Masters v Barclays Bank Plc

For bankruptcy jurisdiction based on carrying on business in England and Wales, the petitioning creditor must prove, on the balance of probabilities, that the debtor personally carried on business in the jurisdiction during the statutory period. A person may conduct an independent business while also controlling companies, and a single transaction may suffice, but the court must assess the totality of the evidence. Corporate status, guarantees, English governing-law or jurisdiction clauses, service addresses and continuing liability do not, without more, establish that the debtor personally carried on business in England. The relevant business must also have been carried on within the statutory period.

Barclays obtained default judgment against Darren Masters under his guarantee of a loan made to Coldstream S.a.r.l., a Luxembourg company established to acquire and commercially operate an aircraft. Barclays later presented a bankruptcy petition in Leeds, relying on Insolvency Act 1986, section 265(1)(c)(ii), on the basis that Mr Masters had carried on business in England and Wales within the preceding three years.

The district judge held that Mr Masters had independently carried on the business of acquiring the aircraft, through Coldstream and the guarantee, and that the court had jurisdiction. Mr Masters appealed, contending that the evidence concerned events in 2007 and 2008, disclosed no personal business activity in England during the relevant period, and could not establish jurisdiction.

1. Appeal allowed. The bankruptcy order was set aside. Barclays had failed to prove that Mr Masters carried on business in England and Wales within the period required by section 265(1)(c)(ii) of the Insolvency Act 1986.
2. Whether a debtor carried on business in England was a mixed question of fact and law. The appeal was a review rather than a rehearing, but the appellate court could determine whether an apparently wrong finding or inference was sustainable, allowing for the first-instance judge’s advantages. An appellate court may be in as good a position as the trial judge when drawing inferences from documents.
3. The burden lay on Barclays. The evidence had to establish, on the balance of probabilities, both that Mr Masters personally carried on a business and that he did so in England during the relevant statutory period. His direct evidence that he had not carried on business in England required caution before being rejected.
4. Being a director or shareholder of a company, being a member of an LLP, or giving a guarantee did not of itself amount to carrying on business. Nevertheless, a person may carry on an independent business while controlling companies. The question is whether, on the totality of the evidence, an independent business was being conducted by the debtor rather than by the companies.
5. A single transaction can in principle constitute carrying on business. The transaction must, however, be examined in its factual and territorial context. Here the transactional documents showed, at most, that Mr Masters personally contracted to acquire the aircraft, participated in the company’s incorporation and novation, and gave a guarantee. They did not establish that he conducted an independent aircraft-acquisition business in England.
6. English governing-law and jurisdiction clauses, English service addresses and contractual statements about residence indicated how obligations were to be enforced, but did not establish where the business was conducted. The evidence of activity in England was limited to signing one document, while the transaction had substantial connections with Luxembourg and the United States.
7. The transaction occurred in 2007 and 2008. The loan drawdown was in April 2008, not April 2009. Continuing liability under the guarantee did not amount to continuing business activity, and no continuing aircraft-purchase obligations of Mr Masters were established after the novation.
8. Mr Masters’s later attempt to mitigate losses by arranging a sale or refinancing of the aircraft showed only that he could influence Coldstream’s affairs or might have rights arising from his exposure under the guarantee. It did not prove that he personally and independently conducted a business in England in 2011. Barclays was ordered to pay the Official Receiver’s costs and Mr Masters’s petition and appeal costs, subject to detailed assessment, with the costs liability set off against the judgment debt.

• High Court (Chancery Division): Mr Justice Norris allowed the appeal from the district judge, set aside the bankruptcy order and made costs orders in favour of the Official Receiver and Mr Masters.