Set-off and unfair preference claims

The Queensland District Court has recently considered whether set-off is available in respect of unfair preference claims.

The decision of the Queensland District Court in Morton & Anor v Rexel Electrical Supplies Pty Ltd [2015] QDC 49("Rexel") has re-ignited debate about the scope of the set-off provisions in s.553C of the Corporations Act 2001 ("the Act"). In Rexel a set-off was said to apply in respect of unfair preferences paid to a creditor. That is a major shift in application of the set-off provisions. We look at the history of judicial application of the set-off provisions to understand how that decision was arrived at.

Rexel concerned an unfair preference claim. Relevantly, the creditor was paid money by the company during the relation back period (during which the company was insolvent).There was ultimately no return to unsecured creditors in the winding up. The payments by the company to the creditor were unfair preferences but there remained a debt due