A recurring issue in liquidations is whether a person (usually, but not always, a director) can off-set a claim by a liquidator for insolvent trading, or an unfair preference, against monies owed to a person from the insolvent company.
Section 553C of the Corporations Act 2001 (Cth) contains the set-off provisions.The leading decision on the operation of Section 553C in the context of insolvent trading is Re ACN 007 537 000 Pty Ltd (in Liq); Ex parte Parker (1997) 150 ALR 92, where it was held that an insolvent trading claim could be set off against a debt owed by the insolvent company, despite the fact the insolvent trading claim did not arise from any “dealings” between the parties.
Smith v Boné, in the matter of ACN 002 864 002 Pty Ltd (in Liq) [2015] FCA 319, involving a liquidator’s claim against a director (Mr Boné) for insolvent trading, confirmed that prima facie set-off was available against debts due to the director from the company.
Morton & Anor v Rexel Electrical Supplies Pty Ltd [2015] QDC 49 found that set-off was available for a creditor of an insolvent company facing a claim by the company’s liquidator for an unfair preference claim.
However, importantly, both cases also reaffirmed the position that such set-off is not available against an insolvent trading claim or an unfair preference claim, if the person seeking to rely on the set-off had notice of the fact that the company was insolvent at the time the liability from the company to them was created.
October 2015