Happy Steel had supplied $400k worth of steel to CR Steel in the lead up to liquidation.
CR Steel’s liquidator rejected Happy Steel’s PPSA claim as they “couldn’t identify which steel had been supplied by Happy Steel and which by other steel suppliers”.
Happy Steel was very annoyed at this because they had only delivered $100k of the balance outstanding the day before the insolvency occurred. They were also concerned about a potential unfair preference claim being raised for millions of dollars.
Our principal Lynne Walton, met with Happy Steel and suggested that the rejection of their claim was arguable particularly in light of the delivery of $100k worth of stock the day prior to the appointment of the liquidator.
Happy Steel engaged Lynne to represent them in the claim. Lynne had two valid arguments and one strategy to win.
Argument one – Lynne obtained an affidavit from a former employee of CR Steel confirming that the steel took circa 3 months to be processed through its system before sale or construction etc. The debt was no more than 4
months old. On the balance of probability, a significant proportion of the steel was still in the production process and the remainder was highly likely to be in debts created from the sale of the steel. Happy Steel could quite reasonably claim the full amount of the debt as a PMSI which should be accepted and settled.
Argument two – related to the unfair preference claim.
S588 of the Corporations Act states that the supplier being paid must have been preferred over the general body of unsecured creditors.
PPSA classes a PMSI holder as a secured creditor which means that
Happy Steel could not have been preferred over the unsecured creditors by being paid as they did not belong to that class of creditor.
They became a secured creditor having registered their PMSI on PPSR. Lynne’s argument was that a preference claim did not exist.
The liquidator suggested that ‘apportioning the stock and debtors between the steel suppliers would be too time consuming and difficult’.
Lynne suggest to the liquidator that Happy Steel was contemplating amalgamating its ROT claim with those of the other steel suppliers.
This was a bluff – but it worked. The liquidator agreed the claim and made a full and final settlement payment to Happy Steel for the stock and confirmed that it would not pursue any unfair preference payment.
Happy Steel was delighted with the result. The claim was agreed and settled within a month.
It is important that ROT suppliers not only register correctly on PPSR but that they understand their enhanced rights under PPSA.
Access PPSR helps its clients enforce their rights with vigour. We can help you to come out on top too.