“8. Between April 2010 and January 2017 he caused or allowed Kazitula Limited (‘the company’) to file inaccurate VAT returns with HMRC, which resulted in the company under-declaring and underpaying VAT and Corporation Tax in the assessed sum£319,587 , in that: • During the period June 2016 to January 2017, HMRC officers carried out an inspection of the company’s books and records, made three unannounced visits to the company trading premises and also undertook two separate days of test purchases. • On22 February 2017 , HMRC issued Notice to provide information and produce documents under Schedule 36 to theFinance Act 2008 with which the company failed to comply. • Upon conclusion of the investigation and in the absence of evidence to the contrary, HMRC considered that the company had been suppressing its sales figures over the periods investigated and considered that this action had been deliberate. • On7 April 2017 , HMRC raised a VAT assessment for£201,615 , plus interest, covering the periods ending April 2010 to January 2017. • On30 June 2017 , HMRC issued a Personal Liability Notice for£134,073 in relation to the VAT assessment. • HMRC further calculated Corporation Tax owed amounting to£117,972 and also issued personal penalties of£78,432.44 . • On13 April 2017 the company entered Liquidation with HMRC being owed in excess of£561,000 . 9. HMRC’s proof of debt dated22 May 2018 is in the amount of£561,191 . HMRC have subsequently recalculated their claim and the liquidator has received an amended final proof of debt in the amount of£847,245.13 , dated22 August 2019 . The liquidator has made a copy available to The Insolvency Service.”
“on the whole, the Spreadsheet fairly reflects the Underlying Documents and that the true percentage of cash sales is between 21.5% and 27.9%. I believe that this confirms that the VAT Assessment was materially inaccurate, and the Company did not significantly underdeclare cash sales in its VAT returns.”
“1. Any misfeasance or breach of any fiduciary or other duty by the director in relation to the company , including in particular any breach by the director of a duty under Chapter 2 of Part 10 of theCompanies Act 2006 (general duties of directors) owed to the company. … 6. The extent of thedirector’s responsibility for the causes of the company becoming insolvent”
“1 The extent to which the person was responsible for the causes of any material contravention by a company or overseas company of any applicable legislative or other requirement 2. Where applicable, the extent to which the person was responsible for the causes of a company or overseas company becoming insolvent 3. The frequency of conduct of the person which falls within paragraph 1 or 2 4. The nature and extent of any loss or harm caused, or any potential loss or harm which could have been caused, by the person’s conduct in relation to a company or overseas company 5. Any misfeasance or breach of any fiduciary duty by the director in relation to a company or overseas company 6. Any material breach of any legislative or other obligation of the director which applies as a result of being a director of a company or overseas company 7. The frequency of conduct of the director which falls within paragraph 5 or 6”
“The key question in all cases is whether or not the defendant fairly knows and understands the substance of the allegations he has to meet.”
“The general reputation prevailing in the community; and the opinions, inferences or beliefs of individuals (whether witnesses or not), are inadmissible in proof of material facts. Evidence of this nature is sometimes said to be excluded by the hearsay rule; but it is, in general, inadmissible whether delivered on oath or not.”
