John Irving & Andre Strazdins as Liquidators of Pondermaria P/L (in Liq) v F Laucke P/L - [2006] SADC 91

DISTRICT COURT OF SOUTH AUSTRALIA
(Civil)
JOHN IRVING & ANDRE STRAZDINS AS LIQUIDATORS OF PONDERMARIA P/L (IN LIQ) v F LAUCKE P/L
[2006] SADC 91
Judgment of His Honour Judge Muecke
18 August 2006
CORPORATIONS - WINDING UP - WINDING UP IN INSOLVENCY
INSOLVENCY - PREFERENCES - DEFENCES - NO REASONABLE CAUSE TO SUSPECT
Payments made by chicken producer to feed supplier in the relation back period were unfair preferences, insolvent transactions and voidable transactions - whether feed supplier had no reasonable grounds for suspecting that chicken producer was insolvent or would become insolvent, and whether a reasonable person in its circumstances would have had no such grounds for so suspecting - defence established by feed supplier - action dismissed.
Corporations Act 2001 s.9; s95A; s.588FA, S588FA(1); s.588FC; s.588FE; s.588FF; s.588FG, s.588FG(2), s.588FG(2)(a), s.588FG(2)(b), s.588FG(2)(c), referred to.
Keay, McPherson: The Law of Company Liquidation, Fourth Edition, LBC, 1999, applied.
Spectrum Joinery Pty Ltd (In Liq) v Turners Building Supplies Pty Ltd (2005) ACTSC 70, discussed.

JOHN IRVING & ANDRE STRAZDINS AS LIQUIDATORS OF PONDERMARIA P/L (IN LIQ) v F LAUCKE P/L
[2006] SADC 91

This is a preference claim by which the liquidators of Pondermaria Pty Ltd (In Liquidation) (“the plaintiffs”) seek an order that F Laucke Pty Ltd (“Laucke”) pay to Pondermaria Pty Ltd (“Pondermaria”) the sum of $219,190.16 pursuant to s.588FF of the Corporations Act 2001 (“Act”).
Findings on the pleadings
On the basis of the Amended Statement of Claim and of the admissions in the Defence to it I make the following findings.
Laucke provided goods to Pondermaria from time to time in return for the payment of Laucke’s invoices. Pondermaria made nine payments to Laucke in relation to unsecured debts owed by Pondermaria to Laucke in the period from 2 October 2002 to 6 December 2002 (“the transaction period”). Those payments totalled $721,078.72 and the nine payments for the provision of goods by Laucke to Pondermaria are collectively referred to as “the transactions”.
The transactions were, for commercial purposes, an integral part of a continuing business relationship between Pondermaria and Laucke. In the course of that business relationship the level of Pondermaria’s net indebtedness to Laucke was increased and reduced from time to time as a result of the transactions.
Pondermaria was placed into voluntary administration on 6 December 2002 and the plaintiffs were appointed as its joint and several administrators on that date. That date is the relation back day within the meaning of s.9 of the Act. Each of the nine transactions were entered into during the six month period ending on the relation back day.
Pondermaria was placed into liquidation on 3 February 2003 and the plaintiffs were appointed as its joint and several liquidators on that date.
Pondermaria was insolvent within the meaning of s.95A of the Act throughout the transaction period because at the time of each of the transactions it was unable to pay its debts as and when they became due and payable.
The transactions are:
·unfair preferences within the meaning of s.588FA of the Act in that Pondermaria and Laucke were parties to the transactions and the effect of the transactions was that Laucke received more from Pondermaria than it would have received if each of the transactions was set aside and Laucke were to prove in the winding up of Pondermaria;
·insolvent transactions within the meaning of s.588FC of the Act in that the transactions were entered into at a time when Pondermaria was insolvent;
·voidable transactions within the meaning of s.588FE of the Act based on matters set out above.
Ss.588FA(1) of the Act applies to the transactions as if they together formed a single transaction, based on matters set out above.
The liability of Laucke under s.588FF is $219,190.16 on the basis that the peak indebtedness of Pondermaria to Laucke in the transaction period was $601,289.18 on 3 October 2002 and the final indebtedness of Pondermaria to Laucke as at the relation back day was $382,099.02.
The plaintiffs provided notice of their claim to Laucke by letter dated 19 July 2004.
On the basis of findings I have just made the plaintiffs would be entitled to an order, pursuant to s.588FF of the Act, that Laucke pay to Pondermaria the sum claimed of $219,190.16. This would accord with the purpose of that Part of the Act with which this litigation is concerned. That purpose is to prevent unsecured creditors from being prejudiced by certain creditors being favoured over other unsecured creditors in the period shortly before the winding up of a company. This includes situations where a creditor is paid without having to prove a proportion of the debt. For these reasons the Act makes transactions voidable within the relation back period.
Laucke’s Defence, legal principles and the issue
In Keay, “McPherson: The Law of Company Liquidation”, Fourth Edition, LBC, 1999, the following appears (at page 477):
It has been said that, if permitted to operate in an unqualified manner, avoidance provisions of the same ilk as those contained in the Division would frequently produce results that would be harsh and even unjust to creditors who were unaware of their debtor’s insolvency and they could interfere too much with the demands of commercial and business convenience. To ensure that these results did not occur, insolvency legislation has for some years included so‑called “protective provisions”. These provisions, which apply where voidable transactions within s588FE are concerned and are now contained in s588FG of the Corporations Law, are designed, in broad terms, to protect the rights of two classes of persons: first, parties to a transaction with the insolvent company and who acquired benefits in good faith at a time when they had no reasonable grounds to suspect the insolvency of the company (and no reasonable person would have suspected insolvency) and where they either gave valuable consideration or changed their positions; (the second class of persons is irrelevant here, footnote references omitted.)
In this action Laucke’s defence is that the order sought by the plaintiffs should not be made because it has proved the matters set out in ss.588FG(2) of the Act.
Ss.588FG(2) of the Act relevantly provides:
A court is not to make under s.588FF an order materially prejudicing a right or interest of a person if … it is proved that:
(a)     the person became a party to the transaction in good faith; and
(b)     at the time when the person became such a party:
(i)the person had no reasonable grounds for suspecting that the company was insolvent at that time or would become insolvent as mentioned in paragraph 588FC(b); and
(ii)a reasonable person in the person’s circumstances would have had no such grounds for so suspecting; and
(c)    the person has provided valuable consideration under the transaction or has changed his, her or its position in reliance on the transaction.
The plaintiffs conceded that the elements of the defence required by ss.588FG(2)(a) & (c) were satisfied in this case. Those concessions were rightly made. Had they not been made I would have found on the evidence that Laucke had established those elements of the defence. I find that Laucke became a party to the transactions in good faith and that it provided valuable consideration under the transactions.
