May 23, 2017

Creditors, take heart against the dodgy director



In July 2013, foreign exchange brokerage Marex obtained judgment for sums in excess of $5million against two companies which were owned and controlled by Mr Sevilleja. All three are based in the British Virgin Islands (BVI). However, when Marex obtained a freezing order against the defendant companies, they held assets of only $4,392.48 and thereafter went into liquidation in the BVI.

It is alleged that the defendant, Mr Sevilleja, transferred $9.5m into his own name after the draft judgment was released and prior to confirmation of the freezing order. Marex brought proceedings against the defendant, stating that he had committed the tort of interference by unlawful means. This meant Mr Sevilleja knowingly caused the companies to violate Marex’s rights and intentionally caused loss to Marex by unlawful means when he caused the company to dissipate its assets.

 Mr Sevilleja sought to challenge jurisdiction claiming that:

  • a tort for knowingly inducing and procuring another to act in violation of rights under a judgment does not exist
  • the unlawful means alleged by Marex did not count for the purposes of the tort
  • the rule against reflective loss meant that there was no completed cause of action in tort
  • the English Court, rather than the BVI Courts, was not the appropriate forum and service by way of email was not effective

The Court did not have to determine the case but simply whether Marex had the better argument in comparison to Mr Sevilleja.

The decision

The Court was critical of Mr Sevilleja’s behaviour and found that, for the points of law in question, Marex had the better argument. The Court’s attitude here is promising for creditors who seek to enforce in cases where the actions of those in control of a company are likely to be with the sole intention of avoiding the debt. Although previous case law may have suggested otherwise, this decision shows that there is a good argument for a claim in tort.

Equally, the decision to serve by email was accepted by the Court. Marex’s solicitors identified that there was a risk in serving outside of the jurisdiction to an address that Mr Sevilleja was likely to argue was not the correct address. When facing tight timescales, such as the expiry of a limitation date and a deadline to issue and serve papers on the opponent, it is, at times, inevitable that alternative service methods are necessary.

What’s next

The fact that the assets were stripped post-judgment and pre-freezing order will be determinative of whether there has been wrongful behaviour. We have encountered situations like this in many matters, ranging from high value debt recovery to the insolvency of large corporations, microbusinesses and SMEs.

It looks like creditors who have a judgment against directors, who may attempt to place assets outside of the creditors’ reach, may have a cause of action for damages against the director. We welcome the final decision when this matter reaches trial.

Of course, until a final decision is reached, there is no definitive answer and there is never a guarantee a decision will be made in your favour. However, in similar circumstances, obtaining an urgent freezing order application would likely be our recommendation. This would minimise the time available to a person willing to strip a debtor company of its assets and therefore, minimise the risk of creditors not being able to enforce a judgment debt.


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