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Section 423 of the Insolvency Act 1986: the importance of understanding the parties’ intentions

In the recent decision in Lemos v Church Bay Trust Company Ltd [2023], the court found that the bankrupt’s intention in making a declaration of trust was to clarify the delineation between his assets and those of his wife. Whilst an aspect of this was to protect her assets from his creditors, the required intention to amount to a transaction defrauding creditors was not present, as the bankrupt’s purpose had not been to put his assets beyond the reach of his creditors.


On 11 March 2015, Christos Lemos (Christos) was declared bankrupt following an $18 million judgment against him in favour of his sister Joanna Lemos (Joanna).

Joanna brought a claim challenging a declaration of trust made by Christos in favour of his wife Kalliopi (Kalliopi) on the basis that it was a transaction defrauding creditors, contrary to s 423 of the Insolvency Act 1986 (Act).

Christos and Kalliopi were married in 1972. Shortly after their marriage, Christos and Kalliopi lived together in a flat rented by Kalliopi’s father (Captain Nikolos).

In 1981 Captain Nikolos, sought to purchase a house for his daughter, so she could maintain financial independence from her husband. Panagia (the Company), was formed for the purpose of purchasing a property (Property). The Property was purchased by the Company and the 500 shares in the Company were split between Kalliopi (450), Captain Nikolos (25), and Kalliopi’s mother (25).

The documents produced to the court demonstrated that the Company’s record keeping was piecemeal and inconsistent. Accordingly, there had been confusion as to ownership of the Company and who its appointed directors were.

In 1994, Christos made a declaration of trust in respect of the shares in the Company, declaring that any interest he has was held for Kalliopi.

In 2013, the Property was transferred out of the Company to a trust company, and it was registered as the legal owner in 2014.


The Claimants maintained the declaration of trust was a sham document, and that prior to its existence Christos had a beneficial interest in the Company, and therefore an interest in the Property. On this basis, they asserted that the declaration of trust was a transaction defrauding creditors.

Kalliopi contended that the declaration of trust showed that Christos’ interest was that of a trustee and that the purpose of the declaration was to protect Kalliopi’s own assets and differentiate them from Christos’.

The issues were therefore as follows:

  1. whether Christos had a beneficial interest in the Company when he made the Declaration of Trust;
  2. whether, in making the declaration of trust, Christos acted for either of the purposes in s.423(3) – which is to either a) put assets beyond the reach of someone who was making, or might make a claim against him, or b) prejudice the interests of such a person; and
  • what, if any, relief, should be granted.


Based on the chronology of events and the available evidence – the judge found that the intention of all parties was that Kalliopi was to hold the whole of the beneficial interest in the Property from the date of its purchase. Various documents produced over the years indicated that this was both the intention of Captain Nikolos and understood to be so by all others. Christos therefore had no beneficial interest in the Company.

Given this, and the subsequent lack of clarity surrounding ownership of various assets, the judge found that when making the declaration of trust, Christos’ purpose was to segregate his assets from Kalliopi’s.

Accordingly, the purpose of the declaration of trust was not to put assets beyond the reach of a person who was making, or might at some point make, a claim against Christos or of otherwise prejudicing the interests of such a person in relation to such a claim. The act of moving “assets to safety”, as described by the judge, is allowable if it is not “to deceive and is not motivated by the potential prospects of a bankruptcy petition being issued”.  The key point in this case was that the assets being moved were not the bankrupt’s but Kalliopi’s. When assessing the question of intention, “it is a question of subjective intention” and in order to satisfy the requirements under s 423 “the court has to be satisfied that the person entering into the transaction actually had the relevant purpose, not that a reasonable person in their position would have had it.”

Based on the above, Judge Wicks found that there had been no transaction under s 423 and that the documentary evidence and oral evidence of Kalliopi and Christos supported this.  He considered it to be clear that the party’s intentions had pre-dated the bankruptcy considerably; the documentary evidence played a vital role in securing this position.


Whilst the scope of s423 has been expanded in recent decisions, this case illustrates the need to prove the requisite intention. In particular, the case highlights the fact that the intention must be to put assets of the debtor beyond the debtor’s creditors.

The case also serves as a reminder of the evidential difficulties that Claimants may encounter associated with witness evidence relating to events taking place decades ago. As a consequence of the historical nature of the events that had occurred between the signing of the declaration of trust, to the claim being issued in December 2016 and the trial date in September 2023, the “fallibility of human memory” was raised by the judge, who commented on the possibility of witnesses providing evidence by “recollection” or “reconstruction”. The judge was tasked with “considering the reliability of oral evidence… when evaluating the evidence”, the documentary evidence being a key motivator in the outcome of the case as it provided proof of the parties’ intentions.