Bryant v Badenoch Integrated Logging Pty Ltd

The High Court of Australia considered an appeal by the liquidators of Gunns Limited and its subsidiary, Auspine Limited (together, "Gunns"), against Badenoch Integrated Logging Pty Ltd ("Badenoch"). The liquidators sought to set aside a series of payments made by Gunns to Badenoch within the six months preceding the appointment of administrators, contending these payments constituted unfair preferences under the *Corporations Act 2001* (Cth). Badenoch had supplied timber harvesting and hauling services to Gunns under an agreement renewed in 2008, and continued to do so despite Gunns' deteriorating financial position and late or partial payments.

The central legal issues before the Court were the proper construction of section 588FA(3) of the *Corporations Act 2001* (Cth), which deals with transactions forming an integral part of a continuing business relationship, and whether the "peak indebtedness rule" was incorporated or excluded by this provision. The liquidators argued that if a continuing business relationship existed, they could elect a starting point within the relation-back period to establish an unfair preference under the "peak indebtedness rule". The Court also had to determine the approach to assessing whether a transaction was "for commercial purposes, an integral part of a continuing business relationship" under section 588FA(3)(a).

The High Court held that Part 5.7B of the *Corporations Act 2001* (Cth) does not incorporate the "peak indebtedness rule". Instead, the first transaction that can form part of a continuing business relationship is either the first transaction after the commencement of the prescribed period or the date of insolvency, or if the relationship began after these dates, the first transaction after the relationship commenced, whichever is later. The Court clarified that determining whether a transaction is an integral part of a continuing business relationship requires an objective factual inquiry into the "business character" of the transaction, considering the entire evidence of the actual business relationship between the parties, rather than solely the intentions of the parties.

Consequently, the appeal was dismissed. The Court found that the Full Court of the Federal Court had not erred in concluding that certain initial payments were part of the continuing business relationship, while later payments were not. Furthermore, the Court agreed that the continuing business relationship did not cease until 10 July 2012, and that applying section 588FA(1) to the deemed single transaction under section 588FA(3)(c) meant no unfair preference could be established. Special leave to cross-appeal was granted to Badenoch but was also dismissed.