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Investigation Powers

How can an Insolvency Practitioner use Section 340 of the Insolvency Act 1986 to recover money and property when a creditor has been put into a better position?

Section 340 of the Insolvency Act 1986 can be used by the Insolvency Practitioner to issue legal proceedings for compensation following when assets and property has been transferred within two years of the commencement of insolvency of an individual in a preference to other creditors, putting them in a better position. This is known as an antecedent transaction.

340 Preferences.

(1) Subject as follows in this and the next two sections, where an individual is made bankrupt and he has at a relevant time (defined in section 341) given a preference to any person, the trustee of the bankrupt’s estate may apply to the court for an order under this section.

(2) The court shall, on such an application, make such order as it thinks fit for restoring the position to what it would have been if that individual had not given that preference.

(3) For the purposes of this and the next two sections, an individual gives a preference to a person if—

(a) that person is one of the individual’s creditors or a surety or guarantor for any of his debts or other liabilities, and

(b) the individual does anything or suffers anything to be done which (in either case) has the effect of putting that person into a position which, in the event of the individual’s bankruptcy, will be better than the position he would have been in if that thing had not been done.

(4) The court shall not make an order under this section in respect of a preference given to any person unless the individual who gave the preference was influenced in deciding to give it by a desire to produce in relation to that person the effect mentioned in subsection (3)(b) above.

(5) An individual who has given a preference to a person who, at the time the preference was given, was an associate of his (otherwise than by reason only of being his employee) is presumed, unless the contrary is shown, to have been influenced in deciding to give it by such a desire as is mentioned in subsection (4).

(6) The fact that something has been done in pursuance of the order of a court does not, without more, prevent the doing or suffering of that thing from constituting the giving of a preference.

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This page: Section 340 of the Insolvency Act 1986 is not legal advice and should not be relied upon as such. Section 340 of the Insolvency Act 1986 is provided for information purposes only. You can Contact Us on the specific facts of your case to obtain relevant advice via a Free Initial Consultation.