When the Liquidator calls - Don't panic

By Andrew Goode.

While much of Australia has managed to sail past the Global Financial Crisis (GFC) there is a large question mark as to whether those good times - at least for those who have not suffered from droughts, the effects of the high dollar etc are coming to a close.

Will the mining boom seem like some sort of Cargo cult in years to come? I hope not. (Wikipedia says "Cargo cults -the religious practice that has appeared in many traditional societies in the wake of interaction with technologically advanced cultures – focus on obtaining the material wealth (the "Cargo") of the advanced culture by building mock aircrafts, landing strips, and the like"). Perhaps that could have read trucks, earthmovers, ports, and yes, landing strips!

If that happens we will be wishing more was done to protect agriculture, manufacturing, and agribusinesses like our food processors against the high dollar.

I cannot help but wonder whether the money the Federal Government spent to combat the GFC has just delayed its impact in Australia. Hopefully that pessimism is ill placed but I think the jury is out.

Certainly more businesses will go into liquidation if we do end up in a recession.

This means suppliers to those companies will receive liquidators’ letters seeking repayment of monies paid within the six months prior to the relevant date of insolvency called the relation back date.

Payments received by suppliers during that six month window can potentially be deemed unfair preferences which have to be paid back to the company in liquidation, put in a pool, and then paid out to all creditors after payment of priority debts and liquidator costs.

If a supplier was owed $50,000.00 at the start of the six month window and at the end of that time was only owed $30,000.00 the liquidator after a review of the accounts may decide there is a potential preference of $20,000.00.

The supplier then needs to show that during the relevant period he or she acted in good faith and without any reasonable suspicion of insolvency to avoid repayment. The test is a "reasonable person" test.

If you issued a formal notice under the Corporations Act to wind up the company, or issued a summons before you got paid you are going to struggle to say you received payment in the circumstances where a reasonable person would not have suspected possible insolvency.

If you have received payment from the company as a result of some phone calls from time to time chasing up the payment, but without making a threat to take legal action, then you may, depending on the past practice of that company as to payments, have a better chance of defending the claim. It all depends on the circumstances.

If you receive a demand from a liquidator for repayment of monies you should consult a lawyer to see whether you have a good defence or alternatively to negotiate a commercial settlement.

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Details: Andrew Goode  e: agoode@mellorolsson.com.au or Ph: 8414 3400

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