Insolvency & Debt Disputes

An uncommercial transaction is where someone has purchased goods or property of the company, which resulted in a detriment to the company, during the two (2) years prior to the company going into liquidation.

Typically uncommercial transactions involve the purchase of commercial equipment or real property for less-than market value. Accordingly, the liquidator will usually seek payment of the difference between the purchase-price and market value.

Again, just because a liquidator makes an uncommercial transaction claim against you, it does not automatically mean that you are liable to make payment.

To succeed the liquidator is required to establish that:

1.    the company was insolvent at the time of the voidable transaction (or became insolvent as a result of the transaction);

 2.    the transaction provided little or no benefit to the company; and

 3.    the transaction gave you (or another third party) a benefit.

Similarly to an unfair preference, you can raise the good faith defence as a complete defence to an uncommercial transaction. You can also defend on the basis that you did pay market-value.

An unfair preference is where someone has received payment(s) from the company for goods and/or services that were provided to the company, during the six (6) months prior to the company going into liquidation.

It is important to know that, just because a liquidator makes an unfair preference claim against you, it does not automatically mean that you are liable to make payment.

That is because the liquidator is required to establish that:

1.    the company was insolvent at the time of the voidable transaction (or became insolvent as a result of the transaction);

2.    the debt was an unsecured debt of the company (i.e. that you don’t hold security); 

3.    there are other unsecured creditors of the company; and

4.    the amount received by you was greater than what you would have received in the liquidation (i.e. payment of your invoice gave you 100c in the dollar, but in the liquidation you may only be able to receive 10c in the dollar).

Even if all of the elements of an unfair preference claim can be established, the following defences may be available to you:

1.    Good faith defence

This defence is available in circumstances where you had no reasonable grounds to suspect that the company was having money troubles, and accordingly, received payment from the company in “good faith”.

2.    Running account defence

This defence is available in circumstances where you had an ongoing business relationship with the company, whereby you would supply goods and/or services to the company from time to time, and the company would make payments to you for those goods and/or services from time.

 If the company’s debt to you increased during the six-months prior to liquidation, you can raise this as a defence to the entire amount of the unfair preference claim.

 If the company’s debt to you decreased during the six-months prior to liquidation, you can raise this as a partial defence, that you are only liable for the amount of the decrease.

A set-off of other debts you may have against the company is no longer available as a defence to an unfair preference claim.

Upon appointment to an insolvent company, one of the liquidator’s roles is to identify any transactions which may be “voidable”pursuant to Part 5.7B Division 2 of the Corporations Act 2001 (Cth).

Voidable transactions provides liquidators with a means to recover a financial benefit received by someone, which ought be divided evenly between all of the unsecured creditors of the company. This ensures that all unsecured creditors receive equal treatment when a company goes into liquidation.

After identifying potential voidable transactions, the liquidator will typically issue a demand letter to the person or business to whom the liquidator considers has received some financial benefit to the detriment of the other unsecured creditors. Should the liquidator not receive a response, or seek to escalate the matter they may commence court proceedings.

At Financial Dispute Legal, our team of experts are specialists in the field of compensation claims against financial advisors. We aim to help you understand your legal rights and options in recovering your losses. Our passion at Financial Dispute Legal is utilising our expert knowledge and experience to develop a case that best supports the client’s claim.

Generally, a claim must be made within 6 years of when the financial loss occurred. Extensions can be granted by the courts, however, this is solely at the court’s discretion. We recommend contacting the team at Financial Dispute Legal as soon as possible to discuss your legal options and time limits.