The Liquidator of Kalimand Pty Ltd (in liquidation)
(Kalimand) sought to recover certain payments made
by Kalimand to High Country Meats (Vic) Pty Ltd
(HCMV) on the basis that the transactions were
voidable transactions pursuant to section 588FE of the
Corporations Act. The relevant transactions were:
a transfer of $60,000 in cash (Transfer);
a transfer of assets including stock in the sum of $1,090,400
and trade debtors in the sum of $959,079 for nil consideration
The evidence presented by the Liquidator was comprised of the
Liquidator's Report, business activity statements, tax returns,
bank statements and other records obtained pursuant to a subpoena
to Kalimand's accountants.
PRINCIPLES FOR PROOF
A transaction will be voidable if it is an uncommercial
transaction which is also an insolvent transaction. This may be
there is a "transaction", or conduct or dealing
engaged in by a company that effects a change in that company's
rights, liabilities or property;
that transaction is "uncommercial" insofar that it
may be expected that a reasonable person in the company's
circumstances would not have entered into the transaction; and
the transaction is entered into when (i) the company is
insolvent; or (ii) the company becomes insolvent because
of entering into the transaction or the giving effect to the
transaction (section 588FC(b) of the Corporations
The Liquidator was expected to present "clear evidence
as to how a transaction affects a company's solvency"
and identify "with some precision" the
transactions in issue.
The Liquidator successfully met this standard with respect to
the Transfer, but not the Assets.
With respect to the Transfer, the Liquidator unsuccessfully
attempted to demonstrate that Kalimand was insolvent at the time
the Transfer occurred by reference to the Liquidators Report. The
Court rejected this evidence on the basis that the Report in itself
is not evidence of the truth of its contents (sections 48(1)(b) and
59 of the Evidence Act 1995 (Cth)).
Furthermore, the balance of the evidence was considered
insufficient as it failed to disclose the debtors and the assets of
Kalimand at the time of the transaction.
However, the Liquidator was able to demonstrate by reference to
bank statements dated before and after the transaction occurred
that the Transfer caused Kalimand to become insolvent.
The evidence presented in relation to the Asset transactions was
less convincing. The Liquidator failed at the first hurdle by
insufficiently indentifying with precision the content of the
Assets alleged to have been transferred to HCMV.
In the Court's view, the most the Liquidator could show was
highly suspicious activity that resulted in a significant reduction
in the payments received and stock held by Kalimand, in
circumstances where HCMV received considerable payments into its
accounts. Crucially, the Court concluded that "without the
source documents and, for example, a matching of the invoices
issued by Kalimand and evidence of payment by the payees of that
invoice into HCMV's account, it is not possible to conclude
that the payments into HCMV's account in fact belonged to
This decision confirms the importance of adducing specific
evidence of a company's insolvency and identifying with
precision the material circumstances of each voidable transaction.
The insolvency should be closely related to the transaction, and
clear evidence establishing a nexus between the detriment alleged
to have been suffered and the corresponding benefit received is
essential to any action under Pt 5.7B of the Corporations
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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When determining if a DOCA is to be terminated, public interest can, and often will, outweigh any benefit to creditors.
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