Office holders Powers part 16

Under section 241(1)(c) the court can order the release or discharge in whole or in part of any security given by the insolvent company as part of the transaction at undervalue being set aside. Sometimes as part of such a transaction the insolvent company may have granted security rights to the other party such as charge over its property. It is obviously necessary to deal with the consequences of this as part of dealing with the transaction as a whole. Under section 241(1)(d) the court is able to require any person to pay in respect of benefits received from the insolvent company such sums to the office holder as the court may direct. One option where this may apply is where the court decides that instead of a transfer back of property to the insolvent company the correct way is to pay effectively the value of the benefit obtained by the recipient. Under section 241(1)(e) the court can effectively revive guarantees which were released or discharged (whether in whole or in part) under the transaction. Indeed in a sense this provision goes further because such person can be subject to "such new or revived obligations" as court thinks appropriate. This is all about ensuring that wrongful transactions can be unscrambled in whatever is the best and most appropriate way. Thus if there is a term of the transaction at an undervalue whereby a particular guarantee was released, if it is right to do so it can be revived in such way as the court thinks fit. In the same fashion under section 241(1)(f) the court can order that security be granted for the discharge of any obligation imposed by or arising under the order and that that be on any property. This is a means of ensuring that any order is effective. Under section 241(1)(g) the court can also in respect of the transaction, make orders regarding how far the recipient of property from the company the subject of the application can recover in the liquidation. This can affect any claims in the liquidation that that party may make and consequently how much money they can recover. In addition there are various provisions regarding the rights of third parties. Many of these deal with the question of the circumstances in which a party is deemed to have notice of the insolvency proceedings. In addition it is provided that where a person is connected with or associate of either the insolvent company or the company with which it entered into the transaction at then it is presumed that any benefit received by that person was received otherwise than in good faith unless the contrary is shown (meaning that that person has the obligation to demonstrate that on the civil standard of a balance of probabilities). The same applies where a person has notice of the relevant surrounding circumstances and of the relevant proceedings, the circumstances being the entry into the transaction at an undervalue, and the relevant proceedings being liquidation or administration of the company in insolvency as the case may be. Subject to that, if a third party receives property or a benefit not directly from the company on insolvency, but from either the other party to the transaction at undervalue (or recipient of the insolvent company's property from such person) then their interest will not be affected if the transaction was not directly with the company on insolvency and if the property was acquired by them in good faith and for value. These provisions also apply in respect of preferences, modified because of the different nature of what preferences are. Next week we shall look at preferences.