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No jurisdiction to make a retrospective order for substituted service of a bankruptcy petition


No jurisdiction to make a retrospective order for substituted service of a bankruptcy petition

The High Court has significantly determined that the Court cannot retrospectively make an order for substituted service of a bankruptcy petition, so as to authorise steps that have already been taken by the process server towards service.

Mr Justice Roth’s judgment in Ardawa v. Uppal and Jordan [2019] EWHC 456  also dealt with

  • whether failure to provide a known alternative address on the petition causes a petition to be defective; and
  • the exercise of the courts discretion to annul the bankruptcy petition for irregular service

It should be noted that whilst these proceedings were governed by the Insolvency Rules 1986, it seems very unlikely that the case would be decided differently under the Insolvency (England and Wales) Rules 2016.

Background

This was an appeal brought by Mr Ardawa concerning the service of both a statutory demand and bankruptcy petition by a process server on the instructions of his former wife’s solicitors.

The Appellant did not dispute that the £8,834.80 debt was overdue, the foundation of which comprised of four costs orders made against him during contested and acrimonious divorce proceedings.

Statutory Demand

The process server on the direction of the instructing solicitors attended a residential address in Milton Keynes, where he was advised the Mr Ardawa now resided with his second wife and young child. The process servers uncontested evidence was that he visited the property on two separate occasions before he met with and spoke to a lady with a young child who advised that Mr Ardawa had gone out. When the process server told the lady that he needed to speak to Mr Ardawa on a legal matter, the lady banged the door shut. After sending a letter of appointment to Mr Ardawa via first class post in the prescribed format, the process server reattended the address on a third occasion and at the pre-appointed time and that after failing to receive any response from within the address he posted the statutory demand through the letterbox in an envelope addressed to Mr Ardawa and marked Private & Confidential.

Bankruptcy Petition

After there was no response to the statutory demand, a bankruptcy petition was issued by the creditor and sent to the same process server for service. The petition named the same property as Mr Ardawa’s address. The process servers’ evidence is that whilst there was no response from the address on the first visit, that on his second visit the following day, he met with a lady who advised that she was the child minder and that Mr Ardawa ‘has gone out’. The process server reported that he left his contact details with the lady who advised that she would get Mr Ardawa to ring him ‘on his return later that day’.

After no contact was received from Mr Ardawa, the process server again sent a letter of appointment by first class post and reattended at the pre-appointed time. On this occasion the door was again answered by the same lady who advised him that she had been instructed by Mr Ardawa ‘not to accept anything’.

At this point the process server having been unable to effect personal service, but in the belief that the debtor continued to reside at the address and was evading service posted the Bankruptcy Petition through the letter box addressed to the debtor marked ‘private and confidential’.

Order for substituted service

On the Respondent’s application to the Court, District Judge Hickman made an order that the steps already taken (the bankruptcy petition being posted through the letter box) constituted deemed service and that ‘no further steps as to service were required’. District Judge Tansey made a bankruptcy order against Mr Ardawa a couple of months later.

Application to set aside

Mr Ardawa made an application: (i) to set aside the order for substituted service of the petition; (ii) to annul the bankruptcy order; and (iii) to dismiss the bankruptcy petition. He contended that he had been unaware of the statutory demand or the petition until after the bankruptcy order was made, because he had never been resident at the property where the documents had been served by alternative means.

Mr Ardawa claimed that he had been living at another address, of which his former wife, the Creditor, must have known since her solicitors wrote to him there shortly after he was made bankrupt. The former wife was also aware of the Appellant’s mobile number and email address and had been in regular contact with him during the relevant period. The process server was not given this information, nor was the Court informed when asked to accept the substituted service.

In February 2018 District Judge Thorpe found that the Appellant had been residing at the property, would have been aware of both the statutory demand and the bankruptcy petition, and had been evading service and that District Judge Hickman had been entitled to make the order for substituted service.

Appeal

Mr Tunkel acting for the Appellant accepted that he could not challenge the District Judges factual finding that the address the process server attended was the Appellant’s residence at the time. However, he sought to challenge her further findings that the Appellant (a) was aware of the statutory demand and the bankruptcy petition, and (b) was evading service.

Further points taken by Mr Tunkel concerned (a) service of the statutory demand; (b) the content of the petition; (c) service of the petition; and (d) the jurisdiction of District Judge Hickman to make the order for substituted service.

The Rules.

Roth J. contrasted the rules for service of a statutory demand, with those for service of a bankruptcy petition. The primary obligation for service of a statutory demand is to do “all that is reasonable for the purpose of bringing the statutory demand to the debtor’s attention”

IR r.6.3(2) set’s out:

(2) The creditor is, by virtue of the Rules, under an obligation to do all that is reasonable for the purpose of bringing the statutory demand to the debtor’s attention and, if practicable in the particular circumstances, to cause personal service of the demand to be effected.

