of books

…

(4)Where a corporation records or stores any matters by means of a mechanical, electronic or other device, any duty imposed by this Act to make a book containing those matters available for inspection or to provide copies of the whole or a part of a book containing those matters is to be construed as a duty to make the matters available for inspection in written form or to provide a document containing a clear reproduction in writing of the whole or part of them, as the case may be.

12.2 Evidence Act 1977 (Qld)

Section 92(1)(b) – Admissibility of documentary evidence as to facts in issue

  1. (b)
    In any proceeding (not being a criminal proceeding) where direct oral evidence of a fact would be admissible, any statement contained in a document and tending to establish that fact shall, subject to this part, be admissible as evidence of that fact if—

…

  1. (b)
    the document is or forms part of a record relating to any undertaking and made in the course of that undertaking from information supplied (whether directly or indirectly) by persons who had, or may reasonably be supposed to have had, personal knowledge of the matters dealt with in the information they supplied, and the person who supplied the information recorded in the statement in question is called as a witness in the proceeding.
  1. [14]
    Against the background of the above provisions, the plaintiff relied on Ms Spicer, the internal accountant of Management at the relevant time, giving evidence to lay the foundation for admissibility. Barring evidence to contradict the authenticity or accuracy of the documents, the plaintiff’s conclusions drawn from the documents in Exhibit 3 are admissible. Inaco’s response was that, as the Liquidator had concluded that s 286 of the Act (keeping of proper records) had not been complied with, the documents relied upon by him were thereby brought into question.
  1. [15]
    Section 286(1) provides:

286 - Obligation to keep financial records

  1. (1)
    A company, registered scheme or disclosing entity must keep written financial records that:
  1. (a)
    correctly record and explain its transactions and financial position and performance; and
  1. (b)
    would enable true and fair financial statements to be prepared and audited.
  1. [16]
    In his final written submissions, the plaintiff relied only upon documents to which the witnesses were expressly taken at the hearing or those disclosed by Inaco. Of course, any documents outside that category may still be relied upon by the Court if admissible.
  1. [17]
    In its final written submissions, Inaco withdrew the objection to the admissibility of Exhibit 3 in these terms:

“6.Further, Rexel (the defendant) does not press its objection to Exhibit 3. However, the weight given to various financial statements and the reports prepared by the Liquidator is seriously diminished by reason of the matters that are outlined below. Accordingly, it would be unwise for the Court to place any weight on the opinion of the Liquidator as to solvency because the factual matters relied upon are seriously in doubt. Ultimately, the question of solvency is a question of fact for the Court, not the Liquidator.” (Citations omitted)

  1. [18]
    Notwithstanding the withdrawal of the objection, and given Inaco adduced no evidence to challenge the admissibility of any of the documents in Exhibit 3, consistent with the above authorities I am satisfied they are admissible. That is not to say that they necessarily represent records sufficient to satisfy s 286 of the Act, because the plaintiff clearly found Management’s record keeping to be inadequate in some respects having regard to that section. However, a failure to comply with s 286 does not, of itself, destroy the basis of permitted reliance on those documents which are available in deciding issues such as insolvency and indebtedness at a particular point in time, or their efficacy.

Structure of the Group

  1. [19]
    Management was one of a group of related companies (“Group”) namely:
  1. Aran Australia Pty Ltd ACN 050 417 715;
  1. Aran DPT Pty Ltd ACN 158 132 257;
  1. Aran Investments (No. 2) Pty Ltd ACN 159 684 025;
  1. Aran Technology Pty Ltd ACN 050 402 009;
  1. Ausran Pty Ltd ACN 010 546 979;
  1. Aran International Services Pty Ltd ACN 101 712 529;
  1. South East Queensland Machinery Manufacturing and Distribution (Mining) Number 2 Pty Ltd ACN 158 134 215 (“Management”).
  1. [20]
    Apart from Management, the only other company in the Group relevant to this matter is Aran International Services Pty Ltd (“International”).  The principal of the Group and each company in the Group was Mr Trevor George Dunstan.[6]

Group Business

  1. [21]
    The Group supplied mixing plants for road construction and roller compacted concrete for dam construction in its early years. More recently, when activity in the road and dam construction markets reduced significantly, it changed from mixing plants to complex mining fill plants used in mostly remote and sometimes very cold mine locations.[7]  It undertook product design and engineering of specific products such as module and mix machines used for filling exhausted mines, at the same time continuing to be involved in some infrastructure works, such as road works and dam construction, throughout the world.  It had a number of international clients.[8]

Inaco’s business

  1. [22]
    Inaco provided electrical components to Management and billed Management for those components.[9]  Evidence as to that business relationship was sparse.  Ms Spicer gave evidence[10] that the payment terms prior to March 2012 were mainly on 30 or 60 day accounts.  There is no evidence of an agreement between Inaco and Management, formal or otherwise, recording a payment arrangement. 

Liquidator’s Report to Creditors 7 May 2013

  1. [23]
    In his report to creditors of 7 May 2013, the plaintiff Liquidator informed creditors of his investigations to date, namely that:
  1. (a)
    Mr Dunstan had informed him that during the latter part of 2010, International took on two substantial contracts in Finland and Mexico for the supply of mine fill plants.  These plants had significant new technical content and difficulty, which stretched the resources of the Group to the extent that heavy losses were incurred on both projects.  A further and potentially profitable project was secured in November 2011, but was unable to be completed because of the drain on available funds.  During the first half of 2012, further substantial and profitable new projects, which would have quickly provided the cash flow and profitability to reverse losses previously incurred, were expected; however none were able to be secured. 
  1. (b)
    A dispute raised by one of the project owners in May 2012 resulted in an unexpected income shortfall.  The Dunstan Discretionary Trust was unable to either pay or retrench the employees given employment rules at that time.  Consequently, there was a downturn in revenue and decline in profit margins.  Management experienced cash flow pressure and subsequently ceased trading prior to 14 August 2012, the Liquidator appointment date.[11] 
  1. (c)
    He, the Liquidator had formed the opinion that Management had failed to comply with s 286 of the Act, requiring Management to keep written financial records that correctly recorded and explained its transactions, financial position and performance and which would have allowed true and fair financial statements to be prepared and audited.[12]
  1. (d)
    Mr Dunstan and Management’s accountant had given him the books and records of Management including QuickBooks records, bank statements, invoices, reconciliations and other miscellaneous reports.  Management, at one time, was using QuickBooks, a software programme for financial records, but, after 31 January 2012, changed to the ACCPAC system which had serious issues correctly recording the transactional accounting. 
  1. (e)
    Management’s accountant was then engaged to restore QuickBooks but because of the ACCPAC hiatus, some of the reports generated subsequently were in summary format only.  Some banking documents and invoicing were not provided to the plaintiff Liquidator due to a problem with Management’s server. 
  1. (f)
    As a result of these deficiencies the Liquidator concluded that the books and records of Management were not sufficient and accurate, thus founding his opinion that s 286 of the Act had not been complied with. 
  1. (g)
    Mr Dunstan had advised him in writing that the causes of Management’s failure were: the confluence of large cost overruns on problem projects; the absence of any new projects; and unsustainable personnel commitments necessitating the cessation of business.[13]
  1. (h)
    To this list of reasons, based on his own investigations into Management’s affairs, the Liquidator considered the following as further reasons for Management’s failure: under capitalisation; downturn in revenue; trading losses caused by poor accounting on major projects; and poor financial control, including a lack of records.[14]
  1. [24]
    It can be reasonably inferred from this Report that the Liquidator agreed with Mr Dunstan’s reasons for Management’s failure, adopted them, and then added further reasons of his own.

Liquidator’s Solvency Report 24 July 2013

  1. [25]
    In his subsequent report to creditors of 24 July 2013,[15] the plaintiff dealt with the issue of the solvency of Management in these terms:

“On balance, from the information supplied from the records of the company and from my own enquiries and investigations, I am of the opinion the company was insolvent from at least 1 March 2012 for the following reasons:

  1. The company was balance sheet insolvent for at least six months prior to the appointment (14 August 2012).
  1. The company was cash flow insolvent from at least 1 March 2012.
  1. The company had a liquidity ratio 0.03 as at the Appointment Date and 0 as at 1 March 2012.[16]
  1. The company had been paying creditors outside trading terms from at least 1 March 2012 to the Appointment to the Date.
  1. The company has incurred trading losses from at least July 2011.
  1. There is no evidence that the Company would have been able to secure any funding from any other sources during this period.”

