By Claire Mansell - 18 Feb 2015
Under the voidable transaction regime, the liquidator of a
company can "claw back" payments made to a creditor within
the two years prior to liquidation. In order to do so
liquidators must show the payment was made at a time when the
company was insolvent and allowed the creditor to receive more than
they would have in the liquidation.
The philosophy behind the regime is that all creditors should be
treated equally and that one creditor should not get paid in
preference to another. It's also a scheme which has been around for
a long time, first kicking off in 1758 with Lord Mansfield's case
Worsley v de Mattos case and subsequently brought into
legislation by the Bankruptcy Act 1869.
Creditors do have a defence under section 296 of the Companies
Act. If the creditor can prove that they:
- Acted in good faith; and
- Did not reasonably suspect that the company would become or was
insolvent; and
- Gave value for the property or altered their position in the
reasonably held belief that the transfer of the property to them
was valid and would not be clawed back.
Allied Concrete Limited v Meltzer & Ors
Today's Supreme Court decision Allied Concrete Limited v
Meltzer & Ors is about when a creditor can say they gave
value for the property and invoke the defence in section 296. The
Court of Appeal held that mere payment towards old debt does not
constitute giving value under section 296. Value must be
something new which is real and substantial. This approach had been
widely accepted for some time.
The Supreme Court reversed the Court of Appeal decision. In the
Supreme Court's view, the Court of Appeal's approach created
uncertainty for contractors as transactions which occurred some
years before could be reversed. They also found that the
circumstances where the section 296 defence could be invoked was
inconsistent and did not necessarily reflect the overall merits of
the case. They were also influenced by the case law in Australia
and the overall policy of the voidable transaction scheme.
In their view, giving value did not mean that the creditor had
to give something "new". It could include value that was given
prior to the transaction - such as payment towards an old debt.
What does it all mean?
Creditors now have a stronger defence to liquidators as value
will almost always be given. However, to rely on the defence in
section 296, creditors will still need to show that they received
payment in good faith and did not suspect that the company was
insolvent.
Contacts
Claire
Mansell
Tony
Johnson