The Trustee Wants The Money Back?

cromwell3

WHY DID I GET INVOLVED!

All advice welcome please!!
I lent my brother £10,000 over a period of 3yrs he was going through a messy divorce ~went to court 3 times~however after the settlement he was to pay me back which he did.You guessed it !! The divorce played its part in subsequent bankruptcy.He payed me back in May 2006 and was made bankrupt in Feb 2007.I have some evidence of payments but is this academic as the Trustee is treating this as a preferential payment and is asking for it back!!?:eek: please advise if any info. thankyou

Toomuchdebt

Seems a bit unfair really as it's not as if it was that close to the bankruptcy date to be classed as preferential payment.I'm sure someone with more knowledge will be on here soon with some advice.I mean it's hardly your fault so why should you be penalised?

cromwell3

Thankyou for your comments I'm glad your confident that others will reply

Toomuchdebt

It's a weekend so fairly quiet on here...wait till tomorrow

betterlatethannever

This does seem really unfair, especially as so much time had past.
I'm no expert but can i ask a few questions.
1. Did your brother know or even have any idea he was heading for BR?
2. Has he paid any of his other creditors anything at the same time or after?
3. Have you to prove that the payments were made and can you?
4. Have you since spent this money?

Sorry for all the questions but it might help us.
In the mean time i'd suggest you seek some help or advice, prehaps from the CAB (ask for a finacial advisor/specialist) or maybe, a solicitor. I'd certainly put up a fight.
Good luck

debt_doctor

Hi,

Ok here goes........

Preferential crediting

To treat one or more creditors favourably prior to BR is called preferential crediting. For this to be the following conditions must be satisfied.

The client had the intention of putting them in a better position and the client was already insolvent at the time money repaid and the payment was made within 6 months of theBR order or 2 years if the preference was a family member.

Your main argument is was your brother insolvent ( could not pay his debts when they fell due ) at the time he repaid you the money.

I will check some more info at work foryou tommorrow.

Best

DD

fermi

This is the guidance given to the OR's. While you are dealing with a Trustee most of it should still hold.

I've highlight a few particularly relevant bits, but it's hard to review it all in the posting box.

From the OR's "Case Help Manual".

[URL="ttp://www.insolvency.gov.uk/freedomofinformation/technical/casehelpmanual/A/AntecedentRecoveries.htm"]http://www.insolvency.gov.uk/freedomofinformation/technical/casehelpmanual/A/AntecedentRecoveries.htm
[/URL]

x Preferences (sections 239 and 340)

There are two elements to a preference:

1. An individual or company does something that puts a creditor or surety or guarantor of any debts in a better position than it otherwise would have been on the bankruptcy of the individual or winding-up of the company;
2. There was an intention to put the creditor in a better position.

For example, in a company, a common preference is the payment of all or a substantial part of the bank debt, the debt being personally guaranteed by the directors.

If the preference has been made because the creditor has threatened to commence legal action, it may be that the intention was to get rid of the threat rather than prefer. Genuine pressure may be a defence if the action was taken to prevent insolvency but the fact that the action was the result of a court order does not mean that it cannot be deemed a preference.

The trustee, liquidator or administrator may make an application to the court that the transfer be reviewed as a preference and that the court make an appropriate order. The trustee or liquidator must obtain sanction (approval) of the court or creditors'/liquidation committee before making applications under section 239 or 340. (Where the OR is trustee/liquidator, Technical Section undertake the functions of the creditors'/liquidation committee on behalf of the Secretary of State. The Examiner/B1 will minute details of the transaction to Technical Section requesting sanction.)

It is up to the trustee, liquidator or administrator to show the court that the preference had taken place in anticipation of insolvency and was influenced by a desire to put the creditor in a better position. Where the preference was given to an associate, except for an employee, the associate must prove that there was no desire to put him in a better position.

For a preference to be capable of consideration by the court, it must have taken place in the 6 months prior to the date of the presentation of the petition in both bankruptcy and compulsory winding-up proceedings. Where the preference involved an associate of an individual (see paragraph viii) or someone connected to the company (see paragraph ix), the relevant period is extended to 2 years prior to the presentation of the petition.

