Third party unfair preferences – a change in the law?

The very recent third party unfair preference payment case from the Vic Court of Appeal seems to have got quite a lot of people talking, and some have gone as far to say that it’s a big change in the existing law. My two cents: it’s not!

Case: Cant v Mad Brothers Earthmoving Pty Ltd [2020] VSCA 198 

The case involved:

  • Eliana (company in Liquidation)
  • Mad (creditor that was owed $220k+ by Eliana)
  •  Rock (related party of Eliana)
  • Rock borrowed monies from a financier and paid the $220k debt of Eliana to Mad

The most important point of the case was that the Court made a factual finding that Eliana owed monies to Rock at the time of this payment. Although the Liquidator tried to argue it was the other way round, they were not successful.

Why is this important?

Because if Eliana was owed monies from Rock, then the effect would have been to diminish the asset pool of Eliana (by using an accounts receivable to pay an accounts payable, contrary to the pari passu rules).

Instead, the factual findings were that an accounts payable was simply replaced by another accounts payable. No assets “from the company” were transferred.

I find it difficult to reconcile the Court’s judgment at paragraph 122 with 123. And the point made at paragraph 120(a) does not sit well with me … but I will leave that for another day!

#svvoidables #insolvency

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