Peak Indebtedness Peaking Again? Special leave sought for High Court appeal

Articles Written by Pravin Aathreya (Partner), Paul Buitendag (Partner), Ben Bishop (Senior Associate)

On 10 May and 24 June 2021, the Full Court of the Federal Court delivered unanimous judgments in Badenoch Integrated Logging Pty Ltd v Bryant, in which the Full Court held that the peak indebtedness rule does not apply in Australia. Our summary of the first of those judgments can be found here

On the instructions of PwC (the liquidators of Gunns Ltd), JWS has now filed and served an application for special leave to appeal the judgments to the High Court of Australia.

Briefly stated, the grounds for the appeal include the following:

  1. the Full Court incorrectly concluded that the peak indebtedness rule is not available to a liquidator in establishing an unfair preference under s 588FA(1) of the Corporations Act; and
  2. the Full Court incorrectly set aside the primary judge’s finding that certain payments were not part of a continuing business relationship by disapproving of the “predominant purpose” test stated in Sutherland v Eurolinx[1] (i.e. that there will be no continuing business relationship where the predominant purpose of a payment is recovering past indebtedness).

Undoubtedly, the insolvency profession will be watching the appeal closely. If you have any questions relating to the appeal, please feel free to contact Paul Buitendag, Pravin Aathreya, Ben Renfrey or any other member of the restructuring team at Johnson Winter & Slattery.

[1] Sutherland v Eurolinx Pty Ltd (2001) 37 ACSR 477 at 504 [148]

Important Disclaimer: The material contained in this article is comment of a general nature only and is not and nor is it intended to be advice on any specific professional matter. In that the effectiveness or accuracy of any professional advice depends upon the particular circumstances of each case, neither the firm nor any individual author accepts any responsibility whatsoever for any acts or omissions resulting from reliance upon the content of any articles. Before acting on the basis of any material contained in this publication, we recommend that you consult your professional adviser. Liability limited by a scheme approved under Professional Standards Legislation (Australia-wide except in Tasmania).

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