A David v Goliath decision was handed down yesterday in the WA Court of Appeal concerning fundamental principles of corporate voidables law. This time Goliath has had a bit of a win.
The facts are rather convoluted, but the basic gist is that payments of about $10m were paid to a parent company (which is now in liquidation) from the subsidiary (which is now in liquidation). The parent then paid the $10m to a third party creditor of the parent (called Hickory).
The subsidiary liquidators sought orders that the relevant payments to Hickory were unfair preferences and uncommercial transactions.
At first instance, Hickory was successful in dismissing the liquidators claims on the basis that they had a good faith defence (section 588FG(1)(b) Corporations Act).
Represented by some Goliath’s of industry, the liquidators have now successfully appealed this decision, with the remainder of the case remitted back to the Supreme Court.
- the good faith defence has both an objective and subjective limb. The first instance Judge incorrectly applied the objective limb by focusing particular prominence to Hickory’s director’s subjective appreciation of matters. The proper starting point is the “hypothetical, average, reasonable business person”.
- despite the liquidators contentions, the Court found that it was unnecessary for Hickory to have called every witness to the dealings with the parent and subsidiary in relying upon the good faith defence. Once the Court had established that the director of Hickory was the ‘controlling mind’ of Hickory, it was not fatal that the Court was not taken to the aggregate of the thoughts of all of Hickory’s relevant employees. Very interesting!
Hickory is also concerned that if the Court was to order in favour of the subsidiary liquidator, the parent liquidator may commence a ‘double dipping’ proceedings to recover the same amount. The Court does not decide on this point yet.