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A Trustee in Bankruptcy (TiB) can review transactions entered into by the bankrupt before the bankruptcy order is made and may be able to recover sums for the benefit of the estate.
What is a transaction at an undervalue?
A transaction at an undervalue is where a bankrupt has transferred an asset, either for no consideration, for a lot less than the asset is worth, or in exchange of marriage or civil partnership. The transaction must have taken place in the five years before the bankruptcy order is made and the bankrupt had to have been unable to pay his or her debts at the time of the transaction or as a result of it.
What can the TiB do?
A TiB can apply to Court to have the transaction set aside, to restore the position for the benefit of the creditors i.e. recovering the asset that has been transferred
What are preference payments?
These are payments made to creditors in the six months before bankruptcy (for somebody unconnected to the bankrupt), but in the last two years for an associate of the bankrupt, in favour of others.
What are the consequences of preference payments?
A TiB can recover preference payments by recovering them from the creditors who received them. The TiB also has the power to ask the Court to set aside the transactions.
What are transactions defrauding creditors?
These are transactions at an undervalue which the bankrupt deliberately enters in to in order to put assets out of reach of creditors. An example of such a transaction could be transferring the matrimonial home to a spouse so that creditors cannot take enforcement action against that asset. Unlike with transactions at an undervalue, the transactions can take place at any time and there is no need for the individual to be insolvent at the time of the transaction.
What are the consequences?
As well as the TiB, any ‘victim’ of the transaction can bring a claim. The Court has wide powers to restore the position of the estate to what it would have been if the transaction had not been entered in to.
Usually, a bankrupt’s pension is excluded from the estate, but if the bankrupt has been making large payments in to the pension scheme with the aim of putting that money out of the reach of potential creditors, then a TiB can seek to recover those payments.
If a bankrupt has entered in to a transaction in the three years prior to being made bankrupt which provides him or her with credit, but has excessive interest and/or repayment charges, then these can be challenged by the TiB, who can apply to Court to have the transaction set aside.
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