INS11129 - Introduction

Insolvency offences: further action

Introduction

EIS Insolvency Service may take further action following an insolvency order (bankruptcy or winding up). If you identify any of these offences

• Clearly highlight them in the fact sheet so the information is available to Insolvency Service.

Because of the time limits it is essential that you take action quickly

• Refer the case with full details to your Business Manager (Technical).
• Deal with the case urgently.

Preference

Preference is a payment by the debtor to one creditor to the disadvantage of another. The Court may set aside the transaction if action is taken, usually within six months of the preference.

Transaction at undervalue

A transaction at undervalue is when assets have been disposed of to the detriment of creditors, such as a transfer at less than the full value, including an outright gift.

Under Sections 339 to 342 Insolvency Act 1986 a transaction at undervalue can be set aside by the Court if action is taken within two years of the bankruptcy being presented to the Court. In certain circumstances this period can be extended to five years.

Because of the time limits it is essential that you take action quickly

• Refer the case with full details to your Business Manager (Technical).
• Deal with the case urgently.

Transaction defrauding creditors

Under Sections 423 to 425 Insolvency Act 1986, if the Court can be satisfied of evidence that a debtor has divested themselves of assets by gift or transfer at undervalue with the intention to put those assets out of the reach of creditors, the Court may overturn (void) the transaction.

• There is no time limit for such action
• The burden of proof is on the creditor (it is more difficult the more that time has passed)
• It is not necessary for the debtor to be in bankruptcy or liquidation to seek such an order under S423 (so such action might be appropriate when action by winding up proceedings would not be worthwhile, for example when the assets have been transferred and the company is a ‘shell’.

If you have a case when you think such action might be worthwhile

• Consult your Casework Manager, Business Manager (Technical) or the Process & Strategy (Insolvency) Enforcement Adviser.