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1 The favouring by an insolvent debtor of a particular creditor (for example by paying one creditor in full when there is no prospect of paying the others). If the debtor subsequently becomes bankrupt (in the case of an individual) or goes into insolvent liquidation (in the case of a company), and was motivated by a desire to improve the position of the creditor, the court can order that the position be restored to what it would have been had that creditor not been given preference. The court can also make orders when the debtor has given property away or sold it at an undervalue. In respect of companies, the relevant provisions are sections 238–39 of the Insolvency Act 1986.

2 A floating charge created within one year before the commencement of winding-up in favour of an existing creditor. It is invalid if the company was insolvent at the time it was created unless the creditor provided some fresh benefit to the company at that time, e.g. by way of loan or goods supplied. If the charge was created in favour of a person connected with the company, the period is two years and it is not necessary to show that the company was insolvent at the time of its creation.

Subjects: Law.

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