Latest Legal News - Bankruptcy - Transactions at Undervalue (March 2011)

In Stonham v Ramrattan & Anor [2011] EWCA Civ 119, the Court of Appeal offered comfort to trustees in bankruptcy by finding that the so called "use it or lose it" provisions of the Insolvency Act 1986 ("the Act") do not apply when a trustee makes an application in respect of a suspected transaction at undervalue.

The facts of the case involved a husband who gifted his property to his wife in 1990 and was made bankrupt in 1995. The trustee in bankruptcy became aware of the transfer and in 1997 indicated his intention to apply to have it set aside as an undervalue transaction. However, proceedings were not issued until October 2007, which was shortly prior to the expiration of the 12 year limitation period applicable to applications under Section 339 of the Act.

The husband argued that once the trustee became aware or had a very good reason to suspect that the transaction was at an undervalue, he became aware that he had an interest in the dwelling house in question, such that the 3 year period under Section 283A for the trustee to deal with the property before it would revert to the bankrupt began to run. Not so, said that Court of Appeal, on the basis that Section 283A is only applicable to property which forms part of the bankruptcy estate at the date of the bankruptcy order and it is not until an order is made under Section 339 that a trustee acquires an interest.

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