Scottish Court of Session Decisions

Petitioner: Artis; Shepherd + Wedderburn LLP

Third Respondent: Simpson; Russel + Aitken LLP

14 July 2010

[1] On 14 July 2010, at the end of a two day hearing at which the petitioner had adduced evidence from Mr Stewart (a senior principal within HMRC) and Mr Mowat (a solicitor within their employ), I granted the prayer of the petition and gave my reasons for so doing in a short extempore judgment. I have since been asked to write on the matter, which I now do. This Opinion is an extended version of the judgment delivered on that day.

[2] At the beginning of the hearing I dealt with certain matters which remained outstanding after my Opinion of 30 June 2010. I refused the motion of the third respondent for leave to reclaim my refusal to allow receipt of his Minute of Amendment. I also acceded to the petitioner's motion to refuse probation of certain averments made by the third respondent in his Answers to the Petition. Mr Simpson, who appeared for the third respondent, candidly accepted that in light of my earlier Opinion there was little he could say in opposition to this, since those passages in the Answers went (i) to the question of oppression, which had been abandoned by the third respondent, and (ii) to the argument that HMRC was not a creditor, an argument which, following Court of Appeal authority, I held that he was not entitled to make on this application. The issues remaining for decision were, therefore, relatively limited, focussing on the petitioner's claim to be a creditor and his claim to feel aggrieved at the company having been struck off.

[3] In his evidence, Mr Stewart took me through a number of documents relating (a) to the circumstances in which Spring Salmon & Seafood Ltd ("the Company") was dissolved and (b) to the correspondence between the Company and HMRC about the Company's liability to corporation tax. As to the former, Mr Stewart explained that there was a system within HMRC which was designed to alert the relevant people to the fact that a notice had appeared in the Edinburgh Gazette giving advance warning that a company might be struck off the register. It was the practice of HMRC to object if there were ongoing enquiries by HMRC into the tax affairs of the company and there was a possibility that further tax would be found to be due. For some reason, which Mr Stewart was unable to explain, the system had broken down on this occasion. That was the reason why HMRC had not objected to the Company being struck off - as it would otherwise have done. The striking off had caused difficulty in that it had disrupted the enquiries which were going on as to the liability of the Company to corporation tax. Mr Mowat, who was party to correspondence with the Company, spoke to particular items of correspondence relating to the assessment of tax due from the Company, which had come to an end when it was discovered that the Company had been struck off. It is not necessary to set out his evidence or that of Mr Stewart on this aspect.

[4] In his final submissions at the conclusion of the evidence, Mr Artis, who appeared for the petitioner, handed in a document containing 13 requested findings of primary fact and 4 requested inferential findings of fact. There was little dispute about them - indeed, many of them were admitted. It is therefore convenient to set out my findings by reference to this document, as adjusted in certain small respects as a result of points made by Mr Simpson. The following facts were either proved or admitted:

(1) Spring Salmon & Seafood Limited ("the Company") was incorporated in Scotland on 13^th March 1998 with the registered number 183832 and the name Tunevoice Limited. On 24^th April 1998 it changed its name to Spring Salmon & Seafood Limited. The Company's authorised share capital was £1m divided into 1,000,000 ordinary shares of £1.00. It is admitted for the purpose of these proceedings that its issued share capital was £200,000, comprising 200,000 ordinary shares fully paid up. The Company's last officers were the third and fourth respondents (director and secretary respectively).

(2) The Company's financial year ended on 31 July each year. The Company ceased to trade on 31 January 2005.

(3) The Company was struck off the Register of Companies under section 652(5) of the Companies Act 1985 on 8 August 2007 and was dissolved by notice in the Edinburgh Gazette dated 17 August 2007.

(4) At the time it was dissolved the Company was contesting that it owed tax and claimed that it was due a tax credit of £642,835. The correspondence bearing to be from the Company continued through July and August 2007, and even into September, after it was dissolved. In its final balance sheet it had both assets and liabilities.

(5) On 9 September 2003 the Company's auditors submitted to HMRC its corporation tax self-assessment return for the accounting period 1 August 2001 to 31 July 2002. On 23 July 2004 the third respondent submitted on behalf of the Company an amended return for that period disclosing a corporation tax debt of £272,012.95 and claiming that that sum had been paid. Also on 23 July 2004 the third respondent submitted to HMRC on behalf of the Company its corporation tax self-assessment return for the accounting period 1 August 2002 to 31 July 2003, disclosing a corporation tax debt of £137,637.38 and claiming that that sum had been paid.

(6) On 1 October 2004 HMRC corrected the said returns under paragraph 16 of schedule 18 of the Finance Act 1998 to show that only £50,979.73 had been paid towards the debt for the accounting period to 31 July 2002 and nil had been paid towards the debt for the accounting period to 31 July 2003.

