In re Wragg Ltd [1897] 1 Ch 796
Citation:In re Wragg Ltd [1897] 1 Ch 796
Rule of thumb:What is the test for a claw-back transaction being done? The test is that for claw-back to take place the transaction has to have been ‘colourably undervalue’ – a figure at borderline de minimis value at less than 10% of the market value is unlikely to be considered as ‘undervalue’ & potentially subject to claw-back.
Judgment:
‘It has, however, never yet been decided that a limited company cannot buy property or pay for services at any price it thinks proper, and pay for them in fully paid-up shares. Provided a limited company does so honestly and not colourably, and provided that it has not been so imposed upon as to be entitled to be relieved from its bargain, it appears to be settled... that agreements by limited companies to pay for property or services in paid-up shares are valid and binding on the companies and their creditors... It is not law that persons cannot sell property to a limited company for fully paid-up shares and make a profit by the transaction. We must not allow ourselves to be misled by talking of value. The value paid to the company is measured by the price at which the company agrees to buy what it thinks it worth its while to acquire. Whilst the transaction is unimpeached, this is the only value to be considered’, ‘Smith LJ concurred, saying if the consideration is ‘not clearly colourable nor illusory, then, in my judgment, the adequacy of the consideration cannot be impeached by a liquidator unless the contract can also be impeached’, Lindley J
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