A Fascinating Case Linking Insolvency, Company and Property Laws
The court has wide powers to prevent creditors being defrauded: transactions at an undervalue can be challenged under section 423 Insolvency Act 1986 even if the debtor is not a party to a transaction or does not have a beneficial interest in the relevant assets. Debtors therefore cannot use corporate structures to avoid their creditors.
Unlike transactions at an undervalue in corporate insolvency (section 238) and bankruptcy (section 339), section 423 is not confined to the insolvency context. It has a wider application.
Two issues of law were considered by the Court of Appeal in this case in relation to section 423:
- Whether a transfer to a third party by a company owned and controlled by a debtor can be challenged as defrauding creditors; (the Bank’s appeal) and..
- Whether there can be a transaction at an undervalue if the debtor does not have a beneficial interest in the asset which is the subject of the ‘transaction’ (the Respondents’ appeal).