5.6 Challengeable transactions

Question 1

What challengeable transactions are brought in co name against parties running the company?

Answer 1

S212 Misfeasance

 s213/s 246ZA Fraudulent trading

 s214/s 246ZB Wrongful trading

Question 2

What challengeable transactions are brought in office holders name against BENEFICIARIES of transaction?

Answer 2

 s238 Transactions at an undervalue

 s239 Preferences

 s245 Extortionate credit transactions

 s423 Transactions defrauding creditors

Question 3

Who can apply to court under s212 - misfeasance?

Answer 3

The liquidator (on behalf of co)
 the official receiver
 any creditor
 any contributory (with permission of the court)

Question 4

What relief can be granted in a misfeasance claim?

Answer 4

For benefit of creditors as a whole:

order the respondent (CO OFFICER/ OH) to repay, restore or account for any money or property (together with interest), or make a payment of compensation in an amount to be determined by the court

Question 5

Who can apply to court under s213/ 246ZA - fraudulent trading?

Answer 5

Liquidator/ administrator

Question 6

What relief can be granted in a fraudulent trading claim?

Answer 6

Court may declare that ANY PERSONS who were knowingly parties to the carrying on of the business in the manner above mentioned are to be liable to make such contributions (if any) to the company’s assets as the court thinks proper

Question 7

Who can apply to court under s214/ s246ZB wrongful trading

Answer 7

Liquidator/ administrator against Directors of the company/ shadow directors

Question 8

What relief can be granted in a misfeasance claim?

Answer 8

To find the director(s) liable to pay money into the liquidation/ administration, to compensate for the losses incurred

Defences
 Director took every step with a view to minimising the potential loss to the company’s creditors as he/she ought to have taken

Question 9

What are the requirements for a transaction at undervalue for a company? （s238)

Answer 9

Relevant time: 2 years from the commencement of liquidation

Insolvency required:
 insolvent at the time; or
 as a consequence of the transaction

 Insolvency presumed when entered into with a connected party

Statutory defence: that the company entered into the transaction:
 in good faith;
 for the purposes of carrying on the business; and
 when it did so there were reasonable grounds for believing that the transaction would benefit the company

Question 10

What is the meaning of connected party?

Answer 10

S249 IA86
a person is connected with a company if—

 he is a director or shadow director of the company; or

 an associate of such a director or shadow director, or

 he is an associate of the company

 and“associate”hasthemeaninggivenbyS435IP86

Question 11

What is the meaning of associate?

Answer 11

S435 IA86
Meaning of “associate”

 Current, former or reputed husband, wife or civil partner

 A relative of the individual or the individual’s (current or former) husband, wife or civil partner, including:
 brother, sister, uncle, aunt, nephew, niece, lineal ancestor or lineal descendant

 A business partner and their (current or former) husband, wife, civil partner or other relatives

 Employers/employees

 A director is treated as an employee

Question 12

What are the requirements for a preference?

Answer 12

 Relevant time: 2 years / 6 months

 Insolvency:
 insolvent at the time; or
 as a consequence of the transaction

NO PRESUMPTION
of insolvency when entered into with a connected party
 Burden on applicant

Question 13

What is the relevant time for extortionate credit transactions?

Answer 13

3 years from when company “went into liquidation” or entered administration

Question 14

What is the timeframe for avoidance of floating charges?

Answer 14

Unconnected: 12 months from the commencement of liquidation

 Connected: 2 years from the commencement of liquidation

 Insolvency:
Unconnected: Insolvency at the time or as a consequence

 Connected: NO requirement for insolvency at time or as a consequence

Question 15

What are the criteria for s423 Transactions defrauding creditors claims?

Answer 15

 NO TIME LIMIT

Transactions at an undervalue entered into for the purpose of:

 putting assets beyond the reach of a person who is making, or may at sometime make, a claim against him, or
 or other wise prejudicing the interests of such a person in relation to the claim which he is making or may make

However, the applicant must show there was an intention to deprive

Question 16

When does the OH need to obtain permission from floating charge holders for legal expenses?

Answer 16

(Floating charge holders won’t benefit from recoveries as not covered by the floating charge)

> £5,000 from any party that stands not to be paid as a consequence.

Court can override creditors decision not to approve.

Question 17

When are directors personally liable for a company’s tax?

Answer 17

non-payment was deliberate, negligent or fraudulent