The decision of Justice Markovic in the recent matter of Stone v Melrose Cranes & Rigging Pty Ltd, in the matter of Cardinal Project Services Pty Ltd (in liq) (No 2) [2018] (“Stone v Melrose”) is another great example of the law ever slowly eroding the tools available to liquidators to recover voidable transactions for the betterment of creditors.

It is by all means a great outcome for respondent’s to unfair preference claims but otherwise another hurdle for insolvency practitioners who are facing pressure and criticism from all angles regarding everything from the costs they incur, to their administrative processes and the returns they are obtaining for creditors.

At paragraph 279 – 287 of the Decision, Her Honour follows the decisions in Re Parker and Smith v Bone in acknowledging the applicability of set off as per section 553 of the Corporations Act 2001 (Cth) to voidable transactions. He Honour went on to say at paragraph 287 that the set-off was not applicable in the particular case because:

As was the case in Jetaway, here there were multiple promises of payment that were not met despite persistent follow up. Further, while CPS (unlike the company in Jetaway) did not admit that it did not have, and had no prospect of having, any funds to pay the accrued debt, its imposition on Melrose Cranes of a payment plan by which it incrementally paid back amounts that were not referable to any tax invoices implied the same. Mr Melrose admitted that this was what he believed and as summarised at [275] above,the circumstances indicate that Melrose Cranes was well aware that CPS was unable to pay its debts as and when they fell due. On that basis, it is not entitled to a set-off under s 553C of the Act.

Regardless of the outcome, Stone v Melrose serves as a guide to insolvency practitioners and respondents when analysing their positions and preparing to engage in litigation.