BLP - Insolvency II – Directors’ liabilities and voidable transactions Flashcards
(17 cards)
Who may bring a claim for fraudulent trading?
A liquidator or administrator. Both by court application
What must be established for a successful claim for fraudulent trading against a director?
Actual dishonesty – subjective knowledge and objective dishonesty (Ivey v Genting). Only one creditor needs to be defrauded.
Whom can a claim for fraudulent trading can be brought against?
Any person who is knowingly party to the carrying on of any business of the company with an intent to defraud creditors.
What is the legal basis for directors’ personal liability in fraudulent trading?
s213 IA 1986 (liquidation) and s246ZA IA 1986 (administration).
What are the remedies for fraudulent trading?
Court can order contribution to company’s assets (compensatory only).
Funds held on trust for unsecured creditors.
Disqualification order (s10 CDDA 1986).
Criminal sanctions (s993 CA 2006): up to 10 years’ imprisonment and/or fines.
Why are fraudulent trading claims rare?
High evidential burden; claims are hard to prove.
How do wrongful trading claims differ from fraudulent trading claims?
Wrongful trading (s214/246ZB IA 1986) is easier to prove.
Wrongful trading
A claim may be brought by a liquidator or administrator of the company against any person who was at the relevant time a director of the company and who knew or ought to have concluded that there is no reasonable prospect of the company avoiding insolvent liquidation.
What is the ‘reasonably diligent person’ test?
The court applies the ‘reasonably diligent person’ test in order to determine whether a director ought to have concluded that there was no reasonable prospect of avoiding an insolvent liquidation or administration and whether the director then took every step to minimise the potential loss to the company’s creditors.
What is a transaction at undervalue?
A transaction where the company gives something away for free or for much less than it’s worth, harming creditors.
When does a transaction at undervalue become voidable?
If the company was insolvent at the time or became insolvent because of the transaction, and it occurred within 2 years before insolvency (insolvency presumed if with connected person).
What is a preference?
A transaction that puts one creditor in a better position if the company becomes insolvent, influenced by the desire to prefer.
When can a preference be challenged?
If it occurred within 6 months of insolvency (or 2 years if a connected person) and was made with the desire to prefer that creditor.
What is a transaction defrauding creditors (TDC)?
A transaction made to deliberately stop creditors from being able to claim assets, with intent to prejudice creditors. No insolvency required.
Who can challenge a transaction defrauding creditors?
A liquidator, administrator, voluntary arrangement supervisor, or the victim of the transaction.
What is the issue with floating charges?
A floating charge over existing debt with no new consideration is void if created within 12 months (or 2 years for connected persons) before insolvency, unless new money was provided.
What is the key difference between TUV and TDC?
TUV requires insolvency at the time or as a result of the transaction; TDC doesn’t, but it requires proof of intent to defraud creditors.
