Truewood Ltd, Re

The applicants, Mr and Mrs Parekh, sought to set aside a debarring-order judgment made on 13 August 2014 in misfeasance proceedings under section 212 of the Insolvency Act 1986 on the basis that they had not been validly served. The court held that service by post at 21 Kingsdown Avenue did not meet the requirements of CPR Part 6 because the liquidator had not taken reasonable steps to ascertain the Parekhs' current residence after the sale of their former home and had not applied for an order for alternative service under CPR rule 6.15. The judgment was therefore an irregular judgment and there was good reason to set it aside subject to consideration of delay and prejudice under Insolvency Rule 7.47(1) and rule 7.55.

The court examined the merits and found discrete arguable defences: (i) certain post‑accounting payments by Mr and Mrs Parekh to the company (amounts in paragraph 59 of the judgment) could be repayments of loans or otherwise available to set off under insolvency accounting/mutual dealings principles; and (ii) limited arguable defences in relation to payments to Grosvenor Hale and HSBC Life UK (keyman/insurance) but those lacked documentary proof. The court concluded there was no arguable set‑off for sums which plainly represented personal expenditures, and that the defendants had failed to account for several payments. Balancing these findings and the delay, the court set aside the debarring-order judgment but only on the narrow ground that certain sums paid by Mr and Mrs Parekh could operate as repayments or set‑offs against the judgment debt.

Background and parties

• Applicants: James Richard Duckworth (liquidator of Truewood Limited) and Truewood Limited (in liquidation).
• Respondents / Applicants to set aside: Bhauna Ramesh Parekh and Ramesh Chandra Parekh.

Nature of the application

The Parekhs applied to set aside a debarring‑order judgment made 13 August 2014 (effective 10 September 2014) in misfeasance proceedings under section 212 of the Insolvency Act 1986, on grounds of non‑service of the application and its evidence.

Procedural posture

This was a first instance decision on an application to rescind/review under Insolvency Rule 7.47(1) and the related Insolvency Rule 7.55; CPR Part 6 and Practice Direction 6A principles governing service applied.

Issues framed by the court

1. Whether the application notice and related documents were properly served in accordance with CPR Part 6 (including rules 6.3, 6.9 and 6.15) and the Insolvency Rules.
2. If service was defective, whether the judgment should be set aside under rule 7.47(1) having regard to the Papanicola guidance (promptness, reason for non‑attendance/non‑service, and reasonable prospect of success) and rule 7.55 (whether substantial injustice has been caused and can be remedied).
3. The merits: whether the Parekhs have an arguable defence (including set‑off/repayment arguments, and specific defences to particular payments) to the section 212 claim.

Court’s reasoning

• On service: the liquidator had reason to believe the Parekhs no longer lived at their previous address (Pollards Hill) after its sale and carried out a Land Registry search which disclosed ownership of Kingsdown Avenue. Ownership, and knowledge that the property had been let since 2000, did not establish residence. Reasonable steps (for example attendance at the property or further enquiries) were required before treating Kingsdown Avenue as the current residence or applying for alternative service under CPR rule 6.15. No such application was made. Consequently service at Kingsdown Avenue by post did not satisfy CPR Part 6, and retrospective validation under rule 6.15(2) was not established because the liquidator did not prove the documents had come to the Parekhs' attention.
• On setting aside: the judgment was irregular for want of service. Applying the Papanicola criteria and rule 7.55, the court considered delay and prejudice. Although there had been delay and some enforcement steps (charging order, receiver sale by a mortgagee), the Parekhs acted promptly once they learned of the judgment and there remained an arguable defence based on repayments/set‑off which could not fairly be decided without setting aside the judgment.
• On merits: the court rejected broad set‑off arguments based on alleged unpaid salary because there was no evidence of an agreement, board decision or formal dividend. The court accepted that some payments could not be justified as company expenditure and were personal loans. However, certain payments made by Mr and Mrs Parekh into the company after the last accounts (identified in paragraph 59) could arguably be repayments of loans or credits in a director’s loan account and available as mutual dealings/set‑off in the liquidation; this created a specific arguable defence.

Result

The court set aside the debarring‑order judgment but limited the order to the narrow ground that the judgment debt should be subject to the arguable defence that specified post‑account payments by the Parekhs operate as repayments or set‑offs.

The court allowed the application to set aside the 13 August 2014 debarring‑order judgment. The judgment was irregular for want of service because the liquidator failed to take reasonable steps to ascertain the Parekhs' current residence or to seek alternative service under CPR rule 6.15, and did not prove the documents had come to the Parekhs' attention. Having applied the Papanicola criteria and considered rule 7.55, the court found delay did not preclude relief because there existed a narrow but real arguable defence: certain payments made by Mr and Mrs Parekh after the last available accounts may operate as repayments of loans or set‑offs against the judgment debt. The debarring judgment was therefore set aside only on that ground.