When an individual or a company faces insolvency or bankruptcy, they may be tempted to transfer their assets at a value lower than their actual worth to prevent their creditors from seizing them. These transactions at an undervalue can be challenged under UK law to ensure that creditors receive fair treatment. In this blog post, we will take a closer look at the rules governing transactions at an undervalue in UK bankruptcy law, including their definition and time frames.

Transactions at an Under Value Prior to an Individual Voluntary Arrangement

he rules governing transactions at an undervalue in bankruptcy law also extend to Individual Voluntary Arrangements (IVAs), meaning that any transfers of assets at an undervalue made prior to entering into an IVA may be challenged by the appointed supervisor of the arrangement. It’s important to note that the same rules and time frames that apply to bankruptcy cases also apply to IVAs. Therefore, it’s crucial to understand these rules and seek professional advice to ensure that you’re aware of your rights and obligations and that you’re protecting your assets appropriately.

Time Frames for Challenging Transactions at an Undervalue

In UK bankruptcy law, the time frame for challenging a transaction at an undervalue depends on the relationship between the debtor and the recipient of the asset. For transactions with connected parties, such as family members, business partners, or directors of the company, the time frame is two years prior to the onset of insolvency or bankruptcy. For transactions with parties who are not connected, the time frame is only six months prior to the onset of insolvency or bankruptcy.

It’s worth noting that even if a transaction occurred outside of these time frames, it may still be challenged if the debtor was insolvent at the time of the transfer or became insolvent as a result of it.

Challenging Transactions at an Undervalue

To challenge a transaction at an undervalue, the liquidator or administrator appointed to manage the bankruptcy process must apply to the court for an order to reverse the transfer of the asset. The court will consider several factors to determine whether a transaction at an undervalue has occurred, including whether the debtor received adequate consideration for the transfer, and whether the transaction was made in good faith and for a legitimate commercial purpose.

If the court finds that a transaction at an undervalue has occurred, it can order the asset to be returned to the debtor’s estate. This can include any gifts or transfers made to family or friends, as well as sales of assets at less than their true value.

Conclusion

In summary, transactions at an undervalue can have serious consequences for debtors and their creditors. It’s essential to understand the rules governing these types of transactions in bankruptcy law and the time frames for challenging them. Seeking professional advice is recommended to ensure that you understand your rights and obligations under the law. By being aware of these rules and time frames, you can help to ensure that your assets are protected and that your creditors receive fair treatment.