Vol 10 (2013) - Issue 6

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Under Pressure: Ebbvale Limited v Andrew Lawrence Hosking (Trustee in Bankruptcy of Andreas Sofroniou Michaelides) [2013] UKPC 1

Introduction
In many common law jurisdictions a winding up petition is a potent threat against a company, particularly where the petition is required to be advertised and damaging publicity for the company will ensue. In England and Wales, for example, the procedure set out in the Insolvency Rules 1986 requires a petitioning creditor to give notice of a petition by placing an advertisement in the London Gazette, not less than seven business days after service of the petition and not less than seven business days before the winding up hearing. It is obvious that any company, particularly one that may already be in financial difficulty, will urgently seek to prevent the creditor from presenting the petition, or at least from advertising it. The simplest and most cost-effective way of doing so is for the company to pay or compromise the debt. A petition can therefore be a useful weapon to a creditor who wishes to apply pressure on a company to pay, even where that creditor is not necessarily interested in winding up the company per se.

If a company cannot or will not pay or compromise the debt it will usually, if possible, apply to the court for injunctive relief to prevent presentation or advertisement of the petition. Where a company faces a winding up petition that has been, or appears to have been, presented with an ulterior motive or collateral purpose, the company may seek to dismiss the petition as an abuse of process. What constitutes an abuse of process in this context is the subject of a canon of case law to which the UK Privy Council judgment in Ebbvale has recently been added.

Ebbvale is particularly interesting to practitioners from a cross-border perspective as it concerned concurrent proceedings in England and the Bahamas, where it was claimed that a winding up petition presented against a Bahamian company under Bahamian law was in fact a tactic to gain an advantage in the English proceedings against the same company and thus amounted to an abuse of process.

The English proceedings
On 21 December 2000 Mr. Andreas Michaelides (the 'Debtor') was adjudicated bankrupt in England and Wales and Mr. Andrew Hosking, a licensed Insolvency Practitioner and member of Grant Thornton UK LLP, was appointed his trustee in bankruptcy (the 'Trustee'). The Debtor had been the registered owner of a substantial property in London, Sunnyside Service Station ('Sunnyside'), a petrol station with development potential and, according to some valuations, worth several million pounds. Two days before being adjudicated bankrupt the Debtor had transferred Sunnyside, allegedly to two brothers named Andreou, who became the registered owners.

The Trustee investigated the transaction and concluded that the Andreou brothers did not exist, or in any case had not genuinely acquired Sunnyside, and that true economic ownership of Sunnyside remained with the Debtor until vesting in the Trustee himself on the Debtor’s bankruptcy. The Trustee registered a caution against Sunnyside in August 2001 at the Land Registry and commenced proceedings for a declaration that, if the Andreou brothers did indeed exist, they held Sunnyside on a bare trust for the Trustee and that the Land Register be rectified to show the Trustee as owner. The Andreou brothers, if in fact they did exist, took no part in the proceedings.