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Company - undervalue transaction |
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As the recession bites, there will be more cases in which it is subsequently
alleged that a company sale or transfer of land was at an undervalue (and so
should be set aside). A reminder of the basic rules:
- a transaction is at ‘undervalue’ if the consideration ‘in money or
money’s worth, is significantly less than the value, in money or
money’s worth, of the consideration provided by the company’;
- the transaction must have been entered into within two years prior
to the onset of insolvency (ie entering administration or going into
liquidation);
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the company must have been unable to pay its debts at the time
of the transaction . Note that this would include the situation where
the company becomes unable to pay its debts as a result of the
transaction; and
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if the transaction is with a ‘connected person’ then it will be presumed
that the company would be unable to pay its debts (unless the contrary
can be shown).
For conveyancers, the message is clear: if dealing with a ‘connected person’
(typically a director, shadow director, or relative of a director) then ensure the
proper value is given, and that there is documentation to confirm that (eg
third-party valuation). See s238 Insolvency Act 1986.© Practical Lawyer
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November 2008 |
