G & M Aldridge Pty Ltd v Walsh

The High Court of Australia considered appeals from decisions of the Supreme Court of New South Wales concerning the winding up of a company, G & M Aldridge Pty Ltd, and related companies. The central dispute involved payments made by the company, acting as a project manager, to certain unsecured creditors. These payments were made from funds derived from a property that was subject to a fixed and floating charge in favour of a bank. The payments were made after the floating charge had crystallised, and the chargee bank took no action to prevent these payments from being made. The question arose as to whether these payments had the effect of giving the recipient creditors a preference, priority, or advantage over the general body of unsecured creditors.

The High Court was required to determine whether the payments made by G & M Aldridge Pty Ltd to the respondent creditors constituted voidable preferences under the Corporations Act 2001 (Cth). Specifically, the court had to consider whether the payments were made out of property that was subject to the bank's security interest, and if so, whether this affected the characterisation of the payments as preferences. The court also had to assess the significance of the bank's inaction in relation to the payments after the crystallisation of its floating charge.

The High Court reasoned that for a payment to be a preference, it must be made out of the company's property. In this instance, the funds from which the payments were made were derived from the sale of property subject to the bank's fixed and floating charge. Crucially, the court held that once the floating charge crystallised, the company's ability to deal with the charged property was restricted, and any payments made from that property to unsecured creditors would not be considered payments from the company's unencumbered property. Therefore, the payments could not be characterised as preferences that gave the recipient creditors an advantage over the general body of unsecured creditors, as the funds themselves were not available for distribution to the general body of creditors in the first place. The court applied principles relating to the effect of crystallisation of a floating charge and the nature of voidable preferences.

The appeals were dismissed, and the appellants were ordered to pay the costs of the respondents.