4 Eng Ltd v Harper and others (No 2)

[2009] EWHC 2633 (Ch); [2009] WLR (D) 307

Where it was established that the transferor had entered into a transaction at an undervalue for the purpose of defrauding creditors, the nature of any order and the extent of the relief granted by the court under ss 423(2) and 425 of the Insolvency Act 1986 should take into account the mental state of the transferee of property under a relevant transaction, or of any other person against whom an order was sought, and the degree of their involvement in the fraudulent scheme of the debtor/transferor to put assets out of the reach of his creditors.

Sales J, sitting in the Chancery Division, so held when giving judgment for the claimant, 4Eng Ltd, on its claims brought under s 423 of the Act to set aside certain transactions by the second defendant, Barry Alexander Simpson, transferring property owned by him to his wife, Joyce Simpson, the sixth defendant, to realise assets to meet the award of damages in its favour.

SALES J said that the statute did not specify any particular mental state or action on the part of the transferee as an ingredient of the trigger conditions for liability, but that did not mean that such matters were irrelevant for defining the extent of the liability to be imposed, or the order to be made, at the next stage in the analysis when the court considered the remedy under ss 423(2) and 425. A wide jurisdiction was conferred upon the court to fashion a suitable remedy. The principles in the application of the statutory regime should reflect the general principles inherent in other areas of the law, which treated the mental state and degree of involvement of a defendant in wrongdoing as relevant to the extent of recovery against him (compare, as one example among many, Seager v Copydex [1967] 1 WLR 923, 932). Although the trigger conditions for liability to make restoration under s 423 set out the basic balance to be struck between the interests of the creditors and of a transferee as established by Parliament, the making of an order under ss 423(2) and 425 necessarily required some further balancing of the interests of the transferor’s creditors and of the transferee to be determined by the court, since by the time the court had to take action events would have moved on from the transfer and the balance of the equities between creditors and transferee might well have been affected by changes in circumstances over time.

Appearances: Clive Freedman QC and Ian Smith (instructed by McGrigors) for the claimant; Toby Watkin (instructed by Arthur Barnes & Co ) for the first defendant; Nigel Hood (instructed by Byrne & Partners) for the second defendant; Romie Tager QC and Stuart Hornett (instructed by Hughmans) for the third, fourth and fifth defendants; David Burles (instructed by Bircham Dyson Bell) for the sixth defendant.