An Insolvency Practitioner will often look to undo the previous transactions of a company to provide a better result for the general body of creditors.
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 will restore the position back to what it was before the preference was made.
A company gives a preference to another person if that individual is one of the company’s creditors, sureties or guarantors who are in more favourable position than they would otherwise have been at the time the company went into liquidation. The question for the Court is: 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 need to consider the following:
- 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?