Some things not to do if Insolvency is looming, or Antecedent Transactions to give it a posh name.
The legislation covering insolvency provides that all creditors (with specific exceptions) are treated equally as far as sharing in the distribution of assets recovered.
If a director has done something in the lead up to insolvency which causes a creditor to be treated more favourably than other creditors or where a person other than a creditor benefits from the actions of the director and the other creditors suffer as a result, the liquidator will usually have a right of recovery.
For example, where one or more creditors have been paid or had their claims substantially reduced in preference to others, it may be possible to recover the monies paid to the creditor(s) so preferred. Directors should therefore avoid repaying any money they may have lent the company in preference to other creditors.
One should also avoid transactions at undervalue. These are transactions where no or inadequate consideration has been received for say, the disposal of a company asset. These transactions may actually take place in conjunction with a preference as defined in the paragraph above.
Another one to take care with is the granting of floating charge security for past consideration when insolvent. It will be overturned by a Liquidator.
If you are in any doubt about what you can and cannot do if your company is facing insolvency, you can call Jeremy Frost our Insolvency Practitioner in Croydon, Patrick Wadsted our Insolvency Practitioner in London and Matt Reeds our Insolvency Manager in Bournemouth. All initial advice is confidential and free of charge.
At Frost Group, we want to make things as easy as possible for you. That is why, if you can’t come to us, we’ll come to you. We operate face to face, nationwide meetings, wherever is most convenient for you.