Pasram v Segal

A transfer of a beneficial interest in property is at an undervalue under Insolvency Act 1986, section 339, where the consideration is significantly less than the value received. The surrender of matrimonial ancillary-relief claims is not consideration in money or money’s worth where those claims are not legally extinguished. A section 339 claim is ordinarily subject to a 12-year limitation period when its essential nature is reversal of a property transfer. The court has discretion to restore the position that would have existed absent the transaction. In exercising that discretion, it may permit practical arrangements that preserve a spouse’s occupation while realising the trustee’s share.

The trustee in bankruptcy sought declarations concerning a property jointly purchased by Nowrag Pasram and Hemwanti Pasram. The trustee alleged that a 1999 transfer, by which Mr Pasram transferred his interest to Mrs Pasram for £1,000 and the settlement of matrimonial claims, was a transaction at an undervalue under section 339 of the Insolvency Act 1986. The application was issued in 2006, after Mr Pasram’s bankruptcy order in 2000.

The principal issues were the parties’ beneficial ownership before the transfer, whether the transfer was for consideration in money or money’s worth, whether the claim was time-barred or abusive by reason of delay, and what relief should follow.

1. The court held that Mr and Mrs Pasram had held the property in equal beneficial shares. The joint registration reflected the parties’ probable common understanding, and the evidence did not justify reducing Mr Pasram’s share to one third.

2. The transfer was a transaction at an undervalue within section 339 of the Insolvency Act 1986. The £1,000 payment was significantly less than the value of Mr Pasram’s beneficial interest. The surrender of ancillary-relief claims did not constitute consideration in money or money’s worth because the claims were not legally given up. The court followed Hill and Haines [2007] EWHC 1012 (Ch) and relied on Hyman v Hyman [1929] AC 601 (HL), Xydhias v Xydhias [1999] 1 FLR 683 (CA) and Re Kumar (a Bankrupt) [1993] BCLC 548.

3. Under section 339, the court had discretion to restore the position that would have existed had the transaction not been entered into. The transfer was therefore set aside in substance, leaving the trustee with one half of the beneficial interest for creditors and Mrs Pasram with the other half. The court applied Re Paramount Airways (In Administration) [1993] Ch 223.

4. The section 339 claim was brought within the applicable 12-year limitation period. Its essential nature was reversal of a transfer of a beneficial share in property, rather than recovery of a sum of money. Although the delay was unsatisfactory, no specific prejudice was shown and striking out for unreasonable delay was refused.

5. The judge indicated that directions might be tailored to allow the trustee to realise his share by taking one maisonette, if practicable, leaving Mrs Pasram with the other. The judge also stated that an 80 per cent conditional-fee uplift in a trustee’s costs required close scrutiny, particularly where the likely recovery was substantial and the costs appeared disproportionate to the debts. These observations were ancillary to the determination.