Richard Toone v William John Gailey Ross
| Jurisdiction | England & Wales |
| Judge | Briggs |
| Judgment Date | 30 October 2019 |
| Neutral Citation | [2019] EWHC 2855 (Ch) |
| Date | 30 October 2019 |
| Docket Number | Case No: CR-2018-001831 |
| Court | Chancery Division |
[2019] EWHC 2855 (Ch)
CHIEF INSOLVENCY AND COMPANIES COURT JUDGE Briggs
Case No: CR-2018-001831
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS ENGLAND AND WALES
COMPANIES COURT
The Rolls Building
Fetter Lane, London, EC4A 1NL
Joseph Curl (instructed by ASHFORDS LLP) for the Applicants
David Mohyuddin QC (instructed by FREETHS LLP) for the Respondents
Hearing dates: 7, 8, 9, 10 and 30 October 2019
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.
Chief ICC Judge
Introduction
Implement Consulting Limited (the “Company”) entered insolvent liquidation on 26 November 2016. Mr Toone and Mr Paourou were appointed liquidators (the “Joint Liquidators”) at a creditors' meeting held on the same day.
Mr Ross was a director of the Company until it entered voluntary liquidation. Mr Bell was a director at the relevant time but resigned in April 2013.
The main creditor of the Company is Her Majesty's Revenue and Customs (“HMRC”). HMRC has lodged a proof of debt in the liquidation in the sum of £1,747,621.51.
The Joint Liquidators make claims against Mr Ross and Mr Bell in respect of transactions that took place between 2009 and 2013.
Summary
This judgment deals with the claims and the defence to the claims, made by the Company through the Joint Liquidators. It deals with a proper characterisation of payments made out of the Company in the period 2009 to 2011 when the Respondents, who owned 80% of the shareholding in the Company, and one other, Mr Flanagan, who owed 20% of the shares, received payments via profit extraction schemes. The aim of the schemes was to place money drawn from the Company into the hands of the shareholders.
In 2017 the Supreme Court ( RFC 2012 plc (in liquidation) (formerly Rangers Football Club Plc) v Advocate General for Scotland [2017] 1 WLR 2767) found that money paid into an employment benefit trust was intended to operate to give each employee access to the use of the money paid into the principal trust. The money was to be treated as employee's remuneration for employment, and subject to tax. The employer company should have made the necessary deductions to pay the Revenue. In this case the Joint Liquidators ask the Court to look at the position from the point of view of the Company. The distributable reserves were stripped out and paid to employment benefit trusts (and later an interest in possession fund) for the purpose of making tax free payments to the shareholders who were also employees. The payments received by the Respondents and Mr Flanagan were calculated by dividing the capital paid out of the Company, to match the number of shares each of them held.
In my judgment although the payments of the Company's capital were made to the Respondents via a trust or interest in possession fund, they were in substance distributions. Due to a failure to comply with the statutory code they constitute unlawful distributions and are void. Later payments totalling £70,000 made to the shareholders in 2013 also constituted unlawful distributions. One shareholder and employee, Mr Flanagan, received £30,000 in expenses in March 2013. Such payments were made at a time when the Company was insolvent, and in breach of directors' duties.
The Claims
The claim mainly arises firstly, out of monies paid by the Company into an Employment Benefit Trust in October 2009 (“EBT 09”) and March 2010 (“EBT 10”), and secondly (and separately) monies paid into an interest in possession fund (“IIP”) in 2012. The Joint Liquidators assert that the EBTs and IIP were “aggressive tax avoidance” schemes; that the Respondents knew there was a risk that HMRC would challenge the schemes; failed to make any or any proper provision for the possibility that the aggressive schemes would be challenged successfully; personally benefited from the payments made into the schemes; and that the payments were in substance unlawful distributions of the Company's capital.
These simple facts are used to support various other causes of action against Mr Ross and Mr Bell. The Particulars of Claim summarise: “these proceedings arise from distributions of the Company's assets (almost entirely for the direct personal benefit of the Respondents) made in breach of trust and/or fiduciary duty and/or that were unlawful and void and/or within the meaning of s. 423 of the Insolvency Act 1986”.
The Respondents put the Applicants to proof on various matters, argue that the Company was not insolvent at the time of the transactions under consideration and assert that the EBTs and IIP were entered into following professional advice which should shield them against the claims brought. The Joint Liquidators make their claim from a position of hindsight.
