Voidable Transactions Flashcards
What is the objective of voiding transactions?
Restore company’s position if transaction hadn’t occurred in order to increase estate for creditors
What are key questions to consider when considering voidable transactions?
1) Was other party connected person / associate?
2) Did transaction occur in relevant time?
3) Was company insolvent at the time or did it make it insolvent?
4) Is a presumption of insolvency available?
What is a connected person?
Directors / associates of directors / company
What is an associate?
Relatives, business partners, employees, certain companies / trustees
What are the main voidable transactions?
1) Transactions at an undervalue (TUV)
2) Preferences
3) Transactions defrauding creditors
4) Avoidance of certain floating charges
What is the definition of transaction at an undervalue?
1) Transaction is a gift, or
2) Consideration is significantly greater than value received
What is the insolvency requirement for TUV?
Company must be insolvent at time or as a result
What is presumed insolvent?
If TUV is with connected person
What is the relevant time for TUV?
Within 2 years before onset of insolvency
What is a defence for TUV?
- Good faith for purpose of carrying on business, and
- Reasonable grounds for believing it would benefit company
What are sanctions for TUV?
1) Restore positions
2) Pay difference in value back (by counterparty)
What are preferences?
Company gives preference to a creditor by doing / allowing something that puts them in a better position in the event of insolvency
What is insolvency requirement for preferences?
Company must be insolvent at time – no presumption of insolvency
What is relevant timings for preferences?
- Within 6 months prior to insolvency, or
- 2 years if connected person
What is desire to prefer?
Must prove subjective desire to prefer creditor
What is the defence for preferences?
No such desire – transaction motivated by genuine commercial pressure
What are sanctions for preferences?
Restoration to previous position
What is a transaction defrauding creditors?
Transaction at undervalue + intent to put assets beyond reach of creditors / prejudice creditors’ interests
Who can claim for transaction defrauding creditors?
- Liquidator / Administrator
- Supervisor of IVA/CVA
- Victim of transaction
Is insolvency required for preferences claim?
No, can apply even if solvent
What is relevant timings for preferences?
No time limit
What is avoidance of certain floating charges?
Prevents creditors improving priority by taking floating charge for past debts with no new value
What are key features of avoidance of floating charges?
Automatic avoidance – no need to bring court claim
What is relevant timings for floating charge avoidance?
If created within 12 months of insolvency / 2 years if connected person
