(2003) 48 ACSR 204
Dean-Wilcocks v Commissioner of Taxation [2008] NSWSC 1113
ErmayneSims v Tech Holdings Pty Limited, Re (1998) 30 ACSR 330
Mann v Sangria Pty Ltd [2001] NSWSC 172(2004)51 ASCR 530
Queensland Bacon Pty Limited v Rees (1966) 115 CLR 256[1966] HCA 21
Sandell v Porter (1966) 115 CLR 666
Judgment (6 paragraphs)
[1]
Solicitors:
Squire Patton Boggs (Plaintiffs)
Pak Law (Defendant)
File Number(s): 2016/ 77602
[2]
Judgment (EX TEMPORE)
The plaintiffs Neil Robert Cussen and John Lethbridge Greig were appointed voluntary administrators of the company Heavy Plant Leasing Pty Limited (HPL) on 14 March 2013, and became its liquidators on 20 December 2013. For relevant purposes, the relation-back day is 14 March 2013, when they were appointed administrators. In these proceedings, by originating process filed on 11 March 2016, they apply pursuant to (CTH) Corporations Act 2001, s 588FF, to recover as an unfair preference, insolvent transaction and voidable transaction a payment of $152,609.79 made by the company on 1 February 2013 to the defendant Ms Christine Mancer, who carries on business as Bildavoid Concrete Voidforming Systems (Bildavoid). Claims in respect of earlier payments pleaded in the statement of claim were not pressed.
The receipt of the subject payment was admitted, as was actual insolvency of the company on the date of its receipt. In issue in the proceedings are, first, whether or not the payment was preferential, in the sense that the defendant received more than she would if the payment were set aside and she were required to prove for it in the liquidation; and secondly, the defence under Corporations Act, s 588FG, and in particular whether the defendant had reasonable grounds to suspect insolvency at the time of receipt of the payment - the liquidators accepting that the payment was received in good faith and that valuable consideration was given.
[3]
Preferential payment
The first issue, being whether the payment had a preferential effect, may be shortly disposed of. The financial position of the liquidation is not by any means entirely clear. No dividend has yet been paid. However, the evidence indicates that the claims against the company include a secured debt to ANZ of approximately $50,000,000, in respect of which receivers appointed by the secured creditor have realised about $20,000,000, leaving a balance outstanding after interest and costs in the order of $37,350,000; and unsecured claims of $32,700,000; plus a disputed claim asserted by McConnell Dowell Constructions (Aust) Pty Ltd (McConnell Dowell) in a cross-claim, in proceedings in the Construction List, for in excess of $15,000,000.
The only asset of significance is a claim asserted by the company against McConnell Dowell which, at its highest, is quantified by the liquidators at approximately $66,000,000, but more realistically at $26,000,000, even on an optimistic scenario. In their addendum report to creditors, the liquidators express the view that, on a pessimistic basis, after recoveries and payment of the secured creditor, there would be a deficiency of $44,000,000 before providing for unsecured creditors, and a further $51,000,000 of unsecured and contingent creditor claims; while on an optimistic basis, providing for recovery of the claim against McConnell Dowell at $26,000,000, there would still be a deficiency before unsecured creditors of in excess of $7,000,000, together with a further $50,000,000 of unsecured creditors. On the pessimistic scenario secured creditors would not receive 100 cents in the dollar, and priority and ordinary unsecured creditors would receive nothing; while in the optimistic scenario, secured creditors may receive up to 100 cents in the dollar and priority creditors may receive 100 cents in the dollar, but there would still be no dividend for ordinary unsecured creditors.
The liquidator deposed that, having regard to the costs and vagaries of litigation associated with the claim against McConnell Dowell, he does not consider that unsecured creditors would receive a dividend of 100 cents in the dollar in any event. That view was not challenged nor contradicted. I am satisfied on the probabilities that if the payment were set aside and the defendant were required to prove in the liquidation, she would probably receive significantly less and, on any view, somewhat less, than the amount of the payment. Accordingly, I am satisfied that the payment had the relevant preferential effect.
[4]
Good faith and suspicion of insolvency
To consider the second issue, it is necessary to traverse the evidence and history in greater detail.
