Charles Phillipe Louis Nilant as Liquidator of Qj Mining Services Pty Ltd v Reber Pty Ltd
[1999] WASC 27
CHARLES PHILLIPE LOUIS NILANT as Liquidator of QJ MINING SERVICES PTY LTD -v- REBER PTY LTD [1999] WASC 27
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [1999] WASC 27 | |
| Case No: | COR:316/1998 | 4 MAY 1998 | |
| Coram: | MASTER BREDMEYER | 14/05/99 | |
| 6 | Judgment Part: | 1 of 1 | |
| Result: | Transaction declared void | ||
| PDF Version |
| Parties: | CHARLES PHILLIPE LOUIS NILANT as Liquidator of QJ MINING SERVICES PTY LTD (ACN 009 340 541) REBER PTY LTD (ACN 065 349 377) |
Catchwords: | Voidable transaction Unfair preference Creditor given company vehicle in return for $20,000 reduction of debt |
Legislation: | Corporations Law, s 588FA, s 588FC, s 588FE, s 588FG and s 588FF |
Case References: | Nil, Nil |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA CITATION : CHARLES PHILLIPE LOUIS NILANT as Liquidator of QJ MINING SERVICES PTY LTD -v- REBER PTY LTD [1999] WASC 27 CORAM : MASTER BREDMEYER HEARD : 4 MAY 1998 DELIVERED : 14 MAY 1999 FILE NO/S : COR 316 of 1998 BETWEEN : CHARLES PHILLIPE LOUIS NILANT as Liquidator of QJ MINING SERVICES PTY LTD (ACN 009 340 541)
- Applicant
AND
REBER PTY LTD (ACN 065 349 377)
Respondent
Catchwords:
Voidable transaction - Unfair preference - Creditor given company vehicle in return for $20,000 reduction of debt
Legislation:
Corporations Law, s 588FA, s 588FC, s 588FE, s 588FG and s 588FF
- Result:
Transaction declared void
(Page 2)
Representation:
Counsel:
Applicant : Mr C P Stokes
Respondent : Mr R A Harrison
Applicant : Butcher Paull & Calder
Respondent : Dwyer Durack
Nil
Case(s) also cited:
Nil
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1 MASTER BREDMEYER: This is an application by the liquidator of a company, QJ Mining Services Pty Ltd (the "company"), to set aside a preferential payment under s 588FF of the Corporations Law.
2 The liquidator and Mr Quenten Jolley, a former director of the company, have each filed an affidavit in support. Mr Mark Graham, a director of the respondent has filed two affidavits in opposition. Mr Jolley and Mr Graham were examined on their affidavits.
3 I consider that para 8 of Mr Nilant's affidavit is admissible. He is qualified to give an opinion on the solvency of the company as an officer of the court and as an expert in liquidation matters. His failure to produce the accounts or other information on which his opinion is based, reduces the weight I give to that opinion.
4 The respondent, Reber Pty Ltd, trading as Minesite Water Carts (Reber), was a creditor of the company. It was owed about $53,000 by the company. It was owed $35,285 for its January 1998 invoice and about $18,000 for its December invoice. The transaction challenged is one of 9 March 1998 whereby Reber received a transfer of one of the company's vehicles, a Toyota personnel carrier, for a reduction of $20,000 in its outstanding account.
5 The company voluntarily appointed a liquidator on 5 May 1998 so clearly the challenged transaction is within the six month relation back period. The transfer of the motor vehicle to Reber on 9 March is said to be an unfair preference within the meaning of s 588FA of the Corporations Law. I think it was, because it gave to this creditor a payment in goods worth $20,000 which is much more than it would have got on a orderly winding-up. It gave Reber an unfair advantage over other creditors.
6 To be voidable the transaction needs to be an insolvent one and that is defined in s 588FC. Was the company unable to pay all its debts as and when they fell due on 9 March 1998?
7 1. The company was certainly insolvent on 5 May 1998 when it went into liquidation because of insolvency. It put itself into liquidation on its accountant's advice.
