Counting the Creditors

Where a company is subject to an insolvency process the acting insolvency practitioner must ensure the correct treatment of creditors; otherwise his decisions may be subject to challenge.

Two recent cases illustrate how this can throw up difficult issues for IPs and for creditors in establishing their claims.

Voting at a creditors' meeting according to the amount of a debt that is 'ascertained' - HMRC v Portsmouth City Football Club (in Administration)

Portsmouth FC, which was in administration, entered into a company voluntary arrangement, which was approved by creditors in June 2010. To enter a CVA the proposal must be approved at a meeting by at least 75% by value of the company's creditors.

HMRC claimed over £35m of which the administrator disallowed £13m. The total of £35m would make HMRC a creditor for 25.2% of the debts and therefore able to block the CVA proposal. HMRC favoured a winding up of the company.

The disallowed parts of the claim related to unpaid PAYE and NICs on certain payments to players. At the date of the administration these claims had not been raised by HMRC. After that date and before the CVA proposal meeting a formal assessment was issued for the tax, which HMRC argued made the debt due, as a tax assessment gives rise to an obligation to pay unless the taxpayer makes a successful appeal. In making the assessment HMRC treated the payments as a sham scheme for tax avoidance and assessed PAYE on the full amounts disregarding any part that might be justified.

The insolvency rules allow a creditor to vote in respect of a debt for an unliquidated amount of any debt whose value is not ascertained. For the purposes of voting (but not otherwise) this is based on a value of £1 unless the chairman agrees to put a higher value on it. The chairman valued the disputed part of the HMRC debt at £1. The chairman's decision on any matter under this Rule is subject to appeal to the court by any creditor or member of the company. HMRC appealed.

The court did accept that there is an underlying liability on an employer who fails to account for PAYE and NIC before any formal claim is made by HMRC and before any formal assessment. If and to the extent that the payments were shams there was a claim accordingly. The nature of the claim is therefore one which relies on payments being treated as shams, and may fail to the extent that that was wrong. That value would have to be determined in some sort of inquiry. So both the basis of the...