The jurisdiction of the Court to make a bankruptcy order
Two recent decisions have added to the wealth of case law on jurisdictional issues in bankruptcy petitions, particularly in relation to the meaning of 'place of residence' and 'carrying on business'.
Practitioners will be aware that a bankruptcy petition may be presented in the following circumstances (s265 of the Insolvency Act 1986):
- The centre of the debtor's main interests is in England and Wales
- The centre of the debtor's main interests is in a member state and the debtor has an establishment in England and Wales
- The debtor is domiciled in England and Wales
- At any time in the period of three years ending with the day on which the petition is presented, the debtor has been resident or has had a place or residence in England and Wales
- At any time in the period of three years ending with the day on which the petition is presented, the debtor has carried on business in England and Wales
In HRH Prince Hussam Bin Saud Bin Abulaziz Al Saud v Mobile Telecommunications Co KSCP  EWHC 1144 (Ch), the Court considered 'place of residence' in connection with a petition presented against a member of the Saudi royal family for arbitration awards of some $885million and £3million. The debtor argued that the Court had no jurisdiction to make a bankruptcy order under s265, on the basis he had not been resident and had no place of residence in England and Wales.
The debtor's mother owned a property in London since 1976, in which the debtor had historically resided while studying in London, between 1983 - 1990. This property had since been modified as the debtor married and had children, to better accommodate them when visiting. The debtor's mother spent 10-13 weeks there per year, and the rest of the time it was available for her family. Three of the debtor's children had also lived at the property while studying. The debtor's mother had also bought more property in London, intended to benefit the debtor's family, but subject to complex trust structures designed to ensure the debtor himself had no beneficial interest in those properties.
This was the second petition presented by the petitioner, and the second occasion on which the debtor had disputed the Court's jurisdiction. In the first petition, on appeal His Honour Judge Roth referred to the ordinary meaning of 'place of residence', finding the fact the debtor had permission from his mother to stay at her property at any time to satisfy that meaning, and determining that it was not necessary for a debtor to exercise any control over the property in question in order to satisfy that meaning.
In the second petition, ICC Judge Barber concluded that the evidence made it clear the debtor enjoyed ongoing permission to use his mother's London property as his personal place of residence when in London, subject only to checking availability and collecting keys, and was not persuaded by what she regarded as the debtor's "evolving" evidence regarding permissions and beneficial ownership. Therefore, she did not accept the debtor's challenge to the Court's jurisdiction.
In contrast, in Durkan v Jones  EWHC 1359 (Ch), the Court did not consider the debtor had a place of residence, and was required to consider the meaning of 'carry on business' for the purpose of s265. A petition was presented in respect of an undisputed debt of £1.2m. The debtor, who was USA based and who was served with the petition in LA, challenged the petition on jurisdictional grounds, namely that he had neither a place or residence, nor had carried on business in the three years ending with the presentation of the petition.
Deputy ICC Judge Baister considered that the debtor did not have a place of residence in England and Wales, notwithstanding a representation to the Registrar of Companies that his place of residence was England in connection with an appointment as director, and use of a former address registered in his name as an address for the purpose of a claim issued in the County Court.
In relation to doing business, merely being a director of a company registered and trading in this jurisdiction is insufficient. The question in this case was whether the debtor's letting of the property in which he had formerly lived, and which was still registered in his name, amounted to carrying on business within the meaning of s265. (It was common ground that the letting occurred in the relevant period).
The petitioner relied on a tax authority that suggested that residential letting is a business. Deputy ICC Judge Baister preferred to consider the ordinary meaning of "carried on business", as is the established test for "place of residence" within the same provision. In determining that the debtor had indeed been involved in the letting, and had therefore carried on business by his activities, the facts that the debtor was named in the tenancy agreement, received some rental payments, and the debtor having commenced proceedings against the former tenants for unpaid rent and damages due to him, was considered "overwhelming".
These decisions demonstrate the complexity involved in challenging the Court's jurisdiction to make a bankruptcy order. The Court will consider cumulatively the evidence regarding a place of residence or carrying on business, within the ordinary meaning of those words in s265. Further, the Court will plainly be wary of evidence that is manifestly self-serving. In both decisions, the Court took a dim view of inconsistent evidence across proceedings – in Durkan v Jones by alleging in a county court claim that sums were due to the debtor as landlord, compared with the position adopted in the petition that he had no involvement at all in the letting, and in HRH Prince Hussam Bin Saud Bin Abulaziz Al Saud v Mobile Telecommunications Co KSCP by evolving evidence ICC Judge Barber found to portray artificiality in family relationships clearly designed to address the reasons for an earlier decision of the Court.