“I was referred to the two cases in the Court of Appeal which I have already spoken of. Those two cases are Re Rex Williams Leisureplc[1994] 2 BCLC 555 ,[1994] Ch 350 ; and Secretary of State for Trade and Industry v Ashcroft[1997] 3 All ER 86 ,[1998] Ch 71 . I wish to refer to a passage in the judgment of Millett LJ in the Ashcroft case. I think I should pause before reading this passage to point out that the Ashcroft case concerned an appeal from an order of the judge at first instance in a s 6 case striking out an application of the Secretary of State. That passage starts at the top of the page under the heading ‘The present case’, and runs as follows ((1997] 3 All ER 86 at 94-95, (1998] Ch 71 at 81-82): ‘The judge held that Re Rex Williams Leisure plc was concerned solely with applications by the Secretary of State under s 8 of the 1986 Act, not with applications by him under s 7 [which derive from s 6]; and he refused to extend it to the latter. In my judgment, there is no material distinction between the two kinds of case. A logical distinction might have been made between cases where the Secretary of State was seeking a winding-up order and cases where he was applying for a disqualification order; but this court refused to make it. A similar distinction might alternatively have been made between cases where the Secretary of State was acting upon a formal report by outside inspectors, where s 441 of [theCompanies Act 1985 ] covers the situation, and information obtained by officials appointed under s 447, where there is no comparable provision; but the court refused to draw it. Once the last step was taken, I can see no discernible distinction between an application for a disqualification order by the Secretary of State based on information gathered for him by his officials and one based on information supplied to him by an office-holder. In both cases the information is obtained by a professional man or an official acting in pursuance of statutory powers to compel the provision of information. In both cases the information will necessarily include hearsay but it will be the material on which the Secretary of State decides that a particular regulatory response is necessary. In both cases it would be nonsensical if the court could not take it into account at least unless and until it is challenged by direct evidence to the contrary. The safeguards, in my opinion, are threefold: first, the information is obtained by a professional insolvency practitioner or an official in the Department of Trade and Industry, who must have judged it prima facie worthy of credence; secondly, it is considered by the Secretary of State, who must have judged it sufficiently credible to form the basis of his own opinion and to base an application to the court on it; and thirdly, the respondent whose conduct is impugned has every opportunity to rebut it and, if the evidence is not later supported by direct evidence, to invite the court to reject it.’”
“I move to counsel for the respondent’s second submission. Examination of the Court of Appeal’s judgments in the Rex Williams and Ashcroft cases, does not reveal in either case that the court is prescribing as a rule that only evidence gathered pursuant to relevant statutory powers is capable of being given in the affidavit sworn by the provider of the information to the Secretary of State. For my part I can see no reason why there should be such a limit. It seems clear from the judgment of Millett LJ, that the criterion in his mind - as in those of the Court of Appeal in the Rex Williams case - is ‘what was the information upon which the Secretary of State took the decision to launch the proceedings?’ When that question is answered, that is the information which the Secretary of State is entitled to put before the court, albeit as hearsay evidence, as the basis of his application to disqualify. … I have to accept, as counsel submitted to me, that this conclusion means that the hearsay rule does not apply to evidence sought to be adduced by the Secretary of State in support of an application under this Act. I draw attention to the fact that that was clearly something which was being borne in mind by Millett LJ when he gave the judgment to which I have referred, because he is, at letter D on p. 642, concerned to set out the safeguards which acted in his view as a protection to a respondent against abuse of what would otherwise be a freedom from the hearsay rule.”
“19…. It is common ground the statements of witnesses set out in the report and in the transcripts are hearsay, but admissible undersection 1 of the Civil Evidence Act 1995 . However, it is also common ground that the findings of fact and the conclusions on the conduct of the defendants are ordinarily inadmissible on the basis that they constitute findings in other proceedings and are excluded under what is commonly referred to as the rule in Hollington v Hewthorn[1943] KB 587 . 20. Despitecriticismof the ruleinHollingtonvHewthorn (as for example in the opinion of Lord Hoffmann in Arthur J S Hall v Simons[2002] 1 AC 615 , 702 d and the observations of Toulson J in Lincoln National Life Insurance Co v Sun Life Assurance Co of Canada[2004] 1 Lloyd’s Rep 737 , para 92), the rule remains a clear rule of evidence… 21. The Secretary of State contended that the findings of fact and the opinion set out in the report were admissible under an implied exception to the strict rules of evidence developed in disqualification proceedings-referred to by Mr Newey as the Armvent principle after the decision of Templeman J in In re Armvent[1975] 1 WLR 1679 . The defendants contended that the exception no longer had any relevance. It was concerned with hearsay only and had in that respect been replaced by the 1995 Act. It had never enabled a court to rely on findings of fact or opinions of other courts or persons. It is therefore necessary to examine in a little detail the scope of implied exception developed in the cases.”
“It was held that there was no distinction which could properly be drawn between an application for a disqualification under section 8 and section 6 and between information supplied to him under statutory powers by his own officials and information supplied to him by others such as inspectors. The court held that, although a distinction could have been drawn between relying on such evidence in a winding up petition and in disqualification proceedings or between the evidence of outside inspectors and information obtained by officials under section 447, none had been drawn. There was no logical distinction between applications under the different sections of the CDDA.”
