The Secretary of State for Business and Trade v James Bernard Low
[2024] EWHC 1812 (Ch)
The Official Receiver v Andrew Anthony Kelly
18 May 2023
[2023] EWHC 1181 (Ch)
High Court
A company boss knew or should have known his company was cheating on taxes, so he was banned from running companies for 12 years. The judge said he should have known better because of the many warning signs the company ignored.
Key Facts
- •Andrew Anthony Kelly (Mr. Kelly) was the sole director and shareholder of Walmley Ash Ltd (formerly Balmoral Ltd).
- •The company was involved in transactions connected with the fraudulent evasion of VAT (MTIC fraud) between May 30, 2006, and June 1, 2006.
- •The company wrongfully claimed £1,748,687.50 in input tax on its May 2006 VAT Return.
- •Mr. Kelly was aware of MTIC fraud and the need for due diligence but failed to conduct adequate due diligence.
- •The company engaged in back-to-back transactions with little to no assets and high turnover, hallmarks of VAT fraud.
- •Mr. Kelly did not attend the initial trial date, citing ill health, but participated remotely after an adjournment.
- •A previous First-tier Tribunal Tax Chamber (FTT) decision found the company participated in transactions connected with VAT fraud.
Legal Principles
Court's duty to disqualify unfit directors of insolvent companies.
Company Directors Disqualification Act 1986 (CDDA 1986), s. 6(1)
Test for unfitness: Whether the director's conduct makes him unfit to be concerned in the management of a company.
Re Sevenoaks Stationers (Retail) Ltd [1991] Ch 164
Kittel principle: If a taxable person knew or should have known about participation in a transaction connected with VAT fraud, there is no right to deduct input tax.
Axel-Kittel v Belgium; Belgium v Recolta Recycling [2006] ECR 1-6161
In MTIC fraud cases, the court must determine the company's involvement and the director's knowledge and involvement.
Secretary of State v Corry (Unreported, 9 January 2012) and Secretary of State for Business Innovation and Skills v Warry [2014] EWHC 1381 (Ch)
A director cannot simply fail to involve himself in company affairs; failing to monitor or supervise is as culpable as positive wrongdoing.
Secretary of State v Earley (unreported) and Re Brampton Manor (Leisure) Ltd [2009] EWHC 1796
Outcomes
Disqualification order against Mr. Kelly for 12 years.
Mr. Kelly's conduct, through his company's involvement in MTIC fraud, demonstrated unfitness to be concerned in the management of a company. The court found that he either knowingly participated or willfully ignored the fraudulent nature of the transactions.