Transfer of shares is not a void disposition under section 127 Insolvency Act 1986

In the case of Akers and others v Samba Financial Group [2017] UKSC 6, the Supreme Court has ruled that a transfer of the company’s beneficial interest in shares to a bona fide purchaser without notice is not a disposition within the meaning of section 127 of the Insolvency Act 1986 (“section 127”).

The Law

  • Section 127 provides that any disposition of that company’s property is void in a winding up by the Court once winding up proceedings have commenced against that company, unless a validation order is obtained.
  • A purchaser of an asset for value without knowledge of any prior equitable interest in that asset (a ‘bona fide purchaser’) will take title to that asset unencumbered.

The Facts

Mr Al-Sanea was the registered owner of shares valued at around US$318 million in five Saudi Arabian banks, which were held on trust for the company Saad Investments Co Ltd (“SICL”). Compulsory winding up proceedings were commenced against SICL and, subsequently, Mr Al-Sanea transferred his legal title in the shares to a purchaser (Samba) for value without notice of SICL’s beneficial interest (the “Transaction”). The  questions that the Supreme Court were asked to consider were whether:

  1. the Transaction was a disposition of SICL’s beneficial interest in the shares for the purpose of section 127 and hence void; or
  2. the effect of the Transaction was anyway to extinguish SICL’s beneficial interest in the shares as the transfer was to a bona fide purchaser for value without notice of that beneficial interest.

The Decision

The Supreme Court held that:

  1. the Transaction was not a disposition of SICL’s interest within the meaning of section 127. Mr Al-Sanea did not transfer SICL’s beneficial interest to Samba (he was not empowered to do so), but merely transferred his legal title as the registered owner of the shares. Accordingly, as there was no disposition of SICL’s beneficial interest in the shares, the Transaction was not a void disposition under section 127 ; and
  2. whilst SICL’s rights under the trust had not been extinguished by the Transaction , they were however  instead treated as being overridden by the protected equitable rights of Samba as bona fide purchaser.

There were also some interesting comments made by Lord Mance (leading judgment) and Lord Neuberger in  confirming that: there was considerable support for the view that the destruction of an asset could fall within the definition of a “disposition” within section 127, but on these facts section 127 could not apply; and as the Transaction was a misappropriation of trust assets by Samba and was in breach of trust,  although the insolvency legislation did not assist, SICL retained a personal claim against Mr Al-Sanea (as trustee of the shares) under the law of constructive trusts for their equivalent value.

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