(7) On 26 October 2004 HMRC commenced an enquiry under paragraph 24 of Schedule 18 of the Finance Act 1998 into the Company's returns for the accounting periods ending 31 July 2002 and 31 July 2003.

(8) On 3 March 2005 HMRC amended the Company's return for the period ended 31 July 2002 under paragraph 30(1) of Schedule 18 to the Finance Act 1998 in respect of additional tax due of £1,791.11. Also on 3 March 2005 HMRC likewise amended the Company's return for the period ended 31 July 2003 in respect of additional tax due of £132,743.93. The Company appealed the amendments ("the jeopardy amendments") on 31^st March 2005. The total amount of tax claimed by HMRC to be due by virtue of the jeopardy amendments is £134,535.04. The Company applied to the General Commissioners for payment of that tax to be postponed. The application was refused. The tax claimed has not been paid.

(9) On 30 August 2006 the third respondent submitted to HMRC on behalf of the Company unaudited accounts for the 18 months to 31 January 2005, and claimed that the Company was entitled as at the end of that period to recover corporation tax of £642,835.

(10) On 4 January 2007 HMRC issued enquiry notices under paragraph 24 of Schedule 18 to the Finance Act 1998 in respect of the accounting periods ending 31 July 2004 and 31 January 2005.

(11) On 27 April 2007 the Registrar of Companies published a statutory notice under s. 652 of the Companies Act 1985 to the effect that unless cause was shown to the contrary the Company would be struck off the Register and dissolved. Had HMRC objected to the Company being struck off on the ground that it owed tax it is likely that the Registrar would not have struck it off. Earlier notices to strike off the Company had been objected to in May and September 2005 and May and October 2006 and the Company had not been struck off then. Due to administrative oversight the notice of April 2007 was not objected to. Mr Simpson invited me to find that this amounted to negligence on the part of HMRC. I am not sure what this means shorn of any legal context of HMRC owing a duty of care to someone to avoid the Company being struck off. No doubt every oversight involves an element of carelessness, and if this is what Mr Simpson wants as a finding I am prepared to make it. But I would not add any epithet suggesting heightened culpability.

(12) HMRC were in correspondence with the Company about its liabilities and were pressing for payment of the tax due under the jeopardy amendments in the period from April 2007 up to 10 August 2007, shortly before they learned that it had been struck off. As at 14 September 2007 the third respondent was still requesting that communications be addressed to the Company at his address.

(13) At the time the Company was struck off the Register HMRC had not concluded their enquiries into the Company's returns and relative tax liabilities for the accounting periods ending 31 July 2002, 31 July 2003 or 31 January 2005. HMRC estimated the Company's liability at 31 December 2007 for the period 1 August 2001 to 31 January 2005 to be £812,449.26. By 30 September 2009 the estimated debt had grown to £874,905.34.

(14) It was admitted that at the time the Company was struck off the Register it was still in operation.

(15) Subject to the specific arguments noted below, it is plainly arguable that at the time the Company was struck off the Register the Company owed tax of £134,535.04 by virtue of the jeopardy amendments; the claim for outstanding tax is not shadowy; and HMRC, in whose interest the petitioner brings the petition, is a creditor of the Company within the meaning of s.653 of the Companies Act 1985.

(16) HMRC are unable to conclude their enquiries into the proper amount of tax owed by the Company without the Company being restored to the Register.

(17) The Petitioner feels aggrieved by the Company having been struck off the Register.

[5] Section 653 of the Companies Act 1985 provides, by subsections (1) and (2), that, on an application by a creditor who feels aggrieved by the company having been struck off the register under section 652, the court may, if satisfied that the company was, at the time of striking off, carrying on business or in operation, or otherwise that it is just the company be restored to the register, order that the company's name be restored. There are two things, therefore, that must be proved before the court may make such an order. First, it must be shown that the applicant is a creditor. Second, the applicant must feel aggrieved by the company having been struck off the register. If these are proved, then the discretion may be exercised in favour of making the order if either (a) it is shown that, at the time of the striking off, the company was carrying on business or in operation, or (b) it is shown that for some other reason it is just that the company be restored to the register.

[6] Mr Simpson accepted that the Company in the present case was in operation at the time of the striking off. In those circumstances it is not necessary to consider whether it was then carrying on business. The live issues between the parties were, first, whether the petitioners were creditors of the Company and, second, whether they were entitled to say that they felt aggrieved by the Company having been struck off the register.

