How To Lose Your Passport In Insolvency Proceedings

The case of Umbrella Care Ltd (In Liquidation) v Raja [2024] EWHC 1973 (Ch) (“Umbrella”) is one in which the delicate matter of how to lose your passport in insolvency proceedings sprouted.

The Court had this to broadcast about Mr Raja:

Mr Raja is a fraudster who has misappropriated millions of pounds. He clearly has no intention of cooperating in the return of those funds. He is flouting the Court’s orders and has been imprisoned for contempt. He is simply waiting for the time when he is allowed to leave the country and can be reunited with his ill-gotten gains abroad.

The tension here was between the need for Mr Raja’s compliance with court orders about disclosures concerning assets and the lengthy loss of his passport for more than 4 years and Article 8 privacy and family life rights.

If you trawled through the bankruptcy and liquidation cases in England and Wales you might struggle to find many court files replete with passport orders that fetter an individual director or bankrupt from taking flight of the jurisdiction.

In the Umbrella case a notable issue is the sums involved are an eye-watering £36 million:

On 21 January 2022, Edwin Johnson J granted summary judgment against Mr Raja for breach of his duties as a director of the UCL. Following a trial in November 2022 to assess damages, Mr Raja was ordered to pay UCL the sum of £27,810,675 by way of damages and interest (having taken into account sums which had already been recovered by the date of the order).

Since 29 July 2020 Mr Raja and his wife lost the control that many of us enjoy of the freedom to possess our passports.

Mr Raja and his wife needed to provide information about their assets. It was not until November 2022 that Mr Raja’s wife had her passport returned. Mr Raja however still does not have his passport.

An application was made by the liquidators of Umbrella Care Ltd (“UCL”) on 18 July 2023 seeking for the passport order to remain in place. Two days later the judge hearing a case sentenced him to 18 months imprisonment for contempt and he left His Majesty’s pleasure on 18 April 2024.

Mr Raja went bankrupt on 17 May 2023 and it seems he has not fully cooperated with the Interim Receivers.

It is reported in the judgment that Mr Raja transferred funds from UCL in the sum £975,189 to an account in Pakistan. The liquidators of UCL have brought proceedings in Pakistan. Furthermore, the Joint Trustees, in bankruptcy, apparently identified land in Pakistan that belonged to Mr Raja. 

Principles On How To Lose Your Passport

The principles on how to lose your passport suggest that you have to represent a real risk of being someone who will abscond. This is perhaps unsurprising.

In Young v Young [2012] EWHC 138 (Fam) the principles fleshed out by the judge were as follows:

At paragraph 26 of his Judgment, Mostyn J set out what he regarded as the applicable principles as follows:

“26. Pulling the threads together, it seems to me that the principles applicable to the disposal of this application are: 

i) The power to impound a passport pending the disposal of a financial remedy claim exists in principle in aid of all the court’s procedures leading to the disposal of the proceedings.

ii) But it involves a restriction of a subject’s liberty and so should be exercised with caution. The authorities emphasise the short-term nature of the restraint. The law favours liberty. 

iii) A good cause of action for a substantive award must be established. 

iv) The Applicant must establish that there is probable cause for believing that the Respondent is about to quit the jurisdiction unless he is restrained. 

v) The Applicant must further establish that the absence of the Respondent from the jurisdiction will materially prejudice her in the prosecution of her action. 

vi) Provided that the principles in (i) – (v) are carefully observed a passport impounding order will represent a proportionate public policy based restraint on freedom of movement founded on the personal conduct of the Respondent.”

However, the seizure of a passport cannot be a weapon to obtain payment of a judgment debt:

What is clearly not acceptable is the making of a passport order as a means of coercing payment of a judgment debt. It would not be acceptable, for example, to order the retention of a passport and to require the payment of the Judgment debt as a ransom for the return of the passport; see B v B where Wilson J declined to make such an order.

The problem for the liquidators of UCL is the limits of where a court process can go:

UCL has apparently exhausted its remedies within this jurisdiction. It maintains that Mr Raja has failed to comply with the orders for disclosure of assets made against him. There is, however, no further Court process in this jurisdiction to require Mr Raja’s compliance with the terms of paragraphs 13 and 14 of the 21 January 2022 order. Mr Raja has purported to comply, and while that compliance has been shown to be false, he has been found guilty of contempt and served a sentence of imprisonment. UCL’s application is for the passport order to be continued indefinitely pending compliance by Mr Raja with the terms of paragraphs 13 and 14 of the 21 January 2022 order. That is wrong in principle because, whatever duration of the order is proposed, there is no Court process which such an order is made in aid of. The continuation of the order now would cross the line between that which is permissible and that which is not. It would simply be holding Mr Raja’s passport as a ransom for the provision of information Mr Raja has been ordered to give but does not wish to give. As tempting as it may be to make that order, it would be wrong to do so.

So Why Has Mr Raja Still Not Got His Passport?

The reason Mr Raja is still without possession of his passport is because of the need of the Trustees in Bankruptcy for him to remain in the jurisdiction to assist with the Trustee’s role to hoover up his assets for bankruptcy creditors:

The Joint Trustees, on the other hand, are in a different position. There is an issue as to whether Mr Raja has been inadvertently discharged as a bankrupt, but on any view the Joint Trustees continue to administer his estate in bankruptcy. The insolvency process continues and I have made an order for a further examination of Mr Raja. When that is concluded there may yet be further enquiries and investigations by the Joint Trustees which require Mr Raja’s presence in the jurisdiction if they are to progress. So long as there is a significant purpose to be served in the insolvency process which will be materially prejudiced by Mr Raja fleeing the jurisdiction there are grounds for keeping him here. It may well be that he will not cooperate. I do not regard the prospect of his non-cooperation as a basis for saying that there is no material prejudice to the insolvency process by his absconding. It would be wrong for the Court to countenance a submission that there is no point making an order because the Defendant has no intention of obeying it. While he is in the jurisdiction, orders can be made against him and there remains the possibility of further contempt proceedings.

UCL and the Joint Trustees have commenced proceedings in Pakistan. I do not rule out the possibility of a passport order being made in an appropriate case in support of some Court process outside the jurisdiction, but I am not prepared to consider such an order in this case and at this stage on the basis of the evidence before me. The evidence boils down to an assertion by the Applicants’ lawyer in Pakistan that “if Mr Raja returned to Pakistan he would be able to dispose of any properties owned by him if he ignored the court order”. There is no evidence that his presence in Pakistan is necessary to flout the orders made in Pakistan and that it cannot, as Mr Wilson says, be done by him from London. The Pakistan proceedings are likely to last for years, and Mr Raja is entitled to defend himself in the UCL proceedings in Pakistan where he is a defendant. These are all considerations which mitigate against a passport order being made on the basis of proceedings in Pakistan.

Conclusion

I will continue the passport order pending the completion of the administration of Mr Raja’s estate in bankruptcy by the Joint Trustees, or one year, whichever is the sooner. The passport order will then come to an end unless an application is made for a continuation before then. Mr Raja will, of course, be at liberty to apply for its earlier discharge.