FL-2022-000014 - [2025] EWHC 2631 (Ch)

SECTION 423 OF THE INSOLVENCY ACT 1986

Sections 423 to 425 provide as follows:

“423 Transactions defrauding creditors

(1)

This section relates to transactions entered into at an undervalue; and a person enters into such a transaction with another person if—

(a)

he makes a gift to the other person or he otherwise enters into a transaction with the other on terms that provide for him to receive no consideration;

(b)

he enters into a transaction with the other in consideration of marriage or the formation of a civil partnership; or

(c)

he enters into a transaction with the other for a consideration the value of which, in money or money’s worth, is significantly less than the value, in money or money’s worth, of the consideration provided by himself.

(2)

Where a person has entered into such a transaction, the court may, if satisfied under the next subsection, make such order as it thinks fit for—

(a)

restoring the position to what it would have been if the transaction had not been entered into, and

(b)

protecting the interests of persons who are victims of the transaction.

(3)

In the case of a person entering into such a transaction, an order shall only be made if the court is satisfied that it was entered into by him for the purpose—

(a)

of putting assets beyond the reach of a person who is making, or may at some time make, a claim against him, or

(b)

of otherwise prejudicing the interests of such a person in relation to the claim which he is making or may make.

(4)

In this section “the court” means the High Court or –

(a)

if the person entering into the transaction is an individual, any other court which would have jurisdiction in relation to a bankruptcy petition relating to him;

(b)

if that person is a body capable of being wound up under Part IV or V of this Act, any other court having jurisdiction to wind it up.

(5)

In relation to a transaction at an undervalue, references here and below to a victim of the transaction are to a person who is, or is capable of being, prejudiced by it; and in the following two sections the person entering into the transaction is referred to as “the debtor”.

As with any exercise of statutory construction, the provision is to be construed giving effect to the words used, having regard to the statute as a whole, and the purpose of the provision: see Bilta (UK) Ltd v Tradition Services Ltd [2025] UKSC 18 at [20].

In El-Husseiny v Invest Bank PSC [2025] UKSC at [64], the Supreme Court identified the purpose of the provisions as being to set aside or provide other redress in cases where there have been transactions at an undervalue which have prejudiced creditors.

By section 436(1) the term “transaction” includes a gift, agreement or arrangement, and references to entering into a transaction shall be construed accordingly.

There was some common ground:

The claimants submitted that the relevant transaction falls to be identified by reference to the person or persons with whom the debtor entered into it, such that only the elements of the transaction between that person (or those persons) and the debtor may be taken into account: Phillips v Brewin Dolphin Lawrie Ltd [1999] 1 WLR 2052 (“Phillips CA”) at 2060-2061 per Morritt LJ; and Feakins v Department for Environment Food and Rural Affairs [2007] BCC 54 (“Feakins”) at [41]-[47] per Jonathan Parker LJ.

The SBDs submitted that Phillips CA had to be approached in the light of the decision of the House of Lords in that case ([2001] 1 WLR 143 (“Phillips HL”)). Lord Scott held that the answer to the case was provided not by identifying the transaction, but by identifying the consideration for the transaction.

The SBDs submitted that the court does not look at an impugned transaction in isolation; it is necessary for the court to look at the surrounding circumstances, taking into account reality and common sense: Agricultural Mortgage Corp plc v Woodward [1995] 1 BCLC 1, 11d-f (Sir Christopher Slade).

The SBDs also submitted that a contract between B and C may be treated as part of a transaction entered into by A even though A is not party to the contract between B and C. The example they gave was where A contracted with B (its debtor) to pay C, a creditor of A, such payments being treated by C as discharging A’s debts to it: see e.g. Re Emanuel (No 14) Pty Ltd (1997) 147 ALR 281, a decision of the Federal Court of Australia. In that case the court held that there was a transaction between A and C despite the lack of a direct contract between them. The SBDs submitted that, by parity of reasoning, a debtor may be treated as party to a transaction constituted by a contract to which he is not a party as a matter of contract law. Indeed they contended more broadly that a dealing may form part of a transaction even where it does not involve or require the participation of the debtor.

