Hargreaves v Salt & Ors

For an undervalue transaction, value is assessed objectively by reference to the price which a purchaser might reasonably be expected to pay in the market at the date of disposition. The seller’s subjective willingness or urgent desire to accept a lower price does not itself determine value. Market conditions and a genuinely truncated marketing period may be relevant to the objective valuation. The court must examine alleged urgency carefully, particularly where the statutory purpose is to prevent assets being sold too quickly and creditors being prejudiced. An appellate court will not disturb factual findings based on witness assessment unless there is no evidence capable of supporting them, in effect rendering the findings perverse.

The appellant, acting in the litigation as Mr Salt’s trustee in bankruptcy, challenged orders made by HHJ Cooke in related insolvency and matrimonial proceedings concerning the indirect ownership of a Spanish property, the White House.

The judge found that the transfer of the shares through which Mr Hill acquired the property was at an undervalue. He also found, for the purposes of Matrimonial Causes Act 1973, section 37, that the disposition was intended to defeat Mrs Salt’s claim for financial relief and that Mr Hill had notice of that intention and had not acted in good faith. The central appellate issue was whether the property’s value should reflect Mr Salt’s subjective financial pressure and alleged need for a rapid sale.

1. Disposition. Lord Justice Lloyd, with whom Lord Justice Elias and Sir Nicholas Wall agreed, refused permission to appeal in both the insolvency and matrimonial proceedings, and consequentially refused permission in the related appeal against the later case-management order. The formal order was: applications refused.
2. Undervalue. Under section 339 of the Insolvency Act 1986, the relevant comparison was the property’s value at the date of disposition with the value of the consideration given. Because the transaction occurred within two years before the bankruptcy petition, no further issue required proof under section 341 once undervalue was established.
3. Value was to be assessed objectively, by asking what a purchaser might reasonably have been expected to pay in the market at the relevant time. The seller’s subjective willingness to accept a low price was not the governing measure. Conditions affecting the market, including a properly established need for a short marketing period, could inform the objective assessment.
4. The statutory context required close scrutiny of alleged urgency. The purpose of section 339 was directed to the mischief of assets being sold quickly and without sufficient care to achieve the best price, thereby prejudicing creditors. On the evidence, Mr Salt could have sought time from the bank to market the property properly, and the judge was entitled to reject the proposed extreme discount.
5. The same objective approach defeated the challenge to the finding under section 37 of the Matrimonial Causes Act 1973. The appellate challenge to the judge’s factual findings was also exceptionally difficult because he had seen and assessed the witnesses. Those findings could be set aside only if there was no evidence on which they could reasonably be based, making them effectively perverse.

• Court of Appeal (Civil Division) [2011] EWCA Civ 248: permission to appeal refused in the insolvency and matrimonial proceedings, and consequentially in the related appeal.
• Principal Registry of the Family Division, High Court: HHJ Cooke found that the transaction was at an undervalue and made related findings under section 37 of the Matrimonial Causes Act 1973. Orders were made on 3 December 2010, followed by a further order on 13 January 2011.