Challenging Past Transactions In Liquidation: Fraudulent Preference

Introduction

An effective weapon in a liquidator's and creditor's arsenal to ensure the fair and equal treatment of all creditors of a failing company is the ability to challenge past transactions that sought to favour one creditor to the detriment of others.

Transactions entered into by Cyprus companies that are being wound up may be voided if they constitute fraudulent preference and took place during the statutory claw-back period.

What constitutes fraudulent preference?

Pursuant to Section 301(1) of the Companies Law (Cap 113), any transfer, charging, mortgaging, delivery of goods, payment, execution or other act relating to property made by or against a company in the six months prior to the commencement of its winding up - which would be considered fraudulent preference if it had been done by or against a natural person within six months of the bankruptcy application which led such person to be declared bankrupt - will, in the event of the company's