28:
671:. There is also a requirement for the company to have been insolvent when the transaction was entered into, or for the company to have become insolvent as a result of the transaction. This is presumed for a 'connected person', which may be rebutted, but must be proven by the liquidator or administrator in all other cases. There is a defence which the recipient of the transaction can rely on under section 238(5) of the Insolvency Act 1986 which applies where a transaction was entered in
27:
751:
Where the parties were not dealing at arm's length, then the trustee must prove that the transaction was at an undervalue and that either the transfer occurred during the one year before the initial bankruptcy event or the bankruptcy occurred in the five years before the initial bankruptcy event and
747:
with the debtor. Where the parties were at arm's length, the trustee must prove that the transaction was at an undervalue, it occurred during the one year before the initial bankruptcy event, the debtor company was insolvent at the time of the transaction or was made insolvent because of it, and the
591:
The effect of a successful application to have a transaction declared as an undervalue transaction varies. Inevitably the other party to the transaction who received the benefit has to return the benefit (or account for it) it to the liquidator. In some countries the assets are treated in the normal
587:
The vulnerability period is the period of time immediately prior to the company going into bankruptcy. The length of the vulnerability period varies between countries, and some countries apply different vulnerability periods in different circumstances.
702:
in the same circumstances as the company would not have entered into the transaction with regard to the benefits and detriments to the company, the benefits to any other party to the transaction, and any other relevant matter. Section 588FB(2) of the
569:
provided by either side. However, if a company is in real peril of going bankrupt, many legal systems provide for a mechanism which allows these transactions to be unwound, so as to prevent prejudice to the creditors of the company.
916:
A person who is 'connected' to a company is defined for these purposes in section 249 of the
Insolvency Act 1986 as a director or shadow director of the company, an associate of a director or shadow director, or an associate of the
780:, or the disposition occurred within two years of the sequestration of the estate and the person who received the disposition cannot prove that immediately after the transaction, the assets of the debtor exceeded his liabilities.
707:
provides that there is no requirement for a creditor of the company to be party to the transaction and that there can still be an uncommercial transaction where it was the result of an
Australian court order or agency direction.
640:
or liquidator of the company. The transaction must have been a gift, or a transaction where the company received consideration of money or money's worth which was significantly lower in value than the asset was worth. In
686:. These are listed in section 241 of the Insolvency Act 1986 and include returning the property to the company, returning the proceeds of sale to the company, and the discharge of any security.
667:
must be satisfied. The transaction must have occurred within the relevant period of two years. The period is calculated by reference to the period of time immediately preceding the onset of
577:
the consideration received by the company in the transaction, in money or money's worth is significantly less than the value, in money or money's worth, provided by the company;
583:
at the time of the transaction, the company was unable to pay its debts as they fell due, or became unable to pay its debts as they fell due as a result of the transaction.
660:
the court held that it may be appropriate to consider the details of a series of linked transactions when determining whether the transaction was for an undervalue.
752:
the company was insolvent at the time of the transaction or was made insolvent because of it and the company intended to "defraud, defeat or delay" a creditor.
331:
387:
611:
Many jurisdictions which have prohibitions on undervalue transactions also provide for an exception in the case of transactions entered into in the
316:
187:
675:, for the purpose of carrying on the business, and there were reasonable grounds when it was entered to believe that it would benefit the company.
443:
54:
653:
357:
516:
182:
604:). However, some countries have "ring-fenced" recoveries of unfair preferences so that they are made available to the pool of assets for
619:
are of a view that it is for the benefit of the company, and such transactions are usually either validated or presumed to be validated.
773:
79:
651:
could not be considered an undervalue transaction as it does not deplete or diminish the value of the assets of the company. In
412:
573:
Normally, for a transaction to be set aside as an undervalue transaction, the liquidator or equivalent must demonstrate that:
382:
736:
711:
The vulnerability period for an uncommercial transaction is two years, or four years where there is a 'connected person'.
