Beware of Void Transactions

What is a void transaction?

When a winding up petition against a company is issued (or a bankruptcy petition against an individual) and advertised any transaction that disposes of property after that date is void under insolvency legislation and can be reversed once a winding up or bankruptcy order is subsequently made.

The legislation is designed to stop directors from stripping the company of assets when a winding up order is received.

As soon as a petition is advertised the company bankers become alerted and the bank account should be frozen.

If a disposition is made after a winding up petition is presented but a winding up order is not subsequently made, the disposition is not void.

Dispositions cover all sort of assets owned by a company. The assets can include plant and machinery, office equipment, vehicles, debtors, intellectual property or cash at bank. It would include a payment for goods in the ordinary course of trade.

If a voidable transaction is made a director may become personally liable to compensate the estate if the asset cannot be recovered from the beneficiary.

To avoid a liquidator making a demand that any monies/assets should be repaid/returned it would be necessary to apply to the court for a validation order. This could be done in advance or retrospectively in respect of a transaction. This is a court procedure and doesn’t come cheap.

A winding up petition will usually be preceded by a Statutory Demand. Once a Statutory Demand has been issued the creditor needs to wait 21 days before issuing a winding up petition.

Once a winding up petition has been issued the directors lose control of the insolvency procedure.

Directors will usually know if there is a creditor threatening issuing a winding up petition. This is the time (or sooner) that they should seek advice.

Call me, Tim Corfield on 077869 65009 at any time or any of the Griffin & King team for a completely no obligation chat or meeting.