If your business cannot meet its financial obligations, it may be insolvent. When a business is insolvent or facing insolvency, the law can review the business\u2019s transactions in the previous two years. Additionally, the directors may be liable if your company has undertaken a transaction at an undervalue. This article will define what a transaction at an undervalue entails and its consequences. <\/p>\n\n\n\n
A transaction at an undervalue is any transaction an insolvent company undertakes where it sells a non-cash asset for significantly less than its market value. For instance, say a company owns a piece of machinery (a non-cash asset) valued at \u00a3100,000. The company then sells it for \u00a310,000. This likely amounts to a transaction at an undervalue. <\/p>\n\n\n\n
In some cases, a transaction at an undervalue might include instances where the insolvent company grants a creditor security for less than the security\u2019s value. For instance, a mortgage over a piece of land valued at \u00a31m for \u00a310,000 may offend the rule against transactions at an undervalue. <\/p>\n\n\n\n
Insolvency is where a business either has:<\/p>\n\n\n\n
For instance, if a company has \u00a310,000 in liabilities and \u00a35,000 in assets, it is insolvent on a balance sheet basis. On the other hand, if a company has \u00a310,000 in current liabilities but \u00a35,000 in cash with no prospect of raising any more cash, it is insolvent on a cash flow basis. <\/p>\n\n\n\n\n\n Continue reading this article below the form\n <\/i>\n<\/a>\n