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Received a demand from a liquidator to repay money? Boss Lawyers defends creditors against unfair preference claims with practical, experienced legal representation.
If you have received a letter from a liquidator demanding repayment of money paid to you by a now-insolvent company, you may be facing an unfair preference claim. These claims catch many creditors by surprise — often well after the company has gone into liquidation.
At Boss Lawyers, we regularly act for creditors defending unfair preference claims. We understand that receiving a demand to repay money you were legitimately owed can be frustrating and confusing. Our role is to assess the merits of the claim, identify available defences, and develop a strategy to protect your position.
Not every demand from a liquidator is well-founded. There are important defences available, and early legal advice can make a significant difference to the outcome.
An unfair preference is a payment or transaction by an insolvent company to a creditor that results in the creditor receiving more than they would receive in a winding up of the company. The provisions are set out in section 588FA of the Corporations Act 2001 (Cth).
The policy behind the unfair preference provisions is the principle of pari passu — that unsecured creditors should share equally in the distribution of an insolvent company’s assets. Where one creditor receives payment ahead of others, the distribution is unequal, and the liquidator can seek to recover the payment to restore equality.
To establish an unfair preference, the liquidator must prove four elements:
The relation-back period is the window of time before the company entered administration or liquidation during which transactions can be challenged by the liquidator. The length of the relation-back period depends on the relationship between the company and the creditor:
For ordinary (unrelated) creditors, the relation-back period is 6 months before the relation-back day. The relation-back day is typically the date the company entered administration (if it went through voluntary administration before liquidation) or the date the winding up application was filed.
For related parties (including directors, their relatives, and entities controlled by directors), the relation-back period extends to 4 years before the relation-back day. This longer period reflects the greater opportunity related parties have to influence the company’s payment decisions.
Understanding the relation-back period is critical because payments made outside the period cannot be recovered as unfair preferences.
The Corporations Act provides defences for creditors facing unfair preference claims under section 588FG:
This is the most commonly relied upon defence. A creditor must establish three elements:
The good faith defence requires the creditor to show they were a genuine commercial counterparty who had no reason to suspect the company’s insolvency. The Court will consider what the creditor knew about the company’s financial position, whether payments were made outside normal trading terms, and whether there were warning signs of insolvency that the creditor should have noticed.
The running balance defence applies where the creditor and the company had an ongoing business relationship involving a continuing series of transactions (section 588FA(3)). Instead of looking at individual payments in isolation, the Court considers the net effect of the entire running balance during the relation-back period.
If the running balance at the end of the relation-back period is the same as or greater than at the beginning, there is no unfair preference — the creditor has not received more than they would in a winding up. The running balance defence is particularly relevant for suppliers who continued to supply goods or services during the period.
If you receive a demand from a liquidator claiming an unfair preference, here is what you should do:
For more information about our insolvency services, contact Boss Lawyers on 1300 267 711.
Unfair preference claims can come as a shock. You were a legitimate creditor who was owed money, you received payment in the ordinary course of business, and now a liquidator is demanding you give it back. It feels wrong — and sometimes it is.
At Boss Lawyers, we approach every unfair preference claim with a critical eye. We do not assume the liquidator’s claim is correct. We examine the evidence, assess the defences, and develop a strategy designed to protect your position — whether that means defending the claim, negotiating a settlement, or a combination of both.
We understand the commercial reality — most creditors are businesses themselves, and paying back a substantial sum can have serious consequences. We fight to protect your interests.
Defending unfair preference claims requires detailed analysis of trading records, payment patterns, and the creditor’s knowledge of the company’s financial position. At Boss Lawyers, we have the experience and resources to build strong defences.
We combine legal expertise with practical commercial sense. Our goal is always to achieve the best outcome for you — whether that means successfully defending the claim or negotiating a settlement that minimises your exposure.
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For experienced unfair preference claims advice in Brisbane
Yes, potentially. The unfair preference provisions are not about whether the debt was legitimate. They are about whether the payment you received resulted in you getting more than you would have received in a winding up of the company. Even if the debt was genuine and you were owed the money, the payment may still be an unfair preference if the company was insolvent at the time.
The limitation period for unfair preference claims is 3 years from the relation-back day (typically the date the company entered administration or the date the winding up application was filed), or 12 months from the first appointment of a liquidator, whichever is later.
Historically, payments to the ATO could be recovered as unfair preferences. However, following amendments to the Corporations Act, the Commissioner of Taxation can rely on a specific defence that limits recovery. The practical effect is that ATO payments are generally not recoverable as preferences in most circumstances.
Payments made by third parties, such as under a guarantee, may not be caught by the unfair preference provisions because the payment does not come from the company. However, the analysis depends on the specific circumstances of the payment and the arrangement.
The cost depends on the complexity of the claim, the amount in dispute, and whether the matter settles or goes to trial. In many cases, a strong defence can be established early, which encourages settlement. We provide realistic cost estimates at the outset and work to achieve cost-effective outcomes.
If you need experienced legal guidance regarding unfair preference claims and creditor defence, contact Boss Lawyers today. Call us on 1300 267 711 or complete the enquiry form above.
Boss Lawyers Pty Ltd — Level 27, Santos Place, 32 Turbot Street, Brisbane QLD 4000.
This is general information only and is not legal advice. You should obtain professional advice specific to your circumstances.
