LLOYD HINTON v GILLIAN WOTHERSPOON

A transaction may fall within section 423 of the Insolvency Act 1986 even where the debtor has several purposes, provided that one purpose is to put assets beyond the reach of, or prejudice, a person who is making or may make a claim. The purpose must nevertheless be proved on the balance of probabilities as a subjective purpose directed to reasonably foreseeable creditors or claims. A transfer which removes a beneficial interest but retains a personal contractual power to control dispositions is not necessarily a transaction at an undervalue when that power is later exercised. The exercise of such a personal consent power, without an entitlement to consideration, was not a gift, agreement or arrangement within section 423.

The applicant was the trustee in bankruptcy of John Wotherspoon. His wife, Gillian Wotherspoon, was the sole registered owner of the matrimonial home, Strand House. The trustee alleged that Mr Wotherspoon retained a beneficial interest when the property was sold in 2013, or alternatively that the transfer of his remaining interest to his wife in 2008 was a transaction defrauding creditors under section 423 of the Insolvency Act 1986.

The trustee also alleged that Mr Wotherspoon’s consent to the 2013 sale, given pursuant to a contractual restriction, was a transaction at an undervalue under section 339. The central issues were the legal effect of the 2008 transfer, the purpose for which it was made, and whether the later exercise of the consent power constituted a statutory transaction.

1. Mrs Wotherspoon became the sole legal and beneficial owner of Strand House on execution of the 2008 transfer. The restriction gave Mr Wotherspoon a personal, lifetime contractual right to withhold consent to a disposition. It did not preserve or create a beneficial interest.

2. Section 423 of the Insolvency Act 1986 requires proof that the debtor entered into the transaction for the prohibited purpose of putting assets beyond the reach of a person making, or who may make, a claim, or otherwise prejudicing that person’s interests. The test is not dependent on a dominant or substantive purpose. A prohibited purpose may coexist with other purposes.

3. The applicant had to prove the relevant subjective purpose on the balance of probabilities. It was unnecessary to identify a particular existing creditor, but there had to be a creditor or type of future claimant reasonably contemplated in the debtor’s mind. It was insufficient merely that the transfer reduced assets available to creditors in the event that liabilities later arose.

4. The circumstantial evidence did not establish that Mr Wotherspoon contemplated being unable to meet tax or other liabilities, or that he transferred the property to defeat future claims. The section 423 claim therefore failed. The 2008 gift was also outside the relevant period for a section 339 claim.

5. The 2013 consent was an exercise of a personal power. It was not a gift, agreement or arrangement and had no realisable value equivalent to the property. Section 339 did not apply. The application notice was dismissed.