Section 394 — Liabilities and rights of certain fraudulently preferred persons

(1) Where, in the case of a company which is being wound up, anything
made or done after the commencement of this Act, is invalid under section 393 as
a fraudulent preference of a person interested in property mortgaged or charged to
secure the company’s debt, then (without prejudice to any rights or liabilities arising
apart from this provision) the person preferred shall be subject to the same liabilities
and shall have the same rights as if he had undertaken to be personally liable as
surety for the debt to the extent of the charge on the property or the value of his
interest, whichever is less.

(2) The value of the said person’s interest shall be determined as at the
date of the transaction constituting the fraudulent preference, and shall be
determined as if the interest were free of all encumbrances other than those to which
the charge for the company’s debt was then subject.

(3) On any application made to the Court with respect to any payment
on the ground that the payment was a fraudulent preference of a surety or guarantor,
the Court shall have jurisdiction to determine any questions with respect to the
payment arising between the person to whom the payment was made and the surety
or guarantor and to grant relief in respect thereof, notwithstanding that it is not
necessary so to do for the purposes of the winding up, and for that purpose may
give leave to bring in the surety or guarantor as a third party as in the case of a suit
for the recovery of the sum paid.

(4) Sub-section (3) shall apply, with the necessary modifications, in
relation to transactions other than the payment of money as it applied in relation to
such payments.