The Federal Court of Australia in Yeo, in the matter of Ready Kit Cabinets Pty Ltd (in liq) v Deputy Commissioner of Taxation [2020] FCA 632 has examined the circumstances in which a payment made by a company subject to a deed of company arrangement may be challenged as an unfair preference.

The principal question for Middleton J was whether payments required to be made by a deed of company arrangement were therefore made “under the authority of” the administrators, within the meaning of s 588FE(2B) of the Corporations Act 2001 (Cth).

The Treasury Laws Amendment (Combating Illegal Phoenixing) Act 2020 (Cth) (Act) came into operation on 18 February 2020, and is intended to assist ASIC and liquidators to ‘detect and disrupt phoenix activity, and to prosecute directors and other professional advisors who engage in or facilitate the activity’.

On 15 April 2020, the Federal Court provided the Administrators of Colette with relief from personal liability with respect to the company’s lease obligations.

Colette entered administration in February 2020, prior to the Coronavirus pandemic in Australia. In early March 2020, Administrators noticed sales had begun to substantially decline which had resulted in the company operating at a loss. The decline in sales dropped even further following the Government’s announcements regarding social isolation measures.