Skip to main content

What Kind Of Transactions Can Defraud Creditors?

Transaction defrauding creditors are those transactions can be caught by virtue of Section 423 of the Insolvency Act 1986 and which can relate to transactions entered into at an undervalue; resulting from:

  • gifts to the other person
  • transactions with another party on terms that provide for him to receive no benefit
  • a transaction with the other party in consideration of marriage
  • a transaction with the other party for less money or money’s worth that is significantly less than the value provided.

What Are The Key Tests For Transactions Defrauding Creditors?

The key legal requirements to prove a transaction defrauding creditors are as follows:

  • A “transaction” includes “a gift, agreement or arrangement” and, therefore, can include an agreement or understanding between parties, whether formal or informal, oral or in writing.
  • When assessing the purpose of a transaction in question the matter to be considered is the purpose of the party issuing the transaction.
  • A prohibited purpose is not acceptable when intended to put assets beyond the reach of creditors or prejudice their interests.
  • Insolvency is not an essential requirement in such claims but it might be relevant.

Whilst assessment of a witness’s evidence may well be of material relevance in a Court’s review of such a claim, particularly if valid concerns are demonstrated, this might not determine the outcome under Section 423 of the Insolvency Act 1986. This has been shown in the case highlighted in the article Trustee’s Section 423 Claim Dismissed.

What Compensation Or Other Court Order Could Be Made?

The Court has wide powers if it finds transactions defrauding creditors and can:

  • restore the position to what it would have been if the transaction had not been entered into
  • protect the interests of victims of the transaction
  • it can be appropriate to require payment of a sum to compensate for the transaction at an undervalue

The Court however cannot:

  • put a victim in a better position
  • punish parties that conducted the challenged transactions

Are you a creditor looking to recover your money?

If you are a creditor of an insolvent company or a bankruptcy, Oliver Elliot can help you address your claim and concerns arising from the insolvency.

Find out how

What Next?

Expert Advice Is Just A Click Away

If you have any questions in relation to What Are Transactions Defrauding Creditors? then contact us as soon as possible for advice. Oliver Elliot offers a fresh approach to insolvency and the liquidation of a company by offering specialist advice and services across a wide range of insolvency procedures.

Our expertise is at your fingertips.

Please enable JavaScript in your browser to complete this form.

By submitting this form you agree with the storage and handling of your data by Oliver Elliot. For more details, please read our Privacy Policy.

Opt in

Disclaimer: What Are Transactions Defrauding Creditors?

This page: What Are Transactions Defrauding Creditors? is not legal advice and should not be relied upon as such. This article What Are Transactions Defrauding Creditors? 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.