HMRC v Maxwell

This appeal concerned the chairman's power to admit or quantify a creditor's vote at a creditors' meeting under Rules 2.38 and 2.39 of the Insolvency Rules 1986 and the scope of the court's jurisdiction on appeal under Rule 2.39(2). The Court of Appeal held that the characterisation and quantification of a creditor's debt for voting purposes is to be assessed as at the date the company entered administration, subject to the chairman and the court being able to take subsequent events into account when valuing an unliquidated claim. The court concluded that HM Revenue & Customs' corporation tax claims (beyond the amounts self‑assessed) were unliquidated or unascertained as at the administration date, but that on the evidence before the judge HMRC had established a clear prima facie case to support the claimed tax subject only to a set‑off for a terminal loss. Because the administrators advanced no specific factual or legal case to rebut HMRC's figures, the chairman's allowance of only £1,500,000 for voting purposes was insufficient and the appeal was allowed.

Background and parties: Mercury Tax Group Ltd went into administration on 9 September 2009. The administrators sold the business in a pre‑pack and proposed exit by way of a company voluntary arrangement. HMRC were unsecured creditors claiming substantial corporation tax for several accounting periods; the administrators admitted HMRC to vote only to the extent of £1,500,000 and the proposals were carried. HMRC appealed the chairman's voting decision under Rule 2.39(2). The administrators' decision below (HHJ Peter Langan QC) had upheld the chairman; HMRC appealed to the Court of Appeal.

Nature of the application: HMRC sought reversal of the chairman's decision as to the quantum of votes to be allotted to HMRC at the creditors' meeting.

Issues framed:

• Whether the amount and character of a creditor's claim for voting purposes under Rules 2.38 and 2.39 is to be assessed as at the date the company entered administration or as at the date of the meeting.
• Whether HMRC's corporation tax claims were liquidated/ascertained or unliquidated/unascertained at the relevant date.
• The proper approach of the court on an appeal under Rule 2.39(2): review or fresh decision.
• What minimum value should be ascribed to HMRC's claim for voting purposes in the light of the evidence.

Reasoning and conclusions: The court held that both characterisation (liquidated or unliquidated) and quantification of debts for voting purposes are assessed as at the date the company entered administration, though subsequent events may be taken into account when valuing an unliquidated claim (following the principle in In re Law Car & General). The court accepted that a judge on an appeal under Rule 2.39(2) is not confined to reviewing the chairman's decision but must form his own view on the evidence placed before the court. Applying those principles, the Court of Appeal found that, as at 9 September 2009, HMRC's claims in excess of the company's self‑assessments were unliquidated or unascertained but that HMRC had, by the time of the court hearing, produced full and clear documentary and witness material establishing a prima facie case for the amounts claimed (less a terminal loss set‑off). The administrators had produced only general denials and no substantive evidence or grounds in required postponement or appeal notices. On that basis the chairman's decision to admit only £1,500,000 was not sustainable and the appeal was allowed. The court ordered that another creditors' meeting be summoned under Rule 2.34.

Appeal allowed. The Court of Appeal held that (1) characterisation and quantification of a creditor's claim for voting purposes under Rules 2.38 and 2.39 are to be assessed as at the date the company entered administration, though valuation may take account of subsequent events; (2) a judge on appeal under Rule 2.39(2) must form his own view on the evidence, not merely review the chairman; and (3) on the evidence before the High Court the chairman should have accorded HMRC a greater voting value, such that the proposals would have been defeated; accordingly another creditors' meeting was ordered.

Appeal to the Court of Appeal from the High Court of Justice (Chancery Division, Leeds District Registry) before His Honour Judge Peter Langan QC (No 2469 of 2009). The judge below had dismissed HMRC's appeal against the chairman's voting decision; Court of Appeal allowed HMRC's appeal [2010] EWCA Civ 1379.