Ed Thomas & Anor v Adam Jones & Anor

Section 423 of the Insolvency Act 1986 is not founded on fraud and does not require insolvency. The court must establish the debtor’s actual subjective purpose. It is sufficient that the prohibited purpose was one purpose of the transaction; it need not be dominant or exclusive. Purpose may be inferred from the circumstances, including knowledge of claims, concealment, litigation context and the debtor’s conduct. A transaction may qualify even where the claimant was not the person specifically targeted. Relief remains discretionary. Genuine payments for services, reimbursement or loans will not ordinarily satisfy the purpose requirement merely because they pass between family members.

The claim was brought by the trustees in bankruptcy of Roderic Hamilton under section 423 of the Insolvency Act 1986. They challenged a £3m gift made by John Jones to his son, Adam Jones, in two instalments in December 2016 and January 2017, together with 12 miscellaneous payments made between June 2016 and January 2019.

The trustees alleged that the transactions were at an undervalue and were entered into for the purpose of putting assets beyond the reach of Hamilton or prejudicing his interests. The defendants disputed the necessary purpose and contended that the miscellaneous payments represented reimbursements, loans or payment for services.

1. Outcome. The section 423 claim succeeded in respect of the £3m gifts and failed in respect of the miscellaneous payments. The terms of relief were adjourned to a consequentials hearing.
2. Applicable principles. Section 423 is not founded in fraud and is not concerned with insolvency. The relevant purpose is the debtor’s subjective purpose. The court must be satisfied that the debtor actually had the statutory purpose, rather than that a reasonable person would have had it. A prohibited purpose need only be one purpose of the transaction and need not be dominant or exclusive. The purpose may be inferred notwithstanding the debtor’s denial.
3. The gifts. The gifts were transactions at an undervalue. Although tax efficiency and a desire to benefit the son were genuine purposes, the evidence showed that John Jones knew of Hamilton’s claims, appreciated that they might be substantial, understood the complexity and acrimony of their dealings, withheld relevant information, and wished to put his family’s assets beyond the reach of the dispute. Those circumstances established the requisite purpose. The fact that Jones believed his assets might exceed the claim did not negate that purpose.
4. The miscellaneous payments. The payments were materially different. The evidence supported explanations involving reimbursement, carpentry work, tools, scaffolding and repayment of advances. Even where the first payment included a gift element, the trustees had not shown a litigation-related purpose to put assets beyond a claimant’s reach or prejudice the claimant’s interests.
5. Relief. Any order under section 423 was discretionary and would be determined after submissions if the parties could not agree.