What Happens If a Director Transfers Assets Before Insolvency?

Transferring company assets before insolvency is one of the first things the liquidator investigates, and one of the easiest things to reverse. If you moved an asset to yourself, a family member, or a connected company at below market value, the liquidator can apply to the court to claw it back.

We see this pattern regularly. A director transfers the company van to their spouse. Another sells equipment to a new company they control for a fraction of its value. A third pays off their personal loan account from company funds weeks before the CVL.

Each of these is a transaction the liquidator will trace, challenge, and in most cases recover. The Insolvency Act 1986 gives the liquidator a two-year lookback window for transactions at undervalue and connected-party preferences, and for transactions designed to defraud creditors there is no fixed lookback window, although ordinary limitation periods still apply.

Quick Answer: What Happens to Pre-Insolvency Asset Transfers?

The liquidator can ask the court to reverse a transaction at undervalue (section 238) made in the two years before insolvency, or a preference to a connected party (section 239) made in the same period, if the company was insolvent at the time or became insolvent as a result. The court can order the recipient to return the asset or pay its market value to the liquidation estate.

You do not need to have acted dishonestly. The test is whether the company received significantly less than the asset was worth at the time of the transfer.

If the transfer was designed to put assets beyond the reach of creditors, the consequences go further. Deliberate concealment of company property worth £500 or more in the 12 months before the winding up is a criminal offence for a director under section 206 of the Insolvency Act, carrying up to seven years’ imprisonment.

We are direct about this: the difference between a careless transfer and a criminal one is intent, and the liquidator will form a view on which side of that line your transaction falls.

Transactions at Undervalue: Section 238 Explained

A transaction at undervalue occurs when the company transfers an asset for significantly less than it is worth, or makes a gift, within the two years before the onset of insolvency. The company must also have been unable to pay its debts at the time, or become unable to as a result.

For transfers to connected parties, the court presumes this unless you show otherwise. The liquidator can apply to the court to reverse the transaction and recover the difference.

Common examples we see:

• Selling a company vehicle worth £25,000 to a family member for £5,000
• Transferring intellectual property or a customer database to a new company for no consideration
• Writing off a debt owed by a connected party
• Selling trading stock to a new company at a steep discount

The court does not need to find that you acted dishonestly. The test is objective: was the consideration significantly less than the value of the asset? If yes, the transaction can be reversed.

The specific statutory defence is that the company entered the transaction in good faith, for the purpose of carrying on its business, and at the time there were reasonable grounds for believing it would benefit the company.

A claim also fails if the company was solvent at the time and did not become insolvent because of the transaction. In practice, transferring assets to family members or new companies you control rarely meets this defence.

Preferences to Connected Parties: Section 239 Explained

A preference occurs when the company does something that puts a creditor in a better position than they would have been in if the company had gone straight into liquidation.

For connected parties (you, your spouse, family members, other companies you control), the lookback period is two years and the desire to prefer is presumed. You can rebut that presumption.

But the liquidator still has to show that the payment left the recipient better off, if the company went into insolvent liquidation, than they would have been without it. The liquidator must also show the company was insolvent at the time or became insolvent as a result.

Typical examples of preferences:

• Repaying your own overdrawn director’s loan account
• Paying a family member’s invoice ahead of trade creditors
• Settling a debt owed to another company you own
• Making a lump-sum payment to your spouse for “consultancy services” that were never formally contracted

For unconnected creditors, the lookback period is six months and the liquidator must prove that the company was influenced by a desire to prefer. For connected parties, that desire is presumed. The burden shifts to you to show that the company was not influenced by a wish to put the connected party in a better position, for example because it paid under genuine commercial pressure.

We have sat with directors who genuinely believed their loan repayment was legitimate. The liquidator disagreed, the court agreed with the liquidator, and the director paid the money back plus costs.

What the Liquidator Investigates and How

The liquidator traces every significant transaction in the two years before insolvency. The primary tools are bank statements, company accounts, and Companies House filings. They look for:

• Payments to connected parties that are larger than normal or occur in unusual patterns
• Asset disposals where the sale price is below market value
• Changes to the creditor priority order caused by selective payments
• New charges registered against company assets in the months before insolvency
• Director’s loan account movements, particularly repayments

Under section 235, the liquidator can compel you to provide documents, attend interviews, and explain every transaction. Failing to cooperate without a reasonable excuse is a criminal offence, punishable by a fine. We advise complete honesty. The liquidator will find the transactions anyway. Explaining them voluntarily is better than being caught concealing them.

Personal Consequences for Directors Who Transfer Assets

The consequences depend on the nature of the transfer:

• Civil recovery: The court reverses the transaction and orders the recipient (or you) to repay the value to the estate
• Director disqualification: Asset stripping and connected-party preferences are serious conduct matters. Disqualification periods for these typically fall in the 6-10 year range
• Criminal prosecution: If the transfer was designed to defraud creditors, sections 206 to 211 of the Insolvency Act create criminal offences, with maximum sentences from 2 years (a fraudulent transfer) up to 7 years (concealing property or falsifying records)
• Wrongful trading: If you kept trading after you knew, or should have known, that the company could not avoid insolvent liquidation, the liquidator can also bring a wrongful trading claim, and the court may order you to contribute personally

What to Do If You Have Already Transferred Assets

If you have made transfers that you now recognise may be vulnerable, voluntary disclosure to the liquidator or your insolvency practitioner is significantly better than waiting to be caught. A director who says “I transferred the van six months ago and I now understand that was wrong” is in a different position from one whose bank statements reveal a transfer they never mentioned.

Take independent legal advice immediately. A solicitor specialising in insolvency can assess your exposure, advise on voluntary disclosure, and help you manage the recovery process. Company Debt’s licensed insolvency practitioners can advise on your position. A confidential conversation now is the first step toward limiting the damage.

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