What limitation period applies to undervalue and preference claims brought by liquidators?

This issue was considered in a case decided in May 2000 (Priory Garage (Walthamstow) Limited which has not been widely reported). Somewhat surprisingly, there do not appear to have been any other reported cases directly on this issue since Insolvency Act 1986 was introduced.

The Judge decided that, in most cases, a claim to set aside a transaction at an undervalue or a preference will have a 12 year limitation period (i.e. the proceedings must be commenced within 12 years of the liquidator’s appointment) unless the claim is solely to recover money. (In many cases the liquidator will seek other remedies, such as the re-vesting of assets in the company or the release of security given by the company, being just two examples of the wide-ranging relief that is available under Insolvency Act 1986).

Where the claim is just for recovery of money, it is likely that the limitation period will be reduced to 6 years.

Where the liquidator is seeking a combination of the recovery of money and other relief, it is likely that the Court will look at the “main claim” to decide which limitation period should apply.

As a result of this case, liquidators should commence any undervalue or preference claims within 6 years to be sure to be within the limitation period.

The case did not deal with the situation where a liquidator commences his proceedings within 6 or 12 years of the date of his appointment, but more than 6 or 12 years (as the case may be) after an administration order was made. Further clarification from the Courts on this issue would therefore be welcomed.

For more information on this case please contact Sophie Elboz of the Corporate Recovery Group by telephone on + 44 (0)20 7367 2958 or by e-mail at [email protected]