Libyan Investment Authority v Maud

Bankruptcy – statutory demand – set aside – IR r. 6.5 – sanctions

The LIA served a statutory demand on Mr Maud for approximately £17.5m due under a guarantee given by him in support of loans made by the LIA to his companies. Mr Maud made an out of time application to set aside the statutory demand under IR r. 6.5(4)(b) (debt disputed on substantial grounds) and under IR r 6.5(4)(d) (demand ought to be set aside on other grounds). Mr Maud contended any payment of the debt would contravene the sanctions regime in place in relation to Libyan entities, including the LIA, following the fall of Colonel Gadaffi.

Rose J granted Mr Maud an extension of time and then set aside the statutory demand. The LIA appealed. On the extension of time application, the Court of Appeal held that, although Mr Maud’s explanation was unsatisfactory, Rose J was entitled to conclude that there was sufficient public interest in enforcing the sanctions regime to justify granting an extension.

However, the Court of Appeal allowed the appeal against the order setting aside the demand. The payment of a debt by Mr Maud would not involve dealing with funds or instruments subject to the sanctions regime. The payment of debts represented the provision of new or additional funds, not prohibited by the sanctions regime, which was only intended to freeze existing assets. The regime prohibited dealing in the guarantee, for example discounting it or using it as security to obtain new funds. Paying the debt was not dealing but simply performing the obligation to which it gave rise.

Although on one level this is a narrow decision on a sui generis sanctions regime, the logic behind the decision may be useful to those faced with debtors relying on similar impediments to payment as a defence to bankruptcy proceedings.