Preference

A debtor doing something, or allowing something to be done, which puts a creditor, surety or guarantor in a better position than it would be in if the debtor went into insolvent liquidation, or bankruptcy.

Where the debtor is a company, an administrator or liquidator may apply to the court for an order avoiding any action taken by the company within six months (two years if the person receiving the preference is connected with the company) before the company went into administration or liquidation which has placed a creditor, surety, or a guarantor of the company’s debts in a better position than would have been the case in an insolvent liquidation, if the company was influenced by a desire to produce that result and provided that, at the time or as a result of the preference, the company was unable to pay its debts (section 239, Insolvency Act 1986 (IA 1986)).

A trustee in bankruptcy has a similar power in respect of an act by an insolvent individual that puts a creditor in a better position than that creditor would otherwise have been in the bankruptcy of that individual (section 340, IA 1986). The trustee can seek an order in respect of actions taken by a bankrupt in the six months leading up to the bankruptcy (in the case of a preference given to an ordinary creditor) or two years (in the case of a preference given to a creditor who is an associate of the bankrupt) (section 341, IA 1986).