Re Ahmed

The Court of Appeal considered trustees' claims under s.284 of the Insolvency Act 1986 challenging share transfers made after presentation of a bankruptcy petition but before the bankruptcy order. The court held that s.284 operates to avoid dispositions but is silent as to the remedy, which is governed by the general law. Applying the principles in Target Holdings and AIB, equitable compensation requires proof of actual loss caused by a trustee's breach. The judge below erred in fixing liability by reference to the transfer date; the appropriate valuation date for the compensatory loss was the date on which the trustee in bankruptcy would, in reality, have realised the shares (substituted here as 30 June 2010). The judge’s decision to apply a fair-value basis of valuation was upheld. The second to fourth appellants (the sisters) were held jointly liable with the first appellant to the extent of their holdings for the diminution in value in the relevant period.

This was an appeal from Proudman J's judgment in the High Court (Bankruptcy) concerning transfers by the bankrupt of minority shareholdings to a sibling, and later transfers by that sibling to three sisters. The trustees in bankruptcy sought declarations that the transfers were void under s.284 Insolvency Act 1986 and monetary relief restoring the bankruptcy estate.

Nature of the application: The trustees sought a declaration that the transfers were void and equitable compensation to restore the estate to the position it would have been in but for the wrongful transfers. The appellants had sought validation but ultimately admitted the transfers were void and returned the share transfer forms before trial.

Key issues framed:

• Whether s.284 provides a free-standing right to recover monetary compensation or whether the remedy is governed by general law.
• Whether trustees are entitled automatically to compensation measured by the difference in value between the transfer date and the date of return, or whether they must prove actual loss caused by breach of trust.
• Pleading and evidence sufficiency if a loss-based approach is required.
• The correct date for calculation of loss.
• Whether valuation should be at fair value or market value.
• Whether the sisters were jointly liable with the first appellant.

Court’s reasoning and disposition: The court held that s.284 merely avoids dispositions and does not prescribe the remedy; the remedial question is governed by general principles of equity. Accordingly Target Holdings and AIB require proof of actual loss caused by the breach for equitable compensation. The Court of Appeal found that the judge below had erred in treating the transfer date as the relevant valuation date. The breach was to be regarded as occurring when the trustees in bankruptcy were in a position to realise the shares and were deprived of that opportunity; on the facts the correct valuation date was the date when the trustee would realistically have sold the shares, identified here as 30 June 2010. The judge’s conclusion that fair value (as between knowledgeable parties) was the appropriate valuation basis was upheld. The sisters were liable jointly with the first appellant to the extent of their respective holdings for the diminution in value in the relevant period.

Appeal allowed in part. The Court of Appeal held that s.284 avoids dispositions but does not create a freestanding compensation remedy; equitable compensation requires proof of actual loss caused by breach of trust (per Target Holdings and AIB). The judge below was wrong to fix the valuation date at the transfer date; the appropriate date on the facts was 30 June 2010. The judge’s choice of fair value as the valuation method was upheld. The sisters were jointly liable with the first appellant to the extent of their holdings for loss measured by the diminution in value over the relevant period.

Appeal from the High Court of Justice (Bankruptcy) before Proudman J: Proudman J's judgment and order dated 29 June 2016 ([2016] EWHC 1536 (Ch)). The appeal was heard in the Court of Appeal and the present judgment [2018] EWCA Civ 519 substitutes the valuation date and clarifies the correct legal approach to remedy under s.284.