Have you received a letter demanding money back?

Usually, a liquidator will send out letters of demand to all those who have received a payment from the company in liquidation during the 6 month relation back period. They do this in the hope that some parties will not read the demand properly and will simply pay the demand without taking the matter any further.

Following the initial demand, if the liquidator thinks there is enough evidence to satisfy the requirement of a claim pursuant to any of s588FA-588FDA of the Act, they will proceed to issue proceedings against that party for recovery of the money paid, or the asset transferred.

Once you receive Court proceedings, there are severe consequences if you do not respond within the required time. If you do not respond, you may have judgment entered against you and this can be costly and difficult to set aside.

If you received payments from a business in the period leading up to an external administration, the liquidator can pursue you for an unfair preference. Different claims have different time stipulations ranging from 6 months to 4 years. A liquidator has three years from the time that the external administration starts in which to bring a claim for an unfair preference.

Yes! If a liquidator sends you a letter demanding payment of an alleged unfair preference, defences are available as outlined in section 588FG of the Corporations Act.

One of the most common defences to an unfair preference claim is the ‘good faith defence’ where it can be argued that the creditor did not know, or a reasonable person in the creditors position wouldn’t have known that the company was insolvent and the payment or assets was received in good faith.

Some factors considered when attempting to use the ‘good faith defence’ include:

• The time period between the due payment date and receipt of the payments;
• The issuing of statutory demands by the creditor or its representatives;
• Any instances of repayment arrangements, late payment penalties or interest charges;
• Correspondence containing ongoing attempts to recover debts; and
• Instances of dealings within the relationship that were outside the usual terms of trade.

The viability of this defence naturally relies upon the specific facts of the relationship.

If you know that the company who owes you money is insolvent, or may become insolvent, and you accept money from a third party, there are some instances in which this will still be considered a preference and therefore may be clawed back by the liquidator. If you have received a payment from a third party, but have still received a letter of demand from a liquidator, we recommend that you seek legal advice.