Unfair preferences and the set-off defence

Under section 588FA of the Corporations Act 2001 (Cth) (Act) an unfair preference is defined as a transaction, such as payment of an outstanding debt, between a company and an unsecured creditor which results in that unsecured creditor receiving more than it would have received if it had to prove in the winding up of the debtor company.  It is unfair because the payment results in the net value of the assets of the debtor company being reduced, to the detriment of the body of unsecured creditors as a whole.  One of the rarer defences is the Set-Off to an unfair preference claim. [Read more…]

What’s an unfair preference claim?

You have done the work, the client is happy, you’ve invoiced them and are awaiting payment.  You have had a long-standing relationship with the client.   They contact you and asks, despite your usual credit terms, if they can pay the invoice off over time.  It’s not the first time it has made this request, but they have always come good with payment.  You agree and the invoice is eventually paid.  Three months later you receive a letter from a liquidator demanding (under threat of legal action) that you pay to them the money you received because the payment was an unfair preference (Unfair Preference)! [Read more…]

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