What are liquidators looking for, and why?
A liquidator must investigate the company’s affairs, gather its property and distribute it to creditors. Section 477 of the Corporations Act 2001 (Cth) lets them sue, compromise claims and appoint lawyers.
Funding comes from creditors, who can be given priority for the risk (s 564), litigation funders, or ASIC’s Assetless Administration Fund, explained here.
Typical claims are insolvent trading and breach of duty against directors and, sometimes, advisers. Others are voidable transactions, including unfair preferences, director loan accounts, and recovery of company property and books (s 483).
What is a public examination, and do I have to attend?
A public examination is a court hearing where a person answers questions on oath about the company’s affairs. A liquidator, administrator or ASIC can apply.
The court must summon anyone who was an officer in the two years before the winding up or administration began (s 596A). It may summon anyone else who may have information or been involved in misconduct (s 596B). The summons can require production of books (s 596D).
Failing to attend, or refusing to answer without reasonable excuse, is an offence (s 597(6), (7)). You cannot refuse because an answer might incriminate you (s 597(12)). If you claim privilege before answering, the answer cannot be used against you in criminal or penalty proceedings (s 597(12A)).
You may have a lawyer present (s 597(16)). Prepare from the books and take advice on privilege first.
Which transactions can a liquidator unwind?
Beyond unfair preferences, s 588FE makes several transactions voidable, and the court can order money, property or benefits returned (s 588FF).
Uncommercial transactions (s 588FB). A transaction is uncommercial if a reasonable person in the company’s circumstances would not have entered into it. The company must also have been insolvent. The period is two years before the relation-back day, or four years if a related entity such as a director is a party. It is ten years if the aim was to defeat creditors (s 588FE(3)–(5)).
Unfair loans (s 588FD). Loans to the company at extortionate interest or charges are voidable whenever made (s 588FE(6)).
Unreasonable director-related transactions (s 588FDA). Payments or transfers to a director, a relative or someone acting for them that a reasonable company would not have made. Insolvency is not required, and the period is four years (s 588FE(6A)). Reducing a director’s guarantee exposure was a benefit in CEG Direct Securities Pty Ltd v Cooper [2025] FCAFC 47.
Creditor-defeating dispositions (s 588FDB). Transfers for less than market value that put property beyond creditors’ reach. They are voidable if made while insolvent in the 12 months before the relation-back day, or if external administration followed within 12 months (s 588FE(6B)). ASIC can order property returned without court proceedings (s 588FGAA). Officers and advisers who cause or encourage them face penalties (ss 588GAB, 588GAC).
Good faith, no reasonable grounds to suspect insolvency and valuable consideration give a defence (s 588FG(2)), except for unfair loans and director-related transactions. Proceedings must start within three years after the relation-back day, or 12 months after the first liquidator’s appointment, whichever is later. The court can extend this (s 588FF(3)).
Can a liquidator demand repayment of my director loan account?
Yes. Money drawn from the company and recorded as a loan is a debt the liquidator can sue for.
Loans to shareholders or their associates may also be deemed unfranked dividends under Division 7A of the Income Tax Assessment Act 1936 (Cth). Tax advice is often needed.
First check the account. Entries recorded as loans may have been wages, reimbursed expenses or properly declared dividends. Amounts the company owes you can be set off under s 553C, unless you had notice of insolvency when credit was given or received (s 553C(2)). Set-off is not available against an unfair preference claim, and the same reasoning is likely to apply to other voidable transaction claims: Metal Manufactures Pty Limited v Morton [2023] HCA 1, discussed here.
What should you do if you receive a liquidator’s letter or examination summons?
A letter of demand usually starts a negotiation. Liquidators weigh cost, funding and your capacity to pay against the claim’s strength.
- Diarise the response and court dates and do not ignore them.
- We strongly recommend you take legal prior to giving any explanations, documents or making admissions.
- Ask for the evidence of insolvency, the relation-back day and the basis of each figure.
- Gather bank statements, loan ledgers, minutes, contracts and advice you relied on.
- Notify any D&O insurer before responding on the merits.
- Consider a without-prejudice offer. Larger settlements need court, committee or creditor approval (s 477(2A)).
How Taylor David can help
We act in Brisbane for directors, related parties, suppliers, advisers, liquidators and administrators. We can:
- respond to a liquidator’s or administrator’s demand, then negotiate or defend
- represent examinees in the Supreme Court of Queensland and Federal Court
- act for liquidators and administrators bringing claims and conducting public examinations.
This work sits within our insolvency and litigation practices.