The Full Federal Court has recently moved the goalposts with regard to recovery by a liquidator of preference payments under Part 5.7B of the Corporations Act 2001 (“the Act”).

In the decision of Badenoch Integrated Logging Pty Ltd v Bryant [2021] FCAFC 64, the Court has put an end to what is known to many as the “peak indebtedness rule”.

The Full Court has determined that instead of the liquidator being able to identify a point in the relation back period, usually the point of peak indebtedness of the company, all transactions over the relation back period are to be considered as a single transaction when determining the alleged preferential gain by the creditor.

The creditor was held to have not intended to end the business relationship it had with the company.

This decision could be seen to be an advantage to the creditor and supporting a creditor’s good faith defence which is usually raised in responding to the liquidator’s claim and further enhances a creditor’s position when claiming that the payments received were part of a running account as set out in section 588FA(3) of the Act.

For further information on this decision and advice on making a claim for preference payments or in defence of a claim, do not hesitate to contact Darrin Mitchell at any time.