Companies Act 2014 section 604

Unfair preference: effect of winding up on antecedent and other transactions

Section 604 deals with unfair preferences, which arise when a company that cannot pay its debts favours one creditor over others through transactions such as property transfers, mortgages, payments, or deliveries of goods shortly before winding up.

• A transaction favouring a specific creditor is deemed an unfair preference and is invalid if the company enters winding up within 6 months (or longer if the court considers it just) and is unable to pay its debts at that point
• Where the favoured creditor is a connected person, the look-back period extends to 2 years before winding up, and the transaction is presumed to be an unfair preference unless the contrary is proven
• Any transfer of all a company's property to trustees for the benefit of all creditors is automatically void, though the rights of anyone who acquired property in good faith and for valuable consideration through a creditor are protected
• Transactions carried out as part of a court-approved scheme of arrangement are not treated as unfair preferences provided they were reasonable, immediately necessary for implementing the scheme, and carried out in accordance with it