On 13 June 2012, a subcontract for construction works in a major project in Roma, formerly between McConnell Dowell and Reed Constructions Australia Pty Ltd, was novated to HPL as the subcontractor in place of Reed Constructions. Under the subcontract, the company performed earthworks on behalf of the head contractor.
On 5 September 2012, HPL requested pricing and product information from Bildavoid in connection with Bildavoid's product, which is a sealant used to support constructions in early stages. On 11 September and 19 September 2012, Bildavoid provided a number of quotes to Heavy Plant, and on 5 October 2012, issued invoice number 11030 in the sum of $8,334.15. The purchase order stipulated, in cl 13:
Payment claims shall be submitted upon delivery of the goods or as otherwise specified in the order in the form applicable to the purchaser and include a tax invoice for the amount claimed. Payments will be made 30 days after the end of the month in which the purchaser is in the receipt of the goods or the tax invoice, whichever is the later.
Accordingly, as invoice 11030 was issued during October, it would be due for payment at the end of November, assuming that the goods were delivered in the month of October.
On 30 October 2012, following further quotations, Bildavoid issued invoice 11085 in the sum of $149,265.79 for the supply of further material. If the goods were delivered before the end of October, payment would have been due in accordance with the terms by 30 November. However, as described below, it is clear that the goods were not delivered by 31 October. Meanwhile, on the same day, HPL made a payment of $61,264.86 to Bildavoid in respect of an earlier invoice, number 11043, which had been issued on 2 October 2012.
On 31 October 2012, the company submitted an application for commercial credit to Bildavoid. It provided, inter alia, that the customer must pay for the products within Bildavoid's payment terms as specified in Bildavoid's quotation or invoice to the customer.
Delivery of the goods referred to in invoice 11085 commenced on or about 20 November 2012, when the first delivery was made. A second delivery was made on 26 November.
On 26 November 2012, Ms Mancer sent an email to Shaun Handisides at HPL, in respect of the earlier invoice number 11030:
The attached invoice is outstanding. I was wondering if you could please advise who it is that I should contact to chase this up.
It seems that a response was promptly received, because later on the same day Ms Mancer sent a further email to Roger Michaels:
I received a response to my email below that was sent to Shaun stating that he is on R and R till 4 December. Can you please advise on who I should contact to get paid for the outstanding invoice? Another truckload is on its way today...
On 28 November 2012, Ms Mancer sent a follow-up email to Mr Wise at HPL:
Can you assist with the email below?
Mr Wise replied, an hour or so later:
Hello, Christina. I will follow up with commercial manager James Verson.
Two days later, on 3 December 2012, Ms Mancer emailed Mr Wise:
Can you please advise the contact details of whom I can speak with regarding payment?
Mr Wise replied, again within a couple of hours:
Hello Christine. James Verson is the commercial manager. He is aware and trying to schedule payments.
Two days later, on 5 December 2012, invoice 11030 was paid in full.
Meanwhile, on 4 December 2012, the third delivery under invoice 11085 took place. The fourth delivery followed on 8 December, the fifth on 13 December and the sixth on 18 December 2012.
On 11 December 2012, Ms Mancer sent an email to various addressees at HPL:
As the festive season fast approaches, can you please advise if the site is shutting and who might be taking time off at all in the next few weeks? Our factory will be closed from 21 December 2012 and will re-open on 7 January 2013 ... I will, however, be contactable during this time by email and business will carry on as usual outside of the two weeks mentioned above.
On 19 December 2012, Ms Mancer sent an email to Mr Wise:
As I do not have the email address for your accounts person I am forwarding this email to you in the hope that you can assist. Please find attached the December statement. With the upcoming holiday period pending, we respectfully ask for your assistance in paying your outstanding invoices prior to 30 December 2012. Wishing you all the best for the holiday season.
There does not appear to have been a reply, and on 21 December 2012, Ms Mancer emailed Mr Verson:
Can you please advise when payment will be made for the outstanding invoice as per the attached statement?
The attachment was invoice 11085, for $149,265.79.
On 2 January 2013, Ms Mancer sent an email to HPL:
We have another truckload due for dispatch on 7 Jan. I have had to put a hold on production and delivery until payment of account has been. This may cause a delay of up to two weeks. Can you please advise urgently?
