Insolvency Act 1986, section 238

Transactions at an undervalue (England and Wales)

Part VI Miscellaneous Provisions Applying to Companies Which are Insolvent or in Liquidation

(1)This section applies in the case of a company where—

[F514 (a)the company enters administration,F514]

(b)the company goes into liquidation;

and “the office-holder” means the administrator or the liquidator, as the case may be.

(2)Where the company has at a relevant time (defined in section 240) entered into a transaction with any person at an undervalue, the office-holder may apply to the court for an order under this section.

(3)Subject as follows, the court shall, on such an application, make such order as it thinks fit for restoring the position to what it would have been if the company had not entered into that transaction.

(4)For the purposes of this section and section 241, a company enters into a transaction with a person at an undervalue if—

(a)the company makes a gift to that person or otherwise enters into a transaction with that person on terms that provide for the company to receive no consideration, or

(b)the company enters into a transaction with that person for a consideration the value of which, in money or money’s worth, is significantly less than the value, in money or money’s worth, of the consideration provided by the company.

(5)The court shall not make an order under this section in respect of a transaction at an undervalue if it is satisfied—

(a)that the company which entered into the transaction did so in good faith and for the purpose of carrying on its business, and

(b)that at the time it did so there were reasonable grounds for believing that the transaction would benefit the company.

Definitions used in section 238 3

the company

2 Section 233B does not apply in relation to a contract for the supply of goods or services to a company (“the company”) where any of paragraphs 3 to 11 applies.

Defined in Sch.4ZZA para.2 · see it in the full Act
enters administration

(b) a company “enters administration” when the appointment of an administrator takes effect,

Defined in Sch.B1 para.1(2) · see it in the full Act
administrator

1 (1) For the purposes of this Act “administrator” of a company means a person appointed under this Schedule to manage the company’s affairs, business and property.

Defined in Sch.B1 para.1(1) · see it in the full Act

Cases considering section 238 147

El-Husseiny and another v Invest Bank PSC

[2025] UKSC 4 · 19 February 2025Interprets

The section addresses transactions at an undervalue by companies in administration or liquidation. Its description of a qualifying transaction shares a common meaning with sections 339 and 423 (see paras [31]; [61]-[64]). The definition of a transaction at an undervalue is materially equivalent to that in section 423(1), permitting analysis under one provision to inform the other (see paras [63]-[64]). The provision supplies a good-faith business-purpose defence to a claim under section 238 (see para [61]).

R v Director of the Serious Fraud Office

[2021] UKSC 2 · 5 February 2021Interprets

The power concerning transactions at an undervalue could reach a foreign person because its broad language was accompanied by judicial discretion and controls on service abroad. Section 2(3) contained no comparable safeguards (see paras [62]; [65]).

Rubin and another v Eurofinance SA and others

[2012] UKSC 46 · 24 October 2012Interprets

A remedy for a transaction at an undervalue is primarily in personam. The section may operate against foreign persons through service-out rules and judicial discretion, but that domestic reach does not justify reciprocal recognition of equivalent foreign jurisdiction. (see paras [105]; [123]-[126]) These provisions illustrate the use of avoidance proceedings to restore the estate following transactions at an undervalue or unlawful preferences. Such proceedings are integral to collective insolvency but may produce judgments in personam. (see paras [94]-[105])

127 more judgments, and what each says about section 238, are in the case-law panel in the full Act.

Amendments and notes

11 notes from legislation.gov.uk

Amendments

  1. F514S. 238(1)(a) substituted (15.9.2003) by 2002 c. 40, ss. 248(3), 279, Sch. 17 para. 25 (with s. 249(1)-(3)(6)); S.I. 2003/2093, art. 2(1), Sch. 1 (subject to arts. 3-8 (as amended by S.I. 2003/2332, art. 2))

Modifications

  1. C788S. 238 excluded (25.4.1991) by Companies Act 1989 (c. 40), ss. 154, 155, 165(1)(a); S.I. 1991/878, art. 2, Sch. .
  2. C789S. 238 restricted (25.4.1991) by Companies Act 1989 (c. 40), s. 182(4), Sch. 22 para. 8(1)(a); S.I. 1991/878, art. 2, Sch. .
  3. C790S. 238 applied (with modifications) (4.4.2006) by The Cross-Border Insolvency Regulations 2006 (S.I. 2006/1030), reg. 2, Sch. 1 Art. 23 paras. 1-3 (subject to Sch. 1 Art. 23 paras. 6-9)
  4. C791S. 238 applied (with modifications) (17.2.2009 for certain purposes, otherwise 21.2.2009) by Banking Act 2009 (c. 1), ss. 103, 263(1)(2) (with s. 247); S.I. 2009/296, arts. 2, 3, Sch. para. 2
  5. C792S. 238 applied (with modifications) (17.2.2009 for certain purposes, otherwise 21.2.2009) by Banking Act 2009 (c. 1), ss. 145, 263(1)(2) (with s. 247); S.I. 2009/296, arts. 2, 3, Sch. para. 3
  6. C793S. 238 applied (with modifications) (6.6.2013) by The Collective Investment in Transferable Securities (Contractual Scheme) Regulations 2013 (S.I. 2013/1388), Pt. 3 reg. 1, Sch. 2 paras. 3, 5 Table (with reg. 24)
  7. C794Ss. 238-241 applied (with modifications) (31.1.2019) by Technical and Further Education Act 2017 (c. 19), s. 47(2), Sch. 3; S.I. 2018/1161, reg. 3(c)
  8. C795Ss. 238-241 applied (with modifications) (31.1.2019) by Technical and Further Education Act 2017 (c. 19), s. 47(2), Sch. 4; S.I. 2018/1161, reg. 3(d)
  9. C796S. 238 applied (with modifications) (8.7.2021) by The Payment and Electronic Money Institution Insolvency Regulations 2021 (S.I. 2021/716), regs. 2, 37 (with reg. 5) (as amended (4.1.2024) by S.I. 2023/1399, regs. 1(2), 4, 11)
  10. C797Ss. 238-241 applied (with modifications) (15.3.2024) by The Water Industry (Special Administration) Regulations 2024 (S.I. 2024/205), regs. 2(2), 5(1) (with reg. 64)