Lyle & Anor v Bedborough & Anor (Rev 1)

Oral discussions concerning a transfer of an interest in land do not alter beneficial ownership where the parties understood that formal legal documentation was required and did not intend an immediate transfer. A transaction executed later must be assessed by reference to its own date and terms.

For a transaction at an undervalue, value is assessed objectively. The court may reverse the transaction where that is practicable and just, rather than limiting relief to the undervalue measured at the transaction date. The statutory interests of creditors ordinarily outweigh the interests of transferees, absent exceptional circumstances.

Joint trustees in bankruptcy applied under sections 339 and 423 of the Insolvency Act 1986 in relation to a jointly owned family home. The respondents relied on an alleged oral 2008 agreement under which the bankrupt agreed to transfer his interest to his wife. In 2012, the parties executed a deed declaring that they held the property as tenants in common in shares of 5% and 95%.

The court had to determine the legal effect of the oral agreement and the deed, whether the deed was a transaction at an undervalue within the relevant statutory period, the appropriate relief, and whether possession and sale should be ordered.

1. The 2008 discussions did not create a common intention constructive trust. The parties understood that legal formalities were required, had not agreed that beneficial ownership would change immediately, and had not formed a sufficiently definite common intention to alter their interests. The agreement therefore had no effect on the beneficial ownership of the property.

2. The 2012 Declaration was a separate transaction, effective from 10 December 2012. It was not merely a variation of the 2008 discussions and was entered into at a relevant time under section 341 of the Insolvency Act 1986.

3. The bankrupt transferred a 45% interest in the property. The consideration received was principally the wife’s payment of £20,000. The release of any claim relating to the £50,000 renovation expenditure had no, or at most limited, value. The transfer was therefore at a significant undervalue.

4. Value under section 339 is objective. The debtor’s subjective belief that the transaction might preserve the marriage does not constitute money or money’s worth. The court declined to determine an academic issue concerning whether forbearance from divorce or ancillary relief could constitute consideration.

5. The statutory discretion not to grant relief was not exercised. The possibility that different decisions might have avoided the statutory period, the parties’ reliance on the arrangements, family circumstances, and the potential effect on the business did not amount to sufficient justification for preferring the transferee’s interests over those of creditors.

6. The appropriate relief was to set aside the 2012 Declaration altogether. The property was to be held for the trustees and Mrs Bedborough as tenants in common in equal shares, with repayment of the £20,000 consideration, plus appropriate interest, from realisation proceeds after bankruptcy expenses. Mrs Bedborough retained the right to pursue an equitable account, but was not entitled to one in respect of the £50,000 renovations.

7. An order for possession and sale was appropriate. The medical condition of Mrs Bedborough, the presence and schooling of children, the family’s accommodation difficulties, and business-related inconvenience were not exceptional circumstances under section 335A. Further submissions were required on the precise timetable and costs.

First instance decision. The judgment records no prior appellate decision in the same proceedings.