Liquidation PDF

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**ss588FA-SS588FJ provides a number of different types of antecedent transaction STEP 1: IDENTIFY THE TYPE OF TRANSACTION S588FA - Unfair preferences S588FA(1) an unfair preference is a transaction between a coy and a creditor which results in the creditor receiving more money than would have been received if the creditor had proved their debt in the coy’s winding up Relevant case: Airservices Australia v Ferrier – there is an unfair preference only if the net effect of the series of transactions results in a creditor’s position being improved OR S588FB uncommercial transaction S588FB a transaction is said to be an uncommercial transaction if it may be expected that a reasonable person in the coy’s circumstances would not have entered into it having regard to:  The benefits generated from the transaction  The detriment to the coy of entering the transaction  The respective benefits to other parties if the transaction of entering into it Eg. - Giving gifts or benefits to the coy’s directors, or their families or friends, paid for out of coy’s funds - Coy’s asset acquisition from the coy’s directors, or their families or friends at lower/inflated prices Relevant cases: Re Pacific Hardware Brokers (Qld) Pty Ltd – director of an insolvent coy used coy’s funds to purchase an engagement ring for his fiancé.

Demondrille Nominees Pty Ltd v Shirlaw – director entered into contract that does not bring benefit to the coy OR Unreasonable director-related transactions – s 588FDA pg936  Transaction is an unreasonable director-related Transaction if transaction made by company to – director or ‘close associate of director’ )s 9 definition)  Reasonable person would NOT have entered into transaction – The word “transaction” includes payments and share/option issue E.g. A few months before the company’s liquidation, its directors approved the payment of extremely large bonuses to the company’s two joint managing directors. S588FDA (1)(A)  Under s588FE(6A), transaction is Voidable if entered into during 4 years ending on relation-back day  no need to prove company insolvent  overlap with uncommercial transactions, director’s duty not to prejudice creditors interests

STEP 2: PROVE THAT IT IS AN INSOLVENT TRANSACTION S588FC a transaction is an insolvent transaction if:  It is an UNFAIR PREFERENCE or UNCOMERCIAL TRANSACTION  The coy was insolvent at the time of entering into the transaction or became insolvent because of the transaction STEP 3: PROVE THAT IT IS A VOIDABLE TRANSACTION S588FE this is a voidable transaction which the insolvent transaction was entered into during a period before the winding up begin

 For unfair preference s588FE(2): To a related entity  during the 4 years ending on the relation-back day To a non-related entity  during the 6 months ending on the relation-back day  For uncommercial preference s588FE(3): To a related entity  during the 4 years ending on the relation-back day To a non-related entity  during the 2 years ending on the relation-back day Hence, Transactions are voidable by liquidatorv (when they meet the above 2 elements) STEP 4: STATE THE COMPENSATIONS IF THE TRANSACTIONS ARE ESTABLISHED S588FF - Compensation For unfair preferences: S588FF(1)(a) court orders that the creditor repay the unfair preference to the coy For uncommercial preferences: Liquidator may set aside uncommercial transaction under S588F and recover funds from the other party to the transaction: - S588M – court may order that the directors compensate the coy - S588F(1)(b) – court may order the recipient of the gift transfer the asset to the coy OR - S588F(1)(c) – court may order the recipient of the gift to repay to the coy the amount which fairly represents the benefits the person has received STEP 5: DEFENCES APPLIED (What transaction not voidable?) S588FG - Defences

S588FG(2) a court must not make an s588FF order if: - S588FG(2)(a) – the person became a party to the transaction in good faith o Downey v Aira Pty Ltd – the test of “good faith” can be satisfied if the creditor can prove that they did not believe the coy was insolvent or would become insolvent by paying the creditor - S588FG(2)(b) – at the time of becoming a party to the transaction, the person had no reasonable grounds for suspecting that the coy was insolvent and a reasonable person in the person’s circumstances would have no such grounds for so suspecting Case:Mann v Sangria o Roufeil v Gliderol International Pty Limited – this defence cannot be established where the court say that a reasonable person in the creditor’s position would have suspected that the debtor coy was insolvent. - S588FG(2)(c) – the person has provided valuable consideration under the transaction or has changed their position in reliance on the transaction...