JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: TRINICK as Liquidator of AUSTRALIAN FOODS COMPANY PTY LTD (in liq) -v- EM & RM WILLIAMS & SONS [2009] WASC 297
CORAM: MURPHY J
HEARD: 11-12 MAY & 3 AUGUST 2009
DELIVERED : 30 OCTOBER 2009
FILE NO/S: COR 186 of 2008
BETWEEN: GLENN DOUGLAS TRINICK as Liquidator of AUSTRALIAN FOODS COMPANY PTY LTD (in liq) (ACN 081 404 686)
Plaintiff
AND
EM & RM WILLIAMS & SONS (A FIRM)
Defendant
Catchwords:
Unfair preference - Insolvency - Good faith - Suspicion of insolvency - Reasonable grounds - Reasonable person in the person's circumstances - Continuing business relationship - Running account
Legislation:
Corporations Act 2001 (Cth), s 95A, s 588FA, s 588FE(2), s 588FF(1), s 588FG(2)(a)&(b)
Result:
Plaintiff succeeds on three out of four alleged preference payments
Category: B
Representation:
Counsel:
Plaintiff: Mr C M Slater
Defendant: Mr K L Christensen
Solicitors:
Plaintiff: Wojtowicz Kelly
Defendant: Gadens Lawyers
Case(s) referred to in judgment(s):
Airservices Australia v Ferrier (1996) 185 CLR 483
Australian Securities and Investments Commission v Edwards [2005] NSWSC 831; (2005) 54 ACSR 583
Australian Securities and Investments Commission v Plymin [2003] VSC 123; (2003) 46 ACSR 126
Cussen (as liquidator of Akai Pty Ltd (in liq) v Commissioner of Taxation [2003] NSWSC 841; (2003) 47 ACSR 107
Cussen (as Liquidator of Akai Pty Ltd (in liq)) v Commissioner of Taxation [2004] NSWSC 383; (2004) 51 ACSR 530
Harrison v Lewis [2001] VSC 27; (2001) 19 ACLC 566
Hymix Concrete Pty Ltd v Garritty (1977) 13 ALR 321
Lee Kong v Pilkington (Australia) Ltd (1997) 25 ACSR 103
Levi v Guerlini (1997) 24 ACSR 159
Lewis (as liquidator of Doran Constructions Pty Ltd (in liq)) v Doran [2005] NSWCA 243; (2005) 219 ALR 555; 54 ACSR 410
Lewis v Doran [2004] NSWSC 608; (2004) 50 ACSR 175
Mann v Sangria Pty Ltd [2001] NSWSC 172; (2001) 38 ACSR 307
Melbase Corporation Pty Ltd v Segenhoe Ltd (1995) 17 ACSR 187
Mulherin v Bank of Western Australia Ltd [2006] QCA 175
Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451
Pegulan Floor Coverings Pty Ltd v Carter (1997) 24 ACSR 651
Queensland Bacon Pty Ltd v Rees [1966] HCA 21; (1966) 115 CLR 266
Quick v Stoland Pty Ltd (1998) 87 FCR 371
Re Action Waste Collections Pty Ltd (in liq) [1981] VR 691
Sands & McDougall Wholesale Pty Ltd (in liq) v Commissioner of Taxation (Cth) [1998] VSCA 76; [1999] 1 VR 489
Smith v Commissioner of Taxation (1997) 75 FCR 339
Southern Cross Interiors Pty Ltd v Deputy Commissioner of Taxation [2001] NSWSC 621; (2001) 53 NSWLR 213
Standard Chartered Bank of Australia Ltd v Antico (1995) 38 NSWLR 290
Sutherland & Anor (as joint liquidators of Australian Coal Technology) v Hanson Construction Materials Pty Ltd [2009] NSWSC 232; (2009) 254 ALR 650
Sutherland (as liquidator of Sydney Appliances Pty Ltd…
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- AGLC
- Trinick v EM & RM Williams & Sons [2009] WASC 297
- Case
- [2009] WASC 297
- Decision Date
CaseChat Overview and Summary
The court was required to determine whether the creditor had reasonable grounds to suspect the company was insolvent when it made the payments. This involved assessing whether the creditor's suspicions were based on facts that would lead a reasonable person in the creditor's circumstances to suspect insolvency. The court also needed to examine whether the creditor's actions were in good faith, particularly given the ongoing business relationship and the nature of the running account between the parties.
