Revenue & Customs v Maxwell & Anor (As Joint Administrators of Mercury Tax Group Ltd)

On an appeal against a chairman’s decision concerning a creditor’s voting entitlement, the court must reach its own decision on the evidence and arguments before it.

A debt’s existence, amount and character as liquidated or unliquidated are assessed at the date of administration. Later events may nevertheless inform its value. The chairman must do his best to estimate the minimum value of an unliquidated or unascertained debt. A court must examine its factual and legal basis more fully.

Where a creditor establishes a clear prima facie claim and the opposing office-holders provide only a general denial, the claim cannot be reduced merely because it remains disputed.

HMRC claimed corporation tax from a company in administration. At the creditors’ meeting, the chairman admitted HMRC’s claim for voting purposes only to the extent of £1.5 million. The administrators’ proposals were carried, although they would have been defeated had HMRC’s claim been admitted substantially in full.

HMRC appealed under Rule 2.39(2) of the Insolvency Rules 1986. His Honour Judge Peter Langan QC dismissed that appeal and upheld the chairman’s decision.

The Court of Appeal considered the court’s function on such an appeal; the date for characterising and quantifying a debt under Rules 2.38 and 2.39; the use of later evidence; and the minimum value properly attributable to HMRC’s claim.

1. Appeal allowed. The court hearing an appeal under Rule 2.39(2) of the Insolvency Rules 1986 must make its own decision on the admissible evidence and arguments presented to it. It does not merely review the chairman’s decision. The judge had erred by relying on information and advice available to the chairman but not placed before the court.
2. Under Rules 2.38(4) and 2.38(5), both the amount of a debt and its character as liquidated, unliquidated, ascertained or unascertained are determined as at the date when the company entered administration. The same approach governs the chairman’s powers under Rule 2.39. Later events may nevertheless be considered as evidence of the debt’s value at that date, consistently with In re Law Car & General Insurance Corporation [1913] 2 Ch 103.
3. Tax exceeding the company’s self-assessments was unliquidated or unascertained when the administration began because no notices of amendment or determination had then been issued. A later notice of amendment made the specified sum liquidated and ascertained. The possibility of an appeal or postponement did not alter that characterisation, since ascertainment is distinct from unchallengeability.
4. Rule 2.38(5) requires the chairman, and the court on appeal, to do their best to estimate the minimum value of an unliquidated or unascertained debt. A chairman may necessarily undertake a rough and ready exercise at a meeting. A court must examine the claim’s factual and legal basis more fully.
5. HMRC had established a clear prima facie case for the tax claimed, subject to the company’s terminal-loss set-off. The administrators supplied no contrary facts, calculations or legal argument, and their general denial did not establish even an arguable basis for reducing the claim. The judge should therefore have attributed enough votes to HMRC to defeat the proposals.
6. Under Rule 2.39(4), the court ordered the administrators to summon another creditors’ meeting pursuant to Rule 2.34. Carnwath and Sullivan LJJ agreed with the Master of the Rolls.

1. Court of Appeal (Civil Division): Allowed HMRC’s appeal and ordered the administrators to summon another creditors’ meeting.
2. High Court, Chancery Division, Leeds District Registry: His Honour Judge Peter Langan QC dismissed HMRC’s appeal under Rule 2.39(2) of the Insolvency Rules 1986 and upheld the chairman’s voting decision.