Commonwealth Consolidated Acts

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BANKRUPTCY ACT 1966 - SECT 122

Avoidance of preferences

             (1)  A transfer of property by a person who is insolvent (the debtor ) in favour of a creditor is void against the trustee in the debtor's bankruptcy if the transfer:

                     (a)  had the effect of giving the creditor a preference, priority or advantage over other creditors; and

                     (b)  was made in the period that relates to the debtor, as indicated in the following table.

 

Periods during which transfers of property may be void

 

Description of petition leading to debtor's bankruptcy

Period during which the transfer was made

1

Creditor's petition

Period beginning 6 months before the presentation of the petition and ending immediately before the date of the bankruptcy of the debtor

2

Debtor's petition presented when at least one creditor's petition was pending against a petitioning debtor or a member of a partnership against which the debtor's petition was presented

Period beginning on the commencement of the debtor's bankruptcy and ending immediately before the date of the bankruptcy of the debtor

3

Debtor's petition presented in any other circumstances

Period beginning 6 months before the presentation of the petition and ending immediately before the date of the bankruptcy of the debtor

          (1A)  Subsection (1) applies in relation to a transfer of property by the debtor in favour of a creditor:

                     (a)  whether or not the liability of the debtor to the creditor is his or her separate liability or is a liability with another person or other persons jointly; and

                     (b)  whether or not the property transferred is the debtor's own property or is the property of the debtor and one or more other persons.

             (2)  Nothing in this section affects:

                     (a)  the rights of a purchaser, payee or encumbrancer in the ordinary course of business who acted in good faith and who gave consideration at least as valuable as the market value of the property; or

                     (b)  the rights of a person who is making title through or under a creditor of the debtor in good faith and who gave consideration at least as valuable as the market value of the property; or

                     (c)  a conveyance, transfer, charge, payment or obligation of the debtor executed, made or incurred under or in pursuance of a maintenance agreement or maintenance order; or

                     (d)  a transfer of property under a debt agreement.

             (3)  The burden of proving the matters referred to in subsection (2) lies upon the person claiming to have the benefit of that subsection.

             (4)  For the purposes of this section:

                     (a)  a transfer of property is taken to have been made in favour of a creditor if it is made in favour of a person in trust for the creditor; and

                     (b)  a payment of tax, or of any other amount payable to the Commonwealth, or to the Commissioner of Taxation, under or because of an Act of which the Commissioner has the general administration, is taken to be made for consideration equal in value to the payment and in the ordinary course of business; and

                     (c)  a creditor shall be deemed not to be a purchaser, payee or encumbrancer in good faith if the transfer of property was made under such circumstances as to lead to the inference that the creditor knew, or had reason to suspect:

                              (i)  that the debtor was unable to pay his or her debts as they became due from his or her own money; and

                             (ii)  that the effect of the transfer would be to give him or her a preference, priority or advantage over other creditors.

          (4A)  A reference in this section (other than subsection (5)) to a creditor of the debtor shall be read as including a reference to a person who would be a creditor of the debtor in relation to a contract, agreement, transaction or other dealing if the contract, agreement, transaction or other dealing were not, in whole or in part, void or unenforceable, or had not been voided in whole or in part, by or under a law of the Commonwealth or of a State or Territory of the Commonwealth.

             (5)  If a transfer of property is set aside by the trustee in a bankruptcy as a result of this section, the creditor to whom the property was transferred may prove in the bankruptcy as if the transfer had not been made.

             (7)  In this section:

"tax" means tax (however described) payable under a law of the Commonwealth or of a State or Territory, and includes, for example, a levy, a charge, and municipal or other rates.

             (8)  For the purposes of this section:

                     (a)  transfer of property includes a payment of money; and

                     (b)  a person who does something that results in another person becoming the owner of property that did not previously exist is taken to have transferred the property to the other person; and

                     (c)  the market value of property transferred is its market value at the time of the transfer.



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