Commissioners for His Majesty's Revenue and Customs v Payroll & Pension Services (PPS Umbrella Company) Ltd

Factual and Procedural Background

In November 2023, HM Revenue and Customs ("HMRC") presented a winding-up petition against Payroll & Pension Services (PPS Umbrella Company) Limited ("the Company") for indebtedness of approximately £7.39 million relating to national insurance contributions ("NICs") from 2017-2018 to 2023-2024. Concurrently, HMRC applied without notice for the appointment of provisional liquidators, with hearings before a Deputy High Court Judge ("the Judge") in early November 2023. The Judge granted the appointment of provisional liquidators conditional upon HMRC providing an unlimited cross-undertaking in damages, a decision challenged by HMRC on appeal.

Subsequently, in July 2024, another Deputy High Court Judge dismissed the winding-up petition, finding a bona fide dispute as to whether the workers were employees liable for NICs or self-employed. The Judge acknowledged prima facie evidence of fraud involving the Company but refrained from making a final finding of dishonesty without further evidence. The issue of NIC liability is pending appeal to the First-tier Tribunal (Tax Chamber).

Legal Issues Presented

1. Whether HMRC, as a public authority applying for the appointment of provisional liquidators, should be required to give an unlimited cross-undertaking in damages.
2. The applicability of the "law enforcement action" exception to the requirement of a cross-undertaking for HMRC in these circumstances.
3. Whether any cap should be placed on the financial extent of HMRC's cross-undertaking in damages.

Arguments of the Parties

Appellant's Arguments (HMRC)

• HMRC contended it should be considered within the "law enforcement action" category or sufficiently close to it, thus exempting it from the requirement to provide a cross-undertaking in damages.
• HMRC emphasized its role as an involuntary creditor with statutory tax collection functions, and the public interest in pursuing companies suspected of fraudulent tax abuse.
• They argued that requiring a cross-undertaking would deter HMRC from acting against fraud due to the need to allocate budget for potential liabilities.
• HMRC suggested that prior case law placed excessive weight on the form of originating process rather than the substance of HMRC’s public interest objectives.
• As a fallback, HMRC proposed that if a cross-undertaking were required, it should be subject to a financial cap, although no evidence was provided to justify or quantify such a limit.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
JSC Mezhdunarodniy Promyshlenniy Bank v Pugachev [2015] EWCA Civ 139	Default requirement of unlimited cross-undertaking in damages for interim injunctions.	Confirmed the general rule that applicants for interim relief must provide cross-undertakings, with exceptions for law enforcement agencies.
F. Hoffmann-La Roche & Co AG v Secretary of State for Trade and Industry [1975] AC 295	Distinction between law enforcement actions and proprietary/contractual claims by the Crown regarding cross-undertakings.	Held that law enforcement actions do not require cross-undertakings as a matter of course; applied to evaluate HMRC’s position.
Financial Services Authority v Sinaloa Gold plc [2013] UKSC 11	Reaffirmed law enforcement exception to cross-undertaking requirement for public authorities acting under statutory powers.	Clarified that public authorities exercising statutory law enforcement powers may not need cross-undertakings; distinguished HMRC’s creditor role.
Customs and Excise Commissioners v Anchor Foods Ltd [1999] 1 WLR 1139	Requirement of cross-undertaking in damages by public authorities in injunction proceedings.	Held that Customs and Excise should give cross-undertakings in damages when seeking injunctions, highlighting the balance of interests.
Re Parkwell Investments Ltd [2014] EWHC 3381 (Ch)	Whether HMRC should be exempt from cross-undertaking requirement when appointing provisional liquidators.	Held HMRC should not be treated as a private litigant but declined to require cross-undertaking in that case; contrasted with other authorities.
Abbey Forwarding Ltd v HMRC [2015] EWHC 225 (Ch)	Reaffirmed requirement of cross-undertaking for HMRC on applications for provisional liquidators.	Rejected the analogy between HMRC and law enforcement agencies; held cross-undertaking requirement appropriate for HMRC.
HMRC v Rochdale Drinks Distributors Ltd [2011] EWCA Civ 1116	Appointment of provisional liquidator requires showing likelihood of winding-up order and cross-undertaking in damages.	Confirmed the practice of requiring cross-undertakings from HMRC in provisional liquidator appointments.
Kirklees Metropolitan Borough Council v Wickes Building Supplies Ltd [1993] AC 227	Public authorities exercising law enforcement functions may be exempt from cross-undertaking requirements.	Applied to distinguish law enforcement injunctions from creditor actions like HMRC’s petition.
Jain v Trent Strategic Health Authority [2009] UKHL 4	Procedural safeguards including cross-undertakings protect absent respondents in ex parte public interest orders.	Supported the view that public authorities acting in public interest should not be immune from cross-undertakings.
Competition and Markets Authority v Flynn Pharma Ltd [2022] UKSC 14	Public bodies do not enjoy protected status in litigation; costs and safeguards apply equally.	Reinforced that public interest does not confer immunity from procedural safeguards like cross-undertakings.

Court's Reasoning and Analysis

The court analysed the nature of HMRC’s role and the statutory framework governing winding-up petitions and provisional liquidator appointments. It distinguished between public law enforcement actions, where public authorities exercise statutory powers to enforce the law, and private litigation or creditor actions, where claims are made to recover debts.

The court held that HMRC’s application for provisional liquidators was made in its capacity as a creditor seeking to recover a debt (the unpaid NICs), rather than as a public law enforcement agency exercising a statutory enforcement power. Although HMRC performs public functions, its remedies in this context are those of an ordinary creditor, and Parliament has limited the circumstances in which HMRC may present petitions on public interest grounds.

The court considered relevant authorities, including the House of Lords and Supreme Court decisions, which establish that public authorities exercising law enforcement powers may be exempt from cross-undertakings, but this exemption does not extend to creditor petitions like HMRC’s. The appointment of provisional liquidators was emphasised as a particularly severe remedy, often resulting in the immediate cessation of trading, which justifies requiring a cross-undertaking to protect the company from unjustified harm.

The court rejected HMRC’s argument that the cross-undertaking should be limited in amount, noting the absence of evidence to support such a cap and that internal government budgeting concerns do not override the need to protect companies affected by provisional liquidations.

Accordingly, the court concluded that the Judge was correct in requiring HMRC to provide an unlimited cross-undertaking in damages as a condition for appointing provisional liquidators.

Holding and Implications

The court DISMISSED the appeal by HMRC against the requirement to provide an unlimited cross-undertaking in damages when applying for the appointment of provisional liquidators.

The direct effect is that HMRC must bear the financial risk of any damages awarded to the Company or affected parties as a result of the provisional liquidation order. This decision maintains the established procedural safeguard protecting companies from potentially unjustified interim relief sought by creditors, even when those creditors are public authorities acting in the public interest. The ruling does not establish new precedent but reaffirms the existing legal framework distinguishing between public law enforcement actions and creditor litigation.