Respond to a preference claim you have been served with

Defend your right to keep payments received in the ordinary course of business.

Receiving a letter of demand from a liquidator claiming repayment of money your business legitimately earned is one of the more confronting aspects of commercial life. Preference claims under the Corporations Act 2001 (Cth) are a real and commonly used recovery mechanism, but they are not unanswerable. Significant defences are available, including the good faith defence, the running account principle, and challenges to the solvency evidence underpinning the claim. We assess every preference claim on its merits and build a defence strategy around the specific facts.

What is an unfair preference claim and why does it matter?

An unfair preference claim arises when a liquidator seeks to recover payments made by an insolvent company to a creditor before it went into liquidation, on the basis that those payments gave the creditor an advantage over other creditors at a time when the company could not pay all its debts. Under the Corporations Act 2001 (Cth), payments made within six months of the company’s relation-back day are vulnerable to challenge if the company was insolvent at the time and the creditor received more than they would have in the liquidation. Being served with a preference claim can come as a shock, particularly where payment was received in the ordinary course of business with no knowledge of the company’s financial position.

Can I really defend a preference claim?

Yes. Under the Corporations Act 2001 (Cth), a creditor can defend a preference claim on several grounds, including that they received the payment in good faith, had no reasonable grounds to suspect insolvency, and provided valuable consideration. This is commonly known as the good faith defence. The running account principle can also significantly reduce the amount recoverable. The strength of your defence depends on the specific facts.

What is the running account defence?

The running account principle treats the entire period of trading between the creditor and the company as a single transaction rather than a series of individual payments. If your account was active throughout the period with ongoing orders and payments, only the net reduction in the debt over the relation-back period may be recoverable, rather than the total of all payments received. This often substantially reduces the liquidator’s claim.

How long does a liquidator have to bring a preference claim?

Under the Corporations Act 2001 (Cth), liquidators generally have three years from the relation-back day to commence proceedings to recover a preference. In some circumstances the court may grant an extension. If you have received a demand, do not assume time has passed. Act promptly and seek legal advice as soon as possible.

Should I pay the demand or dispute it?

You should get legal advice before paying or ignoring a preference demand. Paying in full may not be necessary if defences are available, and disputing without engaging properly can lead to proceedings being commenced against you. We can assess the claim quickly and advise on the commercial and legal options, including whether a negotiated partial settlement is likely to be the best outcome.

A genuine defence strategy.

Negotiated resolution.

Cost-effective advice.

Respond to the demand, do not ignore it.

Preference claims do not go away if you ignore them. Liquidators have a statutory duty to recover assets for creditors, and an unanswered demand will typically result in proceedings being filed. The earlier we assess your position, the stronger your response will be.

A preference demand is not automatically payable, but the window to respond is short.

You have received a demand from a liquidator requiring repayment of money you were owed and properly received, often months or years after the fact. You are being asked to repay money you no longer have and may feel you have no choice. A preference claim is not automatically payable simply because a liquidator has made it, but the window to respond properly is limited.

We will review the liquidator's demand and assess its legal and factual merits.
We will advise on available defences, including the good faith defence, the running account principle, and solvency challenges.
We will negotiate directly with the liquidator on your behalf to seek a reduction or withdrawal of the claim.
We will represent you in any proceedings commenced to recover the alleged preference.
We will advise on the commercial risk and recommend the most cost-effective response strategy.

You supplied goods or services, got paid, and now a liquidator wants the money back.

Your business supplied goods or services to a company over a period of time and received payment in the ordinary course of your commercial dealings. Months later, sometimes more than a year later, a liquidator has been appointed and has written demanding repayment of some or all of those payments as an alleged unfair preference. You feel blindsided: you did nothing wrong, the money was owed to you, and you spent it running your business. Now you are facing a legal claim that could cause serious financial damage to your operation.

What's included in your preference claim defence service

Preference claim demand review and legal merit assessment.
Solvency evidence analysis and challenge advice.
Good faith and running account defence strategy.
Direct negotiation with the liquidator on your behalf.
Representation in any proceedings commenced.

What happens when you do not respond properly.

Preference claims that go unanswered, or that receive a poorly constructed response, often result in a worse outcome than the underlying claim merited. Liquidators are experienced at recovering money from creditors who do not engage, and a letter that simply disputes the claim without engaging with the legal defences is unlikely to produce a good result. If proceedings are commenced without a proper defence being raised, you risk a default judgment for the full amount claimed plus costs. The good faith and running account defences are genuine and often powerful, but they require evidence and need to be raised in the right way and at the right time.

Here is how we give you the best chance of keeping what you earned.

We start by understanding the full payment history between you and the company, including how the account operated, what terms applied, and the pattern of payment over time. That factual foundation drives the legal analysis: a running account argument requires a specific pattern of debits and credits across the relation-back period; a good faith defence requires evidence of what you knew and when. We engage with the liquidator directly and in most cases reach a negotiated outcome significantly better than the headline demand. Where that is not possible, we take the matter to hearing with a clear strategy and properly marshalled evidence.

How we build your defence.

Three steps from demand to resolution.

Assess the claim.

We review the demand, the underlying payment history, and the liquidator's solvency evidence, and advise you on the strength of the claim and your available defences.

Build your response.

We prepare a formal response to the liquidator, set out your defences, and identify the evidence needed, including trading records, account history, and communications.

Resolve it.

We negotiate directly with the liquidator and, if proceedings are commenced, represent you through to resolution by settlement, mediation, or hearing.

Experienced preference claim lawyers who know how liquidators operate.

We have seen how destabilising a preference claim demand can be, arriving without warning and often for amounts that would cause real damage to a small business. Our lawyers have acted on both sides of preference claim disputes and understand exactly how liquidators build their cases and where those cases have weaknesses. We will give you a clear, honest assessment of whether the claim is strong, moderate, or weak, and what the most cost-effective path to resolution looks like.

We understand you want to know the cost, before we get started.

We will map out our process, from beginning to end, so you know what the journey will look like before you get started.

We will provide you with a clear and detailed Work Proposal covering each step along the way.

Our fair fees are all-inclusive. No hidden costs for telephone calls, emails, photocopying, couriers, or coffee.

Our great lawyer guarantee

We want to be part of your team over the long term. We achieve this by adhering to these core principles:

Take the time

We listen carefully to understand what you want to achieve. Then we thoroughly explain our advice and step you through the documents. You can be sure you know the full consequences.

Share our knowledge

We will pass on as much knowledge as we can, so you can make your own informed decisions. We want to make you truly independent.

Stick to our knitting

We only do what we're good at. You can be confident that we know what we're doing and don't pass on the cost of our learning.

Work as one team

Someone will always be available to answer your questions, or point you in the right direction. You will also benefit from a range of perspectives and experience.

Fair pricing

For advice and documents, we provide a fixed or capped quote so you don't take price risk. If you're in a dispute, we map out the process and costs so you know what to expect.

It's your show

We're not in this for our egos. We're in it for a front row seat to witness your success.

Respond to your preference claim the right way.

How to co-own property without conflict, confusion, or costly mistakes

You’ve been told to make a family trust election. Here’s what that actually means.

Changes to trust taxation in the Federal Budget: Is there still a case for keeping a family trust in my structure?

How we built our AML/CTF compliance into the way we already work

Tagged 94