Defend an unfair preference claim
We assess the liquidator's claim, run the defences that apply to your facts, and in most cases resolve it well below the demand.You were paid for goods you supplied. A year later somebody writes and says you have to give the money back. Preference demands land on businesses that did nothing wrong, because what triggers them is not misconduct, it is timing: the company that paid you went under, and the liquidator’s job is to even out who got paid on the way down. Under the Corporations Act 2001 (Cth) (the Act) those payments can be recovered, but a demand is a claim, not a finding. The good faith defence and the running account principle are real, they are frequently decisive, and they have to be raised properly and in time.
A number you can test
The running account calculation routinely shows the claim is worth a fraction of the headline demand.
Defences raised in time
Good faith and running account only help you if they are put properly and before proceedings are filed.
Resolved without a hearing
Most preference claims settle once the liquidator can see the evidence sitting behind your defence.
What is an unfair preference, and why are you the one being asked?
When a company is wound up, the liquidator looks back at what it paid in the months before it failed. If the company was insolvent at the time and a payment left one creditor better off than they would have been in the liquidation, that payment can be recovered and returned to the pool for everyone. Under the Act the window generally runs six months back from the relation-back day, and longer where the creditor is a related party. None of it is a finding that you did something wrong, which is exactly why these demands arrive at businesses that did nothing but invoice and get paid.
Do I actually have to pay a preference claim?
Not automatically. A demand is a claim the liquidator has to prove. If you received the payment in good faith, had no reasonable grounds to suspect the company was insolvent, and gave value for it, that is a defence under the Act. The running account principle can also cut the amount down sharply. What matters is the detail of your own dealings.
What is the running account principle?
It treats a continuing trading relationship as one transaction rather than a string of separate payments. Where you kept supplying and they kept paying, the liquidator can generally only recover the net reduction in the debt across the period, not the total of every payment. On an active account that often reduces the claim dramatically.
How long does a liquidator have to chase me?
Generally three years from the relation-back day to start proceedings, and a court can extend that in some circumstances. Do not assume the time has run out because the payments feel old. If a demand has arrived, the safe assumption is that the liquidator has checked the date.
Can I just pay a reduced amount and move on?
Often that is the sensible outcome, but the time to negotiate is after you know what the claim is worth, not before. A creditor who offers a number first usually offers too much. We work out the defensible figure, then open the negotiation from there.
Do not pay it, and do not ignore it
Send us the demand and your account history with the company. We will tell you whether the claim is strong, weak or somewhere in between, what the running account does to the number, and what a realistic resolution looks like.
You are being asked to repay money you already spent running your business
A liquidator has demanded repayment of money that was genuinely owed to you and properly paid, often more than a year ago, and you no longer have it because you used it the way any business uses its revenue. The demand is written as though the outcome is already settled, so the instinct is either to pay it and make it go away or to fire back a letter saying it is outrageous. Both of those responses tend to cost you money the defences would have saved.
- We will review the liquidator's demand and tell you what the claim is actually worth.
- We will reconstruct your account history and calculate what the running account principle does to the number.
- We will assess the good faith defence against what you knew at the time you were paid.
- We will test the liquidator's evidence that the company was insolvent when the payments were made.
- We will negotiate with the liquidator and act for you in any proceedings commenced against you.
You supplied, you invoiced, you got paid, and now a liquidator wants it back
You traded with the company for years. They ordered, you delivered, they paid, sometimes late and sometimes only after a phone call, which is how most trade accounts actually work. Then they went under. Months later a letter arrives from the liquidator demanding a figure that covers most of what they paid you in the final half year, and it is large enough to hurt your own cash flow. You supplied goods and chased your own invoices, and now you are being asked to help fund somebody else’s liquidation.
What's included in your preference claim defence service
- Demand review and merits assessment.
- Account reconstruction and running account calculation.
- Good faith defence assessment and evidence gathering.
- Review and challenge of the liquidator's solvency evidence.
- Negotiation with the liquidator and representation in proceedings.
What a bad response costs
Liquidators send these demands in volume and they are good at collecting from creditors who do not engage. A letter that only says the claim is unfair, without setting out a defence and the evidence behind it, reads to a liquidator exactly like a creditor who will eventually fold, and it gets treated that way.
Ignoring it is worse. Proceedings get filed, and a defence that is not on foot by then becomes a default judgment for the full amount plus costs on a claim that might have been reduced to a fraction of it. The running account principle in particular can cut a demand down dramatically, but it turns on the actual pattern of orders and payments across the period, which means somebody has to reconstruct the account before anyone can argue about the number. Creditors who pay the demand quickly to make the stress stop almost always pay more than the claim was ever worth.
From a demand you cannot answer to a number you can live with
We start with the account rather than the law. How the relationship actually operated, what terms applied, and the full pattern of invoices and payments across the relation-back period. That reconstruction drives everything else, because a running account argument lives or dies on whether trading continued and what the net reduction in the debt was.
Alongside it we test what you knew and when, which is the ground for the good faith defence, and we test the liquidator’s evidence that the company was insolvent at the time, which is often thinner than the demand implies. Then we write to the liquidator setting out the defences and the evidence behind them, and that changes the conversation immediately. Most of these resolve by negotiation at a figure well below the demand. Where the liquidator will not move, we run it, and by then the evidence is already assembled.
How we build your defence
From the demand on your desk to a resolved number.Test the claim
We review the demand, reconstruct your account history and tell you what the claim is genuinely worth and which defences are open to you.
Assemble the evidence
We gather the trading records, account history and communications that support the running account and good faith defences, and put them to the liquidator.
Negotiate or defend
We negotiate a resolution with the liquidator and, if proceedings are commenced, act for you through to settlement, mediation or hearing.
Lawyers who have run preference claims from both sides
A preference demand is destabilising in a way other claims are not, because there is nothing you did wrong to point at. You supplied, you were paid, and the fairness of it is being decided inside somebody else’s insolvency.
One of our lawyers holds the ARITA Advanced Certificate in Insolvency and is a member of the Australian Restructuring Insolvency and Turnaround Association. We have acted for liquidators bringing these claims and for creditors defending them, so we know how the demand was built, what sits behind the number, and where it is usually weakest. We will tell you honestly whether the claim against you is strong, moderate or weak, and what it should cost to resolve.
Our great lawyer guarantee
Six principles we hold to, whatever you bring us and however long it takes.
Take the time
We listen carefully to understand what you want to achieve, then step you through the advice and the documents.
Share our knowledge
We pass on as much as we can, so you can make your own informed decisions.
Stick to our knitting
We only do what we are good at, so you never pay for our learning.
Work as one team
Someone is always available to answer your question or point you the right way.
Fair pricing
A fixed or capped quote for advice and documents, so you do not carry the price risk.
It is your show
We are in it for a front row seat to witness your success, not for our egos.
Answer the demand properly
Send us the liquidator’s letter and your account history. We will tell you what the claim is really worth, which defences apply on your facts, and what a sensible resolution looks like, before a deadline decides it for you.
More on this area of law
Read more about unfair preference claims, voidable transactions and creditor rights, and how ADLV Law can help.