The sole issue between the parties was whether Laucke had established a defence under ss.588FG(2)(b) of the Act.
The case turns on what Laucke knew or ought to have known about the financial position of Pondermaria at the time of each of the payments comprising the transactions. If Laucke, or a reasonable person in its circumstances, did not have, or would not have had, reasonable grounds for suspecting insolvency at the time of the said payments the plaintiffs will not be entitled to any of the orders sought.
In Spectrum Joinery Pty Ltd (In Liq) v Turners Building Supplies Pty Ltd [2005] ACTSC 70, Gray J. referred to the authorities on “good faith” in ss.588FG(2)(a) of the Act and on “reason to suspect” in ss.588FG(2)(b) of the Act. As to “good faith” he said:
[20] A necessary precondition for the defence to be made out is that the person became a party to the transaction in good faith. “Good faith” has its natural meaning. A person acts in good faith when he or she acts with propriety or honesty (Re Ermayne Pty Ltd; Sims v Tech Holdings Pty Ltd (1998) 30 ACSR 330 at 336 per Wicks J). It may overlap with the party not being able to establish reasonable grounds for not suspecting insolvency which would have the effect of preferring the party to other creditors (Re McAdam (1913) 13 SR (NSW) 206 at 209; Sutherland v Eurolinx Pty Ltd (2001) 37 ACSR 477 at 483).
As to “reason to suspect” he said:
[22] This background relating to good faith has implications for my assessment as to whether the defendant company has shown that it had no reasonable grounds for suspecting the plaintiff company to be insolvent at the relevant time, and as to whether a reasonable person in the defendant’s circumstances would have had no such grounds for so suspecting.
[23] The suspicion for these purposes requires more than an idle wondering. In Queensland Bacon Pty Ltd v Rees (1966) 115 CLR 266 at 303 Kitto J commented:
A suspicion that something exists is more than a mere idle wondering whether it exists or not; it is a positive feeling of actual apprehension or mistrust, amounting to “a slight opinion, but without sufficient evidence”, as Chambers’ Dictionary expresses it. Consequently, a reason to suspect that a fact exists is more than a reason to consider or look into the possibility of its existence.
[24] The qualification that the party to the transaction must have no reasonable grounds for the suspicion reinforces the notion that the suspicion is not to be treated as an ephemeral one, although the requirement that the section places on a creditor to establish a negative is a fairly demanding test (Pegulan Floor Coverings v Carter (1997) 15 ACLC 1,293 at 1,300).
[25] An important factor is the commercial circumstances prevailing between the parties at the relevant time. I adopt the analysis of Santow J in Sutherland v Eurolinx (2001) 37 ACSR 477 at 483 – 484, [43] – [47]:
[43] The case law illustrates that there is no single factor whose presence invariably establishes that there was, or should have been, the requisite suspicion. Rather it is a question of looking not in hindsight but through the contemporary eyes of the parties, at the commercial circumstances then prevailing between them. This is to identify in that context those factors pointing towards insolvency of the debtor. This in turn is in order to ascertain which of those factors were apparent to the payee, and then the cumulative impact that knowledge of them should have had, or did have, upon the payee. There will also be potentially countervailing factors and circumstances to be weighed in the balance which could have tended to dispel suspicion at the time. Re Ermayne provides an illustration of this appraisal and balancing process. Thus Wicks J noted (at 334):
Cash flow problems can be indicative of or raise a suspicion of insolvency although not necessarily so. It is important to put them in context. One may be dealing with a trader with a persistent and long history of delay in payment of accounts … In my view “cash flow problems” are a factor and nothing more.
[44] Barwick J adds the warning in Sandell v Porter (1966) 115 CLR 666 at 670 that:
The conclusion of insolvency ought to be clear from a consideration of the debtor’s financial position in its entirety and generally speaking ought not to be drawn simply from evidence of a temporary lack of liquidity.
[45] Pegulan Floor Coverings Pty Ltd v Carter (1997) 24 ACSR 651; 15 ACLC 1293 at 1298 is a reminder that in approaching the question of suspicion of a company’s state of solvency it is necessary to apply commercial reality derived from the particular industry to the facts. It was ultimately found that insolvency should have been suspected. However, what was crucial was not, by itself, the use of instalment payments and post‑dated cheques. They were the practice in that industry and did not necessarily indicate insolvency. But when combined with other factors, in that case dishonoured cheques, their cumulative effect was to establish suspicion of insolvency: at 1299 – 1300.
[46] Priestly JA in Sparad (No. 100) Ltd (as liquidator of Spedley Securities Ltd (in liq)) v J B Harkness (unreported, CA (NSW), Full Court, CA40665/93, 14 February 1997, BC9700197) at 20 in warning against placing undue weight on dilatory payment, observed that “debts are not always paid on time by solvent traders”.
[47] Finally Smith v Deputy Cmr of Taxation (1997) 75 FCR 339; 23 ACSR 611 emphasises that “such a judgment must be made without the wisdom of hindsight and in all the circumstances which existed at the time”: per Mansfield J at 622.
Witnesses
All witnesses at the trial were called by the defendant, Laucke. The plaintiffs called no evidence in their case. That was not surprising as their case was proved by the defendant’s admissions. The plaintiffs called no evidence after the defendant closed its case.
I say at the outset that I was impressed with all the witnesses who gave oral evidence at the trial. I am satisfied that all did their best to tell the truth about events that occurred over a period of about three years, all of which period occurred more than three years ago. The memories of some of the witnesses were better than the memories of others. With respect to him, I consider that Mr Christopher Hawkins had the least perfect recollection of the events of which he gave evidence. The manner in which Mr Hawkins gave evidence may have been a reflection of his personality. I am less confident, however, in relying solely upon his evidence to make factual findings.
I have no such hesitation when considering the evidence of Mr Condor Laucke, Mr Timothy Fairey and Mr Matthew Jacques. They were each very impressive witnesses. I have no doubt as to their credibility and their reliability. That is important, and is particularly so in respect of Mr Condor Laucke because counsel for the plaintiffs submitted that I should find that Mr Laucke actually suspected that Pondermaria was insolvent from about September 2001 until 8 October 2002. It was submitted, in the alternative, that if I were not to find that Mr Laucke suspected that Pondermaria was insolvent as early as September 2001, he nonetheless actually suspected it by 8 October 2002.
I consider that Mr Charles Rikard‑Bell was an honest and, generally speaking, a reliable witness. I consider that I can rely on his evidence for my findings in this matter.
