27 July 2020

A liquidator has made a demand on you for payments that you have received that they say are unfair preferences. What can you do?




Under Sections 588FE and 588FA of the Corporations Act 2001 (Cth), a payment constitutes an unfair preference and is a voidable transaction if:

  1. the company and you were both parties to the transaction;
  2. the transaction occurred within six (6) months of the commencement of liquidation;
  3. the company was insolvent at the time of entering into the transaction, in that it could not pay its debts when they fell due; and

the transaction resulted in you receiving from the company, in respect of an unsecured debt that the company owed to you, more than you would have received from the company in respect of that debt, than if the transaction was set aside and you were to prove for the debt in the liquidation of the company.

There are however a number of options available in responding to the liquidator and/or defending proceedings by a liquidator for unfair preferences.

There are several defences that may be available and reasons why you should not be required to pay back to a liquidator an amount.

Some of these include:

  • where you are a secured creditor because:

    i. you may have a charging clause or an equitable interest over real property owned by the company;

    ii. you may have a security interest such as under a Retention of Title clause which has been registered on the PPSR; oriii. you may be the beneficiary of a common law lien which is not required to be registered on the PPSR.

  • the statutory defence contained in Section 588FG (1) of the Corporations Act 2001 (Cth) which is commonly known as the “good faith defence.” This defence is essentially that you were not aware that the company was insolvent at the time it made the payments to you. To succeed on this defence, the onus is on you to establish:

    i. that you had no reasonable grounds for suspecting that the company was insolvent or would become insolvent as a result of making the payment/s (i.e. the subjective test); and

    ii. a reasonable person in your circumstances would not have reasons to suspect the company was insolvent or would become insolvent (i.e. the objective test).

In addition, another defence that may be available is called the “Doctrine of Ultimate Effect.” In Beveridge v Whitton [2001] NSWCA 6 it was argued by a liquidator that an accountant’s audit of an insolvent company’s books, prior to that company being placed into liquidation, that the payment of those fees being the professional fees for the accountant constituted an unfair preference. In the NSW Court of Appeal, the Court determined that the payment of those fees was not an unfair preference because:

  1. the accountant only accepted the engagement to do the work on the proviso fees were paid speedily;
  2. the value of the services should be treated as the price charged for them;
  3. that it was not the case that the failure to show any quantifiable addition to turnover or inventory meant that the services supplied were without value, or that a payment made for them necessarily decreased the company’s assets; and
  4. the doctrine of ultimate effect does not depend on a transactions ability to improve or worsen a company’s position, but rather it was the ultimate effect of the transaction itself that is relevant.

This defence may be useful in circumstances where the company was insolvent, a liquidator can prove that you knew the company was insolvent and where the goods or services provided (that the payments were for) were of substantial benefit to the company.

It is important to remember that in circumstances of a demand made by a liquidator that these matters are often open to negotiation and the cost involved in defending litigation brought by a liquidator will often exceed a settlement amount which could have otherwise been arrived at had you instructed solicitors to negotiate and defend the claim on your behalf.

If you require further information regarding any of the defences available to a demand or proceedings bought in relation to a preference payment, you should contact Uther Webster & Evans.

18 June 2020

Powers of Attorney: The Golden Rule




Written by Robert O’Harae

Powers of Attorney: The Golden Rule

A Power of Attorney is a legal document that allows the person making the Power of Attorney (referred to as the principal) to nominate one or more persons (referred to as attorney or attorneys) to act on the principal’s behalf.

An Enduring Power of Attorney grants an attorney authority to manage the principal’s legal and financial affairs including buying and selling real estate, shares and other assets as well as operating the principal’s bank accounts and spending money on their behalf, even after the principal has lost the capacity to make financial decisions for themselves. Typically, a letter from the principal’s treating general practitioner or geriatrician should be obtained to confirm that the principal has lost capacity to manage their financial affairs and this can be a condition of the instrument being operable.

It is not surprising that with a position of such importance and trust, an attorney must only act only in the best interests of the principal. This means an attorney must:

  1. Avoid doing anything as an attorney which would mean that their own interests conflict with the principal’s interests;
  2. Obey the principal’s instructions while they are mentally capable and any directions set out in the Power of Attorney document;
  3. Act according to any limits or conditions placed on their authority within the Power of Attorney document;
  4. Not give gifts to themselves or to others, enabling them to benefit from the principal’s finances unless it is specifically authorised to do so. Even if authorised, any gift must be seen as reasonable in the circumstances;
  5. Keep their finances and money separate from the principal’s; and
  6. Keep accurate and proper records of their dealings with the principal’s finances or property.

The importance of these obligations were brought to light in the recent case of Case 662814 concerning Westpac Banking Corporation which came before the Australian Financial and Complaints Authority (AFCA).

