Transactions at an Undervalue & Preferences
Advice on section 238, 239 and 423 claims for insolvency practitioners and assignees bringing them, and for directors and recipients defending them.
Enquire NowJonathan Lea Network advises on claims to unwind transactions entered into before insolvency, including transactions at an undervalue, preferences and transactions defrauding creditors. We act for insolvency practitioners and assignees bringing these claims, and for directors, family members, connected companies and other recipients defending them. These claims turn on valuation, timing and evidence, and we assess all three before advising you whether to pursue or resist.
Somebody wants to unwind a deal the company did before it failed
Or you are the one who wants it unwound.
Either way the question is the same. Did value leave the company that should have stayed in it, and can it be brought back? This is why directors, family members and connected businesses find themselves in court years after a company has gone. A property transferred to a spouse. A van sold to a relative at book value. A director’s loan cleared a few weeks before the administrators arrived.
None of those is automatically wrong. All of them get looked at. Whether a claim succeeds usually turns on documents that already exist, so the first job is to find out what they show.
We act for insolvency practitioners and claims purchasers bringing these claims, and for the people on the receiving end of them.
The company gave something away, or sold it for less than it was worth
The law calls this a transaction at an undervalue.
Whoever brings the claim has to show that the company received significantly less than it gave, that it could not pay its debts at the time or could not pay them as a result of the deal, and that the deal happened within the relevant period before the insolvency. Where the other side of the deal was somebody connected to the company, insolvency is assumed and it falls to the defendant to prove otherwise.
If the claim succeeds, the court can make whatever order restores the position to what it would have been. There is a defence and it is narrow: the company must have acted in good faith and for the purposes of its business, with reasonable grounds at the time for believing the deal would do the company good.
Most of these cases turn on what the company actually received. A promise to pay from somebody with no money is not worth its face value, and the court can take account of what happened afterwards when deciding what that promise was worth at the time.
One creditor was paid and the others were not
The law calls this a preference.
The allegation is that a creditor, or somebody who had guaranteed a debt, was put in a better position than they would have been in had the company simply gone into liquidation. Whoever brings the claim has to show that the company was influenced by a desire to produce that result.
The lookback period is shorter than for undervalues, and longer where the person paid was connected to the company. Where they were connected, that desire is assumed unless the defendant can show otherwise.
Repaying a director’s loan, or clearing a debt a director has personally guaranteed, is the payment challenged most often. Paying a supplier who would otherwise have stopped supplying, so that the business could keep trading, is the answer given most often.
Assets were moved to keep them away from creditors
Section 423 of the Insolvency Act 1986 covers transactions at an undervalue entered into to put assets beyond the reach of creditors, or otherwise to prejudice them.
There is no time limit on these claims and the company does not need to have been insolvent, which makes them useful where the ordinary lookback period has closed. Anybody prejudiced by the transaction can bring the claim, not only an administrator or liquidator. Transfers of property to a spouse, a family trust or another company you own are the usual targets.
What decides these cases
| The question | Why it decides the outcome |
|---|---|
| What did the company give, and what did it get back? | Both have to be measurable in money, and both are judged from the company’s point of view. A promise from somebody who cannot deliver is worth very little. |
| Could the company pay its debts at the time? | Both insolvency tests are in play. Where the other party was connected, insolvency is assumed unless the defendant proves otherwise. |
| When did it happen? | Whether the deal falls inside the relevant period, counted back from the start of the insolvency. |
| Was the other party connected to the company? | Connection lengthens the lookback period and shifts several assumptions against the defendant. |
| What happened next? | Where the value the company received was uncertain, the court can look at what in fact occurred rather than speculate. |
| What do the documents from the time show? | Board minutes, valuations, advice and emails count for far more than an explanation given years later. |
If you are selling a company, check how the buyer intends to pay
In Manolete Partners Plc v Smith [2026] EWHC 1046 (Ch), the buyer of a long-established business had no money of its own and funded the purchase price out of the target company’s own bank account, documented as a loan back to the buyer. The business failed within months.
The High Court held that each of those payments could be reversed, and that an honest seller who had relied on his solicitors was still liable, because the risk to the company should have been obvious and he was the one who benefited. The decision makes this way of funding a private company sale considerably harder to defend, and it is worth knowing about before you agree terms rather than four years afterwards.
How we can help
If you are bringing a claim, we will review the books and records, the bank analysis and the transaction documents and give you a written view on merits, quantum, realistic recovery and cost before the claim is worked up.
If you are defending one, we will assemble the documents before you respond, assess whether the office holder can actually prove what is pleaded, and advise on whether the answer is a defence or an early negotiated outcome.
FAQs: Transactions at an Undervalue & Preferences
An undervalue is about value leaving the company for less than it was worth. A preference is about a particular creditor being put in a better position than the others. The tests, the lookback periods and the defences are different, and a single transaction can be attacked as both. It can be examined, particularly if the price was not independently established. Connection extends the lookback period and shifts the burden onto you to show the company was solvent. Independent valuation evidence at the time is the best protection. It is the most commonly challenged payment there is, because you benefited personally by reducing your own exposure. Whether it succeeds turns on the company’s position at the time and on why the payment was made. Yes. Claims can be assigned to specialist funders and pursued years later, and a company can be restored to the register for the purpose of bringing one.
Deal with the investigation, not just the proceedings
The best outcomes in disqualification cases are achieved before anything is issued. Send us the letter and we will tell you how serious it is and what the most effective response looks like.
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