When (why) would a company need this service?
Any transaction made by a company which is insolvent (either in Liquidation or Administration), or any transaction which occurred within 2 years prior to the company’s insolvency, could potentially be challenged by the Liquidator or Administrator. These are commonly known as antecedent transactions.
What are transactions at an undervalue?
Section 238(1) of the Insolvency Act 1986 provides that where a company goes into liquidation, and within the relevant time (two years before the date of liquidation) entered into a transaction with any person at an undervalue, the Liquidator may apply to the court for an order either reversing the transaction or seeking recovery of the company’s losses from the directors.
A transaction at undervalue will generally arise where:
- The company makes a gift to a person or enters into a transaction with a person on terms that mean the company receives no consideration, or
- The company enters into a transaction with a person for an amount which is significantly less than the transaction’s actual value.
What is preferential treatment of a creditor?
Under section 239(1) of the Insolvency Act 1986, if a transaction is made within the relevant time (see below) with any person which has the effect of ‘preferring’ that person over other unsecured creditors, then it is a preference and the court may make an order reversing the transaction or such other order against the directors to seek recovery for the company’s losses.
A company gives a preference to a person if:
- That person is one of the company’s creditors or a surety or guarantor for any of the company’s debts or other liabilities; and
- the company does anything or suffers anything to be done which (in either case) has the effect of putting that person into a position which, in the event of the company going into insolvent liquidation, will be better than the position that person would have been in if that thing had not been done.
The ‘relevant time’ of the transaction will depend on the recipient. If the receiving party is a ‘connected’ party, then the relevant time is 2 years from the onset of insolvency. However, if that party is ‘unconnected’ then the relevant time is 6 months from the onset of insolvency.
What are transactions defrauding creditors?
Section 423 of the Insolvency Act enables any ‘victim’ of an antecedent transaction to apply to the court for that transaction to be set aside. It is a widely drafted provision and also available to the Liquidator and Administrator, as well as, other creditors and members of the company.
This provision frequently overlaps with transactions at an undervalue and preferential treatment (see above), there is, however, an added requirement for the applicant to show that the purpose of the transaction was to put the assets beyond the reach of the creditors of the company.
Similar to the above, the court may make an order reversing the transaction or any order against the directors to seek to recover funds for the company.
The time limit for this type of claim will depend on the underlying transaction itself.
Is it expensive? What are the likely costs?
We will provide you with an estimate of costs at the outset based on the type of work required.
Our lawyers have extensive experience in advising clients who are faced with challenges regarding alleged antecedent transactions by Administrators and Liquidators. We will be able to provide you with bespoke and cost effective advice tailored to your circumstances.