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Into the Void(able) transaction

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.


Tony Johnson

Claire Mansell


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