Alan Alexander Brown And John Bruce Cartwright The Joint Administrators Of Questway Against Norman Ralph Pelosi Alan Alexander Brown And John Bruce Cartwright The Joint Administrators Of Oceancrown Limited And Stonegale Limited Alan Alexander Brown And John Bruce Cartwright The Joint Administrators Of Loanwell Limited And Stonegale Limited
| Jurisdiction | Scotland |
| Judge | Lord McGhie,Lord Menzies,Lord Brodie |
| Neutral Citation | [2015] CSIH 12 |
| Court | Court of Session |
| Docket Number | CA25/13, |
| Published date | 13 February 2015 |
| Date | 13 February 2015 |
| Year | 2015 |
EXTRA DIVISION, INNER HOUSE, COURT OF SESSION
[2015] CSIH 12
CA25/13, CA26/13, CA27/13
Lord Menzies
Lord Brodie
Lord McGhie
OPINION OF THE COURT
delivered by LORD BRODIE
in the Reclaiming Motion
in the cause
(CA25/13) ALAN ALEXANDER BROWN and JOHN BRUCE CARTWRIGHT, the Joint administrators of Questway Limited
Pursuers and Respondents;
against
NORMAN RALPH PELOSI
Defender and Reclaimer:
(CA26/13) ALAN ALEXANDER BROWN and JOHN BRUCE CARTWRIGHT, the Joint administrators of Oceancrown Limited
Pursuers and Respondents;
against
STONEGALE LIMITED
Defenders and Reclaimers:
(CA27/13) ALAN ALEXANDER BROWN and JOHN BRUCE CARTWRIGHT, the Joint administrators of Loanwell Limited
Pursuers and Respondents;
against
STONEGALE LIMITED
Defenders and Reclaimers:
Act: Keen, QC, Ower; Pinsent Masons LLP
Alt: Fairley, QC, M Stuart; MacRoberts LLP
13 February 2015
Introduction
[1] In terms of section 242(1) of the Insolvency Act 1986, as amended, where a company enters administration an alienation of the company’s property made on a relevant day is challengeable by the administrator. In terms of section 242(4)(b) on the challenge being brought under subsection (1) the court shall grant decree of reduction or an order for such restoration of property to the company as may be appropriate, but the court shall not grant such a decree if the person seeking to uphold the alienation establishes that the alienation was made for adequate consideration.
[2] The pursuers in this action, and respondents in this reclaiming motion, are the joint administrators of three of a group of companies, one of which is Oceancrown Limited (“Oceancrown”). The others are Loanwell Limited (“Loanwell”) and Questway Limited (“Questway”). In three separate commercial actions the pursuers seek the remedy provided by section 242(1) of the 1986 Act in respect of alienations made, respectively, by Oceancrown, Loanwell and Questway, of various heritable properties in Glasgow in November 2010.
[3] The three actions have been treated as related and they all came before the Lord Ordinary sitting as a commercial judge for one proof in combined proceedings. After hearing evidence, the Lord Ordinary concluded that no consideration whatsoever had been made in respect of the alienations under challenge and, accordingly, granted decree of reduction in respect of two dispositions by Oceancrown and one disposition by Loanwell. He ordered payment of the sum of £125,000 in favour of Questway.
[4] The defender in the actions at the instance of the pursuers as administrators for, respectively, Oceancrown and Loanwell is Stonegale Limited (“Stonegale”). The defender in the action at the instance of the pursuers as administrators of Questway is Mr Norman Ralph Pelosi Junior (“Mr Pelosi Junior”). The defenders have now reclaimed. There are therefore three separate reclaiming motions. Parties were agreed that the issues in the three reclaiming motions were exactly the same and could be discussed and dealt with together, as had been the case before the Lord Ordinary. Mr Fairley, QC and Mr Stuart appeared for the defenders and reclaimers. Mr Keen, QC and Ms Ower appeared for the pursuers and respondents.
Grounds of appeal
[5] Put short, no issue was taken with the primary facts found by the Lord Ordinary. The contention of the reclaimers was that in the circumstances disclosed by these facts, evidence that had not been challenged and what had been agreed by joint minute of admissions, the Lord Ordinary had erred in finding that no consideration had been paid in respect of the alienations under challenge.
The facts
[6] Oceancrown and the other companies in administration were part of a group controlled by Ralph Norman Pelosi Senior (“Mr Pelosi Senior”). He enjoyed beneficial ownership of the relevant companies. As at the date of the administration of the companies in August 2011 he was the sole director of Oceancrown and Loanwell. He also acted as a shadow director of Questway. His son, Mr Pelosi Junior is the sole shareholder and director of Stonegale. A secured facility in the region of £17.3 million had been made available to Oceancrown by Anglo Irish Bank (“AIB”). That debt was subsequently assigned by AIB to Hadrian Sarl. The other companies in the group, including Loanwell and Questway had cross-guaranteed the debt.
[7] The group was involved in the development and letting of commercial and residential properties. Mr Pelosi Senior had effective control of all the companies, which were operated as one enterprise. The various companies operated on the basis of one bank account with the Bank of Scotland in the name of Questway.
