Tuesday, 10 May 2016

HMRC trying to bankrupt David De Freitas for non payment of £90,000 of taxes.

Today my lawyers found this judgement online. Apparently HMRC is trying to bankrupt David de Freitas for non-payment of £90,000 of taxes. This is strange because David de Freitas is a financial adviser. I wonder if he tells his clients he is on the verge of bankruptcy? Another twist, and potential evidence of dishonesty.

The Commissioners for HMRC v David De Freitas

No Substantial Judicial Treatment

Chancery Division

Judgment Date
6 May 2016

Case No: CH/2015/0044

High Court of Justice Chancery Division

[2016] EWHC 1433 (Ch), 2016 WL 01745198

Before: Mrs Justice Asplin DBE

Friday, 6 May 2016


Mr T Nersession appeared on behalf of the Claimant.
Mr Pavlovich appeared on behalf of the Defendant.


Mrs Justice Asplin:

1. This is an appeal from the decision of Registrar Briggs which was made on 24 August 2015. On that occasion, the Registrar dismissed the bankruptcy petition which had been issued by HM Revenue and Customs against Mr David De Freitas and, in doing so, also refused an application for an adjournment for the filing of further evidence. This related to a bankruptcy petition which was presented on 29 April 2015 in respect of Mr De Freitas. The petition debt comprised unpaid self-assessment tax, interest and penalties amounting to £89,731.06. There had been a previous statutory demand of 28 August 2014, although there is, and remains, a live issue in relation to whether or not that was served in the usual way.

2. In fact, the petition first came before the court on 15 June 2015 and was adjourned to 24 August. By a notice of 17 August, pursuant to Rule 6.21 of the Insolvency Act 1986 , Mr De Freitas had filed full notice of intention to oppose the petition. He had also enclosed a witness statement which was, in fact, dated 12 August but was included with that notice of 17 August. It contained his evidence in opposition to the petition and, for the most part, it set out a chronology of events, including the correspondence which had taken place with the Revenue.

3. At the second hearing on 24 August, an officer of HMRC appeared on its behalf and sought an adjournment of eight weeks to file and serve evidence in reply to the notice of opposition. The hearing was in the usual list and, therefore, was to be dealt with in relatively short order. The petition was heard by Registrar Briggs who dismissed it with no order as to costs.

4. The appellant, HMRC, seeks permission to appeal on a variety of grounds. The ones I have been referred to today are, firstly, that it is unfair to HMRC that the matter was dismissed in that way because there was no chance to file further evidence and make submissions. Mr De Freitas' evidence had only come in a week before and the statutory demand point had been raised, it is said, for the first time on that occasion. In fact, I have been referred by Mr Pavlovich to correspondence which shows that that point had been raised back in July. It is also said under ground 1 that, in fact, the decision that was made was made on the evidence which was only from Mr De Freitas which was, obvioiusly, it is said, unfair. On the other hand, it is said, in Mr De Freitas' evidence which was so compelling that it needed an answer by way of further evidence.

5. The second ground is that there was confusion in the mind, therefore, of the Registrar between ADR and adjudication and that, as a result, he made some fundamentally incorrect conclusions upon which he based his reasoning. They are said to be, first of all, that it was wrong to say that the process was underway. In fact, it was not underway. There had been what might be called an ADR process which had been rejected by the appropriate office because it did not fit within the statutory parameters. There had also been the further two-stage process which had been completed on 9 July and it is said that the ball was in Mr De Freitas' court to bring the matter before the Adjudicating Officer and, in fact, that had not commenced at the date on which Registrar Briggs heard this matter. That process was not begun until January of this year, 2016. It is said, therefore, that the Registrar was wrong in that regard.

6. It is also said that the Registrar was wrong Mr De Freitas was waiting for a letter before he could start the adjudication process. It is said, in that regard, the notice of opposition records that the previous two-stage process had come to an end by the letter of 9 July 2015 and so Mr De Freitas could have started the adjudication process but had not done so. I was taken through the relevant correspondence in that regard and I will come back to the transcript, itself.

7. The third ground of appeal is Section 284 of the Insolvency Act 1986 . It is said the Registrar, in his reasoning, relied on what he said was the devastating blow which would be caused to Mr De Freitas by the effect of Section 284 . As I say, I will turn back to the discussion which was had in this regard but it said that those conclusions, to which the Registrar came, were also inaccurate because Section 284 , itself, does not cause a bank account to be frozen immediately on the issue of presentation of the bankruptcy petition. In this case, the bank accounts of the respondent were not frozen. In fact, the effect of Section 284 is that transactions are void if and when, in fact, the person is adjudged bankrupt and it relates back to the presentation of the petition, itself. It is said that that is not the way in which it was described by the Registrar.

