Business Breakfast Club August Summary - Asset Protection and Voidable Transactions: Controlling Risks
This month at Business Breakfast Club, we discussed asset protection strategies and transactions which are voidable by a Trustee in Bankruptcy. There are a number of asset protection strategies to consider, particularly when carrying on a business, and there is no one perfect strategy. BAL Director, Katie Innes shared some of her insights on the topic. In addition to discussing some of the more common asset protection strategies Katie touched on:
There are a number of transactions that are voidable by a Court where companies are in administration or liquidation, and when individuals become bankrupt. In particular, we focused on three types of voidable transactions under the Bankruptcy Act 1966 (Cth).
Undervalued Transactions – s 120 Where a transfer of property may be void if the transfer took place in the period of 5 years before the commencement of the bankruptcy and the transferee gave no consideration (or less than market value) for the transfer.
Intention to Defeat Creditors – s 121 Where a transfer of property may be void if the property “would probably have” become part of the bankrupt’s estate or “would probably have” been available to creditors if the property had not been transferred. The transferor’s main purpose in making the transfer must be to either to prevent the property from becoming divisible amongst their creditors or to delay the process of making the property available. This purpose can be reasonably inferred from the circumstances, particularly if the transferor was, or was about to become, insolvent at the time of the transaction.
Avoidance of preferences – s122 A transfer of property by a person in favour of a creditor can be void if the transfer had the effect of giving the creditor a preference, priority, or advantage over other creditors and was made within certain time periods.
Cases & Practical Lessons
Case studies help demonstrate how transactions can be scrutinised in practice. We looked at the seminal case of Cummins v Cummins and whether quarantining assets against possible future liabilities can be for the purpose of defeating creditors, and Silvia v Williams which reiterates the benefits of documenting loans contemporaneously and seeking professional advice on protection of assets (to show the intention behind certain transfers).
 The Trustees of the Property of John Daniel Cummins, a Bankrupt, v Cummins  227 CLR 278.
 Silvia (Trustee) v Williams, in the matter of Williams (Bankrupt)  FCA 189