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T6: Bankruptcy

STATUTORY DEMAND

STATUTORY DEMAND

Relevance of a statutory demand

 

Used to demonstrate inability to pay under IA 1986, s.268 to allow a petition to be presented. See next section, below.

Relevance of a statutory demand

Content of a statutory demand

 

"(1) A statutory demand under section 268 must contain—

(a) the heading either “Statutory demand under section 268(1) (debt payable immediately) of the Insolvency Act 1986” or “Statutory demand under section 268(2) (debt not immediately payable)”;
(b) identification details for the debtor;
(c) the name and address of the creditor;
(d) a statement of the amount of the debt, and the consideration for it (or, if there is no consideration, the way in which it arises);
(e) if the demand is made under section 268(1) and founded on a judgment or order of a court, the date of the judgment or order and the court in which it was obtained;
(f) if the demand is made under section 268(2), a statement of the grounds on which it is alleged that the debtor appears to have no reasonable prospect of paying the debt;
(g) if the creditor is entitled to the debt by way of assignment, details of the original creditor and any intermediary assignees;
(h) a statement that if the debtor does not comply with the demand bankruptcy proceedings may be commenced;
(i) the date by which the debtor must comply with the demand, if bankruptcy proceedings are to be avoided;
(j) a statement of the methods of compliance which are open to the debtor;
(k) a statement that the debtor has the right to apply to the court to have the demand set aside;
(l) a statement that rule 10.4(4) of the Insolvency (England and Wales) Rules 2016 states to which court such an application must be made; and name the court or hearing centre of the County Court to which, according to the present information, the debtor must make the application (i.e. the High Court, the County Court at Central London or a named hearing centre of the County Court as the case may be);
(m) a statement that any application to set aside the demand must be made within 18 days of service on the debtor; and
(n) a statement that if the debtor does not apply to set aside the demand within 18 days or otherwise deal with this demand within 21 days after its service the debtor could be made bankrupt and the debtor’s property and goods taken away." (Insolvency Rules 2016, r.10.1)

 

Statutory demand served by government department

"(2) Where the statutory demand is served by a Minister of the Crown or a Government Department the statutory demand must explain that the debtor may alternatively apply to set aside the demand to the High Court or the County Court at Central London (as the case may be) if the Minister or Department intends to present a bankruptcy petition to one of them." (Insolvency Rules 2016, r.10.1)

 

Requirement to identify means of communication

"(3) A demand must name one or more individuals with whom the debtor may communicate with a view to—

(a) securing or compounding the debt to the satisfaction of the creditor; or
(b) establishing to the creditor’s satisfaction that there is a reasonable prospect that the debt will be paid when it falls due.
(4) The postal address, electronic address and telephone number (if any) of the named individual must be given." (Insolvency Rules 2016, r.10.1)

 

Must be authenticated

"(5) A demand must be dated and authenticated either by the creditor or by a person who is authorised to make the demand on the creditor’s behalf

(6) A demand which is authenticated by a person other than the creditor must state that the person is authorised to make the demand on the creditor’s behalf and state the person’s relationship to the creditor." (Insolvency Rules 2016, r.10.1)

 

Interest and other charges included in the demand

"(7) If the amount claimed in the demand includes—

(a) any charge by way of interest of which notice had not previously been delivered to the debtor as a liability of the debtor’s; or
(b) any other charge accruing from time to time,
the amount or rate of the charge must be separately identified, and the grounds on which payment of it is claimed must be stated.

(8) The amount claimed for such charges must be limited to that which has accrued at the date of the demand.

(9) If the creditor holds any security in respect of the debt, the full amount of the debt must be specified, but—

(a) the demand must specify the nature of the security, and the value which the creditor puts upon it at the date of the demand; and
(b) the demand must claim payment of the full amount of the debt, less the specified value of the security." (Insolvency Rules 2016, r.10.1)

Content of a statutory demand

Creditor's obligation to make debtor aware of statutory demand

 

"A creditor must do all that is reasonable to bring the statutory demand to the debtor’s attention and, if practicable in the particular circumstances, serve the demand personally." (Insolvency Rules 2016, r.10.2)

Creditor's obligation to make debtor aware of statutory demand

Proof of service

 

"(1) Where section 268 requires a statutory demand to be served before the petition, a certificate of service of the demand must be filed with the court with the petition.

(2) The certificate must be verified by a statement of truth and be accompanied by a copy of the demand served.

(3) If the demand has been served personally on the debtor, the statement of truth must be made by the person who served the demand unless service has been acknowledged in writing by the debtor or a person authorised to accept service.

(4) If service has been acknowledged in writing either by—

(a)the debtor; or
(b)a person who is authorised to accept service on the debtor’s behalf and who has stated that this is the case in the acknowledgement of service;
then the certificate of service must be authenticated either by the creditor or by a person acting on the creditor’s behalf, and the acknowledgement of service must accompany the certificate.

(5) If the demand has been served other than personally and there is no acknowledgement of service, the certificate must be authenticated by a person or persons having direct personal knowledge of the means adopted for serving the statutory demand, and must contain the following information—

(a)the steps taken to serve the demand; and
(b)a date by which, to the best of the knowledge, information and belief of the person authenticating the certificate, the demand will have come to the debtor’s attention.
(6) Where paragraph (5) applies the statutory demand is deemed to have been served on the debtor on the date referred to in paragraph (5)(b) unless the court determines otherwise." (Insolvency Rules 2016, r.10.3)

Proof of service
Assessment/amendment gives rise to statutory debt that can underpin statutory demand

Assessment/amendment gives rise to statutory debt that can underpin statutory demand

 

"[1] Does Mr Archer owe HMRC a debt which exceeds the current bankruptcy level of £5,000? If so, then HMRC are entitled to serve a statutory demand in order to pave the way for bankruptcy proceedings. HMRC claim that he owes them a debt in consequence of section 59B (5) of the Taxes Management Act 1970 ("the TMA") which applies to an amount of tax payable as a result of the amendment or correction of a self-assessment under section 28A of the TMA...

... 

[41] In respectful disagreement with the judge, I would therefore dismiss the appeal on the ground that section 114 operated to validate the closure notices as amendments of Mr Archer's returns and self-assessments. Mr Archer therefore owes HMRC a debt which exceeds the bankruptcy limit." (R (oao Archer v. HMRC [2017] EWCA Civ 1962, Lewison LJ)

“The provisions which exclude the defendant are these: so far as the first group of properties is concerned, once there is an assessment duly made, and not appealed from, then under section 169 of the Income Tax Act, 1918, the tax charged may be sued for and recovered from the person charged therewith in the High Court as a debt due to the Crown; so far as the second group of properties is concerned, there is a conclusive presumption against him under the Act of 1941. In my opinion, therefore, all issues on the merits of these cases, as to fact or law, should have been determined by appeal to the Commissioners and cannot be raised at this stage. If there has been no appeal to the Commissioners the debts become absolute and conclusive, and their legal effect cannot be denied.” (IRC v. Pearlberg [1953] 1 WLR 331 at 333, Denning LJ)

“[12] Long before the enactment of these provisions, it was an established principle that the bankruptcy court will not go behind a tax assessment for the purposes of determining the existence or amount of a proof of debt (In re Calvert [1899] 2 QB 145). The assessment gives rise to a statutory debt and any challenge is to be made through the machinery laid down in the taxes legislation...

