By Tony Johnson and Claire Mansell - 7 Jun 2013
A recent judgment in the High Court has challenged traditional
thinking regarding whether a defendant can oppose an application
for orders setting aside payments under section 292 of the
Companies Act (commonly referred to as a voidable transaction).
Under the Companies Act, liquidators can claw back payments made
from the liquidated company to a creditor in the two years prior to
liquidation on the basis that that creditor has been preferred over
other creditors who had not been paid.
To do this, liquidators must issue a notice to the creditor
notifying them they wish to claw back the payment. The
creditor has 20 working days to oppose in writing. If the
liquidator does not receive a notice of objection within 20 working
days, the payment is automatically reversed. Usually, the
liquidator will apply to the High Court to have this reversal
recognised by an order of the Court. The traditional approach has
been that once you are out of time to serve a notice of objection,
the creditor cannot oppose the liquidator clawing back the
payment.
In Grant v Lotus Gardens Limited the creditor did not
serve a notice of objection under section 295 within the required
20 working days. Without first obtaining an order from the
High Court, the liquidator issued a statutory demand to the
creditor requiring the creditor repay the payment. The creditor
disputed that the statutory demand was valid.
In his decision, Associate Judge Bell held that although the
payment is automatically set aside when the notice of objection is
not served in time, the creditor is still able to raise a defence
against the liquidator. Until an order of the Court reversing the
payment was granted, the creditor could challenge the liquidator on
certain grounds. Accordingly, it was improper for the
liquidator to issue a statutory demand.
So, if you are a creditor and have not objected to a notice
under section 292 of the Companies Act, the door may be open to
defend the claim at a later stage. However, as a matter of good
practice if you do wish to object, we would always recommend
serving the notice of objection within the required time frame.
Contacts
Tony
Johnson
Claire
Mansell