Apex People Pty Limited (In Liquidation) v The Commissioner of Taxation

The Federal Court of Australia was called upon to determine whether payments made by Apex People Pty Limited, a company in liquidation, to certain creditors constituted unfair preferences under the Corporations Act 2001. The Commissioner of Taxation sought to recover these payments, arguing they were unfair preferences that needed to be undone to ensure equitable treatment of all creditors. The company argued that a valid defence under section 588FG of the Act applied, claiming the payments were made in the ordinary course of business and for the purpose of carrying on business.

The court was tasked with deciding whether the company had established a valid defence under section 588FG. This involved examining the nature and purpose of the payments, and whether they were made in the ordinary course of business and for the purpose of carrying on business. The court also needed to determine whether the company was insolvent at the time of the payments, as insolvency is a prerequisite for the application of the unfair preferences provisions.

The court found that the company failed to establish the defence under section 588FG. It held that the payments in question were not made in the ordinary course of business and for the purpose of carrying on business, as the company was attempting to mitigate its financial difficulties. The court further found that the company was indeed insolvent at the time of the payments, thereby satisfying the requirements for the unfair preferences provisions to apply. Consequently, the court ruled that the payments constituted unfair preferences, and the Commissioner of Taxation was entitled to recover them.

The final orders of the court mandated the return of the contested payments to the liquidator of Apex People Pty Limited for distribution among all creditors on an equal basis. This decision underscores the importance of adhering to the strict criteria for the defence under section 588FG and the severe consequences of failing to meet them when a company is in financial distress.