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Dealing with claims by liquidators

Protecting yourself from voidable transaction claims

Background

The narrative begins with James, who was introduced as a former director of a company currently under liquidation. James found himself in a precarious legal battle with the liquidator of the company, who was suing him based on allegations of voidable transactions. Voidable are defined as payments the company had made to James during its operational period.

Need/Event

This situation traces back to a period four years prior, during the company’s operational phase when James was still serving as a director. Anticipating the need for financial safeguards at that time, the DAB Client Manager took the proactive step of referring James to DAB Legal. The purpose of this referral was to formalise a director’s loan account between James and the company and to ensure that James’s financial contributions to the company were legally protected. This foresight led to the creation of two critical documents: a Deed of Acknowledgment of Debt and Loan (Deed of Loan) and a General Security Deed (Security Deed).

The Deed of Loan was a formal acknowledgment of all funds James had previously advanced to the company. It also established a credit facility limit of $500,000 for any future funds James might provide.

This deed ensured that all past and future monies lent by James to the company were recognised under its terms and secured by the Security Deed.

The Security Deed, on the other hand, granted James a security interest in all present and future assets of the company. This interest was promptly registered on the Personal Property Securities Register within the statutory timeframe of 20 working days following the execution of the Security Deed, effectively securing James’s financial claims against the company.

DAB Solution

When the liquidation proceedings commenced, DAB Legal leveraged the Deed of Loan and the Security Deed to validate the majority of the payments made to James as legitimate repayments of the loans he had provided to the company. These documents served as a robust defence against the liquidator’s Business Advisory voidable transaction claims.

Furthermore, DAB Legal was able to enter into negotiations with the liquidator, which culminated in a settlement that was significantly favourable to James. He was required to pay only a fraction of the initial claim, corresponding to the portion of the payments that could not be substantiated as loan repayments.

Outcome

The foresight of the DAB Accountant in referring James to legal counsel during the company’s trading years proved to be invaluable. This early intervention enabled James to establish a strong legal position, which would have been considerably more challenging without the documented loan agreements. The DAB Client Manager’s knowledge of James’s financial dealings with the company, combined with the collaborative efforts of the DAB legal and accounting teams, allowed for a strategic response to the liquidation proceedings. They were able to identify and substantiate the transactions as repayments of the loan, providing James with a partial defence against the liquidator’s claims.

Consequently, James’s ordeal though challenging was mitigated by the proactive and protective measures taken early on. The collaboration between his accountants and legal counsel not only alleviated the potential stress and financial burden of the lawsuit but also underscored the importance of timely legal documentation in safeguarding one’s financial interests against future litigation risks.

Within the DAB Group our specialists formed a team to implement this unique solution for the client. See the solutions bar on the right to identify the DAB teams used to implement their solution.

Next Step

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Solution Team

DAB

Business Advisory

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Solutions Team

DAB Client Manager

DAB

Client Manager

DAB Accounting

DAB

Accounting

Solution Team

DAB Business Advisory

DAB

Business Advisor

DAB

Solutions Team

DAB Client Manager

DAB

Client Manager

DAB Accounting

DAB

Accounting