Transactions defrauding creditors—section 423 of the Insolvency Act 1986 (Malik v Messalti)
Restructuring & Insolvency analysis: A transaction may be impugned under section 423 of the Insolvency Act 1986 (IA 1986) if it was done for the purpose of putting assets beyond the reach of creditors, even if the transferor had no current creditors and contemplated only future hypothetical creditors at the time of the transaction. The focus is on the ‘purpose’ of the transaction, and not on ‘the degree of knowledge that a transferor has of the persons who are making, or may make, claims against him’. In this case, the appellant had disposed of a 50% beneficial share in a property at a time when he had no creditors (and a number of years before his liability to the respondent arose), but when he intended to engage on a course of litigation which could (and ultimately did) lead to costs awards against him. The prohibited purpose was established, and the transfer was set aside. Written by Alex Peplow, barrister at XXIV Old Buildings.