[2003] EWHC 431 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
BANKRUPTCY COURT	Bank 7133 of 2000

										  Royal Courts of Justice
										  Strand
										  London WC2A 2LL

										  Friday, March 7, 2003

Before
MR JUSTICE LAWRENCE COLLINS

In the Matter of
GIUSEPPE POZZUTO
Between

(1)  ANTOINETTE POZZUTO
					   (2)  MARIA DI IULIO		Appellants

and

  (1)  CHRISTOPHER M IACOVIDES	Respondent

JUDGMENT
Approved by the Court for handing down

Mr Bajul Shah (instructed by Radcliffes Le Brasseur) for the Appellants
Mr Richard Fisher (instructed by Steptoe & Johnson) for the First Respondent

I direct that pursuant to CPR PD 39 para 6.1 no official shorthand note shall be taken
of this judgment and that copies of this version as handed down may be treated as authentic.

……………………………………………..
(Mr Justice Lawrence Collins)

Mr Justice Lawrence Collins:
I	Introduction
1.	In this case the bankrupt (with his wife) was a shareholder in a company which was dissolved in 1998.  The company’s assets vested in the Crown as bona vacantia.  Among its assets was the freehold reversion to various flats in Hampstead, London.  Subsequently a substantial judgment was entered against the bankrupt.  The Treasury Solicitor, whose office administers bona vacantia for the Crown, has a scheme whereby shareholders of a dissolved company may purchase freehold reversions at a discounted price (the discount being, in the circumstances of this case, because of current market conditions, about 98%).  The discount is so large that it can be regarded as a nominal price.  The freehold reversions were acquired by the bankrupt and his wife (with the discounted or nominal price of £200, and costs, being paid by their daughter), and, then, after the judgment had been entered but 7 months before the bankruptcy petition was presented, the property was transferred, for a nil consideration, by the bankrupt and his wife to the wife and their daughter.  A bankruptcy order was made, and the trustee in bankruptcy sought to set aside the transfer as a transfer at an undervalue.
2.	Mr Registrar Simmonds set aside the transfer, and this appeal by the wife and daughter raises the question, among others, whether a shareholder who is entitled to acquire from the Crown the property of a dissolved company at a discount contributes to the purchase price, for the purposes of the law of resulting trusts, when the discounted price is paid in full by another person.
II	Background
3.	Chessdown Limited (“Chessdown”) was a company formerly jointly owned by Mr Giuseppe Pozzuto (“the bankrupt”) and his wife, Mrs Antoinette Pozzuto (“Mrs Pozzuto”).  Chessdown was the registered owner of the freehold reversion of 104 Maresfield Court, 106a, 106b and 106c Finchley Road, Hampstead, London (“the Freehold Reversion”).  The ground rents were £625 p.a. in aggregate.
4.	Chessdown was dissolved on 6 January 1998.  Accordingly, the Freehold Reversion vested in the Crown as bona vacantia: Companies Act 1985, section 654(1).  By section 655(1), the Crown may dispose of an interest in bona vacantia.  The Treasury Solicitor, Bona Vacantia Division, issues guidelines to tenants for the sale of freehold reversions.  The guidelines state that the Treasury Solicitor reserves the right to depart from the guidance at any stage, but states that it is the usual practice of the Treasury Solicitor to offer the freehold reversion to the tenants jointly.  The guidelines go on:
“The usual asking price in the case of leases with a term of at least 60 years unexpired is ten times the total of the annual ground rents, subject to a minimum of £200 (subject to contract), but if the purchase is by all of the former members of the dissolved Company, the price (by concession) will be £200 (subject to contract).”
5.	The guidelines state that the Treasury Solicitor usually seeks to obtain the full market value of the property, unless it is being acquired by all of the former shareholders of the dissolved company, and that the reduced purchase price of £200 is only applicable if the purchase is by all of the former members of the dissolved company, and they are able to produce the relevant share certificates or stock transfer forms showing that they were the shareholders in the company.  If the purchase is not to be by all of the members, or if the relevant share certificates or stock transfer forms are not produced, then the full purchase price of ten times the total ground rents will be applicable, subject to a minimum of £200.  
6.	Ten times the ground rents would have made the purchase price £6,250, but the trustee obtained a valuation in 2001, which indicated that the estimated market value of the Freehold Reversion is about £12,000, no doubt because the Treasury Solicitor’s guidelines have not been altered to reflect current market conditions where, as is well known, landlords cannot expect a return of more than 5% p.a.
7.	On 22 April 1999 a judgment for £371,397.16 was entered against the bankrupt.
