Fennell (Trustee) v Power

The proceeding concerned a dispute between the trustee of the bankrupt estate of Mr. Michael John Power, Mr. Fennell, and Mr. Power himself. The trustee sought to recover from Mr. Power the sum of $100,000, which had been paid to Mr. Power by a company, Power and Co. Pty Ltd, shortly before Mr. Power was declared bankrupt. The trustee alleged that this payment constituted an unfair preference. The matter was heard in the Federal Court of Australia.

The central legal issue before the Court was whether the payment of $100,000 by Power and Co. Pty Ltd to Mr. Power, within the relevant period prior to his bankruptcy, constituted an unfair preference under section 122 of the *Bankruptcy Act 1966* (Cth). This required the Court to determine if the payment had the effect of placing Mr. Power in a position that would not have been his had the payment not been made, and if the company was a creditor of Mr. Power at the time of the payment.

Judge Jarrett found that the payment was not an unfair preference. His Honour reasoned that the payment was not made to a creditor, as the company was not owed money by Mr. Power at the time of the transaction. Instead, the payment was found to be a distribution of profits or a return of capital to Mr. Power as a shareholder. The Court applied the principles of insolvency law, specifically the definition of an unfair preference, which requires a payment to a creditor that has the effect of preferring that creditor over others. As the company was not a creditor, the payment did not meet this criterion.