Following a bankruptcy petition on 23 January 2007, Mr Eaitisham Ahmed had entered an IVA which was approved as a result of votes of family members who claimed to be creditors. The IVA was challenged and a bankruptcy order was made on 21 April 2009. David Ingram and Michaela Hall were appointed as Joint Trustees on 14 April 2010, following a trustee in bankruptcy initially appointed on or around the time of the bankruptcy order.
Between the presentation of the petition and the making of the bankruptcy order, the Bankrupt transferred his shares in various companies to his brother, Kashif Ahmed. The shares were then transferred from Kashif to other family members, Ms Bushra Ahmed, Ms Tesneem Ahmed and Ms Tabusam Hussain, before then being transferred back to Kashif before 30 June 2010. During the period of time from the original share transfer from the Bankrupt, the shares had diminished in value.
The Joint Trustees applied for a declaration under s.284 Insolvency Act 1986 that the share transfers were void, on the basis that they were made post-petition, and sought to recover the loss in the value of the shares. The Bankrupt's family members accepted that the share transfers were void and delivered up the shares to the Joint Trustees shortly before the trial. However, as the shares had diminished in value, the Joint Trustees were still seeking to recover the loss and the trial went ahead.
The Judge (Proudman J) held that the Joint Trustees were entitled to the difference in value of the shares from the date of the original transfer from the Bankrupt to his brother, Kashif, and the date the shares were delivered up to the Joint Trustees.
Kashif, the Bankrupt's brother, and the other family members appealed against this decision.
The Court of Appeal held that s.284 IA only provides a mechanism by which dispositions between presentation of petition and the bankruptcy order were void and it does not provide a remedy and therefore any remedy should be decided on a restitutionary basis.
The Court of Appeal also held that the previous approach to determining liability was incorrect and that the correct approach was to first determine the breach of trust and when the breach occurred. The Court of Appeal analysed each of the transfers in turn and concluded that on the date of the first transfer, from the Bankrupt to his brother, Kashif held the shares on trust contingently for the bankrupt in the event that a bankruptcy order was made against him. Upon the date of the bankruptcy order, Kashif held the shares on trust for the Bankrupt but title was vested in the originally appointed trustee in bankruptcy. Once Kashif transferred the shares to other members of the family, they were all under an obligation to deliver up the shares to the bankruptcy estate and therefore the breach of trust occurred when they failed to do so following the appointment of the original trustee in bankruptcy on 22 July 2009 and not the date of transfer from the Bankrupt, as was found in the first instance.
The loss to the bankruptcy estate would have occurred on the date the Joint Trustees would have likely sold the shares. As there was a delay between the appointment of the originally appointed trustee in bankruptcy and the Joint Trustees making the application, the Court held that it would more than likely have been the Joint Trustees who sold the shares and the Court decided the date of 30 June 2010 on the facts.
The appeal was therefore upheld but only in respect of the date for determining the value of the shares for the purposes of calculating the loss.
This case provides a useful reminder that s.284 IA does not provide a mechanism to recover compensation for the reduction in value of an asset transferred post-petition. Section 284 IA only voids the disposition itself and compensatory relief will need to be assessed on an equitable restitutionary basis in accordance with common law principles.