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ARTICLE · 04 SEPTEMBER 2020

Latest case law challenges third-party payments position in a liquidation scenario

Worrells
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The decision casts doubt on what was a relatively settled position: a third-party payment could be a preference payment.

AustraliaInsolvency/Bankruptcy/Re-Structuring
Con Kokkinos
Con Kokkinos
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Has a preference payment loophole emerged?

In early August, the Victorian Court of Appeal handed down its decision in Cant v Mad Brothers Earthmoving Pty Ltd [2020] VSCA 198. The decision casts doubt on what was a relatively settled position: that a third-party payment could indeed constitute a preference payment.

In brief, the background to the matter is as follows:

  • Elaina Construction and Developing Group Pty Ltd ("Elaina") owed a debt to Mad Brothers Earthmoving Pty Ltd ("Mad Brothers").
  • Payment of the debt was made but not by Elaina, rather by a related entity by way common director, Rock Investments Pty Ltd ("Rock").
  • Elaina was later placed into liquidation. With the payment to Mad Brothers having been made within the relevant six-month relation-back period, the liquidator sought to recover the payment as a preference.

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