De Weyer Ltd and its liquidators pursued the former directors of the company in respect of a payment suspected to be made as a preference under s239 Insolvency Act 1986 (the Act). This case offers a useful reminder of the stages to consider when investigating preferences:
A payment of £317,750 was made by the company on 9 February 2017 to a company called Design Ltd (“Design”) which subsequently paid it on to the respondents (R1 and R2), two directors of De Weyer Ltd who were owed that sum in directors’ loans. The applicants argued that the payment constituted a preference made to the directors.
The relevant time, in this case, was the two years ending with the onset of insolvency on21 March 2017 (the date of the Creditors Voluntary Liquidation). The payments in question were made comfortably within that time.
The Court considered the relevance of the indirect nature of the payment as it was directed through Design before reaching the directors and was made in two stages over two days. It was found that the payment of the monies through Design was a coordinated scheme. De Weyer Ltd had done something by putting Design in funds with full knowledge of the intention for onward payment to the directors. That was an action on the part of the company to prefer the directors and put them in a better position than they would have been on liquidation, therefore satisfying the requirements of s239(4)(b).
The Court then considered the state of mind of the respondent directors in making the payment. The R1 was the sole director at the time of the payment and so was a connected person for the purposes of s249. The desire to prefer was presumed, and it was the R1’s burden to rebut that presumption. He failed to rebut the presumption and so was ordered to repay the monies he received back to De Weyer Ltd.
For R2, the presumption did not apply as they were no longer a director at the time of the payment and so no longer a connected person. De Weyer Ltd and its liquidators had to positively prove the desire to prefer. It was found that R1’s decision to pay the monies to both respondents, in the knowledge they were not secured creditors, demonstrated a clear desire to prefer. Therefore, the monies paid to R2 were also ordered to be repaid.
It was considered by the Court, albeit not in direct reference to the facts of the case, that where a director holds a sincere but mistaken belief that a creditor has security, this would displace the desire to prefer.
This case confirms that the Court is willing to take a purposive approach in considering preference claims where there has been a chain of recipients through which money has been paid out. IPs should be mindful of this when investigating transactions and consider whether preferences can be established even where money has not to be paid directly to a creditor.