Insolvency Act 1986

243 Unfair preferences (Scotland)

(1) Subject to subsection (2) below, subsection (4) below applies to a transaction entered into by a company, whether before or after 1st April 1986, which has the effect of creating a preference in favour of a creditor to the prejudice of the general body of creditors, being a preference created not earlier than 6 months before the commencement of the winding up of the company or the making of an administration order in relation to the company.

(2) Subsection (4) below does not apply to any of the following transactions—

(a) a transaction in the ordinary course of trade or business;

(b) a payment in cash for a debt which when it was paid had become payable, unless the transaction was collusive with the purpose of prejudicing the general body of creditors;

(c) a transaction whereby the parties to it undertake reciprocal obligations (whether the performance by the parties of their respective obligations occurs at the same time or at different times) unless the transaction was collusive as aforesaid;

(d) the granting of a mandate by a company authorising an arrestee to pay over the arrested funds or part thereof to the arrester where—

(i) there has been a decree for payment or a warrant for summary diligence, and

(ii) the decree or warrant has been preceded by an arrestment on the dependence of the action or followed by an arrestment in execution.

(3) For the purposes of subsection (1) above, the day on which a preference was created is the day on which the preference became completely effectual.

(4) A transaction to which this subsection applies is challengeable by—

(a) in the case of a winding up—

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

(ii) the liquidator; and

(b) in the case of an administration order, the administrator.

(5) On a challenge being brought under subsection (4) above, the court, if satisfied that the transaction challenged is a transaction to which this section applies, shall grant decree of reduction or for such restoration of property to the company's assets or other redress as may be appropriate:

Provided that this subsection is without prejudice to any right or interest acquired in good faith and for value from or through the creditor in whose favour the preference was created.

(6) A liquidator and an administrator have the same right as a creditor has under any rule of law to challenge a preference created by a debtor.

(7) This section applies to Scotland only.