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Rescission of Winding Up Order: Preston v Green [2016] EWHC 2522 (Ch) was a case which concerned an application for rescission of a Winding Up Order that did not succeed.

Rescission of Winding Up Order: Preston v Green [2016] EWHC 2522 (Ch): To read the judgment for this case please refer to the following link: bailii.org/cgi-bin/format.cgi?doc=/ew/cases/EWHC/Ch/2016/2522.html

Standing As A Creditor To Make The Application: Rescission of Winding Up

This was a case in which an application to rescind a Winding Up Order failed due to a number of reasons such as the applicant, Mr Preston, who was the Director of a company that had gone into Compulsory Liquidation, was held not to have standing as a creditor:

At the hearing of the application Mr Preston accepted he was not a contributory of the Company. He claimed to be a creditor. The basis of his claim is set out in his first witness statement dated 20 May 2015 where he states that the Company owes him £3,643 “which is made up of unpaid out of pocket expenses which were incurred in relation to costs incurred in the course of my work and duties undertaken for the company.” No further elaboration is provided in any of his witness statements.

At the hearing of the application a small clip of documents was handed to the court. I was informed the documents were sent to the Respondents the day before the hearing. The clip comprises two invoices. The first is dated 1st November 2010 and is for “reimbursement of emergency consumables for vessels”. The sum sought on the face of the invoice is £808. The invoice notes that the consumables were paid in cash. The supporting sales proforma shows that only approximately £580 was invoiced. The accounts of the Company for the year ending 31 December 2010 do not disclose this related party transaction. The purchase of goods on behalf of the Company does not relate to “duties undertaken for the company”. The invoice mentions no duties undertaken.

The expenditure could possibly fall within the category of ‘out of pocket expenses’ although the phrase is usually used when an employee has to spend money for their sustenance during the course of a working day. No explanation has been given as to why the Company did not repay the debt between October 2010 and the presentation of the petition. Mr Preston is not mentioned on the supporting invoice from the seller of the consumables. The buyer’s address is stated as being 67 Bond Street London, which is not an address occupied by Mr Preston. There is no evidence that the Company did not pay for the goods direct, or evidence that even if Mr Preston did pay for the goods on behalf of the Company, he had not been repaid. Miss Barden, acting for the liquidator, informs the court that there is nothing in the Company books and records that supports the claim of the debt.

The second invoice relates to storage of “stock & assets” for the period 2011 and 2012. No particulars are provided as to what stock or assets were in storage. The invoice is dated 1st December 2012 after the Company assets were said to have been sold. There is no evidence that Mr Preston paid for the storage if stock and assets were stored. In any event it is not easy to describe the payment for storage of unspecified goods in an unspecified location over what appears to be a two-year period as “unpaid out of pocket expenses which were incurred in relation to costs incurred in the course of my work and duties undertaken for the company.”

Mr Preston was asked in court to provide an explanation as to why the invoices were not provided to the Official Receiver, the liquidator or the Respondents to the application until the day before the hearing. Mr McGuinness informed the court that the documents formed part of the exhibit to Mr Preston’s first witness statement. The invoices before the court in the newly provided clip, are numbered from page 170 giving support to the argument that they at one time formed part of the exhibit. Mr Curl on behalf of Vodafone, however demonstrates a serious flaw in the contention. In paragraph 6 of Mr Preston’s first witness statement he referred to page 170 of the exhibit as being an extract from Companies House. In fact, page 170 of the exhibit is an email dated 16 May 2013. The invoice now tendered as a genuine document is also numbered page 170 of the exhibit. There is no evidence from Mr Preston on this issue.

In my judgment the description of the debt in Mr Preston’s witness statement does not match the invoices which are intended to support the debt. The inconsistencies have not been explained; there is a failure to provide adequate supporting documentation for the invoices, a failure to explain why the alleged debt was not paid while the Company traded, a failure to explain why the Official Receiver or liquidator had not seen the invoices until late in the day and a failure to reconcile the exhibit pagination.

