Insolvency: liquidator and administrator's powers to clawback assets/preserving and increasing assets

Question 1

Avoiding certain floating charges

A charge is automatically void if?

Answer 1

1. At the relevant time
2. Before the onset of insolvency
3. A charge was granted
4. Without the company recieving fresh consideration in exchange for granting security

Question 2

Avoidance of certain floating charges: relevant time for connected persons and unconnected?

Answer 2

Connected: During 2 years ending with onset of insolvency

Unconnected:
* During 12 months prior to the onset of insolvency
* and the company must have been insolvent at the time it was given/ became insolvent as a result

Question 3

Who is a person connected with the company?

Answer 3

• A director or shadow director of the insolvent company
• Someone who is in effec a close relative or business associate of a director or shadow director
• An associate of the company (a company in the same group as the company or which is controlled by a director of the insolvent company)

Question 4

Definition of preference transaction

Answer 4

• The company, at the relevant time has given a preference to someone else.
• Preference = where the company puts the other person in a better position in the event that the company went into insolvent liquidation or administration, than they would have otherwise

Question 5

Relevant time for preferences

for connected and unconnected + insolvency status of company (impact)

Answer 5

• if the preference was given to a person who is connected with the company = during the 2 years ending with the onset of insolvence (no presumption of insolvency)
  Preference given to any other person:
  1. during the 6 months ending with the onset of insolvence
  2. and the company must have been insolvent at the time of the preference or became insolvent as a result of preference being given

There must be a desire to prefer the other party rather

Question 6

What does not show a desire to put other party in a better postion?

Preference transactions

Answer 6

If the company decided to enter into transaction because it would not survive if it lost the financial support and therefore had no choice if it wished to continue = doesn’t show desire (to put other party in a better position than it would have been in on liquidation)

Question 7

If a preference is given to a person connected to the company - what is the presumption?

Answer 7

The desire to prefer is presumed but it can be rebutted

Question 8

If the preference is proven, what may the court order?

Answer 8

• May order the release of any security given by the company,
• the return of any property transferred as part of the transaction or
• the payment of any proceeds of sale of property forming party of the transaction to the company

Question 9

Definition of Transactions at an undervalue?

Answer 9

• An undervalue is where the company makes a gift to the other person, or enters into a transaction; and
• receives consideration which is significantly lower in value than the consideration provided by the company.

Question 10

Relevant time for transactions at an undervalue

Answer 10

• The relevant time means during the two years ending with the onset of insolvency.
• The company must have been insolvent at the time of the transaction, or have become
  insolvent as a result of the company entering into the transaction.
  Insolvency is presumed where the transaction was with a person connected to the company, but this presumption can
  be rebutted (unlike with preferences)

Question 11

Defence to transaction at an undervalue?

Answer 11

• if the transaction was entered into in good faith;
• for the purpose of carrying on the business, and
• where, when the transaction was entered into, there were
  reasonable grounds for believing that it would benefit the company.

(Example: the company could not find a buyer for a property at full price and had to sell it quickly
to the only buyer showing any interest in it, just to obtain some money, even though the buyer
was not willing to pay market value)

Question 12

Extortionate credit transactions

When can liquidator/admin challenge?

Answer 12

• an extortionate credit transaction made in the three years ending with the day on which the company went into administration or liquidation.
• For a transaction to be extortionate, it must require grossly exorbitant payments
  to be made, or must otherwise grossly contravene ordinary principles of fair dealing.

Question 13

Transactions defrauding creditors

Answer 13

• A transaction at an undervalue
• Which the company entered into in order to put assets beyond the reach of someone making a claim against it
• Or to prejudice the interests of that person in relation to any claim they might make

Claim brought at the discretion of the court

Question 14

What can the other party to the transaction be ordered - if transaction defrauding creditors is found

Answer 14

May be ordered to:
* return any property which was the subject of the transaction to the company, or
* **discharge any security **that was given by the company as
part of the transaction.