'Good faith' and 'running account' defences

The Supreme Court of South Australia has recently considered the 'good faith' and 'running account' defences contained in the Corporations Act.

In Clifton (as liquidator of Adelaide Fibrous Plasterboard Linings Pty Ltd (in liq)) & Anor v CSR Building Products Pty Ltd [2011] SASC 103, the court held that the defendant had failed to establish the 'good faith' defence. However, the 'running account' defence was established in respect of two of the five payments that the liquidator had sought to impugn as unfair preferences.

The case illustrates that the 'good faith' defence is difficult to prove where any indicators of insolvency exist. However, knowledge or even actual suspicion of insolvency, though it be such to negate the 'good faith' defence, does not of itself preclude reliance upon the 'running account' defence for a payment received. The point at which a running account ceases to exist is when the mutual purpose of inducing further supply is subordinated to a predominant purpose of recovering past indebtedness.