#16636 - 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 | |
| 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 with the intent to defraud creditors of the company or creditors of any other person, or for any fraudulent purpose *Positive conduct required *Intention is not defined in statute | 213(2) – The court may declare the persons knowingly party liable to make contributions to the company’s assets as the court thinks proper (discretionary) |
| Fraudulent Trading CA 993 | 993(2) – whether or not the company has been or is in the course of winding up | 993(1) – business carried on with the intent to defraud creditors of the company or creditors of any other person, or for any fraudulent purpose *Positive conduct required *Intention is not defined in statute | 993(3) – any person knowingly party is triable either way and on conviction carries a maximum sentence (on indictment) of 10 years imprisonment or a fine (or both) | ||
| Wrongful Trading IA 214 | Directors allowing a company to carry on trading when there is no hope of avoiding insolvent liquidation | 214(1) - Liquidator | 214(2)(a) – Gone into insolvent liquidation | 214(2)(c) – director or shadow director 214(2)(b) – knew or ought to have known that there was no reasonable prospect of the company avoiding insolvent liquidation 214(4)(a) – OBJECTIVE: knowledge, skill and experience as a person carrying out the same functions 214(4)(b) – SUBJECTIVE: knowledge skill and experience as that person has | 214(1) – The court may order the director to contribute to the assets of the company in the amount by which the company’s assets can be discerned to be depleted by the directors’ conduct giving rise to the liability 214(3) – DEFENCE if the director took every step with a view to minimising the potential loss to the company’s creditors as he ought to have taken (OB/SUB test again) |
Examples:
| Undervalue | Preference | Floating Charge | Defrauding Creditors |
|---|---|---|---|
| Allowing the directors to transfer company property e.g. cars into their own names so they can keep it even if the company comes to an end | Allowing once supplier of goods to change its terms and conditions to include a retention of title clause where none existed previously | Bank requires a floating charge to secure an overdraft but does not change the overdraft limit or provide any fresh lending. Automatically invalid if liquidator and show that... |
purchase it now!
More Business Law And Practice Samples
Ambitious and intelligent students
choose Oxbridge Notes.
- Customer Support
- Sellers FAQ
- Contact Us
- Privacy Policy
- Terms and Conditions
©2024 Oxbridge Notes. All right reserved.