633:
407:
402:
367:
59:
761:
397:
612:
850:
test of insolvency to undervalue transactions, either as an alternative to the cash-flow test, or in addition to it.
744:
695:
463:
352:
794:
720:
509:
392:
377:
362:
347:
233:
490:
480:
433:
321:
259:
110:
89:
930:
643:
986:
827:
704:
549:. This can occur where the transaction was seriously disadvantageous to the company and the company was
428:
326:
218:
202:
156:
135:
130:
438:
44:
991:
981:
769:
664:
637:
502:
372:
764:
can be set aside by the court under section 26 of the
Insolvency Act 1936. This occurs where the
648:
616:
605:
458:
249:
166:
951:
789:
728:
699:
597:
485:
468:
453:
300:
228:
120:
69:
593:
542:
295:
264:
161:
125:
601:
280:
64:
663:
In order for a transaction at an undervalue to be proved, the test in section 240 of the
962:
823:
678:
If it is proven that there was a transaction at an undervalue, then the transaction is
743:. The trustee has different legal requirements where the party was or was not dealing
975:
566:
534:
197:
772:
of his estate and it can be proven that immediately after the disposition, debtor's
905:
562:
94:
74:
723:
where there is a transfer of property or the provision of services for which the
683:
668:
254:
84:
813:
Some legal systems also apply undervalue transactions to insolvent individuals
740:
672:
550:
538:
474:
49:
19:
831:
192:
942:
A connected person is defined in section 64B of the
Corporations Act 2001.
679:
546:
290:
151:
115:
732:
580:
the transaction was entered into during the "vulnerability period"; and
541:
which the court orders be set aside, usually upon the application of a
846:
test of insolvency. Some jurisdictions (although not many) apply the
765:
724:
448:
777:
727:
company gives a consideration of nil or conspicuously less than
285:
822:
See for example, section 238 of the
Insolvency Act 1986 in the
565:, the courts will not generally look into the adequacy of the
682:
at the court's discretion and there are a number of possible
26:
748:
company intended to "defraud, defeat or delay" a creditor.
768:
made such a disposition more than two years before the
735:must bring an application under section 96 of the
600:which catches the assets (characteristically, a
863:(1997) BCC 282, now superseded by legislation.
510:
8:
553:or in immediate risk of becoming insolvent.
517:
503:
15:
806:
739:for the court to declare a transaction
420:
339:
308:
272:
241:
210:
174:
143:
102:
36:
18:
872:Insolvency Act 1986, ss 238(1) and (2)
698:occurs if it could be expected that a
647:, the court held that the granting of
903:Phillips v Brewin Dolphin Bell Lawrie
654:Phillips v Brewin Dolphin Bell Lawrie
7:
861:Re Oasis Merchandising Services Ltd
719:A transfer at undervalue occurs in
533:is a transaction entered into by a
632:A transaction at an undervalue in
14:
545:for the benefit of the debtor's
760:A disposition without value in
694:An uncommercial transaction in
1:
881:Insolvency Act 1986, s 238(4)
737:Bankruptcy and Insolvency Act
592:way, and may be taken by any
561:Under ordinary principles of
762:South African insolvency law
826:, and section 558FB of the
623:In individual jurisdictions
613:ordinary course of business
537:who subsequently goes into
1008:
636:can only be pursued by an
963:Insolvency Act 24 of 1936
696:Australian insolvency law
464:History of bankruptcy law
795:Voidable floating charge
234:Voidable floating charge
721:Canadian insolvency law
481:Pre-packaged insolvency
434:Bankruptcy alternatives
322:Cross-border insolvency
260:Trading while insolvent
111:Insolvency practitioner
90:Provisional liquidation
644:Re MC Bacon Ltd (No 1)
531:undervalue transaction
224:Undervalue transaction
31:
927:Corporations Act 2001
828:Corporations Act 2001
705:Corporations Act 2001
429:Anti-deprivation rule
327:Insolvency Regulation
219:Fraudulent conveyance
203:Scheme of arrangement
157:Preferential creditor
136:Trustee in bankruptcy
131:Referee in Bankruptcy
30:
665:Insolvency Act 1986
634:U.K. insolvency law
606:unsecured creditors
183:Administration (UK)
459:Financial distress
332:UNCITRAL Model Law
250:Fraudulent trading
167:Unsecured creditor
32:
790:Unfair preference
729:fair market value
700:reasonable person
598:security interest
594:secured creditors
527:
526:
486:Sovereign default
469:List of bankrupts
439:Creditors' rights
301:Security interest
