Received a Demand from a Liquidator? What You Need to Know About Unfair Preference Claims
What is an unfair preference claim?
When a company goes into liquidation or a person is declared bankrupt, a liquidator or bankruptcy trustee is appointed to collect assets and distribute them fairly among creditors. One of the ways they do this is by clawing back payments made to certain creditors before the insolvency.
If you were paid money by a company or individual in the months before they became insolvent, that payment might be considered an “unfair preference.” The liquidator or trustee can demand you pay it back so the money can be shared equally among all creditors.
Why does this happen?
The law aims to prevent a failing business or individual from favouring certain creditors over others when they know they cannot pay everyone. If a company pays one supplier in full while leaving others with nothing, that is considered unfair. The preference period is typically six months before the insolvency, or up to four years if you are a related party.
What should you do if you receive a demand?
Do not ignore it. These claims are legally enforceable and failing to respond can result in court proceedings against you.
Here are the key steps you should take. First, get the demand reviewed by a lawyer experienced in insolvency disputes. Second, check the details carefully, including the dates, amounts and your relationship with the insolvent party. Third, consider whether you have a defence. Common defences include that you had no reason to suspect the company was insolvent, that the payment was part of a running account, or that you gave valuable consideration.
Can you negotiate?
Often, yes. Liquidators and trustees frequently accept less than the full amount to avoid the cost and delay of litigation. A well-prepared response with legal backing puts you in a stronger negotiating position.
Final thoughts
An unfair preference demand can come as a shock, especially when you provided goods or services in good faith. But with the right advice, these claims can often be defended or settled for significantly less than the amount demanded.
If you have received an unfair preference claim, contact Peter Charatsis, Brenton Priestley, Jonathan Khoury or Arnie Narayan to discuss your options.
This information is general in nature and does not constitute legal advice.
