30 June 2021
The Supreme Court of New South Wales judgment of Re Western Port Holdings Pty Ltd (receivers and managers appointed)(in Liq)  NSWSC 232 (“Western Port”) has provided liquidators with more comfort to pursue an unfair preference claims against recipients of third party payments and payments made during the course and operation of a Deed of Company Arrangement (“DOCA”).
What is an unfair Preference Payment?
An unfair preference payment is a voidable transaction pursuant to section 588FA(1) of the Corporations Act 2001 (“the Act”) and it is a transaction which may be able to be clawed back by a liquidator of a company if the preference payment made by the company to a creditor was made within 6 months prior to the company being placed into liquidation and provided that:
Why is the case of Western Port Important in respect of unfair preference payments?
It is important to note that while section 588FA (1) of the Act sets out a clear criteria for what constitutes as a voidable transaction comprising of an unfair preference payment claimable by a liquidator, the case of Western Port considers when and how the operation of section
588FE(2B)(d)(i) of the Act might apply rendering a potential voidable transaction such as an “unfair preference payment” as not voidable at all. In this regard, Section 588FE(2B)(d)(i) of the Act provides that that a transaction is not considered voidable if it was entered into under the authority of the administrator of the deed or the administrator of a company.
The relevance of section 588FE(2B)(d)(i) of the Act to the case of Western Port is as follows:
It was noted in the Western Port case that the deed administrators played an active role in ensuring the company made payments to the ATO and that it was common that deed administrators would take an active role in ensuring a company is adhering to its obligations under a DOCA. However, the extent of activity of the deed administrators’ role in this case consisted of:
Despite the level of involvement and the consistent role the deed administrators took in ensuring the company was adhering to the DOCA, Rees J in her judgment of Western Port considered the authority case of In Yeo, in the matter of Ready Kit Cabinets Pty Ltd (in Liq) v Deputy Commissioner of Taxation  FCA 632 in answering the noted questions above.
Rees J found that the unfair preference payments made by the company to the ATO were not considered “authorised” by the deed administrators because the control of the company was handed back to the directors pursuant to the DOCA and the directors made those payments to the ATO by exercising their control as directors of the company and not under the authority of the deed administrators. In this regard, while it might be considered that the deed administrators
provided the authority to the directors to make payments to the ATO, Rees J made specific note in respect of the construction of section 588FE(2B) of the Act that: “[t]here is no occasion in section 588FE(2B) to look behind the authority of the directors to ask how that authority came about.”
Based on this finding and consideration made by Rees J, it was found that the ATO in these circumstances was unsuccessful in attempting to rely on the exemption under section 588FE(2B) of the Act and found the payments were voidable transactions and unfair preference payments under section 588FA(1) of the Act.
Key takeaways of the case of Western Port with respect to deed administrators appointed to a company are as follows:
How we can help you
JHK Legal regularly act for administrators, liquidators, and recipients of unfair preference payments. If you require any advice or assistance in relation to voidable transactions, please please reach out.
Written by Hayley Tibbie, Senior Associate.
 Re Western Port Holdings Pty Ltd (receivers and managers appointed)(in Liq)  NSWSC 232 at