When a Liquidator issues legal proceedings for unfair preference claims, uncommercial transaction claims or unreasonable director related transaction claims and is successful in proving they are voidable transactions pursuant to the Corporations Act 2001 (Cth) (the Act), an entitlement to recovery of interest also arises. But what is the relevant date from when interest accrues? A case in the Federal Court, Cooper as Liquidator of Runtong Investment and Development Pty Ltd (In Liq) v CEG Direct Securities Pty Ltd (Costs) [2024] FCA 120 (arising from the original judgment in Cooper as Liquidator of Runtong Investment and Development Pty Ltd (In Liq) v CEG Direct Securities Pty Ltd (Costs) [2024] FCA 6), determined the issue as to the date from which the Liquidator is entitled to claim interest.

The Liquidator of Runtong Investment and Development Pty Ltd (in Liq) (Runtong) issued proceedings against CEG Direct Securities Pty Ltd (CEG) in relation to a specific transaction concerning a mortgage granted to CEG over a property owned by Runtong:

• On 12 December 2014, Runtong executed a mortgage over its property in favour of CEG as part of various securities provided to CEG to secure borrowings by Runtong’s related entities (which had common directorships). When the mortgage was executed, the total borrowings by the related entities were in excess of $15 million;
• On 27 February 2018, CEG entered into possession of the property as mortgagee in possession;
• On 27 July 2018, CEG entered into a contract for the sale of the property. Upon settlement on 19 November 2018 (and after the Liquidator was appointed), CEG received the net amount of $12,143,300.47.

The Liquidator maintained that the entry by Runtong into the mortgage in favour of CEG was an unreasonable director related transaction and voidable under section 588FDA of the Act. The Court was satisfied with the Liquidator’s proof of his claim and ordered that CEG pay $1,983,100.40 as the benefit that it received as a consequence of the transaction.

As a result of the Liquidator’s successful outcome at trial, the parties however could not agree on the date from which interest accrued (and costs arising from offers of settlement):

1. An award of pre-judgment interest under section 51A of the Federal Court of Australia Act 1976 (Cth) is mandatory unless good cause is shown to the contrary;
2. The Liquidator’s position was that he was entitled to interest from the date of the winding up on 18 June 2018. The Liquidator relied on three cases, some of which were insolvent trading claims, in which it was noted that a demand was not a prerequisite to recovery of compensation for insolvent trading;
3. CEG’s position was that the ordinary rule under section 588FF of the Act meant that the Liquidator was only entitled to interest from the date of the issue of a letter of demand on 7 March 2019, or alternatively from the date of issue of proceedings on 12 June 2019. CEG relied on numerous cases which specified that until a cause of action arises, an entitlement to interest cannot be claimed and that the proper position is that interest does not accrue until a demand is made by a Liquidator which identified the relevant cause of action;
4. It was an agreed fact at trial that the payment was not received by CEG until settlement which was on 19 October 2018 and it was from that date only that any benefit to creditors could have been recovered (as the cause of action arose then and not from the date of the Liquidator’s appointment). In any event, the Liquidator’s demand was not made until 7 March 2019.

The Court was satisfied with the argument put by CEG and determined that interest should run from the date of the Liquidator’s demand on 7 March 2019 and until the date of judgment which was calculated in the sum of $528,702.72.

For claims made in the Supreme Court of Victoria, pre-judgment interest can be awarded under section 58 of the Supreme Court Act 1986 (Vic).

On behalf of a Liquidator, Catherine successfully ran a matter to trial late last year with judgment being handed down in February 2024 and orders being made in respect of judgments for insolvent trading, uncommercial transactions, unfair preference payments and breaches of director’s duties.

The Liquidator submitted that interest should be made from the date of issue of proceedings (as no demand was made before the issue of proceedings). However, the defendants argued that interest should be awarded from some later period (but could not give any proper reason except delays by the Liquidator (which was not substantiated) and COVID) in an attempt to reduce the amount of interest. Given that the proceedings were issued in 2019, the interest which was awarded on each claim was substantial as it was calculated for a 4 year period.

Catherine has considerable experience in this area and if you require any advice in relation to these claims, whether it be pursuing the claims or defending them, Catherine and her team would be happy to provide assistance.