Australia: Good Samaritan payments subject to preference actions may be repaid in priority

In brief - Courts identify three circumstances for ordering priority repayments

Third-party payers should be aware that preference payment provisions may apply to "Good Samaritan" payments if debtors are placed in liquidation or declared bankrupt. However, as shown in Young v ACN 081 162 512 and Anor [2005] NSWSC 139, the courts will consider certain circumstances where third parties may be able to recover the payment in priority to other creditors.

"Good Samaritan" payments may pose risks for third-party payers

It is commonplace for a debtor to seek the assistance of a third party, such as a director, to pay off a debt in order to forestall insolvency. This may be seen as an ideal arrangement when a creditor refuses to provide any further goods and services until outstanding invoices have been paid and the debtor is desperate to keep their business running.

However, if the debtor is later placed in liquidation or declared bankrupt, that "Good Samaritan" payment may be subject to a preference action where a court orders the return of the payment as being an unfair preference to the creditor who received it.

How preference payment provisions apply to third-party payments

Payments made to creditors in the six-month period before the debtor becomes bankrupt or goes into liquidation may be recovered by a bankruptcy trustee or liquidator and pooled into the funds to be distributed to the unsecured creditors. This power is given to bankruptcy trustees and liquidators so that they can make sure that one creditor has not been "preferred" over another.

Many creditors do not realise that the preference payment provisions may apply to "Good Samaritan" payments as well. Provided that the debtor is a party to the payment, the power will extend to these types of payments that are made by a third party, such as a director.

On the other hand, the risk to the third party who made the payment on behalf of the company or person is that they may never see the money again. If the trustee in bankruptcy or liquidator succeeds in clawing back the "preference" payment, the "Good Samaritan" must line up with all of the other creditors of the debtor in bankruptcy or liquidation.

But is that the end of the story for the "Good Samaritan"?

Courts may order repayment in priority under certain circumstances

If the third party has made a payment on behalf of the bankrupt or liquidated company and is forced to line up with the other creditors, there are certain circumstances in which they will be able to recover the payment in priority to other creditors. The courts have identified three circumstances in which they will order a payment made by the "Good Samaritan" to be repaid in priority to other secured and unsecured creditors.

In the Young v ACN 081 162 512 (formerly Dallen Design Pty Ltd) and Anor (Dallen Design) case, a third-party payer was able to receive priority repayment over other creditors of the company in liquidation. In reaching its decision, the court considered three circumstances in which a third-party payer may be able to recover its payment in priority:

  1. An equitable lien
  2. As a liquidator's expense
  3. Applying the rule in Ex parte James

Equitable lien may be enforceable

A third-party payer may be able to rely on the principles of equity to enforce an equitable lien if they can show that:

  • the liquidated company or bankrupt had freely accepted the benefit of the third party's payment
  • that benefit is so undeniable that no reasonable person could say that the liquidated company or bankrupt was not enriched
  • by objectively valuing the benefit to the liquidated company or bankrupt, it would be unconscionable for the liquidated company or bankrupt to retain the benefit without paying for it

If the third party can satisfy these requirements, the third party may be able to argue an equitable lien over the payment it made on behalf of the bankrupt or liquidated company and be repaid in priority to other creditors. (See Young v ACN 081 162 512 and Anor at [15]; Shirlaw v Taylor (1991) 31 FCR 222 at 228.)

The courts are likely to find that there has been an undeniable benefit if the company or individual received a significant windfall as a result of the third party assisting it with the repayment of its debt. As an example, an undeniable benefit might be shown if the third party's payment was able to free up a trade creditor withholding supply so that the company or person was then able to finalise a significant sale, as was seen in Dallen Design (see Young v ACN 081 162 512 and Anor at [11].)

Liquidator's expense under section 556 of the Corporations Act

The second circumstance discussed in Dallen Design was where a "Good Samaritan" payer is able to prove the payment made on behalf of the company ought to be considered an expense which was properly incurred by the liquidator in preserving, realising or getting in property of the company or in carrying on the company's business under section 556(1)(a) of the Corporations Act 2001.

In order to prove that the payment was an expense of the liquidator, the third party will need to prove that either:

  • they were acting as an agent of the liquidator when they made the payment
  • the liquidator held the third party out to others as an agent when the third party made the payment, or
  • the third party purported to act as the liquidator's agent when it made the payment (see Young v ACN 081 162 512 and Anor at [20])

Rule in Ex parte James considered but not applied by court

Finally, in dicta, the court in Dallen Design considered (but did not apply) the old English decision of Ex parte James: Re Condon ((1874) LR 9 Ch App 609) where it was held that money, which in equity, belongs to someone else ought to be returned to its rightful owner. The decision in Ex parte James has been applied in later decisions which have established four conditions to satisfy the rule (Re Clark; Ex Parte Trustee of property of bankrupt v Texaco Ltd [1975] 1 WLR 559 at 563-4). The four conditions were considered in the present context as follows:

1. The bankrupt or company in liquidation receives some form of enrichment of its assets as a result of the actions of the third party.

2. The third party must not be in a position to submit an ordinary proof of debt so that the rule is not used to provide preference to an otherwise unsecured creditor but rather to provide relief where that claimant would otherwise be without relief.

3. The rule only applies to nullify the claim of the liquidator where, in all honesty, it would be bound to admit that it would be unfair for it to keep the third party's money.

4. The rule does not necessarily apply to restore the third party to the status quo ante but applies only to the extent necessary to nullify the enrichment of the company in liquidation or the bankrupt.

In considering the third-party payer's argument in favour of the application of the rule in Ex parte James, the court opined that the second condition was of particular importance in that it showed that the law had not yet developed enough to be able to convert a Good Samaritan's unsecured payment into a secured debt.

Further scrutiny of Ex parte James rule may eventually help third parties

It would seem that further scrutiny by the courts of the application of the rule in Ex parte James may lead to further avenues of redress for "Good Samaritan" third parties who step in to assist companies and individuals with the payment of their debts.

Peter Harkin Simone Farrugia Lachlan Tassel
Restructuring and insolvency
CBP Lawyers

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Simone Farrugia
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Mondaq Advice Centre (MACs)
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.