An uncommercial transaction is a transaction entered into by a company, which:-
- Has little or no benefit to and/or is detrimental to the company;
- Benefits a third party; and
- Occurred at a time when the company was insolvent.
A Liquidator can pursue a claim for an uncommercial transaction if the transaction occurred within 2 years prior to the relation back day or 4 years prior to the relation back day in the event the transaction is with a related entity of the company.
If a Liquidator successfully pursues a claim for an uncommercial transaction they are entitled to various relief including recovering the property which was the subject of the transaction or monetary consideration.
Elements of an Uncommercial Transaction
In order to recover a transaction as an uncommercial transaction a Liquidator must establish that:-
- The transaction was entered into within 2 years prior to the relation back day or 4 years prior to the relation back day in the event the transaction is with a related entity of the company;
- The company was insolvent at the time it entered into the transaction, or it became insolvent by entering into the transaction; and
- It may be expected that a reasonable person in the company’s circumstances would not have entered into the transaction, having regard to:
- (a) The benefits (if any) to the company of entering into the transaction;
- (b) The detriment to the company of entering into the transaction;
- (c) The respective benefits to other parties to the transaction of entering into it; and
- (d) Any other relevant matter.
The relation back day is commonly:
- For a creditors’ voluntary liquidation, the date of liquidation; or
- If the company was in administration prior to being placed in liquidation, the date of the Administrator’s appointment; or
- For a court appointed liquidation, the date of the filing of the winding up application.
Defences Available to an Uncommercial Transaction Claim
Section 588FG of the Corporations Act 2001 (Cth) provides for a defence to an uncommercial transaction claim if the recipient of the transaction can establish:
- They provided valuable consideration for the transaction;
- They received the transaction in good faith; and
- At the time of the transaction they had no reason to suspect that the company was insolvent and a reasonable person in their position would have had no reason for suspecting the company was insolvent.