Garden House Software Limited v Timothy John Marsh & Ors

A transaction at an undervalue may be established where a company transfers valuable intellectual property for a licence that is effectively worthless to it. For a connected-party transaction, insolvency is presumed unless rebutted. Cash-flow and balance-sheet insolvency are aspects of one question and must be assessed commercially, including future and contingent liabilities.

• The statutory defence requires good faith, a purpose of carrying on the company’s own business, and reasonable grounds for believing that the transaction would benefit that company, rather than its group.
• A transaction may defraud creditors where protecting assets from creditors is a real purpose, even if another purpose also exists.
• Insolvent directors must consider creditors’ interests and must not transfer assets or incur liabilities for the benefit of other group companies.

The claimant, an assignee of claims belonging to an insolvent software company, sued the company’s former directors, associated companies and others concerning the transfer of the company’s intellectual property in the Adypt software to a newly incorporated group company.

The issues included ownership and value of the software rights, whether the transfer was a transaction at an undervalue or a transaction defrauding creditors, the statutory defence, wrongful trading, de facto directorship, conspiracy, dishonest assistance, directors’ duties, later charges over the software, and payments made to a director.

The court also had to determine the appropriate relief, including whether the intellectual property should be revested or its value paid.

Disposition. The claim succeeded in part. The assignment was a transaction at an undervalue and a transaction defrauding creditors. Claims for breach of the duties under sections 172 and 174 of the Companies Act 2006 succeeded against Mr Marsh and Mr Rowland. The wrongful-trading, de facto-directorship, preference and unlawful-loan claims were dismissed.

1. The company’s employees had created copyright in the software. In the absence of an agreement for joint ownership, the relevant rights belonged to the employing company. The platform and modelling repository had independent practical value. The cost approach was the appropriate valuation method, producing a value of £2,034,000 at the assignment date. The one-year non-assignable licence received by the company was effectively worthless.
2. Applying sections 238, 240 and 123 of the Insolvency Act 1986, the company was cash-flow and balance-sheet insolvent. It had been failing to pay tax, national insurance, pensions and other liabilities, and its future funding depended on speculative licensing or investment.
3. The defence under section 238(5) failed. The assignment was not for the purpose of carrying on the company’s own business and there were no reasonable grounds for believing that it would benefit that company rather than the wider group. Under TAQA Bratani Ltd v Fujairah Oil and Gas UK LLC [2025] EWCA Civ 1669, the company’s interests had to be considered separately from those of its group.
4. The subjective prohibited purpose under section 423 was established. Protecting the intellectual property from the company’s creditors was a real and substantial purpose, although licensing was also contemplated. The assignment was therefore a transaction defrauding creditors.
5. There was no wrongful trading because, in August 2017, a reasonable prospect of avoiding insolvent liquidation remained. The non-executive directors were not de facto directors. The JPPDs had not shared the prohibited purpose and were not dishonest assistants. SAHL, acting through Mr Marsh and Mr Rowland, was liable for conspiracy and dishonest assistance.
6. The later 2026 charge was itself a transaction at an undervalue and a transaction defrauding creditors. It did not prevent relief. Monetary compensation was preferred to a vesting order because the transferred rights were not sufficiently identified and vesting risked further litigation and loss of value. Orders for £2,034,000 were made against Mr Marsh, Mr Rowland and SAHL, with security and priority directions to be settled after further submissions.

This was a first-instance trial. The judgment refers to an interlocutory summary judgment decision by HHJ Cadwallader on 18 February 2026; no appeal is stated.