Clarifying the meaning of detriment for remedies in insolvency cases (Pathania v Lewis and Okonye)

Clarifying the meaning of detriment for remedies in insolvency cases (Pathania v Lewis and Okonye)

Alex Hill-Smith, barrister at New Square Chambers, says the appeal in Pathania v Lewis and Okonye clarifies the statutory test to be applied in cases where a judgment creditor has been disadvantaged by the sale of assets at an undervalue.

Pathania v Lewis and Okonye [2018] EWHC 362 (Ch), [2018] All ER (D) 61 (May)

What are the practical implications of the case?

Section 423 of the Insolvency Act 1986 (IA 1986) provides a useful remedy for a judgment creditor with an unsatisfied judgment in circumstances where the judgment debtor has sought to avoid making payment by divesting themselves of assets by transferring them to a third party at no or less than full consideration (at an undervalue). It not infrequently occurs that a judgment debtor transfers an asset to a family member in order to avoid having pay to their debts. IA 1986, s 423 applies to transfers made by companies as well as individuals.

IA 1986, s 423, is an unusual provision within the context of the IA 1986 in that it can provide a remedy to a creditor even if the debtor is not subject to any insolvency process such as bankruptcy, winding up or voluntary arrangement. So the creditor may have a remedy without the need to go to the expense and delay of making the debtor bankrupt or winding up a corporate debtor. If, however, the debtor is already bankrupt or subject to a winding up, IA 1986, s 423 can be utilised by the trustee in bankruptcy or liquidator.

The requirements for relief are that:

  • the transfer must be at a substantial undervalue
  • the claimant must have been a victim of the transaction in the sense that the transaction must have been at least capable of causing prejudice to the claimant, and
  • the purpose of the transaction must have been to put property beyond the reach of the persons who may have a claim against the debtor (although the debtor need not have the claimant specifically in mind)

It is the question of the purpose underlying a particular transfer that is often the central point of contention in applications made under IA 1986, s 423. But note that it is the purpose of the debtor in entering into the transaction that is relevant, not the state of mind of the recipient of the asset—the extent to which the recipient knows of the relevant intention is relevant only to the question of remedy, which is discretionary and which may or may not involve the reversing of the transaction.

The flexib

Subscription Form

Related Articles:
Latest Articles:

Already a subscriber? Login
RELX (UK) Limited, trading as LexisNexis, and our LexisNexis Legal & Professional group companies will contact you to confirm your email address. You can manage your communication preferences via our Preference Centre. You can learn more about how we handle your personal data and your rights by reviewing our  Privacy Policy.

Access this article and thousands of others like it free by subscribing to our blog.

Read full article

Already a subscriber? Login

About the author:

Stephen qualified as a solicitor in 2005 and joined the Restructuring and Insolvency team at Lexis®PSL in September 2014 from Shoosmiths LLP, where he was a senior associate in the restructuring and insolvency team.

Primarily focused on contentious and advisory corporate and personal insolvency work, Stephen’s experience includes acting for office-holders on a wide range of issues, including appointments, investigations and the recovery and realisation of assets (including antecedent transaction claims), and for creditors in respect of the impact on them of the insolvency of debtors and counterparties.