Revenue and Customs Commissioners v Changtel Solutions UK Ltd

This appeal considered whether the Companies Court must defer to the tax tribunal when a winding-up petition is founded on VAT assessments which are the subject of appeals before the First-tier Tribunal, particularly after the introduction of rule 8(3)(c) of the Tribunal Procedure (First-tier Tribunal)(Tax Chamber) Rules 2009. The Court of Appeal held that the Companies Court is not obliged to defer to the tribunal: the two fora decide different issues and the Companies Court retains its discretion under the Insolvency Act 1986 to determine whether a debt is disputed in good faith on substantial grounds.

On the facts, the court concluded that six "dispatch assessments" (relating to alleged exports July–December 2012) were not genuinely disputed in good faith on substantial grounds because the documentary and investigatory evidence showed numerous, widespread and implausible discrepancies indicating the exports did not occur as claimed. The judge below was therefore wrong to dismiss the petition by deferring to the tax tribunal; the proper exercise of discretion required that the petition succeed and the company be wound up.

Background and parties: HMRC presented a winding-up petition against Enta Technologies Limited (now Changtel Solutions UK Limited) in respect of multiple unpaid VAT assessments, including six "dispatch assessments" totalling £2,537,172. The company had appealed the assessments to the First-tier Tribunal and obtained permission to appeal out of time on a number of those appeals. The company applied to dismiss the petition and restrain advertisement; the Deputy Judge dismissed HMRC's petition and granted relief to the company. HMRC appealed.

Nature of claim and relief sought:

• HMRC sought a winding-up order under the Insolvency Act 1986 based on unpaid VAT assessments (including the dispatch assessments).
• The company sought dismissal of the petition and an injunction restraining advertisement, contending that the underlying debts were bona fide disputed on substantial grounds.

Issues before the Court of Appeal:

1. Whether, in cases where a VAT assessment is under appeal to the tax tribunal, the Companies Court must defer to the tribunal (in particular in the light of rule 8(3)(c) enabling strike-out of hopeless appeals).
2. Whether the debts represented by the dispatch assessments were disputed in good faith on substantial grounds (i.e. whether the company’s appeals had a real prospect of success).
3. Whether the hearing below was conducted unfairly to HMRC (procedural fairness).

Reasoning and conclusions: The Court of Appeal explained that although the tax tribunal is the specialist forum to determine the correctness of tax assessments, its jurisdiction and the Companies Court’s exercise of discretion under the Insolvency Act address different questions. The winding-up petition is not an indirect attempt to win the tax appeal and the Companies Court retains its discretion whether to make a winding-up order. Rule 8(3)(c) was a case management tool for the tribunal and did not oust the Companies Court's jurisdiction.

On the facts, after detailed consideration of the documentary evidence and new material, the Court found overwhelming and numerous discrepancies (including fabricated or implausible CMRs, doubtful warehouse and freight-forwarder evidence, vehicle registration anomalies and admissions that relevant evidence presented to the court was false) which showed the dispatch transactions were not genuinely evidenced. The company had therefore not disputed the relevant assessments in good faith on substantial grounds. Consequently, the judge below had erred in deferring and in his exercise of discretion; the Court allowed HMRC's appeal and ordered winding up.

Appeal allowed. The Court of Appeal held that the Companies Court is not required to defer to the tax tribunal merely because an appeal against a VAT assessment is pending or because rule 8(3)(c) allows the tribunal to strike out hopeless appeals. The Companies Court retains its discretionary jurisdiction under the Insolvency Act 1986 to determine whether a petition debt is disputed in good faith on substantial grounds. On the facts, the dispatch assessments were not disputed in good faith on substantial grounds and the judge below erred by deferring and failing properly to exercise his discretion; the petition should have succeeded and a compulsory winding-up order was made.

Appeal from the High Court of Justice, Chancery Division (Deputy Judge David Donaldson QC), following HMRC's second winding-up petition (the first petition having been struck out by Birss J as an abuse of process). The company had earlier obtained an order from the First-tier Tribunal (Judge Poole) granting permission to appeal out of time in respect of certain assessments; that tribunal decision was not appealed. Rimer LJ granted further permission to appeal to the Court of Appeal on remaining grounds on 31 July 2014. The Court of Appeal heard the appeal and allowed HMRC's challenge to the Deputy Judge's decision.