Application to set aside a preference
| Author | Mark Watson-Gandy |
| Pages | 333-350 |
OBJECTIVE
The court has wide powers on the application of the administrator or the liquidator to restore the position that would have been but for the preference being given to the company’s creditors, sureties or guarantors which have been undertaken with a view to improving their position in the event of the company’s liquidation.
Unless the contrary can be shown, it is presumed that an arrangement which benefits a connected person
To be challenged, the preference must have occurred at a time in the period of 2 years ending with the onset of insolvency where the respondent is a connected person or 6 months if the respondent is not.
APPLICATION
Proceedings are commenced by application notice (Form IAA).
The application must recite the nature of the relief sought and the grounds for bringing the application.
The application should be returnable to the registrar in the Companies Court or to the district judge in a Chancery District Registry or county court with insolvency jurisdiction.
The respondent should be the other party to the transaction that the liquidator or administrator is seeking to set aside.
334 Corporate Insolvency Practice
COURT FEES
Where fresh proceedings need to be brought, a court fee of £280 is payable.
EVIDENCE
The application should be supported by a witness statement by the liquidator or administrator. This will need to address:
ƒ the deponent’s name;
ƒ the deponent’s address;
ƒ the order he seeks;
ƒ that the respondent is a creditor, guarantor or surety of the company;
ƒ particulars of the respondent’s loan, indemnity or guarantee;
ƒ the date the company was incorporated;
ƒ the registered office of the company;
ƒ the nominal share capital of the company;
ƒ the issued share capital of the company;
ƒ the objects of the company;
ƒ the date upon which the petition to wind up the company or place it into administration or notice of administration was presented;
ƒ the date upon which the company went into liquidation or administration; ƒ that he was appointed as liquidator or administrator of the company;
ƒ the date upon which he was appointed as liquidator or administrator;
ƒ the date of the transaction subject to challenge;
ƒ the particulars of the arrangement subject to challenge;
ƒ that the arrangement operated to prefer the position of the respondent in the event of the company’s insolvent liquidation;
ƒ why it is said that the arrangement operated to prefer the position of the respondent in the event of the company’s insolvent liquidation;
ƒ that in entering the arrangement the company had been influenced by a desire to putting the respondent in a better position in the company’s insolvent liquidation;
ƒ whether the respondent is a connected person and, if so why;
ƒ that the company was insolvent (or is to be presumed to be insolvent) at the time of the transaction or was rendered insolvent by the transaction.
The witness statement should exhibit:
ƒ evidence of his appointment as liquidator or administrator;
ƒ the respondent’s loan, indemnity or guarantee;
ƒ a copy of the petition to wind up the company or place it into administration or notice of administration;
ƒ a copy of the winding up or administration order;
ƒ evidence of the arrangement subject to challenge;
ƒ evidence that the respondent is a connected person (if applicable);
ƒ evidence tending to show the insolvency or financial state of the company at the time of the transaction.
SERVICE
The application and the evidence in support will need to be filed at court and served on the respondent as soon as practicable after it is filed and in any event, unless it is necessary to apply without notice or on short notice, at least 14 days before the date fixed for the hearing.
The usual rule is that, subject to any other express provision, the application must be served at least 14 days before the date fixed for the hearing.
Service may be effected personally
THE FIRST HEARING
At the first hearing, the registrar or district judge will give directions as to whether points of claim and defence are needed and for the filing of evidence. He may also require the application to be served on other people. He may give directions as to whether witnesses are to attend for cross examination. The first hearing will be unrobed and is likely to be in chambers.
336 Corporate Insolvency Practice
KEY STATUTORY PROVISIONS
Sections 239, 240, 241 and 435 of the Insolvency Act 1986
239 Preferences (England and Wales)
(1) This section applies as does section 238.
(2) Where the company has at a relevant time (defined in the next section) given a preference to any person, the office-holder may apply to the court for an order under this section.
(3) Subject as follows, the court shall, on such an application, make such order as it thinks fit for restoring the position to what it would have been if the company had not given that preference.
(4) For the purposes of this section and section 241, a company gives a preference to a person if—
(a) that person is one of the company’s creditors or a surety or guarantor for any of the company’s debts or other liabilities, and
(b) the company does anything or suffers anything to be done which (in either case) has the effect of putting that person into a position which, in the event of the company going into insolvent liquidation, will be better than the position he would have been in if that thing had not been done.
(5) The court shall not make an order under this section in respect of a preference given to any person unless the company which gave the preference was influenced in deciding to give it by a desire to produce in relation to that person the effect mentioned in subsection (4)(b).
(6) A company which has given a preference to a person connected with the company (otherwise than by...
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