Gratuitous alienation is one of the most familiar parts of our
law and yet relatively rarely seems to come to court. That may be
because the law is so well understood that there is little left to
debate and so, although disputes frequently arise, the outcome is
often so predictable that out of court settlements are common.
The case of The Liquidators ofGrampian MacLennan's Distribution Services
Limited v Carnbroe Estates
CSOH8 is however one that made it to the Outer House.
It did so on the question of the meaning of "adequate
consideration" in section 242 of the Insolvency Act 1986.
Put very briefly the disposal of an asset cannot be challenged
successfully as a gratuitous alienation if adequate consideration
has been paid. The difficulty of course comes in deciding what
constitutes "adequate consideration".
In Grampian, four or five months
before the commencement of liquidation, a company sold property for
£550,000. The liquidator challenged that transaction as a
gratuitous alienation alleging that the price was not adequate
consideration for the purposes of section 242.
Lord Woolman was called upon to determine whether the price of
£550,000 for the sale in July 2014 constituted adequate
consideration having regard to the following facts:-
the property had originally been
purchased in 2005 for £630,000;
previous valuations (in 2009 and
2013) suggested values of £1.2m – £1.3m (open
market valuation) or £800,000 (if only limited marketing were
a bank holding a standard security
and floating charge securing £550,000;
the bank giving very strong signals
that it intended to take enforcement action against the
Lord Woolman decided in the circumstances that the consideration
was "adequate". The fact that this was very much a
distress sale was clearly important in his decision. It is clear
that "adequate consideration" does not mean "market
value" but on the other hand it is not a subjective test
either. In evidence, two independent surveyors indicated that they
"wouldn't raise an eyebrow" at a price of
£550,000 in these circumstances. This gave comfort to Lord
Woolman in determining that the consideration could be considered
Of course this is not approval for the sale of assets at
any price simply because a company is facing difficulties.
The facts in this case supported a sale at £550,000. Indeed,
for reasons relating to the manner in which the price was paid,
Lord Woolman noted in passing that he would have held that a price
of c.£470,000 was inadequate consideration.
So, perhaps not ground breaking stuff but at least some guidance
as to what may or may not constitute a gratuitous alienation.
Perhaps the test is really whether a surveyor would raise a
quizzical eyebrow or not.
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