Recital (11)

For the purposes of avoidance actions, a distinction should be drawn between legal acts where the claim of the counterparty was due and enforceable and has been satisfied or secured as owed (congruent coverage) and legal acts where performance did not entirely correspond to the creditor’s claim (incongruent coverage). Examples of incongruent coverage include: premature payments; the satisfaction of a debt by unusual means of payment; the subsequent collateralisation of a previously unsecured claim, which was not agreed upon in the original debt agreement; the granting of an extraordinary termination right or other amendments not provided for in the underlying contract; the waiver of legal defences; and objections or the acknowledgement of disputable debts. In the case of congruent coverage, the avoidance ground of preferences should only be able to be invoked if the creditor of the void, voidable or unenforceable legal act knew at the time of the transaction that the debtor was insolvent. In the case of both congruent and incongruent coverage, the terms satisfaction and collateralisation of the claim of the counterparty should be interpreted broadly, to include acts such as those which create a right to offset or grant creditors privileged status.