This article considers section 238 of the Insolvency Act 1986 ('IA 1986') within the context of what the courts consider to be a ‘transaction’ when applying for a declaration to do with antecedent transactions. Whilst this article is limited to the consideration of section 238, similar factors apply to applications made further to sections 339 and 423 IA 1986.

It will be seen that applications have failed when declarations have been sought as a result of the court finding that the payment or transmission of money or other property which the liquidator, administrator or trustee is seeking to impugn, is not in fact a ‘transaction’ within the meaning of the legislation.

Cases considered in this article are:

  • Phillips v Brewin Dolphin Bell Lawrie Ltd;
  • Re Ovenden Colbert Printers Ltd;
  • Hampton Capital Ltd v Elite Performance Cars Ltd; and
  • Redpath v Levy (Liquidator of Equity Trading Systems Ltd);

Definition of ‘transaction’

Section 436 IA 1986 defines ‘transaction’ as including, but not being limited to “a gift, agreement or arrangement” and states: “references to entering into a transaction shall be construed accordingly.” In other words, a transaction at an undervalue ('TUV') is a transaction entered into by a debtor prior to his being adjudged bankrupt, or a transaction entered into by a company prior to its entering into administration or going into liquidation, which transaction is liable to be set aside by the court by reason of its having been entered into at an undervalue. Section 238 IA 1986 states that a TUV arises where there is no consideration given for the transaction; or where there is a significant imbalance between the parties in the consideration provided. In the case of corporate insolvency, in order for the transaction to be impugned, it must be one which the company enters into.

Phillips v Brewin Dolphin Bell Lawrie Ltd

The House of Lords case of Phillips v Brewin Dolphin Bell Lawrie Ltd [2001] 1 BCLC 145; [2001] 1 All ER 673 remains the leading authority in determining whether a transaction is in fact a TUV. In this case, the court was required to consider a series of complex linked arrangements and to decide whether these could be taken together to be deemed one ‘transaction’ for the purposes of a claim under section 238 IA 1986. Mr Philips was the liquidator of a company called A J Bekhor & Co Limited which carried on a stockbroking business (the ‘Company’). The Company’s assets included computer equipment which it held on lease, the terms of which prevented the Company from sub-letting the equipment. Brewin Dolphin (BD) wished to purchase the business at an agreed price of £1.25mn. However, for tax and other commercial purposes, BD did not want to buy the goodwill.

In pursuance of the sale and purchase of the Company to BD, a number of agreements were entered. The first of these was the sale by the Company of certain of its assets including its goodwill for the consideration of a £1; such sale was made to a subsidiary which was wholly owned by the Company. About three weeks later, a second agreement was entered into further to which the Company transferred to BD the shares which it (the Company) held in its subsidiary, thus allowing BD to acquire the Company’s business. In return for the share transfer, the Company received from BD the sum of £325,000 and the assumption by BD of the Company’s staff redundancy costs (the ‘share-sale agreement’). The third agreement was for the Company to sub-let its computer equipment to BD’s parent company (PCG) for a period of four years at an annual rent of £312,500, thereby totalling £1.25mn in the four year period (the ‘sub-lease agreement’).

Not long after the agreements had been entered, the owners of the computer equipment terminated the leases with the Company for breach of covenant; that breach being the sub-lease agreement. Some six months later, the Company was wound up. The liquidator brought an action further to section 238 on the basis that the share-sale agreement, under which the Company had sold its shareholding interest in its subsidiary to BD, and thereby effectively transferred the stockbroking business to BD, was a sale which should be declared to be a TUV.

One of the key issues at first instance was the determination of the extent to which the share-sale agreement and the sub-lease agreement should be treated in a way such that when taken together, they provided the whole consideration for the transfer to BD of the shares in the Company’s subsidiary. The judge held that the only consideration given for the shares was the sum of £325,000 paid by BD under the share-sale agreement. Having valued the subsidiary’s shares at £1,050,000, the court concluded that the share-sale agreement was a TUV and ordered BD to pay the amount of the undervalue; that is £725,000.

