The Secretary of State for Business, Energy and Industrial Strategy v Shafique Uddin (aka Sofiq Uddin)
| Jurisdiction | England & Wales |
| Judge | Mullen |
| Judgment Date | 14 October 2022 |
| Neutral Citation | [2022] EWHC 2588 (Ch) |
| Docket Number | Case No: CR-2020-001518 |
| Court | Chancery Division |
| Year | 2022 |
In the Matter of Kazitula Limited
And in the Matter of the Company Directors Disqualification Act 1986
[2022] EWHC 2588 (Ch)
ICC JUDGE Mullen
Case No: CR-2020-001518
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
INSOLVENCY AND COMPANIES LIST (ChD)
Royal Courts of Justice
Rolls Building
Fetter Lane
London EC4A 1NL
Mr Francis Ng (instructed by The Insolvency Service) for the Claimant
Mr Christopher Brockman (instructed by ASW Legal Limited) for the Defendant
Hearing dates: 16 th to 23 rd June 2022
Approved Judgment
This judgment was handed down remotely at 10am on 14 th October 2022 by circulation to the parties or their representatives by e-mail and by release to the National Archives.
ICC JUDGE Mullen
Introduction
This is my judgment following the trial of the claim of the Secretary of State for Business, Energy and Industrial Strategy (“the Secretary of State”) for a disqualification order to be made in respect Mr Shafique Uddin pursuant to section 6 of the Company Directors Disqualification Act 1986 (“the CDDA 1986”). The claim arises from his alleged conduct as the director of Kazitula Limited (“Kazitula” or “the Company”) between April 2010 and January 2017.
The Company was incorporated on 26 th June 2003 and operated the business of a restaurant at Goring Road in Worthing, under the trade name “Shafique's”. Mr Uddin was at all material times its sole director. Kazitula ceased trading in April 2017 and entered creditors' voluntary liquidation on 13 th April 2017. The statement of affairs stated that the Company owed £14,551 to the Crown.
HM Revenue and Customs (“HMRC”) has however lodged a proof of debt in the liquidation for £847,245.13. The circumstances leading to that proof being lodged are set out in the “statement of the matters determining unfitness” contained in the first affidavit of Mr Lawrence Paul Zussman, made on 25 th February 2020. Such a statement is required by Rule 3(3) of the Insolvent Companies (Disqualification of Unfit Directors) Proceedings Rules 1987 and is the allegation relied upon by the Secretary of State that the court must consider.
The allegation is as follows:
“8. Between April 2010 and January 2017 he caused or allowed Kazitula Limited (‘the company’) to file inaccurate VAT returns with HMRC, which resulted in the company under-declaring and underpaying VAT and Corporation Tax in the assessed sum £319,587, in that:
• During the period June 2016 to January 2017, HMRC officers carried out an inspection of the company's books and records, made three unannounced visits to the company trading premises and also undertook two separate days of test purchases.
• On 22 February 2017, HMRC issued Notice to provide information and produce documents under Schedule 36 to the Finance Act 2008 with which the company failed to comply.
• Upon conclusion of the investigation and in the absence of evidence to the contrary, HMRC considered that the company had been suppressing its sales figures over the periods investigated and considered that this action had been deliberate.
• On 7 April 2017, HMRC raised a VAT assessment for £201,615, plus interest, covering the periods ending April 2010 to January 2017.
• On 30 June 2017, HMRC issued a Personal Liability Notice for £134,073 in relation to the VAT assessment.
• HMRC further calculated Corporation Tax owed amounting to £117,972 and also issued personal penalties of £78,432.44.
• On 13 April 2017 the company entered Liquidation with HMRC being owed in excess of £561,000.
9. HMRC's proof of debt dated 22 May 2018 is in the amount of £561,191. HMRC have subsequently recalculated their claim and the liquidator has received an amended final proof of debt in the amount of £847,245.13, dated 22 August 2019. The liquidator has made a copy available to The Insolvency Service.”
