Ingram & Anor v Ahmed & Ors

The trustees in bankruptcy sought recompense for shares transferred by the bankrupt after presentation of a petition and before vesting of the estate, relying on s.284 Insolvency Act 1986. The court held that dispositions after presentation are void and, subject to discretionary relief under s.284(1) and the exception in s.284(4), the transferee takes as bare trustee from the date of the transfer. The trustee's equitable entitlement is to be restored to the position the estate would have been in but for the breach; where assets have been wrongfully retained then returned, valuation at the date of the wrongful transfer (with credit for value at date of return) is an appropriate starting point for assessing loss. The court rejected the respondents' contention that the applicants must prove an actual sale or actual realised loss before any award, and found that the second to fifth respondents had notice of the petition, lacked good faith and were liable as trustees (the third to fifth jointly with the second respondent). The shares were valued on 5/6 June 2007 at £2.216m (fair value) subject to deduction for value on return and interest to be assessed.

Background and nature of the claim:

• This was a first instance application by the trustees in bankruptcy (the claimants) of Eatisham Ahmed under s.284 Insolvency Act 1986 and related equitable remedies. The applicants sought monetary relief representing the value of the bankrupt's minority shareholdings (“the Shares”) in Hornby Street Limited, Wembley Menswear Company Limited and Continental Shelf 128 Limited, on the basis that transfers on 5/6 June 2007 after presentation of a bankruptcy petition were void.

Procedural posture: Not appellate; this hearing followed contested interlocutory steps including Registrar Derrett's order fixing valuation dates and contested late-evidence applications (Mitchell/Denton were considered as to late evidence). Experts were instructed on valuation and the trial heard full evidence including expert reports.

Issues framed by the court:

• Whether the transfers were void under s.284 and, if so, whether the transferee became a trustee from the date of transfer.
• Whether the trustees were limited to relief for actual realised loss (requiring proof of an actual sale) or whether restitutionary/equitable relief assessed by reference to value at date of transfer was available where shares had been restored to the estate.
• The correct date and basis of valuation of the Shares and the appropriate remedy (retransfer, account of profits, or monetary award), including interest.
• Liability of the subsequent transferees (second to fifth respondents) and whether they acted in good faith or had notice of the petition.

Court's reasoning and conclusions:

• The court held that s.284 renders dispositions after presentation void and that the transferee takes legal title subject to being a trustee, with the trusteeship and title relating back to the date of transfer. Consequently the second respondent became a trustee from 5/6 June 2007.
• The court rejected the respondents' submission that only actual realised loss after an actual sale could be compensated. On the authorities and equitable principles (including Target Holdings/Redferns and subsequent authorities), equitable compensation aims to put the trust estate in the position it would have occupied but for the breach. The value of the asset at the date of default is an appropriate starting point, subject to adjustments (including the value on return and any profits or losses actually caused by the breach).
• The trustees were under a statutory duty to realise the Shares (s.305 Insolvency Act 1986) so the case was distinguishable from temporary-detention authorities relied upon by the respondents. The court therefore valued the Shares at the date of transfer, deducting value at return, and found that the applicants were entitled to monetary relief accordingly.
• The court found the second to fifth respondents had actual notice of the petition and did not act in good faith within s.284(4); they were liable, the third to fifth jointly with the second respondent. The court preferred the applicants' expert valuation methodology (fair value/insider transaction basis) over the respondents' market/break-up approach and assessed the Shares' fair value at £2.216m on 5/6 June 2007, subject to credit for value on 27 February 2015 and a further valuation of that date to be obtained.
• On interest, the court treated Sempra Metals as authority that compound interest can in principle be awarded in restitutionary claims but, absent evidence that respondents derived benefit, only simple interest was prima facie appropriate; the court directed the parties to address appropriate rate and period.

Wider comment: The judgment addresses the interplay of statutory avoidance under s.284 with restitutionary and equitable remedies and the appropriate valuation methodology where wrongfully retained proprietary interests with fluctuating value are restored belatedly.

The claim is allowed. The court held that transfers after presentation of the petition were void under s.284, that the transferee became a trustee from the date of transfer, and that equitable restitution/compensation is assessed by reference to value at the date of transfer (less credit for value on return) as a suitable starting point. The court found the second to fifth respondents had notice and lacked good faith and were liable; it assessed the fair value of the Shares at £2.216m as at 5/6 June 2007 and ordered that credit be given for value at return (27 February 2015) with interest to be determined (simple interest prima facie).