RECOVERY OF ASSETS

Transactions at an undervalue 238

Preferences 239

Definition 238(4) - A gift or a transaction where the company received consideration (in money or money's worth)
significantly lower in value than it provided

239(4) - where one creditor is preferred by the company in that it has been put in a better position on insolvent liquidation

Extortionate credit transactions 244

244(3) - A
transaction that is 'extortionate'

Floating

Invalidates

Who

238(1)-(2) - A
liquidator or administrator

When does it apply

238(1) - where a company enters administration or goes into liquidation

239(1)-(2) - A
liquidator or administrator

239(1) - where a company enters administration or goes into liquidation

244(2) - A
liquidator or administrator

244(2) - where a company enters administration or goes into liquidation

245(2) - no

245(1) - where a

Test 238(4)(a) - gift to a person, enters into a transaction to receive no consideration, or
(b) enters into a transaction for consideration significantly less than the value

239(4)(a) - the person is the company's creditor, surety or guarantor 239(4)(b) - the person has been put in a better position upon insolvent liquidation than he would have been had the event not occurred

244(3) - the transaction was grossly exorbitant or it grossly contravened the ordinary principles of fair dealing 245(2) - A floating

Exception/Defence 238(5) - Entered into in good faith for the purpose of carrying on the business and, at the time, there were reasonable grounds for believing that the transaction would benefit 239(5) - the company must have desired to prefer the creditor/
guarantor/surety 239(6) - a desire is presumed if the creditor is connected with the company (
249;435)
Re MC Bacon - no desire to prefer when genuine commercial pressure*

Relevant time 240 - unable to pay its debts (123)
at the time or as a result AND takes place within 2 years ending with the presentation of the petition
(commencement of liquidation)
(240(1)(a))

Outcome

240 - unable to pay its debts (123)
at the time or as a result AND takes place within 6 months ending with the presentation of the petition, or 2 years for a connected person
(240(1)(a)-(b))

239(3) - apply to the court for an order to return the position they would have been in but for the transaction.
Orders in 241 -
(return property,
return proceeds of sale or discharge security)

It is extremely hard to show that payments are grossly exorbitant:
rare in practice

244(2) - entered into within 3 years of the presentation of the petition

244(4) - apply to the court for an order under this section

UNCONNECTED:

L/A will usually

238(2) - apply to the court for an order to return the position they would have been in but for the transaction.
Orders in 241

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