Voidable transactions and directors' liabilities in insolvency Flashcards
Who can make a claim for fraudulent trading against a director?
A liquidator or administrator by making an application to Court.
Who can a claim for fraudulent trading be brought against?
-Any person
-who is knowingly party to the carrying on of any business of the company
-with intent to defraud creditors or for any fraudulent purpose
What must be proven for a claim for fraudulent trading to succeed?
Actual dishonesty, which needs to be proved as per the Ivey v Genting Casinos (2018) test.
What is wrongful trading?
The concept of wrongful trading was introduced in order to establish liability for directors who carry on business negligently rather than fraudulently.
Who can bring a claim for wrongful trading?
Liquidators or administrators.
Who can a claim for wrongful trading be brought against?
Any person who was at the relevant time a director.
What is the first limb to satisfy for a wrongful trading claim?
-At some time before the commencement of the winding up or insolvent administration (‘point of no return’), the director knew or ought to have or concluded that there was no reasonable prospect that the company would avoid going into insolvent liquidation.
What is the second limb to satisfy for a wrongful trading claim?
A director will have no liability for wrongful trading if they can satisfy the Court that, after they first knew or ought to have concluded that there was no reasonable prospect of the company avoiding an insolvent administration or liquidation, they took every step with a view to minimising the potential loss to the company’s creditors.
What should directors do to minimise the risk of a wrongful trading claim?
-Hold frequent BMs to review the company’s financial position
-Take professional advice
-Make sure they have updated financial information about the company’s finances
What are voidable transactions?
A voidable transaction is a transaction that can be challenged by a liquidator or bankruptcy trustee if it occurs when a company is insolvent or shortly before it becomes insolvent.
What is a transaction at an undervalue?
A gift or a transaction for a consideration the value of which, in money or money’s worth, significantly less in value than the consideration provided by the company.
When may the Court set aside a transaction at an undervalue?
If:
-made within the two years prior ending with the onset of insolvency (which is the commencement of the relevant insolvency procedure)
-is proved by the applicant that the company was insolvent at the time of the transaction or became so as a result of it. Where a TUV is entered with a connected person, insolvency is presumed.
What is a transaction defrauding creditors?
A transaction at an undervalue with the intention or purpose of putting assets beyond the reach of creditors.
What is an advantage of a claim for a transaction defrauding creditors compared with a TUV claim?
No time limit with TDC claims and no need for company to be insolvent.
What is a preference by a company?
When a company puts creditor in a better position that they would have been influenced by a desire to prefer.
