Upon a company entering insolvency, creditors enjoy rights alongside one another which aim to provide that losses arising from the insolvency are borne by the creditors proportionately with each being paid out of any funds available according to the level of the amount which they are owed
‘Preference’ occurs when the director(s) ensures that a particular creditor is paid in an unfair fashion detrimental to the remaining creditors who are classed in the same group for receipt of any available dividends.
When a company fails, administrators or liquidators will examine payments made prior to the company becoming insolvent in order to identify any ‘Preference Payments’, also known as ‘Preferential Payments’, which may have been made.
Tim Thompson of Kangs Solicitors briefly outlines the law relating to Preference Payments.
Anyone who is concerned about the incidence of Preference Payments arising upon a liquidation or potential liquidation of a company should seek immediate expert legal guidance.
Our award-winning team of solicitors is nationally recognised for its work in Civil, Criminal and Regulatory investigations and court proceedings.
We are here to assist you with these issues and our team of expert solicitors can be contacted for confidential and discrete advice as follows:
The Relevant Law | Kangs Preferential Payments Solicitors
The Insolvency Act 1986 provides at section 239 that:
- where the company has at a relevant time given a preference to any person,
- the court shall, on application, make such order as it thinks fit for restoring the position to what it would have been if the company had not given that preference.
For the purposes of this section, a company gives a preference to a person if:
- that person is one of the company’s creditors or a surety or guarantor for any of the company’s debts or other liabilities, and
- the company does anything or suffers anything to be done which (in either case) has the effect of putting that person into a position which, in the event of the company going into insolvent liquidation, will be better than the position he would have been in if that thing had not been done.
The court shall not make an order under this section in respect of a preference given to any person unless the company which gave the preference was influenced in deciding to give it by a desire to produce in relation to that person the effect of putting that person into a position which, in the event of the company going into insolvent liquidation, will be better than the position he would have been in if that thing had not been done.
A company which has given a preference to a person connected with the company (otherwise than by reason only of being its employee) at the time the preference was given is presumed, unless the contrary is shown, to have been influenced by the desire to enhance that person’s position as outlined above.
Preferential Considerations | Kangs Insolvency Solicitors
In the light of section 239, outlined above, it follows that when looking into any transaction which prima facie appears to be preferential the liquidator will consider, inter alia:
- whether or not the payment was made to a connected party, such as a relative of a director,
- the date of the preferential transaction. Where it involved a connected party the liquidator can revert to a date two years prior to the insolvency but, in other cases, the period is six months.
Potential Consequences of Preference Payments | Kangs Insolvency Offences
Where a Preferential Payment is identified the following may occur:
- Director Disqualification Proceedings – any director involved with the payment may be subjected to Director Disqualification Proceedings which may result in a disqualification from holding office for a period of up to fifteen years.
- Civil Claim – the liquidator could issue proceedings to recover the value of the payments from the Director(s) personally.
- Claw Back – The liquidator could seek repayment of the payments from the beneficiaries of the preferential activity.
Who Can I Contact? | Kangs Insolvency Offences Solicitors
Kangs Solicitors fields a team of highly experienced lawyers accustomed to assisting clients in situations arising from all aspects of Insolvency Law.
Please feel free to contact our Team through any of the below mentioned who will be happy to provide you with some initial advice on the prospects of an application.