It often doesn’t come as a shock to a person when they are made bankrupt. A period of financial difficulty usually precedes bankruptcy. During that period, in some instances, the person has undertaken steps to dispose of their assets just before they are declared bankrupt.

In some circumstances, the trustee appointed to manage the bankrupt’s financial affairs can recover those pre-bankruptcy assets from people who received them. The Bankruptcy Act governs this action, also known as a ‘claw-back’.

Why A ‘claw-back’ Provision?

The rationale behind the ‘claw-back’ provisions is straightforward. A person who received full payment before the individual declared bankruptcy should not be at an advantage to someone who received payment after (and who may only receive part of his or her entitlement).

When Can a Trustee ‘claw-back’ a Transaction?

The trustee cannot ‘claw-back’ every transaction. It is dependent on several factors, including:

  • Did the person transferring the asset do so in good faith?
  • What was the bankrupt’s solvency when the transaction occurred?
  • Was the transaction made for less than market value?
  • Were the transactions undertaken with intent to defeat creditors?
  • Were the payments ‘preference payments’? That is, do the transactions result in a party receiving a preference over the remaining unsecured creditors?
  • When were the transactions made? There are different time limits for claw-backs.

Defending Payments Received From a Claw-Back

If you have received a payment from a bankrupt, you may now be asking whether you can defend these payments. Can the trustee claw-back everything? In short, yes and no.

For creditors who received pre-bankruptcy payments, they can, fortunately, rely on several available defences. For instance, if you received the payment in good faith, without notice or suspicion of the insolvency of the other party.

You will need to show the trustee, or potentially a Court if the trustee commences proceedings to claw-back the money, that you had no suspicion that the other party was in financial difficulty. What the trustee will look out for to try and prove that you had knowledge include:

  • Defaulted payments;
  • Requests for extended payment terms;
  • Dishonoured cheques;
  • Instalment payments;
  • Payments of round numbers rather than payment of the actual invoice amount.

Of course, there are other ways that you can ‘promote’ yourself ahead of other creditors and avoid a possible claw-back. But this must be done before the bankruptcy. Where possible, you can try to secure your right to payment through a registered dealing on land and assets.


If you receive a claim from the trustee to repay some (or all) of the money you received via a bankrupt, you should seek immediate assistance from a lawyer. LegalVision’s specialist commercial lawyers can assist you, and answer any questions you may have. Get in touch with us on 1300 544 755.

About LegalVision: LegalVision is a tech-driven, full-service commercial law firm that uses technology to deliver a faster, better quality and more cost-effective client experience.
Emma George

Get a Free Quote Now

If you would like to receive a free fixed-fee quote or get in touch with our team, fill out the form below.

  • We will be in touch shortly with a quote. By submitting this form, you agree to receive emails from LegalVision and can unsubscribe at any time. See our full Privacy Policy.
  • This field is for validation purposes and should be left unchanged.

Privacy Policy Snapshot

We collect and store information about you. Let us explain why we do this.

What information do you collect?

We collect a range of data about you, including your contact details, legal issues and data on how you use our website.

How do you collect information?

We collect information over the phone, by email and through our website.

What do you do with this information?

We store and use your information to deliver you better legal services. This mostly involves communicating with you, marketing to you and occasionally sharing your information with our partners.

How do I contact you?

You can always see what data you’ve stored with us.

Questions, comments or complaints? Reach out on 1300 544 755 or email us at

View Privacy Policy