What the service includes
Shortly before bankruptcy, debtors often strip assets through below-value transactions with affiliated persons. The law gives creditors a tool to challenge such transactions and return the property to the bankruptcy estate. But a good-faith party to a transaction is equally entitled to protection when a challenge is brought without justification.
We represent creditors in challenging a debtor’s suspicious transactions, and we defend good-faith counterparties where a transaction is challenged without sufficient grounds.
The key difficulty in such disputes is to prove not only the transaction itself but also that the other party knew, or should have known, of the debtor’s financial difficulties. We examine open registers, correspondence and the history of the parties’ dealings, and where necessary engage valuers to determine the market price retrospectively as at the date of the transaction.
What the service includes:
Who it is for
The situations clients most often bring to us on this topic.
How we work
A fixed fee and a clear plan of action, agreed before work begins. The timeframes below are indicative and depend on the complexity of the case.
Transaction analysis
We review the debtor’s transactions over the suspect period (usually one to three years before bankruptcy). Timeframe: 3-7 days.
Proving the grounds
We gather evidence of affiliation between the parties, or of a price below market value. Timeframe: 1-2 weeks.
Court challenge
We file the application to challenge the transaction within the bankruptcy case. Timeframe: 3-9 months.
Return of property
We see the case through to the actual return of the asset to the bankruptcy estate, or recovery of its value. Timeframe: 1-3 months.
What you will need at the start
We confirm the exact list for your situation at the consultation. This is a guide so that you arrive at the first meeting prepared.
Key figures
Experience in this practice area specifically, not in practice as a whole.
Common mistakes
Cash settlements without supporting documents. The parties settle in cash with no bank transfer or receipts, and later cannot document that the transaction was genuine and at a fair price, which makes it much easier to challenge.
Buying without checking the seller’s financial position. The buyer does not check whether the seller shows signs of insolvency, has litigation, or whether the property has changed hands frequently. They learn of the seller’s future bankruptcy only after the transaction, when it is harder to defend.
A below-market price in the contract with no valuation. The parties state a price below market for the sake of savings or convenience without commissioning an independent valuation. Such a gap from market comparables becomes the first and heaviest argument for declaring the transaction invalid.
What you get
A court ruling on the transaction. A ruling declaring the transaction invalid or refusing the challenge, depending on which side the team represents.
Return of property to the bankruptcy estate. The asset or its value actually enters the bankruptcy estate for settlement with creditors.
A preserved transaction for a good-faith purchaser. Title to the acquired property is confirmed by the court and protected against further claims.
A valuer’s opinion on market price. A document that can be used as evidence in this or related disputes over undervaluation or overvaluation.
Related
Frequently asked questions
What period can a debtor’s transactions be challenged for?+
As a rule, from one to three years before the bankruptcy application was accepted, depending on the grounds for challenge.
What if I bought property in good faith from a future bankrupt?+
The purchaser’s good faith is a weighty defence argument, especially where the transaction was concluded at market price and involves no affiliation.
Can a transaction be challenged if a court approved it earlier?+
A challenge in bankruptcy proceedings is a separate ground, independent of earlier court rulings on the same transaction, where there are signs of asset stripping.
Who can file an application to challenge a transaction?+
The bankruptcy trustee, and also a creditor whose claims entered in the register are of sufficient size.
After what period can a transaction no longer be challenged?+
Formally, the three years before the bankruptcy application was filed are examined, but in chains of related transactions courts often look at earlier operations too if they see a single asset-stripping scheme.
Can a good-faith buyer who did not know of the seller’s future bankruptcy be affected?+
Yes. Good faith alone does not guarantee protection; it has to be proved with documents: due diligence on the counterparty, a bank transfer and an independent valuation as at the date of the transaction.