Abbey Forwarding Ltd v Hone and Others
| Jurisdiction | England & Wales |
| Judge | MR JUSTICE DAVID RICHARDS |
| Judgment Date | 14 June 2010 |
| Neutral Citation | [2010] EWHC 1644 (Ch) |
| Date | 14 June 2010 |
| Docket Number | Claim No: HC09C0297 |
| Court | Chancery Division |
[2010] EWHC 1644 (Ch)
IN THE HIGH COURTS OF JUSTICE
CHANCERY DIVISION
Before: Mr Justice David Richards
Claim No: HC09C0297
Mr James Pickup Qc And Mr David Bedenham (instructed by Park 7 Co) appeared on behalf of the Claimant
Mr Peter Shaw (instructed by Moon Beever Solicitors) appeared on behalf of the Defendants
Approved Judgment
This is an application made in the winding up of Abbey Forwarding Limited. The applicants are Richard Hone, Patrick Owen and William Owen who are all shareholders and former directors of the company. Patrick Owen and William Owen are also creditors. The Respondent is the Liquidator, Louise Brittain.
The company was wound up by an order made on 18 th March 2009, on the petition of HM Revenue & Customs (“HMRC”) as a creditor, based on assessments to excise duty totalling £5,965,704.
On 4 th February 2009, HMRC had successfully applied to Blackburne J for the appointment of Ms Brittain as provisional liquidator. On the same day and immediately following her appointment, she applied on behalf of the company for and was granted a worldwide freezing order against the present Applicants and another director. This was in aid of a claim to be issued by the company for breach of fiduciary duty in allegedly conducting the business of the company in such a way as to lead to the assessments to excise duty. The assessments in question are those issued in February 2009, together with assessments totalling £500,218 issued during 2008. It is alleged that the present Applicants acted dishonestly, recklessly or negligently and as against the Fourth Defendant, who is not an Applicant today, that he acted negligently. The trial of the action with an estimate of between 10 and 15 days is fixed to start in the week commencing 5 th July 2010. The Defendants have fully participated those proceedings.
Following her appointment the liquidator exercised the company's statutory right to request a formal departmental review of the assessments issued in February 2009. The assessments were upheld by the review and the decision was notified in a reasoned letter dated 29 th April 2009. The company had a statutory right to appeal the assessments within 21 days of notification of the review decision. The liquidator, having considered the evidence and consulted specialist tax counsel, decided not to appeal. The Applicants' solicitors were notified of this decision in a letter dated 27 th May 2009. One of the Applicants, Mr Hone, also requested reviews of these assessments and of assessments made in 2008, and in July 2009 lodged appeals against the assessments. At first HMRC accepted that he had standing to appeal, but HMRC's position changed in September 2009 and they issued an application in November 2009 to strike out the appeals. The Applicants now accept that none of them had standing, as they had no liability in respect of the assessments.
At a hearing in February 2010, the Tax Tribunal made an order in the following terms:
“It is directed that the Respondent's applications to strike out the appeals and for costs of today's proceedings be adjourned on Mr Pickup undertaking on behalf of the Appellant to make an application to the Chancery Division pursuant to the provisions of the Insolvency Act 1986 within 14 days indemnifying the liquidator from the costs of such proceedings. Such application being to permit the directors to have the conduct of these proceedings on behalf of Abbey Forwarding Limited (in liquidation), on the basis that it were substituted as Appellant in these appeals.” (Quote unchecked)
The application now before the court was issued on 17 th March 2010 and seeks relief as follows:
“1. An order removing the Respondent as liquidator of Abbey Forwarding Limited and replacing her with another liquidator pursuant to s.172 of the Insolvency Act 1986, (“the 1986 Act”).
2. Further or alternatively an order pursuant to s.167(3) and/or 168(5) of the 1986 Act and of the inherent jurisdiction of the court that the Respondent do give the conduct of the following appeal before the first tier tribunal tax chamber to the Applicants or one or more of them on such terms as the court shall think fit.”
