Voidable Transactions Part Two – What are they and what next?

Part Two – Response to Voidable Transaction Claim 

By Melanie Skinner & Johanna Woodland.

Do I have to pay the money back?

Part one of this series explained what a voidable transaction is.  The aim of this update is to consider what options you have when you receive a letter from the liquidator asserting voidable transactions and demanding payment of the funds you received from the company.

To prove the most common types of claims, a liquidator will usually need to establish:

1. The transaction occurred and was either an unfair preference or an uncommercial transaction;
2. The company was insolvent and unable to pay its debts at the time of the transaction;
3. You had knowledge or should have had knowledge, of the financial difficulties of the company.

To successfully defend a liquidator’s claim, your records should show that you have consistent and sound business practices and you have kept records of your dealings with all creditors and debtors.  Those records will include copies of invoices, receipts, emails, letters and file notes of telephone calls.

If your records show that your invoices were being paid consistently on time and that you did not need to follow up payment, you may have a defence to the voidable transactions on the basis that you had no knowledge of nor any reason to suspect the financial difficulties of the company.

Alternatively, if you were having to constantly harass the company for payment, your records may support that the company was having financial difficulties and you had knowledge.  If this is the case, it may be that negotiating payment of a lesser sum to the liquidator may be your best option.  The negotiations will be designed to ensure that you retain some of the funds received from the company and will avoid the legal costs involved with defending court proceedings.

The most common defence to a voidable transaction is no knowledge of the company’s insolvency.  Other defences include but are not limited to:

1. A running account between you and the company – this will limit the liquidator’s claim to the difference between the highest and lowest value of the debt during the relevant period;
2. Set-off debts between you and the company (subject to no knowledge of insolvency and some mutuality between the debts);
3. Whether you actually received any benefit.

If you receive a letter from a liquidator and are unsure about what to do, you should seek legal advice.

Next time we will consider what steps you can take to avoid an unfair preference claim in the first place.

Call O’Hearn Lawyers’ experienced litigation team on 02 4951 8199 today to get started!

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