Court’s discretion (under s 468(1)) takes off

The Court has a wide discretion to order that transactions that would be otherwise voidable under s 468(1) of the Corporations Act 2001 (Cth) (the Act) are not void where the company in liquidation or creditors of the company in liquidation receive a benefit from the relevant transaction.

In the recent case of Skypac Aviation Pty Ltd (in liq) [2020] NSWSC 1697 (Skypac Aviation), the NSW Supreme Court considered an application by the liquidator of Skypac Aviation Pty Ltd (in liq) (Skypac) for a declaration that a payment made was a disposition of property of Skypac made after the commencement of the winding up of Skypac and therefore void under s 468(1) of the Act.

Background

On 15 October 2015, administrators were appointed to Skypac pursuant to s 436A of the Act.  Following, on 19 November 2015, Skypac was wound up in insolvency by order of the Court.  Accordingly, the winding up of Skypac was taken to have begun or commenced on 15 October 2015.

On 16 October 2015, Skypac made a payment to its creditor, Hope Estates Events Pty Ltd (Hope Estates), for the hire of an aircraft used in Skypac’s business (Payment).  The liquidators gave evidence that they did not authorise the transaction but that it was likely the Payment had been authorised by a Skypac employee in the days prior to the liquidators appointment as administrators and the delay was likely due to the clearance times required for electronic funds.

On 30 October 2015, the director of Hope Estates requested confirmation from the then administrators that the aircraft had been used since the administration began, would continue to be used to fill Skypac’s obligations, and the administrators would continue making payments on a weekly basis (being a condition of Hope Estates permitting continued use of the aircraft).  The then administrators gave the requested confirmation.

Following the confirmation, the administrators continued the use of Hope Estates’ aircraft but provided no further payments to Hope Estates for invoices rendered.

Significantly, the director of Hope Estates gave evidence at trial that, if he had known the payment would be impugned or that the administrators would not have met Skypac’s payment obligations as they had confirmed, Hope Estates would not have continued to hire the aircraft to Skypac.

Section 468(1) of the Act provides that any disposition of property of the company, other than an exempt disposition, made after the commencement of the winding up by the Court is, unless the Court otherwise orders, void.

The parties agreed that the Payment to Hope Estates on 16 October 2015 was a disposition of property of Skypac within s 468(1) of the Act.  As such, the court was required to answer two questions (see [29]):

Question 1: whether the Payment was an “exempt disposition” within s 468(2)(b) of the Act? or

Question 2: if not, whether the Court should exercise its discretion to order that the Payment is not void?

The onus of establishing that the Payment was exempt or should otherwise be deemed not void in the Court’s discretion lay with Hope Estates.

Question 1

Hope Estates submitted that the exception that applied rested in section 4682(b) of the Act because the payment was made from an account maintained by Skypac with Westpac being an Australian ADI.

The liquidator accepted that the payment was made from Skypac’s account maintained with Westpac, being an Australian ADI, but submitted that the Payment was not a payment by an Australian ADI, rather it was a payment made by Skypac from moneys held in its bank account with Westpac and thus did not come within the exception in s 468(2)(b) of the Act.  The liquidators relied heavily on Pidgeon J’s decision in Re Rampton Holdings Pty Ltd (in liq) (1980) 2 ACSR 547 (Rampton) to support their position.

Speaking of the exemption in s 468(2)(b) of the Act, Pidgeon J stated at 548-549 that the intent of the exemption granted by this provision:

… is to avoid the necessity of the bank being required to seek an order of validation in respect of cheques it pays and of the bank being liable to account to the liquidator in respect of any cheque paid by it. I do not consider it is intended to apply to payments received by recipients. It is limited to a payment of money by the banking corporation. In other words, it is limited to payments made as distinct from payments received.

Accordingly, Hope Estates submitted that, Rampton should not be followed.

His Honour noted, at [38], that acceptance of Hope Estates’ position required persuasion that the decision in Rampton is plainly wrong.

Continuing, also at [38], His Honour stated:

I am not convinced that Rampton is plainly wrong. On the contrary, I respectfully agree with the reasoning in Rampton which is equally applicable to s 468(2)(b) of the Corporations Act.

Gleeson J ultimately held that the exemption in s 468(2)(b) of the Act did not apply.

Question 2

In consideration of whether the Court should exercise its discretion, Gleeson J noted at [41] that:

It is well-established that the words “unless the Court otherwise orders” give the Court a wide general discretion which is not to be limited by any attempted classification of those cases which do and those which do not, fall within them … (citations omitted)

He continued at [42] stating:

The principles guiding the exercise of discretion under s 468(1) have been referred to in many cases. It has been said that the discretion is to be exercised for “the promotion of the interests of [the] creditors as a whole” and is to take the form of “a commercial or economic [inquiry], calling for a balancing of the anticipated net gains or losses from the transaction for which approval is sought” …

In considering the use of the discretion His Honour agreed that:

  • Hope Estates was aware of the administration of Skypac on receipt of the Payment;
  • the Payment was made in good faith and honest intentions;
  • the Payment was likely made prior to the administration commencing; and
  • it is unfair to view the Payment in isolation.

Lavan comment

The NSW Supreme Court ultimately held that, in the circumstances:

  • it was appropriate to exercise the Court’s discretion as Hope Estates would otherwise have discontinued the loan of the aircraft and the administrators of Skypac would have been unable to operate Skypac’s business whilst the administration continued; and
  • the Payment was not void for the purposes of s 468(1) of the Act.

The decision in Skypac Aviation confirms that, despite a payment being obviously voidable, the Court has a wide discretion to order that payments otherwise voidable under s 468(1) of the Act, are in fact not void.

The Court is likely to exercise such a discretion when the payment in question allows for ongoing goods or services to be received which are for the benefit of the company’s (in liquidation) creditors, even where the benefit received is not equal to or greater than the payment made as was the case in Skypac Aviation and further cases referred to in the decision.