The Commissioners For HMRC v Payroll & Pension Services (PPS Umbrella Company) Ltd

The Court of Appeal dismissed HMRC's appeal against the Deputy High Court Judge's requirement that HMRC give an unlimited cross-undertaking in damages as the condition for appointing provisional liquidators. The court applied the settled principle that applicants for interim relief are generally required to give an unlimited cross-undertaking in damages (see JSC Mezhdunarodniy Promyshlenniy Bank v Pugachev) but considered the recognised exception for "law enforcement" or public law enforcement action (see F Hoffmann-La Roche and Financial Services Authority v Sinaloa Gold plc).

The Court concluded that HMRC in this case were acting as a creditor seeking to recover debts (liability for employer National Insurance contributions) and not exercising a statutory law-enforcement power available only to a public regulator; accordingly the Sinaloa/Hoffmann-La Roche exception did not apply. The Court also held that appointment of a provisional liquidator is a particularly drastic, often terminal, interim remedy and that requiring an unlimited undertaking in damages was appropriate to protect the company and third parties. The Court rejected HMRC's proposal to cap the undertaking, noting absence of evidence to justify a cap and the primacy of protecting those affected by an ex parte appointment.

Background and parties

The appeal concerned HM Revenue and Customs (HMRC) as petitioner and Payroll & Pension Services (PPS Umbrella Company) Limited (the Company) as respondent. HMRC presented a winding-up petition in November 2023 for unpaid employer National Insurance contributions (NICs) and applied without notice for appointment of provisional liquidators. The Deputy High Court Judge (Steven Gasztowicz KC) granted the application on 9 November 2023 but required HMRC to give an unlimited cross-undertaking in damages as a condition of the appointment. HMRC appealed that requirement to the Court of Appeal.

Procedural posture

• The petition was sealed on 6 November 2023 and the interim hearing took place on 2 and 9 November 2023.
• After the Judge’s order HMRC provided an unlimited cross-undertaking and provisional liquidators were appointed on 9 November 2023.
• The petition later came before Mr Halpern KC in June/July 2024, who dismissed the petition on 19 July 2024 (reported as [2024] EWHC 1861 (Ch)).
• HMRC appealed the Deputy Judge’s decision requiring the cross-undertaking to the Court of Appeal; the appeal was dismissed on 23 August 2024.

Nature of the application and issues

• Nature of relief sought: appointment of provisional liquidators by HMRC on the basis that the Company owed NICs and was unable to pay its debts.
• Main issues before the Court of Appeal: (i) whether HMRC should be required to give a cross-undertaking in damages as a condition of an ex parte appointment of provisional liquidators, and (ii) if so, whether any cap on the monetary extent of the undertaking was appropriate.

Statutory and doctrinal context

The court examined the Insolvency Act 1986 (in particular section 135 and the provisions governing who may present winding-up petitions), the limited public-interest petitioning power conferred by Parliament (section 124A and the more recent, narrow powers in section 85 of the Finance Act 2022), and analogous remedies and authorities on cross-undertakings (including Hoffmann-La Roche and Sinaloa).

Reasoning and subsidiary findings

• The court accepted the general rule that an applicant for interim relief should provide an unlimited cross-undertaking in damages, and that the law-enforcement exception to that rule exists where a public authority is exercising a specific statutory enforcement power and that remedy is the only effective means of enforcement (as in Hoffmann-La Roche, Kirklees and Sinaloa).
• The Court of Appeal held that HMRC in the present case were acting as ordinary creditors seeking recovery of debts (assessments and NIC liabilities), not as a public law regulator exercising a specific statutory injunction power. The petition and application were presented in the capacity of creditor rather than as public-law enforcement proceedings; therefore the Sinaloa/Hoffmann-La Roche exception did not apply.
• The appointment of provisional liquidators was characterised as a qualitatively different and particularly drastic interim remedy (commonly the effective death of a trading company), supporting the need for a cross-undertaking to protect the company and third parties.
• The Court rejected the proposal to limit or cap the cross-undertaking because there was no evidential basis to fix a cap and because fairness to the company and those affected by the interim order outweighed HMRC’s budgetary concerns.

Outcome

The Court of Appeal dismissed HMRC's appeal, upholding the Deputy High Court Judge’s decision that an unlimited cross-undertaking in damages was required and that its monetary extent should not be limited in the circumstances of the case.

Appeal dismissed. The Court held that HMRC were acting as a creditor seeking to recover debts (employer NICs) and not as a public law enforcement authority exercising a statutory enforcement power; accordingly the law-enforcement exception to the usual requirement for an unlimited cross-undertaking in damages did not apply. The appointment of provisional liquidators is a particularly drastic interim remedy and requiring an unlimited undertaking was appropriate to protect the company and third parties; there was no basis to cap the undertaking.

Appeal from the High Court of Justice, Business and Property Courts, Insolvency and Companies List (ChD), Deputy High Court Judge Steven Gasztowicz KC, Case No CR-2023-006028. The petition for winding up was later heard by Mr David Halpern KC who dismissed the petition on 19 July 2024 ([2024] EWHC 1861 (Ch)). This decision was appealed to the Court of Appeal ([2024] EWCA Civ 995) where the appeal on the cross-undertaking point was dismissed on 23 August 2024.