“29. In my view therefore, it is clearly established that in disqualification proceedings whether brought under section 8 or under section 7 for an order under section 6 that there is an implied exception to the strict rules of evidence on hearsay evidence, opinion evidence and the rule in Hollington v Hewthorn. This was developed from the scheme of the Companies Acts on the basis that Parliament must have intended that a court should have regard to the materials produced under clear statutory procedures on which the Secretary of State had relied in bringing the proceedings. There was no real disadvantage to a director. It was no more than prima facie evidence and the director was entitled to adduce evidence to contradict the findings and conclusions in the report. The court would reach its own conclusions. 30. Although it is no longer necessary to rely on the implied exception in relation to hearsay evidence, it is still necessary to do so in relation to findings of fact and conclusions in the report so long as the rule in Hollington v Hewthorn remains good law. The principle of the statutory scheme under the Companies Acts, although broadened to include provisions of FSMA, remains the same and the reasons for the implied exception remain valid. On an examination of the rationale for the decision in Hollington v Hewthorn and the Law Reform Committee’s reasons for recommending its retention in civil proceedings, it is clear that the exception does not offend the underlying purpose of the rule. It is clear from the decisions to which I have referred that the implied exception has been developed in the context of the specific rules relating to disqualification and not in the context of rules pertaining to the use in subsequent litigation of a decision in prior litigation where the issues on which evidence is required in each of the sets of proceedings are delineated by pleadings. The primary objective of the implied exception is to put before the court material obtained under the statutory scheme on which the Secretary of State relied in making his decision and which forms the basis of the case against the defendant. It enables the defendant to know the case made against him and to put in the materials on which he relies in response.”
“It may be that in a diverse regulatory system within the UK and in a globalised financial and banking services industry, it is necessary to rely on investigative reports carried out by other regulators or under statutory authority in other states and that by analogy, such material can be relied on in disqualification proceedings. That was the effect of the decision in Barings [(No 5)] and, although the point does not arise on the present appeal, I accept that an argument can be made along those lines and the merits of the argument can be decided when it arises, unless Parliament takes the preferable course of amending the CDDA.”
“It is the seriousness of these consequences and the fact that such orders are sought by the [Secretary of State] on behalf of the public which should inform the way in which the proceedings are commenced and how the [Secretary of State] carries out her functions.”
“25. During the review, I have not been able to identify any record of any cash being banked for the years 2010-2017. As noted above at paragraph 16(c) above, the Underlying Documents only included bank statements covering the period1 November 2010 to1 November 2012 but none for the years covering 2013 to31 January 2017 .”
“(1) In certain circumstances a court may be entitled to draw adverse inferences from the absence or silence of a witness who might be expected to have material evidence to give on an issue in an action. (2) If a court is willing to draw such inferences, they may go to strengthen the evidence adduced on that issue by the other party or to weaken the evidence, if any, adduced by the party who might reasonably have been expected to call the witness. (3) There must, however, have been some evidence, however weak, adduced by the former on the matter in question before the court is entitled to draw the desired inference: in other words, there must be a case to answer on that issue. (4) If the reason for the witness’s absence or silence satisfies the court, then no such adverse inference may be drawn. If, on the other hand, there is some credible explanation given, even if it is not wholly satisfactory, the potentially detrimental effect of his/her absence or silence may be reduced or nullified.”
“Asked about his break even figure for the week, [Mr Uddin] did not know. [Mr Sheikh of HMRC] attempted to rephrase it. [Mr Uddin] confirmed that his staffing cost (wages) were between£1,600 and£1,700 a week. He stated that the purchase of supplies fluctuated depending on how busy the restaurant was.”
“PA asked SU what records he kept on the premises. SU informed him that he kept purchase invoices, sales receipts and meal slips. He further advised that at the end of the day, while at home, he calculated the total value of all sales and wrote the daily gross takings for each day on a weekly gross takings sheet which he gave to his accountant. Asked whether this specifically recorded cash takings for any given day, SU stated that it did not: the weekly sales records simply provided a total of all sales.”
