JSC BTA Bank v Ablyazov  EWCA Civ 1176 (Court of Appeal)
The Court of Appeal has provided further guidance on when a transaction can be said to be made with the purpose of “putting assets beyond the reach of creditors” such that it is liable to be set aside as a transaction defrauding creditors under section 423 of the Insolvency Act 1986.
In this case, JSC BTA Bank (the “Bank”) brought a claim as creditor against Mr Ablyazov for the recovery of funds paid to his son by way of a gift. Mr Ablyazov was accused of embezzling vast sums of money from the Bank during a period when it was under his control. In 2008, the Bank suffered financial difficulties and by January 2009 was unable to meet its liabilities. Mr Ablyazov was then removed as chairman of the board on 2 February 2009.
On 26 February 2009, £1.1m was paid from a Swiss account in the names of Mr Ablyazov and his son to a London account in his son’s sole name for the purchase of UK gilts (the “Payment”). The son was in the UK on a student visa at the time and the investment of funds in the UK enabled him to obtain an investor visa, following which he was granted indefinite leave to remain in 2013 and he obtained British citizenship in 2014. The balance of the investment of £1.025m remained in the son’s account when the Bank commenced their action.
The Bank argued that the Payment was a transaction defrauding creditors, because it was made with the purpose of putting assets beyond their reach (the “prohibited purpose”).
At first instance, the High Court found that the Payment was a gift but that it was not made for the prohibited purpose. In the leading judgment of the Court of Appeal, Lord Justice Leggatt was unwilling to interfere with that finding.
The issue of dual purposes was considered by the Court of Appeal in Inland Revenue Commissioners v Hashmi  EWCA Civ 981 which was a case with similar facts to this one. In that case, the court noted that "It is sufficient if the statutory purpose can properly be described as a purpose and not merely as a consequence".
Leggatt LJ commented that “the Hashmi case establishes that, where the transaction was entered into by the debtor for more than one purpose, the court does not have to be satisfied that the prohibited purpose was the dominant purpose, let alone the sole purpose, of the transaction”. Accordingly, and on a strict reading of section 423, the Court of Appeal found that it would be sufficient for the prohibited purpose to simply be a purpose of the transaction; not a dominant or even a substantial purpose.
In this case, the court was persuaded by the fact that Mr Ablyazov’s son had commenced his investor visa application over one year before the Payment was made and considered that Mr Ablyazov would have made the Payment for that application even if he were not at risk of a claim by the Bank. The Payment (£1.1m), although substantial, was insignificant compared to the sums embezzled from the Bank ($6bn USD) and it was therefore considered that Mr Ablyazov would not have gone to the lengths required to make the Payment for such a relatively small scale benefit. Mr Ablyazov also had substantial investments in the British Virgin Islands (undisclosed at the time of the Payment) where he could easily have kept the monies if he wanted to keep them out of the reach of creditors. Accordingly, the court was not convinced that the Payment was made with the purpose of putting assets beyond the reach of the Bank and therefore section 423 was not invoked.
David Steinberg, partner and co-head of the Restructuring & Insolvency team comments: “This is an interesting case and one which arguably lowers the threshold for transactions defrauding creditors where a transaction is entered into which has multiple outcomes or purposes. The outcome in this case is perhaps even more interesting given the volume of satellite litigation (34 reported cases) and the comments made by the court about Mr Ablyazov’s conduct throughout. However, the key point is that where multiple purposes of a transaction are established, it will be necessary to show that the offending outcome (i.e. putting assets beyond the reach of creditors) was at least one of the purposes of the transaction and not merely an unintended consequence.”