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Voidable Transactions - Essay Example

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Under the Corporations Act 2001, the liquidators are given wide powers to set aside or vary the transactions entered into by insolvent companies which face subsequent winding up process. Part 5.7B of Division 2 of the Act governs the powers of the liquidator to so set aside the transactions.1 The liquidator has been vested with powers to set aside or vary the transactions which are categorized as unfair preferences or uncommercial transactions…
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Voidable Transactions
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Download file to see previous pages Thus voidable transactions in general and unfair preferences in particular which are highly technical areas of insolvency legislation presuppose that there is the likelihood that individuals and businesses might become insolvent prior to formal declaration of their insolvency.2
The features that make a transaction voidable are described under Section 588 FE. This section covers all the transactions entered into on or after 23rd June 1993. Section 9 of the Act defines the term 'transaction' as one to which the 'body corporate' is a party. The transactions may include a conveyance, transfer or other disposition and a charge created or guarantee created by the body corporate. It also includes an obligation on the party of the body corporate or a release or waiver granted by the company. The term further extends to a loan extended by the body.
The conditions under which a transaction becomes a voidable transaction are enumerated under Section 588 FE (2). ...
Such transactions or acts done at any time after that day but on or before the day when the process of winding up began will also be treated as voidable transactions.
The time period of six months is being extended to 10 years ending on the relation-back date in cases where the insolvent transaction has the effect of defeating, delaying or interfering with the rights of creditors of the company. Thus an insolvent transaction of a company entered in to during 10 years ending on the relation-back day would be considered voidable if the transaction was entered into with the specific intention of hindering the rights of the creditors of the company.
Section 588FE (4) makes an insolvent transaction voidable when a related entity of the company is a party to such transaction. This Section extends the time period covering the transaction for a period of 4 years ending on the relation-back day.
Under Section 588 FG a person against whom the liquidator proceeds for voidable transaction is eligible for some defenses which are available under that section. A party to a transaction will be able to defend the allegation that the transaction is voidable under the following circumstances; (i) when the party has become a party to the transaction in good faith (ii) he had no reasonable ground at the time of entering into the transaction to suspect that the company is insolvent or would potentially become insolvent (iii) there would arise no suspicion for any reasonable person and (iv) the party has made good the company with valuable consideration or altered his position based on the transaction. The party defending the voidable transaction should be able to prove all or any of these conditions to the satisfaction of the court.
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