Skypac Aviation Pty Ltd (in liq) (NSWSC2020)

Key Takeaways

The recent NSWSC decision in Skypac Aviation Pty Ltd (in liq) (NSWSC2020) has confirmed that the application of s468(1) of the Corporations Act 2001 (Cth) (‘the Act’) is not as black and white as it once seemed. The case concerned an application by the liquidator of Skypac Aviation Pty Ltd (‘Skypac’) to claw back a payment pursuant to s468(1) of the Act which was made to Hope Estate Events Pty Ltd (‘Hope Estates’) after the commencement of the winding up of Skypac.

The Court considered whether the payment made by Skypac after the commencement of its winding up constituted an ‘exempt disposition’ within s468(2)(b) of the Act, and if not, whether the Court should exercise its discretion to order that the payment is not void. Ultimately, the Court determined that the payment was not an exempt disposition, but then exercised its discretion to order that the payment was not void.

Brief Facts

On 13 January 2014, Hope Estates entered into an agreement with Skypac for the hire of an aircraft owned by Hope Estates. On 15 October 2015, administrators were appointed to Skypac and they issued a circular to all known banks in Australia, requesting an immediate freeze of all Skypac’s accounts. Notwithstanding the administrator’s directive, the next day, Skypac’s account with Westpac was debited with a payment to Hope Estates in the sum of $57,860. Given the clearance times for electronic fund transfers, it was likely that the payment was authorised by Skypac 24 to 48 hours prior to the administrator's appointment.

Mr Hope, the director of Hope Estates, became aware of the appointment of the administrators on or about 15 October 2015. Shortly after, the administrator assured Mr Hope that Skypac would continue to trade and that they would arrange for the payment of invoices.

Section 468 

S468(1) provides that any disposition of property of a company, other than an exempt disposition, made after the commencement of the winding up by the court is, unless the court otherwise orders, void.

In the present case, Hope Estates argued that the payment constituted an ‘exempt disposition’ under s468(2)(b)(ii) which provides that:

(b) a payment of money by an Australian ADI out of an account maintained by the company with the Australian ADI, being a payment made by the Australian ADI:

(ii) on or before the day on which the Court makes the order for the winding up of the company; and

(ii) in good faith and in the ordinary course of the banking business of the Australian ADI.

Justice Gleeson accepted the liquidator’s submission that the payment was made by Skypac from monies held in its account with Westpac, and therefore the payment did not constitute an exempt disposition under s468(2)(b) of the Act.

Court's discretion to order the payment is not void 

Hope Estates also argued that the Court should exercise its discretionary power under s468(1) of the Act to order that the disposition is not void. In Jardio Holdings Pty Ltd v Dorcon Constructions Pty Ltd (FCA1984) the Court clarified that the discretion under s468(1) of the Act is to be exercised for ‘the promotion of the interest of creditors as a whole.’

Hope Estates submitted that the Court should exercise its discretion under s468(1) of the Act as:

1. the parties acted in good faith and with honest intentions;
2. Mr Hope only became aware of the appointment of administrators after the payment had been made;
3. Hope Estates would not have permitted the ongoing use of their aircraft by Skypac had it known that the payment would later be clawed back by the liquidator; and
4. the payment made, along with the administrator’s assurance that invoices would continue to be paid, was the reason why Hope Estates agreed to the continued use of the aircraft by Skypac.

The liquidator argued that the Court should not exercise its discretion to make a declaration that the payment was not void as:

1. Hope Estates was aware that administrators had been appointed on the date that the payment was made;
2. the payment was made by Skypac to offset a pre-existing debt owing to Hope Estates and therefore was of no commensurate benefit to it;
3. if the payment is not void, Hope Estates would receive more in the winding up of Skypac compared to all unsecured creditors; and
4. there was no evidence that the payment was made in good faith with honest intentions.

The Court considered whether the exercise of the discretion requires the Court to consider the transaction in isolation or as part of a series of transactions after the commencement of the winding up. The Court noted that in Tellsa Furniture Pty Ltd (in liq) v Glendave Nominees Pty Ltd (NSWLR9187), the Court held that there will be cases where it is unfair to look at the transaction in isolation and it is necessary to consider what the result was of the transaction on the operation and position of the company.

Judgment

Justice Gleeson rejected the liquidator’s submission that the payment was not made in good faith, finding that Skypac had authorised the payment before it went into administration. His Honour accepted Hope Estate’s submission that it would be unfair to view the payment in isolation. He was satisfied that the payment resulted in a broadly commensurate benefit to Skypac and its creditors in continuing its business during the period of administration because it obtained the continued use of aircraft to fulfil charter contracts for value. His Honour determined that it was appropriate for the Court to exercise its discretion to order that the payment of $57,860 by Skypac to Hope Estates on 16 October 2015 was not void.

Implications

This decision provides insolvency practitioners greater clarity and guidance with respect to the court’s discretionary power under s468(1) of the Act. It highlights that the court’s discretion under s468(1) of the Act is very wide and the importance of considering the timing and circumstances surrounding the disposition of the property when weighing up the prospects of court proceedings to recover void dispositions under s468 of the Act.