Also known as: preferential assignments · preference
Written by attorneys · grounded in primary & secondary sources — see below
A transfer of property or rights by a debtor to one creditor that gives that creditor an advantage over other creditors of the same class. The transfer is subject to avoidance when made while the debtor is insolvent and within the statutory look-back period.
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A religious nonprofit that owns an apartment building assigns its rental rights in several units to members of its own faith ahead of other applicants on the waiting list. The assignment gives the favored tenants immediate occupancy while non-members remain on the list. The nonprofit later faces a challenge that the assignment constitutes a preferential assignment of limited housing resources.
A merchant facing insolvency assigns incoming cargo to one favored port creditor before duties are paid on goods arriving from abroad. The assignment allows that creditor to collect first while other creditors wait for the goods to clear. The transaction is later examined to determine whether it qualifies as a preferential assignment under constitutional limits on early congressional action.
A junior mortgagee obtains a receiver who collects rents from the mortgaged property and applies them first to the junior obligation. The assignment of rents occurs before a senior mortgagee appoints its own receiver. The senior mortgagee later claims the rents were subject to a preferential assignment that must be clawed back after taxes and maintenance costs are paid.
A donor facing financial distress assigns a remainder interest in a trust to one beneficiary ahead of others named in the same instrument. The assignment occurs without evidence of a contrary intention in the governing document. The other beneficiaries later argue the assignment is a preferential assignment that should yield to the constructional preference favoring equal treatment.
State officials assign voting rights in a newly drawn district to one group of residents before other eligible voters can register. The assignment favors the group whose support is needed for reelection. Opponents contend the assignment functions as a preferential assignment of electoral resources that distorts equal protection guarantees.
A company in financial trouble assigns material information about an impending merger to one set of investors before the information reaches the broader market. The assignment allows those investors to trade ahead of others. Plaintiffs later allege the selective assignment constitutes a preferential assignment that violates disclosure obligations.
A preferential assignment occurs when a debtor transfers property or rights to one creditor while insolvent, giving that creditor an advantage over others of the same class. An ordinary assignment lacks the insolvency element and the resulting preference among creditors.
Supporting sources
…our unwillingness to subject those suspected of crime to the cruel trilemma of self-accusation, perjury or contempt; our preference for an accusatorial rather than an inquisitorial system of criminal justice; our fear that self-incriminating statements will be elicited by inhumane treatment and abuses; our sense of fair…