Insolvency

Transfer of assets to company of which debtors sole shareholders - debtors' assets not diminished but one creditor disadvantaged - transaction at undervalueNational Westminster Bank Plc v Jones and others: ChD (Neuberger J): 22 June 2000

The defendants mortgaged their farm with the claimant bank and entered into three floating agricultural charges over all their stock and agricultural assets.They got into severe financial difficulties and, in an attempt to protect their home and business from action by the bank formed a company of which they were the sole shareholders.They granted a tenancy of the farm to the company and sold it the farming assets.

The bank contended that both the tenancy and the sale of the assets were transactions at an undervalue for the purposes of s.423 of the Insolvency Act 1986.The bank sought a declaration to determine whether its interest in the farm was subject to the tenancy and the extent of its interest in the farming assets.Georgina Middleton (instructed by Addleshaw Booth & Co, Manchester) for the claimants; Stephen Jourdan (instructed by Burges Salmon, Bristol) for the defendants.Held, granting the claimants a declaration, that a transaction was at an undervalue for the purposes of s.423 if it caused prejudice to a single creditor falling within s-s.(3), notwithstanding that the transaction did not diminish the debtors' assets and the body of creditors as a whole were not disadvantaged; that if a transaction satisfied the conditions imposed by s.423 the agreement would ordinarily be set aside; but that the court had a wide discretion as to the appropriate course; and that, in the circumstances, the transactions were at an undervalue and should be set aside as against the claimants.