Insolvency Act 1986, section 342

Orders under ss. 339, 340

Part IX Bankruptcy

(1)Without prejudice to the generality of section 339(2) or 340(2), an order under either of those sections with respect to a transaction or preference entered into or given by an individual who is subsequently [F886madeF886] bankrupt may (subject as follows)—

(a)require any property transferred as part of the transaction, or in connection with the giving of the preference, to be vested in the trustee of the bankrupt’s estate as part of that estate;

(b)require any property to be so vested it if represents in any person’s hands the application either of the proceeds of sale of property so transferred or of money so transferred;

(c)release or discharge (in whole or in part) any security given by the individual;

(d)require any person to pay, in respect of benefits received by him from the individual, such sums to the trustee of his estate as the court may direct;

(e)provide for any surety or guarantor whose obligations to any person were released or discharged (in whole or in part) under the transaction or by the giving of the preference to be under such new or revived obligations to that person as the court thinks appropriate;

(f)provide for security to be provided for the discharge of any obligation imposed by or arising under the order, for such an obligation to be charged on any property and for the security or charge to have the same priority as a security or charge released or discharged (in whole or in part) under the transaction or by the giving of the preference; and

(g)provide for the extent to which any person whose property is vested by the order in the trustee of the bankrupt’s estate, or on whom obligations are imposed by the order, is to be able to prove in the bankruptcy for debts or other liabilities which arose from, or were released or discharged (in whole or in part) under or by, the transaction or the giving of the preference.

(2)An order under section 339 or 340 may affect the property of, or impose any obligation on, any person whether or not he is the person with whom the individual in question entered into the transaction or, as the case may be the person to whom the preference was given; but such an order—

(a)shall not prejudice any interest in property which was acquired from a person other than that individual and was acquired [F887in good faith and for valueF887] , or prejudice any interest deriving from such an interest, and

(b)shall not require a person who received a benefit from the transaction or preference [F887in good faith and for valueF887] to pay a sum to the trustee of the bankrupt’s estate except where he was a party to the transaction or the payment is to be in respect of a preference given to that person at a time when he was a creditor of that individual.

[F888 (2A)Where a person has acquired an interest in property from a person other than the individual in question, or has received a benefit from the transaction or preference, and at the time of that acquisition or receipt—

(a)he had notice of the relevant surrounding circumstances and of the relevant proceedings, or

(b)he was an associate of, or was connected with, either the individual in question or the person with whom that individual entered into the transaction or to whom that individual gave the preference,

then, unless the contrary is shown, it shall be presumed for the purposes of paragraph (a) or (as the case may be) paragraph (b) of subsection (2) that the interest was acquired or the benefit was received otherwise than in good faith.F888]

(3)Any sums required to be paid to the trustee in accordance with an order under section 339 or 340 shall be comprised in the bankrupt’s estate.

[F889 (4)For the purposes of subsection (2A)(a), the relevant surrounding circumstances are (as the case may require)—

(a)the fact that the individual in question entered into the transaction at an undervalue; or

(b)the circumstances which amounted to the giving of the preference by the individual in question.

(5)For the purposes of subsection (2A)(a), a person has notice of the relevant proceedings if he has notice—

[F890 (a)of the fact that the bankruptcy application as a result of which, or (as the case may be) the bankruptcy petition on which, the individual in question is made bankrupt has been made or presented; orF890]

(b)of the fact that the individual in question has been [F891 madeF891] bankrupt.

(6)Section 249 in Part VII of this Act shall apply for the purposes of subsection (2A)(b) as it applies for the purposes of the first Group of Parts.F889]

Definitions used in section 342 1

party

(3) In section 72B(1) and this paragraph “party” to an arrangement includes a party to an agreement which—

(a)forms part of the arrangement,

(b)provides for the raising of finance as part of the arrangement, or

(c)is necessary for the purposes of implementing the arrangement.

Defined in Sch.2A para.1(3) · see it in the full Act

(4) “Party” to an arrangement includes a party to an agreement which—

(a)forms part of the arrangement,

(b)provides for the raising of finance as part of the arrangement, or

(c)is necessary for the purposes of implementing the arrangement.

Defined in Sch.ZA1 para.19(4) · see it in the full Act

Cases considering section 342 12

Stonham v Ramrattan & Anor

[2011] EWCA Civ 119 · 16 February 2011Interprets

A recovery order vests property in the trustee from the date of the order unless its terms provide otherwise; the statutory scheme does not confer retrospective vesting. The policy behind section 283A may nevertheless be relevant when exercising the section 342 discretion. (see paras [27]–[29]; [37]; [60]–[61]) An order may require transferred property to vest in the trustee as part of the estate. Such vesting ordinarily takes effect from the order rather than retrospectively. (see paras [27]–[28]; [37]) The provision permits vesting of property representing transferred property or money. It formed part of the recovery scheme considered when determining when recovered assets enter the estate. (see paras [27]; [35]–[37]) The provision permits an order requiring payment in respect of benefits received. It illustrated that relief for a transaction at an undervalue may be monetary rather than proprietary. (see paras [27]–[29]) Sums required to be paid under a recovery order are comprised in the bankruptcy estate. This supported the distinction between an existing estate interest and property entering the estate through later relief. (see paras [27]–[29]; [35]–[37])

Ramlort Ltd v Reid

[2004] EWCA Civ 800 · 6 July 2004Interprets

The available remedies operate without prejudice to the general restorative power in section 339(2). The provision did not create a presumption for compensation or revesting (see paras [124]–[127]).

Ashleigh Fletcher & Anor v Vibhutiben Desai

[2026] EWHC 728 (Ch) · 27 March 2026Limits

Confirms the ancillary powers available when giving effect to an order under the avoidance provisions, including vesting property in the trustee. (see paras [19]; [38]) Applies the vesting power and confirms that vesting takes effect from the date of the order, without retrospective effect. (see paras [21]; [38]-[39]) Confirms that sums required to be paid under an avoidance order form part of the bankrupt’s estate and are subject to the insolvency distribution scheme. (see para [38])

What each judgment says about section 342 is in the case-law panel in the full Act.

Amendments and notes

7 notes from legislation.gov.uk

Amendments

  1. F886Word in s. 342(1) substituted (6.4.2016) by Enterprise and Regulatory Reform Act 2013 (c. 24), s. 103(3), Sch. 19 para. 34(2); S.I. 2016/191, art. 2 (with art. 3)
  2. F887Words in s. 342(2)(a)(b) substituted (26.7.1994) by 1994 c. 12, ss. 2(1), 5, 6(2) (with ss. 5, 6(3)
  3. F888S. 342(2A) inserted (26.7.1994) by 1994 c. 12, ss. 2(2), 5, 6(2) (with ss. 5, 6(3))
  4. F889S. 342(4)-(6) substituted for s. 342(4) (26.7.1994) by 1994 c. 12, ss. 2(3), 5, 6(2) (with ss. 5, 6(3))
  5. F890S. 342(5)(a) substituted (6.4.2016) by Enterprise and Regulatory Reform Act 2013 (c. 24), s. 103(3), Sch. 19 para. 34(3)(a); S.I. 2016/191, art. 2 (with art. 3)
  6. F891Word in s. 342(5)(b) substituted (6.4.2016) by Enterprise and Regulatory Reform Act 2013 (c. 24), s. 103(3), Sch. 19 para. 34(3)(b); S.I. 2016/191, art. 2 (with art. 3)

Modifications

  1. C1081Ss. 342-345 applied (with modifications) by S.I. 1986/1999, art. 3, Sch. 1 Pt. II