Unfair preference claims are a legal mechanism by which liquidators may recover payments made by a company in financial distress to its creditors.
Given the current economic outlook in Australia, and the forecast increase in insolvency appointments, the number of unfair preference claims can also be expected to rise.
Business owners should ensure they are aware of unfair preference claims and their possible consequences prior to accepting payment from any customer in financial distress.
In this article, we will provide you with an overview of unfair preference claims, their possible consequences, and what you should do if you receive a demand for an unfair preference claim.
What is an Unfair Preference Claim?
An unfair preference claim is the most common type of voidable transaction, and occurs where a liquidator alleges that a payment (or other transaction) made between an insolvent company and one of its creditors has the effect of unfairly “preferring” that creditor over other creditors.