Recovering prefo’s from PPSA creditors

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? 

#SVVoidables

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