The plaintiff gave evidence that Management was effectively the entity that incurred debt and paid creditors. International was the sales company that entered into project contracts with clients and received payment therefore.  It would provide funds to Management as required to allow it to pay its creditors. The plaintiff Liquidator found no evidence of any agreement between Management and International as to the provision of those funds.[17]  That is consistent with monies being provided as and when required and requested. 

Events leading up to the alleged Unfair Preference Payments

  1. [26]
    On 31 January 2012, Inaco rendered invoice 70884199 for $215,421.80 to Management,[18]  for a bypass switch, software, automatic power factor unit, and amp.
  1. [27]
    Two weeks later, in or about mid-February 2012,[19] Mr Rae, Inaco’s Credit Manager contacted Ms Spicer, asking when payment of the January invoice would be received.[20]  She told him Management did not have the money straight away so he would have to wait for a while until Management was able to pay it.[21] No explanation consistent, for instance, with a temporary cash shortage able to be overcome, was given so as to found any belief in Inaco that the inability to pay may not be consistent with insolvency as defined in s 95A. Ms Spicer did not seek to reassure Mr Rae that funds would be available from International to pay the invoice.
  1. [28]
    Some four or five weeks later, on Wednesday 21 March 2012 at 1.25pm, Mr Rae again emailed Ms Spicer asking her to call him to discuss the account.[22]  She replied by email the same day at 2.14pm, advising $16,224.07 would be paid on the Friday of that week, 23 March.[23]  Within 17 minutes Mr Rae emailed her again advising that Inaco’s records showed the January figure for Management’s account was $254,186.55 and seeking Ms Spicer’s agreement to that figure.[24] 
  1. [29]
    Presumably having heard nothing from Ms Spicer for five days, Mr Rae again emailed her at 9.24am on 28 March 2012, thanking her for the payment of $16,224.07 on Friday 23 March[25] and reminding her there were still two outstanding January invoices totalling $244,558.15.[26]  He sought to know when those invoices would be paid.
  1. [30]
    Ms Spicer replied at 10.34am that same day, 28 March 2012 seeking copies of the two January invoices, explaining that in the process of getting them approved, the original paper copies had been mislaid, although details were on the computer system.[27]  Ms Spicer went on to say:

“As discussed with Ashok, we will have to set up the payment plan to clear these.  I can give you some indication of our plan at the beginning of next week.”[28]

Mr Ashok Parmar was, according to Ms Spicer, a sales representative for Inaco.[29]  As at 3 August 2011, he was Inaco’s account manager.[30]  As to how long he remained in that position the evidence does not relate. 

  1. [31]
    At 10.40am the same day, 28 March 2012, Mr Rae replied, saying he was unaware of anything about a payment arrangement; it had not been discussed with him.[31]  As to that payment arrangement, Ms Spicer gave evidence that, before the commencement of the above emails,[32] she had spoken to Mr Parmar.[33] She told him Management was having difficulty paying invoices.  Mr Parmar’s response was to threaten to put a stop on Management’s account unless the outstanding invoices were paid.  It was then Ms Spicer and Mr Parmar decided on a payment plan.[34]
  1. [32]
    On 3 April 2012 at 11.15am, six days after the above 28 March exchange of emails, Mr Rae sent Ms Spicer an email asking her to call him urgently regarding the balance of the January account.[35]  In response, at 3.36pm that day Ms Spicer emailed Mr Rae the following payment proposal to pay $242,782.86, then showing in Management’s records as owing to Inaco[36]:

Instalment

Proposed Date of Payment

Payment Amount

First

03/04/2012

$20,000.00

Second

13/04/2012

$30,000.00

Third

28/04/2012

$50,000.00

Fourth

04/05/2012

$30,000.00

Fifth

11/05/2012

$50,000.00

Sixth

18/05/2012

$50,000.00

Seventh

25/05/2012

$12,982.86

 

 

$242,982.86

By email of 4 April 2012, Mr Rae indicated agreement to the proposal subject to conditions he imposed.  Strictly that constituted a counter offer accepted by Management when it paid its first instalment (due 3 April) on 5 April. 

Management’s compliance with payment schedule

  1. [33]
    Payment No. 1 ($20,000) due on 3 April was not paid. On 5 April Mr Rae emailed Ms Spicer chasing it.[37]  It was made later that day.[38]  Payment No. 2 ($30,000) was due on 13 April 2012 was not paid.  It was chased up by Inaco on 17 April 2012,[39] and paid five days late on 18 April 2012.[40]  Payments No. 4 ($30,000 due 4 May 2012), and No. 5 ($50,000 due 11 May 2012) were paid on time.[41]  Payments No. 6 ($50,000 due 18 May 2012) and No. 7 ($12,982.86 due 25 May 2012) were never paid.[42]  The fourth and fifth instalments, both paid on time, were paid after reminder emails prior to the due date[43] and the late payments of the first, second and third instalments were paid after emails from Mr Rae chasing them up.[44]

Inaco’s Creditor Statutory Demand for payment of debt

  1. [34]
    Ms Spicer explained that, by 1 March 2012, on a daily basis and for most of each day she was fielding calls from creditors chasing payment of outstanding invoices. It seems obvious that, by then, Management’s goodwill with creditors had clearly run out.[45]  As to why the abovementioned five payments were made to Inaco, Ms Spicer explained that Management needed the goods from Inaco to complete its own work, be paid for it, and then clear other debts.[46]
  1. [35]
    Despite the agreed subject payments of $197,469.16 having been made to Inaco between 26 March 2012 and 6 June 2014, there was still an amount of $93,568.97 said by Inaco to be owing to it by Management. On 22 June 2012, Inaco served Management with a Creditor’s Statutory Demand pursuant to s 459E(2)(e), demanding payment of that sum within 21 days. The amount demanded was described as due and payable for goods sold and delivered by Inaco to Management in the period 31 January 2012 to 24 April 2012, the particulars being noted in annexure “A” of the affidavit of Colin James Rae sworn on the 20th of June 2012:[47]

“A”

21-Jan-12

70884199

$215,421.80

$64,658.15

Invoice

20-Feb-12

70928730

$2,036.98

$2,036.98

Invoice

28-Feb-12

70946623

$566.50

$566.50

Invoice

29-Mar-12

44852

-$1,623.60

-$1,623.60

Credit Memo

29-Mar-12

44853

-$766.70

-$766.70

Credit Memo

12-Apr-12

71038015

$645.15

$645.15

Invoice

24-Apr-12

71062594

$27,193.30

$27,193.30

Invoice

24-Apr-12

71062589

$859.19

$859.19

Invoice

   

$93,568.97

 

It can be seen that the last invoice Inaco relied upon was rendered on 24 April 2012. That figure of $93, 568.97 differs by $1,245.09 from the agreed set-off figure of $92,323.88 claimed by Inaco (see later). I proceed on the basis of that agreed figure.

Was Management insolvent at the time the subject payments were made?

  1. [36]
    Section 95A provides:

95ASolvency and insolvency

(1)[When person is solvent] A person is solvent if, and only if, the person is able to pay all the person’s debts, as and when they become due and payable.

(2)[When person is insolvent] A person who is not solvent is insolvent.

  1. [37]
    It is a question of fact to be determined by the court as to whether or not a company is insolvent at a particular time. That involves a proper consideration of its financial position based on commercial reality.[48] The concept of commercial reality, was explained by Chesterman J in Emanuel Management Pty Ltd v Fosters’ Brewing Group[49] where his Honour said the determination of the insolvency of a company as matter of ‘commercial reality’ was:

“… designed to prevent over-hasty adjudications of insolvency in the case of companies suffering a temporary shortage of cash.  It was not meant, in my view, to allow companies in a chronic state of illiquidity who evade, by one means or another, determined action by a creditor to wind them up, by that evasion, to be deemed solvent.”

  1. [38]
    The courts have long recognised that the question of whether or not a company is insolvent is not simply an arithmetical exercise by reference to the balance sheet and/or the profit and loss account or both. Enquiries may, in appropriate circumstances, extend to consider, for instance, any access a company may have to liquidity from directors, related companies and the like despite its present inability to meet its commitments. In Williams as Liquidator of Scholz Motor Group P/L (in liq.) v Scholz & Anor[50]  Muir JA said:

“It is well established that in considering a company’s financial position as a whole, reference may be had, not merely to strict legal rights and obligations under agreements with creditors and debtors, but to “commercial realities”. A significant consideration on any such determination is often the ability of the Company to borrow on the security of its own assets and the willingness of its secured creditors to continue lending despite temporary financial difficulties.

