HM Revenue and Customs v Rochdale Drinks Distributors Ltd
| Jurisdiction | England & Wales |
| Judge | Lord Justice Rimer,Lord Justice Lewison,Lord Justice Pill |
| Judgment Date | 13 October 2011 |
| Neutral Citation | [2011] EWCA Civ 1116 |
| Docket Number | Case No: A2/2011/1249 |
| Court | Court of Appeal (Civil Division) |
| Date | 13 October 2011 |
[2011] EWCA Civ 1116
[2011] EWHC 988 (Ch)
Lord Justice Pill
Lord Justice Rimer
and
Lord Justice Lewison
Case No: A2/2011/1249
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Mr Justice Floyd
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Stephen Davies QC and Ms Lucy Frazer (instructed by Howes Percival LLP) for the Appellants, The Commissioners
Mr James Pickup QC and Ms Rosanna Foskett (instructed by Burrows Bussin) for the Respondent
Hearing dates: 15 and 16 September 2011
Introduction
This appeal, by The Commissioners for Her Majesty's Revenue and Customs ('HMRC'), is against an order made by Floyd J in the Chancery Division on 5 April 2011. The respondent is Rochdale Drinks Distributors Limited ('RDD'). Permission to appeal was granted by Patten LJ, who also directed the hearing of the appeal to be expedited, as it has been. HMRC were represented by Stephen Davies QC and Lucy Frazer, RDD by James Pickup QC and Rosanna Foskett. Apart from Mr Davies, all counsel also appeared before the judge.
On 24 February 2011 HMRC, claiming to be creditors of RDD, presented a winding up petition for its compulsory winding up on the grounds of its insolvency. On the same day, HMRC made a without notice application to Peter Smith J for the appointment of a provisional liquidator. The application was supported by two affidavits of Christopher Mann, an officer of HMRC. Its basis was that HMRC had a prima facie case for the winding up of HMRC and that, unless a provisional liquidator was appointed, there was a risk pending the making of a winding up order of jeopardy to RDD's assets and to its effective and efficient winding up. Peter Smith J made an order appointing as provisional liquidator Ian Defty, of Kingston Smith & Partners LLP.
On 18 March 2011 RDD issued an application for the discharge of that order. It was heard inter partes by Floyd J, before whom the evidence was fuller than it had been before Peter Smith J. Following three days of argument at the end of March, the judge delivered an oral judgment on 5 April 2011 giving his reasons for ordering the immediate discharge of the appointment that Peter Smith J had made. In summary, he concluded that: (i) as to the bulk of HMRC's claimed debt, it was the subject of substantial dispute such that a petition based upon it was unlikely to succeed; (ii) the balance of the claimed debt was admitted but was said to be the subject of a counterclaim exceeding it; (iii) the risk of dissipation of assets pending the hearing of the petition was not sufficiently great to justify the appointment of a provisional liquidator; and (iv) the appointment was not a just or proportionate response to HMRC's case.
By their appeal, HMRC challenged these conclusions and submitted that the judge misdirected himself in arriving at them. RDD's position was that the judge was exercising a discretion, that he exercised it unimpeachably and that this court should not interfere with the way in which did so.
A. The application before Peter Smith J
Mr Mann's principal affidavit occupied 126 pages and 684 paragraphs and was accompanied by voluminous exhibits comprising some 3,000 pages. He supplemented it with a short corrective affidavit. What follows in this section of my judgment is a summary of the essence of the case that his evidence presented to Peter Smith J.
The nub of it was that RDD had been run for the purpose of facilitating and undertaking the fraudulent evasion of VAT. HMRC asserted that RDD had falsely claimed input tax on invoices for supplies by six traders, five of whom they described as 'missing traders' and one as a 'buffer trader'. HMRC disputed the making of supplies by such traders and, therefore, the genuineness of the invoices upon which RDD relied. They asserted that RDD had inflated its input tax claims by using the same invoices repeatedly and had suppressed the output tax due to HMRC on its sales. The alleged supplies and the actual sales were in wholesale dealings in alcoholic drinks.
RDD was incorporated on 11 October 2005. Its secretary was Cobat Secretarial Services Limited ('Cobat'). Imran Awan ('Imran') was a director from 6 June 2007 to 5 November 2010, when he resigned. Adhila Awan (his sister) was a director from 16 June 2010 until 20 October 2010, when she resigned. Mussawer Iqbal became a director on 16 June 2010 and remains a director. The annual return for the period ended 11 October 2006 showed that Imran held 75 of RDD's 100 shares and Neil Battersby the other 25 (he had, until 6 June 2007, also been a director). On 16 July 2007 Mr Battersby transferred his 25 shares to Imran.
RDD applied to register for VAT in June 2007 and was registered as from 24 July 2007. It advised HMRC that its business was the wholesale cash and carry and delivery of food, cigarettes, soft drinks and alcohol. Its principal place of business was at Units B and D, Trafalgar Centre, Belfield Road, Rochdale, Lancashire.
