INS9508 - Bankruptcy

Prior transactions

Transactions at Undervalue

Preference

Transactions at Undervalue

A trustee may apply to the Court to have a transaction by the bankrupt made void when the

• bankrupt made the transaction at undervalue
• transaction took place in the two years before the presentation of the bankruptcy petition
• transaction took place between two and five years before the presentation of the bankruptcy petition and at the time of the transaction the bankrupt was insolvent or became so as a result. If the transaction is with an associated person, then insolvency is presumed and it is for the bankrupt to demonstrate otherwise.
• The Court may, if it thinks fit, make an Order to restore the position to what it would have been if the bankrupt had not entered into the transaction.

Preference

A preference given by a bankrupt to one creditor to the disadvantage of other creditors may also be set aside when the preference

• (not at undervalue) was given in the two years before the presentation of the bankruptcy petition, and
• was given to a person who is an associate of the bankrupt or
• was given in any other case in the six months before the presentation of the bankruptcy petition.

With an associate, there is a presumption of a desire to prefer. In other cases, it is necessary for the trustee to demonstrate to the court that the bankrupt was influenced by a desire to prefer. This is not always a simple matter.

When the trustee’s reports indicate that the debtor’s assets are less than those disclosed on your papers

• check other Revenue sources such as

Also consider checking Equifax or Experian (have a word with the Enquiry Team)

• Draw the trustee’s attention to the difference, as appropriate.

A trustee’s approach to creditors might include a request for a guarantee of costs to challenge the transaction.