Transferring Assets to Avoid Creditors

Under section 37A of the Conveyancing Act 1919 any transfer of property with the intention to defraud creditors can be retrieved by the courts. The section does not apply when a transaction is made in good faith and does not have the intention to defraud creditors at the time of transfer. An example would be a transfer under a contract for sale of a property.

The High Court decision of Marcolongo v Chen [2011] provides direction for those seeking to challenge a transfer under section 37A.  Mr Chen acted in a representative capacity for the company that owned the property. Mr Chen pushed the company to transfer the property to himself to avoid Mrs Marcolongo’s claim.

The High Court decided that the transfer was caught by section 37A because the transfer was intended to defraud Mrs Marcolongo.

Importantly, the High Court interpreted the reference “intention to defraud” to include hindering or delaying creditors. It was also stated that the intention to defraud need not be the sole or dominant intention. This interpretation was later applied by the Supreme Court of NSW in the case of Bechara v Haratsaris [2013] and it is therefore important to check if a contract could be reversed by the courts in instances where there may be an third party contract dispute for instances such as selling or buying a property.

The interpretation of section 37A provides further guidance for parties seeking to challenge a transfer under the provision.

If you would to discuss these cases further, you should contact a lawyer in our property team at MatthewsFolbigg on 9635 7966.

Anna Zdrilic

Director, Property and Commercial Groups

Phone:  02 9806 7461

Email:  annaz@matthewsfolbigg.com.au

DISCLAIMER: This article is provided to clients and readers for their general information and on a complimentary basis. It contains a brief summary only and should not be relied upon or used as definitive or complete statement of the relevant law.