Court finds Serisys directors stripped insolvent company of software IP in Garden House Software v Marsh

The High Court has found that the directors of an insolvent Watford-based software developer unlawfully transferred its most valuable asset to a related company in order to place it beyond the reach of creditors, in a judgement handed down by Fancourt J in the Business and Property Courts.

Garden House Software Limited v Marsh & Ors concerned the assignment of intellectual property in "Adypt", a cloud-based financial services platform, from Serisys Limited to a newly incorporated Hong Kong entity, Serisys Asset Holding Limited (SAHL), on 30 August 2017. Garden House Software Limited (GHSL), as assignee of the liquidator's claims, argued the transfer was a transaction at an undervalue and a transaction defrauding creditors under sections 238 and 423 of the Insolvency Act 1986, as the company received only a worthless one-year, non-assignable licence in return for giving up rights it had spent years and millions of pounds developing.

Fancourt J agreed. He found that Serisys Limited was unable to pay its debts from around June 2017, having stopped meeting HMRC liabilities, staff wages and rent, and that its directors, Timothy Marsh and Timothy Rowland, knew the group's finances were under serious threat when the assignment was executed. Although the directors maintained the transfer was a routine step to consolidate IP ahead of a licensing deal with Bank of China International, the judge rejected this, finding the "quick and dirty" nature of the documentation, prepared without proper legal advice, pointed to a different motive: shielding the asset from an anticipated insolvency.

A central battleground was valuation. GHSL's expert, Dr Vasconcellos, placed the value of the company's share of Adypt at roughly £2.03 million as at the assignment date, using a cost-based approach. The defendants' accountant, Mr Robertson, controversially valued the same interest at nil, relying in part on an undisclosed proprietary "risk scorecard". The judge preferred Dr Vasconcellos's evidence, describing Mr Robertson's conclusions as "fundamentally flawed" and noting that even the company's own directors had privately estimated Adypt's overall worth at up to US$100 million.

The claim that three non-executive directors acted as de facto directors of the subsidiary, or dishonestly assisted the breaches, was dismissed. The judge found they had limited visibility of the subsidiary's finances and did not know, or turn a blind eye to, its insolvency at the relevant time, though a related conspiracy claim succeeded against Mr Marsh, Mr Rowland and SAHL.

The judgement also examined two later charges granted over the IP in favour of Pamela Ball, Mr Marsh's wife, in 2019 and 2026. Fancourt J found the 2019 security documents had been deliberately backdated and rushed through in the days before the company's compulsory winding up, and that both charges amounted to further undervalue transactions and fraud on creditors, though he declined to set aside the more recent charge, instead postponing Mrs Ball's interest.

Rather than order the IP itself to be revested in GHSL, given the difficulty of precisely delineating what the company had owned separately from its Hong Kong affiliate, the court ordered Mr Marsh, Mr Rowland and SAHL to pay £2,034,000, the assessed value of the misappropriated asset, secured by a charge over the Adypt IP. A separate wrongful trading claim was dismissed, the judge finding the directors had a genuine, if optimistic, belief in the prospects of securing a first commercial licence.