High Court hands down important unfair preference decisions

Creditors and liquidators share the spoils.

On 8 February 2023 the High Court of Australia (High Court) handed down two much anticipated decisions in relation to unfair preference claims and in doing so, the law relating to two provisions of the Corporations Act 2001 that were subject to significant uncertainty for some time, has now been settled.

In summary, the decisions mean that:

• The peak indebtedness rule used by liquidators in calculating the amount of an unfair preference has been abolished.
• A creditor cannot rely on section 553C of the Corporations Act as a defence to an unfair preference claim by setting off another debt the company owes to the creditor.

Peak indebtedness rule abolished