HM Revenue & Customs v Sed Essex Ltd
| Jurisdiction | England & Wales |
| Judge | The Deputy Judge |
| Judgment Date | 14 June 2013 |
| Neutral Citation | [2013] EWHC 1583 (Ch) |
| Docket Number | Case No 9510 of 2012 |
| Court | Chancery Division |
| Date | 14 June 2013 |
[2013] EWHC 1583 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT
The Rolls Building
7 Rolls Buildings
Fetter Lane
London EC4A 1NL
Mr John Randall QC
(Sitting as a Deputy High Court Judge)
Case No 9510 of 2012
In the matter of Sed Essex Limited and in the Matter of the Insolvency Act 1986
Mr Mark Cunningham QC and Mr Christopher Brockman (instructed by Kennedys Law LLP Solicitors, 35 Newhall Street, Birmingham B3 3PU) appeared on behalf of the Petitioner and Applicant
Mr David Berkley QC and Mr Rizwan Ashiq (instructed by Lexlaw Solicitors, 4 Middle Temple Lane, London EC4Y 9AA) appeared on behalf of the Respondent
Hearing Dates 21 23 May and 14 June 2013
The petition herein, which was presented on 13 December 2012, seeks a compulsory winding-up order in respect of the Respondent company SED Essex Ltd ("the Company"). It is founded on an alleged indebtedness of just over £3 million, based on 4 assessments for VAT raised by the Petitioner and Applicant, HM Revenue & Customs ("HMRC") which deny the Company's claims to input tax in respect of purchases it made or purportedly made from 6 suppliers during the 4 VAT quarters between 1 st October 2011 and 30 September 2012, brief details of which are listed in the Schedule to the petition [A/1/4]. On 11 January 2013 the Company instituted an appeal against them to the Tax Chamber of the First Tier Tribunal, which is currently the subject of a stay until 21 June 2013. The petition is listed for hearing in this Court on 1 July 2013.
On 13 December 2012, on an application made by HMRC, Mr Justice Henderson made a without notice order appointing provisional liquidators of the Company. That Order was served, and the provisional liquidators took up their appointment, the next day. It was not practicable for the Company to be ready to present its case against the making and continuation of that Order within a week or so of being served, and accordingly, following hearings at which both parties were represented on 19 and 21 December 2012, again before Henderson J, orders were made by consent, one of which gave the company the opportunity to apply to discharge the order appointing provisional liquidators by a specified date. It did so, and its application has now come on for effective hearing before me. This is, therefore, the equivalent of a first opposed hearing, and the burden and standard of proof are as if it were such; further, the Respondent does not have any additional burden of proving a material change of circumstances since the original order was made or anything of that nature.
The law
So far as the petition itself is concerned, it is founded on the familiar provisions of ss.122(1)(e) and 123 of the Insolvency Act 1986 ("the Act"). It is a creditor's petition, not a public interest petition under s.124A, a point which Mr David Berkley QC, appearing with Mr Rizwan Ashiq for the Company, emphasised to me.
Disputed debts, in the present context
It is of course well established, and is common ground in this case, that on a creditor's winding-up petition, where the whole debt is disputed in good faith and on substantial grounds, it cannot ordinarily found the basis for the making of a winding-up order, and the petition will ordinarily be dismissed. I consider 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 the statements of Buckley LJ in Stonegate Securities Ltd v Gregory [1980] Ch 576 at 579H that "a winding up petition is not a legitimate means of seeking to enforce payment of a debt which is bona fide disputed", and of Ungoed-Thomas J in Mann v Goldstein [1968] 1 WLR 1091 at 1099B that "to invoke the winding up jurisdiction when the debt is disputed (that is on substantial grounds) or after it has become clear that it is so disputed is an abuse of the process of the court."
Although Mr Berkley sought particularly to rely on a later statement in the same judgment of Buckley LJ (at 580B-C) indicating that where the debt relied on is so disputed the petitioner lacks locus standi, notwithstanding the considerable authority of that learned judge in this field of law I find that a more difficult proposition, at least in a case where the evidence discloses that both the petitioner's assertion of the debt and the respondent company's denial of it are made in good faith and on substantial grounds.