The resolution of these differences requires a closer examination of some of the cases.

In Phillips the plaintiff company, C, sold its stockbroking business to the first defendant, B. For B’s commercial reasons, the relevant parts of the business, including the goodwill, were transferred to S, a subsidiary of C, before the sale. The hive-down excluded certain assets, including the office premises and computer equipment used by C. By a share sale agreement dated 10 November 1989, C sold the shares in S to B for £1. Under a separate sublease agreement of the same date, C let the computer equipment used in the business to B’s parent company, P, for four years at an annual rent of £312,500. C also agreed that it would perform all obligations under the headleases under which it held the computer equipment. Two months later the owners of the computer equipment terminated C’s headleases for breach of a covenant against subletting and P claimed it was discharged from further performance of the sublease agreement. This was before any of the payments of rent were made under the sublease. C was then wound up. The liquidator of C applied under section 238 of the 1986 Act for a declaration that the share sale was a transaction at an undervalue. The judge held that payments made under the lease were not to be treated as the consideration for the transfer of the shares and the share sale agreement was therefore a transaction at an undervalue. He ordered B to pay the amount of the undervalue.

The Court of Appeal dismissed the appeal. It held that the relevant transaction had to be identified by reference to the person with whom it was entered into and only those elements of the transaction between the company and that person could be taken into account. There were two separate, though linked, transactions. These could not be the same transaction for the purposes of section 238 since the company had entered into them with two different parties. The payments under the lease could not be recharacterised as consideration for the shares; and accordingly the only consideration for the shares was that paid under the share sale agreement.

At page 2058F Morritt LJ recorded that the judge had held that the agreements were linked in the sense that it was never contemplated that one would be entered into without the other. At 2060 he said,

“It is true that the word “transaction” is very widely defined. It is also true, as submitted by counsel for Brewin Dolphin, that, given the purposes of ss. 238, 339 and 423 to which it applies, the court should not strain to narrow the definition by judicial decision. However, the word “transaction” is to be construed and applied as part of s. 238 as a whole. Other parts of the section indicate some of the limits involved. First, the transaction must be identified by reference to the person (or persons, for the singular must include the plural) with whom the company entered into it. Only the elements of the transaction between the company and that person may be taken into account. Thus, without more, a contract between the company, A, and B cannot be part of a transaction entered into by the Company, A, with C. I introduce the caveat “without more” to guard against cases where the transaction is artificially divided.”

The House of Lords affirmed the decision of the courts below, but on different grounds. They held that the issue was not the transaction but the consideration for the transaction entered into by the company, which was itself a question of fact. It was irrelevant by whom the consideration was provided and it could include the value of a collateral agreement entered into by the company with a third party. The consideration for the shares included the value of the benefit of the sublease under which £1.25 million would be paid over four years. However, in assessing the value of the sublease agreement the court was entitled to give precedence to reality over speculation and have regard to subsequent events; since the sublease was entered in breach of covenant and B had decided not to use the equipment, that agreement was precarious and speculative from the outset; and that the value of the subleases was properly to be assessed at nil.

The SBDs submitted before me that the decision of the House of Lords cast doubt on Morritt LJ’s guidance about the identification of the transaction for the purposes of the statute. I do not agree. As Jonathan Parker LJ explained in para [46] of Feakins, Lord Scott treated the relevant “transaction” as being the share sale agreement. He held however that, on the judge’s findings, the payments to be made under the sublease constituted consideration for the shares.

In my judgment, the passage from Phillips CA set out in para [585] above continues to provide helpful guidance about the meaning of “transaction”. It will be noted that in that passage Morritt LJ used the qualifier “without more”, to guard against cases where the transaction is artificially divided.

