In the matter of Heavy Plant Leasing Pty Ltd (In Liquidation) (ACN 151 786 677)

1. [1]

   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.

2. [2]

   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.

Preferential payment

1. [3]

   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.

2. [4]

   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.

3. [5]

   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.

Good faith and suspicion of insolvency

1. [6]

   To consider the second issue, it is necessary to traverse the evidence and history in greater detail.

2. [7]

   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.

3. [8]

   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:

4. [9]

   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.

5. [10]

   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.

6. [11]

   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.

7. [12]

   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.

8. [13]

   On 26 November 2012, Ms Mancer sent an email to Shaun Handisides at HPL, in respect of the earlier invoice number 11030:

9. [14]

   It seems that a response was promptly received, because later on the same day Ms Mancer sent a further email to Roger Michaels:

10. [15]

    On 28 November 2012, Ms Mancer sent a follow-up email to Mr Wise at HPL:

11. [16]

    Mr Wise replied, an hour or so later:

12. [17]

    Two days later, on 3 December 2012, Ms Mancer emailed Mr Wise:

13. [18]

    Mr Wise replied, again within a couple of hours:

14. [19]

    Two days later, on 5 December 2012, invoice 11030 was paid in full.

15. [20]

    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.

16. [21]

    On 11 December 2012, Ms Mancer sent an email to various addressees at HPL:

17. [22]

    On 19 December 2012, Ms Mancer sent an email to Mr Wise:

18. [23]

    There does not appear to have been a reply, and on 21 December 2012, Ms Mancer emailed Mr Verson:

19. [24]

    The attachment was invoice 11085, for $149,265.79.

20. [25]

    On 2 January 2013, Ms Mancer sent an email to HPL:

21. [26]

    On 4 January 2013, Ms Mancer sent an email to HPL:

22. [27]

    Mr Terry replied on behalf of HPL only a few minutes later:

23. [28]

    Ms Mancer responded on the same day:

24. [29]

    Mr Terry responded on the same day:

25. [30]

    Ms Mancer forwarded a statement of account that evening, showing the amount due of $149,265.79.

26. [31]

    On 7 January 2013, Ms Mancer sent to HPL an email:

27. [32]

    She sent a further email on 9 January 2013:

28. [33]

    Later in the day, she sent a further email to Mr Verson:

29. [34]

    Mr Verson responded on 9 January 2013, at 4.05pm:

30. [35]

    Payment was not in fact made on 11 January, although on 12 January 2013 Mr Michaels of HPL sent to Ms Mancer an email:

31. [36]

    Ms Mancer responded:

32. [37]

    On Sunday 13 January 2013, Mr Michaels emailed Ms Mancer:

33. [38]

    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:

34. [39]

    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.

35. [40]

    On 15 January 2013, when the payment had still not appeared in Bildavoid's bank account, Ms Mancer sent another email to Mr Verson:

36. [41]

    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:

37. [42]

    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:

38. [43]

    On 22 January 2013, Ms Mancer emailed HPL:

39. [44]

    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:

40. [45]

    On 25 January 2013, Ms Mancer sent Mr Verson an email:

41. [46]

    This total amount reflected by yet a further additional charge associated with non-acceptance of delivery.

42. [47]

    On 31 January 2103, at 9.07am, Ms Mancer sent a further email to HPL in the following terms:

43. [48]

    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:

44. [49]

    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.

45. [50]

    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.

46. [51]

    Corporations Act, s 588FG(2), provides:

47. [52]

    As I have mentioned, subparagraphs (a) and (c) are not in issue.

48. [53]

    While subparagraph (b) contains discrete subjective and objective requirements, the dual aspects of that paragraph will rarely produce a different result. [1]

49. [54]

    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.

50. [55]

    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:

51. [56]

    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]:

52. [57]

    In Dean-Wilcocks v Commissioner of Taxation [2008] NSWSC 1113, Barrett J (as he then was) emphasised:

53. [58]

    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]):

54. [59]

    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]):

55. [60]

    In Metcalf Crane Services Pty Ltd v Rathner [2001] VSC 195, Robson J said (at [79]):

56. [61]

    And in Sandell v Porter [5] , Barwick CJ said (at [670]):

57. [62]

    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]):

58. [63]

    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.

59. [64]

    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.

60. [65]

    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.

61. [66]

    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.

62. [67]

    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.

63. [68]

    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.

64. [69]

    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.

65. [70]

    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).

66. [71]

    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.

67. [72]

    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.

68. [73]

    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.

69. [74]

    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.

70. [75]

    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.

Orders

1. [76]

   Accordingly, the Court:

   1. (1)

      gives judgement for the defendant;

   2. (2)

      orders that the plaintiffs pay the defendants costs, save insofar as any other costs order already otherwise provides.