The recent decision of the High Court in Charles R Thomas & Associates Ltd v Oorschotconfirms the vulnerability of payments received in response to demands.
Charles R Thomas & Associates (CRT) served a statutory demand on the debtor company which, in response, agreed to pay the debt in two equal
amounts. The first payment was made and the following month the debtor
company was put into liquidation. The liquidator issued a notice setting aside the payment received by CRT as a voidable transaction. CRT argued that the payment should not be set aside on the basis that it was made in the ordinary course of business. The High Court in upholding the liquidator's notice setting aside the payment noted that:
CRT had frequently telephoned the debtor requesting payment the debtor had made numerous promises to pay, which were not kept, and CRT had instructed its solicitors to demand payment and had issued a
statutory demand.While none of these features alone took the payment outside the ordinary
course of business, together they were enough for the Court to find that the payment was made outside the ordinary course of business.
While this case suggests that a creditor who is proactive in recovering its
debts may be penalised if the company goes into liquidation, it is still the case that it is better to recover a debt and hope for the best on liquidation than not to recover the debt at all. A payment in the hand is still better than a debt in the books!
This article is intended as a first point of reference and should not be relied on as a substitute for professional advice. Specialist legal advice should always be sought in relation to any particular circumstances and no liability will be accepted for any losses incurred by those relying solely
on this article.
Copyright Phillips Fox, November 2001
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