When a company goes into liquidation, the liquidator doesn’t just look at what’s left in the bank. They also look back, sometimes months or even years, at the transactions the company entered before it collapsed. Some of those transactions can be undone and the assets clawed back for creditors. These are voidable transactions, and they sit under Part 5.7B of the Corporations Act 2001 (Cth).
In a family business, the dealings most exposed are usually the ordinary ones. Repaying a parent’s loan and moving a company car into a child’s name can both be examined. So can settling a debt between the family company and the family trust. When advising family business owners, we suggest treating every dealing between your family and your entities as one a liquidator may one day review. The law was not designed to attack sensible, good faith transactions between solvent parties. Keeping records at the time is how you show your dealing was one of them.
Voidable transactions often catch ordinary family dealings
The law aims to ensure that when a business fails, all creditors are treated fairly. Without these rules, a company could shield assets by paying insiders or selling property cheaply to related entities. It could do so before creditors or the ATO can act.
In family enterprises, this can happen without anyone intending it. Directors may not see a transaction between the family company, the family trust or the farm entity as favouring some creditors over others. The law does. There are four key types of voidable transactions, and each has a familiar family business example.
- Unfair preferences (s 588FA) are payments that give one creditor an advantage, such as repaying a family loan before trade suppliers.
- Uncommercial transactions (s 588FB) are deals that make no commercial sense, such as selling farm machinery to a related entity below value.
- Unreasonable director-related transactions (s 588FDA) are dealings where directors or close associates benefit unreasonably, such as transferring company vehicles to a director’s child.
- Creditor-defeating dispositions (s 588FDB) move assets out of creditors’ reach, and are often linked to phoenix activity. That means the same business in a new company, with the old debts left behind. Selling business assets to a new family company for less than market value before insolvency is one example.
Family businesses often operate across intertwined companies, trusts and self-managed super funds, with directors wearing several hats. When financial distress arrives, it becomes hard to separate a family decision from a company obligation. Repaying a relative who lent money informally can feel like looking after your family. So can moving property into a trust or the next generation’s name for safekeeping. If those dealings are not properly structured or documented, they can later be challenged as voidable transactions.
The generosity that holds a family business together is also what makes its dealings hard to explain later. A loan everyone at the dinner table understood can look very different to a liquidator reading the bank statements years on.
A liquidator can look back years, not months
The timing rules, known as relation-back periods, decide how far back a liquidator can reach. They vary between the different types of voidable transaction. Generally, the period is six months for unrelated creditors and four years for transactions involving related entities. It is generally ten years if there was an intent to defeat creditors.
For a family business, dealings with related entities are part of everyday life, so the longer period is the one to plan around. Even long-standing family restructurings or inter-entity dealings can be scrutinised if the company later becomes insolvent. A restructure done years ago, when the business was healthy, needs records that outlast everyone’s memory of why it was done. We look at one common example in director loan repayments under insolvency.
Good faith and good records protect your position
Not every payment or transfer is improper. Section 588FG of the Act gives a good faith defence where the party provided valuable consideration, acted in good faith and had no reason to suspect the company was insolvent. Each of those things is easier to show with documents made at the time than with recollections years later.
Family businesses can strengthen their position by keeping contemporaneous documentation, obtaining independent valuations and making sure each transaction is commercially justified. In practice, that comes down to three steps you can build into how the business runs day to day.
- Document everything at the time, including informal loans and family arrangements that have only ever been agreed over the phone.
- Keep dealings on commercial terms, and record the interest, the repayment schedule and any valuation behind the price.
- Seek independent advice before you restructure, move assets between your entities or transfer property into family names.
If the company is already under pressure, it is also worth understanding the Safe Harbour protections for directors before any assets move.
If you’re planning a restructure, repaying family or moving assets between entities, talk to us before you act. Call 1300 654 590 or email us for an obligation-free discussion.
How we can help
We help family-owned companies and their directors manage insolvency risk, restructure safely and protect the legacy they have built. That includes documenting the agreements between your entities, assessing governance risks and giving you early advice about restructuring options.
If you’d like to talk through your specific situation, call us on 1300 654 590 or email us for an obligation-free discussion. We’ll connect you with a great lawyer who can guide you to the right solution.
The information contained in this post is current at the date of publishing – 04 November 2026