Fact pattern (B)

Tarpin Limited is a clothing manufacturer and a 100%-owned subsidiary company of TC Group Limited. Tarpin goes into liquidation. The liquidator investigates the company’s transactions in the period before liquidation and notices that the company has transferred to TC two industrial weaving machines. Consider your advice on the following issues.

Tarpin Limited is a clothing manufacturer and a 100%-owned subsidiary company of TC Group Limited. Tarpin goes into liquidation. The liquidator investigates the company’s transactions in the period before liquidation and notices that the company has transferred to TC two industrial weaving machines.

It is possible that the transfer of these two machines be a preference under s.239 IA. For this to be so, TC would have to be a creditor, or surety or guarantor of a debt of Tarpin. Tarpin would also have had to be influenced by a desire to put TC in a better position on liquidation than it would have been in had the transaction not taken place. This will be presumed as TC is, as a 100% subsidiary, associated with, and thus connected to, Tarpin. Finally, the transaction would have to take place at a “relevant time” within the terms of s.240 IA.

It is also possible that the transfer of the machines by Tarpin to TC might constitute a transaction at an undervalue. This would allow Tarpin’s liquidator to apply to court to have the transaction set aside.

What would the liquidator have to prove initially as regards the substance of the transaction if it is to be shown to be a transaction at an undervalue?