Oxbridge Notes | Recovery Of Assets - Business Law and Practice

RECOVERY OF ASSETS

	Definition	Who	When does it apply	Test	Exception/Defence	Relevant time	Outcome
Transactions at an undervalue 238	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	238(1)-(2) – A liquidator or administrator	238(1) – where a company enters administration or goes into liquidation	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	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	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))	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
Preferences 239	239(4) – where one creditor is preferred by the company in that it has been put in a better position on insolvent liquidation	239(1)-(2) – A liquidator or administrator	239(1) – where a company enters administration or goes into liquidation	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	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*	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)
Extortionate credit transactions 244	244(3) – A transaction that is ‘extortionate’	244(2) – A liquidator or administrator	244(2) – where a company enters administration or goes into liquidation	244(3) – the transaction was grossly exorbitant or it grossly contravened the ordinary principles of fair dealing	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
Floating charges 245	Invalidates floating charges on an existing debt for no new consideration NB: May also be voidable as a preference	245(2) – no need for application – automatically void	245(1) – where a company enters administration or goes into liquidation	245(2) – A floating charge, for an existing debt for no new consideration		UNCONNECTED: 245(3)(b) – 12 months ending with the presentation of the petition AND 245(4) unable to pay its debts (123) at the time or as a result	L/A will usually write to the charge holder stating that they believe it to be invalid. The charge holder will then either seek to enforce the charge and force L into injunctive proceedings, or seek a declaration from the court that the charge is valid
Floating charges 245		245(2) – no need for application – automatically void				CONNECTED: 245(3)(a) – 2 years ending with the presentation of the petition no requirement for insolvency at the time 245(4)
Transactions defrauding creditors 423	A transaction putting assets beyond the reach of creditors	423(2)/424 – ANY VICTIM		423(1) – At an undervalue (as 238) 423(3) – to put assets beyond the reach of a claimant, or to prejudice the interests of someone in relation to a claim	Intention for 423(3) is hard to prove	NO TIME LIMIT: Use where the transaction occurred before insolvency/where the time limit for 238 has expired	423(2) – aims to restore position and protect interests 425 – orders similar to those under 241

*Bank agreed to an increased overdraft subject to taking a floating charge. This was not a desire to prefer; a desire to prefer is a positive wish.

	Definition	Who	Insolvent?	Test	Outcome/Defence
Fraudulent Trading IA 213	When a person allows an insolvent company to continue its business with the intention of defrauding creditors	213(2) - Liquidator	213(1) – In the course of winding up	213(1) – business has been carried on...

Fraudulent Trading

IA 213

When a person allows an insolvent company to continue its business with the intention of defrauding creditors

213(2) - Liquidator

213(1) – In the course of winding up

213(1) – business has been carried on...

Recovery Of Assets - Business Law and Practice

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