Charlton v Funding Circle Trustee Ltd & Anor

Whether an individual is carrying on business for insolvency jurisdiction purposes depends on the totality of the evidence and the surrounding context. An incomplete or merely discussed transaction may qualify where the evidence shows an independent business activity. However, exploratory discussions by a company director concerning a possible share sale do not establish that the director was carrying on business personally when those discussions formed part of rescuing a financially distressed company. The court must distinguish the director’s corporate role from any independent shareholder business. On an appeal involving factual findings, the appellate court may interfere where the lower court was wrong or not entitled to reach its conclusion, but it must not substitute a different view merely because it would have assessed the evidence differently.

David George Charlton appealed from Deputy District Judge Watkins’s dismissal of his applications to annul a bankruptcy order and to review or rescind it. The applications relied on alleged lack of jurisdiction under the Insolvency Act 1986, because he was said not to have been domiciled, resident or carrying on business in England and Wales during the relevant three-year period.

The bankruptcy petition arose from a personal guarantee given in connection with lending to a company of which Mr Charlton was a director and shareholder. The Deputy District Judge held that his discussions with potential investors or purchasers, including the possibility of selling shares, amounted to carrying on business. She also found that he had no relevant residence in England and Wales. The central issues were whether those discussions established personal business activity and whether the Companies House record displaced his evidence of permanent residence in Australia.

1. Appeal allowed; cross-appeal dismissed. Permission to appeal was granted and the bankruptcy order was not annulled at this stage; the court invited the parties to agree an order reflecting the judgment and adjourned consequential matters.

2. Under section 265 of the Insolvency Act 1986, carrying on business is assessed by reference to the totality of the evidence and the context. The authorities provide examples rather than a universal test. A single transaction, including an incomplete or merely discussed transaction, may amount to carrying on business where the surrounding evidence supports that conclusion.

3. The Deputy District Judge nevertheless erred in treating the possible share sale as personal business activity. The unchallenged evidence showed that the discussions occurred solely while Mr Charlton, acting as the responsible director, explored options for rescuing a financially distressed company. The possibility that he might ultimately benefit as a shareholder did not change the capacity in which he was acting. There were none of the indicia found in cases involving an independent business conducted by a shareholder. The shop analogy was unhelpful and may have misled the lower court.

4. The residence finding was a question of fact. Although a 2014 Companies House filing recorded Mr Charlton’s usual residence as the United Kingdom, the authorship and accuracy of that filing were unclear. It did not outweigh his detailed, unchallenged evidence that he and his family had emigrated permanently to Australia, lived there throughout the relevant period and that his corporate duties were largely performed remotely. The lower court was entitled to prefer that evidence.

5. The appeal court reiterated that an appeal is not a rehearing. It may intervene where the lower decision was wrong or the judge was not entitled to reach it, but a different view of the evidence alone is insufficient.

• High Court (Chancery Division): Deputy District Judge Watkins dismissed the applications on 27 July 2018. On appeal, permission was granted, the appeal was allowed and the First Respondent’s cross-appeal was dismissed.