Preferential Payments can occur when a business suspects it is going to become insolvent at a future date and decides to pay certain creditors in preference of others. These are usually relatives, friends, or somebody that is holding a personal guarantee from the director/s.
If a liquidator can prove this has occurred within six months prior to the company declaring its insolvency, the liquidator has the power to ‘claw back’ or recall those funds from the creditors. However, if the payments stretch beyond this six month period then the recovery of the money usually requires a court order. Those funds would then be added to the liquidator’s pool of money, which s/he would distribute among the creditors at the end of the liquidation process in the manner required by law.
The Corporations Act 2001 does allow three defences for companies issuing preferential payments:
- The creditor gave valuable consideration for the payment
- The creditor received the payment in good faith, and
- The creditor had no reason to suspect the insolvency of the company
SM Solvency Accountants offers all of our services via the phone and in person, whichever is most convenient to you, because we understand that we need to be flexible and fit in with your busy schedule. If you suspect your company has been trading while insolvent, is guilty of Preferential Payments or is a creditor that has received preferential payments, SM Solvency Accountants has a number of options available for you today.