In a significant recent judgment, the ADGM Court has clarified that it has jurisdiction to hear an action for fraudulent trading against the former directors of an onshore UAE company.

By way of background, NMC Healthcare LTD (NMC), and its various subsidiaries, were incorporated in onshore UAE. On 17 September 2020, NMC was redomiciled as an ADGM company. Shortly thereafter, on 27 September 2020, NMC was put into administration pursuant to the ADGM Insolvency Regulations 2015 and joint administrators (the Joint Administrators) appointed.

In the recent case of Mitchell v Al Jaber [2024] EWCA Civ 423, the Court of Appeal confirmed that a shareholder and director may still be subject to a fiduciary duty when purporting to transfer company property, even after the company enters liquidation. The decision was made in relation to British Virgin Island (BVI) law, but on the basis of English case authorities.

Background

Banned! Fraudsters!– Terms used by the Insolvency Service for directors who abused the government backed loan scheme which was put in place to help businesses struggling during the pandemic.

Since the pandemic, during which insolvency rates were low due to Government measures, there has been a considerable rise in insolvencies in the UK and many other jurisdictions. High interest rates have significantly increased the cost of borrowing and many companies are saddled with mountains of debt that was taken out in better times and which are now difficult to repay. In addition, high inflation and energy costs, lower consumer confidence and volatile supply chains have all contributed to making the last few years very difficult for businesses.

When individuals and certain entities (such as partnerships, trusts and other unincorporated bodies) have debts that they are unable to repay to their creditors, they may consider or be faced with bankruptcy, which is known as sequestration in Scotland. However, sequestration is just one avenue. Alternative statutory debt solutions are available, which can provide breathing space and allow debts to be repaid over time, without creditor pressure.

The adage ‘there is no such thing as a free lunch’ rings true for the 831 company directors disqualified in 2023/24 for abusing the Covid financial support scheme.

Although the law, rules and procedures governing corporate insolvency in Scotland and England and Wales are similar in many respects, Scotland has a separate legal system and there are some important differences in the provisions and rules applicable north and south of the border. The differences include:

The latest government insolvency statistics highlight that the downturn in the UK economy is still taking a significant toll and the number of UK corporate insolvencies in February 2024 remains high (and 17% higher compared to February 2023).

Latest insolvency statistics

February 2024 saw 2,102 company insolvencies, the highest February figures for at least four years.

For RSLs who are routinely contracting with housebuilders for golden brick delivery of affordable housing across multiple phases, we discuss the four key actions that can help if the housebuilder becomes insolvent.

1. Pre-Insolvency – Financial Distress Provisions and Due Diligence

Whilst most people would hope it could never happen to them, in our experience it often can. As such it pays to be prepared.