[13] It is also well established that these basic principles are applicable not just in the context of HMRC's right to prove, but also on the hearing of a bankruptcy petition where the debtor seeks to challenge a petition debt derived from an assessment, which has not been successfully appealed. Where such an assessment has been made, and therefore a statutory debt has arisen, the bankruptcy court cannot remedy the position, even if it were to conclude that an appeal under the taxes legislation might have succeeded. In the case of a tax assessment, those appeal procedures are the only mechanism by which the debt established by the assessment can be challenged (Cullinane v IRC [2000] BPIR 996). As Blackburne J explained in IRC v Lam [2005] EWHC 592 (Ch), [2006] STC 893, [2009] BPIR 301 at para 13 “It is not open to the Bankruptcy Court to review the manner in which the assessment has been made, much less to investigate the merits of the assessment”.” (HMRC v. Harris [2011] EWHC 3094 (Ch), William Trower QC)

VAT return gives rise to debt

 

"[26]...First, in the context of the VAT Act 1994 and subordinate legislation the supplier of services in the United Kingdom is liable to VAT on the value of his supply. This liability is expressed in s.1(2) and 25(1) of the VAT Act 1994 and in paragraph 40(2) of the VAT Regulations. The liability is quantified by the return the taxable person is obliged to make. In particular boxes 1 and 5 constitute a form of self-assessment. It is true that other provisions of the Act and rules specify that in the cases to which they refer HMRC may make an assessment and in some cases that the amount of the resulting assessment is recoverable as a debt. But the converse cannot be correct. Take s.73 - that section permits an assessment in the case of incorrect or incomplete returns. It cannot seriously be suggested that in cases where a complete and correct return has been made there is no liability for the amount shown by the taxable person to be due. It is at the least an admission of a statutory liability for VAT. The returns submitted by the Applicant clearly established the liabilities on which the statutory demand and bankruptcy order were based, no separate point of relevance was taken in respect of the surcharges." (HMRC v. Chamberlin [2011] EWCA Civ 271)

VAT return gives rise to debt

Application to set aside (within 18 days of service)

 

"(1) The debtor may apply to the court for an order setting aside the statutory demand.

(2) The application must be made within 18 days from the date of the service of the statutory demand." (Insolvency Rules 2016, r.10.4)

Form of application

"(3) The application must—

(a) identify the debtor;

(b) state that the application is for an order that the statutory demand be set aside;

(c) state the date of the statutory demand; and

(d) be dated and authenticated by the debtor, or by a person authorised to act on the debtor’s behalf." (Insolvency Rules 2016, r.10.4)

 

Witness statement must set out grounds for set aside

"(6) The debtor’s application must be accompanied by a copy of the statutory demand, where it is in the debtor’s possession, and supported by a witness statement containing the following—

(a) the date on which the debtor became aware of the statutory demand;

(b) the grounds on which the debtor claims that it should be set aside; and

(c) any evidence in support of the application." (Insolvency Rules 2016, r.10.4)

Place application should be made to

"(4) The application must be made to the court or hearing centre—

(a) determined in accordance with rule 10.48; or

(b) to which rule 10.11(1) requires a petition to be presented if—

(i) the creditor serving the statutory demand is a Minister of the Crown or a government Department,

(ii) the debt in respect of which the statutory demand is made, or part of it equal to or exceeding the bankruptcy level (within the meaning of section 267), is the subject of a judgment or order of a court, and

(iii) the statutory demand—

(aa) specifies the date of the judgment or order and the court in which it was obtained, and

(bb) indicates the creditor’s intention to present a bankruptcy petition against the debtor in the High Court or the County Court at Central London as the case may be." (Insolvency Rules 2016, r.10.4)

 

Time for compliance ceases to run

"(5) The time within which the debtor must comply with the statutory demand ceases to run on the date the application is filed with the court, subject to any order of the court under rule 10.5." (Insolvency Rules 2016, r.10.4)

Application to set aside (within 18 days of service)

- Extension of time

 

"[9] As a matter of construction, section 376 gives the court an unfettered discretion to extend the time for applying to set aside a statutory demand, either before or after the prescribed time limit for making the application has expired. In my judgment, in exercising this discretion, the court must consider all the circumstances, including the purpose of the prescribed time-limit, the merits of the set aside application, the reasons for not filing the application in time, any prejudice that might be caused to the debtor if time is not extended and any prejudice that might be caused to the creditor if time is extended.
[10] An application to extend time pursuant to IA section 376, whether made before or after the expiry of the relevant prescribed time-period, is not, in my judgment, an application for relief from sanctions, although, depending on the circumstances of the case, matters which the court may consider in an application under CPR 3.9 may be relevant in the balancing exercise to be carried out by the court in the exercise of its discretion." (Rankin v. Dissington Lending Company Ltd [2021] EWHC 172 (Ch), Deputy Judge Kyriakides)

- Extension of time

Grounds for set aside

"(5) The court may grant the application if—

(a) the debtor appears to have a counterclaim, set-off or cross demand which equals or exceeds the amount of the debt specified in the statutory demand;

(b) the debt is disputed on grounds which appear to the court to be substantial;

(c) it appears that the creditor holds some security in relation to the debt claimed by the demand, and either rule 10.1(9) is not complied with in relation to it, or the court is satisfied that the value of the security equals or exceeds the full amount of the debt; or

(d) the court is satisfied, on other grounds, that the demand ought to be set aside." (Insolvency Rules 2016, r.10.5)

Grounds for set aside

Burden of proof on applicant to establish debt is disputed on substantial grounds

"[7] It is well established, by authority which I need not set out, that the burden lies on the applicant to establish the existence of a substantial dispute, and that the test which the court applies is similar to that on an application for summary judgment under CPR rule 24.2: see, for example, Collier v P & M J Wright Ltd [2007] EWCA Civ 1329 at [9] and [38] per Arden LJ (as she then was)." (Hancock v. Promontoria (Chestnut) Ltd [2020] EWCA Civ 907, Henderson LJ)

- Burden of proof on applicant to establish debt is disputed on substantial grounds

- Court will not enquire into the validity of a debt based on a tax assessment at the set-aside stage

"11.4.4 Where the debt claimed in the statutory demand is based on a judgment, order, liability order, costs certificate, tax assessment or decision of a tribunal, the Court will not at this stage inquire into the validity of the debt nor, as a general rule, will it adjourn the application to await the result of an application to set aside the judgment, order, decision, costs certificate or any appeal." (Practice Direction - Insolvency Proceedings)

"[83] In my judgment the starting point is that the Practice Direction is a form of secondary legislation. Accordingly, it must be given effect to by the courts. Turning to the case law, I note that the only case which I have been able to find which considered the position at the statutory demand stage is Owen. Nevertheless, I agree with the Deputy Registrar and counsel for HMRC that it is clear that the rationale underlying paragraph 13.3.3 lies in the principles recognised in the case law that (i) a tax assessment gives rise to a statutory debt, (ii) the FTT has exclusive jurisdiction to consider and determine challenges to tax assessments and (iii) it is not open to the Bankruptcy Court to review an assessment or the manner in which it was made." (Vieira v. HMRC [2017] EWHC 936 (Ch), Arnold J)

- Court will not enquire into the validity of a debt based on a tax assessment at the set-aside stage

- Existence of assessment or amendment can be challenged

"[43] Mr Archer could have appealed against the conclusions stated in the closure notices but has chosen not to do so. Had he wished to dispute those conclusions then recourse to the FTT would have been his only option. His point is an entirely technical one: no debt has been created for the purposes of the Insolvency Act 1986. That, as it seems to me, is not a question for the FTT. It does not depend on whether HMRC are right or wrong in their conclusions. Nor does it depend on whether the purported closure notices are or are not valid. It is not a question of what the closure notices should have contained: it is a question of what they did contain. The answer depends simply on whether as a matter of fact (taking into account section 114) there was an amendment of Mr Archer's self-assessment. Proceedings to recover an amount of tax said to be due are collection proceedings. The mere fact that some tax issue arises in collection proceedings does not without more mean that the FTT is the only place that the dispute can be determined. If the dispute does not concern the correctness of HMRC's view about how the tax code applies to the taxpayer's case I do not consider that the civil courts are barred from dealing with that dispute: see HMRC v Cotter [2013] UKSC 69, [2013] 1 WLR 3514 at [32].