Unsecured borrowings are also relevant, provided that they do not give rise to obligations which the company is unable to meet. Where the Court has the benefit of assessing insolvency with the advantage of hindsight, as is the case here, it will tend to be in a better position to evaluate the true bearing of unsecured borrowings on the Company’s ability to meet its financial obligations. There is some authority for the proposition that unsecured loans by directors cannot be taken into account. There should, however, be no objection in principle to regarding such financial support as relevant where the evidence establishes that the directors are likely to continue it. Loans by related corporations have been regarded as relevant to the determination of solvency. And there is no reason in principle why a loan from directors should be treated any differently to loans from companies controlled by directors. The most important consideration is the degree of commitment to the continuation of financial support.” (footnotes omitted)

  1. [39]
    It seems now to be accepted that the predominant test of insolvency is the cash flow test. As Barrett J said in Noxequin Pty Ltd v Deputy Commissioner of Taxation[51]:

“In his report, Mr Topp referred to the two approaches commonly taken for the assessment of solvency – an analysis based on a cash flow test and a review of assets and liabilities by way of balance sheet test.  He stated that the former is, in terms of s 95A, predominant.  That this is the correct approach was recognised by the Court of Appeal in Keith Smith East West Transport Pty Ltd v Australian Taxation Office, among other cases (see for example, Expile Pty Ltd v Jabb’s Excavations Pty Ltd; Lewis (as Liquidator of Doran Constructions Pty Ltd) v Doran; Box Valley Pty Ltd v Kidd.  The effect and implications of s 95A are, in my respectful view, accurately reflected in the following passage in the judgment of Dodds-Streeton J in Crema Pty Ltd v Land Mark Property Developments Pty Ltd:

‘Section 95A of the Act enshrines the cash flow test of insolvency which, in contrast to a balance sheet test, focuses on liquidity and the viability of the business.  While an excess of assets or liabilities will satisfy a balance sheet test, if the assets are not readily realisable so as to permit the payment of all debts as they fall due, the company will not be solvent.  Conversely, it may be able to pay its debts as they fall due, despite a deficiency of assets.’” (Citations omitted)

Plaintiff’s submissions re: Solvency of Management

  1. [40]
    The plaintiff relies on the Liquidator’s report and Management’s financial records on the issue of Management’s solvency at the relevant time, particularly the following:
  1. (a)
    Management’s external accountant’s financial report[52] shows a net decline in income between 30 June 2011 and 30 June 2012 from ($425,863.06) to ($988,678.22), a further deterioration of its income situation of $562,815.16 in that 12 month period.
  1. (b)
    The balance sheet for the same period similarly shows a deterioration in the negative net asset position of ($1,213,034.52) at 30 June 2011 to ($2,201,312.54) at 30 June 2012, a further deterioration of $988,278.22.
  1. (c)
    As at 1 March 2012, the latest date the Liquidator considers the company was cash-flow insolvent, Management’s net asset position was ($12,740,406.33).  Total unsecured loans at that date, wholly represented by related entity loans, was $11,906,711.77.[53] Four months later at 30 June 2012 that figure, again wholly represented by related entity loans, was $1,407,593.97, a turnaround of $10,499,117.80.  Putting aside those related party loans, that still left current liabilities of $1,701,600.26 against a total asset base of $948,598.58, a short fall of $753,002.00.
  1. (d)
    As to Management’s cash position at late February/early March 2012, its Suncorp account 163231020[54] revealed a net balance of $350.61.  Its HSBC accounts 326440-001 and 326440-090 had credits of $51.50 and $30.75,[55] respectively, at a time when its creditors totalled $1,579,997.13.[56]  Again, putting aside the related entity debt to International of $932,170.72, that figure becomes $647,826.41. 
  1. [41]
    As I have said, the Liquidator, in his insolvency report, expressed the opinion that at least as early as 1 March 2012, Management was not able to meet its debts due and payable from its available resources and was therefore cash-flow insolvent at least from that date.[57]  He expressed the view that it appeared unlikely to him that the director, Mr Dunstan, would be able to inject any further funds into Management, Mr Dunstan himself having proved in the liquidation for $39,460.92.[58] No evidence was led to gainsay that.  The Liquidator’s report makes it obvious that he was in regular contact with Mr Dunstan who assisted him in the performance of his duties. The plaintiff’s opinion is that on the balance sheet test, Management was insolvent, most probably from 14 February 2012,[59] but certainly from 1 March 2012 on the cash flow test.[60] In his view, given the lack of real assets and the high level of debts, it was highly unlikely Management would be able to source funds from any other party.  Again, there is no evidence to the contrary.  Reference to the lack of real assets I take to refer to Management’s related entity debts rather than unrelated, valuable and reasonably easily realisable assets. 

Aged creditors at 1 March 2012

  1. [42]
    At the beginning of March 2012, Management’s current creditors were $1,579,997.00,[61] of which 3 per cent exceeded 60 days and 8 per cent exceeded 90 days.[62]  According to Ms Spicer, most of those creditors either remained unpaid or increased their exposure between March 2012 and the date of winding-up.[63]  Of the 1 March 2012 creditors, only Krohne was a 60 day supplier. Importantly, she that, despite the terms of suppliers’ invoices varying between 15 and 30 days and 60 days, they were only ever paid when money was available.[64] This irrelevance of the terms of payment on creditors’ invoices is exemplified by the mid-February 2012 telephone call from Mr Rae to Ms Spicer chasing payment of the January invoice rendered only a couple of weeks before on 31 January 2012. That invoice was stated to be 30 days, yet the telephone conversation proceeded on the basis it was then due. It reflects both the fact that invoices were paid only when money was available irrespective of the written terms of the invoice and that there was concern in Inaco as to payments of the January invoice. 

Conclusion re: Solvency

  1. [43]
    I am satisfied on the evidence that the plaintiff’s conclusion that Management was insolvent, on the balance sheet test from 14 February 2012 and on the cash flow test from at least as early as 1 March 2012, up to the appointment of the Liquidator on 14 August 2012 is well-founded on the evidence before him.

Consideration of Inaco’s bases of resistance to claim

  1. [44]
    I turn now to consider the defences Inaco relies on.

Inaco’s First Defence - Good Faith – s 588FG

  1. [45]
    The elements of the defence of “good faith” are set out in s 588FG of the Act (see Schedule A). The onus of proving the defence of “good faith” rests on the defendant, as discussed by the Court of Appeal in Williams v Peters.[65] 
  1. [46]
    Accordingly, under s 588FG(1)(b), Inaco must prove that:

(b)in relation to each of the payments received:

(i)Inaco received it in good faith; and

(ii)at the time of the payment:

(A)Inaco had no reasonable grounds for suspecting that Management was insolvent at that time or would become insolvent…; and

(B)a reasonable person in Inaco’s circumstances would have had no such grounds for so suspecting.

  1. [47]
    Inaco made no submissions on the defence of Good Faith and, as I have earlier said, led no evidence at the hearing.
  1. [48]
    On the plaintiff’s evidence, and in the absence of any evidence to the contrary from Inaco, the defence of “good faith” has not been made out. The above sequence of events leading to the appointment of a Liquidator satisfy me that, at the time of the receipt of the first payment of $16,224.07 on 26 March 2012, Inaco had reasonable grounds to suspect that Management was insolvent at that time and that a reasonable person in Inaco’s position would also have had such reasonable grounds. Indeed, in my view, that state of knowledge existed as at mid-February 2012 when Ms Spicer told Mr Rae that Management did not have the money to pay the 31 January invoice. As I have earlier said, that was a statement unadorned by any qualifications which may have founded, in Mr Rae’s mind, a conclusion that the cash shortage was of a temporary nature.

