Liquidation

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Corporate insolvency

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25 Jul 2025

Voidable Transactions: What Liquidators are looking for

READ TIME

4 min

Voidable transactions, article by Caleb O'Dea Manager at Worrells

When a company enters liquidation, one of the Liquidator’s key responsibilities is to investigate the company’s affairs and recover assets for the benefit of creditors. A powerful tool in this process is the ability to pursue voidable transactions, i.e. payments or transfers made before liquidation that may be clawed back under the Corporations Act 2001.

But what exactly are Liquidators looking for? And how can creditors and directors avoid getting caught in the crosshairs?

The Four Main Categories

Voidable transactions generally fall into four categories:

  1. Unfair Preferences – Payments made to a creditor that give them an advantage over others.

  2. Uncommercial Transactions – Deals that a reasonable person wouldn’t have entered into.

  3. Unfair Loans – Loans with extortionate terms.

  4. Transactions to Defeat Creditors – Transfers designed to put assets out of reach.

Each category has its own legal tests and timeframes, but for the purposes of this article, we will focus on unfair preferences, the most commonly pursued and often the most misunderstood.

Unfair Preferences: The Most Common Target

Unfair preference claims are the bread and butter of many external administrations. If a creditor received payment while the company was insolvent, and that payment gave them more than they would receive in liquidation, it may be clawed back.

Liquidators will examine:

  • The timing of the payment.

  • The company’s solvency at the time.

  • Whether the creditor suspected insolvency.

  • The creditor’s relationship to the company.

It’s not uncommon for trade creditors to be surprised by a preference claim, especially if they were simply chasing overdue invoices.

What Liquidators Need to Prove

Liquidators don’t need to prove intent to defraud. Instead, they rely on objective evidence:

  • Bank statements.

  • Emails and correspondence.

  • Contracts and invoices.

  • Director and creditor conduct.

The goal is to establish whether the transaction disadvantaged other creditors and whether it can be reversed to improve the return to the collective creditor pool.

How Creditors Can Protect Themselves

Creditors can take steps to reduce their risk:

  • Avoid selective pressure for payment – Applying disproportionate pressure (e.g. threats of legal action or ceasing supply) can suggest awareness of the debtor’s financial distress and may increase exposure to preference claims.

  • Keep clear records of communications and payment arrangements – Documentation can help demonstrate that payments were part of ordinary business dealings.

  • Monitor payment patterns – Sudden changes in payment behaviour (e.g. lump-sum catch-ups after long delays) may be a red flag. Creditors should consider whether such payments could later be challenged.

If a Liquidator contacts you about a potential voidable transaction, it’s important to respond promptly and seek advice. In many cases, a negotiated settlement can be reached without litigation.

Final Thoughts

Voidable transactions aren’t about punishing creditors; they are about fairness and restoring balance in the insolvency process. For directors, creditors, and advisors, understanding what Liquidators are looking for can help avoid costly surprises and ensure compliance with the law.

If you’ve received a demand or simply want to understand your exposure, contact your local Worrells Principal. We are here to help you navigate the complexities of insolvency with clarity and confidence.

To read more about Preferential payments, please see the extensive resources Worrells provides:

Preferences in liquidation: What is a preferential payment? | Worrells

You can also download our Guides to Insolvency.

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