Restoring Shares To The Bankrupt's Estate

In a recent case the High Court had to deal with how the diminution in value of shares should be assessed on the restoration of the shares to the bankrupt's estate.

One of the duties of a trustee in bankruptcy (like the liquidator of a company that is being wound up), is to get in the estate of the bankrupt person, and to consider whether any assets can be clawed back where, for example, there has been a prior void or voidable disposal of those assets. Any transfer of assets by the bankrupt after the date of presentation of the bankruptcy petition is void unless made with the consent of or ratified by the court. In passing, the reason why a disposal by a receiver appointed by a secured creditor is not caught by this, despite the fact that the receiver usually acts as agent of the bankrupt or insolvent company, is because the relevant disposal is at the date of the original creation of the security, not the date of the disposal by the receiver.

In this case, minority shareholdings in a number of companies had been disposed of by the bankrupt to family members, the consideration being the satisfaction of supposed existing debts, after the presentation of a bankruptcy petition. The shares had since fallen in value, and the trustees claimed that they would have sold them before that fall. Of course if a creditor of the bankrupt had had fixed security over the shares no such disposal would have been possible without the creditor's consent, but the case is still of interest to creditors seeking to prove in the bankrupt's estate of an individual borrower or guarantor.

Interestingly, the original transfer of the shares...