229:Unfair preference
211:Avoidance regimes
121:Regulatory agency
999:
966:
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519:
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296:Second lien loan
265:Wrongful trading
162:Secured creditor
16:
1007:
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1002:
1001:
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996:
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969:
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946:
941:
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911:
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897:
891:Re MC Bacon Ltd
889:
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880:
876:
871:
867:
858:
854:
841:
837:
821:
817:
812:
808:
803:
786:
758:
745:at arm's length
717:
692:
630:
625:
602:floating charge
559:
523:
317:Chapter 15 (US)
281:Floating charge
188:Chapter 11 (US)
65:Conservatorship
12:
11:
5:
1005:
1003:
995:
994:
989:
984:
974:
973:
968:
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944:
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865:
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835:
824:United Kingdom
815:
805:
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802:
799:
798:
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691:
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629:
628:United Kingdom
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444:Chapter 9 (US)
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57:
55:Chapter 7 (US)
52:
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45:Administration
39:
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34:
33:
23:
22:
13:
10:
9:
6:
4:
3:
2:
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869:
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849:
848:balance-sheet
845:
839:
836:
833:
829:
825:
819:
816:
810:
807:
800:
796:
793:
791:
788:
787:
783:
781:
779:
776:exceeded his
775:
771:
770:sequestration
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755:
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746:
742:
738:
734:
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639:
638:administrator
635:
627:
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614:
609:
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589:
582:
579:
576:
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567:consideration
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491:Subordination
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413:United States
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309:International
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198:Restructuring
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175:Restructuring
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17:
987:Business law
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947:
938:
926:
922:
912:
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898:
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886:
877:
868:
860:
855:
847:
843:
842:This is the
838:
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759:
756:South Africa
750:
718:
710:
693:
684:court orders
677:
662:
657:
652:
642:
631:
610:
590:
586:
572:
563:contract law
560:
530:
528:
473:
398:South Africa
223:
95:Receivership
75:Examinership
774:liabilities
669:liquidation
596:who have a
403:Switzerland
255:Misfeasance
85:Liquidation
70:Dissolution
992:Insolvency
982:Bankruptcy
976:Categories
952:BIA, s 96.
673:good faith
615:where the
543:liquidator
539:bankruptcy
475:Pari passu
340:By country
126:Liquidator
50:Bankruptcy
20:Insolvency
893:BCLC 324.
844:cash-flow
832:Australia
801:Footnotes
690:Australia
617:directors
551:insolvent
547:creditors
378:Hong Kong
353:Australia
193:Cram down
144:Claimants
103:Officials
37:Processes
917:company.
784:See also
680:voidable
649:security
557:Overview
348:Anguilla
291:Mortgage
273:Security
242:Offences
152:Creditor
116:Tribunal
965:, s 26.
931:s 588FB
733:trustee
535:company
454:Default
388:Ireland
929:(Cth)
906:UKHL 2
778:assets
766:debtor
725:debtor
715:Canada
449:Debtor
393:Russia
368:Cayman
363:Canada
421:Other
383:India
373:China
859:See
741:void
731:. A
286:Lien
830:in
529:An
358:BVI
80:IVA
60:CVA
978::
608:.
933:.
658:,
518:e
511:t
504:v
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