The Statutory Framework
Sections 328 and 329 of the Companies Act govern preferential transactions in winding up. A preference is a transfer of property or payment to a creditor that gives that creditor a preference over other creditors. The transaction is void against the liquidator if it was made within the look-back period and the company was unable to pay its debts at the time.
The Look-Back Periods
The look-back period is six months for unrelated creditors and two years for related parties. The period runs from the date of the winding-up commencement. A transaction outside the look-back period is not avoidable as a preference, even if it favoured a creditor.
The Elements and the Defences
The liquidator must establish: a transfer of property; to a creditor; at a time when the company was unable to pay its debts; and within the look-back period. The transferee may defend on the ground that the transaction was in the ordinary course of business, that it was a contemporaneous exchange for value, or that it did not prefer the creditor over others.
The Practical Consequence
A preferential transaction that is avoided results in the restoration of the property or its value to the company. The liquidator may pursue the transferee for the value. The transferee should preserve the transaction documents and the evidence of the commercial rationale.
Call to Action: For preferential transaction defence, look-back period assessment, or liquidator avoidance proceedings, contact office@anujdesaiassociates.com or 9619456656. Website: https://anujdesaiassociates.com. LinkedIn: linkedin.com/in/ca-anuj-desai-122547230.