Well the answer is: Yes, but actually cases of this are rare.
- All creditors are treated and paid equally so one is not favoured above another.
- No assets are given away or undersold.
- They don’t put themselves in a better position by continuing to trade – a common example of this is paying down an overdraft that was guaranteed.
- They avoid using a new supplier and not paying them which can leave the directors personally liable if the supplier can prove the directors knew they could never pay for the orders.
It is often in this ‘twilight zone’ that directors run into most problems. They think they can make the finances better for creditors, for example by running stock down or finishing work-in-progress, but the daily battle they have is who to pay or not and who can be told or not.