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Transactions at an Undervalue: s238 IA86

The Court of Appeal in Hunt v Hosking has made clear that there are two essential elements to a transaction at an undervalue (“TUV”): “first, that there is a transaction; and second, that the transaction is something which the company has itself entered into”.

The term "transaction" is widely defined in s.436 as including a gift or arrangement and is broad enough to encompass a payment made by a company or by an agent of the company acting within the scope of his authority. However, the second element “requires the company to make the gift or make the arrangement or in some other way be party to or involved in the transaction in issue so that it can properly be said to have entered into it”.

The appeal failed on the basis that the transactions that the liquidator was seeking to attack had not been entered into by the company. The decision at first instance Re Ovenden Colbert Printers provides additional background.

When considering TUV recoveries where the company itself might be found not have entered into the transaction, officeholders should be careful to consider alternative approaches such as breach of trust or breach of duty or dishonest assistance. Also, when a payment is made pursuant to an agreement it may be that it was the agreement rather than the payment that was the TUV.



Date: 19th November, 2013
Author: Chris Laughton


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