Claridge, Re The Trustee In Bankruptcy of

A transaction may be at an undervalue even where the recipient gives some consideration. The court must identify consideration given at the time of the transaction and assess its value in money or money’s worth from the debtor’s perspective. An informal benefit, such as continued occupation of a home, is not consideration unless it formed part of an agreed exchange. Under section 339(2) of the Insolvency Act 1986, the court retains a discretion to make no restorative order where that is just. Good-faith change of position, uncertainty as to the value transferred, disproportionate further costs and the interests of creditors and the recipient may justify withholding relief.

The trustee in bankruptcy appealed from the Reading County Court’s refusal of claims concerning a remortgage transaction involving Gordon and Gay Claridge. The trustee alleged that Mr Claridge had transferred value to Mrs Claridge at an undervalue under section 339 of the Insolvency Act 1986. The primary claim, that Mr Claridge retained a beneficial half-share in the property, had been dismissed and was not appealed. The appeal concerned whether the transfer of his rights in the joint mortgage advance was for no consideration or for significantly less than the value provided, whether the statutory maintenance duty supplied consideration, and what relief should follow.

1. The court held that Mr Claridge had a half-share in valuable contractual rights against the lender and the solicitors handling the mortgage advance. By jointly directing payment of the proceeds to Mrs Claridge or towards her sole debt, he conferred a benefit on her. The use of her bank account and her direct-debit instruction were matters of mechanics and did not alter the joint contractual rights.

2. The claim under section 339(3)(a) failed. Consideration must be given at the time of the transaction. Continued occupation of the property and Mrs Claridge’s later inability to work were not agreed consideration. However, the parties had objectively agreed to apply jointly for the loan and use the proceeds to repair and renovate their home. That agreement constituted consideration for the benefit conferred.

3. The claim under section 339(3)(c) succeeded. The value of consideration is assessed at the transaction date and from the debtor’s perspective, applying Phillips v Brewin Dolphin Bell Lawrie Ltd [2001] 1 WLR 143 and Re Thoars (decd) (No. 2); Reid v Ramlort (No. 2) [2004] EWCA Civ 800. Mr Claridge had no contractual right to remain in the property. The value of Mrs Claridge’s consideration was therefore negligible in money or money’s worth.

4. Nevertheless, no order for payment was made under section 339(2). The court had to consider the wider remortgage arrangement, the good-faith expenditure of the money on improvements, the absence of evidence of the resulting increase in property value, disproportionate costs of remission, and Mrs Claridge’s continuing liability for the mortgage. The restorative discretion should produce the outcome closest to restoration while taking account of all legitimate interests. The relevant transaction was declared to be at an undervalue, but no payment or other relief was ordered.

• Reading County Court: District Judge Henry refused the trustee’s section 339 application on 8 March 2010.
• High Court (Chancery Division): The court declared that the transaction was at an undervalue, but made no order under section 339(2) of the Insolvency Act 1986.