Edwin Kirker (Liquidator of SMU Investments Ltd) v Holyoak Investments Inc.
| Jurisdiction | England & Wales |
| Judge | Prentis |
| Judgment Date | 14 April 2020 |
| Neutral Citation | [2020] EWHC 875 (Ch) |
| Date | 14 April 2020 |
| Docket Number | Case No: CR-2019-003323 |
| Court | Chancery Division |
[2020] EWHC 875 (Ch)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
INSOLVENCY AND COMPANIES LIST (ChD)
Re: SMU INVESTMENTS LTD
And re: THE INSOLVENCY ACT 1986
Royal Courts of Justice,
Rolls Building, Fetter Lane, London, EC4A 1NL
ICC JUDGE Prentis
Case No: CR-2019-003323
Amit Karia (instructed by Summit Law LLP) for the Applicant
Tony Beswetherick (instructed by Sherrards) for the Respondents
Hearing date: 27 February 2020
ICC JUDGE Prentis
SMU Investments Ltd (“SMU”) was incorporated on 31 March 2010 as a vehicle for investment into the Jersey-registered company Memorial Property Investments Limited (“MPIL”) which was developing a cemetery at Kemnal Manor, Chislehurst. At all material times SMU's directors were Derek Lucie-Smith (“DLS”), now deceased, and Antony Ebel (“AE”). On 28 March 2013 Eren Muduroglu (“EM”) presented the petition on which on 20 May 2013 SMU was wound up. Simon Paterson was appointed liquidator on 23 July 2013, being replaced by Edwin Kirker on 30 July 2015 at the creditors' behest.
Mr Kirker issued an application on 15 May 2019 with a return date of 11 June seeking a declaration under section 239 Insolvency Act 1986 that payments made variously to the Respondents on 18 July, 19 July, 4 September, 12 September and 14 September 2012 and totalling £2,712,175 were preferences, and orders for repayment. It describes the payments as having been made to the Respondents as creditors of SMU directly by MPIL, by agreement with either or both of SMU's directors, in reduction of MPIL's debts to SMU, and at a time when both AE and DLS “knew that the Company was indebted to Eren Muduroglu (or at the least to another third party)” for the monies which became the c.£2.9m loan made by SMU to MPIL under agreements of April 2010 and April 2011. It is the difference in treatment of EM and the Respondents which it is said gives rise to the preference, EM's debt of c.£2.9m not having been repaid.
The application also states, baldly:
“The Respondents were all connected persons (as defined in s.249 of the Insolvency Act 1986)”.
That matters. By s.240(3)(e) the onset of insolvency for measuring the relevant time period under s.240(1)(a) or (b) is the date of commencement of winding up, being here, by s.129(2), 28 March 2013, the date of presentation of the winding-up petition. Unless the Respondents are connected there will be no claim under s.239 because the 6-month period under s.240(1)(b) had by then already expired.
At the hearing on 11 June 2019 the Second to Fifth and Seventh Respondents were represented, as today, by Mr Beswetherick. Judge Burton directed the exchange of evidence between the Applicant and those Respondents. Her order recorded that the application had not yet been served on the First Respondent (“Holyoak”), and that there was an issue over whether service had occurred on the Sixth Respondent, Dominic Ebel (“DE”).
On the same date was issued an application for service out on the First Respondent (the “Service Application”) at the Arango-Orillac Building in Panama, supported by a short statement from Liam Michael Stein, the solicitor with conduct on behalf of the Applicant, which directed itself at the requirements under CPR 6.36 and 6.37 and 6BPD3.1 and adopted the contents of the 15 May application notice. As in that application, it simply stated that “the Respondents were all connected persons”; and that the payments were “made to the Respondents at a relevant time (as defined in s.240…)”; and that there was “a good arguable case that the First Respondent is liable to repay”. Those are conclusions, not facts.
On 26 July 2019 Judge Burton on the papers granted permission to serve out on Holyoak in Panama, where it is incorporated.
On 30 August 2019 Holyoak issued an application to set aside that order on two bases: (a) there was no claim against it with a real prospect of success; and (b) there had been a failure in the duty of full and frank disclosure and fair presentation in the Service Application.
