Rescue, Rehabilitation and Insolvency (Corporate and Personal) Act 2026 · As enacted · Part XV
413. Voidable encumbrance
Official English translation. Where it differs from the Sinhala or Tamil text, the Act itself says which text prevails.
Official translationFrom Department of Government Printing, unchanged
Subject to subsections (3) and (5), an encumbrance, other than a lien, over any property or the undertaking of a debtor may be set aside by the court on the application of a relevant office holder where –
immediately after the encumbrance was given, the debtor was insolvent; and
either –
if the encumbrance was given in favour of a person other than a connected party of the debtor, it was given within the standard review period; or
if the encumbrance was given in favour of a connected party of the debtor, it was given within the connected party review period.
For the purposes of subsection (1), a debtor giving an encumbrance within the standard review period is presumed, unless the contrary is proved, to have been insolvent immediately after giving the encumbrance.
Subject to subsection (4), an encumbrance may not be set aside under subsection (1) where –
the encumbrance secures –
money actually advanced or paid, or the actual price or value of property sold or supplied, or any other valuable consideration given in good faith, by the grantee of the encumbrance to the debtor at the time of, or at any time after, the giving of the encumbrance; and
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any interest payable on an amount referred to in subparagraph (i); or
the encumbrance is in substitution for an encumbrance given by the debtor and either –
if given in favour of a person other than a connected party of the debtor, was given before the standard review period; or
if given in favour of a connected party of the debtor, was given before the connected party review period.
Paragraph (b) of subsection (3) shall not apply to the extent that –
the amount secured by the substitute encumbrance exceeds the amount that was secured by the existing encumbrance; or
the value of the property subject to the substitute encumbrance at the date of substitution exceeds the value of the property that was subject to the existing encumbrance at that date.
An encumbrance may not be set aside under subsection (1) where it secures the unpaid purchase price of property and any interest payable on that amount, whether or not the encumbrance is given over that property, if the instrument creating the encumbrance is executed –
within twenty working days after the sale of the property; or
in the case of the sale of an estate or interest in immovable property, within twenty working days after the final settlement of the sale.
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For the purposes of paragraph (a) of subsection (3)
and subsection (5), where a debtor has made a payment to a grantee of an encumbrance that meets the condition in paragraph (b) of subsection (1), the payment shall be deemed to have been appropriated to the extent necessary towards –
repayment of money actually advanced or paid by the grantee of the encumbrance to the debtor on or after the giving of the encumbrance;
payment of the actual price or value of property sold or supplied by the grantee of the encumbrance to the debtor on or after the giving of the encumbrance;
satisfaction of any other liability of the debtor to the grantee of the encumbrance in respect of any other valuable consideration given in good faith on or after the giving of the encumbrance, including interest payable on any amount referred to in paragraphs (a), (b) and (c).
A voidable encumbrance is an encumbrance that may be set aside under subsection (1).