Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

Business Law and Practice > Voidable transactions and directors > Flashcards

Voidable transactions and directors Flashcards

You may prefer our related Brainscape-certified flashcards:
MBE flashcards MPRE flashcards Civil Procedure 1L flashcards
1
Q

Why should directors be careful in their actions when a company faces the prospect of insolvency?

A

Can be personally liable if guilty of fraudulent/wrongful trading

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Who can bring a claim for fraudulent trading?

A

Administrators or liquidators

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What can the court impose if someone is found guilty of fraudulent trading?

A

Criminal and civil sanctions

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What is the test for fraudulent trading?

A
  • Any person
  • Who is knowingly party to the carrying on of any business of the company
  • With intent to defraud creditors or any fraudulent purpose
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

What must be proven for a fraudulent claim to be successful?

A

Actual dishonesty

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

How is actual dishonesty assessed?

A

Subjective
Includes suspicion + deliberate decision to avoid confirming they exist

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

What is the two stage test for fraudulent trading?

A
  1. Liquidator demonstrates director’s subjective knowledge
  2. Shows director’s conduct was dishonest applying objective standard of ordinary decent people
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

What are the remedies for fraudulent trading?

A
  • contribution to company’s assets
  • disqualification order
  • criminal sanctions
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Who can bring a claim for wrongful trading?

A

Liquidators and administrators
Can assign claim to a third party

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Who can an action for wrongful trading be brought against?

A

Any person who was at the relevant time a director
Includes de jure, de facto and shadow directors and non-executive directors

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

What is the first limb of the wrongful trading requirements?

A

Company has gone into liquidation/administration and
- At some time before commencement
- The director knew or ought to have concluded that
- There was no reasonable prospect would avoid going into insolvent liquidation/administration

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What must also be proven in the first limb of wrongful trading?

A

o Director allowed company to continue trading during this and
o Continued trading made company’s position worse

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What is the second limb of the wrongful trading requirements?

A
  1. Every step Defence - They took every step with a view to minimising potential loss to the creditors
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

When does the court apply the reasonably diligent person test?

A

court applies to determine whether
* Liquidator/administrator has established that director ought to have concluded no reasonable prospect and
* Whether director took every step to minimise potential loss

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

What is the reasonably diligent person test based on?

A

General knowledge, skill and experience of a person carrying out the same functions
Actual knowledge, skill and experience
Court applies higher of two

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What are the remedies for wrongful trading?

A
  • contribution to company’s assets
  • disqualification order
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

Will there be relief available for wrongful trading?

A

No

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

What are the voidable transactions

A

Transactions at an undervalue
Transactions at an undervalue defrauding creditors.
Preferences
Avoidance of floating charges

19
Q

What is the aim of a voidable transaction challenge?

A

restore company to position as if transaction had not taken place

20
Q

What questions will a liquidator/administrator ask when challenging a transaction?

A
  • Did transaction involve a connected person/associate?
  • Did transaction take place within the relevant time?
  • Was the company insolvent at the time or become insolvent as a result?
  • Is there a presumption which shifts the burden of proof from liquidator/administrator to the other party?
21
Q

Who are connected persons with the company?

A

directors, associates of directors and associates of the company

22
Q

Who are associates

A

spouses, business partners, employees, relatives, trustees, controlled company

23
Q

When is the onsent of insolvency?

A

Administration: date of filing of application or notice of intention to appoint or appointment
Liquidation: date of commencement of winding up

24
Q

What is the test for insolvency for voidable transactions?

A

Cash flow or balance sheet test

25
Q

What transactions are at an undervalue

A

gift or transaction for consideration significantly less than consideration provided

26
Q

When may granting a security be a TUV?

A

For no consideration or significantly less

27
Q

When will the court set aside a TUV?

A
  • Did within relevant time – 2 years ending with onset of insolvency
  • Proved that the company was insolvent at the time or became insolvent as a result
28
Q

What is the effect of a TUV with a connected person?

A

insolvency is presumed unless connected person presumes company was solvent

29
Q

What are the defences to a TUV?

A
  • Company entered transaction in good faith for purpose of carrying on business
  • At the time there were reasonable grounds for believing transaction would benefit the company
30
Q

What sanction is imposed for a TUV?

A

Court discretion to make any order to restore the position as if the company had not entered

31
Q

What is the special rule for sanctions imposed for a TUV?

A

Shouldn’t prejudice a subsequent purchaser provided they acted in good faith and for value

32
Q

When is there a rebutabble presumption that a subsequent purchaser involved in a TUV has not acted in good faith?

A

o Had notice of relevant surrounding circumstances and proceedings
o Connected with or associate of company

33
Q

What are the requirements for a claim of TDC?

A
  • Transaction at an undervalue and
  • Intention or purpose to put assets beyond the reach of creditors or prejudice their interests
34
Q

Who may make a TDC claim?

A
  • Liquidator/administrator
  • Supervisor of voluntary arrangement or
  • Victim of transaction
35
Q

Is there a relevant time for TDC?

A

No

36
Q

Is insolvency required for TDC?

A

No

37
Q

When will a company have given a preference?

A
  • Person is a creditor and
  • Company puts that person in a better position in the event of insolvent liquidation than they would otherwise have been
38
Q

When can a preference be made void?

A
  • Given within relevant time – 6 months ending with onset of insolvency
  • Proved that company was insolvent at time or became as a result
  • Proved that company was influenced by a desire to prefer the creditor (subjective)
39
Q

What are the rules on preferences where they are made to a connected person?

A
  • 2 years relevant time
  • rebuttable presumption that company was influenced, shifing burden to connected person
40
Q

What is the defence for preferences?

A

absence of desire to prefer

41
Q

What is the sanction for preferences?

A

order to restore position as if company had not given preference

42
Q

Who can bring a claim for avoiding a floating charge?

A

None - automatic

43
Q

When will a floating charge be invalid?

A
  • Within relevant time – 12 months ending with onset of insolvency
    o 2 years where granted to connected person
  • Unless granted to connected person, company was insolvent at the time or became insolvent as a result
44
Q

What is the effect of a floating charge being voidable?

A

Only the security is void – not the debt itself

Business Law and Practice (10 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions