Watchorn v Jupiter Industries Ltd

Under Insolvency Act 1986, section 423 does not require dishonesty. A transaction at an undervalue falls within the section where a substantial purpose is to put assets beyond the reach of actual or potential claimants, or otherwise prejudice their interests. In assessing insolvency under section 238, the court may use hindsight and actual realisation values. Relief under sections 423 and 241 is discretionary and may reflect the value of the benefit obtained by the recipient, rather than merely the break-up value recoverable by the claimant. Where a claimant beats a valid Part 36 offer, enhanced interest, indemnity costs and an additional amount may be ordered. The additional amount is calculated on the basic monetary award and not on interest or costs.

The claimant, the liquidator of Husky Group Limited, challenged the company’s transfer of valuable trademarks to its parent, Jupiter Industries Limited, for £1 on 11 November 2008. The claim was brought under sections 238 and 423 of the Insolvency Act 1986.

The liquidator alleged that the transaction was at an undervalue, that Husky was insolvent at the material time, and that a substantial purpose of the transfer was to put assets beyond the reach of creditors or potential claimants. The court also determined the appropriate relief, interest and consequences of a Part 36 offer.

1. Section 423. The statutory heading does not import a requirement of dishonesty. The transfer was at an undervalue and a substantial purpose was to isolate the trademarks and business from claims against Group, including the Syrtech claim. The liquidator therefore succeeded under section 423.
2. Section 238. Although unnecessary to the result, Jupiter also failed to establish solvency at 11 November 2008. Group was effectively being wound down, so its assets had to be assessed on a break-up basis. Intercompany debts, plant and machinery, fixtures and fittings, intangible assets, and the Australian and Venezuelan debts required substantial downward adjustments. Hindsight and actual realisation values were permissible. The approach was supported by Ex parte Russell (1882) Ch 588 and Lewis v Doran (2004) 208 ALR 385.
3. Relief. Under section 423 and section 425(1)(d), the court could assess the benefit received by Jupiter. The appropriate award was the going-concern value of the trademarks, £360,000, rather than their likely break-up value. The same approach was available under section 241(1)(d).
4. Costs and interest. Statutory interest was awarded at 3% above base from 11 November 2008. Because the liquidator beat the Part 36 offer, interest at 10% above base and indemnity costs followed from expiry of the relevant period. Under CPR 36.14(3)(d), the additional amount was calculated on the basic monetary award, excluding interest and costs. Jupiter was ordered to pay indemnity costs and £250,000 on account.

First-instance judgment. No appellate history is stated in the judgment.