This case concerned the rejection by the liquidators of Saff One LLP (‘LLP’) of a proof of debt lodged by ESS. The issue was whether a tax mitigation structure involving a loan to LLP for purported investment in the Ultra Green Scheme gave rise to a provable debt if the monies ‘loaned’ passed in a circle and no such investment was made.

LLP entered a loan agreement with AIK Credit plc for £1.25m for the purposes of environmental research etc, secured on anticipated profits from investments in the scheme. The loan was repayable not before the seventh anniversary unless early repayment was triggered. Carbon Research and Development Ltd (‘CRD’) acted as LLP’s agent.

The monies passed from AIK to CRD; from CRD to Copex International Credit PCC (‘CIC’) then through two other Copex companies back to AIK. All transactions took place in quick succession within Kensington Bank. AIK, the Copex companies and Kensington Bank were all connected.

AIK assigned the debt to CIC which later assigned it to ESS. Those assignments were unchallenged. ESS sought repayment of the loan but LLP entered insolvent liquidation. The liquidators rejected ESS’s proof of debt on the basis that there was insufficient evidence of a bona fide claim.


  • The starting point is that a loan of money generally creates a debt.
  • Circular transmission of monies is not enough by itself to constitute a ‘no-transaction’.
  • Here, the contractual terms between AIK and LLP amounted to a loan facility and an obligation to repay regardless of whether any revenue was received from the proposed investments. That gave rise to a debt, held by ESS.
  • The agency agreement between LLP and CRD did not provide instructions about use of the loan monies by CRD pending identification of a suitable project, and there was no evidence that AIK or the Copex companies knew the terms of that agency.
  • Therefore there was no breach of trust, nor was AIK’s knowledge such as to make it unconscionable that it should retain the benefitof the loan monies.
  • Thus ESS’s proof of debt should have been accepted.