[7] As to the first of these matters, namely whether the petitioners were creditors, Mr Artis, for the petitioners, submitted, under reference to In re Wood and Martin (Bricklaying Contractors) Ltd
[1971] 1WLR293 at 297F-G and Re Forte's (Manufacturing) Ltd, Stanhope Pension Trust Ltd & Anor v Registrar of Companies [1994] BCC 84 at 90B, that the applicant did not have to prove that his interest was firmly established or highly likely to prevail. It was sufficient that it was not "merely shadowy". I agree. An applicant's "interest" in the sense used above includes (though is not limited to) his claim to be a creditor. It would make no sense for the applicant to be required to prove his case that he was a creditor for the purpose of making the application to restore the company's name to the register, and then to have to prove it all over again in an action against the restored company. The position is in my view a fortiori in a case where the petitioner is HMRC, since the appropriate place for determination of a liability to tax is before the commissioners (now the First-tier Tribunal) and not before the court: c.f. Autologic plc v IRC [2006] 1 AC 118 at para.12. Mr Artis further submitted, under reference to City of Westminster Assurance Co Limited v Registrar of Companies [1997] BCC 960 at 963F, that the term "creditor" was to be given a wide meaning, covering contingent or prospective creditors as well as actual creditors. I accept this submission too. Mr Simpson pointed to the fact that section 652D(8) specifically provided that in sections 652B and 652C the term "creditor" included a contingent or prospective creditor, and that there was no similar provision relating to section 653. That is correct, but the context is different. Sections 652B and 652C are concerned with notices being given to creditors of the company. In that situation, it makes sense expressly to include contingent or prospective creditors within the meaning of that term, so as to identify clearly the persons to whom notice is to be given. Section 653, by contrast, is concerned with identifying a person who may feel aggrieved by the company having been struck off and who is therefore entitled to make an application for its restoration. It is plain, in that context, and without any explanatory wording, that creditor must include contingent or prospective creditors. It would make no sense if the right to apply for restoration was limited to those who had actual claims as opposed to contingent or prospective ones. This seems to have been taken for granted in the Court of Appeal in the City of Westminster Assurance case. But, in any event, I am not sure how this would help Mr Simpson even if he were right on this point. The claim put forward by HMRC is that the company is liable for corporation tax in the amount claimed. That claim is a claim to an alleged actual liability, the only contingency being the restoration of the company, without which the claim cannot be pursued. If that contingency was sufficient to make the claim contingent, and thereby exclude the creditor from applying to restore the company to the register, the section would be wholly emasculated.

[8] Mr Simpson had another argument which was not foreshadowed in any way in his pleadings or put to either of the petitioner's witnesses in cross-examination. Under reference to section 59D(3) of the Taxes Management Act 1970 and Schedule 18 of the Finance Act 1998, he submitted that, because of the way that self-assessment worked, as at the date the Company was struck off no tax was owing by it. In effect, his argument was that the striking off occurred at a point in the communications between the Company and HMRC when the Company had rejected HMRC's position, and that the effect of that in terms of the self-assessment regime was that, as at that point, no tax was shown to be due (even though a liability might have been established had the Company not been struck of and the process completed). Mr Artis challenged this analysis, pointing out that, in terms of para.31(3) of Schedule 18 to the Finance Act 1988, this regime did not take effect until after an enquiry was completed, and here the enquiry was ongoing. For reasons which I have already set out, I do not propose to determine these questions. It would not be appropriate for this court to determine on this type of application whether Mr Simpson is right or wrong on his analysis of the self-assessment provisions, unless it were necessary for the purpose of deciding this petition; and it is not necessary to decide it, because all that the petitioners need show is a case, which is not shadowy, that they are creditors. In any event, I do not consider that Mr Simpson's argument really advances matters. Even if the respondent is right on this analysis of the self-assessment regime, it would be highly artificial to freeze the position at a particular moment simply because the Company is, at that point, struck off and nothing further can be done until it is restored. That would, in an extreme case, allow the directors of a company which had received a notice from the Registrar of Companies and knew that the time was about to expire for it to respond or else be struck off, to amend the company's assessment, so as to state that it had no liability; and then, when the company was struck off, it would be possible for the directors or other interested parties to defeat an application to restore the company to the Register by denying that HMRC was a creditor simply because of that sequence of events. That cannot be right. In any event, even if Mr Simpson's argument were correct, it would mean that HMRC would be a contingent or prospective creditor, and I have held that that is sufficient for the purpose of section 653.

