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

Public authorities do not have a general immunity from the ordinary requirement to give a cross-undertaking in damages. The exception for law-enforcement action is confined to proceedings brought to enforce the law in the public interest, typically under a specific statutory power or duty and by means unavailable to a private litigant. A tax authority acting as an ordinary creditor to recover tax or national insurance contributions remains subject to the requirement, even where fraud is suspected and recovery serves the public purse. Appointment of a provisional liquidator is a particularly drastic remedy. An unlimited undertaking may therefore be required, and budgetary concerns do not justify a cap where fairness requires protection for the company.

HMRC presented a winding-up petition against the Company for approximately £7.39 million in unpaid national insurance contributions and applied without notice for provisional liquidators. The Deputy High Court Judge appointed provisional liquidators, conditional on HMRC giving an unlimited cross-undertaking in damages. HMRC appealed that condition.

The winding-up petition was later dismissed because there was a bona fide dispute about whether the workers were employees, as recorded in [2024] EWHC 1861 (Ch). The central issue before the Court of Appeal was whether HMRC, when pursuing unpaid tax and contributions as a creditor, fell within the law-enforcement exception and, if so, whether any undertaking should be limited.

1. Disposition. The appeal was unanimously dismissed. The appointment of provisional liquidators was properly made conditional on HMRC giving an unlimited cross-undertaking in damages.
2. General rule. A petitioner seeking the appointment of a provisional liquidator will generally be required to give a cross-undertaking. The position is analogous to an interim injunction, where the undertaking is the price of interfering with a respondent’s freedom before liability has been established: [2015] EWCA Civ 139. The issue remains one of fairness in the particular circumstances.
3. Public authorities. A public authority does not obtain protected status merely because it acts in the public interest or because recovery will benefit the public purse. The distinction between private litigation and law-enforcement action remains important: [1975] AC 295. The exception concerns enforcement of the law in the public interest, commonly under a specific statutory power or duty unavailable to a private litigant: [2013] UKSC 11.
4. HMRC’s capacity. HMRC brought the proceedings as a creditor seeking recovery of a debt and used remedies generally available to creditors. The application sought to preserve assets and books and records. HMRC had other enforcement options, including an ordinary civil claim. Its concern that the Company was fraudulently abusing the tax system did not convert the proceedings into public-law enforcement. The court therefore rejected the approach in [2014] EWHC 3381 (Ch) and approved the reasoning in [2015] EWHC 225 (Ch).
5. Drastic nature of the remedy. Appointment of a provisional liquidator is qualitatively different from an interim injunction and will usually have the immediate and potentially irreversible effect of ending a trading company’s business. A high threshold for appointment does not remove the need for protection where the application proves unjustified: [2011] EWCA Civ 1116.
6. Unlimited undertaking. HMRC’s internal budgetary arrangements did not justify limiting the undertaking. HMRC had the means to satisfy any award, and fairness required the Company to receive compensation for loss caused by the interim order.

• Court of Appeal (Civil Division) — The appeal was dismissed unanimously: [2024] EWCA Civ 995.
• High Court of Justice, Insolvency and Companies List (ChD) — The Deputy High Court Judge appointed provisional liquidators on condition that HMRC provide an unlimited cross-undertaking in damages.