Ramlort Ltd v Reid

For a transaction at an undervalue under section 339(3)(c) of the Insolvency Act 1986, incoming and outgoing value must be compared in money or money’s worth from the debtor’s point of view. Precise figures are preferable but not essential. It is sufficient that, even using the values most favourable to the person seeking to uphold the transaction, the incoming value is significantly less than the outgoing value.

An asset does not lack value merely because there is no demonstrated market or purchaser for it. When granting relief, the court starts from no presumption either for monetary compensation or for reversal. It must fashion the remedy that most appropriately restores, so far as practicable and just, the position that would have existed without the transaction, taking subsequent events into account.

An insolvent individual declared that the benefit of a life assurance policy was held on trust for Ramlort Ltd. In return, Ramlort made a £1,900 interest-free loan repayable on demand and paid £1,100 to a third party. The policyholder, who was seriously ill and awaiting a liver transplant, died shortly afterwards. The policy proceeds were then paid and held pending resolution of the dispute.

Judge Norris QC held that the declaration was a transaction at an undervalue under section 339 of the Insolvency Act 1986. He valued the policy at no less than £10,000, treated the incoming consideration as having no value and set aside the declaration subject to repayment of £3,000. His decision was reported as Re Thoars (Dec’d) [2003] EWHC 1999 (Ch); [2003] BPIR 1444.

The appeal concerned whether precise values were required, whether the policy and the incoming consideration had been valued correctly, and whether reversal or monetary compensation was the appropriate remedy.

1. Appeal dismissed, subject to variation for interest. Jonathan Parker LJ gave the judgment, with which Waller and Judge LJJ agreed. The judge was entitled to find that the declaration of trust was a transaction at an undervalue. His remedial order was varied to award Ramlort interest on the £3,000 repaid to it.

2. Section 339(3)(c) of the Insolvency Act 1986 requires comparison of the incoming and outgoing values in money or money’s worth, in each case from the debtor’s point of view. Outgoing value comprises the totality of what the debtor parts with. The statutory expression “significantly less” does not require the court invariably to assign a precise figure to each side of the comparison. The court may use the maximum incoming value and minimum outgoing value most favourable to the party defending the transaction. If a significant disparity remains, the section applies. Precise figures remain preferable where available, particularly because they may affect the available remedies.

3. The judge permissibly found that the policy was worth at least £10,000. The viatical-settlement expert’s evidence was of negligible assistance because the transaction fell outside his expertise, and his conclusion that the policy was worth only its £71 contractual surrender value was effectively neutralised by his answers. The absence of direct evidence of a special purchaser did not reduce the policy’s value to its surrender value. An asset may possess value in money or money’s worth although no actual market or purchaser is demonstrated.

4. The judge did err by valuing the incoming consideration at nil. The interest-free £1,900 loan had more than nominal value to the debtor despite being repayable on demand. The directed payment of £1,100 presumptively had its face value. Even taking an incoming value of approximately £3,000, however, it remained significantly less than the policy’s minimum value of £10,000. The undervalue finding therefore stood.

5. Because the judge had exercised the remedial discretion on the erroneous basis that the incoming value was nil, the Court of Appeal exercised it afresh. Sections 339(2) and 342(1) impose no initial presumption for compensation or reversal. The court must select the remedy that restores, so far as practicable and just, the position that would have existed without the transaction. It must consider subsequent events and the circumstances at the date of its order.

6. Reversal was practicable and just. Without the declaration, the insolvent estate would have held the realised policy proceeds and Ramlort would not have paid £3,000. The declaration was therefore set aside, with the policy proceeds retained for the estate after repayment to Ramlort of £3,000 plus interest from the date of payment.

1. Court of Appeal (Civil Division): In [2004] EWCA Civ 800, unanimously dismissed the appeal, save that the order was varied to award Ramlort interest on the £3,000 repaid to it.

2. High Court, Chancery Division: Judge Norris QC held that the declaration of trust was a transaction at an undervalue under section 339 of the Insolvency Act 1986. He set it aside subject to repayment of £1,900 and £1,100 to Ramlort: Re Thoars (Dec’d) [2003] EWHC 1999 (Ch); [2003] BPIR 1444.

3. High Court, Chancery Division: On a preliminary issue, Sir Andrew Morritt V-C declined to determine the policy’s value before trial and directed that it be assessed upon all the evidence. No citation is stated.