Rexel Electrical Supplies Pty Ltd v Morton

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SUPREME COURT OF QUEENSLAND

CITATION:

Rexel Electrical Supplies Pty Ltd v Morton (as liquidator of South East Queensland Machinery Manufacturing and Distribution (Mining No. 1) (in liq)) [2015] QCA 235

PARTIES:

REXEL ELECTRICAL SUPPLIES PTY LTD
ACN 000 437 758
(applicant)
v
GAVIN MORTON (as liquidator of SOUTH EAST QUEENSLAND MACHINERY MANFUACTURING AND DISTRIBUTION (MINING NO. 1) (in liquidation))
ACN 050 414 483
(respondent)

FILE NO/S:

Appeal No 3372 of 2015
DC No 4660 of 2012

DIVISION:

Court of Appeal

PROCEEDING:

General Civil Appeal

ORIGINATING COURT:


District Court at Brisbane – [2015] QDC 49

DELIVERED ON:

20 November 2015

DELIVERED AT:

Brisbane

HEARING DATE:

18 August 2015

JUDGES:

Fraser and Philippides JJA and Ann Lyons J
Separate reasons for judgment of each member of the Court, each concurring as to the orders made

ORDERS:

1.   Grant the application for leave to amend the notice of appeal in the form which is annexure “A” to the application filed on 13 August 2015.

2.   Refuse the application for leave to appeal.

3.   Order that the applicant pay the respondent’s costs of the application for leave to appeal, including the costs of responding to the notice of appeal filed on 2 March 2015.

CATCHWORDS:

CORPORATIONS – WINDING UP – CONDUCT AND INCIDENTS OF WINDING UP – EFFECT OF WINDING UP ON OTHER TRANSACTIONS – PREFERENCES AND VOIDABLE TRANSACTIONS – UNFAIR PREFERENCES – where the trial judge found the applicant to be insolvent – where the applicant engaged in transactions with a related entity during the ‘relation-back’ period – where the trial judge concluded that these transactions were an unfair preference – where the applicant contends the trial judge erred in concluding that the relevant transactions were an unfair preference – where the applicant needed leave to appeal because the amount of the judgment in the District Court was less than the monetary limit of the Magistrates Court – where the applicant did not make submissions on this point – whether leave to appeal the trial judge’s factual finding ought be granted

CORPORATIONS – WINDING UP – WINDING UP IN INSOLVENCY – WHAT CONSTITUTES INSOLVENCY – GENERALLY – where the applicant alleged the trial judge had erred in finding the applicant insolvent – where the liquidator gave evidence to the effect that the applicant was insolvent – where there was no evidence contradicting the liquidator – where the balance sheets and profit and loss statements of the applicant did not comply with s 286 of the Corporations Act 2001 (Cth) – where the liquidator did not rely upon unreliable information in those statements – whether the evidence supported a finding of insolvency

Corporations Act 2001 (Cth), s 95A, s 588C, s 588E, s 588FA, s 588FC, s 588FE, s 588FG
District Court of Queensland Act 1967 (Qld), s 118
Magistrates Courts Act 1921 (Qld), s 4

Airservices Australia v Ferrier (1996) 185 CLR 483; [1996] HCA 52, cited
Australian Securities and Investments Commission v Plymin (No 1) (2003) 175 FLR 124;

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Details
Case
[2015] QCA 235
Decision Date

CaseChat Overview and Summary

In Rexel Electrical Supplies Pty Ltd v Morton, the applicant sought leave to appeal against a decision of the District Court of Queensland concerning a winding up order for insolvency. The primary dispute centered on the trial judge's conclusion that the applicant, Management, was insolvent at the time of certain transactions and that these transactions constituted unfair preferences under the Corporations Act 2001 (Cth). The court had to determine whether the trial judge's findings on the applicant's insolvency and the nature of the transactions were legally sound. Specifically, the court examined whether the evidence supported the finding of insolvency and whether the transactions between Management and Inaco were part of a running account or merely payments on existing debts.

