Unfair preference payments, recent developments in case law

In recent times, we have seen two key decisions heard in the High Court which further clarify the position about potential claims against creditors by a liquidator concerning unfair preferences. In this article we summarize the Court's rulings and their implications for creditors, companies and their advisors.

Under Section 588FA of the Corporations Act ("the Act'') in Australia, some payments made by a company when the company was insolvent are known as unfair preference payments. Once a company is placed into liquidation, a Liquidator may be able to overturn these transactions.

The purpose of an unfair preference payment is to even up the playing field between creditors, whereby payments to certain creditors that were paid in priority to other creditors are returned to the liquidation process. Those payments occur leading up to the liquidation and generally within six months before the commencement of an appointment.