Re Eliana Construction and Developing Group Pty Ltd (No 2)

The Court of Appeal considered an appeal by Mad Brothers against a decision finding that a payment made by Eliana Construction and Developing Group Pty Ltd to Mad Brothers constituted an unfair preference under the Corporations Act 2001 (Cth). The appeal involved the interpretation of sections 9, 588FA, 588FE, 588FF, and 588FG of the Corporations Act in the context of payments made by a company associated with the debtor to a creditor, and whether such a payment constituted an unfair preference if received in good faith. The central legal issues before the Court were whether the payment by Eliana to Mad Brothers constituted an unfair preference and, if so, whether Mad Brothers had established a good faith defence under section 588FG(2) of the Act.

The Court found that Mad Brothers had established the good faith defence, concluding that the circumstances known to Mad Brothers at the time of receiving payment did not give rise to a positive apprehension of actual insolvency in the mind of a reasonable person. The Court considered the evidence of Mr Maddalon and Ms Haddrell, who were directors of Mad Brothers, and determined that the facts they appreciated did not include any evidence of actual insolvency or circumstances that would have led a reasonable person to suspect insolvency. Furthermore, the Court found that Mad Brothers had acted in good faith, as they had taken legal advice to settle the proceedings to avoid potential adverse costs, which was consistent with a genuine belief in Eliana's solvency based on the information available at the time.

The Court allowed the appeal and set aside the orders made by the associate justice, finding that there was no unfair preference given by Eliana to Mad Brothers. The Court noted that even if there had been an unfair preference, Mad Brothers had successfully established the good faith defence. The Court will hear the parties on the issue of costs.

The ratio of the decision is that where a creditor has a reasonable belief in the solvency of the debtor based on the information available at the time of receiving a payment, and takes steps to mitigate potential adverse consequences, this can constitute a good faith defence to a claim of unfair preference. The Court's decision underscores the importance of the creditor's actual knowledge and belief in assessing the existence of an unfair preference.