Individual insolvency—preferences
Individual insolvency—preferences

The following Property guidance note provides comprehensive and up to date legal information covering:

  • Individual insolvency—preferences
  • Preferences
  • Desires
  • The relevant time
  • Presumption regarding associates
  • Who may apply for relief?
  • Remedy

Preferences

A preference essentially involves something done by a debtor which the debtor desires should have the effect, as the result of the debtor’s subsequent bankruptcy, of putting:

  1. one of his creditors, or

  2. a surety or guarantor

in a better position than would have been the case if the debtor had acted otherwise.

A debtor ‘does’ something if he allows someone else to do something which he has the power to prevent and which he could reasonably expect to prevent if he tried to. In practice, there can be a fine dividing line between this and the entirely legitimate stance of acceptance or passivity in relation to an event over which the debtor genuinely has no influence.

Examples of a preference include:

  1. paying a debt in full when it would only have ranked for a partial dividend, or

  2. giving an unsecured creditor security over an asset which would otherwise have been available for distribution amongst the general body of unsecured creditors, or

  3. allowing a supplier to change its terms and conditions to result in quicker payments, thereby reducing the net amount due

The transaction must bring about an actual improvement in the position of the creditor, surety or guarantor; so the transfer of a cha

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