Declaration of Trust and the enforcement of charging orders
A recent case considering the enforcement of charging orders and the validity of a Declaration of Trust has highlighted the complexities surrounding property and trust matters in an insolvency.
In the case of Wade & Anor v Singh & Ors [2024] EWHC 1203 (Ch), the High Court examined the validity of a Declaration of Trust subject to potential enforcement of charging orders.
Applications by the liquidators of MSD Cash & Carry plc to enforce charging orders over a number of properties owned by the defendants, all of them members of the same family, were considered by Deputy ICC Judge Curl KC. In particular the property owned by the defendants known as “the Oaks”, which was subject to a Trust Deed was examined and considered.
The liquidators of MSD Cash & Carry Plc (in liquidation) sought to enforce charging orders against properties owned by various family members in the business to recover a judgment debt of £996,494.00.
Main points of the case
The liquidators obtained charging orders over various properties, including The Oaks, which was owed legally owned by the first and third defendants (D1 and D3).
D3, not subject to the debt, claimed sole beneficial ownership of The Oaks, supported by a Declaration of Trust dated 17 April 2017. The liquidators sought to contest this and to confirm that The Oaks was also owned by D1 in equal shares with D3 being 50:50.
The liquidators alleged it was either a sham or a transaction which would be defrauding creditors under section 423 of the Insolvency Act 1986.
The defendants said the declaration had been executed on 17 April 2017 to which the liquidators suggested it was done later.
The judgment underscores the importance of clear intentions and contemporaneous formalities in property transactions, highlighting the potential consequences of attempting to circumvent creditor claims.
Court’s Judgment
Deputy ICC Judge Curl KC’s judgment provided a careful consideration of the points and the reasoning for a Trust to be looked at on its merits.
First consideration:
The defendants argued that there was in place an oral express trust of the beneficial interest in The Oaks in favour of defendant 3 (D3) at the time of the purchase of the property in 2003. Then in 2017 the defendants put a formal Declaration of Trust in place to reflect this.
Deputy ICC Judge Curl KC said “In my judgment, there is nowhere near enough evidence to support the view that D1 had the requisite intention to create an express trust in relation to The Oaks in 2003. There is really no evidence at all that he made an express declaration of trust at that time. At most, the evidence shows that D1 and D3 intended from the outset that The Oaks would be purchased and developed into a family home for D3 and her family; there is also support for the view that D1 hoped and expected that one day D3’s sons would come to own the Oaks. That does not come close to proving an express declaration of trust in 2003.”
Second consideration:
Had the defendants in 2017 put a formal Declaration of Trust in place to reflect the intentions in 2003?
Had D1 and D3 intended that the Oaks should be held on trust solely for D3, and had D3 relied to her detriment on that intention? This was also rejected. The Declaration of Trust did not formalise an informal trust but was a new trust created in 2017.
Third consideration:
The Declaration created an express trust in favour of D3 on 17 April 2017. The liquidators argued two points, first, that the declaration was a sham and secondly if it was not a sham then it was a transaction defrauding creditors within section 423 of the Insolvency Act 1986.
Deputy ICC Judge Curl KC did not agree the Declaration of Trust was a sham and said “My principal reason for reaching that conclusion is that the Declaration was drafted in such a way that there was no possibility that the parties to it might need to give the appearance to third parties or the court of having rights and obligations different from those created under the Declaration,”
However Deputy ICC Judge Curl KC went on to say “It is sufficient simply to ask whether the transaction was entered into by the debtor for the prohibited purpose. If it was, then the transaction falls within section 423(3), even if it was also entered into for one or more other purposes. The test is no more complicated than that.”
As such the Declaration of Trust was used to remove an asset from a claim and set aside the Declaration of Trust.
Points to take away
This case shows the need for clear and through examination of a Declaration of Trust. When creating a trust parties must clearly document and reflect the intentions of the parties involved. Taking legal advice and speaking with your solicitor when dealing with property and trust matters is an advisable step.
This also sets out the risk of transactions intended to defraud creditors and the approach the Courts will take, as well as the considerations they will make when assessing such a position.
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This article is not legal advice; it is intended to provide information of general interest about current legal issues.