HSJ Consultancy Limited (in liquidation), Re [2026] EWHC 1135 (Ch)

“In the circumstances, I agree with Mr Miles that, once it is shown that a company director has received company money, it is for him to show that the payment was proper. In a similar way, it seems to me that, where debit entries have correctly been made to a director’s loan account, it must be incumbent on the director to justify credit entries on the account. That conclusion makes the more sense when it is remembered that the director (a) will have been (one of those) responsible for the management of the company’s business and (b) will have had a responsibility for ensuring that proper accounting records were kept (see e.g. sections 386-389 of the Companies Act 2006).”

“45. The focus of the Supreme Court in Sequana was therefore on the time before the company was actually insolvent when the creditor duty arose. 46. In contrast, in this case there is now no doubt that the Company was in fact insolvent (indeed substantially insolvent) throughout the relevant period. Having regard to the liabilities for NIC alone, it is established that by September 2005 (the start of the relevant period) the Company owed in excess of £3.65 million but had either no or negligible net assets from which it could pay that sum. Thereafter, the position got steadily and substantially worse as the amounts due to HMRC increased each year, but no assets were retained to cover the liability. 47. The fact that the Company disputed that anything was due to HMRC does not change the fact that it was insolvent. A disputed liability is not a contingent liability. At the time (i.e. throughout the relevant period) there either was an actual liability to HMRC or there was not: see, for example, Integral Memory PLC v Haines Watts [2012] EWHC 342 (Ch), per Richard Sheldon QC, sitting as a deputy High Court Judge, at §32. In fact, as is now know, there was an actual liability. 48. One of the unresolved questions following the Supreme Court’s decision in Sequana is whether, in a case where the company was at the relevant time actually insolvent, that is sufficient to trigger the creditor duty irrespective of the directors’ state of knowledge as to the company’s insolvency. Ms Hilliard KC made it clear, however, that she did not contend that the duty arose simply because the company was in fact insolvent. I proceed on the assumption, therefore, that it is necessary to establish some form of knowledge of insolvency (actual or constructive) on the part of the directors for the creditor duty to arise, even where the company was at the relevant time actually insolvent.”

“51. It is important to emphasise that I have heard no contrary argument at all so that my conclusions have been reached solely on the basis of the arguments advanced on behalf of Mr Hunt. For the reasons which follow, however, I consider that Ms Hilliard’s contention is broadly correct. In my judgment, assuming some element of knowledge is required, where a company is faced with a claim to a current liability of such a size that its solvency is dependent on successfully challenging that claim, then the creditor duty arises if the directors know or ought to know that there is at least a real prospect of the challenge failing. 52. I recognise that the language of ‘real risk’ of insolvency was specifically rejected by the Supreme Court in Sequana, but that was in the different context of the possibility that a company, that was undoubtedly solvent at the relevant time, might become insolvent at some point in the future. 53. There is an important difference between the two contexts, particularly in light of the rationale for the creditor duty in the first place: i.e. that there is a shift in economic interest from shareholders to creditors (either alongside or to the exclusion of shareholders depending on the depth of the insolvency): see, for example, Lord Reed at §83 of Sequana. If it turns out that the company was in fact insolvent at the relevant time, then this shift in economic interest had already occurred, and had occurred irrespective of whether the directors appreciated it. 54. Accordingly, if at the relevant time the directors were wrong in their appreciation of the risk of the company actually being insolvent, then their actions and decisions were in fact impacting on the creditors at that time, either together with or to the exclusion of the shareholders. Knowledge of a real risk that the company’s challenge to the claim may fail, therefore, equates to knowledge that it is the creditors that are potentially currently being affected by the directors’ actions and decisions. 55. It is important to keep in mind that the fact that the creditor duty is triggered is only the starting point in a claim for breach of duty. The consequences of it being triggered vary enormously depending on the facts. 56. In particular, it does not mean that the creditors’ interests necessarily become paramount, or that the directors would be in breach of duty if the actions they then take turn out to have damaged creditors' interests. 57. The factors to take into account in determining the content of the duty – and whether that duty was breached – will include, as Lord Briggs put it (see above), the brightness of the light at the end of the tunnel, for which might be substituted the strength of the company's resistance to the claim, and who has the most 'skin in the game' so far as the actions the directors propose to take. The extent to which directors should act with a view to protecting creditors' interests is likely to vary significantly, for example, depending on what it is the directors are considering doing…”

