Antecedent Transactions in Corporate Insolvency

The first letter from the liquidator usually arrives in a brown envelope, eight or nine months after your company went into liquidation. It names a single payment, often from fourteen months before the wind-up, and it asks you to explain the commercial reason for it.

That payment, made when the company was already wobbling, is what the law calls an antecedent transaction. The reason directors get caught out is that they expect to be challenged on dishonesty. They are not. They are challenged on timing, and timing is harder to defend.

Antecedent Transactions at a Glance

Quick Answer: Antecedent Transactions

Antecedent transactions are payments, asset transfers, or security grants made by your company in the months before formal insolvency that a liquidator or administrator can later unwind.

The Insolvency Act 1986 sets the framework at sections 238, 239, 244 and 245, with section 423 covering transactions defrauding creditors more broadly. If your company is heading into a creditors’ voluntary liquidation or compulsory winding-up, assume every material transaction in the last two years will be examined.

Who Antecedent Transactions Apply To

The rules apply to any limited company entering liquidation or administration in England, Wales, Scotland or Northern Ireland.

They bite hardest on directors of owner-managed businesses, where payments often flow between the trading company and connected parties: spouses, family loan accounts, group companies, or pension trustees you also control.

Main Legal Risk in Antecedent Transactions

The risk most directors miss, in our experience, is that preferences and transactions at undervalue do not require dishonesty. They require timing.

If the transaction sits inside the relevant lookback window and the company was insolvent (or became insolvent because of it), the liquidator has a route to reverse it. Saying you did not mean to favour anyone is not a defence we have ever seen carry the day on a connected-party section 239 challenge.

What to Do Next About Antecedent Transactions

If you are reading this because a liquidator has written to you, or because you are weighing up a payment now, stop and take advice before you sign anything.

Our team at Company Debt deals with these reviews most weeks. The difference between a defended and an indefensible transaction is usually the contemporaneous paperwork, not the payment itself. You can call us on 0800 074 6757 or use our live chat.

What Are Antecedent Transactions?

Antecedent Transactions Meaning (Timing, Not Fraud)

“Antecedent” means “happening before”. In this context, before your company entered formal insolvency. The legal label captures a family of transactions an office-holder can challenge after the fact: gifts, sales below value, loan repayments to favoured creditors, harsh credit deals, and certain floating charges granted on the way down.

The framing most directors arrive with is wrong. They picture Insolvent company investigations as fraud hunts. They are not.

The clawback regime under sections 238 and 239 of the Insolvency Act 1986 is about restoring fairness between creditors. It works on objective facts: when did the transaction happen, was the company insolvent at the time, and who got the benefit.

Insolvency Act 1986 Sections Behind Antecedent Transactions

Five sections do most of the heavy lifting:

• Section 238: transactions at undervalue. Gifts or sales for significantly less than the asset is worth.
• Section 239: preferences. Putting one creditor in a better position than they would otherwise be in on liquidation.
• Section 240: the time period (lookback windows) and the insolvency requirement.
• Section 244: extortionate credit transactions in the three years before insolvency.
• Section 245: avoidance of certain floating charges granted in the run-up.

Section 423, sometimes lumped in with the antecedent regime, is technically broader. It covers transactions defrauding creditors and is not tied to the formal lookback windows. We treat it as adjacent rather than core.

When Antecedent Transactions Usually Apply

The provisions activate once your company enters liquidation or administration. The office-holder reviews the books, bank statements, and director loan account ledgers, then maps payments against the insolvency timeline.

From what we see in practice, the connected-party register and the director loan account get the closest read.

In practice this happens in the first three months post-appointment. The first letters to directors arrive a few months later.

How Antecedent Transactions Work in Practice

The Two-Year (Connected) and Six-Month (Unconnected) Lookback Windows

Section 240 sets two windows, measured backwards from the “onset of insolvency” (broadly the date of the winding-up petition or the resolution to wind up):

• Two years if the counterparty is a connected person: directors, family members, fellow group companies, associates as defined in section 435.
• Six months if the counterparty is unconnected.

For preferences under section 239, the six-month window applies to unconnected creditors and the two-year window to connected ones. For transactions at undervalue under section 238, the lookback is two years across the board.

The connected-party two years catches a lot of director loan repayments that otherwise look unremarkable on a bank statement.

The Insolvency or Insolvency-Caused Test

Timing alone does not finish the case. Section 240(2) requires the company to have been insolvent at the time, or to have become insolvent because of the transaction.

Insolvency here means the section 123 cash-flow or balance-sheet test: unable to pay debts as they fall due, or liabilities exceeding assets including contingent and prospective liabilities.

Where the counterparty is connected, the law presumes insolvency at the relevant time. You then have to rebut the presumption with contemporaneous accounts, cash forecasts, and a credible going-concern story. That is harder than it sounds when the transaction sits twelve months before a liquidation.

Liquidator Standing and Section 240 Provisions

Only the liquidator or administrator can bring an antecedent claim, though creditors sometimes fund the action. Recoveries flow back into the estate for distribution under the statutory order, which interacts with the rules on preferential and non-preferential creditors.

A director who has to repay a preference does not regain priority for the underlying debt. They sit as an unsecured creditor in the same queue as the trade suppliers they jumped.

Types of Antecedent Transactions in UK Insolvency Law

Transactions at Undervalue (Section 238)

A section 238 transaction at undervalue is a gift, or a sale where what your company received is “significantly less” in money or money’s worth than what it gave up.

The classic example is a struggling company selling a piece of plant worth £80,000 to the director’s other company for £25,000. The lookback is two years; insolvency at the time is required, and presumed for connected parties.