By contrast a petition must be served personally unless the court orders substituted service.

6.14 provides:

(1) Subject as follows, the petition shall be served personally on the debtor by an officer of the court, or by the petitioning creditor or his solicitor, or by a person instructed by the creditor or his solicitor for that purpose; and service shall be effected by delivering to him a sealed copy of the petition.

(2) If the court is satisfied by a witness statement or other evidence on oath that prompt personal service cannot be effected because the debtor is keeping out of the way to avoid service of the petition or other legal process, or for any other cause, it may order substituted service to be effected in such manner as it thinks just.

(3) Where an order for substituted service has been carried out, the petition is deemed duly served on the debtor.

Failure to provide alternative or previous address

Roth J. recognised that the requirement to do ‘all that is reasonable’ to serve the statutory demand is a high one but emphasised that on existing authority the test is fact sensitive. He rejected the Appellant’s argument that the Respondent should also have served the statutory demand at the alternative address about which she knew, as this was not a ‘residence’ of his. Neither was she required to make contact by text message or email to bring the statutory demand to the Appellant’s attention.

Whilst the Respondent had not identified the Appellant’s alternative address within the petition and was thus in breach of the rules, the judge found that this, was a formal defect in the petition that did not cause any prejudice to the Appellant and could be cured by IR 7.55.

No jurisdiction to make a retrospective order for substituted service of a bankruptcy petition

Significantly Roth J. held that the Court had no jurisdiction to make a retrospective order for substituted service of the petition.

This was supported by the use of the wording ‘to be effected’ of IR 6.14(2) which suggests that an order may only be prospective and thus not retrospective.

(2) If the court is satisfied by affidavit or other evidence on oath that prompt personal service cannot be effected because the debtor is keeping out of the way to avoid service of the petition or other legal process, or for any other cause, it may order substituted service to be effected in such manner as it thinks fit.

This view was further supported by the now replaced Insolvency Practice Directions Para 13.2.4(2)(c) which requires the appointment letter for personal service of a petition to warn the debtor that if he fails to keep the appointment “application will be made to the court for an order for substituted service either by advertisement, or in such other manner as the court may think fit.”

Roth J stated that the wording ‘sits ill with the proposition that putting the petition through the letter box on the date of that appointment without any order of the court could subsequently become the substituted service authorised by the court.’

Fundamental failure

Roth J deemed that the District Judge’s Order authorising retrospective substituted service had not only been made without jurisdiction but also on the basis of some misleading information, as the court, (nor the process server) had been advised by the Respondent of both a mobile telephone number and email address for the Appellant at the time of seeking the order of service.

In considering whether this deficiency constituted a ‘formal defect’ or ‘irregularity’, Roth J states

‘In my judgment, this cannot properly be categorised as a “formal defect” or “irregularity” but is a fundamental failure regarding the rules as to service. It therefore falls outside the scope of rule 7.55 and the question of whether the failure caused “substantial injustice” within the terms of that rule therefore does not arise’.

Decision

Although Roth J considered that the court did have the discretion and power to annul the Bankruptcy order, the court refused to exercise its discretion to annul because the debt was undisputed and the debtor had failed to explain why he had failed to pay, the debtor had been aware of both the demand and the petition, and he had been untruthful in his evidence on those matters.

Impact of the Decision

The decision is particularly significant because Roth J. determined that the Court has no jurisdiction to make a retrospective order for substituted service of a bankruptcy petition under the Insolvency Rules 1986 and It seems unlikely that the case would be decided differently under the 2016 Rules.  Whilst the requirements for obtaining substituted service have changed under the 2018 Insolvency Practice Direction, these still seem to suggest that the order for substituted service will be prospective.

The judgment equally serves as a reminder that even where there is a fundamental failure in service this may not result in the court exercising it discretion to annul a bankruptcy order.


About The Author

Mark Hodgson

Mark Hodgson is the Managing Director of Tremark Associates, one of the UK’s leading providers of investigative services. Mark formed Tremark aged just 25 in 1995 and has over 30 years experience in private investigations and commercial debt recovery industries. He is a leading figure and a campaigner for regulation of the Industry and past President of the Association of British Investigators, a member of the World Association of Detectives, The Chartered Institute of Credit Management, The Institute of Paralegals and an associate member of R3 -The Association of Business Recovery Professionals. Mark splits his time between the Leeds and London Offices. He is a dad of two, a keen runner, cyclist and a Leeds United season ticket holder.


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