Fraud and insolvency priorities: Could the established position change?

A High Court decision has allowed Glencore Energy UK Ltd v Prax Lindsey Oil Refinery Ltd (in liquidation) to proceed to trial. The case could have important implications for insolvency practitioners (IPs) and creditors where fraud is alleged before a company enters liquidation.

In Glencore Energy UK Ltd v Prax Lindsey Oil Refinery Ltd (in liquidation) [2026] EWHC 2394 (Ch), Mr Justice Trower granted Glencore Energy Ltd (Glencore) permission, under section 130(2) of the Insolvency Act 1986, to start a legal claim against Prax Lindsay Oil Refinery Ltd (PLOR). 

Glencore alleges it supplied more than US$230m of crude oil under five sales agreements that were induced by fraudulent misrepresentations made before PLOR entered liquidation. It seeks to rescind those agreements and obtain a declaration that the oil supplied, or its traceable proceeds, is held on trust for Glencore.

Why the claim matters

The claim is significant because it’s not simply an unsecured creditor claim for unpaid goods. If Glencore succeeds, it may establish a proprietary claim to assets or proceeds ahead of other creditors. That could reduce the funds available for distribution in PLOR's liquidation, including funds available to meet liquidation expenses and creditor claims.

The judgment notes that the wider insolvency raises significant public interest and creditor issues, including potential shortfalls affecting government funding provided through the Department for Energy Security and Net Zero and preferential claims by HMRC. However, the court was not being asked to determine the merits of the claim. Its role at this stage was to decide whether the claim was sufficiently arguable to proceed to trial.

The legal issues before the court

PLOR opposed the application and argued that Glencore’s proposed claim was bound to fail. It relied on four main points. First, it argued that a right to rescind a contract for fraud could not survive liquidation because creditors' rights crystallise when liquidation begins. Second, it argued that Glencore couldn’t rescind only five sales agreements while leaving the wider trading framework intact. Third, it said Glencore had affirmed the contracts through its conduct after becoming aware of the alleged fraud. Finally, it argued that tracing was impossible because the crude oil had been refined, mixed and sold.

The court rejected the submission that these issues could be decided against Glencore at this stage. Mr Justice Trower held that Glencore's case was arguable and raised substantial issues that should be determined at trial. In particular, he considered there was a realistic argument that a right to rescind for fraud may survive liquidation and that existing case law in this area may require reconsideration.

Tracing of proceeds

PLOR also argued that because crude oil had been refined into other products and sold, there was no identifiable property or proceeds against which Glencore could assert a claim. The court accepted that Glencore may face practical and evidential difficulties. However, it held there was a sufficiently arguable case that value could be traced through the refining process into products or proceeds.

The judgment leaves open important questions about how far tracing claims can extend where goods have been transformed, mixed or sold before insolvency. Those issues will be considered further during the substantive proceedings.

What this means for IPs and creditors

For IPs and creditors, the decision highlights that claims arising from alleged fraud may not fit neatly within the traditional unsecured creditor framework. Established case law has generally treated claims arising from pre-insolvency fraud as unsecured debts. But this case raises the possibility that creditors and office holders may need to treat such claims differently in the future.

The judgment doesn’t determine whether Glencore will ultimately recover the oil, products or proceeds it claims. It does, however, confirm that the arguments are sufficiently strong to proceed to trial.

IPs and creditors should follow the substantive proceedings closely. If the claim succeeds, it could challenge established assumptions about which assets form part of an insolvent estate and what remains available to meet liquidation expenses and creditor claims.