Gifts Made to Defraud Creditors can be Reversed

Under current bankruptcy legislation transactions can be challenged:

  • At any time if the transaction was undertaken with an intention to defraud creditors; or
  • If the transaction is not for market value consideration; or
  • The bankrupt or the transaction has the effect of preferring one creditor over another.

What follows is a review of the implications of the decision of Donnelly (trustee) v Windoval Pty Ltd [2014] FCA 80 (Donnelly).

By way of background in the decision of Donnelly the transaction at issue was held to be void against the trustee and was set aside.

At issue was whether a gift of five million dollars ($5,000,000.00) to Mr Bonnell’s discretionary trust was void as it was alleged to be made with either the main purpose of avoiding or delaying payment to creditors under bankruptcy legislation or alternatively was required to be set aside under NSW conveyancing law.

The Federal Court ruled in favour of Mr Bonnell’s trustee.

It was held that Mr Bonnell would have been aware that at the time of making the gift that he was about to become insolvent as the deductions he had claimed were likely to be denied by the Commissioner of Taxation. The Court stated that Mr Bonnell would have been aware from Commissioner’s media releases at the time the gift was made. As a result, he would have known it was likely that the scheme would not succeed and would result in a tax liability that he couldn’t afford to pay. Accordingly the gift was void and the funds were awarded to the trustee to pay Mr Bonnell’s creditors.


Effective Asset Protection Strategies should be always undertaken well before events or circumstances arise which may determine that a transaction could or is being undertaken with the “intention” to defraud creditors.

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