Nine months before going into liquidation, an insolvent company repaid in full an unsecured loan from an unconnected supplier, hoping to preserve the relationship. Can the liquidator challenge this as a preference?
Answer and explanation
Correct answer: C. No, because the relevant time for an unconnected person is six months before the onset of insolvency
- Step 1: Section 239 of the Insolvency Act 1986 applies to a preference given within the relevant time.
- Step 2: The relevant time is six months for an unconnected person and two years for a connected person.
Answer
No, because the relevant time for an unconnected person is six months before the onset of insolvency.
Why not the others: Two years applies to connected persons only; the company must also be influenced by a desire to prefer, and this is not automatic; repaying a debt can be a preference.
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