8.	At some time in 1999 (the consent to sale form being undated), the bankrupt and Mrs Pozzuto purchased the Freehold Reversion from the Crown pursuant to the purchase scheme operated by the Treasury Solicitor.  By virtue of the fact that they were the sole shareholders of Chessdown, they were entitled to a reduced purchase price of £200 rather than 10 times the value of the total annual ground rents (being £6250). 
9.	The nominal price of £200 and the Treasury Solicitor’s costs of £404.65 were paid by Mrs di Iulio, the married daughter of the bankrupt and Mrs Pozzuto. 
10.	On 11 October 1999, the Freehold Reversion was transferred from the names of the bankrupt and Mrs Pozzuto into those of Mrs Pozzuto and Mrs di Iulio.  The form of transfer states as regards the consideration: “The Transfer is not for money or anything which has a monetary value.”
III	Bankruptcy and the decision of Mr Registrar Simmonds
11.	A bankruptcy petition was presented on 31 August 2000, and it was founded upon the judgment debt of £371,397.16 entered on 22 April 1999.  A bankruptcy order was made on 5 February 2001, when Mr Registrar Jacques said:
“Although Maresfield Court no longer belongs to the debtor, the fact that it was transferred by him for no consideration just 7 months before the presentation of the petition renders the transfer liable to be set aside as a transaction at an undervalue, in which event this freehold reversion would be available for his creditors.” 
12.	He also referred to the thoroughly unsatisfactory evidence of the bankrupt’s present solicitor, Mr Saffron, as to his client’s assets.
13.	The transfer was challenged by the trustee as being a transaction at an undervalue pursuant to the Insolvency Act 1986, s. 339, having been made within 2 years of the presentation of the petition for the bankrupt’s bankruptcy (and thus, at “a relevant time” for the purposes of s. 341).  He contended that it was a “sale of the bankrupt’s interest in the freehold reversion … for neither money nor anything which has a monetary value…”
14.	If the Court concludes that the bankrupt did enter into such a transaction, it is empowered to “make such order as it thinks fit for restoring the position to what it would have been if [the bankrupt] had not entered into that transaction” (s. 339(2)). 
15.	A transaction at an undervalue is defined in section 339(3) of the Act as including gifts, transactions on terms which provide for the bankrupt to receive no consideration and transactions for a consideration the value of which, in money or money’s worth, is significantly less than the value, in money or money’s worth, of the consideration provided by the individual.
16.	The aim is to assess from the transferor’s point of view whether the consideration provided (assessed in money or money’s worth) was significantly less than the value of the consideration received: Jones  v National Westminster Bank Plc [2002] BPIR 361, 366 (C.A. ).
17.	If the Court is satisfied that a transaction at an undervalue has occurred, it may make such order as it thinks fit (s.339(2)).
18.	Mr Registrar Simmonds held that there was an agreement between the bankrupt, Mrs Pozzuto and Mrs di Iulio pursuant to which Mrs di Iulio paid the purchase price for the Freehold Reversion; but that the Court ought not to give effect to that agreement and the “improper trusts” created thereby, because the agreement was “a deceit” on the Crown.  Accordingly, the bankrupt and Mrs Pozzuto were the sole beneficial owners of the Freehold Reversion at the time of the subsequent transfer; by the transfer the bankrupt disposed of his 50% interest in the Freehold Reversion to Mrs Pozzuto and Mrs di Iulio; the transfer was not for money or money’s worth and was, thus, at an undervalue.  He therefore set the transfer aside, and ordered the Freehold Reversion to be sold.  After reimbursement to Mrs di Iulio of her contribution, the balance of the sale proceeds was to be paid in equal shares to the trustee and Mrs Pozzuto.
IV	Arguments on appeal
19.	This is an appeal by Mrs Pozzuto and Mrs di Iulio from that decision.
20.	It is accepted on both sides that this case does not turn on any issue relating to deceit or illegality.  If Mrs di Iulio did not need to rely on any alleged illegality in order to establish her beneficial interest in the Freehold Reversion, the alleged illegality or impropriety should not prevent the Court from recognising that interest: see Tinsley v Milligan [1994] 1 AC 340.
21.	On this appeal Mrs Pozzuto and Mrs di Iulio say that the application was misconceived because the bankrupt had transferred nothing of value: Re MC Bacon Ltd [1990] BCC 78 (Millett J); Menzies v National Bank of Kuwait SAK [1994] BCC 119 (CA). 
