I’ve received an unfair preference claim, now what?

 By Eloise Pawley and Callan Peach

So, you’ve recently received payment from one of your customers for goods or services provided by your business, only to receive a letter from a liquidator demanding you to pay it back on the basis it was a ‘preferential’ or ‘unfair preference’ payment?

You may be wondering how you respond to the demand, and most importantly, will you have to pay the money back.

What is an unfair preference payment?

An unfair preference payment occurs in circumstances where a debtor company (or person) makes a payment to a creditor in satisfaction of a debt, shortly before that debtor company is placed into liquidation.

Section 588FA(1) of the Corporations Act 2001 (Cth) (the Act) sets out the elements that must be established in order to satisfy an unfair preference claim:

(a)   The company and a creditor are parties to the transaction (even if someone else is also a party); and

(b)   The transaction results in the creditor receiving from the company, more than they would have received had the transaction been set aside and the creditor were to prove for the debt in a winding up of the company.

If proven, a liquidator will have a claim to void the transaction and reclaim the payment.

What is the relevant period for an unfair preference claim?

An unfair preference payment can include all payments made from a company to a creditor in a 6-month period prior to the company being placed into liquidation. This is known as the “relation back period”.

For example, if a liquidator is appointed to a company on 25 August 2016, then the liquidator may seek to void all payments made to the company dating back to 25 February 2016.

Defences

Before making payment of the amount set out in the liquidator’s demand, it is critical to assess whether or not your circumstances may give rise to a defence to the unfair preference claim.

Section 588FG of the Act allows a creditor to rely on various defences to a claim made by a liquidator that the transaction was an unfair preference.

Good faith defence – As an unsecured creditor, you may be able to rely on the good faith defence. In order to do so, you will need to prove that:

(a)     you became a party to the transaction in good faith;

(b)     you had no reasonable grounds to suspect the company was insolvent;

(c)     a reasonable person in your circumstances could not reasonably suspect the company was insolvent; and

(d)     you provided valuable consideration.

Running account defence – this defence can be used in situations where there is a continuing business relationship between the debtor and creditor. The essential feature of this relationship is that it is predicated on the idea that there is an expectation for further debits and credits to be recorded. Note that this is not a complete defence to the unfair preference claim, but may reduce the amount payable to the liquidator.

Often the Good Faith Defenceand the Running Account Defence are used in conjunction to oppose against an unfair preference claim.

What should you do?

Dealing with unfair preference claims from a liquidator can be tricky. It is important to understand the nature of your relationship with the debtor company, as there may be various options available to you in defending these types of claims.

If you have any questions about unfair preference claims, contact Rouse Lawyers on 07 3648 9900 for an obligation-free discussion.

Don’t ‘Lose Yourself’ – The Dangers of Copyright Infringement in Music

By Christina Krantz and Jashan Singh

In 2014, American rapper Eminem filed proceedings against the National Party of New Zealand for using a variation of his song, ‘Lose Yourself’, without consent. The song was used in the National Party’s successful election campaign of the same year.

To establish a copyright infringement, it is necessary for the court to firstly consider whether the work is original. Justice Cull found Eminem’s song to reflect sufficient skill and labour and be ‘highly original work’ with its melodic line and combination of other instruments such as the guitar riff, hypnotic rhythm and piano figure. This conclusion is not surprising given that ‘Lose Yourself’ received the 2003 Academy Award for Best Original Song.

Secondly, the court must establish that the three elements of copying have been satisfied, which are:

1. Has the original work been substantially copied?
2. Does the copied work sound objectively similar to the original work?
3. Is there a causal connection between the copied work and the original work?

It is important to note that the first element does not require the work to be copied entirely, even copying a small amount can amount to infringement. In this particular instance, Justice Cull determined that the National Party’s song had substantially copied ‘Lose Yourself’ as there were close similarities between the two songs and indistinct differences in the drum beat, the melodic line and the piano parts.

