Question 3

Great Space Limited is a company which owns, maintains and lets out office space in
several cities across the Northwest of England. The company has three directors:
Sandhya Sharma-Aziz, Farhat Sharma-Aziz and Ronan Breen. This means that the
company’s decisions has to involve all the three directors and has to be in line with the
due process failure to which it amounts to a voidable transactions. These voidable
transactions include Preferences, transactions at an undervalue and transactions
defrauding creditors.

Actions to be taken to swell the assets of GSL.

Preference claim

This is a claim brought against a director of a company, which has gone into an
insolvent liquidation or administration if the company has done something such as
making payment which has an effect of putting one or more creditors into a better
position than others. Farhat Sharma Aziz’s transaction with her daughter Rosa is a
voidable transaction and a preference claim can be taken against him. The $100,000
transferred from the company account to Rosa’s account without the knowledge of
Ronan who is also a director in the company makes that transaction voidable. Section
239 of the insolvency Act provides that the court shall, on such application, make order
as it thinks fit for restoring the position to what it would have been if the company had
not given that preference.

However, Section 241(2) provides that third parties who acquire the companies
properties from persons other that the company in good faith and for value cannot be
prejudiced by an order. One cannot however benefit of this exception if one is
connected to the company because it will be presumed that that the preference was not
given in good faith as stipulated in section 241(2A) of the Insovency Act. A similar
transaction is witnessed between Farhat Sharma and Rosa who is Farhat’s daughter
hence bringing out the close connection to the company which makes the whole
transaction voidable.
Transactions at an undervalue

A transaction occurs when a business asset is transferred or sold to a third party or a

creditor either for no payment at all or for a price that is lower than its market value.
Under Section 241 of the Companies Act 2006, a company enters into a transaction at
an undervalue when the company makes a gift to that person or the company enters
into an arrangement with a person where the company gets no consideration, or where
there is consideration, the money worth is less than the worth of the consideration given
by the company. In Phillips v Brewin Dolphin Bell Lawrie [2001] UKHL 2, it was stated
that at any time the liquidator in an liquidation process must always establish the value
of the consideration made.

Under section 249 of the Act, a connected person is a director, shadow directors, their
associates or an associate of the company. As associate can be defined to include
family members and other companies controlled bt the person 1.

Great space Limited in their board meeting considered the email from Marc Gargagnoli
in respect of Industrial Cleaning Services rendered by Marc in October 2021. The board
considered selling to marc the office furniture from the company’s chester office
building. The furniture has a market value of $9,000 but the board unanimously voted
that the equipment could be sold to marc for $6,000.

The administrator can reverse the transaction if it is at an undervalue. The administrator

can apply to court for a reversal that returns the company’s finances to the position prior
to the transaction. The court can also, make orders as it deems fit to restore the
company into the position it was at before the transaction upon such an application by
the liquidator. The proceeds of such a preferred claim are held for the unsecured
creditors and not the charge holders.

1
Companies Act 2006, s435
In Re Yagerphone Ltd [1935] 1 Ch 392, the court stated that the right to recover the
money from the creditor who had been preferred is for the benefit of the general body of
creditors and once received it formed part of the assets in trust for the creditors.