However, the passage should is no more than guidance and it is no substitute for the words of the statute. The position is in my judgment well expressed by McPherson and Keay on the Law of Company Liquidation (5^th edn) at [11-030]: “as indicated by the quote taken from Morritt LJ’s judgment above, the courts are likely to be reluctant to view a number of contracts involving different parties as constituting a single transaction”.

Moreover, as Jonathan Parker LJ pointed out in Feakins at [78], the identification of the relevant transaction is fact-specific and, while in some cases it may be appropriate to treat a single step in a series of linked dealings as the relevant transaction, in others it may not.

I also note that in para [76] of Feakins Jonathan Parker LJ explained that in construing the term “transaction” the court should have regard to the statutory objective of remedying the avoidance of debts.

As to Re Emanuel, the SBDs say that it shows that a person may enter a transaction even where it is not a party to each element of an overall transaction. I note the following points. First, that proposition, so far as it goes, is uncontroversial and is consistent with other cases, including Feakins. Second, properly analysed, it seems to me that Re Emanuel is of little assistance. The essential facts have been described in para [581] above. The court held that A had initiated the series of dealings which led to its debts to C being discharged. The overall arrangement in question was one to which all of A, B and C were parties, as A had to accept that payments by B to C would discharge B’s debts to A and C had to accept that payments from B would discharge A’s debts to C. It is easy to see why A, which initiated the dealings, was treated as entering into the wider transaction even if was not strictly a contracting party. Indeed the court confined its conclusions to a situation where “there was a course of dealings initiated by the debtor for the purpose of and having the effect of extinguishing the debt.”

The claimants also relied on the case of National Westminster Bank v Jones [2001] 1 BCLC 98. In that case two farmers carried on a farming business as partners. They granted the claimant bank a mortgage over their land and other assets in respect of borrowings. They fell into financial difficulties and the bank demanded repayment. In order to protect the assets they formed a company and granted it an agricultural tenancy of the land at full market rent and sold to it the other farming assets. Neuberger J held that the tenancy and sale agreements were transactions at an undervalue for the purposes of section 423 notwithstanding that the defendant’s overall asset position was not reduced and that their creditors as a whole were not prejudiced because the bank as the intended victim of the transaction was prejudiced. The defendants contended that the tenancy and sale agreements should be considered as part of a wider set of steps or transactions including the acquisition of the company.

Neuberger J rejected this argument. At para [72] he said the acquisition of the company could not be said to be “part of the ‘transaction’ under consideration in the present case….not least because it was entered into between the defendants and third parties and related to the company as the subject matter of that transaction, whereas the transaction or transactions under attack in the present case consist of the tenancy and the sale agreements entered into between the defendants and the company itself.”

The Court of Appeal (at [2001] EWCA Civ 1541) upheld this decision on the basis that it was the sale and the tenancy which had been entered into by the defendants for the purposes of putting assets beyond the reach of the bank, and they were therefore the relevant transactions to be considered (see para [26]).

I agree with the claimants that this decision supports their submission that, without more, a contract between parties other than the debtor may well be seen as falling outside the relevant transaction.

It also appears from the decision of the Court of Appeal that in identifying the “transaction” it may be material to consider the purposes of the debtor in entering into it. Where it is found the purpose is to put assets beyond the reach of a creditor or creditors, this may affect the court’s view of the scope of the transaction. Hence the exercise of identifying the relevant transaction is not entirely independent of the purposes of the debtor in entering into it. This is an application of the general principle that the statute is to be construed and applied having regard to its purpose.

To summarise, the case law establishes these points:

Under section 423(1), a transaction is entered into at an undervalue where it is made on terms that provide for the “debtor” to receive no consideration (see section 423(1)(a)) or for a consideration the value of which, in money or money’s worth, is significantly less than the value, in money or money’s worth, of the consideration provided by the “debtor” (see section 423(1)(c)).

