WS10: Voidable Transactions

Question 1

What is a TUV?

Answer 1

Gift
Transaction for consideration less in value
Granting a security for no consideration / considerably less

Question 2

Which claims need insolvency?

Answer 2

TUV
Preferences
Avoiding of a FC

Question 3

What is the insolvency test if a claim has an insolvency requirement?

Answer 3

Cash flow test, or balance sheet test

Question 4

Who brings a TUV?

Answer 4

Liquidator / administrator

Question 5

Who is a TUV brought against?

Answer 5

Person who benefits from the TUV

Question 6

Is there a presumption of insolvency for a TUV?

Answer 6

Yes

Question 7

What is the relevant time for a TUV

Answer 7

Two years preceding the onset of insolvency regardless of whether it took place with a CP, or not

Question 8

What defences are available to a TUV?

Answer 8

Good faith

Reasonable grounds for believing that transaction would benefit the company

Question 9

What sanctions are available for a TUV?

Answer 9

TUV is voidable

Court can make an order to restore position as if a transaction had not happened

Question 10

Why might a TUV be useful?

Answer 10

No need to show that intention was to put assets beyond the reach of creditors

Question 11

What is a transaction defrauding creditors?

Answer 11

• Transaction at an undervalue
• Intention to put assets beyond the reach of creditors or prejudice their interest

Question 12

What is the insolvency test for TDC?

Answer 12

trick question - no requirement for insolvency

Question 13

Who can bring a TDC claim?

Answer 13

• Liquidator / administrator
• Supervisor of a voluntary arrangement
• Victim of the transaction

Question 14

What sanctions are available for a TDC?

Answer 14

TDC is voidable

Court can make an order to restore position as if transaction had not happened

Question 15

What is a preference?

Answer 15

Transaction which preferences a creditor obtaining an improper advantage over other creditors at a time where that company is insolvent

Question 16

do you need to be insolvent for a preference?

Answer 16

yes - cash flow / balance sheet

Question 17

Who can bring a preference claim?

Answer 17

Liquidator / administrator

Question 18

What is the relevant time for a preference claim?

Answer 18

6 months preceding the onset of insolvency

Question 19

If a preference is made with a Connected Person / Associate, what effect does this have?

Answer 19

Relevant time is extended to two years for preferences to connected persons and associates

If preference is given to a CP / associate – rebuttable presumption that company was influenced by a desire to prefer

Question 20

defence to a preference?

Answer 20

absence of desire to prefer

Question 21

sanctions for a preference

Answer 21

Preference is voidable

Court can make an order to restore the position as if the company had not given the preference

Common order: preferred creditor to pay liquidator / administrator any money received

Question 22

What is the aim of an avoiding a FC claim?

Answer 22

Prevents an unsecured creditor obtaining a floating charge to secure an existing loan for no new consideration, at the expense of other unsecured creditors

Question 23

Does a company need to be insolvent to avoid a FC?

Answer 23

Yes - cash flow / balance sheet

Question 24

What is the relevant time for an avoiding a FC claim?

Answer 24

12 months preceding

Question 25

If a floating charge is granted to a connected person, how does this change?

Answer 25

relevant time is extended to two years no requirement for insolvency if FC is granted to a CP

Question 26

What is the procedure and sanctions for avoiding a floating charge?

Answer 26

Security is void Liquidator or administrator serves a notice to a FC holder that they believe it is void FC holder must then file proceedings, and get a declaration of validity

Question 27

Who can bring a fraudulent trading claim?

Answer 27

* A liquidator * Administrator

Question 28

Who an a Fraudulent trading claim be brought against?

Answer 28

anyone party to the carrying on of any business of the company, with an intent to defraud creditors / for fraudulent purposes

Question 29

What are the requirements for fraudulent trading?

Answer 29

actual dishonesty fraud

Question 30

remedies for fraudulent trading

Answer 30

order to make such a contribution to the company's assets as the court thinks is proper jail fines

Question 31

what is the standard of proof for a FT claim?

Answer 31

very high - not commonly used as the actual dishonesty and fraud elements are challenging hurdles

Question 32

who can bring a wrongful trading claim?

Answer 32

liquidator / administrator

Question 33

what is the aim of the wrongful trading offence??

Answer 33

when directors become aware, or ought to become aware that an insolvent liquidation / administration is inevitable they are under a duty to take every step possible to minimise the potential losses to the company’s creditors.

Question 34

who can a claim be brought against in WT?

Answer 34

any person who was at the relevant time a director

Question 35

what is the insolvency test for wrongful trading?

Answer 35

Balance sheet test only, not cash flow

Question 36

When is a director liable for wrongful trading?

Answer 36

point of no return reached director knew / ought to have concluded that there was no reasonable prospect company would avoid insolvent liquidation, and continued trading

Question 37

What is the main defence for wrongful trading?

Answer 37

every step defence - director can satisfy the court that they took every step to minimise loss to creditros

Question 38

how is the every step defence tested?

Answer 38

reasonably diligent person test - objective standard of a reasonably competent director, subjectively raised if they have expertise

Question 39

what are the remedies for wrongful trading?

Answer 39

contribution based on the depletion of the company's assets caused by directors' conduct disqualification

Question 40

Who is a TUV claim brought against?

Answer 40

The person who received the benefit of the TUV