On 4 January 2013, Ms Mancer sent an email to HPL:
We have a load of void form due for dispatch first thing Monday. I have tried to contact a few of you to no avail. Can someone please call me to discuss ASAP if possible prior to Monday? In the meantime the order will be placed on hold and this will cause delays.
Mr Terry replied on behalf of HPL only a few minutes later:
Dispatch is fine Monday. Just get the driver to confirm time for arrival to site.
Ms Mancer responded on the same day:
Unfortunately the problem is that the account has not been paid. I cannot release the void form and will have to put a hold on production of the remainder of the order. This may cause a two-week delay for the balance of the order as we have orders from other companies waiting in turn to go through production. If you are able to sort something out I would be most appreciative.
Mr Terry responded on the same day:
Can you please send through what is required for payment to get this delivery release?
Ms Mancer forwarded a statement of account that evening, showing the amount due of $149,265.79.
On 7 January 2013, Ms Mancer sent to HPL an email:
Could you please contact me urgently regarding the outstanding account ...
She sent a further email on 9 January 2013:
Can you PLEASE advise the situation with payment of the account? The situation is now urgent.
Later in the day, she sent a further email to Mr Verson:
As I have not heard back from you regarding payment I am forced to advise that I have another client who has placed an order with us. I am thinking that if I have not heard from you within 24 hours I will send them the truckload that we have in the factory for HPL. This will mean that your order will then have to go into production (once payment has been made) and that would probably delay it by approx 10 working days. James, I really don't want to be placed in this position. Can you PLEASE advise?"
Mr Verson responded on 9 January 2013, at 4.05pm:
I can confirm payment will be made this Friday in full. My apologies. It's been very difficult getting a senior exec who is on holiday to confirm approval to release not just your cheque but several others as well.
Payment was not in fact made on 11 January, although on 12 January 2013 Mr Michaels of HPL sent to Ms Mancer an email:
I understand the account has been settled. Can you please therefore release the truck and confirm the delivery date. As I will be on R and R as of tomorrow, can you please ensure Dion is included in any return correspondence.
Ms Mancer responded:
Unfortunately no payment has been received as yet. I am in a bad situation with the factory as they have limited space, and with two loads ready to go for over a week now they are most anxious for me to have them dispatched. I have organised two trucks again for Monday but will have to postpone again. Unfortunately I have no alternative than to dispatch to another project and remake once your finances are in order.
On Sunday 13 January 2013, Mr Michaels emailed Ms Mancer:
We have been assured by our accounts that your payment has been processed and was done so on Friday. We therefore assume the only reason you are not seeing the payment is due to transaction delays within the banking system. It is therefore highly likely you will see the funds cleared on Monday. I have requested that the accounts forward through a remittance advice as evidence of processing of payment, and I trust they will be able to do so tomorrow when they return to work in head office. As I am leaving for R and R this morning I have cc'd Shaun and others who will be able to follow up with issuing you a remittance advice tomorrow."
Apparently on the faith of that email, an attempt was made at delivery on 14 January 2013. In an email on 13 January 2013, Ms Mancer responded:
I trust you understand my hesitance to release the goods. In this instance I have agreed to release the load tomorrow.
However, the attempted delivery was unsuccessful as the site was closed. This incurred additional costs, and Ms Mancer added those costs to the invoiced amount.
On 15 January 2013, when the payment had still not appeared in Bildavoid's bank account, Ms Mancer sent another email to Mr Verson:
Your assurance that payment would be made last Friday has not been fulfilled. In good faith I have released goods to your project. I am saddened, fearful and extremely disappointed. Please advise urgently the payment situation.
On 21 January 2013, Ms Mancer sent a further email which referred to the additional costs associated with freight and storage, stated that all work on the balance of the order had been placed on hold, and concluded:
Please advise when payment of the outstanding invoice will be made.
An additional invoice for the additional freight and storage charges totalling $1,969 was forwarded later on 21 January 2013, under an email which said, inter alia:
Payment in full is required prior to releasing the goods and re delivery.
On 22 January 2013, Ms Mancer emailed HPL:
Following on with the emails, we have a truck in the area tomorrow that would be available to pick up a full load from storage and deliver to site Thursday, with a further delivery Friday of the other load, of course dependent upon payment of the outstanding account. If this doesn't happen then I do not know when we will have a truck available. It may be more than a week. Can someone please reply to my emails?