Millett J held in Re MC Bacon [1990] BCLC 324 at 340 that the question of undervalue:

“requires a comparison to be made between the value obtained by the company for the transaction and the value of consideration provided by the company. Both values must be measurable in money or money’s worth and both must be considered from the company’s point of view.”

This passage was approved by the Court of Appeal in Agricultural Mortgage Corp v Woodward [1995] 1 BCLC 1 at pages 5-6.

The value of the consideration is to be assessed objectively at the date of the transaction: Phillips HL, at [26].

If at that date the value of the consideration is dependent on the occurrence or non-occurrence of some event and that event occurs before the assessment of value has been completed then the valuer may have regard to it: Phillips HL, [26]; Reid v Ramlort [2002] EWHC 2416 (Ch) at [17].

In Stanley v TMK Finance Ltd [2010] EWHC 3349 (Ch), David Richards J said:

“14.

The decision of the House of Lords [in Phillips HL] establishes that, in appropriate circumstances, regard may be had to subsequent events, but it was in the context of attributing value to a covenant which was, on the facts known at the date of the transaction, precarious. I would agree with the comments of Professor Goode in Principles of Corporate Insolvency Law (3rd ed.) at para 11-31:

“Lord Scott's speech has generated much debate on the use of hindsight to determine a value at the time of the transaction. But it seems clear that Lord Scott was not in truth applying a hindsight test; rather he was relying on evidence of subsequent events to show that from the outset the covenant under the sub-lease was so precarious and its value so speculative that even at the time it was entered into a bank or finance house with knowledge of the surrounding circumstances would not have attributed any value to the sub-lease covenant.”

The valuer is required to take account of all other matters relevant to the determination of value as at the date of the transaction: Phillips HL at [26]; Reid at [17]. But, while it is preferable if precise values of the consideration involved in the transaction can be established, it is not necessary for exact monetary values to be assigned to the outgoing and incoming consideration that constitute the impugned transaction (so that a range of values may be applied). The critical issue is whether the company received significantly less than what it gave: Reid [104].

Value is to be determined objectively by reference to what the “debtor” receives and not what the counterparty gives up: Delaney v Chen [2011] EWCA Civ 1455 per Lord Neuberger MR.

I also consider that the fact that a party to the relevant transaction provides consideration to a third party should be disregarded in determining the value received by the “debtor” save to the extent that receipt by the third party enures to the benefit of the “debtor”: see Re Whitestar Management Ltd [2018] EWHC 743 (Ch) at [79] per HHJ Hodge QC (sitting as a High Court judge). The SBDs took issue with this proposition. They submitted that Phillips HL at [20] shows that factually linked transactions can, taken together, supply the consideration for the transaction. However that case did not address receipt by a third party and I agree with HHJ Hodge’s formulation.

Under section 423(3), the relevant “transaction” must have been entered into by the “debtor” for the purpose of either: (1) putting assets beyond the reach of a person who is making or may at some time make a claim against it; or (2) otherwise prejudicing the interests of such a person in relation to the claim which it is making or may make (the “relevant purpose”).

The burden of proving that the debtor acted for the statutory purpose is upon the claimant: Inland Revenue v Hashmi [2002] EWCA Civ 981, at [22] (Arden LJ).

Whether the debtor had the statutory purpose is essentially a question of fact for which the judge must make primary findings of fact: BTI 2014 LLC v Sequana SA [2019] EWCA Civ 112 (“Sequana CA”), [66] (David Richards LJ).

The improper purpose need not be the sole or dominant purpose of the transaction; if the transaction was entered into by the debtor for the improper purpose, as well as for one or more other purposes, the transaction will still fall within section 423(3) of the 1986 Act: JSC BTA Bank v Ablyazov [2018] EWCA Civ 1176 at [13]-[14] per Leggatt LJ.

The assessment of “purpose” requires determining the “subjective state of mind” to be attributed to the “debtor”: El-Husseiny at [28].

