Wednesday, 1 August 2012

UK: England and Wales: Stone Rolls distinguished and the extra-territorial effect of section 213 of the Insolvency Act 1986

Sir Andrew Morritt CVO, the Chancellor of the High Court, gave judgment earlier this week in Bilta (UK) Ltd v Nazir [2012] EWHC 2163 (Ch). The case concerned claims brought by a company's liquidators against the sole directors of the company (one of whom owned all of the company's shares) in respect of alleged fraudulent trading, and breaches of duty including section 172 of the Companies Act 2006, arising from their depriving the company of its ability to meet VAT obligations arising from carbon credit trading.

The decision is noteworthy for a couple of reasons. First, it was held that section 213 of the Insolvency Act 1986 - the fraudulent trading provision - had extra-territorial effect. Second, the judge firmly rejected the argument that the claim against the directors was precluded by the ex turpi causa non oritur actio principle. His Lordship distinguished the facts before him from those in Moore Stephens v Stone Rolls Ltd [2009] UKHL 39 and stated that the ratio decidendi therein did not apply to cases in which the claim was based on a breach of duty encompassing persons or interests other than the fraudsters in corporate form. Section 172 of the Companies Act 2006 was one such duty, the Chancellor stating that the interests of creditors "... are within the scope of the duties of directors at least where the company is or may become insolvent. S. 172 ... is statutory recognition of the principle to that effect recognised by Dillon LJ in West Mercia Safetywear Ltd v Dodd [1988] BCLC 250" (para. [37]).

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