Gordian Holdings Ltd v Sofroniou & Anor

A claimant may remain a statutory victim of a transaction defrauding creditors even after the debtor has subsequently and unilaterally reversed the transaction. That later step may affect the relief available, but does not remove standing under Insolvency Act 1986, ss 423–424.

Strike out is appropriate only where the claim is certain to fail. Summary judgment requires the claimant to have no realistic prospect of success, but the court must avoid a mini-trial. Where disclosure may materially affect the evidence, the application should ordinarily be refused.

The claimant alleged that the first defendant’s transfer of his only share in a company to the second defendant was a transaction defrauding creditors under Insolvency Act 1986, s 423. The share was later returned before proceedings were commenced.

The defendants applied to strike out the relevant parts of the claim or obtain reverse summary judgment. They argued that the claimant was no longer a statutory victim and that the share return had already provided all possible relief. The issues were whether the claimant retained standing and whether further relief remained realistically possible.

1. The application to strike out or obtain reverse summary judgment was dismissed. The pleaded claim was not certain to fail under CPR r 3.4 and had more than a fanciful prospect of success for summary judgment purposes.
2. Under Insolvency Act 1986, s 423(5), a person whose interests are prejudiced, or capable of being prejudiced, by a transaction at an undervalue is a victim. A person immediately prejudiced by the transaction does not lose that status because the debtor later takes unilateral steps to reverse it. The statutory definition does not depend on quantifiable loss.
3. The later share return was relevant to whether relief should ultimately be granted and, if so, what relief was appropriate. It did not establish at the interlocutory stage that no relief could be granted.
4. There were real questions concerning the apparent reduction in the share’s value between the relevant company accounts. Disclosure might show that the transfer affected the company’s borrowing capacity or facilitated the use of company assets or funds for the defendants’ personal purposes. Those matters could support an order for payment under Insolvency Act 1986, s 425(1)(d), notwithstanding the share return.
5. The court should not conduct a mini-trial on summary judgment. Where fuller investigation and disclosure may add to or alter the evidence and affect the outcome, final determination without trial is inappropriate.