A Federal Court Justice has ordered more than $4.6 milllion be paid to liquidators of Gunns Limited because the money was given to creditors when the company was insolvent.
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Gunns became insolvent in March 2012, but between March and September that year, wholly owned Gunns subsidiary Auspine made 11 payments totalling about $3.3 million to harvester and haulage contractor Badenoch Integrated Logging.
In one of two judgments handed down last Wednesday, Justice Jennifer Davies said a July 2011 email revealed Badenoch was aware Gunns had a cash flow problem and sold assets to make payments.
"From 2010 onwards Gunns was regularly late in making payment and Badenoch was constantly chasing payment and seeking advice as to when an invoice would be paid," Justice Davies said.
Former Badenoch director Kenneth Badenoch and his son, current director and former manager Peter Badenohc gave evidence which Justice Davies said indicated the pair genuinely believed Gunns would pay its debts.
"Peter denied believing what the media was saying about Gunns' financial position, saying that he had a long-standing distrust of media reporting," Justice Davies said.
"He said that he believed what he was told by Gunns' executives, who he understood had responsibilities because Gunns was a publicly listed company, over what the media was saying."
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Justice Davies found the Badenoch's knew Gunns had cash flow issues and that Gunns' failure to pay on time was an issue for other contractors. The pair was ordered to pay liquidators $3.3 million, which was found to be voidable under law as insolvent transactions.
In another case, tree harvesting contractor Bluewood was paid about $1.3 million by Gunns between May and September 2012.
"From April 2011 onwards, Gunns was often late in making payments and sometimes did not pay the full amount of an invoice and instead payed in rounded sum part payments, sometimes with two separate payments making up the total of one invoice," Justice Davies said.
Although Bluewood director Clinton Rayner was aware other contractors had not been paid on time, Justice Davies said he maintained he was not aware of the extent of Gunns' debts.
Justice Davies found Bluewood had reason to suspect Gunns was insolvent and ordered $1.3 million be paid to liquidators.