Re Ahmed; Ingram v Ahmed

Bankruptcy – void disposition of shares – remedies – s. 284, Insolvency Act 1986

In June 2007, A (the debtor) transferred shares to or for the benefit of R, after the presentation in January 2007 of a petition that resulted in A’s bankruptcy in April 2009. The trustees sought recovery of the shares and compensation under section 284 of the Insolvency Act 1986. For some considerable time R resisted the application, but in 2015 finally returned the shares to the trustee. However, by this point the shares had significantly decreased in value.

Although section 284 (and section 127) renders the disposition void, the transfer of legal title is not a nullity: the debtor remains beneficial owner of the asset and the transferee takes as bare trustee for the estate (or company). On that basis, R contended that as the ‘trust’ property had been returned, the trustees could not also pursue a claim for the lost value of the shares.

The court disagreed. Following a void disposition, the resulting claim can be either proprietary or personal. Although return of the asset “may be the usual remedy… it is not the only remedy” and it may be right to restore the value of the asset or order equitable compensation.

Accordingly the trustees could recover the 2009 value of the shares, minus their present value: in accordance with their duties, the trustees would have sold the shares soon after their appointment; and they were only prevented from doing so because of the (void) transfer and R’s long delay in returning the shares.

The court also helpfully indicated that in principle the same approach should apply to corporate insolvency claims under section 127 of the Insolvency Act 1986

A useful clarification of the office-holder’s tools in dealing with improper transfers. Section 284 (and section 127) is a flexible remedy which enables office-holders to recover the full and true lost value of an asset improperly disposed of, even if the asset is subsequently returned to the estate.