“59. Any different conclusion would lead to significant difficulties, and inherent uncertainties, in determining when the creditor duty arises. Taking this case as an example, the question whether the Company was subject to existing tax liabilities to HMRC was a binary one: it either was, or it was not. It is a binary question, however, on which reasonable directors, advisors and tribunals, may reasonably differ. Identifying where, on the sliding scale between high probability of success and high probability of failure, the duty to consider the interests of creditors cuts in is inherently difficult. A conclusion that the duty to have regard to creditors’ interests is triggered by actual or constructive knowledge of a real risk that the liability may exist, with questions of degree of probability of success or failure being factored into the content of the duty and whether it was breached in the particular case, is more consistent in my view with the approach suggested, for example, by Lord Reed in Sequana. At §82 he advocated an approach which is: ‘…sufficiently fact-specific to take account of differences, according to particular circumstances, in what it may be reasonable and responsible for directors to do when they find that the company is in a sufficiently weak financial situation that a conflict of interest between its creditors and its shareholders appears to arise.’”

“74. The duty imposed on directors to act bona fide in the interests of the company (or, in cases of insolvency or dubious solvency, its creditors) is ordinarily regarded as a subjective one. As put by Jonathan Parker J in Regentcrest plc (in liq) v Cohen [2001] 2 BCLC 80 at paragraph 120: ‘The question is not whether, viewed objectively by the court, the particular act or omission which is challenged was in fact in the interests of the company; still less is the question whether the court, had it been in the position of the director at the relevant time, might have acted differently. Rather, the question is whether the director honestly believed that his act or omission was in the interests of the company. The issue is as to the director’s state of mind. No doubt, where it is clear that the act or omission under challenge resulted in substantial detriment to the company, the director will have a harder task persuading the court that he honestly believed it to be in the company’s interest; that that does not detract from the subjective nature of the test.’ 75. The general principle of subjectivity is however subject to three qualifications: Re HLC Environmental Projects Limited [2013] EWHC 2876 Ch (per Mr John Randall QC sitting as a deputy high court judge) at paragraph 92. These are as follows. 76. First, where (as in cases of insolvency or dubious solvency) the duty extends to consideration of the interests of creditors, their interests must be considered as ‘paramount’. 77. Second, the subjective test only applies where there is evidence of actual consideration of the best interests of the company. Where there is no such evidence, the proper test is objective, namely, whether an intelligent and honest man in the position of a director of the company could, in the circumstances, have reasonably believed that the transaction was for the benefit of the company. 78. Third, where there is a very material interest, such as that of a large creditor (in a company which is insolvent or of doubtful solvency) which is without objective justification overlooked and not taken into account, the objective test must equally be applied.”

“As rightly submitted by Mr Curl however, the Duomatic principle will only come to the aid of persons seeking to uphold a transaction if, as a substitute for a resolution at a general meeting, the shareholders had actually applied their minds to the question whether to ratify the transaction: In re Duomatic [1969] 2 Ch 365 at 373 B to C; In re Queensway Systems Ltd [2006] EWHC 2496 at paragraph 30.”

“(1) A company is deemed unable to pay its debts – … (e) if it is proved to the satisfaction of the court that the company is unable to pay its debts as they fall due. (2) A company is also deemed unable to pay its debts if it is proved to the satisfaction of the court that the value of the company’s assets is less than the amount of its liabilities, taking into accounts its contingent and prospective liabilities.”