HMRC asserted that RDD was a phoenix-type successor to Liquorflow Limited. A successful application for a provisional liquidator, on almost identical grounds as were now relied upon against RDD, had been made in respect of Liquorflow on 10 February 2009. Imran had been the director and sole shareholder of Liquorflow. Shakeel Awan ('Shakeel'), his brother, had played a role in the governance of Liquorflow, as he also had in RDD. Liquorflow's secretary was also Cobat. Liquorflow's 100 shares were owned by Imran (32), Akeel Awan (34) and Shakeel (34). The trade class for which Liquorflow registered with HMRC for VAT purposes was the wholesale of wine, beer, spirits and other alcoholic beverages. Mr Mann asserted that RDD had 'taken over the business of Liquorflow and is continuing the fraudulent evasion of VAT in the place of Liquorflow'. The provisional liquidator appointed for Liquorflow was Ian Defty, who also became its liquidator when it was placed in compulsory liquidation on 22 April 2009. It was Mr Defty whom Peter Smith J appointed as provisional liquidator of RDD.
HMRC asserted the VAT tax loss caused by RDD to be at least £2,327,948.49, although Mr Mann explained that RDD claimed to be due repayments of VAT from HMRC totalling £400,061.99, which, although disputed, would still leave £1,927,886.50 due to HMRC. That is said to be the counterclaim referred to in paragraph [3] above. At the time of the application to Peter Smith J, no assessment had been raised, a deliberate omission for which HMRC's explanation was that they did not wish thereby to excite RDD's interest in the matter and, in consequence, increase the risk of a dissipation of its assets. The plan was to raise and serve the assessment together with the winding up petition and the order that HMRC hoped Peter Smith J would make, whereupon the amount assessed would become a statutory debt due and payable immediately. Mr Mann did not foresee a realistic prospect of an appeal by RDD against any such assessment. The onus was on RDD to make good its input tax claims.
Mr Mann explained why HMRC regarded RDD as insolvent. The last accounts it had filed, signed by Imran, were for the year ended 30 June 2009. Whilst they showed net assets of £146,717, RDD's solvency was dependent upon a figure for debtors that included a VAT repayment claim of £369,505 (part of the £400,061.99) which HMRC disputed. Further, Mr Mann asserted that RDD did not have the resources to pay its debts as they fell due, particularly in the light of the impending VAT assessment; and HMRC also expected RDD to face large claims for corporation tax, excise duty, penalties and interest. In addition, they assessed that RDD had traded at a loss of £5,083,011 during the VAT periods from April 2008 to December 2010.
Mr Mann explained how HMRC made an unannounced visit to RDD's premises on 24 January 2008. RDD's first VAT return was for the period ended 30 April 2008 and claimed a VAT repayment of £171,569.04. This led to a visit by HMRC to verify the claim and HMRC uplifted the available business records with a view to analysing them. Mr Mann explained, at some length, the course of communications between HMRC and RDD over the subsequent period down to November 2010, during which they investigated with RDD the justification for the returns for that and subsequent quarters down to September 2010. Following a full investigation, HMRC were satisfied that RDD could not verify the claims made. It had failed to supply satisfactory documentation and/or explanations in order properly to support its input tax claims. HMRC believed they were fraudulent. Mr Mann explained HMRC's case in relation to the input tax claims that RDD had made in respect of each of the 'missing' or 'buffer' traders. I summarise it as follows.
Sunfyne Limited
Sunfyne was incorporated on 28 March 2008. By June 2008 there had been four changes of director, its last being Alan Bullock, who had a history relating to MTIC and excise fraud. Sunfyne was dissolved on 3 August 2010. It had been registered for VAT as from 1 February 2008 (before its incorporation), its intended business being said to be 'company management, account, payroll and company admin'. Mr Bullock told HMRC on 26 August 2008 that it had 'not strictly traded as yet' but planned to start in September 2008. He notified HMRC on about 7 November 2008 of a change of trade class to 'other wholesale' as it was then dealing 'in all food, confectionery and beverages'. It...
To continue reading
Request your trial
-
HM Revenue & Customs v Sed Essex Ltd
...that rule to be best explained, as it was by Rimer LJ in Re Rochdale Drinks Distributors Ltd, HMRC v Rochdale Drinks Distributors Ltd [2011] EWCA Civ 1116, [2012] STC 186 ("Rochdale Drinks") at [79] and again at [80], as a rule of "settled practice". Much the same approach may be found in......
-
Abbey Forwarding Ltd ((in Liquidation)) v HM Revenue & Customs
...as indeed it did. 6 For this reason, an undertaking in damages is particularly important. In HMRC v Rochdale Drinks Distributors Ltd [2011] EWCA Civ 1116; [2013] BCC 419, a case to which I will later refer in greater detail, Lewison LJ at [109] referred to the extent to which the prejudice ......
-
Parkwell Investments Ltd v Mark Wilson (as Provisional Liquidator of Parkwell Investments Ltd) and Another
... ... ) The Commissioners of Her Majesty's Revenue and Customs Respondents [2014] EWHC ... 13 In HMRC v Rochdale Drinks Distributors Ltd [2011] STC 186 (" Rochdale ") ... ...
-
The International Business Companies Act, Chap. 309 of the Statute Laws of The Bahamas
...The test was set out more comprehensively in Commissioners for Her Majesty's Revenue and Customs v Rochdale Drinks Distributors Ltd. [2011] EWCA Civ. 1116, where Rimer LJ said [76]: “76. The appointment of a provisional liquidator to a trading company is, however, a most serious step for a......
-
Litigation Remedies And Rights: Some Key Differences Between Bermuda And The UK
...As the English Court of Appeal observed in Commissioners for Her Majesty's Revenue and Customs v Rochdale Drinks Distributors Ltd [2011] EWCA Civ 1116, the appointment of a provisional liquidator, unlike a freezing order, will bring such transactions to an end. In addition, the provisional ......