For a preference to have taken place the insolvent company must, at the time of the making of the Preference, have been influenced by a desire to put the Recipient in a better position than the Recipient would be in the event of a later insolvency.
This is referred to as a “Desire to Prefer” the Recipient.
Where the Recipient is connected to, or an associate of, the insolvent party (as with Directors, family members and associates) the Desire to Prefer is presumed and the burden of proving that there was no Desire to Prefer the Recipient falls on the defendant. Please see our booklet “What is an Associate?” which explains the legal definition of an associated or connected party.
There are a number of things to consider when trying to ascertain whether a Desire to Prefer was present, or trying to prove that no Desire to Prefer existed. These include:
- Proper commercial circumstances affecting this decision by the company.
- A lack of realisation or awareness that the Company’s insolvency was impending (as long as that lack of awareness was reasonable).
- An intention by the Directors of the Company to secure future funding.
- Hostility, animosity or a lack of goodwill (or indeed the threat of debt recovery proceedings) between the Recipient and the Company.
Identifying the motivation for a transaction and deciding whether a true desire to prefer exists is a complex area of law and very dependent on the circumstances of the case, the available documentary and witness evidence and the admissions or representations exchanged with the Liquidator to date.
This is not a precise science but it is important that, upon receiving correspondence from the liquidator or his solicitors, you engage them early so as to limit the extent of legal costs incurred by the Liquidator (and thus your ability to negotiate, if required).