22nd April 2020
If you’re a company director, you may have heard the term ‘preference payments’ used in relation to insolvency.
In this blog, we’ll explain what preference payments are and why you should avoid making them.
When a company goes into administration or liquidation, the appointed insolvency practitioner has a duty to investigate the directors’ conduct prior to the insolvency.
This investigation aims to determine whether the directors acted wrongfully or unlawfully. One essential consideration in determining this is whether the directors made any preference payments.
Not sure whether your company is insolvent or not? We wrote this article to help you find out.
A preference payment occurs when a company favours one creditor over others, to the detriment of the other creditors.
For example, let’s say your company is facing financial difficulties and has two loans: one from a bank and one from a close relative.
If you paid back the relative and not the bank, this would be considered a preference payment to the relative.
When investigating a company’s affairs, the liquidator or administrator will review the company’s bank statements.
If they find any transactions that look like potential preference payments, they’ll consider the following factors:
Preference payments are illegal. There are several potential consequences of making preference payments:
If you want to know more about preference payments or are concerned about your company, get in touch with us today. Our team of experts is always happy to offer advice and assistance.
Hudson Weir are an established firm of Insolvency Practitioners who specialise in business recovery and corporate financial solutions. Hudson Weir provides industry leading, nationwide services for its clients with the intention of easing financial pressures and providing recovery strategies for struggling businesses.More about us
Hudson Weir Ltd (Company number 09477593) is a company registered in England and Wales.