Fraudulent preference, Business Law and Ethics

Fraudulent Preference:

Under s.312, any disposition of the company's property and any creation of a charge, fixed or floating, effected during the period of six months before commencement of liquidations void as a fraudulent preference if:

(a) done voluntarily; and

(b) done with the intention of preferring one creditor (or surety) over another;

(c) at a time when the company was insolvent, ie. unable to pay its debts in full.

A "disposition" includes the payment of a debt.  Payment of one creditor with the intention of preferring him to others is a common example of fraudulent preference (if the other conditions are met).

    Case: RE M KUSHLER LTD (1943)

The directors had given personal guarantees of the company's bank overdraft.  They arranged that the company should pay its trade receipts into the account but should not pay its trade debts as they fell due with the result that the bank overdraft was paid off.  Shortly afterwards the company went into insolvent liquidation.

Posted Date: 1/15/2013 5:40:12 AM | Location : United States

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