Kirker (Liquidator of SMU Investments Ltd) v Holyoak Investments Inc & Ors

The liquidator sought a declaration under section 239 of the Insolvency Act 1986 that payments totalling £2,712,175 were preferences and an order for repayment. A central issue was whether the first respondent, Holyoak Investments Inc, was a "connected person" within section 249 by reason of the control test in section 435(6) read with section 435(10)(a) (whether Holyoak's directors were accustomed to act in accordance with Antony Ebel's directions or instructions). The court applied the summary gateway in CPR 6.37 (the "real prospect" test) and examined the documentary and witness evidence concerning the relationship between Ebel, Microdisc, Hightown and Holyoak.

The applicant failed to show a real prospect that Holyoak was an associate controlled by Ebel. Documentary evidence (trust and board minutes, consultancy arrangements and affidavits) supported the formal separation between Ebel and Holyoak's directors, and the applicant could not point to instances of Holyoak acting on Ebel's directions. Separately, the court found the applicant had not made full and frank disclosure in the service-out application, omitting material matters including prior proceedings. The combination of the absence of a real prospect on the control/association issue and the failure of disclosure led the court to set aside the earlier permission to serve out on Holyoak and to dismiss the May 2019 application as against Holyoak. Service on Dominic Ebel at The Close was validated under CPR 6.15 as he had actual notice and suffered no prejudice.

The proceedings were brought by the liquidator of SMU Investments Ltd seeking (i) a declaration under section 239 Insolvency Act 1986 that specified payments made in 2012 totalling £2,712,175 were preferences and (ii) repayment orders. The payments had been made by the Jersey company MPIL to a number of respondents and the liquidator alleged unequal treatment of Eren Muduroglu (an unpaid creditor) and the respondents. The applicant alleged in summary form that the respondents were "connected persons" under section 249 and accordingly relied on the six-month connected party window in section 240(1)(b).

Background and parties:

• SMU was wound up following a petition presented on 28 March 2013. The liquidator, Edwin Kirker, pursued preferential payment claims arising from loans to MPIL secured by SMU.
• Antony Ebel was a director of SMU; Holyoak Investments Inc was an offshore entity alleged to be associated with or controlled by Ebel. Other respondents included family and related companies.

Procedural posture: The liquidator issued an application dated 15 May 2019 and, by order of 26 July 2019, obtained permission to serve out on Holyoak in Panama. Holyoak applied to set aside that service-out permission on the basis of want of a real prospect and lack of full and frank disclosure. The court therefore considered (a) whether Holyoak was a connected person to SMU within the meaning of the Insolvency Act so as to enliven the six-month period, (b) whether the service-out order should be set aside for failure of candid disclosure, and (c) whether service on Dominic Ebel at The Close was valid.

Issues framed:

1. Whether Holyoak was an "associate" or otherwise connected to SMU because the same person (Ebel) had control of both companies, assessed under section 435(6) and the control test of section 435(10)(a) (the directors being accustomed to act in accordance with Ebel's directions).
2. Whether the applicant's service-out evidence complied with the duty of full and frank disclosure to the court.
3. Whether the attempted service on Dominic Ebel at The Close constituted valid service or should be validated under CPR 6.15.

Court's reasoning:

• On the connected-person issue the court applied the "real prospect" threshold under CPR 6.37 and the summary judgment approach. The applicant's evidence largely comprised assertions and two emails; by contrast the respondents produced trust and corporate documents, board minutes and witness statements showing a structure in which Holyoak was managed by its directors and received recommendations from Microdisc (an advisory vehicle connected to Ebel) but did not appear to be controlled by Ebel. Board minutes showed deliberation and independent decision-making. The applicant could not show instances of Holyoak acting in accordance with Ebel's directions or instructions and therefore failed to discharge the burden of establishing a real prospect that Holyoak was an associate under section 435.
• Separately, the applicant's service-out statement omitted material matters including the earlier 2017 proceedings and did not present relevant issues candidly. The court relied on authorities governing the duty of full and frank disclosure and concluded the omission was total; accordingly the earlier permission to serve out should be set aside.
• Even if the connected-person conclusion were different, the defect in disclosure and the staleness of the May 2019 application (with limitation consequences) meant re-granting permission would cause substantial injustice to Holyoak. The court therefore set aside Judge Burton's order of 26 July 2019 and dismissed the May 2019 application as against Holyoak.
• On service of Dominic Ebel, the court applied the principles in Abela and Barton and CPR 6.15. Although The Close was not his usual residence, Ebel had actual notice, had been contactable there and suffered no prejudice; the court validated the service on him at The Close.

Additional findings and consequences: The court made no further factual findings regarding other alternative grounds relied on by the applicant in respect of Holyoak given the primary conclusions. The parties were directed to agree consequential orders, including as to costs.

The court set aside the earlier permission to serve out on Holyoak and dismissed the May 2019 application as against Holyoak because the liquidator failed to show a real prospect that Holyoak was a connected person under section 249 and section 435 (control test) and, in any event, the service-out application failed the duty of full and frank disclosure. Service on Dominic Ebel at The Close was validated under CPR 6.15 because he had actual notice and suffered no prejudice.