Metal Manufactures Pty Limited v Morton

The appeal concerned Metal Manufactures Pty Limited (the appellant) and the Liquidator of MJ Woodman Electrical Contractors Pty Ltd (the respondent). The dispute arose from the liquidator's claim to recover payments made by the company to the appellant within six months prior to its winding up, alleging these payments constituted unfair preferences under section 588FA of the *Corporations Act 2001* (Cth). The appellant sought to set off a separate debt owed to it by the company against the liquidator's claim for recovery of these alleged unfair preferences, relying on section 553C(1) of the Act. The matter was heard by the High Court of Australia.

The central legal issue before the High Court was whether section 553C(1) of the *Corporations Act 2001* (Cth) entitled a creditor, such as the appellant, to set off an amount received as an unfair preference against a debt it was ordered to repay to a company in liquidation, against another debt that the creditor could prove in the winding up. This question required the Court to consider the interaction between the provisions governing set-off in insolvency and those dealing with the recovery of voidable transactions, specifically unfair preferences.

The High Court reasoned that allowing a set-off in this context would be inconsistent with the statutory scheme of liquidation, particularly the *pari passu* principle which dictates that unsecured creditors generally rank equally in the distribution of a company's assets. The Court observed that an unfairly preferred creditor, by definition, has received more than they would in a winding up if the transaction were set aside. Permitting a set-off would allow such a creditor to improve their position relative to other creditors, undermining the purpose of the unfair preference provisions. Consequently, the Court concluded that a creditor cannot rely on section 553C(1) to set off a debt owed by the company against a claim for repayment of an unfair preference.

The appeal was dismissed, and the costs of the appeal were ordered to be costs in the cause, reflecting the unresolved nature of other defences raised by the appellant in the ongoing proceeding.