When a victim pursues a purported transaction defrauding creditors before the courts, they shoulder the costs and litigation risk in an attempt to overturn a perceived injustice.
But what happens where the court agrees that assets have been put beyond the reach of creditors and nonetheless declines to order any relief? That is the situation in which Credit Suisse found itself, in the recent case concerning a transaction defrauding creditors perpetuated by Greensill Limited (in liquidation) in favour of the defendant Softbank group of companies.
Facts
The first claimant, Credit Suisse, invested in securitised loan notes administered by Greensill Capital (UK) Limited valued at $440m (known as the Fairymead Notes). The second claimant, GLAS, was a professional trustee company and note trustee for the Fairymead Notes. Security was provided for the Fairymead Notes through a series of participation and enforcement rights granted in favour of Credit Suisse, which was supported by the loan of $440m from Greensill Limited (GL) to Katerra Inc, a Californian construction company. All of the Fairymead Notes defaulted when they fell due for payment in March 2021
In late 2020, Katerra faced severe financial distress and sought to restructure its debt obligations. GL entered into a series of transactions with Katerra by which Katerra was released from its $440 million debt in exchange for shares, which were immediately transferred by GL to SoftBank (the Transactions). The claimants alleged the Transactions stripped GL of its only asset at a time when it was on the verge of insolvency and rendered the security for the Fairymead Notes worthless.
The Greensill Capital group of companies collapsed into insolvency in 2021 and GL entered liquidation in July 2021. The Katerra Group also filed for bankruptcy protection under a US Chapter 11 in June 2021.
The claimants brought a claim against Softbank (as beneficiary of the Transactions) and GL, under section 423 of the Insolvency Act 1986 (the Act). They argued that the Transactions were a transaction at an undervalue brought about with the intention to put assets beyond the reach of GL’s creditors (namely Credit Suisse), and that Softbank was complicit.
Decision
The judge agreed that the Transactions were indeed a transaction at an undervalue for the purpose of section 238 of the Act and that GL had the requisite intention to put assets beyond the reach of its creditors. Therefore, the key elements of section 423 of the Act were met.
In considering the appropriate relief, the judge considered it “highly material” the extent to which a particular defendant has benefitted from the transaction on the basis that relief under section 423 of the Act is intended to be restorative and protective. The judge took account of all the of circumstances, including the “state of mind and culpability of the defendant”.
The judge found that Softbank entered into the Transaction in pursuance of its own commercial interests and to salvage its position regarding investments it held in the Greensill and Katerra Groups. However, the judge concluded that Softbank acted in good faith and did not know or have grounds to suspect that GL entered into the Transactions to prejudice the interests of the claimants.
Following the bankruptcy of Katerra in June 2021, the value of the shares Softbank received was reduced to nothing. The judge therefore refused to order that Softbank should make any payment with respect to the value of the shares as at the date they were received (i.e. $440m), as to do so would go beyond “restorative” relief. If the shares had retained some value, the judge noted it may have been appropriate to make a transfer or monetary payment order. However, “it is hard to see why a transferee (or other beneficiary under a transaction) who has no knowledge of the debtor’s wrongful purpose should be required to protect victims against fluctuations in the value of the assets thereafter”. This was, therefore, an “exceptional case” as identified by the Supreme Court in Sequana, where a transaction at an undervalue was found but no relief was ordered.
Takeaways
This is a rare example of a decision where a transaction defrauding creditors was found to have taken place, but the court ordered no relief. While this is a highly fact-specific decision, the decision serves as a reminder that relief for transactions defrauding creditors is intended to be restorative and the recipient’s culpability is likely to be relevant where the court has wide discretion in the making of any section 423 order. Where the recipient has acted in good faith and, due to circumstances outside their control, the value received has effectively been wiped out, the court may decline to grant relief. The result here will be of cold comfort to the claimants - and a potential deterrent to victims of fraudulent schemes bringing such claims in the future.
Credit Suisse Virtuoso SICAV-SIF & Anr -v- Softbank Group Corp. & Ors [2025] EWHC 2631 (Ch).
Tim Carter
Lucy Trott