Gratuitous alienation case of MacDonald and another granted permission to appeal to Supreme Court

Credit: UK Supreme Court

The pursuers are the joint liquidators of a company (Grampian) which was in business as a provider of distribution services in Scotland and the wider UK. In 2014 it encountered very serious financial difficulties and a was unable to meet its payments to its creditors, National Westminster Bank Plc (NatWest) and HMRC.

In 2005 NatWest had financed Grampian’s purchase of its business premises and had retained various security interests over Grampian’s assets. In 2014 NatWest was threatening to enforce its securities if Grampian did not meet its monthly repayment obligations to NatWest.

In August 2014 Grampian sold the property to the defender for the sum of £550,000, most of which Grampian immediately paid to discharge in full its debt to NatWest. Grampian did not have enough remaining assets to discharge fully its debt to HMRC.

Valuations of the Property in 2013 and 2014 had estimated a sale price of £1,200,000 if the property were sold on the open market or, if a restricted marketing period of 180 days were assumed, a sale price of £800,000.

The pursuers were appointed joint liquidators of Grampian. They commenced proceedings seeking reduction of the disposition of the property to the defender, on the basis that the sale was at a significant undervalue and therefore was a “gratuitous alienations” under section 242 of the Insolvency Act 1986.

The judge in the commercial court head expert evidence from two surveyors. Their evidence was that the price of £550,000 was significantly below market value, but neither accepted the price of £550,000 was unreasonable in the circumstances.

The pursuers reclaimed to the Inner House of the Court of Session, which reversed the decision of the commercial judge.

The issue is: Whether the sale of premises was a “gratuitous alienation” under section 242 of the Insolvency Act 1986.