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uncommercial transactions

An uncommercial transaction relates to transactions entered into by a company where it may be expected that a reasonable person in the company's circumstances would not have entered into the transaction, by having regard to its benefits and/or detriments to the company. Liquidators have the power under the Corporations Act 2001 (Cth) to avoid such transactions.

Elements of uncommercial transactions include the following:

The transaction was entered into with a company during the relation-back period

Key terms

Transaction

A transaction is defined to include payments of money, transfer of property (which can include personal property, equipment, boats, cars and real property) or the entering into agreements.

Relation-back period

The relation-back period is the 2 year (for unrelated parties) or 4 year (for related parties) statutory time period during which a transaction must have occurred, in order for the liquidator to be able to recover the transaction as an uncommercial transaction. The relation-back period is calculated as the period from the earliest of (known as the relation-back day): 

A reasonable person would not have entered into the transaction

Section 588FB of the Corporations Act 2001 (Cth) sets out the test required when assessing whether a reasonable person would have entered into the transaction, by having regard to: 

  • “The benefits (if any) to the company of entering into the transaction
  • The detriment to the company of entering into the transaction
  • The respective benefits to other parties to the transaction of entering into it
  • Any other relevant matter.”

Common examples of where an uncommercial transaction may arise are where the company sells or disposes of assets for less than their market value or purchases assets for more than market value. 

The company was insolvent at the time of the transaction or the transaction caused the company to become insolvent

A company is said to be insolvent where it is unable to pay debts as and when they fall due and payable. Liquidators use what are called balance sheet tests and cash flow tests to determine insolvency, for the purposes of court proceedings.

Please view a checklist of indicators to look for that may point to one of your creditors being insolvent. 

The creditor knew, suspected or ought to have known that the company was insolvent when it received the transaction

Creditors can defend themselves from an uncommercial transaction claim where they can prove that they did not know and ought not to have known that the company was insolvent. Being a defence, this means that it is the creditor that carries this burden of proof.

What can creditors do?

Call or contact SV Voidables. We specialise in assisting creditors defend uncommercial transaction claims, by utilising different unique strategies and tactics to minimise the amount of money you have to pay to the liquidator (if any) or fees to defend in court.

 

Contact our Voidables team

If you have any questions relating to our Voidables services, please contact one of our expert advisors.

 

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