Mathew Purdon Henderson v Foxworth Investments Limited and Nova Scotia Limited, 12 May 2011 – Liqudator fails to obtain reduction of security following reduced disposition

Complicated case in which the Liquidator of the Letham Grange Development Company sought reduction of a security over the Letham Grange resort near Arbroath. The case involves a number of companies all controlled by a Mr Liu and his family.

The grounds for challenge

The Liquidator argued that the holder of the security (Foxworth) had (1) not acquired the rights under the security in good faith and for value and (2) the security was void as it was not in the correct form.

Good faith and value

Prior to this case the Liquidator had challenged a disposition by Letham Grange in favour of Nova Scotia Limited on the basis that it was a gratuitous alienation, an unfair preference (both in terms of the Insolvency Act 1976) and a fraudulent preference at common law.  The subjects which had been purchased by Letham Grange for £2,105,000 were sold to Nova Scotia for only £248,100. The Liquidator had previously obtained a decree reducing the disposition (effectively by default when Nova Scotia failed to appear at a proof).

However, in the present proceedings Mr Liu argued that the price contained in the disposition was not the full consideration for the subjects as the price had been reduced to take account of loans which Mr Liu and his family had made to Letham Grange in order to finance the purchase. Foxworth then assumed liability to repay the loans to the family and Nova Scotia granted the standard security over the property in favour of Foxworth.

After consideration of the evidence and an assessment of the credibility of the witnesses, Lord Glennie found that the sale had been for adequate consideration and there had not been a gratuitous alienation. There had been loans by the family in favour of Letham to finance the original purchase and, although Foxworth had imputed knowledge of the facts pertaining to the sale to Nova Scotia (through Mr Liu who was in control of both companies), it did not have knowledge of any fact rendering the grant of the standard security by Nova Scotia a breach of an obligation on it affecting the property.

Form of the Security

The Liquidator argued that the security, which had been drafted by Mr Liu himself, was not valid pointing to the fact that although the deed referred to a separate personal bond (per a Form B security under the Conveyancing and Feudal Reform (Scotland) Act 1970) it failed to specify the date of the personal bond and did not include anything allowing the personal bond to be identified. Also, although the deed contained the rate of interest to be applied (per a Form A security under the 1970 Act), the personal bond did not.

However, Lord Glennie agreed with the argument that it was acceptable to rely on extraneous evidence to identify the personal bond approving the arguments put on behalf of Mr Liu to the effect that, although a standard security must comply with one of the statutory forms contained in the 1970 Act, it is sufficient compliance that the deed complies “as closely as may be” and some latitude may be allowed.

Lord Glennie noted that in effect the security had been a hybrid between Form A and Form B but found there was no difficulty in a security granted in hybrid form.

The full judgement is available from Scottish Courts here.

(See Inner House decision here and appeal to the Supreme court here).

All of our property and conveyancing case summaries are contained in the LKS Property and Conveyancing Casebook here.

Tags: , ,

Comments are closed.