This month the new Insolvency Rules 2016 came into force, replacing the Insolvency Rules 1986. We cover this, and other issues affecting professionals in the insolvency and fraud investigation industry below.

The recent case of Singularis Holdings Ltd v Daiwa Capital Markets Europe Ltd [2017] EWHC 257 (Ch) (Singularis) is an important decision affecting any institution that handles client payments, including banks. It decided that a stock broker was liable in negligence for having breached its duty of care to its customer, Singularis Holdings Ltd (in liquidation) (Singularis), by paying monies out of its client account on the instruction of one of Singularis' directors and its only shareholder, Mr Al Sanea.

Background

Speed Read:The recent decision of R v Neuberg serves to further entrench the distinction between the two classes of offences for determining benefit under the confiscation regime.Natasha Reurts provides an overview of the decision and assess the implications for corporate and financial crime cases that follow.

Case Summary

Background

ADVISORY | DISPUTES | TRANSACTIONS “Gagging orders”: an office holder’s secret weapon December 2016 Introduction Practitioners are fully aware of the extensive powers available under ss 235 and 236 of the Insolvency Act 1986 (IA 1986) allowing administrators and liquidators as office holders (OHs) to require individuals and organisations to disgorge information.

The Facts

On 12 September 2012, the joint liquidators of a company brought claims for wrongful trading against its former directors, arguing that they knew (or ought to have concluded) before the date it entered liquidation that the company could not avoid insolvent liquidation. At first instance, Registrar Jones held that the directors were liable for wrongful trading and should pay compensation of £35,000. The directors appealed this decision.

The Decision

Transactions Defrauding Creditors

In JSC BTA Bank v Ablyazov and another the Court considered the transfer of £1.1million from Mukhtar Ablyazov to his son in 2009 at a time when his son was 17. The money was used by the son for investments in support of his Tier 1 investor visa. The investments matured in March 2014 and were held in the son’s account.

New Rules for Imposing Personal Liability on Directors of Insolvent Companies

When a company enters into an insolvency process, a director may be made personally liable for an insolvent company’s debts on a few limited bases under the Insolvency Act 1986, the most common of which are:

1. wrongful trading: if the director knew or ought to have known that there was no reasonable prospect of avoiding insolvent liquidation and he did not take every step necessary with a view to minimising the loss to creditors;

Key Points

• A dividend is a ‘transaction’ and therefore can be challenged under s 423 IA 86
• A duty to act in the best interests of creditors does not arise simply because there is a risk of insolvency which is not ‘remote’

The Facts

Shortly before insolvency, financially distressed companies often receive monies which appear "morally" to be due to third parties, such as customer deposits or monies due to be received by the company as agent on behalf of its principal. If the company then enters an insolvency process, can it keep the money, leaving the customer/principal with no more than the right to prove, as an unsecured creditor in the insolvency? Or should the money be protected by some form of trust in favour of the "morally entitled" recipient?

Facts

Mr Patel transferred Mr Mirza £620,000 to bet on shares in RBS using insider information which Mr Mirza hoped to obtain from RBS contacts. The inside information did not come through and Mr Mirza refused to return the sums to Mr Patel. Mr Patel subsequently sued Mr Mirza for recovery of the £620,000 on the
basis of unjust enrichment.