Federal Court abolishes the Peak Indebtedness Rule

In the recent decision of Badenoch Integrated Logging Pty Ltd v Bryant, in the matter of Gunns Limited (in Liquidation) (Receivers and managers appointed)  [2021] FCAFC 64 ("Gunns"), the full Federal Court determined that liquidators should no longer apply the peak indebtedness rule to unfair preference claims.

Under  section 588FA(3) of the Corporations Act 2001  (Cth) ("the Act"), where a transaction is, for commercial purposes, an integral part of a continuing business relationship, such as a running account between the company and creditor, then all transactions forming part of the relationship are taken to constitute a single transaction. Previously, a liquidator could select the highest point of indebtedness during the relation back period and deduct the amount of the debt at the time of the company's liquidation to determine the amount recoverable as an unfair preference - also known as the peak indebtedness rule. By applying the peak indebtedness