Can You Transfer Assets to Avoid Creditors? Voidable Transactions in NSW

When money is tight or a claim looms, some people consider transferring their home or other assets to a spouse, relative or company. The law anticipates this, and a transfer made at the wrong time can be reversed and may lead to further problems. This article explains the risks in general terms.

Transfers that can be set aside

• Section 37A, Conveyancing Act 1919 (NSW): a disposition of property made with intent to defraud a creditor can be set aside, unless it was made for valuable consideration to someone who acted in good faith.
• Bankruptcy Act 1966 (Cth): a trustee in bankruptcy may be able to void transfers for no or inadequate consideration made before bankruptcy (section 120), and transfers made mainly to prevent property being available to creditors (section 121).
• Corporations Act 2001 (Cth): a liquidator can challenge insolvent transactions, including unfair preferences, uncommercial transactions and transactions made to defeat creditors (section 588FE), which have different look-back periods.
• Family Law Act 1975 (Cth): section 106B allows a court to set aside certain dispositions made to defeat a person's claim in family law proceedings.

What can happen

If a transfer is set aside, the asset is returned or its value recovered. The person who received it may be drawn into the dispute and legal costs can multiply. In some cases there can be offences, for example in connection with a bankruptcy, and directors may face personal consequences.

Better approaches

• Speak to a lawyer early, before a demand, claim or default.
• Negotiate with creditors, for example a payment plan or a settlement.
• Consider formal options such as a debt agreement or a restructure with proper advice.
• Put structures in place when you are solvent and have no known claims, not once trouble arises.

Frequently asked questions

Is selling my house to a family member at market value safe?

Not necessarily. Even a sale can be questioned if the circumstances suggest an intention to defeat creditors, or if the price was not real.

How far back can a transfer be reviewed?

It depends on the law and the facts. Some provisions look back a few years, and others have no fixed limit where the purpose was to defeat creditors.

What should I do if I am worried about a claim?

Get legal advice promptly and do not move assets in the meantime without advice.