Court Awards Liquidators Unfair Preference Payments

In the matter of Trenfield v HAG Import Corporation (Australia) Pty Ltd the court was required to consider whether the liquidators of Lineville Pty Ltd were entitled to recover a number of payments as preferences pursuant to s588FA of the Corporations Act 2001 Cth. The payments in question were made by Lineville to HAG Import Corporation, with HAG disputing the liquidator’s entitlement to the payments on the basis that they were not made in respect of an unsecured debt. In doing so, HAG argued that the payments were amounts paid for goods which had been supplied to the company on terms granting HAG a security over the goods or the proceeds of sale of those goods, and that the value of HAG’s security was in excess of the amount paid.

In reaching a conclusion, the court was required to consider:

  • Whether the security interest had been perfected;
  • Whether the creditor was a secured creditor, and if so, at what point in time; and
  • How any security was to be valued

Had the Security Interest Been Perfected?
The court applied s267 of the PPSA which provides that correct registration of a security interest prevents the security from vesting in a liquidator or administrator if the company goes into external administration. Here, the registration was not valid for the purposes of the PPSA and thus upon appointment of the administrators, any security interest held by HAG vested in Lineville. In delivering its verdict, the court held that the security interest had not been perfected as it had incorrectly been identified as ‘transitional’.

Despite this, the court ultimately contended that the unperfected security interest was still effective between the parties. In doing so, it held that the PPSA does not make an unregistered security interest completely void.

When Did the Creditor Become Secure?
The court held that the relevant time for determining whether the debt was unsecured is pursuant to the time of each payment. In doing so, it applied s588FA (2) of the Corporations Act, contending that the security has to be valued at the date of each particular payment, in order to perform the calculation required by subsection (2).

How Any Security Was To Be Valued?
After much consideration as to how the value of the security was to be determined, the court held that it was to be assessed as the value of the security to the creditor. Relevantly, it held that in circumstances where there was no expert evidence as to the appropriate basis to value the goods, the matter must be resolved as a matter of common sense. Accordingly, the court held that the appropriate way to value the stock held by the company is at the wholesale price.

Concluding Judgement
Ultimately, judgement was handed down in favour of Lineville, with HAG ordered to pay its liquidators $473 291 plus interest pursuant to s58 of the Civil Proceedings Act 2011.  However, in determining the period for which interest will accrue, the court contended that HAG must be allowed a reasonable time after the demand was made by the liquidators before interest begins to run. According to the statement of claim admitted by the HAG, the first letter of demand was sent on 7 August 2014, and further letters of demand were sent on 3 December 2014, 18 February, 30 April, 17 July and 28 September 2015. It was thus held that interest was payable from 7 August 2015, 12 months after the first letter of demand.

At James Conomos Lawyers we are experienced in Commercial Litigation. If you or your business needs assistance navigating a complex legal dispute, please call us on 1800 JCL LAW to speak with one of our friendly staff.