CONTESTABILITY OF TRANSACTIONS AT AN UNDERVALUE OF AN INSOLVENT DEBTOR

Abstract

Transactions at an undervalue of an insolvent debtor are, in principle, contestable because the interests of the opponent of the contestation, who acquired a part of the assets from the insolvency estate without consideration or with insignificant consideration, must take the back seat to the collective interest of insolvency creditors in equitable debt collection. The Insolvency Act (Article 203) provides a special basis for contesting transactions at an undervalue undertaken in the suspect period counting from four years prior to filing for (pre-)bankruptcy proceedings up to the opening of the insolvency proceedings. An authorised contester does not have to prove any subjective elements on the part of an insolvent debtor or the opponent of the contestation. When distinguishing transactions carried out at an undervalue from those performed for consideration, the consideration was provided if the opponent of the contestation incurred or undertook to incur any kind of expense of an appropriate value and if that expense is causally linked to the transaction of an insolvent debtor. If any of these requirements are not met, the transaction is at an undervalue. If the debtor secured a claim of a creditor towards a third party without receiving consideration, such transaction is still not without consideration provided that the creditor gave a corresponding consideration to the third party (e.g. by granting a loan). Contested transactions – despite certain confusing provisions– are subject to the general rule that the contested transaction has no effect on the insolvency estate and that the opponent of the contestation must restitute to the insolvency estate any benefits derived from the contested transaction.