Inaco’s Second Defence - Running Account – s 588FA(3)

  1. [49]
    Section 588FA(3) of the Act provides:

Where:

  1. (a)
    a transaction is, for commercial purposes, an integral part of a continuing business relationship (for example, a running account) between a company and a creditor of the company (including such a relationship to which other persons are parties); and
  1. (b)
    in the course of the relationship, the level of the company’s net indebtedness to the creditor is increased and reduced from time to time as the result of a series of transactions forming part of the relationship;

then:

  1. (c)
    subsection (1) applies in relation to all the transactions forming part of the relationship as if they together constituted a single transaction; and
  1. (d)
    the transaction referred to in paragraph (a) may only be taken to be an unfair preference given by the company to the creditor if, because of subsection (1) as applying because of paragraph (c) of this subsection, the single transaction referred to in the last mentioned paragraph is taken to be such an unfair preference.

Defendant’s Submissions re: Running Account Defence

  1. [50]
    The onus is on the plaintiff to disprove the application of the running account principle to Inaco’s dealings with Management. Inaco says it has failed to discharge that onus. Further, it is said, if Inaco did receive an unfair preference from Management, the amount of that unfair preference should be reduced by $31,301.12, being the value of the goods Inaco supplied to Management as a result of Management’s payments to Inaco. Details of that figure are:

Date

Invoice Number

Amount of Invoice

20/02/12

70928730

$2,036.98

28/02/12

70946623

$566.50

12/04/12

71038015

$645.15

24/04/12

71062589

$859.19

24/04/12

71062594

$27,193.30

 

Total

$31,301.12

  1. [51]
    In support of its argument, Inaco says:
  1. (a)
    It provided goods and services to Management to the value of $31,301.12 following payments in excess of that amount by Management.  Those payments were made by Management for the purpose of obtaining further supply.[66]
  1. (b)
    Its own internal communications, prepared at the time of its instalment arrangement with Management, record that because of that instalment arrangement Inaco would recommence supply to Management on credit,[67] as it went on to do. In fact, the counter-offer of 4 April 2012 by Inaco as to Management’s payment proposal of 3 April 2012[68] was accepted on 5 April, when Management made the first instalment due 3 April, as earlier outlined.
  1. (c)
    It was only after Management ceased making payments to Inaco entirely, that on 28 June 2012, Inaco ceased work in respect of two further orders placed with it by Management.[69]
  1. (d)
    Its willingness to continue delivering goods on credit, and to continue incurring liabilities to third parties in respect of other orders placed by Management, is entirely inconsistent with there being an intention on its part not to cease dealing with Management as debtor and creditor, or to not regard Management’s payments as having a significant purpose for funding future supply.
  1. (e)
    If Inaco had not received Management’s payments with a view to further supply, or believed Management to be insolvent, then it is difficult to comprehend why Inaco would continue incurring liabilities to third parties manufacturing equipment for supply to Management.

Plaintiff’s Submissions re: Running Account Defence

  1. [52]
    The plaintiff argues:
  1. (a)
    There was no mutual expectation between Management and Inaco of a continuing relationship of debtor and creditor between the parties.
  1. (b)
    The running account defence is not available because the inducement of supply became subordinated to Inaco’s predominant purpose of recovering the value of the outstanding accounts. That is to say, the payments were not made in the context of a mutual assumption of a continuing business relationship.
  1. (c)
    The running account defence is not available as Management did not receive goods or services equal to or greater value than the preference payments.

Consideration of Running Account Argument

  1. [53]
    Section 588FA(3) was considered by the High Court in Airservices Australia v Ferrier.[70]  That was a case where the appellant creditor was a public authority which supplied transport and navigational services to Compass, the debtor airline. At the beginning of each month, Airservices would debit Compass’ account for services rendered the preceding month; often including extra amounts as penalties for late payments of earlier invoices. The services were vital for the continued operation of the airline. Indeed, despite Compass’ indebtedness to Airservices continuing to grow substantially during the preference period, the parties’ arrangement remained largely unchanged. The High Court (Dawson, Gaudron and McHugh JJ, Brennan CJ and Toohey J dissenting) held that this arrangement was a ‘running account’.
  1. [54]
    In that case the majority said[71]:

“If a payment is part of a wider transaction or a “running account” between the debtor and the creditor, the purpose for which the payment was made and received will usually determine whether the payment has the effect of giving the creditor a preference, priority or advantage over other creditors. If the sole purpose of the payment is to discharge an existing debt, the effect of the payment is to give the creditor a preference over other creditors unless the debtor is able to pay all of his or her debts as they fall due. But if the purpose of the payment is to induce the creditor to provide further goods or services as well as to discharge an existing indebtedness, the payment will not be a preference unless the payment exceeds the value of the goods or services acquired. In such a case a court, exercising jurisdiction under s 122 of the Bankruptcy Act, looks to the ultimate effect of the transaction. Whether the payment is or is not a preference has to be “decided not by considering its immediate effect only but by considering what effect it ultimately produced in fact”.

As a consequence, a payment made during the six month period cannot be viewed in isolation from the general course of dealing between the creditor and the debtor before, during and after that period. Resort must be had to the business purpose and context of the payment to determine whether it gives the creditor a preference over other creditors. To have the effect of giving the creditor a preference, priority or advantage over other creditors, the payment must ultimately result in a decrease in the net value of the assets that are available to meet the competing demands of the other creditors …

If at the end of a series of dealings, the creditor has supplied goods to a greater value than the payments made to it during that period, the general body of creditors are not disadvantaged by the transaction — they may even be better off. The supplying creditor, therefore, has received no preference … If the effect of the payments is to reduce the initial indebtedness, only the amount of the reduction will be regarded as a preferential payment.

…

… Even where payments are expressly made for the purpose of reducing a debt earlier incurred as well as for the purpose of obtaining further goods or services, only the amount representing the reduction of the opening debt for the period will be regarded as a preference. But in such a case, the circumstances of each payment made for the purpose of reducing the debt have to be examined in order to determine the issue under s 122(2)(a), unless it is clear that the creditor's “knowledge in relation to the [debtor's] solvency and in relation to the effect of any permanent reduction in the [debtor's] indebtedness … was the same throughout the period”. (Footnotes omitted)

  1. [55]
    Their Honours then explained the essential features of a running account:[72]

“A running account between traders is merely another name for an active account running from day to day, as opposed to an account where further debits are not contemplated. The essential feature of a running account is that it predicates a continuing relationship of debtor and creditor with an expectation that further debits and credits will be recorded. Ordinarily, a payment, although often matching an earlier debit, is credited against the balance owing in the account. Thus, a running account is contrasted with an account where the expectation is that the next entry will be a credit entry that will close the account by recording the payment of the debt or by transferring the debt to the bad or doubtful debt a/c.

If the record of the dealings of the parties fits the description of a “running account”, that record will usually provide a solid ground for concluding that they conducted their dealings on the basis that they had a continuing business relationship and that goods or services would be provided and paid for on the credit terms ordinarily applicable in the creditor's business. When that is so, a court will usually be able to conclude that the parties mutually assumed that from a business point of view each particular payment was connected with the subsequent provision of goods or services in that account. Sometimes, however, the transactions recorded in the account may be so sporadic that a court cannot conclude that there was the requisite connection between a payment and the future supply of goods even though the account was kept “in the ordinary form of a running account in which debits and credits are recorded chronologically and in which payments are not shown as attributable to any particular deliveries but are brought generally into credit” (Footnotes omitted)

As can be seen from the details set out in paragraph [51] above, between 14 February and 14 August 2012, Inaco rendered five invoices to Management on 20 February 2012, 28 February 2012, 12 April 2012 and 24 April 2012 (two invoices).

  1. [56]
    The plaintiff concedes that, according to Ms Spicer’s evidence, Management entered into the payment plan on pain of not being provided with any further goods and services by the defendant but says this fact alone is insufficient to unilaterally establish a running account. Further, at the time Management entertained an expectation of continuing support from Inaco, Inaco held the expectation that the relationship was to come to an end. It is said that Inaco’s own, curiously undated, internal email evidences this:

“Hi all

As you are probably aware this customer owes us $244,658.15 for January.

They (Management) have now made a formal request to pay this account of [sic] by way of instalments between now and the end of May, I have referred this matter to Greg Farmer who has accepted the arrangement on the condition that they honour it, comments like we will endeavour to keep these payment terms are unsatisfactory.

For the time being I have released the hold on the account, however come the end of April we will have to place the account back on stop due to the debt being 90 day & greater [sic].  I will be formally writing to the customer advising them our decision to accept their instalment offer subject to them honouring the arrangement.

Please call me should you wish to discuss this matter.

