Director Liability Exposure in Voluntary Entity Strike Off
Voluntary strike off leaves personal director liability fully intact, allowing creditors and regulators to restore the company and pursue balance-sheet recovery.
Section 238
Meaning
The statutory power that allows an insolvency office holder to challenge transactions where company assets were gifted or sold for significantly less than their true market value. Action under section 238 applies to transactions executed within the relevant period before the commencement of insolvency proceedings. This rule prevents directors from stripping the assets of a struggling company to keep them away from creditors.
The court has the power to restore the position to what it would have been if the transaction had not occurred.
Valuation Assessment
Liquidators must compare the consideration received by the company against the actual value of the asset transferred. Under section 238, a transaction occurs at an undervalue if the company receives no consideration or receives consideration of significantly lower value than the asset. This assessment focuses on the objective economic reality of the transaction rather than the subjective intent of the parties.
It ensures that the collective pool of assets is preserved for the benefit of all creditors.
Relevant Period
Challenges can only be made against transactions that took place within the two years preceding the insolvency.
Court Remedy
Judicial intervention can reverse the transaction and return the asset or its equivalent cash value to the insolvent estate. The court can order the purchaser to return the property or make a cash payment to the liquidator to make up the shortfall. These orders are designed to rebuild the insolvent estate so that funds can be distributed fairly among the creditors.
The court protects innocent third parties who acquired the assets in good faith and for value.