Payments to Director of Insolvent Company Not Fraudulent Preference
![]()
The High Court has refused a declaration sought by a Liquidator that salary payments constituted fraudulent preference
A declaration sought by the
Liquidator of an insolvent company that certain payments made to a director
constituted fraudulent preference has been refused by the High Court in FF
Couriers Limited & Companies Acts: Keane -v- Day & ors [2016]
IEHC
The Liquidator alleged that the
payments to the director were drawings to him in his capacity as a creditor of
the company where the director had advanced a loan to the company. The
Liquidator asserted that this was a preferential repayment of the director's
loan to the company in priority to other creditors. However, the director
claimed that he did not know the payments were being accounted as a repayment
of the director's loan and that he had always believed the payments amounted to
his monthly salary.
The Court recognised that the
director was a 'connected party' to the insolvent company and therefore the
onus of proof was on the director to rebut the assertion of a fraudulent
preference. However the Court was satisfied that the payments were not made
with a view to preferring the director, as a creditor, over other creditors of
the company. The Court held that the payments received (which were modest
amounts) represented payments of a monthly salary to the director rather than a
repayment of a loan and accepted the director's evidence in this regard. The
Court held that the presumption of fraudulent preference had been rebutted and
refused to grant the declaration sought.
With the Court stating that: "a
careful application of the sometimes quite draconian provisions of our company
law code is required if company directors are not to lose their good
name"; this case clearly demonstrates again the challenges that
liquidators face in successfully prosecuting fraudulent preference claims and
that every case will turn on the very specific facts in each
instance.
Contributed by Craig Sowman
Back to Legal News