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

Permission to serve proceedings out of the jurisdiction requires a claim with a reasonable prospect of success. For an alleged connected-company preference, the applicant must show a real prospect of proving the statutory relationship relied upon, including that the company’s directors were accustomed to act on the alleged controller’s directions or instructions.

Formal trust, corporate and advisory arrangements cannot simply be disregarded. Evidence of influence, benefit or recommendations is insufficient without a substantial inference of actual direction or instruction. Permission may also be set aside for total failure to give full and frank disclosure. Alternative service may be validated where, considering all the circumstances, there is good reason and the defendant received the proceedings without prejudice.

The liquidator of SMU Investments Ltd sought declarations under section 239 of the Insolvency Act 1986 that payments made to the respondents were preferences. Holyoak Investments Inc was served out of the jurisdiction after an order made under CPR 6.37.

Holyoak applied to set aside that order, arguing that the claim had no reasonable prospect of success and that the service application had failed to make full and frank disclosure. The liquidator also sought validation of service of the application on Dominic Ebel at an address which was not his usual or last known residence. The issues were whether Holyoak was connected with SMU, whether the service order should stand, and whether service on Dominic Ebel could be validated.

1. Holyoak and the CPR 6.37 gateway. The relevant question was whether the liquidator had a real, rather than fanciful, prospect of success. The alleged connection depended on section 435(6) and section 435(10)(a) of the Insolvency Act 1986: the applicant had to show a reasonable prospect of proving that the directors of Holyoak were accustomed to act in accordance with Antony Ebel’s directions or instructions. The formal trust documents, board structure, consultancy arrangements and loan documents were the proper starting point. The evidence showed recommendations and influence, but no example of Ebel directing or instructing Holyoak. The statutory test was therefore not met.
2. Full and frank disclosure. The service application failed to disclose the earlier proceedings and the obvious difficulties concerning Holyoak’s alleged connection. The failure was total. Applying the ordinary rule, the order permitting service out had to be set aside, regardless of the merits.
3. Re-grant and limitation. The application notice was stale. By analogy with Re Baillies Limited, Re Kelcrown Homes Limited and Re H S Works Limited, permitting the proceedings to continue would cause substantial injustice by depriving Holyoak of an otherwise insurmountable limitation defence under rule 12.64 of the Insolvency (England and Wales) Rules 2016.
4. Service on Dominic Ebel. Service at The Close did not comply with CPR 6.9(2), because it was not his usual or last known residence. Under CPR 6.15, however, the court could validate service where there was good reason. Applying Abela v Baadarani and Barton v Wright Hassall LLP, the court considered the steps taken, Ebel’s awareness and the absence of prejudice. His connection with the address, receipt of the application and lack of prejudice justified validation.
5. The order permitting service out on Holyoak was set aside and the application against Holyoak was dismissed. Service on Dominic Ebel at The Close was validated. The parties were directed to endeavour to agree consequential orders, including costs.