“28. The Claimant submits that the primary limitation period in tort commenced when it accepted the relevant liability to pay £104,096.34 on 30 October 2009 following HMRC’s revised settlement proposal. Prior to that date, the liability for the relevant interest was, it is said, contingent on HMRC succeeding or failing in a tax tribunal, settling the litigation or on the acceptance by the Claimant of liability. 29. The cause of action for negligence in tort is not complete until the claimant incurs loss or suffers damage in respect of which the duty was owed. The Claimant’s submissions confuse the question of whether loss or damage has been incurred with the quantification of loss. I consider that it is clear beyond doubt that the loss or damage had been incurred by the Claimant, for the purposes of its claims in tort, before 11 May 2005. Although dealt with succinctly by the Deputy Master in his judgment (see paras 22 – 24), I consider that he reached the correct conclusion. I should nevertheless elaborate in the light of the arguments which were developed before me. … 31 Mr Khan submitted that, until the settlement was reached in October 2009, the liability of the Claimant to HMRC was purely contingent. He referred to Re Sutherland deceased, Winter v IRV [1963] AC 235 where the concept of a contingent liability was considered and sought to draw an analogy on the facts with the various formulations of the meaning of a contingent liability in that case (see paragraphs 42 to 44 of his skeleton argument). Building on that argument, he then referred to Law Society v Sephton [2006] 2 AC 543, 554, where it was held ‘the possibility of an obligation to pay money in the future is not in itself damage’; and to Axa Insurance v Akther & Darby Solicitors [2009] 2 CLC 793, where Arden LJ said at 809: ‘the assumption of a pure contingent liability does not cause the limitation period to start to run... the concept on which all members of the House agreed was that there had to be measurable loss before time began to be run, that is to say, loss which is additional to the incurring of a purely contingent liability... a pure contingent liability is not damage’ 32. However, the argument in my view breaks down on the premise which it is based. The Claimant’s liability to pay interest on the unpaid NIC to HMRC was in no relevant sense contingent. A contingent liability is a liability which, by reason of something done by the person bound, may or may not arise depending on the happening of a future event (see Re Sutherland deceased). A classic example of a contingent liability is potential liability under a policy of insurance, which will only occur if an (insured) event occurs. That was not the position in the present case. There was either an actual liability to pay NIC and interest on arrears or there was not. The existence of such liability is not contingent on HMRC succeeding or failing in a tax tribunal (or a court) as submitted by Mr Khan. All the tribunal or court is deciding is whether or not there is an actual liability. Likewise a settlement of such litigation (at least in this case) for the reasons I have given is premised on there being such actual liability. The fallacy of Mr Khan’s argument is demonstrated by his submission that where a debt is incurred but disputed, and court proceedings follow, the liability is contingent until the court gives judgment in favour of the creditor (or there is a settlement). That submission is clearly wrong.”

“The first important point to note is that, as in many contracts, there is a clear distinction in the Master Agreement between, on the one hand, the underlying indebtedness obligation and the date on which such obligation accrues (i.e. the date at which the relevant amount becomes due) and, on the other hand, the payment obligation and the date upon which the obligation to pay the relevant amount arises. Although the language of section 6 might be said to be somewhat inconsistent, on occasions, between its use of words ‘due’ on the one hand and ‘payable’ on the other, nonetheless the distinction between the debt obligation and the payment obligation, and the different dates upon which those obligations respectively arise, is clear in the scheme of the contract. That distinction is particularly clear, for example, in the definition of payment date in section 6(d)(ii)).”

“Mr Curl emphasises that the Court should look to the future not only the present and also take account of liabilities that are not yet payable. He cites two authorities for propositions that support the Joint Liquidators’ claim. First Integral Memory plc v Haines Watts [2012] EWHC 342 (Ch) for the proposition that a liability to tax is not contingent on the determination of a tax tribunal or court. The liability accrues on the occurrence of the transaction that gives rise to the taxable charge. Secondly, Videocon Global Ltd v Goldman Sachs International [2016] EWCA Civ 130 for the proposition that a liability may be due without being payable. I accept those submissions.”

“90. The debt due to HMRC for the year ending 30 September 2010 arose (in most part) because of the unpaid tax due on EBT 09 and EBT 10. Mr Curl argues that since the Supreme Court found in July 2017 that remuneration paid to a trustee was subject to a charge to tax in the same way as if it had been paid direct to the employee, the law is deemed always been that way: RFC 2012 plc v Advocate General of Scotland [2017] 1 WLR 2767. In other words, the debt was due (not necessarily payable) from the time the Company transferred monies into EBT 09. The debt increased when entering into EBT 10 and the IIP. 91. The declaratory theory of judicial decisions was explained by Lord Goff in Kleinwort Benson Ltd v Lincoln [1999] 2 AC 349, 377. At first, I thought this may be relevant but on reflection it is of limited use in this context. More apposite is National Westminster Bank plc v Spectrum Plus Ltd [2005] 2 AC 680, paragraph 38 where Lord Nicholls provided a definitive answer: ‘But leaving these aside, the interpretation the court gives an Act of Parliament is the meaning which, in legal concept, the statute has borne from the very day it went onto the statute book. So, it is said, when your Lordships’ House rules that a previous decision on the interpretation of a statutory provision was wrong, there is no question of the House changing the law. The House is doing no more than correct an error of interpretation. Thus, there should be no question of the House overruling the previous decision with prospective effect only. If the House were to take that course it would be sanctioning the continuing misapplication of the statute so far as existing transactions or past events are concerned. The House, it is said, has no power to do this. Statutes express the intention of Parliament. The courts must give effect to that intention from the date the legislation came into force. The House, acting in its judicial capacity, must give effect to the statute and it must do so in accordance with what it considers is the proper interpretation of the statute. The House has no suspensive power in this regard.’ 92. As RFC 2012 Plc was decided as a matter of statutory interpretation, namely of section 131 of the Income and Corporation Taxes Act 1988 and section 62 of the Income Tax (Earnings and Pensions) Act 2003, the answer provided by the House had prospective and retrospective effect. In light of this, it could be said that the Company was, on the evidence before it (the Court has to do its best with the material before it) insolvent by 30 September 2010.”

