Insolvency—appeal in a transaction at an undervalue claim (Re Guardian Care Homes (West) Ltd)

Insolvency—appeal in a transaction at an undervalue claim (Re Guardian Care Homes (West) Ltd)

The court dismissed an appeal by the liquidators of a company who had made an application under section 238 of the Insolvency Act 1986 (IA 1986) alleging a transaction at undervalue. The liquidators challenged a transaction between the insolvent company and a related company, which they alleged had been effected by book entries made by the company’s financial controller. The respondents denied that the book entries were capable of effecting (as opposed to recording) a transaction, and claimed they had been entered in error. The claim was rejected at trial and the liquidators appealed, challenging findings on their pleadings and the respondents’ defence, and the judge’s assessment of all the evidence. Zacaroli J upheld the first instance decision in a thorough judgment which emphasised the liquidators’ failure to prove their pleaded case and the usual rule of appellate courts deferring to the evidential findings of trial judges. Written by Otis Graham at Enterprise Chambers.

Re Guardian Care Homes (West) Ltd (in liquidation) [2019] EWHC 2994 (Ch)  

What are the practical implications of this case?

The decision should stand as a warning to officeholders investigating the acts of a company’s former management to exercise caution in process of forensic accounting. The liquidators’ case was built on the allegation that book entries had effected a transaction at an undervalue with a related company. Despite denials that the entries reflected the intention of management or revealed any actual transfer of value, together with a lack of supporting documentation in the form of a written agreement or board resolution, the liquidators continued to assert an underlying transaction on the basis of complex analyses of the company’s accounts and corporate relationships. Unfortunately for the company’s creditors, this was to no avail where, as was found at trial and upheld on appeal, it simply had not been shown that the company’s management had caused it to enter into a transaction. The judgments emphasise the importance of officeholders considering the sum of the documentation in context.

Officeholders and those advising them should therefore think

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About the author:

Zahra started working as a paralegal at Lexis Nexis in Banking and Insolvency teams in April 2019. Zahra graduated with a 2.1 honours in a BA French and Spanish, completed the GDL at BPP University and is seeking some experience before commencing the LPC. She has undertaken voluntary work for law firms in London, Argentina and Colombia.