Voidable preference: Difference between revisions

}}{{d|Voidable preference|/ˈvɔɪdəbl/ /ˈprɛfərəns/|n|}}<br>

What happens if you create a [[security interest]] over existing [[indebtedness]], or generally prefer one creditor to others and then go ''[[tetas arriba]]'' within a short period — usually specified by statute; 6 months of thereabouts). The [[insolvency]] laws of the land will set aside such a [[preference]], at the petition of your administrator, if it supposes that, in creating it a debtor was acting with base motives: preferring one of his buddies, to whom he owed money, over his legion other creditors, when the writing on the wall or his solvency made itself suddenly all too painfully clear.

Most sophisticated jurisdictions have some kind of “anti-deprivation” principle in their insolvency regime which stops a struggling company from preferring some of its creditors over other ones. There is usually an excpetion for desperate rearguard actions taken in good faith with a genuine aspiration to stave off calamity, notwithstanding that they might have inadvertently caused it.

This is wide and loose, and gives an insolvency administrator power to stop companies preferring, you know, the director’s brother in law’s firm which supplied the copier paper. It shoujld give those extending credit to struggling companies pause for thought, at any rate. But it goes wider than just setting aside security interests. If you have five trade creditors and you pay off one of them a week before you go insolvent, expect the administrator to have a good hard look at that payment.