One of the questions we often get from clients is in relation to a notice from a liquidator, trustee in bankruptcy or the official receiver saying that they have to pay back money or transfer property back they have received.
It can be a stressful time, and you must know your legal rights and what you have to do.
What is a voidable transaction?
In very simple terms a voidable transaction occurs when a party pays money or transfers property from a company or themselves personally to a third party that can be related or unrelated to them at a time when they were insolvent or in the case of a company is detrimental to the company where it occurs to defeat creditors, is undervalued or a preferential payment.
Company voidable transactions
The Corporations Act 2001 deals with these types of transactions when it relates to a corporate entity.
- Unfair Preferences (Section 588FA) – These are payments or transfers that prefer one creditor to another when a company is unbale to pay its debts and depending on if they are a non-related party within six (6) months or a related party four (4) years (Section 588FA).
- Uncommercial Transactions – This is a transaction that occurs when the company was insolvent and a reasonable person in the circumstances would not have entered into it and depending on if they are a non-related party within two (2) years or a related party four (4) years (Section 588FB).
- Unfair Loans – This occurs when loans to the company have extreme or unfair interest rates and terms and can be pursued at any time (Section 588FD).
- Unreasonable Director-Related Transactions – These are payments or property transfers given to a company director or their close family that are inappropriate no matter when they occur (Section 588FDA).
- Creditor-Defeating Dispositions – This occurs when company property is transferred below value to hide assets from creditors within 12 months for both non-related and related parties (Section 588FDB).
Personal or individual voidable transactions
The Bankruptcy Act 1966 deals with these type of transactions in relation to an individual.
- Undervalued Transactions – These relate to transfers of property made up to five (5) before the bankruptcy occurs bankruptcy for less than market value consideration or no consideration at all and they can be reviewed (Section 120).
- Transactions to Defeat Creditors – This is a transfer made at any time to defraud, delay or hinder a creditor (Section 121).
- Preference Payments – These are payments or transfers to a creditor within six (6) months to two (2) years when the person was insolvent preferring them to other creditors (Section 122).
Are there defences to a voidable transaction?
There are a number of defences to a voidable transaction depending on the type and nature of the transactions, the main core defences being:
- Good faith
- Reasonable grounds
- Valuable consideration
A corporate entity has defences both pursuant to the Corporations Act 2001 and at Common law.
Section 588FG of the Corporations Act 2001 provides the following defences:
- Good faith
- No suspicion of insolvency
- Objective reasonableness
- Consideration or change of position
Under common law there is also:
- Running account balance
- If it is secured
Section 124 of the Bankruptcy Act 1966 protects an innocent, unknowing party who entered in a commercial transaction in ordinary dealings with the bankrupt, if the following conditions are met:
- The transaction happened before the bankruptcy
- The other party was unaware of the impending bankruptcy
- The transaction was done in good faith and in the ordinary course of business
What should I do if I receive a notice in relation to a voidable transaction?
If you receive a claim for a voidable transactions, you should immediately seek expert advice.
These matters are very technical by nature, and often you have limited time to defend them.
How can FC Lawyers help?
Our business and corporate team can assist you if you are served with any claim for a voidable transaction and assess your liability and whether you have a valid defence.
Contact our team as soon as you receive any claim to discuss your options.
The information provided in this article is for general information and educative purposes in summary form on legal topics which is current at the time it is published. The content does not constitute legal advice or recommendations and should not be relied upon as such. Whilst every care has been taken in the preparation of this article, FC Lawyers cannot accept responsibility for any errors, including those caused by negligence, in the material. We make no representations, statements or warranties about the accuracy or completeness of the information and you should not rely on it. You are advised to make your own independent inquiries regarding the accuracy of any information provided on this website. FC Lawyers does not guarantee, and accepts no legal responsibility whatsoever arising from or in connection to the accuracy, reliability, currency, correctness or completeness of any material contained in this article. Links to third party websites or articles does not constitute any endorsement or approval of those sites or the owners of those sites. Nothing in this article should be construed as granting any licence or right for you to use that content. You should consult the third party’s terms and conditions of use in relation to any third-party content. FC Lawyers disclaims all responsibility and all liability (including liability for negligence) for all expenses, losses, damages and costs you might incur as a result of the information being inaccurate or incomplete in any way. Appropriate legal advice should always be obtained in actual situations.
Prefer to get in touch?
With offices in Brisbane, Sunshine Coast, North Queensland and Sydney, our team is well equipped to provide both advice and support across a broad range of legal areas.
