What are unfair preferences?

Unfair preferences are when a troubled company – in the six months before entering liquidation – makes payments to one or more creditors at the expense of others.

It is a strong policy of insolvency law that unsecured creditors are treated equally (pari passu).

For example, if a company suspects that it won’t have enough money to pay all its creditors, the directors might decide to fully repay loans to some favoured creditors (such as those who might be friends or family or sources of future business), thereby leaving less money or no money for the other creditors.