How insolvency law addresses the issue of company assets being put out of reach of creditors, in the run up to insolvency and personal liability of individuals.
Most of the relevent law concerning insolvency is contained in the Insolvency Act 1986
2. POSITION OF UNSECURED CREDITORS
When a company goes into insolvent liquidation its usually the unsecured creditors and the shareholders who lose out. Shareholders know they may not recover their investment. Creditors on the other hand have usually dealt with a company believing they will be paid in full. Sometimes companies end up in financial difficulties through no fault of their own.
However in many cases the company may not have been properly run in the period immediately prior to the insolvency process. As a limited company is a seperate legal entity, directors will only be personally liable for the debts of their company if they have given individual guarantees. They may be tempted to transfer assets from the dying company to themselves or to people close to them for far less than the assets are worth or take other action to minimise the impact of the company's financial problems on themselves or others. A key principle of insolvency law is that the assets of an insolvent company should be distributed fairly. Any attempt by those in charge to divert the assets before insolvency proceedings will infringe this.
There are various options open to administrators and liquidators to companies in financial problems and they may choose to pursue more than one of them
CHALLENGING ANTECEDENT TRANSACTIONS
Although solicitors do not usually get directly involved in challenging antecendent transactions they often have to explain them to clients. It is important to take a step by step approach to determine whether the particular transactions fits the statatory definition and therefore can be challenged.
Looking back at the years running up to insolvency can you identify any...