[44] Accordingly, I consider that if HMRC had served Mr Archer with a statutory demand, Mr Archer would have been entitled to apply to set it aside on the ground that there was no debt owing to HMRC (if his legal arguments on the effect of the closure notice had been correct). HMRC did not argue (either before the judge or before us) that the availability of a potential challenge to a statutory demand either in the county court or in the Chancery Division was in itself a reason to refuse judicial review. On the assumption that such an argument would not have prevailed, I cannot see that it makes any difference if, instead, he seeks to challenge the decision to initiate proceedings towards his bankruptcy." (R (oao Archer v. HMRC [2017] EWCA Civ 1962, Lewison LJ)

"[81] If, as appears may have been the case, the FTT took the view that, as a matter of law, Mr Archer should have appealed the Closure Notices to the FTT in order to determine the Debt Question, that was plainly an error. He was entitled to raise the Debt Question in the JR Proceedings. Further, we are satisfied that, whilst Mr Archer could have appealed the Closure Notices to the FTT, on the face of it that would have been against his own interests, as the Court of Appeal recognised, in that it would have engaged the FTT’s jurisdiction to increase his self-assessment. The FTT failed to recognise that fact in its analysis at [117] of the Decision." (Archer v. HMRC [2022] UKUT 61 (TCC), Joanna Smith J and Judge Cannan - taxpayer did not dispute conclusions in closure notice but argued that HMRC had not made amendments to give effect to the conclusions)

"[41] HMRC contend that, because the income tax element of the petition debt is also based on assessments (a self assessment submitted on 18 February 1999 and a closure notice dated 3 July 2000), it cannot be challenged in this court. The Debtor says that HMRC have been unable to produce the assessments themselves and so therefore the court cannot be satisfied that the statutory debt is payable – I disagree. The Debtor does not contend in his evidence that the assessments were not in fact raised. Furthermore, the way in which he expresses himself in both his witness statement of 20 August 2009 and his witness statement of 9 November 2009 are only really consistent with an acceptance that the assessments were made on him – his challenge is as to their amount. In the light of the other evidence as to the existence of the assessments, including the witness statement of Ms Boxall, it is my view that the Registrar was entitled to conclude that such assessments had been made and issued, with the consequence that a statutory debt had arisen on which HMRC were entitled to found their bankruptcy petition against the Debtor. As I have already explained, the question of whether or not the assessment ought to have been made is not a matter for this court." (HMRC v. Harris [2011] EWHC 3094 (Ch), William Trower QC)

- Existence of assessment or amendment can be challenged

- Whether debt has been discharged/paid can be challenged

"[20] Even if that is not the correct analysis, and even if the Debtor can show that the withdrawal should not have been made at the time that it was, it is difficult to see how this could avail him unless he can show that he has some sort of claim against HMRC arising out of the withdrawal, for example that HMRC is indebted to him for the amount withdrawn, and that such amount can be set off in reduction or extinction of the petition debt." (HMRC v. Harris [2011] EWHC 3094 (Ch), William Trower QC)

- Whether debt has been discharged/paid can be challenged

- HMRC certificate sufficient proof of unpaid debt

"(1) A certificate of an officer of Revenue and Customs that, to the best of that officer's knowledge and belief, a relevant sum has not been paid is sufficient evidence that the sum mentioned in the certificate is unpaid.

(2) In subsection (1) “relevant sum” means a sum payable to the Commissioners under or by virtue of an enactment or under a contract settlement (within the meaning of section 25).

[...]

(4) Subsection (1) has effect subject to any provision treating the certificate as conclusive evidence." (CRCA 2005, s.25A)

Document purporting to be certificate presumed to be certificate

"(3) Any document purporting to be such a certificate shall be treated as if it were such a certificate until the contrary is proved." (CRCA 2005, s.25A)

- HMRC certificate sufficient proof of unpaid debt
- Set aside application may be adjourned (rather than dismissed) if FTT decision imminent

Set aside application may be adjourned (rather than dismissed) if FTT decision imminent

"[83]...Accordingly, the jurisdiction of the Bankruptcy Court at this stage is limited to considering whether, in the exercise of the court's discretion, to adjourn an application to set aside the statutory demand to await the determination of an appeal to the FTT against the assessment. In my view this is a discretion which should be sparingly exercised. In general, the key factors in the exercise of the discretion will be the status and timing of the appeal. An adjournment is much more likely to be granted in a case where the taxpayer has appealed in time and a decision of the FTT can be expected reasonably soon than in a case where the taxpayer only appealed after service of the statutory demand, was out of time for doing so and thus is dependent on the FTT giving him permission to appeal out of time." (Vieira v. HMRC [2017] EWHC 936 (Ch), Arnold J)

Dismissal without a hearing

 

"(1) On receipt of an application to set aside a statutory demand, the court may, if satisfied that no sufficient cause is shown for it, dismiss it without giving notice of the application to the creditor.

(2) The time for complying with the statutory demand runs again from the date the application is dismissed under paragraph (1).

(3) Unless the application is dismissed under paragraph (1), the court must fix a venue for it to be heard, and must give at least five business days’ notice to—

(a) the debtor or, if the debtor’s application was made by a solicitor acting for the debtor, to the solicitor;
(b) the creditor; and
(c) whoever is named in the statutory demand as the person with whom the debtor may communicate about the demand (or the first such if more than one).
(4) On the hearing of the application, the court must consider the evidence then available to it, and may either determine the application or adjourn it, giving such directions as it thinks appropriate." (Insolvency Rules 2016, r.10.5)

Dismissal without a hearing

Dismissal leading to permission to present petition

 

"(8) If the court dismisses the application, it must make an order authorising the creditor to present a bankruptcy petition either as soon as reasonably practicable, or on or after a date specified in the order." (Insolvency Rules 2016, r.10.5)

Dismissal leading to permission to present petition

BANKRUPTCY PETITION

BANKRUPTCY PETITION

Power to present petition

 

"(1) A petition for a bankruptcy order to be made against an individual may be presented to the court in accordance with the following provisions of this Part—
(a) by one of the individual’s creditors or jointly by more than one of them,

...

