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

Helmont Ltd entered liquidation. The liquidator discovers that eight months before the liquidation began, while the company was insolvent, Helmont paid in full an unsecured loan owed to its managing director's brother, even though other unsecured creditors received nothing. Which type of antecedent transaction is the liquidator most likely to challenge?

The payment is an unfair preference. An insolvent company paid one creditor, connected to a director, in full while other unsecured creditors got nothing, placing that creditor in a better position than on liquidation. It is not an undervalue transaction because the company received a debt discharge, not a gift.

  1. AA transaction at an undervalue
  2. BAn unfair preferenceCorrect
  3. CA floating charge granted for new value
  4. DA wrongful trading claim against the shareholders

Explanation

Paying one creditor ahead of others when the company is insolvent, and so putting that creditor in a better position than on liquidation, is an unfair preference. The payee is connected to a director. There was no sale or gift at less than its value, so an undervalue claim is wrong. Wrongful trading concerns directors, not shareholders.

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