What is a transaction defrauding creditors?
This is effectively a transaction at an undervalue made by an individual (or by a company; see above at sections 12 of this Chapter) (s.423(1)), but where it must additionally be proved that the intention or purpose of the transaction was to put assets beyond the reach of creditors of the individual or otherwise prejudice their interests (s.423(3)). In this respect, ‘creditors’ includes future creditors who were unknown at the time of the transaction.
Who may bring a claim?
Since claims under s.423 may, but do not necessarily, relate to insolvency, an
application to the court to set aside the transaction can be made by (s.424):
- a supervisor of a voluntary arrangement;
- a trustee in bankruptcy or the OR; or
- a victim of the transaction in question.
What is the ‘relevant time’?
There is no ‘relevant time’ or period within which the transaction must have taken place. However, generally speaking, the more recent the transaction, the more likely it is that the applicant will be able to show the necessary intent.
Sanction
The court may make such order as it thinks fit to restore the position to what it would have been, but for the transaction in question (s.423(2)). A nonexhaustive list of orders is set out in s.425.
Note: Since it is a pre-requisite of a claim under s.423 that the transaction was at an undervalue, where the challenge is made by a trustee in bankruptcy, it may be easier to establish the claim under s.339 if the claim satisfies the criteria for challenging an undervalue transaction under the above sections (i.e. ‘relevant time’ and insolvency). This is because under s.339 it need not be proved that the purpose of the transaction was to put the assets beyond the reach of creditors or otherwise prejudice them.