(2)Subject to those provisions, the court may make a bankruptcy order on any such petition." (IA 1986, s.264)

Power to present petition

Conditions for presentation

 

"(1) A creditor’s petition must be in respect of one or more debts owed by the debtor, and the petitioning creditor or each of the petitioning creditors must be a person to whom the debt or (as the case may be) at least one of the debts is owed.
(2) Subject to the next three sections, a creditor’s petition may be presented to the court in respect of a debt or debts only if, at the time the petition is presented—
(a) the amount of the debt, or the aggregate amount of the debts, is equal to or exceeds the bankruptcy level,
(b) the debt, or each of the debts, is for a liquidated sum payable to the petitioning creditor, or one or more of the petitioning creditors, either immediately or at some certain, future time, and is unsecured,

(c) the debt, or each of the debts, is a debt which the debtor appears either to be unable to pay or to have no reasonable prospect of being able to pay, and
(d) there is no outstanding application to set aside a statutory demand served (under section 268 below) in respect of the debt or any of the debts." (IA 1986, s.267(1) - (3)
)

Bankruptcy level: £5,000


"(4) “The bankruptcy level” is £5,000 but the Secretary of State may by order in a statutory instrument substitute any amount specified in the order for that amount or (as the case may be) for the amount which by virtue of such an order is for the time being the amount of the bankruptcy level." (IA 1986, s.267(4))

Conditions for presentation

- Establishing inability to pay (unpaid statutory demand or judgment debt)

 

"(1) For the purposes of section 267(2)(c), the debtor appears to be unable to pay a debt if, but only if, the debt is payable immediately and either—
(a) the petitioning creditor to whom the debt is owed has served on the debtor a demand (known as “the statutory demand”) in the prescribed form requiring him to pay the debt or to secure or compound for it to the satisfaction of the creditor, at least 3 weeks have elapsed since the demand was served and the demand has been neither complied with nor set aside in accordance with the rules, or
(b) execution or other process issued in respect of the debt on a judgment or order of any court in favour of the petitioning creditor, or one or more of the petitioning creditors to whom the debt is owed, has been returned unsatisfied in whole or in part.
(2) For the purposes of section 267(2)(c) the debtor appears to have no reasonable prospect of being able to pay a debt if, but only if, the debt is not immediately payable and—
(a) the petitioning creditor to whom it is owed has served on the debtor a demand (also known as “the statutory demand”) in the prescribed form requiring him to establish to the satisfaction of the creditor that there is a reasonable prospect that the debtor will be able to pay the debt when it falls due,
(b) at least 3 weeks have elapsed since the demand was served, and
(c) the demand has been neither complied with nor set aside in accordance with the rules." (IA 1986, s.268)

- Establishing inability to pay (unpaid statutory demand or judgment debt)

Notice of opposition to be filed 5 business days before hearing

 

"(1) A debtor who intends to oppose the making of a bankruptcy order must not less than five business days before the day fixed for the hearing—

(a)file a notice with the court; and

(b)deliver a copy of the notice to the petitioning creditor or the petitioner’s solicitor.

(2) The notice must—

(a) identify the proceedings;

(b) state that the debtor intends to oppose the making of a bankruptcy order; and

(c) state the grounds on which the debtor opposes the making of the order." (Insolvency Rules 2016, r.10.18)

Notice of opposition to be filed 5 business days before hearing

- no challenge to the assessment/liability to tax​

 

"[16] The interaction of the insolvency regime and the various tax regimes has led to a well established practice to the effect that the courts involved in the former leave the establishment of a liability to tax to the statutory procedures applicable by the latter. For instance the bankruptcy court does not usurp the jurisdiction of the VAT Tribunal by itself enquiring into matters within the statutory jurisdiction of the latter. This practice is well illustrated by Re Calvert [1899] 2 QB 145 and Lam v Inland Revenue [2005] BPIR 301." (HMRC v. Chamberlin [2011] EWCA Civ 271)

"[7]...It is no longer open to Mr Worby to seek to disturb by an appeal to this court the previous determinations of tax, liability to tax for previous years. That liability could have been challenged only in accordance with the statutory procedure laid down by Parliament for appeals to the Commissioners for Income Tax and appeals from there up to this court by way of case stated. It is not open to the court now to re-open and re-examine liability for tax in those previous years. So I am afraid, much as I sympathise with the sense of grievance which Mr Worby feels, although I think it is quite unjustified, because he only has himself to blame, the fact is that he hasn't shown any good reason to upset the bankruptcy order made by Mr Registrar Rawson and I shall dismiss his appeal." (Worby v Inland Revenue [2005] EWHC 835 (Ch), Sir Donald Rattee)

"In the case of an assessment there is no question of consideration as there is in the case of a judgment: there is a mere administrative assessment with a special mode of appeal provided which must be followed. I cannot think it possible that it is competent to the Bankruptcy Court, on the invitation of the trustee in bankruptcy or of the debtor, to reopen questions of that kind on a motion to expunge. It is quite impossible to conceive that it would be competent for me sitting here to go into the question of the rateable values of a union or of a parish, or any question of that sort. That seems to me to be a case which is analogous to the case in which I am at present invited to act. I think the application fails and must be dismissed with costs; but my decision will not interfere with any application the debtor may be advised to make to the Inland Revenue under the Board of Trade Regulations of May, 1888." (Re Calvert (1899) 2 QB 145, Wright J)

Save, perhaps, in cases of glaring injustice

"[15] Although most of the cases in this area deal with income tax assessments, the same principles apply in relation to VAT assessments (see the decision of the Court of Appeal in HMRC v Chamberlin [2011] BPIR 691). As the Chancellor confirmed in that case the only exceptions to this principle which may exist are those referred to by Blackburne J in Lam; namely fraud, collusion or possibly some glaring miscarriage of justice." (HMRC v. Harris [2011] EWHC 3094 (Ch), William Trower QC)

"[13]...I can see that if there were evidence that the assessments had been made in some fraudulent or collusive way, or there were some other glaring miscarriage of justice, it might be that the Bankruptcy Court could go behind the assessment and not make the Bankruptcy Order based upon the debt created by the unpaid tax resulting from the assessment, but there is no suggestion of that in this case. On the contrary, as I have endeavoured to show, the Revenue have entertained attempts by Mr Lam, personally and through advisers, to reconsider the amount of the assessments, but have not been persuaded on the information that has been provided that they should do so." (Lam v. IRC [2005] EWHC 592 (Ch), Blackburne J)

- no challenge to the assessment/liability to tax​

- dismiss or adjourn if tax appeal has real prospect of success​

 

“[84] Turning to the Bankruptcy Court's discretion when considering a petition, I agree with counsel for HMRC that it is wider than when considering whether to set aside a statutory demand, but how wide it is depends on the taxpayer's position with regard to an appeal. If the taxpayer has exhausted his rights of appeal against the tax assessment or is out of time for appealing, then the extent of the Court's discretion is that stated in Lam and Chamberlin: the Court will make a bankruptcy order unless, exceptionally, there is sufficient evidence that the assessment is fraudulent or collusive or that there has been some other glaring miscarriage of justice. If, on the other hand, the taxpayer has an extant appeal pending before the FTT, then  and  show that the Court's discretion is broader. In those circumstances, a key factor in the exercise of the Court's discretion is whether the Court considers that the appeal has a real prospect of success. If the Court is satisfied that the appeal has no real prospect of success, then the Court should make a bankruptcy order. Otherwise, the Court may either adjourn the petition or dismiss it depending on the circumstances.” (Vieira v. HMRC [2017] EWHC 936 (Ch), Arnold J)


 

- dismiss or adjourn if tax appeal has real prospect of success​

- Failure to properly serve the statutory demand leading to dismissal

 

"[30]...An essential prerequisite to the entitlement of Irwin Mitchell to present the Petition, namely the service of a statutory demand, was lacking. In the circumstances, I accept Miss Hawker's submission that this is not a case in which the exercise of discretion arises. The Petition should have been dismissed." (Canning v. Irwin Mitchell LLP [2017] EWHC 718 (Ch), Jeremy Cousins QC)

- Failure to properly serve the statutory demand leading to dismissal

Restricted from re-running arguments that were run or could have been run at set aside hearing

 

"[48]...As Chadwick LJ was at pains to point out in Coulter, the principle in Turner's case is not based on any form of estoppel, but rather on the principles that (i) "it is indeed a waste of the court's time and the parties' money to rehearse arguments which have already been run and have failed", and (ii) in circumstances where the debtor wishes to run new arguments, "the court will enquire why those arguments were not run at the time when they could, and should, have been run": see Coulter at [22], in addition to the passages from the judgment quoted above.

