Court grants liquidators relief for transaction at an undervalue (Re Whitestar Management Limited and others v Thompson and others)

Court grants liquidators relief for transaction at an undervalue (Re Whitestar Management Limited and others v Thompson and others)

Eleanor Temple, barrister of Kings Chambers, examines a Companies Court decision to grant relief under section 238 of the Insolvency Act 1986 (IA 1986) to the applicant joint liquidators of a company because a sale of the company's business constituted a transaction at an undervalue. The sale in question was under an asset sale agreement between the company and the second respondent company less than five months before the initial appointment of joint administrators to the company.

Re Whitestar Management Ltd; Conn and another v Thompson and others [2018] EWHC 743 (Ch), [2018] All ER (D) 173 (Jan)

What are the practical implications of the judgment?

The judgment is a useful reminder of the test under IA 1986, s 238, where in a transaction some consideration is provided to a company which subsequently becomes insolvent at a relevant time, but the value in money’s worth received by the company is less than the value provided by it.

The decision also contains useful analysis of the requirements of the ‘good faith and for value’ exception contained within IA 1986, s 241(2), and how stringently the courts will apply that provision.

The case is consistent with the current theme in insolvency litigation of seeking to prevent asset stripping from companies by connected parties and directors, however complicated the arrangements to do so may appear at first blush.

The essence of the test for a claim under IA 1986, s 238, as displayed by this case, is that value which ought to have been received by the company but has been diverted elsewhere should be restored to the company by the recipients of that value.

The questions to consider when looking at a potential claim of transaction at undervalue involving a company are:

  • whether the company received any consideration for the transaction
  • if it did, whether that consideration was enough, in money’s worth, in comparison with the value of the asset transferred by the company

If it was not, then this case is a useful reminder of the tools that are available to an office holder and the court to recover that lost value for the benefit of the general body of unsecured creditors of the company.

What was the background?

When the first and third respondents were the company's two directors and shareholders, a dispute had arisen between them. The first respondent presented an unfair prejudice petition under 

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About the author:

Neeta started her legal career at Allen & Overy in 2008 in the midst of the global financial crisis and the collapse of Lehmans where she gained most of her paralegal experience.

Neeta also did a short stint in litigation at the Revenue and Customs Prosecutions Office in 2006. Neeta graduated with a 2:1 honours degree from University of London, Queen Mary College and went on to obtain a distinction from the College of Law in the Legal Practice. She has been working at Lexis Nexis since April 2013.