In Jones v Aston Risk Management Ltd [2024] EWHC 2553 (Ch), Mr Jones was the de facto director of a company that had entered administration. Following earlier proceedings brought by Aston Risk Management Ltd, he was found to have breached his fiduciary duties by transferring the company’s business to another company in which he had a personal interest.

Judgment was awarded in favour of Aston, which had been assigned the claims of the company under administration, for approximately £1.6 million. Four related applications arose from the earlier proceedings, and were considered by HH Judge Cawson KC.

Statutory demands

Mr Jones applied to set aside two statutory demands served on him by Aston. The demands related to the costs and award granted in the earlier proceedings, and amounted, with interest, to approximately £2 million. Mr Jones also applied for an “anti-suit injunction” restraining Aston from presenting a bankruptcy petition against him. Aston applied for permission to serve bankruptcy proceedings on Mr Jones out of the jurisdiction, in Guernsey.

Mr Jones argued that the statutory demands should be set aside because the courts of England and Wales did not have jurisdiction to entertain a bankruptcy petition based on them. Cawson J held that there was no jurisdiction to deal with the issue of forum on an application to set aside a statutory demand at all. He relied on rule 10.5(5) of the Insolvency Rules 2016 (IR 2016), which provides that the court may grant an application set aside a statutory demand if:

“(a) the debtor appears to have a counterclaim, set-off or cross demand which equals or exceeds the amount of the debt specified in the statutory demand;

(b) the debt is disputed on grounds which appear to the court to be substantial;

(c) it appears that the creditor holds some security in relation to the debt claimed by the demand, and either rule 10.1(9) is not complied with in relation to it, or the court is satisfied that the value of the security equals or exceeds the full amount of the debt; or

(d) the court is satisfied, on other grounds, that the demand ought to be set aside.”

Cawson J reviewed the authorities on sub-paragraph (d). In Anthony Lyons v Bridging Finance Inc [2023] EWHC 1233 (Ch), Chief Insolvency and Companies Court Judge Briggs held that the correct interpretation of sub-paragraph (d) was contained in Re a Debtor (No 1 of 1987) [1989] 1 WLR 271. There, Nicholls LJ found that a demand which “ought” to be set aside was one which would otherwise result in some injustice. The rule was therefore not free-standing, but “in line” with sub-paragraphs (a)-(c) in the sense that it was also concerned with the integrity of the debt claimed on the face of the demand, and not the question of where the debt could be enforced.

According to Briggs J in Lyons, it followed that sub-paragraph (d) does not include a ground unrelated to the debt or unrelated to the form of a statutory demand as prescribed. It could therefore be concluded that “there is no jurisdiction to deal with the issues of forum under grounds 10.5(a) to (d)”. In Jones, Cawson J agreed with that conclusion, and as a result, the court found that it had no jurisdiction to set aside Aston’s two statutory demands on the basis of forum.

While the ordinary consequence would have been to dismiss Mr Jones’ two set-aside applications, for reasons discussed below, Cawson J decided to stay the set-aside applications instead.

Aston’s service out application

Section 265 of the IA 1986 provides that a bankruptcy petition may be presented “only if” one of the section’s conditions has been satisfied. Before serving out of the jurisdiction, therefore, Aston had to satisfy one such condition. It relied on subsection 265(2)(b)(ii) of the IA 1986, which provides that a bankruptcy petition may be presented to the court if “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”.

The focus of the subsection is on the debtor himself, and not necessarily the companies of which he is a director and/or shareholder. Indeed in Re Brauch [1978] Ch 316, it was established that carrying on business through a company, or being a sole director or shareholder, does not in itself amount to the debtor carrying on business as an individual.

The court found that it had no jurisdiction to set aside Aston’s two statutory demands on the basis of forum

Aston highlighted Mr Jones’ continuing relationship with a number of companies. Mr Jones either owed or was owed money by the companies, and remained the director or sole director and ultimate controlling party of them. Mr Jones argued that the companies had ceased to “carry on business” by the point at which he permanently left England, and that the liabilities between him and the companies had been written off prior to then. In response, Aston noted that filed accounts, approved by Mr Jones as director, continued to reflect the liabilities.

Ultimately, the court was not persuaded that Mr Jones had “carried on business” within the last three years. Cawson J explained:

1. The fact of Mr Jones being a director and/or shareholder of the companies could not in itself be taken to mean that he carried on some separate business on his own account. More would have been required, such as evidence of some commercial objective as in In re Bauch, where the 19 companies in question were held to form part of the machinery by which the debtor implemented his own business project.
2. A director and/or shareholder does not carry on a separate business distinct from a company merely because he lends or borrows from it. Again, evidence would be required that the director and/or shareholder was doing something more than simply funding the company’s trading activities incidental to his directorship or ownership. Similarly, a debtor has not carried on business distinct from the company merely because he guaranteed its debts.
3. In Re a Debtor (No 784 of 1991) [1992] Ch 554, it was established that where a debtor is carrying on business, that business will be considered to continue until all debts of the business are discharged, even if the business has stopped trading. The same logic extended to the debts of Mr Jones’ companies. This meant that it was the companies themselves which were carrying on business, and it could not be said that Mr Jones’ debtor/creditor relationship with them constituted a new, separate carrying on of business by him. This applied both before and after the companies stopped trading.

In light of the above, Aston was not correct in arguing that when the companies stopped trading, Mr Jones had nothing more to do as a director, making his position that of a lender and borrower carrying on a separate business. Aston’s service out application was therefore dismissed, albeit with a consoling word from Cawson J, who said:

“I have a great deal of sympathy for the position of Aston in circumstances where, as it is put on their behalf, Mr Jones has fled the jurisdiction only some months after the Main Proceedings were commenced against him, and where it might be said that he did so with the aim of making himself judgment proof in respect of a judgment of in excess of £2 million by doing so. However, this cannot, in itself, affect the proper analysis as to whether Mr Jones has, indeed, carried on business in England and Wales during the course of the last three years.”

Mr Jones’ anti-suit application

As noted, Mr Jones’ set-aside applications should have been dismissed. However, rule 10.5(8) of the IR 2016 provides that if the court dismisses the application to set aside, “it must make an order authorising the creditor to present a bankruptcy petition either as soon as reasonably practicable, or on or after a date specified in the order”.

This would have been an odd order to make considering that the court had already declined to give Aston permission to serve out of the jurisdiction. Therefore, the court simply stayed Mr Jones’ set-aside applications, and gave Aston permission to have the stay lifted “if circumstances should change so far as jurisdiction is concerned”, at which point the appropriate order under rule 10.5(8) could be made.

Where permission to serve out of the jurisdiction had not been granted, there was in practice no need to make an order restricting Aston from commencing bankruptcy proceedings against Mr Jones. His “anti-suit” application was therefore dismissed.