To succeed in an application under section 423 of the Insolvency Act 1986 – which empowers the court to grant relief in respect of transactions at an undervalue – the court must be satisfied that a purpose of the transaction was to put assets beyond the reach of creditors or otherwise to prejudice them.
The High Court has rejected such an application in Lemos and others v Church Bay Trust Company Ltd and others [2023] EWHC 2384 (Ch).
The case concerned transactions carried out in 1994 by Christos Lemos and his wife, Kalliopi, relating to a Liberian corporation, Panagia, which owned their matrimonial home in Hampstead, London NW3. Christos was made bankrupt in March 2015 on his own petition following judgment against him for $18m by his sister, Joanna, the first claimant.
One half of the property was acquired by Panagia in 1981. Subsequently, in 1992 Panagia purchased the neighbouring property from another Liberian company associated with the Lemos family, Nandina. The properties were subsequently combined and refurbished.
The central issue was whether or not Christos had a beneficial interest in Panagia in 1994. It was common ground that the issued share in Panagia was assigned to Christos in June 1981, that in June 1994 he made a declaration of trust which stated that at all times he held the share upon trust for Kalliopi and subsequently he held no legal or beneficial interest in Panagia.
The claim was brought by Joanna and Christos’s trustees in bankruptcy, who alleged that by the declaration of trust Christos gifted his interest in Panagia to Kalliopi. The defendants were trustees of the settlement and Kalliopi, the beneficiary.
To satisfy section 423 of the 1986 Act it is not necessary to establish that the sole or dominant purpose of the transaction was to put assets beyond the reach of creditors or to cause them prejudice, only that it was a purpose – a subjective intention. It is insufficient if it is merely a by-product or consequence of the transaction.
The court found that Panagia was set up by Kalliopi’s parents, who funded the acquisition of the property, their intention – known to both Christos and Kalliopi – being that the beneficial owner would be Kalliopi alone. Letters of June 1981, March 1982 and August 1992 supported this interpretation. Consequently, at the date of the declaration of trust Christos did not hold any shares in Panagia and prior to that his interest was held on trust for Kalliopi. Section 423 of the 1986 Act did not apply.
Louise Clark is a property law consultant and mediator