“18. Part 2 of the Income Tax (Earnings and Pensions) Act 2003 (‘ITEPA’) imposes the charge to tax on employment income. Relevantly for present purposes, section 6 of ITEPA charges tax on ‘general earnings’, defined as earnings within Chapter 1 of Part 3 of ITEPA. In that Chapter, section 62(2) defines earnings as follows: ‘(a) any salary, wages or fee, (b) any gratuity or other profit or incidental benefit of any kind obtained by the employee if it is money or money’s worth, or (c) anything else that constitutes an emolument of the employment.’ ‘Money’s worth’ is defined in section 62(3) as something that is of direct monetary value to the employee, or is capable of being converted into money or something that is of direct monetary value. 19. Pursuant to section 15 of ITEPA, UK resident employees are taxed on the full amount of general earnings ‘received’ in a tax year. Section 18 of ITEPA sets out when general earnings are treated as received. Relevantly, this includes a time when ‘payment is made of or on account of the earnings’. A similar provision applies for PAYE purposes: see section 686 of ITEPA. 20. In summary, therefore, there are two requirements for a PAYE liability to be triggered on general earnings of a UK resident employee. There must both be earnings within section 62(2) of ITEPA, and they must be received (which includes payment). The issue in this case relates to the first of these requirements, namely whether the Payment comprised earnings.”

‘I cannot think it possible that it is competent to the Bankruptcy Court, on the invitation of the trustee in bankruptcy or of the debtor, to reopen questions of that kind on a motion to expunge. It is quite impossible to conceive that it would be competent for me sitting here to go into the question of the rateable values of a union or of a parish, or any question of that sort. That seems to me to be a case which is analogous to the case in which I am at present invited to act. I think the application fails and must be dismissed with costs; but my decision will not interfere with any application the debtor may be advised to make to the Inland Revenue under the Board of Trade Regulations of May, 1888.’ 18. In Lam v Inland Revenue the Revenue had served Lam with a statutory demand seeking payment of arrears of assessed tax and when Lam failed to comply presented a petition for his bankruptcy. Lam had throughout protested that the assessments were erroneous. He had appealed against some but not others. The Registrar made a bankruptcy order and Lam appealed. He continued to protest that he had not made the profits on which he had been assessed to tax. In his judgment Blackburne J said: ‘[12] I understand, but I have to remind myself (as [counsel for the Inland Revenue] has submitted), that authority clearly establishes that where assessments to tax are concerned Parliament has provided a clear and exclusive machinery for considering appeals against them. The statutory machinery does provide for appeals to the court. That machinery, as [counsel] correctly submits, is an exclusive machinery and an assessment, when made, is final and binding if it is not appealed. If it is appealed, the determination of an appeal is likewise final and binding, subject to any application there may be, in appropriate circumstances, to the court. In particular, she submits, it is not for the Bankruptcy Court to go behind those matters. As [counsel] also submits, there is a wealth of authority to that effect, stretching back (in relation to predecessors of the current legislation) to the latter part of the 19th century. [13] [Counsel] is correct in that submission. It is not open to the Bankruptcy Court to review the manner in which the assessment has been made, much less to investigate the merits of the assessment. I can see that if there were evidence that the assessments had been made in some fraudulent or collusive way, or there were some other glaring miscarriage of justice, it might be that the Bankruptcy Court could go behind the assessment and not make the Bankruptcy Order based upon the debt created by the unpaid tax resulting from the assessment, but there is no suggestion of that in this case. On the contrary, as I have endeavoured to show, the Revenue have entertained attempts by Mr Lam, personally and through advisers, to reconsider the amount of the assessments, but have not been persuaded on the information that has been provided that they should do so.’ 19. The same principle was expressed more broadly by Lord Nicholls of Birkenhead in Autologic Holdings plc v IRC [2006] 1 AC 118. That case did not concern bankruptcy proceedings but an attempt by the taxpayer to recover tax paid otherwise than by means of the statutory procedure. After referring to the statutory jurisdictions for which the Taxes Management Act and other statutes provided Lord Nicholls said: ‘12. Clearly the purpose intended to be achieved by this elaborate, long established statutory scheme would be defeated if it were open to a taxpayer to leave undisturbed an assessment with which he is dissatisfied and adopt the expedient of applying to the High Court for a declaration of how much tax he owes and, if he has already paid the tax, an order for repayment of the amount he claims was wrongly assessed. In substance, although not in form, that would be an appeal against an assessment. In such a case the effect of the relief sought in the High Court, if granted, would be to negative an assessment otherwise than in accordance with the statutory code. Thus in such a case the High Court proceedings will be struck out as an abuse of the court's process. The proceedings would be an abuse because the dispute presented to the court for decision would be a dispute Parliament has assigned for resolution exclusively to a specialist tribunal. The dissatisfied taxpayer should have recourse to the appeal procedure provided by Parliament. He should follow the statutory route.’

