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Walsh v Natra Pty Ltd

Walsh v Natra Pty Ltd

Case [2000] VSCA 60 28 April 2000

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SUPREME COURT OF VICTORIA

COURT OF APPEAL Not Restricted

No.5363 of 1998

JOHN MARTIN WALSH as liquidator of MOONEY & CO. PTY. LTD. (in liquidation) (ACN 004 295 916)

Appellant(Plaintiff)

NATRA PTY. LTD. (ACN 004 399 188)

Respondent (Defendant)

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JUDGES:	PHILLIPS, CHARLES and CALLAWAY, JJ.A.
WHERE HELD:	MELBOURNE
DATES OF HEARING:	16 and 17 February, 2000
DATE OF JUDGMENT:	28 April, 2000
MEDIUM NEUTRAL CITATION:	[2000] VSCA 60

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Corporations – Insolvency – Winding up - Unfair preferences – Payment to partly secured creditor before winding up – Whether voidable transaction – Comparison with likely return in “a winding up” – Whether comparison requires hypothetical winding up on date of payment – Meaning of likely return when only part payment is made to unsecured creditor – Whether payment made to creditor as secured or unsecured: Corporations Law Pt.5.7B Division 2, ss.588FA, 588FC, 588FE.

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APPEARANCES:	Counsel	Solicitors
For the Appellant	Mr. A.A. Nolan	Abbott Stillman & Wilson
For the Respondent	Mr. G.S. Lucas	Phillips Fox

PHILLIPS. J.A.:

For many years, Mooney & Co. Pty. Ltd. (“the company”) carried on business as a retailer of motor vehicle radiators and the respondent, Natra Pty. Ltd. (“Natra”), was its supplier, on running account. In May 1992 Natra took a mortgage over certain land at Carlsruhe which the company owned, as security for the amount that was owing from time to time. It was a second mortgage because the bank at which the company kept its trading account already held a first mortgage for what was owing to it.

In June 1993, Natra refused to supply the company with any more radiators except for cash on delivery. On 30 August, Natra ceased supplying goods altogether and the company had to find an alternative supplier, which it did. By September, the amount owing by the company to Natra was in excess of $200,000 and on 15 October 1993 Natra served notice to pay under the mortgage. A little later it served a notice under s.459 of the Corporations Law. At about this time, there was some discussion between debtor and creditor about the company making payments on account and paying the balance from the sale of the land which was mortgaged. Natra was apparently aware that the land, if sold, would not yield sufficient to pay all that was owing to it.

In the result, between 26 November 1993 and 10 February 1994, the following payments were made out of the company’s bank account to Natra on account of what was owing to it:-
26 November 1993   $40,000
7 December                500
17 December   500
23 December   500
30 December                  500
2 January 1994               500
6 January  500
12 January  500
14 January  500
1 February                   5,000
10 February 1994         2,000
Thus, in a period of three and a half months Natra received payments totalling $51,000, though the land was not sold. The company continued trading and in the course of trading paid all of its trade creditors, save Natra. It is common ground…

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 Walsh v Natra Pty Ltd

Details

AGLC: Walsh v Natra Pty Ltd [2000] VSCA 60
Case: [2000] VSCA 60
Decision Date: 28 April 2000

CaseChat Overview and Summary

The case of Walsh v Natra Pty Ltd dealt with the issue of whether a payment made to a partly secured creditor prior to the company's winding up constituted an unfair preference under the Corporations Law. The dispute arose between Walsh, a creditor of Natra Pty Ltd, and the company itself, which was in the process of being wound up. The primary question before the court was whether the payment made to the partly secured creditor was an unfair preference, as defined in the relevant sections of the Corporations Law.

The legal issues that the court had to resolve included whether the comparison required for determining if a transaction is an unfair preference necessitated a hypothetical winding up on the date of the payment, and if the likely return in a winding up should be compared when only a partial payment is made to an unsecured creditor. Additionally, the court had to determine whether the payment was made to the creditor as a secured or unsecured creditor for the purposes of assessing whether it was an unfair preference.

The court's reasoning involved a detailed analysis of the statutory provisions under the Corporations Law, particularly sections 588FA, 588FC, and 588FE. The court held that the comparison for determining whether a transaction is an unfair preference must be made in light of what would have occurred in a hypothetical winding up on the date of the payment. The court also found that when a partial payment is made to an unsecured creditor, the likely return in a winding up should be assessed based on the proportion of the debt that remains unpaid. The court further concluded that for the purposes of determining whether a payment constituted an unfair preference, the creditor should be treated as unsecured to the extent that the payment did not fully discharge the debt.

The court's final orders were that the payment made to the partly secured creditor was an unfair preference, as it did not result in a likely return in a winding up that was equal to the return that an unsecured creditor would have received. The court voided the transaction and directed that the amount paid to the creditor be recoverable by the liquidator for the benefit of the company's creditors.

Orders