A Company v HMRC

The court has a broad power to restrain presentation of a creditor’s winding-up petition where doing so would benefit the creditors as a class. The power may be exercised even though the debt is undisputed and the company has no cross-claim, but it is an exceptional indulgence. A short pause may be justified where a sufficiently credible and imminent transaction could discharge the debt in full and a petition would materially prejudice that outcome. The relief should be limited and conditional, particularly where the creditor is involuntary, the company is cash-flow insolvent, and tax monies have been used as working capital. If the proposed transaction does not promptly reach a sufficiently certain stage, the creditor should remain free to petition.

The applicant company sought an injunction under rule 7.24 of the Insolvency Rules 2016 restraining HMRC from presenting a winding-up petition in respect of an undisputed debt exceeding £1.5 million. The company was cash-flow insolvent, had defaulted on two time-to-pay arrangements, and had explored sales of its shares and business which might have enabled full repayment. It argued that liquidation would produce a worse result for creditors than a sale as a going concern. HMRC relied on the company’s prolonged defaults, the uncertainty of the proposed sale, and the absence of reliable evidence of imminent repayment. The central issue was whether presentation of the petition should be restrained, and if so on what terms.

1. Relief. The court granted, or accepted an undertaking equivalent to, a 14-day injunction preventing HMRC from presenting a winding-up petition until after 24 May 2024. The order was conditional on all sums falling due to HMRC thereafter being paid on time.
2. Power and governing consideration. The court accepted that it could restrain presentation of a creditor’s petition where presentation would be adverse to the interests of creditors as a whole. The discretion was not excluded merely because HMRC’s debt was undisputed and there was no cross-claim.
3. Application. The company was clearly cash-flow insolvent and HMRC was an involuntary creditor owed more than £1.5 million. The company had used PAYE and VAT collected from employees and customers as working capital and had failed to comply with two payment arrangements. There were serious doubts about the proposed sale, which lacked a binding agreement, a firm offer, and direct evidence from the prospective purchaser or lender.
4. Despite those matters, the applicant was allowed one final and short opportunity to achieve a sufficiently certain resolution of the proposed sale. The court considered that a brief delay would cause HMRC no real prejudice, whereas an immediate petition might jeopardise a sale and reduce the return to creditors. The court would not accept the director’s optimistic assertions at face value, and any failure to achieve sufficient progress would entitle HMRC to petition.
5. Costs. The applicant was ordered to pay HMRC’s costs, summarily assessed at £4,125.07 and payable within 14 days. The injunction represented only a limited indulgence, obtained partly through evidence served late, in circumstances where the applicant was seeking relief from enforcement of a substantial undisputed debt.