Defence to unfair preference claims - 'reasonable grounds' to suspect insolvency

A recent decision of the Federal Court of Australia has highlighted that to successfully maintain a defence to an unfair preference claim, a creditor must prove on both a subjective and objective basis that the creditor had no grounds for suspecting the insolvency of the company.

Roufeil v Gliderol International Pty Limited [2011] FCA 847 dealt with whether certain payments made by a company (Austech Garage Door Centre Pty Ltd) to a creditor (Gliderol International Pty Ltd) were voidable transactions within the meaning of section 588FE(2) of the Corporations Act.

The court held that the payments in question were an unfair preference as defined in section s588FA(1) of the Act, as Gliderol received more than it otherwise would have received in the winding-up of the company.

Gliderol sought to establish a defence under section 588FG of the Act and argued that at the time it received the payments, it had no reasonable grounds to suspect Austech's insolvency.

The court held that the basis of the Gliderol's defence was insufficient given that:

(a) subjectively, the basis of the credit manager's conclusions about Gliderol's lack of reasonable grounds to suspect Austech's insolvency (the credit manager's review of the files) was insufficient; and

(b) objectively, the history of Gliderol's dealings with Austech presented grounds which would have led a reasonable person in Gliderol's position to suspect Austech's insolvency (e.g Gliderol ceased its commercial relationship with Austech due to Austech's failure to pay any of its invoices since 30 September 2006 and Austech did not satisfy a statutory demand it had issued to Gliderol).