A creditor has successfully defended an unfair preference claim in the recent case of Heavy Plant Leasing [2018] NSWSC 707 by arguing they did not have reasonable grounds to suspect the insolvency of a subcontractor. Unfair preference claims occur where a creditor has been given an advantage over other creditors by receiving payment for their outstanding liabilities in circumstances where they knew, or ought to have known, that the company was insolvent. But s588FG(2) of the Corporations Act 2001 provides a defence to such a claim if a creditor could not have reasonably suspected that the business was insolvent.

In this case, the defendant argued that the nature of the construction business meant late payments were not enough of an indication that that the subcontractor might be facing insolvency. The court agreed with the defendant and noted that in the construction industry late payments are a common issue, as subcontractors are often reliant on progress payments from head contractors for cash flow.

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