There has been much talk regarding the opportunities
presented by a PPSR registration to mount a defence against a preference claim
from a liquidator.
While I’ve already written on this here, something that I
had not previously considered a contentious issue seems to have become one.
First a quick recap…
A trade credit supplier, with a PPSR registration perfecting
a retention of title over unpaid-for goods, will be deemed to be a secured
creditor to the value of those unpaid-for goods that remain in the possession
of the buyer.
Thus, if I supply $10,000 worth of widgets to my buyer today,
my security will be worth $10,000 (presumably a figure equivalent to what I am
owed). However, by next week when my
buyer has on-sold $2,000 of those widgets, my available security will only be
worth $8,000, regardless as to how much I am actually still owed. If, by the time I eventually get paid the
$10,000 my buyer owes me, he only has, say, $1,000 worth of my stock in his
possession then a liquidator, pursuing a preferential payment claim, might
argue that, at the time I received the $10,000 payment, I received 90% of that
payment as an unsecured creditor.
Under the Corporations Act, unsecured creditors in receipt
of payments made during the 6 months prior to the relevant date of insolvency
may be obliged to return that money to the liquidator. The value of my security at the time I
received my payment is therefore of paramount importance.
However, while calculating the value of security at the time
a payment was made may not always be easy, I thought it was nevertheless
relatively uncontentious that the appropriate time to assess the value of the
security was, indeed at the time the alleged preferential payment was made.
Last year, a South Australian District Court, in the
case of Matthews v The Tap Inn P/L,
was asked to rule upon whether the value of a security should be assessed at the time the security interest was
created or at the time winding up commenced. No obvious consideration appears to have been
directed at whether such an assessment should take place at the time disputed
payments were actually made!
In July 2015 Justice Chivell handed down his ruling that the
appropriate time for determining the value of a security was at the winding up stage – largely on the
basis that this would bring about a semblance of parity with the plight of
other creditors.
While this may have been good news for liquidators it
created a ludicrous scenario for trade credit suppliers and we all looked with
some trepidation to the inevitable appeal.
Well, the result of the appeal is now available and some
semblance of sanity has been restored.
The appeal court, while overturning Justice Chivell’s
ruling, nevertheless did so without actually saying that His Honour was
incorrect but rather it determined that, with other facts in the case being
disputed by the parties, it was inappropriate for the judge to have ruled on
what would therefore have amounted to a hypothetical question. Ruling on hypotheticals is, apparently, a bit of a 'no no'.
So, we are effectively back to where we started before the
original court decision, with no legal precedent established as to when an
appropriate point in time might be to calculate the value of a security
interest supporting an alleged preferential payment. The only difference being, I suppose, is that
liquidators have now had the opportunity to read up on an argument that was
sufficient to sway a judge in South Australia – and that argument has yet to be
effectively countered.
I’d be surprised if this is the last we hear on this issue.