22.	They contend that the transfer did not transfer anything of value, because the bankrupt had never been a beneficial owner of the Freehold Reversion.  A resulting trust in favour of Mrs di Iulio is presumed because she provided all of the original purchase money (£200 and costs), and the property is held for Mrs Pozzuto and Mrs di Iulio because of an alleged agreement with the bankrupt that the Freehold Reversion was being purchased for them and them alone.  Alternatively it is said that there has been an agreement, understanding or arrangement between the three parties such as to give from the outset the sole beneficial interest to Mrs Pozzuto and Mrs di Iulio: cf Lloyds Bank v Rosset [1991] 1 AC 107.  Accordingly, the bankrupt was a bare trustee.  Thus, in transferring the legal title, he did not give away anything of value.  He was merely vesting the legal title in the beneficial owners, and the transfer was not capable of being a transaction at an undervalue.  The Registrar was wrong to ignore the plain beneficial interest acquired by Mrs di Iulio by her payment of the purchase price. 
23.	The trustee submits that a transaction at an undervalue did occur in relation to the Freehold Reversion.  Prior to the arrangement, the bankrupt was able to purchase the Freehold Reversion at a discount.  He, together with Mrs Pozzuto, exercised his ability to obtain a discount.  However, as a consequence of the arrangement, the bankrupt (and subsequently, the bankrupt’s estate) has lost the interest in the Freehold Reversion that it would otherwise have had by virtue of exercising the right to purchase and has received no adequate consideration in return. 
24.	It was of the essence of the agreement with the Treasury Solicitor that the bankrupt and Mrs Pozzuto would be the purchasers of the Freehold Reversion in that, without their participation, the reduction would not have been obtained.  Even if the bankrupt and Mrs Pozzuto used the money provided by Mrs di Iulio to exercise the right, by far the greatest contribution of value was obtained by virtue of the discount.
25.	To the extent that Mrs Pozzuto and Mrs di Iulio rely on a resulting trust (or purchase price) analysis, then the Freehold Reversion was acquired from the Treasury Solicitor at a substantial discount by reason of Mrs Pozzuto and the bankrupt’s status.  Mrs di Iulio’s interest in the Freehold Reversion was limited to the value of the money provided by her.  Both the bankrupt and Mrs Pozzuto, the named purchasers, acquired beneficial interests in the Freehold Reversion by exercising their ability to purchase the property at a significant discount.  When the Freehold Reversion was transferred into the names of Mrs Pozzuto and Mrs di Iulio on 11 October 1999 for neither money nor anything which has a monetary value, a transfer at an undervalue occurred.
26.	Alternatively, the agreement or arrangement reached between the parties, which purported to prevent any beneficial interest in the Freehold Reversion vesting in the bankrupt notwithstanding the discount obtained, was itself a transaction at an undervalue susceptible to challenge under section 339 of the 1986 Act.
V	Conclusions
27.	I am satisfied that the trustee is right and that the Registrar’s order must be affirmed. The real issue on this appeal is whether the bankrupt can be regarded as having an interest in the property.  It is common ground that (a) the property could have been bought by the shareholders at the discounted price (as it was); (b) if it had been bought other than by the shareholders alone, it would have cost £6,250; and (c) it is now worth about £12,000.  The reality is that the sale to the shareholder was at a nominal price.
28.	The starting point is that Mr Pozzuto was the beneficial owner of 50% of the shares in Chessdown,  that he held the Freehold Reversion after the sale of that interest to him in that capacity by the Treasury Solicitor, and that he conveyed his interest to Mrs Pozzuto and Mrs di Iulio for no consideration.  
29.	In these circumstances prima facie the bankrupt must be regarded as having had a beneficial interest of which he has disposed, and the onus then shifts to Mrs Pozzuto and Mrs di Iulio to show that the bankrupt had no such beneficial interest.
30.	They rely on two matters.  First, they say that there is a resulting trust in favour of Mrs di Iulio by virtue of her payment of the whole purchase price.  Secondly, they say there was an agreement between the bankrupt, Mrs Pozzuto and Mrs di Iulio that the bankrupt was never to have any beneficial interest, and that it was to be shared equally between Mrs Pozzuto and Mrs di Iulio.
31.	The Registrar said that the assertion of such an agreement lacked credibility.  There was no oral evidence at the hearing before the Registrar.  The written evidence of Mrs Pozzuto (which was confirmed by Mrs di Iulio) was as follows:-
(a)	it was originally intended that the Freehold Reversion would be acquired from the Crown by herself and Mrs di Iulio, and instructions were given to their solicitor, Ms Geraldine Paletz, formerly of Jay Benning & Peltz, to that effect;
(b)	following inquiries made by her, Ms Paletz advised that on this basis the sale by the Crown would be at market value, whereas if a transfer was to the former members of the company, namely the bankrupt and Mrs Pozzuto, the price payable would, by concession, be limited to £200 plus the Treasury Solicitor’s costs;
