The granting of preferences

Where a debtor has more than one creditor an important matter is his right to grant preferences between them. The common law procedure and the ancillary relief afforded by courts of equity for the collection of debts do not pretend to restrain debtors from preferring one creditor to another. And subject to whatever modifications the individual states may have introduced by statute, a corporate debtor as any other may allow one or more creditors a preferred position over others.

Hence, so far as the law and equity courts are concerned, the general rule is "first come, first served" and creditors are entitled to payment according to their finishing positions in what has been called the "race of diligence."

To leave them [debtors] to the rude methods of common law debt collections would mean financial death to them and, because of the frightful waste which accompanies these methods, loss to creditors as well. More than this, creditors were forced by self-interest into a race to be first in at the death. Many a debtor was thus pushed into insolvency which might have been averted.

In other words, the ordinary procedures for the collection of debts do not prevent corporate debtors from preferring creditors one to another. And it has been stated that corporate assets do not form a "trust fund" for the benefit of creditors to be equitably divided among them unless proceedings for the "winding up" of the corporation have been undertaken.