If a transaction(s) at an undervalue has occurred, the Insolvency Act 1986 at s238 and s339 give the court power, on an application by the Office Holder, to restore the position to what it would have been had the transaction not been entered into.

This might include reversing the transaction or ordering the recipient to repay the difference in the values or to set aside any security or grant security to the Office Holder.

There are defences to this claim and the Court may not make an order relating to company property where it is satisfied that the company entered into the transaction in good faith and for the purposes of carrying on its business and that at the time there were reasonable grounds for believing the transaction would benefit the company.

If at the time of the transaction you had notice of the impending insolvency or were an associate then it is presumed, unless the contrary is shown, that the interest was acquired other than in good faith and therefore your defence to any application is immediately more complicated.

If you receive notice from an Office Holder which alleges that you are party to a transaction at undervalue then you should seek independent legal advice as a matter of urgency or risk a Court making an order that would restore the positions prior to the transaction.

Please be aware that notwithstanding the evidence, which will change from case to case, the Office Holders have a duty to the creditors to realise as much as possible and any litigation at Court includes the risk of incurring significant legal costs which include an irrecoverable element and so often Office Holders will acknowledge this in any settlement offer(s) they might consider.

Furthermore, there is litigation risk and a time delay in any Court order being made and irrespective of the outcome there is always the risk of being unable to recover the entire sums claimed on the basis the person/company simply does not have it.

For these reasons, we recommend you contact us to seek urgent legal advice on your prospects of successfully defending such a potential claim.

Should you have any concerns in respect of the solvency of your company and/or concerns in respect of your duties as a director, please do not hesitate to send us a message or call a Bailoran expert on 0113 266 0735.