Can You Protect Your Assets From Creditors?

Can you protect your assets from creditors? No, you cannot shield your assets from creditors, such as by using a trust if it was done for the purpose of putting assets beyond the reach of creditors. Section 423 of the Insolvency Act 1986 provides that if the court is satisfied that attempting to defeat creditors was the motivation for the gifting of assets to another person, then it can order the transaction to be set aside and unwound.

The case of Sayers & Anor v Dixon & Anor [2025] EWHC 1886 (Ch) (“Dixon”) demonstrates that principle in action when the Trustees in Bankruptcy set aside declarations of trust of a bankrupt individual, John Dixon, in favour of his wife, Janet Dixon. Mr Dixon obtained professional advice about protecting himself from the consequences of business risk and this seems to have led the judge to say:

… In executing that suite of DoTs, Mr Dixon plainly intended to render himself ‘judgment-proof’.

What Is A Declaration Of Trust?

A declaration of trust is a formal legal document that declares that a party, the Trustee(s), holds an item of property on trust for the benefit of another party or parties. The party entitled to the benefit is typically known as the beneficiary.

If a person enters into a declaration of trust in relation to assets already owned by them, then the end result will commonly result in some or all of their assets being gifted upon the execution of the trust deed. It is the gifting that may trigger the effect of Section 423 of the Insolvency Act 1986 and lead to the gift being declared ineffective.

It has to be highlighted that there are plenty of proper purposes for entering into a declaration of trust, but it is a legal option that can be used improperly as well.

Using A Trust To Protect Assets From Creditors

It is not unknown for individuals who go bankrupt to claim that assets they may have previously held were not beneficially owned by them, but someone else was the party entitled to the benefit.

It is impermissible for someone to prepare for bankruptcy intentionally to prevent their creditors through the Trustee in Bankruptcy being entitled to the assets. Under Section 357 of the Insolvency Act 1986 it is unlawful to give assets away to another person within 5 years of bankruptcy, except if it can be proved that there was no intent to defraud creditors.

Preparing For Bankruptcy With A Trust

It is not unknown that people sometimes take risks when engaging in commercial activities and seek to shield themselves from the consequences by entering into a declaration of trust, which removes assets from their hands and gives the benefit to another person, perhaps in the hope that they will be able to claim that they are without means.

That is how the Dixon case, amongst others, may show that the use of declarations of trust may not work.

Section 423 Can Protect Future Creditors

Insolvency legislation, which applies to setting aside transactions, tends to focus on arrangements to move assets into the hands of another party, either when a person is insolvent or becomes insolvent as a consequence of entering into the relevant transaction. 

Where Section 423 of the Insolvency Act 1986 is a bit different is that there is no requirement for a person to be insolvent at the point of gifting assets or entering into a declaration of trust.

In the Dixon case, the judge said:

I would add that the issue whether Mr Dixon had HMRC in mind when entering the DoTs is irrelevant. The fact that the ultimate claimant was not in the contemplation of the transferor at the time of the transaction is immaterial; the class of “victims” (as defined in s.423(5) IA1986) is not limited to those who were within the compass of the transferor’s purpose when entering into the transaction: Gordian Holdings Ltd v Sofroniou [2021] EWHC 235 at [16(2)-(3)]. There is no statutory requirement in s.423(3) IA 1986 for the transferor to have had any particular knowledge of persons who may make a claim at the time he entered into the transaction: Malik v Messalti [2024] EWHC 2713.