Member of BTG Global Advisory

The time period between a creditor’s winding-up petition and the subsequent court hearing, has been termed a ‘twilight zone’ for insolvent companies. Severe restrictions are placed on their ability to trade during this time, particularly in relation to the transfer or sale of company assets.

Whether or not a creditor is successful in obtaining a winding-up order, the company in question will want to continue trading as far as possible until a decision is made. The problem is that the court considers the position of creditors as a whole in these instances, rather than the company, its directors or shareholders.

Transactions at an undervalue

One of the issues addressed by the court is the potential for directors to sell company assets below their true market value simply to move them from the reach of a liquidator. It is also possible that assets may form part of a preferential payment.

Either way, harming creditor interests in this way by reducing the amount available for repayment is a breach of director duty.

Begbies Traynor is the UK’s market leader in business rescue and recovery. We can offer expert advice on how to proceed once a winding-up petition has been presented by a creditor.

Pre-insolvency asset transfers covered by the Insolvency Act

Provision is made within the Insolvency Act 1986, to protect creditor interests following the presentation of a winding-up petition. Legislation prevents directors from transferring assets once a petition has been presented, and if they do so, they are in serious breach of their duties.

In these cases, the courts can demand the return of the asset, or repayment if necessary, along with any associated legal expenses in reinstating the asset in question. Although under these conditions it may seem that ‘normal’ trade is impossible, there is an avenue for directors to move assets legally under a court order if the transaction will not harm creditor interests or adversely affect the company’s financial position any further.

Validation orders

A validation order may be sought by the insolvent company, and provides sanction from the court to transfer or otherwise deal with the specific assets named. The order is notified to the petitioning creditor, along with any other creditors attending the court hearing for winding-up.

The validation order allows for the transfer of a company asset, but it must be at the full market value, as any amount less than this will diminish the total available to repay creditors.

Proof will be required that selling or transferring the asset will not compromise the company’s solvency any further, or that it would increase creditor returns. The court has full discretion over whether an asset can be validated under these circumstances. Where the money is intended to repay lending that carries a director’s personal guarantee, it is unlikely to be sanctioned.

Begbies Traynor can offer professional guidance on pre-insolvency transfers of assets. We will ensure that you remain within the rules of insolvency, and as a director, do not place yourself at undue risk of personal liability. Call one of the team for a same-day consultation.

 

Contact our team

Processing...
Latest News
York taxi company placed into administration
York taxi company placed into administration
On 25th November 2016, Rob Sadler and Dave Broadbent of Begbies Traynor in York were appointed as joint administrators of Six Five Nine Cars Ltd. The business, which has traded in York for over 15 yea…
40 jobs saved as gaming retailer sold out of administration
40 jobs saved as gaming retailer sold out of administration
Administrators of a South West-based gaming retailer have succeeded in saving 40 jobs at the company after securing the sale of the business, including 12 out of 15 of its High Street stores. Business…
Nearly 100 jobs saved as bars and restaurants are sold out of administration
Nearly 100 jobs saved as bars and restaurants are sold out of administration
Almost 100 jobs have been saved by the successful sale out of administration of a number of Midlands bars and restaurants. Town and Country Inns plc appointed business recovery and rescue specialists …
Begbies Traynor opens new office in Taunton
Begbies Traynor opens new office in Taunton
The UK's leading independent business recovery practice, Begbies Traynor, has opened an office in Taunton.  The move will enable the firm to build on work it has already done in the town and with the…
Brexit uncertainty puts the brake on London businesses
Brexit uncertainty puts the brake on London businesses
New research reveals that British businesses from Land's End to John o' Groats have shown surprising resilience since the EU Referendum result was announced, with levels of financial distress falling…
UK businesses remain resilient in the face of Brexit
UK businesses remain resilient in the face of Brexit
UK businesses across nearly every sector of the economy were showing positive signs of stability following the EU Referendum, new research from Begbies Traynor, the UK’s leading independent insolven…

Advice You Can Trust

Insolvency Practitioners Association Institute of Chartered Accountants in England and Wales R3: Association of Business Recovery Professionals ICAEW Business Advice Service Turnaround Management Association ACCA (the Association of Chartered Certified Accountants) ICAS | The Institute of Chartered Accountants of Scotland
Menu