Ahmed & Ors v Ingram & Anor

Section 284 of the Insolvency Act 1986 only avoids a post-petition disposition. It creates no freestanding monetary remedy. Recovery is governed by the general law.

Equitable compensation after trust property has been restored is confined to actual loss caused by the breach. The court must identify the breach, its date, and the loss that would not otherwise have occurred. Loss is not automatically fixed at the date of breach. It is assessed by the actual counterfactual course of events. A transferee who knowingly retains assets after a trustee in bankruptcy is appointed may have an immediate duty to tender them, without demand. The shares could properly be valued at fair value between knowledgeable and willing parties.

The bankrupt transferred minority shareholdings in family companies after presentation of a bankruptcy petition. The transfers were later accepted to be void under section 284 of the Insolvency Act 1986, and the shares were returned shortly before trial.

Proudman J held that the trustees in bankruptcy could recover the diminution in value from the 2007 transfer date, valued the shares at fair value, and held all four transferees jointly liable: [2016] EWHC 1536 (Ch).

The appellants challenged the remedy, the requirement for proof of loss, the valuation date and method, and the sisters’ liability. The central issue was when loss caused by the wrongful retention of voidly transferred shares should be assessed.

Appeal allowed in part. Gloster LJ gave the judgment, with which Patten and David Richards LJJ agreed.

1. Section 284 of the Insolvency Act 1986 only avoids the relevant disposition. It does not itself confer a freestanding entitlement to recover its value. The remedy is supplied by the general law and is restitutionary.

2. Once the shares had been returned, the remaining claim was for equitable compensation. Under AIB Group (UK) plc v Mark Redler & Co Solicitors [2014] UKSC 58 and Target Holdings v Redferns [1996] AC 421, compensation restores loss actually caused by a breach of trust. It cannot give the estate a sum reflecting neither actual loss nor profit made by the wrongdoer. The judge therefore had to identify the breach, its timing and the loss actually caused; fixing liability at the 2007 transfer date was erroneous.

3. The transferee did not become an unconditional bare trustee merely because the transfer followed presentation of the petition. Until a bankruptcy order, he held on a contingent basis. Upon the bankruptcy order and the subsequent appointment of the trustee in bankruptcy, the circumstances imposed an immediate duty to notify the trustee and tender the shares. Given the appellants’ knowledge and dishonest conduct, no demand was required. The breach occurred when the shares were not restored after Mr Hosking’s appointment on 22 July 2009.

4. The date of breach did not itself fix the quantum. The loss occurred when the trustee would actually have realised the shares. The evidence showed that Mr Hosking would not have sold them during his tenure, even if they had been returned. Depreciation in that period was therefore at the estate’s risk.

5. Following the appointment of Mr Ingram and Mr Miller on 14 April 2010, a sale would have occurred within three to six months. The appropriate available valuation date was consequently 30 June 2010. Compensation was the diminution in value between that date and the return of the shares shortly before trial.

6. The judge was entitled to value the minority shareholdings at fair value, by reference to a transaction between identified knowledgeable and willing parties. The family’s interest in preventing an outside minority holder, and the trustee’s alternative of an external sale, supported that approach.

7. The sisters’ nominee status, if established, did not remove their duty to return legal title to the trustees. They were jointly liable with the first appellant, to the extent of their respective shareholdings, for the diminution in value from 30 June 2010 until return of the shares.

• Court of Appeal (Civil Division): Allowed the appeal to the extent stated. It replaced the transfer-date valuation with 30 June 2010, upheld the fair-value approach, and upheld the sisters’ joint liability subject to the revised period of loss.
• High Court of Justice, Chancery Division: Proudman J upheld the trustees’ application, valued the shares as at the 2007 transfer date, and held the appellants jointly liable: [2016] EWHC 1536 (Ch).