Gunns Liquidators Prevail On Peak Indebtedness, Set-Off And The Court's Discretion

This week, the Federal Court published judgments in three unfair preference claims brought by the liquidators of the Gunns Group. We acted for the liquidators in each proceeding.

The liquidators were successful in each proceeding. The judgments provide clarity on some previously debated aspects of Australia's unfair preference regime. The key matters are discussed below. The three judgments are available here: Edenborn, Bluewood, Badenoch.

Peak indebtedness rule

The judgments affirm the operation of the peak indebtedness rule in Australia.

The peak indebtedness rule applies where the preferred creditor and the insolvent company conducted business on the basis of a running account. The rule provides that it is open to a liquidator to calculate the value of the preference claim by subtracting the debt due to the creditor on the relation back day from the debt due to the creditor at the highest point of indebtedness in the running account during the relation back