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In Maud v Libyan Investment Authority, the Chancery Division had to decide whether a statutory demand should be set aside in circumstances where the debtor claimed he was unable to make any payment as to do so would be illegal.
Maud v Libyan Investment Authority  EWHC 1625 (Ch),  All ER (D) 101 (Jun)
The applicant debtor sought an order setting aside a statutory demand served on him by the respondent creditor, claiming that any payment made by him to the respondent would be in breach of a sanctions regime imposed by the UN that prohibited people in certain circumstances from dealing with certain Libyan individuals and entities, including the respondent.
The Chancery Division (Mrs Justice Rose) granted the application and set aside the statutory demand. Having considered the sanctions regime by reference to the international, EU and UK law enacted to give it effect, the judge held that any payment made by the applicant to the respondent would be in breach of the sanctions regime and that it would be unjust in those circumstances to allow a creditor to present a bankruptcy petition when the payment of the debt would expose the debtor to criminal penalties. It did not matter whether or not the applicant was able to pay the debt.
The debtor (Mr Maud) entered into a guarantee in April 2008 with the Libyan Investment Authority (LIA) in support of the indebtedness of his company, Propinvest Group Ltd (Propinvest), to the LIA. Propinvest defaulted in March 2010 and in February 2014 the LIA served a statutory demand on Mr Maud in the sum of about £17.5m. The LIA then presented a bankruptcy petition against Mr Maud, and he applied to set aside the statutory demand.
Mr Maud did not dispute that he entered into the guarantee, or that he was liable to pay following Propinvest’s default. He also accepted that he did not at that time have the money to pay the debt. However, he claimed that any payment to the LIA would be in breach of the sanctions regime which had been imposed on Colonel Gaddafi, members of his family and, latterly, certain other entities including the LIA. Mr Maud therefore sought to have the statutory demand set aside under either:
Rose J had to deal with the following issues:
Rose J’s judgment contains a thorough review of the international, EU and UK law that had been enacted (both originally, and as modified following the fall of the Gaddafi regime in August 2011) to give effect to the sanctions regime (see paras –). Having done that, she made the following decisions:
The first issue
Mr Maud was allowed an extension of time in which to make his application:
The second issue
Rose J confirmed that the correct test to apply where an application to set aside a statutory demand is founded on IR 1986, r 6.5(4)(d) is for the court to consider whether the interests of justice require it—applying In re: A Debtor (1 of 1987)  2 All ER 46 and Remblance v Octagon Assets Ltd  EWCA Civ 581,  All ER (D) 180 (Jun).
Applying that test, the judge held that it would be unjust if a creditor was able to present a bankruptcy petition in circumstances where to otherwise make any payment of the sum demanded would be in breach of a sanctions regime and expose the debtor to criminal penalties. She further held that it did not matter whether Mr Maud had in any event sufficient funds in which he could otherwise discharge the debt.
The third issue
Mr Maud submitted that, for the purposes of his application, it was only necessary for the judge to determine whether it was arguable that the debt was not payable, rather than to actually consider whether the sanctions regime applied or not. However, for the reasons mentioned in respect of the first issue, the judge decided to determine the issue.
In doing so, she held that on a proper construction of the appropriate legislation, any payment to be made by Mr Maud to the LIA would be caught by the sanctions regime, and that to make any such payment would expose Mr Maud to criminal penalties.
The fourth issue
The sanctions regime provides that its prohibitions do not apply to anything done under the authority of a licence granted by HM Treasury. It was argued on behalf of the LIA that it was Mr Maud’s responsibility as the debtor to take whatever steps he could to enable the payment of monies owed, and that he could and should have applied for the appropriate licence from HM Treasury.
The judge rejected this argument, however, by looking at the terms of the sanctions and licensing regime itself and that in this case the regime did not place a burden on Mr Maud to apply for a licence. There was also no certainty that a licence would be granted if applied for, particularly as it would necessitate the involvement of third parties.
Accordingly, having allowed Mr Maud an extension of time to make his application, the statutory demand was set aside on the basis that:
Unfortunately for Mr Maud, although he was successful in this case in having the LIA’s statutory demand set aside, he was not so successful in a parallel case determined by Rose J at the same time that concerned his application to set aside a statutory demand served by another creditor in the sum of about £40m (see Maud v Aabar Block SARL  EWHC 1626 (Ch),  All ER (D) 97 (Jun)).
This case will clearly have limited application to most practitioners given its facts and that hardly any creditors will be subject to a UN sanctions regime. However, it does provide some useful—and perhaps unsurprising—authority that, where a statutory demand can only be satisfied by the carrying out of an illegal act, the statutory demand ought to be set aside under IR 1986, r 6.5(4)(d).
It also confirms that the appropriate test to be applied when considering applications made under that ground is whether it would be unjust to allow the creditor to present a bankruptcy petition in all the circumstances.
Stephen Leslie, solicitor in the LexisPSL Restructuring & Insolvency team.
If you are a LexisPSL subscriber, click the link below for further information:
What to do if you are served with a statutory demand and you dispute the debt
Disputed bankruptcy petitions
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First published on LexisPSL Restructuring and Insolvency
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