In this instance an elderly person in their nineties opened a Westpac bank account and their daughter was added as a signatory to that account. In July 2019 (about 4 years after the account was opened) the elderly person and the daughter requested a withdrawal of $100,000 in cash. A few days after that request was made, the elderly person was admitted to hospital. On that occasion Westpac refused to provide the money to the daughter after her parent’s admission to hospital.

Shortly after Westpac declined the transaction, a Power of Attorney was made by the elderly person appointing their daughter as their attorney.

Using the Power of Attorney, the daughter sought to withdraw $800,000 from her parent’s Westpac account to purchase gold bullion. The daughter informed the bank that the gold was to be purchased in her sole name and not in the name of her parent, effectively transferring the value of the funds to the daughter.

Westpac again blocked the transaction and made direct enquiries with the parent, who when questioned by the bank seemed unsure, uncertain and lacked understanding of the requested transaction to purchase gold bullion.

Following Westpac’s blockage of the transfer, the daughter brought a complaint to AFCA who upheld the bank’s actions.

AFCA found that Westpac had a duty to exercise reasonable care and skill in carrying out transactions for its customer, particularly if the customer is vulnerable.

AFCA considered that the ninety-year-old bank account holder was vulnerable to potential elder and financial abuse by their daughter. Within its decision, AFCA advised noted that “financial firm employees may be in the best, and sometimes the only, position to recognise financial elder abuse when it occurs. Financial firm employees need to be encourage to trust their instincts”.

This case illustrates the importance for those considering making Power of Attorney of choosing the right attorney to appoint due to the importance of that appointment and the trust required within the role. Further, it highlights the diligence the employees of banks and other institutions should exercise when receiving instructions from an attorney under a Power of Attorney.

UWE advises on the preparation and implementation of Power of Attorneys as well as recovery against inappropriate transactions. Please contact us on (02) 9290 1177.

16 June 2020

Succession Act Release & Family Law Settlements




Written by Montana Messina.

Release of Family Provision Rights

Chapter 3 of the Succession Act 2006 (NSW) (“the Act”) enables defined classes of eligible persons, found at section 57 of the Act, to institute proceedings seeking a Family Provision Order out of the estate of a deceased person. Applying to the Court for such an Order seeks provision or further provision out of the deceased’s estate.

Pursuant to section 57 of the Act, a former spouse is an eligible person entitled to make a family provision claim on a deceased’s estate, regardless of any Family Court property orders or settlement, unless a release has been approved by the Supreme Court.

So despite going through a financial settlement under the Family Law Act 1975 (Cth) with the intention to sever the financial relationship between former spouses, if one spouse predeceases the other, the former spouse is entitled to make a claim on the deceased’s estate for provision.

However, pursuant to section 95 of the Act parties are able to release their rights to apply for a family provision order. Parties to family law financial settlements, are able to enter into a written agreement releasing each other from their right to make a claim under Chapter 3 of the Act. Prior to entering into such a deed, each party is required to seek independent legal advice as to the advantages and disadvantages of the release, which will only be effective on approval by the Supreme Court of NSW. An application for approval can be made at any time, and can be made by the executors of the deceased’s estate, if required.

A Court will consider all the circumstances and the following when determining an application for approval:

(a) it is or was, at the time any agreement to make the release was made, to the advantage, financially or otherwise, of the releasing party to make the release, and

(b) it is or was, at that time, prudent for the releasing party to make the release, and

(c) the provisions of any agreement to make the release are or were, at that time, fair and reasonable, and

(d) the releasing party has taken independent advice in relation to the release and, if so, has given due consideration to that advice.

Once approved, the release is binding on the parties in NSW. It is important to note that this release is only binding in NSW.

In Kelly v Kelly [2019] NSWSC 994, Hallen J articulated in some detail, the matters the Court will take into account when determining an application for approval of release under section 95.

While this is beneficial for parties who own assets in NSW, there is no equivalent in the other Australian states. Other states do not have an equivalent section to enable parties to release their rights. A section 95 release approved by the Supreme Court of NSW, would show an intention to release the estate from a Family Provision claim, however would not be binding on the Courts of other states.

In other states, you are not able to contract out of your rights to make a Family Provision claim on a former spouse’s deceased estate. It is an important consideration for parties who are going through family law settlements and who hold or intend to hold assets in other jurisdictions.

The disconnect between the states is due to family law being governed by federal law, while succession legislation is determined state by state.

Uther Webster and Evans has extensive expertise in both family law matters and succession and estate litigation. Please contact our offices to discuss your matter with our experienced family law and succession litigation team.

18 May 2020

Adapting in the face of COVID-19 Lockdown




 

UWE SMH extract 15 May 2020