Q&As

A company has a claim against one of its shareholders. If that shareholder is subsequently adjudged bankrupt and the trustee in bankruptcy (trustee) sells the shareholder’s shares in the company back to the company, can the trustee take the company’s claim into account when agreeing a price for the shares?

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Produced in partnership with XXIV Old Buildings
Published on LexisPSL on 01/02/2018

The following Restructuring & Insolvency Q&A Produced in partnership with XXIV Old Buildings provides comprehensive and up to date legal information covering:

  • A company has a claim against one of its shareholders. If that shareholder is subsequently adjudged bankrupt and the trustee in bankruptcy (trustee) sells the shareholder’s shares in the company back to the company, can the trustee take the company’s claim into account when agreeing a price for the shares?

This Q&A is about set-off involving transactions with the trustee.

The answer is no. The company has to prove for its claim in the bankruptcy (section 285(3) of the Insolvency Act 1986 (IA 1986)). It will be entitled to a dividend along with all other creditors in the bankruptcy. If the trustee took the claim into account when agreeing the price for the shares, the company would be being paid in full and so achieve an advantage over the other creditors.

Nonetheless, claims between a creditor and the bankrupt can be set off against each other under IA 1986, s 323. This applies ‘where before the commencement of the bankruptcy there have been mutual credits, mutual debts or other mutual dealings between the bankrupt and any creditor of the bankrupt proving or claiming to prove for a bankruptcy debt’. The object here is to do substantial justice between the parties, it being considered unfair that the creditor should be limited to a dividend in respect of his claim but obliged to meet his obligation to bankr

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