Gratuitous Alienations (again!)

It is always gratifying to have succeeded for an insolvency practitioner in reducing a gratuitous alienation. It is doubly gratifying when, in the Opinion of the Court, large chunks of a previous success are quoted in support of the decision!

Hot off the press (at 10am today) is the decision in Fox -v- Brennan, in which Lord Doherty quotes extensively from the Opinion of the late Lord Jones in Blackburn -v- Alexander. The importance of this is not the opportunity that it provides for me to publicise not one, but two recent successes (really!) but the fact that these two cases, taken together, show that the development of Scots Law in this area is the same for corporate (the Blackburn case) and personal (the Fox case) insolvency. The clear judicial acceptance of the universal applicability of the principles of gratuitous alienations means that defenders cannot try and create false conflicts between the two regimes behind which to try and hide.

Interestingly, the defence in the current case of Fox -v- Brennan was one of the most strange that I have come across: the alienation was admitted but the amount alienated was “repaid” to the Debtor after his discharge, thereby, it was claimed, negating the alienation! Lord Doherty’s opening comment on this approach (at para 14) is that it was “a startling proposition”. Quite correctly, Lord Doherty confirms that “the estate of the Debtor” is the estate which vests in the trustee upon appointment. He also felt the need to point out that the discharge of a Debtor has a limited effect on the conduct of the sequestration, insofar as it relates to the estate of the Debtor. As we know, certain “assets” cease to be vested in a trustee after the Debtor’s discharge (some as a result of the circumstances pertaining at the time, some automatically) but the right to recover a gratuitous alienation is not lost to the trustee (or a creditor) wishing to pursue it.

In the current climate, office holders are increasingly having to look beyond the obvious in every case to see if there is anything that can generate a return to the creditors. This is often because either the insolvent entity has been used as a vehicle for aggressive tax planning or the insolvent individual has been “creative” in trying to protect or disguise their assets. The ability to cut through the technical obfuscation which is often put in the path of an office holder is helped by the relatively simple principles of Scots Law in respect of gratuitous alienations.

An interesting development has also been the willingness of third party funders (either through litigation funding or purchasing claims) to enter this market quite forcefully. The law is, when you drill down, relatively simple and, as I have said, the recent application of the law to apparently complex situations has shown that the Courts are unlikely to get distracted by a clever sleight of hand in these cases. If third parties are now willing to put their money on the table, that might help to re-dress the increasing discrepancy in strength of arms. A director or individual can no longer denude the case of all assets in the expectation that the office holder will run out of funds to pursue a claim. That may, as a result, mean that they think twice or ask more searching questions before embarking upon some of the more heinous pre-insolvency conduct which can take place.

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