In this practice area
Liquidator claims to recover unfair preferences, uncommercial transactions and other voidable transactions, and the defences available to creditors who received payments before a company failed.
What voidable transaction claims are
When a company goes into liquidation, the liquidator can look back at transactions entered into before the winding up and ask the court to unwind some of them. The aim is to restore assets for creditors as a whole and prevent one creditor being paid ahead of the rest in the final months before failure.
Creditors most often meet these claims as a demand from a liquidator to repay money they received from a customer that later failed. We act for creditors defending these demands, and for directors and related parties where transactions with them are challenged.
The legal framework
The provisions are in Part 5.7B of the Corporations Act 2001 (Cth). An unfair preference under section 588FA is a transaction that results in a creditor receiving more than it would have received in the winding up. An uncommercial transaction under section 588FB is one a reasonable person in the company's position would not have entered into. Under section 588FE, these and other insolvent transactions are voidable if they occurred within set periods before the relation-back day: six months for unfair preferences with unrelated creditors, two years for uncommercial transactions, four years where a related entity is involved, and ten years where the purpose was to defeat creditors. The company must generally have been insolvent at the time, or become insolvent because of the transaction.
The relation-back day is usually the day the winding-up application was filed or, where an administration came first, the day it began. Where a series of transactions forms part of a continuing business relationship, such as a running account, the running account principle in section 588FA(3) treats them as a single transaction, which can significantly reduce the claim. A creditor also has a defence under section 588FG if it received the payment in good faith, had no reasonable grounds to suspect insolvency and gave valuable consideration.
How these claims typically run
A liquidator usually starts with a letter of demand setting out the payments and the claimed preference. The recipient has a chance to respond with evidence of the trading relationship, the running account and its knowledge at the time. Many claims settle at that stage. If not, the liquidator must commence proceedings within the time allowed by section 588FF(3), generally three years after the relation-back day, or up to 12 months after the liquidator's first appointment within that period, unless the court extends it on an application made in time.
How GopherWood Lawyers acts
For creditors, we analyse the account history and the dealings with the debtor, calculate the running account position and assess the good faith defence before any response is sent. That analysis often reduces a claim substantially or answers it. For directors and related parties, we deal with claims involving related-entity transactions and creditor-defeating dispositions, which carry longer look-back periods and closer scrutiny.