Tax and Insolvency Litigation Solicitor
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Preferences

Following the insolvent liquidation of a Company a Liquidator may apply to the Court to undo some of its previous transactions.

These claims can, and often do, involve former directors, but that is not necessarily the case.

Section 239 Insolvency Act 1986 allows a Liquidator to apply to the Court where the Company has given a preference to any person. The Court shall make such Order as it thinks fit to restore the position back to what it was before the preference was made.

What is a Preference?

A Company gives a preference to another person if that other person is one of the Company’s creditors, sureties or guarantors and the Company puts that other person in a better position than they would otherwise have been (when the Company entered insolvent liquidation) had the preference not been given. In short: has that other person’s position improved to the detriment of other creditors?

The Liquidator must show that the preferable outcome achieved by the other person was desired as an outcome by the Company.

When faced with a preference claim by a Liquidator you consider the following –

  • Clearly identify the transaction that is the subject of the emerging dispute
  • Is it a preference: are you in fact in a better position than if the transaction had not occurred?
  • Did the former director intend to prefer the particular creditor?
  • Are you a connected person?
  • Is there evidence to show that the Company was unable to pay its debts at the time the transaction was made?
  • Was the transaction conducted within the prescribed time limits prior to insolvency?
  • Was the transaction conducted with the benefit of professional advice?
  • Was the transaction entered into in good faith?
  • Was the transaction entered into without notice of the surrounding circumstances?
  • Have the Company’s assets been depleted?
  • Has valid consideration been provided for the transaction?

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