Liquidators Remedies
The ability for liquidators to recover and investigate the affairs of liquidated companies is surprisingly vast; liquidator specific recoveries include:
- Voidable Transactions (S292): The ability to recover from creditors who have received a preference in the liquidation within six months (or two years for related parties)
- Transaction undervalue (S297): The ability to recover from parties who have received assets from a company at undervalue; while the company was insolvent within two years of liquidation
- Transaction for inadequate / excessive consideration (S298): the ability to recover from related parties who have received assets from a company at undervalue or for excessive consideration within three years of liquidation.
Non-specific but useful remedies also include Property Law Act dispositions and Dividend Clawbacks (s56).
Transaction undervalue and transaction for inadequate / excessive consideration are quite powerful remedies, however I feel they are overlooked.
Section 298 overview
Section 298 of the Companies Act 1993 (the Act) has two limbs, which deal with related entities associated with the company (or the companies management):
- The overpaying provision: where the company acquires goods or services, the liquidator may recover the difference between the price paid and the valued provided (if price paid by the company exceeds the value received in return).
- The underpaying provision: where the company disposes of property, provided services or issued shares the liquidator may recover the difference between the value of what was sold and what was paid (if the price received by the company is less than the value of what was sold)
The criteria of persons captured includes:
- A person who was at the time of the transaction, a director of the company, nominee or relative of or a trustee for or a trustee for a relative of the director of the company;
- A person or a relative of a person who at the time of the acquisition had control of the Company;
- Another company that was at the time of the transaction, controlled by a director of the company or a nominee or relative of or a trustee for or a trustee of a relative of a director of the company; or
- Another company that at the time of the transaction was a related company.
At face value this is a very strong provision; the main drawback (in contrast to voidable transactions) is that it’s litigated through a general proceeding rather than an originating application.
Notably however, S298 does not require the company to be insolvent.
The typical transaction where this applies (Ie a director transferring a company car, or tools to himself personally) suffers from economical issues. General proceedings are expensive, time consuming and the value of claims tends to be around $30,000 to $50,000.
While voidable transactions are a better option, they can only be used if a director has a credit current account (ie he loaned the company money), in most liquidations this is not the case, their shareholder current accounts are overdrawn; meaning they owe the company money.
Heath & Whale on insolvency has one page dedicated to S298, with the last judgment referenced in 2007.
Section 298 a proposed use-case
A scenario which occurs intermittently in liquidations (or variations of):
- Director of a company in liquidation has a poor personal asset position
- Trust associated with the director owns property
- The director has an overdrawn current account (he owes the company money)
- Payments are being made directly from the company to pay the trusts mortgage (or other trust related expenditure), but have been debited to the shareholders’ current account in the accounting records
For example:
- Construction Company Limited (CCL) is insolvent;
- The director of CCL, Mr Smith has an overdrawn current account of $100,000 as at 31 March 2026
- On 1 April 2026 a cash payment of $15,000 is made to a trustee company associated with Mr Smith; this payment is recorded to Mr Smith’s personal current account
- On 10 April 2026 CCL is placed into liquidation
Given CCL disposed of property (Cash payment of $15,000) to a trustee company associated with the director and the trust has provided no value in return, s298 seems like a possible option for recovery.
In contrast to other remedies; Section 292 (voidable transactions) is not available because the director has an overdrawn current account (and is not a creditor): If the director’s personal current account has a credit balance, it’s unlikely 292 would allow a direct recovery against the trust, rather the claim would be against the director personally.
I wonder if the courts would take the position that the accounting records are final, meaning the payment was to the director personally (despite the recipient of cash being the trust as this would allow for records to contract out of 298 to an extent; (in which case you can effectively contract out of S298) or a ‘substance over form approach, being the trust is separate from the director personally and is receiving value independent of the director.
Another common example is where a construction company has a building contract with their family trust (or a related example). There is the possibility of the company underpaying, or as is common not implementing a profit margin into the contract.
I appreciate there are other options (for example, Property Law Act Dispositions or section 56 of the Act), but at face value It seems s298 is a flexible targeted remedy (the recipients of property) which has a straight forward legal test I’m surprised it isn’t utilised more.
