IVA Glossary
T
Transaction at an Undervalue
The term "transaction at undervalue" refers either to a gift or to a specific transaction which implies that the sender gives significantly more than the remuneration or return is. Practically this means that in case of such a transaction the receiver receives a lesser consideration than it has been sent or given. Such transactions might be called in question by administrators, trustees or by the person who liquidates assets in case of a bankruptcy. According to Section 423 of the 1986 Insolvency Act any person can apply if the transaction's purpose was to defraud lenders.
In order for a liquidator, administrator or trustee to be able to set aside such transactions, they have to apply to the Court proving that the company has made a gift to a person and has not received any consideration or received a consideration worth less compared to the consideration provided by the company. Nevertheless, a transaction cannot be set aside in case where it was executed with good nature with the intention to take on the company's business, and if at that time period there was a chance that from the transaction in question the company could have benefited.
Similarly, for a transaction to be set aside, other criteria should be met:
- the transaction has to be entered into at the so-called "vulnerability period" which refers to the time period before the company becoming bankrupt (this is usually between 6 months and 2 years)
- it has to be proved that at that time, the company could not pay its due debts
If an entity has successfully applied, namely, if the transaction in question has been declared as a transaction at undervalue, then the party who has received the benefit has the obligation to return it to the liquidator or to the person who replaces the liquidator.
In order for a liquidator, administrator or trustee to be able to set aside such transactions, they have to apply to the Court proving that the company has made a gift to a person and has not received any consideration or received a consideration worth less compared to the consideration provided by the company. Nevertheless, a transaction cannot be set aside in case where it was executed with good nature with the intention to take on the company's business, and if at that time period there was a chance that from the transaction in question the company could have benefited.
Similarly, for a transaction to be set aside, other criteria should be met:
- the transaction has to be entered into at the so-called "vulnerability period" which refers to the time period before the company becoming bankrupt (this is usually between 6 months and 2 years)
- it has to be proved that at that time, the company could not pay its due debts
If an entity has successfully applied, namely, if the transaction in question has been declared as a transaction at undervalue, then the party who has received the benefit has the obligation to return it to the liquidator or to the person who replaces the liquidator.
