Preference payments

What are preference payments?

When a company is wound up a liquidator takes control of the company. The major responsibilities of the liquidator are to collect the assets of the company ascertain its liabilities pay the major creditors of the company, complete the books and records of the company and finally dissolve it. The liquidator can also examine payments that were made by a company to other parties and if these payments are determined to be paid while the company was insolvent if any of the payments were made before the company was wound up then it can result in a claim being made against the person or company in receipt of payment that it should have been paid to someone else. This can result in litigation before the court that wound up the company.

During the global financial crisis it was anticipated by a number of organisations involved in the debt collection industry that this type of litigation would become very widespread as a result of the fallout from the global financial crisis. And this has only proven in part to be true. The enormous expense of litigation and the fact that a liquidator’s fees are secured before all other creditors has ensured that this type of claim has not become as widespread as was first thought. Often the companies that were being liquidated had very few assets or their bank accounts were stripped before being liquidated. This event meant that the companies had no assets with which to pay lawyers or the liquidators to pursue preference payment litigation.

However, there has still been a slight increase in the number of claims resulting from this type of litigation as was predicted during the global financial crisis. It does not appear that the economic recovery which was expected by a number of analysts during the global financial crisis has eventuated to the same extent that was predicted. This essentially means that there has been no cumulative growth in the overall wealth that these disputes are being fought over. The disputes were being expressed in litigation relating to solvent companies before they passed over the line into insolvency however the same people, relationships and organisations and motivations remain behind litigation.

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