The Court of Appeal affirmed the first instance judge’s finding and held that the share-sale agreement alone had been the ‘transaction’ for the purposes of section 238. BD and PCG appealed to the House of Lords which affirmed the Court of Appeal’s decision but on different grounds. It held that the issue was not the identity of the ‘transaction’ but the identity of the ‘consideration’. The House of Lords held this to be the case because where a company agreed to sell an asset to A on terms that B agreed to enter into a collateral agreement with the company, the consideration for the asset would be the combination of the consideration.

The House of Lords held that the value of the consideration for which the Company had entered into the share-sale agreement was confined to the value of the consideration under that agreement alone, being the £325,000. This was because on the facts of the case, the sub-lease agreement added nothing. It was a covenant which was precarious in nature, as evinced by the head-lessor’s termination of the original lease agreement which in turn led to the failure of the sub-lease agreement and the eventual winding up of the Company.


Where the consideration is insufficient the transaction is likely to be impugned for being at undervalue. When ascribing value to the asset which is being transferred, that value is to be not less than the amount a reasonably well informed purchaser would be prepared to pay in an arms’ length negotiation. The sub-lease agreement relating to the computers was taken as consideration for the deal, but the value attributed to that was speculative and did not take account of the real value of the transaction. As a result of the parties’ mutual understanding that the agreements were linked, the consideration passing under them was the aggregate of them all. For the purposes of section 238(4), ‘transaction’ is capable of being a series of linked agreements such that the consideration can include the value of a collateral agreement entered into by the company and a third party. Section 238(4)(b) does not stipulate the person by whom the consideration is to be provided, thereby permitting the courts to take into account all linked agreements when making a finding upon the identity of the ‘transaction’.

Re Ovenden Colbert Printers Ltd

Prior to its insolvency, Ovenden Colbert Printers Ltd (the ‘Company’) received dividends in the liquidation of two connected companies. In 2002, the Company entered into two agreements with its accountant (‘T’). Under the first of these agreements, T was to hold the balance of the funds from the dividends in a client account to the order of the Company. The second agreement was a fee agreement which authorised T to transfer to himself in payment of his fees some of the funds from the dividend payments; in particular, 25% of any distribution in excess of £250,000 (the ‘Fee Agreement’). The fees payable to T were increased in 2005 by a variation to the Fee Agreement.

Over the course of the two agreements, T withdrew substantial sums and gave them to the defendant, Mr Hosking (‘H’) who was the joint liquidator of the two connected companies in liquidation. T’s reasons for making these payments to H was that they were made in satisfaction of personal loans.

The liquidator of the Company alleged that those payments by T to H should be impugned further to section 238 for being TUVs. Mr Justice Peter Smith held that if the payments were ones which T was authorised to make, they could not be attacked unless the Fee Agreement and subsequent variation were themselves being challenged, which they were not. On the other hand, if the payments made by T to H were unauthorised, the payments constituted a breach of trust and so could not be attributed in any way to the Company. Therefore, they fell outside the scope of section 238 on the basis that the Company had not entered into the transactions.

On appeal, the Court of Appeal considered the alternative scenarios of whether T was or was not authorised to make the payments to H. If T was not so authorised, the payments constituted misappropriation of company assets, which was not a dealing into which the Company had entered. On the other hand, if T was authorised to make the payments to H, the Company had not taken any steps or undertaken any acts other than entering into the agreement with T for T to hold the funds from the dividend distribution, and entering into the Fee Agreement. T was not acting as the Company’s agent in making the payments on the basis that a trustee is not an agent of his beneficiary.

To satisfy a claim under section 238, the Court of Appeal held that (i) the requirement that the company had itself entered into a transaction was an essential part of the claim, which itself comprised two inter-related elements: (a) that there was a transaction within the broad meaning of section 436 IA 1986; and (b) that the transaction was something that the company had itself “entered into”.



‘Transaction’ is broad enough to encompass a payment made by a company or by its agent but to focus unduly on the term ‘transaction’ leads to the risk of obscuring the need for the second and vital element of the company ‘entering into’ it, which connotes the taking of some step or act of participation by the company. This requires the company either to make the gift or arrangement or in some other way be party to or involved in the transaction at issue so that it may properly be said that the company entered into it.

Re Hampton Capital Ltd

In the recent case of Re Hampton Capital Ltd, a TUV claim failed due to the court finding that no transaction had been entered into. The claimants were Hampton Capital Limited (the ‘Company’) and its joint administrators.

