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ACCA Applied Skills · Corporate and Business Law (Global) · Insolvency and administration

Beta Co is in liquidation. Five months before liquidation, while insolvent, it repaid in full a loan owed to Mr Khan, a director who had personally guaranteed it, instead of paying other unsecured creditors. The company's decision was influenced by a desire to protect Mr Khan from his guarantee. Which type of voidable transaction is most likely involved?

This is most likely a preference. While insolvent, the company paid one creditor in full ahead of the others, and was influenced by a desire to help the guarantor director. The payment put him in a better position on liquidation, so the liquidator can seek to have it set aside.

  1. AA preferenceCorrect
  2. BA transaction defrauding creditors made for no consideration
  3. CA floating charge invalid for lack of new value

Explanation

Paying one creditor ahead of others, putting that creditor in a better position in the liquidation, is a preference. The desire to benefit the guarantor shows the required influence. The payment was made for the debt owed, so it was not a gift, and no charge was granted.

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