Background

This case, heard before Mr Justice Rajah, involved an application by the liquidators of Umbrella Care Limited (UCL) and the joint trustees in the bankruptcy of Usman Khalid Raja for the continuation of an injunction restraining Mr Raja from leaving the country and authorising the retention of his passport per an order made pursuant to s.363 of the Insolvency Act 1986. This section requires an undischarged bankrupt, or a discharged bankrupt whose estate is still being administered, to do all such things as he may be directed to do by the court.

In 2020, the liquidators raised legal proceedings against several defendants, including Mr Raja. They concerned allegations regarding Mr Raja’s involvement in a large-scale fraud against UCL. It was alleged that Mr Raja misappropriated approximately £36 million, which should have been used to pay UCL’s tax debt owed to HMRC. It was alleged that Mr Raja had diverted monies received from customers of UCL away from HMRC through various companies under his control. The applicants were successful in this claim and in November 2022 he was ordered to pay UCL the sum of £27,810,675 by way of damages and interest.

During the course of the proceedings, the liquidators sought freezing and propriety orders. The court orders granted during this time required Mr Raja and his wife to disclose all their assets exceeding a value of £1,000 and imposed an injunction prohibiting their departure from the jurisdiction. They were required to surrender their passports until they had complied with the obligation to disclose such assets. Mr Raja and his wife failed to comply with the court orders for disclosure and the injunction remained in place until July 2023.

Mr Raja was made bankrupt on 17 May 2023 and was imprisoned for 18 months for contempt of court on 20 July 2023.

Present action

In July 2023, the liquidators and joint trustees applied to continue the travel and passport order until further order from the court rather than a specific date. The applicants believed that there were further undisclosed assets. Furthermore, Mr Raja had failed to engage with the joint trustees.

Mr Raja’s counsel argued that that the indefinite continuation of the passport order infringed his rights under Article 8 of the European Convention on Human Rights, asserting that the holding of Mr Raja’s passport as leverage to ensure compliance with disclosure orders was inappropriate.

The applicants argued though that the passport order was necessary to prevent Mr Raja from absconding and ensure compliance with court orders.

S.363 of the Insolvency Act provides the ability to detain a bankrupt person under specific circumstances, including a risk of concealing assets.

The legal issues facing the court were:

1. The continuation of the injunction preventing Mr Raja from leaving the country;
2. The implications of Mr Raja’s alleged non-compliance with previous court orders and the potential existence of undisclosed assets; and
3. The balance between Mr Raja’s rights under Article 8 of the ECHR and the applicants’ right to raise their claim.

Judgment 

Mr Justice Rajah understood the serious nature of the allegations against Mr Raja and the potential for undisclosed assets. However, the court did recognise the time the injunction had been in place and Mr Raja’s right to discharge the passport order.

The court allowed for the continuation of the injunction of the passport order pending Mr Raja’s compliance with asset disclosure requirements. Mr Justice Rajah noted that it would not be acceptable to continue the passport order as a means of coercing Mr Raja to make payment of the £27,810,675. He was, however, satisfied that there was a real risk Mr Raja would leave the country unless restrained. Nonetheless, the court did underline that Mr Raja retained the right to apply for the earlier discharge of the passport order.

Significance

The case is the first of its kind whereby a court has restrained a bankrupt individual’s movements under its general power of control and demonstrates the extent of its power to assist trustees in administering the bankruptcy estate. The court repeatedly emphasised the breadth of the jurisdiction under s. 363 of the Insolvency Act  and the case is an important reminder of the potentially extensive reach of the court in insolvency matters.

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