On 23 January 2013, Ms Mancer received an email from what appears to be the transport operator, who had been in contact with the construction site and who conveyed to Ms Mancer:
Jason has been told everything should be sorted out today.
On 25 January 2013, Ms Mancer sent Mr Verson an email:
I have not received any reply to my numerous emails concerning HPL's overdue account. The total amount outstanding to date is $152,125.79. Could you please advise by close of business today when payment will be forwarded?
This total amount reflected by yet a further additional charge associated with non-acceptance of delivery.
On 31 January 2103, at 9.07am, Ms Mancer sent a further email to HPL in the following terms:
Despite our previous correspondence, we have not received your payment. Your account is now seriously overdue and we will shortly proceed with legal action to recover the outstanding amount plus legal fees, interest and any other associated costs. A payment default will also be registered on CreditorWatch, Australia's online bad debt registry. It is common practice for banks, utilities and other businesses to monitor this debt registry. Payment defaults are registered for a period of five years and could lead to frozen accounts and difficulties in obtaining credit in the future. If we do not receive payment or contact from your business by the 7th Feb 2013, the registered default and legal action will proceed. If you have any questions or require further information regarding this notice, please contact us.
On Friday 1 February 2013, Mr Verson had a telephone conversation with Ms Mancer. Then at 2.02pm he sent Ms Mancer an RTGS remittance in the amount of $152,609.79, the full amount of the outstanding invoice. He continued:
My sincerest apologies for this; however, our client McDow has been very difficult over the past month.
There was a hiccup with the attachment of the remittance, but it was forwarded an hour later. Thus the invoice was paid in full on Friday 1 February 2013, the day after the threat of 31 January.
As at 31 January 2013, Bildavoid had total debtors of $323,000. Of that, $100,000 was less than 30 days old; $38,000 between 31 and 60 days; $14,000 between 61 and 90 days; and $169,000 over 90 days - that is, from the date of invoice. Of that $169,000, invoice 11085 represented $149,000. Most of the other debts in the 90-day plus category were either disputed, or had been written off.
Corporations Act, s 588FG(2), provides:
A court is not to make under section 588FF an order materially prejudicing a right or interest of a person if the transaction is not an unfair loan to the company, or an unreasonable director-related transaction of the company, and it is proved that:
(a) the person became a party to the transaction in good faith; and
(b) at the time when the person became such a party:
(i) the person had no reasonable grounds for suspecting that the company was insolvent at that time or would become insolvent as mentioned in paragraph 588FC(b); and
(ii) a reasonable person in the person's circumstances would have had no such grounds for so suspecting; and
(c) the person has provided valuable consideration under the transaction or has changed his, her or its position in reliance on the transaction.
As I have mentioned, subparagraphs (a) and (c) are not in issue.
While subparagraph (b) contains discrete subjective and objective requirements, the dual aspects of that paragraph will rarely produce a different result. [1]
It is clear and consistent with authority in the Court of Appeal [2] and in the Victorian Court of Appeal, [3] that the defendant creditor bears the onus of establishing an absence of reasonable grounds for suspicion as referred to in sub (2)(b). Nonetheless, although it has been said that the test is a demanding one, because it involves proving a negative, I do not think, and the authorities do not suggest, that it requires a defendant to demonstrate a situation in which a suspicion of insolvency would have been positively unreasonable. In other words, one does not ask whether it would have been unreasonable to suspect insolvency. The test that emerges from the cases is whether the defendant has shown an absence of grounds on which it or a reasonable person in its position ought to have suspected insolvency.
The cases make clear that that is to be tested in all the circumstances, and having regard to the accumulation of available circumstances. Thus, in Sydney Appliances Pty Ltd (in liq) v Eurolinx Pty Limited [2001] NSWSC 230, Santow J said:
The case law illustrates that there is no single factor whose presence invariably establishes that there was or should have been the requisite suspicion. Rather, it is a question of looking not in hindsight but through contemporary eyes of the parties, at the commercial circumstances then prevailing between them. This is to identify in that context those factors pointing towards insolvency of the debtor. This in turn is in order to ascertain which of those factors were apparent to the payee, and then the cumulative impact that knowledge of them should have had or did have upon the payee. There will also be potentially countervailing factors and circumstances to be weighed in the balance which could have tended to dispel suspicion at the time.
