Insolvency Set-Off Does Not Protect Creditors Against Unfair Preference Claims

In its recent decision in Morton as Liquidator of MJ Woodman Electrical Contractors Pty Ltd v Metal Manufacturers Pty Limited [2021] FCAFC 228, the Full Court of the Federal Court of Australia (the Court) held that statutory set-off, under section 553C(1) of the Corporations Act 2001 (Cth) (the Act), is not available to a creditor in respect of a liquidator's claim against that creditor for the recovery of an unfair preference under s 588FA of the Act.

The availability of set-off to defend against unfair preference claims has been a matter of some uncertainty in cases where the defendant creditor continues to be owed amounts by the company at the date of liquidation (even after receiving the payments that are alleged to comprise the unfair preference). Creditors have in some such cases asserted a right to set-off any amounts payable by them to the insolvent company to disgorge the unfair preference against the amounts still owed to them by the company in