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Preference Claims

2 Minute Read
Written by Paul Miller
22 May 2019

Preference claims seem specifically designed to torment efficient credit managers!

You discover that one of your customers may be having problems and immediately set about chasing up any overdue or outstanding amounts, only to have a liquidator force you to hand over the results of your efforts

While you may believe you worked hard to get money paid, a liquidator will simply see you as having been ‘favoured’ by your insolvent customer and in receipt of payments that preferred you over other creditors.  Under s588FA of the Corporations Act, the Liquidator is entitled to recover those payments with a view to redistributing them ‘fairly’ amongst all the insolvent company’s creditors.

Thus, no matter how efficient or insightful a credit management process might be, one letter from a Liquidator can undo days/weeks of hard work. Returning payments to a liquidator need not be a foregone conclusion! There are some defences that can be employed, with the right support, cover and security which can minimise any claim.

It is important any preference claim letters suppliers receive from liquidators are not pushed to one side but acted upon quickly and involve early discussion with NCI and your insurer.

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