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Regulatory risk
In a significant recent judgment, the ADGM Court has clarified that it has jurisdiction to hear an action for fraudulent trading against the former directors of an onshore UAE company.
By way of background, NMC Healthcare LTD (NMC), and its various subsidiaries, were incorporated in onshore UAE. On 17 September 2020, NMC was redomiciled as an ADGM company. Shortly thereafter, on 27 September 2020, NMC was put into administration pursuant to the ADGM Insolvency Regulations 2015 and joint administrators (the Joint Administrators) appointed.
The Joint Administrators wished to take legal action for fraudulent and wrongful trading against NMC’s former management. Part 4 of the ADGM Insolvency Regulations 2022 (the Insolvency Regulations 2022) provides:
(2) This subsection (2) applies if—
The difficulty for the Joint Administrators was twofold: (i) the Insolvency Regulations 2022 were not in force when the alleged wrongdoing took place, and (ii) NMC was not domiciled in the ADGM when the alleged wrongdoing took place. Despite these difficulties, Justice Sir Andrew Smith ruled that actions pursuant to sections 251, 252 and 253 of the Insolvency Regulations 2022 could be maintained against NMC’s former management. He found that claims by administrators for fraudulent or wrongful trading were not causes of action that accrued when they occurred but rather statutory discretions which could be invoked during insolvency proceedings. According to the judge:
Justice Sir Andrew Smith also took a purposive interpretation to the Insolvency Regulations 2022 and found that if they did not apply to conduct which occurred before a redomicile, “office-holders of foreign companies wound-up in the ADGM, as well as companies re-registered here, would lack important powers to make good for creditors’ estates that had been wrongfully depleted. I cannot accept that the legislators intended the powers to be restricted as [the Defendants] contend.”
Overall, the judgment in NMC Healthcare Limited & Ors v Bank of Baroda & Ors [2024] ADGMCFI 0007 confirms that the ADGM Courts will continue to play an important role in supervising the actions of directors of onshore as well as ADGM companies.
For further information please contact Keith Hutchison, William Prasifka or Tayler Wright.
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