ANTECEDENT RECOVERIES – COMMON THEMES
Several of the provisions in the Act relating to antecedent recoveries have common themes, such as a presumption of intent for parties associated to the insolvent or the consequence of insolvency at a relevant time.
This Part of the Chapter is not designed to be read in its own right, rather it proves a reference source for other Parts of the Chapter – with appropriate links.
Where an order is made for the winding-up of a company by the court, the winding-up is deemed to commence at the time of the presentation of the petition [note 1]. The use of the word “time” in the relevant provision of the Act would suggest that the winding-up begins at the precise time of the day that the order was made.
If the company was in voluntary liquidation prior to the making of the compulsory winding-up order then the commencement is the time when the resolution for winding-up was passed, though dispositions in the voluntary winding-up are deemed to be valid unless the court, on proof of fraud or mistake, directs otherwise.
If the winding-up order follows an administration, the commencement of the winding-up is the date of the making of the administration order.
A bankruptcy commences on the day on which the order is made [note 2].
For a company, the circumstances in which it is deemed to be unable to pay its debts are listed in the Act [note 3]:
If there are unpaid invoices, it may be inferred that the company is unable to pay its debts [note 7].
In a bankruptcy case, the individual is considered to be insolvent if:
There is a presumption of insolvency, unless the contrary can be shown, where the transaction was entered into with an associate (see paragraph 31.4B.111) of the debtor (other than by reason of employment) [note 10].
Under the provisions of the Act, a person is connected with a company if:
A shadow director is defined in the Act as “a person in accordance with whose directions or instructions the directors of the company are accustomed to act”. The Act goes on to give an exemption where the advice is given in a professional capacity [note 11].
Under the definition provided by the Act, a person is an associate of an individual if that person is:
The individual’s husband, wife or civil partner,
note 12]Additionally, a person is an associate of any person with whom he/she is in partnership, and of the husband or wife or civil partner or a relative of any individual with whom he is in partnership [note 13].
References in the relevant provision of the Act to husband, wife or civil partner are to be taken to include a former or reputed husband, wife or civil partner [note 16].
It has been held that the phrase ‘reputed husband, wife or civil partner’ refers to a couple who, although not married, hold themselves out to be husband and wife – for example, where the woman had taken her partner’s name as if they were married. The court has held that the phrase means the ‘habit or reputation’ of marriage and does not include couples who simply co-habit. Even if a couple are in a relationship which has all the features of a marriage, they are not considered to be ‘reputed husband, wife or civil partner’ unless they hold themselves out to be husband and wife or civil partners [note 17].
A relative of a person is defined as “the individual’s brother, sister, uncle, aunt, nephew, niece, lineal ancestor or lineal descendant”. The Act goes on to state that any relationship of the half-blood is to be considered of the full-blood and the stepchild or adopted child of a person is to be considered as his/her child. Additionally, an illegitimate child is to be considered the legitimate child of his/her mother and reputed father [note 18].
A company is an associate of another company if:
The relevant provisions apply to companies in countries outside England and Wales [note 20].
A person is considered to have control of a company if [note 21]:
Where two or more persons together satisfy either of the above conditions, they are to be taken as having control of the company.
The provisions in the Act relating to antecedent recoveries covered by this Chapter apply to deceased insolvents (see Chapter 54) as they do to bankrupts.
Antecedent recoveries are made under civil law although the facts giving rise to such recoveries may also lead to prosecutions for criminal offences and may be considered in disqualification proceedings or as conduct befitting a BRO/BRU.
In the period leading up to the formal insolvency, persons connected with a company or the individual subject to bankruptcy may have been aware of the difficulties and impending failure in advance of creditors. It is possible that steps may have been taken to reduce some liabilities rather than others, to give some advantage over the general body of creditors or to undertake some other transaction which would put assets beyond the reach of creditors. It is necessary to consider whether any actions have been taken to subvert the equitable principles of insolvency taking into consideration when the company or individual first became insolvent or became insolvent for the last time before the formal insolvency, and whether the actions adversely affected creditors generally.
Advice on the misconduct aspect of an antecedent recovery may be found in the Enforcement Investigation Guide (http://intranet/Enforcement/EnforcementTopLevel/EIGuide/homepage.htm)