A helpful test is to ask, “what did he [the debtor] aim to achieve?”: Sequana CA at [66].

It is not enough to show that a transaction had the consequence (even if foreseeable or foreseen) of putting assets beyond the reach of creditors or otherwise prejudicing their interests or where that result was simply a by-product of the transaction. Something more is needed: see [15] to [16] of Ablyazov:

“15.

Arden LJ made this very point in the Hashmi case when she said (at para 23) that “there is no epithet in the section and thus no warrant for reading one in”. When later in her judgment she referred (at para 25) to a “real substantial” purpose, it is apparent from the context that the reason for using those adjectives at that point was to underline the distinction between a purpose and a consequence of the relevant transaction. As Arden LJ emphasised, it is not enough to bring a transaction at an undervalue within section 423 that the transaction had the consequence of putting assets of the debtor beyond the reach of creditors. That is so even if the consequence was foreseeable or was actually foreseen by the debtor at the time of entering into the transaction. Evidence that the debtor believed that the transaction would result in putting assets beyond the reach of creditors may support an inference that the transaction was entered into for the purpose of doing so, but the two things are not the same. To illustrate the distinction using a less homely example than that given by Arden LJ, a commander may order a missile strike on a military target knowing that it will almost certainly cause some civilian casualties. But this does not mean that the missile strike is being carried out for the purpose of causing such casualties.

16.

When judging a person's intentions, we are generally more inclined to accept that an action was not done for the purpose of bringing about a particular consequence, even if the consequence was foreseen, if there is reason to believe that the consequence was something which the actor wished to avoid or at least had no wish to bring about. Hence, in the example just given, where the missile strike had a clear strategic purpose, we may readily accept that it was not ordered for the purpose of causing civilian casualties – particularly if, for example, there is evidence that the commander gave anxious consideration to how many civilians were likely to be in the target area and planned the strike for a time when the number was expected to be low. By contrast, a consequence is more likely to be perceived as positively intended if there is reason to think that it is something which the actor desired. Thus, evidence that a person who has entered into a transaction at an undervalue foresaw that the result would be to put assets out of reach of creditors and desired that result might lead the court to infer that the transaction was entered into for that purpose. But such a conclusion is not a logical or legal necessity. It is a judgment which has to be based on an evaluation of all the relevant facts of the particular case.”

It is not necessary for the claimant to demonstrate that the transfer would not have been made but for the improper purpose: Akhmedova v Akhmedov [2021] 4 WLR 88 at [81]. It is possible for a person genuinely to desire to benefit a third party but also to act with the prohibited purpose: ibid at [82]. On the other hand the relevant outcome or consequence must be “positively intended”: see Ablyazov at [17]

It is not necessary to show that the relevant transaction was entered into for the purpose of prejudicing the particular person now bringing the claim: Fortress Value Recovery Fund I LLC v Blue Skye Special Opportunities Fund LP [2013] 1 All ER (Comm) 973 at [108]-[111]. Nor is it necessary for the debtor to know the identity of any or all actual or potential creditors who may be prejudiced by the impugned transaction, although the debtor’s knowledge of the presence of a particular creditor or potential creditor may shed light on its purpose in entering into the transaction: Malik v Messalti [2025] BPIR 91 at [64].

The claimants submitted that a person is generally assumed to intend the consequences of his acts, and referred to Swift Advances v Ahmed [2015] EWHC 3265 (Ch) and Pena v Coyne [2004] EWHC 2684 (Ch) at [126]. It appears to me that the proper approach, exemplified by those cases, is that the court is required to assess all of the evidence, find the primary facts, and determine, by a process of inference, whether the relevant person has the necessary subjective state of mind. The relevant facts from which inferences may be drawn may include the transaction’s obvious or self-evident consequences. However, the terms of the statute and the cases referred to above show it is not enough simply to allege and prove that the transaction had the relevant prejudicial consequences.

