Summary

Where the Revenue had petitioned for the winding-up of a company on the basis of unpaid VAT assessments, the overall balance of convenience plainly favoured the continuance of the appointment of a provisional liquidator until the effective hearing of the petition where there were real questions as to the integrity of the company's management and record-keeping functions, as well as evidence that the company had been used as a vehicle for the fraudulent evasion of VAT.

Facts

The applicant (P) applied for the termination of a provisional liquidation and the dismissal of a winding-up petition brought by the respondent commissioners. Alternatively, P sought a stay of the petition pending resolution of its appeals against the petition debts by the First-tier Tribunal.

P claimed to be a provider of voice-over-IP services, namely the wholesale trading of minutes relating to telephone communications over the internet. A provisional liquidator (W) was appointed in relation to P on an application by the commissioners, whose winding-up petition alleged substantial sums of unpaid VAT. The petition debt was put forward on alternative bases, namely that (i) P had failed to produce documentary evidence to support its claim for the offsetting of output tax against input tax which it claimed to have paid in relation to taxable supplies; and (ii) P knew or should have known that its transactions for those periods were connected with the fraudulent evasion of VAT, so that the Revenue was entitled to refuse to deduct input tax in respect of them. P claimed that the court lacked jurisdiction to appoint a provisional liquidator, arguing that the appropriate tribunal to decide the matters in issue was the tribunal, to which P had appealed the assessments. According to P, while those appeals remained pending, the court should not be permitted to pre-empt that process by the appointment of a provisional liquidator or the making of a winding-up order in reliance on the assessments under appeal. P also claimed that, in any event, the court ought not to have exercised its discretion to appoint W, and that the Revenue should be required to give an undertaking in damages backdated to his appointment.

Held

(1) In considering whether to appoint a provisional liquidator for a trading company, the court had to decide whether the petitioner had demonstrated a likelihood that the court hearing the petition would find the petition debt sufficiently established. If the petitioner made out a good arguable case, then the court had to consider whether it was right that the appointment be made or continued, Revenue and Customs Commissioners v Rochdale Drinks Distributors Ltd [2011] EWCA Civ 1116, [2012] S.T.C. 186 followed. It was highly artificial to suggest that the court had jurisdiction to entertain a winding-up petition based on the non-payment of a VAT assessment for so long as the company had taken no steps to raise an appeal before the tribunal, only to lose that jurisdiction as soon as such an appeal was filed. The true question was whether an appeal to the tribunal had any merit. If it had none, the assessment continued to provide both a basis upon which the Revenue might petition for winding up and evidence of the company's insolvency. If the court considered that the company had a good arguable appeal, it would dismiss the petition (see paras 13-15, 19-20 of judgment). (2) P had had ample opportunity to provide the Revenue with the call detail records (CDR) that it had been requesting. It had purported to supply the data in a processed form more than a year after the initial request from the Revenue, but that information was unverified and incomplete. P had still not supplied any actual CDR data generated by its business. It followed that P had failed to produce sufficient evidence to support the taxable supplies to it upon which the assessments were based and it could not substantiate its input tax claim. Therefore, given that W had produced evidence as to P's insolvency, it was likely to be wound up on the substantive hearing of the petition (paras 41, 46, 50). (3) (Obiter) Taking into account P's failure to produce the CDR data, its wholly inadequate due diligence, the fact that it had taken no steps to obtain credit insurance and its use of offshore banking platforms, there was sufficient evidence that P's dealings were connected to the fraudulent evasion of VAT and that its directors knew or ought to have known of that (paras 62, 87). (4) Given that there were real questions as to the integrity of P's management and the quality of its accounting and record-keeping function, the evidence that P had been used as a vehicle for the fraudulent evasion of VAT and the fact that it had long since ceased to trade, the case for continuing with the provisional liquidation until the hearing of the petition was amply made out. The overall balance of convenience plainly favoured that course (para.92). (5) There was no reason to treat the Revenue, petitioning to recover unpaid tax, in the same way as a private litigant petitioning for the winding up of a company for non-payment of a debt. When suing to enforce a claim for unpaid tax, the Revenue was exercising a public function; it was a public authority bringing a claim in the public interest. Accordingly, it was not appropriate to require it to give an undertaking in damages (para.100).

Applications refused