Question
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13 April 2018

When the claws come out

Companies, Trusts, Partnerships & Superannuation
Federal

Asked

Bankruptcy - Voidable transactions

A husband and wife jointly own an investment property. In the business dealings of the husband, the wife was required to provide a personal guarantee on his behalf. If we do a deed between husband and wife whereby the husband transfers to the wife his half share in the investment property, showing the personal guarantee as consideration, will the transfer be able to be clawed back in the event of the bankruptcy of the husband?

Answered

Thank you for the question

The following is the relevant extract from our Bankruptcy Guide, with reference to the relevant provisions of the Bankruptcy Act 1966 against which the facts can be assessed.

Past transactions voidable by the trustee in bankruptcy

Transactions that may be void against the trustee are:

Transaction at an undervalue: s 120

  • A transfer at an undervalue whether or not the transferor was solvent at the time of transfer in the 2 year period prior to presentation of the petition can be set aside under s 120.
  • A transfer at an undervalue to a related entity whether or not the transferor was solvent at the time of transfer in the 4 year period prior to presentation of the petition can be set aside under s 120.
  • Any transfer at an undervalue in the 5 year period prior to presentation of the petition whilst insolvent can be set aside under s 120.

Transfers to defeat creditors: s 121

  • A transfer to defeat creditors can be set aside no matter how long ago it took place under s 121. The trustee must establish that the main purpose of the transfer was to prevent hinder or delay the transferred property from becoming available to creditors at some future date.

Preferences: s 122

  • A preference payment to a creditor can be set aside under s 122 if it occurred in the 6 month period before the presentation of the petition.

These transactions are not in themselves void but only voidable by the trustee on application to set them aside to the extent of the trustee’s interest.

Regards

Mentor