The defence in section 238(5) is narrow but worth knowing. The transaction stands if your company entered into it in good faith, for the purpose of carrying on its business, and there were reasonable grounds to believe it would benefit the company. The burden sits on you to prove all three.

Preferences (Section 239)

Section 239 catches anything your company does (or allows to be done) that puts a creditor, surety or guarantor in a better position on liquidation than they would otherwise be in.

The classic case is a director repaying a director’s loan from family, or paying a supplier who has the director’s personal guarantee, while the trade book sits unpaid.

The hard test under section 239(5) is the “desire to prefer”. The leading case, Re MC Bacon Ltd [1990] BCLC 324, makes clear that pressure from a creditor (paying because they are shouting) is not the same as desire (positively wanting them to do better).

Where the counterparty is connected, the law presumes desire. You then have to rebut it. In owner-managed businesses, that rebuttal is rare.

Extortionate Credit Transactions (Section 244)

Section 244 reaches three years back from administration or liquidation. It lets the office-holder challenge any credit transaction whose terms are “grossly exorbitant” or which “grossly contravened ordinary principles of fair dealing”.

It applies to invoice finance arrangements, bridge loans and asset finance with punitive default clauses. Successful section 244 claims are uncommon. The bar is high, and the lender’s documentation usually anticipates the challenge. We see it most often as a bargaining lever in negotiated settlements rather than as a standalone claim.

Avoidance of Floating Charges (Section 245)

Section 245 invalidates floating charges granted in the twelve months before insolvency (two years for connected parties), except to the extent of new money advanced at or after the time the charge was created.

The point is to stop a director crystallising security for an old debt, like a director’s loan, at the moment your company is on the slide. The section bites hardest on debentures granted to family lenders to dress up a long-standing soft loan as a secured one. If no fresh consideration moved across at the time of the charge, the charge falls away and the lender drops to unsecured.

Section 423 Transactions Defrauding Creditors

Section 423 sits outside the strict antecedent regime but is often pleaded alongside it. It catches transactions at undervalue made for the purpose of putting assets beyond the reach of creditors, or otherwise prejudicing them.

There is no fixed lookback window and no insolvency requirement at the time. The price of that breadth is that the office-holder must prove a defrauding purpose, which is a higher evidential bar than section 238.

Consequences of Antecedent Transactions for Directors

Personal Liability Where the Director Benefited

The court can order whatever is needed to restore the position your company would have been in had the transaction not happened.

Where you were the counterparty (most common in section 239 director-loan cases), that means writing a personal cheque back to the estate for the preference value, plus interest from the date of the transaction.

If the asset has moved on, third-party purchasers in good faith and for value are protected, but the original counterparty still owes the equivalent in cash. We have seen directors face six-figure repayment orders for what they thought was a routine loan unwind.

Director Disqualification Risk Linked to Antecedent Findings

An antecedent finding rarely triggers disqualification on its own. But it lands in the office-holder’s report under the Company Directors Disqualification Act 1986.

Where preferences sit alongside wrongful trading indicators or unpaid Crown debt, the Insolvency Service is materially more likely to apply for a ban. Disqualification periods run from two to fifteen years.

Liquidator Recovery Action and Cost Risk

The liquidator funds the claim from the estate, sometimes with creditor backing or third-party litigation funding. If you lose, costs follow the event: you pay your own legal bill, the liquidator’s costs, and the underlying repayment.

A defended preference action that goes to trial can run to £80,000 to £150,000 in costs on each side before judgment. That cost asymmetry is why most antecedent claims settle. The economics push you towards a negotiated repayment well before trial.

How to Reduce Risk Around Antecedent Transactions

Document the Commercial Reason for Every Transaction in the Last Two Years

The single highest-leverage habit you can build is contemporaneous note-keeping.

Board minutes that record the reason for a payment, your solvency view at the time, and the alternatives considered are the difference between a defendable transaction and an embarrassing one. We see directors pulled into preference claims who had a perfectly good commercial reason. They just never wrote it down.

Avoid Connected-Party Payments Once Insolvency Is Foreseeable

Once your forward cash flow shows your company cannot meet its debts, every payment to a director, family member or sister company should be treated as presumptively risky.

That includes loan repayments, salary above the documented PAYE level, and clearing supplier accounts where you have given a personal guarantee. If the payment has to happen, take advice in writing first and document your reasoning.

Take Written Insolvency Practitioner Advice Before Any Asset Sale

If your company is selling plant, intellectual property, or a customer book in the months before a probable insolvency, an independent valuation and a written insolvency practitioner view are not optional.

Section 238 turns on whether what you got was “significantly less” than what you gave up. The only way to defend that line is with paperwork dated before the sale, not after.

Mistakes Directors Make Around Antecedent Transactions

Treating the Director Loan Account as a Current Account

The most common mistake we see is directors drawing down their loan account in the final months. Sometimes by repaying themselves a long-standing balance, sometimes by reclassifying salary as loan repayment.

Both look like preferences on the bank statement, and the connected-party two-year window catches almost all of it. If your loan account is in credit, it is an asset of the company. Treat any repayment as a major decision, not a routine.

Believing Pressure From a Creditor Is a Defence

Many directors think that paying a noisy creditor under pressure protects them from a preference claim. Pressure does cut against the “desire to prefer” element, but only where the creditor is genuinely unconnected and the pressure is documented.

Where the loud creditor is your spouse, your other company, or a supplier on whom you have given a personal guarantee, the pressure narrative collapses on examination.

Related Antecedent Transactions Guides

• Preferential and non-preferential creditors in liquidation
• Insolvent company investigations: what liquidators look for
• Dealing with creditor pressure when your company is on the slide
• Creditors’ voluntary liquidation: the director’s process map
• Wrongful trading: the parallel director-conduct test

Frequently Asked Questions About Antecedent Transactions