Category Archives: Our Experience


Let’s start with the theory

The reason that the unfair preference provisions exist is to ensure that all unsecured creditors of an insolvent company are treated equally.

On that basis, any person who received a payment in the six months prior to the liquidation of a customer, must pay that money back to the liquidator. The liquidator then pays dividends to all creditors such that they all receive the same proportionate amount.

The main defence to an unfair preference claim is that the payment was made at a time when you did not know or suspect your customer was insolvent or no reasonable person in your position would have known or suspected.

And now the reality

The reality is that dividends from insolvent companies are rare and if paid, are not large. It is quite difficult to make out the defence about knowledge or suspicion of insolvency and the unfair preference provisions punish the diligent credit manager, who does everything they can to ensure that payment is made.

So, what steps can be taken to avoid an unfair preference if you have concerns a customer is insolvent?

If you have a personal guarantee of a customer’s debt – use it. Insist that payment be made by the guarantor – not from your potentially insolvent customer. You will then be able to argue that you did not receive a preference because you received payment from the guarantor. You should ensure that payment – and this part is very important – is made pursuant to the guarantor’s liability not the customer’s liability. There are several techniques you can undertake to ensure that you are protected in that regard.

Terms and conditions of your guarantee

If you obtain personal guarantees from directors of companies, it is vital that they are as effective as possible. This includes clauses allowing you to sue the guarantor for any amounts that you are obliged to pay a liquidator for an unfair preference.

Certain terms and conditions are a lot more effective than others in this regard.

If you receive a letter of demand

  1. Check that you have actually received an unfair preference. Liquidators often claim all payments that have been made in the prior six-month period are unfair preferences. You may be also able to reduce or eliminate the amount of the preference by the supplies that you have made during that time;
  2. Check whether your terms and conditions allow you to recover an unfair preference claim from a guarantor and if not, why don’t they?
  3. Unfair preferences only apply to payments from a customer whose debt is unsecured. I have seen a number of instances where clients assumed that they did not have a security because they had not realised their terms and conditions did provide a security. Alternatively, they assumed because they had not registered the security on the PPSR, that the security was of no value. In such situations, we have been able to write to the liquidator noting that the client was secured at all times and was therefore not liable to pay the unfair preference.

Careful review of your terms and conditions and your guarantee will provide protection from many, if not all unfair preference claims.

Need specialist insolvency advice? Contact Mark Harrick on (03) 9670 2266 or

Changes to the Privacy Act

Changes to the Privacy Act – the provision of goods on credit

Increased compliance obligations for SME’s that provide credit, including to commercial customers

As of 12 March 2014, The Privacy Amendment (Enhancing Privacy Protection) Act 2012 (“the Act”) commenced, with the expanded definition of credit provider now applying to a number of businesses that may have been previously excluded from the old provisions.

In the past, businesses may have been excluded from the definition of credit provider based on their legal structure, or if turnover was less than $3 million, or the type of credit that was offered (commercial credit as opposed to consumer credit).

The Act now applies to businesses that provide credit, regardless of turnover, if that business meets the definition of a ‘credit provider’ under the Act or regulations. The definition now includes credit providers that provide exclusively commercial credit (and do not provide any consumer credit).

New definition of ‘credit provider’

In summary, the definition of ‘credit provider’ under s 6G of the Act covers banks, organisations or small business operators for whom a substantial part of their business is the provision of credit, retailers who provide credit cards to customers, businesses that are prescribed as credit providers by the regulations, and further includes businesses that provide goods and/or services, and where payment for those goods and/or services is deferred for at least 7 days.

Substantial part of the business or undertaking is the provision of credit

Under the new law, there are two ways in which certain businesses may meet the definition of credit provider. The business may elect to meet the definition of credit provider under the Act if “a substantial part of the business or undertaking (of the business) is the provision of credit.” Alternatively, the business may be prescribed to be a credit provider by the Act or the regulations. Where the business elects to be a ‘credit provider’ under the Act, it is also an APP entity and must adhere to the Australian Privacy Principles. However, if the business is prescribed to be a ‘credit provider’ under the Act, the Australian Privacy Principles apply, but only in relation to the credit that it provides.

Australian Privacy Principles

The Australian Privacy Principles set out how businesses should collect, use and disclose personal information of individuals, and the individual’s rights to their personal information that is held or managed by the business. More on the APPs can be found in a separate Harricks’ briefing on this topic.

 New definition of credit

The Amended Act deletes the definitions of loan and credit from s 6(1) and all references to loan from the relevant sections. The following definition of creditis inserted at s 6M(1) and (3) of the Amended Act:

(1) Credit is a contract, arrangement or understanding under which:

(a)              payment of a debt owed by one person to another person is deferred; or

(b)              one person incurs a debt to another person and defers the payment of the debt.


(3) Without limiting subsection (1), credit includes:

(a)              a hire-purchase agreement; and

(b)              a contract, arrangement or understanding of a kind referred to in that subsection that is for the hire, lease or rental of goods, or for the supply of services, other than a contract, arrangement or understanding under which:

(i)                full payment is made before, or at the same time as, the goods or services are provided; and

(ii)              in the case of goods—an amount greater than, or equal to, the value of the goods is paid as a deposit for the return of the goods.

 Compliance obligations upon credit providers

The Act requires compliance by credit providers in relation to the collection, use and disclosure of credit information and credit eligibility information. These provisions apply in addition to, and in some cases, in place of the Australian Privacy Principles.

Credit providers under the Act must have a transparent management policy for the credit information and credit eligibility information that they handle, and it must be available in a form that is accessible. In most cases, publishing the policy on the website of a business that is a credit provider will be sufficient. Credit providers must also advise as to the name and contact information of any credit reporting body to whom the credit provider is likely to disclose credit information or credit eligibility information, and must advise if the information is likely to be provided to an entity outside Australia.

Credit providers may also be required to join an accredited External Dispute Resolution Scheme.

If you have any queries or require any assistance with regards to the Privacy Act please do not hesitate to contact Harrick Lawyers on (03) 9670 2266.


Our Experience

Starting, merging or acquiring a business

Making business agreements
– Drawn up General Security Agreements in compliance with the Personal Properties Securities Act to secure amounts outstanding
– Drafted Terms and Conditions ensuring coverage of the Australian Consumer Law, Privacy Act and the Personal Properties Securities Act
– Prepared various shareholder and partnership agreements to avoid litigation
Collecting debts
– Successfully recovered debt in excess of $1 million dollars for client in complex litigation and allegation of supply of defective products
– Acted on behalf of various trustees and liquidators assisting with the recovery of small to large preference payments
Resolving disputes
– Acted for property developer in respect of retail tenancy and shareholder issues
– Acted for architectural firm in respect of disputes relating to shareholder and employment issues
– Resolved retention of title claim by client with a security interest under the PPSA?
– Defended Supreme Court proceedings commenced in the Supreme Court of Victoria for relief for oppressive conduct of affairs
– Recovered in excess of $3m for a public authority
Managing insolvency or bankruptcy
– Resolved $1 million trading whilst insolvent claim for $150,000
– Assisted directors with an insolvent company including advice re personal liability for personal guarantees, outstanding tax debts and trading whilst insolvent and assisted in having the company placed into voluntary administration
Selling or closing a business
– Drafted and negotiated execution of a sale of a partnership agreement for sale of shares in a retail business to the remaining partners
– Acted on behalf of a food supplier in the sale of business valued in excess of $4 million