Property – Sale at undervalue – Insolvency Act 1986 – First defendant entering into deed purporting to bestow on second defendant beneficiary legal and other interests in property – Claimant creditor applying for order setting aside deed – Whether defendants entering into deed for purpose of putting assets beyond reach of creditors – Application granted
The first defendant was registered as proprietor of properties at 78a High Elm Road and 6 Hilltop Drive, Hale Barns, Altrincham. Separate applications were made to the claimant company in his name for loans of £290,000 and £200,000 to be secured by second legal charges on the properties. The first defendant said that he had not completed or signed the application forms and did not know of their contents. The applications led to unregulated credit agreements being offered by the claimant and accepted by the first defendant which he signed.
The first defendant defaulted on the two loans and the claimant commenced possession proceedings in relation to both properties. At the hearing of the possession actions, the first defendant produced a deed dated 28 December 2006 described as having been made between the first defendant and his wife, the second defendant. The purpose of the deed was said to be to bestow upon the second defendant, as beneficiary, all legal and other interest in the properties.
The claimant subsequently applied to the court for an order setting aside the 2006 Deed in the exercise of its powers under section 423 of the Insolvency Act 1986 or to make such other order as the court thought fit to restore the position to what it would have been if the deed had not been entered into.
Held: The application was granted
(1) To grant relief under section 423 of the 1986 Act, the court had to be satisfied that the deed was a transaction entered into at an undervalue by the first defendant for the purpose of putting assets beyond the reach (or otherwise prejudicing the interests) of someone who might at some time make a claim against him. Moreover, that purpose must have been a real and substantial purpose of his executing the deed. It was not enough that the prejudicing of the interests of the potential claimant was simply a by-product or consequence of the transaction which of itself made no contribution of importance to the first defendant’s decision to undertake the transaction. Further, it had to be appropriate in all the circumstances to grant the relief sought. The first defendant’s purpose in entering the relevant transaction was a question of fact to be decided both upon the direct written and oral evidence of the witnesses called and the content of the documents adduced in evidence (and any proper inferences to be drawn from those documents.
(2) It was common ground that the 2006 Deed was a transaction at an undervalue for the purposes of section 423. It was also plain that the first defendant knew that the true ownership of the properties was a relevant consideration for a lender but had failed to record in any way on any public register what that true ownership was. He kept the deed in a safe and controlled to whom and by what means its effect might be disclosed. Failure to register dealings with the beneficial ownership was a very significant factor which a judge was entitled to take into account when assessing the evidence as a whole in the course of reaching a decision about the substantial purposes of a transaction: Inland Revenue Commissioners v Hashmi [2002] EWCA Civ 981; [2002] 2 BCLC 489 applied.
(3) Public registers were maintained to inform the world at large about ownership of property Commercial dealings depended upon them recording the truth. Although under the land Registration Act 2002, the registrar was not to be affected with notice of a trust (so that the terms of the trust were not brought onto the face of the title and the trust could be overreached) the existence of a trust was apparent from restrictions noted on the title in order that those dealing with a registered proprietor might know with whom they had to deal in relation to the payment of capital money.
In the present case, the court was entitled to ask why the first defendant had chosen to undertake the transaction without using a conveyancing solicitor and availing himself of the advice to which that would have given access and why he had not himself sought to communicate with the Land Registry; and in the absence of a compelling answer to infer that a reason for not doing so was to keep knowledge of the transaction private and the information subject to his control.
(4) Upon review of all the evidence, the claimant had discharged the burden of establishing on the balance of probabilities that a real and substantial purpose of the first defendant in entering the 2006 Deed was to place assets beyond the reach of those who might have a claim upon him. The claimant did not have to demonstrate that the first defendant had it in mind. Being so satisfied, and having considered all the circumstances, the court would make an order restoring the position to what it would have been if the transaction had not been entered into. The effect of setting aside the 2006 Deed would be to revest both properties in the first defendant beneficially: Fortress Value Recovery Fund v Blue Sky [2013] EWHC 14 (Comm) applied.
Josephine Hayes (instructed by Swift Legal Group Department) appeared for the claimant; Lisa Feng (instructed by Gateley plc) appeared for the defendants.
Eileen O’Grady, barrister
Click here to read the transcript of Swift Advances plc v Ahmed and another