M, the Company’s driving force and someone who is described in the judgment as being “a plausible con-man” approached Tolent Construction Ltd (‘T’) in around July 2012 with a view to assisting in the purchase and development of a site in Seaham, County Durham. The site was owned by a subsidiary of T called Coolmore Ltd (‘C’). The purchase of the site was to be undertaken by a newly formed off-shore company. In October 2012, T entered into a share-sale agreement with the off-shore company such that C would be sold to the off-shore for £7.6mn (the ‘share-sale agreement’). The Company’s role, it seemed, was to procure funding for the share-sale agreement. Between October 2012 and January 2013, T provided to the Company various instalment payments ranging from £15,000 to £324,000 and totalling £1.4mn. These payments were made in respect of fees for the anticipated funding for the purchase.

However, and after some months of making payments, T became suspicious and started investigating. T discovered that large sums of money had been transferred from the Company to third parties, but that otherwise what had become or remained of the £1.4mn was unexplained. Consequently, T caused the administrators to be appointed.

The administrators’ application under section 238 IA 1986 failed because there was no evidence that the Company had in any way ‘dealt’ with the defendant third party recipients of the money. The defendants had dealt with M who had no authority to act for the Company in the way that he purported to act. Accordingly, there was no evidence that the Company had entered into a transaction with the defendants for the purposes of section 238(4). There was no evidence that the payments had been made as gifts as it was found that the Company held no intention to make these payments as gifts. The judge held that what had happened in fact was that M had brought about the misappropriation of the Company’s money for his own benefit, and that the money transmissions had had nothing to do with the Company.

The judge held: “What is required, on the language of section 238(4), is the entering into of a transaction between two parties. … [T]his must require some engagement, or at least communication, between the two parties and not merely a disposition of money which results in one party’s money landing up in the bank account of the other without anything said or done by that other."


The transmission of money or the making of a payment of money without any form of dealing, contract or some form of agreement between the paying company and the recipient is insufficient to constitute a TUV where the payment is not a gift. The language of section 238(4) IA 1986 requires the entering into of a transaction between the paying and receiving parties which requires some form of engagement or communication between them. In addition, and notwithstanding that the language of the section does not require an intention to make a gift to be made out, the way in which the case has been decided imports into that part of section 238 the notion of intention to do with the making of a gift.

Redpath v Levy (Liquidator of Equity Trading Systems Ltd)

Redpath v Levy (Liquidator of Equity Trading Systems Ltd) is a case in which a Registrar of the Companies Court found that a payment made by a company to a financial consultant (‘R’) should be set aside as a TUV.

Equity Trading Systems Ltd (the ‘Company’) had paid the sum of £150,000 to R. R’s case was that the monies had been paid to him for a one-year engagement as an advisor to the Company in respect of the making of investments in financial technology businesses. The Company’s evidence was that R had fraudulently induced it to make the payments having been told that it was investing in US Treasury bonds. The liquidator made an application under section 238 IA 1986 for the transaction to be set aside on the basis that the Company had received no consideration for the payment. The Registrar found that there was insufficient evidence to support R’s case of there being an agreement and held that the payment which had been made by the Company to R was a TUV due to there having been no consideration.


This case presents a simple example of a liquidator successfully attacking an antecedent transaction arising further to the transfer of monies for no consideration.


Further to Phillips v Brewin Dolphin the courts will take into account a series of linked transactions in evaluating the consideration given under a transaction in assessing whether there has been a TUV. Re Ovenden Colbert Printers affirms that there needs to be a transaction into which the company itself enters before a TUV may be declared, and Re Hampton Capital extends this principle such that a successful section 238 applicant must be able to demonstrate that there was some form of dealing or other agreement between the company and the recipient of the money or other property in order for the transaction to be impugned. Redpath v Levy is an example of a case where the company in question had itself entered into the transaction which was successfully impugned due to a lack of consideration.

It is clear from these authorities that prior to making an application for a declaration under section 238 IA 1986, the facts of the case must be assessed carefully to ensure that the company in question has itself entered into the transaction or transactions, and that the company has 'dealt' with the recipient of the asset or assets; an assessment must be made on whether there has been consideration for the transfer, or whether it is a gift; and one must evaluate whether on the facts, a series of linked transactions are likely to be viewed by the courts as forming the basis of a TUV.