31:
709:
authorized to recover the property preferentially transferred. The mechanism of recovery is the avoidance of the transfer. After such avoidance, the recovered property becomes property of the bankruptcy estate. The period is usually 90 days. However, if the preferential transfer is made to an "insider," then the period is one year. An "insider" is generally a relative or one who has the ability to control the activities of the debtor. The
Bankruptcy Code provides some exemptions from these rules to accommodate transfers intended to be contemporaneous, made in the ordinary course of business or to the extent they are made for new value, and others.
30:
936:
Bankruptcy Code
Section 547(e) provides that in real estate transactions, transfers take place at the time when they are made if they are perfected within 30 days thereafter. Otherwise, the transfer is deemed by the law to be made when it is actually perfected. With respect to mortgages, perfection
841:
Most notably, the fraudulent transfer always reduces the net worth of the transferor while the preference does not. Also, it is not necessarily for the paying party to go into bankruptcy in order to have a transaction which is a fraudulent conveyance set aside in most legal systems, and most legal
708:
proceeding. It is primarily a creature of the U.S. Bankruptcy Code, although some states have similar state laws. If the preferential transaction takes place within a specified period of time before the filing of bankruptcy by or on behalf of the debtor, then the debtor's trustee in bankruptcy is
621:
The effect of a successful application to have a transaction declared as an unfair preference varies. Inevitably, the creditor which received the payment or assets has to return it to the liquidator. In some countries, the assets are treated in the normal way, and may be taken by any
645:, but legally they are separate concepts. There is not normally any requirement to prove an intention to defraud to recover assets under an unfair preference application. However, similar to fraudulent conveyance applications, unfair preferences are often seen in connection with
617:
In most countries, an application to have a transaction set aside as a preference can only be made by the liquidator or trustee in bankruptcy, as the person making the payment must be in bankruptcy, and thus they are not normally liable to lawsuits from other creditors.
809:
This is the position in the United
Kingdom (although section 239(6) says that a preferential payment in favour of a connected person gives rise to a presumption of an intention to prefer), but in Australia and in the U.S., it is not necessary to show an intention to
799:
Most jurisdictions apply a variable vulnerability period, for example, in some countries the vulnerability period is 6 months normally, or 2 years of the creditor is a "connected person" such as a family relative, or a company in the same
703:
is a transfer of property by a debtor to its creditor, on account of a pre-existing debt, that is made while the debtor is insolvent and gives the creditor more than it would obtain in a liquidation of the debtor's assets in a
872:
Under the
Bankruptcy Code, insolvency exists when the sum of the debtor's debts exceeds the fair value of the debtor's property, with some exceptions. It is a balance sheet test. Chapter 11 United States Code Sec.
740:
Under Swiss law, creditors who hold a certificate of unpaid debts against the debtor, or creditors in a bankruptcy, may file suit against third parties who have benefited from unfair preferences or
576:
The law on unfair preferences varies from country to country, but characteristically, to set a transaction or payment aside as an unfair preference, the liquidator will need to show that:
334:
719:
Substituting property of greater value as security for existing security property whose value is insufficient to completely secure repayment of the debt.
390:
319:
190:
446:
57:
360:
712:
All of the following examples assume that the requirements for a preference that are set out above exist at the time the transfer is made.
519:
185:
634:). However, some countries have "ring-fenced" recoveries of unfair preferences so that they are made available to the pool of assets for
882:
851:
82:
705:
700:
415:
725:
In a real estate transaction, delaying the recording of a mortgage for more than 30 days after the debt it secures is created.
385:
656:
with a view to keeping the company trading, and such transactions are usually either validated or presumed to be validated.
735:
410:
405:
370:
62:
400:
653:
466:
355:
784:, which uses the term 'Preference' rather than 'Unfair Preference'; section 565 of the Corporations Act 2001 of
762:
597:
the person or company then went into bankruptcy within a specified time thereafter, usually referred to as the
512:
395:
380:
365:
350:
236:
938:
493:
483:
436:
324:
262:
113:
92:
757:
683:
226:
642:
561:
431:
329:
221:
205:
159:
138:
133:
441:
47:
956:
741:
676:
505:
375:
635:
604:
461:
252:
169:
788:
670:
627:
488:
471:
456:
303:
123:
72:
652:
Many jurisdictions provide for an exception in the case of transactions entered into in the
646:
623:
557:
298:
267:
164:
128:
631:
283:
67:
842:
systems do not require intention to defraud in order to establish an unfair preference.
