The UK Supreme Court has held that the extinction of a company's beneficial interest under a trust on the transfer of an asset by the trustee to a bona fide purchaser without notice does not constitute a "disposition" under section 127 of the English Insolvency Act 1986 (the "Act"). Accordingly, the transfer of such assets was not void, the assets could not form part of the insolvency estate of the liquidated company, and the beneficiary's interest in the assets was extinguished: Akers v Samba Financial Group  UKSC 6.
The Supreme Court also considered (albeit by way of obiter dicta) the effect of the lex situs in relation to trust assets.
The proceedings largely concerned the ownership of shares in six Saudi Arabian banks with a market value of around $318,000,000 ("the Shares"). The initial owner of the Shares was Mr Maan Al-Sanea, a Saudi businessman. As a result of a series of transactions and declarations of trust between 2003 and 2008, Mr Al-Sanea created trusts over the Shares in favour of Saad Investments Co Ltd ("SICL"), a company incorporated in the Cayman Islands. Mr Al-Sanea was a bare trustee (under a Cayman Islands bare trust) of the Shares only. In July 2009, SICL went into liquidation. On 16 September 2009 Mr Al-Sanea transferred the Shares to Samba Finance Group ("Samba" and "the Transfer"), in order to discharge various liabilities Mr Al-Sanea had with Samba.
The liquidators of SICL challenged the validity of the Transfer in England under section 127 of the Act (which renders void any disposition by a company after the commencement of winding-up proceedings), and sought a declaration that the Transfer was void, and therefore that the Shares formed part of SICL's insolvency estate.
Samba sought to challenge the jurisdiction of the English courts to hear the claim, primarily on the basis that SICL's claim did not have any prospect of success.
The focus of the Supreme Court decision was on "whether there was any disposition of property within the meaning of section 127" ("the Section 127 Issue"). The Supreme Court also gave some consideration to the application of common law trust concepts to property in jurisdictions where there is no recognisable concept of trusts ("the Trust Recognition Issue"), an issue which had been more central in the High Court and Court of Appeal.
The Section 127 Issue
The Transfer in effect had two consequences. First, legal ownership of the Shares passed from Mr Al-Sanea to Samba. Second, the beneficial ownership of SICL, as a result of the trusts created between 2003 and 2008 was extinguished as Samba was a bona fide purchaser without notice of SICL's beneficial interest in the Shares.
The issue before the Supreme Court was whether the Transfer could be set aside.
Section 127 of the Act provides that "in a winding up by the court, any disposition of the company's property, and any transfer of shares or alteration in the status of the company's members, made after the commencement of the winding up is, unless the court otherwise orders, void"
As a preliminary point, the Supreme Court confirmed that equitable interests constituted "property" within the very wide definition at section 436 of the Act. The Supreme Court then held unanimously that the Transfer did not constitute a disposition, and therefore was not void pursuant to Section 127. Although the decision was unanimous, three of the Supreme Court Justice each gave slightly different reasons for reaching that conclusion:
1) Lord Mance held that section 127 was "neither aimed at nor apt to cover" transfers of equitable interests – its focus was on preventing a company in liquidation from transferring its legally owned assets to third parties to the detriment of its creditors. Moreover, equitable rights are by their very nature treated differently from legal interests in property: equitable rights are inherently "limited" as they will always be defeated by a bona fide purchaser of the property without notice. Therefore, the Transfer did not constitute a disposition of SICL's beneficial interest in the Shares for the purposes of section 127.
2) Lord Neuberger held that a disposition would usually require "a disponor and a disponee". On the Transfer to Samba, SICL's equitable interest "effectively disappeared" and therefore no disposition took place. Lord Neuberger considered policy arguments in favour of considering trust property, such as the Shares, to be caught within section 127 and therefore available as part of the insolvency estate to satisfy the general creditors of the company. However these concerns did not overcome that it would be "positively unfair" on the bona fide purchaser if the transaction was subsequently held void as a result of an interest and an actor of which the purchaser had no knowledge.
3) Lord Sumption held that no disposition had taken place as there was no demand on the conscience of the transferee which could have given rise to a beneficial interest:
"equitable interests arise from equity's recognition that in some circumstances the conscience of the holder of the legal interest may be affected. When the asset is transferred to a third party, the question becomes whether the conscience of the transferee is affected. On the facts pleaded in the present case, the equitable interest of SICL was defeated not by the act of the transferor (Mr Al-Sanea) but by the absence of anything affecting the conscience of the transferee (Samba)" (at ).
The Trust Recognition Issue
Although it was not strictly necessary for it to do so given the conclusion on the Section 127 Issue, the Supreme Court also considered the Trust Recognition Issue. There was no issue between the parties that Saudi law does not recognise an institution of trusts allowing for ownership of property with split legal and beneficial title. Nor was there any issue that the lex situs of shares was the jurisdiction in which the relevant company was incorporated, or where the shares were registered. However, the question was whether, as a matter of common law, equitable proprietary rights can be created in assets situated in a country where the lex situs does not recognise or permit the creation of these rights.
The Supreme Court confirmed (on the basis of Macmillan Inc v Bishopsgate Investment Trust Plc (No 3)  1 WLR 387) that "where under the lex situs of the relevant trust property the effect of a transfer of the property by the trustee to a third party is to override any equitable interest which would otherwise subsist, that effect should be recognised as giving the transferee a defence to any claim by the beneficiary, whether proprietary or simply restitutionary".
However, notwithstanding that Saudi Arabian law did not recognise the trust, and therefore from Samba's perspective good title was received on the Transfer, common law courts will recognise the trust obligation as between trustee and beneficiary (i.e. Mr Al-Sanea and SICL). As Lord Mance stated "in the eyes of English law, a trust may be created, exist and be enforceable in respect of assets located in a jurisdiction, the law of which does not recognise trusts in any form."
Lord Mance went on to consider whether the Convention on the Law Applicable to Trust and on their Recognition (the "Convention", which applied in England through the Recognition of Trusts Act 1987) applied in the present circumstances. This was because SICL had argued that the effect of the Convention was that issues of capacity of the trustee to declare a trust or to create a beneficial interest in the shares were to be governed by the law of the trust (i.e. Cayman Islands law) whereas Samba argued that the Convention did not apply and therefore Saudi Arabian law applied (as the lex situs). The Supreme Court held (contrary to Samba's submissions) that "to regard a trust as falling outside the Convention under article 4, simply because its assets consist of assets in a jurisdiction which does not recognise a division between legal and equitable proprietary interests, is wrong." Therefore the Convention did, in principle, apply.
However, the effect of the Convention applying was not considered, as the Supreme Court decided the matter on the issue of disposition (discussed above).
Conclusion and comment
To some extent, the Supreme Court has avoided the issue of the effect of the Convention by deciding the case on the Section 127 Issue. However, this case does provide a reminder that a beneficiary under a trust has two main rights. The first right, enforceable against the trustee alone, is to secure the proper administration of the trust pursuant to the terms of the trust deed. The second right, the "true proprietary"1 right over the trust property, is enforceable against the world at large, subject to the important exception for the bona fide purchaser for value without notice.
While SICL or its liquidators could not recover the Shares transferred to Samba, there is no reason why SICL would not be successful in a claim against Mr Al-Sanea for breach of trust in transferring the Shares (assuming this claim had any value).
 Per Lord Sumption at 82