The second element of object similarity requires that the whole or a substantial part of the original work looks objectively similar to the copy. Using a hearing and ear recognition test, the court found that there was a sufficient degree of resemblance between the National Party’s song and ‘Lose Yourself’.

Lastly, the element of causation requires proof that there is an unlawful use of original work either directly or indirectly. Usually, the closer the similarity between the two works, the stronger the inference is likely to be that one was copied from the other. The court found that it was clearly evident that ‘Lose Yourself’ was copied in the production of the National Party’s song as it was created as a sound alike track.

Overall, the National Party’s song constituted a breach of the Copyright Act 1994 (NZ) amounting to copyright infringement.

The High Court of New Zealand awarded Eminem approximately $600,000 NZD ($535,000 AUD).

In addition to the copying, damages were also awarded because:

• Eminem’s music had a high value in New Zealand;
• The National Party’s campaign did not align with the artists’ personal values which gave rise to a commercial risk; and
• The National Party’s song had almost entirely copied ‘Lose Yourself’.

In Australia copyright is governed by not to dissimilar legislation; the Copyright Act 1968 (Cth). In 2011, a similar issue arose in Australia where it was found that Men at Work’s song, Down Under, infringed the copyright in an Australian nursery rhyme (‘Kookaburra Sits on the Old Gum Tree’).

The rulings in both New Zealand and Australia serve as a warning to music producers and their clients by confirming the rights of artists and songwriters. It shows the dangers of using other people’s works without permission – doing so comes with a high level of risk.

Need advice on copyright? Talk to our Intellectual Property team at Rouse Lawyers. Contact us today!

The GDPR sees its first lawsuits filed

By Christina Krantz and Sonja Van Der Steen

It took less than a day for the GDPR (also known as the European Union General Data Protection Regulation) to see its first lawsuit.

Coming into force on 25 May 2018, the GDPR is a new regulation aimed at enforcing stricter rules concerning the use of EU resident’s personal information, and on that same day, Austrian privacy activist Max Schrems filed lawsuits against both Facebook and Google for a total of $7.6 billion euro ($11.6 billion AUD) for allegations of coercion by the two companies.

The fines filed in these lawsuits are no doubt a significant amount of money and while most companies will not see fines that high, it is important for all entities which interact with personal information (which includes information such as first name last name as well as digital cookies) of EU residents to be aware of the GDPR.

Some of the main components of the GDPR are:

• Privacy by Design: The GDPR requires companies to not only know why they are collecting personal information but also how it is being used and how it is managed. One way to achieve compliance is to have documented policies and procedures in place which details the lifecycle of the personal information collected. This process should also be undertaken each time a new process or system is introduced to the company.

• Consent for All Use: Entities must obtain consent for all the contemplated usage. This means that if you have consent to do one activity (such as fulfilling a customer’s online shopping order), consent is not automatically granted to do another activity (such as remarketing ads). This step is easier to obtain compliance if a company has properly documented their data processes and have implemented a Privacy by Design approach.

• Right to be Forgotten: In addition to a company’s normal procedure relating to the removal of personal information once it is no longer needed, if an individual requests to be removed, that company must comply unless there are explicit reasons to the contrary (for example, another law prevents you from deleting the information).

The Right to be Forgotten also extends to third party software integration. If a company passes personal information to a third party and an individual requests to be forgotten, the first company must request the third party to remove the personal information as well.

Consequences

The first lawsuits are only examples of the potential consequences of non-compliance with GDPR which can be either 20 million euro or 4% of the total worldwide annual turnover of the company for the preceding (European) financial year. The suits filed by Schrems have yet to be decided and it remains unclear that if Facebook and Google are found to be in breach of the GDPR, if the full fine will be applicable.

Facebook and Google have both responded to the lawsuits advising they are compliant with the GDPR.

Next Step?

How the GDPR will affect your compliance responsibility will depend on the type of personal information held by your company and proposed use for the personal information. At minimum, all companies should review how it uses personal information and if it captures EU resident data.

If you’d like to discuss the GDPR, call Rouse Lawyers’ technology team on 07 3667 9696.