Section 228 of the Property Law Act 1974 (Qld) (“PLA”) provides a powerful mechanism for insolvency practitioners (and others) to recovery and secure property improperly transferred where there is an intention of defeating creditors.

This article explores the practical application of section 228(1), together with the defence provided for under section 228(3).

Judicial Interpretation of Section 228

Section 228(1) of the Property Law Act 1974 (Qld) provides for:-

‘every alienation of property, made whether before or after the commencement of this Act, with intent to defraud creditors, shall be voidable, at the instance of any person prejudiced by the alienation of property.’

What this means in practice is that anyone negatively impacted by a transfer or disposition of property which was done with the intent to deprive creditors of the benefit of that property, may apply to the Court to have the transfer or disposition voided.

Put another way, someone impacted by a transfer or disposition of property which was within the reach of creditors, can use section 228 as a basis for seeking relief to have the transfer undone.

The Courts have interpreted the elements of section 228 on a number of occasions.

The ‘alienation’ of property is not defined in the PLA. However, it has been interpreted broadly to mean ‘parting with property or some interest in property’.[1] In practical terms, this may arise where real property or substantial assets are sold for nil or nominal value.

An ‘intention to defeat creditors’ has also been interpreted broadly to mean an ‘intent to delay, hinder or otherwise defraud creditors.’[2] Express intent may be provable, however intent can also be inferred, such as, for example, through conduct in a transfer being for nominal or nil value or the property remaining with an entity controlled by the transferor.[3]

It is not necessary to show that the recipient of the property was a part of the fraud or was aware of the intent of the transferor. This is something also contemplated by section 228(3), which effectively provides a defence which can be deployed by a transfer or recipient of the property.

The Defence Provided in Section 228(3)

Section 228(3) provides as follows:-

(3) This section does not extend to any estate or interest in property conveyed for valuable consideration and in good faith to any person not having, at the time of the conveyance, notice of the intent to defraud creditors.

In effect, 228(3) serves as a defence to an action brought under section 228(1) if it can be shown that the property was transferred or disposed of for valuable consideration, to someone not aware of the intent of the transferor and acting in good faith.

This serves to protect innocent third parties, who have provided valuable consideration (whether directly or otherwise) for the property they have received.

Valuable consideration is defined by the PLA to mean ‘including marriage, but not nominal consideration in money’. In other words, the full market value of the property is not required to be paid, but the value paid must be more than nominal.[4]

Application of Section 228 to Insolvency Disputes

Section 228(1) provides an additional cause of action to the tool boxes of insolvency practitioners who are seeking the recovery of improperly disposed property.

Section 228(1) does not clash with the related provisions provided for under the Corporations Act 2001 or Bankruptcy Act 1966 and instead serves to compliment these causes of action.

Section 228(1) also provides the added benefit for liquidators in that the insolvency of a transferor company need not be shown. Of course, this is perhaps balanced out by the need to show an intention to defraud.

For those impacted by such an action, section 228(3) presents an avenue to resist any such claim and protect the transaction. This is particularly relevant to innocent third parties who may have simply struck a good deal for the purchase of property, without being aware of the suspect intention of the transferor.

Rose Litigation Lawyers have had recent experience in the application of section 228 in insolvency disputes and otherwise, including the successful application of section 228(3).

Contact Us For expert legal guidance, reach out to Rose Litigation Lawyers. Our team is committed to delivering Remarkable Outcomes.

[1] Cardile v LED Builders Pty Ltd (1999) 198 CLR 380 at 408

[2] Marcolongo v Chen [2011] HCA 3 at [32]

[3] Owners Strata Plan 97121 v RCBS Devco Pty Ltd [2020] NSWSC 1247

[4] Barton v Official Receiver (1986) 161 CLR 75 at 86; Super Vision Resources v AC Holdings Co [2020] NSWSC 65 at [330].

The content of this publication is intended to provide a summary and commentary only. It is not intended to be comprehensive nor does it constitute legal advice, and has been prepared based on applicable legislation and case authority at the date of publication. You should seek legal advice on specific circumstances before taking any action.