“The C3 Partnership Limited (C3) Employee Benefit Trust (EBT) planning provides a tax efficient vehicle to reward key / all employees by saving tax at both the corporate and individual levels: 1) Corporate level: The sponsoring company should obtain a Corporation Tax (CT) deduction for the EBT therefore saving CT. 2) Individual: The individual can extract money from the EBT at low / no tax therefore saving any income tax that would otherwise be due on any bonuses / dividends received from the company. The EBT could therefore reduce the total tax liability from the extraction of profits from a company to very efficient level.”

“1) If a company chooses to remunerate employees by way of a cash payment (salary / bonus), this should be deductible in the accounts for the period in which it is paid and the company should also obtain a CT deduction for the amount paid. 2) If instead the company chooses to remunerate employees via an EBT, then this will still be deductible in the accounts for the period in which it is paid, but the CT deduction is deferred until the EBT funds are distributed to beneficiaries in a fully taxable form (i.e. in a manner which gives rise to a charge to both income tax and NIC on the employee, such as a cash payment out of the EBT). This is the effect in Sch. 24 FA 2003 reproduced for corporation tax in si 290 Corporation Tax Act 2009 (‘CTA 2009’). 3) The C3 EBT planning, the acquisition for employees of an interest in a pre-funded EBT, should afford both a deduction in the accounts and for CT purposes, without the need for the funds in the EBT to be paid out to the beneficiaries in a fully taxable manner. 4) C3 have an opinion from Andrew Thornhill Q.C. confirming that the above strategy should give rise to a CT deduction in the year for which the payment is claimed by the sponsoring company.”

“1) No employer's and employees’ Class 1 NIC liability should arise on the payment to procure the availability of the pre-funded EBT. 2) In respect of extraction of funds from the EBTs, this can be structured in such a way to avoid further NIC liabilities on the sponsoring company and beneficiaries. The basic principles are well known.”

“2) The C3 EBT is a scheme registered under DOTAS. The company purchasing the EBT is required to note the DOTAS number on their CT return and this information will be provided by C3 when appropriate. 3) It is likely that the scheme will lead to an enquiry solely on the DOTAS registered scheme. C3 will deal with this enquiry up to and including the first-tier tribunal for no additional fees. 4) Provided full disclosure is made, i.e. the DOTAS number is recorded correctly on the relevant CT600, no penalties should be levied if HMRC deny the CT deduction. Interest would be due on any late payment of CT.”

“provide tax advice relating to the acquisition of an interest in an Employee Benefit Trust (‘EBT’) and general tax advice on loans made from the interest in the EBT”

“This support will extend up to and including hearings before the First Tier Tribunal, but if it goes beyond this we will act for the Company in such circumstances but this would necessarily involve additional professional fees to be borne by the client.”

“We have explained to the Company, and the Company has acknowledged, that the planning work it has asked us to undertake is not approved by any government body or fiscal authority. In particular, HMRC has not approved this planning. Therefore, the planning we have agreed to undertake on the Company’s behalf may be challenged either through a formal Inland Revenue tax investigation or through the courts; C3 will only accept liability for any loss arising, where such loss arises due to the negligence of our advice, documentation, or implementation. C3 will not accept any responsibility or liability for the negligence of any third party.”

“It was noted that it was the wish of the company to properly incentivise the company employees by providing appropriate and adequate rewards to them for their contribution to the business in the year ended 30 April 2010, the intended sum of which has previously been agreed as £150,000 of available profits or such other sum as determined once the profits are confirmed by the company auditors. The directors confirmed that it was their preference for this to be implemented by way of acquiring an interest in a Trust.”

“to set out our understanding of the potential risks and rewards of the Planning (‘the Planning’ is defined in the enclosed Letter of Engagement). We set out below what we believe to be benefits of the Planning and we also set out what the potential weaknesses may be.”

