Can Directors rely on group benefit when transferring company assets?

Charles Mather, Solicitor, explains why a benefit to the wider group will not justify a transaction that disadvantages the transferring company and its creditors.

A High Court decision has highlighted the personal risks directors face when transferring assets from a distressed company.

Companies within the same group are separate legal entities. When an asset is transferred between them, directors must consider whether the transaction benefits the company that owns the asset rather than the group as a whole. If that company is insolvent, directors must also consider its creditors’ interests.

In Garden House Software Limited v Timothy John Marsh & Ors [2026] EWHC 2184 (Ch), two directors and the company that received the asset were ordered to pay £2.034 million following the transfer of valuable intellectual property from an insolvent group company.

What happened?

Serisys Limited was part of an international software group. Its principal asset was intellectual property connected with Adypt, a banking software product.

In August 2017, Serisys assigned all its intellectual property to Serisys Asset Holding Limited (SAHL), a newly incorporated company in the same group. Serisys received no cash. In return, it was granted a one-year, worldwide, non-exclusive and royalty-free licence to use the intellectual property in connection with its business.

The court found the licence was effectively worthless to Serisys. It had no separate business in which it could use the licence meaningfully. Meanwhile, the intellectual property transferred to SAHL was valued at £2.034 million.

The court also found that Serisys had been unable to pay its debts since around June 2017. The assignment removed its only valuable asset and left it balance-sheet insolvent. It was therefore a transaction at an undervalue under section 238 of the Insolvency Act 1986, which applies where an insolvent company makes a gift, receives no consideration or receives consideration which is significantly less valuable than the consideration it provides.

Why did the wider group benefit not provide a defence?

The directors sought to rely on the statutory protection available where a transaction is entered into in good faith to carry on the company’s business, and there are reasonable grounds to believe it will benefit the company.

The directors argued that consolidating the group’s intellectual property in SAHL would facilitate licensing and help attract investment. However, the court considered the transaction from Serisys’ perspective, rather than the wider group’s.

The assignment deprived Serisys of a valuable asset, did not release it from its intra-group debt and left it insolvent. The directors had obtained neither a valuation of the intellectual property nor legal advice on the proposed transfer. The court found that the assignment was never intended to benefit Serisys and that there were no reasonable grounds to believe it would.

The assignment also fell within section 423 of the Insolvency Act, which covers transactions intended to place assets beyond creditors’ reach or to prejudice their interests.

Although consolidating the intellectual property was also a commercial objective, the court found that the main purpose of the transfer was to protect the asset from the consequences of Serisys’ possible insolvency; the directors had intended to put the company’s only valuable asset beyond the reach of its creditors.

Why were the directors personally liable?

The court found that the two directors had breached their duties to Serisys and its creditors. They failed to consider creditors’ interests, obtain a valuation or seek legal advice before transferring the asset to SAHL for no value to Serisys. Their decisions also fell outside the range reasonably open to directors exercising proper care, skill and diligence.

The court decided against transferring the intellectual property back because its precise scope was uncertain and doing so risked further litigation and damage to the value of the remaining rights. Instead, it ordered the two directors and SAHL to pay £2.034 million, representing the value of Serisys’ intellectual property at the time of the assignment. The remedies for the overlapping claims were not cumulative.

What should Directors do before transferring assets within a group?

Before approving an intra-group transfer, directors should:

• assess the financial position of the transferring company, including its cash flow, liabilities and position after the transaction;
• identify and record the specific benefit to that company, independently of any expected group benefit;
• obtain a reliable independent valuation of the asset and any cash or non-cash consideration;
• consider the effect on creditors and whether a less prejudicial structure could achieve the commercial objective; and
• take early legal and insolvency advice, supported by clear contemporaneous board minutes.

A licence or other contractual right should not be assumed to have value simply because it is described as consideration. Directors must establish whether the transferring company can genuinely use, enforce or realise it.

Conclusion

Intra-group transfers can be legitimate, but they require particular care where the transferring company is distressed or dependent on financial support from elsewhere in the group. Before moving an asset, examine the company’s solvency, the value exchanged, the purpose of the transaction, and its effect on creditors.

Charles qualified as a solicitor in our regulatory, compliance and licensing and insolvency and restructuring teams in 2024. He advises individuals and organisations on a wide range of contentious and non-contentious issues, including regulatory and local authority investigations and prosecutions, insolvency and data protection.

Our insolvency and restructuring team advises directors, office-holders, creditors and proposed recipients on transactions at an undervalue, transactions defrauding creditors, directors’ duties and claims involving assets transferred by distressed companies.

Charles Mather