Fighting For Subbies Rights
Do Preferential Payment Clawbacks Improve The Financial Position For Creditors?
Or is it a Gold Rush for Liquidators and Lawyers?
Below we will use Bloomer Constructions as an example but first, we would like any subcontractors who has received legal letters clawing back so called preferential payments to contact us.
We are conducting a study to see if;
- clawing back preferential payments improve the financial position of creditors or
- improve the financial position of liquidators and lawyers
We know that only 7% of liquidators get 51% of building industry insolvencies so are the demands for preferential payments only to keep the gravy train rolling for the Suit Brigade which are liquidators and lawyers or is it for the benefit of creditors?
It is extremely rare for subbies to get anything back from a builder liquidation so where do these claw backs go?
We would like to see these letters of demand, we would also like to see what was paid out as a result of successful clawbacks.
We guarantee to anyone who sends us information that it will be treated in confidence.
The aim is to determine;
- Which liquidators make a habit of preference claw backs
- Which law firms are involved
- What was the the return to creditors
From that we can glean we will determine if claw backs are a worthwhile exercise or if it part of the overall pre-pack liquidation scam to feather the nests of this small percentage of liquidators and lawyers.
They Destroy Subbies & Suppliers
There is irrefutable evidence that these claw backs destroy small business which are already on their knees from the losses suffered in the liquidation, preferential payment claw backs are a double blow.
Then add the QBCC going over their financials after their loss and it's a triple blow, this can lead to license suspension or cancellation.
It's not just the initial loss, it's compounded by the cost of lawyer fees to fight the claims.
I had an email yesterday from a subbie who has had to shut down part of their successful business because of the cost and stress associated with fighting claw backs after heavy losses in a liquidation.
Explanation & Defence of Preferential Payment Claim
We question the validity of clawing back preferential payments rather than if they are preferential or not according to the corporations law. We don't give a rats if it is lawful, bottom line is in most cases, it is wrong.
The payments will be preferential if the creditor received more than he would have received if the payments were set aside and the creditor was to prove for the whole amount of his debt without those payments taken out.
First, it is up to the Liquidator to prove that the company was insolvent when the payments were made to the creditor.
- Then if the creditor can prove:the payment was received in good faith; and
- he had no reasonable grounds for suspecting that the company was insolvent at the time or would become insolvent....and
- a reasonable person in the person's circumstances would have had no such grounds for so suspecting.
The creditor will have a valid defence against the unfair preference claim.
The items in 2 are the subject of countless legal cases. Some of them favour the liquidator and some of them favour the creditor. Each creditor's own relationship or situation with the company will determine whether or not they had suspicion of the company's insolvency.
Bloomer Constructions as an Example
Any payments made after Bloomer admitted financial difficulty would not satisfy the objective and subjective tests in 2 above because both the creditor and a reasonable man would have both suspected the company was insolvent when they received such payments.
That is the main defence for a creditor.
The other defence is called the running account defence.
If it can be proved that the creditor's debt with the company grew or stayed the same over the last six months, he will have a valid running account defence.
The other area for a possible defence centres around the payments made to creditors by a developer rather than the company (Bloomers). These are usually called third party payments.
If the creditor received the monies from one of the company's debtors eg; a developer who contracted the company to build an apartment building, there could also be valid defences.
Jirsch Sutherland covers this topic at pages 14, 15 and 16 of their report dated 20 June 2017 on the Bloomer post in industry news.
However, this is a very complex area and each creditor's specific circumstances will determine the exact nature of their ability to defend a claim by the Liquidator in these circumstances.
This is a brief summary to a complex area of the law, one which many lawyers do not grasp.