Undervalue transaction
Under ordinary principles of contract law, the courts will not generally look into the adequacy of the consideration provided by either side.[4] However, some countries have "ring-fenced" recoveries of unfair preferences so that they are made available to the pool of assets for unsecured creditors.[6] In Re MC Bacon Ltd (No 1), the court held that the granting of security could not be considered an undervalue transaction as it does not deplete or diminish the value of the assets of the company.A trustee must bring an application under section 96 of the Bankruptcy and Insolvency Act for the court to declare a transaction void.Where the parties were at arm's length, the trustee must prove that the transaction was at an undervalue, it occurred during the one year before the initial bankruptcy event, the debtor company was insolvent at the time of the transaction or was made insolvent because of it, and the company intended to "defraud, defeat or delay" a creditor.
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