Recent guidance on Section 147 fraudulent trading claims in Conway v Air Arabia

Recent guidance on Section 147 fraudulent trading claims in Conway v Air Arabia Harneys partner James Eggleton and counsel Anya Allen in the Cayman Islands examine two recent authorities on fraudulent trading claims in complex cases, from the Grand Court of Cayman Islands in the first instalment of a two-part series and from the UK Supreme Court in the second instalment. There is, perhaps surprisingly given the breadth of its potential application, very little authority in the Cayman Islands concerning fraudulent trading claims under Section 147 of the Cayman Islands Companies Act. This two-part series considers two recent decisions from the Cayman Islands Grand Court concerning Section 147 and the UK Supreme Court concerning the corresponding English provision (Section 213 of the UK Insolvency Act 1986), being Conway & Ors v Air Arabia [2025] CIGC (FSD) 41 (20 May 2025) and Bilta & Ors v Tradition Finance Services [2025] UKSC 18 (7 May 2025). Conway & Ors v Air Arabia The proceedings arose out of the collapse of the Abraaj group of companies in early 2018. The defendant company, UAE airline Air Arabia, had submitted two proofs of debt in the liquidation of Abraaj Holdings (AH) in connection with loans it had made to AH. The airline had also been appointed to AH's liquidation committee. The liquidators commenced proceedings against Air Arabia for a declaration pursuant to Section 147 that the airline had knowingly been a party to AH's business being carried out with intent to defraud creditors and/or for a fraudulent purpose, and was accordingly liable to contribute to AH's assets. The Cayman court addressed several novel points relating to Section 147 claims against persons outside of the jurisdiction. Issue 1: Does submitting a proof of debt in a foreign liquidation amount to submitting to jurisdiction? The court first considered whether Air Arabia lodging a proof of debt in AH's Cayman Islands' liquidation amounted to submission to the offshore jurisdiction. It was not in dispute that submitting to the jurisdiction is separate from establishing the jurisdiction of the court over a person by service of process. Where the court's jurisdiction over a defendant is based on voluntary submission, the rules relating to service out are irrelevant because the court's jurisdiction is not founded on service. Air Arabia and AH also agreed that lodging a proof of debt in a winding up process amounted to a submission to the jurisdiction of the court with conduct of the winding up, even if the proof of debt has not been adjudicated or is ultimately rejected. However, the parties disagreed as to the scope of the submission to the jurisdiction which results from lodging a proof of debt. The liquidators argued that lodging a proof of debt amounts to a submission to the jurisdiction of the court for all purposes connected with the winding up of the company. Air Arabia argued that the submission was narrow and did not extend to submission for the purposes of claims that liquidators might bring under Section 147 of the Companies Act. The presiding judge, Justice Asif KC, held that submission to the jurisdiction by lodging a proof of debt is effective for all purposes connected with the winding up of the company (including any claims brought under Section 147 of the Companies Act). The principles expressed in English and BVI authorities favoured this approach. The judge held they are general common law principles that apply with equal force in the Cayman Islands. Those common law principles include the UK Supreme Court's decision in Rubin v Eurofinance SA [2012] UKSC 46. There, the court held that there is no doubt that orders may be made against a foreign creditor who proves in an English liquidation or bankruptcy, on the basis that by proving, the foreign creditor submits to the jurisdiction of the English court. A creditor should not be allowed to benefit from the insolvency proceeding without the burden of complying with the orders made i...