At the time the preference was made, the individual or company must have been insolvent or become insolvent as a result of the preference, although in the case of an associate or connected person, there is a presumption of insolvency.

The court may order that the position be restored to what it would have been if the preference had never been given, although a third party who purchased something in good faith and for value will be protected unless the third party had notice of the impending insolvency or if he was an associate or connected person.

From the OR's "Technical Manual".

http://www.insolvency.gov.uk/freedomofinformation/technical/TechnicalManual/Ch25-36/Chapter31/part4/part4/part_4.htm

Preferences

31.4.32EA Introduction

The act has removed the term "fraudulent" in relation to transactions and payments which could be considered as being preferences. The provisions relating to voidable preferences are contained in section 239, 240 and 241 (companies) and sections 340, 341 and 342 (bankruptcy). The preference may be challenged by an administrator, a liquidator or a trustee by making an application to the court.

Where an action to challenge a preference is commenced on or after 15 September 2003 (the Enterprise Act 2002, section 253, amends Schedule 4 of the IA86 so) a liquidator who intends to take legal proceedings to challenge a preference must first obtain sanction of the liquidation committee or the court.See also paragraphs 31.4.8 and 31.4.8A EA for details of funding such recoveries.

The Enterprise Act 2002, section 262, amends Schedule 5 of the IA86 so the trustee must first obtain sanction of the court or the creditors' committee before he/she takes legal action to challenge a preference that is to be commenced on or after 15 September 2003.

In addition to considering the period when the preference was given (see paragraph 31.4.36) and that a creditor or guarantor has benefited, it is also necessary to consider whether the company or individual was "influenced in deciding to give the preference by a desire" to put the person receiving the preference in a better position than he would have been in the insolvency of the person giving the preference. It is not necessary for the intention to prefer to be the dominant intention of the person giving the preference. Since the Act has replaced the significant words relating to fraudulent/voidable preferences, the court has held the citation of cases decided under the old law to be inappropriate. The court took the view that the previous case law cannot be of any assistance when the language of the statute has changed so completely (Re M C Bacon Ltd [1990] BCC 78).
Notes: Sanction required to take legal proceedings [Schedule 4 Part I, para 3A or Schedule 5 Part I, para 2A]

31.4.33 What is a preference?

The relevant sections define that giving a preference is the doing of anything by a company or individual or the suffering by a company or individual of anything which has the effect of putting either one of its creditors or someone who is a surety or guarantor of one of its debts in a position which, in the event of the company going into insolvent liquidation or the individual being made bankrupt will be better than the position he would have been in if that thing had not been done. An example of giving a preference may be the payment in full of a creditor, where if that had not been done, the company or individual would have only been able to pay a small percentage of that debt during the course of any liquidation or bankruptcy when all creditors are treated equally. That creditor is clearly better off, as is any guarantor of that debt. It is possible that the granting of a fixed or floating charge may be a preference if it occurred during the period of review (see paragraph 31.4.6) and the court may on the application of the liquidator deem it to be invalid.

31.4.36 Period of review (July 2007)

Any preference given to a non-connected person by a company or an individual is reviewable if it occurred within the 6 month period prior to the onset of insolvency (see paragraph 31.4.37) provided that the individual or the company was insolvent at the time the preference was given or became insolvent a result of the transaction (see paragraph 31.4.2). The period is extended to 2 years prior to the onset of insolvency (see paragraph 31.4.37) if the recipient of the preference is connected with the company (otherwise than by reason of being its employee) or an associate of the bankrupt. The company or individual which gave the preference must have been insolvent at the time the preference was given or became insolvent as a result of the transaction (see paragraph 31.4.2), although in the case of a connected person, there is a presumption of insolvency.The decision to give the preference should have been made within the above periods. It is not necessary that the transaction occurred during that period of time (Re M C Bacon Ltd [1990] BCC 78). Where the preference is the payment of an outstanding debt the date on which the payments were made not the date on which the original debt was due is the relevant date (Re Willis v Corfe Joinery (In Liquidation) [1997] B.C.C.511) If the company or individual was not insolvent at the time that the preference was given, it will not be voidable. If it can be shown that the transaction was a transaction to defraud creditors, the liquidator or trustee should consider an application under section 423 (see part 8), which is not subject to any time constraints.
Notes:[s240(2) and s341(2)] [s249 and s435] [s240(2) and s341(2)]

