Stephen Paul Grant & Anor. v Akram Hussain & Anor.

A release of an equitable interest is not a transaction at an undervalue where it is made in return for the other party obtaining the use of money of equivalent value, even if that money is later used partly for household or family expenditure. The court must determine the consideration at the date of the transaction. Later events may provide evidence of the parties’ original intentions, but they must be assessed cautiously.

Under Insolvency Act 1986, the trustees bear the burden of proving that the transaction was at an undervalue. Evidence that funds were paid into a joint account, or were later used for family purposes, does not by itself establish an undervalue where the funds remained under the other party’s control and the agreed consideration was their use.

The joint trustees in bankruptcy applied for the sale of the respondents’ family home, asserting that the bankrupt had retained a 50% beneficial interest. The trustees accepted the validity of a Letter of Severance under which the bankrupt’s interest was reduced to 2% and the other respondent’s interest increased to 98%.

The central issue was whether the release of the 48% interest was a transaction at an undervalue under section 339 of the Insolvency Act 1986. The respondent maintained that the release was consideration for the bankrupt receiving approximately £152,000 from a re-mortgage for his own use. The trustees disputed the existence of that agreement and relied on the subsequent use of funds from a joint account.

1. Application and amendment. The court permitted amendment to identify the trustees and plead the section 339 issue, but it was unnecessary to determine whether permission should be granted to add section 339(3)(c).
2. Applicable issue. The trustees bore the burden of proving, on the balance of probabilities, that the release of the 48% beneficial interest was a transaction at an undervalue. If the release was made in return for the bankrupt having use of approximately £152,000, it was not an undervalue. The consideration had to be assessed by reference to the agreement at the date of the Letter of Severance.
3. Evidence. Subsequent use of the money could be relevant evidence of the parties’ original intentions, but it did not itself alter the consideration. Payment of household bills, mortgage instalments or family expenses was not inconsistent with the bankrupt having received the money for his own use, since he was responsible for those payments in any event. Payments for apparent personal liabilities were also consistent with that arrangement.
4. Findings. The Letter of Severance’s reference to asset protection was ambiguous but did not defeat the respondent’s case. The payment into a joint account was explained by the joint borrowing and did not establish that the money was jointly beneficially used. Despite serious concerns about the respondent’s evidence and the absence of evidence from the bankrupt or the solicitors, the evidence as a whole supported the existence of the agreement.
5. Disposition. The trustees failed to prove an undervalue transaction. Relief restoring a 50% interest and an order for sale were therefore not justified. The application was stayed to resolve the issue concerning payment of the remaining 2% interest.

First-instance decision. No appellate history is stated in the judgment.