HM Revenue and Customs v Holland; Re Paycheck Services 3 Ltd
| Jurisdiction | England & Wales |
| Judge | MARK CAWSON QC |
| Judgment Date | 24 June 2008 |
| Neutral Citation | [2008] EWHC 2200 (Ch) |
| Date | 24 June 2008 |
| Docket Number | Case Nos. 5393: 54295431; 54355437; 54405443; 54455450; 5452; 54575468; 54705471; 54735475; 54775478; 54805484; all of 2006 |
| Court | Chancery Division |
[2008] EWHC 2200 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT
Royal Courts of Justice
Strand, London
Mr Mark Cawson Qc
(sitting As A Deputy Judge Of The High Court)
Case Nos. 5393: 54295431; 54355437; 54405443; 54455450; 5452; 54575468; 54705471; 54735475; 54775478; 54805484; all of 2006
In The Matter Of:
Pc(45) Limited
And In The Matter Of The Insolvency Act 1986
Michael Green (Instructed by Solicitor of HM Customs and Revenue) for the Applicant
Peter Knox QC (Instructed by Neil Myerson) for the First Respondent
Aidan Casey (Instructed by Neil Myerson) for the Second Respondent
Hearing dates: 16–18 April 2008; 21–25 April 2008; 12–13 May 2008
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic
INDEX
Paragraphs
A Introduction 1 —3
These proceedings concern 42 Originating Applications issued on 27 th July 2006 under Section 212 of the Insolvency Act 1986 (“ IA 1986”) by HM Revenue & Customs (“HMRC”) against the Respondents, Michael Holland (“Mr Holland”) and Linda Holland (“Mrs Holland”), who it is alleged were de facto directors of the 42 companies, the subject matter of the Originating Applications (“the Composite Companies”), each of which entered into administration on 19 th October 2004, and each of which subsequently entered into liquidation. For convenience, I refer throughout this Judgment to HMRC, although during the history of this matter the Inland Revenue was amalgamated with HM Customs & Excise to form HM Revenue & Customs.
HMRC is the only creditor of the Composite Companies, being a creditor in respect of unpaid higher rate Corporation Tax (“HRCT”) that became payable in the circumstances referred to below. By the Originating Applications HMRC seek an order that Mr and Mrs Holland contribute to the assets of the Composite Companies in consequence of misfeasance and breach of duties on their part as “de facto” directors of the Composite Companies and in causing the latter, between April 200and their entry into administration in October 2004, to pay dividends totalling in excess of £13m to the non-voting contractor/employee shareholders thereof referred to below. HMRC realistically limits its claim to the amount of HRCT left unpaid in respect of each Composite Company, after giving credit for net realisations in their respective liquidation, namely approximately £3.5m.
The Composite Companies formed part of a corporate structure (“the Corporate Structure”) set up on professional advice with a view to ensuring that none of the Composite Companies became liable for HRCT, and it is a feature of the proceedings that the claims only arise because that objective failed to be achieved.
Mr Michael Green appeared for HMRC, Mr Peter Knox QC appeared for Mr Holland, and Mr Aidan Casey appeared for Mrs Holland.
I am grateful to them for their detailed and well argued oral and written submissions.
HMRC called the following witnesses:
6.1 Mr John Simmonds (“Mr Simmonds”), formerly a Tax Inspector at HMRC's Liverpool Kingsway office;
6.2 Mr Martin Watson (“Mr Watson”), a Tax Inspector at HMRC's Wrexham office responsible for Corporation Tax processing;
6.3 Mr Llewellyn Williams (“Mr Williams”) a Tax Inspector at HMRC's Wrexham office, who in early 2002 was undertaking the final consolidation period of his technical training;
6.4 Mr Mervyn Russell (“Mr Russell”), at all relevant times, and until his retirement in 2006, HMRC's Large Business Manager for North Wales;
6.5 Mr Hugh McGillivray (“Mr McGillivray”), a Tax Inspector at HMRC's Wrexham office;
6.6 Mr Matthew Powell (“Mr Powell”), Team Leader of HMRC's Service Company Unit based in Taunton.
The Respondents called the following witnesses:
