Section 553C of the Corporations Act 2001 (Cth) provides that where there have been mutual credits, debts or other mutual dealings between a company that is being wound up and a creditor looking to have their claim admitted in the winding up, account must be taken of what each party owes the other. In other words, those sums must be ‘set-off’ against each other and only the balance will be payable to the company. However, the section also provides that a set-off is not available if the creditor has notice of the insolvency of the company.

The recent case of Morton As Liquidator Of MJ Woodman Electrical Contractors Pty Ltd (In Liquidation) v Metal Manufacturers Pty Limitedin the Full Court of the Federal court held that the defence of set-off is not available to a defendant of a liquidator’s claim for the recovery of an unfair preference.

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