HM Revenue and Customs v Changtel Solutions UK Ltd

A Companies Court considering a winding-up petition based on a disputed VAT assessment retains its own jurisdiction and discretion. It need not defer automatically to a pending tax appeal or require the revenue authority first to seek strike-out in the tax tribunal.

The court should ordinarily dismiss a petition where the debt is disputed in good faith on substantial grounds. A tribunal ruling on the apparent merits of the tax appeal is relevant and may be compelling, but it is not conclusive. In an exceptional case, overwhelming evidence may establish without a trial or cross-examination that the asserted dispute lacks good faith and substantial grounds.

HMRC petitioned to wind up Changtel Solutions UK Ltd on unpaid VAT assessments. The company had appealed the assessments to the First-tier Tribunal, which had extended time after concluding that the appeals were not hopeless.

A deputy High Court judge dismissed the petition and restrained its advertisement. He held that, following the introduction of the tax tribunal's strike-out power, the Companies Court should defer to that tribunal on whether the appeals had real prospects of success.

HMRC appealed. The central issues were whether the Companies Court was required to defer to the tax tribunal and whether six assessments concerning purported exports were disputed in good faith on substantial grounds.

1. Appeal allowed. The Companies Court was not required to defer to the tax tribunal. Its decision on a winding-up petition differs from the tribunal's determination of the validity of a tax assessment. Winding up creates a process of collective execution and leaves the tax appeal extant, subject to the liquidator's decision whether to pursue it.

2. The power in rule 8(3)(c) of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 to strike out an appeal having no reasonable prospect of success is procedural. It neither alters the tribunal's substantive jurisdiction nor abrogates the Companies Court's jurisdiction and discretion under sections 122 and 125 of the Insolvency Act 1986.

3. A winding-up petition based on a debt disputed in good faith on substantial grounds will ordinarily be dismissed. The existence of a tax appeal and a tribunal decision about its apparent merits are relevant to the court's discretion and may ordinarily be compelling. They are not necessarily conclusive. The tribunal's extension-of-time decision here merely found globally that the appeals were not hopeless, without reasons or the same detailed evidence.

4. The deputy judge's discretion had been exercised on the erroneous premise that the Companies Court had to defer. The Court of Appeal therefore reconsidered the disputed debt for itself.

5. The discrepancies in the alleged exports were numerous, clear and overwhelming. The transport documents, vehicle details, warehouses, freight forwarders and subsequent evidence were irreconcilable. The company's director had also admitted misleading the court on matters relevant to solvency. On a common-sense assessment, the evidence produced by the company was incredible and the purported exports had not occurred as alleged. Cross-examination was unnecessary in these exceptional circumstances.

6. R (Teleos plc) v Customs & Excise Commissioners, Case C-409/04, [2008] QB 600, did not protect the company. Its principle depended on the supplier acting in good faith, having no involvement in the evasion and taking every reasonable measure to avoid participation. The evidence indicated the opposite.

7. The assessment debts were not disputed in good faith on substantial grounds. The court discharged the restraint on advertisement, dismissed the company's application, dispensed with advertisement and ordered the company's compulsory winding up. Patten and Longmore LJJ agreed with Vos LJ.

1. Court of Appeal (Civil Division): The appeal was allowed. The restraint on advertisement and dismissal of the petition were reversed, and a compulsory winding-up order was made: [2015] EWCA Civ 29.
2. High Court, Chancery Division: Mr David Donaldson QC, sitting as a deputy High Court judge, restrained advertisement and dismissed HMRC's petition on 21 March 2014. No neutral citation is stated.
3. First-tier Tribunal: The tribunal had extended time for the company's tax appeals after concluding that they were not hopeless. That procedural decision was relevant but not conclusive in the winding-up proceedings.