Does buying a 100-5 claim open you up to being sued for an unfair preference yourself?

If you purchase an unfair preference claim from a liquidator of Company A (per 100-5), and the defendant you eventually sue (Company B) goes into liquidation, can the liquidator of Company B sue you for an unfair preference?

I favour the view that they can’t, but it’s a grey area.

Back in March 2017, the Commonwealth Government opened up the buying and selling of unfair preferences and other voidable transactions from liquidators and bankruptcy trustees.

This can be big business if you know where to look and treat the claims as a form of commodity.

Ordinarily (assuming no sale), if the liquidator of Company A was to sue Company B for an unfair preference, Company B’s liquidator couldn’t sue the liquidator of Company A.

Why (inter alia)?

* there is no debtor/creditor relationship, which is a fundamental element of an unfair preference claim

* subject to court order, the liquidator would be barred by s471B of the Corporations Act

* pursuant to s588FF(1)(a), the money recoverable from a successful unfair preference claim is payable to Company A (not the liquidator). Therefore, at best, the liquidator of Company B could only prove in the liquidation of Company A as a creditor.

But what if you purchase them?

Again, I don’t think a debtor/creditor relationship can be said to exist; as there is no transaction. It’s in the name – “voidable transaction”.

What do you think: a serious risk or not?

#SVVoidables

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