Under section 423(5), a “victim of a transaction” for the purposes of section 423 means a person “who is, or is capable of being, prejudiced by it”. The term is to be given a broad meaning: Gordian Holdings Ltd v Sofroniou [2021] BPIR 808 at [16(2)]. It can include a person who was not in the compass of the improper purpose when the impugned transaction was entered into and a person about whom the debtor was unaware at that point: ibid at [16(3)].

There is no requirement that a “victim” must be in a debtor/creditor relationship with the “debtor”: Clydesdale Financial Services Ltd v Smailes [2011] 2 BCLC 405 at [73].

It is also unnecessary to identify any claim against the “debtor” itself or to demonstrate that the transaction sought to be impugned was entered into in order to prejudice the particular person bringing the claim: 4Eng Ltd v Harper [2010] 1 BCLC 176 (“4Eng”) at [22] per Sales J.

Where a party establishes that it is a “victim” and that the other elements required to engage section 423 are met, the court may make such order as it thinks fit for restoring the position to what it would have been if the impugned transaction had not been entered into and to protect the interests of victims of the impugned transaction.

Section 425 contains a non-exhaustive list of orders that the court may think fit to make under section 423. It also contains certain express limitations on the orders that may be made.

Any order made must seek, so far as practicable, both to restore the position to what it would have been if the transaction had not been entered into and to protect the interests of the victims of it. The first question must be what assets have been lost to the debtor: Chohan v Saggar [1994] BCC 134 at 14.

In Reid v Ramlort [2005] 1 BCLC 331 Jonathan Parker LJ at [125] said that in considering the appropriate remedy the court should not start from any a priori position. The task for the court is to fashion the most appropriate remedy with a view to the statutory formula in subsection 423(2). This may involve reversing the transaction in some cases, but not in others; it may take the form of an order for compensation, in others it may not.

At [126] Jonathan Parker LJ said that in deciding how to exercise the statutory discretion as to remedy the court must inevitably have regard to subsequent events, and to the facts as they are at the date of the order.

It was common ground that the Court’s power under these provisions permits “flexibility in fashioning relief which is carefully tailored to the justice of the particular case” and “hard and fast rules for the application of these provisions” should be deprecated: 4Eng at [16] per Sales J.

It was also common ground in the opening submissions at trial that the formulation of the appropriate relief should take into account the mental state of the defendant and the degree of their involvement in and knowledge of the improper purpose pursued by “debtor” through the impugned transaction: 4Eng at [13], [14], [69], and [72].

Despite earlier agreeing this as common ground, the claimants submitted in their written closing that the statutory language does not require the consideration of the mental state of a defendant or their degree of involvement or their purpose in entering a transaction. This is correct so far as the statutory wording goes, and Sales J did not suggest otherwise in 4Eng. Nor did he suggest that any particular state of mind or involvement of the defendant was a trigger for relief. All he said was that these matters were likely to be relevant to the appropriate relief. I consider that this is correct. I also note that in Sequana ([2017] EWHC 211 (Ch) at [25]), Rose J expressly applied Sales J’s guidance that the state of mind and culpability of the defendant are potentially relevant to the appropriate relief.

The SBDs submitted that in fashioning the appropriate relief the court may take account of events occurring after the relevant transaction. The claimants contended that the relief should be determined by reference to the position at the time of the transaction.

On this issue, in my judgment the authorities support the SBDs’ position.

As already noted, Reid v Ramlort at [126] shows that in deciding how to exercise the statutory discretion as to remedy, the court may have regard to subsequent events, and to the facts as they are at the date of the order.

