Insolvency Made Clear: A Guide for Debtors

Insolvency Law Made Clear – A Guide For Debtors
• Finally, for a preference which is not a transaction at an undervalue and
not given to an associate, it is six months ending with the day the petition
is presented.
If the Trustee’s application is successful, the court will “make such order as it
thinks fit for restoring the position to what it would have been if that individual
had not entered into that transaction”. The order the Trustee typically applies for
is an order to undo the transaction or preference. For example, it would be to
reclaim the money paid to the parents, who would then be repaid at the same
proportion as all of the other creditors. However, the court has wide powers to
make the appropriate order to undo the transaction. In the example of the car
sold at an undervalue, the Trustee might ask simply for the excess £5,000 to be
repaid rather than undoing the whole transaction and receiving a £10,000 car.
There is some protection given for third parties who are affected by transactions
at an undervalue or preferences where they can show that they acquired the
property in good faith and for value under s342 of the Act. Where the person
did not deal directly with the bankrupt, they cannot be required to pay any
money back or undo the transaction. Even where they did deal directly, the
order will not undo the transaction. An example where this matters is where
there is a transfer of shares which are later worth more: the Trustee cannot ask
for a return of the shares.
However, if the third party was aware that the individual was likely to go bankrupt
and that the property was at an undervalue, or if they were an associate of
that individual, then it will be presumed that they were not acting in good faith.
The third party will be able to bring evidence to rebut this presumption.
It is a defence to a claim under these sections if it can be shown that the bankrupt
was solvent at the time and did not become insolvent as a consequence of
the transaction. If that was the case, then the creditors were not prejudiced by
the transaction or preference, since (at that time) they could still be repaid by
the bankrupt. The bankrupt’s insolvency is presumed if the transaction was to
an associate.
These claims can be brought even after the bankruptcy is discharged. The money
returned by the claim will be distributed to the creditors as if it was an asset of
the estate during the bankruptcy. A Trustee has six years to bring a claim for the
return of money and 12 years for any other remedy.
The court has discretion to make the order it thinks fit. This includes making
no order at all. In Bucknall v Wilson [2020] EWHC 1200 (Ch) the bankrupt
instructed his stepdaughter to provide accountancy services for which he owed
her £99,330. The bankrupt paid his stepdaughter and all his other creditors
rather than repay a judgment debtor against whom he had a personal grudge.
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