Share it

On appeal from: [2013] CSIH 13

Whether the sale by Letham Grange Development Company Limited (“LGDC”) of a hotel and adjoining golf courses prior to its liquidation was a gratuitous alienation i.e. a property transaction conducted for significantly less than market value. The hotel and golf courses were sold to the second appellant in February 2001 for a recorded amount of £248,100. At the time LGDC went into liquidation in December 2002, their value was estimated at around £1.8m. The second appellant also granted a charge over the hotel and adjoining golf courses in favour of the first appellant in January 2003.

The liquidator of LGDC brought two sets of proceedings, one against the second appellant and one against the first appellant. In the latter, the liquidator sought a reduction of the first appellant’s charge, arguing that it was part of a gratuitous alienation. The first appellant and second appellant argued that, in addition to the recorded sale price, the second appellant had also assumed debts of £1.85m owed by LGDC to the liquidator, which meant the sale was not a gratuitous alienation. The Lord Ordinary, Lord Glennie, rejected the liquidator’s argument that the sale was a gratuitous alienation. This decision was reversed on appeal by an Extra Division of the Inner House of the Court of Session, which held that Lord Glennie had erred in law. The first and second appellants appealed.

In unanimously allowing the appeal, the Court held that Lord Glennie had not erred in law, as he clearly understood the critical issue under the Insolvency Act 1986 to be whether “the alienation was made for adequate consideration”. Lord Glennie had been aware that the obligation undertaken by the second appellant would only constitute part of the consideration for the sale if it was undertaken as the counterpart of the obligations undertaken by LGDC. Lord Glennie had looked at whether the second appellant undertook an obligation to assume LGDC’s debts, not when this happened.

For judgment, please download: [2014] UKSC 41

For Court’s press summary, please download: Court’s Press Summary

For a non-PDF version of the judgment, please visit: BAILII