Meanwhile, on 16 July 2019 the Applicant had issued an application which sought, among other things, permission to serve the witness evidence in support of the 15 May application on Holyoak and DE through Sherrards solicitors. There is a further application sealed on 7 February 2020 seeking to amend this to include among other things a CPR 6.15 application to declare that service of the 15 May application on Holyoak at the Arango-Orillac Building address (the documents being left there on 12 August 2019 by Maidayle Ellis Santos; on 16 September she also left the second witness statement of Mr Muduroglu for Holyoak at Alfaro & Calvo Solicitors, Oceania Business Plaza, Panama) and on DE at 56A The Close, Salisbury (“The Close”) was valid, or for an extension of time for service.
All these applications have been addressed at the hearing by Mr Karia for the Applicant and Mr Beswetherick. The slightly constrained nature of this judgment is not a reflection of their wide-ranging arguments but of the times we now have, including the pressure on judicial time, which obliges a focus on essentials.
Is Holyoak connected?
It is not in dispute that under CPR 6.37(1)(b) the obligation on the Applicant is to show a claim with “a reasonable prospect of success”. In Altimo Holdings and Investment Ltd v Kyrgyz Mobil Tel Ltd [2011] UKPC 7, [2012] 1 WLR 1804 at [71] Lord Collins stated:
“The current practice in England is that this is the same test as for summary judgment, namely whether there is a real (as opposed to a fanciful) prospect of success”.
I have been taken as well to Bryan J's quoted discussions on the application of the test in The Libyan Investment Authority v J.P. Morgan Markets Limited [2019] EWHC 1452 (Comm) at [23].
By s.249 “a person is connected with a company if (a) he is a director or shadow director of the company or an associate of such a director or shadow director, or (b) he is an associate of the company; and ‘associate’ has the meaning given by section 435…”.
Despite the flurry of allegations in the Applicant's evidence, which I shall come on to, Mr Karia has placed his arguments that Holyoak is connected to SMU on the only plausible ground, being s.435(6): a “company is an associate of another company (a) if the same person has control of both” as elucidated by s.435(10)(a): “a person is to be taken as having control of a company if (a) the directors of the company… are accustomed to act in accordance with his directions or instructions”. AE was indisputably a director of SMU at the relevant times. The question is whether characterising him as having control over Holyoak has a reasonable prospect of success, bearing in mind the summary nature of the investigation at this stage of the court's process.
There is no doubt that AE had a relationship with Holyoak at the time. In 2017 SMU commenced other proceedings against him concerning these transactions, which maintained that they were caused by him in breach of his fiduciary duties to the company and he was therefore liable to restore some £7.3m (the “2017 Proceedings”). These were struck out, there having been a failure to provide security for costs. Within them, on 19 October 2018 AE made a witness statement in support of the security for costs application. He describes how Mr Muduroglu's brother, Sami (whom AE believed had loaned the monies to SMU), had approached himself and DLS in August 2010 seeking to raise funds. “I mentioned this to Holyoak and it resulted in them agreeing to make its first loan to SMU in the sum of £600,000” in September 2010; and in April 2011 it made a further loan of £420,000; the “remaining funds were provided by my family investment company, Hightown Securities Ltd of which I am a director…”.
Further details are given in the evidence of Robert Monticelli of 22 January 2020 and AE of 24 January 2020. Mr Monticelli confirms that he had been a director of Holyoak, between 22 March 2013 and 20 June 2014. He exhibits “the full register of directors” to support his statement that “neither [AE] nor any member of his family have ever been a director of Holyoak”, a sentence which continues “and neither he nor his family members have ever exercised control over it. It is operated by professional trustees in accordance with the declaration of trust”. “Holyoak has a number of professional advisers, with particular areas of expertise, who make recommendations to it for consideration by its directors… Microdisc Ltd (“Microdisc”) is one such adviser to Holyoak for unquoted investments. That company is, I understand, owned by [AE] and his family”, which AE confirms. “Microdisc has provide advisory services to Holyoak since the early 1990s but Holyoak formalised its arrangements with Microdisc on 17 January 2000 when it entered into a written consultancy agreement”, which is exhibited. “Microdisc submits investment opportunities and recommendations to Holyoak and the directors of Holyoak decide whether or not to follow these up”.
Mr Monticelli then describes a further relationship between Microdisc and Holyoak. In 1993 they entered a 21-year lease for Monmouth House, Ringwood at a rent of £4,750 for 7 years and then by reference to open market rent. In 1997 this was varied because Holyoak wished to sell Monmouth House. The variation was as to period, which became 35 years, and property, which became The Close. Microdisc sublets The Close to Hightown and AE.
Mr Monticelli provides further details of Holyoak. He says its settlor was Sheilah Ferrara and that the bearer shares are held, now by companies...
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