Transactions defrauding creditor claims given healthy boost

The High Court’s recent decision to extend the limitation period for transactions defrauding creditor claims will be a very welcome decision for insolvency practitioners and solicitors, says Chris Adams.

We are all familiar with the provisions of s.423 of the Insolvency Act, more typically referred to as “transactions defrauding creditors”. Nevertheless, this provision is often overlooked and can be a very useful recovery tool. The requirements are straightforward – there has to be a transaction, at an undervalue, the purpose of which was to put assets beyond the reach of a person who is making, or may make, a claim against the individual, or to otherwise prejudice a person’s interests in relation to such a claim.

In a recent case, Riley v Aidiniantz and another [2025] EWHC 322 (Ch), the High Court has further broadened the useful application of s.423 in confirming that where a claim is brought by a victim, the limitation period runs from when the cause of action arises and the creditor becomes a victim of the transaction, not from when the challenged transaction occurred. In this case, this was when the claimant became unable to enforce a costs order against shares previously owned by the first defendant.

The essential facts of the case are that the first defendant transferred his entire shareholding in a company to his wife through transactions in 2014 and 2016 by way of gifts. The claimant’s position was that the purpose of these transactions was to put the shares beyond the claimant’s reach, preventing recovery of costs from the first defendant.

The defendants attempted to argue that the claim was time-barred, as it was issued in July 2024, more than six years after the transactions in question occurred. The court did not agree, determining that in any event a 12-year limitation period applied, as the claim sought to enforce an obligation under statute and was therefore a claim on a specialty.

On the specific issue of limitation, the court went further in its judgment, stating that where a victim brings such a claim, limitation runs from when the cause of action arises, namely when the creditor becomes adversely affected.

In the context of the case, this was when the security for costs paid into court by the first defendant had been depleted and the claimant had no recourse to the transferred shares to recoup the remaining costs owed to them.

This decision will be welcomed by insolvency practitioners and solicitors, since it confirms that transactions may remain vulnerable to challenge by victims for an indeterminate period. As limitation runs from when a creditor’s cause of action arises and they become a victim of the transaction, such creditor could, in theory, become a potential claimant under this provision at any time after a challenged transaction has occurred.

Litigation is never without risk, especially when limitation becomes a factor. It is always sensible to consider all forms of financing (and the associated costs, risks and benefits) so that an informed decision may be made as to what is in the best interests of the creditors.

This article was written by Chris Adams, Associate Director (Yorkshire), for R3 Recovery Magazine Spring 2026 Edition.