“SU advised that his accountant was Najefy and Co. He advised that they completed the company’s VAT returns and that in order to do so, SU sent them Purchase Invoices, bank statements, Just Eat statements and the weekly gross takings conciliation sheets.”
“[Mr Uddin] advised that there were three front of house staff on that night (each paid£8 per hour) and four chefs (each paid a salary of£400 per week). He stated that staff get payslips and that the accountant”
“SU replied head chef and manager by cheque or bank transfer all other staff are paid by cash. Uses cash taken from weekend trading to pay staff. SU drawings are£3.5k per month. SU showed his cheque book stub which revealed payments to SU of£3.5k on 05/09/16 and 04/10/16. Only on one occasion has the business not taken enough cash for staff to be paid when cash was withdrawn from the bank to meet the shortfall … SU showed NH & PA Staff payment summary prepared by Najeffy for week 28 2016. PA asked if he had to hand the latest staffing rota SU produced a rota dated 11/09/16. PA asked if he may take a picture of both, SU agreed.”
“I should like to view your records, I propose to call and collect them from you and then return them at a later date. Please can you telephone me within the next 14 days so that we can agree a mutually convenient time for me to collect your records.”
“I have not received any of the items I asked for. Because of this, I am now issuing this notice. The attached schedule shows what I still need. This notice means that by law the company must let me have the information and the documents I have asked for by22 March 2017 . Please send the documents to me at Crown House, 11 Regent Hill, Brighton, BN1 3ER. I am issuing this notice under Paragraph 1 of Schedule 36 to theFinance Act 2008 .”
“On22 February 2017 , HMRC served the Company with a Notice to provide information and produce documents… On the same day, I visited Mr Najefy at his office and provided him with the Notice. Mr Najefy assured me that this was ‘all in hand’ and that it was HMRC’s responsibility to make arrangements with him to collect the relevant documents. I therefore assumed that Mr Najefy would ensure that the Notice would be complied with.”
“Mr Najefy further advised me that if HMRC did issue an assessment, the Company would be unable to meet the liability created thereby or the costs of appealing against it. He therefore suggested that I should take immediate steps to place the Company into creditors’ voluntary liquidation. Mr Najefy recommended that I instruct Sterling Ford to assist with this.”
“• Based upon the information gathered during our enquiry and as a result of our visit we have demonstrated, using best judgement, the daily gross takings figures are incorrect and cash sales have been omitted • We have also demonstrated that the records from which the VAT returns have been based upon do not include a significant proportion of cash sales. It is our understanding that the sales turnover for the Corporation Tax return have also been based upon the self same daily takings sheets. • We have gathered information from our unannounced visits that show that either the prime takings figures which are transferred on to the daily takings sheets have either been re-written to exclude cash sales or written up before all cash sales have been properly recorded. • I am unable to check to see whether the test purchases have been declared on your VAT Returns as you have not provided me with VAT account and other records I have asked for in my Information Notice. • In summary, it is probable that you knew that the takings upon which the VAT returns were based were incorrect. As the sole director, you have the ultimate responsibility to ensure that the prime records from which the company tax returns are based, are correct and includes all takings information. • Therefore it is our view, based on the balance of probabilities, that it was a deliberate behaviour which lead to the under declared sales for VAT periods 04.10 to 01.17.”
“On or around November 2018 (at or around the time when I issued the Company Appeals and the PLN Appeal), I collected the available invoices, receipts, cash register Z-totals and weekly account summaries for the Restaurant for the period2 January 2011 to19 March 2017 (‘the Underlying Documents’) from Mr Najefy. At my request, Sami reviewed these and prepared a spreadsheet which demonstrates that over that period the average percentage of cash sales was 24.5% (as opposed to the 46% calculated by HMRC) (“the Spreadsheet”). I believe that this is considerably more accurate that the exercise undertaken by Mr Addison and demonstrates that the Company did not significantly under declare cash sales in its VAT returns. After Sami had produced the Spreadsheet, I returned the Underlying Documents to Mr Najefy.”
“The objective of the first test was to check each line/week of the spreadsheet to the weekly takings records prepared by the restaurant. During our checking, we made the following observations: a) There were no weekly takings records supplied for 19 weeks in the period. The missing weeks are set out at Appendix 1. We are not aware of why these weekly takings records are missing. b) 8 of the weekly taking records were too faint to be legible.”
