United Kingdom Insolvency Law - Increasing Assets

Increasing Assets

If a company has gone into an insolvency procedure, one of the objectives of the administrator or liquidator is to increase the assets that are available to distribute to creditors. To ensure fairness and to treat creditors with similar claims equally, UK law creates significant exceptions to some fundamental private law doctrines. The freedom to contract for any consideration, adequate or not, is curtailed as transactions for an undervalue, or anything unregistered or after presentation of a winding up petition may be avoided. The freedom to contract for any security interest is restricted, as a company's attempt to give an undue preference to one creditor over another, particularly a floating charge for no new money, or any charge that is not registered can also be unwound. Furthermore, particularly since the Cork Report's emphasis on increasing the accountability of company directors, practitioners may sue directors by summary procedure for breach of duties, especially negligence or conflicts of interest. Encroaching on limited liability and separate personality, a specific, insolvency related claim was created in 1986 named wrongful trading, so if a director failed to put a company into an insolvency procedure, and ran up extra debts, when a reasonable director would have, he can be made liable to contribute to the company's assets. Any intentional wrongdoing and fraud is always dealt with strictly, yet a variety of claims exist without any such proof so as prevent unjust enrichment of selected creditor at others' expense and deter wrongdoing.