Steven John Williams (Acting as Liquidator of GP Aviation Group International Ltd) v Colin Neil Glover and Another

JurisdictionEngland & Wales
JudgeHH Judge Pelling
Judgment Date04 June 2013
Neutral Citation[2013] EWHC 1447 (Ch)
Docket NumberCase No: 2577 of 2008
CourtChancery Division
Date04 June 2013
Between:

In the Matter of GP Aviation Group International Limited (in Liquidation); and

In the Matter of the Insolvency Act 1986

Steven John Williams (Acting as Liquidator of GP Aviation Group International Limited)
Applicant
and
(1) Colin Neil Glover
(2) Mark Nicholas Pearson
Respondents

[2013] EWHC 1447 (Ch)

Before:

His Honour Judge Pelling QC

SITTING AS A JUDGE OF THE HIGH COURT

Case No: 2577 of 2008

IN THE HIGH COURT OF JUSTICE

CHNANCERY DIVISION

MANCHESTER DISTRICT REGISTRY

Civil Justice Centre

1 Bridge Street West

Manchester M60 9DJ

Mr James Morgan (instructed by Freeth Cartwright LLP) for the Applicant

Mr Michael Gibbon QC (instructed by Swanboroughs LLP) for the Respondents

Hearing date: 17 th May 2013

HH Judge Pelling QC:

Introduction

1

This the hearing of an application by the Applicant for directions made pursuant to s.167(3) of the Insolvency Act 1986 (" IA") concerning the assignment of conduct of certain outstanding tax appeals by GP Aviation Group International Limited ("the Company") and for a stay of misfeasance proceedings brought by the Applicant against the Respondents pending the outcome of the appeals. The hearing was concluded at 16.30 on the 17 th May 2013. Although the application had been fully argued, I was asked to delay delivery of a judgment until the first week in June because there were on going discussions that, if successful, would mean that it would be unnecessary to deliver this judgment. I acceded to that submission since if a pragmatic solution to the problem could be agreed, it would avoid the parties becoming further distracted by what is or has become a highly technical issue.

2

I had the benefit of full skeleton arguments from both counsel and careful and considered oral submissions from each of them and I record my gratitude to them both for the quality of the submissions and for the spirit in which they were delivered notwithstanding that relations between the parties have become very strained.

The Factual Background

3

The Applicant has commenced a misfeasance claim against the Respondents in which it is alleged that the Respondents acted in breach of the fiduciary duties that they owed to the Company and caused or permitted the Company to make allegedly unlawful distributions. In view of the fact that I may have to try that claim, I confine the factual summary to those facts strictly necessary for the determination of this present application. I make clear that nothing in this judgment resolves or is intended to resolve any disputed issues of fact that arise in the misfeasance proceedings, not least because this application has proceeded on the basis of written evidence and written and oral submissions.

4

The Respondents are the former directors of the Company. In November 2004, the Company (acting by the Respondents) sold its business and assets for which it received total consideration of £2.5 million, which included £1.3 million in cash. Thereafter the Respondents embarked on a process, which on the Respondents' case, was a bona fide attempt to wind up the affairs of the Company at a time when its assets exceeded its liabilities. It was not a formal Members Voluntary Liquidation. The Applicant does not accept that the process was conducted properly or lawfully but the Respondents maintain that they acted throughout in good faith, that they relied at all times on professional advice and that they made full provision for the Company's liabilities before paying themselves. In any event, the Applicant alleges that £1.6 million was paid out by the Company in purported discharge of its liabilities following which the Company was struck off the Register pursuant to s.652A of the Companies Act 1985. The Respondents do not admit this figure. In June 2008 the Company was restored to the Register and was wound up on a creditor's petition and subsequently the Applicant was appointed liquidator.

5

In April 2009, HMRC submitted a proof of debt for £19,240 in respect of Corporation Tax liability for the accounting periods ending 30 th September 2003 and 2004. In November 2010, the Applicant commenced the misfeasance proceedings to which I have referred in which he sought recovery of £696,000 paid to the Respondents for their shares in the Company and sums now totalling about £400,000, but originally totalling approximately £1 million, in respect of payments that the Applicant maintains the respondents have not proved were payments lawfully and properly authorised by them in accordance with the duties they owed to the Company.