There are then set out the references for each of those appeals:
“3. Further or alternatively, that the court do give such further directions for the future conduct of the said appeals before the first tier tribunal tax chamber.” (Quote unchecked)
Mr Pickup QC for the Applicants has made clear that the primary relief sought is an order in the terms of paragraph 2. The order sought in paragraph 2 is, as drafted, insufficient for the Applicant's purpose. Mr Hone has conduct of the appeals to the post tier base tribunal and he needs no order from this court to conduct them. However, it is clear from the tribunal's order of 26 th February 2010, that what is envisaged is an application by the company to the tribunal to be substituted as Appellant in place of Mr Hone and that the Applicants then have conduct of the appeal. This was made clear to the liquidator's solicitors in a letter from the Applicant's solicitors dated 28 th May 2010 and I will proceed on that basis.
The application for an order in the terms of paragraph 2 of the application notice is, as there stated, made under s.167(3) to 168(5) of the Insolvency Act 1986. Section 167, so far as relevant, provides as follows:
“(1) Where a company is being wound up by the court, the liquidator may
(a) with the sanction of the court or the liquidation committee, exercise any of the powers specified in Parts I and II of Schedule 4 to this Act (payment of debts; compromise of claims, etc., institution and defence of proceedings; carrying on of the business of the company), and —
(b) with or without that sanction, exercise any of the general powers specified in Part III of that Schedule.
(3) The exercise by the liquidator in a winding up by the court of the powers conferred by this section is subject to the control of the court, and any creditor or contributory may apply to the court with respect to any exercise or proposed exercise of any of those powers.
Section 168 so far as relevant provides as follows:
(1) This section applies in the case of a company which is being wound up by the court in England and Wales.
(3) The liquidator may apply to the court (in the prescribed manner) for directions in relation to any particular matter arising in the winding up.
(4) Subject to the provisions of this Act, the liquidator shall use his own discretion in the management of the assets and their distribution among the creditors.
(5) If any person is aggrieved by an act or decision of the liquidator, that person may apply to the court; and the court may confirm, reverse or modify the act or decision complained of, and make such order in the case as it thinks just.
The Applicants accept that whether or not to appeal the assessments was, by the terms of the insolvency legislation, a matter for decision by the liquidator. It is not enough for them to show that the liquidator could have reasonably appealed the assessments. They make their application on the basis that the only reasonable course which a liquidator could have taken was to appeal the assessments. The test is a high one. In Edennote Limited [1996] 2 BCLC 389 the Court of Appeal (Nourse and Millett LJJ) adopted and applied a test derived from earlier authorities, that, bad faith apart, the court will only interfere with the act of a liquidator if he has done something so utterly unreasonable and absurd that no reasonable person would have done it.
The application to remove the liquidator is made under s.172 of the Insolvency Act 1986 which, so far as relevant, provides as follows:
(1) This section applies with respect to the removal from office and vacation of office of the liquidator of a company which is being wound up by the court, or of a provisional liquidator.
(2) Subject as follows, the liquidator may be removed from office only by an order of the court or by a general meeting of the company's creditors summoned specially for that purpose in accordance with the rules; and a provisional liquidator may be removed from office only by an order of the court.
The Act does not specify any particular grounds which must be established for the removal of a liquidator and the courts have been careful not to limit or define the grounds which must be shown, but it is clear that there must be substantial grounds established before taking so serious a step. This jurisdiction was also considered in Re Edennote Limited where the judge's decision to remove the liquidator was reversed although the court interfered with a decision of the liquidator under s.168(5) was held to have made a serious mistake.
The business of the company as described in the affidavit of Mr Hone dated 16 th March 2010 in support of application was as follows:
“8. The company traded as a tax warehouse despatching goods both nationally and internationally. In or around 1982 the company was granted a drive-on licence and authorised by HMRC to receive despatched goods under that licence. In or around 2002 the company was granted a (inaudible) licence and authorised by HMRC to...
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