Undervalue and Preference Claims
A Director of a company that faces financial distress and insolvency are required to understand their duties and responsibilities to all of the creditors of the business.
If the Director does not understand those duties and enters into transactions or makes payments that, in the light of insolvency are not considered to be in the best interest of the business or the general body of creditors, those transactions and payments might be liable to attack and reversal through the enforcement of insolvency legislation.
If you are the recipient and the transaction or payment is challenged, you face the prospect of having to reverse the transaction or return the payment even if you are worse of as a consequence.
To the innocent supplier and recipient that seems very unfair. So you need to understand tour rights if you are in the unfortunate position of being faced with either a claim for a transaction at undervalue or a preference claim.
Undervalue And Preference Claims
A transaction at undervalue is where an asset of a business faced with the prospect of insolvency is disposed of for less than market value. Using insolvency legislation that transaction at undervalue can be attacked by the insolvency practitioner and an order made by the Court to return the asset or to pay more for it.
A preference occurs where a Director of a company faced with insolvency puts one of its creditors into a better position than it would have been in the event of insolvency. The classic scenario here is the repayment of a loan in full to a family member or preferred supplier immediately prior to insolvency when, in insolvency, the company will not have been able to make the payment in full.
Transactions at undervalue and preferences are governed by the insolvency legislation. There are defences that can be argued in order to avoid the reversal of the transaction or payment or to mitigate against it.
Talk to Tollers
When faced with such a claim it is essential that you take timely advice from an expert in insolvency legislation. We have those experts at Tollers and so if you have an issue with a Transaction at Undervalue or a preference, speak to a member of our insolvency team.