“Corporation Tax Act 2009 section 54 - HMRC may argue that the size of the contribution to the EFRBS is not commensurate with what is permissible under Corporation Tax Act 2009 section 54 as ‘wholly & exclusively’ for the purposes of the trade. If HMRC dispute the amount contributed, we will challenge their assertion and try to reach an amicable resolution. If no compromise can be reached then the likely outcome is that you will have to pay corporation tax plus interest (and possibly penalties however, in our view, the likelihood of penalties being charged is minimal given that we have implemented the planning following an opinion tax counsel and the EFRBS has been fully disclosed to HMRC) on the disallowed element. It may be possible to carry forward any disallowed balances against profits in future years. Distribution - Should HMRC be successful that the amount contributed to the EFRBS is not wholly and exclusively for the purposes of its trade, then HMRC could advance the further argument that the transfer of funds was a disguised distribution to the shareholders of the company. Were HMRC to succeed with this argument then it is likely that the funds would be taxed on the shareholders as a dividend. Provided the amount transferred to the EFRBS is commercial, we cannot see how HMRC could ever succeed with this argument. Corporation Tax Act 2009 section 1290 - In our opinion, the EFRBS strategy forms an ‘EFRBS arrangement’ and hence any payments made to the EFRBS are made under the EFRBS arrangement. HMRC and the courts may argue that only a payment made from an EFRBS is, for the purposes of the Corporation Tax Act 2009 section 1290 (‘s. 1290’), made ‘under’ an EFRBS arrangement. If HMRC are successful with this argument then the provisions of s. 1290 would apply to your company's contribution to the EFRBS and hence a corporation tax deduction would be disallowed until qualifying benefits were paid out of the EFRBS. Corporation Tax Act 2009 section 1288 and 1289 - HMRC may seek to argue that the contribution to the EFRBS sub-fund is ‘an amount charged in respect of employees’ remuneration in a company’s accounts’ or ‘an amount for which provision is made in the accounts with a view to its becoming employees’ remuneration’. If HMRC are successful in this argument then your company will not be entitled to a corporation tax deduction in respect of contributions made to the EFRBS until amounts are paid from the EFRBS (sub-fund) to beneficiaries. Our firm view, supported by counsel, is that the contributions will not fall within the above legislation. … PAYE Risk - HMRC are seeking to argue that a payment to a sub-fund constitutes a payment to an employee and as such is taxable as earnings on the employee. If HMRC’s view is ruled to be correct then your company should obtain a CT deduction on the amount contributed to the trust yet the key employees who have sub-funds will be taxed as if they received a bonus from the company. We cannot understand why HMRC are arguing this point given they have lost in key cases previously, and as such our view is that this is a negligible risk”

“Corporate benefit - The Directors are required to exercise their powers for the commercial benefit of the Company. Therefore the Directors should consider whether the EFRBS Arrangements will provide a commensurate commercial benefit to the Company. The Directors might, for example, conclude that an EFRBS is an effective way to incentivise the Company's management team, with the result that management's increased endeavour will provide a commensurate commercial benefit for the Company. To the extent that they do not provide a commensurate commercial benefit to the Company, then the EFRBS Arrangements may be treated as a disguised dividend or an unlawful reduction of capital in respect of which the Directors may have personal liability. … Directors Duties - It is important that the Directors consider and comply with all their directors’ duties in considering and implementing any EFRBS Arrangements. … In implementing any EFRBS Arrangements, the Directors should ensure that they exercise their powers in accordance with the Company's constitution and only for the purposes for which they are conferred, i.e. they must exercise their powers for their proper purpose. When deciding whether to approve any EFRBS Arrangements, each Director must also act in the way that he/she considers, in good faith, would be most likely to promote the success of the Company for the benefit of its members as a whole. As such, in relation to the EFRBS Arrangements, the Directors should think about the following, among other relevant factors: a) the likely long term consequences for the Company of the EFRBS Arrangements; b) the interests of the Company’s employees; and c) the need to act fairly as between the members of the Company. In making that decision, each Director must exercise the same reasonable care, skill and due diligence that would be exercised by a reasonably diligent person with the general knowledge, skill and experience (i) that may reasonably be expected of a person carrying out that Director’s functions in relation to the Company AND (ii) that the relevant Director actually possesses. … Solvency - The Directors will need to contemplate what effect the EFRBS Arrangements will have on the Company's working capital position. If there is any question as to the Company's solvency and/or its ability to pay its debts (within the meaning of section 123 Insolvency Act 1986) either at the time that the EFRBS Arrangements are approved or as a result of implementing the EFRBS Arrangements, then the Directors' duty to act in the interests of the Company's creditors will override their other duties. Directors should seek specific advice on what actions they should take at that time.”

