Sutton v Be Australia WD Pty Ltd (Subject to a Deed of Company Arrangement)

Sutton, as liquidator of Be Australia WD Pty Ltd (in liquidation), brought proceedings against Be Australia WD Pty Ltd (subject to a Deed of Company Arrangement) seeking to recover alleged voidable transactions. The dispute concerned whether certain payments made by Be Australia WD Pty Ltd to its director, Mr. Sutton, constituted an unfair preference or an uncommercial transaction under the *Corporations Act 2001* (Cth). The matter was heard in the Federal Court of Australia.

The primary legal issues before the court were whether the payments made by the company to Mr. Sutton were voidable as unfair preferences under section 588FA of the *Corporations Act 2001* (Cth), and alternatively, whether they were voidable as uncommercial transactions under section 588FB of the *Corporations Act 2001* (Cth). The court was required to determine if these transactions had the effect of unfairly preferring Mr. Sutton over other creditors of the company, and if they were entered into on terms that were significantly less favourable to the company than those that could have been obtained by a reasonable person in the company's circumstances.

The court considered the timing of the payments in relation to the company's insolvency and the nature of the transactions. It applied the principles established in case law regarding unfair preferences, focusing on whether the payments were made during the relevant suspect period and whether they resulted in Mr. Sutton receiving more than he would have if the company had been wound up at the time of the payments. For the uncommercial transaction claim, the court assessed whether the terms of the payments were objectively disadvantageous to the company, taking into account the company's financial position and the absence of any commercial justification for the terms.

The court found that the payments did not constitute unfair preferences as they were made in the ordinary course of business and did not have the effect of unfairly preferring Mr. Sutton. However, the court determined that some of the payments were uncommercial transactions, as they were made on terms that were significantly less favourable to the company than those that could have been obtained by a reasonable person in the company's circumstances. Accordingly, the court made orders setting aside those uncommercial transactions and requiring Mr. Sutton to repay the amounts to the liquidator.