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Where a debtor’s share transfer is void and the shares are returned but now have a lower value, is the trustee in bankruptcy entitled to the value of shares as per the date of the transfer? Francis Collaço Moraes, barrister at Three Stone, explores the Chancery Division’s decision in Ingram v Ahmed.
Ingram v Ahmed  EWHC 1536 (Ch),  All ER (D) 11 (Jul)
Following the respondents’ acceptance that the transfers of the first respondent’s minority shares in three companies to the other respondents (his siblings) were void because they were effected after he had been presented with a bankruptcy petition, the Chancery Division held that the applicant trustees in the bankruptcy were entitled to the value of shares as at the date of the transfers. The respondents had argued that such relief would be unprecedented where the shares had been returned and that the trustees had not pleaded or proved actual loss. The court held that the trustees had not been required to plead actual loss, but had proved it, and that the second to the fifth respondents had not acted in good faith and were jointly liable for the loss caused by the fall in value of the shares.
After the presentation of the bankruptcy petition on 23 January 2007, the first respondent had entered an individual voluntary arrangement that was passed as a result of the votes of family members, who claimed to be creditors. That arrangement was successfully challenged in prior proceedings and a bankruptcy order was made on 21 April 2009. Following the appointment of the trustees in bankruptcy, it was asserted that certain shares owned by the bankrupt had been transferred in 2007 to his brother after the presentation of the petition. Some of the shares were subsequently transferred to the other siblings and then transferred back to the brother. It was asserted by the applicants that the shares had fallen in value since their appropriation. The applicants requested a declaration under section 284 of the Insolvency Act 1986 (IA 1986) that the transfers were void and sought to recover the loss in value of the shares. The respondents applied for a validation order. On the eve of the trial, eight years after the appropriation, the respondents returned the shares and discontinued their application for a validation order and accepted that the transfers were void.
It was asked to decide whether:
The applicants argued that:
The court held that the applicants did not have to plead the actual loss they had suffered because they had not been afforded the opportunity to sell the shares appropriated. It found that a loss had in fact been suffered by the bankrupt’s estate and ‘using hindsight and common sense, such loss can be seen to have been caused by the breach of trust’.
The authorities did not limit the remedies available to the applicants to simply a return of the asset. They were entitled to recovery of the loss in value of the shares.
This was not a case of temporary deprivation, and in any event the rule in Brandeis Goldschmidt & Co Ltd v Western Transport Ltd  1 All ER 28 was not a rule of general application and could be distinguished. The court found that the instant case was not one where specific restitution of the shares—the trust property—was possible and anyway the applicants were under a duty to sell.
The correct date to value the loss was the date of the void disposition as the title of the applicants related back to that date and consequently the trusteeship of the wrongdoer began on that date.
The shares had value, as even the respondents’ expert accepted. The correct basis of valuation was a fair value, for this had been a disposition to family members who were shareholders and directors of the companies whose shares were the subject of the dispute. This was not a transfer to a third party.
As the recipients had not benefited from the payment of any dividends, only simple interest was recoverable.
While it was not necessary for the court to decide whether IA 1986, s 284 provided a free-standing remedy, it clarified that a trustee in bankruptcy was entitled to more than simply a return in specie of an asset and an account of the sum the recipient of the asset actually received. The bankrupt’s estate is entitled to recover the loss suffered by the estate by reason of the wrongful act. In effect, the court clarified that there was an entitlement to have the estate restored to its value at the date of wrongful disposition.
The practical lessons are:
Francis Collaço Moraes appeared for the applicants in this case.
Interviewed by Robert Matthews.
The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.
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First published on LexisPSL Restructuring and Insolvency
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