It is, of course, necessary only that the circumstances be sufficient to generate a reasonable suspicion, which falls short of a belief. The distinction between a belief and a suspicion in this context was recognised by the Victorian Court of Appeal in Sands & McDougall v Commissioner of Taxation (Cth). [4] What amounts to a suspicion, was described by Kitto J in Queensland Bacon Pty Limited v Rees [1966] HCA 21; (1966) 115 CLR 256 at [303]:
In the first place the precise force of the word 'suspect' needs to be noticed. A suspicion that something exists is more than a mere idle wondering whether it exists or not; it is a positive feeling of actual apprehension or mistrust amounting to 'a slight opinion but without sufficient evidence' as Chambers dictionary expresses it. Consequently a reason to suspect that a fact exists is more than a reason to consider or look into the possibility of its existence. The notion which 'reason to suspect' expresses [in a corresponding earlier provision] is I think something which in all the circumstances would create in the mind of a reasonable person in the position of the payee an actual apprehension or fear that the situation of the payer is in actual fact that which the subsection describes, a mistrust of the payer's ability to pay his debts as they become due and of the effect which acceptance of the payment would have as between the payee and the other creditors.
In Dean-Wilcocks v Commissioner of Taxation [2008] NSWSC 1113, Barrett J (as he then was) emphasised:
It is important to emphasise that the relevant suspicion is one of actual and existing insolvency as distinct from impending or potential insolvency.
The cases also recognise that delayed payment of debts does not generally of itself constitute a reason to suspect insolvency. Thus in Sydney Appliances Pty Ltd (in liq) v Eurolinx Pty Limited [2001] NSWSC 230; (2001) 37 ASCR 477 (at [43]), Santow J quoted Wicks J in Re Ermayne; Sims v Tech Holdings Pty Limited (1998) 30 ACSR 330 (at [334]):
Cash flow problems can be indicative of or raise a suspicion of insolvency although not necessarily so. It is important to put them in context. One may be dealing with a trader with persistent and long history of delay in payment of accounts. In my view 'cash flow problems' are a factor and nothing more.
To similar effect, in Sparad (No 100) Ltd (formerly known as AEFC Ltd) v J B Harkness (as liquidator of Spedley Securities Ltd (In Liq)) [1997] NSWCA 290 (14 February 1997), Priestley JA said (at [10]):
Debts are not always paid on time by solvent traders.
In Metcalf Crane Services Pty Ltd v Rathner [2001] VSC 195, Robson J said (at [79]):
I should not consider the evidence with the benefit of hindsight and I should consider the cumulative impact of the relevant evidence both for and against establishing absence of the relevant suspicion. I am also conscious of the fact that the mere failure to pay debts on time does not by itself constitute grounds for suspecting insolvency.
And in Sandell v Porter [5] , Barwick CJ said (at [670]):
The conclusion of insolvency ought to be clear from a consideration of the debtor's financial position in its entirety and generally speaking ought not to be drawn simply from evidence of a temporary lack of liquidity.
It is instructive that in Queensland Bacon [6] cheques were dishonoured, but later honoured on re-presentation. The High Court by majority considered that in those circumstances a reasonable suspicion of insolvency did not arise. There was a similar result in the Court of Appeal in Cussen v Commissioner of Taxation, [7] in which Spigelman CJ observed (at [49] - [54]):
There will be situations in which actual payment does not countervail indicators of insolvency. That is not, in my opinion, the case here, contrary to the submissions of the Appellants.
…
Just as in Queensland Bacon v Rees, where the court gave weight to the subsequent payment of the cheques which had, at first, been dishonoured, Palmer J was correct to give substantial weight to the course of actual payments by Akai.
…
I agree with his Honour's analysis of the facts in this regard. Up to and including the payment on 3 September, Akai's conduct did not suggest that it had suffered from anything more than cash flow difficulties which had been overcome. That conclusion was reinforced with, if anything, growing certainty, by its conduct over the period that the alleged preference payments were made.
