Pursuing UROT payments as prefo’s

Bec the Liquidator found $250k in payments made to a partially secured trade creditor (“TC”).

She decides that she has an unfair preference (“UP”) claim against TC, but is concerned that as TC is a secured creditor, TC may not be susceptible to the UP.

Bec decides to go to her UP checklist, which reads as follows:

Step 1: Check the #PPSR for TC’s registration. If no registration, go to step 2, otherwise go to step 3.

Step 2: Even if TC failed to register on the PPSR, a ROT clause may be enough to deem security for the purposes of s588FA(2).

BUT NOTE: Hussain case says yes in obiter, Yamaha Music case and Christopher Pearce say no.

I say no as well.

Step 3: If TC has security, it all depends on the value of that security, per s588FA(2).

Step 4: The value could be determined at the date of: (a) the trade terms; (b) each of the payments; or (c) the relation-back day. It’s not clear when. I favour (c).

Step 5: According to Yamaha Music and Chicago Boot cases, TC bears the burden of proving the value of its security.

Step 6: Other issues to consider are: type of goods supplied, whether comingled or affixed to land, whether the proceeds can be traced (like my ET article the other day) and $value of goods realised on appointment.

Should Bec pursue the UP?

#SVVoidables

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