In a decision which raised points of interest for insolvency and trusts practitioners, the High Court has ruled that the sins of a businessman accused of embezzling $6 billion from the bank he once chaired should not be visited on his teenage son.
The scale of the man’s fraud was said to have been so great that the overseas bank became insolvent and had to be bailed out by the sovereign wealth fund of the state where it was based. After he moved to the UK, the bank launched proceedings against him in London on a grand scale. His assets worldwide had been frozen and judgments had been entered against him to a total value of about $4.9 billion.
The focus of the instant case was a payment of £1.1 million from a joint account held by the man and his 17-year-old son into another account in the son’s sole name. In seeking to recover that sum, the bank argued that it should be treated as having been received and held on trust by the son for the benefit of his father.
Ruling on the case, the Court acknowledged that the son had given nothing in return for the benefit that he received and that the transaction took place shortly before the father’s assets were frozen. However, in rejecting the bank’s claim, the Court noted that there had never been any question of the son repaying the money to his father. On the evidence, the transaction was an outright gift and the son was the money’s beneficial owner. Arguments that the transaction was designed to defraud creditors, within the meaning of Section 423 of the Insolvency Act 1986, were also rejected.