d
c

Transactions at an undervalue (“TUVs”) arise in both corporate and personal insolvency. A TUV is a transaction between two parties, where either (i) no consideration is provided or (ii) the consideration provided is substantially less than market value in circumstances where the transaction can later be reviewed pursuant to statutory provisions, including the Insolvency Act 1986 (“IA 1986).

In corporate insolvency, Transactions at an undervalue are a type of reviewable transaction, also referred to as antecedent transactions for the purposes of the IA 1986. Reviewable transactions are transactions that take place in a prescribed timeframe before a company enters administration or liquidation and can subsequently be set aside by an administrator or a liquidator once a company enters into one of the respective formal insolvency processes. An office-holder may apply to the court to set aside a TUV pursuant to s.238 IA 1986.

In personal insolvency, certain types of transactions entered into by a bankrupt prior to the commencement of bankruptcy may be challenged under provisions in IA 1986. These are also known as reviewable transactions. TUVs, in the context of bankruptcy, can be challenged pursuant to s.339 IA 1986.

Edwin Coe’s restructuring and insolvency team are very experienced and are able to assist with all aspects of advising on, bringing and defending Transactions at an undervalue claims. We act for office-holders in pursuing such claims; and we also act for individuals who are subject to TUV claims, or are concerned that they might be subject to such a claim in the future, or individuals who are in financial difficulty and are looking to enter into a transaction but require advice on the risk of a transaction.

Services we offer in this area include:

 

  • Advising office-holders on whether a transaction is likely to be reviewable as a Transaction at an undervalue
  • Advising office-holders in respect of bringing TUV claims, and on all aspects of the process from drafting proceedings to settlement negotiations or trial
  • Advising individuals, including company directors, as to their risk of a TUV claim being brought against them
  • Advising individuals in defending TUV claims, or advising on settlement negotiations, where appropriate
  • Advising individual clients as to their exposure to any other claims that may arise within the relevant insolvency proceedings as may be appropriate

Key Information

  • What is a TUV?

    A TUV is a type of transaction entered into prior to a company entering administration or liquidation, or an individual entering bankruptcy, which can be challenged by an office-holder (whether that be an administrator, liquidator or trustee in bankruptcy).

    In respect of companies, a company may have entered into a TUV if all of the following conditions as set out in sections 238 and 240 IA 1986 are fulfilled:

    1. the transaction was entered into during the two years ending with the onset of insolvency (the “Relevant Time”) (s. 238(2) IA 1986); and
    2. the company makes a gift to a person or otherwise enters into a transaction with a person on terms that provide for the company to receive no consideration (s238(4)(a) IA 1986), or
    3. the company enters into a transaction with a person for a consideration the value of which, 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 (s. 238(4)(b) IA 1986); and
    4. at the time the transaction was entered into, the company was unable to pay its debts at, or became unable to pay its debts as a result of the transaction (the “Insolvency Requirement”) (s. 240(2), IA 1986).

    An individual (A) enters a TUV with another person (B) if the criteria set out in sections 339 and 341 IA 1986 are fulfilled:

    1. A makes a gift to B or A otherwise enters into a transaction with B on terms that provide for A to receive no consideration,
    2. A enters into a transaction with B in consideration of marriage or the formation of a civil partnership, or
    3. A enters into a transaction with B for consideration, the value of which, in money or money’s worth, is significantly less than the value, in money or money’s worth, of the consideration provided by A (s. 339A IA 1986); and
    4. The transaction was entered into at a time in the period of 5 years ending with the day of the making of the bankruptcy application as a result of which, or (as the case may be) the presentation of the bankruptcy petition on which, the individual is made bankrupt (the “Relevant Time”) (s. 341 IA 1986).

    A common example of a TUV would be a company, which has subsequently entered insolvent liquidation, or an individual who has subsequently been made bankrupt, giving a gift to another party or disposes of its property for no financial compensation.

    Another example of a TUV is a transaction defrauding creditors pursuant to s. 423 IA 1986, which requires a person (a corporate body or an individual) to enter into the transaction for the purpose of either:

    1. “putting assets beyond the reach of a person who is making, or may at some time make, a claim against him” (s. 423(3)(a) IA 1986), or
    2. “otherwise prejudicing the interests of such a person in relation to the claim which he is making or may make” (s. 423(3)(b) IA 1986)
  • Who can bring a TUV claim?