The evidential inconsistencies, failures to properly explain or elaborate upon his contention that the Company owes him a debt, lead me to conclude, on the balance of probabilities, that the assertion of his status as a creditor of the Company cannot be relied upon.

As a result of this finding Mr Preston does not have standing to make the application and the application must fail. In deference to arguments made by the parties during the course of the one day hearing, and in case I am wrong in reaching the conclusion that Mr Preston is not a creditor, I shall go on to consider the other issues raised.

Application To Extend Time: Rescission of Winding Up

The application to rescind the Winding Up Order was made not made until more than two years after it had arisen which was considered a serious delay and significant.

Mr Preston gave the following reasons for the delay:

  • illness over a period of 9 months;
  • he was unaware of the time limits for the application;
  • negotiating VAT assessments with HMRC and did not appreciate they would appoint a Liquidator.

In response the Court had this to say:

The reasons for delay are not good reasons for delay. As regards his ill health it has not been questioned that Mr Preston was signed off sick for a period of time, however there is no explanation for the delay occurring from the period 11th March 2013. Even if he were not well, there is no medical evidence to demonstrate that Mr Preston was unfit to file and serve an application. In any event, I have noted above that the Company was represented by solicitors and counsel at the date of the making of the winding up order. I infer that Mr Preston, as its director, had the benefit of legal advice at the time the order was made, yet did not make an application to rescind or instruct others to make the application. This is unexplained.

In addition, there is a curiosity about Mr Preston’s ability to make an application to rescind the winding up order in respect of Beta Retail Limited (another company in which Mr Preston was a director) and not the Company. The application to rescind in relation to Beta Retail was made in July 2014. Accordingly, Mr Preston, acting in person or with the assistance of direct access counsel, knew by at least July 2014 that there was a strict time limit to adhere to. In any event there is nothing in the CPR, the Rules or Insolvency Practice Direction that permits the court to deal with litigants in person any differently from any other party. No extra time can be afforded to Mr Preston as a result of his status as a litigant in person.

Mr Preston thought that time should be extended as he was in correspondence with HMRC. If this is the reason for delay it is not a good reason. Even if he were fully engaged with the correspondence an application to rescind could have been made.

Grounds For The Rescission Of The Winding Up Order: Rescission of Winding Up

The Court had this to say as part of its refusal to grant the application to rescind the Winding Up Order:

The onus is on Mr Preston to satisfy the court that this is an appropriate case in which to exercise the discretion to rescind. It will only be an appropriate case where the circumstances can be described as exceptional, and the circumstances relied upon should include a material difference from those that were before the court at the final hearing when the winding up order was made.

Mr Preston submits that an order of rescission is required to correct an obvious injustice. In his first witness statement he claims that no money is owing to Vodafone or HMRC
“I should stress that by the time the [winding-up] order was made the company was no longer and had personally paid all of its known liabilities in full….I am not aware of any other creditors aside from the disputed amount with HMRC…” (sic).

In his second witness statement Mr Preston claims that any nomination of Mr Green as liquidator by HMRC was done on a false premise and that as a result all liquidation costs should be borne not by Company but by HMRC. In his third witness statement (which is just shy of 150 pages and was drafted with the assistance of counsel) he details his concerns regarding the investigations undertaken by HMRC. In his fourth witness statement (dealing with an application to adjourn the hearing of the application for rescission – which was refused) he says that documents held by the liquidator will assist with the rescission application and that he is at a disadvantage without them.

The evidence is that the Company is insolvent owing several millions of pounds. There is more than one creditor and in any event there is no evidence that the petitioning creditor has been paid. There is no evidence that the Company or any third party has readily available funds to pay the petitioning creditor, let alone the other creditors. In oral submissions made by Mr. McGuinness on behalf of Mr Preston, Mr Preston accepted that he had no knowledge of what if any documents held by the liquidator could be relevant to the application for rescission. I refused an application to adjourn for the purpose of further disclosure for reasons given in an extempore judgment. Those reasons included the fact that the liquidator had offered Mr Preston the opportunity to inspect and take copies of the Company’s books and records but that offer was not taken up.

