Transfer to preferred creditor – House for sale in Singapore
The bankruptcy law provides that where a person is in financial difficulty and unable to pay his debts to his creditors, and transfers his property to one or another of his creditors which has the effect of giving that creditor a preference or advantage over other creditors, such transfer is void. The trustee in bankruptcy or the official assignee may recover the property from the preferred transferee in order to distribute its sale proceeds among the creditors according to established rules of priorities. House for sale in Singapore.
To resist such a claim by the trustee in bankruptcy or official assignee, the transferee has to prove that he is a purchaser for valuable consideration, ie. he paid a commercial price for the property, and he has acted in good faith and in the ordinary course of business, and he has no reason to suspect that the transferor was insolvent.
Company law has similar principles dealing with companies in the same situation. So if a company within six months of its being put into liquidation, transfers its property to a creditor in preference over other creditors, the liquidator may apply to court to declare the transfer void unless the transferee can prove that he was a purchaser for valuable consideration in good faith, in the ordinary course of business and that he was not aware that the company-transferor was insolvent.
The rationale for such a law is that a bankrupt or insolvent debtor’s available property and assets should be equitably shared among its creditors and not transferred to a preferred creditor.
In a bankruptcy of an individual (or liquidation of a company) the trustee in bankruptcy (or liquidator) will examine the bankrupt’s (or the insolvent company’s) recent transactions to see if he can set aside any of them for the benefits of all the creditors.
In Re Conley [1938] 2 All ER 127, the company took overdraft facilities from a bank. Its three directors jointly and severally guaranteed the repayment of the overdraft liabilities. The company went into financial difficulties, and owed many creditors. In order to cancel their personal guarantees to the bank and avoid being personally bankrupt, the three directors transferred a property jointly owned by them to the bank to secure the overdraft liabilities. Immediately after the transfer of the property as a mortgage, the company was wound up by its creditors who appointed a liquidator to deal with the company’s affairs. The liquidator successfully applied for an order from the court to set aside the transfer on the ground that it was done within six months of the winding up of the company, and that it was a transfer to a preferred creditor, the bank, in order to free the directors of their personal guarantees. The liquidator recovered the property from the bank, sold the property and shared its proceeds among the creditors of the insolvent company. House for sale in Singapore.
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