Chris is an Insolvency Practitioner regulated by the ICAEW since 2014,.
He is experienced in contentious insolvency with excellent analytical skills and strong knowledge of both general and technical insolvency matters.
Antecedent transactions are types of transactions taken before a company’s formal declaration of insolvency.
Once appointed, an insolvency practitioner has a duty to undertake a retrospective analysis of the company’s affairs, examining antecedent transactions up to two years prior to the declaration of insolvency. In particular, the IP looks for anything which has unfairly diminished the value available to creditors.
Once identified, these transactions can be ‘set aside’ or reversed, effectively recovering assets or funds for the benefit of the company’s estate.
Examples of Antecedent Transactions
Transactions at an Undervalue
Transactions at an undervalue occur when a company transfers assets to a third party for significantly less than their worth, within a certain period before the company enters insolvency.
This period is typically defined under UK insolvency law as two years prior for connected parties (like family members or associated businesses) and six months for non-connected parties.
For example, if a struggling company sells a piece of machinery worth £50,000 to a sister company for only £10,000 just months before declaring bankruptcy, this would be considered a transaction at undervalue.
Preferential Payments
Preferences happen when a company gives preferential treatment to one or more creditors over others shortly before becoming insolvent. This might include repaying loans to connected parties or settling debts with certain creditors while leaving others unpaid. Like transactions at an undervalue, preferences can be challenged by insolvency practitioners to redistribute assets more fairly among all creditors.
For instance, if a company pays a substantial debt to the director’s relative but fails to pay other external suppliers and then enters insolvency shortly after, this payment could be considered preferential.
Extortionate Credit Transactions
These involve the company entering into credit agreements with unreasonably high-interest rates or harsh terms that are not in the company’s best interest, especially if these agreements are made when the company is already facing financial difficulties.
An example could be a financially struggling company that takes out a loan with an interest rate significantly higher than the market average under conditions that almost guarantee further financial distress.
Dispositions of Property
Dispositions of property involve the transfer of assets by a company after the beginning of winding-up proceedings or in the lead-up to insolvency.
For instance, if a company facing financial distress sells off a substantial portion of its inventory to an associate at below-market prices or transfers ownership of property without clear justification, it may be viewed as an attempt to remove assets from the reach of creditors.
Invalid Floating Charges
Invalid floating charges are security interests over a company’s assets created or crystallised shortly before the company enters insolvency without adequate consideration given to the company in return.
This could involve, for example, a company granting a lender a floating charge over all its assets for a loan that is significantly less valuable than the security provided. This arrangement can mean other creditors find the available asset pool diminished when the company goes into insolvency.
What are the Potential Consequences for Directors of Antecedent Trading?
The potential consequences for directors involved in antecedent transactions vary depending on the nature and severity of the transactions, but they can be significant. Here are some of the potential repercussions:
Directors might have to pay back the company or creditors from their own pockets for losses caused by transactions such as undervalued sales or preferential payments.
Directors could face a ban from holding directorial positions or managing a company for up to 15 years.
For severe cases, especially fraudulent trading, directors could face criminal charges, leading to fines or imprisonment.
Creditors or insolvency practitioners may initiate civil actions against directors for recovery of assets or compensation for losses.
Directors might incur substantial legal fees in defending against claims.
Courts can order directors to compensate creditors or the insolvency estate for the financial impact of their actions.
If you’re navigating complex financial circumstances or concerned about the implications of antecedent transactions for your business, it’s crucial to seek expert advice. At Company Debt, we specialise in providing clear, practical guidance and support to directors facing financial challenges. Our team of experts is here to help you understand your legal responsibilities and explore every option available to safeguard your interests.
Don’t hesitate to reach out—use our live chat during working hours, email us at info@companydebt.com, or call us on 0800 074 6757.
