Stephen John Hunt v Jagtar Singh
[2023] EWHC 1784 (Ch)
Christopher Purkiss v Tim Kennedy & Ors
8 May 2024
[2024] EWHC 1081 (Ch)
High Court
A company's tax avoidance scheme failed, leaving it insolvent and owing HMRC a lot of money. The liquidator sued the scheme's participants, but the court ruled against them. The court said that avoiding taxes isn't automatically illegal; the company had to be intentionally trying to cheat creditors, which wasn't proven.
Key Facts
- •Christopher Purkiss, liquidator of Ethos Solutions Limited (a company promoting a tax avoidance scheme), brought proceedings against 23 respondents under section 423 of the Insolvency Act 1986.
- •The scheme involved employees receiving most of their earnings as loans from an offshore trust to avoid tax.
- •HMRC assessed the company for unpaid income tax and NICs totaling £2,238,057.72.
- •The company entered into creditor's voluntary liquidation without paying or appealing the assessment.
- •The applicant argued the scheme was a composite transaction at an undervalue and entered into for a prohibited purpose under s.423(1)(c) and s.423(3).
Legal Principles
Section 423 of the Insolvency Act 1986 allows the court to make orders if a transaction was entered into at an undervalue for a prohibited purpose.
Insolvency Act 1986, section 423
A transaction is at an undervalue if the consideration received is significantly less than the consideration provided. The valuation should be from the company's perspective and include all relevant liabilities.
Insolvency Act 1986, section 423(1)(c); Re M C Bacon Ltd [1990] BCLC 324
A prohibited purpose under s.423(3) includes actions to put assets beyond the reach of a creditor or otherwise prejudice their interests. The 'claim' in s.423(3) refers to present or future claims.
Insolvency Act 1986, section 423(3); JSC BTA Bank v Ablyazov [2018] EWCA Civ 1176
The intention to legitimately minimize tax is not, in itself, a prohibited purpose under s.423(3).
IRC v Duke of Westminster [1936] 19 TC 490; Re Marylebone Warwick Balfour Management [2022] EWHC 784; Asertis Ltd v Heathcote [2022] EWHC 2498
Statutory interpretation requires an objective assessment of the meaning a reasonable legislature would convey. The primary source of meaning is the statute's words, with external aids playing a secondary role.
R (O) v Secretary of State for the Home Department [2023] AC 255
Outcomes
The application was dismissed.
The court found that while the scheme resulted in a transaction at an undervalue, the company did not have a prohibited purpose under s.423(3). The intention to avoid tax liability did not equate to an intention to prejudice a future claim by HMRC. The court rejected the argument that the company's actions were intended to put assets beyond the reach of HMRC.
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