Regards

Colin Rae”[73]

  1. [57]
    I infer this email was sent on either 3 April or 4 April 2012 – the respective dates of the email outlining the payment proposal and the letter of counteroffer from Inaco imposing certain terms.[74]
  1. [58]
    The plaintiff says that internal email is uncontradicted evidence that Inaco had, at some time prior to the payment plan, placed Management’s account on “hold” and at the time the payment plan was entered into, according to Inaco, its relationship with Management was not one of continuing supply and payment, but rather merely one of payment of existing debts.
  1. [59]
    The plaintiff says further that, on balance, it can be inferred that the first payment of $16,224.07 on 26 March 2012 was, in all likelihood, made at a time when Management’s account was “on hold”. That is a reasonable inference given that the first payment in the payment plan was $20,000 due on 3 April 2012. No continuing relationship could arise from that circumstance. As to the balance of the instalment payments, they were not part of a running account, but rather were part of a payment plan which was apparently agreed at a time when Management’s account was on hold and Inaco held an expressed intention to cease trading with Management within the month.
  1. [60]
    Finally, the plaintiff submits that even in the event that the relationship could be described as a running account, at least from the first instalment payment, the future (limited) supply was subordinated to a predominant purpose of recovering past indebtedness

Decision - Running Account Defence

  1. [61]
    On all the evidence, I consider the plaintiff has satisfied the onus of establishing that the alleged unfair preference payments were not an integral part a continuing business relationship between Management and Inaco, but rather a series of payments designed to reduce the pre-existing indebtedness. The invoices Inaco rendered between 20 February 2012 and 24 April 2012 totalling $31,301.12 do not, in my view, change that situation. In the absence of any evidence to the contrary, the relationship from mid-February 2012 when Mr Rae first chased up Inaco’s January invoice of $215,412.80 appears to be characterised by Inaco’s focus on reducing Management’s indebtedness to it; even if that meant doing some further business with it while payments were being made. The further business did not, as I see it, constitute a series of transactions within a continuing business relationship. Rather, I see those transactions as isolated extensions of credit, ancillary to Inaco’s primary objective of being paid the main debt and to assist Management to make payment. The payments under attack could not be said to be an integral part of a relevant continuing business relationship because it did not exist. The focus was on the past and not the future. There was no running account.
  1. [62]
    I am also satisfied that on the evidence, the payments were unfair preferences for the purposes of s 588FA(1) of the Act. The unchallenged evidence of the Liquidator was that the return to creditors in the winding up of Management was to be zero cents in the dollar.[75]  Inaco clearly received more than it would have, had it been required to prove in the winding up of Management.

Inaco’s Third Defence - Set-Off – s 553C

  1. [63]
    Inaco’s final defence to the claim is that, if any unfair preference is found, it is entitled to set-off the debt of $92,323.88 owed to it by Management. The plaintiff concedes the quantum of the set-off but not Inaco’s entitlement to a set-off.
  1. [64]
    Section 553C provides:

553CInsolvent companies – mutual credit and set-off

(1)[Where mutual claims and debts admissible] Subject to subsection (2), where there have been mutual credits, mutual debts or other mutual dealings between an insolvent company that is being wound up and a person who wants to have a debtor claim admitted against the company:

(a)an account is to be taken of what is due from the one party to the other in respect of those mutual dealings; and

(b)the sum due from the one party is to be set-off against any sum due from the other party; and

(c)only the balance of the account is admissible to proof against the company, or is payable to the company, as the case may be.

(2)[Where set-off not available] A person is not entitled under this section to claim the benefit of a set-off if, at the time of giving credit to the company, or at the time of receiving credit from the company, the person had notice of the fact that the company was insolvent.

  1. [65]
    It is important to consider the operation of s 553C(2), which denies the benefit of a set-off to a party who, at the time of receiving a credit, had notice of the fact that the company was insolvent. What constitutes that notice was considered in Jetaway Logistics Pty Ltd & Ors v The Deputy Commissioner of Taxation,[76] a unanimous decision of the Victorian Court of Appeal.  Relevantly the court said[77]:

“The statement that a company is insolvent is usually conclusionary in nature. Unlike, for example, the fact of incorporation, solvency or insolvency is rarely a matter of straightforward proof. Rather, there must be an examination of the financial condition of the company, typically by reviewing its dealings over a period of time; the identification of the symptoms (if any) of insolvency; and the making of a ‘diagnosis’ as to the ability of the company to pay its debts as they fall due.

The conclusion is one to be drawn in all of the circumstances present at the time, as known to the creditor. This might include the nature of the debtor’s business and, perhaps, its cyclical nature. It might also include the character of the debt. And so, it was said, the Commissioner would know that taxpayers do not always pay on time, so that a failure to make a timeous payment of tax might not be as significant as might be the case of some other payment to some other creditor.

Against that background, we turn to consider what should be regarded as constituting ‘notice of the fact that the company was insolvent’. There is a surprising dearth of authority on the point, as became clear in the course of submissions on the appeal.

On the one hand, counsel for the Liquidators argued that s 553C(2) should be construed as importing the equitable concept of constructive notice, such that a creditor would be taken to have had notice of all matters of which it would have had notice had it made reasonable inquiries. On the other hand, counsel for the Commissioner argued – as he had before the primary judge – as follows:

For the purposes of s 553C of the Act, notice of the fact the company was insolvent would be found only where there was notice of an act or omission of the company which would found a petition to wind up that company upon the ground that the company was unable to pay its debts, or where there was notice of actual insolvency. This is a high test.

In other words, it would have to be shown that the Commissioner had had notice of one of the matters set out in s 459C(2).

Both these submissions must be rejected, in our view. As to the first, there is no basis for reading the word ‘notice’ in s 553C(2) as meaning anything other than actual notice. As Palmer J said in Lewis v Doran in relation to s 95A, the words must be construed ‘as they stand, without addition or subtraction’. When Parliament intends that ‘notice’ should include both actual notice and constructive notice, express provision to that effect is made, as might be expected. For example, as senior counsel for the Liquidators properly pointed out, s 278(2) provides: ‘A reference in this Part to a person having notice of a charge includes a reference to a person having constructive notice of the charge’.

As to the second, the matters set out in s 459C(2) are the company law equivalent of the acts of bankruptcy set out in s 80(1) of the Bankruptcy Act 1966 (Cth). Each of them establishes only a presumption of insolvency, and only for the purposes listed in s 459C(1). Section 553C(2) is concerned with the fact of insolvency, which is quite different. The provision may be contrasted with s 86(2) of the Bankruptcy Act 1966 (Cth), under which set-off is not available if the creditor at the relevant time had notice of ‘an available act of bankruptcy.’

It is also clear, as Robson J held, that s 553C(2) requires more than ‘reasonable grounds for suspecting’ insolvency. As his Honour noted, the Harmer Report on Insolvency recommended a test in these terms, but the recommendation was not accepted. A test of that kind was adopted in s 588FG(2)(b), but what must be proved under s 553C(2) is that the creditor had notice of the fact of insolvency.

The section requires proof, not that the creditor at the relevant time knew the company to be insolvent, but that the creditor had notice of that fact. As to what constitutes such notice, in our view Robson J was correct when he said:

... the test that the Liquidators have to establish is that the Commissioner had notice of facts that would have indicated to a reasonable person the fact that Jetaway was insolvent.

A person will have ‘notice of the fact’ that a company is insolvent if the person has actual notice of facts which disclose that the company lacks the ability to pay its debts when they fall due, within the meaning of s 95. It is unnecessary to show that the person actually formed the view that the company lacked that ability. As the New South Wales Court of Appeal said in Hathaway Shirt Co Pty Ltd v B Rawe GmbH Company, it is ‘well established that there is a difference in law between receiving notice of a fact and being made fully and subjectively aware of the fact’.

What is required is proof of facts known to the creditor which warranted the conclusion of insolvency. Since ‘grounds for suspecting’ insolvency will not suffice, it is not enough that insolvency is a possible inference from the known facts. Whether it must be the only reasonable inference open is a question we need not decide. In the present case, as will appear, we consider that the only inference reasonably open to the Commissioner, from what was known to his officers at the relevant times, was that the company was insolvent. It must be doubted whether a creditor could be said to have had ‘notice of the fact’ of insolvency if another inference, consistent with solvency, was also reasonably open on the known facts. But consideration of that question should await a case where it falls for determination. (Footnotes omitted)

  1. [66]
    I now turn to consider whether the defendant is entitled to a set-off in this proceeding and, if so, the quantum of that set-off.

