Insolvency practitioners will look at the dealings of a company to determine whether any assets were disposed of or transferred away for less than their true market value.
Section 238 of the Insolvency Act 1986 allows a liquidator or administrator to apply to the court for order restoring the position of the company to what is was prior to the transaction.
The Liquidator must be able to show that:
- The transactions were entered into within the prescribed time limits prior to the company’s insolvency
- The asset in question was gifted or transferred at a value significantly less than the consideration provided by the third party
- Issues relating to “valuation” are often important in these types of cases with the requirement for expert evidence sometimes pivotal.
- If a director can show that they transferred the asset in good faith and for the purpose of carrying on its business and that there were reasonable grounds for believing the transaction would benefit the company, then this provides a defence to a claim.