Q&As

In an otherwise insolvent estate, several life policies are nominated to the widow or are paid out at the discretion of the trustees of the policy. Can the creditors take action to recover from these policies?

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Published on: 23 June 2017
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For the purposes of this Q&A we have limited our research to cover the position where an insolvency administration order has not been made, but rather that the insolvent estate is being administered by the personal representatives.

As a general introduction to the administration of insolvent estates, see Practice Note: Effect of the debtor's death on an insolvency process

Transactions defrauding creditors

The creditors may be able to take action if the nomination or payment meets the criteria for a transaction defrauding creditors.

Under section 423 of the Insolvency Act 1986 (IA 1986) a cause of action exists against a company or individual for relief following a transaction at an undervalue (TUV) which was undertaken, broadly, with the purpose of putting assets out of the reach of creditors. Such a cause of action may be prosecuted by a creditor or other person prejudiced by

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Jurisdiction(s):
United Kingdom
Key definition:
Insolvency definition
What does Insolvency mean?

This can be defined by two alternative tests (Insolvency Act 1986, s 123):

cash flow test: a company is solvent if it can pay its debts as they fall due, no matter what the state of its balance sheet (Re Patrick & Lyon Ltd [1933] Ch 786);

• balance sheet test: a company which can pay its debts as they fall due may be insolvent if, according to its balance sheet, liabilities (including contingent liabilities) exceed assets.

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