In Almond v Linxens, the Court held that a payment by Tsinghua Unigroup International Co., Ltd (TUI) to Linxens, made two days before announcing a bond default, was designed to prefer an insider over the external bondholders. The decision confirms that intra-group treasury movements in the twilight zone will be judged by their commercial reality, not their characterisation as ordinary financing activity.

TUI was a BVI-incorporated finance vehicle within a large PRC conglomerate, established to raise debt and make investments as directed by the group. On 7 December 2020, it paid US$125.9 million to French group company Linxens as a partial repayment of a loan that was not due for another nine months and had not been demanded. Two days later, TUI announced to the Hong Kong Stock Exchange that neither it nor its subsidiary bond issuer could meet bond repayments of around US$463 million. TUI also faced a significant liability to another Hong Kong group entity, Tsinghua Unic Limited, with the first tranche of US$1.05 billion falling due less than two months later.

TUI’s liquidators applied to set aside the payment as an unfair preference. Because Linxens was a connected person, the BVI Insolvency Act presumed that the payment was an insolvency transaction not made in the ordinary course of business. It was for Linxens to prove otherwise.

Linxens argued that TUI was solvent when the payment was made and that the payment was ordinary-course treasury activity.

On solvency, the Court adopted the “building blocks” approach from Bucci v Carman (Re Casa Estates): it is not necessary to reconstruct a company’s exact solvency position. If the respondent cannot establish the necessary building blocks for its solvency case, the statutory presumption prevails.

Several building blocks were absent. There were no bank statements to substantiate Linxens’ claims that TUI had received US$523 million in cash - despite Linxens having been granted an adjournment specifically to obtain this evidence. Even if the funds had been received, there was no evidence they were freely available to TUI rather than earmarked for onward payment to the group parent. Corrections and concessions by Linxens’ own expert at trial further undermined the viability of the solvency arguments.

The ordinary-course defence also failed. While the Court accepted that loan repayments were within the type of business TUI ordinarily conducted, applying Lord Mansfield’s distinction in Rust v Cooper, the Court held that it is not enough to ask whether the type of transaction fell within the company’s ordinary business. If that were the test, no routine transaction type could ever amount to an unfair preference. The real question is whether the design behind the specific transaction was to confer a preference. A preference obtained “consequentially”, as a by-product of continuing trade, is on one side of the line; a preference obtained “by design” is on the other.

The repayment was not demanded, was not due, and was rushed through within 48 hours. The contemporaneous documents showed that the group was pushing cash back to operating entities to reduce the impact of the impending bond default. Linxens’ own CFO described TUI’s conduct as “weird” and “very strange”, and a colleague suggested freezing Linxens’ cash “for safety[‘s] sake” - reactions inconsistent with an ordinary-course transaction. Linxens’ own employees understood that the payment was being made because the group was “pushing back all the cash to the operating units to ensure that there is as little impact as possible of [the] likely December 10 default on those bonds.”

Linxens argued that the loan had originally been made to purchase bonds trading at a discount and was simply being repaid when TUI had sufficient funds. The Court rejected this. The contemporaneous record, including internal emails and shareholder slides prepared months after the payment, consistently described the loan as having been made to help TUI meet its bond obligations. The Court found that the payment was not a mere consequence of ordinary trading but was designed to prefer Linxens over external creditors.

The decision is significant for directors and anyone advising on group treasury operations in the period leading up to a default. Connected creditors who receive payments in the twilight zone will need contemporaneous documents showing solvency, a genuine commercial rationale, and an ordinary-course purpose - not merely a plausible treasury narrative. Bank statements, board minutes, and audit trails are essential. Without them, the statutory presumption will not be displaced.

The Court’s emphasis on the design behind a transaction - rather than its type - makes it harder to shelter pre-default cash movements behind the label of routine group financing. If a payment looks like an effort to ring-fence value ahead of an insolvency, the Court will treat it as exactly that.