Voidable Transactions Flashcards
(26 cards)
Which types of transactions may be voidable?
- Transactions at an undervalue
- Preferences
- Transactions defrauding creditors
- Certain floating charges
What are ‘connected persons’
Directors (including shadow directors), associates of directors, and associates of the company.
What are ‘associates’
Broadly defined to include relatives (siblings, aunts/uncles, etc.), business partners, employees, trustees, and companies under common control.
Who may challenge a TUV
A liquidator or an administrator (collectively ‘office-holders’).
What is a transaction at an undervalue?
- A gift, or
- A transaction where the company receives significantly less consideration than it gives.
When must a TUV have occurred to be challenged?
Within 2 years before the onset of insolvency
What must be proven for a TUV claim to succeed?
- The company was insolvent at the time or became so because of the transaction.
- The transaction involved undervalue.
- If the transaction was with a connected person, insolvency is presumed.
What is the statutory defence to a TUV claim?
The transaction was entered into in good faith, for the purpose of carrying on the business, and with reasonable belief it would benefit the company.
What can the court order
Restoration of the position, including ordering the counterparty to pay the shortfall (e.g., the difference in value).
What are the 2 requirements for Transactions Defrauding Creditors?
- A transaction at undervalue
- An intention to defraud or prejudice creditors, including future creditors
Who can bring a Transaction Defrauding Creditors Claim?
A liquidator, administrator, supervisor of a voluntary arrangement, or a victim of the transaction
Is there a time limit for bringing TDC claim?
No. There is no statutory time period.
What orders can the court make for TDC claim?
Any order to restore the pre-transaction position
What is a preference?
When a company does something that puts a creditor in a better position on insolvency than they otherwise would be.
What is required to void a preference?
- It occurred within the relevant time (6 months, or 2 years for connected persons)
- The company was insolvent at the time or became so
- The company was influenced by a desire to prefer the creditor
What is the relevant time period for preferences?
- 6 months before insolvency
- 2 years if made to a connected person
What is the main defence to a preference claim?
Absence of desire to prefer the creditor
desire to prefer?
It is a subjective test—commercial pressure alone (e.g., threat to call in loans) does not prove desire to prefer.
What can the court order for voidable preferences?
Any order to restore the position, often requiring repayment of money received by the preferred creditor
What is aim of avoidance of certain floating charges?
To prevent existing unsecured creditors from gaining an unfair advantage by obtaining a floating charge without providing new value.
When is a floating charge void?
- It was created within 12 months (or 2 years for connected persons) before insolvency
- It secured an existing debt
- The company was insolvent at the time or became so because of it
Is insolvency presumed for connected persons?
Yes—there is no need to prove insolvency when the charge is granted to a connected person.
When is a floating charge still valid
To the extent it secures new money or other fresh consideration provided at or after the time of the charge’s creation.
How does case law affect floating charges over overdrafts?
post-charge overdraft advances could be considered new money, making the floating charge valid to that extent.