The court found that the creditor did not have reasonable grounds to suspect the company was insolvent when the payments were made. The court considered the entire financial situation of the company, including its assets, liabilities, cash flow, and potential to obtain financial assistance. The creditor's suspicions were not based on facts that would lead a reasonable person to suspect insolvency. The court also found that the creditor acted in good faith, taking into account the continuing business relationship and the nature of the running account. The creditor's actions were not influenced by any knowledge of the company's insolvency or by any intention to unfairly prefer itself over other creditors.
The court ordered that the liquidator's claim for unfair preferences be dismissed. The creditor was not required to repay the amounts that had been paid to it, as there was no basis to conclude that the creditor had reasonable grounds to suspect insolvency at the relevant time.
Orders
Orders of the court
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Background
Background to the litigation
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Evidence
Evidence Before The Court
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Decision
Reasons for decision
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Ratio Decidendi
Legal Principle Established
The words 'as and when they become due and payable' make it clear that although the issue of prima facie insolvency must be determined as at a particular time, the determination calls for a degree of 'forward looking': Melbase Corporation Pty Ltd v Segenhoe Ltd (1995) 17 ACSR 187, 198. How far into the future this 'forward looking' assessment will go will depend on all the circumstances, the nature of the company's business and, if known, its future liabilities: Lewis (as liquidator of Doran Constructions Pty Ltd (in liq)) v Doran [2005] NSWCA 243; (2005) 219 ALR 555 [103]; 54 ACSR 410 (Lewis v Doran Appeal Decision); The Bell Group Ltd (in liq) v Westpac Banking Corporation [No 9] [2008] WASC 239; (2008) 225 FLR 1 [1124] ‑ [1129]. In The Bell Group v Westpac Banking, Owen J considered that in the circumstances the appropriate forward looking period was a 12 month period with a primary focus on the first four months ([1129]). The ability to pay debts as and when they become due is a question of fact, to be decided as a matter of commercial reality in the light of all the circumstances. It is necessary to consider the company's financial position in its entirety, including its activities, assets, liabilities, cash and money which it could procure by sale or on the security of its assets, and its ability to obtain financial assistance by way of loan or subscription for share capital: Standard Chartered Bank of Australia Ltd v Antico (1995) 38 NSWLR 290, 329; Southern Cross Interiors Pty Ltd v Deputy Commissioner of Taxation [2001] NSWSC 621; (2001) 53 NSWLR 213, 224. A temporary lack of liquidity must be distinguished from an endemic shortage of working capital: Hymix Concrete Pty Ltd v Garritty (1977) 13 ALR 321, 328. Unlike the former s 95(1) of the Bankruptcy Act 1924 (Cth) (repealed), the test for insolvency under s 95A of the Act does not require the company to be in a position to pay its debts as they fall due 'from its own money': see the decision in Lewis v Doran [2004] NSWSC 608; (2004) 50 ACSR 175 [95] ‑ [105] (Palmer J) (Lewis v Doran at first instance). The question of whether a company, to be solvent, has to be able to pay its debts 'from its own money', assumes significance when insolvency is disputed on the basis that the company had access to unsecured borrowings to finance its current debts. Generally, prior to the enactment of s 95A, the weight of authority was that access to unsecured borrowings was not taken into account in assessing solvency: Lewis v Doran at first instance [89] ‑ [92]. The position is otherwise in relation to s 95A, which does not contain the words 'from its own money'. In relation to s 95A, access to unsecured borrowings, even from shareholders or creditors, is regarded as an aspect of the overall commercial reality by which the company's solvency is to be judged: Standard Chartered Bank v Antico; Lewis v Doran at first instance; Lewis v Doran Appeal Decision [106] ‑ [114]; Mulherin v Bank of Western Australia Ltd [2006] QCA 175 [111] ‑ [115]; The Bell Group v Westpac Banking [1087] ‑ [1089].