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Secretary of State for Environment, Food and Rural Affairs v Feakins and another

Section 423 of Insolvency Act 1986 — Charging order in favour of claimant — Mortgagee selling farm to first defendant’s fiancée subject to tenancy — Tenancy held by first defendant’s company — Tenancy being surrendered — Farm being valued as with vacant possession — Whether first defendant entering into transaction at undervalue for purpose of placing assets beyond reach of claimant — Claim allowed

The first appellant owned a farm, the business of which he conducted by way of a limited company that held an agricultural tenancy of the farmland and buildings. The farm was subject to a charge in favour of a mortgagee together with a further charge, in favour of the Intervention Board for Agricultural Produce (IBAP). The respondent was the successor to the IBAP and secured a judgment against the first appellant.

The first appellant subsequently arranged for the mortgagee to sell the farm to his fiancée, the second appellant. The sale was at a price of £450,000, subject to the tenancy. The sale revenue was used to redeem the mortgage, but the IBAP charge was overreached. The company subsequently surrendered its tenancy to the second appellant. With vacant possession, the farm was valued at £1m.

The respondent brought proceedings seeking relief, under section 423 of the Insolvency Act 1986, on the ground that a transaction at an undervalue had been entered into by the first appellant for the purpose of placing assets beyond the respondent’s reach. Allowing the claim, the judge found that the transaction consisted of an arrangement by which the first appellant agreed to introduce the second appellant to the mortgagee as a potential purchaser, but with her commitment in advance to procure a surrender of the tenancy. He ordered that the second appellant’s interest should be subject to the IBAP charge, but declined to order the reinstatement of the tenancy.

On appeal, the appellants contended, inter alia, that: (i) the arrangement found by the judge was not a relevant transaction for the purposes of section 423; (ii) in any event, the requirements of section 423(1)(c) as to the consideration provided by the respective parties had not been satisfied; (iii) the respondent was not a victim of the transaction for the purposes of section 424(1)(c), having suffered no loss; and (iv) the judge’s decision not to reinstate the tenancy placed the respondent in a better position than it had held prior to the sale.

Held: The appeal was dismissed.

1. The judge had correctly found that the arrangement between the appellants amounted to a “transaction” for the purposes of section 423. The word “transaction” included an arrangement, that, on its natural meaning, encompassed an agreement or understanding between parties, whether formal or informal, oral or in writing. Such a wide definition of “transaction” was consistent with the statutory purpose of remedying the avoidance of debts. The result of the arrangement in the instant case was that the second appellant had become the owner of an asset worth £1m at a cost to her of £450,000, which was beneficial to the appellants but not to the respondent, whose security for the unpaid judgment debt had evaporated. The first appellant had provided consideration, in the sense that the transaction was designed to confer upon the second appellant a benefit that only he could provide, namely the transfer to the second appellant of an asset worth £1m, by procuring the sale of the farm to her in circumstances in which she took free of encumbrances. The first appellant had received, in return, consideration in the form of the discharge of his indebtedness to the mortgagee, the value of which was significantly less in money or money’s worth than the benefit received by the second appellant under the transaction, within the meaning of section 423(1)(c). The respondent was a victim of the transaction so identified, it being irrelevant that the sale by the mortgagee, looked at in isolation, had itself caused no loss to the respondent.

2. The judge had erred in refusing to reinstate the tenancy. That decision had resulted in the respondent’s position as a secured creditor being better than it had previously been. The judge’s order would be varied accordingly.

Nicholas Dowding QC and Stephen Jourdan (instructed by Burges Salmon, of Bristol) appeared for the appellants on the appeal and Stephen Jourdan (instructed by Burges Salmon, of Bristol) appeared on the counter-appeal; Nicholas Caddick and Sarah Lee (instructed by the Rural Payments Agency) appeared for the respondent on the appeal and Neil Garnham QC, Sarah Lee, Paul Harris and Sarah Stevens (instructed by the legal department of DEFRA) appeared on the counter-appeal.

Sally Dobson, barrister

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