Integral Petroleum SA v Petrogat FZE & Ors

28 / 02 / 2023

Relief under ss 423-425 Insolvency Act 1986 is not limited to cases of insolvency, as the decision of David Edwards KC, sitting as a High Court judge in the Commercial Court, in Integral Petroleum SA v Petrogat FZE & Ors ([2023] EWHC 44 (Comm)) demonstrates.

Integral and Petrogat are oil and petroleum trading companies, the former based in Geneva, the latter in the United Arab Emirates. A dispute arose out of a contract made in 2017 for Petrogat to supply oil to Integral. In January 2018 Integral, having been tipped off that Petrogat intended to divert the oil, obtained an injunction to restrain Petrogat from conversion of part of the cargo of oil. In breach of the injunction, Petrogat and another company diverted 37 tanks of oil to Iran.

The ensuing procedural background is complex, involving an LCIA tribunal arbitration (as a result of which Integral was awarded in excess of $400,000), a judgment (awarding further sums), the appointment by the court of receivers, a contempt application, and, ultimately, the striking out of the second to fourth defendants’ defence, leaving them debarred from further defending Integral’s claim.

The application before David Edwards KC was for orders, inter alia, declaring that certain transfers amounted to transactions defrauding creditors within the meaning of s 423 Insolvency Act 1986 and requiring the defendants, Petrogat, Mr Beisenov, and Mr and Ms Sanchouli (its de jure and de facto directors) to pay Integral $1.7 million, being the sums outstanding under the tribunal’s awards and the judgment plus interest and costs. The application was made under CPR 3.5(5) (judgment without trial after striking out). Although opposed, it largely succeeded.

The deputy judge applied the principles for granting relief under s 423 as summarised by ICC Judge Jones in Re Dormco SICA Ltd (in liquidation):

(1) It was the purpose of a transfers in issue which the court had to address, not that of the person who received the benefit (Moon v Franklin).

(2) The question whether the transaction was entered into for the prohibited purpose was a question of fact based on an evaluation of all the relevant facts.

(3) There could be more than one purpose; but it was sufficient to prove that the prohibited purpose was a (not the) purpose positively intended rather than a consequence (see Inland Revenue Commissioners v Hashimi; JSC BTA Bank v Ablyazov). 

(4) Insolvency was not a prerequisite, although the financial position of a party could be relevant to purpose; and (depending on the facts) the absence of insolvency could make a prohibited purpose unlikely (Moon v Franklin (same); LLC v Sequana SA).

 As to the relief which may be ordered:

(5) The court had a wide discretionary power to restore the position to what it would have been if the transaction had not been entered into and to protect the interests of victims of the transaction, “In other words, [it was to be] exercised to achieve restoration to the extent appropriate to protect the interests of creditors (see Chohan v Saggar);” (see also 4 Eng Ltd v Harper).