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Exploring Insolvency: Preference Claims

Insolvency proceedings often lead to the emergence of legal claims, among which preference claims are notable.



What are Preference Claims?

Preference claims, also known as preference actions, arise in insolvency scenarios. Essentially, they occur when a company, facing financial distress, makes payments or transfers assets to certain creditors over others. These actions may be seen as giving preferential treatment to specific creditors, potentially disadvantaging others.



Legal Framework in the UK

In the UK, preference claims fall under the Insolvency Act 1986. According to this legislation, if a company becomes insolvent, any transactions made that put one creditor in a better position than they would have been in the event of liquidation can be challenged. The aim is to ensure fairness and equality among creditors.



Key Considerations

Timeframe: Preference claims typically have a specified timeframe within which they can be made. In the UK, this is usually within a certain period before the onset of insolvency. Businesses need to be aware of this timeframe to assess their exposure to potential claims.


Defence: Businesses facing preference claims can defend themselves by demonstrating that the transactions in question were made in the ordinary course of business, without any intention to prefer certain creditors. Providing evidence to support this defence is crucial in mitigating the risk of liability.


Impact on Creditors: Preference claims can have significant implications for both the debtor company and its creditors. If a claim is successful, the court may order the repayment of the preferential amount, potentially affecting the company's financial position and the distribution of assets among creditors.


Professional Advice: Given the complexities involved in preference claims, seeking professional advice from insolvency practitioners or legal experts is advisable. They can provide guidance on navigating the legal process, assessing the merits of potential claims, and developing effective defence strategies.


Preference claims represent a significant aspect of insolvency law in the UK, aiming to uphold fairness and equality among creditors.


Optimise provides litigation funding for a wide range of insolvency-related claims, including preference actions, to help achieve maximum returns for creditors in cases where insolvent companies lack the financial resources to litigate.


Contact our team to discuss your case and potential funding options.


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