[49] Contrary to the argument advanced by Mr Schmitz, I would not confine the operation of these salutary principles to cases where a debtor seeks on the hearing of a petition to resurrect, or add to, arguments which he ran on a previous application to set aside the statutory demand. It seems to me that the principles are capable of general application throughout the various stages of the bankruptcy process which I have described, because the considerations of public policy on which the principles are founded are likely to apply with equal force at whatever later stage in the process the question arises. In particular, there is in my judgment every reason why the Turner principle should apply in the circumstances of the present case, where Mr Harvey is not only seeking to rely on the same arguments as before, but he chose on three separate occasions not to pursue a possible appeal against the original decision of the district judge." (Harvey v. Dunbar Assets Plc [2017] EWCA Civ 60, Henderson LJ)

Restricted from re-running arguments that were run or could have been run at set aside hearing

- Debtor not restricted where no application to set aside was made

 

"[48]... I can quite understand why a debtor should not - absent special circumstances - be permitted to run the same argument twice-over, once when seeking to set aside a statutory demand and once when resisting a bankruptcy petition. However, given that a debtor is not obliged to challenge a statutory demand - indeed, the debtor must make an application –, it seems to me to go too far to say that a debtor is precluded from raising a point in objection to a bankruptcy petition simply because he or she could have, but did not, apply to set aside the statutory demand that preceded the petition.

...

[51] Thus, the principle applies both where an argument was run on an application to set aside a statutory demand and where, on such an application, it could have been run. [40] However, there is nothing to suggest that a debtor who simply declines to make an application, which he or she is under no obligation to make, is by that fact alone precluded from taking a point on the hearing of the petition.

[52] In this case, Mr Gertner elected not to apply to have the statutory demand set aside, and I can see no basis for the application of the Turner principle for that reason." (Gertner v. CFL Finance Ltd [2020] EWHC 1241 (Ch), Marcus Smith J this part was not challenged in CoA)

- Debtor not restricted where no application to set aside was made

Restriction on challenge based on petition overstating debt

 

"(5) In the case of a petition preceded by a statutory demand, the petition will not be dismissed on the ground only that the amount of the debt was over-stated in the demand, unless the debtor, within the time allowed for complying with the demand, delivered a notice to the creditor disputing the validity of the demand on that ground; but, in the absence of such notice, the debtor is deemed to have complied with the demand if the correct amount is paid within the time allowed." (Insolvency Rules 2016, r.10.23)

- Restriction on challenge based on petition overstating debt

Discretion to make bankruptcy order if satisfied of unpaid debt

 

"(1) On the hearing of the petition, the court may make a bankruptcy order if satisfied that the statements in the petition are true, and that the debt on which it is founded has not been paid, or secured or compounded.

(2) If the petition is brought in relation to a judgment debt, or a sum ordered by any court to be paid, the court may stay or dismiss the petition on the ground that an appeal is pending from the judgment or order, or that execution of the judgment has been stayed.

(3) An order dismissing or giving permission to withdraw a bankruptcy petition must contain—

(a)identification details for the proceedings;

(b)the date of the presentation of the bankruptcy petition;

(c)the name, postal address and description of the applicant;

(d)a statement that the petition has been heard;

(e)the order that the petition be dismissed or that, with the permission of the court, the petition is withdrawn;

(f)details of any further terms of the order;

(g)the date and reference number of the registration of the petition as a pending action with the Chief Land Registrar;

(h)an order that the entry relating to the petition in the register of pending actions be vacated on the debtor’s application; and

(i)the date of the order.

(4) The order must notify the debtor that it is the debtor’s responsibility and in the debtor’s interest to ensure that the registration of the petition as an entry, both with the Chief Land Registrar and in the title register of any property owned by the debtor, is cancelled." (Insolvency Rules 2016, r.10.23)

Discretion to make bankruptcy order if satisfied of unpaid debt

Adjournment

 

"(1) This rule applies if the court adjourns the hearing of a bankruptcy petition.

(2) The order of adjournment must identify the proceedings and contain—

(a) the date of the presentation of the petition;
(b) the order that the further hearing of the petition be adjourned to the venue specified in the order;
(c) the venue of the adjourned hearing; and
(d) the date of the order.
(3) Unless the court otherwise directs, the petitioner must as soon as reasonably practicable deliver a notice of the order of adjournment to—

(a) the debtor; and
(b) any person who has delivered a notice of intention to appear under rule 10.19 but was not present at the hearing.
(4) The notice of the order of adjournment must identify the proceedings and—

(a) contain—
(i) the date of the presentation of the petition,
(ii) the date the order of adjournment was made, and
(iii) the venue for the adjourned hearing; and
(b) be authenticated and dated by the petitioner or the petitioner’s solicitor." (Insolvency Rules 2016, r.10.23)

Adjournment

Disposals by debtor between application and bankruptcy order void

 

"(1) Where a person is made bankrupt, any disposition of property made by that person in the period to which this section applies is void except to the extent that it is or was made with the consent of the court, or is or was subsequently ratified by the court.
(2) Subsection (1) applies to a payment (whether in cash or otherwise) as it applies to a disposition of property and, accordingly, where any payment is void by virtue of that subsection, the person paid shall hold the sum paid for the bankrupt as part of his estate.
(3) This section applies to the period beginning with the day of the making of the bankruptcy application or (as the case may be) the presentation of the bankruptcy petition and ending with the vesting, under Chapter IV of this Part, of the bankrupt’s estate in a trustee.
(4) The preceding provisions of this section do not give a remedy against any person—
(a) in respect of any property or payment which he received before the commencement of the bankruptcy in good faith, for value and without notice that the bankruptcy application had been made or (as the case may be) that the bankruptcy petition had been presented, or
(b) in respect of any interest in property which derives from an interest in respect of which there is, by virtue of this subsection, no remedy.
(5) Where after the commencement of his bankruptcy the bankrupt has incurred a debt to a banker or other person by reason of the making of a payment which is void under this section, that debt is deemed for the purposes of any of this Group of Parts to have been incurred before the commencement of the bankruptcy unless—
(a) that banker or person had notice of the bankruptcy before the debt was incurred, or
(b) it is not reasonably practicable for the amount of the payment to be recovered from the person to whom it was made.
(6) A disposition of property is void under this section notwithstanding that the property is not or, as the case may be, would not be comprised in the bankrupt’s estate; but nothing in this section affects any disposition made by a person of property held by him on trust for any other person." (IA 1986 s.284)