As Rimer LJ went on to state (at [80]):
… the rule does not, however, entitle a company to do no more than assert that it disputes the debt and then expect the petition to be struck out or, if the hearing is the substantive one, dismissed. It is not sufficient for the company merely to raise a cloud of objections. It has, in the old-fashioned phrase, to condescend to particulars by properly explaining the basis of the claimed dispute and showing that it is a substantial one. If, despite the company's protestations, the alleged dispute can be seen on the papers to be no dispute at all, or to be no dispute as to part of the debt, the petition will ordinarily be allowed to proceed. If, however, the dispute is shown to be one whose resolution will require the sort of investigation that is normally within the province of a conventional trial, the settled practice is for the petition to be struck out or dismissed so that the parties can contest their differences before whichever other forum may be appropriate.
In contested winding-up proceedings, as in most if not all types of contested litigation, the party on whom the burden of proof initially lies (here clearly HMRC, cf per Moses LJ in Mobilx v HMRC and 2 other cases [2010] EWCA Civ 1517, [2010] STC 1436 ("Mobilx") at [81]), may adduce sufficient evidence in chief that, were it to go wholly unanswered, the court would be satisfied that s/he had discharged that burden to the requisite standard. Where that occurs, it is sometimes said that the 'evidential burden' shifts. In my view, it was to this that Rimer LJ was referring in certain passages from his judgment in Rochdale Drinks on which both parties' counsel addressed me. Omitting 3 sentences in the middle of [84] where the learned judge was expressly addressing the position concerning an appeal to the First Tier Tribunal, he said this:
84 … What HMRC were asserting was that they did not accept that any of [the company's] input tax repayment claims were genuine. Their protracted investigations had revealed what appear to me to have been ample grounds for adopting that stance. Their VAT assessment served on 25 February 2011 proceeded on the basis that the tax repayment claims were false… The substantive reality is that HMRC had raised a case in respect of the disputed invoices that was sufficien to cast upon [the company] the burden of proving their genuineness.
86 There is no doubt that HMRC's evidence raised serious questions as to the genuineness of the invoices. If [the company] was to challenge the basis of the petition, and therefore the appointment of the provisional liquidator, the burden was therefore upon it to show that it at least had a good arguable case that its claimed trade with all the disputed traders was genuine…
87 In my judgment, the real question before the judge on the 'missing traders' issue was whether [the company] had shown by its evidence that, upon the hearing of the petition, it was likely to be able to show that in relation to all the alleged trades it claimed to have carried out it had a good arguable case that they were genuine…
In this forensic context, I do not find it particularly helpful to evaluate the standard referred to by Rimer LJ in paras. [86] and [87] of Rochdale Drinks as "a good arguable case" by reference to the test applied to applicants for Freezing Orders in cases such as The Niedersachsen [1983] 2 Lloyd's Rep 600 (at 605) and the other cases cited in Gee's Commercial Injunctions (5 th edn) at paras. 12.023 ff, as submitted by Mr Mark Cunningham QC, appearing with Mr Christopher Brockman for HMRC. To my mind, in this context, where Rimer LJ (as I shall explain below) had already specifically found the standard to which HMRC had to make out its case on such an application to be demonstrating a likelihood that it would obtain a winding-up order on the hearing of the petition, all that he can have meant in these two references to the respondent being under a burden to show a good arguable case is that, where the evidential burden has switched to the respondent, the respondent then has to make out a sufficiently strong case to negate such likelihood.
The need for a company to show, following a shifting of the evidential burden, that its disputing of a petition debt founded on a VAT assessment is based on 'substantial grounds' negates any suggestion that the bare fact that the company has a statutory right of appeal against the assessment, and has exercised it, is sufficient to defeat the petition per se. As Rimer LJ said in Rochdale Drinks at [85]:
The fact, however, that the assessment raised by HMRC was one that could be the subject of an appeal by [the company] (and it has now launched an appeal, although it had not done so at the time of the hearing before the judge) does not mean that the assessment could not found the basis for a petition for the winding up of [the company]. Put another way, it was not open to [the company] to challenge and defeat the petition merely on the basis that it had a statutory right of appeal against the assessment before another forum. The existence of a right of appeal says nothing as to whether any appeal will...
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