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Chapter 12

Transactions at an undervalue and

preference

A liquidator may apply to the court to set aside company transactions at an
undervalue (s238 Insolvency Act 1986) or where the company gives a preference
(s239 Insolvency Act 1986).

Undervalue

A company enters into a transaction at an undervalue if the company makes a gift or
otherwise enters into a transaction on terms that the company receives no
consideration or insufficient consideration.

The transaction would not be set aside if it was entered into in good faith on the
reasonable belief that it would benefit the company.

Preference

A company gives a preference if it does anything to put a creditor in a better position
in the event of the company's insolvent liquidation than they would otherwise be.

The court will not make an order unless the company was influenced by a desire to
prefer the creditor. Therefore, a payment or charge created in favour of a creditor
who is threatening legal proceedings might be a defence. However, if the preference
was given to a connected person it is presumed that the company was influenced by
its desire to give a preference.

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