In both jurisdictions, transactions that are entered into before a formal insolvency process begins can be attacked if they are detrimental to the creditors of the insolvent company. However, although both systems use similar language and address similar concerns, the law in the two jurisdictions is different, most notably with different time periods and defences to a challenge.
Gratuitous alienation and transactions at undervalue
| Scotland | England & Wales | |
| Insolvency Act 1986 section(s) | 242 - gratuitous alienation | 238, 240, 241 - transaction at undervalue |
| Challengeable period (unconnected parties) | 2 Years | 2 Years |
| Challengeable period (connected parties) | 5 years | 2 years |
| Defences | Balance sheet solvent immediately after the transaction or at any time thereafter; or
Adequate consideration; or
Conventional gift or charitable donation which it was reasonable to make.
| Consideration given is not significantly less than the consideration received; or
Acted in good faith and with reasonable grounds to believe the transaction would benefit the company; or
Company able to pay debts (within the meaning of s123 of the Insolvency Act 1986).
|
Unfair preference
| Scotland | England & Wales | |
| Insolvency Act 1986 section(s) | 243 - unfair preference | 239, 240, 241 - unfair preference |
| Challengeable period (unconnected parties) | 6 Months | 6 Months |
| Challengeable period (connected parties) | 6 months | 2 Years |
| Defences | Transaction in the ordinary course of trade or business; or
Payment in cash for a debt which had become payable (unless collusive with the purpose of prejudicing the general body of creditors); or
Transaction whereby parties undertake reciprocal obligations (unless collusive with the purpose of prejudicing the general body of creditors); or
Granting of a mandate to pay over arrested funds.
| Not influenced by desire to prefer; or
Company able to pay debts (within the meaning of s123 of the Insolvency Act 1986).
|
Other points to note are:-
- s.244 of Insolvency Act 1986 (Extortionate credit transactions) and s.245 of Insolvency Act 1986 (Avoidance of certain floating charges) apply in both jurisdictions.
- s.423 (Transactions defrauding creditors) applies to England & Wales but not to Scotland.
- Scots law also has common law remedies of gratuitous alienation and preference. These are rarely used because of additional evidential requirements, but it should be noted that the common law remedies are not subject to the time limits that apply to the statutory remedies.
