A Simplified Guide to Unfair Preference Claims and Insolvency under the Corporations Act 2001


Insolvency can be difficult to understand, which is why AKS Law is here to help. Under the Corporations Act 2001 (Cth), some transactions that happen before a company becomes insolvent can be considered voidable, particularly under section 588FA. This covers situations where a company Favours one creditor unfairly over others, which is called an unfair preference claim.

Key Conditions for Unfair Preference Claims

These claims come up when three main things happen: the company strikes a deal with an unsecured creditor while it’s broke, which means the creditor gets more money than they would if the company went bust. When this occurs, the liquidator can step in and take back those payments.

Legal Guidance on Unfair Preference Claims

Legal professionals specialising in insolvency law offer detailed guidance on navigating these claims, including potential defences and exceptions that might prevent repayment to the liquidator. It’s vital for those approached by a liquidator regarding such claims to seek legal advice promptly.

Voidable Transactions in Company Insolvency

Voidable transactions in company insolvency are specific dealings that can be cancelled and recovered by the company’s liquidator. These include more than just unfair preferences. They also cover transactions seen as uncommercial, ones made during insolvency, unfair loans, and unreasonable dealings involving company directors.

Criteria for Voidable Transactions

The Corporations Act sets forth criteria determining whether a transaction can be voided. A “transaction” under this framework is broadly defined to encompass any activity involving property disposition, security interests, guarantees, payments, obligations, releases, waivers, and loans made by the company. The aim is to cover a wide range of actions that could affect the company’s assets and liabilities.

Understanding Insolvent Transactions

An “insolvent transaction” happens when a company, unable to meet its debt obligations, engages in activities that either result from or contribute to its financial downfall. The distinction between temporary cash-flow issues and true insolvency is crucial, with the former not necessarily indicating a company’s inability to survive financially.

The Concept of Unfair Preferences

The concept of an unfair preference is central to voidable transactions, focusing on the preferential treatment of certain creditors over others in a company’s insolvency scenario. Specific timeframes regulate when these claims can be pursued, depending on the relationship between the creditor and the company, with the goal of ensuring equitable treatment among all creditors.

Defences Against Unfair Preference Claims

Defending against unfair preference claims involves demonstrating good faith in the transaction, lack of knowledge of the company’s insolvency, and that the transaction was conducted as part of normal business dealings. Certain exceptions and defences, such as the concept of a “running account” or the distinction between secured and unsecured creditors, can mitigate or nullify these claims.

Consult with Insolvency Law Experts

Navigating unfair preference claims can be tricky. That’s why it’s crucial to get help from experts in insolvency law, like AKS Law Brisbane. They know the ins and outs of complex laws, like Section 588FA of the Corporations Act 2001 (Cth), which determines when transactions can be invalidated. With their guidance, you can understand your options better and ensure you’re represented properly in disputes about voidable transactions and insolvency proceedings.

understanding the nuances of unfair preference claims and insolvency proceedings under the Corporations Act 2001 is essential for both creditors and companies facing financial challenges. Section 588FA of the Act outlines circumstances where transactions prior to insolvency may be deemed voidable, particularly in cases of unfair preferences. Legal professionals specialising in insolvency law, such as AKS Law Brisbane, offer invaluable guidance on navigating these complexities, including potential defences and exceptions. By seeking prompt legal advice and understanding the criteria for voidable transactions, individuals can better protect their interests and ensure equitable treatment in insolvency scenarios.


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