A company (C1) and its director (J) appealed against a decision ([2015] CSIH 12, 2015 S.C.L.R. 619) that the dispositions of four properties to them amounted to “gratuitous alienations” for the purposes of the Insolvency Act 1986 s.242.

The dispositions had been made by a group of three companies (G) controlled by J’s father (S). They were made nine months before G went into administration and the respondents, G’s joint administrators, had challenged them on the basis that there had been no consideration for them. The relevant properties were four of five properties owned by G, in relation to which a bank held securities. The fifth property, 278 Glasgow Road, had been valued at £762,000 and S disponed it to another company (C3) owned by him, recording consideration of £762,000 in the deed. On the same day, C3 disponed the property to another company (C2) for £2,467,500. G asked the bank to release all five properties from the bank’s securities and gave the sale price of 278 Glasgow Road as £762,000. They also gave sale prices for the other four properties, giving the impression that sales had been agreed in respect of all of them, with a total sale price of £2,414,000. They transmitted £2,414,000 to the bank, which discharged the securities. Having secured release of the bank’s securities, G disponed the remaining four properties, three of them to C1 and one to J. The dispositions recorded that consideration had been paid in accordance with the figures given to the bank. In reality, nothing was paid, except in relation to 278 Glasgow Road. The following year, J disponed the property which had been transferred to him to a third party for £125,000. The Lord Ordinary found that C3 was involved in the matter only to provide a short-lived intermediary between G and C2 and that the bank had been misled into treating the funds which it had received as the sale price of all of the properties. The Lord Ordinary set aside the three dispositions which had been made to G and ordered J to repay the £125,000 which he had received for the sale of the fourth property. The Extra Division of the Inner House upheld that decision.

HELD: The gratuitous nature of the four alienations had been clearly explained by the Lord Ordinary. Before the various conveyances, G had owned five properties. A bargain had been made for the sale of one of them for the sum of £2.4 million. After the sale was completed, that money was transferred to the bank in reduction of G’s borrowings and the companies retained the other four properties, valued at £1.525 million. Those properties were then conveyed to J and C1, with G receiving nothing in return. There was no reciprocity between those disposals and the earlier payment made to the bank. The purpose and effect of those transactions was to divert assets away from G’s creditors, which was exactly what s.242 was intended to prevent. It was plain and obvious that they were gratuitous alienations (see para.17 of judgment).

Appeal dismissed

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