Customs and Excise v Arena Corporation Ltd

An assessed customs, excise-duty or VAT liability may constitute an enforceable petition debt despite a pending appeal. The court may consider the prospects of that appeal and whether winding up before its determination would cause real injustice. Regulation 7(2) of the Excise Duty Points (Duty Suspended Movements of Excise Goods) Regulations 2001 validly imposes joint and several liability on a person who causes the underlying irregularity. A director who causes an insolvent company to incur liabilities which no intelligent and honest director could regard as being in the company’s interests may be liable for breach of duty. Summary judgment is appropriate where the defence has no real, rather than fanciful, prospect of success.

Customs presented a winding-up petition against Arena for assessed excise duty and VAT of approximately £1.83 million arising from the alleged diversion of duty-suspended alcoholic goods. Arena had appealed to the VAT and Duties Tribunal and disputed both the occurrence of the relevant irregularities and its liability for causing the excise duty point.

Arena’s provisional liquidator sought summary judgment against Peter Schroeder, Arena’s beneficial owner and controller, for breach of his duties as a director. The issues included the validity of regulation 7(2) of the Excise Duty Points (Duty Suspended Movements of Excise Goods) Regulations 2001, whether Arena had a genuine dispute or real prospect of success before the Tribunal, and whether Schroeder had a real prospect of defending the claim.

1. The winding-up petition was allowed and Arena was ordered to be wound up. An assessed liability remained enforceable notwithstanding the pending Tribunal appeal. Arena had to show more than a fanciful case, and the court found no real prospect of a successful appeal.
2. Regulation 7(2) was not ultra vires. Although imperfectly drafted, it prescribed liability for causing the occurrence of the irregularity rather than causing the time at which the excise duty point occurred. A person guilty of an irregularity in relation to the goods had the required connection with them under section 1(4) of the Finance (No 2) Act 1992.
3. The evidence established no bona fide substantial case that the consignments had arrived at the foreign warehouses or that Arena had engaged in genuine duty-suspended trading. The absence of supporting documents, false administrative documents, unexplained cash payments, lack of credible counterparties and repeated changes in Schroeder’s account made the defence implausible. These matters were not merely issues requiring cross-examination.
4. Schroeder owed duties to act bona fide in Arena’s interests, including the interests of creditors when the company was insolvent or nearly insolvent. He had no real prospect of defending the claim. Summary judgment was granted, an interim payment of £500,000 was ordered, and a post-judgment freezing order was made for the whole claim.

The judgment records that an appeal concerning earlier injunctive relief was due to be heard in the Court of Appeal, but gives no determination of that appeal. This decision was at first instance.