Chicago Boot Co P/L v Davies & Nicol as Joint & Several Liquidators of Harris Scarfe Ltd

Chicago Boot Co P/L (the appellant) appealed a decision of the trial judge who found that six payments made to the appellant by Harris Scarfe Ltd (in liquidation) within the six months preceding insolvency constituted unfair preferences. The trial judge had determined that while the appellant acted in good faith, it possessed reasonable grounds to suspect Harris Scarfe's insolvency, and a reasonable person in its position would have held similar suspicions, thus precluding the defence under s 588FG of the *Corporations Act 2001* (Cth).

The appeal raised several legal issues, including whether the trial judge erred by assessing the circumstances of the payments globally rather than individually, whether undue weight was given to communications between the parties, and whether insufficient weight was afforded to evidence suggesting Harris Scarfe's directors and auditors were unaware of its financial difficulties, as well as the appellant's continued supply of goods.

The Full Court of the Supreme Court of South Australia allowed the appeal in part. It held that the trial judge had erred in his assessment of the circumstances surrounding three of the payments by considering them in a global fashion. The Court emphasised that the existence of reasonable grounds to suspect insolvency must be assessed by reference to the circumstances existing at the time of each individual payment, without the benefit of hindsight, and that all relevant circumstances, including potentially countervailing factors, must be weighed. The appeal was otherwise dismissed.