INSOLVENCY

Transactions defrauding creditors - bank's charge over farming business - grant of tenancy and sale of assets to company set aside as transactions at undervalueNational Westminster Bank plc v Jones and others: CA (Lords Justice Judge and Mummery and Sir Martin Nourse): 24 October 2001The defendants farmed land in Wales.

Having granted a mortgage to the bank for money owing and executed floating agricultural charges on assets they got into difficulties and, to protect their business against the bank, formed a company to which they granted a tenancy of the land and sold business assets at value.The bank, relying on section 423 of the Insolvency Act 1986 and section 7 of the Agricultural Credits Act 1928, sought declarations that the securities granted to it by the defendants remained valid and the tenancy and sale agreements be set aside.

Mr Justice Neuberger (see [2000] Gazette, 13 July, 31) held in favour of the bank.

The defendants appealed.Stephen Jourdan (instructed by Burges Salmon, Bristol) for the defendants.

John Martin QC and Georgina Middleton (instructed by Addleshaw Booth & Co, Manchester) for the bank.Held, dismissing the appeal, that for the purposes of section 423 of the Insolvency Act 1986 the relevant transactions were the tenancy and sale agreements made by the defendants for the admitted purpose of putting assets beyond reach of the bank; that the relevant consideration from the company was the company's obligation to pay rent and instalments under the sale agreement; and that the judge was entitled to conclude that notwithstanding the defendants' overall position, the transactions were at undervalue and that for the purposes of section 7 of the Agricultural Credits Act 1928 the floating charges had crystallised and become fixed.Continued on page 36