781:
537:
950:
541:
200:
603:
the payment had the effect of putting the creditor in a better position than other
97:
77:
886:
855:
257:
87:
745:
553:
477:
52:
22:
785:
581:
195:
549:
293:
154:
118:
859:
609:
in some jurisdictions, it is also necessary to show that the bankrupt
556:, that payment or transfer can be set aside on the application of the
545:
451:
832:
In the United
Kingdom, see section 423 of the Insolvency Act 1986
649:
schemes that are entered into too late by the putative bankrupt.
288:
780:
See for example, section 239 of the
Insolvency Act 1986 of the
641:
An unfair preference has some of the same characteristics as a
29:
536:(or "voidable preference") is a legal term arising in
897:Chapter 11 United States Code Secs. 547(b) and 551
744:by the debtor prior to a seizure of assets or a
630:which catches the assets (characteristically, a
584:at the time the payment was made (either on the
823:(1997) BCC 282, now superseded by legislation.
513:
8:
722:Paying some but not all unsecured creditors.
790:; and Sec. 547 of the U.S. Bankruptcy Code.
918:Chapter 11 United States Code Sec. 101(31)
520:
506:
18:
927:Chapter 11 United States Code Sec. 547(c)
592:test - it varies from country to country)
773:
423:
342:
311:
275:
244:
213:
177:
146:
105:
39:
21:
716:Securing a previously unsecured debt.
7:
821:Re Oasis Merchandising Services Ltd
14:
863:, known as the Bankruptcy Code
1:
736:Insolvency law of Switzerland
16:Legal term in bankruptcy law
701:U.S. federal bankruptcy law
660:In individual jurisdictions
654:ordinary course of business
973:
733:
668:
580:the person or company was
552:shortly before going into
467:History of bankruptcy law
763:Voidable floating charge
568:or simply a preference.
237:Voidable floating charge
484:Pre-packaged insolvency
437:Bankruptcy alternatives
325:Cross-border insolvency
263:Trading while insolvent
114:Insolvency practitioner
93:Provisional liquidation
758:Undervalue transaction
684:Re MC Bacon Ltd (No 1)
613:to grant a preference.
227:Undervalue transaction
34:
937:usually requires the
643:fraudulent conveyance
562:trustee in bankruptcy
432:Anti-deprivation rule
330:Insolvency Regulation
222:Fraudulent conveyance
206:Scheme of arrangement
160:Preferential creditor
139:Trustee in bankruptcy
134:Referee in Bankruptcy
33:
742:fraudulent transfers
599:vulnerability period
548:or pays a debt to a
677:Insolvency Act 1986
636:unsecured creditors
605:unsecured creditors
186:Administration (UK)
540:where a person or
462:Financial distress
335:UNCITRAL Model Law
253:Fraudulent trading
170:Unsecured creditor
35:
671:UK insolvency law
628:security interest
624:secured creditors
566:unfair preference
534:unfair preference
530:
529:
489:Sovereign default
472:List of bankrupts
442:Creditors' rights
304:Security interest
232:Unfair preference
214:Avoidance regimes
124:Regulatory agency
964:
942:
941:of the mortgage.
934:
928:
925:
919:
916:
910:
904:
898:
895:
889:
880:
874:
870:
864:
849:
843:
839:
833:
830:
824:
817:
811:
807:
801:
797:
791:
778:
647:asset protection
588:test, or on the
522:
515:
508:
299:Second lien loan
268:Wrongful trading
165:Secured creditor
19:
972:
971:
967:
966:
965:
963:
962:
961:
947:
946:
945:
935:
931:
926:
922:
917:
913:
905:
901:
896:
892:
881:
877:
871:
867:
850:
846:
840:
836:
831:
827:
818:
814:
808:
804:
798:
794:
779:
775:
771:
754:
738:
732:
693:
673:
667:
662:
632:floating charge
574:
526:
320:Chapter 15 (US)
284:Floating charge
191:Chapter 11 (US)
68:Conservatorship
17:
12:
11:
5:
970:
968:
960:
959:
949:
948:
944:
943:
929:
920:
911:
899:
890:
883:11 U.S.C.
875:
865:
852:11 U.S.C.