“Mr Zussman repeatedly asserts that the Company’s books and records have not been delivered up to the Liquidator. Although he does not explicitly say this, I believe that he seeks to imply that I have failed to deliver up the books and records which are in my possession and control. This is untrue. Following the meeting, I provided all of the books and records which I had to Mr Najefy, who assured me that it was the Liquidator’s responsibility to make arrangements with him to collect them. The Liquidator has not subsequently requested any documents from me. I understand from ASW that the Liquidator has wide statutory powers to assist him to collect in the Company’s books and records. To the best of my knowledge, the Liquidator has not made any attempt to exercise those powers.”
“Finally, Mr Najefy, your accountant, was asked to bring the Company’s records to the creditors’ meeting on13 April 2017 , but no records were actually delivered. Accordingly, I would ask you to arrange the delivery of the Company’s books and records to this office as soon as possible, between the hours of 9.30 am to 5.30 pm, Monday to Friday.”
“I refer to the above proceedings and as you will note from the copy letter attached, I have asked the Tribunal to adjourn the Appeal for a period of 60 days to allow your client a final opportunity to deliver up the Company’s accounting records etc., so that HMRC can be provided the relevant records to enable them to formulate their claim for the pre-liquidation accounting periods… As liquidator, I am not prepared to assist or allow an appeal by a director who has failed to cooperate with me in my enquiries. As stated, your client has 60 days, which will end at 5pm on26 March 2019 , to deliver up the records and provide all explanations, records and information in response to Mrs Marsh’s letter of24 August 2018 , failing which, I shall ask the Tax Tribunal Judge to dismiss the Appeal.”
“as indicated in my letter to you of10 October 2018 , I wish to reach a conclusion as regards HMRC’s claims in this liquidation and a determination of whatever sums may be due from you. I have invited you to engage in this process, which requires you to deliver up the Company’s records and provide any explanations and information you have in response to HMRC’s claims by no later than 4 pm15 April 2019 .”
“The Liquidator shall be prepared to consent to the Main Appeal continuing, on the strict understanding that he will receive copies of all communications between you/your client and the FTT, and between you/your client and HMRC with regard to their claim in the liquidation, including all submissions and witness evidence.”
“Further to the emails sent to you on1 November 2019 , below and on11 September 2019 , as attached, your failure to respond and provide the requisite confirmation of your client’s agreement to the liquidator’s terms for consenting to the Appeal continuing in the Company’s name and a copy of the application for the Main Appeal, has left the liquidator with no option but to allow the application to be struck out in accordance with the Unless Order of21 October 2019 .”
“I believe that the Liquidator had no intention of complying with the Unless Order because he wishes to bring proceedings against me based on the liabilities purportedly created by the Assessments.”
“From the date of incorporation of the Company (i.e.26 June 2003 ), the Company engaged Mr Najefy to prepare and file all necessary accounts and tax returns. In order to assist Mr Najefy to do this, I provided him with all invoices, sales slips and other relevant documentation and information on a quarterly basis. He then used this documentation to prepare the relevant accounts and returns and advised me how much the Company was liable to pay to HMRC. I would then cause the Company to transfer the relevant sum to Najefy’s & Company’s client account and he would use those monies to make the necessary payment to HMRC.”
“I do not like to tarnish anyone lightly but on or around the summer of 2019 Najefy & Co had their offices raided by HMRC. I did have the link to the website in the Brighton Gazette/Argus, but recent searches shows that this has been removed [pages 31 - 33]. My son sent my solicitor confirmation of the HMRC raid upon Najefy & Co on around18 August 2019 and so it must have happened shortly prior to that date. This more than proves that Najefy & Co were worthy of being raided, and I have no idea what the outcome was.”
“The returns submitted by the company show that payments by credit/debit cards account for 85.4% of the overall turnover and there is no proper evidential basis to replace the percentage of cash takings of 14.6% (comparing the VAT returns with the banking/merchant acquirer material obtained by HMRC) with one of 46% as contended for by the assessing officer.”