Adequacy of Consideration

Background

Lord Braid gave his decision in the case of Asertis Limited v Cheryl Dunn on 2 December 2022. Asertis had been assigned claims by the Administrators of HGEC Capital Limited and then brought proceedings to challenge a gratuitous alienation in terms of s.246z of the Insolvency Act 1986.

Lord Braid indicated that HGEC appears to have been involved in “fraudulent activities along the lines of a Ponzi scheme.” It was contended for Asertis that in the two years before Administration there were alienations of company assets.

In this, and a related action against a limited company, the defender argued that firstly she could make out a statutory defence of “adequate consideration” and therefore was entitled to put the pursuers to proof of the alleged alienations actually having been made to her.

The Decision

Lord Braid granted summary decree in favour of Asertis in relation to an aggregate amount of around £595,000 which was said to have been transferred to the defender. Lord Braid related a tortuous procedural history which involved changes in representation by the defender but ultimately amounted to her indicating in written pleadings shortly before a hearing on summary decree, and a debate, that she did not know or admit that the sums were paid to her. The Court accepted that where a fact was within her knowledge and she indicated she did not know or admit it, that amounted to an implicit admission.

The substantive defence to the action centred around the fact that the defender claimed she was an independent contractor to the company and was entitled to commission payments in relation to certain agreements. Lord Braid indicated the question of adequacy would require evidence. However, he was able to consider the core issue of whether this commission arrangement could ever amount to consideration in relation to the alienation claims. Lord Braid held that: “While it is true that an alienation in fulfilment of a prior obligation will be one for consideration, it is clear that, for that to be the case, the parties must have intended at the time of the alienation that it should fulfil the prior obligation.” Lord Braid held that there was no relevant defence of adequate consideration pled.

Advice

This is a useful decision for IP’s. The Court looked at the reality of the defence of adequate consideration and whether there was any evidence that payments made were in relation to some prior obligation. Where apparently spurious adequacy defences are led this may be a useful decision to refer to.

 

 

BBM Solicitors specialise in advising IP’s in both contentious and non-contentious matters (including transactional work). Contact: Eric Baijal (emb@bbmsolicitors.co.uk). This briefing note is current as at 8 December 2022 and is our understanding of the position described at that date. Legal advice ought to be taken before relying on its terms (particularly to ensure the law has not changed).