Advice provided to the Respondents
Mr Bell, in his written evidence, states that he and Mr Ross asked the Company's accountant how it could structure its payments to the three main employees and shareholders in a tax efficient manner. The Company's accountant then raised the prospect of tax planning in early 2009. The “scheme that was proposed was a scheme developed by Premier Strategies Limited which was a subsidiary of Tenon, one of the largest accountancy practices in the UK at the time.” He explains:
“the prospective tax planning was initially discussed on a Teleconference Board meeting on 26 March 2009 with William Ross, Kieran Flanagan, Frank Walker and I in attendance and I have retained my agenda and notes……… It was again discussed at a further meeting held on 19 June 2009 with William Ross, Frank Walker, Kieran Flanagan, and myself…… Subsequently, at a meeting on 28 August 2009 Ian Oliva of Peak Performance Tax gave a presentation on the Premier Strategies EBT to William Ross, Kieran Flanagan, Frank Walker and myself…..These were formal discussions we had regarding the tax planning, however we discussed it amongst ourselves many, many times in the intervening months. Our accountant Frank Walker spoke to other accountants at professional tax seminars who were also considering and or undertaking EBTs for clients and attended webinars and conferences to better understand this form of tax advisor planning. Ian Oliva informed us that Premier Strategies (part of Tenon Accountancy) had done over 800 EBTs confirming this as an accepted and established method of tax planning used by many companies and widely promoted by professional advisers and barristers….. Both myself and the First Respondent are cautious by nature but were interested in the tax planning as a way of maximising the Company's tax efficiency and rewarding the employees/providing a return to shareholders in the most tax efficient manner.”
Although the link between Premier Strategies Limited (“PSL”) and Tenon is a little laboured, PSL make clear in correspondence that they are not “an accountancy firm”. PSL also made clear that it is “for the company's accountant and auditors to make a judgment as to what is the most appropriate accounting policy, based on the specific facts of their EBT.”
Mr Ross states that he researched EBTs and IIPs personally and that “it was in the best interests of the company and its shareholders to engage in the planning, and that it would achieve the purpose of rewarding the key employees whilst maximising the company's tax efficiency.” He says he spoke with a friend, Mr McKenzie who is also a lawyer based in Glasgow. He spoke on the phone prior to entering into the first EBT. His account of the conversation can be summarised shortly. Mr McKenzie said that he knew of EBTs and that as far as he was concerned “they worked”. He did not advise the Respondents to enter into the EBTs. He did not see any detail of the particular EBT or have to hand any information regarding the Company.
In a letter dated 13 October 2009 PSL wrote to Mr Bell setting out “the key points” of a “Pre-funded Employee Benefit Trust”. I quote at length as both the Applicants and Respondents rely on the correspondence. The Applicants argue it cannot be relied upon as independent advice. The Respondents argue that it made clear that there was only a remote risk by entering into the EBTs. The letter reads (where relevant):
“An EBT is a form of discretionary trust established to benefit a defined class of employees. In order for an EBT to be effective it is vital that the trustees have a complete and unfettered discretion as to the way in which they deal with the trust funds. This fundamental point has to be understood by any company acquiring such an EBT. However it is perfectly acceptable for a company to make recommendations to the trustees as to how funds are to be distributed and we would normally suggest that in most cases you would want to make recommendations….”
“On acquiring the EBT you can specify the classes of beneficiaries under the deed of appointment. In most cases it is likely that you will want to include all current employees and the draft deed of appointment that is provided will also include their dependents. You should ensure that this is acceptable. If it is not then you will need to speak to us as soon as possible in order to discuss your specific requirements. The fact that the class of beneficiaries is very widely drawn does not necessarily mean that every potential beneficiary or actually receive anything from the trust.”
“There is no material difference in the operation of an onshore or offshore trust, though obviously the logistics of having trustees offshore need to be considered....
To continue reading
Request your trial
-
Marlborough DP Ltd
...a redirection of what would otherwise have been formally declared as dividends and should be taxed as such. Referring to Toone v Ross [2020] BTC 5, it was further contended that where a payment is made for the benefit of shareholders and is not a reward for service, the absence of formaliti......
-
Chalcot Training Ltd v Matthew Anthony Ralph
...Barford); Progress Property (supra); and much reliance was placed on the recent decision of Chief ICC Judge Briggs in Toone v Ross [2019] EWHC 2855 (Ch) (which was based on the statutory 129 The Company's main argument, as adapted in its closing submissions, is that the Court should apply ......
-
Asertis Ltd v Mr Dale Heathcote
...at p.1043. That principle was recently applied by Chief ICC Judge Briggs in Re Implement Consulting Group Ltd (in liquidation) [2019] EWHC 2855 (Ch), where a claim of a similar nature to the present was made in the context of directors adopting another tax avoidance scheme. Although Mr Coc......
-
2020 Summer review M&A legal and market developments
...take independent legal advice. This was not reasonable conduct for directors faced with such large financial decisions. (Toone v Ross [2019] EWHC 2855 (Ch))Key lessons Risk assessment: The decision highlights the importance of directors’ obtaining independent expert advice when considering......