Parkwell Investments Ltd v Wilson & Anor

Factual and Procedural Background

On 18 March 2014, Judge Hildyard appointed Mr Wilson of Company A as provisional liquidator of Company B on the without-notice application of The Commissioners for Her Majesty's Revenue & Customs ("HMRC"). HMRC had presented a creditor's petition to wind up Company B, alleging unpaid VAT totaling approximately £7.76 million for three quarterly periods between 1 November 2012 and 31 July 2013, and a further contingent amount of approximately £2.17 million for the subsequent five months to 31 December 2013. The appointment was to last until the conclusion of the petition hearing or further order, with a review set for 25 March 2014.

Company B challenged the appointment and the winding up petition, applying on 11 April 2014 to discharge the orders and dismiss or stay the petition pending resolution of appeals against the VAT assessments at the First-Tier Tax Tribunal ("FTT"). Company B relied on three main arguments: lack of jurisdiction for the appointment of a provisional liquidator, the merits of the petition, and the discretion of the court in making such appointment. It also sought a retrospective undertaking in damages from HMRC dating back to the original appointment.

The matter was effectively heard in late June 2014 before the presiding judge, who declined to discharge the appointment or require an undertaking in damages, promising to provide written reasons.

Legal Issues Presented

1. Whether the court had jurisdiction to appoint a provisional liquidator pending the resolution of appeals to the FTT against the VAT assessments.
2. Whether the petition debt was likely to be established on the hearing of the petition, thus justifying the appointment of a provisional liquidator.
3. Whether, even if the petition was well founded, the court should exercise its discretion to continue or discharge the appointment of the provisional liquidator.
4. Whether HMRC should be required to provide an undertaking in damages, and if so, whether it should have retrospective effect.

Arguments of the Parties

Appellant's Arguments (Company B)

• The court lacked jurisdiction to appoint a provisional liquidator because the FTT was the appropriate tribunal to adjudicate on the VAT assessments and appeals.
• The petition was unlikely to succeed on its merits as Company B had appealed the VAT assessments and had supplied evidence, including Call Data Records ("CDRs"), to support its input tax claims.
• The court should exercise discretion against appointing a provisional liquidator pending the outcome of the FTT appeals.
• HMRC should be required to provide a retrospective undertaking in damages to protect Company B from wrongful appointment consequences.

Appellee's Arguments (HMRC)

• Despite the appeal to the FTT, the VAT assessments remained due and payable, and the court had jurisdiction to consider the winding-up petition and appoint a provisional liquidator.
• Company B failed to produce sufficient original CDR data to verify its claimed taxable supplies, undermining the validity of its input tax claims.
• Evidence indicated that Company B's transactions were connected with fraudulent evasion of VAT, and Company B knew or should have known this, justifying refusal of input tax deductions under the principles in Kittel and Mobilx.
• There was a serious risk of dissipation of Company B's assets, including unexplained large payments after the appointment of the provisional liquidator, supporting the need to maintain the appointment.
• HMRC, as a public authority enforcing tax law, should not be required to provide an undertaking in damages in connection with the provisional liquidation.

Provisional Liquidator's Position (Mr Wilson)

The opinion does not contain a detailed account of the provisional liquidator's legal arguments beyond his role and involvement in the matter.

Table of Precedents Cited

Court's Reasoning and Analysis

The court first considered the jurisdiction argument, rejecting the contention that the existence of an appeal to the FTT ousted the winding-up court’s jurisdiction. It held that the key question was whether the appeal had any merit; if it did not, the court could proceed with the winding-up petition. The court distinguished the Enta decision, emphasizing that jurisdiction does not disappear upon the filing of an appeal and that the FTT cannot appoint provisional liquidators.

On the threshold requirement, the court examined whether Company B had produced sufficient evidence to substantiate its taxable supplies and entitlement to input tax. The court found that Company B failed to produce adequate original Call Data Records (CDRs), which are essential in the VoIP industry to verify supplies. Approximately 10% of trading data was entirely missing, and the remainder was provided only in processed form by an external consultant, which HMRC could not verify. The court concluded that Company B had failed to show a substantial dispute over the petition debt.

Regarding the alternative basis that Company B's transactions were connected to fraudulent VAT evasion under Kittel and Mobilx, the court found sufficient evidence that Company B’s UK suppliers were linked to VAT defaults and tax losses. Company B’s due diligence was perfunctory and often conducted after trading ceased. The court was persuaded that Company B either knew or should have known that the transactions were connected to fraud.

The court also considered the insolvency evidence, finding that Company B had minimal assets and was unlikely to pay the undisputed debt on winding up.

In exercising discretion, the court emphasized the risk of dissipation of assets, noting unexplained payments made shortly after the provisional liquidator’s appointment, possibly in defiance of the court order. There were also concerns about the integrity of Company B’s management and record-keeping, including interference with email accounts. The court concluded that maintaining the provisional liquidator was appropriate pending the petition hearing.

Finally, on the issue of an undertaking in damages, the court applied established authority distinguishing public law enforcement actions from private litigation. It held that HMRC, as a public authority enforcing tax law, would not ordinarily be required to give such an undertaking. The court found no special circumstances to depart from this practice, especially given the public interest in recovering unpaid tax and the lack of suitable lesser remedies.

Holding and Implications

The court DENIED Company B's application to discharge the appointment of the provisional liquidator and refused to require HMRC to provide an undertaking in damages, whether retrospective or otherwise.

The appointment of Mr Wilson as provisional liquidator of Company B will continue pending the effective hearing of the winding-up petition. This decision confirms the court’s jurisdiction to appoint provisional liquidators despite ongoing appeals to the FTT, provided the petition debt is not substantially disputed on grounds that would require trial. It also affirms the established practice that public authorities enforcing tax law are generally not required to provide undertakings in damages when seeking interim relief.