If your business is insolvent or facing insolvency, the law can review your business\u2019s transactions in the previous two years. In some cases, the law can \u201cvoid\u201d a transaction, which means the other party to the transaction may be liable to the company. This article will explain what a voidable transaction is and what you should know as a company director about voidable transactions.<\/p>\n\n\n\n
When a company is insolvent, the law typically appoints a liquidator or administrator to manage the company\u2019s affairs upon a successful court application. Liquidators oversee companies in liquidation. Whereas administrators oversee companies in administration. When a court determines that a business cannot be rescued, liquidation is the appropriate procedure. On the other hand, the administration is more appropriate for businesses capable of rescuing through a sale. <\/p>\n\n\n\n
In either case, the liquidator or administrator can review all the transactions a company has been a party to for up to the previous 24 months from insolvency<\/strong>. The purpose of this power is to enlarge the insolvent company\u2019s assets so that its creditors’ interests can be maximised. <\/p>\n\n\n\n There are three elements involved in proving a claim for a voidable transaction. A voidable transaction:<\/p>\n\n\n\n A transaction includes anything where your company:<\/p>\n <\/ul>\n <\/p>\n<\/div>\n\n\n\n A connected person refers to a shadow director<\/a>. Whereas an associate is anyone whose relation to the insolvent company\u2019s director includes:<\/p>\n\n\n\n Essentially, the liquidator or administrator must prove:<\/p>\n\n\n\n If the evidence suggests this is the case, the claim is more likely to succeed. <\/p>\n\n\n\n The relevant period is calculated backwards from the date of insolvency. For administration, this is the point that the application to initiate administration is lodged with the court. <\/p>\n\n\n\n For liquidation, it is the date winding up commenced. This is either when:<\/p>\n\n\n\n A voidable transaction applies to a variety of different transactions. Nevertheless, depending on the nature of the transaction, different periods apply. <\/p>\n\n\n\n In practice, a liquidator or administrator will look at all transactions within the past two years (except for fraud, which has no limit). Suppose they find a transaction that is either an undervalue, preferential treatment to a creditor, or avoidance of floating charge. In that case, they will investigate whether the other party is connected. If the transaction happened before the relevant period, the liquidator or administrator cannot take any action. However, if the transaction happened after the relevant period, they can bring a claim.\u00a0<\/p>\n\n\n\n\n\n\n\n\n Continue reading this article below the form\n <\/i>\n<\/a>\nWhat is a Voidable Transaction?<\/h2>\n\n\n\n
\n
\n
Who is a Connected Person or Associate in a Voidable Transaction?<\/h3>\n\n\n\n
\n
What Was the Effect of the Transaction?<\/h3>\n\n\n\n
\n
What is the Relevant Period for a Voidable Transaction?<\/h3>\n\n\n\n
\n
Type of Transaction <\/strong><\/td> Relevant Period Before Insolvency<\/strong><\/td><\/tr> Transaction at an undervalue<\/a> involving an unconnected person <\/td> 2 years <\/td><\/tr> Transaction at an undervalue involving a connected person<\/td> 2 years<\/td><\/tr> Preferential treatment of a creditor<\/a> where the creditor is an unconnected person<\/td> 6 months<\/td><\/tr> Preferential treatment to a creditor where a creditor is a connected person<\/td> 2 years<\/td><\/tr> Avoiding floating charges<\/a> with an unconnected person<\/td> 12 months<\/td><\/tr> Avoiding floating charges<\/a> with a connected person<\/td> 2 years<\/td><\/tr> Transactions defrauding creditors<\/td> Unlimited <\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n