In the case of Adjei v Official Receiver & Anor [2023] EWHC 1553 (Ch) HMRC was ordered to pay the costs and expenses of a Bankruptcy Annulled.
Unreliable Evidence
This case shows the dangers of not being about to support what you say in a witness statement. The judge said:
Overall, I have come to the conclusion that Mr Doyle’s written evidence is unreliable. It is peppered with inaccuracies and has not been prepared with the candour and care required.
…
In oral testimony, Mr Doyle was a little defensive and argumentative at times. Whilst, overall, I am satisfied that he did his best to answer questions put to him honestly and to the best of his knowledge and ability, his knowledge was fairly limited; he did not know the factual basis upon which HMRC had (wrongly) concluded that the Applicant had ever earned over £50,000 per annum, for example: that, he said, would have been the responsibility of another department. Similarly, he could not satisfactorily explain why HMRC had ever (wrongly) concluded that the Applicant was personally responsible for the PAYE/NIC and Student Loan deductions set out in the petition; that was just how it showed ‘on the system’, he explained. In re-examination, Mr Doyle confirmed that he had nothing to do with the determination of any tax liabilities. It was clear that prior to preparing his evidence, Mr Doyle had not undertaken any (or any adequate) steps to investigate how HMRC had come to conclude that the Applicant was personally liable for the various sums set out in the petition. The figures had simply come from other departments. This was not satisfactory, given that Mr Doyle had positively asserted in both his first and second witness statement that the petition debt was due. Quite how he considered himself capable of giving evidence on this issue was entirely unclear.
Costs And Expenses Of Annulled Bankruptcy
The Bankruptcy Order was annulled on 22 March 2023 on the basis that it should not have been made.
The normal position is that when a Bankruptcy Order is annulled the petitioning creditor (in this case HMRC) should pay the costs of the Insolvency Practitioner / Trustee in Bankruptcy.
This case hinged on HMRC’s belief that the Bankrupt was self-employed. The Debtor had made it clear she had always been employed on a PAYE basis.
The Court said:
The suggestion that the Applicant should have done more earlier is in my judgment the wrong starting point. The starting point is that HMRC, even now, have put forward no legitimate or persuasive basis for ever concluding that the Applicant was personally liable for the Petition Debt. The statutory demand arose from a mistake entirely of HMRC’s own making. In my judgment HMRC was at fault. It acted unreasonably and ultra vires in serving the statutory demand on the Applicant in respect of the Petition Debt and thereafter pursuing a bankruptcy order against her in respect of that debt….
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HMRC failed to engage with the Applicant on the issue of her status at all, instead focussing its energies and telephone calls on whether and if so when the debt would be paid….
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Had HMRC acted appropriately, the bankruptcy order would not have been made, the OR would not have taken office, and the costs of the OR would not have been incurred. HMRC must bear the costs of its errors.
The Court went on to find that HMRC should be liable for the Trustee in Bankruptcy’s costs.
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