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Whose loss is it anyway?

Author: Nicola Sharp  13 January 2023
3 min read

The consequences of paying the creditors of an insolvent company in alleged breach of a Quincecare duty.

On 21 December 2022, the Supreme Court handed down judgment in Stanford International Bank Ltd (in liquidation) (Appellant) v HSBC Bank Plc (Respondent) [2022 UKSC 34)staff members the same, and struck out £116m in a claim against HSBC which is listed for trial in October 2024.

Stanford International Bank Ltd (SIB) was the vehicle of one of the largest Ponzi schemes in history. Until its collapse into liquidation on 15 April 2009, it sold Certificates of Deposit as investment products to international customers. The director, and the ultimate beneficial owner of SIB was Robert Allen Stanford (Mr Stanford), who is now serving a federal prison sentence of 110 years for his part in the fraud.

Through its liquidators, SIB brought claims in dishonest assistance and breach of Quincecare duty against HSBC, which operated SIB’s accounts.

The dishonest assistance claim was struck out at the High Court and has not been appealed. HSBC were also successful in the Court of Appeal at striking out £116m of the Quincecare claim. It is that decision which was appealed to the Supreme Court.

The issue before the Supreme Court on 19 January 2022 was whether the Court of Appeal had been right to strike out £116m in losses. The pivotal point was whether SIB had suffered any loss in real terms, even if HSBC were found to have breached their Quincecare duty.

Or as Lord Sales put it, was there any loss on a “but for” analysis? The Supreme Court had to untangle the hypothetical situation of the difference between the real world scenario and the counterfactual world in which HSBC complied with its Quincecare duty.

Facts relating to loss

The period of the alleged loss is between 1 August 2008 (the date on which SIB alleged that HSBC should have frozen the bank accounts) and 17 February 2009 (the date on which the bank accounts were actually frozen) (the relevant period). 

During the relevant period, HSBC paid out £116m to investors who requested withdrawal of their money. These investors, described as “equity’s darlings” were unaware that SIB was running a fraudulent scheme (the early customers). Unfortunate investors who did not withdraw their money before 17 February 2009 lost the majority of their investments (the late customers).

In simple terms, the problem of defining the loss is the difference between SIB’s position from paying out the £116m to the early customers, and its position had the £116m remained in the bank.

Is there a net loss?

The argument around net loss is that the payment of £116m to the early customers reduced the company’s liabilities. They settled contractual debts that they owed in any event. In turn, that benefited SIB in terms of its net asset position.

Or in other words, the amount that SIB “lost” by paying the early customers in full was offset by the equal amount that SIB “gained” by paying the late customers less than they would otherwise have received. There would have been more money in the pot to distribute to creditors, but more creditors in the running to receive dividends.

While it seems unfair that the early customers received 100 pence in the pound, and the late customers will receive significantly less, the same amount of SIB’s debt would be extinguished in the factual and counterfactual scenarios.

On that analysis, the Supreme Court held by majority that there was no net loss.

Who bears the loss – the company or the creditors?

Lord Sales gave a dissenting opinion, based on the knotty issue of corporate personality in these situations.

Lord Sales noted that it was common ground that in August 2008 Mr Stanford had all the relevant knowledge of the Ponzi scheme and of SIB’s insolvency. Accordingly, he was under a duty to (i) preserve SIB’s assets for the benefit of the general creditors and (ii) to place the company into liquidation. But importantly, Mr Stanford’s duty was owed to the company, not the creditors.

When the early customers withdrew their money, the corporate personality of the company was a vehicle for the protection of the general creditors as a class. Given that SIB was hopelessly insolvent by August 2008, SIB’s own interests were aligned with, and the same as, those of its general creditors as a class.

To put it another way, harm to SIB’s creditors was also harm to SIB itself.

On Lord Sales’ analysis, during the relevant period funds were diverted away from the general creditors as a class. Those funds went into the hands of the early customers, at a time when it was in the company’s own interest to retain the money. It is this diversion of funds that represents a loss to the company itself.


While Lord Sales’ analysis was not shared by the majority in this case, it is helpful dictum for insolvency practitioners, particularly read in light of BTI 2014 LLC v Sequana SA [2022] UKSC 25; [2022] 3 WLR 709, (Sequana), which affirmed a “creditor duty”. In the liquidation of a company, creditors are entitled to have assets distributed in accordance with the statutory scheme. But this duty is owed to the company, and not the creditors directly.

While the judgment in Sequana had not been handed down at the time of this hearing (on 19 January 2022), it was available to inform the judge’s decision by 21 December 2022. Both Lord Sales (dissenting) and Lord Leggatt (concurring) considered Sequana in their analysis.

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Nicola Sharp


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Nicola is known for her fraud, civil recovery, arbitration and business crime expertise, her experience of leading the largest financial disputes and multinational investigations and her skills in devising preventative measures and conducting internal investigations for corporates.

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