Legal
A brave attack on the unfair preference regime fails By Fiona Reynolds and Lucy Tindal*
Fiona Reynolds
Lucy Tindal
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On 27 May 2020, the Federal Court of Australia delivered three judgments in respect of unfair preference claims brought by the liquidators of Gunns Limited (‘Gunns’) against three of its creditors. Judgments in all three proceedings were handed down simultaneously: z Bryant, in the matter of Gunns Limited (in liq) (receivers and managers appointed) v Badenoch Integrated Logging Pty Ltd [2020] FCA 713 (Badenoch); z Bryant, in the matter of Gunns Limited (in liq) (receivers and managers appointed) v Bluewood Industries Pty Ltd [2020] FCA 714 (Bluewood); and z Bryant, in the matter of Gunns Limited (in liq) (receivers and managers appointed) v Edenborn Pty Ltd [2020] FCA 715 (Edenborn) The liquidators were successful in all three proceedings. The judgments are interesting because of the arguments that were raised by the creditors in order to try to defeat the liquidators’ claims. The creditors sought to challenge the application and assessment of the following: 1. The determination and assessment of the start and end point of a
CREDIT MANAGEMENT IN AUSTRALIA • July 2020
continuing business relationship, or ‘running account’, between a company and creditor; 2. The ‘peak indebtedness rule’; and 3. The doctrine of ‘ultimate effect’. One of the creditors also sought to argue that even if the Court was satisfied that it had received an unfair preference, the Court had a discretion under s588FF of the Corporations Act 2001 (the ‘Act’) to order that it was not required to repay the preferential payments to Gunns. Many, if not all, of the arguments raised by the creditors to try to defeat the usual application of these principles will strike a chord with creditors who have similarly faced an unfair preference claim by a liquidator. Each and every argument raised by the creditors was categorically unsuccessful. The decisions serve to highlight that these principles are here to stay and their application is strongly established in precedent.
Background to the Gunns preference proceedings Gunns was the parent company of the Gunns Group, a large scale corporation operating forest management, development and manufacturing. The Gunns Group was also responsible for the management