844:
834:
825:
812:
802:
792:
782:United Kingdom
772:
770:
767:
766:
765:
760:
753:
750:
734:Main article:
731:
728:
727:
726:
723:
720:
717:
692:
689:
688:
687:
680:
666:
665:United Kingdom
663:
661:
658:
615:
614:
607:
601:
594:
593:
573:
570:
538:bankruptcy law
528:
527:
525:
524:
517:
510:
502:
499:
498:
497:
496:
491:
486:
481:
474:
469:
464:
459:
454:
449:
447:Chapter 9 (US)
444:
439:
434:
426:
425:
421:
420:
419:
418:
413:
411:United Kingdom
408:
403:
398:
393:
388:
383:
378:
373:
368:
363:
358:
353:
345:
344:
340:
339:
338:
337:
332:
327:
322:
314:
313:
309:
308:
307:
306:
301:
296:
291:
286:
278:
277:
273:
272:
271:
270:
265:
260:
255:
247:
246:
242:
241:
240:
239:
234:
229:
224:
216:
215:
211:
210:
209:
208:
203:
198:
193:
188:
180:
179:
175:
174:
173:
172:
167:
162:
157:
149:
148:
144:
143:
142:
141:
136:
131:
126:
121:
116:
108:
107:
103:
102:
101:
100:
95:
90:
85:
80:
75:
70:
65:
60:
58:Chapter 7 (US)
55:
50:
48:Administration
42:
41:
37:
36:
26:
25:
15:
13:
10:
9:
6:
4:
3:
2:
969:
958:
955:
954:
952:
940:
933:
930:
924:
921:
915:
912:
908:
903:
900:
894:
891:
888:
884:
879:
876:
869:
866:
862:
861:
857:
853:
848:
845:
838:
835:
829:
826:
822:
816:
813:
806:
803:
796:
793:
789:
787:
783:
777:
774:
768:
764:
761:
759:
756:
755:
751:
749:
747:
743:
737:
729:
724:
721:
718:
715:
714:
713:
710:
707:
702:
698:
691:United States
690:
686:
685:
681:
678:
675:
674:
672:
664:
659:
657:
655:
650:
648:
644:
639:
637:
633:
629:
625:
619:
612:
608:
606:
602:
600:
596:
595:
591:
590:balance sheet
587:
583:
579:
578:
577:
571:
569:
567:
563:
559:
555:
551:
547:
543:
539:
535:
523:
518:
516:
511:
509:
504:
503:
501:
500:
495:
494:Subordination
492:
490:
487:
485:
482:
480:
479:
475:
473:
470:
468:
465:
463:
460:
458:
455:
453:
450:
448:
445:
443:
440:
438:
435:
433:
430:
429:
428:
427:
422:
417:
416:United States
414:
412:
409:
407:
404:
402:
399:
397:
394:
392:
389:
387:
384:
382:
379:
377:
374:
372:
369:
367:
364:
362:
359:
357:
354:
352:
349:
348:
347:
346:
341:
336:
333:
331:
328:
326:
323:
321:
318:
317:
316:
315:
312:International
310:
305:
302:
300:
297:
295:
292:
290:
287:
285:
282:
281:
280:
279:
274:
269:
266:
264:
261:
259:
256:
254:
251:
250:
249:
248:
243:
238:
235:
233:
230:
228:
225:
223:
220:
219:
218:
217:
212:
207:
204:
202:
201:Restructuring
199:
197:
194:
192:
189:
187:
184:
183:
182:
181:
178:Restructuring
176:
171:
168:
166:
163:
161:
158:
156:
153:
152:
151:
150:
145:
140:
137:
135:
132:
130:
127:
125:
122:
120:
117:
115:
112:
111:
110:
109:
104:
99:
96:
94:
91:
89:
86:
84:
81:
79:
76:
74:
71:
69:
66:
64:
61:
59:
56:
54:
51:
49:
46:
45:
44:
43:
38:
32:
28:
27:
24:
20:
932:
923:
914:
906:
902:
893:
878:
868:
858:
847:
837:
828:
820:
815:
805:
795:
776:
739:
711:
696:
694:
682:
651:
640:
620:
616:
610:
598:
589:
585:
575:
565:
533:
531:
476:
401:South Africa
231:
98:Receivership
78:Examinership
730:Switzerland
679:section 239
626:who have a
406:Switzerland
258:Misfeasance
88:Liquidation
73:Dissolution
957:Bankruptcy
909:, Sec. 551
887:§ 547
856:§ 101
746:bankruptcy
706:bankruptcy
697:preference
669:See also:
558:liquidator
554:bankruptcy
544:transfers
478:Pari passu
343:By country
129:Liquidator
53:Bankruptcy
23:Insolvency
939:recording
786:Australia
586:cash-flow
582:insolvent
381:Hong Kong
356:Australia
196:Cram down
147:Claimants
106:Officials
40:Processes
951:Category
752:See also
611:intended
572:Overview
550:creditor
351:Anguilla
294:Mortgage
276:Security
245:Offences
155:Creditor
119:Tribunal
873:101(32)
860:et seq.
542:company
457:Default
391:Ireland
885:
854:
810:prefer
800:group.
564:as an
546:assets
452:Debtor
396:Russia
371:Cayman
366:Canada
769:Notes
424:Other
386:India
376:China
907:Ibid
819:See
289:Lien
699:in
560:or
532:An
361:BVI
83:IVA
63:CVA
953::
748:.
695:A
638:.
521:e
514:t
507:v
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