7.1 Mr Holland;
7.2 Mrs Holland;
7.3 Mr Carl Newton (“Mr Newton”), a partner in the firm of Neil Myerson, Solicitors of Altrincham;
7.4 Mr Peter Rees (“Mr Rees”), a Chartered Accountant and Principal of the firm of Messrs Speechleys of Colwyn Bay.
Whilst I will comment on particular aspects of the evidence in due course, I make the initial observation that I do not consider that any witness was, to any material extent, seeking consciously to mislead the Court. I am mindful that most of the witnesses were dealing with events that took place some years ago, the Corporate Structure itself having been set up over nine years ago. There is thus the real possibility that whilst witnesses might have given the impression of being good and credible witnesses, their evidence might well be based upon an honest but false reconstruction and recollection of events. I have thus sought, where possible, to test the witness evidence against the contemporaneous documentary evidence, and the overall probabilities of the situation, cf. Greek Shipping v Sharp & Co. [1987] 1 Lloyd's Rep 207 at 215–216, per Lord Goff. I am assisted in the present case by contemporaneous documentation such as detailed file notes, and correspondence, and my analysis of the background to the case considers the same in some detail.
As to HMRC's witnesses, although Mr Watson's recollection as to whether and in what circumstances he might have seen Mr Rees' letter of 30 th March 2001 was not perfect, I consider that he, Mr Simmonds, Mr Williams and Mr Powell, were, subject to the above considerations, essentially good and reliable witnesses. I have, however, had more difficulty with the evidence of Mr Russell and Mr McGillivray, in particular in relation to events between 27 th May 2004 and 21 st June 2004 to which I shall return. Mr Russell, in particular, had an unfortunate tendency not to provide a straightforward answer to questions. Talking about his contemporary dealings with Mr Russell, Mr Rees says that he found it difficult to differentiate between what Mr Russell said and what he meant, and I share that difficulty. Whilst a more comprehensible witness, Mr McGillivray did adopt a somewhat formulaic approach to answering questions that was not always helpful.
In his annexure to HMRC's written Closing Submissions Mr Green draws my attention to a number of passages in his evidence, and other matters that it is suggested reflect adversely on Mr Holland's credibility, including in particular some confusion between his evidence in chief and his evidence under cross examination with regard to limiting the profits of the Composite Companies to below £150,000 and the somewhat misleading statement on the current “Paycheck” website that “Paycheck” had “for the past years … worked alongside the Inland Revenue preserving our compliant service”. However, giving due allowance for the passage of time, and the inevitable pressure that Mr Holland was under giving evidence, and having regard to his general demeanour in the witness box and the totality of his evidence, I am satisfied, despite the matters identified by Mr Green, that Mr Holland was an honest witness doing his best to recall events going back over many years and that, subject to the above considerations as to reconstruction and recollection, a reliable witness.
Likewise I am satisfied that Mrs Holland was, subject to the same considerations, a good and reliable witness.
Mr Newton struck me as a conscientious Solicitor doing his best to assist the Court. He gave evidence in a careful and measured way. However, I do bear in mind that Mr Newton was one of the architects of the Corporate Structure that ultimately failed to achieve its objective, and I am concerned that there is a real possibility that Mr Newton may, in certain limited respects, and albeit subconsciously, have imperfectly reconstructed events in his mind in such a way as to seek to justify his contemporaneous actions.
Mr Rees was a somewhat less guarded witness, quite prepared to take points against himself where appropriate to do so. Subject to the considerations referred to above, and notwithstanding the concerns expressed in paragraph 143 below as to his letter to Barclays Bank Plc dated 25 th August 2004, I found him to be a generally good and reliable witness.
Mr and Mrs Holland also rely upon the unchallenged contents of a short witness statement of Nigel Ginniff (“Mr Ginniff”), Barrister at Atlantic Chambers, Liverpool dealing with his conversation with Mr Simmonds referred to below.
Before dealing in some detail with the factual background, I shall first describe the Corporate Structure and the tax difficulties, and the gist of HMRC's allegations against Mr and Mrs Holland against which the factual background is to be considered.
Mr and Mrs Holland operated as their trading company Paycheck Services Limited (“Paycheck Services”), of which Mr and Mrs Holland were each directors and in which they each held 50% of the issued share capital. Paycheck Services itself held 100% of the issued share capital of Paycheck (Directors Services) Limited (“Paycheck Directors”) and Paycheck (Secretarial Services) Limited (“Paycheck Secretarial”).
Paycheck Directors and Paycheck Secretarial were incorporated to act as sole corporate director and company secretary respectively of each of the Composite Companies, and Mr and Mrs Holland were each appointed as directors of Paycheck Directors and Paycheck Secretarial.
The issued share capital in the Composite Companies comprised one voting “A” share, and approximately 50 non-voting shares, each of a separate class (ie. “B1”, “B2”,...
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