On the facts of the present case I am unable to discern any factors which, either alone or cumulatively, constituted grounds for suspicion of insolvency …
What emerges from these cases is, first, that recalcitrance by a debtor does not of itself provide grounds to suspect insolvency; still less does mere late payment by a debtor provide of itself grounds to suspect insolvency. Thus, the fact that it is necessary to resort to conventional debt collection procedures to recover a debt from a late or recalcitrant debtor does not necessarily provide grounds to suspect insolvency. In many circumstances, recalcitrance or late payment is explicable by cash flow difficulties, or other matters falling short of the permanent state of the insolvency to which s 588FG refers.
In this case, the major factors pointed to by the Liquidators as founding a suspicion of insolvency are the failure to pay promptly, the dubious explanations said to have been proffered for that failure, the exertion of pressure to procure payment (including, most notably, the withholding of delivery) and the final demand of 31 January 2013.
So far as the delay in payment is concerned, on one view the invoice was due on 30 November 2012, but even on that view it was barely so. The invoice was issued on the penultimate day of October, and had it been issued only two days later would not have been due until 31 December 2012. It was in any event paid only one month after that, on 1 February 2013. Thus, while on one view of the books it can be said that the debt was in excess of 90 days old from the date of issue, on another not unrealistic view it can be said that it was barely one month overdue.
Moreover, there is a respectable argument, which I need not resolve, that because of the terms of the purchase orders to which I have referred, the debt did not become due and payable until after the subject goods had been delivered, and that had not occurred until at least January 2013. I appreciate that that does not reflect the way in which the parties appear to have conducted their relations, and certainly HPL does not appear to have insisted on completion of delivery before payment was made. However, even if one takes the view that strictly speaking the invoice was due on 30 November 2012, the delay was not a protracted one.
Also, its significance from the perspective of the recipient inferring insolvency is mitigated by a number of matters. The first is that it coincided with the Christmas period. Reference was made in the communications to difficulty in obtaining release of funds from an executive who was absent on holiday. While I acknowledge that on a fine reading of the email in question it might not have expressly asserted that the difficulty was due to absence on vacation, it would certainly convey that impression to the reader.
Moreover, the delay took place in the context of the construction industry, and involved a subcontractor. The reliance of subcontractors on progress payments from head contractors for cash flow to meet their own obligations is notorious, and cash flow difficulties for subcontractors occasioned by difficulties with head contractors are equally well-known.
So far as the explanations proffered being dubious are concerned, the explanations proffered, at least until payment was made, were, first, the absence of relevant personnel on 'R and R', and later that the payment having been authorised on a Friday did not yet appear in the recipient's account due to the intervention of a weekend. The first of those was not at all an implausible explanation. The second likewise was plausible for a day or so when given, though it must be said that after a few days had passed it must have become apparent that it was not correct. But the fact that a recalcitrant debtor expresses a promise to pay and then does not perform that promise is not necessarily indicative of insolvency.
There is no doubt that Ms Mancer applied increasing pressure to procure payments, from polite requests to more exasperated pleas, to withholding delivery and ultimately threatening a referral to a credit agency. But those are steps that are taken just as much by an unpaid creditor of a solvent debtor as they are by an unpaid creditor of an insolvent debtor. The fact that a creditor applies pressure of that order to secure payment does not, to my mind, illustrate that the creditor fears or apprehends that the debtor is insolvent. In that respect, it is notable that the pressure resorted to did not reach the point of actual reference to a debt collector, nor the issue of recovery proceedings, nor the issue and service of a creditor's statutory demand. Moreover, the threat of reference to a credit agency produced immediate payment in full - not a payment at the end of the seven day period to which the demand adverted, nor a partial payment, nor an instalment proposal (which might have been more indicative of an inability to pay debts as and when they fell due).
It is true that Ms Mancer, in one of her communications to which I have referred, expressed the view that she was 'fearful'. She explained that the fear was that the order would be cancelled. It could just as easily be fear and concern that she was not being paid and would not be paid; but fear that she would not be paid is not the same thing as apprehension that the company was in an actual state of insolvency and was permanently unable to pay its debts as and when they fell due. Again, many creditors of solvent debtors may fear that they will not be paid.
