Insolvency Act 1986, section 244

Extortionate credit transactions

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

(1)This section applies as does section 238, and where the company is, or has been, a party to a transaction for, or involving, the provision of credit to the company.

(2)The court may, on the application of the office-holder, make an order with respect to the transaction if the transaction is or was extortionate and was entered into in the period of 3 years ending with [F529the day on which the company entered administration or went into liquidationF529] .

(3)For the purposes of this section a transaction is extortionate if, having regard to the risk accepted by the person providing the credit—

(a)the terms of it are or were such as to require grossly exorbitant payments to be made (whether unconditionally or in certain contingencies) in respect of the provision of the credit, or

(b)it otherwise grossly contravened ordinary principles of fair dealing;

and it shall be presumed, unless the contrary is proved, that a transaction with respect to which an application is made under this section is or, as the case may be, was extortionate.

(4)An order under this section with respect to any transaction may contain such one or more of the following as the court thinks fit, that is to say—

(a)provision setting aside the whole or part of any obligation created by the transaction,

(b)provision otherwise varying the terms of the transaction or varying the terms on which any security for the purposes of the transaction is held,

(c)provision requiring any person who is or was a party to the transaction to pay to the office-holder any sums paid to that person, by virtue of the transaction, by the company,

(d)provision requiring any person to surrender to the office-holder any property held by him as security for the purposes of the transaction,

(e)provision directing accounts to be taken between any persons.

(5)The powers conferred by this section are exercisable in relation to any transaction concurrently with any powers exercisable in relation to that transaction as a transaction at an undervalue or under section 242 (gratuitious alienations in Scotland).

Definitions used in section 244 2

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
party

(3) In section 72B(1) and this paragraph “party” to an arrangement includes a party to an agreement which—

(a)forms part of the arrangement,

(b)provides for the raising of finance as part of the arrangement, or

(c)is necessary for the purposes of implementing the arrangement.

Defined in Sch.2A para.1(3) · see it in the full Act

(4) “Party” to an arrangement includes a party to an agreement which—

(a)forms part of the arrangement,

(b)provides for the raising of finance as part of the arrangement, or

(c)is necessary for the purposes of implementing the arrangement.

Defined in Sch.ZA1 para.19(4) · see it in the full Act

Cases considering section 244 4

Finnerty & Anor v Clark & Anor

[2011] EWCA Civ 858 · 21 July 2011

The court treated the proposed section 244 proceedings as a contingent benefit relied on to support removal. It did not determine their merits, but held that the administrators’ properly informed decision not to commence them did not justify removal. (see [35]-[41])

White v Davenham Trust Ltd

[2010] EWHC 2748 (Ch) · 1 November 2010Interprets

Interprets the provision as imposing a stringent test for an extortionate commercial credit transaction. The court held that there was no realistic prospect of a claim concerning the interest rates or default interest in this case. (See paras [41]-[50].) Cited only. Cited only. Confirms that an extortionate-transaction application carries a presumption that the transaction was extortionate, but concludes that the stringent substantive test still gave no realistic prospect of success on the evidence. (See paras [42], [49]-[50].) Cited only.

Clark & Anor v Finnerty & Anor

[2010] EWHC 2538 (Ch) · 14 October 2010Defines

Applies the provision as a cause of action available only to office-holders concerning extortionate transactions. The existence of a serious issue under the section did not itself justify removing the administrators. (see paras [10], [24]-[28], [30]) Confirms that the statutory concept of an extortionate transaction turns on grossly exorbitant payments or gross contravention of ordinary principles of fair dealing, with the statutory presumption described in the judgment. (see para [10]) Confirms that, if a transaction is extortionate, the court has the discretionary powers provided by the subsection. The judgment treated the eventual relief and its effect on rescue as uncertain. (see paras [10], [32])

What each judgment says about section 244 is in the case-law panel in the full Act.

Amendments and notes

10 notes from legislation.gov.uk

Amendments

  1. F529Words in s. 244(2) substituted (15.9.2003) by 2002 c. 40, ss. 248(3), 279, Sch. 17 para. 30 (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. C833S. 244 applied (with modifications) (S.) (6.4.2001) by S.S.I. 2001/128, reg. 4(1), Sch. 2 (as amended (1.10.2009) by S.S.I. 2009/310, reg. 3, Sch. 1 para. 1(d))
  2. C834S. 244 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)
  3. C835S. 244 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
  4. C836S. 244 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
  5. C837S. 244 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)
  6. C838S. 244 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)
  7. C839S. 244 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)
  8. C840S. 244 applied in part (with modifications) (4.1.2024) by S.I. 2021/716, Sch. 1 para. 3 (as amended by The Payment and Electronic Money Institution Insolvency (Amendment) Regulations 2023 (S.I. 2023/1399), regs. 1(2), 20)
  9. C841S. 244 applied (with modifications) (E.W.) (15.3.2024) by The Water Industry (Special Administration) Regulations 2024 (S.I. 2024/205), regs. 2(2), 5(1) (with reg. 64)