Claims against directors where judgments are being evaded by a company

Written on 19 Jul 2017

A recent judgment offers welcome clarification of the English courts’ approach to the ability of judgment creditors to bring claims against individual directors of judgment debtors in certain circumstances, based on ‘economic torts’.  The existence of separate insolvency proceedings involving the judgment debtor company did not prevent the English court from having jurisdiction in relation to the claim.

What was the dispute about?

In  Marex Financial Limited v Carlos Sevilleja Garcia, Marex alleged that, between the date of the judgment and it obtaining a freezing order, the defendant, who Marex claimed was the controller and shadow director of the two judgment debtor companies, had stripped the companies of their assets, transferring some $9.5 million to himself.

After the judgment debtor companies went into liquidation, Marex brought proceedings against the shadow director for inducing or procuring the violation of Marex’s rights under the judgment, and for causing loss by unlawful means, by stripping the company of assets.

The defendant raised a jurisdiction challenge to the claim, on the grounds that: i) the bases for Marex’s claim were not recognised under English law and ii) England and Wales was not the most appropriate forum for the claim.

What did the court decide?

The judge dismissed the shadow director’s jurisdiction challenge on all counts. Two interesting points come out of the initial judgment on issues of jurisdiction.

The first point is the judicial support for Marex’s argument that a company director who stripped the company of its assets in order to render it unable to meet a judgment debt was committing the tort of knowingly inducing and procuring another to act in violation of rights under a judgment.  The use of the “economic torts” to pursue claims against the individuals behind judgment debtor companies is a strategy that has been growing increasingly common.  It is a positive step for judgment creditors to see the courts supporting the legal basis for this approach.

Secondly, the jurisdiction challenge gave rise to questions about whether the claims against the director could be brought in England, given that the claimant was a creditor in the liquidation of the judgment debtor company in the BVI.  In some past English cases, the court has declined jurisdiction because of the related foreign insolvency proceedings.  However, in this case, the judge drew a clear distinction between the insolvency proceedings involving the judgment debtor company and the personal claims against the director; he therefore let the English proceedings continue in parallel with the BVI insolvency proceedings.  In our view this is the correct approach and it is reassuring for claimants seeking to recover assets in insolvency situations.