Irish Region

Read Insolvency in the Irish Agenda on payments to director of insolvent company.

Payments to director of insolvent company not 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.

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