Vol 11 (2014) - Issue 1

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Concept Oil Services Ltd v En-Gen Group LLP & Ors [2013] EWHC 1897 (Comm)

Introduction
Giving judgment on 5 July 2013 Mr Justice Flaux granted relief to the claimant, Concept Oil Services Limited ('Concept'), under sections 423 and 425 of the Insolvency Act 1986 (the '1986 Act') by way of declarations and orders the effect of which was to reverse certain complex international transactions.
Flaux J’s decision is of importance in highlighting the utility of section 423 of the 1986 Act as a tool for creditors to challenge complex multi-jurisdictional transactions effected in order to defraud a company’s creditors. This decision demonstrates that the Court is both able and willing to exercise its powers under this provision to reach beyond this jurisdiction to unwind relevant transactions, however complex and multi-jurisdictional, provided that there is a sufficient connection with England and Wales in the relevant sense.

Background and relief sought
Concept, a company incorporated in Hong Kong, trades crude and refined oil products and carries on related activities such as transportation. Between October 2008 and November 2010 Concept purchased refined oil from EG UK (the ninth defendant), an English registered company, pursuant to a framework agreement. EG owned EG Group (the third defendant), a Kazakh limited liability partnership, which in turn owned another Kazakh LLP which owned and operated a Kazakh oil refinery.
Concept’s loss resulted from payments made to EG UK under the Framework Agreement for refined oil which was never delivered and for other related matters and loss under a tax loan agreement pursuant to which COS lent the group money to meet tax liabilities. Concept’s case, which the Learned Judge accepted, was that it was induced to enter these various agreement by representations made by one of EG UK’s directors ('K') which proved to be fraudulent.
When Concept attempted to recover these losses it transpired that EG UK had become an Anguillan company ('EG Anguilla') with no assets, EG UK having (i) re-registered itself in Anguilla, (ii) rearranging its corporate structure and (ii) divested itself of ownership of the subsidiary that owned the Kazakh oil refinery.
First, Concept obtained a freezing injunction against the first eight defendants on 6 March 2012. Thereafter proceedings were issued in which Concept claimed damages from EG UK, the other companies in the group and EG UK’s directors, on the basis of the torts of deceit and conspiracy. Concept also argued that EG UK’s transfer of assets amounted to transactions defrauding creditors for the purposes of section 423 of the Insolvency Act 1986 (the '1986 Act').
On the facts, Flaux J held that K had indeed made a fraudulent misrepresentation to Concept by continuing to hold EG UK out as an English-registered company with substantial assets in circumstances where (i) it had become an Anguilla-registered company with substantially no assets and (ii) Concept had made it clear that it would only trade on the basis that EG UK was an English-registered company.
Ineffective transfer
In fact, the claim for relief under section 423 of the 1986 Act arose only on facts that contradicted the Learned Judge’s finding in relation to the effectiveness of EG UK’s transfer of its assets. The section 423 claim only arose in circumstances where EG UK’s transfer of assets to EG Anguilla had been effective, whereas Flaux J held that this transfer was a nullity. The transfer was null on the basis that, as a matter of English law, EG UK remained at all material times an English-registered company (notwithstanding the provisions of Anguillan statute). Accordingly, EG UK’s purported transfer of assets and liabilities to another entity for no consideration was simply a nullity since such a transfer is not regarded as effective as a matter of English law. English law was the applicable law to determine the effectiveness of the transfer from EG UK since the law of incorporation of the transferring entity is the applicable one in these circumstances (following Dicey, Morris and Collins on the Conflict of Laws, 15th ed., at §30-011).