Abbey Forwarding Limited (in liquidation) v HMRC

Company insolvency – Cross-undertaking in damages – appointment of provisional liquidator

HMRC investigated Abbey Forwarding Limited for fraudulent evasion of excise duty, with assessments subsequently raised for over £5million. HMRC presented a winding-up petition and applied to appoint a provisional liquidator. This closed down the business, but directors’ misfeasance proceedings brought by the provisional liquidator were later dismissed, it having been found that there had been no evasion of excise duty. HMRC refused to withdraw the assessments and the liquidator refused to appeal them.

The directors were granted permission to, and did, appeal the assessments, which HMRC voluntarily withdrew two days before the appeal hearing. Abbey applied for an inquiry as to damages on the cross-undertaking given by HMRC upon the appointment of the provisional liquidator. HMRC opposed the application, arguing:

(1) the undertaking should have terminated upon winding up;

(2) Abbey had delayed in making the application;

(3) there had been no application to set aside the appointment of the PL or oppose the winding up order;

(4) HMRC would suffer prejudice if an inquiry was ordered; and

(5) public policy exempted HMRC from enforcement of its cross-undertaking.

The court rejected these arguments and ordered an inquiry. In particular, the judge reiterated that HMRC is not exempt from providing cross-undertakings upon the appointment of a provisional liquidator, or from such undertakings being enforced if the basis of the application was wrong and damages flow as a result.

The judge further held that the decision in Financial Services Authority v Sinaloa Gold plc [2013] UKSC 11 did not establish a practice exempting HMRC from the need to give undertakings in damages, although aspects of the reasoning were difficult to reconcile with Re Parkwell Investments Ltd [2014] EWHC 3381 (Ch).

This case shows that HMRC must tread carefully when seeking to appoint provisional liquidators and can be required to give cross-undertakings in damages.