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

Gamma Co went into liquidation. Twelve months before, it paid its unconnected supplier Delta Ltd an overdue debt in the ordinary course of business. Gamma Co was insolvent at the time, but the payment was made under normal commercial pressure without any desire to prefer Delta Ltd. What is the likely outcome of a preference claim?

The claim fails. A preference requires proof that the company was influenced by a desire to improve the creditor's position in a liquidation. Paying an overdue debt under ordinary commercial pressure is not such a desire, and insolvency and timing alone do not establish a preference.

  1. AThe claim succeeds because Gamma Co was insolvent when it paid
  2. BThe claim fails because the company had no desire to prefer Delta LtdCorrect
  3. CThe claim succeeds because the payment was made within the 12-month period

Explanation

A preference claim requires the company to have been influenced by a desire to put the creditor in a better position. Ordinary commercial pressure to pay is not such a desire. Insolvency and timing alone are insufficient, so the claim fails.

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