31.4.37EA Onset of insolvency

The onset of insolvency is defined as follows:-

a) in winding up proceedings the date of the presentation of the petition; or
the date of the resolution for voluntary winding up;

b) in a case where an administrator is appointed;

by an administration order, the date on which the administration order is made,

under schedule B1, paragraph 14 or 22 following filing with the court of a copy of a notice of intention to appoint under that paragraph, the date on which the copy of the notice is filed,

otherwise than as mentioned in paragraph (a) or (b), the date on which the appointment takes effect;

c) in a case where a company goes into liquidation either following conversion of an administration into a winding up by virtue of Article 37 of the EC Regulation or at the time when the appointment of an administrator ceases to have effect, the date on which the company entered administration (or, if relevant, the date on which the application for the administration order was made or a copy of the notice of intention to appoint was filed), and

d) in bankruptcy proceedings - the date of the presentation of the petition.
Notes:[s240(3)][s341(1)]

31.4.38 Definition of a connected person and associate

A person is connected with a company if he is a director or a shadow director. It is possible for a company’s bank to come within the definition of a connected person if its involvement in the company’s affairs is such as to make it a shadow director (Re a Company No 005009 of 1987 [1988] 4 BCC 424). A person is also connected with a company if he is an associate as defined by section 435 of the Act. In particular, section 435 provides that a person is an associate of an individual if that person is the individual’s husband or wife or a relative, of the individual or the individual’s husband or wife. Other persons may also be associates of an individual.
Notes:[s251] [s435]

31.4.39 Evidence to support an application

It must be shown that there was a desire by the company or the individual to improve the creditor’s position in the event of an insolvent liquidation or bankruptcy order. It is not necessary to establish that there was a dominant intention to prefer but rather that the decision was influenced by the desire to produce the effect as detailed above, i.e. to improve the creditor’s position.

31.4.40 Burden of proof

The burden of proof is placed on the administrator, liquidator or trustee to satisfy the court that the company or individual had anticipated the occurrence of insolvent liquidation or bankruptcy and was influenced by a desire to put the creditor in a better position. In the case of a preference given to an associate (other than an employee), the associate must prove that the company or individual was not influenced by a desire to put him into a better position. It should be difficult for directors, shareholders and their relatives and other companies in the same group to retain the benefit of a preference (Re D K G Contractors Ltd [1990] BCC 903). However, in the case of Beacon Leisure Ltd [1991] BCC 213, the court accepted the unsupported denials of the two directors that there was no desire to put themselves in a better position.
Notes:[s239(6) and s340(5)]

31.4.41 Power of the court

The court may make an order to restore the position to what it would have been if the company or individual had not given a preference. Sections 241(1) and 342(1) contain examples of the possible orders the court may make, for further details see paragraph 31.4.31. A third party who purchased a property in good faith and for value is protected. However, there is a presumption that the third party has not acted in good faith if he had notice of the preference and of the pending or actual insolvency, and if he was an associate or connected person.
Notes:[Insolvency (No 2) Act 1994]

betterlatethannever

A little 'light' reading there Fermi

cromwell3

Thankyou for your comments

He was more concerned with the seperation so as far as I knew BR was not a possibility.I have spent the money because I used my good credit history to borrow money before the credit crunch on mainly credit cards and repaid the capital borrowed etc.I am only presuming that if I can prove the money was lent it may be offered in mitigation?I am in the middle of writing to the Trustee so I'm still in the dark.By paying me back it constitutes a preference under the provisions of Section339 of the Insolvency Act 1986. Thanks

fermi

betterlatethannever wrote: »

A little 'light' reading there Fermi

:rotfl::rotfl::rotfl:

Although in cases like this you need as much info regarding where the Trustee is coming from as you can. If they wish to make you return the money through the courts they have to stick to the law, and the court won't automatically grant it if you know how and under what grounds you can state your case.

Plus if the trustee realises you have taken advice and know some of your rights they may ocasionally decide it's not worth the hassle.

If in doubt seek professional advice though.

Broken_hearted

Take advice and be careful you might lose the money. Sadly times are changing and they will grab money from anywhere within the five years previous to the BR.