The Commissioners for HMRC v Ducas LTD & Ors

An applicant seeking a freezing injunction must establish a good arguable case, assets within the jurisdiction and a real risk that a future judgment will go unsatisfied because assets may be unjustifiably dissipated. Under the Chabra or enforcement jurisdiction, the court may freeze assets held by a third party where there is good reason to suppose that they would be amenable to execution of a judgment against the primary defendant. Substantial control or a corporate connection is relevant but insufficient by itself, given separate corporate personality. The jurisdiction remains exceptional and must be exercised cautiously. A freezing order preserves assets pending judgment; it should not be used to close down an ongoing business, and its ordinary-business exception may require clarification.

HMRC applied without notice for freezing injunctions and ancillary evidence-preservation orders against Ducas Ltd, Enix Services Ltd and FL Capital Holdings Ltd. HMRC alleged that Ducas had arranged for healthcare workers to be paid through personal services companies without the deductions required for PAYE and National Insurance, creating a substantial liability for secondary Class 1 National Insurance Contributions.

The application against Ducas was based on the alleged liability. The applications against Enix and FL Capital relied on the enforcement principle, including alleged transfers of funds from Ducas and the companies’ common management. The issues were whether HMRC had a good arguable case, whether the relevant assets were within the jurisdiction, whether there was a real risk of dissipation and whether it was just and convenient to grant relief.

1. Freezing injunction test. The court applied the just and convenient requirement under Senior Courts Act 1981, s 37(1). HMRC had to show a good arguable case on the merits, assets in the jurisdiction and a real risk that a future judgment would not be met because of unjustified dissipation. Those requirements were satisfied against Ducas.
2. Primary liability. The evidence of fraudulent documentation and non-payment supported a serious issue to be tried and a good arguable case that Ducas was liable for Employer NICs under the Social Security (Categorisation of Workers) Regulations 1978. The estimated liability of £171,296,046.05 was accepted for the interim application, subject to the ordinary mechanisms for challenging HMRC’s decision.
3. Enforcement principle. Applying the principles in TSB Private Bank International SA v Chabra, Lakatamia Shipping Co Ltd v Su and related authorities, the court could freeze third-party assets where there was good reason to suppose that they would be amenable to execution of a judgment against the primary defendant. The jurisdiction was exceptional and required caution. Common management, substantial control and corporate connection were relevant, but could not alone overcome separate corporate personality.
4. There was a good arguable case that funds transferred to FL Capital were recoverable through enforcement processes, including the potential application of Insolvency Act 1986, s 423. The alternative arguments concerning Enix were also sufficient: either Enix was contractually obliged to meet relevant liabilities, or the transfers were vulnerable as transactions at an undervalue or transactions intended to prejudice creditors.
5. A winding-up petition was not a realistic alternative because of delay and the risk of dissipation. Freezing orders were therefore just and convenient against all three companies.
6. The orders included evidence-preservation requirements and controls over proposed reliance on exceptions for legal costs and ordinary business payments. The order was not intended to shut down the business. Payments to personal services companies through Enix were treated as within the ordinary and proper course exception for the purposes of the injunction, while shareholder payments were excluded.