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ARTICLE · 21 JANUARY 2022

Statutory set-off no longer a defence to an unfair preference claim

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A creditor of an insolvent company cannot rely on the right of set-off in response to an unfair preference claim.

AustraliaInsolvency/Bankruptcy/Re-Structuring
Mitchell Waters
Mitchell Waters
Chloe Singh
Chloe Singh
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On 16 December 2021, the Full Court of the Federal Court delivered the judgment in Morton as Liquidator of MJ Woodman Electrical Contractors Pty Ltd v Metal Manufacturers Pty Limited [2021] FCAFC 228, confirming that a creditor of an insolvent company cannot rely on the right of set-off under section 553C of the Corporations Act 2001  (Cth) (Act) in response to an unfair preference claim under section 588FA of the Act.

The case

The defendant, Metal Manufacturers Pty Ltd (Creditor), received payments of $190,000 during the relation back period from MJ Woodman Electrical Contractors Pty Ltd (Company). Before going into liquidation, the Company also obtained goods from the Creditor on credit terms in the amount of $194,727.23.

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