by Chris Kindis

In this matter [2018] NSWSC 707, Brereton J has upheld the s588FG(2) ‘Good Faith’ defence run by Bildavoid Concrete Voidforming Systems (“Bildavoid”).

Background on the Matter

  • Heavy Plant Leasing Pty Ltd (“HPL”) operated in the construction industry, specialising in earthworks.
  • HPL commenced ordering products from Bildavoid in October 2012 and remitted payment within the prescribed payment timeframe of 30 days.
  • HPL made a further order which was invoiced on 30 October 2012 being due and payable on 30 November, in the amount of $149,265.79.
  • Bildavoid attempted to obtain payment prior to the Christmas break.
  • From 2 January 2013, Bildavoid subsequently increased pressure for payment including threats of a stop on supply.
  • On 11 January 2013 HPL advised that payment had been made, however, this subsequently did not occur.
  • Bildavoid continued to chase payment.
  • On 31 January 2013 Bildavoid advised HPL of their potential intention to commence legal action.
  • Payment in full was remitted the following day with an accompanying apology for the delay in payment and advising that difficulties with the head contractor were to blame.
  • HPL was placed into Voluntary Administration on 14 March 2013 and went into Liquidation on 20 December 2013.

Decision

The Court observed that a successful 588FG(2) defence would require the onus be on the defendant creditor to establish an absence of reasonable grounds for suspicion. Upon analysis of the dealings between the debtor company and the creditor, as well as the late payment of invoices, Brereton J made the following comments:

".....recalcitrance by a debtor does not itself provide grounds to suspect insolvency; still less does mere late payment by debtor provide of itself grounds to suspect insolvency. Thus, the fact that it is necessary to resort to conventional debt collection procedures to recover a debt from a late or recalcitrant debtor does not necessarily provide grounds to suspect insolvency. In many circumstances, recalcitrance or late payment is explicable by cash flow difficulties, or other matters falling short of the permanent state of insolvency to which s 588FG refers”.

Brereton J made note of the mitigating circumstance relating to non-payment including:

  • The timing coinciding with the Christmas period resulting in diminished communication due to an absence of executives being on holidays;
  • A contextual analysis of the construction industry and the notoriety of the involved subcontract prone to cash flow difficulties; and
  • The payment delay had been explained with a reason that was not implausible at it could be assumed that the issue had been rectified.

Concluding Comments

Brereton J noted that ultimately it is imperative to look at the state of mind of the payee at the time when the payment was received and put heavy reliance on the fact that:

  • payment was made one day after litigation had been threatened;
  • payment was made in full, with no suggestions of special payment arrangements;
  • payment was made with the firm’s suggestion that the delay was associated with problems with the head contractor;

Brereton J made specific reference on a number of occasions to the fact that payment had been made in full without any suggestions of a part payment or some sort of repayment arrangement.

In relation to the increased threats and pressure exerted by Bilavoid, Brereton J commented:

" ..... But those are steps that are taken just as much by an unpaid creditor of a solvent debtor as they are by an unpaid creditor of an insolvent debtor. The fact that the creditor applies pressure of that order to secure payment does not, to my mind, to illustrate that the creditor fears or apprehends that the debtor is insolvent. In that respect, it is notable that the pressure resorted to did not reach the point of actual reference to a debt collector, nor the issue of recovery proceedings, nor the issue and service of a creditor's statutory demand. Moreover, the threat of reference to a credit agency produced immediate payment in full”.

It may be inferred from the above that the absence of payment arrangements, referral to a debt collection agency or the commencement of legal proceedings may be indicators for the Good Faith defence failing to be upheld. Further to this, external factors such as industry and time of the year must also be taken into account.

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