A type of transaction carried out by a company’s directors prior to an Insolvency process commencing, or a Debtor prior to bankruptcy, intended to favour one creditor over another (also known as putting them in a better position).
For example – Lucas owes Johnson and Phil £25,000 each, Lucas receives £30,000 and chooses to give £25,000 to Johnson but only £5,000 to Phil – this transaction was intended to favour Johnson and could therefore be a Preference.
Preference transactions can be challenged by a Liquidator, Administrator or Trustee in Bankruptcy if they took place within the period of 6 months ending with the onset of Insolvency or the presentation of the bankruptcy petition or in the case of a connected party within 2 years ending with the onset of Insolvency or the presentation of the bankruptcy petition. and if successful can result in payments being recovered from either the beneficiary of the Preference or the directors of the company.