24 May 2018

What makes a transaction in bankruptcy voidable?


2 min

Are they fair?

Part of a bankruptcy trustee’s duties is to investigate a bankrupt’s affairs. Those investigations include whether the bankrupt has been involved in any ‘void transactions’.

Void transactions involve a bankrupt’s property, which if they had not happened, would have resulted in that property being available to the bankruptcy trustee to realise for the creditors’ benefit.

Void transactions are deemed to take assets otherwise available to all creditors out of the bankruptcy trustee’s hands. These transactions are often made to family members, or suppliers, who may be legitimate creditors but are inherently receiving a benefit not afforded to the other creditors. Sometimes these parties are not creditors, and the transfer of assets is simply an attempt to ‘defeat’ creditors.

This is why the Bankruptcy Act 1966 contains these void transactions provisions. While a bankruptcy trustee’s powers to pursue void transactions are clearly determined in the Bankruptcy Act, practical elements like the costs of pursuing void transactions, or the likely success of recovering a transferred asset does not always determine that an actual recovery is made.

Nonetheless, a bankruptcy trustee will always look for such transactions, and where practical seek to recover that asset so that all creditors share equally and fairly in the recovery.

To answer this article’s question: are void transactions fair? No, they are not fair as such transactions advantage selected creditors over others. The bankruptcy trustee, using the Bankruptcy Act, seeks to ensure an equitable distribution of all funds.

We have more information on what actually constitutes void transactions, in our website factsheet (click here), which outlines the following elements:

  • timing

  • recipients

  • types

  • exemptions

  • defences.

As always, please reach out to your local Worrells Partner for more information about bankruptcy and possible voidable transactions.

Business can be tough

Our team is focused and ready to help

Get in touch

Subscribe for all the latest help and news