Sutherland (Trustee) v Yip

Sutherland (Trustee) v Yip concerned a dispute between the trustee of a bankrupt's estate and a creditor of the bankrupt. The trustee sought to recover certain payments made by the bankrupt to the creditor, alleging they were voidable preferences. The matter came before Judge Hartnett in the Federal Court of Australia.

The primary legal issue before the Court was whether the payments made by the bankrupt to the respondent creditor constituted voidable preferences under section 122 of the *Bankruptcy Act 1966* (Cth). This required the Court to determine if the payments were made within six months of the bankruptcy, if they had the effect of giving the respondent a preference over other creditors, and if the respondent had reasonable grounds to believe the bankrupt was insolvent at the time of receiving the payments.

Judge Hartnett found that the payments were made within the relevant six-month period and that they did have the effect of preferring the respondent over other unsecured creditors. Crucially, the Court held that the respondent creditor did not have reasonable grounds to believe the bankrupt was insolvent at the time the payments were made. The evidence did not establish that the respondent was aware of the bankrupt's financial difficulties to the extent required to negate the defence. Consequently, the payments were not voidable preferences.