In Metal Manufactures Pty Ltd v Morton [2023] HCA 1, the High Court of Australia (Kiefel CJ; Gageler, Gordon, Edelman and Steward JJ) dismissed an appeal by the creditors of a company in liquidation. The creditor sought to set off its requirement to pay back two unfair preferences under s 553C. The High Court held that creditors cannot use s 553C to set off against an unfair preference liability.
In Bryant v Badenoch Integrated Logging Pty Ltd [2023] HCA 2, the High Court (Kiefel CJ; Gageler, Gordon, Edelman, Steward, Gleeson and Jagot JJ) dismissed an appeal by the liquidators of the former Gunns group of companies.

Part 5.7B 

Matthew Broderick is a Partner at HWL Ebsworth Lawyers in Brisbane and has revised annotations to Part 5.7B (Recovering property or compensation for the benefit of creditors of insolvent company) in Thomson Reuters’ Robson’s Annotated Corporations Legislation. 

Section 588FA sets out how to determine whether a transaction is an unfair preference. For commercial purposes, if a transaction is  an integral part of a continuing business relationship between a company as a debtor and a creditor, all transactions forming part of that relationship are to be treated as if they together constituted a single transaction: Bryant v Badenoch Integrated Logging Pty Ltd [2023] HCA 2.
The effect of the judgment is that the objective business character of a payment will be instrumental in determining whether the payment is part of a continuing business relationship rather than the parties’ assumptions or reasons for making or receiving payments.
Section 588FF allows a court to set aside a voidable transaction, provided that the transaction was entered into within a particular period before a liquidator is appointed. The statutory scheme of set-off only applies to set off debts where mutual obligations occurred before the winding up (as opposed to an unfair preference recovery which occurs by court order after the start of the winding up): Metal Manufactures Pty Ltd v Morton [2023] HCA 1.
The effect of the judgment is that liquidators have greater certainty in pursuing unfair preference claims. The whole of the context of the business relationship determines whether it is continuing, rather than the peak level of the indebtedness.

Part 5.6

David Edney is a Barrister practising at Level 6 St James Hall Chambers in Sydney and has revised annotations to Part 5.6 (Winding up generally) including s 553C, in Robson’s Annotated Corporations Legislation. This is David’s first time revising annotations in Part 5.6 and he will continue to review annotations to Part 5.4 later in 2023.

Section 553C enables the set-off of mutual claims between an insolvent company and its creditors. A creditor that received an unfair preference or was otherwise the beneficiary of a voidable transaction may not rely on set-off to reduce their liability in respect of the avoidance of that transaction: Metal Manufacturers Pty Ltd v Morton [2023] HCA 1. 
In insolvency, parties’ rights are delineated at the winding-up date. However, in the circumstances of the case, the liability arose only after the liquidator had used its right to recover unfair preferences. 
In addition, for set-off to be available, the transactions earmarked must be between the same persons. Again, in the circumstances however, the creditor was attempting to set off a debt against the liquidated company but the potential liability was actually owed by the creditors to the liquidator. Their interests were also not mutual; the liquidator is effectively an officer of the Court with different interests to the creditors.

In Robson's Annotated Corporations Legislation, detailed annotations accompany the provisions of the Corporations Act 2001 (Cth). Commentary from expert specialist lawyers working with, and analysing, the law considers how provisions and wording have been interpreted by the courts under the current Act and its forerunners, in a range of contexts. This depth and range is essential in practice for Australia’s corporations legislation is particularly complex in its wording and in its interpretation. 
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