Finally, Mr Grant Wilson impressed me as a credible and generally reliable witness although he was somewhat vague on some matters of detail. I am confident that I can rely on Mr Wilson’s evidence, subject to that slight reservation.
Evidence and findings
I now deal with some of the evidence given at the trial. I do not attempt to deal with all of the evidence, but I deal with and make findings in respect of the more important parts of it. A good deal of the evidence was not in dispute. Some of it was, particularly that of Mr Laucke, but much of the dispute between the parties related to inferences which could properly be drawn from the evidence.
Mr Laucke and his cousin jointly ran a flour and animal feed mill previously operated by their family. In about 2000 Mr Laucke’s cousin took over the flour milling part of the business whilst Mr Laucke became the sole operator of the feed milling part of the business. That continued from then and continues today. Mr Laucke has been and is the sole director and shareholder of the defendant, Laucke. The mill is at Daveyston on the edge of the Barossa Valley.
For some time before 2000 Joe’s Poultry (a generic trading name for a group of companies operated by certain members, from time to time, of the Fazzari family) operated a business producing chickens.
The principal of Joe’s Poultry was Mr Guiseppe (Joe) Fazzari. Mr Fazzari died in 2000 leaving a widow and a number of children. Most of these were involved in continuing to run Joe’s Poultry after the death of Mr Joe Fazzari.
Joe’s Poultry had two farms of its own that produced chickens. It contracted with 21 other farms for chickens to be produced by the independent operators of those farms. Each of the 23 farms produced chickens in sheds on those farms. The majority of the farms had more than one shed. At all of the sheds Joe’s Poultry were producing between 190,000 and 200,000 birds a week. The production cycle for chickens was no more than 63 days from the start of one production cycle to the start of the next production cycle. Small chickens were produced in between 34 and 36 days whilst heavy birds were produced in up to 56 days. The difference between 56 days and 63 days was rest time, when the sheds were cleaned out in preparation to receive the next batch of day old chicks.
Joe’s Poultry would buy all the day old chickens and deliver them to the various sheds at the various farms.
Joe’s Poultry would purchase feed for the chickens from Laucke or Ridleys, the only other producer of a wide variety of animal feed in South Australia. (Laucke was what could fairly be described as a local family company whilst Ridleys was a multinational corporation. Ridleys was Australia’s largest feed milling organisation.)
Joe’s Poultry would purchase four types of chicken feed according to the stage of growth or production of the chickens to which it was to be fed. Starter feed was fed to the day old chicks for about 14 to 15 days. Grower feed was fed to the birds for about 10 days. Finisher feed was fed to the birds for about 7 days. Withdrawal feed was fed to the birds until they were harvested. The average chicken consumed between 4½ and 5 kilograms of feed over that cycle. A significant part of that feed was consumed by the chicken during its latter stages of growth during the cycle. The two farms owned by Joe’s Poultry accounted for about 25% of its chicken production. The remaining 75% of production was at the contracted farms in the sheds on those farms.
Joe’s Poultry would harvest or process (slaughter) the chickens and sell them to various markets.
At some time before September 2000 Joe’s Poultry was operated by Pondermaria Pty Ltd as trustee for the Pondermaria Discretionary Trust. The trading address of that company was an address at Ridgeway Road, Elizabeth West. The landlord of those premises was Chevalier Pty Ltd trading as Joe’s Poultry Processors. It seems that Joe’s Poultry was the trading name for the Fazzari Group of Companies which comprised Chevalier Pty Ltd, Fazzsons Pty Ltd and Pondermaria Pty Ltd.
The trial before me was conducted on the basis that for all intents and purposes Pondermaria was Joe’s Poultry and visa versa. The only possible relevance of the “name change” arose in September 2000.
By application executed on 4 September 2000 Pondermaria applied to Laucke for credit facilities for goods supplied to it by Laucke. Laucke approved the terms and conditions upon which it agreed to supply goods to Pondermaria. Those goods had always been and continued to be chicken feed processed by Laucke and fed to chickens being produced by Joe’s Poultry. The terms and conditions approved by the schedule to the approval were: Average 45 days = 6 weeks.

The application in those terms was approved by Mr Jacques. I find that it was likely that those terms were terms upon which Laucke had supplied chicken feed to Joe’s Poultry for some time prior to September 2000 and prior to the year 2000.
I find that those terms meant and were understood by Laucke on the one hand and Pondermaria on the other hand to mean that payment to Laucke was due 6 weeks after the invoice date for feed supplied to Pondermaria. I find that both parties understood that the terms meant, before September 2000 and after, that the invoice for feed supplied in a particular week (Monday to Friday) was due and payable on the Friday of the week six weeks later; the invoice for feed supplied in the next week was due and payable on the Friday of the week six weeks later (being the next Friday immediately after the previous payment); and so on. This meant that Pondermaria was due to pay Laucke for feed every Friday, being for a week’s supply of feed in the week six weeks before.
I find that the above terms, and the parties understanding of them, continued unchanged from some time before 2000 until Pondermaria went into voluntary administration on 6 December 2002. I find that the requirement by Laucke that Pondermaria pay each week was imposed by Mr Laucke at some time before 2000 due to the fact that Laucke some times had to chase Pondermaria for the payment of its account.
I find that from some time before the year 2000 Mr Laucke’s experience was, and it was the fact of the matter, that Joe’s Poultry rarely, if ever, paid for a week’s feed before the due Friday. I find that Mr Laucke’s experience was, and it was the fact of the matter, that Laucke’s office staff regularly needed to prompt Joe’s Poultry to make its payment on the Friday it was due. I find that when prompted Joe’s Poultry would usually pay before the end of the due Friday. There were, however, occasions when an officer of Joe’s Poultry would inform the office staff of Laucke that the due payment would not be made until the Monday immediately following the due Friday. When so informed payment was invariably made on the following Monday as indicated. On rare occasions payment was promised on the immediately following Tuesday and when so promised it was always made on that day.
In 1998 Mr Rikard‑Bell was employed by Joe’s Poultry. He remained so employed until sometime in 2003. He was and is a highly qualified geneticist and scientist in animal feed and in poultry production. He advised Joe’s Poultry and later Pondermaria on matters relating to chicken production and “recipes” for chicken feed. To this end, as Laucke was one of only two providers of chicken feed to Joe’s Poultry and to Pondermaria, Mr Rikard‑Bell would meet monthly with Mr Laucke and Mr Hawkins. They would discuss recipes for the next month’s needs for the chicken producer as well as any other matters of common business interest. These monthly meetings continued until the end of 2002.
