7. Further to the above question, what if I only arrange payment to one of the creditors immediately before the commencement of winding-up proceedings?

7. Further to the above question, what if I only arrange payment to one of the creditors immediately before the commencement of winding-up proceedings?

Even though the person who received payment is your company's creditor, the transaction is still invalid if it is made within 6 months of the commencement of the winding up and with the intention to prefer a particular creditor. It is called a preferential payment. If the person who received the assets is an “associate” of a company (e.g. a director), the relevant period is 2 years prior to the commencement of winding-up.

For example, if your company owes you (as a director or shareholder) or your wife or your relatives money and arrange payment immediately before the commencement of winding up, it would be a preferential payment as there is a clear intention that the company will “prefer” to repay these creditors than the others.

The reason behind is that your company's assets should be realized and all the relevant proceeds should be used to: i) settle all the expenses incurred in the winding-up proceedings; and ii) share with all the creditors but not only the one that you “prefer” to pay for. In this case, the creditor (who received your money) may be ordered by the Court to refund the money back to your company.