Facts: Vlahos was a director of a company called the Roderick Group. Vlahos made various unsecured loans to the company for business purposes. The company became insolvent on 1 January 2014. Thereafter, the company paid Vlahos $533,966.06, being repayment of money owed to him. The liquidator of the company sought to recover this payment, alleging that it unfairly disadvantaged the other creditors of the company, and was therefore a voidable transaction.
Issue: Given that the sum paid was legitimately owed to Vlahos, did the repayment constitute an unfair preference, and therefore a voidable transaction?
Decision: The repayment of the load to Vlahos was, in the circumstances, an unfair preference and therefore constituted an ‘insolvent transaction’ which was voidable.
Reason: At the time the money in question was paid to Vlahos, the company did not have sufficient funds to pay all its creditors. By repaying Vlahos in full, the other creditors would necessarily receive less than if all the creditors, including Vlahos, were to prove their claims and be paid out on a pro rata basis. Accordingly, Vlahos had received an unfair preference and the transaction was voidable as an ‘insolvent transaction’. Vlahos was ordered to repay the sum of sum of $553,966.09 to the company.