Voidable Transactions Part Three – How can I avoid being on the receiving end of a voidable transaction?

Part Three – Avoiding Voidable Transaction Claims

By Melanie Skinner & Johanna Woodland.

How can I avoid being on the receiving end of a voidable transaction?

“I didn’t do it!”
– Bart Simpson c. 1994

It’s a classic sentiment, and it’s definitely the case when it comes to voidable transactions.  Avoiding voidable transactions is all about preparation, and although you can’t predict the future, you can be ready for it.

Don’t be a creditor at all

The simplest means of avoiding an unfair preference claim is to avoid being a creditor at all.

Ensuring that all goods or services are paid for prior to delivery or cash on delivery only, means that you do not enter into a debtor-creditor relationship.  Accordingly, money paid to you is not usually captured as an unfair preference.

Security

If you are in the business of supplying goods, include a term in your contract enabling you to register a security interest under the Personal Property Securities Act 2009 (Cth) to the value of any goods being provided.

If you then register that security interest, you become a secured creditor of the company in liquidation and your interest in the goods supplied is protected.

Knowledge and record keeping

You should also take steps to satisfy yourself that any companies you deal with are solvent.  Below are a few examples of when you should consider whether the company is insolvent:

1. Continual late payment of bills;
2. Changes to payment patterns or arrangements;
3. Any requests for payment extensions; or
4. Discussions or communications which indicate financial difficulties.

If you become suspicious that a company you are trading with may be insolvent, or could shortly become insolvent, you should consider ceasing to trade with the company.  Alternatively, you should consider restricting trading to cash on delivery or pre-payment only.

The take-away points of this series is that there are a number of defences available to a liquidator’s claim for a voidable transaction and better yet, there are many steps you can take to avoid needing those defences at all.  O’Hearn Lawyers has extensive experience on both sides of the playing field and can assist you in defending – or chasing – your next unfair preference claim.

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

Find out more about our Business and Commercial Law services here.

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