8. My attention was also directed to Section 284(5) which provides that:

“Where after the commencement of his bankruptcy, the bankrupt has incurred a debt to a banker or other person by reasoning of the making of a payment which is void under the this Section, that debt is deemed for the purposes of any of this group or parts to have been incurred before the commencement of the bankruptcy unless the banker or person had notice of the bankruptcy before the debt was incurred or it is not reasonably practicable for the amount of the payment to be recovered from the person to whom it was made.”

Mr Nersession, on behalf of the Revenue, says that the Registrar was also wrong to say that it would have the effect, necessarily, of freezing the bank account and there was no freezing here. He also points out that the whole matter could have been dealt with by way of validation orders and that, therefore, there was not the serious threat which the Registrar seemed to take into account in his reasoning. He said there was no evidence of any effect at all on Mr De Freitas' bank accounts and so it was not reasonable or within the Registrar's discretion to take the view which he did. In relation to Section 284 , Mr Nersession also says if that were the case, then it would render the usual procedure in these matters otiose because Section 284 applies in every case and if that were its effect, then on each occasion, a petition would be dismissed because of the perceived prejudice which it would then be suggested that Section 284 caused. Therefore, it is said that no petition would ever get off the ground.

9. The fourth ground is that the Registrar failed to take into account numerous matters. They were, for example, that these were historic debts going back to 1999. They were based on the respondent's own self-assessment, which was of his income tax liabilities, and it said it is not clear the respondent is saying he does not owe what would be, at least, sufficient to be over the required threshold for a bankruptcy petition. I was referred to a letter of 30 July 2015 in which it was said that he owed a great deal less than £89,000 but it was not said what, in fact, he did owe.

10. There is also an issue in relation to the statutory demand. It said that is something which would warrant a cross-appeal. There is no cross-appeal here and I do not propose to deal with that matter today. I ought, also, before turning to the test in relation to an appeal and the issues which arise here, go back and refer to the relevant extracts of the transcript of the hearing before Registrar Briggs on 24 August 2015. The issue in relation to the adjournment was raised and Mr De Freitas said that the Revenue had written to him saying they wanted eight weeks and the Registrar, at page 14D of the bundle and in the transcript, replied:

“Yes. And then the matter needs to come back before the court.”

That is understood by all to be a reference to the need for the matter to come back if there were more evidence to be filed. But he went on:

“But before that, I would like to know from you whether or not this is a matter, essentially, awaiting the outcome of an adjudication.”

The reply was:

“That is right, sir. In my opinion, this is still very much an ongoing matter. I do not really think we should be at the stage of a bankruptcy petition. You know the debt is an ongoing discussion between myself and the Revenue. It has now reached the stage where it is to be considered by the Adjudicator.”

The Registrar said:

“What does the debt arise out of? Is it income tax?”

That was agreed to by Mr De Freitas. He then went on:

“It is a matter for the Adjudicator. The way the system works, apparently, is that there is a two stage internal process and I cannot access the Adjudicator until the two stage process has been exhausted. We are now at that stage and so the matter is to go before the Adjudicator and I do not know how long she will take to deal with this matter but, really, I find it extraordinary that we should be here. I've taken advice.”

Then the Registrar said:

“Had you actually filed an adjudication review?”

The reply was:

“I am waiting for one further letter from the Revenue which they referred to in their stage two which they popped in the post to me. I will have that this week. Once I have that, I can then put the matter to the Adjudicator. I have up to six months at the end of the two stage process to put the matter to the Adjudicator. Clearly, I do not want to wait six months. I want to get the matter sorted out.”

I should add that, in that regard, it is not disputed that, in fact, almost six months did elapse until the matter was placed before the Adjudicator in very early January of 2016. In any event, the Registrar went on:

“Are you self-employed?”

Mr De Freitas said:

“I am, sir, yes.”

The Registrar asked how his self-employment was being affected and what industry he was in. He explained that he was a financial advisor and the Registrar specifically asked:

“How does that affect your business if you owe bankruptcy?”

The reply was:

“I think I would not be able to work in financial services.”

