Transactions at an Undervalue (Insolvency Act 1986, Sections 238 and 339)
Transactions at an Undervalue (Insolvency Act 1986, Sections 238 and 339)
Sections 238 (corporate insolvency) and 339 (bankruptcy) target gifts, transfers for no or insufficient consideration, and transactions with a gift element entered into by the debtor on the eve of insolvency, to the detriment of creditors. The sections themselves are relatively straightforward in operation. The main conditions for challenging a transaction are that (a) the debtor either received no consideration or received consideration of a value significantly less than the consideration he gave (in bankruptcy the section also operates where a transaction has been entered in consideration of marriage); and (b) the transaction must have been entered into at a ‘relevant time’ which consists of two elements: the transaction must have taken place within a particular time period occurring immediately prior to insolvency, and it must also be established that the transacting party was insolvent at the time of the transaction or as a result of it. In corporate insolvency cases, a defence is available where the transaction was entered into in the reasonable belief that it would benefit the company. The simplicity of these provisions makes them a powerful weapon for office holders, as does the fact that the burden of proof shifts in favour of the officeholder where
Keywords: conventional gifts, cross-border transactions, cross-stream guarantee, deferred entitlements, good faith, group reorganizations, guarantees and collateral security, measurable consideration, procedural matters, transactions defrauding creditors
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