An Introduction to Transactions Defrauding Creditors

Introduction

A common occurrence in corporate and personal insolvency is the review of transactions the person or company made prior to their insolvency.

The purpose for conducting such reviews is to discover whether the individual made any transactions which could be impugned under the Insolvency Act 1986 through one of its antecedent transaction provisions.

The two primary antecedent claims, preferences and transactions at an undervalue, are limited to specific periods of time prior to an insolvency, which often prevents claims being brought.

However, a special type of undervalue claim, a s.423 claim for transactions defrauding creditors, exists without the normal limitations of the other antecedent claims in the time in which they might be claimed.

These special sub-sets of undervalue claims can be brought both by insolvency practitioners serving as liquidators, administrators, or trustees in bankruptcy, but can also be brought by private creditors outside of any insolvency proceedings - even if a winding-up or bankruptcy has not been ordered.

If proven, the Court has the power to reverse a transaction or order its worth in money to the claimant.

While some causes of action arising from insolvency, such as for wrongful trading, have been suspended due to the Coronavirus pandemic, s.423 claims continue to be available, and will continue to be sought by trustees in bankruptcy, liquidators, and creditors on a regular basis.

What You Will Learn

This webinar will cover the following:

• What is a Transaction to Defraud Creditors?
• What is a ‘transaction’ under s.423(1): how is it valued
• What is the statutory purpose to defeat creditors test under s.423(3)
• The element of dishonesty / intent / motive in the transaction
• Common types of transactions which might be impugned
• Who might apply - ‘victims of the transaction’
• Time limits and the issue of limitation - the differences from preference and classic undervalue claims
• Potential orders for relief:
• The Court’s unfettered discretion to make an order or not
• Third-party defences
• Manner of restitution which the Court might order - the calculation of loss
• Defences:
• Challenges to statutory conditions
• Common defences run by respondents
• Change of position or mental state of recipient, the tenants of 4Eng

This webinar was recorded on 23rd November 2021