The impact of section 423 of the Insolvency Act 1986 upon sale and lease back transactions considered - Delaney v Chen & Anor [2010] EWHC 6 (Ch)

In Delaney v Chen & Anor [2010] EWHC 6 (Ch) His Honour Judge Purle QC has considered the impact of section 423 of the Insolvency Act 1986 upon sale and lease back transactions. As the learned judge notes, "The issue is whether and to what extent such a transaction may be vulnerable to attack as a transaction at an undervalue." He goes on:

"Section 423 of the 1986 Act relates to transactions (defined in section 436 as including a gift, agreement or arrangement) entered into at an undervalue. If such a transaction is entered into by a person for the purpose of putting assets beyond the reach of a person (the victim) making a claim against that person or otherwise to prejudice the interests of the victim in relation to his claim, the Court may make such order as it thinks fit for restoring the position to what it would have been if the transaction had not been entered into. A person enters into a transaction at an undervalue if the value of the consideration, in money or money's worth, provided by the other party to the transaction, is significantly less than the value, in money or money's worth, of the consideration provided by himself. This is not a complete or verbatim statement of the section, but a summary of the parts relevant to the present appeal...There are many instances where a transaction may be entered into which depletes the transferor's assets, but that is not enough to stigmatise the transaction as being at an undervalue. Thus, a debtor facing bankruptcy may decide to dissipate substantial amounts on food, drink and other aspects of high living. He gets nothing saleable in return, but receives full value. Whatever else may be said about such a transaction, it is not at an undervalue. The debtor pays full value for the consumables or services in question. Once consumed or enjoyed, there is nothing left and what he pays is irretrievably lost to his creditors. The complaint would, however, as in MC Bacon, be that the transaction was entered into at all, not that it was entered into at an undervalue."

Picture Credit: http://www.victorianweb.org/art/architecture/athenaeum/10.jpg