Category Archives: Tax Law

Supreme Court Makes Major Decision on Director Responsibility

The Supreme Court has handed down a potentially landmark decision in the case of Jetivia SA and another v Bilta (UK) Limited (in liquidation) and others [2015]. The ruling could have major implications in future cases where the directors of companies in liquidation face charges of fraud.

The defence mounted in this case, which the court unanimously rejected, would have seen two directors of an insolvent company rely on their own wrongdoing to escape responsibility and avoid paying damages. In order to do so, they cited the precedent set by a previous, very unpopular decision from the case of Stone & Rolls Limited v Moore Stephens.

In the case recently ruled upon by the Supreme Court, the two directors of defunct company Bilta were being sued for damages on behalf of that company by its liquidators. Acting in conjunction with others, whose responsibility is also established by the ruling, they are accused of neglecting their duties to the company as directors and deliberately engaging in fraudulent transactions through Bilta for personal gain, most of which involved the European Emissions Trading Scheme Allowances. Upon Bilta being forced to close down in 2009, the liquidators attempted to claim damages on Bilta’s behalf from the two former directors. Any compensation payments gained through the case would be used to help pay back those who were owed money by the company when it was forced to go into liquidation.

The two defendants and their accomplices attempted to mount an illegality defence. They claimed that because they had used the company to carry out their fraudulent transactions, Bilta was unable to make any claim against them. Because of their actions, they claimed, it was a criminal company and a tax fraud vehicle, and therefore had no right to damages. Had this defence been accepted, it would have meant that the very fact they were guilty of fraud meant that they could not be sued for their offences.

However, the Supreme Court rejected this defence unanimously, and this could prove an important decision for similar cases in the future. Where the unpopular ruling in the Stone & Rolls Limited v Moore Stephens case opened up the possibility of mounting such an illegality defence in similar cases, the more recent ruling may have closed this potential loophole.

The defence also claimed that section 213 of the Insolvency Act, under which the action against them was brought, did not apply extraterritorially and so was not valid for use in this case. The Supreme Court also ruled against this claim, and therefore established that Section 213 of this act can be used extraterritorially in future cases.

Tax Crackdowns on London Lawyers

HMRC

Just last year, tax inspectors in the UK have begun their crackdown on lawyers for tax evasion yielding at an amount of £ 3 million. According to HM Revenue and Customs, the Legal Profession in London is one of the high risk sectors that will undergo intensive scrutiny. These specialists will be visited by inspectors on their premises and go through all records and make the necessary investigations.

According to the HMRC, the effort could raise a total of £19.5 million. Many other industries are being checked for tax evasion cases across the UK such as grocery stores, beauty businesses, restaurants, and motor trades. Experts believed that the immediate crackdown of the HMRC against these possible tax evaders prove that they might have substantial evidence. Normally, the HMRC would have created awareness campaigns and more conservative efforts, but the gravity of the situation might have led them to make bolder decisions.

The crackdowns in the past years reveal that many other industries and professions have numerous professionals who do not pay enough taxes each year. In fact, in 2010, the crackdown on dentists and doctors raised around £10 million based on voluntary disclosures while additional three million has been generated after further analysis. Lawyers, therefore, are now being checked to ensure that those who are expected to follow the law are actually fighting a worthy cause or if they themselves are just lost in translation on their understanding of the law.

Taxation laws are quite stringent in the UK and even so, some professional still are not able to pay their taxes. Nevertheless, the efforts generated by the HMRC prove that there are so many industries that do not comply with the laws pertaining to paying taxes and they still have to pay their dues even if they seem to have gone past the radar in the past.

This article was provided by Allan Barnard, who is a Senior Claims Adviser at www.compensationclaims.co.