The detail of the allegation is given in the remainder of the affidavit, which sets out the evidence on which the Secretary of State relies. In summary, it is said that Kazitula underdeclared its sales in its VAT returns by suppressing those receipts paid otherwise than by credit card. This came to light during HMRC's investigations. Though HMRC sought delivery up of the Company's records, they were not provided, though there is a dispute as to the reasons for this. HMRC therefore obtained information from the merchant acquirer that provided credit card services to the Company, showing its receipts from credit card payments. It is said that these showed that, as a percentage of the total sales declared, card sales amounted to, on average, 85.4%. Some 14.6% of Kazitula's declared total receipts would thus have been sums paid otherwise than by credit card. During three unannounced visits conducted in 2016 and 2017 (“the Unannounced Visits”) non-credit card receipts were observed to form a much higher percentage of sales. HMRC inferred that such receipts had therefore been underdeclared over the previous seven years of Company's trading life. Somewhat confusingly, HMRC refers to these non-card receipts as “cash” receipts, thought they include a small amount of payments made via a delivery app called Just Eat and other payment methods such as vouchers.
In the absence of the provision of the Company's records, HMRC exercised its power to raise a VAT assessment on the basis of its “best judgment” pursuant to section 73(1) of the Value Added Tax Act 1994. It did so by taking the average of the proportion of “cash” receipts that it observed over the course of the Unannounced Visits, which amounted, on HMRC's calculation, to 46% and assuming that this reflected the level of non-card takings over the years covered by the Company's VAT returns. That assessment led to a corresponding assessment to additional corporation tax and penalties, along with the issue of personal liability notices against Mr Uddin, making him personally liable for the penalties. It is not in issue that there are some inaccuracies in HMRC's calculations but have led to the average cash receipts being slightly understated. The Secretary of State contends that, adjusting for these inaccuracies, the “cash” element of the Company's takings over the three Unannounced Visits was an average of around 49%.
Mr Uddin denies any wrong-doing and he says that the HMRC could not properly form such a judgment on the basis of three visits to the restaurant in the latter part of its trading life. In the event that there was an under-declaration, he contends that he relied upon the company accountant, Mr Shiraz Najefy of Najefy & Company Chartered Accountants, to prepare and submit VAT returns to HMRC. He has sought to appeal HMRC's assessments to the First-tier Tribunal (Tax) and I shall discuss the course of those appeals below.
His position as to whether the Company's returns were in fact accurate and whether the proportion of “cash” sales comprised in its stated sales is as alleged by the Secretary of State has shifted. Until the trial it appears to have been accepted that the merchant acquirer data was as described above and thus an average of 14.6% of sales were referable to non-card payments. In his skeleton argument, Mr Uddin's counsel, Mr Brockman, raised the complaint that the merchant acquirer data had not been disclosed and had not been examined by the Secretary of State, who relied instead on what HMRC had said about it. HMRC's analysis, or part of it, was therefore obtained on the second day and provided in the form of an Excel spreadsheet.
Again, until the trial, Mr Uddin had sought to rely upon a spreadsheet produced by his son, Sami Uddin, in about November 2018, which purported to be a reconciliation of the Company's records to confirm its receipts and the proportion attributable to non-card payments based on the Company's records from 2 nd January 2011 to 23 rd October 2016 (“the Spreadsheet”). Mr Uddin filed an affidavit dated 8 th September 2020, which exhibited the Spreadsheet and a report from Mr Alex Marsden of BDO LLP, an accountancy firm, dated 2 nd September 2019 (“the BDO Report”) as to the accuracy of the Spreadsheet. As to these documents, Mr Uddin stated in his affidavit that BDO's opinion was that:
“on the whole, the Spreadsheet fairly reflects the Underlying Documents and that the true percentage of cash sales is between 21.5% and 27.9%. I believe that this confirms that the VAT Assessment was materially inaccurate, and the Company did not significantly underdeclare cash sales in its VAT returns.”
The “Underlying Documents” was the term used during the hearing to refer to some 77,339 of company documents that were provided to the Secretary of State during the course of the proceedings. One question is whether the documents provided to Mr Marsden to verify the accuracy of the Spreadsheet were the same as those provided to the Secretary of State or, indeed, whether the version of the Spreadsheet considered by him was that now relied upon.
At the hearing, however, Mr Brockman did not seek to rely upon the Spreadsheet, no doubt because, if it is accepted at face value, it also shows a significant underdeclaration of cash sales, which were on average 24.5% of turnover. This is lower than that estimated by HMRC but still significantly higher than sales declared in the VAT returns. Nonetheless, it was relied upon the Secretary of State as showing that, even on the best case advanced by Mr Uddin, there was a significant underdeclaration in the Company's VAT returns.
Much of Mr Brockman's submissions went to process. He submitted that the Secretary of State was adopting a “win at all costs” mentality and steaming ahead with the disqualification while the VAT and corporation tax assessments were under...
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