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Transaction at undervalue – does the company in liquidation have to be a party to the transaction?

20 November 2013

In Stephen John Hunt (Liquidator of Ovenden Colbert Printers Ltd) [2013], the Court of Appeal held that it was an essential part of any claim under s.238 of the Insolvency Act 1986 that the company had itself entered into a transaction.

This case concerned money held on trust by the company’s accountant who was allowed to transfer his agreed fees from that account but nothing further without express authority. Payments were made in excess of the agreed fees and also to the defendant. A claim was therefore brought against the defendant under s.238 and s.241.

The defendant, on a strike out application, submitted that the company did not actually enter into a transaction with the defendant. At first instance, Peter Smith J held that the claim had no prospect of success.

On appeal, the first instance decision was unanimously upheld. The payments from the client account were not transactions entered into by the company as there had to be the taking of some step or act of participation by the company.

This case highlights the importance of analysing the parties to a transaction before proceeding with a claim.

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