Unfair Preference Claims
Being paid before a customer fails can feel like a relief — but a liquidator may later ask for some of that money back.
What you'll learn
- What an unfair preference is in broad terms
- Why liquidators pursue these claims
- Possible defences you may be able to raise
- How to reduce your exposure in advance
6 min read
What it is
An unfair preference can arise where a creditor receives payment from a company shortly before it goes into liquidation, and that payment puts the creditor in a better position than the other unsecured creditors would be. In broad terms, a liquidator may seek to recover such payments so that value can be shared more evenly across all creditors rather than benefiting whoever happened to be paid last.
Why liquidators pursue them
The principle behind these claims is equal treatment of creditors of the same rank. If a failing company pays one supplier in full while others go unpaid, the law allows the liquidator to look back and, in some cases, recover the difference. Receiving a demand does not mean you did anything wrong — it reflects the timing and effect of the payment, not bad faith.
Possible defences
There are recognised defences. A common one is that you received the payment in good faith, for value, and without reasonable grounds to suspect the company was insolvent. The specifics are technical and fact-dependent, so do not concede or repay on the strength of a letter alone — get advice on whether a defence is open to you before responding.
Reducing your exposure
You cannot eliminate preference risk, but you can reduce it: trade on consistent terms, take security or a PPSR registration where appropriate, and avoid unusual settlement arrangements with a customer you suspect is struggling. Strong, contemporaneous records also help support any good-faith defence later, and dealing with stubborn balances early through a structured referral is steadier than ad-hoc settlements with a failing customer.
A note on advice
This is general information only, not legal, financial, or tax advice. Preference law is complex and the defences are technical, so obtain qualified advice before responding to any claim.
Key takeaways
- A preference claim can seek back payments received shortly before liquidation.
- The aim is equal treatment of creditors of the same rank.
- Good-faith and value defences may be available — get advice first.
- Consistent terms, security, and good records reduce exposure.
Frequently asked questions
Do I have to repay if I get a preference demand?
Not automatically. Defences may apply, and the claim must be properly made out. Seek advice before repaying anything. General information only.
How far back can a liquidator look?
There are defined look-back periods, and they vary with the circumstances. A qualified adviser can tell you whether a payment falls within them.
Does taking security help?
Holding valid, properly registered security can change your position, but it must be in place correctly and in time. Seek advice.
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