Peak indebtedness and preferences – an Australian authority now “offering a considered analysis of the rule”

The High Court of Australia has found that the peak indebtedness rule has no place in Australian law in the calculation of the amount claimable as a preference: Bryant v Badenoch Integrated Logging Pty Ltd [2023] HCA 2 (8 February 2023) (

The New Zealand Court of Appeal said as much in its 2015 decision in Timberworld v Levin [2015] 3 NZLR 365.  New Zealand had largely adopted Australia’s section 588FA into its insolvency law, but the Court of Appeal rejected an argument that along with it came Australia’s peak indebtedness rule, as a gloss on the terms of the section.  In fact, the Court gave close analysis to all the Australian decisions on peak indebtedness at that time, starting with Barwick CJ in Bank of NSW v Rees in 1964. The Court of Appeal noted that Olifent v Australian Wine Industries Pty Ltd in 1996 was the first case to interpret and apply the then new section 588FA of the Corporations Act, and adopt the peak indebtedness rule.

Since then, in a number of following cases over the years

“the peak indebtedness rule has been applied without further comment or discussion. The Australian courts seem to have assumed the rule had the weight of authority and sufficient pedigree to warrant its direct application. We have located no Australian authorities offering a considered analysis of the rule”.

The NZ Court’s considered analysis back in 2015 was that the rule had no application in New Zealand, and implicitly, nor did it in Australia.

The High Court of Australia acknowledged Timberworld v Levin in footnote 59 of its judgment.

New Zealand court decisions are a good source of analysis of Australian law given that they are unconstrained by the issues associated with the mix of courts with insolvency jurisdiction in Australia that might be said to have contributed to the peak indebtedness rule having been applied over time “without further comment or discussion”.

Also, NZ has often adopted our legislative provisions, though usually with some adjustments.  Its voluntary administration regime under Part 15A of the Companies Act 1993, largely based on Australia’s Part 5.3A, is one example.  At the same time, aspects of the comparative simplicity of New Zealand insolvency law, including liquidation and personal insolvency, may well be worthy of adoption in Australia.

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