Is repaying my director's loan or a Bounce Back Loan before liquidation a preference?
It can be. Under section 239 of the Insolvency Act 1986, if an insolvent company repays one creditor ahead of others and was influenced by a desire to put that creditor in a better position, the liquidator can apply to reverse it. Repaying your own director's loan account, a loan from family, or a Bounce Back Loan you personally guaranteed, in the run-up to liquidation, is a classic preference risk, because you or a connected person benefit ahead of the general creditors. For payments to connected persons such as directors or relatives, the look-back period is two years and a desire to prefer is presumed, so the burden is on you to show otherwise. For unconnected creditors it is six months. The liquidator can claw the money back, so take advice before repaying anyone selectively when the company is in difficulty.
What counts as a preference
A preference is putting a creditor, or a guarantor of the company's debt, in a better position than they would have been in the liquidation, at a time when the company is insolvent or becomes insolvent as a result, where the company was influenced by a desire to produce that effect. Paying down a Bounce Back Loan you personally guaranteed, or clearing your own director's loan, can fall squarely within this because you benefit personally.
The look-back periods
The liquidator can challenge preferences going back six months before the onset of insolvency for ordinary creditors, extended to two years where the creditor is a connected person such as a director, shadow director or close relative. For connected persons the desire to prefer is presumed, which means you would have to prove the payment was made for some other proper reason.
What to do instead
If the company is struggling, do not selectively repay yourself, family or guaranteed debts ahead of trade creditors and HMRC. Treat creditors consistently and take advice early. A Licensed Insolvency Practitioner can tell you which payments are safe and which carry preference risk before you make them.
Related: your director's loan account, bounce back loan arrears, creditors' voluntary liquidation, and wrongful trading.
Preferences before liquidation: common questions
Does it matter whether I personally guaranteed the Bounce Back Loan?
Yes, it is often the deciding factor. If you personally guaranteed the loan, repaying it before liquidation reduces your own exposure as guarantor, which is exactly the kind of benefit section 239 targets. If the debt was not guaranteed and repaying it gives you no personal advantage, a selective repayment is harder to attack as a preference, though it can still be challenged if it favoured one creditor over others. The personal benefit is what usually turns an ordinary repayment into a preference.
Are normal payments to trade suppliers also at risk?
Usually not. Paying a supplier in the ordinary course of business to keep goods or services flowing is rarely a preference, because there is no desire to put that creditor ahead of others, you are simply trading. Preferences are about choosing to clear a debt that benefits you or a connected person ahead of the general creditors. Genuine arm's-length trading payments made in good faith are treated differently from selectively repaying yourself or family.
How is a preference different from a transaction at undervalue?
They are separate clawback powers. A preference under section 239 is paying or favouring an existing creditor. A transaction at undervalue under section 238 is giving something away or selling a company asset for significantly less than it is worth, such as transferring a vehicle to a relative for nothing. A transaction at undervalue can be challenged going back two years before insolvency whoever the other party is, so moving assets out cheaply carries its own clawback risk on top of the preference rules.
What happens if a preference is proven?
The court can make orders to restore the position to what it would have been, which usually means the recipient repays the money to the company for the benefit of all creditors. Directors can also face separate misfeasance claims under section 212. Because the person who received the payment is often the director or a relative, a proven preference can mean you personally hand the money back, so the time to take advice is before the payment is made, not after.
This is general information, not legal or financial advice, and is based on the Insolvency Act 1986. Preference claims turn on the specific facts. Take advice from a Licensed Insolvency Practitioner before repaying creditors when your company is in difficulty. Last reviewed June 2026.