Revenue & Customs v Maxwell & Anor (As Joint Administrators of Mercury Tax Group Ltd)

Factual and Procedural Background

An appeal was brought by Her Majesty's Revenue and Customs ("HMRC") against a decision of His Honour Judge Langan QC, sitting in the High Court at the Leeds District Registry. The appeal concerned the approach to be adopted by the chairman of a creditors' meeting when deciding on the votes to be accorded to a creditor under Rules 2.38 and 2.39 of the Insolvency Rules 1986 ("the 1986 Rules"), and the approach to be adopted by the court on appeal against such a decision under Rule 2.39(2).

Mercury Tax Group Limited ("the Company") was engaged in tax planning strategies. On 9 September 2009, two licensed insolvency practitioners from Begbies Traynor (Central) LLP ("the Administrators") were appointed as administrators by the Company's directors. On the same day, the Company's business and certain assets were transferred via a 'pre-pack' sale to Dramatic Sight Limited ("DSL"), controlled by the directors.

The administrators sent proposals to creditors on 19 October 2009. The initial creditors' meeting was held on 16 November 2009 but was adjourned to 30 November 2009. At the adjourned meeting, chaired by one of the administrators, HMRC voted against the proposals, but their vote was admitted only to the extent of £1,500,000 despite claiming a much larger amount. The proposals were carried. HMRC then applied to the court to reverse or vary the chairman’s decision, but Judge Langan upheld the chairman. HMRC appealed to the higher court.

Legal Issues Presented

1. What approach should the chairman of a creditors' meeting take in deciding the amount of votes to accord to a creditor under Rules 2.38 and 2.39 of the Insolvency Rules 1986?
2. What approach should the court adopt on an appeal against the chairman's decision under Rule 2.39(2)?
3. Whether the amount of a creditor's claim is to be assessed as at the date the company entered administration or the date of the creditors' meeting.
4. Whether HMRC’s corporation tax claims amounted to liquidated and ascertained debts or unliquidated/unascertained debts for the purposes of voting at the meeting.
5. The extent of the duty on the chairman and the court to assess an estimated minimum value for unliquidated or unascertained debts under Rule 2.38(5).

Arguments of the Parties

HMRC's Arguments

• HMRC contended that their corporation tax claims were liquidated and ascertained debts as at the date the Company went into administration, since the facts relating to income and expenditure for the relevant periods were known and the amounts could be calculated arithmetically.
• They argued the amount of a creditor's claim for voting purposes should be assessed at the date of the meeting, supporting a higher vote value for their claims.
• HMRC presented detailed documentation including notices of amendment, determination, enquiries, self-assessment returns, and witness statements to substantiate their claims.
• They maintained that the chairman and the court should accord votes based on the full amount claimed, subject to any appeals or challenges.

Administrators' Arguments

• The Administrators contended that the amount of a creditor's claim should be assessed as at the date the Company entered administration, not the date of the meeting.
• They argued that HMRC's claims (excluding self-assessment amounts) were unliquidated or unascertained debts at the date of administration.
• The Administrators relied on advice and investigations which, although not disclosed in detail, led the chairman to admit HMRC’s vote only to a limited extent.
• They generally denied liability for the majority of HMRC’s claimed tax without providing detailed factual or legal arguments during the appeal hearing.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
In re a Company (No 004539 of 1993) [1995] 1 BCLC 459	The court's function on appeal under the equivalent of Rule 2.39(2) is to form its own view on the evidence, not merely review the chairman's decision.	The court accepted that on appeal it should make a fresh decision based on all admissible evidence, not limited to what was before the chairman.
Re a Debtor (No 222 of 1990) ex p Bank of Ireland [1992] BCLC 137	Limitations on creditors' meetings as forums for lengthy disputes over the status of debts.	Supported the view that detailed disputes over debts are unsuitable for creditors' meetings but appropriate for court consideration on appeal.
In re Law Car & General Insurance Corporation [1913] 2 Ch 103	Valuation of debts at the date of administration but allowing consideration of subsequent events.	Supported the principle that valuation for voting purposes can take into account events after the date of administration.
Ex parte Ruffle, Re Dummelow (1873) 8 LR Ch App 997	Definition of unliquidated debts including debts where the creditor cannot state the amount.	Applied to classify HMRC's claims as unliquidated or unascertained where appropriate.
Re Cranley Mansions Ltd, Saigol v Goldstein [1994] 1 WLR 1610	Characterisation of contingent and unliquidated claims for voting purposes.	Supported the court’s approach to unliquidated debts in insolvency proceedings.
Doorbar v Alltime Securities Ltd [1995] BCC 1149	Similar to Re Cranley Mansions on unliquidated debts.	Reinforced the principle distinguishing liquidated from unliquidated debts.
Re Newlands (Seaford) Educational Trust [2006] BPIR 1231	Further authority on unliquidated or contingent claims in insolvency.	Supported the classification of debts for voting and proof purposes.
Power v Petrus [2008] EWHC 2607 (Ch)	Clarification of the court's role in appeals under the Insolvency Rules.	Confirmed that the court is not confined to reviewing the chairman's decision but makes its own determination.
Tradition (UK) Ltd v Ahmed [2008] EWHC 2946	Further support for the approach to appeals and valuation of claims.	Applied in affirming the principles governing voting and appeals under the 1986 Rules.

Court's Reasoning and Analysis

The court began by clarifying the scope of the chairman's and the court's functions under Rules 2.38 and 2.39. It held that the court on appeal must make its own decision based on the evidence and arguments, not merely review the chairman’s decision. This is because the chairman may have access to confidential information not available to the court, and fairness requires the court to consider all admissible evidence presented on appeal.

The court interpreted Rule 2.38(4) as requiring the amount of a creditor's claim to be assessed as at the date the Company entered administration, not the date of the creditors' meeting. This interpretation was supported by the language of the Rules and related provisions concerning payments, set-off, and valuation of debts.

Similarly, the characterisation of debts as liquidated or unliquidated under Rule 2.38(5) was to be made as at the date of administration. However, the chairman and the court may take into account events occurring after that date when assessing the estimated minimum value for voting purposes.

The court found that HMRC's claims for corporation tax, except for the amounts recorded in the Company's self-assessments, were unliquidated or unascertained debts as at the date of administration. Notices of amendment and determination issued later rendered those amounts liquidated and ascertained for voting purposes.

On the evidence before the court, HMRC had made out a clear prima facie case that the corporation tax claimed was due, subject only to a small terminal loss claim by the Company. The Administrators failed to provide specific evidence or legal arguments to counter HMRC’s claims or to justify reducing the amount admitted for voting.

The judge below erred by upholding the chairman’s decision based on advice and information not disclosed to the court and by effectively placing the burden on HMRC to disprove that advice. The court held that the judge should have made an independent assessment on the evidence presented.

Given the lack of substantive challenge from the Administrators, the court concluded that the chairman should have admitted HMRC’s vote at a level sufficient to defeat the proposals put to the creditors' meeting.

Finally, the court considered the appropriate remedy under Rule 2.39(4) and agreed with the parties that a further creditors' meeting should be convened to reconsider the proposals with the correct voting allocations.

Holding and Implications

The appeal by HMRC is allowed. The court held that the chairman of the creditors' meeting erred in admitting HMRC's vote only to a limited extent and that the judge below erred in upholding that decision without independently assessing the evidence.

The court ordered that another creditors' meeting be summoned pursuant to Rule 2.34, allowing HMRC to vote at a level that would have defeated the original proposals.

The direct effect is to require the Administrators to convene a new creditors' meeting with the corrected vote values. No new precedent beyond the application of existing principles was established.