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What is the priority of a payment negotiated in a settlement with a liquidator?

The Supreme Court of Victoria delivered judgment on 4 March 2016 in Warehouse Sales Pty Ltd (in liq) v WHS2 Pty Ltd (in liq) [2016] VSC 63. This case is particularly useful to liquidators as it deals with a number of questions that often confront liquidators, including:
1. When will an application under section 511 Corporations Act 2001 (Cth) (the Act) be heard in the absence of a contradictor?;
2. What are the grounds on which a direction under section 511 of the Act can be made?;
3. When will the Court give directions approving a settlement agreement?; and
4. When will a payment under a settlement agreement between a liquidator and a creditor have priority under section 556(1)(a) of the Act?

The main focus of this Turkalert is the fourth question, which related to a settlement payment by the liquidators to a number of creditors who were TurksLegal clients.

The Court found:
Any settlement sum payment consequent on breach of a contractual obligation of the liquidated company will likely be properly incurred (and therefore be afforded a section 556(1)(a) priority) if the settlement was entered into after extensive investigations, negotiations and advice in order to minimise the direct costs to the liquidations, truncate litigation and prevent further expense.

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