August 16, 2015

Liquidators voiding asset transfers and security interests

When a Liquidator is appointed, creditors and other stakeholders are often concerned that a Liquidator will pursue them to either recover property they have received in their dealings with the insolvent company or for secured creditors, the Liquidator may seek to void their securities.

In order to assist, provided below are the time frames Liquidators have to void transactions, recover property and void security interests:


There are two main sections in the Corporations Act 2001 (“the Act”) that a Liquidator can utilise to void the transfer of assets.  They are:

Uncommercial Transactions – Section 588FB of the Act

An uncommercial transaction is a transaction which a reasonable person in the company’s circumstances would not have entered into with having regard to:

  • the benefits to the insolvent company
  • the detriment to the insolvent company
  • the respective benefits to other parties
  • any other relevant matter

Typical examples of uncommercial transactions include:

  • Gifts
  • Performing tasks for no consideration
  • Disposing of property for a price less than its market value
  • Agreeing to provide services for less than their value

Depending on the insolvent company’s relationship with the other party to the transaction or the nature of the transaction, the Liquidator can recover uncommercial transactions that occurred anywhere from 2 years to 10 years prior to the Liquidator’s appointment.

The timeframes are detailed below:

Relationship/Nature of Transaction Time frame
Entity not related to the insolvent company 2 years
Entity related to the insolvent company 4 years
Transaction to defeat creditors 10 years


The Liquidator has to commence proceedings against the creditor in question within three years from the date of his / her appointment and must be able to prove that the company was insolvent or became insolvent as a result of the transaction.  A Liquidator can utilise this section of the Act to void the transaction and seek to either recover the property or come to a commercial settlement.

Unreasonable Director Related Transactions – Section 588FDA of the Act

An unreasonable director related transaction is a transaction with the director or a “close associate” (eg. spouse, parent, child or sibling) of the director and it may be expected that a reasonable person would not have entered into the transaction.
A Liquidator may prefer to utilise this provision of the Act as they are not required to prove that the company was insolvent or became insolvent at the time of the transaction.  The Liquidator must however prove that a “reasonable person” would not have entered into the transaction.

Again, a Liquidator generally has three years from the date of their appointment to void the relevant transactions that comprise their claim and these transactions could have occurred at any time in the four years prior to the Liquidator’s appointment.


Pursuant to section 588FJ of the Corporations Act 2001, only an official Liquidator can void a creditor’s circulating security interest (i.e. floating charge) over a company’s assets provided that:

  1. The security interest was created during the six months ending on the relation-back day. The relation-back day is either the date of appointment of the Voluntary Administrator or the Liquidator, or the date the winding up application is filed with the Court; and
  2. The security interest was created to secure borrowings that were advanced prior to the creation of the security interest.

There are generally three situations that can arise in determining whether a security is void against an official Liquidator, depicted in the flowchart below:


The above sections were dealt with in the case Super Art Australia Pty Ltd v Foden FCA 1168.

  • Super Art Australia Pty Ltd (“SAA”) was wound up on 10 December 2008.
  • The relation back period was 6 May 2008 to 6 November 2008.
  • Mr Foden was the company’s accountant prior to the winding up of the company.
  • Mr Foden was also a former director, secretary and shareholder of the company during the following period:
Role Appointed Ceased
Director 10 April 2002 29 February 2008
Secretary 18 February 2002 1 September 2008
Shareholder 18 February 2002 7 October 2008


The official Liquidators sought a determination from the court in relation to a loan agreement and mortgage debenture agreement executed between the company and Mr Foden on 18 October 2008 and three payments made to Mr Foden totalling $429,000 during the relation back period. The payments were made on the following dates:

Payment Date Amount ($) 
18 June 2008 $215,000
24 September 2008 $14,000
30 September 2008 $200,000
Total $429,000


Davies J found that Mr Foden continued to act in the position of director after the date of his formal resignation on 29 February 2008 and was in fact acting as a director at the time of each of the transactions detailed above. He agreed with the official Liquidators that the company was insolvent from December 2007. Davies J ordered the following:

  1. The loan agreement, the mortgage debenture agreement and the first payment totalling $215,000 were all insolvent transactions.
  2. The loan agreement and the mortgage debenture agreement were uncommercial transactions (pursuant to section 588FB) and were unreasonable director related transactions (pursuant to section 588FDA).
  3. The payment of $215,000 was an unfair preference.
  4. The second payment was unable to be verified and the third payment despite being received by Mr Foden was then paid onto a third party creditor of SAA. These payments were therefore not found to be unfair preferences.
  5. The mortgage debenture agreement was found to be a circulating security interest and since it had been created within 6 months of the relation back date and no funds were advanced at this time or at any point after this time, it was held to be void against the official Liquidators (pursuant to 588FJ).

If you would like more assistance with voiding asset transfers and security interests, please contact a member of the SV Partners team on 1800 246 801 or visit our website for more information.


Are you concerned about your financial position? Contact us now for an obligation free consultation on