    In corporate insolvency, an administrator or a liquidator can make an application to court for an order to set aside any transaction within the period of two years before the date on which the company entered administration or liquidation, if the company was at that time, or as a result of the transaction became, unable to pay its debts as they fell due (s. 238 IA 1986). Administrators and liquidators do not require the permission of a company’s members, creditors or the court to commence proceedings in respect of a TUV. However, a liquidator may need the consent of a floating charge holder (if applicable) where in the circumstance, in order to pay the costs arising from the liquidation, the liquidator needs to have recourse to property subject to the floating charge.

    In personal insolvency, a trustee in bankruptcy has a similar power to make an application to the court to set aside any transaction which took place within the 5 years prior to the making of a bankruptcy order, whereby the individual disposed of any asset as, for example, a gift, in consideration of marriage or for substantially less than the asset was actually worth, if the individual was insolvent at the time or became insolvent as a result of that transaction (s. 339 IA iL1986).

  • Who can bring a claim for a transaction defrauding creditors in respect of a TUV?

    In respect of a TUV that is also a transaction defrauding creditors, a victim of the TUV can also apply to the court for an order that either (i) restores the position to that which it would have been if the TUV had not been entered into (s.423(2)(a)) and (ii) for an order protecting the interests of the person(s) who are victims of the TUV (s. 423(2)(b) IA 1986).

    A claim in respect of a transaction defrauding creditors is often referred to as a s.423 claim, by reference to the relevant section of the IA 1986. Section 423 provides a mechanism to challenge TUVs whereby the purpose of the transaction was to put the debtor’s assets out of reach of the debtor’s creditor(s) (the victim(s)), or to otherwise prejudice their interests (s. 423(3) IA 1986). Importantly, the debtor does not need to be insolvent at the time the transaction was entered into, nor do they have to become insolvent as a result.

    For the purposes of s. 423 IA 1986, in relation to a TUV a ‘victim’ is to a person who is, or is capable of being, prejudiced by the transaction in question.

  • How can a TUV be challenged?

    In order to challenge a TUV in personal or corporate insolvency, generally an application is filed with the court. TUV claims are ordinarily determined after the court has considered the evidence before it, meaning the summary judgment procedure is unlikely to be appropriate to determine such an application.

    To challenge a transaction as being a TUV, the applicant, i.e. the office-holder, must prove that the criteria for a TUV is met.

    It is important to note that where the TUV is entered into with a connected person, there is a rebuttable presumption that the company or the individual was insolvent at the time of the transaction, unless it can be shown otherwise (s. 240(2) IA 1986).

  • Who is a connected person?

    A person is connected with a company if that person is:

    • A director of the company.
    • A shadow director of the company.
    • An associate of a director or shadow director.
    • An associate of the company.

    (Section 249, IA 1986.)

    “Associate” is defined in s.435  IA 1986. There are a number of different definitions of associate, depending upon whether a person is an associate of an individual or of a company. Analysing whether a legal or natural person is an associate pursuant to the test in s.435 IA 1986 is complicated and, whilst s.435 does provide some detail as to the meanings of close relatives and “control” of a company, we would recommend seeking legal advice. Edwin Coe’s R&I team is well placed to assist.

  • What orders can be made on a TUV claim (corporate insolvency)?

    The court may make any order it sees fit to restore the position to that which it would have been, had the TUV not been entered into by the company (s.238(3) IA 1986), providing that the court is not satisfied that s. 238(5)(a) or (b) IA 1986 apply.

    If the court is minded to make an order under s.238 IA 1986, the usual order would require the person who entered into the transaction to return either (i) the property or (ii) the value of the property to the company.

    In respect of a s.423 claim, the court may make an order avoiding any transaction made at an undervalue and/or protecting the victim’s interests (s. 423 IA 1986).

  • What orders can be made on a TUV claim (personal insolvency)?

    The court may make any order it sees fit to restore the position to that which it would have been, had the TUV not been entered by the individual (s.339(2) IA 1986).

    If the court is minded to make an order under s339 IA 1986, the usual order would require the person who entered into the transaction to return either the property or the value of the property to the estate.

Contact our Restructuring & Insolvency Team
telephone: 020 7691 4000
or email: enquiries@edwincoe.com

  • Single page view

Restructuring & Insolvency

Transactions at an undervalue

Share by: