Abbey Forwarding Ltd (In Liquidation) v HM Revenue & Customs

An undertaking in damages given on the appointment of a provisional liquidator does not automatically terminate when a winding-up order is later made. The court retains a broad discretion to order an inquiry where subsequent events show that the appointment was unjustified. The usual test is applied retrospectively, with the benefit of hindsight, and the court may consider all the circumstances, including delay, prejudice, opposition to the winding-up petition and the basis on which the provisional liquidator was appointed. Where a public authority withdraws the assessments founding its petition and thereby abandons the only asserted creditor standing, it cannot subsequently maintain that those assessments were validly raised. The public interest generally supports enforcement of undertakings freely given to the court.

Abbey Forwarding Limited applied for an inquiry as to damages under HMRC’s undertaking given when Blackburne J appointed a provisional liquidator on 4 February 2009.

The appointment followed HMRC assessments for nearly £6 million in excise duty and allegations that Abbey had facilitated fraudulent diversion of duty-suspended alcohol. The business was closed and Abbey was later wound up. Misfeasance proceedings based substantially on the same allegations were dismissed by Lewison J. HMRC subsequently withdrew the assessments and consented to Abbey’s appeal before the First-tier Tribunal.

The principal issues were whether the undertaking survived the winding-up order, whether delay, lack of opposition, prejudice or public interest made an inquiry inappropriate, and on what factual basis any loss should be assessed.

1. An inquiry was ordered. The undertaking given on the appointment of the provisional liquidator did not automatically terminate when the winding-up order was made. Its wording gave the court a broad discretion to determine whether damages should be paid, and the existence of the winding-up order was relevant but not decisive.
2. The question whether the appointment was wrongly made was to be assessed retrospectively, with the benefit of hindsight. The court was not confined to asking whether Blackburne J had acted wrongly on the evidence then available. The assessments supporting HMRC’s standing were later withdrawn and Abbey’s appeal was allowed. HMRC therefore could not contend that those assessments remained validly raised. The statutory appeal procedure was the proper forum for determining their validity, and HMRC could not avoid the consequences of abandoning them.
3. The allegations of fraudulent conduct were an essential part of the application for the appointment. They had been advanced in the proceedings brought by Abbey’s liquidator, with HMRC’s evidence and support, and had been rejected in the proceedings in which they were intended to be determined. It was unnecessary to conduct a further trial of those allegations.
4. The failure to oppose the winding-up petition and the delay in applying for an inquiry were relevant but not decisive. In the circumstances, the directors had been deprived of access to Abbey’s records and funds, were subject to freezing orders, and faced simultaneous misfeasance proceedings. The delay was reasonably explained and HMRC failed to establish significant prejudice.
5. The decision in FSA v Sinaloa Gold plc did not justify abandoning the established practice of requiring HMRC to give an undertaking when seeking the appointment of a provisional liquidator as creditor. HMRC occupied a position between an ordinary private litigant and a public law enforcement agency. There was a strong public interest in holding a public authority to its undertaking.
6. The inquiry was to proceed on the basis that Abbey would not have been wound up on HMRC’s petition. The withdrawal of the assessments removed the foundation of the petition, and the winding-up order did not create an estoppel preventing that hypothetical basis.