“My experience as a Chartered Accountant and Tax Advisor enabled me to make a value judgment as to the efficacy of the Schemes in contemplation, although I placed reliance upon the independent supporting views of leading tax counsel and was reassured by the insured defence in place. Notwithstanding, it remained my and the First Respondent's view that we should take necessary action to mitigate any potential risk. In doing so, we proactively sought to reduce the Company’s exposure to HMRC enquiries, despite the relevant legislation and guidance not prohibiting (or targeting) the Schemes as contemporarily entered into.”

“In light of the above assurances which I relied upon, and my personal experience, knowledge and skill, I did not consider it necessary to seek further independent professional advice in relation to the option to enter into the Schemes.”

“Insofar as it is said by the Applicants that further assurances and professional advice should have been obtained by me and/or the First Respondent in relation to the eventual decision to make contributions to the Schemes, we did not consider it to be proportionate to plunder further investment (having already incurred fees to OneE of £15,000 plus VAT and to C3 of £7,500 plus VAT) into obtaining advice that was more likely than not, in our view, going to positively reinforce the advice the Schemes had already obtained from leading tax counsel, and which would in any event have been redundant considering the safety net of defence insurance in favour of the Schemes.”

“The reorganisation came about as a result of a decision to form an LLP to involve our senior staff in the equity of the practice as a stepping stone to succession.”

“We are aware that you have used EFRBS arrangements designed to trigger a Corporation Tax (CT) deduction without any taxable benefit arising to employees under the scheme. HMRC strongly believe that these arrangements do not work.”

“Hi Both Sorry I haven’t got back to you earlier, we have had so many MVL this month. I had a word with Simon regarding the liquidation of the above. As far as we are aware even though we are making the Insolvency Services aware of potential APN’s in liquidation they have not taken action against any directors. As far as liquidation is concerned the process would be very simple and we would report a contingent liability statement of affairs for £1 and put the full claim if any in the notes to the SofA. The fee for this liquidation will be £2500 and £500 for disbursements plus VAT.”

“HM Revenue & Customs estimated the company’s liabilities for under the Benefit Trusts to be £165,912.70. However this amount is wholly disputed by the directors and they have therefore been included as a contingency creditor for £1”

“I thought I would drop you a little update on the case. Not much has been happening so far and HMRC have been very quiet on this case and we have been waiting to see how they are going to approach things. They have been refining their stance recently and we have been contacted in regards to other cases in regards to settlements for EBT liabilities. We have mainly been contacted in regard to schemes through Root2, who have lost in court recently, which I note is a different scheme than the one that HSJ used but I consider it worth looking into. You probably know more than me about this but I gather the rules have been changed and that from 2019 the beneficiaries of the schemes are to be taxed rather than the company. This all depends on what happened with the scheme and whether loans were paid etc, so I am not sure whether this will be an issue for you or not, but it might be possible to deal with any liability beforehand via the company in liquidation. I am not sure if this is the case or is viable but I have replied to HMRC regarding a settlement for the liquidation. This shouldn’t tie us in to anything and is more to keep our options open in case something can be done. They are likely to come back with a list of further questions (which I have had on other cases) rather than come back with figures but these questions might be telling as to how the tax will be treated after 2019 and will hopefully allow us to move things on a bit.”

“Just thought I would drop you a note re developments on the liquidation. Not much has happened on the case but we have had some movement on similar cases. HMRC have said that they are open to settlement in liquidations which might then cover/negate any personal claims against the directors after April 2019. However, even HMRC don’t seem to know the full implications of the changes coming in and so we have asked them for clarification on this. I am not sure how applicable this is to you but I will let you know how we get on. Some of the correspondence we have received suggest there might be some kind of penalty incurred in April on the debts becoming personal so it might help to avoid this maybe. In the meantime, have you had any correspondence from HMRC about personal liability? Some directors claim to have been contacted already.”

“It does look to me like the scheme you did is unfairly being lumped in with all the other (much more dubious) tax schemes that have been used by people and as a result HMRC are pursuing them more than they otherwise would.”

“27.2 All documents contained in bundles which have been agreed for use at a hearing shall be admissible at that hearing as evidence of their contents, unless – (1) the court orders otherwise; or (2) a party gives written notice of objection to the admissibility of particular documents.”

