What is the Liquidator really looking for?

What is the Liquidator really looking for?

During the course of a Liquidation or Voluntary Administration, a Liquidator or Voluntary Administrator will do an investigation on the Company’s business affairs and dealings. Basically, they will go through a number of the Company’s records including bank statements, management accounts, physical books and records etc, to see how the Company spent its money. What the Voluntary Administrator or Liquidator is looking for is what is classified as preference payments or uncommercial transactions.These types of claims are only against unsecured creditors. Given that a secured creditor or priority creditor (employee) has a priority under the Corporations Act 2001, a preference payment claim cannot be pursued against these classes of creditor.

Preference payments are where a creditor of the Liquidated Company has received more money than they would if their claim was dealt with in a Liquidation. Generally, this is easy for a Liquidator to prove, especially where there is no dividend at the end of the Liquidation for creditors.

Preferences are classed into 2 types of preference payments which have their own specific timeframe that they can look back over:

  1. Unrelated party preference payments – 6 months prior to the date of Voluntary Administration or Liquidation (except in the case of a Court Liquidation which the Liquidator will look at 6 months prior to the date the successful application was filed);
  2. Related party preference payments – 4 years prior to date of Voluntary Administration or Liquidation (same rule above applies to Court Liquidations).

There are ways and means for a preference payment to be defended regardless of which type of preference payment claim you have received:

  • Ordinary Course of business defence – that the funds were received within your organisation’s terms and conditions or the industry’s common practices. For example, if you received the funds from the Liquidated Company on day 75 and the terms of the organisation are 90 days, then payment has been received in the ordinary course. In contrast, if your company terms are payment within 30 days and payment is being received at day 55, the Liquidated Company is constantly paying outside the agreed terms. The Liquidator will use this to their advantage to show that the Company never paid the account on time.
  • Knowledge defence – That your organisation had no knowledge that the Liquidated Company was having trouble paying its bills. Knowledge of the Liquidated Company’s difficulty occurs in 2 ways: actual knowledge and implied knowledge:

Actual knowledge is where an email / phone conversation has occurred and a representative of the Liquidated Company has informed your organisation that they are having difficulty paying their bills. It will also generally come in the form of asking for more time.

Implied knowledge is where there is no evidence that you have made a request for payment but a reasonable person would have made the request for payment OR where a reasonable person would have known that the Liquidated Company was having difficulty paying its debts given then time between when the bill should have been paid and when the bill actually was paid.

  • Value – A Liquidator should always be looking in the best interest of creditors and should not be spending more money than the claim is worth in pursuit of payment of the claim. However, with that being said, if there has been a significant amount of time since you received the demand and the claim is with the Liquidator’s lawyers they are going to want to recoup their costs, and then some, to show creditors they did a decent job.

You should remember that even though your product or service may not be worth much individually, if you have supplied to a Liquidated Company a lot of product or services in the 6 month or 4 year period, it does add up to a decent claim amount.

In this world everything is able to be negotiated, if you have received a demand from a Liquidator for a preference payment you should consider making an offer to settle the claim for a significantly lower amount. A Liquidator, like all of us, does not like going to court to prove these types of claims but waiting to get to Court will be costly for you and the Liquidator and there is no guarantee of success.

Further if you have a personal guarantee from the Director and you have had to pay funds back to the Liquidator, you should check the terms and conditions of the personal guarantee to see if you can also pursue the Director personally for the funds paid to the Liquidator.

If you have received a demand from a Liquidator for a preference payment claim, we can assist you to write the response letter. However, if you are about to go to Court, it is advisable to utilise the services of a lawyer with a insolvency specialty to defend the claim. We are able to refer you to such a lawyer if your circumstances require it.

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