Preferences - Impact on whether a director is considered "fit" or "unfit"

Preferences as a pointer to disqualification

Preferences can include any payments made by the insolvent company to any parties by the directors who they have a "desire to prefer".

Examples could include:

• Payments to related parties

• Payments to the directors themselves

• Payments to creditors who are secured by a personal guarantee signed by a director

• Payments to creditors where their services are needed in any re-start company of the director.

The Liquidator has powers to recover these preference payments through the Courts.

The time periods for reviewing such preferences are:

• 2 years prior to the creditors meeting in relation to transactions with parties connected to the company

• 6 months prior to the creditors meeting in relation to any other transactions.

The detailed law is set out at Sections 239 to 241 of The Insolvency Act 1986. As preferences are illegal acts it might be easily appreciated why any preference payments initiated by a director count against him in directors disqualification proceedings.

Purnells have an extensive intranet of case law relating to "preferences" and other insolvency related case law. For more information or for a FREE INITIAL MEETING please contact us.