It's an unfortunate situation that those who provide a product or service often find themselves in. They've done the work, provided a product, invoiced for the work or product and are therefore entitled to be paid. It can therefore be quite a shock to receive a letter from a liquidator demanding back payment of the money due to an unfair preference.
Madgwicks is pleased to be presenting our eight-part series on unfair preferences as we delve into the practical realities of dealing with an unfair preference. You can visit our first article outlining 'What is an unfair preference?' here.
Good news for liquidators: in certain circumstances, additional transactions can be added to an existing unfair preference claim after the expiry of the time limit.
What you need to know
- The New South Wales Court of Appeal (and approved by the Federal Court of Australia) has recently settled the law as to whether additional transactions can be added to a claim by a liquidator in some circumstances.
- Liquidators who bring a claim for preference payments within the three-year time period prescribed by the Corporations Act 2001 (Cth) (Act) may now add additional preferences to that claim.
The case of Sydney Recycling Park Pty Ltd v Cardinal Group Ltd (in Liquidation)  NSWCA 329 (Sydney Recycling Park) settles the law in the area of unfair preferences. The Federal Court has since approved this approach.1
In Sydney Recycling Park, the liquidators brought proceedings seeking orders that various payments were made on the basis that they were unfair preferences, insolvent transactions and voidable transactions. The proceedings were filed within the time limit stipulated by s 588FF(3)(a) of the Act.
After the expiry of the time limit, the liquidator sought leave to file an amended statement of claim which included additional payments. The payments were said to arise out of the same facts as those in the original statement of claim. The liquidator stated that:
- During the course of their examinations they uncovered further transactions.
- They had commenced 20 similar proceedings.
- The omission of the payments was because of the bulk of documents they had to review, the lack of funding available to them, the destruction of company records prior to their appointment, and reliance of MYOB records and supplier ledgers.
The Court conducted an extensive analysis of the relevant acts and case law in this area. It found that a series of dealings may constitute a "transaction" if they are connected in bringing about a change in the company's rights, liabilities or properties.
As such, the Court held, in specific circumstances, a liquidator can add transactions to an existing proceeding even if the timeframe for filing the original application has expired.
Why this case is significant
It is common that multiple unfair preference matters be run simultaneously by liquidators. In these instances sometimes more transactions come to light whilst these cases are on foot. Often the Court will make a ruling in one case about the date of the insolvency of the company, which then impacts the other cases not yet heard.
In the past, if further transactions came to light after the time period has expired, then there was a good argument that a liquidator could not amend their claim to include these new transactions. The creditors potentially missed out on these further recoveries. The Court in this case has quashed this argument and given liquidators the flexibility to make amendments to their claim as their investigations unfold.
1 The Federal Court has approved this in the matter of Bryant v LV Dohnt & Co Pty Ltd in the matter of Gunns Ltd (in liquidation)(receivers and managers appointed)
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances. Madgwicks is a member of Meritas, one of the world's largest law firm alliances.