Supreme Court Rules Unfair Preference in Insolvency Case
📌 In brief
The Supreme Court of NSW ruled that a payment made by a company to its director was an unfair preference and ordered the director to repay the amount to the company, as the company was insolvent at the time of the payment.
📖 What the law says
A transação é considerada um favor injusto dado por uma empresa a um credor se, e somente se, a empresa e o credor são partes da transação e a transação resulta em o credor receber mais do que receberia se a transação fosse anulada e o credor provasse a dívida em um processo de falência.
Plain-English explanation — does not replace advice from a legal practitioner.
📚 Full judgment
The summary, holding and questions above are VadeLab’s own material. The official decision itself is published by the court, and we do not reproduce it on this page.
📄 Read the full judgment⚖️ View on the official court website ↗
⚖️ What tends to weigh in cases like this
✅ Tends to be accepted
- The company was insolvent at the time of the payment to NAME.
- The payment was made without any security being requested by NAME as per clause 21 of the agreement.
- The company had significant debts exceeding its assets at the time of the payment.
❌ Tends to be rejected
- NAME argued the company was not insolvent due to potential alternative income sources, but there was no evidence to support this.
- NAME claimed his debt to the company was secured, but he never requested the security as stipulated in the agreement.
Patterns observed in similar cases in this collection — every case is unique.
❓ Frequently asked questions
What was the dispute about?
The dispute was about whether a payment made by a company to its director was an unfair preference when the company was insolvent.
How did the court decide, and why?
The court decided that the payment was an unfair preference because the company was insolvent at the time of the payment and the director did not request security as stipulated in their agreement.
Which laws or rules were applied?
The Corporations Act 2001 (Cth) sections 588FF(1)(a) and 588FA(1)(b) were applied.
What was the argument that mattered most?
The argument that mattered most was that the company was insolvent at the time of the payment and the director did not request security as required by their agreement.
Was the decision for or against the person who brought the case?
The decision was for the person who brought the case, the liquidator of the company.
What does this mean for someone in a similar situation?
For someone in a similar situation, if a company is insolvent and makes a payment to a director without requesting security, the payment may be considered an unfair preference and the director may be ordered to repay the amount.
What evidence or documents mattered?
The evidence included the financial state of the company at the time of the payment and the terms of the agreement between the company and the director.