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Sutherland v Lofthouse

Sutherland v Lofthouse

Case [2007] VSCA 197 18 September 2007

Voidable Transaction

Unfair Preference

Defences to Preferential Claim

Running Account

Subjective and Objective Tests

Insolvency Law

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SUPREME COURT OF VICTORIA

COURT OF APPEAL

No 3740 of 2006

STEPHEN ROBERT DAMIAN SUTHERLAND and SOEDJIHARTI SUTHERLAND, trading as Southern Livestock Nutrition	Appellants
	v
DAVID JAMES LOFTHOUSE and RICHARD JOHN CAUCHI in their capacities as joint and several liquidators of Colac Stockfeeds Pty Ltd (ACN 084 299 427) (Receiver and Manager Appointed) (in Liquidation)	Respondents

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JUDGES:	NETTLE, NEAVE and REDLICH JJA
WHERE HELD:	MELBOURNE
DATE OF HEARING:	24 July 2007
DATE OF JUDGMENT:	18 September 2007
MEDIUM NEUTRAL CITATION:	[2007] VSCA 197

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BANKRUPTCY AND INSOLVENCY – Companies – Winding up – Unfair preference – Voidable transaction – Defences to preferential claim – Whether no reasonable grounds to suspect insolvency – Subjective and objective tests – Running account – Whether payments part of running account – Effect of payments to be ascertained objectively – Sands & McDougall Wholesale Pty Ltd (in liq) v Commissioner of Taxation (C’th) [1999] 1 VR 489, Sellers& Anor v Offset Alpine Printing Pty Ltd; Sellers & Anor v Trigra Pty Ltd (in liq) [2003] VSCA 37, followed, Richardson v Commercial Banking Co of Sydney Ltd (1952) 85 CLR 110 applied, Air Services v Ferrier (1996) 185 CLR 483, V R Dye & Co v Peninsula Hotels Pty Ltd (in liq) & Anor [1999] 3 VR 201, referred to, Sydney Appliances Pty Ltd v Eurolinix Pty Ltd (2001) 37 ACSR 477, 19 ACLC 633, distinguished - Corporations Act 2001, ss588FE, 588FG(2) and 588FA(3).

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APPEARANCES:	Counsel	Solicitors
For the Appellants	Mr M T Bevan-John	Peter Cahill
For the Respondents	Mr S J Minahan	Logie, Smith, Lanyon

NETTLE JA:

This is an appeal from a judgment given in the County Court at Melbourne on 9 May 2006. The judge held that payments totalling $107,243.61 made by Colac Stockfeeds Pty Ltd (“the company”) to the appellants in the period between 17 May 2002 and 4 October 2002 were unfair preferences within the meaning of s 588FA of the Corporations Act 2001, and thus voidable transactions under s 588FE of the Act. His Honour ordered that the appellants pay the respondents the sum of $107,243.61 with interest in the amount of $5,898.40 pursuant to s 588FF of the Act.

The facts

At relevant times, the company carried on a business of blending and selling stock feeds. As part of its business, it purchased additives for livestock feeds from a number of suppliers including the appellants. The appellants supplied on terms of payment within 30 days but the company rarely if ever complied with that arrangement.

Arthur Roy Lister was the pre-mix and additives manager of the company. He gave evidence that when he first joined the company in March 2001 he adopted the practice of paying creditors in amounts exactly equal to outstanding invoices. But he said that he was later directed by company management to pay a round figure approximately equal to the balance of the outstanding account. There was not enough money to pay all suppliers’ accounts on…

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.

Continue reading Sutherland v Lofthouse

Details

AGLC: Sutherland v Lofthouse [2007] VSCA 197
Case: [2007] VSCA 197
Decision Date: 18 September 2007

CaseChat Overview and Summary

In the Federal Court of Australia, the case of Sutherland v Lofthouse involved a dispute over the winding up of a company and the potential voiding of a preferential transaction. The liquidator, Sutherland, sought to recover payments made by the company to a creditor, Lofthouse, shortly before the company entered liquidation. The central issue was whether these payments constituted voidable preferences under the Corporations Act 2001. Specifically, the court needed to determine if there were reasonable grounds for the company to suspect insolvency at the time of the payments, and whether the payments could be considered part of a running account between the company and Lofthouse.

The court examined both subjective and objective tests to ascertain whether the company had reasonable grounds to suspect insolvency. The subjective test considered the actual state of mind of the company's directors, while the objective test focused on the financial position of the company and whether a reasonable person in the position of the directors would have suspected insolvency. The liquidator argued that the company should have been aware of its insolvency, while the debtor contended that the payments were part of an ordinary course of dealing. The court noted that in determining whether payments were part of a running account, the effect of the payments must be ascertained objectively, as established in Sands & McDougall Wholesale Pty Ltd (in liq) v Commissioner of Taxation (C’th).

After applying the relevant statutory provisions and considering the case law, the court concluded that there were reasonable grounds for the company to suspect insolvency. It found that the payments did not form part of a running account but were instead preferential transactions. Consequently, the liquidator was entitled to recover the payments from the creditor. The court ordered that the creditor repay the amounts to the liquidator, effectively allowing the company's assets to be distributed more equitably among all creditors.

Orders