What is voidable preference?
What is voidable preference?
An unfair preference (or “voidable preference”) is a legal term arising in bankruptcy law where a person or company transfers assets or pays a debt to a creditor shortly before going into bankruptcy, that payment or transfer can be set aside on the application of the liquidator or trustee in bankruptcy as an unfair …
What is an unfair preference payment?
An unfair preference is a transaction (commonly a payment of funds or a transfer of assets) entered into by an insolvent company which provides an unsecured creditor of the company who received the benefit of the transaction with a priority or advantage over other creditors.
Can a preferential transfer be voided?
The bankruptcy trustee can void preferential or fraudulent transfers of property before you filed. A “clawback” allows a trustee to void (undo) a transaction and get the money or property back for the benefit of your unsecured creditors.
What is preference law?
Preference in law refers to a bankruptcy tool called recapture where a trustee can recover payments made by the debtor to creditors before the bankruptcy proceeding.
What is a preference in insolvency?
A potential “preference” occurs when a company pays a specific creditor or group of creditors(s) and by doing so makes that creditor “better off” than the majority of other creditors, before going into a formal insolvency like administration or liquidation.
What are collusive dealings?
Collusive dealings before sequestration These rules apply to a debtor who, in collusion with another person, disposes of property belonging to him in a manner which has the ultimate result of disadvantaging his creditors or preferring one of his creditors above another.
What is a voidable transaction?
A voidable transaction is a payment of money, transfer of property or other transaction from the company’s assets to a related or unrelated third party that either occurs at a time when the company was insolvent or otherwise causes a detriment to the company.
What is a preference claim?
A preference claim is brought by the bankruptcy trustee against creditors paid within a certain period prior to the debtor filing for bankruptcy. These claims are sometimes colloquially referred to as “claw-back” claims.
What is a preference period?
The “preference period” is 90 days prior to the bankruptcy filing for typical creditors and 1 year for “insiders.” Insiders are defined as relatives of the debtor, a general partner of the debtor, or, if the debtor is a corporation, officers, directors, or a person in control of the company.
When does a voidable preference occur?
A voidable preference has occurred when the following conditions are present: 1 There is a transfer to a creditor, or for the benefit of the creditor. 2 The transfer relates to a pre-existing debt. 3 The transfer was made while the debtor was insolvent (which is assumed to be the case within 90 days of the bankruptcy petition date).
What is the meaning of the word voidable?
Look up voidable in Wiktionary, the free dictionary. Voidable, in law, is a transaction or action that is valid but may be annulled by one of the parties to the transaction. Voidable is usually used in distinction to void ab initio (or void from the outset) and unenforceable.
How can a creditor defend against a voidable preference claim?
A creditor can defend against a voidable preference claim by proving that the transfer was made in exchange for new value provided to the debtor, which therefore would not reduce the amounts recovered by other creditors.
What does unfair preference stand for?
An unfair preference (or “voidable preference”) is a legal term arising in bankruptcy law where a person or company transfers assets or pays a debt to a creditor shortly before going into bankruptcy, that payment or transfer can be set aside on the application of the liquidator or trustee in bankruptcy as an unfair…
