Voidable transactions – the importance of evidence

The recent case of Roufeil v Gliderol International Pty Ltd [2011] FCA 847 addresses voidable transactions within the meaning of s 588FE(2) of the Corporations Act 2001 (Cth) (Act) and considers the element of insolvency and defences available.

Facts

The Liquidators of Austech Garage Door Centre Pty Ltd (Austech) alleged that the Gliderol International Pty Ltd (Gliderol), a former supplier and creditor of Austech, had received two payments from Austech totalling $21,700 while it was insolvent.  The payments were made to Gliderol on 1 February and 27 March 2008 in return for dismissing winding up proceedings against Austech following its failure to pay an amount owing under a statutory demand.

Austech was subsequently wound up on 10 June 2008 pursuant to proceedings brought by another creditor. 

Following their appointment, the Liquidators claimed that the payments were unfair preferences.

Decision of the Federal Court of Australia

The Court held that not only was Austech insolvent when the payments were made, the history of the dealings between Austech and Gliderol were such that a reasonable person in Gliderol’s position would have suspected Austech’s insolvency.  Austech had stopped paying Gilderol’s invoices in September 2006 and in early July 2007 a series of cheques were dishonoured.  Further, in November 2007 the ATO had served a garnishee order on Austech’s bank account for a significant amount of unpaid tax.

The Court held that the Liquidators had proved that Austech was insolvent at the time it made the payments by leading evidence of:

• the dishonoured cheques drawn on one of Austech’s accounts;
• the non-payment of Gliderol’s invoices as and when due since September 2006;
• Austech’s subsequent failure to pay Gliderol’s statutory demand and the consequent institution of Gliderol’s winding up proceedings;
• the ATO’s garnishee notice of November 2007 in respect of a significant unpaid tax debt; and
• the arrangements with other creditors for part-payment of debts in March and April 2008.

Gliderol was unable to prove that it did not have any reasonable grounds for suspecting Austech was insolvent at the time it entered into the transaction and that a reasonable person would have had grounds for suspecting it to be insolvent.  The Court found that Gliderol had failed to provide sufficient evidence to support its defence, noting that Gliderol had failed to call what it thought would have been crucial witnesses (including the former credit manager), all of whom were available at the time of trial.

Comment

This case reinforces the critical nature of the evidence led in support of each party’s case and the fact that courts consider many factors when considering the evidence that a company was insolvent, or likely to become insolvent at the time of entering into the transaction.  Further, in establishing a defence to voidable transactions, it is also important for evidence to be provided which satisfies the elements of the defence.