(4 min read)
The High Court has scrutinised the validity of a Declaration of Trust and the enforcement of charging orders. Wade v Singh sheds light on the intricate balance between property rights, trust law, and creditor protection in an insolvency. The case, centered around a property known as "the Oaks," involved the liquidators of MSD Cash & Carry Plc (in liquidation) seeking to enforce charging orders against properties owned by various family members involved in the business to satisfy a significant judgment debt.
Background of the Case
The Oaks became the focal point of a dispute following the liquidation of MSD Cash & Carry Plc, a family-run company wound up in 2012. The liquidators pursued misfeasance proceedings against certain family members, leading to a judgment debt of just under £1m owed by the first and second defendants (D1 and D2). To secure this debt, the liquidators obtained charging orders over various properties, including the Oaks, which was legally owned by D1 and a third defendant (D3). D3, not subject to the judgment debt, claimed sole beneficial ownership of the Oaks, supported by a Declaration of Trust dated 17 April 2017. The liquidators contested this declaration, alleging it was either a sham or a transaction defrauding creditors under section 423 of the Insolvency Act 1986.
Court's Judgment and Analysis
Deputy ICC Judge Curl KC delivered a judgment that meticulously dissected the allegations, focusing on the existence of an express or constructive trust and the legitimacy of the Declaration of Trust. The court found no express or constructive trust in favour of D3 at the time of the Oaks' acquisition. It was determined that the Declaration of Trust did not regularise a longstanding informal trust but constituted a new disposition in 2017. The Declaration was entered into with the purpose of putting assets beyond the reach of creditors, specifically to protect the property from claims by the liquidators and HMRC, thus falling within the ambit of transactions susceptible to being set aside under section 423 of the Insolvency Act 1986.
The judgment underscores the importance of clear intentions and contemporaneous formalities in property transactions, highlighting the potential consequences of attempting to circumvent creditor claims. It was concluded that the beneficial interest in the Oaks should be vested in D1 and D3 in equal one-half shares, setting aside the Declaration of Trust.
Implications for Legal Practice
- This case illustrates the need for transparency and due diligence in the drafting and execution of trust declarations, especially in the context of insolvency and creditor protection. Legal practitioners must ensure that trust arrangements are not only clearly documented but also reflect the true intentions of the parties involved. Moreover, the judgment serves as a cautionary tale about the risks associated with transactions intended to defraud creditors, reinforcing the judiciary's commitment to upholding the principles of equity and fairness.
- There is also reinforcement of the importance of parties to and associated with litigation understanding and complying with their legal obligations of disclosure. They must ensure that they do not cherry pick documents that only support their own case.
- For families and business entities alike, the decision emphasises the necessity of seeking legal advice when dealing with property and trust matters, particularly when facing potential claims from creditors, where specialist insolvency advice might also be required. Staying informed about developments in trust law and creditor protection remains paramount for both legal professionals and their clients.
Contributors to this article include Senior Private Wealth Paralegal, Twiza Mutambo and Restructuring Legal Director Laura Newbery.
