Liquidator Points Of Claim Struck Out

Liquidator Points Of Claim Struck Out Overview

Liquidator Points Of Claim Struck Out was a case in which two points of claim of a Liquidator struck out (not all of them), one as an abuse of process and another considered simply ‘unwinnable’.

Liquidator Points Of Claim Struck Out flows from the case of Hall (Liquidator of Ethos Solutions Ltd) v Nasim [2021] EWHC 142 (Ch). This was a case in which a Liquidator brought proceedings against various respondents pursuant to Section 423 of the Insolvency Act 1986.

The Company in question went into Creditors Voluntary Liquidation.

What Is The Liquidator’s Claim?

The Liquidator’s claim was an application under Section 423 of the Insolvency Act 1986 looking to challenge an eye-watering sum into the region of £9,000,000 suggested to have been paid by the Company to a whole stream of people (“the Respondents”).

The Respondents perhaps might not have seemed impressed with the Liquidator’s claims. Forty-one of them applied to strike it out.

What Was The Liquidator’s Key Factual Claim?

The Liquidator’s key factual claim was that between 4 March 2009 and 26 March 2012, Ethos Solutions Limited (“the Company”) made payments of £9,032,925.77 to an Employee Benefit Trust or another legal entity, hereinafter referred to as the Trust.

Why Did The Company Enter Liquidation?

The Company entered Liquidation because an estimated Statement of Affairs dated 18 December 2012 had an estimated deficiency in respect to creditors of £2,487,949.25. HMRC was the largest creditor by a very considerable distance.

Shortly prior to the point of Liquidation, HMRC issued Regulation 80 Determinations for PAYE and NIC in the sum of £2,328,057.72.

As the matter involved an EBT, perhaps inevitably the matter of The Rangers Football Club plc) v Advocate General for Scotland [2017] UKSC 45 (‘the Rangers case’) sprouted in the judgment as a matter that highlighted that payments to an EBT, are earnings for the work of an employee and as a result PAYE and NIC flow from that.

Liquidator Points Of Claim Struck Out: The Failure Of Consideration Claim

A pleading premised on the proposition that there was a total failure of provision of consideration for the payments to the Trust was struck out.

Insolvency And Companies Court Judge Barber struck this claim out for the following reasons:

(1) It is entirely inconsistent with the POC, when read as a whole, for the Liquidator to maintain that no consideration was provided for the Company’s payments to the Trust. On the pleadings as they stand, this assertion is in my judgment untenable.

(2) The claim that no consideration was provided for the Company’s payments to the Trust is ultimately self-defeating: if the payments to the Trust were not for services, no PAYE/NIC would be due on the same in the manner pleaded at paragraph 12 POC and the Liquidator’s case (which is based solely on section 423) would, for the reasons I have given, fail.

(3) The POC disclose no reasonable grounds for bringing a s.423 claim based on the ‘no consideration’ case pleaded at paragraph 23(a). I would add that there is no possible benefit in allowing the ‘no consideration’ case to proceed and that to do so would simply waste resources on both sides.

Liquidator Points Of Claim Struck Out: The Estimated HMRC Claim For Year Ended 31 December 2011

The Liquidator estimated that the tax liability for PAYE and NIC arising from payments to the Trust for the year ended 31 December 2011, amounted to at least £2,791,723.96.

However, the Court rejected this pleading for a number of reasons. The Court suggested that it was not for the Liquidator to estimate what HMRC’s claim might be, on for this therefore to be the foundation for issuance of a claim reliant upon the same in circumstances when HMRC had not issued such a claim and might not ever do so. Other reasons called into question the position of the Liquidator in assuming that the year in question would follow HMRC assessment from previous years, particularly given the same had seemingly different circumstances.

The Court had this to say:

In my judgment the POC do not disclose reasonable grounds for including a claim in respect of unpaid PAYE and NIC for the year ended 31 December 2011. Paragraph 20 POC simply contains the Liquidator’s bare unparticularised estimate. For the reasons given, the inclusion of a claim in respect of the year ended 31 December 2011 is not a matter of logical deduction from past years covered by assessment.

In the circumstances of this case, I am further satisfied that it was an abuse of process for the Liquidator to issue a claim in respect of unpaid PAYE and NIC for the year ended 31 December 2011. In this regard I remind myself that it is an abuse of process to issue a claim form in the absence of knowledge of any valid basis for a claim and any ability to formulate the claim at the time of issue: Nomura International Plc v Granada Group Ltd [2008] Bus LR 1 (Cooke J). This is particularly so where, as in Nomura, a claim is issued to protect the claimant’s position on limitation. At the time of issuing these proceedings, shortly before the sixth anniversary of the Company entering into liquidation, no return or assessment in respect of the year ended 31 December 2011 existed and there had been no intimation by HMRC, whether by proof or otherwise, of a claim in respect of that year, still less confirmation from HMRC as to how it would go about formulating any such claim. It was not for the Liquidator to second-guess how HMRC might proceed. That is not the proper basis for a claim.

For all of these reasons, I propose to order that the claim in respect of the year ending 31 December 2011 be struck out. I base my decision on both CPR 3.4(2)(a) and (b). I take into account that striking out is a remedy of last resort and that the court should lean against striking out claims in an area of developing jurisprudence. I also take into account that there are other Respondents, not represented before me today, who will be affected by my decision. In my judgment, however, whilst a lack of particulars taken alone might have been salvageable, the issue of proceedings based on PAYE/NIC liability in respect of the year ending 31 December 2011 without, at the very least, seeking confirmation from HMRC that it intended to pursue an appropriately formalised claim in the liquidation in respect of that liability and confirmation from HMRC as to how it proposed to formulate and quantify such a claim, in this highly technical area, was an abuse of process which should not be indulged. It cannot and should not be cured by amendment.

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