Insolvency Practitioners, including Liquidators and Administrators will examine the antecedent transactions of a Company to determine whether any assets were disposed of for less than their true market value.
Section 238 of the Insolvency Act 1986 allows a Liquidator or Administrator to apply to the Court for Order restoring the position of the Company to what it was had the transaction not occurred.
The Liquidator must be able to show that –
- The transactions were entered into within the prescribed time limits prior to the Company’s insolvency
- The asset in question was gifted or transferred at a value significantly less than the consideration provided by the third party
The defences available for any person faced with a claim for a transaction at undervalue are the following –
- The Company transferred the asset in good faith and for the purpose of carrying on its business; and
- There were reasonable grounds for believing the transaction would benefit the Company
Therefore, when faced with a claim by a Liquidator or Administrator for a transaction at undervalue / s238 claim one needs to think about the following –
- Do I have all the relevant details concerning the transaction, including what was known to the Company at the time it was transferred?
- What was the market value of the asset at the time it was transferred and was the consideration significantly less than that?
- Did the transaction benefit the Company?
- Was the Company able to pay its debts at the time of the transaction?
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