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Creditor Alert - A Reminder of the Ability to Unwind Transactions Outside the Insolvency Regime

Creditors will be well aware of the provisions of the Corporations Act 2001 (Cth) (‘Corporations Act’) and the Bankruptcy Act 1969 (Cth) (‘Bankruptcy Act’) giving liquidators and trustees powers to unwind transfers of property that have been undertaken either at an undervalue or to defeat creditors or create a preference for a creditor over other creditors.

There is another method which does not require the insolvency and bankruptcy of a debtor which may cause inconvenience to the debtor and promote payment of a debt.

Creditors should be aware of section 37A of the Conveyancing Act 1919 (NSW) (‘s37A’) which provides a similar mechanism for ordinary creditors to claw back property. However, unlike the Corporations Act and the Bankruptcy Act, debtors are not required to be insolvent or bankrupt for an application under s37A to be successful. This means that creditors can personally bring an action under s37A (rather than through a liquidator or trustee) to have the court declare the transaction voidable and the property returned to the original owner for the purpose of satisfying the debt owed to the creditor.

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