I do not overlook that the goods were goods that HPL needed, and that they were being withheld; but it seems to me that the degree of pressure exerted by a creditor says more about the creditor's subjective state of mind than it does about the presence of objective grounds for a suspicion. The degree of pressure exerted by a creditor does not speak of a suspicion of insolvency, because a creditor is as likely to exert pressure on a recalcitrant solvent debtor as on an insolvent one.
It is also to my mind telling that, so far as the evidence goes, there was nothing prior to 1 February 2013 to indicate to Ms Mancer that there was any general or systemic problem with creditors of HPL being paid. The closest that the evidence comes to any such pointer is the email which indicated that there was a problem in getting funds released by the executive who was on holidays, which affected not only her but other creditors; but that is far from the type of situation in which a creditor is aware that payments to creditors generally have been suspended or are being delayed. Nothing here indicated to Ms Mancer, as I have said, that there was a systemic or general problem so far as payment of HPL's creditors were concerned, as distinct from a temporary problem in obtaining approval due to the absence of an executive.
Ultimately, one must look at the state of mind of the payee at the time when the payment was received. As in Cussen v Commissioner of Taxation, [8] so here, the actual payment in full - including the additional charges for the unsuccessful deliveries - made on the day after the demand of 31 January 2013, and without any suggestion of any part payment or instalment arrangement, coupled with the suggestion conveyed by HPL that the delay was associated with problems with the head contractor McConnell Dowell, is in my opinion of considerable significance. No doubt Ms Mancer knew that there had been a delay in payment, and I would accept by then knew that the explanation that had been offered about the banking transaction in mid-January could not have been correct; but when she received the payment, everything pointed to the circumstance that there had been a problem with the head contractor, and that the money could now be paid because that problem had been resolved. In other words, HPL, it would have appeared to her, had been experiencing cash flow difficulties as a result of non-payment by its head contractor, and those difficulties had been resolved by 1 February when payment in full was made. If, as was reasonably submitted for the Liquidator, the conversation between Mr Burson and Ms Mancer shortly before the payment was made adverted to the same matters as the email of 1 February itself, then it is likely that those matters were conveyed to Ms Mancer in that conversation, as well as in the email which accompanied the payment.
In short, while there was some delay in payment, it was not so protracted that, given the time of year and the industry in which it occurred, it provided a reason to suspect that HPL was insolvent. The absence of any sign of a systemic problem, the prior prompt payment of invoice 11043 on 30 October 2012, the relatively prompt payment of invoice 11030 after it was chased up, all provide some context; ultimately the payment in full of the subject invoice the day after a threat to refer it to a credit agency, without any instalment proposal and accompanied by an explanation which would have conveyed that the delay was associated with cash flow difficulties and the head contractor, means that in my judgment there were not as of 1 February 2013 reasonable grounds for Ms Mancer, or a reasonable person in her circumstances, to suspect that the company was insolvent.
[5]
Orders
Accordingly, the Court:
1. gives judgement for the defendant;
2. orders that the plaintiffs pay the defendants costs, save insofar as any other costs order already otherwise provides.
[6]
Endnotes
See Mann v Sangria Pty Ltd [2001] NSWSC 172; (2011) 38 ACSR 307 at [46]; D'Aloia v Commissioner of Taxation of the Commonwealth of Australia [2003] FCA 1336; (2003) 48 ACSR 204 at [18]; Dean-Wilcocks v Commissioner of Taxation [2008] NSWSC 1113 at [10]; Re Alsafe Security Products Pty Limited atf the Alsafe Trust (in liquidation) [2016] NSWSC 428 at [33]-[35].
See Neil Robert Cussen as Liquidator of Akai Pty Ltd (in liq) v Commissioner of Taxation [2004] NSWCA 383; 51 ASCR 530.
See Sands & McDougall (Wholesale) Pty Limited v Commissioner of Taxation (Cth) [1999] 1 VR 489.
[1999] 1 VR 489.
(1966) 115 CLR 666; [1966] HCA 28.
(1966) 115 CLR 256; [1966] HCA 21.
[2004] NSWCA 383; (2004) 51 ASCR 530.
[2004] NSWCA 383; (2004) 51 ASCR 530.
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Decision last updated: 18 May 2018
Parties
Applicant/Plaintiff:
D'Aloia
Respondent/Defendant:
Commissioner of Taxation of the Commonwealth of Australia