Brittain v Courtway Estates Holdings SA & Anor

A company’s separate legal personality cannot be disregarded merely because it was used to hold property for the benefit of another person. A transaction is a sham only where all parties intended the documents to create rights and obligations different from those they appeared to create. A trustee in bankruptcy must establish the legal and beneficial basis for claiming property under Insolvency Act 1986, section 306. Where property was acquired with funds traceable to a transaction intended to prejudice creditors, the appropriate remedy may instead be an application under section 423, but the necessary parties must be before the court.

The applicant, Louise Mary Brittain, was the trustee in bankruptcy of Michael Rottmann. She sought a declaration that a property registered in the name of Courtway Estates Holdings SA was beneficially owned by the bankrupt and vested in her under section 306 of the Insolvency Act 1986. Jafar Shayesteh was joined because he claimed to have purchased the company’s shares and the beneficial interest in the property from Morteza Mahmoudi.

The court had to decide whether Mahmoudi had acquired the shares so as to sell them to Shayesteh and, if not, whether the property or shares nevertheless formed part of the bankrupt estate. The trustee relied on several alternative arguments, including sham, express or resulting trust, constructive trust and piercing the corporate veil.

1. Shayesteh’s claim. Shayesteh was in substance a claimant and bore the burden of proving that Mahmoudi had acquired the company’s bearer shares and could transfer them. The evidence did not establish that Mahmoudi had funded the original purchase or acquired the shares. His alleged sale to Shayesteh was therefore ineffective.
2. Section 306. The property was legally owned by the company. The shares were held by Montague Westwood Trust Company Limited on trust for Yasmin Rottmann. On the evidence, the trustee could not establish that the bankrupt was beneficially entitled to the property or shares so as to obtain the requested declaration under section 306 of the Insolvency Act 1986.
3. Sham. Applying Snook v London and West Riding Investments Ltd 1967 2QB 786, the court held that there was no evidence of a common intention by all parties that the corporate and trust documents should create rights different from those they appeared to create. The arrangement may have been intended to remove assets from creditors, but that raised the distinct question of a transaction defrauding creditors.
4. Other bases. There was no evidence of an express trust in favour of the bankrupt, and no basis for a resulting or constructive trust without setting aside the transaction. Piercing the corporate veil could not produce the remedy sought.
5. Further remedy. The trustee might pursue a claim under section 423 of the Insolvency Act 1986 to set aside the acquisition as a transaction defrauding creditors. That claim would probably require Yasmin Rottmann and Montague Westwood Trust Company Limited to be parties. Shayesteh’s claim was dismissed, and no order was made on the trustee’s claim at that stage.