Insolvency Act 1986

Changes to legislation:

Insolvency Act 1986, Section 242 is up to date with all changes known to be in force on or before 18 November 2024. There are changes that may be brought into force at a future date. Changes that have been made appear in the content and are referenced with annotations.

Changes to Legislation

Revised legislation carried on this site may not be fully up to date. Changes and effects are recorded by our editorial team in lists which can be found in the ‘Changes to Legislation’ area. Where those effects have yet to be applied to the text of the legislation by the editorial team they are also listed alongside the legislation in the affected provisions. Use the ‘more’ link to open the changes and effects relevant to the provision you are viewing.

View outstanding changes

Changes and effects yet to be applied to the whole Act associated Parts and Chapters:

Act amendment to earlier affecting provision S.I. 1986/1999, art. 3, Sch. 1 Pt. 2 by S.I. 2017/1119 Sch. 3 para. 1
Act savings and transitional provisions for amendments by S.I. 2022/1166 by S.I. 2022/1172 Regulations

Whole provisions yet to be inserted into this Act (including any effects on those provisions):

s. 41HB(2) words substituted by 2018 c. 14 s. 1(3)(b)

242 Gratuitous alienations (Scotland).S

(1)Where this subsection applies and—

(a)the winding up of a company has commenced, an alienation by the company is challengeable by—

(i)any creditor who is a creditor by virtue of a debt incurred on or before the date of such commencement, or

(ii)the liquidator;

(b)[F1a company enters administration], an alienation by the company is challengeable by the administrator.

(2)Subsection (1) applies where—

(a)by the alienation, whether before or after 1st April 1986 (the coming into force of section75 of the M1Bankruptcy (Scotland) Act 1985), any part of the company’s property is transferred or any claim or right of the company is discharged or renounced, and

(b)the alienation takes place on a relevant day.

(3)For the purposes of subsection (2)(b), the day on which an alienation takes place is the day on which it becomes completely effectual; and in that subsection “relevant day” means, if the alienation has the effect of favouring—

(a)a person who is an associate (within the meaning of the Bankruptcy (Scotland) Act [F22016]) of the company, a day not earlier than 5 years before the date on which—

(i)the winding up of the company commences, or

(ii)as the case may be, [F3the company enters administration]; or

(b)any other person, a day not earlier than 2 years before that date.

(4)On a challenge being brought under subsection (1), the court shall grant decree of reduction or for such restoration of property to the company’s assets or other redress as may be appropriate; but the court shall not grant such a decree if the person seeking to uphold the alienation establishes—

(a)that immediately, or at any other time, after the alienation the company’s assets were greater than its liabilities, or

(b)that the alienation was made for adequate consideration, or

(c)that the alienation—

(i)was a birthday, Christmas or other conventional gift, or

(ii)was a gift made, for a charitable purpose, to a person who is not an associate of the company,

which, having regard to all the circumstances, it was reasonable for the company to make:

Provided that this subsection is without prejudice to any right or interest acquired in good faith and for value from or through the transferee in the alienation.

(5)In subsection (4) above, “charitable purpose” means any charitable, benevolent or philanthropic purpose, whether or not it is charitable within the meaning of any rule of law.

(6)For the purposes of the foregoing provisions of this section, an alienation in implementation of a prior obligation is deemed to be one for which there was no consideration or no adequate consideration to the extent that the prior obligation was undertaken for no consideration or no adequate consideration.

(7)A liquidator and an administrator have the same right as a creditor has under any rule of law to challenge an alienation of a company made for no consideration or no adequate consideration.

(8)This section applies to Scotland only.

Textual Amendments

F1Words in s. 242(1)(b) substituted (15.9.2003) by 2002 c. 40, ss. 248(3), 279, Sch. 17 para. 28(2) (with s. 249(1)-(3)(6)); S.I. 2003/2093, art. 2(1), Sch. 1 (subject to arts. 3-8 (as amended by S.I. 2003/2332, art. 2))