PAUL ALLEN v ANN STEPHANIE HURST & Ors

Section 423 of the Insolvency Act 1986 requires proof of a transaction, an undervalue, and the statutory purpose. A transaction may be unilateral and need not be known to the recipient. Historic familial financial support is not consideration without evidence that it was a loan or was waived in exchange for the transaction. The statutory purpose need not be dominant, but must substantially motivate the transferor and involve a positive intention to put assets beyond creditors’ reach or prejudice their interests. Purpose may be inferred from surrounding circumstances, including post-transaction conduct. A prior decision on another issue does not bind a trustee in bankruptcy who was not a party.

The trustee in bankruptcy applied under section 423 of the Insolvency Act 1986 concerning a declaration of trust executed by the bankrupt and her husband in favour of their children over a property. The beneficiaries admitted that sections 423(1) and 423(3) were satisfied, while the bankrupts withdrew their opposition. The remaining issue was the declaration sought; consequential relief and costs were adjourned. The central issues were whether the declaration was a transaction at an undervalue and whether it was entered into for the statutory purpose.

1. Declaration granted. The declaration of trust was a transaction for section 423 purposes. The definition in section 436 is inclusive, and a transaction need not involve bilateral activity or the recipient’s knowledge. The court relied on BTI 2014 LLC v Sequana S.A. & Ors [2019] EWCA Civ 112.
2. The declaration was at an undervalue. At most, the consideration consisted of the release of charging orders and a caution securing approximately £55,000. That was substantially less than the equity in the property. There was insufficient evidence that other historic family payments were loans, or that any loans were waived in return for the declaration.
3. The statutory purpose was established. Applying JSC BTA Bank v Ablyazov & Anr [2016] EWHC 2071 (Comm), the purpose need not be dominant, but must make an important contribution to the decision to enter the transaction. The transferors positively intended to put the property beyond creditors’ reach or prejudice their interests. Purpose could be inferred from timing, creditor exposure and subsequent secrecy and conduct.
4. The court rejected the argument that the consideration issue was res judicata following earlier charging-order proceedings. That issue had not been necessary to the earlier decision. In any event, the trustee in bankruptcy was not a party and was not bound by findings made in that litigation. The court applied Hollington v Hewthorn [1943] KB 587, as summarised in Seven Arts Entertainment Limited v Content Media Corporation Plc [2013] EWHC 588 (Ch).
5. The requirements of sections 423(1) and 423(3) were made out. Consequential relief was reserved for a further hearing.

First-instance decision. No appellate history was stated in the judgment.