(c)	consequently: 
“It was agreed between the bankrupt, my daughter and me, that my daughter would provide the consideration for the transfer by the Crown (comprising the concessionary price of £200 and the Treasury Solicitor’s costs) on the basis that the Crown would transfer the Freehold Reversion firstly to the bankrupt and me and then that the bankrupt and I would transfer the same to my daughter and me.”
32.	She then says that in those circumstances she was advised by her present solicitors and believes that the bankrupt at no time acquired a beneficial interest in the Freehold Reversion and consequently there can have been no disposal by him of such an interest for any undervalue.
33.	The evidence of Ms Paletz was that she at various times acted as a solicitor to the bankrupt and to Mrs Pozzuto and Mrs di Iulio.  She says that she recalls that she was consulted by Mrs Pozzuto and Mrs di Iulio, who wished to acquire the freehold reversion from Crown.  She confirmed that she made inquiries of the Treasury Solicitor, and states that they were understandably keen to take advantage of the concession and
“…they, together with the bankrupt, agreed, that they would seek the transfer of the Freehold Reversion by the Crown firstly to the bankrupt and [Mrs Pozzuto] and that thereafter the bankrupt and [Mrs Pozzuto] would transfer the same to [Mrs Pozzuto] and [Mrs di Iulio].  This was on the basis that [Mrs di Iulio] would provide the consideration for the transfer by the Crown (comprising the concessionary price of £200 and the Treasury Solicitor’s costs).  I was instructed to act on this basis and confirm that this is what happened.  I further confirm that [Mrs di Iulio] provided the consideration monies.”
34.	She concludes:
“It was never intended that the bankrupt would acquire any beneficial interest in the Freehold Reversion and I do not believe that he did so.”
35.	I have some sympathy for the view that the assertion that it was agreed that the bankrupt was not have an interest lacks credibility, but the evidence was not tested in cross-examination.  But on analysis the evidence does not even assert an agreement that the bankrupt was not to have a beneficial interest.  It goes no further than Mrs Pozzuto’s statement that she has been advised by her present solicitors that he had no such interest, and Ms Paletz’s assertion that he was not intended to have any such interest.  Ms Paletz is not in a position to give first hand evidence of the agreement, and it is inherently unlikely that any thought was given to whether he was to have such an interest, and I decline to hold that Ms Paletz deliberately devised a scheme which would enable the bankrupt to defeat his creditors.  I therefore accept the submission by the trustee that the evidence of the agreement (as opposed to the evidence of the advice received) does not establish that it was not intended that the bankrupt would acquire any beneficial interest in the Freehold Reversion.  There were simply to be two transfers; initially to the bankrupt and Mrs Pozzuto, subsequently to Mrs Pozzuto and Mrs di Iulio. 
36.	If there was no agreement that the bankrupt was to have no beneficial interest, there remains the question of the effect of the fact that Mrs di Iulio provided the purchase money.
37.	Where a party pays money towards the purchase of a property in the name of another, that may raise a presumption of resulting trust in respect of the contribution, which can be easily rebutted by evidence showing some other intention: Gissing v Gissing [1971] AC 886, 902; Westdeutsche Landesbank v Islington LBC [1996] AC 669, 708. The extent of the interest in the property should be proportionate to the contribution made to the purchase price i.e. in proportion with the contribution: Westdeutsche Landesbank v Islington LBC at 708, per Lord Browne-Wilkinson. 
38.	It would be contrary to common sense for the payment by Mrs di Iulio of £200 (and costs) to give her (and her mother, by virtue of the agreement between them) the right to property worth £12,000.  One of the policy reasons for a resulting trust of this kind is to prevent the unjust enrichment of the person who might otherwise obtain the benefit flowing from the contribution to the price: cf Twinsectra Ltd v Yardley [2002] 2 WLR 802, at 827, per Lord Millett.  
39.	The fact that Mrs di Iulio paid the nominal price may raise a presumption of resulting trust.  But the equitable interest in the property should only reflect the amount contributed (which may be different from the total value of the acquired property where other valuable consideration has been provided).  In this case the contribution was more apparent than real, since the discount was so large as to make the price nominal. 
40.	In the context of family law, it has been held a right to buy at a discount may be regarded as a contribution (Springette v Defoe [1992] 2 FLR 388 at 395) or as a factor to be taken into account in deciding what agreement the parties have made as to their respective contributions (Marsh v von Sternberg [1986] 1 FLR 526, 531, per Bush J). In Springette v Defoe Steyn LJ said (at 395):
