Warning for liquidators construing a director’s involvement in two companies as making the companies “connected persons”

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The liquidator of a company that was wound up in 2013 made an application in 2019 that payments made to the six Respondents in 2012 were preferences pursuant to section 239 of the Insolvency Act and therefore liable to be repaid.

The liquidator obtained an order for service out of jurisdiction against the First Respondent, a company registered in Panama.The application for the same stated, amongst other things, that “the Respondents were all connected persons”. The First Respondent sought to set aside the order on the grounds that there was no claim against it with a real prospect of success and the liquidator had failed in his duty to give full and frank disclosure.

The main issue in the application was whether the First Respondent was connected with the liquidated company. The liquidator argued that one of the liquidated company’s former directors had control of both it and the First Respondent (in line with section 435(6) of the Insolvency Act 1986) and therefore the companies were connected. The only evidence of substance to support the liquidator was from the director himself.  The director had stated that the First Respondent was set up by his sister and his role was confined to providing consultancy advice via another company. Apparently, evidence at every point, distanced the director from acting in the management of the First Respondent.

The Court held that the companies were not connected and the claim against the First Respondent had prospect of success, the order for service out of jurisdiction was also set aside.

Incidentally, there had also been a failure on the part of the liquidator to give full and frank disclosure relating to previous unsuccessful claims against the director concerned above.

In the matter of SMU Investments Ltd sub nom Edwin Kirker (Liquidator of SMU Investments Ltd) v (1) Holyoak Investments Inc & 6 ORS (2020)

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