Intention to delay or defeat creditors

Transfers made by a someone who has later become bankrupt with the intent to delay or defeat the claims of creditors will be declared void.

This is legislated for in the Bankruptcy Act 1966 (Cth) section 121, which states that a transfer will be void if “the transferor’s main purpose in making the transfer was:

(i) to prevent the transferred property from becoming divisible among the tranferor’s creditors; or
(ii) to hinder or delay the process of making property available for division among the creditors.”

Once a transaction is declared void, it may be clawed back by the trustee in bankruptcy to ensure the equitable distribution of funds amongst creditors.

However, if it can be proved that the transferee acted in good faith, the transfer may not be clawed back.