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Investigation Powers

How can an Insolvency Practitioner use Section 238 of the Insolvency Act 1986 to recover money and property transferred at an undervalue?

Section 238 of the Insolvency Act 1986 can be used by the Insolvency Practitioner to issue legal proceedings for compensation following when company assets and property has been transferred within two years of the commencement of insolvency of a limited company at an undervalue. This is known as an antecedent transaction.

238 Transactions at an undervalue (England and Wales).
(1) This section applies in the case of a company where—
(a) the company enters administration,
(b) the company goes into liquidation; and “the office-holder” means the administrator or the liquidator, as the case may be.
(2) Where the company has at a relevant time (defined in section 240) entered into a transaction with any person at an undervalue, the office-holder may apply to the court for an order under this section.
(3) Subject as follows, the court shall, on such an application, make such order as it thinks fit for restoring the position to what it would have been if the company had not entered into that transaction.
(4) For the purposes of this section and section 241, a company enters into a transaction with a person at an undervalue if—
(a) the company makes a gift to that person or otherwise enters into a transaction with that person on terms that provide for the company to receive no consideration, or
(b) the company enters into a transaction with that 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.
(5) The court shall not make an order under this section in respect of a transaction at an undervalue if it is satisfied—
(a) that the company which entered into the transaction did so in good faith and for the purpose of carrying on its business, and
(b) that at the time it did so there were reasonable grounds for believing that the transaction would benefit the company.

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Disclaimer

This page: Section 238 of the Insolvency Act 1986 is not legal advice and should not be relied upon as such. Section 238 of the Insolvency Act 1986 is provided for information purposes only. You can Contact Us on the specific facts of your case to obtain relevant advice via a Free Initial Consultation.