Voidable preference—court considers relevant date of connection

Voidable preference—court considers relevant date of connection

Jon Chesman, associate at Squire Patton Boggs (UK) LLP, examines a High Court decision which found the applicant liquidator of a company had made out her case that a transfer of stock from the company to the first respondent, a former director of the company, amounted to a preference and a transaction at an undervalue, so relief ought to be granted under the Insolvency Act 1986 (IA 1986).

Breese (liquidator of Flexi Containers Ltd) v Hiley and others [2018] EWHC 12 (Ch), [2018] All ER (D) 77 (Jan)

What are the practical implications of the decision?

This case demonstrates that in the context of an application seeking to overturn a transaction as a voidable preference and a transaction at an undervalue, the relevant date on whether a person is ‘connected’ with a company pursuant to IA 1986, s 249, is the date on which agreement was reached in relation to that transaction, not the date on which the assets were transferred pursuant to that agreement.

In the face of inconsistent and unreliable evidence from the respondents, the court was prepared to take a common-sense approach as to the commercial reality of the transaction in question. On that basis, the court held that the transaction must have been agreed prior to the first respondent’s resignation as a director, and that she was therefore ‘connected’ with the company at the relevant time.

The court ordered her to pay the sum of £612,834 to the company, plus interest and costs.

What was the background?

On 10 January 2014, the company transferred the entirety of its stock, with a value of more than £620,000, to the first respondent. The £620,000 was purportedly repaid pursuant to chargesgranted by the company to the first respondent to secure sums which she had advanced to it.

Shortly after the company’s incorporation, the first respondent had been its sole director and shareholder, but had purported to resign as a director and transfer her shareholding to the new director on

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About the author:

Anna joined the Restructuring and Insolvency team at Lexis®PSL in August 2013 from Berwin Leighton Paisner where she was a senior associate in the Restructuring Team.

Anna has worked on a number of large scale restructurings primarily in the UK market acting on behalf of lending institutions.

Recent transactions include the restructuring of a UK hotel chain and the administration sale of part of the Connaught group. Anna has also spent time on secondment at The Royal Bank of Scotland and trained at Clifford Chance qualifying in 2007.