A Supreme Court ruling that clears up a contentious area of insolvency law could put a hand brake on liquidators trying to claw back funds from creditors paid out before a company collapses.

One liquidator who was not involved in the case, Damien Grant, said yesterday’s decision meant there would be less distributions from liquidations in the future.

A lawyer who was on the losing side of the litigation, Kevin Bond, said directors of insolvent companies may now be encouraged to make preferential payments to creditors who have leverage over them.

On the other hand, representatives of the construction industry hailed the Supreme Court’s judgment as a “victory for common sense” that would come as a relief to “thousands of businesses”.

The unanimous decision from Justices Sian Elias, John McGrath, William Young, Susan Glazebrook and Terence Arnold concerned voidable transactions, where liquidators claw back money from individuals or companies who were paid up to two years prior to their appointment.

It follows a Court of Appeal decision from 2013 that caused many people concern, particularly in the construction industry.

That ruling, according to those in the sector, meant that unless a contractor or subcontractor was paid upfront for work done for a company later found to be insolvent, the funds could be recovered by a liquidator. [Read more…]