PART 7

Safeguarding interests of creditors

Gratuitous alienations and unfair preferences

Unfair preferences
99
1
Subsection (5) applies to a transaction entered into (whether before or after the coming into force of this Act) by a debtor 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—
a
the date of sequestration of the debtor's estate (if, in the case of an individual, a date within the debtor's lifetime),
b
the granting by the debtor of a trust deed which has become a protected trust deed,
c
the debtor's death where, within 12 months after the date of death—
i
the debtor's estate is sequestrated,
ii
a judicial factor is appointed under section 11A of the 1889 Act to administer the debtor's estate and that estate was absolutely insolvent at the date of death.
2
But subsection (5) does not apply to—
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,
c
a transaction by which the parties undertake reciprocal obligations (whether the performance by the parties of their respective obligations is to occur at the same time or at different times),
d
the granting of a mandate by a debtor authorising an arrestee to pay over the arrested funds, or part of the arrested funds, 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
Paragraphs (b) and (c) of subsection (2) are to be disregarded if the transaction in question was collusive with the purpose of prejudicing the general body of creditors.
4
For the purposes of subsection (1), the day on which a preference is created is the day on which it becomes completely effectual.
5
The transaction is challengeable by—
a
any creditor who is a creditor by virtue of a debt incurred on or before (as the case may be) the date of sequestration, the granting of the protected trust deed or the debtor's death, or
b
(as the case may be) the trustee in the sequestration, the trustee acting under the protected trust deed or the judicial factor.
6
On a challenge being brought under subsection (5) the court, if satisfied that the transaction challenged is a transaction to which that subsection applies, must grant decree—
a
of reduction, or
b
for such restoration of property to the debtor's estate, or such other redress, as may be appropriate.
7
Subsection (6) is without prejudice to any right acquired, in good faith and for value, from or through the creditor in whose favour the preference was created.
8
A trustee in a sequestration, a trustee acting under a protected trust deed or a judicial factor appointed under section 11A of the 1889 Act has the same right as a creditor has under any rule of law to challenge a preference created by a debtor.
S. 99 in force at 30.11.2016 by S.S.I. 2016/294, reg. 2