The debtor transferred his assets to a company formed by him. He later committed an act of bankruptcy on which he was adjudicated bankrupt. The company had sold some of the assets to a bona fide purchaser without notice of the act of bankruptcy. The trustee impugned the transfer to the company which was held to be fraudulent and void and to constitute an act of bankruptcy, and then sought to recover from the purchaser the assets which he had acquired from the company.
Held: The trustee’s title related back to the earlier act of bankruptcy which consisted of the transfer to the company and neither the company nor any subsequent purchaser could establish any title as against the trustee. ‘If this [Lord Esher’s statement in re Pollitt] is correct the position is exactly the same as if the bankrupt had been in possession of goods belonging to another person, to which he had no title, and had sold them to the original transferee who had then resold them. In such a case neither the original nor any of the subsequent transferees would take any title at all, and the true owner could recover the goods from anyone in whose possession he found them. I know of no doctrine of law or equity which would relieve any of the transferees in these circumstances. It was however argued that this statement of Lord Esher cannot be taken to its full extent and that it must be confined to avoiding dealings with his property by the bankrupt himself after the date of relation back. This was founded on the argument that the original transfer was not void but only voidable, and that therefore any bona-fide purchase from the original transferee was protected. I am not sure that void and voidable are quite apt expressions, but clearly the transfer was not void at the moment it was made, for it might be that no circumstances would ever arise in which a trustee’s title would accrue or the bankruptcy law apply. I will assume that voidable is a correct expression to describe the nature of the transaction, and then it becomes necessary to ascertain the effect of the avoidance caused by the making of the receiving order. This seems to me to be quite different from the effect of avoidance in the ordinary case of a voidable transfer where no principles of bankruptcy law apply. In this latter case the title of the person avoiding the transaction arises only from the time when he elects to avoid, and therefore intervening bona-fide transactions are protected because the transferor up to the date of avoidance had and could confer a good title. In the case under consideration so soon as the receiving order is made the trustee at once gets a title which relates back to the earliest act of bankruptcy within three months of the receiving order, whether it be the one upon which the receiving order is made or not, and therefore his position and rights are entirely different from those of an ordinary person who elects to avoid a voidable transaction.’
Judges:
Lord Sterndale MR, Warrington LJ
Citations:
[1920] 2 KB CA
Jurisdiction:
England and Wales
Citing:
Applied – Re Pollitt CA 1893
The debtor had put his solicitor in funds to meet future costs. The solicitor then prepared a deed of assignment for the benefit of the creditors which the debtor executed. The debtor was afterwards adjudicated bankrupt, the act of bankruptcy being . .
Distinguished – Re Hart, ex parte Green 1912
The original disposal by a debtor was prior to the act of bankruptcy, though the later transfer by the disponee to the defendant was after it.
Held: In such a case, the trustee could not succeed against a transferee for value without notice. . .
Cited by:
Cited – Re Dennis (A Bankrupt) CA 22-May-1995
A joint tenancy was severed (under the former law) on the event of an act of bankruptcy, and not only by the later actual adjudication of bankruptcy. The vesting of the debtor’s property in the trustee which occurred on adjudication was automatic; . .
Lists of cited by and citing cases may be incomplete.
Insolvency
Updated: 08 June 2022; Ref: scu.186764