ExpertMedium2 marksMultiple Choice
ACCA · Question 23 · Insolvency law
Section A
Six months before going into liquidation, a company transfers a valuable piece of machinery to one of its unsecured creditors to settle a debt, intending to put that creditor in a better position than others. What type of voidable transaction is this?
Section A
Six months before going into liquidation, a company transfers a valuable piece of machinery to one of its unsecured creditors to settle a debt, intending to put that creditor in a better position than others. What type of voidable transaction is this?
Answer options:
A.
A transaction at an undervalue
B.
A preference
C.
An invalid floating charge
D.
Fraudulent trading
How to approach this question
Identify the insolvency term for favoring one creditor over others shortly before liquidation.
Full Answer
B.A preference✓ Correct
Under s.239 of the Insolvency Act 1986, a preference occurs if a company does an act that puts a creditor in a better position in the event of insolvent liquidation than they would otherwise have been, and the company was influenced by a desire to produce that better position. The liquidator can apply to the court to reverse this.
Common mistakes
Confusing a preference with a transaction at an undervalue. A preference specifically involves an existing creditor being bumped up the queue.
Practice the full ACCA LW — Corporate and Business Law Practice Exam 5
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