“Given that no actual common intention to share the property in equal beneficial shares was established, one is driven back to the equitable principle that the shares are presumed to be in proportion to the contributions.  If the matter is approached in this way, it seems to me right in principle that the discount of 41 per cent should be regarded as a direct contribution by the woman to the purchase.  That is how Bush J, a most experienced judge, approached the matter in Marsh v Von Sternberg [1986] 1 FLR 526.  And that is how I consider this court should approach the matter.”
41.	In Evans v Hayward [1995] 2 FLR 511, the question of which approach was the right one was left open, although Staughton LJ indicated a preference for the latter.  He said (at 516):
“For my part I find it difficult to say that a discount is, strictly speaking, purchase money provided by either party.  It is money which is not provided by anybody.  But I do consider that the facts as to the existence of a discount and the source from which it is derived must be taken into account, and are capable of leading to the inference that the parties have made an agreement as to how the purchase price is provided.  That, it seems to me, was the reasoning of Bush J in the passage from the case of Marsh v Von Sternberg 	[1986] 1 FLR 526 which Dillon LJ has quoted.”
42.	Those cases were discussed in the insolvency context (section 423 of the Insolvency Act 1986) in Ashe v Mumford [2001] BPIR 1, 14, where Jonathan Parker LJ said:
“For my part, I do not take Steyn LJ to have been intending to lay down any absolute rule that the value of a right to buy discount must be taken into account as a contribution towards the purchase of a property giving rise to a beneficial interest.  All he was saying, as I read the relevant passage in his judgment, was that where (as in that case) the parties had intended that each should have a beneficial interest but had wholly failed to address the question as to the extent of their respective interests, so that the presumption of resulting trust applied, the value of the discount was a financial benefit which should be taken into account in assessing their respective contributions.  In other words, it was implicit in what he said that where the facts are such as to rebut any presumption of resulting trust, that is to say where it is possible to infer an agreement or arrangement as to the beneficial ownership, a different result may follow.”
43.	In that case the right to buy discount was not treated as a contribution to the purchase of the property for the purposes of the creation of a resulting trust.  The reason on the facts of that case was that an entire series of transactions (including the purchase of the relevant property) was a sham. 
44.	In the present case, the bankrupt and Mrs Pozzuto had no legally enforceable right to buy, but the reality of the matter was that they could expect (as happened) that they would be able to buy in accordance with the Treasury Solicitor’s guidelines, and it would be contrary to common sense to say that there is a material difference for present purposes between a statutory right to buy at a discount, and an extra-statutory arrangement giving an expectation that they would be entitled to buy at a discount or a nominal price by virtue of their status as shareholders.
45.	Consequently, the effect of recognising Mrs di Iulio’s contribution of £200 (and costs) to the purchase price would lead to a division of the beneficial interest which recognised that contribution, and the contributions of the bankrupt and Mrs Pozzuto.  The trustee contends that the effect is that the bankrupt and Mrs Pozzuto were entitled to 48.4% each of the beneficial interest in the Freehold Reversion (recognising their discount entitlement), Mrs di Iulio to the remaining 3.2% representing her £200, but (subject to further argument) this does appear to take account of her contribution to the costs, and the correct approach seems to be that reflected in the Registrar’s order. 
46.	It would follow that the subsequent transfer of the bankrupt’s interest for no consideration divested the bankrupt’s estate of its interest and constituted a transaction at an undervalue within the meaning of section 339. 
47.	Section 339(2) provides that the Court should make “such order as it thinks fit for restoring the position to what it would have been if that individual had not entered into that transaction.”  Section 342 of the Act provides a non-exhaustive list of possible forms of relief which the Court may grant and includes requiring “any property transferred as part of the transaction, or in connection with the giving of the preference, to be vested in the trustee of the bankrupt’s estate as part of that estate”.  The order made by the Registrar was the appropriate one in the circumstances.  The appeal will therefore be dismissed.  If necessary I will hear argument on the form of the order.