The Registrar went on a little later to say:

“But as soon as the bankruptcy petition is presented, essentially, it freezes all your bank accounts. As soon as your bank gets to hear of it, it will freeze your bank account.”

Mr De Freitas said:

“I've not been told anything about that.”

The representative, on behalf of the Revenue, said:

“It is usually after the bankruptcy order made that the bank freezes. It's different in limited companies.”

The Registrar went on:

“While Section 284 applies, which means that you are not entitled. It is the same as bankruptcy as in a company, Section 204 applies. Section 204 provides that any transaction is void which is in relation to the disposing of the value of your assets further to those assets in your bank account and that is why the bank will freeze your account.”

I assume that that, in fact, was a reference to Section 284 , rather than 204. In any event, the Registrar asked:

“How would it affect your business if that was the case?”

Mr De Freitas said:

“Well, I would not have a business.”

Then Mr De Freitas explained that he relied on his business to do everything and the Registrar replied:

“Yes. Well, I'm a bit concerned about this case mostly because of two things. Mr De Freitas is clearly not a man who is running away from his responsibilities. He is more trying to sort them out. He has initiated ADR. It seems to me that it is probably appropriate for the ADR to run its course. I would be far more in favour of them (the Revenue) if the ADR had actually started but I know that you are waiting.”

The Mr De Freitas said:

“I'm waiting for a letter.”

The Registrar said:

“You are waiting for the letter from the Revenue but that is not his fault. It seems to me that this petition really should be dismissed at this stage and wait until the outcome of the ADR.”

Then the Registrar went on a little later to say:

“It's going to have a devastating effect on his business. I'm going to dismiss the petition and no order for costs.”

Mr De Freitas thanked him and he said:

“It does not mean that the Revenue is not entitled to bring another petition at another time if you do not get on with the ADR.”

He reiterated a little later:

“Mr De Freitas, you must press on with your ADR.”

Then the representative, on the behalf of the Revenue, said:

“Just because it happened so quickly, I just need to know clearly in my mind why you have dismissed it.”

Which was a reference to the petition. The Registrar said:

“I dismissed it because it was an ongoing ADR.”

He went on a little later to say:

“It seems to me that you should not have both running at the same time, so on that basis I dismiss the petition, permitting the adjudication to go ahead in the absence of having the Sword of Damocles hanging over the head of Mr De Freitas while it is done so.”

That was the decision.

11. Of course, I should refer to the Rule which applies in relation to an appeal and that is CPR Rule 52.11(3) :

“The appeal court will allow an appeal where the decision below a court was:

(a) wrong; or

(b) unjust because of a serious procedural or other irregularity in the proceedings in the lower court.”

In this case, it is said on behalf of Mr De Freitas by Mr Pavlovich that there was a mixture here, both of an exercise of discretion in relation to dismissing the bankruptcy petition and also case management discretion in relation to whether or not there should be an adjournment. Mr Nersession sees the matter in a slightly different light and says, in fact, I should focus on the exercise of discretion in relation to the dismissal of the petition, rather than concentrating on case management because he says, in fact, it was, overall, a dismissal of that petition, rather than an express case management conclusion and I am going to deal with that point first.

12. With regard to case management and other decisions, I was referred by Mr Pavlovich, on behalf of Mr De Freitas, to the case of Abdulle & Ors v The Commissioner of Police of the Metropolis , which is a practice note. It is reported in the first volume of the Weekly Law Reports in 2016 at page 898 and it is a decision of the Court of Appeal. I was referred, in particular, to paragraphs 26 to 29 of the judgment of Lewison LJ who, in fact, gave the judgment of the court in this regard. At paragraph 26, Lewison LJ refers to an extract from the case of Mitchell v News Group Newspapers Limited [2013] EWCA Civ 1537 , where it is said:

““We start by reiterating a point that has been made before, namely that this court will not lightly interfere with a case management decision. In Mannion v Ginty {2012] EWCA Civ 1667 at 18 Lewison LJ said: “It has been said more than once in this court it is vital for the Court of Appeal to uphold robust fair case management decisions made by first instance judges.””

At paragraph 27, a further extract is referred to from a further case which was Chartwell Estate Agents Limited v Fergies Properties SA [2014] 3 Costs Law Reports 588 , at paragraph 63 in the judgment of Davies LJ in which it said:

“”…the enjoinder that the Court of Appeal will not likely interfere with a case management decision and will support robust and fair case management decision should not be taken as applying when a CPR Rule 3.9 is, in point, only to decisions where relief from sanction has been refused. It does not. It, likewise, applies to robust and fair case management decisions where relief from sanction has been granted.””

