Transactions at an Undervalue Flashcards
Insolvency Act 1986, s.423(1)
Transaction is at an undervalue of debtor makes gift, consideration for marriage, significantly less than value
Insolvency Act 1986, s.423(3)
They may be set aside whenever made if entered into for purpose of putting assets beyond the reach of a claimant or of otherwise prejudicing a claimant
Agricultural Mortgage Corp plc v Woodward [1995] 1 BCLC 1 CA
Case: Debtor faced with possession proceedings by mortgage, leased farm to wife at open market rent
Decision: The tenancy was entered into by Mr W to ensure that A did not get vacant possession of the property (purpose found) and the transaction should be viewed as a whole, with the additional benefits (surrender value of the lease) were treated in value in money or money’s worth than the value of the consideration provide by her (despite being rented at market value)
N.B. this may have the consequence of any lease potentially being a transaction at an undervalue (note that s.339 needs purpose to deprive)
National Westminster Bank v James [2002] 1 BCLC 55
See!
Midland Bank plc v Wyatt [1997] 1 BCLC 242
Case: Debtor made declaration of trust of family home in favour of wife and daughter in 1987 when about to embark on new business via a limited company; debtor solvent at time; in 1991 bank obtained charging order nice on house; debtor revealed declaration of trust for first time when opposing charging order being made absolute (bank wants to set rise trust)
Decision: To show that a transaction was a sham transaction, it was not necessary to show fraud; motivation to ‘keep the home’ is not the only intention as sell intended to deprive creditors, therefore intention shown; he didn’t tell wife/children about the trust (evidence of intention)
Delaney v Chaun [2011] BPIR 11 CA
Case: Couple facing claimants so enter into sale and leaseback
See!
Re Lloyds Furniture Palace Ltd [1925] Cb 858
Case: Company granted floating charge to secure existing overdraft
Decision: On the facts this was not a transaction at an undervalue in the present case; and, therefore, the debentures were not void as against the liquidation (if anything a preference???)
Rule: A fraudulent intention to prefer one creditor over other creditors was not sufficient to avoid a conveyance to that creditor unless the debtor was himself in some way benefited by the conveyance
Hill v Spread Trustees Co Ltd [2007] 2 WLR 2404 (CA)
Case: In 1989 N settled land on trust for daughter. Revenue were told land worth £35,000 although N had received an offer for ti of £700,000. In 1993 under compromise with Revenue N paid £160,000. N borrowed from trustees and i 1996 gave trustees charges over other land owed by him as security. In 1998 Revenue served statutory demand for further tax in January 1999 N made Revenue served statutory demand for further tax in January 1999 N made bankrupt. In December 2002 trustee began proceedings. What is limitation period? Could 1996 charges be set aside as well as original settlement?
Decision: This was a transaction at an undervalue
Rule: Limitation period begins at time of prejudice and also when estate vests in the trustee in bankruptcy
Compare: MC Bacon - got value for charge as business continued so not transaction at an undervalue
N.B. Essay subject - is this bad law; see Goode p.551 footnote
Insolvency Act 1986, s.424
Who may apply for proceedings (victim/trustee/liquidator)
Tribe v Tribe [1996] Ch 107
Case: Lessee, served with schedule of dilapidations, transferred his controlling shareholding in family company to one of his sons; transfer expressed to be for consideration of £78,030 but this was never (and never intended to be) paid; in the event lessee settled claim for dilapidations; lessee wished to recover shares in family home
Decision: Since the transfer of shares was a voluntary transfer between father and son for no consideration the presumption of advancement applies unless the transferor could rebut it; the illegal purpose which the transferor had to rely on in order to rebut the presumption had not been carried into effect
Rule: Debtors may bring proceedings to set aside transactions that they had entered into
Insolvency Act 1986, s.425(1)
Examples of courts powers that may exercise
Insolvency Act 1986, s.425(2)(3)
Good faith/relavant knowledge irrelevant but sub-transferees protected
Barclays Bank plc v Eustice [1995] 4 All ER 511
Case: Bank made claim under s.423 due to E leasing land to son’s that was charged to the bank as security for a loan; E’s solicitors disclosed to the bank the assignment and tenancy agreements
Decision: Where the dominant purpose of legal advice was not to explain the legal effect of what had already been done and had subsequently become the subject of existing or imminent litigation, but to structure a transaction which had yet to be carried out but which had plainly been devised to prejudice the interests of the credit, then legal/professional privilege does not apply
Insolvency Act 1986, s.339
Transaction at an undervalue definition for prior to bankruptcy
Insolvency Act 1986, s.341
Relevant time for s.339, 340
2 years or 5 years if associated
Hill v Haines [2007] 3 FCR 785 (CA)
Case: In divorce proceedings in May 2003 debtor ordered to transfer his share of a house to his wife; debtor made bankrupt in March 2005 and trustee sought to set aside transfer
Decision: This was not a transaction at an undervalue as divorce was considered to be consideration (N.B. that court order will always be definite, out of court settlement more open to bring set aside)
Re Kumar [1993] 2 All ER 700
Case: Architect sued for professional negligence; Mr K transfers house to wife; he goes bankruptcy and they get divorced; Mrs K says consideration as took on mortgage (10% of his value) and that she promised to pay maintenance (void promise)
Decision: Void transaction