From about at least 1988 Joe’s Poultry/Pondermaria was one of Laucke’s biggest customers for processed feed. It was one of what was referred to as an “on‑cost” customer. There were probably about six to eight such customers of Laucke. They would be charged the total costs to Laucke of the raw materials for animal feed and a loading on top of that total cost – hence the term “on‑cost”. Laucke’s “costs” would also include an interest component to reflect the payment terms each customer had with Laucke. Laucke’s customers of this category were large volume customers but they produced a small profit margin for Laucke. Customers who were not “on‑cost” were lower volume customers but produced a higher profit margin for Laucke. On-cost customers made up about 50% of Laucke’s business. Joe’s Poultry/Pondermaria was one of two such customers to whom Laucke provided the greatest amount of feed. There were, however, other on‑cost customers to whom Laucke provided significant quantities of feed.
From at least January 2001 Laucke’s office manager Mr Jacques kept a Debtors Ledger – Transaction History for Pondermaria (“Debtors Ledger”) (Exhibit P8) and for its other customers. The Debtors Ledger records each sales invoice sent to Pondermaria by Laucke and each payment made to Laucke by Pondermaria. The Debtors Ledger is seen to reflect the terms of trade agreed between the parties to which I have earlier referred. The final column in the Debtors Ledger has a “cumulative total” which reflects the amount charged for feed supplied by Laucke to Pondermaria which remains unpaid on the dates referred to in the first column of the Debtors Ledger. The cumulative total was referred to in the trial as a running balance of the amount owed by Pondermaria to Laucke for feed supplied to it. Some witnesses referred to such balances as the amount of credit or funds lent to Pondermaria by Laucke.
The Debtors Ledger shows that by early March 2001 the cumulative total was just over $500,000. By early April 2001 it was approaching $1M. It hovered around the $1M total for some months before creeping up to about $1.5M in August 2001. Up to that time Pondermaria was meeting its obligations to pay Laucke according to the agreed terms and conditions that had been in place for a considerable time prior to then.
In about September 2001 Mr Laucke was admitted to hospital for an operation. After some period of recuperation he returned to his feed mill. He found that for several weeks Pondermaria had made no weekly payments on its account. The cumulative total owed to Laucke by Pondermaria had risen to over $1.7M.
Mr Laucke said he responded to this discovery in at least two ways. One thing he did was to tell Mr Jacques in no uncertain terms that he was to blame for not ensuring that Pondermaria paid each week and that what had happened demonstrated the absolute necessity to keep at Pondermaria each week to ensure they paid for the week’s feed then due. He told Mr Jacques that he should thenceforth ensure that it never happened again, by watching the account every Friday and contacting Pondermaria each week if necessary. The other thing that Mr Laucke did was to contact his accountant Mr Grant Wilson. Mr Wilson was in private practice as a chartered accountant. I find that Mr Laucke instructed Mr Wilson to find out what was going on, when he might expect to be paid, and what had happened to his money. I find that Mr Laucke’s instructions to Mr Wilson were, and were understood by Mr Wilson to be, that Mr Wilson should sort out how Pondermaria were going to pay the money owing to Laucke, and to get Pondermaria to start paying it back.
As a result of that contact Mr Wilson wrote to Mr Michael Pirone of Pondermaria. That letter is Exhibit P6 and is dated 12 September 2001. I find that Mr Wilson either sent a draft of that letter to Mr Laucke or copied to Mr Laucke the letter he wrote to Mr Pirone after sending it to Mr Pirone. In light of my later findings it does not matter which it was. I find that Mr Wilson drafted that letter in terms he considered appropriate. I find that Mr Laucke had no input into the letter, whether before or after it was sent. I find that Mr Laucke left it to Mr Wilson as the expert accountant to do what he thought fit, including sending any letter, in terms he thought fit, that might produce the best possible result to his business.
I find that the occasion that resulted in the letter Exhibit P6 was the first time Mr Wilson had been asked by Mr Laucke to act for him directly with a customer in circumstances where a customer’s account was out of terms. I find that the writing of Exhibit P6 by Mr Wilson was the first time that Mr Wilson had written a letter of that type for a client. I find that, after consulting with some others in his office, Mr Wilson drafted a letter he thought might best produce the results his client wanted. I find that although he sought certain documentation from Pondermaria (and he received none) he had no expectation that Pondermaria would provide that documentation. I find that his request for documentation and other information was a “fishing expedition” on his part. He hoped that the requests he made in his letter would produce a result for his client Mr Laucke, which was, to get the account into order as soon as possible.
Mr Laucke was cross‑examined about the terms of the letter Exhibit P6. In particular, he was cross‑examined about the letter’s reference to the solvency of Pondermaria, to a demonstration that Pondermaria had sufficient financial resources and trading profitability to be able to meet existing and on‑going trade, and to the value of Pondermaria’s working capital. It was put to Mr Laucke in cross‑examination that those references in the letter indicated that Mr Laucke was concerned about and suspected that Pondermaria was or might be insolvent. Mr Laucke denied those matters. He said that he was not concerned at that time that he would not be paid. Rather, he was concerned about the potential period of time over which a “debt” of such magnitude (being about $713,500 in excess of the established terms of trade) would be paid by Pondermaria. Mr Laucke said that he had no doubt that it would ultimately be paid by Pondermaria. His concern was that that might take time, even a considerable time.
I accept what Mr Laucke said about these matters. I accept that he assumed that Mr Wilson knew what he was doing and was expressing himself in a way an accountant would to try and expeditiously get the Pondermaria account back in order.
Mr Wilson was also cross‑examined about his letter Exhibit P6. He said that notwithstanding the terms of his letter he did not suspect when he wrote it that Pondermaria was or might become insolvent. He said he couched his letter in the terms he did because he thought that a letter in these terms was the most likely means to obtain results on the amount outstanding on Pondermaria’s account.
I accept what Mr Wilson said about these matters.
Mr Wilson said that after he sent the letter he met with Mr Pirone and Mr Nat Fazzari. That occurred on Tuesday 18 September 2001. Mr Wilson’s recollection of that meeting was hazy. He said that although the men with whom he met did not go into specific matters his impression was that Pondermaria could pay the outstanding amount. After that meeting Mr Wilson wrote to Mr Pirone (letter dated 20 September 2001, Exhibit D5B) advising him that Laucke would continue Pondermaria’s account on the pre‑existing trading terms provided that each of three assurances were met. First, that Pondermaria deposit $600,000 into the Laucke account within 14 days of 20 September 2001. Secondly, that Pondermaria continue to pay an additional amount of $20,000 per week until such time as the account had been brought back within its trading terms. Thirdly, that Pondermaria bring its account back within the pre‑existing trading terms within 30 days of 20 September 2001. The letter also referred to charging interest on the overdue amount. Mr Wilson advised Mr Pirone that Laucke would continue to charge interest on the outstanding amount outside of trading terms until the account was brought back within those terms. He wrote that Laucke was, however, prepared to review that matter once the account had been brought back within its trading terms. Mr Wilson said that he may have had another conversation with Mr Pirone about interest.
