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Transactions at an Undervalue (TUV) in corporate insolvency

Our Dispute Resolution team look into transactions at an under value (TUV) and explains why it is important that you are aware of their significance, drawing on the Insolvency Act 1986.

Who needs to be aware of TUVs?

Directors, shareholders and unsecured creditors of companies that are experiencing trading difficulties or cash flow problems.

Why do I need to be concerned?

The Insolvency Act 1986 provides mechanisms for the liquidator of a company to cure the mischief of asset depletion in the 2 year period before a company becomes insolvent. The purpose of the legislation is to protect a company’s unsecured creditors. If the liquidator can prove that the transaction was a TUV, the court will order relief (often, but not necessarily, the setting aside of the transaction and the re-vesting of title to the asset in the company).

It is not only the transfer of property that can be caught by the legislation. The declaration of a dividend and a share buy-back can also be attacked as a TUV.

What is a Transaction at an Undervalue?

A TUV occurs when a company gives a gift, or enters a transaction for which the company receives either no value or significantly less than the true value during the “Relevant Time”; and the company was unable to pay its debts at the time of the transaction, or became unable to pay its debts as a result. Where the transaction was made with a connected person, such as a director, there is a presumption that the company was insolvent at the time unless it can be shown otherwise.

Linked transactions can be considered when assessing the value received by the company in the transaction.

What is the value?

The Value is the open market value at arm’s length.

What is the relevant time period?

Any transaction in the two year period before the onset of insolvency. The exact date of the onset of insolvency depends on the type of insolvency procedure the company has entered. For example, in a compulsory liquidation it is the date the winding-up petition was presented to the court.

How can the transaction be challenged and by who?

A TUV is an office holder’s claim and is brought by an administrator or a liquidator by application to the court. A liquidator does not need to obtain the sanction of its members, the creditors’ committee, the creditors or the court before making an application. If the court considers that there was a TUV, the court “shall” make “such order as it thinks fit” for restoring the position. The court will make an order to restore the position as if the company had not entered the transaction and each case turns on its facts. Sometimes an order for monetary compensation will be appropriate and sometimes an order reversing the transaction and re-vesting the asset in the company.

Is there any defence?

The court will not make an order to set aside a transaction at an undervalue if it is satisfied that a) the company entered into the transaction in good faith and for the purpose of carrying on its business and b) at the time it did so there were reasonable ground for believing the transaction would benefit the company. Prudent steps would include obtaining advice from the company’s professional advisers on the benefits to the company of a proposed transaction; obtaining an independent valuation of the assets; and buying an asset after an auction or other public process. Where there are linked agreements which together constitute adequate consideration for the transaction, but that is not clear from review of one agreement alone, ensure that the overall consideration for the transaction is stated as clearly as possible and include express statements as to all the constituent elements of the transaction and consideration.

When does a challenge need to be brought by? A limitation period of six years from the company going into liquidation/administration applies in respect of money claims otherwise limitation is 12 years. If the transaction was entered into at an undervalue for the purpose of putting assets beyond the reach of a creditor so as to frustrate an actual or potential claim that the creditor has against the company (transactions defrauding creditors – not covered by this note) the limitation period may be postponed. There is no requirement of insolvency in such cases.

If you would like advice or assistance on any of the issues raised in this blog please contact Catherine Fisher, Head of Dispute Resolution. 


Although correct at the time of publication, the contents of this newsletter/blog are intended for general information purposes only and shall not be deemed to be, or constitute, legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article. Please contact us for the latest legal position.

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