Transaction at an undervalue

A transaction between two parties for no consideration or where the consideration provided by one is significantly less than the value of the consideration provided by the other, in circumstances where the transaction is later reviewable under statutory provisions usually connected with insolvency.

An administrator or liquidator may apply to the court for an order avoiding any transaction made at an undervalue in the two years before the administration or liquidation if the company was then (or as a result of the transaction became) unable to pay its debts as they fell due (section 238, Insolvency Act 1986). Inability to pay debts at the relevant time is rebuttably presumed if the transaction is with a connected person (section 240(2), Insolvency Act 1986).

A trustee in bankruptcy has a similar power where an individual, in the five years before the bankruptcy, disposed of an asset as a gift, in consideration of marriage or a civil partnership or for significantly less than the asset was worth, if the individual was insolvent at the time or became insolvent as a result of the transaction in question (section 339, Insolvency Act 1986).

A victim of a transaction at an undervalue may apply to the court for an order avoiding any transaction made at an undervalue or protecting the interests of victims of the transaction (section 423, Insolvency Act 1986). Under section 423 the company or individual need not be insolvent but must have entered into the transaction with the purpose of putting assets out of reach of the victim or otherwise prejudicing their interests (section 423(3)).