6

In October 2012, HMRC raised "discovery" assessments against the Company for Corporation Tax of £1.4 million (inclusive of penalties) together with interest, claimed to be due in particular as a result of the sale by the Company of its assets as I have described. The power to make such an assessment is contained in Paragraph 41(1) of Schedule 18 to the Finance Act 1998 ("FA98"). At the request of the Respondents the Applicant caused the Company to serve notice of appeal against the assessments and to apply for postponement of the payment of tax. The power to appeal is contained in Paragraph 48 of Schedule 18 FA98 and must be addressed in writing to the officer of HMRC who issues the notice of assessment within 30 days after issue of the assessment. The Applicant has informed the Respondents that unless the appeal succeeds he intends to allege in the misfeasance proceedings that the Respondents are liable to account to the Company for the debts created by the assessments. The substantive appeal has yet to be referred to the FTT and the postponement application has been allowed only to the extent that the tax due and payable has been reduced to £1.2 million. In consequence the Respondents requested the Applicant to file an appeal against that decision with the FTT. The FTT has given various directions that have to be complied with between 10 th May and 14 th June 2013. Compliance with those directions has been stayed by agreement between the Applicant and HMRC pending determination of this application.

7

The Applicant has made clear that he does not have the means to finance the conduct of the tax appeals and in any event he has doubts as to the merits of the substantive appeals. In the result to date the appeals have been controlled by the Applicant but (it is alleged by the Respondents but disputed by the Applicant) funded by the Respondents. Counsel for the Respondents describes these arrangements in his skeleton submissions as being "… attended by contention, dispute and delay …" and that it is common ground that "… the current situation is highly unsatisfactory …". In those circumstances, the Respondents have requested the Applicant to assign the appeals to them. The Applicant doubts whether there is power to do so or if there is whether it ought to be exercised and for that reason has sought directions.

The Parties' Contentions in Summary

8

The Respondents contend that the most appropriate and practical direction would be one that requires the Applicant to assign the appeals to the Respondents. The Applicant whilst maintaining the position that he will act in accordance with the directions of the Court, submits that there are a number of difficult legal and practical issues that in reality prevent this course from being adopted. It is common ground that the issue between the parties raises four sub-issues being:

i) Whether the right to appeal against a tax liability constitutes the "property" of the Company ("Issue 1");

ii) Whether the Applicant has power to "sell" such property ("Issue 2");

iii) Whether the exercise of such a power will be effective to assign the right to appeal ("Issue 3"); and

iv) Whether it is proper for the Applicant to assign the right to appeal ("Issue 4").

Discussion

Issue 1

The statutory framework against which this question is to be resolved in contained in the IA. S.144 obliges a liquidator to take control of " … all the property and things in action to which the company is or appears to be entitled …". " Property" is defined by s.436 as including:

"… money, goods, things in action, land and every description of property wherever situated and also obligations and every description of interest, whether present or future or vested or contingent, arising out of, or incidental to, property …"

The liquidator's powers are set out in IA, Schedule 4. Those powers include:

Part II

Powers Exercisable without Sanction in Voluntary Winding Up, with Sanction in Winding Up by the Court

4. Power to bring or defend any action or other legal proceeding in the name and on behalf of the company.

Part III

Powers Exercisable Without Sanction in any Winding Up

6. Power to sell any of the company's property by public auction or private contract with power to transfer the whole of it to any person or to sell the same in parcels.

9

Clearly the Applicant is entitled to conduct the appeals on behalf of the Company with sanction if necessary pursuant to Paragraph 4 of Schedule 4. The power to conduct the appeal is not of itself capable of assignment – see (most recently) Ruttle Plant Limited v. SSEFRA [2008] EWHC 238 (TCC) [2009] 1 All ER 448per Ramsey J at [43], following earlier authority to similar effect including Grovewood Holdings Plc v. James Capel & Co Limited [1995] Ch 80per Lightman J at 89G. Thus the Applicant can have power to assign the appeals only if the right to appeal is property capable of being sold within the meaning of Paragraph 6 of Schedule 4. It is this issue that was the principal one argued by the parties before me.

10

On behalf of the Respondents it is submitted that a thing in action is included within the statutory definition of the property of the Company and that a right to appeal against a liability is such a thing in action. The Applicant submits that the right to appeal the discovery...

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