At the recent GM Advisory-sponsored Bali Conference 2026, delegates discussed a range of emerging legal and insolvency issues affecting directors, creditors and restructuring professionals. Among the topics generating significant interest was a Queensland court decision examining whether payments made from an overdrawn bank account can be recovered as unfair preferences.
Sometimes insolvency law feels like a battle of technicalities. But in Australian Rock Walls Pty Ltd (in liquidation) v Commissioner of Taxation, Magistrate Hay cut through the noise with a practical ruling that matters for directors, creditors, and practitioners alike.
The Case
Liquidator Marcus Watters pursued nine payments totalling just under $81,000 as unfair preferences under section 588FA of the Corporations Act.
The Court agreed the company was insolvent at the time and that the payments fell within the relation‑back period. The real fight was over whether the payments were truly “from the company.”
- One payment of $14,125 was made from a third‑party account — not proven to be the company’s money, so that one was out.
- The other eight payments came from the company’s overdraft account.
Here’s where things got interesting: the Commissioner argued overdraft funds weren’t the company’s money at all, but the bank’s — relying on Cant v Madbrothers. Magistrate Hay wasn’t buying it.
The Key Call
The Court found that:
- The company was a party to the overdraft transactions.
- The overdraft gave the company access to funds it was entitled to use.
- Using those funds diminished the pool available to creditors.
Result: the eight overdraft payments were unfair preferences.
Appeal
The Commissioner has lodged an appeal in the District Court of Queensland, challenging the findings on two grounds:
- Overdraft payments are not company funds.
- The payments failed the asset diminution test.
Key Takeaways
For Directors
- Don’t assume “small” payments fly under the radar. Liquidators do pursue preferences under $100k — and I’ve seen them chase amounts as low as $10k.
- Trading while insolvent means even modest transactions can be clawed back.
For Creditors
- Be cautious when accepting part payments from struggling companies. Even if you think you’re reducing your risk, those payments can later be clawed back as unfair preferences.
- Preference claims don’t just target large sums — smaller, routine payments can be vulnerable too.
For Insolvency Practitioners
- Watch this space. The appeal could reshape how overdraft payments are treated.
- In this case, the overdraft was constantly at its limit — as soon as customers paid in, the company used those funds to meet tax liabilities. No doubt Watters is hoping this distinction will be enough to quash the appeal.
