As a company director, receiving a demand letter from a liquidator can be daunting. If your company has gone into liquidation, you might face claims about voidable transactions—transactions the liquidator alleges unfairly benefited certain parties before insolvency. These lawsuits can threaten your personal finances, reputation, and future business prospects. At Boss Lawyers, our experienced voidable transactions lawyers in Brisbane are here to guide you through these complex claims, protect your interests, and help you navigate the legal maze. In this article, we explain what voidable transactions are, why liquidators pursue directors, and how you can defend yourself.
What Are Voidable Transactions?
Under the Corporations Act 2001 (Cth), a voidable transaction is a payment or transfer of assets made by a company—often when it was insolvent—that a liquidator seeks to “claw back” to distribute fairly among creditors. Common types include:
- Unfair Preferences: Payments made to specific creditors (e.g., a supplier) that give them an advantage over others.
- Uncommercial Transactions: Deals that don’t benefit the company, like selling assets below market value.
- Related Party Transactions: Payments or transfers to directors, their families, or associated entities.
- Creditor-Defeating Dispositions: Actions designed to shield assets from creditors, such as transferring property to a trust.
Liquidators can challenge transactions made up to six months before liquidation (or longer for related party dealings), with claims often targeting directors personally. In 2024, liquidators recovered over $200 million in voidable transaction claims across Australia, highlighting the growing scrutiny on directors’ decisions.
Why Are Liquidators Suing You?
If you’re a director, a liquidator may pursue you for several reasons:
- Personal Liability: Directors can be held accountable if they authorised transactions knowing (or should have known) the company was insolvent.
- Breach of Duty: Approving uncommercial deals or unfair preferences may violate your duties under Section 181 of the Corporations Act to act in the company’s best interests.
- Recovering Funds: Liquidators aim to maximise returns for creditors, and voidable transactions are a prime target for clawback.
- Statutory Powers: The Corporations Act gives liquidators broad authority to investigate and challenge transactions, often years after they occurred.
Facing a claim can feel overwhelming, especially if you acted in good faith. The good news? With the right legal support, you can mount a strong defence and protect your position.
The Risks of a Liquidator’s Lawsuit
A voidable transaction claim can have serious consequences:
- Financial Penalties: You may be ordered to repay the transaction’s value, potentially from personal assets.
- Legal Costs: Defending a lawsuit can be expensive, with court battles draining time and resources.
- Reputation Damage: Publicised claims can harm your credibility in the business community.
- Future Restrictions: A finding against you could lead to bans on serving as a director under ASIC regulations.
These risks underscore the importance of acting quickly and seeking expert advice from a director liability lawyer to limit exposure.
How to Defend Against Voidable Transaction Claims
If a liquidator is suing you, don’t panic—there are defences available. Here’s how Boss Lawyers can help:
- Challenge the Claim’s Validity
Liquidators must prove the transaction meets strict criteria, such as occurring during insolvency. We meticulously review financial records, board minutes, and contracts to dispute their case. For example, we recently helped a Queensland retail director avoid liability by proving the company was solvent at the time of a disputed payment. - Good Faith Defence
Under Section 588FG of the Corporations Act, you may avoid liability if you acted in good faith, had no reason to suspect insolvency, and received no personal benefit. We build a robust case to demonstrate your intent and circumstances. - Negotiate Settlements
Litigation isn’t always the answer. We negotiate with liquidators to reduce or dismiss claims, saving you time and money. - Protect Personal Assets
If personal liability is a risk, we explore options to safeguard your assets, such as restructuring financial arrangements within legal bounds. - Prepare for Court
If litigation is unavoidable, our skilled litigators represent you in court, leveraging our deep knowledge of insolvency law to fight for the best outcome.
Proactive Steps for Directors
Even if you’re not yet facing a claim, directors can take steps to minimise risks:
- Monitor Solvency: Regularly review cash flow and financial statements to ensure your company can meet debts as they fall due.
- Seek Advice Early: Consult a lawyer before approving major transactions, especially if the company is struggling financially.
- Document Decisions: Keep detailed board minutes showing your rationale for transactions to support a good faith defence later.
- Strengthen Governance: Update shareholder agreements and policies to align with insolvency laws. Learn more about our corporate governance services.
Why Trust Boss Lawyers?
When a liquidator targets you, you need a team with proven expertise in voidable transactions and director liability. Here’s why directors across Australia choose Boss Lawyers:
- Specialised Experience: We’ve defended directors in complex insolvency disputes, from startups to large corporations.
- Tailored Strategies: Every case is unique, and we craft defences that align with your goals and circumstances.
- Brisbane Expertise: Our local knowledge ensures practical, cost-effective solutions for Queensland directors.
- Confidential Support: We handle claims discreetly to protect your reputation and peace of mind.
Don’t let a liquidator’s lawsuit derail your future. Whether you’re facing a demand letter or want to prepare for potential risks, we’re here to help.
Contact Us Today
If you’re a director facing a voidable transaction claim, time is critical. Contact Boss Lawyers for expert advice from our voidable transactions lawyers. Call 1300 267 711 or email info@bosslawyers.com.au to schedule a confidential consultation. Let us help you defend your position and secure your financial future.
Boss Lawyers – Protecting Directors Against Liquidator Claims with Expertise and Care
