Former director found to have entered into a transaction at an undervalue

The facts

A liquidator pursued a claim against a former director of a company, that the transfer of the company’s trading inventory in satisfaction of money owed to the former director was a transaction at an undervalue and/or a preference.

An attempt was made to grant floating charge security over the inventory, which the court found was void as it was granted for existing liabilities, at a time when the company was insolvent, to a connected party.

In defence to the preference claim, the former director claimed she was not a director at the time of the inventory transfer, she was not therefore connected to the company and the transfer could not be a preference as it happened more than six months before a winding up petition was presented against the company. Plus there was no desire to prefer.

The decision

Against a backdrop of admitted forged documents and a lack of salient witness evidence, the Judge found that the former director did not resign before the transfer, the transfer was at an undervalue, the company was insolvent at the time and the inventory transfer was entered into with the intention of putting the former director in a better position than she would have been in on the company’s liquidation.

Breese v Hiley, Hiley and Hiley [2018] EWHC 12 (Ch)