It is not uncommon for Companies to try and get rid of property due to an impending insolvency, leaving little left for the liquidator when appointed. To combat this, the law allows for liquidators to ‘claw back’ certain transactions that they believe should never have happened to begin with, for example, uncommercial transactions.

What is an uncommercial transaction?

A transaction can be uncommercial if a reasonable person would not have entered the transaction. Generally, a transaction will be viewed as uncommercial where:

  • the Company gained little to no benefit from the transaction;
  • the Company suffered significant detriment from the transaction; or 
  • a third-party benefited the most from the transaction.

The clearest examples of uncommercial transactions are when a company: 

  • gives away property as a gift or for no value; 
  • sells property for far below market value; or 
  • agrees to pay for property or a service far above market value. 

In essence, the transaction needs to be truly uncommercial so it cannot be explained by normal business or commercial practice. 

Recovery of Uncommercial Transactions

For the claim to recover an uncommercial transaction to be successful, the company must have been insolvent at the time of the transaction or became insolvent because of the transaction.

Generally, a liquidator can only recover uncommercial transactions that occurred two years prior to the company’s liquidation. However, this date changes depending on each circumstance. For example, the period extends to four years if the uncommercial transaction was with a related company. It is highly recommended to seek legal advice on establishing the appropriate timeframe.

What if I am party to an uncommercial transaction?

If a liquidator makes an uncommercial transaction claim against you, there are two main defences:

  • that you were not a party to the transaction; or
  • if you were a party to the transaction, that you entered the transaction in good faith with no reasonable grounds to suspect the company was insolvent.

Should you have an uncommercial claim made against you or are a liquidator wishing to make such a claim, please contact our team of expert insolvency lawyers at Craddock Murray Neumann Lawyers.

The law is complex and changes frequently. The law may have changed between the time this article was written and the time you are reading it.