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ACCA Applied Skills · Corporate and Business Law (Global) · Insolvency and administration

Alpha Co is placed into liquidation. The liquidator finds that eight months earlier Alpha Co sold a machine to a director for far less than its market value, when the company was already unable to pay its debts. Which statement best describes the liquidator's position?

The liquidator may apply to the court to set aside the sale as a transaction at an undervalue. The machine was sold to a director for far below market value while the company was insolvent, so the court can restore the position. The sale is not void automatically.

  1. AThe liquidator may ask the court to set aside the sale as a transaction at an undervalueCorrect
  2. BThe sale is automatically void without any court order
  3. CThe sale can be challenged only by the director's own creditors

Explanation

A sale for significantly less than its value is a transaction at an undervalue. The liquidator applies to court, which may restore the position. The sale is not automatically void, because court action is needed, and the liquidator, not the director's creditors, brings the claim.

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