Transaction at an Undervalue

Section 238 of the Insolvency Act 1986 applies where a company has entered administration or gone into liquidation. If, at a 'relevant time', the company entered into a transaction with a person at an undervalue, the office-holder — the administrator or liquidator — may apply to the court, which may make such order as it thinks fit for restoring the position to what it would have been if the company had not entered into that transaction. A transaction is at an undervalue where the company received no consideration, or received consideration the value of which is significantly less than the value, in money or money's worth, of the consideration provided by the company.

The 'relevant time' is defined by section 240: broadly, a transaction with a connected person is caught if it was entered into at a time in the period of 2 years ending with the onset of insolvency, and the company must also have been unable to pay its debts at that time or have become unable to as a result of the transaction. The court will not make an order, however, if satisfied that the company which entered into the transaction did so in good faith and for the purpose of carrying on its business, and that there were reasonable grounds for believing the transaction would benefit the company.