The Bankruptcy Court has ruled that HMRC properly served both a statutory demand and a bankruptcy petition on a taxpayer, despite them never being received by the taxpayer. Christopher Buckley of Radcliffe Chambers discusses the court’s decision and what it means for practitioners.
Re Emmanuel; Emmanuel v Revenue and Customs Commissioners  EWHC 1253 (Ch),  All ER (D) 29 (Jun)
The Bankruptcy Court has dismissed a taxpayer’s appeal against a Registrar’s dismissal of his application to annul a bankruptcy order on the grounds that he had not been properly served with the statutory demand or petition. The court ruled that the Registrar had been entitled to dismiss the application and that it would not interfere with that decision in circumstances where the taxpayer could not successfully contend that the Revenue could have discovered his alternative address by doing all that had been reasonable.
What was the background to the appeal?
In May 2014 HMRC sought to serve a statutory demand for £176,257.13 on Mr Emmanuel at an address that had been given to them by the Metropolitan Police. The process server did not receive an answer when he visited the property but Mr Emmanuel’s residence was confirmed by a neighbour. An appointment letter was therefore sent to the property and the statutory demand was served by posting it through the letter box when the process server returned at the appointed time but received no reply.
A bankruptcy petition was presented on 21 July 2014 and again it was impossible to personally serve the petition. The petition was therefore served—in accordance with an order for substituted service—by first class recorded delivery and ordinary post to the property.
A bankruptcy order was made on 8 December 2014 when Mr Emmanuel did not attend.
Mr Emmanuel was arrested on 21 April 2016 following the issuing of a warrant when he failed to attend a public examination in April 2015 and contended that was when he first found out about the bankruptcy order.
In September 2015 Mr Emmanuel applied to annul his bankruptcy under section 282(1)(a) of the Insolvency Act 1986—that is, on the ground that the bankruptcy order ought not to have been made. His application was not opposed by HMRC. On 11 May 2016 Registrar Jones:
- dismissed the annulment application
- dismissed an application by Mr Emmanuel to ‘strike-out’ a witness statement made on HMRC’s behalf on the basis of its late service
- ordered that the joint trustees in bankruptcy’s costs of the annulment application be treated as an expense of the bankruptcy and that Mr Emmanuel should personally pay HMRC’s costs of both the annulment application and the ‘strike-out’ application
Mr Emmanuel sought to appeal the Registrar’s orders and was granted permission to appeal by Asplin J on 17 November 2016. The appeal was heard by HHJ Karen Walden-Smith, sitting as a judge of the High Court, on 26 May 2017.
What were the legal issues the judge had to decide?
Mr Emmanuel contended that the Registrar had been wrong to dismiss his annulment application and order him to pay HMRC’s costs.
The annulment application relied on two grounds:
- Mr Emmanuel had never been served with the statutory demand nor the petition as he did not live at the address at which HMRC had attempted to effect service
- the tax assessments—which formed the petition debt—were significantly overstated and Mr Emmanuel’s liabilities to HMRC amounted to £14,750
The Registrar concluded that:
- there was a debt due and owing at the time of the petition
- the statutory demand and petition had been validly served in accordance with the rules and the Practice Direction on Insolvency Proceedings (PDIP)
- Mr Emmanuel was hopelessly insolvent so it was not in the interests of his creditors as a whole to annul the bankruptcy
What did the judge decide, and why?
The judge concluded that Mr Emmanuel could not establish that the Registrar was wrong and dismissed the appeal.
The judge found that the Registrar was correct to conclude that the statutory demand and the petition had been served in accordance with rules 6.3 and 6.14 of the Insolvency Rules 1986, SI 1986/1925 and the PDIP. It was simply not possible for Mr Emmanuel to contend that HMRC could have discovered the address at which he was living by doing all that is reasonable and one of the reasons why HMRC did not know of such address is that Mr Emmanuel had been failing to file his tax returns.
The concession by HMRC that it appeared that Mr Emmanuel had not received the statutory demand did not advance matters as there is a difference between a party receiving a document and it being properly served. Nor did HMRC’s non-opposition to the application, as the decision whether to accede to an application to annul is a discretionary one and it is for the applicant to make out grounds for the annulment to the court.
According to the judge, the sum of £176,257.13 claimed by HMRC was legally due and binding upon Mr Emmanuel by virtue of sections 29(1)(a) and 59B of the Taxes Management Act 1970. In any event, the sum of £14,750 took Mr Emmanuel over the bankruptcy threshold. In addition to HMRC there were non-petitioning creditors amounting to £177,892.65.
The judge concluded that costs of the ‘strike-out’ application properly fell upon Mr Emmanuel as he withdrew the application in the course of the hearing and Mr Emmanuel failed in his annulment application. There was therefore no basis for interfering with the decision of the Registrar.
To what extent is the judgment helpful in clarifying the law in this area?
The judgment applied existing case law so, rather than clarifying the law in this area, acts as a useful reminder of the applicable principles. However, points to take away from the judgment include:
- receipt of a statutory demand or petition is not the same as service—a statutory demand or petition may be properly served even if it is never received by the debtor
- tax assessments are statutory debts which must be challenged before the First-tier Tribunal (Tax)
- other than in exceptional circumstances the Bankruptcy Court will not look behind a tax assessment
- simply because the petitioner does not oppose an application for annulment does not mean that the application will be granted
- the court has a discretion whether to grant an annulment and the applicant will need to persuade the court that it is appropriate to do so
Interviewed by Anne Bruce.
The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.
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