Defendant’s Submissions

  1. [67]
    Inaco submits the debt of $92,323.88, owed by Management, should be set-off against any liability it may be found to have to Management. It further says there is no barrier to the application of s 553C and relies on Re Parker,[78] in which, it argues, it was held that s 553C of the Corporations Act 1989 (Cth) permitted the setting off of pre-liquidation debts against a post-liquidation claim for insolvent trading pursuant to        s 558W. Mansfield J held there was no good reason why the section should be construed as to exclude statutory debts from its operation.[79]
  1. [68]
    Re Parker was considered by the NSW Court of Appeal in Buzzle Operations Pty Ltd (in liq) v Apple Computers Australia.[80] In that case, Young JA (with whom Hodgson and Whealy JJA agreed) found that in respect of insolvent trading under s 588W of the Act, a set-off is also available for voidable transactions which arise under                 ss 588FA to 588FF of the Act.[81]
  1. [69]
    Accepting those conclusions were obiter, Inaco says Buzzle Operations cannot be distinguished from the present case simply because it related to an alleged uncommercial transaction, rather than unfair preference, because the consequences of a finding that a transaction is an unfair preference are identical to the consequences for an uncommercial transaction. Section 588FF of the Act, dealing with voidable transactions, makes no such distinction.
  1. [70]
    The application of Re Parker to unfair preferences was also touched upon by the Full Court of the Supreme Court of South Australia in Duncan v Vinidex Tubemakers Pty Limited.[82] There, on an interlocutory application, the court unanimously accepted that it was it reasonably arguable, in light of Re Parker, that an unfair preference claim could be set-off against a pre-liquidation debt. That, Inaco says, further supports its argument.
  1. [71]
    As to the plaintiff’s argument that allowing set-off to apply in claims such as the present case may give rise to unsatisfactory outcomes, Inaco says that that possible outcome does not justify disregarding either the terms of the Act, or the above judicial statements.
  1. [72]
    In short, Inaco submits the weight of the above authorities support a finding that s 553C applies to unfair preference claims. It denies being on notice of any alleged insolvency and submits that it is entitled to set-off in the amount of $92,323.88.

Plaintiff’s Submissions

  1. [73]
    The plaintiff made the point that the elements of Inaco’s set-off are not pleaded and the $92,323.88 set-off claimed has not been proved by the defendant as being outstanding at the date of the winding up. Having said that, the plaintiff concedes, to avoid compelling the defendant to re-plead its case or open evidence, that this is in fact what is sought to be pleaded and the evidence does more to support the amount than deny it. For those reasons, he says that in the interests of the just and expeditious resolution of the real issues between the parties, those matters ought to be taken as pleaded and proved. I proceed on that basis.
  1. [74]
    The plaintiff’s primary argument was that, notwithstanding the decision in Re Parker, a defendant’s ability to rely upon the set-off provisions in a case such as the present would frustrate the purposes of the unfair preference provisions. A consideration of     s 553C, it says, should be consistent with the language and purpose of the entire Act,[83] although conceding it is to be given its widest possible meaning.[84]
  1. [75]
    He says that, if a creditor in receipt of preference payments was permitted to claim a set-off for its debts against those preference claims, one of two situations will arise. Either, the preference payments become a debt in the liquidation to which the creditor can have regard in arriving at its set-off amount of $197,469.16 plus $92,323.88, a total of $289,793.04. Alternatively, the preference payments are to be ignored so the creditor can only rely upon any amount owing beyond those preference payments, in this case $92,323.88.
  1. [76]
    The plaintiff submits that if it is the former, then the preference provisions are frustrated because the creditor’s starting point for its set-off amount is the preference payments. If the latter approach is adopted a peculiar result follows that a creditor who is paid its entire debt by preference payments will be disadvantaged as compared to a creditor who is paid only part of their debt by preference payments. So, for example, if the creditor who was owed $100,000 was paid the entire $100,000 during the relation back period, it would have to disgorge by way of preference the entire amount and have no amount outstanding against which it could set-off the preference amount. However, if a person was owed $100,000 and paid $30,000 by preference payments, the creditor could set-off the $70,000 outstanding against the $30,000 preference payments and not have to disgorge any amount to the Liquidator. The plaintiff submits that would be a perverse result. The plaintiff said it could find no authority where a court has considered the ordinary relationship between a creditor and debtor in the context of an unfair preference proceeding, such as the present, and where the defendant successfully relied upon the set-off provision in s 553C to reduce the payments to be made to the Liquidator. Having said that, he accepts that if the principles in Re Parker do extend to the present case, then his argument must inevitably fail.
  1. [77]
    In that latter event, the plaintiff says its unfair preference claim should be reduced to $105,145.88, being the total preference payments claimed of $197,469.16 less the conceded debt of Inaco of $92,323.28.

Consideration - Set-off

  1. [78]
    I agree with the defendant’s submission that the plaintiff’s outline of the possibility of unsatisfactory outcomes resulting from the application of the set-off provisions to the present case does not justify disregarding the plain language of s 553C. The unanimous NSW Court of Appeal in Buzzle[85] adopted the reasoning of Mansfield J in Re Parker, and I should not depart from it unless it is ‘plainly wrong’.[86] I see no good reason justifying such a course. I consider the set-off provision in s 553C operates to provide a set-off in the present circumstances.
  1. [79]
    I have already found, in relation to Inaco’s Good Faith Argument under s 588FG, that at all relevant times, Inaco had reasonable grounds to suspect that Management was insolvent and that a reasonable person in Inaco’s position would also have had such grounds.[87] That conclusion rests on the conversation Ms Spicer had with Mr Rae in mid-February 2012.
  1. [80]
    However, the test in s 553C is different. What the plaintiff has to satisfy, as formulated by the trial judge Robson J in Jetaway and endorsed as correct by the Victorian Court of Appeal, is that Inaco had notice of facts which would have indicated to a reasonable person that Management was insolvent.
  1. [81]
    As to this question of the defendant’s knowledge and the relevant date, s 553C(2) speaks of two alternative dates: “at the time of giving credit to the company or at the time of receiving credit from the company”. The “time” is therefore spoken of as the giving or receiving of credit. The term ‘credit’ includes the time in which the seller allows a buyer of goods or services to make payment at some future date.[88] Accordingly, the relevant dates on which Inaco ‘gave credit’ to Management were the dates on which each invoice was rendered; namely 31 January 2012 12, 20 February 2012, 28 February 2012, 29 March 2012 (two invoices), 12 April 2012, and 24 April 2012 (two invoices).
  1. [82]
    For the same factual reasons founding my rejection of the Good Faith argument,[89] I find that, in relation to all but the 31 January invoice (of which $64,658.15 remains outstanding), Inaco had actual notice of facts that would have indicated to a reasonable person in Inaco’s position the fact that Management was unable to pay all its debts as and when they became due and payable.[90] That conclusion accords with the test in Jetaway. On the evidence, no other inference consistent with solvency is open. As to the aforementioned January invoice, that was rendered at a time prior to the mid-February 2012 telephone conversation, at which point, as I have found, Inaco possessed the relevant knowledge of insolvency.
  1. [83]
    Accordingly, that amount of $64,658.15 is a legitimate set-off. All other invoices making up the claimed set-off of $92,323.88 reflect the granting of credit by Inaco subsequent to when it had the relevant knowledge of Management’s insolvency. Section 553C(2) therefore deprives Inaco of the right to set-off that balance amount of $27,665.73. That means the unfair preference payments of $197,469.16 should be reduced by $64,658.15, leaving $132,811.01 recoverable by the plaintiff.

Orders

  1. [84]
    I order that the defendant pay the plaintiff:
  1. the sum of $132,811.01 representing unfair preference transactions, voidable pursuant to section 588FE of the Corporations Act 2001 (Cth); and
  1. interest pursuant to section 47 of the Supreme Court Act 1995 (Qld) at the rate of 10% per annum from the date of each transaction to judgment.
  1. [85]
    I will hear the parties on costs.

Schedule A

Relevant provisions of Corporations Act 2001

  1. [86]
    As to the statutory definition of “insolvent”, s 9 of the Act directs attention to s 95A of the Act, which provides:

95ASolvency and insolvency

(1)[When person is solvent] A person is solvent if, and only if, the person is able to pay all the person’s debts, as and when they become due and payable.