Disposals by debtor between application and bankruptcy order void

INTERNATIONAL ELEMENT​

INTERNATIONAL ELEMENT​

Jurisdiction to make debtor bankrupt

 

"(1) A bankruptcy petition may be presented to the court under section 264(1)(a) only if—
(a) the centre of the debtor's main interests is in England and Wales, or
(ab)the centre of the debtor's main interests is in a member State (other than Denmark) and the debtor has an establishment in England and Wales, or

(b) the test in subsection (2) is met.
(2) The test is that—
(a) the debtor is domiciled in England and Wales, or
(b) at any time in the period of three years ending with the day on which the petition is presented, the debtor—
(i) has been ordinarily resident, or has had a place of residence, in England and Wales, or
(ii) has carried on business in England and Wales.
(3) The reference in subsection (2) to the debtor carrying on business includes—
(a) the carrying on of business by a firm or partnership of which the debtor is a member, and
(b) the carrying on of business by an agent or manager for the debtor or for such a firm or partnership.
(4) In this section, references to the centre of the debtor's main interests have the same meaning as in Article 3 of the EU Regulation.
(5)In this section “establishment” has the same meaning as in Article 2(10) of the EU Regulation.
" (Insolvency Act 1986, s.265)

Jurisdiction to make debtor bankrupt​

Centre of debtor's main interests

Centre of debtor's main interests ​

Domiciled in England and Wales

Domiciled in England and Wales

- General principles

"[8] The following principles of law, which are derived from Dicey, Morris and Collins on The Conflict of Laws (2006) are not in issue:
(i) A person is, in general, domiciled in the country in which he is considered by English law to have his permanent home. A person may sometimes be domiciled in a country although he does not have his permanent home in it (Dicey, pages 122 to126).
(ii) No person can be without a domicile (Dicey, page 126).

(iii) No person can at the same time for the same purpose have more than one domicile (Dicey, pages 126 to128).

(iv) An existing domicile is presumed to continue until it is proved that a new domicile has been acquired (Dicey, pages 128 to 129).

(v) Every person receives at birth a domicile of origin (Dicey, pages 130 to 133).

(vi) Every independent person can acquire a domicile of choice by the combination of residence and an intention of permanent or indefinite residence, but not otherwise (Dicey, pages 133 to138).

(vii) Any circumstance that is evidence of a person's residence, or of his intention to reside permanently or indefinitely in a country, must be considered in determining whether he has acquired a domicile of choice (Dicey, pages 138 to143).

(viii) In determining whether a person intends to reside permanently or indefinitely, the court may have regard to the motive for which residence was taken up, the fact that residence was not freely chosen, and the fact that residence was precarious (Dicey, pages 144 to151).

(ix) A person abandons a domicile of choice in a country by ceasing to reside there and by ceasing to intend to reside there permanently, or indefinitely, and not otherwise (Dicey, pages 151 to153).

(x) When a domicile of choice is abandoned, a new domicile of choice may be acquired, but, if it is not acquired, the domicile of origin revives (Dicey, pages 151 to 153)." (Barlow Clowes International Limited v. Henwood [2008] EWCA Civ 577)

- General principles

- Homes in two jurisdictions: identify chief residence

 

"[307] As is clear from the section on the legal principles (see §33ff), we did not accept Mr Brodsky’s submission that if a person intended to end his days in one of two jurisdictions in which he had homes, that place was his “chief residence”.  We instead agreed with Mr Stone that where a person has two homes, a domicile of choice can only be established in a jurisdiction if the person has his “chief” or “principal” home in that jurisdiction, and that this requires the following approach:

(1)          carefully evaluate all the facts (Nourse J in Portland; Arden LJ in Barlow Clowes; King LJ in Kelly);

(2)          recognise that a finding that a jurisdiction is a domicile of choice requires “clear cogent and compelling evidence  (Longmore LJ in Cyganik, reaffirmed by King LJ in Kelly); and

(3)          assess “the quality” or “the character of his residence” in each jurisdiction on the basis of the factual findings (Arden LJ in Barlow Clowes and Lewison J in Gaines-Cooper)." (Strachan v. HMRC [2023] UKFTT 717 (TC), Judge Redston)

- Homes in two jurisdictions: identify chief residence

Ordinarily resident or had a place of residence in past 3 years

Ordinarily resident or had a place of residence in past 3 years​

- Some degree of continuity required (entitlement to occupy a place or temporary occupation with a third party's permission not sufficient)

"[5] The concept of being "ordinarily resident" and "having a place of residence" for the purposes of jurisdiction are not the same (Reynolds Porter Chamberlain LLP v Khan [2016] BPIR 722), although the same evidence and similar considerations may bear on or apply to both. With that, and the fact that I am concerned only with the "place of residence" limb of the test, in mind I turn to some of the case law and attempt to distil some of the many points that arise from it.
[6] In Re Brauch (A Debtor) Ex parte Britannic Securities & Investments Ltd [1978] Ch 316, which is relevant to both issues in this case, Goff LJ held that:

(1) It was possible for a debtor to have a place of residence in the jurisdiction even though he was not in actual occupation during the relevant period.
(2) The shorter the period of actual occupation of premises, the more difficult it would be to hold it to be a "dwelling house" (the relevant term under the Bankruptcy Act 1914).
(3) It was doubtful whether a debtor had to have a legal or equitable interest in a place of residence to satisfy the test.

[7] Re Brauch remains good law on "place of residence," there being no real difference between a "dwelling house," the expression used in the Bankruptcy Act 1914, and a "place of residence," the expression used in the Insolvency Act 1986 (see HRH Prince Hussam Bin Saud Bin Abdulaziz Al Saud v Mobile Telecommunications Company KSCP [2022] EWHC 744 (Ch), [2022] BPIR 1001).
The "place of residence" limb of jurisdiction was recently considered by Bacon J in Lakatamia Shipping Co Ltd v Su [2021] EWHC 1866 (Ch), [2022] BPIR 181, at paragraphs 24-26 and 36-37, from which Mr Leung derives a number of principles set out in his skeleton argument which I gratefully adopt, adapt and supplement as follows, continuing the numbering used in paragraph 6 above:

(4) The concepts "ordinarily resident" and "having a place of residence" are not totally separate, so that similar factors may be relevant to both tests; but it does not follow that all factors that may be relevant to one will be relevant to the other (para 32).
(5) The phrase "has had a place of residence" should be given its natural meaning (para 33).
(6) Regard may be had to authorities on the interpretation of the expression, even if they arose in different statutory contexts (para 33).
(7) The nature of a person's presence in and connection to a particular place is a relevant factor in determining residence.
(8) The test of "having a place of residence" requires an assessment of the quality of the debtor's residence. It does not simply mean that the debtor has an entitlement of some sort to occupy a place that is capable of being described as someone's place of residence (para 24).
(9) The residence must be that of the debtor, and not someone else (para 25).
(10) Thus, the residence cannot merely be the residence of a third party that the debtor is temporarily occupying with the third party's permission (para 26).
(11) In determining whether a debtor has had a place of residence in England and Wales, it is relevant to ask whether the putative place was a "settled or usual place of abode or home" for the debtor (para 36).
(12) Residence connotes "some degree of permanency, some degree of continuity or some expectation of continuity" (para 37).
(13) The nature of a person's presence may be a relevant factor: for example whether it was voluntary or not (paras 38-39).
The last point was of particular relevance to the unusual facts of the case before Bacon J. She followed it with the observation that any assessment will turn on the facts of the case, which is of general significance." 
(Durkan v. Jones [2023] EWHC 1359 (Ch), Deputy ICC Judge Baister)