I find that Mr Laucke received a copy of a draft of the letter that was sent to Mr Pirone dated 20 September 2001. Mr Wilson recommended to Mr Laucke that if Pondermaria paid according to the terms of the letter sent to Mr Pirone overdue interest should be waived. He said to Mr Laucke that he believed that doing so would strengthen the trading relationship between Laucke and Pondermaria (see Exhibit D5A). Payment of interest was never sought nor paid.
I find that by 5 October 2001 the Pondermaria account was only 6 days over due payment within its trading terms, and that by the end of November 2001 the Pondermaria account was within its pre‑existing trading terms. I find that this period of time was much shorter than Mr Laucke had feared it might be. I find that Pondermaria thereafter continued to keep its account with Laucke largely within the trading terms that had been agreed and that been honoured over many years of trading (except for the incident just described). The only other exceptions were when payment was made a day or two late from time to time, but infrequently. This was when payment was received by Laucke either on the Monday immediately following the due Friday and, even less frequently, on the Tuesday immediately following the due Friday. These were in circumstances I have previously described as having existed prior to September 2001.
I find that the events I have just described as occurring in late 2001 gave Mr Laucke no cause for concern about Pondermaria’s viability or solvency. I accept Mr Laucke’s evidence that these events gave him more confidence in Pondermaria and gave him more respect for those who ran Pondermaria. I accept that Mr Pirone admitted that Pondermaria had taken advantage of the situation when they had not been pressured to pay Laucke whilst Mr Laucke was in hospital. I find that these events cemented a belief in Mr Laucke’s mind that Pondermaria’s failure to pay was “a game they play” because it was easy money for Pondermaria to get. I accept Mr Laucke’s evidence that he was never concerned that he would lose any of the money that Pondermaria owed him.
Between about December 2001 and mid‑September 2002 the cumulative total on Pondermaria’s Debtors Ledger varied between about $1M and about $850,000. From mid‑September 2002 the cumulative total started to gradually and progressively reduce in circumstances to which I now refer.
I find that during the first half and in to the middle of 2002 production at the Laucke mill was coming under strain. It was operating at full capacity and beyond what its Production Manager Mr Fairey considered to be its maximum efficient capacity. There was insufficient time even for scheduled maintenance at the plant, let alone emergency repairs when there were breakdowns at the plant. These were beginning to occur quite regularly. Depending upon where the breakdown was, some had the effect that the mill would cease producing feed until repairs had been effected. There would be increased pressure on production. For production to be maintained to fill orders during any particular week maintenance staff were required more and more to work on Saturday nights and on Sundays. That was affecting Laucke’s industrial relations, not only with the maintenance staff but also with production staff. It became increasingly difficult to encourage staff to work at odd hours over the weekend, either to make up lost production caused by a breakdown during the week or to perform regular maintenance at odd hours over the weekends.
I find that what I have just described was occurring in the first half and in to the middle of 2002. I find that on a number of occasions Mr Fairey spoke to Mr Laucke expressing his view that the mill could not continue to function in this way. I find that Mr Laucke acknowledged the pressures under which the mill was operating. I find that he eventually (at a time which is not easy precisely to identify) agreed that he had to do something. He agreed that he had to take steps to reduce production time at the mill so that routine and other maintenance could be performed, hopefully during operating hours or on Saturday mornings, rather than at odd hours over the weekends, when the mill was not operating and producing feed.
I find that Mr Laucke then considered how he might reduce production at the mill, or at least to produce the production time at the mill. One option he considered was to reduce the amount of feed that he supplied to one or more of his customers. He considered that his on‑cost customers, who were large volume but low profit margin customers, were the better option. He considered that those on‑cost customers who purchased all, or the vast majority of their feed, from him rather than buying substantial quantities from both he and Ridleys were the least favoured option. If he cut his supply to those customers they might be forced to buy, or buy more, from Ridleys, possibly to his long‑term disadvantage. He may not get them back. He also looked for a customer whom he thought might be the least upset with him for reducing their supply from Laucke, and, accordingly, would have the least deleterious effect in the sense of maintaining good customer relations or, as he put it, would cause the least amount of political damage.
I find that Mr Laucke decided that Pondermaria best fitted all these considerations. I find that Mr Laucke decided to limit what he would supply to Pondermaria to about 7 to 8 loads of feed per week. He knew that by doing so he would be reducing what he supplied to Pondermaria by about half that which he had previously supplied. He also knew that such a limit would unlikely to be an absolute limit per week because of the fact that the quantity of feed that Laucke had always supplied to Pondermaria varied from week to week according to the growing cycle of chickens in production at various times. Mr Laucke would also have known that the implementation of such a decision would take some time to take effect because of the production cycle of chickens.
I infer that Mr Laucke would have known that reducing the amount of feed he supplied to Pondermaria would necessarily reduce the cumulative total or running balance of what Pondermaria would owe Laucke from time to time according to its trading terms. I find, however, that was not a matter that Mr Laucke considered and took into account when he was considering which customer he was going to choose to limit supply from his mill. That would happen with whatever customer he chose.
Coincidently with Mr Laucke’s decision, or even before making the decision Mr Laucke made, I find that Pondermaria was in the process of making some decisions of its own regarding production. These involved its own production of chickens. These decisions were not known to Laucke.
By the middle of June 2002 a Chartered Accountant, Mr Allan Burchard, had been engaged by the Fazzari Group of Companies in a consultancy role. The overall objective of that engagement was described by Mr Burchard as being that he would provide guidance to existing management and staff of the group in relation to administration and financial matters. In that role he anticipated that he would be “liaising with the group’s external advisors, including PKF; tax agents …; (a) legal advisor … and other suppliers/providers including Westpac”.
Furthermore, by the middle of June 2002 the Fazzari group’s bankers (Westpac) were informed that Pondermaria’s Operations Manager, Mr Rikard‑Bell, had implemented a number of strategies to improve the relationship between the weight of grain etc. fed to a chicken and its ultimate live weight. The objective was to contain feed costs which accounted for almost 60% of Pondermaria’s expenses. The bank was advised that closer attention was being given to the timing of the placement (in sheds) of day old chickens, the age at which the chickens are processed, and the overall management of the forecast supply/demand issues for processed chicken meat.
