ARTICLE · 05 SEPTEMBER 2026
Clawback Risks In Bankruptcy Explained
Bankruptcy trustees can challenge pre-bankruptcy transactions under sections 120, 121, and 122 of the Bankruptcy Act 1966, targeting undervalued transfers, creditor-defeating arrangements, and preferential payments. Understanding the statutory tests, timing rules, and evidentiary requirements is essential for recipients facing clawback demands, as market value alone does not guarantee protection and poor documentation can prove decisive.
AustraliaInsolvency/Bankruptcy/Re-Structuring
Article Summary
The Bankruptcy Act 1966 (Cth) allows a bankruptcy trustee to recover value transferred before bankruptcy through several distinct provisions. Section 120 concerns property transferred for no consideration or less than market value within a five-year outer period, subject to exemptions and solvency qualifications. Section 121 concerns transfers made with the main purpose of keeping property from creditors or hindering or delaying its availability; it has no equivalent five-year look-back, and an action concerning such a transfer may be commenced at any time. Section 122 concerns transfers by an insolvent debtor that prefer one creditor over others within the period determined by the petition that led to bankruptcy.
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