The rule in section 423 applies at any time before insolvency and requires proof of intention to prejudice other creditors, but other provisions have limits set before the date of winding up and require no proof of bad intent. Under section 238, transactions at an undervalue may be avoided regardless of their purpose, but only up to two years before the onset of insolvency.[160] For example, in Phillips v Brewin Dolphin Bell Lawrie Ltd[161] the liquidators of an insolvent company, AJ Bekhor Ltd, claimed rescind the transfer of assets to a subsidiary, whose shares were then purchased by the investment management house Brewin Dolphin for £1. The only other consideration given by Brewin Dolphin was the promise to carry out a lease agreement for computers, which itself was likely to be unwound and therefore worthless. The House of Lords held that the total package of connected transactions could be taken into account to decide whether a transaction was undervalued or not, and held that this one was.
Under IA 1986 section 127 operates to declare every transaction void entered after the presentation of a winding up petition unless it has the approval of the court. In Re Gray’s Inn Construction Co Ltd[162] Buckley LJ held that courts would habitually approve all contracts that were plainly beneficial to a company entered into in good faith and the ordinary course of business. The predominant purpose of the provision is to ensure unsecured creditors are not prejudiced, and the company's assets are not unduly depleted. In this case, however, because a host of transactions honoured by the company's bank, that was in overdraft, between the presentation and the winding up petition being granted meant unprofitable trading, the deals were declared void.[163]
Voidable preferences
The Insolvency Act 1986 section 238 only catches depletion of a company's total assets, rather than simply preferring one creditor at the expense of others.[164] This happens through the creation of security interests, and they may also be unwound on three limited grounds. First, under section 245, any floating charge created up to one year before the onset of insolvency is avoidable at the company's instance if new money was not advanced to the company in return. So a company cannot grant a floating charge to a creditor to secure past advances made by that creditor, unless given at least "at the same time". In Re Shoe Lace Ltd[165] Hoffmann J held that £350,000 advanced in April and May was not close enough to a floating charge created in July to be considered "at the same time". The floating charge could not secure those amounts. Because the context of the legislation was a business one, and in view of the fact that floating charges can be registered up to 21 days after their creation, a few months was far too long. This only rescinds the charge, and not the debt itself, which remains in effect as before but the creditor becomes unsecured.[166] Banks operating accounts for companies in overdraft have an advantage in this respect. Re Yeovil Glove Co Ltd[167] held that if the overall level of debt remains the same, before and after a floating charge is created, and if money turns over by payments of the company in and withdrawals out, the bank's continued extension of credit will continually "harden" their floating charge. Although the Yeovil Glove company was always indebted to the bank before a floating charge was created, and was indebted at the point of insolvency, because it had deposited and withdrawn a greater amount, the bank's floating charge was considered secure.[168]
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Under IA 1986 section 127 operates to declare every transaction void entered after the presentation of a winding up petition unless it has the approval of the court. In Re Gray’s Inn Construction Co Ltd[162] Buckley LJ held that courts would habitually approve all contracts that were plainly beneficial to a company entered into in good faith and the ordinary course of business. The predominant purpose of the provision is to ensure unsecured creditors are not prejudiced, and the company's assets are not unduly depleted. In this case, however, because a host of transactions honoured by the company's bank, that was in overdraft, between the presentation and the winding up petition being granted meant unprofitable trading, the deals were declared void.[163]
Voidable preferences
The Insolvency Act 1986 section 238 only catches depletion of a company's total assets, rather than simply preferring one creditor at the expense of others.[164] This happens through the creation of security interests, and they may also be unwound on three limited grounds. First, under section 245, any floating charge created up to one year before the onset of insolvency is avoidable at the company's instance if new money was not advanced to the company in return. So a company cannot grant a floating charge to a creditor to secure past advances made by that creditor, unless given at least "at the same time". In Re Shoe Lace Ltd[165] Hoffmann J held that £350,000 advanced in April and May was not close enough to a floating charge created in July to be considered "at the same time". The floating charge could not secure those amounts. Because the context of the legislation was a business one, and in view of the fact that floating charges can be registered up to 21 days after their creation, a few months was far too long. This only rescinds the charge, and not the debt itself, which remains in effect as before but the creditor becomes unsecured.[166] Banks operating accounts for companies in overdraft have an advantage in this respect. Re Yeovil Glove Co Ltd[167] held that if the overall level of debt remains the same, before and after a floating charge is created, and if money turns over by payments of the company in and withdrawals out, the bank's continued extension of credit will continually "harden" their floating charge. Although the Yeovil Glove company was always indebted to the bank before a floating charge was created, and was indebted at the point of insolvency, because it had deposited and withdrawn a greater amount, the bank's floating charge was considered secure.[168]