- Some degree of continuity required (entitlement to occupy a place or temporary occupation with a third party's permission not sufficient)

Carried on business in England and Wales in past 3 years

Carried on business in England and Wales in past 3 years

- Location of activity

 

"[25] This evidence is, in my judgment in its totality insufficient to establish on the balance of probabilities that Mr Masters carried on in England the business of acquiring aircraft for the purpose of chartering. Choice of law clauses and jurisdiction clauses tell one how particular obligations are to be ascertained and enforced, but tell one nothing about where the business itself is being conducted. Addresses for the delivery of notices and for the service of proceedings may provide some clue: but may simply indicate that the obligor is bound to provide a relevant address within the jurisdiction (no matter where the business itself is conducted). The evidence of what Mr Masters actually did in England (sign one document) is extremely thin. It is overwhelmed by evidence of activity outside England. There really is no basis for saying that whilst Coldstream carried on its business in Luxembourg Mr Masters carried on a separate independent business in England." (Masters v. Barclays Bank Plc [2013] EWHC 2166 (Ch), Norris J)

- Location of activity

- Letting of property is a business

"[31] Mr Gupta says that Ramsay v Revenue and Customs Commissioners establishes that residential property letting is a business. Mr Leung counsels greater caution. I agree with Mr Leung. I think I should be cautious of adopting for the purposes of insolvency legislation any holding that relates to taxation, although it is plainly a consideration. I think it is more appropriate to ask what exactly the debtor did and whether, on the ordinary meaning of the words, that appears, on the balance of probabilities to amount to carrying on business.

...

[35] I hesitate to attempt a definition of "business" or "carrying on business" where better legal minds have not done so. I do, however, think that as a matter of ordinary sense the foregoing activities did and do amount to carrying on the business of letting property. I think most people contemplating activity in the form of the provision of goods or services for profit or gain (or perhaps, as Mr Gupta pointed out, some other benefit) would conclude that it amounted to carrying on business. I do. The business which the debtor carried on may not have been on a grand scale, but it has been going on, it seems, for some time, starting at about the time Mrs Charles-Jones was facing bankruptcy and continuing, it seems, even now. The monthly rent is not an insignificant amount: it is an income many people would be happy to have.
[36] There is another way of looking at the matter, which is to ask what the debtor was doing if he was not carrying on business. He was not engaged in charitable work, nor was he engaged in a pastime or hobby. Mr Leung gamely posited the possibility that he was an investor, but there is no evidential support for that, and the submission sits uneasily with the reasons the debtor advances for the purchase of the property, namely that it was to belong to his wife's parents.
[37] Mr Leung advanced a number of other reasons in support of his contention that his client's activities did not amount to carrying on business. He pointed to the modest scale of them; he pointed to the lack of any employees; and he pointed to the lack of any corporate structure. I am unpersuaded. As I have observed, the rent paid by the Walkers was not modest by the standards of most people, and the total amount claimed in the County Court is significant. Many people carry on business as sole traders and without any corporate structure; indeed the absence of any corporate structure is, in my view, precisely an indicator of carrying on business on one's own account." (Durkan v. Jones [2023] EWHC 1359 (Ch), Deputy ICC Judge Baister)

- Letting of property is a business

- Carrying on business through association with a company's business

 

[12] There are parallels between the facts with which the Court of Appeal had to deal in Re Brauch and the facts relied on by the petitioning creditor in this case. There is a convenient summary of the factors concerning jurisdiction in the judgment of Buckley LJ (at 335G-336F):

“There is, in my opinion, no doubt on the evidence that the debtor in this case carried on a business in England, which I would describe as that of a property developer. For the implementation of his projects he made use of a large number of limited liability companies, each company being apparently concerned with only one project at any one time. The fact that the contractual liabilities of the companies occurred in connection with the developments with which they were severally concerned may have been the companies' liabilities and not in any way liabilities of the debtor does not, in my judgment, in the least deprive those parts of the entire operations which were undertaken by the debtor himself from constituting a business carried on by him on his own behalf. It was he who found and selected the properties to be developed; it was he who had them valued. The correspondence between Mr. Maydwell's firm and the debtor, as well as Mr. Maydwell's own evidence, clearly indicates, in my opinion, that they were dealing with him on valuations as a principal and not as an agent of any company or companies. The debtor and not the companies seems to have organised the financing of the transactions. It was he who selected the company to carry out any particular project; he either promoted the companies or acquired them specifically for the purpose of carrying out those projects; he enabled and procured the companies to acquire their properties and carry out the developments, and in doing so he undertook very considerable personal liabilities in the form of guarantees and in other ways. Informally the debtor controlled these companies in the sense that the boards of directors, of many, and perhaps most, of which he was not formally a member, did whatever he told them to; and the debtor had a beneficial interest in the ultimate profits arising from these activities. The precise nature of this interest and whether he was or was not the only beneficiary does not appear clearly, but that he had such an interest is clear.
The role assumed by the debtor in these transactions was, in my judgment, certainly not confined to that of an investor in companies engaged in property developments, as he claimed. Nor was he acting in all respects merely on behalf of the companies: on the contrary I think on a true view of the evidence it would be more accurate to say that the companies were part of the machinery by which the debtor implemented his business projects. It is probable that in the course of doing so the several companies entered into contracts and incurred liabilities in respect of which the debtor could not have been made personally liable. There is no inconsistency between this and the debtor's having carried on a business which was distinct from the companies' activities, although associated with them, just as in In re Clark[1914] 3 K.B. 1095Mrs. Clark's activities in her personal capacity and not as managing director of the hotel companies constituted a business of her own distinct from the business of those companies. I am consequently of opinion that the registrar was right in finding that the debtor in this case was carrying on a business of his own in England."

[13] One can identify the factors relied upon by Buckley LJ (also referred to or added to by Goff LJ) as the following:

(1) the debtor was a property developer (cf. the judgment of Goff LJ (at 324E) who refers to his business as “property speculation”);
(2) he used limited companies for his business, one per project (cf. Goff LJ at 324G);
(3) he found and selected the properties to be developed (cf. 324G);
(4) he arranged their valuation (cf. 324G);
(5) he selected the company to be used for any project;
(6) he organised the financing (cf. 324H);
(7) he promoted or acquired the companies to be used;
(8) he enabled or procured the companies to acquire and develop the properties;
(9) he controlled the companies (although, as Goff LJ noted, the shareholding was obscure (324-325));
(10) he had a beneficial interest in the ultimate profits (cf. Goff LJ's reference to making a profit for himself at 325A);
(11) he gave personal guarantees (cf. 324H);
(12) he could deal with loan money at his discretion (Goff LJ 325A).

[14] The Court of Appeal drew an important distinction between business carried on by the debtor's companies and business carried on by him in his own right:

“[I]t would be wrong to hold that section 4 (1) (d) applies to a man who is running his company's business even though he be the sole beneficial shareholder and in complete control. There is, however, nothing in Salomon v. Salomon and Co. Ltd. inconsistent with finding that such a person is also conducting a separate business of his own, as was indeed what Vaughan Williams L.J. did in In re Charles Bright (1901) 18 T.L.R. 37” (328F).