[8] The challenges made by the pursuers related to certain property transfers involving Oceancrown, Loanwell, Questway, Stonegale, Mr Pelosi Junior and Strathcroft Limited (“Strathcroft”). At the time Strathcroft was 99% owned by Mr Pelosi Senior (it later became wholly owned by him). The sole nominal director of Strathcroft was Mr John Anderson. Stonegale was wholly owned by Mr Pelosi Junior.
[9] Oceancrown owned a commercial property at 278 Glasgow Road, Rutherglen. Prior to 10 November 2010 Mr Pelosi Senior had concluded an agreement with Clyde Gateway Development Limited (“Clyde Gateway”) for the sale and purchase of that property. On 10 November 2010 Oceancrown disponed 278 Glasgow Road to Strathcroft for a consideration recorded as being £762,000. On the same day Strathcroft disponed the same property to Clyde Gateway for £2,100,000 plus VAT of £367,500. Both dispositions referred to a date of entry of 16 November 2010. From the perspective of AIB, the sale of 278 Glasgow Road was part of a wider series of property transfers which also involved 110, 210 and 260 Glasgow Road, and 64 Roslea Drive, Glasgow. AIB held standard securities over all these properties. On 19 August 2010 Mr Robert Frame, solicitor of Miller Beckett and Jackson, a firm of solicitors based in Glasgow, wrote on behalf of the sellers to AIB’s solicitor (Mr James Gillespie of Messrs McClure & Naismith). The letter included details of the “relevant sale price” of the Glasgow Road properties as follows: 278 Glasgow Road - £762,000; 210 Glasgow Road - £934,000; 260 Glasgow Road - £450,000; 110 Glasgow Road - £200,000. Mr Frame stated “my clients are keen to settle as soon as possible, but accept that it may be next week before the sanction has been obtained from the bank’s credit committee”. On 11 November 2010 Mr Gillespie wrote to the bank in connection with the properties’ release from AIB’s security. He told AIB that he understood that these properties were to be sold and that discharges may be delivered “in exchange for the free proceeds of sale being remitted to you”. He enclosed a table showing the following: 278 Glasgow Road – Owner – Oceancrown – sale price £762,000; 210 Glasgow Road – Owner - Loanwell - £934,000; 260 Glasgow Road – Owner - Oceancrown - £450,000; 110 Glasgow Road – Owner - Oceancrown - £200,000; 64 Roslea Drive – Owner - Questway - £68,000. The purported sale price for the properties totalled £2.414 million. Mr Gillespie informed AIB that he had been “advised that the sellers’ solicitor will send me the sum of £2,392,000 as free sale proceeds”. He enclosed five separate discharges and asked for them to be executed and returned to him with full particulars of execution. The discharges were to be released only in exchange for the free sale proceeds for each property. On 16 November 2010 Mr Frame received a letter signed by Mr John Anderson on behalf of Questway stating that the letter could be accepted as authority to send to AIB the sum of £2,414,000 in respect of the purchase of the Glasgow Road properties at numbers 278, 110, 210 and 260, plus that at 64 Roslea Drive. Once AIB received the funds, the executed discharges were delivered, all as agreed between Mr Frame and Mr Gillespie. Unknown to Mr Gillespie, by then 278 Glasgow Road had been disponed to Strathcroft and then to Clyde Gateway for a sum in excess of £2.4 million, not the £762,000 mentioned in the correspondence. Subsequently 210, 260 and 110 Glasgow Road were disponed to Stonegale, and 64 Roslea Drive to Mr Pelosi junior. The dispositions in respect of those subjects were executed on 24 November 2010, with a date of entry given as 16 November 2010. They recorded that the consideration for each property was as set out in the above table, making a total of £1,652,000. In fact no money was paid for them. The following year 64 Roslea Drive was purchased from Mr Pelosi junior by a Mr John Lazari for £125,000.
[10] It is the dispositions of 210, 260 and 110 Glasgow Road and 64 Roslea Drive which are challenged by the pursuers as alienations not made for adequate consideration.
[11] There was no dispute that the funds remitted to AIB came from the purchase price paid by Clyde Gateway to Strathcroft for 278 Glasgow Road. Investigations by the pursuers indicated that the VAT element on the sale of 278 Glasgow Road had not been paid to HM Revenue and Customs.
[12] Notwithstanding the contract with Clyde Gateway, the information available to AIB was that 278 Glasgow Road was being sold for a sum in line with its valuation at £762,000. AIB was never informed of the contemporaneous sale for the larger sum. Had AIB known that a sum in excess of £2.4 million was being paid for 278 Glasgow Road, it would not have discharged the securities over the other properties unless both the true purchase price of 278 Glasgow Road and the value of the other properties was paid to AIB.
[13] The open market value of the other properties as at November 2010 was agreed by parties to have been as follows:
110 Glasgow Road - £150,000;
210 Glasgow Road - £860,000;
260 Glasgow Road - £450,000; and
64 Roslea Drive - £65,000.
Evidence rejected by the Lord Ordinary
[14] Among the witnesses who gave evidence before the Lord Ordinary was Mr Pelosi Junior (Mr Pelosi Senior did not give evidence)....
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