Contributed By Winston & Strawn London LLP
Under Section 238 of the IA 1986, a liquidator or administrator has two years from the commencement of the insolvency procedure to commence actions to unwind transactions that are at an undervalue. The term of transaction would include the grant of a guarantee or pledging of assets for security. The court will, however, not avoid a transaction entered into in good faith and with the reasonable belief that it would benefit the company.
The insolvency practitioner also has the ability (under Section 238 of the IA 1986) to challenge transactions that occurred in the last six months before the onset of insolvency (or two years in the case of connected parties) and that give a creditor preference over other creditors, and were entered into with the desire to prefer that creditor.
Lastly, any floating charges, other than in support of a new financing, entered into between unconnected parties and granted within one year of the onset of insolvency by an insolvent chargor (or if the chargor became insolvent as a result of it) are invalid (Section 245 of the IA 1986).