WHAT IS A PREFERENTIAL TRANSFER?
A preferential transfer (or a preference) is a transfer from the debtor to a particular creditor shortly before the assignment is made. If various legal requirements are met, the Assignee can avoid the transfer, meaning that the Assignee can recover from the creditor the property, or its value, that the debtor transferred. Creditors are often confused by the concept of preferences, which are best understood by reference to their policy justification. Assignments, like bankruptcy and other similar proceedings, are collective proceedings the debtor transfers all of its property to a disinterested third party who administers that property for the benefit of creditors. Without a prohibition, companies in trouble would simply pay off their favored (or, preferred) creditors before making the assignment, depleting assets available for everyone else. The law generally does not punish debtors for making preferential transfers. Instead, it looks to restore the debtors property and the creditors
A preferential transfer (or a preference) is a transfer from the debtor to a particular creditor shortly before the assignment is made. If various legal requirements are met, the Assignee can avoid the transfer, meaning that the Assignee can recover from the creditor the property, or its value, that the debtor transferred. Creditors are often confused by the concept of preferences, which are best understood by reference to their policy justification. Assignments, like bankruptcy and other similar proceedings, are collective proceedings the debtor transfers all of its property to a disinterested third party who administers that property for the benefit of creditors. Without a prohibition, companies in trouble would simply pay off their favored (or, preferred) creditors before making the assignment, depleting assets available for everyone else. The law generally does not punish debtors for making preferential transfers. Instead, it looks to restore the debtors property and the creditors