At paragraph 28, there is consideration of the particular case which was dealing with strike out. Lewison LJ noted:

“In a case in which, as the judge himself said, the balance was a “fine” one, an appeal court should respect the balance struck by the first instance judge. As I have said, I would have found that the balance tipped the other way; but that is precisely because in cases where the balance is a fine one reasonable people can disagree. It is impossible to characterise the judge's decision as perverse.”

Then in paragraph 29:

“In Chartwell, Davies LJ also said that if parties understand the approach that this court will take to discretionary interlocutory decisions of first instances judges then satellite appeals should be avoided. I echo that hope.”

So, therefore, it is said by Mr Pavlovich, first, that this was a case management decision in relation to whether to grant an adjournment and that the burden is very high, to put it that way, upon the Revenue to show that, in fact, such a decision is one which should be dislodged because an appeal court should not lightly interfere with such decisions.

13. I have to say that, in relation to that element, it seems to me that as Mann J put it when giving permission to appeal in this case that there is a mixture both of case management and of exercise of discretion. I take both, therefore, the decision in relation to case management, to which I have referred and the likelihood and difficulty of overturning such decisions on appeal, into account as well as the well-known decisions in relation to the exercise of discretion which apply to the decision to grant relief on a bankruptcy petition or, in this case, to dismiss such a petition which, inevitably, is also a question of discretion. The well-known cases in relation to that show that one needs to show that the conclusion, or the decision in relation to the exercise of the discretion is one which has exceeded the generous ambit within which a reasonable agreement is possible. That is cited in the White Book at the notes at 52.11.4 and is very well known.

14. So, in fact, in this case, the Revenue has a difficult hill to climb. I have to turn back, therefore, to each of the grounds. The first ground is that it is unfair that they were not given an opportunity to put in further evidence and the effect of that, it is said, is the learned Registrar came to his decisions with a very one-sided picture. As I said, Mr Pavlovich says, on the other hand, that, in fact, it was open to the Registrar to take the decision he did and it is hard to dislodge such a decision. He also says that there had been plenty of time to put in further evidence, the evidence of Mr De Freitas having been available for about a week before the hearing and that it actually constituted, for the most part, a chronology of correspondence with the Revenue, itself. In fact, the representative of the Revenue on that occasion, 24 August, did make clear what further evidence would be necessary and Mr Pavlovich says the situation remained the same. Were the appeal allowed, it is not clear, he says, what further evidence would be put before the court.

15. In relation to ground 2 and the confusions to which I have referred, Mr Pavlovich says there was no confusion and he referred me back to the transcript, itself. He says that it was quite clear that the Registrar was, in fact, aware that the ball was in Mr De Freitas' court and that he had not yet commenced the process before the Adjudicator. He was waiting for further documentation from the Revenue and the Registrar, himself, urged Mr De Freitas to move quickly with that matter. So, that was not something which either the Registrar got wrong or that affected his decision making and reasoning in a way which would undermine that decision.

16. In relation to Section 284 , the point is taken that the Registrar appeared to have concluded that, in fact, the bank accounts would be frozen. He had been told that they had not been frozen so far but came to the conclusion that there was a Sword of Damocles, as he put it, and that was unacceptable during a period in which an adjudication might take place. It is said, on the behalf of the Revenue, that he got that wrong because transactions are not rendered void until one is adjudged bankrupt, although it relates back to the presentation of the petition. There is the exception in relation to banks to which I was referred at Section 284(5) and all of that matter could have been dealt with by a validation order or validation orders, in any event. As I have said, it is said that if the existence of Section 284 was, in itself, relied upon, it would drive a coach and horses through the whole insolvency procedure in relation to bankruptcy.

17. In relation to the fourth ground, the historic debts and own assessments, Mr Pavlovich says that he is instructed to say that it is possible that there is nothing owed at all. Therefore, it was appropriate for the view which was taken to have been taken. As I have said, Mr Pavlovich said the Registrar was not confused at all and he was within the proper exercise of his discretion and was not in any way perverse in either of the decisions he took (a) to dismiss the petition and (b) in this case, not to allow further time for evidence to be put before the court.

