Swelling Corporate Assets: Changing What is on the Menu

This article considers the transactional avoidance provisions in the Insolvency Act 1986 and, in particular, sections 249 and 245, and addresses the theoretical bases underlying the said provisions. Section 239 invalidates transactions entered into by an insolvent company which have the effect of giving one creditor an advantage over other creditors in the event of a company's insolvent liquidation and provided that the company was influenced by a desire to produce this result. Section 245 invalidates floating charges granted by insolvent companies to secure past indebtedness within a certain period prior to liquidation or administration. The article asks whether these two provisions should continue to coexist and suggests that the “influenced by” criterion in section 239 might best be replaced by a results-based test (has there been a preference in fact?) supplemented by suitable defences. Section 243 of the Insolvency Act, which applies to Scotland, already adopts this approach and it is also the approach found in Article 547 of the US Bankruptcy Act. The article also examines the practical operation of the American provision and its theoretical underpinnings.

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