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English Court extends ambit of claims for transactions defrauding creditors

The recent decision of the English Court of Appeal in Orexim Trading Limited v Mahavir Port and Terminal Private Limited has confirmed the existence of another tool in the fight against fraudsters, enabling victims of fraud and insolvency practitioners alike to pursue overseas targets who have been involved in transactions entered into at an undervalue and for the purposes of putting a company’s assets beyond the reach of its creditors.

The claim was based upon a series of transactions pursuant to which an Indian company, MPT, had sold a vessel to a Singaporean entity, which then on sold the vessel to another Indian entity. These were all alleged to be transactions at an undervalue entered into for the purposes of putting the vessel beyond the reach of MPT’s creditors. In those circumstances, section 423 of the Insolvency Act 1986 allows the Court to grant relief for the benefit of victims. The issue facing the Court in the Orexim case was whether the foreign defendants could be served with proceedings under section 423, as prior decisions had suggested that this could not be done.

The Court confirmed that it did have the power to permit service on foreign parties of a section 423 claim. Its judgment made clear that the ability to proceed against foreign parties is subject to important safeguards, namely that there needs to be a sufficient connection with England and that England is the appropriate forum for the claim. The court must be scrupulous to ensure that these safeguards are rigorously applied, and in the Orexim case, the Court did not consider that they had been met.