Accountants and insolvent clients: 3 ways to avoid unfair preference claims

It isn’t always easy being a Liquidator.

One of the duties we perform as Liquidators it to identify whether any creditors have been given ‘preferential treatment’ where they’ve received payments when other creditors haven’t been paid.

(Here’s what to do if your client receives a demand for an unfair preference, along with some information on what a Liquidator can recover.)

It’s hard to ask a creditor to return money they’ve been paid. After all, they have their own business to run that needs a healthy cash flow just like any other. But as much as we don’t like doing it, as Liquidators it’s our job.

(What makes it even worse is that some Liquidators can be quite aggressive in these situations. At Rapsey Griffiths we do our best to resolve the matter respectfully and commercially.)

As their accountant you’re probably owed money as well, and naturally you’d like to keep any payments you receive. And so it becomes a balancing act as we try to help the client (and ensure you get paid along the way) while minimising the risk of a Liquidator asking for the money back.

Tips to help you avoid disputes over payments you may have received

Firstly, there are defences against an unfair preference claim. A creditor can dispute they received an unfair preference by showing they didn’t benefit from the transaction. Even if they did benefit from the transaction, they can still dispute the claim by showing:

  • they received the benefit in good faith
  • they had no reasonable grounds to suspect the company was insolvent when they received it
  • a reasonable person in their circumstances wouldn’t have had grounds to suspect the company was insolvent.

Of course, the best way to deal with an unfair preference claim is avoid receiving one in the first place. Here are three ways you can avoid getting caught in one:

  1. Get the cash up front. Getting paid up front nullifies the argument that you’re a creditor.
  2. Get security. Money from an unfair preference can only be recovered from an unsecured creditor.
  3. Operate strictly on a Cash On Delivery basis.

When it comes to insolvency advice, it pays to get the right advice. If you or one of your clients receives a demand for an unfair preference from a Liquidator, get in touch with us. We’ll make a time to review the situation and run through the available options free of charge.