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the company is voidable or void in certain circumstances. 41 The avoidance of these
transactions boosts the company‘s assets and will increase the likelihood of the
creditors getting payment.
These undertakings can generally be divided into two categories; preferences and
fraudulent conveyances. 42 The transaction, regardless of its motive, is also known as
unjust enrichment because by disposing or transferring assets in favour of one
creditor, the debtor company is, in fact, depriving other creditors of their chances of
being paid. The situation of 'robbing Peter to pay Paul' 43 is deemed unfair, since it
causes one creditor to be paid ahead of others instead of ranking equally among
them. The liquidator can apply for a declaration whether it takes place motivated by
kindness, sense of duty or some fraudulent intent, unless the transfer is made due to
threat from the creditor. 44 The effect of making such a transaction is that it gives an
advantage to the creditor on whom the settlement is made to receive payments ahead
of other creditors. The courts also have the power to set aside a charge over any
property or undertaking of a company given within a specific time. 45 The effect of
voidable charges is to increase the pool of assets available to general creditors
because the secured creditor could no longer enforce them.
41 See Section 294 of the New Zealand Companies Act 1993; Section 293 of the Malaysian
Companies Act 1965, section 245 of the UK Insolvency Act 1986; and section 588FJ of the
Australian Corporations Act 2001.
42 Andrew Keay Avoidance Provisions in Insolvency Law (LBC information Services, NSW,1997) at
33-35.
43 John Farrar ‗The Bankruptcy of the Law of Fraudulent Preference‘ (1983) JBL 390 at 390.
44 Ibid.
45 See section 293 of the New Zealand Companies Act 1993.
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