ExpertMedium2 marksMultiple Choice
ACCA · Question 23 · Insolvency law
Six months before 'BuildRight Ltd' goes into insolvent liquidation, the directors sell a company-owned excavator worth £50,000 to the Managing Director's spouse for £5,000.
Under the Insolvency Act 1986, what power does the liquidator have regarding this sale?
Six months before 'BuildRight Ltd' goes into insolvent liquidation, the directors sell a company-owned excavator worth £50,000 to the Managing Director's spouse for £5,000.
Under the Insolvency Act 1986, what power does the liquidator have regarding this sale?
Answer options:
A.
The liquidator has no power because the sale occurred before the liquidation started.
B.
The liquidator can apply to the court to set aside the sale as a transaction at an undervalue.
C.
The liquidator can arrest the Managing Director for theft.
D.
The liquidator can only challenge the transaction if the spouse was also a director.
How to approach this question
Identify the nature of the transaction: selling an asset for significantly less than its market value shortly before insolvency. This is the definition of a transaction at an undervalue.
Full Answer
B.The liquidator can apply to the court to set aside the sale as a transaction at an undervalue.✓ Correct
Under section 238 of the Insolvency Act 1986, a liquidator can apply to the court to restore the position if a company entered into a 'transaction at an undervalue' (e.g., a gift or selling an asset for significantly less than its true value) within the two years preceding the onset of insolvency.
Common mistakes
Confusing a 'transaction at an undervalue' with a 'preference'. A preference is paying off an existing creditor ahead of others; an undervalue transaction is giving away assets cheaply.
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