Hill (As Trustee In Bankruptcy Of Nurkowski) v Spread Trustee Company Ltd & Anor (2006)
The limitation period in respect of a claim by a trustee in bankruptcy under the Insolvency Act 1986 s.423 ran from the date of the bankruptcy order.
The appellant trustees (T) appealed against the decision ((2005) EWHC 336 (Ch)) that a settlement, of which T were the trustees, two legal charges and an assignment in their favour of a loan account constituted transactions within the Insolvency Act 1986 s.423(3) . The settlement had been created by the owner (N) of two fields, which adjoined a development site, in favour of his infant daughter. N had gifted one of the fields into the settlement just before planning permission was given for the adjacent land. A few months later the fields had been sold for £2 million. When the field was gifted to the settlement N had told the Revenue that it was worth only £35,000. The Revenue did not accept that valuation and later compromised its claim against N for £160,000. After receiving the sale consideration T had lent most of it back to N in return for charges in T's favour and the assignment of sums due to N on his loan account with a company. N could not pay the capital gains tax arising on the sale of the land and had been made bankrupt on the Revenue's petition. N's trustee in bankruptcy (H) applied for relief under the Insolvency Act 1986 s.423 in respect of the settlement and the charges and assignment. The judge found that one of the purposes in making the settlement had been to evade tax by pretending that there was little difference between the original cost of the land and its value when gifted into the settlement. The judge held that the claim under s.423 was a specialty subject to a 12 year limitation period under the Limitation Act 1980 s.8(1) , that the cause of action did not arise before the bankruptcy order was made and that H's application was not statute-barred. T submitted that (1) the judge had been wrong to find on the facts that one of N's purposes in making the settlement had been to cause the Revenue to value the land at less than its true value at the date of the settlement; (2) the judge had not been entitled to conclude that the later charges had been given for no consideration within s.423(1)(a) ; (3) H's application was statute-barred; (4) N's intention as found by the judge did not amount to a purpose within s.423(3 and the Revenue was not a victim within s.423(5) .
(1) The judge had been entitled to find that N had received an offer of £700,000 for the field before telling the Revenue it was worth £35,000 and had been entitled to infer that N had had a plan to make the gift into settlement and hide information from the Revenue to evade tax. (2) The grant of security could constitute a transaction at an undervalue. Security was not given without consideration where it was given in exchange for forbearance by the creditor, Re MC Bacon Ltd (1990) BCC 78 considered. In the instant case T did not give any consideration in the form of forbearance in respect of the later charges and the assignment. (3) The applicable limitation period, whether that was 12 years under s.8(1) of the 1980 Act or six years under s.9(1) of that Act, started when the bankruptcy order was made, Carman v Yates considered. The effect of s.424(2) of the 1986 Act was not that there could be only a single cause of action in respect of one transaction. There was no inherent objection to the notion that there might be separate limitation periods for different applicants under s.423. It was not until a bankruptcy order was made that the trustee was identified as the person entitled to sue. (4) The judge had found that inducing the Revenue to make a wrong assessment of the capital gains was something that N positively intended and that was enough to show that N acted with that "purpose" within s.423(3). For a person to be a "victim" of the transaction there was no need to show that the person who effected the transaction intended to put assets beyond his reach or prejudice his interests. A person might be a victim even though he had not been within the purpose of the person entering into the transaction. The court had jurisdiction to make an order under s.423 even where there was no victim under s.423(5). All that had to be shown was that the person was making or might make a claim.
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12 May 2006
Court of Appeal
Waller LJ, Arden LJ, Sir Martin Nourse
LTL 12/5/2006 : (2007) Bus LR 1213 : (2007) 1 All ER 1106 : (2006) BCC 646 : (2007) 1 BCLC 450 : (2007) 1 WLR 2404 : Times, July 10, 2006
Catherine Newman QC