Pagemanor Limited v Ryan & Ors

For Insolvency Act 1986 purposes, whether a transaction is at an undervalue is assessed immediately before the transaction by comparing the value of all consideration provided by each party. The court must take account of existing contractual rights and liabilities affecting the property, including a purchaser’s pre-existing right to acquire it and the assumption or release of mortgage liabilities. A later transfer varying an existing land-sale arrangement does not necessarily involve the vendors giving up the property’s beneficial interest or create an undervalue. The relevant comparison is with the transaction actually entered into and the encumbrances binding at that time.

The claimant appealed from Miss Sonia Proudman QC, sitting as a Deputy Judge in the Chancery Division, who refused relief under section 423 of the Insolvency Act 1986 in relation to the 1991 contract and a later transfer of the same house. The 1998 transfer was made between the same family members. The claimant held an unpaid judgment debt against Martin and Lesley Ryan, and it was accepted that the transfer was intended to obtain priority over the claimant. The issue on appeal was whether the 1998 transfer was a transaction at an undervalue under section 423(1)(c), having regard to the existing 1991 contractual rights and the mortgage liabilities.

1. Appeal dismissed. The purpose requirement in section 423(3) was accepted, so the decisive issue was whether the 1998 transfer was entered into at an undervalue under section 423(1)(c) of the Insolvency Act 1986.
2. The comparison required by section 423(1)(c) is made by reference to the consideration agreed under the transaction. The court must assess the position immediately before the transaction and take account of all encumbrances affecting the property.
3. The 1991 contract remained in force immediately before execution of the 1998 transfer. The 1998 instrument varied the existing arrangement, but there was no agreement in advance to abandon the 1991 contract. The purchasers’ existing contractual right to acquire the property therefore formed part of the relevant legal and commercial context.
4. The consideration under the 1998 transfer included the purchasers’ assumption of the mortgage liabilities and the mortgagee’s release of the transferors. Although the cash payable was less than the amount stated in the 1991 contract, the overall consideration was broadly equivalent once the mortgage debt was included. The vendors did not surrender a beneficial interest which they could freely sell to the world at large.
5. The general increase in house prices between 1991 and 1998 did not establish an undervalue. The property was subject to the purchasers’ pre-existing rights, and there was no finding of the 1998 value for which the claimant could complain because it had not clearly sought one.
6. Arden LJ accepted the general proposition in McCausland v Duncan Lawrie Limited that variation of a contract may result in a new contract, but held that it did not alter the section 423 valuation analysis. Dyson LJ agreed with both judgments. The appeal was dismissed, with costs assessed at £3,000 plus VAT and liberty to apply within 14 days.

• Court of Appeal (Civil Division) [2002] EWCA Civ 1518: appeal from the Chancery Division dismissed.
• Chancery Division: Miss Sonia Proudman QC, sitting as a Deputy Judge, refused to set aside the relevant transactions under section 423 of the Insolvency Act 1986.