Kamran Malik & Ors v Farida Messalti

Section 423 of the Insolvency Act 1986 focuses on the transferor’s purpose, not merely the transaction’s effect or foreseeability. A transaction at an undervalue may fall within the section where a purpose is to put assets beyond the reach of present or future creditors, even though no particular creditor or class of creditor was identified in the transferor’s mind.

The statute contains no separate requirement that the transferor have knowledge of actual or potential creditors. Knowledge may nevertheless be relevant evidence when determining the transferor’s purpose. The statutory test does not require the prohibited purpose to be dominant or substantial.

Mr Malik appealed against a final charging order made over his beneficial interest in a property. He relied on a 2008 trust deed under which that interest had been transferred to his children. The lower court accepted that the deed was genuine and effective in principle, but set aside its effect under section 423 of the Insolvency Act 1986 and made the charging order.

Permission to appeal was granted on the construction of section 423(3). Mr Malik argued that the statutory reference to a person who was making, or might make, a claim required the transferor to know of that person at the time of the transaction. The central issue was whether such knowledge was a statutory condition.

1. Appeal dismissed. The appeal proceeded only on the permitted ground concerning the construction of section 423(3) of the Insolvency Act 1986. The absence of a respondent’s notice did not require the appeal to succeed.
2. Section 423 distinguishes between a transaction’s purpose and its effect. The fact that a transfer puts assets beyond creditors’ reach, or that the transferor foresees that result, is evidence relevant to purpose but is not itself determinative. The statutory test requires only that the transaction was entered into for the prohibited purpose; it does not impose a substantial-purpose or dominant-purpose requirement.
3. The focus of section 423(3) is the transferor’s purpose, not the degree of knowledge possessed about persons making, or who may make, claims. The provision contains no requirement that the transferor know of any particular actual or potential creditor, or of a creditor class.
4. A general purpose of putting assets beyond the reach of present or future creditors can satisfy section 423(3), even where no specific creditor or class was identified. The statutory purpose includes protecting persons who may make claims in the future. Requiring subjective knowledge of particular creditors would undermine that protection and produce inconsistent results between victims of the same transaction.
5. Knowledge remains relevant to the factual inquiry. Evidence that the transferor did not know of a particular creditor or potential creditor may shed light on whether the prohibited purpose existed, but it is not a statutory precondition.
6. Hinton v Wotherspoon was not authority for a knowledge requirement. Its references to creditors being in the transferor’s mind were factual findings in that case, where the court inferred that the transferor was not thinking about creditors. The facts and evidential context differed here.

The lower court’s conclusion that the trust deed was entered into with a prohibited purpose was not open to challenge on this appeal. The final charging order therefore remained in force.

• Chancery Appeals (ChD): Appeal from the order of Master Dagnall dated 6 February 2023. The appeal was dismissed.
• High Court, King’s Bench Division: Master Dagnall made a final charging order and set aside the effect of the trust deed under section 423 of the Insolvency Act 1986: [2023] EWHC 553 (KB).