A six figure settlement for an unfair preference claim from a #PPSR registered creditor.
Lucky the Liquidator couldn’t believe his eyes. SteelBars P/L thought they had done everything right by registering.
What they didn’t know is that as their client (“AFN”) was a trustee for a trust, the registration must be on the ABN of the trust, and not the ACN of the corporate client.
Meaning they had no security under the PPSA.
On Thursday I wrote about whether an ROT clause could be security under the unfair preference provisions (ie s588FA(2))?
As this area of law is grey, Lucky knows a commercial resolution can be achieved if he can show that the value of any security will be difficult for anyone to establish.
So Lucky creates a formula:
IF X is unreasonably greater than W AND Y AND Z, THEN SteelBars likely had no valuable security.
X = Avg (COGS/Inventory)
W = Avg days to pay SteelBar’s invoices
Y = Debtors/Net Sales
Z = Creditors/Net Sales
Let me explain:
Assume AFN buys from SteelBars on Day 1, on-sells at day 15 (this is X), is paid day 45 (Y), pays creditors day 50 (Z), but doesn’t pay SteelBar until day 115 (W).
That’s a big ‘unreasonable’ gap, especially if there is no ability to trace SteelBar’s stock.
What do you think?
