In the recent decision of Hinton v Wotherspoon, the court was faced with a claim under section 423 Insolvency Act 1986 by a trustee in bankruptcy to set aside a transfer of the matrimonial home into the sole name of the bankrupt’s wife.
The defence was that the reason for the transfer was to fulfill a pre-marriage promise that the house would be hers. It was further asserted that, at the time of the transfer there was no specific creditor who may make a claim at some point in future.
HMRC was the relevant creditor for these purposes being the ultimate petitioning creditor. However, at the time of the transfer all tax was paid and there was no reason to suppose at the time that there the bankrupt would be unable to pay in future.
There were inconsistencies in the evidence of the intended purpose and the court ultimately found against the Respondent that the reason for the transfer was the pre-marital promise.
Evidence was adduced as to the bankrupt’s finances and assets at the time and the inevitable difficulties that would be caused by the financial crisis in 2008 which was contemporaneous with the transfer. Despite this the court held that the test under section 423 had not been met because:
“It needs a purpose to put assets beyond the reach of or otherwise prejudice the interests of persons making (none) or who may at some time make a claim against him. There was no reasonably foreseeable creditor or type of creditor who might do that. It is not enough to assert that the debtor wished to protect assets and that this would have the result of adversely affecting any creditors in the future because it would inevitably diminish Mr Wotherspoon’s assets. There had to be, and there had to be in Mr Wotherspoon’s mind, creditors to whom he would in the future be unable to make payment and who may at some time make a claim.”
The court considered that, at the time of the transfer, on the balance of probabilities, it had not been established that the bankrupt was considering being unable to pay his tax (or other creditors) in the future with the result that claims may be made.
The trustee’s claim was unsuccessful.
Commentary
The decision shows again the difficulty in proving the subjective intention on the part of the transferor under section 423 so as to bring a successful claim. The finding that there was no specific creditor in mind that the bankrupt considered could not be paid does seem a little at odds with the 2006 decision of Sands v Clitheroe, in which the court had held that the fact a particular claimant was not in contemplation at the time of the transfer was immaterial. All that was required was that the claimant was prejudiced by the transaction albeit at some later date.
If this current ruling is correct, it would seem to follow that a transferor could consider transferring property on a “just in case it all goes wrong” basis. Provided there is no specific creditor at the time or no thoughts on the part of the transferor of any risk of creditors not being paid in future, section 423 will not apply. That must be incorrect when the test is prejudicing the interests of those who “may” make a claim. To add an additional element to the test that those who may make a claim must be identifiable at the time of the transaction in question is an unwelcome development.