Letting a single property for a limited period of time can amount to “carrying on business” for the purposes of section 265(2)(b)(ii) of the Insolvency Act 1986 (IA 1986), as confirmed in the recent case Durkan v Jones [2023] EWHC 1359 (Ch).
Background
A bankruptcy petition was presented against the debtor on 26 August 2022 based on a judgment debt of approximately £1.2m obtained on behalf of Long Compton Projects Ltd, a company of which the debtor had been a director, and its liquidator. The petition debt was undisputed, and so the issue before the court was whether the court had jurisdiction, pursuant to section 265 of the IA 1986, to make a bankruptcy order.
The debtor was based in the USA, where he had been served with the statutory demand and subsequently the bankruptcy petition, and denied having either a place of residence or carrying on business in England or Wales. In his written evidence, the debtor asserted that he left England and Wales in 2018 with no intention of returning save for short trips to visit his parents.
However, the debtor was a co-proprietor of a property in the Cotswolds (the property) and was a party to the mortgage. The property had been let between March 2019 and January 2022 pursuant to a tenancy agreement which referred to the debtor as the landlord together with his wife.
The court had to consider whether letting a property was sufficient to satisfy the test under section 265(2)(b)(ii) – 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 – to make a bankruptcy order.
"Carrying on business"
In determining whether the debtor carried on business in the jurisdiction, the court declined to set out a definition but assessed the activities carried out by the debtor as a matter of "ordinary sense". In doing so the court considered:
- What the debtor did – concluding the debtor was involved with letting the property since he had been named in the tenancy agreement, received rent and, importantly, commenced proceedings as landlord against the tenants for breaches of the tenancy agreement.
- Whether what the debtor did was during the relevant period – which was evident since the letting of the property occurred during the three-year period before the bankruptcy petition had been presented.
- Whether letting the property amounted to "carrying on business" – concluding that, in the ordinary sense, it had done despite the business not being on a grand scale. The court rejected the idea of setting a scale, setting out that the amount of money or property, or the absence of employees, were not determinative factors.
Having held that the debtor carried on business within the relevant period, the court made a bankruptcy order against the debtor.
Comment
David Steinberg, restructuring and insolvency partner at Stevens & Bolton, comments:
“This case provides useful insight into how the court will approach the issue of jurisdiction in bankruptcy proceedings and, in particular, clarifies the scope of activities which can amount to carrying on business under section 265(2)(b)(ii) of the IA 1986.”