English High Court clarifies limitation rules for transactions defrauding creditors

Quick read

A recent English High Court decision has provided important clarity on when creditors can challenge transactions designed to put assets beyond their reach and the starting point from when time begins to run.

Background

The Claimant sought to recover substantial unpaid costs from the defendant who had transferred valuable shares to his wife. The defendant argued the claim was time-barred, contending that a six-year limitation period applied and both share transfers occurred more than six years before proceedings were issued. He also argued that a 2013 settlement agreement precluded the current claims.

Decision

In refusing summary judgment, the Court found that:

Transactions defrauding creditor claims are claims on a specialty with a twelve-year limitation period from when the cause of action arises, not six years.
Crucially, no cause of action arises until the claimant becomes a 'victim' – a person adversely affected by the transfers and unable to enforce their judgment against the assets. Here, the claimant only became adversely affected after funds paid into court were exhausted, at which point she could only recover costs by enforcement against the defendant's assets.
The court rejected arguments that a 2013 settlement agreement barred the claims, finding that the parties never intended the agreement to prevent claims they could not have contemplated at the time.

Key takeaways

Transactions defrauding creditors remain vulnerable to challenge by victims for twelve years. The twelve-year period may not even begin until years after the actual transfer, and settlement agreements will not bar unanticipated claims without clear language.