With the courts about to consider a significant and long standing controversy in the law of unfair preferences, suppliers to financially distressed companies, and liquidators, should be aware that there have been recent significant shifts in the law about getting paid in hard times.
Some sectors of the Australian economy continue to struggle with the consequences of the COVID-19 pandemic. Lockdowns without substantial government support make the future risk for current repayments different from what it was in 2020. Pretty quickly, a good customer can become a solvency risk. Creditors with substantial exposures to those situations, but which are aware of these ongoing legal developments, may be able take advantage of them to reduce some of their risk when supplying these businesses.
Creditors of companies that go into liquidation may be better positioned to resist unfair preference claims as a result of a series of decisions over the last 12 months. The Courts have considered and reshaped previous approaches which creditors have endeavoured to use to allow them to deal with companies in financial difficulties, and to defend preference actions if businesses ultimately fail. The cases appear to show a trend by the courts to reconsider previously accepted approaches to preference claims.
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