The High Court of Australia has dismissed an appeal from the decision of the Full Court of the Federal Court of Australia in Metal Manufacturers Pty Limited v Morton as liquidator of MJ Woodman Electrical Contractors (in liquidation)  HCA 1.
- The statutory right of set-off under s 553C(1) requires that the mutual credits, mutual debts or other mutual dealings be credits, debts or dealings arising from circumstances that subsisted before the commencement of the winding up.
- There is no liability, contingent or otherwise, to disgorge an unfair preference payment prior to the commencement of the winding up.
- The right of a liquidator to sue for an order under s 588FF gave rise to a contingent liability, but one that did not exist prior to the commencement of the winding up.
- The requirement of mutuality was not capable of being satisfied because there was no dealing between the same persons (i.e. the right to sue to recover an unfair preference is a right that only the liquidator has) and there was no mutuality of interest.
WHAT NEXT? The reasoning of the High Court is likely to have broader application to other voidable transactions, not just unfair preferences.
Please contact a member of HWL Ebsworth’s Insolvency and Restructuring team for further information and assistance.
This article was written by Carmen Boothman, Partner.