In exercising its jurisdiction to wind up companies the Companies Court will determine whether the petition debt is subject to a genuine and substantial dispute.1 If it is not, then the Court will exercise its discretion as to whether or not to wind up the company. The first instance decision in Enta Technologies Ltd v The Commissioners of Her Majesty’s Revenue and Customs 2 (“Enta”) provided a departure from that orthodoxy. In Re Parkwell Investments 3 (“Parkwell”) the High Court found that decision to be wrong and declined to follow it. On appeal in Enta (under the Company’s new name Changtel Solutions Ltd) the Court of Appeal also found Enta to be wrongly decided and allowed the appeal.
This short article looks at all three decisions before offering a brief analysis of the outcome.
Enta Technologies Ltd. was the subject of an HMRC investigation which led the Commissioners to conclude that it had been party to transactions which were related to Missing Trader Intra-Community (MTIC) fraud. Based on that conclusion, 36 VAT assessments were made between February 2010 and October 2012. Those assessments totalled approximately £35m.
The case had a troubled procedural history, but by the time that the matter came before the Judge the Company had gained permission to appeal the assessments out of time in the FTT. The matters for the Judge were twofold. First, he had to consider the Company’s applications to restrain advertisement and strike out the petition on the grounds that there was a genuine dispute. Second, he had to decide whether to make the winding up order. The Judge decided that the petition should be dismissed and its advertisement restrained.
In arriving at his decision, the Judge found that adjudication on the correctness of the tax assessment was entrusted exclusively to the FTT because it has, since 2009, had the ability to strike out an appeal pursuant to r. 8(3)(c) of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009/273 when there is no real prospect of the appeal succeeding. Therefore the appropriate forum to determine whether an appeal has real prospects of success was held to be the FTT. The Judge also held that as the FTT had already determined that the appeal was not ‘hopeless’, the need for it to retain jurisdiction was compounded and any attempt to revisit the FTT’s decision should be undertaken by way of an application to the FTT.5 In such circumstances the Judge found that it was correct for the winding up court to ‘abdicate’ or ‘defer’ to the FTT.6
Re Parkwell Investments
The decision in
Enta was relied upon by the Company in the recent case of Re Parkwell Investments.7 In Parkwell, HMRC suspected the Company of substantial VAT frauds. The Commissioners successfully applied without notice, to the High Court for an order by which a provisional liquidator was appointed.
In making their application, it was necessary for HMRC to show that on the hearing of the petition, it was ‘likely’ that they would obtain a winding up order in respect of the debtor company, thus meeting the test established in
HMRC v Rochdale Drinks Distributors Ltd.8
On the application to discharge the appointment of the provisional liquidator, the Company sought to rely upon the decision in
Enta, asserting that as the assessments were under appeal in the FTT, the High Court had no jurisdiction to hear the petition. It followed as a result, that HMRC were unable to show that they were likely to obtain a winding up order when the petition came to be heard.
Sir William Blackbuurne was not persuaded by this reasoning. The Judge first observed that there was a certain artificiality in the winding up court losing jurisdiction, simply as a result of the Company filing a notice of appeal:
There is to my mind something highly artificial in the notion that this court has jurisdiction to entertain a winding-up petition brought by HMRC against a company founded on the non-payment of a VAT assessment (and, it must be assumed, grant interim relief in the process, for example, the appointment of a provisional liquidator) for so long as the company has taken no steps to appeal the assessment to the FTT (and, of course, the company may decide not to do so) only to find that that jurisdiction is lost the moment the company files its notice of appeal to the tribunal or, if not lost, is no longer exercisable, irrespective of the merits of the appeal...
I cannot think that this approach is right. Jurisdiction in this court cannot arise and disappear (or be exercisable and then suddenly cease to be) in this see-saw fashion.
Instead Sir William Blackburne found that ‘the true question... is whether the appeal to the FTT... has any merit’.10 Accordingly, the Judge declined to accept the company’s submission that the Court lacked jurisdiction to determine the matter.
Enta on appeal (Changtel Solutions UK Ltd (formerly Enta Technologies Ltd) v Revenue and Customs Commissioners)
Parkwell being heard, HMRC obtained permission to appeal the decision in Enta. The appeal proceeded in the Court of Appeal under the Company’s new name as Changtel Solutions UK Ltd (formerly Enta Technologies Ltd) v Revenue and Customs Commissioners.11
Vos LJ, in a judgment with which Longmore and Patten LJJ both agreed, found in favour of HMRC and allowed the appeal. In arriving at his decision, Vos LJ accepted counsel for the Company’s submission that there was a distinction to be drawn between the guidance provided by the judge at first instance and the discretion which he had exercised.
Addressing that guidance first, Vos LJ stated that he had no doubt that the judge was wrong in the guidance which he gave.13 He accepted that Autologic Holdings plc v IRC 14 was authority for the proposition that it would be an abuse of process to make a claim in court as an indirect way of achieving the same outcome as could be achieved in the FTT.15
However, he also found that on the facts,
Autologic did not apply.16 Vos LJ held that the decision for the Companies Court was of a different character to that made by the FTT. Importantly, presentation of a petition by HMRC was not an indirect way of winning that appeal. Even if the petitioner was successful, the appeal in the FTT would remain extant albeit that it would be for the liquidator to decide whether to pursue the appeal.
Further, the Court also found that the judge at first instance was wrong to find that the introduction of r. 8(3)(c) in 2009 was of any relevance.17 The provision affected a procedural change and did not alter the substantive jurisdiction of the Companies Court.
