Preferences, undervalue sales and wrongful trading

A preference can arise where a creditor, guarantor or surety is put in a better position on an insolvent liquidation than otherwise, with the required desire to prefer. It is not simply any payment to one supplier. Connected parties, timing and the company’s solvency affect the analysis.

Repaying a director or a personally guaranteed balance while others remain unpaid deserves particular scrutiny. Document the commercial reason for essential payments and obtain advice rather than selecting the creditor who applies the most pressure.

This can include giving away an asset or receiving substantially less than its value. The statutory conditions and relevant period must be considered. A genuine business explanation and reliable valuation are important; an invoice alone does not prove fair value.

Recovery action aims to restore value for creditors. The person who received property may be affected as well as the directors who approved the transfer.

Wrongful trading can concern continuing beyond the point when a director knew or ought to have concluded that avoiding insolvent liquidation or administration was no longer reasonably possible, subject to the statutory tests and defence. Fraudulent trading involves dishonest intent. Misfeasance can concern misuse of assets or breach of duty.

These are distinct grounds, not interchangeable labels. Preserve forecasts and board decisions, take specialist advice and reassess trading as circumstances change.