NMC Healthcare – Fraudulent and Wrongful Trading under ADGM Law

The Abu Dhabi Global Market (the “ADGM”) courts have recently handed down their decision in NMC Healthcare Limited & Others v Shetty & Others ([2024] ADGMCFI 0007). The decision deals with several important principles in relation to fraudulent/wrongful trading liabilities under ADGM law. Given the ADGM re-domiciliation (or continuation) regime, enabling companies incorporated elsewhere to be redomiciled to ADGM with relative ease, the decision is likely to be of interest beyond the borders of the ADGM. It expressly confirmed that an ADGM court could grant relief in respect of the fraudulent/wrongful trading of a business that occurred prior to its continuation in the ADGM. 

Background

The case relates to claims brought by the joint administrators of two formerly onshore UAE subsidiaries (now registered in ADGM) of NMC Health PLC (the “Claimants”). Two of the causes of action that the Claimants relied on were fraudulent trading and wrongful trading, the basis of which is set out in sections 251-252 of the ADGM Insolvency Regulation 2015 (materially identical to sections 213-214 of the English Insolvency Act 1986). The key question for the court was whether it could make orders in respect of the fraudulent/wrongful trading of the companies prior to the companies’ continuation in the ADGM. 

Judgment 

Sir Andrew Smith J confirmed that orders can be granted in respect of fraudulent/wrongful trading of a company prior to the continuation of the company in the ADGM. Going further, the court also confirmed that relief could be granted in relation to the fraudulent/wrongful trading of a company which occurred before sections 251-252 first came into effect in the ADGM in 2015. This is because the provisions on fraudulent/wrongful trading provide statutory discretion to the court to order a director/third-party to minimise the losses of creditors, which is exercisable when the court is satisfied that it is just and appropriate to do so. The court considered that the discretionary nature of the power was sufficient to safeguard against overly onerous retrospective liabilities. 

Furthermore, the court confirmed that fraudulent/wrongful trading claims can be brought against a party which does not have a sufficient (or indeed, any) connection with the ADGM. The court concluded, based on its reading of the relevant English case law, that “a connection between the Defendant and the jurisdiction is not invariably or necessarily required to establish a claim for fraudulent/wrongful trading”. 

Comments

Continuation in the ADGM could be considered by other debtors seeking restructuring, given the precedent set by NMC. The judgment potentially allows creditors to benefit from increased recoveries, as a result of orders made against directors/third parties in respect of fraudulent/wrongful trading of a business conducted prior to the company’s continuation. It is especially interesting given the extraterritorial and retrospective power of the law, depending on the facts of a particular case.

Furthermore, it would be interesting to see how a foreign court would consider an ADGM Court’s judgment on this basis. This is an important consideration for creditors and debtors alike, because it would in turn determine the enforceability of the orders issued by ADGM courts in respect of fraudulent/wrongful trading liabilities. For instance, in Rubin v Eurofinance, the UK Supreme Court held that English courts would not recognise/enforce a transaction avoidance judgment by a foreign court if the defendant had not been subject to the jurisdiction of the foreign court. It will be interesting to see how Rubin would interact with a decision of the ADGM court if / when the matter came before the English court, given the conclusion of the ADGM court that a connection with the jurisdiction is not necessarily required, for a successful claim in this instance. In the present case, the defendants appeared in the ADGM court and actively defended the claim, but that might not be the case in a future claim.