In 4Eng Sales J explained that the appropriate relief may be shaped by reference to post-transaction events. At [13] he said, “the making of an order under s. 423(2) and s. 425 necessarily requires some further balancing of the interests of the transferor’s creditors and of the transferee to be determined by the court, since by the time the court has to take action events will have moved on from the transfer and the balance of the equities between creditors and transferee may well have been affected by changes in circumstances over time.” In [14] he gave some examples. These included the case where a blameless transferee of an asset had simply held on to it while its value fluctuated. Sales J concluded that in such a case the appropriate order might be (he said ordinarily would be) to transfer it to the creditors or the transferor. Another was where the transferee had taken property with knowledge of the relevant purpose and had then sought to further the fraudulent design by lying to the transferor’s creditors. In such a case it might be appropriate to make orders to cover any falls in the value of the asset since the transfer.

Other examples may be given. Suppose that the transaction at an undervalue consisted of the transfer of a boat or other chattel to another person. If the recipient had kept the boat until the trial, the court might well decide to require the transfer of the boat back to the debtor. But suppose that before the trial the boat was destroyed by a lightening strike or in a storm. It is hard to see why the court should make an order for payment equal to the value of the boat at the time of the transfer, or indeed its destruction, at least in the case of a person who did not share the statutory purpose at the time of the transaction. At any rate, in my judgment, these subsequent events are at least potentially relevant to the appropriate relief and there can be no bright-line rule that they must be ignored.

Another example where post-transaction events might be material, not given by Sales J, is where an innocent transferee of an asset has improved the asset. It appears to me likely that in such a case the court’s order for relief may well seek to reflect any value attributable to the improvement. That would require an assessment of events after the date of the transaction.

The Sequana case provides further support for the court considering events between the transaction date and the trial. The trial judge, Rose J, who had found that a dividend declared by a debtor company was a transaction at an undervalue, considered the relevance of later transactions when deciding on the appropriate relief. In broad terms, the defendants argued that subsequent dealings had reduced the claimants’ claims against the debtor company and that these should be reflected in the remedy. Rose J (at [2017] EWHC 211 (Ch)) and the Court of Appeal (at [2019] EWCA Civ 112) rejected that argument on the basis that the subsequent dealings had been influenced by the existence of the impugned transactions themselves and that, on the facts, it would not be just to the claimants to take them into account. This conclusion turned on the judge’s findings of fact. Neither the judge nor the Court of Appeal considered that post-transaction events were legally irrelevant. On the contrary, they carefully considered the impact of such events on the appropriate relief. More generally neither court cast any doubt on the principles stated by Sales J in 4Eng. The claimants were therefore mistaken in the present case in suggesting that Sequana supports the view that relief is to be assessed by reference to the position as at the date of the transaction.

I also reject the claimants’ submission that the wording of the section requires the court to determine the appropriate relief by reference to the position as at the date of the transaction. The claimants submitted that the answer was to be found in the use of the past tense in section 425(1)(d) (“in respect of benefits received from the debtor”). But this wording does not temporally restrict the facts or events which may be relevant to the assessment of relief; it simply states that the power to order the payment arises “in respect of such benefits” as have been received. That wording would include any time before the court makes an order.

There is indeed a contrast between some other elements of section 423, which require matters to be assessed as at the date of the transaction, and the question of relief. It is clear, for instance, that the comparison of value for the purposes of section 423(1)(c) must happen at a single date, being the date of entry into the transaction. Again the purpose of the debtor is naturally to be assessed at the date of the transaction. The same is not true of subsection (2) which refers to the court making such order as it thinks fit for restoring the position and protecting the interests of creditors. The orders that may be made under section 425 also to my mind envisage taking account of post-transaction events or circumstances.

As the SBDs observed, this approach analogous to the approach to equitable compensation established by the House of Lords in Target Holdings v Redferns [1996] 1 AC 421. In assessing equitable compensation the court does not stop the clock at the date of the transaction, but takes account of the circumstances occurring until trial. Hindsight and common sense are to be used. This case was of course concerned with equitable compensation for breach of trust, but it illustrates that in determining equitable remedies hindsight and knowledge of the actual circumstances may properly to be taken into account. It appears to me that there is some resemblance between that jurisdiction and the broad discretionary jurisdiction under section 423(2) to make appropriate restorative and protective orders.

