Corporate and Business Law (Global) · Insolvency and administration

Voidable Transactions in Insolvency: Undervalue, Preference, Floating Charges

Updated 11 October 2026 · Fact-checked

Voidable transactions are deals made before insolvency that a liquidator or administrator can ask the court to set aside. The main three are transactions at an undervalue, preferences and floating charges created late for no new value. You solve questions by checking timing, insolvency at the time, and the company's intention or purpose.

Understand Antecedent Transactions: Voidable Transactions

When a company is heading for insolvency, its directors may try to move assets away or favour certain creditors. This is unfair to the creditors as a whole. The law lets the insolvency office-holder, the liquidator or administrator, challenge certain earlier deals and bring assets back into the pool for all creditors.

These are called antecedent transactions because they happened before the insolvency began. They are voidable, not void. This means they stand until a court sets them aside. The office-holder must apply to court, and the court has discretion over the remedy.

There are three main types in this exam. A transaction at an undervalue is a gift, or a deal where the company gets much less than it gives. A preference is where the company puts a creditor (or a guarantor of its debt) in a better position than that creditor would have been in on liquidation. A floating charge created shortly before insolvency can be invalid, except to the extent of new value given to the company.

Each type has a relevant time, a look-back period before the insolvency begins. The company must usually also have been unable to pay its debts at the time, or become so because of the deal. Preferences also need a desire to prefer, which is a state of mind test. An undervalue has a defence if the company acted in good faith to carry on its business and there were reasonable grounds to think it would benefit.

This guide follows the general approach used in the Global variant, which is modelled on the UK Insolvency Act 1986 rules. Use the periods and tests as set out in your study text. The exam asks you to apply them to short facts.

Key formulas to remember

Transaction at an undervalue: Gift, or consideration received is significantly less than value given, made within the relevant time while the company is insolvent (or becomes so because of it); Defence: the company acted in good faith for the purpose of carrying on its business, with reasonable grounds to believe it would benefit.
Relevant time: undervalue: Two years ending with the onset of insolvency; The onset is the date of the administration application or filing of notice, or the start of the winding up. The company must be unable to pay its debts then, or become so as a result.
Preference: Company puts a creditor, surety or guarantor in a better position on insolvent liquidation than otherwise, influenced by a desire to do so; The desire is the key test. Ordinary commercial pressure or a mere wish to carry on business is not enough.
Relevant time: preference: Six months before onset of insolvency; two years if the person preferred is connected with the company (not merely an employee); The company must be unable to pay its debts at the time, or become so because of the preference.
Presumed desire: If the person preferred is connected with the company, the desire to prefer is presumed; The connected person must rebut the presumption.
Avoidance of floating charges: A floating charge created within the relevant time is invalid except for new value given at the same time as or after creation (money paid, goods or services supplied, or discharge or reduction of a company debt at or after creation); Relevant time: 12 months before onset of insolvency; two years if the chargee is connected. A charge granted for a debt owed before the charge was created is not new value. Discharging a company debt at or after creation is new value. For a non-connected chargee the company must be insolvent at the time or become so because of the transaction.
Court remedy: Court may make any order to restore the position as if the transaction had not happened; Orders include returning property, repaying money or releasing a charge. The court must protect third parties who acted in good faith and gave value.

How to solve Antecedent Transactions: Voidable Transactions questions

Use the same sequence for every scenario. It stops you mixing up the three types and their time limits.

1Identify the deal: gift or low price (undervalue), payment or security to an existing creditor (preference), or a floating charge granted.
2Find the onset of insolvency: the date of the administration application or the start of winding up.
3Count back to the date of the deal and check it falls in the correct relevant time for that type and for a connected or unconnected person.
4Check the company was unable to pay its debts at the time, or became so because of the deal. For floating charges, this is only needed for unconnected chargees.
5Apply the extra test: for a preference, the desire to prefer (presumed for connected persons); for an undervalue, the good faith business defence; for a floating charge, any new value given.
6State the result: the deal is voidable, the office-holder applies to court, and the court may restore the position.
7Finish with the amount affected, for example a charge valid only to the extent of new value.

Quickest way: Type, time, insolvency, test

When to use it: Use this for Section A and Section B objective questions where you have about a minute per question.

Name the type: gift or cheap sale = undervalue; paying or securing an old debt = preference; new floating charge = charge avoidance.
Read the dates and pick the period: two years undervalue; six months preference (two years connected); 12 months floating charge (two years connected).
Check insolvency at the time. For floating charges this is required only for unconnected chargees; it is not needed for connected chargees.
Apply the final test: good faith defence, desire to prefer, or new value.
Pick the option matching all four checks. Wrong options usually fail on the period or the test.