8 2. I consider it was insolvent on 17 February 1998. On that day it held a meeting with seven or eight of its creditors all of whom had overdue debts. These creditors were sub-contractors on the Murrin-Murrin contract. The meeting was called at the request of irate
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- creditors. Jolley said that he could not have paid all his creditors at that time. At that meeting Jolley agreed to give up the Murrin-Murrin contract with Concrete Constructions. This was a big step. It was his major contract. It represented 80 per cent of his company's income. It was a costs-plus contract. Various sub-contractors supplied vehicles and drivers to Concrete Constructions through the company at daily hire rates. Jolley added 10 per cent to these hire rates. He got paid by Concrete Constructions and, after deducting his percentage, he paid the sub-contractors. It should have been a dream contract because it was a costs-plus contract, but he was in financial trouble. He was unable to pay all the sub-contractors. He owed them for January and some for December too. He agreed to surrender the Concrete Constructions contract retrospectively to 1 February 1998. That cut off his major cash flow. It is the equivalent of closing a business or ceasing to trade if, for example, the business was a shop or a factory. Although he had a costs-plus contract he gave it up. I know he had some other contracts (he said representing 20 per cent of income). He was unable to pay all his sub-contractors their debts as and when they fell due, and, at that meeting, he was unable to propose any positive remedy. He was unable to inject more capital into the company, or to borrow, or to prune costs. Although he was always looking for more contracts, he offered no specific hope in this regard. He was not able to say "I am getting a contract with such and such a company which will generate so many dollars per month cash flow which will enable me to pay all the Murrin-Murrin sub-contractors in full over a period of time". No remedy at that meeting was offered other than the agreement to surrender his major contract. Why did he do that? Because, as he said in evidence, he feared that if he did not do so, the creditors would take worse action against his company. I take that to mean that they would sue for their debts or would take steps to wind-up the company.
9 I conclude the company was insolvent as at 17 February. I have already said it was insolvent as at 5 May. I therefore consider it was insolvent between those two dates. Also the presumption of deemed insolvency given by s 588E applies.
10 Also at the meeting on 17 February, Jolley had no good solution to his company's problems other than to look for more work.
11 I next turn to the defence s 588FG which is open to Reber. There is no doubt that Reber got the motor vehicle in good faith. The next question is whether Reber had no reasonable grounds for suspecting that the company was insolvent and that a reasonable person in Reber's
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- circumstances would have no such grounds for suspecting that the company was insolvent. Reber was acting through its director, Graham, so I ask the same questions of Graham:
12 A. Did he have no reasonable grounds for suspecting that the company was insolvent?; and
13 B. Would an ordinary person in Graham's circumstances have no such grounds for suspecting that the company was insolvent?
14 Question A is subjective but question B is objective.
15 Graham gave evidence, and I do not think he was lying, that he thought the company had cash-flow problems only. That is what he was told at the meeting of 17 February and that was what was said in the accountant's letter of 28 February, a copy of which was given to him. I quote from that letter:
"Short term cash flow problem not a long term debt problem."
- But objectively I consider a reasonable person in Graham's shoes would have concluded that the company was insolvent. I say that because:
16 1. The accountant's report contained very bad news. The Murrin-Murrin contract was a costs-plus contract. It was cost plus 10 per cent profit. Graham knew that. He had a good knowledge of the company's finances having been employed by the company at $450 per day for some time to supervise the sub-contractors and the work on site. Because of excessive overheads and spending of capital on unrelated capital commitments, the company was running that contract at a loss. The loss was $1200 to $1600 per month per main sub-contractor. Graham would have known that the contract was the company's main venture.
17 2. The quitting of the Murrin-Murrin contract was a strong indication of insolvency. It is almost equivalent to ceasing trading if the business was a factory or a shop. I say almost because, as I have said, the company had some other income but obviously not enough to cover the debts of the Murrin-Murrin sub-contractors.
18 3. There was no hope of more money from the bank. That was not offered at the meeting on 17 February. The accountant's letter states that the company was overdrawn - well beyond its limit. I do not believe Jolley's contrary evidence on this that the overdraft limit was $50,000 and he had drawn on it only to $30-40,000.
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19 4. The transfer of the vehicle to reduce $20,000 off the debt is a very unusual transaction. It is a sign of insolvency. It is an example of what a liquidator does. He sells up the assets to pay something to the creditors. This transaction was highly suspicious. It was the "jumping of the gun" for the benefit of one creditor. No-one else got the benefit of a similar deal. I suspect that Jolley and Graham were mates. After all Jolley had chosen to employ him and he was giving a special deal to his mate.
20 Objectively, I conclude that a reasonable person in Graham's shoes had reasonable grounds for suspecting that when he got the car on 9 March the company was not able to pay all its debts as and when they fell due. The defence is not made out. I propose to avoid the transaction.
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