The court found that the trial judge did not err in concluding that Management was insolvent. The liquidator's evidence, which was consistent with Management's accounting records and management's testimony, provided sufficient evidence to support the finding of insolvency. The court also addressed the issue of whether the transactions between Management and Inaco constituted a running account, which would affect the calculation of any unfair preference. The primary judge determined that the transactions were not part of a running account but rather were payments on existing debts, subordinating any future supply to the predominant purpose of recovering past indebtedness. This finding aligned with the evidence presented at the trial.

Given the findings, the court refused the applicant's application for leave to appeal. The court held that the reasons provided by the primary judge were adequate and that the applicant had not demonstrated any error in the primary judge's conclusions. The court also granted the applicant leave to amend the notice of appeal to reflect the correct legal issues but ultimately dismissed the application for leave to appeal. Finally, the court ordered that the applicant pay the respondent's costs associated with the application for leave to appeal.

Orders

Orders of the court

1. Grant the application for leave to amend the notice of appeal in the form which is annexure “A” to the application filed on 13 August 2015.

2. Refuse the application for leave to appeal.

3. Order that the applicant pay the respondent’s costs of the application for leave to appeal, including the costs of responding to the notice of appeal filed on 2 March 2015.

Background

Background to the litigation

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Evidence

Evidence Before The Court

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Decision

Reasons for decision

In ground (e) of the draft notice of appeal, Inaco contends that the primary judge erred “in concluding that the matters contained in the liquidator’s report (Ex 3) were of sufficient probative force to justify the conclusion that the [a]ppellant was, at the time of making the payments the subject of the proceedings, unlikely to be able to source funds to meet its debts and was thereby insolvent”. That ground of appeal refers to the liquidator’s evidence that “[g]iven the lack of real assets and the high level of debts, it appears highly unlikely that the Company would have been able to source funds from any other party”. That evidence was given without objection. It is consistent with Management’s accounting records and Ms Spicer’s evidence. The primary judge did not err in the way suggested in this ground of appeal.Insolvency: conclusion I have concluded that the reasons were not inadequate and that the applicant has not made out its contentions that the primary judge erred in finding that Management was insolvent. Leave to appeal upon the grounds of appeal relating to the insolvency point should be refused.Running Account Section 588 FA(3) of the Act provides: “(3)Where:(a) a transaction is, for commercial purposes, an integral part of a continuing business relationship (for example, a running account) between a company and a creditor of the company (including such a relationship to which other persons are parties); and(b)in the course of the relationship, the level of the company’s net indebtedness to the creditor is increased and reduced from time to time as the result of a series of transactions forming part of the relationship;then:(c)subsection (1) applies in relation to all the transactions forming part of the relationship as if they together constituted a single transaction; and(d)the transaction referred to in paragraph (a) may only be taken to be an unfair preference given by the company to the creditor if, because of subsection (1) as applying because of paragraph (c) of this subsection, the single transaction referred to in the last‑mentioned paragraph is taken to be such an unfair preference. Between 20 February and 24 April 2012 Inaco supplied goods on credit to Management in the total value of $31,301.12. At the trial the applicant argued that the amount of any unfair preference should be reduced by that amount by application of the “running account” principle embodied in s 588FA(3) of the Act.[33][33]Defendant’s submissions at [80(b)]; AB 480. The primary judge accepted the liquidator’s argument that, upon the evidence, at the relevant times Management’s account with Inaco was not one involving continuing supply and payment but rather one involving the payment of existing debts. The inference was that the first preferential payment ($16,224.07 on 26 March 2012) was made when Management’s account was on hold, and the balance of the payments were part of a payment plan agreed at a time when Management’s account was on hold and Inaco had expressed its intention to cease trading with Management. The primary judge found that the limited future supply was “subordinated to a predominant purpose of recovering past indebtedness”[34] and concluded that the liquidator had satisfied his onus of proving that the preferential payments were made to reduce a pre-existing indebtedness rather than as part of a continuing business relationship between Management and Inaco; “the relationship from mid-February 2012 when Mr Rae first chased up Inaco’s January invoice of $215,412.80 appears to be characterised by Inaco’s focus on reducing Management’s indebtedness to it … even if that meant doing some further business with it while payments were being made. … The focus was on the past and not the future. There was no running account.”[35][34][2015] QDC 49 at [60].[35][2015] QDC 49 at [61].

Ratio Decidendi

Legal Principle Established

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