When a company goes into liquidation, it is the obligation of
its liquidators to inspect the financial records of the company.
They have the right to investigate payments made by the company and
to determine whether any of these payments are unlawful or
otherwise unauthorised. An example of an unlawful payment is where
the payment is a "voidable transaction" under the
What is a Voidable Transaction?
Put simply a voidable transaction is where you received:
Payment at the time the company was insolvent,
An "unfair preference" because of this payment;
Payment during the 6 months ending on the date the winding up
began. For example if the company was wound up on 1 January 2015,
payments received between 1 July 2014 and 1 January 2015 will be
If the liquidators suspect a payment is a "voidable
transaction", they have the power to commence recovery action
against you for the repayment of monies received.
Defending Recovery Proceedings
You may be able to defend the proceedings in some circumstances,
for example if you can establish that you:
Received the payments in good faith; and
Did not suspect (or know) that the company was insolvent at the
time payments were received; and
That a reasonable person in your position would not have
suspected (or known) that the company was insolvent at the time the
payments were received.
The best ways to minimise the risk of liquidators pursuing an
action against you is to:
Refuse to accept payment if you know or suspect that the debtor
company is insolvent; or
Make your own enquiries as to the solvency of the company
before deciding whether to accept payment. Ensure all documents as
to these enquiries are retained.
If payment is accepted, you are also accepting the risk of the
liquidators commencing recovery proceedings against you or at least
At Watkins Tapsell, we have had a lot of experience in dealing
with liquidators on a variety of different issues and claims,
including "voidable transactions" and "preferential
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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A recent NSW decision has implications for liquidators of trustee companies dealing with trust funds and priority debts.
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