[9] On the question of whether HMRC is aggrieved, Mr Simpson's argument was that, since the dissolution occurred through error on their part in failing adequately to monitor the position with the Registrar of Companies, or failing to have in place a system whereby they were always going to get notice of the impending dissolutions and would invariably act on such notice, they could not be heard to say that they were aggrieved by the striking off. The argument is one akin to personal bar; they let it happen and cannot now complain that it did happen. I was referred in this connection to Conti v AIP Private Bank Ltd 2000 SC 240. In that case the company was struck off the register on the application of the petitioner, who was then a member and director of the company. The petitioner later discovered that the striking off of the company would invalidate rights which the company had transferred to another company, and that that other company would sue for damages arising from its loss of that right. The petitioner applied to the court for an order in terms of section 653 restoring the company to the Register of Companies. The Lord Ordinary dismissed the petition. He approached the question on the basis that the petitioner had to be aggrieved at the time of the striking off, and since he was instrumental in bringing about the striking off he could not say that he was aggrieved. The Inner House held that the date when the grievance had to exist under section 653 was the date of the application for restoration. It also held that a member or creditor could be aggrieved by the striking off even where he had been instrumental in bringing that about. In relation to that latter point, which is in point here, Lord Prosser said this (at p.246C-G):

"I do not doubt that as a matter of ordinary language, one cannot naturally speak of being aggrieved by one's own act. But these submissions by the respondents upon this issue seemed to me to rest eventually upon the same unsound basis as their general submission that one must look at the time of striking off. It may be that if one was concerned with the question of whether a person could say, at the time of effecting or engineering the striking off, that he was thereby aggrieved, the answer would be that it did not lie in his mouth to say so. But if, after he had thus effected or engineered the striking off, by what in itself could in itself be described as an intentional or deliberate act, and if at a subsequent date it emerged in some way that there was a benefit which would otherwise have accrued to him, it does not appear to me to be contrary to the ordinary use of language to say that at that later date he is aggrieved - not by his original act of striking off the company, but by the fact that, at the date of the new event, the company 'has been' struck off and no longer exists. The respondents' argument appeared to me to ignore what one may call the present sense of the perfect tense. It would always be a matter of circumstance, in my opinion, but if an unexpected benefit is discovered, which would have accrued to a member or creditor but for the company having been struck off, and in consequence no longer exists, that the member or creditor in question is indeed aggrieved 'by' the company having been struck off. Unless persuaded or obliged by authority to take a different view, I would thus reject the contentions by the respondents not only as to the tempus inspiciendum, but also as to the petitioner falling outside the scope of section 653(1) because of the part he played in the original striking off."

Mr Simpson sought to derive some benefit from that passage. He compared the carelessness of HMRC in allowing the Company to be struck off with the deliberate act of the petitioner in Conti. The two are not comparable to my mind, in particular when one appreciates that the carelessness consists of a failure of one part of an organisation to act in response to what ought to have been done by another part. HMRC did not deliberately allow the Company to be struck off. But even if it had, it would not follow that it would be debarred from complaining that it was aggrieved by the fact that it had been struck off. It allowed it to happen, not realising that it was happening, and now is aggrieved because while the Company remains struck off it cannot progress its enquiries into its tax affairs. Generally, in assessing the consequence of such carelessness, the court will wish to look at all relevant factors, including the question of whether the conduct of HMRC in allowing the Company to be struck off has caused prejudice to the respondents or others. It is, so it seems to me, too simple to say, as Mr Simpson put it, that the consequence of a party's negligence should be borne by the negligent party. If no prejudice has been caused by that negligence, which has resulted in the Company being struck off, why should the negligent party be unable to petition the court for its restoration? The purpose of this application to restore the Company is to enable tax allegedly due by it to be levied. The third respondent is concerned that if the Company is restored to the Register and a liability to tax is established, he and other directors will be held accountable. On that basis, if the application is refused simply because HMRC, having been careless, are unable to say that they are aggrieved by the Company having been struck off, that would mean that the third respondent and other directors would escape liability for tax which, on this hypothesis, is due. That would be a windfall to them. Where is the equity in allowing them a windfall simply because of the carelessness of HMRC? I reject that line of defence too.

[10] Accordingly, for the reasons I have sought to express, I find that HMRC are creditors and that they are aggrieved by the Company having been struck off. It is not disputed that the Company was in operation at the time of being struck off. In those circumstances, it appears to me that the approach taken in Re Priceland Ltd. [1997] BCC 207 at 213F-H should be followed. Once jurisdiction is established, then absent special circumstances, restoration should follow; and the exercise of the discretion against restoration should be the exception and not the rule.

[11] For those reasons, I propose to make the order sought in the petition. I shall grant the prayer of the petition and order that the name of Spring Salmon & Seafood Limited be restored to the Register of Companies in Scotland. I shall direct the Registrar to advertise in his official name in the Edinburgh Gazette the order of the court to that effect.