Insolvency Oracle

Developments in UK insolvency by Michelle Butler

A Collection of Two Halves – Part 2: Old Cases

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And here is the second half of my collection. They’re not exactly “old” cases, but merely ones that I’ve already seen pop up in case digests. But, in the interests of completeness:

SoS v Knight – lack of salary in hard times is not fatal to sole shareholder’s/director’s redundancy claim.
Enta Technologies v HMRC – petition for winding-up on appealed tax assessments is an abuse of process (UPDATE 13/02/2015: HMRC’s later appeal has been allowed – see below).
Relfo v Varsani – convoluted transactions fails to thwart tracing and unfair enrichment claim.
The Keepers and Governors of John Lyon School v Helman – tenancy vesting in trustee avoids receivers’ claim to freehold.

Sole shareholder/director’s choice to forgo salary in company’s hard times is not fatal to redundancy claim

Secretary of State for BIS v Mrs P Knight (9 May 2104) ([2014] UKEAT 0073 13)

http://www.bailii.org/uk/cases/UKEAT/2014/0073_13_0905.html
Sarah Rushton of Moon Beever pretty-much said it all (http://www.moonbeever.com/hr-blog/787-insolvency-service-redundancy-payment).

The sole shareholder and managing director of a company drew a salary sporadically in the years preceding the company’s insolvency and was paid no salary in the last two years of the company’s trading, her evidence being that, because times had been hard, she had forfeited her salary to enable the other employees and creditors to be paid.

The Appeal Tribunal found that the Employment Judge had been entitled to conclude that Mrs Knight’s agreement that she would be unpaid did not amount to a variation or discharge of her employment contract. The judge accepted that “the absence of payment under what is said to be a contract of employment is a factor which the tribunal of fact has to consider and take into account” (paragraph 23), but it does not necessarily mean that there is no consideration from the company. Consequently, Mrs Knight was entitled to a redundancy payment from the RPO.

Abuse of process to seek a winding-up order on appealed tax assessments

Enta Technologies Limited v HMRC (21 March 2014) ([2014] EWHC 548 (Ch))

http://www.bailii.org/ew/cases/EWHC/Ch/2014/548.html

I would recommend the summary by Nicholas Fernyhough of RPC (http://www.rpc.co.uk/index.php?option=com_easyblog&view=entry&id=1081&Itemid=129).

HMRC presented a winding-up petition on the basis of non-payment of a number of tax assessments, which were the subject of appeals. It was the judge’s view that, since April 2009 when VAT appeals moved to the First-Tier Tribunal, “the winding-up court should in my view now, post-2009, refuse itself to adjudicate on the prospective merits of the appeal and leave that question to be dealt with by the tribunal, either dismissing the petition or staying it in the meantime” (paragraph 11). The Tribunal had already ruled that the appeals were not ‘hopeless’ and thus “any attempt to revisit the tax judge’s ruling should be done by an application to the tribunal itself rather than by invitation to a winding-up court to second-guess that decision” (paragraph 12). The judge continued: “These matters are in themselves sufficient to lead me to the conclusion that the petition should be dismissed as an abuse of process and/or as a matter of discretion and the advertisement restrained” (paragraph 14).

(UPDATE 13/02/2015: on 28 January 2015, the Court of Appeal allowed HMRC’s appeal: Lord Justice Vos did not agree that the tax tribunal’s jurisdiction to decide on the validity of assessments abrogated the Companies court’s jurisdiction to decide on whether a company should be wound up.  In the circumstances of this particular case, Vos LJ felt that the judge should have concluded that the tax assessments were not disputed by the company in good faith and on substantial grounds and consequently he allowed the appeal and made an order for the company’s compulsory winding-up.  http://www.bailii.org/ew/cases/EWCA/Civ/2015/29.html)

An elaborate façade of transactions was insufficient to thwart a tracing claim

Relfo Limited (In Liquidation) v Varsani (28 March 2014) ([2014] EWCA Civ 360)

http://www.bailii.org/ew/cases/EWCA/Civ/2014/360.html

The summary by Lexis Nexis’ Anna Jeffrey at http://lexisweb.co.uk/blog/randi/how-will-the-court-approach-tracing-claims/ covers this case well.

Mr Varsani appealed an order, which had arisen from the liquidator’s claim of unjust enrichment. His appeal was dismissed.

The facts of the case had been unusual in that the funds had not be paid from the company’s account into Mr Varsani’s account either directly or via a chronological chain of transactions flowing through a number of accounts, but, in the words of Lord Justice Floyd, the transactions were “an elaborate façade to conceal what was in truth intended and arranged to be a payment for the benefit of Bhimji Varsani” (paragraph 121).

Lady Justice Arden felt that the judge had had plenty of material from which to draw the inference that the company’s money was substituted by payments used ultimately to make the payment to Mr Varsani. She said: “The decision in Agip demonstrates that in order to trace money into substitutes it is not necessary that the payments should occur in any particular order, let alone chronological order. As Mr Shaw submits, a person may agree to provide a substitute for a sum of money even before he receives that sum of money. In those circumstances the receipt would postdate the provision of the substitute. What the court has to do is establish whether the likelihood is that monies could have been paid at any relevant point in the chain in exchange for such a promise” (paragraph 63).

Tenancy vesting in Trustee breaks timeline for Receivers’ freehold claim

The Keepers and Governors of the Possessions, Revenues and Goods of Free Grammar School of John Lyon v Helman (22 January 2014) ([2014] EWCA Civ 17)

http://www.bailii.org/ew/cases/EWCA/Civ/2014/17.html
For a comprehensive summary, I would recommend that by Imran Malik of Muckle LLP: http://www.pmflegal.com/blog/index.php/2014/04/17/case-update-receivers-unable-to-claim-freehold/.

A tenant was made bankrupt and then the sub-chargee of the tenant’s house appointed receivers, after which the trustee in bankruptcy disclaimed the lease. The receivers then lined up a sale of the house and, the day before completing the sale, they served the landlords with a notice claiming the freehold of the house under the Leasehold Reform Act 1967.

The Act gives a tenant the right to acquire on fair terms the freehold where certain conditions are satisfied. Crucially, the server of the notice must have been a tenant of the house under a long tenancy for the last two years. The landlord challenged the validity of the notice on the basis that the appointment of the trustee in bankruptcy had resulted in the vesting of the tenancy in the trustee, who had not been in office for two years (and in any event the receivers did not purport to serve the notice on behalf of the trustee).

Lord Justice Rimer described the landlords’ submission as “not just simple, it is formidable” (paragraph 27). He considered that the ‘last two years’ condition was not met and thus the receivers’ claim to the freehold “was writ in water and signified nothing” (paragraph 34). The appeal judges unanimously allowed the landlords’ appeal.

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