You may be wondering…

• Can an insolvency administrator really cancel a gift?

• How far back are transfers reviewed?

• Is there a difference between gifts to family and gifts to unrelated persons?

• How can the donee defend themselves?

Clients ask me…

Can the court challenge gifting during insolvency?
Yes. Gifting is a typical “gratuitous legal act” that can be declared ineffective if it prejudices creditors. The donee must then return the gift to the insolvency estate or compensate for its value.

How far back are gifts reviewed?
Usually three years back from the date of the insolvency petition (up to five years in cases of intentional prejudice to creditors).

Does it matter who the gift was made to?
No – even gifts to family members can be challenged. In fact, transfers within the family are often scrutinized most carefully by administrators.

Gifting and insolvency in a nutshell

• Insolvency administrator reviews transfers up to 3–5 years back.

• Gratuitous transfers (gifts) are typically ineffective.

• Donee must return the gift or pay its value.

• Family transfers are not exempt – often more closely examined.

Main risks and mistakes

1. Deliberately “moving assets” before insolvency. Administrators almost always challenge this.

2. Gifting regardless of debts. Family transfers are not protected.

3. Donee assumes they are safe. In reality, they can lose the property.

4. Not addressing debts in time. Gifting is not a solution – it only creates risk for both sides.

Step-by-step process

1. Check if the donor has debts and faces insolvency.

2. If yes, expect that the gift can be challenged.

3. If the gift is contested by the insolvency administrator, prepare for court proceedings.

4. Donee must return the gift to the insolvency estate or compensate its value.

Real-life example

A client transferred a flat to his daughter six months before creditors filed an insolvency petition. The insolvency administrator challenged the gift as ineffective, and the court agreed. The daughter had to return the flat to the insolvency estate, where it was sold and the proceeds used to satisfy creditors.

Why to be cautious

Gifting before insolvency does not help – on the contrary, it may complicate matters for both the donor and the donee. Courts and administrators routinely review these transfers and often declare them ineffective.

Lawyer’s recommendation

• Never deal with impending insolvency by gifting property.

• If you are offered a gift, check whether the donor has debts.

• In case of dispute, seek legal help quickly – time is crucial.

Checklist:
☑ Verified whether the donor has debts
☑ Assessed the risk of insolvency
☑ Aware of possible challenge by administrator
☑ Prepared to lose the gift if declared ineffective

FAQ

How far back are gifts reviewed in insolvency?
Usually 3 years, up to 5 years for intentional prejudice to creditors.

Does the donee always have to return the gift?
Yes – if declared ineffective, the gift must be returned or compensated in value.

What if the donee did not know about the debts?
It does not matter – ineffectiveness applies regardless of their knowledge.