Paul Allen v Ann Stephanie Hurst & Ors

The court’s powers under Insolvency Act 1986 sections 423–425 are broad and flexible. Relief must restore the position, so far as practicable, and protect the interests of victims, rather than restore the position generally. In a surplus case, creditors’ interests do not extend to surplus value, but the court must still consider the interests of an innocent transferee and should not prejudice that transferee beyond what is necessary to protect creditors. The court may set aside part of a transaction while preserving another part, or order payment of a defined sum instead. Where registered owners have no beneficial interest and lack a proper incentive to sell, conduct of the sale may be transferred to the trustee in bankruptcy.

Paul Allen, trustee in bankruptcy of Ann Stephanie Hurst, sought consequential relief after the court had declared that a 2009 declaration of trust concerning the family home was a transaction defrauding creditors under section 423 of the Insolvency Act 1986. The beneficiaries were the adult children of Mrs and Mr Hurst.

The parties agreed that the property should be sold, but disputed conduct of the sale, the sale price, the date for giving vacant possession, and entitlement to any surplus after payment of the bankruptcy debts and expenses. Mrs Hurst also sought a late adjournment to obtain legal advice and representation. The central issues were the scope of the court’s remedial jurisdiction under sections 423–425 and how that jurisdiction should be exercised where the transferees were innocent and the property was worth more than the creditors’ claims.

1. Adjournment. The application made halfway through the hearing was refused. Mrs Hurst had known of the proceedings and the consequential-relief hearing for substantial periods, had had ample opportunity to obtain representation, and offered no adequate explanation for the delay. An adjournment would cause further delay, consume court resources and serve no useful evidential purpose.
2. Jurisdiction. Sections 423(2) and 425 of the Insolvency Act 1986 confer a wide, non-exhaustive remedial jurisdiction. The court may fashion relief that restores the position, so far as practicable, and protects victims. It is not restricted to setting aside the whole transaction. It may set aside one component, leave another component intact, or order payment of a sum secured by a charge.
3. The court had jurisdiction to set aside the declaration of trust while directing that any surplus sale proceeds be paid to the innocent beneficiaries. That arrangement protected the creditors and was a permissible matter of remedial mechanics.
4. Discretion. In a surplus case, the creditors have no interest in value exceeding their claims. That does not mean that the transferee’s interest is the only relevant interest. Where the transferee is innocent, and no general-law vitiating circumstance is established, relief should not prejudice the transferee more than necessary to protect the victims. Mrs Hurst had deliberately entered into the transaction to prejudice creditors, whereas the beneficiaries were innocent and had voluntarily received the property. The court therefore ordered that the surplus be paid to them in equal shares.
5. The property was ordered to be marketed initially at £2.05 million, with reduction to not less than £1.8 million on reputable estate-agent advice and any lower sale price requiring the beneficiaries’ consent or further court order. The trustee was given immediate conduct of the sale because the Hursts had delayed marketing and had no beneficial interest or adequate incentive to secure a prompt sale. Vacant possession was required by the earlier of completion or 23 January 2023. The trustee’s proper costs and expenses were to be paid from the estate.