Uncommercial transactions (in the context of company liquidation)

Uncommercial transactions are ‘insolvent transactions’, which, if entered into during a period two years prior to the relation back day (or four years if a related entity is a party) they are voidable transactions.

The purpose of classifying and clawing back uncommercial transactions is to prevent and rectify transactions that involve clear inequality of exchange.

An uncommercial transaction is defined under section 588FB of the Corporations Act 2001 (Cth):

“A transaction of a company is an uncommercial transaction of the company if, and only if, it may be expected that a reasonable person in the company’s circumstances would not have entered into the transaction having regard to:

(a) the benefits (if any) to the company of entering into the transaction; and
(b) the detriment to the company of entering into the transaction; and
(c) the respective benefits to other parties to the transaction of entering into it; and
(d) any other relevant matter”

This section applies where:

• A gift of property is given for no consideration
• Property is sold at an amount below market value
• An agreement to pay far greater than market value for property or services is brokered

The existence of uncommercial transactions is relevant where an insolvent company is being wound up, as they may be subject to claw back provisions where a liquidator, voluntary administrator, or receiver has been appointed.