UK Law and Practice Contributed by: Fergus Wheeler, Paul Yin, Tracy Liu and Medha Vikram, Latham & Watkins
tion 123 of the IA86) unless a beneficiary of the transaction was a connected person, in which case there is a presumption of insolvency and the connected person must demonstrate that the company was not unable to pay its debts at the time of the transaction or became unable to do so as a result of the transaction. A transaction may be set aside as a transaction at an undervalue if the company made a gift to a person, received no consideration or received significantly less value than the company gave. However, a court will not make an order if it is satisfied that the company entered into the transaction in good faith and for the purpose of carrying on its business and that, at the time it did so, there were reasonable grounds for believ - ing the transaction would be beneficial. If the court determines that the transaction was a transaction at an undervalue, the court will make such order as it sees fit to restore the company to the position it would have been in had it not entered into the transaction. Preferences A liquidator or administrator can apply to the court for an order to set aside a preference. A transaction will only be a preference if, at the time of the transaction or as a result of the trans - action, the company was or became unable to pay its debts (as defined in Section 123 of the IA86). The transaction can be challenged if the company enters into insolvency within a period of six months (if the beneficiary of the security or the guarantee is not a connected person) or two years (if the beneficiary is a connected person, except where such beneficiary is a connected person by reason only of being the company’s employee) from the date the company grants the preference. A transaction will constitute a
preference if it has the effect of putting a com - pany’s creditor (or a surety or guarantor for any of the company’s debts or liabilities) in a better position than it would otherwise have been in the company’s insolvent liquidation without the transaction. However, a court will not make an order unless the company was influenced by a desire to prefer the recipient. If, however, the beneficiary of the transaction was a connected person it is presumed that the company desired to prefer that person unless the contrary is shown. If the court determines that the transaction was a preference, it will make such order as it sees fit to restore the company to the position it would have been in had it not entered into the transac - tion. Transactions Defrauding Creditors A transaction may be set aside by the court as a transaction defrauding creditors if the trans - action was at an undervalue and the court is satisfied that it was made for the substantial purpose of putting assets beyond the reach of a person who is making, or may make, a claim against the company, or of otherwise prejudicing the interests of a person in relation to the claim which that person is making or may make. Any “victim” of the transaction (with the leave of the court if the company is in liquidation or admin - istration) may bring a claim under this provision, which is not limited to liquidators or administra - tors. There is no statutory time limit to initiate the challenge (subject to the normal statutory limitation periods) and the company does not need to be insolvent at the time of, or as a result of, the transaction. If the court determines that the transaction was a transaction defrauding creditors, the court may
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