On 8 August 2002 the Fazzari family and its advisors met. Mr Burchard chaired the meeting. Amongst other things it was noted that a decision had been taken by management to reduce the number of chicken placements at the earliest possible date in an effort to reduce feed costs and also to limit the number of birds to be processed through the factory. It was further noted that the earliest possible date at which a reduction of the number of chicken placements would take effect was from mid‑August. It was also noted that there appeared to be a significant surplus of chickens available on the market at that time. The meeting also addressed the liquidity of the group. It was resolved that the directors of Chevalier, Pondermaria and Fazzsons had reasonable grounds to believe that the companies were not in a position of insolvent trading. That was based upon availability of assets for sale, the availability of an additional $500,000 if absolutely necessary, and other matters. I find that these events occurred and that none of these matters were known to Laucke at that time.

The decision referred to on 8 August 2002 to reduce the placement of chickens was to achieve the production of 119,000 birds in November 2002. That reduction would be maintained but would allow the production of 125,000 birds in December 2002. These matters were also then unknown to anyone at Laucke.
I find that on 12 August 2002 Mr Burchard was appointed Acting General Manager of all companies within the Fazzari group of companies, including Pondermaria, such appointment to be reviewed in December 2002.
In early September 2002 Mr Laucke became aware that Mr Burchard had been appointed General Manager of Pondermaria. He asked Mr Wilson to contact Mr Burchard to see what he could find out about why Mr Burchard had been brought in as General Manager. I find that Mr Laucke had at that time a belief that the Fazzari sons were not as strong businessmen as their father had been before his untimely death in 2000. I find Mr Laucke was not prompted to make the request he did of Mr Wilson by any concern or suspicion he had about Pondermaria’s insolvency or any concern he had that Pondermaria was or might be unable to pay him for feed he had supplied to it or he intended to supply to it in the future.
Exhibit D11 contains Mr Wilson’s notes of a meeting he had with Mr Burchard in the morning of 9 September 2002. After the two men introduced themselves and exchanged pleasantries Mr Burchard explained his background to Mr Wilson. He then told Mr Wilson that he had been engaged principally to manage Pondermaria financially through to end of 2002. He said that Pondermaria had its bank’s support although the bank was “in credit watch area”. He told Mr Wilson that Pondermaria was working within its banker’s facility limits. He told Mr Wilson that pricing of birds and an increased price of grain was affecting the company. He told Mr Wilson that Pondermaria’s day old chicken requirements were and would be declining, as would their feed requirements. He said to Mr Wilson words to the effect that Pondermaria’s working capital was not good at that time, but that its declining feed requirements would improve its working capital, as would the company’s proposal to sell some chicken sheds.
I find that Mr Wilson concluded from what he was told at that meeting that whilst Pondermaria was not “going flash” at that time, they were going to be okay. I find that there was nothing said at that meeting as to the future financial viability of Pondermaria.
Mr Wilson further explained in evidence that it was not clear to him at that time precisely what being in a bank’s credit watch area meant. I accept that evidence. He explained that, at the conclusion of that meeting, he had no concerns about Pondermaria’s solvency or its ability to pay for feed it had and would obtain from Laucke.
I find that Mr Wilson reported to Mr Laucke as to that meeting shortly after its conclusion. I think it most likely that Mr Wilson reported to Mr Laucke in terms of his general conclusions rather than going through the items on Exhibit D11 item by item. He probably reported to Mr Laucke about Pondermaria’s bankers giving support to its customer, that Pondermaria’s working capital was not strong, that Pondermaria’s requirements for day old chickens, and therefore its feed requirements, were declining and that that would improve its working capital, as would the sale of some sheds. I am not able to make a finding as to whether Mr Wilson used the words “not going flash” when reporting to Mr Laucke. I do find, however, that nothing that Mr Laucke was told by Mr Wilson raised any suspicion in Mr Laucke’s mind as to the solvency of Pondermaria as at that time or as to any future time.
I find that Mr Rikard‑Bell was advised by the end of August 2002 that Laucke would restrict Pondermaria’s supply of feed to about between 7 or 8 loads a week. Mr Rikard‑Bell understood, or chose to understand, that that was an average amount per week. I find that after that time Mr Rikard‑Bell tried to get as much feed as he could from Laucke. I find this notwithstanding that Pondermaria had embarked on a program of reducing its production, and therefore reducing its feed requirements. I find that Mr Rikard‑Bell wished to obtain as much feed as he could from Laucke, rather than from Ridleys, because he could get it cheaper from Laucke. I find that Mr Rikard‑Bell wished to reduce his feed requirements overall, but to get as much as he could from Laucke because of its lower price.
I find that the matter of a reduced quantity of Laucke feed to Pondermaria was discussed between Mr Rikard‑Bell, Mr Hawkins and Mr Laucke at one of their regular monthly meetings on 27 September 2002. I find that the loads per week that Laucke would supply to Pondermaria was discussed at that meeting and that Mr Rikard‑Bell had the fact that there would be limited supply to Pondermaria reinforced to him. I find that this topic had been, and was, as Mr Rikard-Bell put it, a “fairly continuous conversation”. Unknown to anyone at Laucke the management of Pondermaria met later that same day. I find that Mr Burchard did not say at this meeting that he could not see a way ahead for Pondermaria.
I find that shortly before 2 October 2002 Mr Rikard‑Bell asked Mr Hawkins to organise a meeting with Mr Laucke. I find that was put to Mr Hawkins on the basis that it was time that Mr Laucke met the new General Manager of Pondermaria, Mr Burchard. The two men had not previously met. I also find that one reason Pondermaria had for wanting the meeting was to give Laucke confidence in Pondermaria. I find that whilst it was not convenient for Mr Laucke to meet at that time, he relented and said he would have the meeting if the Pondermaria people came to his farm and the meeting was at lunch‑time. I find that Mr Laucke was not at his mill at that time because he was mustering at his farm in preparation for shearing. I find that Mr Laucke agreed to the meeting for public relations reasons.
I find that Mr Burchard, Mr Rikard‑Bell and Mr Pirone drove to Mr Laucke’s farm on 2 October 2002 for the meeting. On the way they discussed the topics they wished to raise at the meeting. Mr Rikard‑Bell could only remember in evidence two of three such topics. The first was to introduce Mr Burchard. The second was to see if he, Mr Rikard‑Bell, could explore getting more loads of feed from Laucke for reason to which I previously referred. Mr Laucke and Mr Hawkins were at the meeting on behalf of Laucke.
I find that Mr Rikard‑Bell was the only person at the meeting who made a note of what was spoken about at the meeting. He kept that note. Neither Mr Laucke nor Mr Hawkins had a good, or any, memory of much of what was said at the meeting. I find that not particularly surprising because to them this was a “meet and greet” occasion and was not arranged and held for any particularly identifiable reason beyond Mr Laucke meeting Mr Burchard being introduced to Mr Laucke.
