Cussen v Commissioner of Taxation

The appeal concerned the interpretation of section 588FG(2)(b) of the *Corporations Act 2001* (Cth) in the context of unfair preference claims brought by the Commissioner of Taxation against Cussen. The dispute centred on whether the Commissioner had grounds to suspect insolvency at the time of certain payments made by a company to the Commissioner, which the Commissioner sought to recover as unfair preferences. The matter was heard in the Court of Appeal of New South Wales.

The primary legal issue before the Court of Appeal was the proper construction of section 588FG(2)(b), specifically whether the test for a reasonable person in the Commissioner's position having grounds to suspect insolvency was subjective or objective, and whether this test imposed a duty to inquire into the company's financial position. The Court also considered the significance of various factors, including the company's history of late payments, its willingness to offer a higher interest rate, and the provision of allegedly false explanations for cash flow difficulties, in determining whether the Commissioner had such grounds for suspicion.

The Court of Appeal held that the test under section 588FG(2)(b)(ii) is objective, requiring an assessment of what a reasonable person in the Commissioner's position would have suspected, rather than what the Commissioner subjectively did suspect. It was determined that this objective test does not impose a positive duty to inquire, but rather requires the Commissioner to consider all information available to them. The Court found that the factors presented, including late payments and evasive explanations, were sufficient to give rise to a suspicion of insolvency in a reasonable person in the Commissioner's position. Consequently, the appeal was dismissed with costs.