(2)[When person is insolvent] A person who is not solvent is insolvent.

  1. [87]
    Section 286 provides:

286Obligation to keep financial records

(1)A company, registered scheme or disclosing entity must keep written financial records that:

(a)correctly record and explain its transactions and financial position and performance; and

(b)would enable true and fair financial statements to be prepared and audited.

…

Period for which records must be retained

(2)The financial records must be retained for 7 years after the transactions covered by the records are completed.

Strict liability offences

(3)An offence based on subsection (1) or (2) is an offence of strict liability.

…

  1. [88]
    Section 553C provides:

553CInsolvent companies – mutual credit and set-off

(1)[Where mutual claims and debts admissible] Subject to subsection (2), where there have been mutual credits, mutual debts or other mutual dealings between an insolvent company that is being wound up and a person who wants to have a debtor claim admitted against the company:

(a)an account is to be taken of what is due from the one party to the other in respect of those mutual dealings; and

(b)the sum due from the one party is to be set-off against any sum due from the other party; and

(c)only the balance of the account is admissible to proof against the company, or is payable to the company, as the case may be.

(2)[Where set-off not available] A person is not entitled under this section to claim the benefit of a set-off if, at the time of giving credit to the company, or at the time of receiving credit from the company, the person had notice of the fact that the company was insolvent.

  1. [89]
    Section 558FA defines “unfair preferences” and relevantly provides:

588FAUnfair preferences

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

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

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

even if the transaction is entered into, is given effect to, or is required to be given effect to, because of an order of an Australian court or a direction by an agency…

(3)[Certain transactions exempted] Where:

(a)a transaction is, for commercial purposes, an integral part of a continuing business relationship (for example, a running account) between a company and a creditor of the company (including such a relationship to which other persons are parties); and

(b)in the course of the relationship, the level of the company’s net indebtedness to the creditor is increased and reduced from time to time as the result of a series of transactions forming part of the relationship;

then:

(c)subsection (1) applies in relation to all the transactions forming part of the relationship as if they together constituted a single transaction; and

(d)the transaction referred to in paragraph (a) may only be taken to be an unfair preference given by the company to the creditor if, because of subsection (1) as applying because of paragraph (c) of this subsection, the single transaction referred to in the last mentioned paragraph is taken to be such an unfair preference.

  1. [90]
    “Insolvent transaction” is defined in s 588FC, which relevantly provides:

588FCInsolvent transactions

A transaction of a company is an insolvent transaction of the company if, and only if, it is an unfair preference given by the company, or an uncommercial transaction of the company, and:

(a)any of the following happens at a time when the company is insolvent:

(i)the transaction is entered into; or

(ii)an act is done, or an omission is made, for the purpose of giving effect to the transaction; or

(b)the company becomes insolvent because of, or because of matters including:

(i)entering into the transaction; or

(ii)a person doing an act, or making an omission, for the purpose of giving effect to the transaction.

  1. [91]
    “Voidable transaction” is defined in s 588FE and relevantly provides:

588FEVoidable transactions

(1)[Where company is being wound up] If a company is being wound up:

(a)a transaction of the company may be voidable because of any one or more of subsections (2) to (6) if the transaction was entered into on or after 23 June 1993; and…

(2)[Voidable where company is insolvent] The transaction is voidable if:

(a)it is an insolvent transaction of the company; and

(b)it was entered into, or an act was done for the purpose of giving effect to it:

(i)during the 6 months ending on the relation back day; or

(ii)after that day but on or before the day when the winding up began.

  1. [92]
    Section 588FF of the Act relevantly provides:

588FFCourts may make orders about voidable transactions

(1)[Orders court may make upon voidable transaction] Where, on the application of a company’s Liquidator, a court is satisfied that a transaction of the company is voidable because of section 588FE, the court may make one or more of the following orders:

(a)an order directing a person to pay to the company an amount equal to some or all of the money that the company has paid under the transaction;

  1. [93]
    A creditor against whom a preference proceeding is brought has a statutory defence to the proceeding if the creditor can satisfy the requirements of s 588FG. That section, relevantly, provides:

588FGTransaction not voidable as against certain persons

(1)A court is not to make under section 588FF an order materially prejudicing a right or interest of a person other than a party to the transaction if it is proved that:

(a)the person received no benefit because of the transaction; or

(b)in relation to each benefit that the person received because of the transaction:

(i)the person received the benefit in good faith; and

(ii)at the time when the person received the benefit:

(A)the person had no reasonable grounds for suspecting that the company was insolvent at that time or would become insolvent as mentioned in paragraph 588FC(b); and

(B)a reasonable person in the person's circumstances would have had no such grounds for so suspecting.

(2)A court is not to make under section 588FF an order materially prejudicing a right or interest of a person if the transaction is not an unfair loan to the company, or an unreasonable director-related transaction of the company, and it is proved that:

(a)the person became a party to the transaction in good faith; and

(b)at the time when the person became such a party:

(i)the person had no reasonable grounds for suspecting that the company was insolvent at that time or would become insolvent as mentioned in paragraph 588FC(b); and

(ii)a reasonable person in the person’s circumstances would have had no such grounds for so suspecting; and

(c)the person has provided valuable consideration under the transaction or has changed his, her or its position in reliance on the transaction.

(3)For the purposes of paragraph (2)(c), if an amount has been paid or applied towards discharging to a particular extent a liability to pay tax, the discharge is valuable consideration provided:

(a)by the person to whom the tax is payable; and

(b)under any transaction that consists of, or involves, the payment or application.

(4)In subsection (3):

tax means tax (however described) payable under a law of the Commonwealth or of a State or Territory, and includes, for example, a levy, a charge, and municipal or other rates.

  1. [94]
    Section 588E relevantly provides:

588EPresumptions to be made in recovery proceedings

(1)In this section:

recovery proceeding, in relation to a company, means:

(a)an application under section 588FF by the company’s Liquidator;...

(3)If:

(a)the company is being wound up; and

(b)it is proved, …, that the company was insolvent at a particular time during the 12 months ending on the relation back day;

it must be presumed that the company was insolvent throughout the period beginning at that time and ending on that day.

Footnotes

[1]T1.71.20.

[2]T1.19.43 to T1.20.2.

[3][2004] FCA 653 at [4], [6].

[4][1981] VR 691.

[5]Re Action Waste Collections Pty Ltd (in liq); Crawford v O'Brien [1981] VR 691 at 700-701.

[6]Exhibit 3, p 104, para 4.5.

[7]Exhibit 3, p 130.

[8]T1.18.18-25.

[9]T1.72.1-5.

[10]T1.74.45-T1.75.2.

[11]Exhibit 3, p 103, para 3.

[12]Ibid p 103, para 4.2

[13]Ibid p 104, para 4.4

[14]Ibid.

[15]Ibid p 141, para 6.

[16]Liquidity ratio is the ratio of balance sheet items, which measure a company’s ability to meet its maturing short-term obligations: see Jack P Friedman, Dictionary of Business Terms (Barron’s, 1987).

[17]T1.18.27-42. 

[18]Exhibit 3, p 67.

[19]T1.72.39-40.

[20]T1.72.28-45.

[21]T1.73.1-3.

[22]Exhibit 3, p 58.

[23]Ibid p 59.

[24]Ibid p 59.

[25]The Schedule of payments of monies claimed records this payment being received the following Monday 26 March 2012.

[26]Exhibit 3, p 61.

[27]Ibid p 63.

[28]Ibid p 63.

[29]T1.72.12-16.

[30]Exhibit 3, pp 54-55.

[31]Exhibit 3, p 63.

[32]First email was 21 March 2012 at 1.25pm.

[33]T1.74.3-8.

[34]T1.74.1-14.

[35]Exhibit 3, p 75.

[36]Ibid p 71.

[37]Ibid p 77. 

[38]Ibid p 70.

[39]Ibid p 78.

[40]The Plaintiff’s Final Submissions, para 3.

[41]Exhibit 3, p 80.

[42]T1.78.15-20.

[43]Exhibit 3, p 80 (No 4), 82 (No 5).

[44]Ibid p 77 (No 1), 78 (No 2) and 79 (No 3).

[45]T1.80.38-40.

[46]T1.80.25-27.