Finally, the Court addressed its own recent decision in
Salford Estates (No 2) Ltd v Altomart Ltd.18 In that case the Court of Appeal had upheld a first instance decision to stay a winding-up petition based upon a contract which was subject to an arbitration clause. Vos LJ held that the case did not support a conclusion that section 9 of the Arbitration Act 1996 ousted the Court’s jurisdiction to hear the petition.19 Rather, it was a factor relevant to the exercise of the Court’s discretion as to whether the winding up petition should be allowed to proceed. In light of that analysis Vos LJ held that the case supported his conclusion that the first instance judge was wrong in finding that the Companies Court had to defer to the FTT.
The Court then turned to the question of whether, notwithstanding the fact that the Judge’s guidance had been incorrect, he had properly exercised his discretion. The Court held that the failings in the guidance meant that the way in which the Judge had exercised his discretion was flawed.20 Accordingly it was for the Court of Appeal to revisit the issue of whether the debt in issue was dispute in good faith and on substantial grounds.
It is submitted that the decision in
Parkwell and that of the Court of Appeal in Enta are to be welcomed both in their expression of legal principle and in that principle’s practical application.
As a matter of principle, the jurisdiction of the High Court to decide, in the context of a winding up petition, whether a debt is the subject of a genuine dispute is long held.21 The question for the Court is simply whether the debt is disputed in ‘good faith and on substantial grounds’.22 There is no authority, other than the first instance decision in
Enta, which suggests that the court may decline to determine that issue and have the matter decided by a different forum.
Further, it is also well established that the decision of a different forum does not bind the winding up court. In
Welsh Brick Industries, Morton LJ held that the decision of a county court to give the Company leave to defend under RSC Ord 14 did not bind the Companies Court:23
Therefore, the decision of the registrar in giving leave to defend does not amount to more than this—that he thought, on the evidence before him, that there was at least a fair probability that the company had a bona fide defence. To my mind it is quite impossible to regard such a finding by the registrar as a bar in itself to a finding of fact by the county court judge that there was no bona fide dispute as to this debt at all.
The Court of Appeal’s ruling requires the winding up court to revisit the issue of whether the debt is genuinely disputed, notwithstanding the fact that a different court has concluded that the defence to the debt claim has a ‘fair probability’ of success.
This is not to say that the winding up court should give no regard to a decision of the FTT. However it is just one factor amongst others which will be before the Court. As Lord Greene MR held in
Re Welsh Brick Industries:24
I cannot accept the proposition that, merely because unconditional leave to defend is given, that of itself must be taken as establishing that there is a bona fide dispute or that there is some substantial ground of defence. The fact that such an order is made is no doubt a matter which the winding-up court will take into consideration and to which the winding-up court will in due course pay respect, but I cannot regard it as in any way precluding a winding-up judge from going into the matter himself on the evidence before him and considering whether or not the dispute is a bona fide dispute, or, putting it in another way, whether or not there is some substantial ground for defending the action.
The Master of the Rolls’ judgment requires the winding up court to ‘take into consideration’ the FTT’s findings. The approach at first instance in
Enta seems wholly at odds with that required by Re Welsh Brick Industries.
As Chadwick J held in
Re a company (No 006685 of 1996), the fact that the winding up court ‘may be engaged in a similar process to a court faced with an application for summary judgment’ does not alter the fact that it is still ‘obliged to consider whether, on the evidence before it, there is indeed a dispute on substantial grounds’.25
In short, it is submitted that proceedings in different forums which relate to the same issue in dispute are nothing more than a matter to be considered by the winding up court. They do not bind it.
As a matter of practical application, the decision of the High Court in
Parkwell and the Court of Appeal in Enta are equally important. As the Judge in Parkwell observed, were the reasoning in Enta to be followed, it would have ‘one very undesirable consequence... namely the inability of the court to appoint anyone a provisional liquidator to a company where the company has an outstanding appeal against the assessment’.26 The injustice of this is compounded by the fact that HMRC, unlike most other creditors, is an involuntary creditor.
The High Court has long held a jurisdiction to wind up companies. The first instance decision in
Enta had the effect of circumscribing that ability when the debtor company sought to appeal an assessment to the FTT. In short, the mere administrative action of lodging an appeal notice would have been sufficient to oust the High Court’s jurisdiction.
The later authorities confirm that this is not the case and that the law in this regard remains that which it has always been. Namely that concurrent proceedings in a forum of specialist jurisdiction (or otherwise) are a factor to be taken account of by the Companies Court when hearing a winding up petition, but do not determine the issue for it.
1 Stonegate Securities Ltd v Gregory  Ch 576, 580C (Buckley LJ).
2  EWHC 548 (Ch).
3  EWHC 3381 (Ch).
4 Supra 2 .
5 Supra 2 .
7  EWHC 3381 (Ch).
8  EWCA Civ 1116.
9 Supra 7  – ):
10 Ibid .
11  EWCA Civ 29.
12 Ibid .
13 Ibid .
14  UKHL 54.
15 Supra 11 .
16 Ibid .
17 Ibid .
18  EWCA CIV 1575.
19 Supra 11 .
20 Supra 11 .
21 Re General Exchange Bank Ltd (1866) 14 LT 582; Re King's Cross Industrial Dwellings Co (1870) LR 11 Eq 149; Re Imperial Anglo-German Bank (1872) 25 LT 895, 898 per Malins V-C.
22 Stonegate Securities Ltd v Gregory  Ch 576, 580C (Buckley LJ).
23  2 All ER 197 (CA).
24 Ibid. 198.
25 Re a company (No 006685 of 1996)  1 BCLC 639.
26 Supra. 3 .