In the morning of 5 July 1941, U-96 was pursuing a convoy contact report from a Condor aircraft through fog about 300 miles north of the Azores when the she came upon a curious formation of six vessels: the British survey vessel HMS Challenger (J 98) (Cdr W.C. Jenks, OBE, RN), leading the troopship Anselm (Master Andrew Elliott), the armed merchant cruiser HMS Cathay (F 05) (A/Capt C.M. Merewether, RN) and three corvettes, HMS Petunia (K 79) (LtCdr G.V. Legassick, RNR), HMS Lavender (K 60) (LtCdr J. Whayman, RNR) and HMS Starwort (K 20) (LtCdr N.W. Duck, RD, RN) which were deployed to port, starboard and astern of the troopship.

At 08.29 hours, U-96 fired a salvo of four torpedoes and thought that she had scored hits on the AMC and a yacht (the survey ship). However, two torpedoes hit the Anselm, sinking her within 22 minutes, but that was time enough for the crew to launch all but one of the lifeboats. Nonetheless, four crew members and 250 of the service personnel on board were lost.

The three corvettes immediately started a counter-attack on the U-boat but the sonar of HMS Starwort was out of commission, so HMS Petunia and HMS Lavender which had firm contacts, delivered the attack. The first corvette launched six depth charges and the latter twenty. Then the attack carried the corvettes close to the survivors in the water, so the depth charging had to be broken off, but they had damaged U-96 so badly that she had to abort her patrol. In the meantime the master, 93 crew members, three gunners and 965 service personnel were picked up by the survey ship (including 60 men from the water) and the third corvette. The survivors were later transferred to the AMC and landed at Freetown.