Written by Lisa Micallef in August, 2008

Preference Payments are payments or transfers that a Trustee or Liquidator may recover by Creditors of a Bankrupt Estate or an entity.

Preference payments can be recovered when it can be established that a Creditor received a payment in preference over other Creditors at the time the individual or company was in fact insolvent or became insolvent as a result of that transaction.

There are specific time frames in which a preferential payment took place that allow a Liquidator or Trustee to recover such preferential payments.

Put simply, the general time frame in which payments may be classified as a preferential payment is 6 months prior to the date of Bankruptcy or Liquidation. Please note that the time frame is just a simple guide and contains specific provisions that may alter the period that preferential payments may be recovered depending on several circumstances of each Bankrupt Estate or Liquidation.

In addition, related party transactions may be void for a period anywhere up to 4 years prior to the date of Bankruptcy or Liquidation.

If you are a Creditor of a Bankrupt Estate or Company, a few points that you should consider if served with a notice of a potential payment:

• Show that you acted genuinely and as a reasonable creditor would have acted in these circumstances;

• Prove that there was no reason for a Creditor to suspect that the individual or company was insolvent at the time of receiving payment. For example, payments were paid on time and the account was not an aged debt.