Common mistakes in Antecedent Transactions: Voidable Transactions

Saying a voidable transaction is automatically void.
The word voidable is confused with void.
Fix: Write that the office-holder must apply to court, and the court decides the remedy.
Using the wrong look-back period, such as six months for an undervalue.
Students mix up the periods for the three types.
Fix: Learn: undervalue 2 years; preference 6 months (2 years if connected); floating charge 12 months (2 years if connected).
Treating any payment to a creditor as a preference.
Students ignore the desire test.
Fix: Check for a desire to improve the creditor's position. Paying under commercial pressure or to keep trading is not enough. For connected persons, the desire is presumed.
Invalidating a floating charge in full when new value was given.
Students forget the new value exception.
Fix: The charge is valid up to the cash, goods or services supplied at or after creation. Only the rest is invalid.
Forgetting to check the company's insolvency at the time.
Students focus on the dates only.
Fix: Always state that the company was unable to pay its debts then or became so because of the deal.
Treating a charge for old debt as new value.
Students see money linked to the lender and assume value.
Fix: A charge granted for a debt owed before the charge was created is not new value. Only fresh money, goods or services, or the discharge or reduction of a company debt at the same time as or after creation, count.

Worked examples

Example 1

Ace Ltd goes into liquidation on 1 October 2026. On 1 March 2025 it sold equipment worth $40,000 to its director's brother for $5,000. Ace was unable to pay its debts at the time. The director says it was a genuine sale. Can the liquidator challenge the sale?

Show the solution

Type: the company received far less than the value given, so it is a transaction at an undervalue.
Time: the relevant time is two years before the onset of insolvency, so from 1 October 2024. 1 March 2025 is inside it.
Insolvency: Ace was unable to pay its debts at the time, so the condition is met.
Defence: Ace must show good faith, a business purpose and reasonable grounds to believe the deal would benefit it. A sale of $40,000 equipment for $5,000 gives little support for this, so the defence is unlikely to succeed on these facts. An undervalue claim does not depend on the buyer being a connected person.
Remedy: the liquidator applies to court, which can order the equipment returned or its value paid.

Answer: Yes. The sale is a transaction at an undervalue within the two-year period and the company was insolvent. Unless Ace proves the good faith business defence, which is unlikely to succeed on these facts, the court can set it aside and restore the equipment or its value.

Example 2

Beta Ltd is wound up on 1 November 2026. On 1 June 2026 it repaid in full a $30,000 loan from Cara, a lender who is not connected with Beta, although other creditors were unpaid. Beta was insolvent at the time. Evidence shows the directors wanted to benefit Cara by repaying her ahead of the other creditors. Is this a preference?

Show the solution

Type: a payment to an existing creditor, Cara as lender, improves her position compared with liquidation, so consider a preference.
Time: Cara is not connected, so the relevant time is six months before 1 November 2026, from 1 May 2026. 1 June 2026 is inside it.
Insolvency: Beta was unable to pay its debts at the time, so the condition is met.
Desire: there is evidence of a desire to benefit Cara, so the desire test is met. If it were not, this would fail even though the timing fits.
Result: the payment is voidable, and the liquidator can apply to court for repayment of the $30,000 into the pool.

Answer: Yes. The payment is a preference within six months, made while Beta was insolvent and influenced by a desire to favour Cara. The court may order Cara to repay $30,000 to the liquidator.

Exam tips

Learn the three periods: undervalue 2 years; preference 6 months (2 years if connected); floating charge 12 months (2 years if connected).
In OT questions, watch for options that give the right type but the wrong period. Check dates carefully by counting back from the onset of insolvency, not from the date of the question.
For preference questions, look for the desire to prefer. Facts about commercial pressure suggest no preference.
For floating charges, look for the new value. If the lender advanced fresh cash after the charge, only that amount is protected.
Use the sequence type, time, insolvency, test, remedy as a mental checklist when you work through OT and multi-task questions. Run it on every scenario before you pick an answer.

Practice questions from Insolvency and administration

Antecedent Transactions: Voidable Transactions: frequently asked questions

What is the difference between a transaction at an undervalue and a preference?

An undervalue is a gift or a deal where the company gets much less than it gives, and it can involve anyone. A preference favours an existing creditor, surety or guarantor over others. An undervalue needs no desire, while a preference needs a desire to prefer.

Who can challenge a voidable transaction?

The liquidator or administrator applies to the court. Individual creditors do not bring these claims in their own name. Any recovery goes to the insolvency estate for the benefit of all creditors.

Can a floating charge be avoided if the lender gave new money?

It is valid to the extent of the new value given at or after the creation of the charge. Only the part securing old debts is invalid. The charge must also fall within the relevant time and meet the insolvency condition for unconnected chargees.

Does the company have to be insolvent for all three types?

For undervalues and preferences, the company must be unable to pay its debts at the time or become so because of the deal. For floating charges, this condition applies to unconnected chargees. It is not needed if the chargee is connected with the company.