Part 1: Statements of Claims and Preference Claims

Litigation, especially defence litigation, is a stressful time for clients. There are time pressures and it can be costly. Clients regularly say to me “its not fair”. And it often isn’t. This is where accountants can step in and help the process.

Many accountants will have long relationships with their clients and know their financial affairs better than anyone.  When lawyers and accountants work together it helps to build client trust and can decrease unnecessary legal fees.  Moreover, accountants might be the client’s registered address and the documents will be served on their offices.  As the first point of contact and trusted advisor, accountants are often an underutilised resource in defence litigation.

Claim and statement of claim

Claims and statements of claim (“SOC”) are court documents that initiate legal proceedings. Corporations can be served at their registered office so these will often come to the attention of the accountant first.[1] 

Generally, there are 28 days to file a notice of intention to defend  and defence (“NOITD and Defence”) to a claim and SOC.[2]  Failure to file a NOITD and Defence within the 28 days puts the plaintiff in a position to be able to file for default judgment.[3]  That is, they can get judgment without any material being seen by the court from the defendant/s and without a hearing.  Default judgments can be set aside but this is very rare.

Once judgment has been entered (default or otherwise) the plaintiff can then enforce the judgment. 

Given the time sensitive nature of responding to a Claim and SOC it can be very useful when an accountant works with the lawyer.

What can an accountant do to help?

  1. Record the date and time that you receive the documents;
  2. Call Rouse Lawyers! Send me a copy of the Claim and SOC;
  3. Work through the Claim and SOC with the client; and
  4. Get together any documents that you have that are referred to in the Claim and SOC.

Preference defence

A common claim by liquidators is a ‘preference claim’.  Put simply, a preference claim will exist where:

  1. There is a debtor/creditor relationship between the creditor and the company;
  2. There is a “transaction” to which the creditor and company are parties (“the Transaction”);[4]
  3. The Transaction occurred within six months prior to the relation back day or after the relation back day but before the day when the winding up began; [5]
  4. The company was insolvent at the time of the Transaction or the Transaction caused the company’s insolvency; and
  5. The Transaction would result in the creditor receiving more from the company than the creditor would otherwise have received in respect of the debt if the transaction were set aside and the creditor were to prove for the debt in a winding up of the company.[6] 

Running account

A preference claim may be reduced (in part or whole) if a ‘running account’ exists.  A running account can be established where:

  1. Payments were made as part of a continuing business relationship; and
  2. In the course of that relationship the companies’ indebtedness to the creditor rose and fell from time to time as the result of a series of transactions. [7]

Accountants can assist their clients by helping compile a ledger of transactions and examining the running account with us to formulate a potential defence. 

We were recently provided with a very useful ledger of transactions which helped formulate the client’s defence; potentially reducing the claim against them from approximately $150,000 to nothing.  Moreover, the client saved significant costs when responding to a request for further information as we were able to simply extract the same from the ledger.

Good faith

A common defence is known as the ‘good faith defence’.  A creditor may establish a good faith defence if, at the time the Transaction occurred:

  1. The creditor acted in good faith;
  2. The creditor had no reasonable grounds for suspecting that the company was insolvent or would become insolvent; and
  3. A reasonable person in the creditor’s circumstances would have had no reasonable grounds for suspecting the company was insolvent.[8]

Like the running account defence, accountants can help mutual clients gather evidence that may establish a good faith defence by helping them compile ledgers of payments made by the company and emails or other correspondence to and from the company which show the client was innocent in the circumstances.

Please do not hesitate to call us if you or your client has been issued with proceedings or is involved in preference matter.

  1. s 109X of the Corporations Act 2001 (Cth).
  2. r 129 of the Uniform Civil Procedure Rules 1999 (Qld).
  3. Chapter 9, Part 1 of the Uniform Civil Procedure Rules 1999 (Qld).
  4. s 588FA(1)(a) of the Corporations Act 2001 (Cth). 
  5. s 588FE(2) of the Corporations Act 2001 (Cth). 
  6. s 588FA(1)(b) of the Corporations Act 2001 (Cth).
  7. s588FA of the Corporations Act 2001 (Cth).
  8. s 588FG of the Corporations Act 2001 (Cth). 

By Stephanie Forward

Need advice? Talk to the Team at Rouse Lawyers. Contact us today!

NOTE: This article is for general information only and should not be relied upon without first seeking advice from one of our specialist solicitors.