Bryant & Ors as liquidators of Gunns Limited and Auspine Limited v Badenoch Integrated Logging Pty Ltd

The High Court of Australia considered an appeal concerning the rights of liquidators of Gunns Limited and Auspine Limited to recover certain payments made by the companies to Badenoch Integrated Logging Pty Ltd. The liquidators sought to claw back these payments under provisions of the *Corporations Act 2001* (Cth), alleging they constituted unfair preferences. The primary dispute revolved around whether the payments were made in the ordinary course of business and whether the recipient, Badenoch, had a reasonable belief that the companies were solvent at the time of the payments.

The central legal issues before the High Court were: (1) whether the payments made by Gunns and Auspine to Badenoch were voidable as unfair preferences under section 588FA of the *Corporations Act 2001* (Cth); and (2) whether Badenoch had a defence under section 588FG(2) of the Act, specifically whether it received the payments in good faith and had reasonable grounds to believe, and did believe, that the companies were solvent at the time of the payments.

The High Court, in a joint judgment, allowed the liquidators' appeal. Their Honours found that the payments were not made in the ordinary course of business, a prerequisite for the defence under section 588FG(2). The Court reasoned that the nature of the transactions, particularly the timing and context of the payments in the lead-up to insolvency, indicated they were not part of the usual, everyday dealings between the parties. Furthermore, the Court held that Badenoch did not have reasonable grounds to believe the companies were solvent. Evidence suggested that Badenoch was aware of the precarious financial position of Gunns and Auspine, including significant outstanding debts and operational difficulties, which undermined any claim of reasonable belief in their solvency. The Court applied the principles established in cases concerning unfair preferences and the statutory defences, emphasising the objective test for reasonable grounds for belief in solvency.

Consequently, the High Court set aside the orders of the Full Federal Court and remitted the matter to the Federal Court of Australia for further determination of the quantum of the voidable transactions.