Voidable transactions Flashcards
What is the aim of voidable transactions?
To restore the company to the position it would have been in had the transaction not taken place and thereby increase the funds available in the insolvent estate for the benefit of creditors
Who does the liquidator need to consider when assessing a transaction?
Connected persons and associates, including:
* Directors
* Associates of directors
* Spouses
* Business partners
* Employees
* Relatives
* Certain trustees
* Companies controlled by the director
* Companies associated with the company in question
Define ‘transaction at an undervalue’ according to s 238.
A transaction for a consideration the value of which, in money or money’s worth, is significantly less than the consideration provided by the company
e.g Granting security for no consideration
What are the requirements to be able to set aside a TUV
- transaction for significantly less consideration
- Within 2 yrs prior to the onset of insovlency
- Company insolvent at the time/as a result –> presumed if connected person
What is presumed about the company when a transaction at undervalue involves connected persons?
The company was insolvent at the time or as a result of the transaction
What is a defense against a claim of a transaction at undervalue?
The company entered into the transaction in good faith, for business purposes, and there were reasonable grounds for believing the transaction would benefit the company
What sanctions can be imposed for voidable transactions?
The liquidator has the discretion to make such order as it thinks fit to restore the position as if the company had not entered into the transaction
What is the effect of a floating charge created for no new consideration under s 245?
A floating charge created for no new consideration is void.
applies to overdraft
When is a floating charge valid?
A floating charge is valid if it secures repayment of a new loan made on or after the creation of the charge.
What are the conditions to avoid a floating charge?
- no new consideration
- within 12 months prior to onset of insolvency or 2 yrs if connected person
- company insolvent at the time/as a result
What constitutes a transaction defrauding creditors under s 423?
- TUV
-intention to defraud creditors - No need for company to be insolvent
- No time limit before insolvency
Who can initiate the avoidance of a Transaction defrauding creditors?
This can be initiated by a liquidator, administrator, supervisor of a CVA, or the victim of the transaction.
Is insolvency required for a transaction to be considered defrauding creditors under s 423?
No, there is no need for the company to be insolvent for a transaction to be considered defrauding creditors.
Is there a time limit before insolvency for considering transactions defrauding creditors under s 423?
There is no time limit before insolvency to consider transactions defrauding creditors.
What is a preference according to section 239?
A preference occurs when a company puts a creditor in a better position and is influenced by a desire to prefer.
What is the rebuttable presumption regarding preferences?
There is a rebuttable presumption that the company was influenced by a desire to prefer if the preference was given to a connected person or an associate.
What is the time frame for preferences before insolvency?
Preferences can be scrutinized if given within 6 months prior to the onset of insolvency or 2 yrs if with a connected person
What is a defense against preference claims?
A defense can be that the actions were inspired by a desire to continue trading rather than to prefer.
What are the conditions to set aside a transaction as a preference?
- desire to prefer (presumed if connected)
- within 6 months/2yrs
- company insolvent at the time/as a result
