Company – Administration – Transfer of property – Claimant administrators applying for order requiring defendant to transfer registered title of properties to them – Whether defendant precluded from denying properties held on trust for company – Whether claimants establishing that company appeared to be entitled to property under section 234 of Insolvency Act 1984 – Whether company holding properties on constructive trust – Application granted
The claimants were the joint administrators of a company (C) and the liquidators of an associated company (N). The defendant was the registered freehold owner of six properties, which he let out as a business. By a written agreement in 1999, the defendant agreed to sell the business to N in consideration of the allotment of certain shares. In September 2002, the defendant set up a family trust and incorporated the company (C) in Jersey. The trust and company were established to avoid UK tax liability on property assets in England. By an agreement of November 2003, N agreed to sell the properties to C. Although the defendant and N were provided with the consideration to which they were entitled under the 1999 and 2003 agreements, no transfers of legal title to the properties were executed. The legal title thus remained vested in the defendant.
In December 2010, receivers were appointed in respect of C. The defendant obtained further funds and the properties were re-mortgaged. In November 2015, N was wound up and in October 2017, C went into administration. By a letter of October 2017, the claimants asked the defendant to complete TR1 forms regarding the properties on the basis that they were held on trust for C. When he refused to do so, they applied for an order requiring the defendant to transfer the registered title of the properties to them.
The issues raised were: (i) whether the defendant was precluded from denying that he held the properties on trust for C; (ii) whether the claimants had established that C appeared to be entitled to property under section 234 of the Insolvency Act 1986; and (iii) whether C held the properties on a constructive trust.
Held: The application was granted.
(1) As the defendant had previously made admissions that he held “ownership on trust for the company”, he could be taken have accepted that, whilst the legal title was vested formally in his name, the properties would be held for and on behalf of C. The conceptual basis for the administrators’ application was obscure. Therefore, the court would decline to make any determination in the claimants’ favour based on issue estoppel or abuse of process.
(2) Section 234 of the Insolvency Act 1986 conferred powers on the office holders in support of their statutory functions to collect and realise the company’s property. However, it was procedural only and did not enlarge the company’s rights in such property. To establish their case under section 234, the claimants had to show that C “appears to be entitled” to “property”. “Property” was widely defined in section 436(1) so as to include “money, goods, things in action, land and every description of property wherever situated and also obligations and every description of interest, whether present or future or vested or contingent, arising out of or incidental to, property”. That was wide enough to include any contractual right and any legal or equitable interest in respect of the property. However, in a case such as this where the claimants sought an order providing for the transfer of the legal title, the right or interest itself dictated that they were entitled to such an order. The statutory jurisdiction encompassed a transfer to the office-holders as agents for C. It was also implicit in the statutory requirement that C had to “appear…entitled” to property, that the court had jurisdiction to determine a dispute of entitlement. C was not party to the 1999 agreement and the defendant was not party to the 2003 agreement. Together, they had not entered into a written agreement for the sale and purchase of the properties. Conversely, N and C had not executed, in compliance with section 52(1) or 53(1)(c) of the Law of Property Act 1925, a conveyance or other written agreement or instrument transferring N’s rights to C. Notwithstanding that the 1999 and 2003 agreements incorporated formulae requiring the date for completion was to be fixed by notice, no such notice was ever served. Moreover, where a purchaser purported to create rights in property, such rights did not assume a “proprietary character” and thus become capable of taking priority over recognised interests in land until the purchaser acquired the legal estate: Re London Iron and Steel Co Ltd [1990] BCLC 375, Re Leyland DAF Ltd [1994] 1 BCLC 264 and Southern Pacific Mortgages Ltd v Scott [2015] EGLR 3 considered.
(3) Once a vendor received the purchase price in full, he was no more than a bare trustee since, from that point, he had to hold the property in trust for the purchaser absolutely and indefeasibly with no active duties other than to preserve the property and transfer it to the purchaser at his direction. Where property was held on sub-trust and the sub-trustees themselves had no active duties to perform, the sub-trustees were not entitled to assert any claim to the property and the trustee could thus act on the directions of beneficiaries under the sub-trust. In the present case, the defendant held the properties on bare trust for C under the 1999 agreement, at the latest from the time C assumed responsibility, under the 2003 agreement, for repayment of the loans and the properties were thus entered as assets on C’s balance sheet with the rents paid into bank accounts held by the defendant and designated as C’s client accounts. The 1999 agreement had never been formally completed. However, at the outset, N furnished the defendant with the contractual consideration in full, through the allotment of share capital, and he thus held the property on bare trust for N. Whilst the defendant, as legal owner, was not a party to the 2003 agreement, he signed the same in his capacity as director of N and, although he was not formally appointed as a director of C, he was in control of both companies at all material times. In his personal capacity, he was the legal owner of the properties and in that capacity he acted as trustee and acknowledged the company’s beneficial interest. Thus, the defendant was estopped from denying that N’s rights under the 1999 agreement had been assigned to C and that, following assignment, C was entitled to exercise N’s rights under the 1999 agreement, including its right to serve notice fixing the completion date. Moreover, since C was deemed to have furnished, in full, the consideration for the 2003 agreement by assuming responsibility for repayment of the loans, it must be taken to have assumed the rights of a full beneficial owner by permitting the defendant to grant tenancies and collect the rents on its behalf. There could have been no good reason for N to retain any rights from that time and there was no evidence to suggest it had done so: Re Lashmar [1891] 1 Ch 258, Rodenhurst v Barnes [1936] 2 All ER 2 and Southern Pacific Mortgages considered.
(4) In all the circumstances, there was no good reason to decline to make an order providing for the properties to be transferred to the claimants immediately so that they could be realised in the proper course of the administration.
Mark Cawson QC (instructed by DrydensFairfax, of Leeds) appeared for the claimants; Richard Lander (instructed by Chandler Harris LLP, of Manchester) appeared for the defendant.
Eileen O’Grady, barrister
