Bryant v Badenoch Integrated Logging Pty Ltd [2023] HCA 2 is a judgment of the High Court of Australia, which involves a dispute over voidable transactions in the context of a company’s insolvency.
Background: Badenoch was a creditor and former supplier of services to Gunns, a company in liquidation. The liquidators of Gunns applied to have a series of 11 payments made by Gunns to Badenoch within the six months before the liquidators were appointed as administrators set aside as unfair preferences under the Corporations Act 2001 (Cth). The main issue was whether the payments were part of a continuing business relationship between Gunns and Badenoch, and if so, how to determine the existence and amount of any unfair preference.
Ongoing Business Relationship: The issue of an ongoing business relationship was central in this case, as it pertains to the application of section 588FA(3) of the Corporations Act 2001 (Cth), which deals with voidable transactions in the event of insolvency. The Court’s approach to this issue involved an objective factual inquiry into the ‘business character’ of the transactions between the parties, considering the whole of the evidence of the actual business relationship.
The Court examined whether the transactions were for commercial purposes and an integral part of a continuing business relationship, also known as a running account. This assessment was crucial because if such a relationship exists, all transactions forming part of that relationship would be treated as a single transaction when determining if an unfair preference had been given.
Decision: The High Court dismissed the appeal by the liquidators and the cross-appeal by Badenoch. The Court held that the ‘peak indebtedness rule’, which allows a liquidator to choose the starting date of the single transaction within the relation-back period, is not part of the Corporations Act. The Court also held that the proper approach to determining whether a transaction is an integral part of a continuing business relationship is to consider the whole of the evidence of the actual business relationship between the parties, and not to focus on the parties’ intentions or purposes. The Court found that payments 1 and 2 were part of the continuing business relationship, but payments 5 to 11 were not, and that the continuing business relationship ended on 10 July 2012. The Court concluded that there was no unfair preference given by Gunns to Badenoch, as the net indebtedness of Gunns to Badenoch increased from the start to the end of the continuing business relationship.
Takeaway: This decision emphasises the importance of examining the entire context of the business relationship and not just individual transactions or the parties’ intentions.
For more information about commercial litigation disputes, contact David Collins in the Mullane & Lindsay litigation team.
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