Transactions Defrauding Creditors: The Use Of Corporate Structures To Defeat Creditor Claims

• Published date: 11 September 2023
• Law Firm: Mayer Brown
• Author: Mr Michael Fiddy, Stephen Moi and Alexandra Wood

Judgment creditors should be aware that the English Court of Appeal has given guidance on the proper construction of s423 Insolvency Act 1986 (transactions defrauding creditors)¹. This guidance will be relevant where it is alleged that a debtor has transferred assets through corporate structures in order to defeat the claims of creditors, including judgment creditors.

In essence, the Court may grant relief in respect of a transaction entered into at an undervalue by a debtor for the purpose of either putting assets beyond the reach of its creditors or otherwise prejudicing the interests of creditors. Applications for relief can be made not only by insolvency officeholders (liquidators and administrators of a corporate debtor and bankruptcy trustees of an individual debtor) but also by victims of the transaction (such as judgment creditors). It applies generally, and not only in the context of formal insolvency proceedings. Any relief granted will be with a view to restoring the position prior to the transaction.

In this case, the Court of Appeal was concerned with allegations that an individual debtor had taken steps to disguise his (beneficial) ownership of assets (including real estate, shares and cash) or to cause them to be transferred within his family with a view to putting them beyond the reach of, or otherwise prejudicing...