Bulletins | January 17, 2022

AFM and The Great Gatsby- FM (1932) Limited & Ors v Belisco Estates Ltd [2021] EWHC 3460 (Ch)

AFM (1932) Limited & Ors v Belisco Estates Ltd [2021] EWHC 3460 (Ch) is of passing interest to fans of F Scott Fitzgerald and anyone who is interested in what constitutes a transaction at an undervalue and what might not.

The literary note is struck in the opening paragraph of the judgment of ICC Judge Jones:

“Mr Connell, counsel instructed on behalf of the Applicant, opened this case with reference to The Great Gatsby. Whilst he had in mind Gatsby’s mansion, one of its themes is that nothing is as it seems. It is a theme which applies to this case. Mr Connell identified a key point for the claim as the fact that at no stage had the First Respondent (‘BEL’), a BVI registered company and the owner of ‘Greenacres’, a property in Essex, paid AFM for or in connection with the building works carried out there during 2013 and 2014. Yet despite that apparently simple point, this claim is not for payment of sums contractually due. It seeks relief under s 238 of the Insolvency Act 1986 alleging a transaction at an undervalue and/or pursues an action for knowing receipt.”

The first applicant, AFM, in compulsory liquidation by the time of the trial, had paid money to third parties for building works to be carried out on Greenacres. BEL ended up owing it £361,528. AFM’s liquidators applied for the return of the monies paid using s 238 Insolvency Act 1986 on the basis that there had been a transaction at an undervalue in that BEL had benefitted by reason of AFM’s having paid for the work done to and supplies made in relation to the work on Greenacres without reimbursement. The transaction relied on, as pleaded, was described by the judge as an arrangement under which “(i) BEL received the benefit of the works etcetera; (ii) AFM was obliged to pay for them (whether as main contractor or not); and (iii) BEL paid them instead without reimbursing AFM.” Defending the application, BEL relied on complex contractual agreements involving a number of parties and entered into in 2010 and 2013. Its arguments were not entirely successful, the judge ultimately taking a different view of the transaction from those advanced by the parties, concluding instead, on the evidence before him, that they gave rise to a debt owed by BEL to AFM. Thus, although the arrangement under attack had fallen within the statutory definition of a “transaction” in s 436(1) IA 1986, it could only be susceptible of attack as being at an undervalue if AFM was not to be reimbursed. The judge found that AFM was entitled to be reimbursed. The reality was that BEL was in breach of that obligation, but that did not mean that the underlying transaction was a transaction at an undervalue. The application therefore largely failed (although the judge accepted that an account would have to be taken).

The alternative claim in knowing receipt was abandoned at trial.

Although the claim was settled by Tomlin order before judgment was handed down, the judge nonetheless decided to hand his judgment down, as he was entitled to. Interestingly, in the light of Re Taunton Logs Ltd and Manolete Partners Plc v Hayward and Barrett Holdings Ltd & Ors,he included a final paragraph in his judgment:

“For completeness, I should deal with the question of payment of a Part 7 CPR claim fee. This claim remains an Application under the Insolvency Act 1986, there has been no amendment, the terms of settlement are confidential and I do not consider a Part 7 fee should be paid.”

The applicants will no doubt have appreciated his approach to this recently identified issue, but readers should be wary of thinking that the judge has set any kind of precedent by taking that view.