There are several “reviewable transactions” which following a company’s insolvency, the insolvency practitioner can investigate and look to set aside which include but are not limited to the following:-
- Preference payments;
- Transactions at an undervalue; and
- Transactions defrauding creditors.
What is a Preference Payment?
A preference payment is where a company “does anything or suffers anything to be done” which in the event of the company going into insolvent liquidation will put the creditor, surety or guarantor of any of the company’s debts in a better position that they would have been in had that thing not been done.
An example would be where a company owes a debt to another company and one of its directors has personally guaranteed the debt, if the company then pays that debt in full whilst knowing that it is insolvent, in order to avoid the personal guarantee being called upon, this is likely to be viewed as a preference payment.
What is a transaction at an undervalue?
A transaction at an undervalue is where a company makes a gift or enters into a transaction on terms where the company receives no consideration (nothing in return) or for significantly less than the item is worth.
An example of this may be where the company owns a vehicle that is worth £50,000.00 but sells it for £1,000.00 and at the time of the transaction the company was either unable to pay its debts or became unable to pay its debts as a result of the transaction.
What are transactions defrauding creditors?
A transaction can be set aside if it is entered into at an undervalue and the purpose of the transaction was to put assets beyond the reach of creditors of the company. This can be relied upon even if the company was solvent at the time of the transaction, but it must be shown that the purpose of the transaction was to put the assets out of reach of the creditors which is the key difference with transactions at an undervalue. This power is not subject to a time limit.
Visit our Insolvency page here.