Mr McGuinness claimed that this is an exceptional case where an order rescinding the winding up order should be made as:

42.1. The Company was placed in a difficult position as a result of the investigations undertaken by HMRC into its tax affairs;

42.2. Mr Preston had a period of illness following the winding up of the Company. This contributed to a delay in making the application for rescission;

42.3. There was an appeal in relation to the debt claimed by HMRC in respect of VAT;

42.4. The conduct of an HMRC inspector was wrongful (and HMRC should not have asked for the appointment of a liquidator).

I find that none of these reasons are convincing and would not permit the winding up order to be rescinded. The fact that the Company had to spend time dealing with its tax affairs is not an exceptional circumstance. Every trading entity is answerable for tax. I have already dealt with the delay in making the application above.

In relation to the petition debt HMRC acted appropriately when returns were filed late. The evidence of HMRC is that the late returns applied a carry back of losses sufficient to extinguish the petition debt and at the hearing of the petition HMRC sought dismissal of the petition.

The VAT debt arose as the Company contended that it had purchased goods from the related company Beta Retail Limited, on which VAT was charged, and then sold the goods to companies outside of the European Union. Those subsequent sales did not attract VAT. The Company reclaimed its input tax – the VAT it paid on the purchases – and did not have to account for any output tax on the alleged sales, none having been charged. The Company’s reclaim was paid by HMRC but as mentioned above, in June 2011, the Company was asked to provide evidence of the transactions. The evidence was, according to Mr Ravat of HMRC, poor, lacked detail and unconvincing. As a result, an assessment in the sum of £1,273,135, together with interest, was raised in January 2012 for the periods December 2010 to April 2011. A further sum of £224,144.95 is also claimed for the period to June 2011. This sum is based on the Company’s own VAT return.

By reason of section 73(9) of Value Added Tax Act 1994, unless the assessment is reduced, or withdrawn a statutory debt arises. Mr Ravat has reviewed the correspondence passing between the Company and the case officer. He states that there is “no reference whatsoever in any of the correspondence” for a review or an appeal. In any event Mr Mullen on behalf of HMRC powerfully argues that even if there was such a request for a review or an appeal, the Company appears to have done nothing to pursue either in the year prior to the winding up order. Mr Mullen correctly submits that the debt remains due and owing. In any event, as Mr Mullen points out, Section 84 of VATA 1994 provides that the tax must generally be paid before an appeal can be entertained. The tax remains due and payable.

In my judgment that is the end of that particular argument. However it is worthy of note that in Leicester v Stevenson [2003] 2 BCLC 97 the court considered a submission that the petition debt was not owed by the company that had been wound up. Mr Justice Lightman said:
“I told [the Applicant] that this is not an appropriate occasion to investigate in the detail which he wished the question whether or not the debt is indeed due to [the Applicant] rather than Lidel. It seems to be that the court when making the winding-up order reached the totally correct view that there was a proper debt, and that on the face of it, and it was accepted by the company, the debt was due….and this was a proper case for a winding-up order.”

Following this rationale even if the evidence of HMRC can in some way be undermined (it has not been undermined), the statutory debt of HMRC unravelled (it has not been unravelled), and the petition debt of Vodafone swept under the carpet, this is not the appropriate forum to consider in detail the nature of the debt due on the petition. The Company did not dispute the debt at the hearing of the petition and the winding-up order was properly made.

Following the same rationale, it is not the appropriate forum to consider or make any findings in relation to the conduct of Mr Nunn (the case officer of HMRC dealing with the Company and its assessments). In my judgment the conduct of Mr Nunn, that has been questioned by Mr Preston, has no bearing on an application to rescind.

Mr McGuinness informed the court during his submissions that the assets of the Company had been sold in July 2011, and by the time the Company had been wound up it was not trading. Mr Preston was keen to have the winding up order rescinded so he could use it as a vehicle to re-commence trade. If this was a submission, it has only to be expressed for it to be seen that no exceptional circumstances can arise from it.

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