HMCE v Jack Baars Wholesale (2004)
Where a petition debt was bona fide disputed upon substantial grounds applications to make bankruptcy and winding up orders should be adjourned for a hearing before a tribunal.
Customs presented three bankruptcy petitions to wind up a company (JBW) under the Insolvent Partnerships Order 1994 and the respondent partners in JBW, (H) and (W), presented two applications for setting aside the statutory demand upon which the respective bankruptcy petitions were based. H and W traded in partnership in the spirits and beer trade as JBW. Each of the three petitions against the respondents was based upon an alleged liability for excise duty and VAT amounting to over £1,000,000. It was common ground that if the debt was found due, the respondents would be unable to pay it. JBW had held in bond some dutiable spirits and beer. It had sold ,or purported to sell, 42 consignments and had arranged to have those consigments shipped out of an English bond, but purportedly still within bond, to bonded warehouses abroad. Duty only became payable when and if the drinks were released from bond for consumption. Customs claimed that none of the 42 consignments were delivered, that the documents suggesting that they had been delivered were forged, and that JBW was participating in an excise diversion fraud and shared responsibility with the guarantor (S) for the duty payable on those consignments. H and W submitted: (1) that the petitions presented by Customs on the respondents took the case outside Insolvent Partnerships Order 1994 Art .7 and into Art.8 and that therefore the modified provision in Insolvency Act 1986 s.267 prohibiting the presentation of a petition in respect of a joint debt applied; (2) that Excise Duty Points (Duty Suspended Movements of Excise Goods) Regulations 2001 reg.7(2) was ultra vires the rule-making power conferred by Finance Act 1992 s.1; (3) that Customs had not served on JBW a proper assessment and a good notification; (4) that it sufficed to obtain a dismissal of all three petitions if the respective respondents could show that S or JBW had, on the pending appeals before the VAT and duties tribunal, a real prospect of success such that the debt was bona fide disupted on substantial grounds.
(1) No consequential prejudice of any real weight to the respondents could be alleged. At worst a presentation of a petition during a pendency of an application to set aside a statutory demand did not automatically invalidate a petition regardless of surrounding circumstances but rather was an irregularity which might be waived. To dismiss the petitions on these procedural accounts would represent a triumph of form over substance. (2) Liability could arise under reg.7(2) without the person liable being in any way guilty of any irregularity. Nonetheless one could infer the connection with the goods being prescribed as being such as enabled an irregularity to be caused in relation to them (reg.3) or such as caused their removal from the warehouse (reg.4). (3) There was no reason why a letter from Customs to JBW should not stand as both a proper assessment and a good notification. (4) The instant case did raise a genuine triable issue and conferred upon the appeals the description of their being real as opposed to frivolous and even amounted to a bona fide dispute on substantial grounds going to the whole debt asserted. Having held as to the existence of a bona fide dispute as to the petition debts upon substantial grounds there could be no winding up order or bankruptcy order made. (5) The orders sought should not be made and all five petitions should be adjourned for the hearing of the appeals before the tribunal.
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16 Jan 2004
 EWHC 18 (Ch)