18. Having considered all of these matters, and taking into account the authorities to which I have been referred and the test for an appeal, it seems to me that this is a matter which fell within the proper exercise of the discretion of the Registrar. This was not something which was perverse in relation to the dismissal, nor was it something in relation to case management (in relation to which there is a much steeper gradient to climb,) that it was wrong for the Registrar to deal with in a way that he did. It seems to me it is quite clear that the Registrar did not misdirect himself in relation to whether, in fact, the process of putting the matter before the Adjudicator was underway. He was fully aware that it needed to be done and he urged Mr De Freitas to do so in within a reasonable amount of time. Therefore, I do not see, in any way, that his reasoning was incorrect in that matter. Furthermore, it seems to me that he took into account the circumstances of the case in relation that adjudication. Today, it is not suggested, on behalf of HM Revenue, that those details in relation to the position were incorrect. If one looks at the evidence which was before the court, it actually referred to the letter of 9 July 2015 which showed that the two-tier process had come to an end and the next thing would be to submit the complaint to the Adjudicator. It seems to me, therefore, that all the relevant facts and matters in that regard were before the Registrar and he was perfectly within his discretion in relation to the case management issue, first of all, to conclude that this matter was the subject of or would be the subject of complaint to the Adjudicator and that he was aware of the relevant circumstances. Therefore, I do not consider that there was more evidence in that regard which he needed and which would have resulted in a conclusion that it was appropriate for there to be an adjournment for more evidence. I do not consider that was necessary, on the face of the evidence which was unequivocal, and it is not disputed. In relation to that point, it seems to me it was not unfair or perverse in any way not to allow an adjournment.

19. Fourth, and furthermore, it seems to me it was open, in any event, in the proper exercise of the Registrar's discretion, in the circumstances of the existence of the two-tiered process having come to an end and the intention to proceed to an adjudication, for him to come to the conclusion he did and I do not consider it to be perverse or that his exercise of discretion exceeded the generous ambit within which a reasonable agreement is possible. As I have already mentioned, I do not consider he was incorrect or the facts on which he made his decision were incorrect in relation to awaiting a further letter, which was explained directly by Mr De Freitas to the Registrar and was the case and the fact that he was aware the adjudication process had yet to commence.

20. In relation to Section 284 , it seems to me that the Registrar certainly was concerned about the prospect of the bank freezing Mr De Freitas' accounts. I also accept that Section 284 is not specifically to that effect. At the end of the transcript, the Registrar states that he was concerned that the adjudication should go ahead in the absence of a sword of Damocles hanging over the head of Mr De Freitas. In that respect, it seems to me Section 284 is a Sword of Damocles in the sense of the prospect of all transactions being found to be void. I accept Mr Pavlovich's submission that it was the prospect which was being referred to by the Registrar and he was entitled to take that into account. That does not mean this is some kind of test case or that it, in effect, hauls the entirety of the insolvency procedure below the water in the way that was suggested by Mr Nersession. In this case, on the particular facts which the Registrar was entitled to take into account and which, in fact, were not in dispute as to the sequence of events in relation to the two-tier process and the need to proceed to the Adjudicator, in those rare circumstances, and taking into account all of those matters which, it seems to me, were taken into account by the Registrar, he was not outside the proper ambit of his exercise of discretion in concluding as he did. I reiterate, therefore, I do not consider that this case has wide implications as were suggested to me or that such a conclusion reached by the Registrar was in any way contrary to the regime of bankruptcy, in general. It is not true to say that no petition would ever get off the ground if such an attitude were taken. This was a decision made on the facts, which are not disputed, which was open to the Registrar to make.

21. The last ground, therefore, is that the Registrar failed to take into account that these were historic debts on the basis of the self-assessment made by Mr De Freitas and that it was not clear what he was saying about what was owed and what was not owed. In that regard, that the Registrar did enquire about the very nature of these debts. He was aware that they were income tax. He was also aware, in fact, that they were not inconsiderable and he was also aware that Mr De Freitas was self-employed and, therefore, it was very likely that they were as a result of self-assessment. So, it seems to me that all those matters, also, were within the compass of the Registrar's knowledge when he made his decision. It cannot be said his decision is either perverse for the purposes of the dismissal petition or that it was otherwise outside what is the robust and fair ambit of a case management decision for the purposes of deciding whether or not there ought to be an adjournment. Therefore, on that basis, I dismiss this appeal.

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