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
KCP investment boosts domiciliary care provider Routes Healthcare
KCP investment boosts domiciliary care provider Routes Healthcare
Growing domiciliary care business Routes Healthcare, which provides NHS-funded intensive home care, has received a substantial investment from private equity firm Key Capital Partners (KCP) which has …
The Problems with Using Unlicensed Insolvency Advisers
The Problems with Using Unlicensed Insolvency Advisers
If your business is struggling to stay afloat and meet creditor demands, you may find that unlicensed insolvency advisers will claim to have all the answers to your questions. However, only licensed i…
Begbies Traynor Welcomes R3 Guidance on Dealing with Personal Debt Problems
Begbies Traynor Welcomes R3 Guidance on Dealing with Personal Debt Problems
The insolvency trade body R3 has published a new guidance document on the subject of how best to deal with the prospect of personal insolvency as a UK individual. As experts in both personal and corpo…
Historic construction and restoration company William Anelay placed into administration
Historic construction and restoration company William Anelay placed into administration
On 8 September 2016, Julian Pitts and Bob Maxwell of Begbies Traynor were appointed as joint administrators of William Anelay Ltd; one of Britain’s longest-established construction and heritage restoration companies
Director promotion at Begbies Traynor Preston
Director promotion at Begbies Traynor Preston
Ian McCulloch has been promoted to the position of Insolvency Director at Begbies Traynor's Preston office after eight years with the firm
First Ruling of Section 342A of the Insolvency Act
First Ruling of Section 342A of the Insolvency Act
Mark Raeside QC presided over four separate days in the High Court last week as Section 342A of the Insolvency Act was finally ruled upon, directing what constitutes an excessive contribution to a pension scheme which can be set aside by a trustee in bank

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