But,

“[T]he evidence of the debtor himself in the light of all the circumstances compels one to find that the debtor was carrying on personally the business of promoting companies, or acquiring shell companies, to speculate in land, or alternatively that of finding suitable sites for development or investment, negotiating a price, including of course obtaining all necessary valuations, and financing the purchase. He then caused the properties to be vested in companies, which the 'one company per project' scheme shows that he must have promoted or acquired for the purpose. Once the property came to the company, its future management, development and realisation was, of course, the business of the company, and any liabilities which it incurred, for example for breach of covenant as landlords or for defective work or anything of that sort, would be the company's liability, not the debtor's; but all the preliminary stages I have described were, in my judgment, his business” (329A)." (Re Flannery [2013] BPIR 1)

Giving a guarantee is not enough

"[16] Mr Hardwick said that it was apparent from this document that it was Mr Flannery (who Mr Hardwick accepted was not in fact a director and whose Christian name was James rather than John) who approached the bank for funding in 2000. He said, too, that the form showed the importance that the bank attached to Mr Flannery's involvement with the application. I have to say, however, that to my mind this document does not take Mr Hardwick very far. The document shows that Mr Flannery was to give a personal guarantee, but taken on its own that can be explained in more than one way; it does not obviously carry the inference that Pentagon Estates Limited was to be used as part of a business carried on independently by Mr Flannery. Further, the fact that the bank hoped to obtain further business via Mr Flannery does not seem to add anything of importance." (Anglo Irish Bank Corporation Limited v. Flannery [2012] EWHC 4090 (Ch), Newey J)

- Carrying on business through association with a company's business

- Business does not cease until all trade debts (including tax) discharged

"In a sense it is true that the appellant was not actively carrying on business within three months of the presentation of the petition, but there is a series of cases beginning with In re Dagnall and ending with In re Reynolds which in unbroken sequence have decided that trading does not cease when, as the expression is, "the shutters are put up," but continues until the sums due are collected and all debts paid. It is true that all the decisions have been given in respect of married women's trading and that a distinction has been made between the earlier Acts where the expression was "as a trader" and the later where the phrase "carrying on trade" is found. But it is the later, not the earlier, phrase which has been adopted in the Act of 1914.

...

There is, however, one further matter which requires consideration. In all the cases referred to, the debts which were to be paid or collected were strictly trade debts, and it is maintained that in that respect they differ from the case under appeal in that the debt claimed by the Crown to be due is in respect of excess profits tax and that such a debt is not a trade debt but a sum due for taxes and no more connected with the appellant's business than income tax or any other tax liability. Whatever else may be said about excess profits tax, however, it is imposed upon the debtor because he has been trading, and I do not see any reason for confining trade debts to those incurred in buying or selling. In re Allen shows that they extend to liabilities incurred in incidental matters which occur during the course of carrying on the trade, including a liability for the careless driving of a servant resulting in an accident. In Dagnall's case Vaughan Williams L.J. said: "It seems to me that trading is not completed until you have performed all the obligations that the fact of trading imposed upon you"; and this language was quoted with approval by Swinfen Eady L.J. in In re Reynolds. I think it is accurate, and that the payment of excess profits tax was one of the obligations imposed on the appellant by his trading." (Theophile v. Solicitor-General [1950] AC 186)

"The debtor says that she has not carried on business in this country since 8 May 1987, the date upon which the business was sold. The Inland Revenue say that carrying on business for the purposes of this section continues until all the debts of the business incurred in the course of trade have been paid, and that includes the liability for tax.

The construction which is put forward by the commissioners is one which was adopted by the courts in respect of section 4 of the Bankruptcy Act 1914, upon which section 265 of the Act of 1986 is plainly modelled. 

...

I have already said that, on the question of jurisdiction, I can discern no difference between the policy of the Act of 1914 and that of the Act of 1986, and under those circumstances I think that the registrar's decision was right and the appeal must be dismissed." (re a Debtor [1992] Ch 554, Hoffmann J)

- Business does not cease until all trade debts (including tax) discharged

- Mortgage to buy home does not become a trade debt because property is let out

"[37] In my judgment the mortgage debt did not become a trade debt merely because the house over which the mortgage was granted was subsequently let." (North v. Skipton Building Society [2002] 6 WLUK 48)

- Mortgage to buy home does not become a trade debt because property is let out

- Unappealed tax assessment does not prevent taxpayer from arguing no business

 

"I accept Mr Tidmarsh’s submission that both in collection proceedings and in bankruptcy proceedings the debtor cannot challenge an unappealed assessment. (See the decisions in Commissioners of Inland Revenue v Pearlberg [1953] 34 TC 57 and as to bankruptcy: Re B. Moschi, ex parte R. Moschi v Commissioners of Inland Revenue [1953] 35 TC 92 which in turn refers to the earlier decision in Re Calvert [1899] 2 QB 145.) In my view the headnote to the Moschi case sums up the entire ratio decidendi of that case and the principle that was there involved. I quote:

‘The assessments having taken the proper course to finality could not be reopened.’

I would only qualify that they could not be reopened directly or indirectly. The liability is fixed. Mr Dickens of course protests that his client is not seeking to reopen the assessments but merely to say that he was not trading in England at the relevant time and I agree.

...

In view of the fact that the principle that he invokes is at the moment innominate, I would categorise it as ‘estoppel as to the facts essential to justify an unappealed assessment’, or ‘assessment estoppel’ for short.

However attractive assessment estoppel may be to the Revenue, I regard it as a major extension of the law as to estoppel, unjustified by the authorities, and one which I decline to make, not least because it would potentially lead to extensive examination of assessments by courts in order to decide what was an ‘essential fact’ in relation thereto. In my view the debtor was entitled to be heard to say ‘I was not trading’. That did not, of course, mean that he was entitled to be believed and if cross-examined perhaps he would have been disbelieved. But it means that his evidence cannot simply be disregarded. In my view Lord Templeman’s observations in the Tay Bok Choon case (above) with which the approach of Lord Green in Re Smith & Fawcett Ltd [1942] 1 Ch 302 (as to which see especially at p 308) are consistent and demonstrate this point." (Wilkinson v. IRC [1998] BPIR 418 Judge Colyer QC)

- Unappealed tax assessment does not prevent taxpayer from arguing no business

POST BANKRUPTCY ORDER

POST BANKRUPTCY ORDER

Proving debts

Unnecessary for HMRC to issue assessment

“In my judgment, just as with any other contingent debt, it is open to the trustee to accept the proof of debt for unassessed tax. It is not a requirement of the bankruptcy legislation that the trustee should insist on a Determination or assessment before accepting a proof of debt; still less is he required to appeal a Determination or assessment even if one is made. There would be no point in requiring a trustee to insist on an assessment if he would then simply accept a proof of debt for the amount assessed…The remedy of the bankrupt in such a case, if he considers that the proof should not have been admitted, is to make an application to the bankruptcy court under section 303. If the court is satisfied that the trustee ought not to have admitted the proof of debt, it can reverse the position and direct the trustee to appeal any Determination or assessment which HMRC might subsequently make or raise.” (R (oao Singh) v. HMRC [2012] UKUT 174 (TCC), §§30 – 31).

“The machinery of proof in bankruptcy undoubtedly provides for allowing tax debts to be proved even though they are un-assessed; see generally s.322 of the IA…” (Arnold v. Williams [2008] EWHC 218 (Ch), §66).

 

Penalties are provable debts

Re Hurren (a bankrupt) [1983] 1 WLR 183
 

Proving debts
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