Insolvent firm's transport property asset was sold at almost a third of its value

In a complex ruling in the Scottish Inner House Court Lord Hodge has overturned a judgement that the sale of the Grampian Transport depot for almost a third of its value during insolvency had been above board.

Writing for the Insolvency Service Iain Penman of Brodies detailed the case of MacDonald v Carnbroe Estates Limited in which the banks and the taxman challenged the below value of the sale of Grampian's property to Mr Kevan Quinn.

Iain Penman gave the background to the case: “In March 2013, surveyors had valued the property at £1.2million on the open market with that valuation falling to £800,000 in a restricted marketing period of 180 days. Approximately a year later Grampian found itself in financial difficulty and was sold to a Mr Kevan Quinn. By this point Grampian owed over £500,000 to HMRC and a similar amount to National Westminster Bank Plc.

“Mr Quinn entered into what the Court later described as ‘a process analogous’ to an unofficial winding up, by seeking to realise as many of the company’s assets as possible. Carnbroe Estates Ltd (“Carnbroe”) acquired the property for £550,000 as part of that process.

“Interestingly, whilst Grampian transferred the property to Carnbroe by way of Disposition, dated 24 July 2014, in which the consideration was stated at £555,000 with entry being given to the property on that date, Carnbroe did not pay the agreed consideration but instead paid the sum of £473,604.68 to NatWest on 14 August 2014 to obtain a Discharge of the Standard Security over the property. Carnbroe did not pay the balance of the purchase price to Grampian until 9 June 2016 after the completion of the original Proof before the Lord Ordinary.

“Following the appointment of liquidators, they challenged the transfer to Carnbroe on the basis it was not for adequate consideration. The Lord Ordinary took the view that in the light of the facts the consideration was adequate, however this was appealed.”

The appeal means creditors can challenge such a sale returning the asset to the liquidators who can then sell the asset at market price ensuring creditors may at least get some payment.

Ian Carrotte of ICSM Credit it was good news north of the border as it potentially ended these types of sales and ensured there was greater accountability during a period of insolvency.

Alan Munro of TLT legal firm wrote: "The Insolvency community in Scotland has watched with interest the case of Grampian MacLennan's Distribution Services Ltd v Carnbroe Estates Ltd and in particular Lord Woolman's eyebrow raising opinion at first instance that a distressed sale by a company of its major asset (an industrial unit comprising a warehouse, vehicle workshop and yard with gatehouse) had not constituted a gratuitous alienation where the sale has been off market at a price of £550,000 whereas the property had been valued at £1,200,000 on the open market or at £800,000 on a restricted 180 day marketing period. The Inner House has reversed that decision, restating the legal principles of insolvency underpinning section 242 of the Insolvency Act 1986.

"The case provides a very welcome clarification as to the proper meaning of "adequate consideration" in the context of a defence to a gratuitous alienation claim."

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For details for the work of the journalist Harry Mottram visit www.harrymottram.co.uk