Brown and Another v Stonegale Ltd and Another

JurisdictionScotland
JudgeLord Reed,Lord Neuberger,Lord Sumption,Lord Carnwath,Lord Hodge
Judgment Date22 June 2016
Neutral Citation[2016] UKSC 30
CourtSupreme Court (Scotland)
Docket NumberNo 5
Date22 June 2016

[2016] UKSC 30

THE SUPREME COURT

Trinity Term

On appeal from: [2015] CSIH 12

before

Lord Neuberger, President

Lord Sumption

Lord Reed

Lord Carnwath

Lord Hodge

Brown and another, the Joint Administrators of Loanwell Limited
(Respondents)
and
Stonegale Limited
(Appellant) (Scotland)
Brown and another, the Joint Administrators of Oceancrown Limited
(Respondents)
and
Stonegale Limited
(Appellant) (Scotland)
Brown and another, the Joint Administrators of Questway Limited
(Respondents)
and
Pelosi
(Appellant) (Scotland)

Appellant

Alan Summers QC David Massaro

(Instructed by Halliday Campbell WS)

Respondents

Kenneth McBrearty QC Susan Ower

(Instructed by Pinsent Masons LLP)

Heard on 15 February 2016

Lord Reed

(with whom Lord Neuberger, Lord Sumption, Lord Carnwath and Lord Hodge agree)

1

These three conjoined appeals concern section 242 of the Insolvency Act 1986, as amended. Where section 242(1) applies, and a company enters administration, an alienation by the company is challengeable by the administrator. In terms of section 242(2), section 242(1) applies where by the alienation, any part of the company's property is transferred or any claim or right of the company is discharged or renounced, and the alienation takes place on a relevant day as defined by section 242(3) (that is to say, within a specified time before the date when the company enters into administration). In terms of section 242(4), on a challenge being brought under subsection (1), the court shall grant decree of reduction or for such restoration of property to the company's assets or other redress as may be appropriate, but the court shall not grant such a decree if the person seeking to uphold the alienation establishes that it was made for adequate consideration.

2

These proceedings were brought under section 242(1) by the joint administrators of Oceancrown Ltd, Loanwell Ltd and Questway Ltd, in respect of alienations made by each of those companies of four properties in Glasgow during November 2010, nine months before the companies went into administration. The alienations took place on relevant days as defined. The administrators are the respondents to the present appeals.

The facts
3

The facts, as found by the Lord Ordinary, are as follows. Oceancrown and the other companies in administration were part of a group of companies controlled by Ralph Norman Pelosi ("Mr Pelosi senior"). He was the beneficial owner of their shares, the sole director of Oceancrown and Loanwell, and a shadow director of Questway. He was also the 99% owner (subsequently 100%) of another company, Strathcroft Ltd. The nominal director of that company was John Anderson. Norman Ralph Pelosi ("Mr Pelosi junior") was the sole shareholder and director of a further company, Stonegale Ltd. He is the appellant in one of the appeals, and Stonegale is the appellant in the others.

4

A secured facility in the region of £17.3m had been made available to Oceancrown by Anglo-Irish Bank. The other companies in the group had cross-guaranteed the debt. Oceancrown owned a commercial property at 278 Glasgow Road, Rutherglen. It also owned properties at 110 and 260 Glasgow Road. Loanwell owned a property at 210 Glasgow Road. Questway owned a property at 64 Roslea Drive, Glasgow. The bank held standard securities over each of these five properties.

5

Mr Pelosi senior had concluded an agreement with Clyde Gateway Development Ltd for the sale of 278 Glasgow Road for £2,467,500 inclusive of VAT: a sum far in excess of an earlier valuation of the property at the sum of £762,000. Subsequent events were, in the Lord Ordinary's words, "machinations designed to protect the 'profit' on the sale of number 278" (para 44), by keeping it out of the hands of the bank.

6

On 19 August 2010 Robert Frame, a solicitor of Miller Becket and Jackson ("MBJ"), a Glasgow firm of solicitors, wrote to the bank's solicitor, Mr Gillespie of McClure Naismith, in relation to the release of the properties from the bank's securities, giving "details of the properties and the relevant sale price". According to the details stated, the sale price of 278 Glasgow Road was £762,000; the sale price of 110 Glasgow Road was £200,000; the sale price of 210 Glasgow Road was £934,000; and the sale price of 260 Glasgow Road was £450,000. Mr Gillespie was subsequently informed that 64 Roslea Drive was also to be sold, at a price of £68,000. The total sale price of the five properties, as stated, was £2,414,000. Mr Gillespie passed this information on to the bank, and prepared discharges of the standard securities. These were duly executed by the bank, and Mr Gillespie was authorised to deliver them to MBJ in exchange for the free proceeds of sale. In reality, as explained earlier, the actual sale price of 278 Glasgow Road was £2,467,500, and no sales had been agreed in respect of the other properties.

7

On 10 November 2010 Oceancrown disponed 278 Glasgow Road to Strathcroft. The consideration was recorded in the deed as being £762,000. On the same day, Strathcroft disponed the same property to Clyde Gateway for £2,467,500. Mr Frame witnessed the execution of both dispositions. The Lord Ordinary found that "Strathcroft was involved in the whole matter only in order to provide a shortlived intermediary between Oceancrown and Clyde Gateway. … It was a cog in Mr Pelosi's machine" (para 47).

8

On 16 November 2010 Mr Frame received a letter signed by Mr Anderson on behalf of Strathcroft, authorising MBJ to send the bank the sum of £2,414,000 "in respect of purchases of [the five properties]". Mr Frame transmitted the money as instructed. Once the bank received the funds, the executed discharges were delivered. The Lord Ordinary found that "the money was paid to MBJ then to the bank on the instructions of Mr Pelosi senior. Strathcroft had no real involvement in that" (para 47). He also found that "the bank was misled in relation to the funds it received" (para...

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