Credit Suisse Virtuoso v Softbank: Section 423 claim fails despite finding of improper purpose

Lord Justice Miles has dismissed a section 423 Insolvency Act 1986 claim, finding that whilst a debtor company released £440 million of debt for an improper purpose, no relief should be granted against defendants who acted in good faith and received no net benefit.

The proceedings arose from the collapse of Greensill Capital's supply chain financing operations. Credit Suisse's fund had invested in securitised notes originated by Greensill Capital (UK) Limited, backed by receivables from the Katerra Group construction companies. The intended security comprised participation rights held by Greensill Limited (GL), a special purpose vehicle, in a receivables purchase agreement (RPA) with Katerra entities.

By late 2020, Katerra faced severe financial distress. Softbank Group, a substantial investor in both Greensill and Katerra, provided £440 million to Greensill's parent company in November 2020. Softbank understood this injection would enable repurchase of the Credit Suisse notes, thereby "internalising" the risk within the Greensill Group. However, Greensill deployed the funds for other purposes.

On 30 December 2020, GL entered a Contribution and Exchange Agreement releasing Katerra's £440 million RPA debt in exchange for Katerra shares, which were immediately transferred to Softbank entities under a separate Transfer Agreement. The notes defaulted in March 2021 when Greensill entered administration.

The court's findings

The court identified the relevant "transaction" as the combined CEA and TA, rejecting Softbank's broader characterisation encompassing all November-December 2020 agreements. Following Phillips v Brewin Dolphin and Feakins v DEFRA, the court emphasised that transactions are identified by reference to agreements the debtor actually entered, absent artificial division.

The transaction was at an undervalue. GL released secured claims over Katerra receivables valued at £86.2 million whilst receiving shares worth only £11.3 million. The court rejected Softbank's "pass-through" argument that GL benefited by being relieved of participation payment obligations, holding this did not constitute consideration in money or money's worth under section 423(1)(c).

Applying JSC BTA Bank v Ablyazov, the court found Lex Greensill (whose intentions were attributed to GL) possessed the requisite improper purpose. By 30 December 2020, the Greensill Group lacked resources to redeem the notes and faced potential insolvency. Greensill knew the transaction would eliminate the security backing the notes, transforming Credit Suisse from secured creditor of Katerra to unsecured creditor of the failing Greensill Group. His hope of eventually satisfying creditors through further fundraising did not negate the improper purpose.

Refusal of relief

Despite these findings, the court exercised its discretion under section 423(2) to refuse relief against Softbank. The judgement emphasised that relief must be fashioned considering all circumstances, including defendants' knowledge, culpability, benefits received, and post-transaction events.

The court found Softbank reasonably believed the £440 million would be used to protect noteholders before GL released the RPA. Softbank neither shared nor knew of GL's improper purpose. One Softbank entity received Katerra shares, but these became worthless when Katerra entered bankruptcy in June 2021. Following 4Eng Ltd v Harper, the court held it inappropriate to order payment based on earlier valuations where blameless transferees held shares until supervening market events eliminated their value.

The decision provides significant guidance on the discretionary nature of section 423 relief, confirming that establishing a transaction at undervalue with improper purpose does not automatically warrant remedial orders against defendants who acted in good faith.