Insolvency - Clawback Flashcards
What is a preference in insolvency?
An action by the debtor that intentionally favors one creditor over others, such as paying off a specific creditor or granting security. The Trustee in Bankruptcy can clawback preferences made within 6 months, or 2 years if to a connected person.
What is a transaction at undervalue (TAU)?
A transaction where property is given away or sold for significantly less than market value. Can be set aside if done within 2 years of insolvency and the company was or became insolvent due to it. Transactions with connected persons are presumed to be undervalued.
What is the defense for a transaction at undervalue?
The transaction was made in good faith for business purposes and there were reasonable grounds to believe it would benefit the company. Grant of a security interest is not considered a TAU.
What is fraudulent trading?
When a director carries on business with the intent to defraud creditors, such as putting assets out of reach. Directors may be ordered to contribute to the company’s assets and it is also a criminal offence. Requires proof of dishonesty.
What is wrongful trading?
When directors continue business knowing or should have known the company has no reasonable prospect of avoiding insolvency and fail to minimize losses. Directors may be ordered to contribute to the company’s assets. Key steps include taking professional advice and managing debts.
What are floating charges and their restrictions?
Floating charges created within 12 months of insolvency for no fresh consideration are automatically void. With new consideration, the charge covers only the fresh amount. If to a connected person, the look-back period is 2 years, with no need to show insolvency at creation.
How is a company deemed unable to pay its debts?
- Statutory demand over £750 not paid within 21 days; 2. Judgment obtained but not fully satisfied; 3. Unable to pay debts as they fall due (cash flow test); 4. Liabilities exceed assets (balance sheet test). Creditors typically use the first two tests.