“in the context of company property, directors are to be treated as being in possession of the trust property from the outset. It is precisely because, under the typical constitution of an English company, the directors are the fiduciary stewards of the company's property, that they are trustees within the meaning of section 21 at all. Of course, if they have misappropriated the property before action is brought by the company (the beneficiary for this purpose) to recover it they may or may not by that time still be in possession of it. But if their misappropriation of the company’s property amounts to a conversion of it to their own use, they will still necessarily have previously received it, by virtue of being the fiduciary stewards of it as directors.”

“109. To what remedy is the liquidator entitled? 110. Ms Julian has argued vigorously that liability against the First Respondent should be for £771,918, jointly and severally with the Second Respondent as to £321,252; in other words that it should be aligned with HMRC's findings. 111. With respect, that seems to me wrong in principle. The liquidator is seeking equitable compensation. Mr Mortell was not engaged in assessing that, but in carrying out his functions under the VATA. That is neither the same, nor even, at this stage, an equivalent. For example, as Ms Calder and Mr Timson underline in their spirited submissions, Mr Mortell agreed that his concern was outputs but not inputs. 112. On the evidence this is not a mere dry point. The figures for missing cash from the 2011 and 2012 accounts of £3,600 and £9385 were discovered because purchases for the Company had been made in those sums. Likewise, the £8,000 per quarter was to balance spending of that amount by the Company. So it appears that at least some of the cash taken was ultimately used for the Company's benefit. I add that it would not, of course, follow that all such sums had been so used.”

“The judge’s reasons appear at pp.43-9 of the dividends judgment. He began by directing himself, correctly, that the burden of proving honesty and reasonableness was on those who were asking for relief. He also directed himself that s.727 enabled the court ‘to consider the matter from an essentially subjective point of view’. That cannot, with respect, be right as regards reasonableness. It is questionable whether it is right as regards honesty. As Lord Nicholls said in Royal Brunei Airlines v Tan [1995] 2 AC 378, 389, ‘The standard of what constitutes honest conduct is not subjective. Honesty is not an optional scale, with higher or lower values according to the moral standards of each individual. If a person knowingly appropriates another’s property, he will not escape a finding of dishonesty simply because he sees nothing wrong in such behaviour.’”

“I am persuaded on the evidence that the Respondents did seek the advice of Mr Hanison in relation to the Dividend before it was paid and did act honestly and reasonably upon that advice in making the distribution. The trigger conditions for the exercise of the discretion conferred by s. 727 of the 1985 Act are thus met. However, like Rimer J. I have the greatest difficulty in seeing that it is ever likely that ‘in all the circumstances of the case’ it is going to be right that a defaulting director ‘ought fairly to be excused for the negligence, default, breach of duty or breach of trust’, if the consequence of so doing will be to leave the director, at the expense of creditors, in enjoyment of benefits which he would never have received but for the default. However honestly the director acted, however much it may have appeared at the time of the act complained of that the only person who might be harmed by the act would be the director himself, it just is not fair, as it seems to me, that if it all goes wrong the guilty director benefits and the innocent creditors suffer. For this reason I decline to exercise my discretion under s. 727 in favour of any of the Respondents in relation to their respective liabilities for breach of s. 263 in relation to the Dividend.”

“24. (a) Regulation 118 in Table A shall not apply to the Company. Every Director and other officer of the Company shall be indemnified out of the assets of the Company against all losses or liabilities which he may sustain or incur in or about the execution and discharge of the duties of his office or otherwise in relation thereto, including any liability incurred by him in defending any proceedings, whether civil or criminal, in which judgment is given in his favour or in which he is acquitted or in connection with any application under Sections 144 or 727 of the 1985 Act in which relief is granted to him by the court, and no Director or other officer shall be liable for any loss, damage or misfortune which may happen to or be incurred by the Company in the execution of the duties of his office or in relation thereto. But this Article shall only have effect in so far as its provisions are not avoided by the provisions of Chapter 7 of Part 10 of the 2006 Act. (b) The Directors shall have power to purchase and maintain at the expense of the Company an insurance policy for any Director (including an alternate Director), or Officer of the Company against any such liability as is referred to in Section 233of the 2006 Act.”

“(1) Any provision that purports to exempt a director of a company (to any extent) from any liability that would otherwise attach to him in connection with any negligence, default, breach of duty or breach of trust in relation to the company is void. (2) Any provision by which a company directly or indirectly provides an indemnity (to any extent) for a director of the company, or of an associated company, against any liability attaching to him in connection with any negligence, default, breach of duty or breach of trust in relation to the company of which he is a director is void, except as permitted by— (a) section 233 (provision of insurance), (b) section 234 (qualifying third party indemnity provision), or (c) section 235 (qualifying pension scheme indemnity provision).”