The plaintiffs relied on Mr Rikard‑Bell’s notes of what was discussed at that meeting from which, it was submitted, I should infer that Mr Laucke had suspicions concerning Pondermaria’s insolvency. I consider that I need to take care when considering evidence of a meeting which one party to litigation maintains has considerable significance, particularly when, as here, that party was not present at the meeting. If there was no particular significance to the other party in having the meeting at all, and if the other party has no memory of anything of particular significance that was spoken about, then it is hardly surprising that the recollections of that other party of what happened at the meeting is now, years later, somewhat vague. I am satisfied that was the position so far as Mr Laucke and Mr Hawkins were concerned in respect of this meeting. Insofar as I have evidence from a person representing the other party to the meeting, Mr Rikard‑Bell did not speak in evidence in terms of this meeting having great significance to or for Pondermaria. Mr Hawkins described the meeting as “a non-event”. Mr Laucke described it as a “pretty ordinary meeting” at which nothing remarkable happened. He said that it was “a feel good meeting to get (him) to feel comfortable that everything was in hand”. He said that he remembered nothing from the meeting that might cast doubt on the solvency or viability of Joe’s Poultry. He said it was “quite the opposite really”. I consider it is putting it too high even to say that various matters were “discussed” at the meeting. From Mr Laucke’s point of view he did no more than make general comments about things that were said by the visitors to his farm.
I find that from the point of view of Pondermaria it was intended that Mr Burchard be introduced to Mr Laucke and Mr Hawkins in order to imbue them with confidence that nothing had changed from what had been advised to Mr Wilson about a month earlier, to find out if Mr Laucke had any concerns about Pondermaria and, if he had, to address those concerns. It was probably in response to that sort of enquiry that Mr Laucke commented on the fact that Pondermaria appeared to have few assets over which it could give security and that he, Mr Laucke, took risks and had no control. I find, however, that such comments were made by Mr Laucke not because he had any concerns about Pondermaria, but rather as the response of a businessman within an industry where a lack of security and no control was common place, and which was exactly the position he faced, in relation to a number of his customers. I find, as Mr Rikard-Bell said in evidence, that Mr Laucke said at the meeting, when asked, that he had no concerns about Pondermaria. I find that Mr Laucke had no concerns about Pondermaria.
I further find that Mr Laucke probably, in the same context, commented that it was not his wish to be exposed to Pondermaria for a sum in excess of $400,000, although I find that that was said by Mr Laucke in the sense that such exposure reflected the limit of 7 to 8 loads of feed that had already been imposed by Laucke on Pondermaria. I accept Mr Laucke’s evidence that it was the number of loads that was relevant at that time, not “the dollars”. I find that when that comment was made by Mr Laucke (in whatever form it took), Mr Rikard‑Bell decided that there was little prospect in Laucke agreeing to supply Pondermaria with more feed than the 7 or 8 loads per week to which Pondermaria had already been limited. I find that Mr Rikard‑Bell, therefore, chose then not to press Mr Laucke and Mr Hawkins to increase the amount of feed supplied by Laucke to Pondermaria. I find that Mr Laucke told the visitors that Laucke were going to spend a lot of money on capital equipment. I find that he did not tell the visitors that he did not want any increased exposure to Pondermaria because Laucke had a large capital debt.
I find that nothing was said at this occasion regarding Pondermaria’s solvency or its ability to pay its debts. I find that at no time during this occasion, nor by the end of it, did either Mr Laucke or Mr Hawkins have any concerns about the solvency of Pondermaria or its ability to pay its debts. From their point of view it was “business as usual” between the two companies after the meeting. Business as usual at that time was that Laucke would restrict the amount of feed it would provide to Pondermaria (which everyone knew would necessarily reduce Laucke’s financial exposure to Pondermaria) and that Pondermaria’s requirements for feed had reduced and would possibly continue to be reduced.
I consider it significant that Mr Rikard‑Bell had no concerns about Pondermaria’s solvency either at or after this meeting. As a long‑term employee of Pondermaria that would have been an issue with very significant consequences to him personally. As Mr Rikard‑Bell said, “my future’s there too, so I would have written that one down”.
There was evidence from Mr Hawkins of a note he had of what he said was probably a telephone attendance he had with Mr Laucke on 9 October 2002. He said, however, that he could not remember writing this note. Mr Hawkins’ evidence was that Mr Laucke told him to make sure that the restricted supply to Pondermaria of 7 to 8 loads was actually happening. Mr Laucke said he had no memory of such a telephone conversation. He said that he did not consider that it had occurred. I cannot make a finding as to whether or not it probably took place. One possibility is that Mr Hawkins made himself a note to check because he had known up to that point that Mr Rikard‑Bell was trying his best to obtain more than that restricted supply. It is possible that Mr Hawkins made a note to himself to check what the averaging was in that regard. Another possibility is that Mr Hawkins did that because it had only been a week before that Mr Laucke had told Pondermaria at the meeting at his farm that he did not wish to sell to Pondermaria more than 7 to 8 loads of feed. I find that if there was such a telephone conversation it was merely one in which Mr Hawkins and Mr Laucke discussed the limited supply to Pondermaria in the sense of what had already been the decision regarding such supply. I find that if such a telephone conversation did occur it had nothing whatever to do with Mr Laucke having any concern about Pondermaria’s solvency.
I find that by 8 October 2002 Pondermaria had prepared an Invitation for Expressions of Interest to parties who may be interested in acquiring the business that was then trading as “Joe’s Poultry”. That invitation was issued to several interested parties on 8 October 2002. I find that on 22 October 2002 Mr Burchard addressed staff at Joe’s Poultry informing them of the above. Staff were told that there were two organisations which had indicated an interest. Staff were told that a sale process would take some weeks whilst buyers conducted a due diligence process. Staff were told that during that period it should be “business as usual”. Mr Burchard told staff that he was confident that a buyer would continue to operate a chicken processing business at the site of Joe’s Poultry. He told staff how to deal with rumours and questions.
I find that Mr Laucke heard rumours about the possibility of Joe’s Poultry being sold. He said that it was common knowledge “around the traps”. I find that he thought that that was not an unreasonable course for Joe’s Poultry to take, if it was being taken. I find that it seemed to Mr Laucke to be a logical thing to do. He knew that Mr Burchard had been brought in to manage the business and I find that Mr Laucke’s business instinct was that a sale was quite a reasonable option. I find that it did not occur to Mr Laucke that the rumours, if true, indicated anything about the solvency or otherwise of Pondermaria.
I find that in early December 2002 it was “business as usual” between Laucke and Pondermaria.
