Agility Law Group acted for the successful liquidators in the decision of Magistrate Hay in Australian Rock Walls Pty Ltd (in liquidation) & Anor v Commissioner of Taxation [2026] QMC 14 delivered on 14 July 2026, which provides useful authority for liquidators pursuing unfair preference recoveries where payments have been made from an overdraft facility rather than directly from the company's bank account.

Background

The liquidators of Australian Rock Walls Pty Ltd sought to recover nine payments totalling $80,994 made to the Commissioner of Taxation during the relation-back period as unfair preferences under s 588FA of the Corporations Act 2001 (Cth). The parties agreed that:

• the payments were made during the relevant relation-back period;
• the debts were unsecured;
• the company was insolvent at the time of the payments.

The principal dispute concerned whether the payments were made "from the company" within the meaning of s 588FA(1), particularly where eight of the payments were made from an overdraft account. The overdraft had no available funds on the day of each payment, until company funds were transferred in (once received from the company's customers) to facilitate payments via the overdraft.

The Overdraft Issue

The Commissioner argued that payments drawn on an overdraft facility were not payments "from the company" because the funds belonged to the bank rather than the company. The argument was that the transactions represented payments by the bank and therefore could not constitute unfair preferences.

Magistrate Hay rejected that submission.

Her Honour held that although overdraft funds are technically the bank's money, the company is nevertheless a party to the transaction because it has a contractual right to access and direct the use of those funds. The overdraft facility gave the company access to money to which it was entitled under its banking arrangements, and payments made pursuant to that entitlement were properly characterised as payments "from the company".

The Court adopted and applied reasoning from Cant v Mad Brothers Earthmoving Pty Ltd [2020] VSCA 198, noting that the relevant inquiry is whether assets available for distribution to creditors have been diminished and words ‘from the company' are intended to convey that the payment be made out of moneys or assets to which the company is entitled.

Importantly, the Court found: "the overdraft gave the Company access to money over which it had a right by virtue of its agreement with the bank."

The Court also held that the operation of the overdraft account resulted in a diminution of assets otherwise available to creditors because company income was being paid into the facility and then redrawn to pay selected creditors.

The Third Party Payment That Failed

Not all transactions were recoverable.

One payment of $14,125 was made from the account of a third party known as ARRW rather than from the company's overdraft account. ARRW had no funds available in its bank account the day prior to paying the ATO, but received such funds from the company (upon the company being paid by a customer) and then ARRW used those funds to pay the ATO the next day. However, at that time the company was indebted to ARRW under a loan account between them.

The Magistrate found that the liquidators were unable to establish that the company had any entitlement to those funds used by ARRW. The transaction otherwise did not reduce a receivable asset or loan from ARRW to the company. As a result, the Court found that this payment was not made "from the company" and therefore did not constitute an unfair preference.

The decision serves as a reminder that where payments originate from related entities or third-party accounts, liquidators must adduce sufficient evidence demonstrating that the funds were in substance company funds or assets to which the company was entitled, or that the transaction otherwise diminished company assets.

Outcome

The Court found that 8 of the 9 transactions satisfied the requirements of s 588FA and constituted unfair preferences. Judgment was therefore entered in favour of the liquidators in respect of the 8 overdraft transactions.

An indemnity costs order was made against the Commissioner from the date of a formal settlement offer made by the liquidators.  The Commissioner rejected that offer and ultimately achieved a worse outcome at trial.

Magistrate Hay found that the Commissioner had sufficient notice of both the liquidators' case and supporting evidence before the offer was made and therefore should bear the consequences of rejecting it.

This aspect of the decision reinforces the importance of carefully considering settlement proposals in preference claims and demonstrates the substantial costs exposure that may arise where a defendant proceeds unsuccessfully to trial.

Practical Takeaways for Liquidators

The decision provides several practical lessons:

1. Overdraft payments may constitute unfair preferences. The fact that a payment is made from an overdraft facility does not necessarily prevent recovery under s 588FA. Courts will examine the company's entitlement to access and direct the use of the funds.
2. Beneficial entitlement. Where payments originate from third-party or related-entity accounts, liquidators must establish the company's beneficial entitlement to the funds.
3. The "diminished asset effect" remains central. Until the decision of Cant v Mad Brothers is considered by higher appellate authority, the Courts will continue to focus on whether a preference transaction involving a third-party payer diminished company assets available for distribution among creditors.

Our Samuel Lane appeared at trial, successfully advocating against Counsel for the ATO. The 28 day appeal period for this decision has yet to expire.