Rexel Electrical Supplies Pty Ltd v Morton (as liquidator of South East Queensland Machinery Manufacturing and Distribution (Mining No. 1) (in liq) [2015] QCA 235

In brief: An Appeal from a decision of the District Court of Queensland largely based upon evidentiary grounds concerning an unfair preference action, inclusive of: the good faith defence; the running account defence; the liquidators reliance upon books and records to determine solvency. 

Taylor David represented the successful Respondent Liquidator in this Appeal. 

Despite what many within the insolvency industry have viewed with controversy, the set-off  applied in the original District Court decision was not raised or addressed by the Court of Appeal.  It appears that is is only a matter of time before a superior court reconsiders the application of set-off to an unfair preference claim under section 553C of the Corporations Act 2001.


Grounds of Appeal

The grounds of appeal were broadly based upon claims the learned Trial Judge erred in:

1. Admitting certain documents into evidence.
2. His finding of insolvency based upon certain documents.
3. Failing to address the matters within the Appellants submissions.
4. Failing to give consideration to related party funding when determining solvency.

Result

All points of appeal failed largely for the following reasons:

1. The Appellant failed to adduce any evidence to contradict the Respondents evidence raised at first instance.
2. It was not necessary for the trial judge to frame his reasons with reference to the checklist within Australian Securities and Investments Commissioner v Plymin (No 1).
3. Due regard was provided to the relevant statutory and common law authorities.
4. The initial notice of appeal ‘…was incompetent because of the absence of an application for and grant of leave to appeal.’

Orders

The appeal was dismissed with costs.
 
Implications

The original decision of the District Court remains unchanged, namely:

• On Set-Off – Set offs under s 553C are available where unfair preferences apply: This is the first time an Australian Court has determined that s 553C can apply to unfair preferences.  The decision of Buzzle Operations Pty Ltd (in liq) v Apple Computers Australia (involving the set-off of an uncommercial transaction rather than an unfair preference) was followed.  We reiterate this was not a matter considered by the Court of Appeal.
• On Solvency - Liquidators reliance upon books and records available to him/her: The failure of a company to keep correct written records (to satisfy s 286 of the Act) does not, of itself, destroy the basis of permitted reliance on those documents which are available in deciding issues such as insolvency and indebtedness at a particular point in time, or their efficacy.
•  On Running Account - Continued provision of goods/services may be isolated extensions of credit: Continuing to do business with a company may not constitute a series of transactions within a continuing business relationship, but rather, isolated extensions of credit ancillary to the primary objective of being paid.

•  On ‘Good Faith’ – Defence not made out notwithstanding some payments made pursuant to an agreed plan.

Author: Scott D. Taylor

For a copy of the full judgement, please click here.