Adrian Charles Hyde & Anor v Sukhwinder Todd
[2024] EWHC 1423 (Ch)
Stephen John Hunt v Jagtar Singh
17 July 2023
[2023] EWHC 1784 (Ch)
High Court
A company used a tax avoidance scheme that failed, leaving them owing tons of money. The liquidator sued a director for not looking out for creditors' interests when the scheme was likely to fail. The judge made a mistake in deciding the director wasn't at fault. The case is going back to court for a proper judgment.
Key Facts
- •Appeal against dismissal of liquidator's claim against a director, Mr Singh.
- •Claim relates to a tax avoidance scheme resulting in over £54 million in payments to directors.
- •Scheme involved payments to an EBT via a BVI shell company.
- •HMRC challenged the scheme, resulting in substantial tax liabilities for the company.
- •Company was insolvent due to the tax liability, despite showing fluctuating solvency in its financial statements.
- •Liquidator claimed breach of director's creditor duty under s.423 of the Companies Act 1986, s.317 of the Companies Act 1985 (s.177 of the Companies Act 2006), and s.212 for breach of fiduciary duty.
- •Mr Singh was a director and later a de facto director during the relevant period.
- •Appeal limited to breach of duty between September 2005 and 2010, and recovery of funds received by Mr Singh.
- •Mr Singh was bankrupt and did not participate in the appeal.
Legal Principles
Director's duty to consider creditor interests arises when directors know or should know the company is or is likely to become insolvent.
Sequana SA
Creditor duty arises when insolvency is imminent or there's a probability of insolvent liquidation, and directors know or ought to know.
Sequana SA (Supreme Court)
Creditor duty arises when the company is insolvent or bordering on insolvency; knowledge of insolvency is important but not necessarily essential.
Sequana SA (Supreme Court)
Content of creditor duty: consider creditor interests, give them appropriate weight, balance against shareholder interests; paramountcy depends on circumstances.
Sequana SA (Supreme Court)
A disputed liability is not a contingent liability.
Integral Memory PLC v Haines Watts
Outcomes
Appeal allowed in part; case remitted for reconsideration.
Judge applied the wrong test for determining when the creditor duty arose. The court should have considered whether directors knew or ought to have known of a real prospect of the tax challenge failing, leading to insolvency.
Creditor duty held to have arisen at the latest by September 2005.
The company faced a substantial tax liability; its solvency depended on successfully challenging this, and there was a real prospect of failure.
Case to be reconsidered by the judge, potentially before a High Court judge.
Further findings of fact needed to determine breach of duty, considering the nuances of the creditor duty and potential s.1157 defence; Mr Singh's bankruptcy and absence are factors.
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