Case Study: £0.5m HMRC Winding-up Petition Defeated

HMRC have been forced to consent to the dismissal of a winding-up petition for a debt of over £0.5m and to pay substantial costs due to poor litigation conduct, after freezing our client company’s funds and presenting a winding-up petition. The company’s application included restraining HMRC from further advertisement and seeking dismissal of the petition. HMRC accepted defeat as the petition was legally untenable. This decision not only underscores the importance of solid experienced legal representation but also highlights the significant financial and reputational repercussions for government agencies when they engage in unjustified actions.

Background: HMRC Injunction Application

Our client (the Applicant) faced a winding-up petition brought by HMRC in respect of an alleged unpaid tax sum of over £0.5m. However, the Applicant argued that HMRC’s actions amounted to an abuse of process of the Insolvency and Companies Court because:

• HMRC Account Freezing Order: HMRC had already frozen the company’s accounts, preventing them from accessing funds sufficient to pay the outstanding tax. Despite this, HMRC proceeded with the winding-up petition.
• Refusal to Release Funds: The Applicant had long since requested a modification of the freezing order to allow payment of the tax, but HMRC refused.
• HMRC Misrepresentation: During the account freezing process, HMRC assured the company that enforcement action would be delayed until their investigation concluded. This promise was broken when the petition was presented and meant enforcement was in fact never stayed by HMRC in breach of their promise.
• Account Unfreezing: Notably, one of the frozen accounts was later unfrozen after the investigation was completed without further action by HMRC.

Application to Restrain Advertisement and Dismiss HMRC Petition

The Applicant sought an injunction from the Insolvency and Companies Court to:

1. Restrain Advertisement: Prevent HMRC from advertising or taking further steps to publicise the winding-up petition.
2. Petition Dismissal: Have the petition struck out due to it being an abuse of court process.
3. Costs Recovery: Recover legal costs from HMRC on an indemnity basis (meaning fuller reimbursement).

Successful Outcome of Application to Restrain & Dismiss HMRC‘s Petition

HMRC argued that the Court couldn’t grant the specific injunction requested (restraining a government department). They contended that only a declaration recognising the abuse of process was possible, citing relevant sections 17 and 21 of the Crown Proceedings Act 1947 and Quest v the Secretary of State for Education [2023]. However, the case of JT Development Solutions Limited v Secretary of State for Education [2022] suggests alternative approaches might be available.

HMRC however ultimately conceded the point, effectively acknowledging the impropriety of their conduct without admitting the same; they agreed to:

• Dismissal of HMRC Petition: Accepting the dismissal of the winding-up petition.
• HMRC Cost Reimbursement: HMRC were forced to agree to pay a significant portion of the company’s legal costs arising from the petition and the application for an injunction.

Key Takeaway: Get Prompt Legal Advice

This case demonstrates the potential consequences for HMRC if their actions are deemed an abuse of the court’s proper process. Companies facing similar oppressive and abusive winding-up petitions should seek legal advice to explore available options. We provide solid legal advice and representation tailored to your case from the outset.