BANKRUPTCY — Concealment of property — Transaction at undervalue defrauding creditor — Claimant commencing proceedings for order setting aside transaction before debtor adjudged bankrupt — Whether “victim of transaction” requiring leave of court to continue proceedings — Insolvency Act 1986, ss 285, 423, 424
Godfrey v Torpy and others [2007] EWHC 919 (Ch)
Ch D: Peter Leaver QC, sitting as a deputy High Court judge: 23 April 2007
Where an application for an order had been made under s 423 of the Insolvency Act 1986 to set aside a transaction which had been entered into at an undervalue and had defrauded creditors, and the individual or company against whom the application had been made was thereafter adjudicated bankrupt or became insolvent, the proceedings could continue without the leave of the court.
Peter Leaver QC, sitting as a deputy judge of the Chancery Division, so held when granting declarations in favour of the claimant, Noel Godfrey, that (1) the defendants, Laurence Torpy, Laurence Power, Strasbourg Capital Ltd, Mary Theresa Power (in bankruptcy), and Bellcove Ltd, the registered owners of two properties, held them as bare trustees for the fourth defendant, Mary Theresa Power, and (2) certain transfers of each property had been at an undervalue and were void as transactions defrauding creditors pursuant to ss 423 and 425 of the 1986 Act; and making an order vesting in the claimant the legal and beneficial interests in each property.
The claimant had obtained an order declaring that the fourth defendant had held a third property, the Old Rectory, on trust as to 50% for herself and 50% for the claimant. The fourth defendant had paid some of the share of the proceeds of sale over to the claimant, but a significant balance remained unpaid together with interest. The claimant commenced proceedings, inter alia, under s 423, claiming the declarations in relation to two other properties in which the fourth defendant had an interest. The other four defendants were individuals or companies which had from time to time an interest in either property. Subsequently, the fourth defendant was adjudicated bankrupt on her own petition. S 285 of the 1986 Act gave the court a discretion to stay proceedings against a bankrupt or to allow them to continue. S 424(1), which set out who was entitled to apply for a s 423 order, provided that an application could not be made except “(a) in a case where the debtor has been adjudged bankrupt … (with leave of the court) by a victim of the transaction … (c) in any other case, by a victim of the transaction.” The defendants submitted that the claimant’s claims under s 424 as “a victim of the transaction” were being pursued without the permission of the bankruptcy court and so were void.
PETER LEAVER QC said that the words of s 424(1) made it clear that the application for the order was made when the proceedings, in which relief was claimed under s 423, were commenced. That construction flowed from paras (a) and (b) which identified who could make an application after the debtor had, inter alia, been adjudged bankrupt. It followed that a victim did not require the leave of the court before the debtor’s insolvency. The draftsman of the Act knew that there would be a period between the commencement of proceedings in which the claim/application was made and the trial of the claim/application and judgment. He could not have intended that the question of who could make the claim/application could only be decided at the end of the trial. He knew that the person in charge of the insolvent’s affairs would have to make a decision whether to continue proceedings which were already in being after his appointment. Accordingly, leave of the court was not required to continue the s 423 proceedings. In the circumstances, on the evidence each transaction involving the two properties in which the defendants were involved were sham transactions the dominant purpose of which was to remove assets from the reach of actual or potential creditors. Accordingly, the declarations and orders sought by the claimant would be made.
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