Charlton v Funding Circle Trustee Ltd & Anor

The court allowed the appellant's appeal against a Deputy District Judge's refusal to annul a bankruptcy order under section 282 of the Insolvency Act 1986 and against the Judge's conclusion that the appellant had "carried on business" in England and Wales within the three year period in section 265(2)(b)(ii). The court held that exploratory negotiations with potential investors or purchasers, undertaken by the appellant in his capacity as a director seeking to rescue a distressed company, did not establish that he was carrying on business on his own account. The Deputy District Judge's use of a shop analogy was held to be unhelpful and to have misled the assessment of the evidence.

The court upheld the Deputy District Judge's factual finding that the appellant did not have a place of residence in England and Wales during the relevant period and was not domiciled in England and Wales, so the respondent's cross-appeal based on a Companies House entry was dismissed. The decision turned on the context and totality of the appellant's evidence, and on the appellate standard that an appeal court should not overturn factual findings unless the lower court was wrong.

Background and parties: The appellant, Mr David George Charlton, challenged a bankruptcy order made on 11 January 2017 pursuant to a petition presented on 28 June 2016 by Funding Circle Trustee Limited. The appellant had been a director and shareholder of an English company, Aversion Limited, and had given a personal guarantee which gave rise to the petition. The appellant had emigrated to Australia in November 2012. The trustee in bankruptcy (second respondent) took a neutral stance on the substantive appeal.

Nature of the application: The appellant applied under section 282(1)(a) and section 375 of the Insolvency Act 1986 to annul and to review/rescind the bankruptcy order on the ground that the court lacked jurisdiction under section 265(2) because the appellant was not domiciled, resident, or carrying on business in England and Wales within the three years prior to presentation of the petition.

Issues framed by the court:

• Whether the appellant was domiciled or had a place of residence or was ordinarily resident in England and Wales during 28 June 2013 to 28 June 2016 for the purposes of section 265(2).
• Whether the appellant had "carried on business" in England and Wales during that period by virtue of discussions with potential investors or purchasers regarding sale of shares or business.
• Whether documentary material filed at Companies House constituted decisive evidence of a residence in England and Wales.

Evidence and procedural posture: The appeal came from a decision of Deputy District Judge Watkins (27 July 2018) dismissing the annulment application. The trial judge relied principally on the appellant's witness statements as the only direct evidence about residence and about his activities; Companies House filings showed inconsistent entries as to his usual residence. The First Respondent also relied on authorities about when a single transaction or dealings in shares can amount to "carrying on business".

Court's reasoning and conclusions: The court reiterated the appellate standard for permission and allowing appeals under CPR 52.6 and that it should not re-hear factual findings unless the lower court erred. On the carrying-on-business issue the court held that exploratory discussions by a director, undertaken in the context of seeking a rescue for a financially distressed company and undertaken in his capacity as a director, did not demonstrate that he was carrying on business personally. Although a single transaction may suffice in some circumstances, the context here showed a director exploring rescue options rather than a shareholder conducting an independent business; the Deputy District Judge's shop analogy was misleading and constituted an error on that issue. On residence, the court concluded that the Deputy District Judge was entitled to prefer the appellant's detailed and unchallenged witness evidence of permanent emigration and residence in Australia over the unexplained Companies House entry, and therefore the finding of no residence or domicile in England and Wales was not overturned.

Disposition: Permission to appeal was granted; the appeal was allowed on the carrying-on-business ground. The First Respondent's cross-appeal based on the Companies House entry was dismissed. The court invited the parties to agree an order reflecting the judgment and adjourned consequential matters.

Appeal allowed. The Deputy District Judge erred in concluding that exploratory discussions with potential investors/purchasers, undertaken by the appellant in his capacity as a director seeking to rescue a financially distressed company, amounted to carrying on business in England and Wales for the purposes of section 265(2)(b)(ii) of the Insolvency Act 1986. However, the Deputy District Judge was not wrong to find that the appellant did not have a place of residence in England and Wales during the relevant three year period, so the First Respondent's cross-appeal based on a Companies House entry was dismissed.

This is an appeal from the decision of Deputy District Judge Watkins dismissing the appellant's application to annul a bankruptcy order (decision dated 27 July 2018). The bankruptcy order had been made on 11 January 2017 following a petition presented on 28 June 2016. The first instance statutory basis concerned sections 265, 282 and 375 of the Insolvency Act 1986. The present judgment is reported as [2019] EWHC 2701 (Ch). The First Respondent filed a respondent's notice and cross-appeal (4 April 2019) which was dismissed by the High Court.