Skip to content

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

Dunmore Ltd paid 50,000 to a supplier, Tarn Co, five months before liquidation, when Dunmore was insolvent. Tarn Co is unconnected to Dunmore. Dunmore made the payment only because Tarn Co threatened to stop supplies, which would have ended trading. Which statement is most accurate?

The payment is challengeable only if Dunmore was influenced by a desire to prefer Tarn Co. Paying merely to keep supplies flowing and the business trading suggests no such desire, so the liquidator would struggle. Timing and the supplier's lack of connection do not decide the matter.

  1. AThe payment is automatically void because it was made within six months of liquidation
  2. BThe payment is an unfair preference only if the court finds Dunmore was influenced by a desire to prefer Tarn CoCorrect
  3. CThe payment cannot be challenged because Tarn Co is unconnected
  4. DThe payment is voidable only if Tarn Co knew of the insolvency

Explanation

For an unfair preference the company must have been influenced by a desire to put the creditor in a better position. Payment under commercial pressure to keep trading suggests no such desire, so the claim would probably fail. Timing alone does not make it void, and connection affects only the presumption of desire and the time limit. The creditor's knowledge is not the test.

Did you get it right without looking?

One question tells you little. A timed set on Insolvency and administration shows your real accuracy, how long you take and where you lose marks.

Practise Insolvency and administrationFree diagnostic mock

More Insolvency and administration questions