Not all that Glitters is Gold – Creditor Defeats Unfair Preference Claim
In the matter of Heavy Plant Leasing Pty Ltd (In Liquidation) (“HPL”)  NSWSC 707 Brereton J has upheld the s 588FG(2)‘Good Faith’ defence run by defendant Ms Christine Mancer of Bildavoid Concrete Voidforming Systems (“Bildavoid”).
- HPL was placed into Voluntary Administration on 14 March 2013 and went into Liquidation on 20 December 2013.
- HPL performed earthworks in the construction industry.
- HPL initially ordered product from Bildavoid in October 2012 and remitted payment within the prescribed payment timeframe being 30 days EOM.
- HPL remitted a further order which was invoiced on 30 October 2012 (which became due and payable on 30 November) in the amount of $149,265.79.
- Polite effort was made by Ms Mancer to procure payment prior to the Christmas break.
- From 2 January 2013 Ms Mancer subsequently increased pressure for payment including the threat of being placed on stop supply.
- On 11 January 2013 HPL represented to Ms Mancer that payment was made, however this subsequently did not occur.
- Continued emails from Ms Mancer to the company chasing payment.
- On 31 January 2013 Ms Mancer emailed HPL threatening imminent legal action and potential adverse credit reporting.
- The following day payment in full was remitted with an accompanying email apologising for the delay in payment and laying blame at the feet of the head contractor being ‘very difficult over the preceding month’.
The Court observed that in order to run a successful s 588FG(2) defence, the onus is on the defendant creditor to establish an absence of reasonable grounds for suspicion.
Accordingly, Brereton J analysed the late payment of invoices and the dealings between the debtor company and creditor and made the following comments:
“…..recalcitrance by a debtor does not itself provide grounds to suspect insolvency; still less does mere late payment by debtor provide of itself grounds to suspect insolvency. Thus, the fact that it is necessary to resort to conventional debt collection procedures to recover a debt from a late or recalcitrant debtor does not necessarily provide grounds to suspect insolvency. In many circumstances, recalcitrance or late payment is explicable by cash flow difficulties, or other matters falling short of the permanent state of insolvency to which s 588FG refers”.
Further, Brereton J made comments relating to mitigating circumstances relating to non-payment including:
- the fact that this coincided with the Christmas period which resulted in communication difficulty due to executives being absent on holiday;
- that the delay took place in the context of the construction industry and involved a subcontractor who are notorious for cash flow difficulties; and
- the delay in payment was explained with a not implausible reason that assumedly had been rectified.
- Brereton J highlighted the fact that ultimately one must look at the state of mind of the payee at the time when the payment was received and put heavy reliance on the fact that:
- payment was made one day after the threat of litigation;
- payment was made in full without any suggestion of part payment or instalment arrangement; and
- payment was made with the firm’s suggestion that the delay was associated with problems with the head contractor.
- On multiple occasions Brereton J referred to the fact that payment was made in full without any question of a part payment or repayment arrangement.
- In relation to the increased threats and pressure exerted by Ms Mancer, Brereton J commented:
” ….. But those are steps that are taken just as much by an unpaid creditor of a solvent debtor as they are by an unpaid creditor of an insolvent debtor. The fact that the creditor applies pressure of that order to secure payment does not, to my mind, to illustrate that the creditor fears or apprehends that the debtor is insolvent. In that respect, it is notable that the pressure resorted to did not reach the point of actual reference to a debt collector, nor the issue of recovery proceedings, nor the issue and service of a creditor’s statutory demand. Moreover, the threat of reference to a credit agency produced immediate payment in full”.
Perhaps, the above noted absence of payment arrangements, referral to a debt collector, or the issuance of legal proceedings can be extrapolated out as indicators as to when the Good-Faith defence will not be upheld.
Perspective – as always, is also critical, with external factors such as time of year, and industry also needing to be taken into account.
For further information on how Pretium Funding can support you or your clients in pursuing preferential payments, please contact Kovi Paneth on (03) 9670 3259.