Fulmar Contracting Ltd (in liquidation), Re

Under the Insolvency Act 1986, s 238, a gross payment may be a transaction at an undervalue where the company assumes payroll-tax liability without corresponding value. The recipient’s accounting for the gross payment to HMRC can remove the undervalue: where HMRC accepts the return, a claim through the company’s liquidation would produce double recovery and undermine pari passu distribution.

A tax deeming rule can impose payroll-tax obligations without creating an employment contract. A contractual recovery clause therefore requires proof of an actual agreement containing it. The s 238 remedy is discretionary and restorative; even if an undervalue exists, no order may be made where creditors have suffered no relevant detriment.

Fulmar Contracting Ltd (in liquidation), Re concerned claims by a company in liquidation and its liquidators against two doctors who had received gross payments through the company, an umbrella company.

The company sought repayment under alleged employment-contract terms. The liquidators also sought relief under s 238 of the Insolvency Act 1986, alleging transactions at an undervalue because PAYE and NICs had not been deducted. The respondents denied entering employment contracts and relied on their self-assessment tax returns. The central issues were whether contractual employment relationships existed, whether the payments were transactions at an undervalue, and what remedy was available. The claims were dismissed.

1. Disposition. The claims and applications against both respondents were dismissed.
2. Contractual claims. The respondents had not entered the alleged Employment Contracts. Their names appearing on unsigned standard-form documents did not establish assent. An employment relationship could arise by conduct, but the conduct relied on did not incorporate the detailed repayment term. Nor was there sufficient evidence of an actual employment relationship. The statutory deeming provisions could create payroll-tax obligations without creating an employment contract. The absence of evidence about supervision, direction or control prevented a finding of common-law employment.
3. Transactions at an undervalue. The court applied the comparison required by s 238 of the Insolvency Act 1986 from the company’s perspective. No intention to defraud or dishonesty was required. A third-party tax liability could form part of the transaction analysis: see Phillips v Brewin Dolphin [2001] 1 WLR 143. In principle, gross payments creating payroll-tax liability could therefore be transactions at an undervalue.
4. Application. The analysis in Re Ethos Solutions Limited, Purkiss v Kennedy [2024] EWHC 1861 (Ch) was distinguished. In that case, the relevant payments had not been declared to HMRC. Here, the respondents had accounted for the gross payments through their tax returns, or through Dr Williams’s company, and HMRC had not challenged that treatment. A further claim through the company’s liquidation would produce double recovery. There was therefore no undervalue.
5. Alternative remedy. If an undervalue had existed, the court would have exercised the broad restorative discretion under s 238(3) to make no order. The principles in TAQA Bratani Ltd v Fujairah Oil and Gas UK LLC [2025] EWCA Civ 1669 and Reid v Ramlort [2004] EWCA Civ 800 supported considering the but-for position, subsequent events and creditor detriment. HMRC had suffered no relevant additional detriment because the payments had already been brought into tax.
6. The period for seeking permission to appeal was directed to run from the consequential order.

not stated in the judgment.