Beyond Reach: Moving Assets To Avoid a Debt

Anyone considering moving assets beyond reach of bona fide creditors should appreciate that the courts will adopt a wider approach that should discourage such conduct. The award winning litigation team at ParrisWhittaker provides robust and strategic representation both to creditors, judgment debtors and third parties.

An important ruling¹ shows that the courts take a broad approach to what may amount to a ‘transaction’ that places an asset out of reach of the victim.  Avoiding a debt is tempting but highly risky, particularly where high value assets are at risk, such as real estate and commercial interests.

The decision from the UK’s Court of Appeal demonstrates that provisions under the UK’s Insolvency Act 1986 – which allows a victim of a ‘relevant’ transaction to bring an application to court – are to be interpreted broadly.

The ruling has persuasive authority on the courts in The Bahamas and should be noted.  It means an increasing possibility that a transfer or other arrangement, such as a corporate structure, can be treated as a relevant transaction placing assets beyond reach. Similar provisions in The Bahamas are set out in The Companies (Winding Up) (Amendment) Act 2011.

What’s the background?

A bank sued several defendants in a case stemming from personal guarantees given by one of them (D) in connection with credit facilities granted to two UAE companies. The total said to be due under the judgments was worth roughly US$24.8 million.

The assets concerned included two London properties, the proceeds of sale of a third London property, company shares and millions in US dollars.

D had allegedly disguised his beneficial ownership of them or caused them to be transferred within his family specifically to place them beyond reach of his creditors. In addition, it was alleged that he moved the assets by means of a company (now dissolved) wholly or partly owned/controlled by him.

The appeal court disagreed with D’s argument that it cannot be said that a person “enters into a transaction” within the meaning of the 1986 Act, unless the subject matter of the transaction is the transfer of assets or property beneficially owned by that person.

Unfortunately for D, the court found that the legislative language was very broad. The meaning of ‘transaction’ for example, included a gift, agreement or any arrangement. The appeal judge handing down the judgment stated:

“The unfortunate reality of life is that even very wealthy debtors are sometimes unwilling, rather than unable, to pay their debts. They may well make strenuous efforts to use various instruments, including a limited company, for the purpose of putting their assets beyond the reach of a person who is making, or may make, a claim against them; or otherwise prejudicing the interests of such a person.”

Importantly, the ruling was on a narrow point of law, enabling the Bank to have its claim heard at trial. Its substantive claim has yet to be heard.

What does this mean?

It is crucial that anyone who is a judgment debtor or might be facing a claim should not take any steps to move or transfer assets, without first taking expert advice from litigation solicitors. The experienced team at ParrisWhittaker are available to provide specialist advice to protect your interests and prevent any risks associated with the premature or potentially wrongful transfer of assets.

For advice and representation, contact us at info@parriswhittaker.com

¹ Invest Bank PSC v El-Husseini and others (Invest Bank)  [2023] EWCA Civ 555