I conclude that the cases, including 4Eng and Sequana, establish that in shaping relief the court may properly have regard to post-transaction events.

Returning to other aspects of the jurisdiction to grant relief, no test of causation is applicable, such that it is unnecessary to ask whether entry into the impugned transaction itself caused the prejudice suffered by the victims of the transaction: Gordian Holdings Ltd at [16(2)] and [20].

The SBDs contended that in shaping relief the court could have regard to the conduct of the claimants, by way of analogy with the principles concerning contributory negligence. They cited no authority for this proposition and I do not think that the principles of contributory negligence have any application in this context. The basis for relief under the section is that a debtor has put assets beyond the reach of his creditors or has otherwise prejudiced them for the relevant purpose, without obtaining value, and the purpose of the relief is restorative and protective. Moreover the proceeding is a collective one. The claim is not based on negligence or statutory or other tort and does not engage the principles concerning the award of damages; it is concerned with restoration and the protection of a debtor’s creditors. I do not consider that the principles of contributory negligence have any application.

Where the transaction is made up of more than one component, the power under section 423(2) may be exercised by setting aside one component of the transaction and not the other or others of them: Chohan v Saggar [1994] BCC 134 at 140 per Nourse LJ.

In shaping relief, it is likely to be highly material to consider the extent to which a particular defendant has benefited. In this regard, the statutory jurisdiction is expressly restorative and protective. The most obvious form of restoration is the return of property or other benefits obtained from the transaction by a given defendant.

There was a dispute between the parties as to whether the court may order a person who has received no property or benefit from the debtor or from the transaction to make a payment to the debtor or the victims of the transaction. The claimants were not able to identify any authority where such an order has been made. They referred to Integral Petroleum SA v Petrogat FZE [2023] EWHC 44 (Comm). However in that case the trial judge, David Edwards KC sitting as a Deputy High Court Judge, inferred that the relevant defendants (who were the shareholders in a recipient company) had in fact received some benefits. Mr Edwards said at [110] that, while there was no jurisdictional bar, when it came to the exercise of its discretion the court would ordinarily refuse to make an order against a party who had received no benefit from the transaction, even where the person had directed or facilitated the transaction. He said that to make such an order in such a case would be inconsistent with the restorative nature of the jurisdiction. I agree. In my judgment it would be very unusual for the court to make an order against a defendant who had received no benefit from or as a result of the transaction.

The SBDs referred to Re Oxford Pharmaceuticals Ltd; Wilson v Masters International Ltd [2009] EWHC 1753 (Ch), [83]-[85] (Mark Cawson QC). That was a case concerning preferences under s. 239 of the 1986 Act, rather than section 238, and it is therefore of limited value.

The claimants also contended, based on the decision of Mr Edwards in Integral that even if ordinarily it was necessary to establish that the defendant had received some benefits from the debtor or the transaction, the relief need not be precisely limited to the amount of those benefits. However as I read the decision, the judge decided that the relevant defendants had, between them, received the amount of the benefits received by the company of which they were the shareholders.

Be that as it may, as the claimants accepted, the extent of any property or benefits obtained by the defendant from the debtor or from the relevant transaction is likely to be a material factor for the court to take into account when deciding what, if any, relief should be granted.

In overall summary, it appears to me that the right approach, following 4Eng, is to take account of all the circumstances, including the extent to which the defendant has received property or benefits from the debtor or the transaction, the involvement of the defendant in the transaction, and the state of mind and culpability of the defendant, both at the time of the transaction and later, with a view to furthering the statutory purposes of asset restoration and creditor protection.

In Sequana Rose J explained at [24] that there are some circumstances in which the court may properly decide that it is not appropriate for there to be any remedy imposed, but that this would only be in an exceptional case. Rose J also explained at [25] that the relief falls to be determined having regard to the purposes of section 423.