- A trust can be created and enforceable in respect of assets sited in a jurisdiction that does not recognise the concept of a trust
- In circumstances where the owner of a beneficial right goes into liquidation, the transfer of legal rights held by a third party to a bonafide purchaser for value is not a disposition within the meaning of s127.
The liquidators of a Cayman Islands company (the Company) sought a declaration that the transfer to the defendant of shares purportedly held on trust for the benefit of the Company was a void disposition of the Company’s property under s127 Insolvency Act 1986 (the Act).
The shares were in various Saudi Arabian banks. The division between equitable and legal proprietary interests is not recognised under Saudi Arabian law.
The liquidators’ case failed.
A trust can be created and enforceable in respect of assets sited in a jurisdiction that does not recognise the concept of a trust.
The definition of ‘property’ under s 436 of the Act is wide enough to capture the equitable and personal interest held in an asset.
The Supreme Court however held unanimously that the transfer in question did not constitute a ‘disposition’, although all three judges gave different reasons for this. Mance LLJ reasoned that the purpose of s127 was to prevent the transfer by a company in liquidation of legally owned assets to third parties, thus disadvantaging its own creditors. Equitable interests were a different matter and s 127 was neither ‘aimed at nor apt to cover’ them.
The transfer did not extinguish all of the Company’s rights in relation to the shares, specifically its residual personal right right to bring a claim for breach of trust against the (now former) trustee.