Case: Lewis (as liq of Doran Constructions Pty Ltd (in liq)) v Doran (2005) 219 ALR 555
Outcome: cited
In Lewis (as liq of Doran Constructions Pty Ltd (in liq)) v Doran (2005) 219 ALR 555 at 579 [109]-[110] ( 'Lewis' ), Giles JA (with whom Hodgson and McColl JJA agreed) said: 'Particularly when the limiting words are no longer part of the test, there is no compelling reason to exclude from consideration funds which can be gained from borrowings secured on assets of third parties, or even unsecured borrowings. If the company can borrow without security, it will have funds to pay its debts as they fall due and will be solvent, provided of course that the borrowing is on deferred payment terms or otherwise such that the lender itself is not a creditor whose debt can not be repaid as and when it becomes due and payable. It comes down to a question of fact, in which the key concept is ability to pay the company's debts as and when they become due and payable. Even before the wording of s 95A , in Re RHD Power Services Pty Ltd (1991) 3 ACSR 261; 9 ACLC 27 McPherson SPJ was prepared to pay regard to ability to borrow without security. Kearney J in Re Adnot Pty Ltd (1982) 7 ACLR 212; 1 ACLC 307 took into account that the company "instead of having to resort to some outside lender, is in the fortunate position of having its fellow member of the group of companies to which it belongs, available in effect as banker to provide funds required to meet any shortfall": at ACLR 217; ACLC 311; the shortfall was until completion and sale of a shopping centre. In Re a Company [1986] BCLC 261 Nourse J declined to find that a company was unable to pay its debts as they fell due although it was being "propped up by loans made to it by associated companies and possibly by others": at 262; his Lordship noted at 263 that he had evidence from a director to the effect that there was no question of the loans being withdrawn, the loans not being repayable for some 18 months.' (The emphasis appears in the judgment.) Giles JA went on to add that solvency can be established even though the arrangement under which funds are to be provided by a third party is entirely voluntary. 39 In the end, it is a question of fact to be ascertained from a consideration of a company's financial position taken as a whole whether a voluntary arrangement with a third party for the provision of funds amounts to a sufficient basis for concluding that the company is able to meet its liabilities as they fall due: see Southern Cross Interiors at 224; Lewis at 572 [79] and Tru Floor at [44]. In Tru Floor at [44], Sundberg J said, correctly in my view, that it must also be borne in mind that the plain words of s 95A ('as and when they become due') require anticipated debts to be taken, to some extent, into account in determining solvency. 97 Given my factual findings, the decision in Lewis does not assist the directors. In any event, that was a very different case. There, a corporate reconstruction had resulted in a number of intercompany loans. Following the reconstruction, over a period of slightly more than three years, the company paid all of its debts as and when they fell due with the assistance of funds provided by other companies in the group. Over that period, there was no evidence of any of the usual indicia of insolvency, such as unpaid group tax or payroll tax or other unpaid debts. Most importantly, the funds provided by other group companies were sufficient at all relevant times to enable the company to discharge its debts as and when they fell due: see at 570-573 [74]-[82]. The present case is very different, in that the related company was never providing sufficient funds to enable TSI and TSIA to pay their respective debts as and when they fell due. 98 In the first proceeding, the liquidator alleges that each of the claimed payments was an unfair preference within the meaning of s 588FA. In the second proceeding concerning TSIA, the liquidator alleges that six payments, totalling $66,827.05, were unfair preferences. 99 To establish these contentions, the liquidator must establish three things: (1) the payments were transactions; (2) the Commissioner received the payments in his capacity as a creditor; and (3) each payment resulted in the Commissioner receiving in respect of an unsecured debt more than he would receive if he proved for that debt in the winding up.