Administrators compel sale of property from head seller direct to sub buyerAugust 14, 2019
Section 234 of the Insolvency Act 1986 (the “Act”) gives an Administrator powers to obtain property or records of the insolvent company from third parties and to apply to the Court for assistance in doing so. The equivalent provision of the Insolvency (Northern Ireland) Order 1989 is Article 198. The provision is largely an enforcement mechanism and cannot be used to increase a company’s proprietary rights; however, the Court can determine disputes over ownership as part of the process.
The company as sub buyer had contracted to purchase various properties and had provided full consideration. However, transfers of legal title had not been completed in order not to trigger a stamp duty liability (prior to the arrival of SDLT in 2003). The Administrators of the sub buyer claimed a proprietary interest in the properties under section 234 of the Act which was enforceable against the head seller. This was on the basis that consideration had been paid and it was therefore argued that the company was beneficial owner of the properties.
The court applied equitable principles to deem the transfer of the intermediate buyer’s beneficial interest to have been transferred to the sub-buyer. It found that the head seller held the relevant properties on constructive trust for the sub-buyer and was estopped by his conduct from denying that the sub-buyer had taken over the intermediate buyer’s beneficial interest in the properties.
The High Court held in favour of the Administrators and ordered the head seller to deliver completed transfer forms for the properties to the administrators. It also found that the sub-buyer could demand specific performance under its contract with the intermediate buyer and require the intermediate buyer to demand specific performance of the head contract, namely, transfer of the legal title to the intermediate buyer and on to the sub-buyer.
This decision was made despite there being no privity of contract between the sub buyer and head seller, despite the fact that contracts had not been completed nor legal title passed and that there was a Supreme Court decision that supported the proposition that a sub-buyer could not obtain a proprietary interest in the sale property until their contract completed. This decision would be persuasive in respect of the equivalent provisions in Northern Ireland. However, each case will be distinguished on its facts and the facts of this case are unusual and date back to an agreement reached in 1999.
Conn and another v Ezair; Re Charlotte Street Properties Ltd  EWHC 1722 (Ch) (4 July 2019)
This article has been produced for general information purposes and further advice should be sought from a professional advisor. Please contact our Insolvency & Business Restructuring team at Cleaver Fulton Rankin for further advice or information.