Question

With reference to relevant provisions of the Corporations Act 2001 (Cth), explain the differences between unfair preferences and uncommercial transactions.

Answer 1

ANSWER: The difference between unfair preferences and uncommercial transactions as per the relevant provisions of thr Corporations Act 2001 is given below:

As per section 588FA(1) of the Corporations Act 2001 states that a transaction will be unfair preference if it occurs when :

1. The company owes a creditor an amount for the unsecured debt and

2. The company and the creditor are parties to a transaction and

3. The transaction results in the creditor receiving more than they would have received if the company was in liquidation and the liquidator paid all the unsecured creditor equally.

An uncommercial transaction is defined under section 558FB of the Corporation Act 2001 (cth) which is defined below:

A transaction of a company is an uncommercial transaction of the company if ,and only if, it may be expected that a reasonable person in the company's circumstances would not have entered into the transaction having regard to"

a. the benefits (if any) to the company of entering into the transaction; and

b. the detriment to the company of entering into the transaction; and

c. the respective benefits to other parties to the transaction of entering into it; and

d. any other relevant matter