Valuing an undervalue

United Kingdom

This was an application to the Court to determine the factors that must be taken into account when valuing an insurance policy, the transfer of which was the subject of a claim for transaction at an undervalue

The facts
Thoars had, in 1994, taken out a life insurance policy with Skandia Life. In July 1996, whilst awaiting a liver transplant, he assigned the benefit of the policy to Ramlort in exchange for reimbursement of the most recent premium, and £1,900 in cash. On the day after a liver transplant in September 1996, Thoars died of a heart attack, both intestate and insolvent. At the date of the payment of the final premium (February 1996), the policy would have paid out, on death, the sum of £185,568 yet only had a surrender value of £71.96.

The issue
Reid was appointed judicial factor of Thoars' estate in Scotland and sought an order from the Registrar setting aside the assignment on the grounds that it amounted to a transaction at an undervalue under s339 of the Insolvency Act 1986. Ramlort argued that the policy value at the time of the assignment was £71.96 and that it had, therefore, given good consideration. The Registrar adjourned the application to the Vice-Chancellor for the determination ofa preliminary issue relating to the value of the policy at the time of assignment, and whether Thoars' subsequent death should be taken into account.

The decision
Sir Andrew Morritt V-C considered the judgment of the House of Lords in Phillips v Brewin Dolphin Bell Lawrie Ltd [2001] 1 WLR 143 and concluded that it was possible to have regard to subsequent events, but ultimately the "value" of an asset was a question of fact. The Court was also bound to take into account all other matters relevant to the determination of value as at the date of the transaction. Subsequent events (in this case the date and cause of death) were therefore admissible as evidence to assist the valuer, but it was not possible to assess the importance of these factors at a hearing of a preliminary issue.

The effect of this judgment is to re-state one of the principles in Brewin Dolphin, namely that subsequent events can form part of the valuation evidence, where they would provide some assistance. Morritt V-C declined to actually determine the preliminary issue as he did not wish to prejudice the final decision of the trial judge, in assessing all the facts. To review a previous article relating to the earlier House of Lords consideration of what constitutes a transaction at an undervalue, in the Brewin Dolphin case mentioned above click here.

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