Bankruptcy Act 1914: still alive and kicking
Fraudsters often conceal the proceeds of their frauds in offshore bank accounts, frequently in the name of third parties (e.g. companies under their control). Perhaps the money stays there. Perhaps it passes through such accounts before being invested in other assets. A judgment against the fraudster will often prove valueless. It may be more productive to put the fraudster into bankruptcy and use powers under insolvency legislation to compel the production of documents, bank statements and other evidence of the location or destination of the proceeds.
Where the bank accounts are offshore, it is necessary to rely on statutory provisions in the relevant territories which allow for assistance to be given in insolvency cases originating elsewhere. Section 426 of the Insolvency Act 1986 is an example of this. Under section 426, the English Court will grant assistance to Courts of other countries (mainly the Channel Islands and the Isle of Man and certain Commonwealth countries) in insolvency cases. An English trustee (or indeed a liquidator, administrator, administrative receiver or provisional liquidator) will be able to use similar powers in those jurisdictions that have enacted corresponding provisions. For example in Jersey and Guernsey there are provisions for their courts to grant assistance on a similar basis to section 426. In the Isle of Man there is provision for such assistance in cases of personal bankruptcy, but not in corporate insolvency.
Historically section 426, and the provisions referred to above in Jersey, Guernsey and the Isle of Man, derive from section 122 of the Bankruptcy Act 1914. That was an "imperial statute", that is to say, its provisions applied directly as part of the domestic law of the former British empire. Section 122 began "The High Court … and every British Court elsewhere having jurisdiction in bankruptcy or insolvency … shall severally act in aid of and be auxiliary to each other…", and it continued in a manner corresponding to section 426 (4) and (5).
The Bankruptcy Act was repealed by the Insolvency Act 1985. In the UK it has been replaced by what is now section 426 of the 1986 Act. Some Commonwealth jurisdictions have enacted their own legislation in its place. Australia was an early example. It had long been thought that the repeal extended not only to the UK by also to the other territories in which section 122 applied. In Al Sabah v Grupo Torras, another instalment in the long-running saga in which the Kuwait Investment Authority has been seeking to recover the proceeds of the fraud perpetrated by Al Sabah, the Privy Council has held that this is not the case and that section 122 continues to apply in some jurisdictions.
In the Grupo Torras case, Al Sabah had been adjudicated bankrupt under the Bahamian Bankruptcy Act 1870. His trustee was requesting aid from the Grand Court of the Cayman Islands. The Privy Council has now held that the Grand Court has jurisdiction in such matters by virtue of section 122, which remains in force in the Cayman Islands.
This means that in cases of personal bankruptcy in England (but not, of course, corporate insolvency, since we are dealing with the Bankruptcy Act 1914) the trustee will be in a position to invoke the compulsory powers in the Insolvency Act seeking aid in the territories concerned. These include the Cayman Islands, a not uncommon home for fraudsters' bank accounts.
