Companies—reviewable transactions—Property
Companies—reviewable transactions—Property

The following Property guidance note provides comprehensive and up to date legal information covering:

  • Companies—reviewable transactions—Property
  • Background
  • Transactions at an undervalue
  • Preferences
  • The relevant time
  • Orders which may be made
  • Transactions defrauding creditors
  • Extortionate credit transactions
  • Avoidance of certain floating charges
  • Conclusion

Background

Certain transactions entered into by a company within a specified period before insolvency may be set aside, or otherwise adjusted, by the court on the application of an administrator or liquidator.

The transactions concerned are:

  1. transactions at an undervalue

  2. preferences

  3. transactions defrauding creditors

  4. extortionate credit transactions

  5. certain floating charges

Transactions at an undervalue

A company enters into a transaction with a person at an undervalue if it:

  1. makes a gift to him, or otherwise enters into a transaction with him, on terms that the company receives no consideration, or

  2. enters into a transaction with him where the value of the consideration it receives is significantly less than that it provides

Transaction normally involves some element of dealing. Granting a creditor a charge over assets is not a transaction at an undervalue.

Where a company has, at a relevant time, entered into a transaction with any person at an undervalue, an administrator or liquidator may apply to court for an order restoring the position to what it would have been if the company had not entered into that transaction.

The court must consider each case on its facts; there is no default remedy. The court may not make such an order if:

  1. the company entered into the transaction in good faith and to carry on its business, and