Barons Finance Ltd v Barons Bridging Finance 1 Ltd & Ors

A disposition of a company’s property made after the commencement of a court winding-up is void under Insolvency Act 1986, section 127, unless the court orders otherwise. A transaction is at an undervalue where the consideration received is significantly less than the value provided, assessed at the transaction date. Under section 423, the court may set aside an undervalue transaction entered into for the purpose of putting assets beyond the reach of, or prejudicing, a person with a claim. These conclusions may be reached on the balance of probabilities. The court may also lift the statutory stay where, in all the circumstances, doing so is right and fair.

Barons Finance Ltd, in liquidation, sought to set aside a purported 2012 assignment of its loan book and related property charges to two companies controlled by the third defendant. The claim relied on sections 127, 238, 239 and 423 of the Insolvency Act 1986. An earlier judgment finding the assignment invalid had been set aside on appeal for want of a fair trial and the matter was remitted for a hearing de novo. The defendants did not actively contest the claim at the rehearing. The central issues were when the assignment was made, whether it was void after presentation of the winding-up petition, whether it was at an undervalue, and whether it was entered into to prejudice creditors.

1. Procedural applications. The statutory stay under section 130(2) of the Insolvency Act 1986 was lifted. The court considered it right and fair to do so because the ownership of the loan book affected numerous borrowers, the liquidation could not be completed without resolving the issue, and the Official Receiver was neutral provided no costs order was made against the companies. The claimant was permitted to discontinue against the third defendant, but the ordinary rule under CPR 38.6 applied and he was entitled to his costs of defending himself. His requests for an adjournment and for an order against the FCA were refused.
2. Date of assignment. On the balance of probabilities, the deed was made on or about 17 September 2012, not 31 March 2012. The documentary evidence, including continued enforcement by the original company, the absence of earlier contemporaneous documents, the delay in registration, and notices referring to an assignment made on 17 September 2012, outweighed the date appearing on the deed. The finding was civil only and did not amount to a criminal finding of fraud.
3. Section 127. Because the deed post-dated presentation of the winding-up petition, it was void under section 127 of the Insolvency Act 1986 and was to be set aside. Transfers of charges made pursuant to it were likewise void, requiring reinstatement of Barons Finance as chargeholder and rectification of the Land Registry entries.
4. Undervalue. The loan book was worth considerably more than the £76,500 consideration. Its value was assessed at the relevant date, and the alleged unenforceability of some loans did not overcome the evidence that the loans were being actively enforced. There was no genuine commercial rationale or reasonable ground for believing that the transaction would benefit Barons Finance. The transaction therefore fell within section 238(4).
5. Transactions defrauding creditors. The undervalue transaction was entered into for the purpose of putting assets beyond the reach of Mr and Mrs Mayendesa, or otherwise prejudicing Barons Finance’s creditors. Section 423 was therefore satisfied. The court ordered the consequential provision of information and documents and made no order as to costs.

• High Court (Chancery Division): The present hearing was a rehearing de novo after the earlier judgment, [2015] EWHC 2007 (Ch), had been set aside.
• Court of Appeal: The appeal was allowed on fairness grounds and the matter was remitted to the High Court: [2016] EWCA Civ 550.