Integral Petroleum S.A. V Petrogat FZE & Ors.

Under section 423 of the Insolvency Act 1986, a transaction at an undervalue requires a subjective, positively intended purpose of putting assets beyond a creditor’s reach or prejudicing the creditor. That purpose need only be one purpose, not the sole or dominant purpose. The court may infer it from the transaction’s nature, timing, surrounding circumstances and the parties’ conduct.

The statutory relief is restorative and protective, but the court has a wide discretion as to its form. Relief may be ordered against persons other than the immediate transferee where the evidence establishes sufficient benefit. The court may direct payment straight to the creditor where that best achieves the statutory purpose.

Integral Petroleum sought judgment under section 423 of the Insolvency Act 1986 in respect of transfers of funds from Petrogat to an unidentified related company. The transfers were made without consideration while Integral was pursuing contractual and arbitral claims against Petrogat. The arbitral awards had been enforced as an English judgment.

Petrogat’s individual controllers failed to comply with disclosure orders requiring identification of the recipient company and their assets. Their Defence was consequently struck out and they were debarred from defending. The court had to determine whether the transfers were at an undervalue, whether they were made for a prohibited purpose, whether Integral was a victim, and what relief was appropriate against the individual defendants.

1. The application was made under CPR 3.5(5) after the individual defendants’ Defence had been struck out and they had been debarred from defending. Applying Times Travel (UK) Limited and another v Pakistan International Airlines Corp. [2019] EWHC 3732 (Ch) and Theverajah v Riordan [2015] EWCA Civ 41, the court could have regard to the Defence and earlier evidence for limited legitimate purposes, including identifying admissions and the ambit of the dispute. The defendants could not rely on those materials to defend the claim.
2. The transfers were transactions at an undervalue under section 423(1) of the Insolvency Act 1986. The evidence established that they were gifts made for no consideration. At least the bulk of the funds transferred was sufficient to justify relief.
3. The prohibited-purpose requirement was satisfied. The relevant purpose was Petrogat’s subjective purpose, attributable principally to Ms Sanchouli because she controlled its day-to-day operations and instructed the transfers. A prohibited purpose need be only one purpose. It need not be sole, dominant or predominant, and the fact that assets were put beyond reach is not by itself conclusive. Here, the nature and timing of the gifts, the surrounding claims and arbitral proceedings, the defendants’ evasiveness, and adverse inferences arising from their non-compliance supported the conclusion that at least one purpose was prohibited.
4. Integral was a victim because it had an existing claim against Petrogat and was, at least, capable of being prejudiced by the transfers within sections 423(5) and 424.
5. Although the parties and transactions were largely foreign, section 423 was not territorially restricted. There was a sufficient connection with England and Wales through the English-law contract, the London arbitration, the English judgment and the English receivership.
6. Relief under sections 423(2) and 425 was restorative and protective, with a wide margin of judgment as to the appropriate order. The court did not need to resolve whether personal benefit was an absolute jurisdictional precondition. On the facts, the individual defendants controlled both companies, had prevented identification of the transferee, and had received sufficient collective benefit. Their refusal to disclose information could not deprive the court of effective relief, and it was unnecessary to quantify each person’s benefit precisely.
7. The transfers were declared transactions defrauding creditors. Mr and Ms Sanchouli and Mr Beisenov were made jointly and severally liable to pay Integral the amount transferred, capped at Integral’s outstanding judgment. Payment was directed to Integral rather than the receiver because Petrogat was defunct and Integral was, so far as known, its only creditor.