Re Eliana Construction and Developing Group Pty Ltd (in liq) - [2018] VSC 833

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMERCIAL COURT

CORPORATIONS LIST

S CI 2017 01458

IN THE MATTER of Eliana Construction and Developing Group Pty Ltd (in liquidation) (ACN 132 817 362)

ANTHONY ROBERT CANT (in his capacity as liquidator of Eliana Construction and Developing Group Pty Ltd (in liquidation) (ACN 132 817 362)	First Plaintiff
ELIANA CONSTRUCTION AND DEVELOPING GROUP PTY LTD (in liquidation) (ACN 132 817 362)	Second Plaintiff
v
MAD BROTHERS EARTHMOVING PTY LTD (ACN 122 889 007)	Defendant

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JUDGE:	Efthim AsJ
WHERE HELD:	Melbourne
DATE OF HEARING:	29, 30 and 31 May 2018
DATE OF JUDGMENT:	1 November 2018
CASE MAY BE CITED AS:	Re Eliana Construction and Developing Group Pty Ltd (in liq)
MEDIUM NEUTRAL CITATION:	[2018] VSC 833

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CORPORATIONS – Voidable transactions – Unfair preferences – Good faith – Whether payment to creditor by related company a payment made by the debtor company – Whether debtor company a party to transaction between related company and debtor company’s creditor – ‘Transaction’ encompasses interrelated or composite dealings, including authorisation or ratification of third party payment – Whether creditor received payment in good faith – Rambaldi (Trustee) v Commissioner of Taxation [2017] FCAFC 217, Barclays Bank Ltd v Quistclose Investments Limited [1970] AC 567, Burness, In the matter of Denward Lane Pty Ltd (ACN 065 418 411) (In Liquidation) (1997) 147 ALR 281, Re Emanuel (No 14) Pty Ltd (in liq); Macks v Blacklaw & Shadforth Pty Ltd (1997) 147 ALR 281, Commissioner of Taxation v Kassem (2009) 259 ALR 339, Re Evolvebuilt Pty Ltd [2017] NSWSC 901, Hosking v Extend N Build Pty Ltd [2018] NSWCA 149, Ramsay v National Australia Bank Ltd [1989] VR 59 – Sections 9, 588FA, 588FE, 588FF and 588FG of the Corporations Act 2001 (Cth).

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APPEARANCES:	Counsel	Solicitors
For the First Plaintiff	Mr C R Brown	White Cleland Pty Ltd
For the Defendant	Mr S V Palmer	Oakley Thompson & Co Pty Ltd

HIS HONOUR:

The first plaintiff, Anthony Robert Cant, is the liquidator of the second plaintiff, Eliana Construction and Development Group Pty Ltd (‘Eliana’). The plaintiffs seek a declaration that a payment of $220,000.00 received by the defendant, Mad Brothers Earthmoving Pty Ltd, is voidable pursuant to s 588FE(2) of the Corporations Act 2001 (Cth) (‘the Act’). They also seek an order pursuant to s 588FF of the Act that the defendant pay the plaintiffs the sum of $220,000.00.

Background

Eliana was formed in 2008 and its sole director at all times was Mr Magda Sowitha. It and other related companies carried out property development and building. Rock Development & Investments Pty Ltd (‘Rock Development’) is a related company of which Mr Sowitha was also the director and was the developer that engaged Eliana as the builder in several projects.

In November 2015, Eliana engaged the defendant to carry out earthmoving work at various sites. By March 2016, Eliana had…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2018] VSC 833
Decision Date: 1 November 2018

CaseChat Overview and Summary

The case involved the liquidator of Eliana Construction and Developing Group Pty Ltd, a company in liquidation, and various creditors, including a related entity, contesting the validity of transactions under the Corporations Act 2001 (Cth). The primary dispute was whether certain payments made by a related company to a creditor should be considered as transactions by the debtor company, potentially rendering them voidable as unfair preferences. The matter was heard in the Federal Circuit and Family Court of Australia.

The central legal issues revolved around the interpretation of the term 'transaction' under the Corporations Act and whether the related company's payment to the creditor constituted a transaction involving the debtor company. Specifically, the court needed to determine if the debtor company was a party to the transaction, if the creditor received the payment in good faith, and if the payment could be classified as an unfair preference. These issues were explored in light of various legal precedents and statutory provisions.

The court held that a 'transaction' under the Corporations Act encompasses not only direct dealings but also interrelated or composite dealings, including the authorisation or ratification of third-party payments. It was determined that the related company's payment to the creditor was indeed a transaction involving the debtor company. The court further found that the creditor did not receive the payment in good faith, as the circumstances suggested that the payment was made to secure an advantage for the creditor, rather than as a genuine commercial transaction. Based on these findings, the court ruled that the payments constituted unfair preferences.

Consequently, the court ordered that the payments made by the related company to the creditor be treated as voidable transactions under the Corporations Act. The liquidator was directed to recover the amounts from the creditor to the extent that they represented unfair preferences.

Orders