[47]Exhibit 3, p. 178.

[48]Sandell v Porter (1966) 115 CLR 666 at 670; Williams as Liquidator of Scholz Motor Group P/L (in liq) v Scholz [2008] QCA 94 at [38] and [107].

[49][2003] QSC 205 at [87].

[50][2008] QCA 94 at [109] – [110].

[51]Unreported, Supreme Court of New South Wales, 16 February 2007 at [14].

[52]Exhibit 3, pp 91-96.

[53]Ibid p 144.

[54]Ibid pp 22-53; p 44.

[55]Exhibit 4.

[56]Exhibit 5.

[57]Exhibit 3, p 139.

[58]Ibid para 5.3.

[59]Ibid p 138.

[60]Ibid p 139.

[61]Exhibit 5.

[62]Exhibit 3, p 140, para 5.4(8); Exhibit 5 (said by Ms Spicer to be a correct statement of creditors as at 1 March 2012 – T1.81.13-17.

[63]Exhibit 5, p 151-152.

[64]T1.79.28-32.

[65][2010] 1 Qd R 475; [2009] QCA 180.

[66]T1.80.25-27.

[67]Exhibit 3, p 74.

[68]Ibid pp 71-72.

[69]Ibid pp 88-90.

[70][1996] HCA 54; (1996) 185 CLR 483.

[71]Ibid at 502-503.

[72]Ibid at 504-506.

[73]Exhibit 3, p 74.

[74]Ibid.

[75]T1.34.31-33.

[76][2009] VSCA 319.

[77]Ibid at [14]-[22].

[78](1997) 150 ALR 92.

[79](1997) 150 ALR 92 at 98.

[80](2011) 81 NSWLR 47; [2011] NSWCA 109.

[81]Ibid at [274]-[278].

[82][1999] SASC 157.

[83]Project Blue Sky Inc v Australian Broadcasting Authority [1998] HCA 28; (1998) 194 CLR 355 at 381-382 [69] per McHugh, Gummow, Kirby and Hayne JJ.

[84]Gye v McIntyre (1991) 171 CLR 609 at 619.

[85]Buzzle Operations Pty Ltd (in liq) v Apple Computers Australia (2011) 81 NSWLR 47; [2011] NSWCA 109 at [278].

[86]Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89 at 151[135] per Gleeson CJ, Gummow, Callinan, Heydon and Crennan JJ.

[87]See above paragraph [48].

[88]Herbert v R (1941) 64 CLR 461 at 467 per McTiernan J. See also R v Brown [1991] 1 Qd R 221 at 224-225 per Macrossan CJ.

[89]See above paragraph [48].

[90]Corporations Act 2001 (Cth) s 95A.

Close

Editorial Notes

  • Published Case Name:

    Morton & Anor v Rexel Electrical Supplies Pty Ltd

  • Shortened Case Name:

    Morton v Rexel Electrical Supplies Pty Ltd

  • MNC:

    [2015] QDC 49

  • Court:

    QDC

  • Judge(s):

    Searles DCJ

  • Date:

    05 Mar 2015

Litigation History

EventCitation or FileDateNotes
Primary Judgment[2015] QDC 4905 Mar 2015Ordered that the applicant pay the respondent $132,811.01 representing unfair preference transactions which were voidable pursuant to s 588FE of the Corporations Act 2001 (Cth), with interest: Searles DCJ.
Notice of Appeal FiledFile Number: 3372/1502 Apr 2015DC4660/12
Appeal Determined (QCA)[2015] QCA 23520 Nov 2015Application for leave to appeal refused: Fraser JA, Philippides JA, A Lyons J.

Appeal Status

Appeal Determined (QCA)

Cases Cited

Case NameFull CitationFrequency
Airservices Australia v Ferrier (1996) 185 CLR 483
4 citations
Jump To
Cite 1 - (1996) 185 CLR 483
Cite 2 - (1996) 185 CLR 483
Cite 3 - (1996) 185 CLR 483
Cite 4 - (1996) 185 CLR 483
Airservices Australia v Ferrier & Anor [1996] HCA 54
2 citations
Jump To
Cite 1 - [1996] HCA 54
Cite 2 - [1996] HCA 54
Buzzle Operations Pty Ltd (in liq) v Apple Computer Australia Pty Ltd (2011) 81 NSWLR 47
4 citations
Jump To
Cite 1 - (2011) 81 NSWLR 47
Cite 2 - (2011) 81 NSWLR 47
Cite 3 - (2011) 81 NSWLR 47
Cite 4 - (2011) 81 NSWLR 47
Buzzle Operations Pty Ltd (in liq) v Apple Computer Australia Pty Ltd [2011] NSWCA 109
3 citations
Jump To
Cite 1 - [2011] NSWCA 109
Cite 2 - [2011] NSWCA 109
Cite 3 - [2011] NSWCA 109
Crawford v O'Brien (1997) 150 ALR 92
3 citations
Jump To
Cite 1 - (1997) 150 ALR 92
Cite 2 - (1997) 150 ALR 92
Cite 3 - (1997) 150 ALR 92
Duncan v Vinidex Tubemakers Pty Limited [1999] SASC 157
2 citations
Jump To
Cite 1 - [1999] SASC 157
Cite 2 - [1999] SASC 157
Emanuel Management Pty Ltd v Foster's Brewing Group Ltd [2003] QSC 205
2 citations
Jump To
Cite 1 - [2003] QSC 205
Cite 2 - [2003] QSC 205
Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89
2 citations
Jump To
Cite 1 - (2007) 230 CLR 89
Cite 2 - (2007) 230 CLR 89
Gye v McIntyre (1991) 171 CLR 609
2 citations
Jump To
Cite 1 - (1991) 171 CLR 609
Cite 2 - (1991) 171 CLR 609
Herbert v R (1941) 64 CLR 461
2 citations
Jump To
Cite 1 - (1941) 64 CLR 461
Cite 2 - (1941) 64 CLR 461
Holland v Halpin [1939] VLR 253
1 citation
Jump To
Cite 1 - [1939] VLR 253
Jetaway Logistics Pty Ltd & Ors v The Deputy Commissioner of Taxation [2009] VSCA 319
3 citations
Jump To
Cite 1 - [2009] VSCA 319
Cite 2 - [2009] VSCA 319
Cite 3 - [2009] VSCA 319
McVeigh, Re; JAG Plastering & Carpentry Pty Ltd (in liq) v Commissioner of Taxation [2004] FCA 653
2 citations
Jump To
Cite 1 - [2004] FCA 653
Cite 2 - [2004] FCA 653
Project Blue Sky Inc v Australian Broadcasting Authority [1998] HCA 28
2 citations
Jump To
Cite 1 - [1998] HCA 28
Cite 2 - [1998] HCA 28
Project Blue Sky v Australian Broadcasting Authority (1998) 194 C.L.R 355
2 citations
Jump To
Cite 1 - (1998) 194 C.L.R 355
Cite 2 - (1998) 194 C.L.R 355
R v Brown [1991] 1 Qd R 221
2 citations
Jump To
Cite 1 - [1991] 1 Qd R 221
Cite 2 - [1991] 1 Qd R 221
Re Parker (1997) 80 FCR 1
1 citation
Jump To
Cite 1 - (1997) 80 FCR 1
Re. Action Waste Collections Pty Ltd (in Liquidation); Crawford v O'Brien (1981) VR 691
4 citations
Jump To
Cite 1 - (1981) VR 691
Cite 2 - (1981) VR 691
Cite 3 - (1981) VR 691
Cite 4 - (1981) VR 691
Sandell v Porter (1966) 115 C.L.R., 666
1 citation
Jump To
Cite 1 - (1966) 115 C.L.R., 666
Williams v Peters[2010] 1 Qd R 475; [2009] QCA 180
4 citations
Jump To
Cite 1 - [2009] QCA 180
Cite 2 - [2009] QCA 180
Cite 3 - [2010] 1 Qd R 475
Cite 4 - [2010] 1 Qd R 475
Williams v Scholz [2008] QCA 94
3 citations
Jump To
Cite 1 - [2008] QCA 94
Cite 2 - [2008] QCA 94
Cite 3 - [2008] QCA 94

Cases Citing

Case NameFull CitationFrequency
Hambleton v Finn [2017] QDC 612 citations
Rexel Electrical Supplies Pty Ltd v Morton [2015] QCA 23516 citations
1

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