High Court criticises HMRC's conduct and compels it to honour its undertakings

19 February 2015

The published judgment in Abbey Forwarding[1] will not make for comfortable reading for HMRC.

Having instigated the winding up of a profitable business, which led to the dismissal of 23 employees, and accused  innocent directors of fraud, HMRC then withdrew all assessments made against the company and attempted to avoid undertakings it had given to the court when seeking the original winding up order. The High Court has confirmed that there is no special exemption for public bodies, which must honour their undertakings, and ordered an inquiry into damages. In a stark indictment of HMRC's actions, Mr Justice Richards recommended that HMRC's conduct be considered at a “very high level”.


In 2009, HMRC formed the view that Abbey Forwarding Limited (Abbey), a freight forwarding company, was actively involved in the fraudulent evasion of excise duty on alcoholic goods, and subsequently raised assessments totalling £5,965,704. Two days after raising the assessments, HMRC presented a petition to wind up Abbey in its capacity as a contingent, or prospective, creditor of Abbey.

At the same time, and without notice, HMRC obtained the appointment of a provisional liquidator (Ms Brittain), and provided to the court an undertaking in damages should the appointment turn out to be wrongly made. Ms Brittain proceeded to obtain a worldwide freezing order against Abbey's directors. Mr Justice Richards, in his judgment, described this as "a carefully prepared litigation strategy, involving a number of steps designed to take effect simultaneously and without notice to Abbey or its directors".

Following Ms Brittain's appointment, the business collapsed and 23 employees and the directors were dismissed. Ms Brittain pursued misfeasance proceedings against the directors, which were funded by loans provided by HMRC in respect of the costs of the liquidation. In 2010, Mr Justice Lewison dismissed the misfeasance proceedings on the basis that there had in fact been no evasion of duty[2]. Unfortunately, Mr Justice Lewison's judgment came after one of the directors had suffered a mental breakdown, brought about "out of despair of what had happened" and the "overwhelming sense of injustice [he] felt".

In November 2010, the directors lodged an appeal with the First-tier Tribunal against HMRC's assessments and applied for the appeal to be allowed on the basis of Mr Justice Lewison's findings in the misfeasance proceedings. HMRC opposed their application on the basis that it was not party to the misfeasance proceedings (merely the funder). A hearing for the application was fixed for August 2011. Two working days before the hearing was due to commence, HMRC withdrew its assessments.

In the face of objections from HMRC, a new liquidator was appointed in 2012. The new liquidator attempted to assign Abbey's rights under the undertaking which HMRC had given when Ms Brittain was appointed. HMRC objected to the assignment and the matter returned to the High Court.

The judgment

It was argued on behalf of Abbey that the order appointing the provisional liquidator had been wrongly made as the assessments (on which the winding up petition was based, and which gave HMRC standing as creditor) had been withdrawn and the allegations of fraud dismissed by Mr Justice Lewison. Abbey sought damages from HMRC on the basis of the undertaking it had given. HMRC argued that the undertaking in damages which it had given on the appointment of the provisional liquidator had expired by the time of the final winding up order, as the appointment of the provisional liquidator had been made pursuant to an interim order only. HMRC also attempted to avoid the consequences of its undertaking on the grounds of delay on the part of Abbey, public interest, and lack of opposition to the winding up petition.

In dismissing HMRC’s arguments, Mr Justice Richards confirmed that undertakings do not automatically terminate on the making of a winding up order, and the Court retains a discretion to order an inquiry if it is just to do so. As to the lack of opposition to the winding up petition, the judge commented that as the directors were the subject of numerous court orders which had been obtained against them it was not "in the least surprising" that resisting the misfeasance proceedings was prioritised.

Similarly, HMRC’s public interest arguments were rejected. Mr Justice Richards accepted that an undertaking in damages from a public body engaged in public law enforcement should not ordinarily be required, but that exemption did not apply to HMRC when it was acting as a creditor. Undertakings were freely given in this case and there was a strong public interest in enforcing such undertakings, and all the more so when given by state bodies.

The judge, in echoing the words of an earlier hearing, described HMRC's pursuit of the directors as “ill-judged”, and found its conduct “worrying”. Abbey was therefore successful in its application, as the judge ordered an inquiry as to damages on the undertaking given by HMRC. The Court considered the withdrawal of the assessments by HMRC to be a significant factor as they formed the basis of the winding up petition and application for a provisional liquidator. In the view of Mr Justice Richards, as those orders would not have been made were it not for the undertaking HMRC had provided, it ought therefore to be held to its word. In a parting shot, the judge recommended that HMRC’s position in this matter be considered at a “very high level”.


It is reassuring that the High Court has confirmed that there is no special exemption for public bodies which provide undertakings in winding up proceedings. However, what is of particular concern in this case is HMRC's conduct. Its actions have resulted in the destruction of a business and a large number of individuals losing their livelihoods. HMRC must exercise caution and be certain of its facts before making allegations of fraud against directors and commencing winding up proceedings.

Readers will no doubt share the “worry” expressed by Mr Justice Richards. It is to be hoped that HMRC will take the judge’s comments very seriously and review its actions at the highest level to ensure that the mistakes which it made in this case are not repeated in future cases.

[1] Abbey Forwarding Ltd (in liquidation) v HMRC [2015] EWHC 225 (Ch).

[2] Abbey Forwarding Ltd (in liquidation) v Hone and others [2010] EWHC 2029 (Ch).

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