Gratuitous alienations before the Supreme Court—Stonegale Ltd v Brown

Gratuitous alienations before the Supreme Court—Stonegale Ltd v Brown

The Supreme Court's finding in Stonegale Ltd v Brown that transfers of properties by Scottish companies which later went into administration were gratuitous alienations is explained by advocate Susan Ower, of Axiom Advocates.

Original news

Stonegale Ltd v Brown and another, the joint administrators of Loanwell Ltd [2016] UKSC 30, [2016] All ER (D) 133 (Jun)

The Supreme Court held that the purpose and effect of transfers of property by Scottish companies which subsequently entered administration had been to divert assets away from the companies’ creditors, contrary to section 242 of the Insolvency Act 1986 (IA 1986). That they were gratuitous alienations was plain and obvious.

What was the background to the case?

Oceancrown, Loanwell and Questway were three companies controlled by Ralph Pelosi, who was the father of the second appellant. The companies owned five properties, over which the Anglo-Irish Bank held standard securities. The bank was informed that all five properties were to be sold for a total of £2,414,000. However, nine months before the companies entered administration, one of the properties was sold for £2,467,500. The sale was not direct. First, the property was transferred for a sum recorded as £762,000 to another company, Strathcroft, which was also owned by Ralph Pelosi, before being sold on the same day to the ultimate purchaser in a back-to-back transfer. The bank was sent the £2,414,000 from the proceeds of the sale, and believing it to be from the sale of the five properties, discharged the securities over all of those properties.

Three of the remaining four properties were transferred to the first appellant, Stonegale, whose sole shareholder was the second appellant, Ralph’s son Norman, while the fourth property was transferred to Norman himself and was later sold by him for £125,000.

After the three companies entered administration, the respondent joint administrators sought to have the transfers of the three properties to

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About the author:

Stephen qualified as a solicitor in 2005 and joined the Restructuring and Insolvency team at Lexis®PSL in September 2014 from Shoosmiths LLP, where he was a senior associate in the restructuring and insolvency team.

Primarily focused on contentious and advisory corporate and personal insolvency work, Stephen’s experience includes acting for office-holders on a wide range of issues, including appointments, investigations and the recovery and realisation of assets (including antecedent transaction claims), and for creditors in respect of the impact on them of the insolvency of debtors and counterparties.