A preferential payment describes a situation in which directors pay specific creditors to put them in a better position than other creditors. When the company eventually goes into a formal insolvent process such as liquidation the Court has power, upon the application of the liquidator, to set such payments aside and enforce the beneficiary and/or the directors to pay the monies back.
Firstly however, the Court must judge whether it was the directors desire to create the preference, unless the beneficiary is connected to the company or its directors in which case desire is presumed by the Court (although the presumption is rebuttable).
If it is proven that such a desire to prefer did exist, directors can face disqualification and may be liable to make a payment to the company at a level that the Court thinks fit. If any of your clients are in financial difficulty, it is important for them to have up-to-date financial information and to document the rationale for making payments so they can minimise potential personal liability. The action required will depend on the company’s situation – if directors are uncertain we are able to give them clear and expert advice based on assessment of their individual circumstances.
If you or your clients would like to know more about preferences, please call Paul Bailey or Tom Ahmad on 020 8662 6070 for confidential advice.