Background
Genesis (2014) UK Ltd operated a haulage business. After its operator’s licence was revoked, and after SQN Global Limited obtained a worldwide freezing order against Genesis in May 2021, money was paid from or diverted away from Genesis and company assets were transferred to the associated company Clarence Road Vehicle Services Limited (CRVS). Genesis entered compulsory liquidation in April 2022, with SQN’s claim of approximately £6.15 million admitted in the liquidation.
The liquidators brought a fraudulent-trading claim under section 213 of the Insolvency Act 1986, later assigning the claim to SQN. None of the six defendants filed a defence despite repeated opportunities, and they were debarred from defending the claim. They did not attend the disposal hearing, but the court emphasized that SQN still had to prove every necessary element on the balance of probabilities.
The Court’s Holding
ICC Judge Mullen held that Genesis’s business had been carried on with intent to defraud creditors from at least the end of May 2021. The evidence showed a concerted attempt, following service of the freezing order, to divert receipts, transfer assets to CRVS without adequate consideration, and place value beyond creditors’ reach. Marcus Hughes, Tracy Greening and David Hughes were knowingly and dishonestly involved and were held jointly and severally liable to contribute an amount equivalent to the full proven loss.
Daniel Clarke was also liable, but only for loss attributable to assets shown to have been transferred to CRVS and for associated trailer-hire income. His precise contribution was reserved for a further hearing. The claims against Nicholas Plant and Helen Walker failed because the evidence did not establish their knowing participation in the fraudulent trading. The court also rejected parts of SQN’s loss schedule that depended on inadequately supported accounts concerning additional assets and vehicle photographs, and treated 24 May 2021—the date the freezing order was served—as the starting point for relevant account withdrawals.
Key Takeaways
- A debarring order does not relieve a claimant alleging fraudulent trading of proving dishonesty, knowing participation and loss on the balance of probabilities.
- De facto directors and others who actively and dishonestly facilitate the diversion of company assets may be ordered to restore the resulting value under section 213.
- Liability is defendant-specific: evidence of association with a company or knowledge of a freezing order, without proof of knowing participation, is insufficient.
Why It Matters
The judgment illustrates how transfers to associated entities, diversion of customer payments and transactions in breach of a freezing order can support an inference that a company’s business was carried on to defraud creditors. It also confirms that contribution orders are restorative, directed to replacing value removed through the fraudulent conduct.
At the same time, the decision demonstrates the evidential discipline required even in an undefended case. The court refused to impose liability or award claimed losses where hearsay, undocumented conversations or unexplained photographs did not establish the necessary facts on the balance of probabilities.