Karim Manji owns a small electronics business that is starting to lose money because a big box store opens nearby. Knowing that the business is about to go under, he uses the business's cash on hand to pay one of his creditors, Sushil Manji his cousin. A week later, insolvent, he files for bankruptcy. Which of the following is true respecting the payment to Manji?

Question

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The payment to Sushil Manji can be considered a fraudulent preference because he is a non-arms-length party and one of several creditors, which can be seen as an attempt to favor one creditor over others before filing for bankruptcy.

Karim Manji Owns a Small Electronics Business That Is Starting