The question of when and how a third party payment can give rise to an unfair preference was considered in the recent case of Cant v Mad Brothers Earthmoving Pty Ltd  VSCA 198 (Cant v Mad Brothers).
Typically, in seeking to establish an unfair preference under section 588FA of the Corporations Act1 (Act), a liquidator will need to prove that the creditor receiving the impugned payment:
There are cases dealing with when a third party payment on behalf of an insolvent company can give rise to an unfair preference within the meaning of section 588FA, but the area has been subject to uncertainty.
The relevant facts are as follows:
The liquidator of Eliana sought to recover payment of the Debt from Mad Brothers as an alleged unfair preference payment.
The liquidator was successful before an associate judge at first instance.2 This was overturned on appeal by Justice Robson in the trial division, with Justice Robson finding that “in the facts of this particular case, there was no unfair preference given by Eliana to Mad Brothers as a creditor of Eliana”.3
The liquidator then appealed the matter to the Victorian Court of Appeal.
The liquidator of Eliana argued that the fact that Eliana and Rock had the same sole director led to the inference that Eliana had authorised or directed Rock to pay the Debt to Mad Brothers, and that this satisfied the requirement that Eliana be a party to the transaction with Mad Brothers.
The liquidator also argued that Eliana was a creditor of Rock, that the payment by Rock appeared to have reduced Rock’s debt to Eliana, and that this satisfied the requirement that Mad Brothers received the payment from Eliana.
The respondents argued that there was no agreement between Rock and Eliana, Eliana was not a party to the payment transaction, and the payment was not ‘from’ Eliana.
In relation to section 588FA(1) of the Act, the Victorian Court of Appeal held4 in its very detailed judgment that:
In assessing the matter, the Court of Appeal was satisfied that there was sufficient evidence to show that Eliana had authorised and ratified the payment by Rock (by the actions of the joint sole director) and was a party to the payment transaction.
However, the Court of Appeal found that the liquidator had not established that Eliana was a creditor of Rock. As a result, the Court of Appeal found that the liquidator had not and could not establish that the payment by Rock had reduced or diminished the assets of Eliana.
All of the grounds of appeal relating to this issue were dismissed.
The judgement in Cant v Mad Brothers provides valuable guidance as to when and how a third party payment can give rise to an unfair preference.
Liquidators will need to be alert when considering third party payments to creditors during the relevant period to assess whether any terms or arrangements relating to that payment could be said to have reduced the available assets of the insolvent company.
 2001 (Cth)
 Re Eliana Construction and Developing Group Pty Ltd (in liq) (Supreme Court of Victoria, Efthim AsJ, 1 November 2018).
 Eliana Construction and Developing Group Pty Ltd (No 2), Re  VSC 546 at .
 Cant v Mad Brothers Earthmoving Pty Ltd  VSCA 198 at .