The Business Bulletin
Beware the elephant traps Something I have been asked several times recently is when should directors seek advice from an insolvency practitioner. My answer is always “as soon as possible” as there are more options available the earlier advice is sought, with the likelihood of rescue and recovery markedly higher.
The other advantage is that a director
one of the creditors or guarantor for
(e.g. a director or relative of a director
is less likely to step on what I call the
any of the debts and [the insolvent]
or a company of such a person) then
elephant traps. These antecedent
does anything which has the effect
the desire is presumed. Finally, the
transactions, explained below, can
of putting that person into a position
payment needs to take place within a
lead to personal liability for the
which will be better than if that thing
relevant time which is 6 months prior
director to restore the position to
had not been done”.
to the company entering liquidation
what it would have been prior to the transaction taking place.
1. Preference
It needs to be proved that the company was insolvent at the time (or as a result) of the transaction and that there was a desire to prefer the
or administration, although this is extended to two years when the recipient is connected. Typically, preference payments
The Insolvency Act 1986 defines a
creditor or guarantor. However, where
involve payments being made to
preference as where a payment is
the recipient of the preference is a
directors to clear loan accounts, to
made to a person and “that person is
party connected with the company
creditors personally guaranteed by
Issue 13 – Finance | 9
