Banks and the Recovery of Voidable Preferences

Abstract

A liquidator of an insolvent company and a trustee of a bankrupt's estate are empowered by statute to set aside certain transactions, including payments, entered into or made by a debtor prior to the debtor’s winding up or bankruptcy, as the case may be. This power to avoid antecedent transactions devolves from a legislative attempt to ensure, so far as possible, that creditors receive equal treatment according to an established scheme for the division of a debtor’s assets amongst creditors. The purpose of this article is to address the following issues: 1. What are the basic features of a liquidator’s power to recover voidable preferences, 2. In what circumstances will a bank be exposed to preferential transactions, and where this occurs, what remedies are available to the bank, if any, to avoid liability?