I find that Mr Laucke was genuinely shocked when he learnt in early December 2002 that Joe’s Poultry had gone into administration.
Conclusions
I have concluded that it has been proved that at the time when Laucke became party to the transactions it had no reasonable grounds for suspecting that Pondermaria was insolvent at that time or would become insolvent. I have concluded further that it has been proved that at that same time a reasonable person in Laucke’s circumstances would have had no such grounds for so suspecting.
I have found that Mr Laucke did not at any time suspect that Pondermaria was insolvent. It was conceded, and I have also found, that Laucke became a party to the transactions in good faith. This is relevant and important to the issue of Laucke’s lack of suspicion. Mr Laucke’s lack of suspicion is not, of course, the end of the matter insofar as s.588FG(2)(b)(i) is concerned. What must be proved is that at the relevant time Laucke had no reasonable grounds for suspecting that Pondermaria was insolvent.
The authorities emphasise the necessity to look at the transactions as a whole in the commercial context that prevailed at the time, and to apply commercial reality derived from the particular industry to the facts.
I agree with the submissions made on behalf of Laucke as to the lack here of any indicia which typically might indicate that a preferential payment may have been received by Laucke. I consider it important that this is not a case where Pondermaria was in arrears, on its trading terms, with its creditor. This is not a case where the creditor had been pressing the debtor company for the payment of any arrears. This is not a case where the creditor had to commence proceedings to recover arrears. This is not a case where promises made by the debtor to make payments had been broken. This is not a case where cheques drawn by the debtor company had been dishonoured, even on one occasion. This is not a case where the debtor company consistently used post‑dated cheques. This is not a case where there had been any break‑down in the relationship between the debtor company and the creditor. I find the facts establish that quite the opposite was the case.
Furthermore, this is not a case where the creditor Laucke had knowledge of financial information in respect of the debtor company Pondermaria other than the knowledge of the balance of the debt from time to time and some general information to the effect that Pondermaria was, in September and October 2002, addressing some vaguely expressed difficulties by bringing in a chartered accountant to address them whilst its bankers were giving it support, whilst its trading relationship with Laucke remained and continued on terms which had existed for several years and whilst its business relationship with its creditor remained friendly.
I consider that the circumstances known to Laucke were such as to give Laucke confidence in continuing to trade with Pondermaria. Those circumstances were in large measure consistent with the practices that had developed between Laucke and Pondermaria and others in the industry. I find that those circumstances constituted no reasonable grounds for suspecting that Pondermaria was insolvent. Those circumstances included that Pondermaria was trading within its usual trading terms which terms had existed for a number of years. As at October 2002 Pondermaria had not been in arrears in its account for about a year. Even when that had occurred a year before Pondermaria had paid the monies that were in arrears with a series of large payments within the space of about a month. Pondermaria had appointed Mr Burchard who had been introduced to Laucke as a Chartered Accountant and an experienced and capable manager. At a meeting with Mr Burchard on 9 September 2002, after Mr Wilson had been instructed by Mr Laucke to go and meet Mr Burchard to find out why he was at Pondermaria, Mr Burchard had advised Mr Wilson that Pondermaria was trading within its facility limits and with the support of its bank. He advised Mr Wilson on the same day of a strategy that would improve the company’s capital position and its cash flow. Mr Wilson understood and accepted that Pondermaria’s cash flow would improve.
On 2 October 2002 Mr Burchard, Mr Rikard‑Bell and Mr Pirone sought a meeting with Pondermaria and met with Pondermaria at Mr Laucke’s farm to reinforce with Mr Laucke that Pondermaria was trading within terms and was well‑managed. I have found that nothing was said at that meeting that caused Mr Laucke, Mr Hawkins or Mr Rikard‑Bell any concern about the continued viability of Pondermaria. I find that nothing was said about the insolvency or unviability of Pondermaria.
I have found that there had been occasions on a limited number of Fridays that Pondermaria had told Laucke that the cheque due that day would be coming on the following Monday or, on a very few occasions, the following Tuesday. The evidence is such as to make it impossible for me to make findings as to exactly when that occurred or how often. I find that it probably had occurred from time to time since Laucke commenced selling feed to Joe’s Poultry and to Pondermaria, and continued from time to time after about November 2001. I find that more often than not when Mr Jacques telephoned Pondermaria on a Friday the payment due that day would be made before the end of that Friday.

I have also found that in his meeting with Mr Wilson on 9 September 2004 Mr Burchard referred to working capital not being good at that time. He said that Pondermaria had its bank’s support although it was “in credit watch area”.
I consider that none of these factors, separately or cumulatively, constitute reasonable grounds for suspicion of insolvency. Some of them might indicate a cash flow problem from time to time and a squeeze on liquidity caused by external factors to the industry such as high grain prices or an over supply of poultry. It was put to Mr Laucke on a number of occasions that he knew Pondermaria was trading in a tough industry. Mr Laucke made no bones about that. He said that the poultry industry has always been a tough and competitive industry. He said that he had to chase a lot of his customers to pay their accounts. He said: “If I didn’t deal with customers that are in tough industries or that are bad payers that you have to chase, then I would have to wipe off quite a number of our current customers. It is part of life unfortunately … I wouldn’t need an office manager quite frankly if I didn’t have those sorts of clients”. I consider that the fact that it was a tough and competitive industry, and I find it to be one, supports my conclusion that there were no reasonable grounds at the relevant time for suspecting that Pondermaria was insolvent. The very limited indicia to which I have referred (limited in quantity and in quality) in a tough and competitive industry make them less likely to constitute reasonable grounds for suspicion of Pondermaria’s insolvency. They reflected no more than a commercial reality in the industry in which Laucke and Pondermaria were trading with each other, and had done for years
For similar reasons I have concluded that the defendant has proved that a reasonable person in Laucke’s circumstances would have had no grounds for suspecting that Pondermaria was insolvent at the relevant time.
Mr Laucke impressed me as, and I find him to be, an extremely astute businessman who had operated his business successfully for many years. He had operated his business with much the same customers for that time. During the course of the events about which I heard evidence he sought and obtained assistance from time to time from the Chartered Accountant Mr Wilson who also impressed me as being astute.
I consider that the hypothetical reasonable person envisaged by s.588FG(2)(b)(ii) would likely to be less astute that both Mr Laucke and Mr Wilson, (and, I might add, Mr Rikard‑Bell). If they did not suspect that Pondermaria was insolvent, and I find that they did not so suspect, then a reasonable person in their circumstances would have had no such grounds for suspecting.
In light of these conclusions I would dismiss the plaintiffs’ claim.
I shall hear the parties as to costs.